<PAGE> 1
PROSPECTUS FOR
HORIZON FROM
MANULIFE FINANCIAL
A FLEXIBLE PREMIUM
VARIABLE LIFE INSURANCE POLICY
ISSUED BY
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
AND FOR
MANULIFE SERIES FUND, INC.
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PROSPECTUS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
SEPARATE ACCOUNT THREE
HORIZON FROM MANULIFE FINANCIAL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
This prospectus describes the flexible premium variable life insurance policy
(the "Policy") issued by The Manufacturers Life Insurance Company of America
("Manufacturers Life of America" or the "Company"), a stock life insurance
company that is an indirect wholly-owned subsidiary of The Manufacturers Life
Insurance Company ("Manufacturers Life"). The Policies are designed to provide
lifetime insurance protection together with flexibility as to the timing and
amount of premium payments, the investments underlying the Policy Value and the
amount of insurance coverage. This flexibility allows the policyowner to pay
premiums and adjust insurance coverage in light of his or her current financial
circumstances and insurance needs. The Policies provide for: (1) a Net Cash
Surrender Value that can be obtained by partial withdrawals or surrender of the
Policy; (2) policy loans; and (3) an insurance benefit payable at the life
insured's death.
A Policy's Policy Value may be accumulated on a fixed basis or vary with the
investment performance of the sub-accounts of Manufacturers Life of America's
Separate Account Three (the "Separate Account") to which the policyowner
allocates net premiums. The assets of each sub-account will be used to purchase
shares of a particular portfolio ("Fund") of Manulife Series Fund, Inc. (the
"Series Fund"). The accompanying prospectus for the Series Fund and the Series
Fund's statement of additional information describe the investment objectives of
the Funds in which net premiums may be invested: the Emerging Growth Equity
Fund, the Common Stock Fund, the Real Estate Securities Fund, the Balanced
Assets Fund, the Capital Growth Bond Fund, the Money-Market Fund, the
International Fund, and the Pacific Rim Emerging Markets Fund. Other
sub-accounts and Funds may be added in the future.
Prospective purchasers should ask a Manulife Financial representative if
changing, or adding to, existing insurance coverage would be advantageous.
Prospective purchasers should note that it may not be advisable to purchase a
Policy as a replacement for existing insurance.
BECAUSE OF THE SUBSTANTIAL NATURE OF THE SURRENDER CHARGES, THE POLICY IS NOT
SUITABLE FOR SHORT-TERM INVESTMENT PURPOSES. A POLICYOWNER CONTEMPLATING
SURRENDER OF A POLICY SHOULD PAY SPECIAL ATTENTION TO THE SALES CHARGE
LIMITATION PROVISIONS DESCRIBED IN THIS PROSPECTUS, WHICH APPLY ONLY DURING THE
FIRST TWO YEARS FOLLOWING ISSUANCE OF THE POLICY OR FOLLOWING AN INCREASE IN
FACE AMOUNT.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT IS
VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS FOR MANULIFE SERIES FUND,
INC.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Manufacturers Life Insurance
Company of America
500 N. Woodward Avenue
Bloomfield Hills, Michigan 48304
Service Office:
200 Bloor Street East
Toronto, Ontario, Canada M4W 1E5
TELEPHONE: 1-800-827-4546
(1-800-VARILIN[E])
THE DATE OF THIS PROSPECTUS IS MAY 1, 1995.
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PROSPECTUS CONTENTS
<TABLE>
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PAGE
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<S> <C>
INTRODUCTION TO POLICIES.................... 1
GENERAL INFORMATION ABOUT MANUFACTURERS LIFE OF
AMERICA, SEPARATE ACCOUNT THREE AND
THE SERIES FUND........................ 7
Manufacturers Life of America And
Manufacturers Life............ 7
Manufacturers Life of America's Separate
Account Three................. 7
Manulife Series Fund, Inc.......... 7
Investment Objectives And
Risks Of The Funds........ 8
Selection Of Sub-account(s)... 9
DETAILED INFORMATION ABOUT THE POLICIES..... 10
PREMIUM PROVISIONS..................... 10
Policy Issue And Initial Premium... 10
Premium Allocation................. 11
Premium Limitations................ 11
Short-Term Cancellation Right And "Free
Look" Provisions.............. 12
INSURANCE BENEFIT...................... 12
The Insurance Benefit.............. 12
Death Benefit Guarantee............ 12
Death Benefit Options.............. 13
Death Benefit Option Changes....... 15
Face Amount Changes................ 15
POLICY VALUES.......................... 16
Policy Value....................... 16
Transfers Of Policy Value.......... 17
Policy Loans....................... 18
Partial Withdrawals And Surrenders. 20
CHARGES AND DEDUCTIONS................. 20
Deductions From Premiums........... 21
Surrender Charges.................. 21
Monthly Deductions................. 27
Administration Charge.............. 27
Cost Of Insurance Charge........... 27
Mortality And Expense Risks Charge. 28
Other Charges...................... 28
Special Provisions For Group Or
Sponsored Arrangements........ 28
Special Provisions For Exchanges... 29
THE GENERAL ACCOUNT.................... 29
OTHER GENERAL POLICY PROVISIONS........ 30
Policy Default..................... 30
Policy Reinstatement............... 30
Miscellaneous Policy Provisions.... 30
OTHER PROVISIONS....................... 31
Supplementary Benefits............. 31
Payment Of Proceeds................ 31
Reports To Policyowners............ 31
MISCELLANEOUS MATTERS.................. 31
Fund Share Substitution............ 31
Federal Income Tax Considerations.. 32
Tax Status Of The Policy...... 32
Tax Treatment Of Policy Benefits 33
The Company's Taxes........... 34
Distribution Of The Policy......... 34
Responsibilities Assumed By
Manufacturers Life............ 35
Voting Rights...................... 35
Directors And Officers Of Manufacturers
Life of America............... 36
State Regulations.................. 37
Pending Litigation................. 37
Additional Information............. 37
Legal Matters...................... 37
Experts............................ 37
FINANCIAL STATEMENTS........................ 38
APPENDICES .............................. 64
A. Sample Illustrations Of Policy Values, Cash
Surrender Values And Death Benefits.... 64
B. Definitions............................ 73
C. Deferred Sales Charge Tables........... 75
</TABLE>
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 THE SERIES FUND OR THE STATEMENT OF
ADDITIONAL INFORMATION OF THE SERIES FUND.
You are urged to examine this prospectus carefully. The INTRODUCTION TO POLICIES
will briefly describe the Flexible Premium Variable Life Insurance Policy. More
detailed information will be found within.
<PAGE> 4
INTRODUCTION TO POLICIES
The following summary is intended to provide a general description of the most
important features of the Policy. It is not comprehensive and is qualified in
its entirety by the more detailed information contained in this prospectus.
Unless otherwise indicated or required by the context, the discussion throughout
this prospectus assumes that the Policy has not gone into default, there is no
outstanding Policy Debt, and the death benefit is not determined by the corridor
percentage test.
GENERAL.
The Policy provides a death benefit in the event of the death of the life
insured.
Premium payments may be made at any time and in any amount, subject to certain
limitations.
After certain deductions, premiums will be allocated, according to the
policyowner's instructions, to one or more of the general account and the
sub-accounts of Manufacturers Life of America's Separate Account Three. Assets
of the sub-accounts of Separate Account Three are invested in shares of a
particular Fund of the Series Fund. Allocation instructions may be changed at
any time and transfers among the accounts may be made subject to certain
restrictions.
The Funds currently offered by the Series Fund are the: Emerging Growth Equity
Fund, Common Stock Fund, Real Estate Securities Fund, Balanced Assets Fund,
Capital Growth Bond Fund, Money-Market Fund, International Fund and Pacific Rim
Emerging Markets Fund.
The Policy has a Policy Value reflecting premiums paid, the investment
performance of the accounts to which the policyowner has allocated premiums, and
certain charges for expenses and cost of insurance. The policyowner may obtain a
portion of the Policy Value by taking a policy loan or a partial withdrawal, or
by full surrender of the Policy.
DEATH BENEFIT.
DEATH BENEFIT OPTIONS. The policyowner elects to have the Policy's death benefit
determined under one of two options:
- a death benefit equal to the face amount of the Policy, or
- a death benefit equal to the face amount of the Policy plus the Policy
Value.
Under either option, the death benefit may have to be increased to a multiple of
the Policy Value to satisfy the corridor percentage test under the definition of
life insurance in the Internal Revenue Code. See Detailed Information About The
Policies: Insurance Benefit -- "The Insurance Benefit" and "Death Benefit
Options."
THE POLICYOWNER MAY CHANGE THE DEATH BENEFIT OPTION. A change in the death
benefit option may be requested after the Policy has been in force for two
years. See Detailed Information About The Policies; Insurance Benefit -- "Death
Benefit Option Changes."
THE POLICYOWNER MAY INCREASE THE FACE AMOUNT. After the Policy has been in force
for two years, an increase in the face amount of the Policy may be requested
once per policy year. An increase in the face amount is subject to satisfactory
evidence of insurability and will usually result in the Policy's being subject
to new surrender charges. See Detailed Information About The Policies; Insurance
Benefit -- "Face Amount Changes."
THE POLICYOWNER MAY DECREASE THE FACE AMOUNT. A decrease in the face amount may
be requested once per policy year after the Policy has been in force for two
years, except during the two-year period following any increase in face amount.
In addition, during the two-year period following an increase in face amount,
the policyowner may elect at any time to cancel the increase. During the
two-year period following an increase, the deferred sales charge for the
increase is subject to the Policy's sales charge limitation provisions. A
decrease in face amount may result in certain surrender charges being deducted
from the Policy Value. See Detailed Information About The Policies; Insurance
Benefit -- "Face Amount Changes."
PREMIUM PAYMENTS ARE FLEXIBLE.
The policyowner may pay premiums at any time and in any amount, subject to
certain limitations. See Detailed Information About The Policies; Premium
Provisions -- "Policy Issue" and "Premium Limitations."
The policyowner must pay at least the Initial Premium to put the Policy in
force. See Detailed Information About The Policies; Premium Provisions --
"Policy Limitations" and "Death Benefit Guarantee."
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After the Initial Premium is paid there is no minimum premium required. However,
by complying with the Cumulative Premium Test the policyowner can ensure the
Policy will not go into default for the first three policy years. For Policies
with a face amount of at least $250,000, the policyowner can ensure the Policy
will not go into default (i) prior to the life insured reaching age 100 if Death
Benefit Option 1 is maintained throughout the life of the Policy and (ii) prior
to the life insured reaching age 85 if Death Benefit Option 2 is selected at any
time, by satisfying the Cumulative Premium Test or the Fund Value Test. See
Detailed Information About The Policies; Premium Provisions -- "Death Benefit
Guarantee."
Certain maximum premium limitations apply to the Policy to ensure the Policy
qualifies as life insurance under rules defined in the Internal Revenue Code.
See Detailed Information About The Policies; Premium Provisions -- "Premium
Limitations."
SUMMARY OF CHARGES AND DEDUCTIONS.
Charges under the Policy are assessed as:
(1) deductions from premiums
- 2.35% state and local taxes
- 1.25% federal taxes
(2) surrender charges upon surrender, partial withdrawal in excess of the
Withdrawal Tier Amount, decrease in face amount or lapse
- deferred underwriting charge of $6 for each $1,000 of face
amount
- deferred sales charge of a maximum of 50% of premiums paid up
to a maximum of 3.031 Target Premiums
(3) monthly deductions
- administration charge of $35 plus $.01 per $1,000 of face
amount per month until the first policy anniversary;
thereafter, $10 plus $.01 per $1,000 of face amount per month
- cost of insurance charge
- mortality and expense risks charge of .90% per annum through
the later of the tenth policy anniversary and the
policyowner's attained age 60 and, thereafter, .45% per annum
- supplementary benefit(s) charge(s)
(4) Other Charges
- investment management fee of .50% per annum assessed against
the assets of the Emerging Growth Equity Fund, Common Stock
Fund, Real Estate Securities Fund, Balanced Assets Fund,
Capital Growth Bond Fund and Money-Market Fund
- investment management fee of (i) .85% per annum assessed
against the first $100 million of assets and (ii) .70% per
annum assessed against the assets over $100 million of each of
the International Fund and the Pacific Rim Emerging Markets
Fund
- expenses of up to .50% and .65% per annum assessed against the
assets of the International Fund and the Pacific Rim Emerging
Markets Fund, respectively
- transfer fee of $35 if policyowner elects to exercise the
option to make a second transfer in any policy month
- transfer fee of $5 for each transfer under the Dollar Cost
Averaging program when Policy Value does not exceed $15,000
- transfer fee of $15 for each transfer under the Asset
Allocation Balancer program
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<PAGE> 6
For a complete discussion of charges and deductions see the heading Charges And
Deductions in this Introduction and the references therein, and see also the
heading Transfers Are Permitted in this Introduction and the references therein.
INVESTMENT OPTIONS.
After deductions for federal, state and local taxes totalling 3.60%, net
premiums will be allocated, according to the policyowner's instructions, to any
combination of the general account or one or more of the sub-accounts of
Manufacturers Life of America's Separate Account Three.
Each sub-account of Separate Account Three invests its assets in the shares of a
particular Fund of the Series Fund. These Funds are:
- Emerging Growth Equity Fund
- Common Stock Fund
- Real Estate Securities Fund
- Balanced Assets Fund
- Capital Growth Bond Fund
- Money-Market Fund
- International Fund
- Pacific Rim Emerging Markets Fund
The policyowner may change the allocation of net premiums among the general
account and the sub-accounts at any time. See General Information About
Manufacturers Life of America, Separate Account Three And The Series Fund and
Detailed Information About the Policies; Premium Provisions -- "Premium
Allocation" and Policy Values -- "Policy Value."
THE POLICY VALUE.
The Policy has a Policy Value which reflects the following: premium payments
made; investment performance of the sub-accounts to which amounts have been
allocated; interest credited by the Company to amounts allocated to the general
account; partial withdrawals; and deduction of charges described under "Charges
And Deductions" below.
The Policy Value is the sum of the values in the Investment Accounts, the
Guaranteed Interest Account and the Loan Account.
INVESTMENT ACCOUNT. An Investment Account is established under the Policy for
each sub-account of the Separate Account to which net premiums or transfer
amounts have been allocated. An Investment Account measures the interest of the
Policy in the corresponding sub-account.
The value of each Investment Account under the Policy varies each Business Day
and reflects the investment performance of the Fund shares held in the
corresponding sub-account. See Detailed Information About the Policies; Policy
Values -- "Policy Value."
GUARANTEED INTEREST ACCOUNT. The Guaranteed Interest Account consists of that
portion of the Policy Value based on net premiums allocated to, and amounts
transferred to, the general account of the Company.
Manufacturers Life of America credits interest on amounts in the Guaranteed
Interest Account at an effective annual rate guaranteed to be at least 4%. See
Detailed Information About the Policies and The General Account.
LOAN ACCOUNT. When a policy loan is made, Manufacturers Life of America will
establish a Loan Account under the Policy and will transfer an amount from the
Investment Accounts and the Guaranteed Interest Account to the Loan Account.
The Company will credit interest to amounts in the Loan Account at an effective
annual rate of at least 4%. The actual rate credited on loan amounts will be the
rate charged on loan amounts less an interest rate differential, currently
1.75%, except on Select Loan Amounts where the interest rate differential,
subject to change in certain circumstances, is currently 0%. See Detailed
Information About the Policies; Policy Values -- "Policy Loans."
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TRANSFERS ARE PERMITTED. A policyowner may make transfers among the sub-accounts
of Separate Account Three and the Company's general account, subject to certain
restrictions.
One transfer per policy month may be made at no cost to the policyowner; a
second transfer in each policy month will be permitted at a cost of $35 per
transfer. All transfer requests received at the same time are treated as a
single transfer request. The minimum amount that may be transferred is the
lesser of $500 or the entire account value.
Certain restrictions may apply to transfer requests. See Detailed Information
About the Policies; Policy Values -- "Policy Value."
USING THE POLICY VALUE.
BORROWING AGAINST THE POLICY VALUE. The policyowner may borrow against the
Policy Value. The minimum loan amount is $500.
Loan interest will be charged on a fixed basis at an effective annual rate of
5.75%. See Detailed Information About the Policies; Policy Values -- "Policy
Loans."
A POLICYOWNER MAY MAKE A PARTIAL WITHDRAWAL OF THE POLICY VALUE. After a Policy
has been in force for two years the policyowner may make a partial withdrawal of
the Policy Value. The minimum withdrawal amount is $500. The policyowner may
specify that the withdrawal is to be made from a specific Investment Account or
the Guaranteed Interest Account.
A partial withdrawal may result in a reduction in the face amount of the Policy
and may also result in the assessment of a portion of the surrender charges to
which the Policy is subject. See Detailed Information About the Policies; Policy
Values -- "Partial Withdrawals and Surrenders" and Charges and Deductions --
"Surrender Charges."
THE POLICY MAY BE SURRENDERED FOR ITS NET CASH SURRENDER VALUE. The Net Cash
Surrender Value is equal to the Policy Value less surrender charges, outstanding
monthly deductions due and the value of the Loan Account. Surrender of a Policy
during the Surrender Charge Period will usually result in assessment of
surrender charges. See Detailed Information About the Policies; Policy Values --
"Partial Withdrawals and Surrenders" and Charges and Deductions -- "Surrender
Charges."
CHARGES AND DEDUCTIONS.
1) DEDUCTIONS FROM PREMIUMS. Two deductions are made when premiums are
paid:
- a charge of 2.35% for state and local taxes, and
- a charge of 1.25% for federal taxes.
2) SURRENDER CHARGES. Manufacturers Life of America will usually deduct
a deferred underwriting charge and a deferred sales charge if, during
the Surrender Charge Period:
- the Policy is surrendered for its Net Cash Surrender Value,
- a partial withdrawal in excess of the Withdrawal Tier Amount
is made,
- a decrease in face amount is requested, or
- the Policy lapses.
The deferred underwriting charge is $6 for each $1,000 of face amount of life
insurance coverage initially or added by increase. In effect, the charge applies
only to the first $500,000 of face amount initially purchased or the first
$500,000 of each subsequent increase in face amount. Thus, the charge made in
connection with any one underwriting will not exceed $3,000.
The full amount of the deferred underwriting charge will be in effect for five
years following Policy issue. Beginning in the sixth year these charges grade
downward over a maximum ten-year period. See Detailed Information About the
Policies; Charges And Deductions -- "Surrender Charges."
The maximum deferred sales charge is 50% of premiums paid up to a maximum number
of Target Premiums that varies (from -0.180 to 3.031) according to the issue age
of the life insured, the face amount at issue and the amount of any increase.
Subject to
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compliance with the sales charge limitation provisions described below, the
maximum deferred sales charge will be in effect for at least the first two years
of the Surrender Charge Period. After that, the portion of the deferred sales
charge that remains in effect will grade down at a rate that also varies
according to the issue age of the life insured until, at the end of the
Surrender Charge Period there is no deferred sales charge. See Detailed
Information About the Policies -- "Charges And Deductions" --Surrender Charges.
In the event of a face amount increase, the surrender charges applicable to the
increase will be those rates that would apply if a Policy were issued to the
life insured at his or her then attained age and based on the amount of the
increase.
LIMITATION OF SALES CHARGES. If the Policy is surrendered at any time during the
first two years following issuance or following an increase in face amount or if
the increase is cancelled during the two-year period following the increase,
then Manufacturers Life of America may forego deducting the maximum deferred
sales charge applicable to the Policy or the increase. See Detailed Information
About the Policies; Charges And Deductions -- "Surrender Charges." If the Policy
is surrendered after that two-year period, the full amount of the applicable
sales charge will apply.
3) MONTHLY DEDUCTIONS. At the beginning of each policy month
Manufacturers Life of America deducts from the Policy Value:
- an administration charge of $35 plus $.01 per $1,000
of face amount until the first policy anniversary and,
thereafter, $10 plus $.01 per $1,000 of face amount,
- a charge for the cost of insurance,
- a charge for mortality and expense risks of .90% per
annum through the later of the tenth policy anniversary and
the policyowner's attained age 60 and, thereafter, .45% per
annum. This charge is assessed against the value of the
policyowner's investment accounts, and
- charge(s) for any supplementary benefit(s) added to the
Policy.
The cost of insurance charge varies based on the net amount at risk under the
Policy and the applicable cost of insurance rate. Cost of insurance rates vary
according to issue age, the duration of the coverage, sex (unless unisex rates
are required by law), any additional ratings indicated in the policy, and risk
class of the life insured. The maximum cost of insurance rate that can be
charged is guaranteed not to exceed the 1980 Commissioners Standard Ordinary
Smoker/Nonsmoker Mortality Tables. However, any additional ratings as indicated
in the Policy will be added to the cost of insurance rate. See Detailed
Information About the Policies; Charges And Deductions -- "Monthly Deductions."
If the Policy is still in force when the life insured attains age 100, no
further monthly deductions will be taken from the Policy Value.
4) OTHER CHARGES. Charges will be imposed on certain transfers of Policy
Values, including a $35 charge for a second transfer in a policy month,
a $15 charge for each Asset Allocation Balancer transfer and a $5
charge for each Dollar Cost Averaging transfer if Policy Value does not
exceed $15,000. See Policy Values -- "Transfers Of Policy Value."
Certain expenses are, or will be, assessed against the assets of the
Series Fund. These are:
(1) an investment management fee of (a) .50% per annum assessed
against the assets of the Emerging Growth Equity Fund, Common
Stock Fund, Real Estate Securities Fund, Balanced Assets Fund,
Capital Growth Bond Fund and Money-Market Fund; and (b) .85%
per annum assessed against the first $100 million of assets
and .70% per annum assessed against the assets over $100
million of each of the International Fund and the Pacific Rim
Emerging Markets Fund; and
(2) expenses of up to .50% and .65% per annum assessed against the
assets of the International Fund and the Pacific Rim Emerging
Markets Fund, respectively.
See Detailed Information About the Policies; Charges And Deductions --
"Other Charges."
Manufacturers Life of America reserves the right to charge or establish
a provision for any federal, state or local taxes that may be
attributable to the Separate Account or the operations of the Company
with respect to the Policies in addition to the deductions for state,
local and federal taxes currently being made.
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<PAGE> 9
SUPPLEMENTARY BENEFITS.
A policyowner may choose to add certain supplementary benefits to the Policy.
These supplementary benefits include an accidental death benefit, life
insurance for additional insured persons, acceleration of benefits in the event
of terminal illness, term insurance option, a disability benefit to waive the
cost of monthly deductions and an option to ensure a guaranteed Policy Value.
The cost of any supplementary benefits will be deducted from the Policy Value
monthly. See Detailed Information About the Policies; Other Provisions --
"Supplementary Benefits."
DEFAULT.
Unless the Death Benefit Guarantee is in effect, the Policy will go into
default if the Net Cash Surrender Value at the beginning of any policy month
would go below zero after deducting the monthly charges then due. The Policy
will not go into default if the policy qualifies for the Death Benefit
Guarantee. The Company will notify the policyowner in the event the Policy goes
into default, and will allow a grace period in which the policyowner may make a
premium payment sufficient to bring the Policy out of default. If the required
premium is not paid during the grace period the Policy will terminate. See
Detailed Information About the Policies; Premium Provisions -- "Policy Default."
DEATH BENEFIT GUARANTEE.
Except in the state of New Jersey where the Death Benefit Guarantee is not
available, on Policies issued and maintained with a minimum face amount of
$250,000, as long as the Cumulative Premium Test or, where applicable, the Fund
Value Test is satisfied, the Company guarantees that the Policy will not go
into default (i) prior to the life insured's attaining age 100 if Death Benefit
Option 1 is maintained throughout the life of the Policy and (ii) prior to the
life insured reaching age 85 if Death Benefit Option 2 is selected at any time,
regardless of the investment performance of the Funds underlying the Policy
Value. On Policies with face amounts of less than $250,000 there is no Death
Benefit Guarantee after the third policy anniversary. See Detailed Information
About the Policies; Premium Provisions -- "Death Benefit Guarantee."
REINSTATEMENT.
A terminated policy may be reinstated by the policyowner within either the
21-day or five-year period following the date of termination, providing certain
conditions are met. See Detailed Information About the Policies; Premium
Provisions -- "Policy Reinstatement."
FREE LOOK.
A Policy may be returned for a refund of premium within the later of:
- 10 days after it is received
- 45 days after the application for the Policy is signed
- 10 days after Manufacturers Life of America mails or delivers a notice
of this right of withdrawal.
If a policyowner requests an increase in face amount which results in new
surrender charges, the "free look" provision will also apply to the increase.
See Detailed Information About the Policies; Premium Provisions -- "Short-Term
Cancellation Right and "Free Look Provisions."
FEDERAL TAX MATTERS.
Manufacturers Life of America believes that a Policy issued on a standard risk
class basis should meet the definition of a life insurance contract as set
forth in Section 7702 of the Internal Revenue Code of 1986. With respect to a
Policy issued on a substandard basis, there is less guidance available to
determine if such a Policy would satisfy the Section 7702 definition of a life
insurance contract, particularly if the policyowner pays the full amount of
premiums permitted under such a Policy. Assuming that a Policy qualifies as a
life insurance contract for Federal income tax payments, a policyowner should
not be deemed to be in constructive receipt of Policy Value under a Policy
until there is a distribution from the Policy. Moreover, death benefits payable
under a Policy should be completely excludable from the gross income of the
beneficiary. As a result, the beneficiary generally should not be taxed on
these proceeds. See Miscellaneous Matters -- Federal Income Tax Considerations
-- (Tax Status Of The Policy).
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Under certain circumstances, a Policy may be treated as a "Modified Endowment
Contract." If the Policy is a Modified Endowment Contract, then all pre-death
distributions, including Policy loans, will be treated first as a distribution
of taxable income and then as a return of investment in the Policy. In addition,
prior to age 59 1/2 any such distributions generally will be subject to a 10%
penalty tax. See Miscellaneous Matters -- Federal Income Tax Considerations --
(Tax Treatment Of Policy Benefits).
If the Policy is not a Modified Endowment Contract, distributions generally will
be treated first as a return of investment in the Policy and then a disbursement
of taxable income. Moreover, loans will not be treated as distributions. Select
Loans may, however, be treated as taxable distributions. A policyowner
considering the use of systematic policy loans as one element of a comprehensive
retirement income plan should consult his or her personal tax adviser regarding
the potential tax consequences if such loans were to so reduce Policy Value that
the Policy would lapse, absent additional payments. The premium payment
necessary to avert lapse would increase with the age of the insured. Finally,
neither distributions nor loans under a Policy that is not a Modified Endowment
Contract are subject to the 10% penalty tax. See Miscellaneous Matters --
Federal Income Tax Considerations -- (Distributions From Policies Not Classified
As Modified Endowment Contracts).
GENERAL INFORMATION ABOUT MANUFACTURERS
LIFE OF AMERICA, SEPARATE ACCOUNT THREE
AND THE SERIES FUND
MANUFACTURERS LIFE OF AMERICA AND
MANUFACTURERS LIFE
Manufacturers Life of America, a wholly-owned subsidiary of The Manufacturers
Life Insurance Company of Michigan, is a stock life insurance company organized
under the laws of Pennsylvania on April 11, 1977 and redomesticated under the
laws of Michigan on December 9, 1992. It is a licensed life insurance company in
the District of Columbia and all states of the United States except New York.
The Manufacturers Life Insurance Company of Michigan is a life insurance company
organized in 1983 under the laws of Michigan and is a wholly-owned subsidiary of
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 as measured by assets.
MANUFACTURERS LIFE OF AMERICA'S
SEPARATE ACCOUNT THREE
Manufacturers Life of America established its Separate Account Three on August
22, 1986 as a separate account under Pennsylvania law. Since December 9, 1992
the Separate Account has been operated under Michigan law. The Separate Account
holds assets that are segregated from all of Manufacturers Life of America's
other assets. The Separate Account is currently used only to support variable
life insurance policies.
Manufacturers Life of America is the legal owner of the assets in the Separate
Account. The income, gains and losses of the Separate Account, whether or not
realized, are, in accordance with applicable contracts, credited to or charged
against the Account without regard to the other income, gains or losses of
Manufacturers Life of America. Manufacturers Life of America will at all times
maintain assets in the Separate Account with a total market value at least equal
to the reserves and other liabilities relating to variable benefits under all
policies participating in the Separate Account. These assets may not be charged
with liabilities which arise from any other business Manufacturers Life of
America conducts. However, all obligations under the variable life insurance
policies are general corporate obligations of Manufacturers Life of America.
The Separate Account is registered with the Securities and Exchange Commission
("S.E.C.") under the Investment Company Act of 1940 ("1940 Act") as a unit
investment trust. A unit investment trust is a type of investment company which
invests its assets in specified securities, such as the shares of one or more
investment companies, rather than in a portfolio of unspecified securities.
Registration under the 1940 Act does not involve any supervision by the S.E.C.
of the management or investment policies or practices of the Separate Account.
For state law purposes the Separate Account is treated as a part or division of
Manufacturers Life of America.
MANULIFE SERIES FUND, INC.
Each sub-account of the Separate Account will purchase shares only of a
particular Fund of the Series Fund. The Series Fund is registered under the 1940
Act as an open-end diversified management investment company. The Separate
Account will purchase and redeem shares of the Series Fund at net asset value.
Shares will be redeemed to the extent necessary for Manufacturers Life of
America to provide benefits under the Policies, to transfer assets from one
sub-account to another or to the general account as requested by policyowners,
and for other purposes consistent with the Policies. Any dividend or capital
gain
7
<PAGE> 11
distribution received from a Fund will be reinvested immediately at net asset
value in shares of that Fund and retained as assets of the corresponding
sub-account.
Series Fund shares are issued to fund benefits under both variable annuity
contracts and variable life insurance policies issued by the Company. For a
description of the procedures for handling potential conflicts of interest
arising from the funding of such benefits see "Purchases And Redemptions Of
Shares" in the attached Series Fund prospectus.
The Series Fund receives investment management services from Manufacturers
Adviser Corporation. Manufacturers Adviser Corporation is a registered
investment adviser under the Investment Advisers Act of 1940. Certain expenses
are assessed against the assets of the Series Fund. These are: (i) an investment
management fee of (a) .50% of the average daily value of the aggregate net
assets of the Emerging Growth Equity Fund, Common Stock Fund, Real Estate
Securities Fund, Balanced Assets Fund, Capital Growth Bond Fund and Money-Market
Fund, and (b) .85% of the average daily value of the first $100 million of net
assets and .70% of the average daily value of the net assets over $100 million
of each of the International Fund and the Pacific Rim Emerging Markets Fund and
(ii) expenses of up to .50% and .65% per annum assessed against the assets of
the International Fund and the Pacific Rim Emerging Markets Fund, respectively.
INVESTMENT OBJECTIVES AND RISKS OF THE FUNDS
The Funds are subject to varying degrees of financial and market risk. Financial
risk refers to the ability of an issuer of a debt security to pay principal and
interest on that security and to the earnings stability and overall financial
soundness of an issuer of an equity security; market risk refers to the
volatility of the reaction of the price of a security to changes in conditions
in the securities markets in general and, with particular reference to debt
securities, changes in the overall level of interest rates.
The investment objectives of the Funds available to policyowners through
allocation of Policy Values to corresponding sub-accounts are set forth below.
There is, of course, no assurance that these objectives will be met.
EMERGING GROWTH EQUITY FUND. The investment objective of the Emerging Growth
Equity Fund is to achieve growth of capital by investing primarily in equity
securities of companies believed to offer growth potential over both the
intermediate and the long term. Current income is not a significant
consideration. In selecting investments, emphasis will be placed on securities
of progressive companies with aggressive and competent managements. A
substantial portion of the Fund's assets may be invested in emerging growth
companies, which at the time of the Fund's investment may be paying no dividends
to their shareholders.
Emerging growth companies may have limited product lines, market or financial
resources, or they may be dependent upon a small management group. An investment
in the Emerging Growth Equity Fund may therefore involve greater financial risk
than is customarily associated with less aggressive companies. In addition, the
Fund may be subject to relatively high levels of market risk. The securities of
aggressive growth companies may be subject to more abrupt or erratic market
movements than other companies or the market averages in general. Because shares
of the Emerging Growth Equity Fund may experience above-average fluctuations in
net asset value, they should be considered as long-term investments.
COMMON STOCK FUND. The investment objective of the Common Stock Fund is to
achieve intermediate and long-term growth through capital appreciation and
current income by investing in common stocks and other equity securities of well
established companies with promising prospects for providing an above-average
rate of return. In selecting investments, emphasis will be placed on companies
with good financial resources, strong balance sheet, satisfactory rate of return
on capital, good industry position, superior management skills, and earnings
that tend to grow consistently. The Fund's investments are not limited to any
particular type or size of company, but high-quality growth stocks are
emphasized. Investment in shares of the Common Stock Fund should involve less
financial and market risk than the Emerging Growth Equity Fund, but the Fund may
occasionally experience above-average fluctuations in net asset value, and
therefore should be considered as a long-term investment.
REAL ESTATE SECURITIES FUND. The investment objective of the Real Estate
Securities Fund is to achieve a combination of long-term capital appreciation
and satisfactory current income by investing in real estate related equity and
debt securities. In pursuit of its objective, the Real Estate Securities Fund
will invest principally in real estate investment trust equity and debt
securities and other securities issued by companies which invest in real estate
or interests therein. The Fund may also purchase the common stocks, preferred
stocks, convertible securities and bonds of companies operating in industry
groups relating to the real estate industry. This would include companies
engaged in the development of real estate, building and construction, and other
market segments related to real estate. The Fund will not invest directly in
real property, nor will it purchase mortgage notes directly. Under normal
circumstances, at least 65% of the value of the Fund's total assets will be
invested in real estate related equity and debt securities. Because the Fund
considers current income in its investment objectives, an investment in the Real
Estate Securities Fund should involve less financial and market risk than the
Emerging Growth Equity Fund. However, the
8
<PAGE> 12
Fund's share value may experience above-average fluctuation in periods of
changing interest rates and therefore the shares should be considered as
long-term investments.
BALANCED ASSETS FUND. The investment objective of the Balanced Assets Fund is to
achieve intermediate and long-term growth through capital appreciation and
income by investing in both debt and equity securities. The Fund will maintain
at all times a balance between debt securities or preferred stocks, on the one
hand, and common stocks, on the other. At least 25% of the Fund's assets will be
invested in each of the two basic categories. Investment in shares of the
Balanced Assets Fund should involve less financial and market risk than an
investment in the Emerging Growth Equity Fund.
CAPITAL GROWTH BOND FUND. The investment objective of the Capital Growth Bond
Fund is to achieve growth of capital by investing in medium-grade or better debt
securities with income as a secondary consideration. The Capital Growth Bond
Fund differs from most "bond" funds in that its primary objective is capital
appreciation, not income. The Fund will be carefully positioned in relation to
the term of debt obligations and the anticipated movement of interest rates.
Because of the Fund's emphasis on medium-grade or better instruments, an
investment in the Capital Growth Bond Fund should result in less financial risk
than an investment in the Emerging Growth Equity Fund, Common Stock Fund, Real
Estate Securities Fund or Balanced Assets Fund. However, the Capital Growth Bond
Fund will be subject to substantial market risk arising from changes in the
level of prevailing interest rates and the Fund's active management in
anticipation of such changes.
MONEY-MARKET FUND. The investment objective of the Money-Market Fund is to
provide maximum current income consistent with capital preservation and
liquidity by investing in a portfolio of high-quality money market instruments.
Investment in shares of the Money-Market Fund should involve less market or
financial risk than an investment in any other Fund. However, the Fund's
performance will vary with changes in short-term interest rates.
INTERNATIONAL FUND. The investment objective of the International Fund is to
achieve long-term growth of capital by investing in a diversified portfolio that
is comprised primarily of common stocks and equity-related securities of
companies domiciled in countries other than the United States and Canada. It
invests primarily in the securities markets of Western European countries,
Australia, the Far East, Mexico and South America. The Fund will, under normal
conditions, invest at least 65% of its net assets in common stocks and
equity-related securities of established larger-capitalization companies that
have attractive long-term prospects for growth of capital. Investments of this
type involve risks of political and economic instability in the country of the
issuer, the possibility of imposition of foreign exchange controls, confiscatory
taxation, and the restriction of capital repatriation. Such securities may be
subject to greater fluctuations in price than domestic securities and, under
certain market conditions, foreign securities may be less liquid than domestic
securities. The risk of currency fluctuations is present since it is anticipated
that, in general, the majority of securities in the Fund will not be denominated
in United States currency. Accordingly, investment in the shares of the
International Fund should involve more financial and market risk than any of the
domestic Funds. Because the shares of the International Fund may experience
above-average fluctuations in net asset value, they should be considered as
long-term investments.
PACIFIC RIM EMERGING MARKETS FUND. The investment objective of the Pacific Rim
Emerging Markets Fund is to achieve long-term growth of capital by investing in
a diversified portfolio that is comprised primarily of common stocks and
equity-related securities of companies domiciled in the countries of the Pacific
Rim region. The Fund will, under normal conditions, invest at least 65% of its
net assets in common stocks and equity-related securities of established
larger-capitalization companies that have attractive long-term prospects for
growth of capital. Investments of this type involve risks of political and
economic instability in the country of the issuer, the possibility of imposition
of foreign exchange controls, confiscatory taxation, and the restriction of
capital repatriation. Such securities may be subject to greater fluctuations in
price than domestic securities and, under certain market conditions, foreign
securities may be less liquid than domestic securities. The risk of currency
fluctuations is present since it is anticipated that, in general, the majority
of securities in the Fund will not be denominated in United States currency.
Accordingly, investment in the shares of the Pacific Rim Emerging Markets Fund
should involve more financial and market risk than any of the domestic Funds.
Because the shares of the Pacific Rim Emerging Markets Fund may experience
above-average fluctuations in net asset value, they should be considered as
long-term investments.
A full description of the Series Fund, its investment objectives, policies and
restrictions, the risks associated therewith, its expenses, and other aspects of
its operation is contained in the attached Series Fund prospectus, which should
be read together with this prospectus.
SELECTION OF SUB-ACCOUNT(S)
The basic purpose of the variable portion of the Policies is to accumulate
values through favorable investment results of the Funds corresponding to the
sub-accounts selected by the policyowner. The final decision on Fund(s)
selection must be made by the policyowner. Outlined below are a few points for
consideration.
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<PAGE> 13
MARKET RISK. The previous section discussed the investment objective of each
Fund and its associated market risk. Before selecting a Fund or combination of
Funds the policyowner should determine his or her comfort level with market
volatility, recognizing that the Policy is designed as a long-term contract.
FINANCIAL RISK. Each Fund differs with respect to financial risk of principal.
This variation also brings with it a divergent level of opportunity for
investment gain or loss. The policyowner should determine the financial risk he
or she is willing to accept in relation to the potential for investment gain or
loss.
HISTORICAL PERSPECTIVE OF FUND OBJECTIVES. The above risks should be considered
in conjunction with past general trends. Historically, if investments were held
over relatively long periods, the investment performance of equities has
generally been superior to that of long or short-term debt securities, even
though equities have been subject to more dramatic changes in value over periods
of time. Emerging growth equities have also tended to have better long-term
investment performance when compared with larger, more mature equities, even
though emerging growth equities, in turn, have been subject to more dramatic
fluctuations in value. Accordingly, the Emerging Growth Equity Fund may be the
more desirable option for policyowners who are focused on the long term and are
willing to accept such short-term risks.
Over the past few decades to the present, certain foreign economies have grown
faster than the United States economy, and the return on equity investments in
these markets has often been superior to similar investments in the United
States. The securities markets in different regions and countries have, at times
in the past, moved relatively independently of one another as a result of
different economic, political and financial factors. To the extent the various
markets move independently, total portfolio volatility tends to be reduced when
securities from the various markets are combined into a single portfolio. A low
correlation between movement in one market and the Fund's total assets may,
however, reduce the gains the Fund might otherwise derive from movements in that
market. Currency exchange rates frequently move independently of securities
markets in a particular country. As a result, gains or losses in a particular
securities market may be affected by changes in currency exchange rates.
Some policyowners may prefer somewhat greater protection against financial and
market risk than an investment in the Emerging Growth Equity Fund, the
International Fund, or the Pacific Rim Emerging Markets Fund provides. These
policyowners may then prefer the Common Stock Fund or, if more comfortable with
the long-term value of real estate, the Real Estate Securities Fund. Other
policyowners, being even more risk averse, may prefer the Balanced Assets Fund,
which maintains at all times a balance between debt securities or preferred
stocks, on the one hand, and common stocks, on the other.
Other policyowners may prefer less financial risk than that which comes with an
investment in the Emerging Growth Equity Fund, the Common Stock Fund, the Real
Estate Securities Fund, the Balanced Assets Fund, the International Fund, or the
Pacific Rim Emerging Markets Fund. This is made possible by the Capital Growth
Bond Fund's emphasis on investment in debt instruments. However, the Capital
Growth Bond Fund will be subject to substantial market risk arising from changes
in the level of prevailing interest rates and the Fund's active management in
anticipation of such changes.
Those who desire the least market or financial risk of all the Funds may prefer
the Money-Market Fund, recognizing that the performance of this Fund will vary
with changes in short-term interest rates. Some policyowners may wish to divide
their net premiums among a number of the sub-accounts. Each policyowner must
make his or her own choice that takes into account how willing he or she is to
accept investment risks, the manner in which his or her other assets are
invested and his or her own predictions about what investment results are likely
to be in the future.
DETAILED INFORMATION ABOUT THE POLICIES
PREMIUM PROVISIONS
POLICY ISSUE AND INITIAL PREMIUM
To purchase a Policy, an applicant must submit a completed application.
Manufacturers Life of America will issue a Policy only if it has a face amount
of at least $50,000 ($100,000 for preferred risk policies). A Policy will
generally be issued to persons between ages 0 and 90. In certain circumstances
the Company may at its sole discretion issue a Policy to persons above age 90.
Before issuing a Policy, Manufacturers Life of America will require evidence of
insurability satisfactory to it. A life insured will have a risk class of
preferred/non-smoker, preferred/smoker, standard/non-smoker or standard/smoker
as determined by underwriting rules. Persons failing to meet standard
underwriting requirements nonetheless may be eligible to purchase a Policy
provided an additional rating is assigned. Acceptance of an application is
subject to the Company's insurance underwriting rules. Each Policy is issued
with a policy date from which policy years, policy months and policy
anniversaries are all determined. Each Policy also has an effective date which
is the date the Company becomes obligated under the Policy and when the first
monthly deductions are taken. If an application is accompanied by a check for at
least the Initial Premium and the application is accepted, the policy date will
be the date the application and check were received at the Manufacturers Life of
America Service Office and the effective date will be the date Manufacturers
Life of America's underwriters approve issuance of the Policy. If an application
is accompanied by a check for at least the Initial Premium, the life insured may
be covered under
10
<PAGE> 14
the terms of a conditional insurance agreement until the effective date. If an
application accepted by the Company is not accompanied by a check for at least
the Initial Premium, the Policy will be issued with a policy date which is seven
days after issuance of the Policy (the "issue date") and with an effective date
which is the date the Service Office receives at least the Initial Premium. In
certain situations a different policy date may be used. The Initial Premium must
be received within 60 days after the policy date; however, the Initial Premium
may be required within 30 days on Policies issued with Additional Ratings. If
the Initial Premium is not paid or if the application is rejected, the Policy
will be cancelled and any premiums paid will be returned to the applicant.
Under certain circumstances a Policy may be issued with a backdated policy date.
A Policy will not be backdated more than six months (twelve months where
required by state regulation) before the date of the application for the Policy.
Monthly deductions will be made for the period the policy date is backdated.
All premiums received prior to the effective date of a Policy will be credited
with interest from the date of receipt at the rate of return then being earned
on amounts allocated to the Money-Market Fund. On the effective date, the
premiums paid plus interest credited, net of deductions for federal, state and
local taxes, will be allocated among the Investment Accounts or the Guaranteed
Interest Account in accordance with the policyowner's instructions.
All premiums received on or after the effective date of the Policy will be
allocated among the Investment Accounts or the Guaranteed Interest Account as of
the date the premiums were received at the Manufacturers Life of America Service
Office. Monthly deductions are due on the policy date and at the beginning of
each policy month thereafter. However, if due prior to the effective date, they
will be taken on the effective date instead of the dates they were due.
PREMIUM ALLOCATION
Net 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 Fund shares held by the corresponding
sub-account of the Separate Account. Allocations among the Investment Accounts
and the Guaranteed Interest Account are made as a percentage of the Net Premium.
The percentage allocation to any account may be any whole number between zero
and 100, provided the total percentage allocations equal 100. A policyowner may
change the way in which Net Premiums are allocated at any time without charge.
The change will take effect on the date a written or telephonic request for
change, in a format satisfactory to the Company, is received at the
Manufacturers Life of America Service Office.
PREMIUM LIMITATIONS
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 certain
limitations. After the Initial Premium, all premiums must be paid to the
Manufacturers Life of America Service Office. Unlike traditional insurance,
premiums are not payable at specified intervals or in specified amounts. A
Policy will be issued with a Planned Premium which is based on the amount of
premium the policyowner wishes to pay. It is recommended that the Planned
Premium be such that the Cumulative Premium Test (see Insurance Benefits --
"Death Benefit Guarantee") will be satisfied.
Manufacturers Life of America will send notices to the policyowner setting forth
the Planned Premium at the payment interval selected by the policyowner, unless
payment is being made pursuant to a pre-authorized payment plan. However, the
policyowner is under no obligation to make the indicated payment.
Manufacturers Life of America will not accept any premium payment which is less
than $50, unless the premium is payable pursuant to a pre-authorized payment
plan. In that case the Company will accept a payment of as little as $10.
Manufacturers Life of America may change these minimums on 90 days' written
notice. The Policies also limit the sum of the premiums that may be paid at any
time in order to preserve the qualification of the Policies as life insurance
for federal tax purposes. These limitations are set forth in each Policy.
Manufacturers Life of America reserves the right to refuse or refund any premium
payments that may cause the Policy to fail to qualify as life insurance under
applicable tax law.
11
<PAGE> 15
SHORT-TERM CANCELLATION RIGHT AND
"FREE LOOK" PROVISIONS
A Policy may be returned for a refund of the premium within 10 days after it is
received, within 45 days after the application for the Policy is signed, or
within 10 days after Manufacturers Life of America mails or delivers a notice of
right of withdrawal, whichever is latest. The Policy can be mailed or delivered
to the Manufacturers Life of America agent who sold it or to the Manufacturers
Life of America Service Office. Immediately on such delivery or mailing, the
Policy shall be deemed void from the beginning. Within seven days after receipt
of the returned Policy at its Service Office, Manufacturers Life of America will
refund any premium paid. Manufacturers Life of America reserves the right to
delay the refund of any premium paid by check until the check has cleared.
If a policyowner requests an increase in face amount which results in new
surrender charges, he or she will have the same rights as described above to
cancel the increase. If cancelled, the Policy Value and the surrender charges
will be recalculated to the amounts they would have been had the increase not
taken place. A policyowner may request a refund of all or any portion of
premiums paid during the free look period, and the Policy Value and the
surrender charges will be recalculated to the amounts they would have been had
the premiums not been paid.
INSURANCE BENEFIT
THE INSURANCE BENEFIT
If the Policy is in force at the time of the life insured's death, Manufacturers
Life of America will pay an insurance benefit based on the death benefit option
selected by the policyowner upon receipt of due proof of death. The amount
payable will be the death benefit under the selected option, plus any amounts
payable under any supplementary benefits added to the Policy, less the value of
the Loan Account at the date of death. The insurance benefit will be paid in one
sum unless another form of settlement option is agreed to by the beneficiary and
the Company. If the insurance benefit is paid in one sum, Manufacturers Life of
America will pay interest from the date of death to the date of payment. If the
life insured should die after the Company's receipt of a request for surrender,
no insurance benefit will be payable, and Manufacturers Life of America will pay
only the Net Cash Surrender Value.
DEATH BENEFIT GUARANTEE
POLICIES WITH FACE AMOUNTS OF AT LEAST $250,000. On policies issued and
maintained with a minimum face amount of $250,000, if the Cumulative Premium
Test (see below) is satisfied, Manufacturers Life of America will guarantee that
the Policy will not go into default (See Other General Policy Provisions --
"Policy Default") even if a combination of policy loans, adverse investment
experience or other factors should cause the Policy's Net Cash Surrender Value
to be insufficient to meet the monthly deductions due at the beginning of a
policy month.
On Policies issued and maintained with a minimum face amount of $250,000, if
after the tenth policy anniversary the Cumulative Premium Test is not satisfied
but the Fund Value Test (see below) is satisfied, Manufacturers Life of America
will keep the Death Benefit Guarantee in effect.
This Death Benefit Guarantee, which is not available in the state of New Jersey,
will expire at the end of a policy year specified in the Policy, currently (i)
the year in which the life insured reaches attained age 100 if Death Benefit
Option 1 is maintained throughout the life of the Policy and (ii) the year in
which the life insured reaches attained age 85 if Death Benefit Option 2 is
selected at any time. While the guarantee is in effect, Manufacturers Life of
America will determine at the beginning of each policy month whether the
Cumulative Premium Test or the Fund Value Test has been satisfied. If neither
has been satisfied, the Company will notify the policyowner of that fact and
allow a 61-day grace period in which the policyowner may make a premium payment
sufficient to keep the Death Benefit Guarantee in effect. The required payment
will be equal to the outstanding premium required to meet the Cumulative Premium
Test at the date neither test was satisfied, plus the Monthly Death Benefit
Guarantee Premium due for the next two policy months. If the required payment is
not received by the end of the grace period, the Death Benefit Guarantee will
terminate. Once the Death Benefit Guarantee is terminated, it cannot be
reinstated.
POLICIES WITH FACE AMOUNTS UNDER $250,000. On Policies with a face amount less
than $250,000 at issue or after face amount decrease, if the Cumulative Premium
Test is satisfied in the first three years, Manufacturers Life of America will
guarantee that the Policy will not go into default even if a combination of
policy loans, adverse investment experience or other factors should cause the
Policy's Net Cash Surrender Value to be insufficient to meet the monthly
deductions due at the beginning of a policy month. After the third policy
anniversary, there is no Death Benefit Guarantee on (a) Policies issued with
face amounts of less than $250,000 or (b) Policies on which a face amount
decrease has resulted in a face amount of less than $250,000.
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<PAGE> 16
CUMULATIVE PREMIUM TEST. The Policy provides for a Cumulative Premium Test. The
Cumulative Premium Test is satisfied if at the beginning of each policy month
the sum of all premiums paid to date less any partial withdrawals and any Policy
Debt is at least equal to the sum of the Monthly Death Benefit Guarantee
Premiums due since the policy date. The Death Benefit Guarantee Premium will
increase when the insured attains age 70. The Death Benefit Guarantee Premiums
for ages 0-69 and age 70 and above are set forth in the Policy. It is subject to
change if the face amount of the Policy or the death benefit option is changed
(see -- "Death Benefit Option Changes" and "Face Amount Changes") or if there is
any change in the supplementary benefits added to the Policy or in the risk
class of the life insured.
FUND VALUE TEST. The Policy provides for a Fund Value Test. The Fund Value Test
is applicable after the tenth anniversary of the Policy. The Fund Value Test is
satisfied if at the beginning of each policy month the Net Policy Value is
greater than or equal to the Gross Single Premium.
DEATH BENEFIT OPTIONS
The Policy permits the policyowner to select one of two death benefit options --
Option 1 and Option 2. Under Option 1 the death benefit is the face amount of
the Policy at the date of death or, if greater, the Policy Value at the date of
death multiplied by the applicable percentage in the table set forth below.
Under Option 2 the death benefit is the face amount of the Policy plus the
Policy Value at the date of death or, if greater, the Policy Value at the date
of death multiplied by the applicable percentage in the following table:
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<PAGE> 17
<TABLE>
<CAPTION>
ATTAINED CORRIDOR
AGE PERCENTAGE
--- ----------
<S> <C>
40 & below 250%
41 243
42 236
43 229
44 222
45 215
46 209
47 203
48 197
49 191
50 185
51 178%
52 171
53 164
54 157
55 150
56 146
57 142
58 138
59 134
60 130
61 128
62 126%
63 124
64 122
65 120
66 119
67 118
68 117
69 116
70 115
71 113
72 111
73 109%
74 107
75-90 105
91 104
92 103
93 102
94 101
95 & above 100
</TABLE>
Regardless of which death benefit option is in effect, the relationship of
Policy Value to death benefit will change whenever the "corridor percentages"
are used to determine the amount of the death benefit. This will occur whenever
multiplying the Policy Value by the applicable percentage set forth in the above
table results in a greater death benefit than would otherwise apply under the
selected option. For example, assume the life insured under a Policy with a face
amount of $100,000 has an attained age of 40. If Option 1 is in effect, the
corridor percentage will produce a greater death benefit whenever the Policy
Value exceeds $40,000 (250% X $40,000 = $100,000). If the Policy Value is less
than $40,000, an incremental change in Policy Value, up or down, will have no
effect on the death benefit. If the Policy Value is greater than $40,000, an
incremental change in Policy Value will result in a change in the death benefit
by a factor of 2.5. Thus, if the Policy Value were to increase to $40,010, the
death benefit would be increased to $100,025 (250% X $40,010 = $100,025).
If Option 2 were in effect in the above example, the corridor percentage would
produce a greater death benefit whenever the Policy Value exceeded $66,667 (250%
X 66,667 = 166,667). At that point the death benefit produced by multiplying the
Policy Value by 250% would result in a greater amount than adding the Policy
Value to the face amount of the Policy. If the Policy Value is less than
$66,667, an incremental change in Policy Value will have a dollar-for-dollar
effect on the death benefit. If the Policy Value is greater than $66,667, an
incremental change in Policy Value will result in a change in the death benefit
by a factor of 2.5 in the same manner as would be the case under Option 1 when
the corridor percentage determined the death benefit.
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<PAGE> 18
DEATH BENEFIT OPTION CHANGES
The death benefit option is selected initially by the policyowner in the
application. After the Policy has been in force for two years the death benefit
option may be changed effective as of the next policy anniversary following a
request. Written request for a change must be received by Manufacturers Life of
America at least 30 days prior to a policy anniversary in order to become
effective on that date. The Company reserves the right to limit a request for
change if the change would cause the Policy to fail to qualify as life insurance
for tax purposes.
A change in death benefit option will result in a change in the Policy's face
amount in order to avoid any change in the amount of the death benefit.
If the change in death benefit is from Option 1 to Option 2, the new face amount
will be equal to the face amount prior to the change minus the Policy Value on
the effective date of the change. A change to Option 2 will not be allowed if it
would cause the face amount of the Policy to go below the minimum face amount of
$50,000 ($100,000 for preferred risk policies). A change of death benefit option
to Option 2 will shorten the death benefit guarantee period to the year in which
the life insured reaches attained age 85.
A change in death benefit from Option 2 to Option 1 will be subject to
satisfactory evidence of insurability. If satisfactory evidence is provided, the
new face amount will be equal to the face amount prior to the change plus the
Policy Value on the effective date of the change. The increase in face amount
resulting from a change to Option 1 will not affect the amount of surrender
charges to which a Policy may be subject.
If satisfactory evidence of insurability is not provided, the policyowner may
still switch from Option 2 to Option 1; however, the face amount of the Policy
will remain at its previous level, thus reducing the death benefit. A
policyowner may elect at issue the ability to switch from Option 2 to Option 1
within six months of a date certain. No evidence of insurability will be
required if the policyowner exercises his or her ability to switch within six
months of the chosen date.
Policyowners who wish to have level insurance coverage should generally select
Option 1. Under Option 1, increases in Policy Value usually will reduce the net
amount of risk under a Policy which will reduce cost of insurance charges. This
means that favorable investment performance should result in a faster increase
in Policy Value than would occur under an identical Policy with Option 2 in
effect. However, the larger Policy Value which may result under Option 1 will
not affect the amount of the death benefit unless the corridor percentages are
used to determine the death benefit.
Policyowners who want to have the Policy Value reflected in the death benefit so
that any increases in Policy Value will increase the death benefit should
generally select Option 2. Under Option 2, the net amount at risk will remain
level unless the corridor percentages are used to determine death benefit, in
which case increases in Policy Value will increase the net amount at risk.
FACE AMOUNT CHANGES
Subject to certain limitations, a policyowner may, upon written request,
increase or decrease the face amount of the Policy. A change in face amount may
affect the Death Benefit Guarantee Premium, the monthly deductions and surrender
charges (see "Charges And Deductions"). Currently, each increase or decrease
(other than a decrease resulting from a partial withdrawal) in face amount must
be at least $50,000 ($100,000 for increases in preferred risk policies).
Manufacturers Life of America reserves the right to increase or decrease the
minimum face amount change on 90 days' written notice to the policyowner. The
Company also reserves the right to limit a change in face amount to the extent
necessary to prevent the Policy from failing to qualify as life insurance for
tax purposes.
INCREASES. Increases in face amount are subject to satisfactory evidence of
insurability. Increases may be made only once per policy year and only after the
second policy anniversary. An increase will become effective at the beginning of
the next 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 age at the effective date of the increase would
be greater than the maximum issue age for new Policies at that time.
An increase in face amount will usually result in the Policy's being subject to
new surrender charges. The new surrender charges will be computed as if a new
Policy were being purchased for the increase in face amount. For purposes of
determining the new deferred sales charge, a portion of the Policy Value at the
time of the increase, and a portion of the premiums paid on or subsequent to the
increase, will be deemed to be premiums attributable to the increase. See
Charges And Deductions -- "Surrender Charges." Any increase in face amount to a
level less than the highest face amount previously in effect will have no effect
on the surrender charges to which the Policy is subject, since surrender
charges, if applicable, will have been assessed in
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<PAGE> 19
connection with the prior decrease in face amount. The insurance coverage
eliminated by the decrease of the oldest face amount will be deemed to be
restored first. As with the purchase of a Policy, a policyowner will have free
look and sales charge limitation rights with respect to any increase resulting
in new surrender charges.
No additional premium is required for a face amount increase. However, a premium
payment may be necessary to prevent the Policy from going into default, since
new surrender charges resulting from an increase would automatically reduce the
Net Cash Surrender Value of the Policy. Moreover, a new Death Benefit Guarantee
Premium will be determined.
DECREASES. A decrease in the face amount may be requested only once per policy
year and only after the Policy has been in force for two years, except during
the two-year period following any increase in face amount. In addition, during
the two-year period following an increase in face amount, the policyowner may
elect at any time to cancel the increase and have the deferred sales charge for
the increase reduced by applicable limitations on sales charges attributable to
the increase. A decrease in face amount will become effective at the beginning
of the next policy month following the receipt of a properly executed request. A
decrease will not be allowed if it would cause the face amount to go below the
minimum face amount of $50,000 ($100,000 for preferred risk policies).
A decrease in face amount during the Surrender Charge Period will usually result
in surrender charges being deducted from the Policy Value. See Charges And
Deductions -- "Surrender Charges." For purposes of determining surrender and
cost of insurance charges, a decrease will reduce face amount in the following
order: (a) the face amount provided by the most recent increase, then (b) the
face amounts provided by the next most recent increases successively, and
finally (c) the initial face amount.
POLICY VALUES
POLICY VALUE
A Policy has a Policy Value, a portion of which is available to the policyowner
by making a policy loan or partial withdrawal or upon surrender of the Policy.
See "Policy Loans" and "Partial Withdrawals And Surrenders" below. The Policy
Value may also affect the amount of the death benefit. See Insurance Benefit --
"Death Benefit Options." The Policy Value at any time is equal to the sum of the
Values in the Investment Accounts, the Guaranteed Interest Account and the Loan
Account. The following discussion relates only to the Investment Accounts.
Policy loans are discussed under "Policy Loans" and the Guaranteed Interest
Account is discussed under "The General Account." The portion of the Policy
Value based on the Investment Accounts is not guaranteed and will vary each
Business Day with the investment performance of the underlying Funds.
An Investment Account is established under each Policy for each sub-account of
the Separate Account to which net premiums or transfer amounts have been
allocated. Each Investment Account under a Policy measures the interest of the
Policy in the corresponding sub-account. The value of the Investment Account
established for a particular sub-account is equal to the number of units of that
sub-account credited to the Policy times the value of such units.
Units of a particular sub-account are credited to a Policy when net premiums are
allocated to that sub-account or amounts are transferred to that sub-account.
Units of a sub-account are cancelled whenever amounts are deducted, transferred
or withdrawn from the sub-account. The number of units credited or cancelled for
a specific transaction is based on the dollar amount of the transaction divided
by the value of the unit at the end of 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 at the end of the Business Day on which the
premium is received at the Manufacturers Life of America Service Office.
Units are valued at the end of each Business Day. A Business Day is deemed to
end at the time of the determination of the net asset value of the Fund shares.
When an order involving the crediting or cancelling of units is received at the
Manufacturers Life of America Service Office after the end of a Business Day or
on a day which is not a Business Day, the order will be processed on the basis
of unit values determined at the end of 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 at the end of the next
Business Day.
The value of a unit of each sub-account was initially fixed at $10. For each
subsequent Business Day the unit value is determined by multiplying the unit
value for the preceding Business Day by the "net investment factor" for the
particular sub-account for such subsequent Business Day. The net investment
factor for a sub-account for any Business Day is equal to (a) divided by (b),
where:
(a) is the net asset value of the underlying Fund shares held by that
sub-account at the end of such Business Day before any policy
transactions are made on that day;
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<PAGE> 20
(b) is the net asset value of the underlying Fund shares held by that
sub-account at the end of the immediately preceding Business Day after
all policy transactions have been made for that day.
Manufacturers Life of America reserves the right to adjust the above formula for
any taxes determined by it to be attributable to the operations of the
sub-account.
TRANSFERS OF POLICY VALUE
A policyowner may change the extent to which his or her Policy Value is based
upon any specific sub-account of the Separate Account or the Company's general
account. Such changes are made by transferring amounts from one or more
Investment Accounts or the Company's general account to other Investment
Accounts or the Company's general account. A policyowner is permitted to make
one transfer each policy month free of charge. One additional transfer in each
policy month may be made at a cost of $35. This charge will be allocated among
the Investment Accounts and the Guaranteed Interest Account in the same
proportion as the amount transferred from each bears to the total amount
transferred. For this purpose all transfer requests received by Manufacturers
Life of America on the same Business Day are treated as a single transfer.
The minimum amount that may be transferred from an account, except for Asset
Allocation Balancer transfers, is the lesser of $500 or the entire account
value. The maximum amount that may be transferred from the Guaranteed Interest
Account in any one policy year is the greater of $500 or 15% of the Guaranteed
Interest Account value at the previous policy anniversary. Any transfer which
involves a transfer out of the Guaranteed Interest Account may not involve a
transfer to the Investment Account for the Money-Market Fund.
Transfer requests must be in a format satisfactory to Manufacturers Life of
America and in writing, or by telephone, if a currently valid telephone transfer
authorization form is on file. Although failure to follow reasonable procedures
may result in Manufacturers Life of America's liability for any losses resulting
from unauthorized or fraudulent telephone transfers, Manufacturers Life of
America will not be liable for following instructions communicated by telephone
that it reasonably believes to be genuine. Manufacturers Life of America will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Such procedures shall consist of confirming a valid
telephone authorization form is on file, tape recording all telephone
transactions and providing written confirmation thereof.
The policyowner may effectively convert his or her Policy to a fixed benefit
policy by transferring the Policy Value in all of the Investment Accounts to the
Guaranteed Interest Account and by changing his or her allocation of net
premiums entirely to the Guaranteed Interest Account. As long as the entire
Policy Value is allocated to the Guaranteed Interest Account, the Policy Value,
other values based thereon and the death benefit will be determinable and
guaranteed. The Investment Account values to be transferred to the Guaranteed
Interest Account will be determined as of the Business Day on which
Manufacturers Life of America receives the request for conversion. There will be
no change in the issue age, risk class of the life insured or face amount as a
result of the conversion. A transfer of any or all of the Policy Value to the
Guaranteed Interest Account can be made at any time, even if a prior transfer
has been made during the policy month.
LIMITATIONS. To the extent that total surrenders, partial withdrawals and
transfers out of a sub-account exceed total net premium allocations and
transfers into that sub-account, portfolio securities of the underlying Fund may
have to be sold. Excessive sales of the Fund's portfolio securities in such a
situation could be detrimental to that Fund and to policyowners with Policy
Values allocated to sub-accounts investing in that Fund. To protect the
interests of all policyowners, the Policy's transfer privilege is limited as
described below.
So long as effecting net transfers out of a sub-account in a particular Business
Day would not reduce the number of shares of the underlying Fund outstanding at
the close of the prior Business Day by more than 5%, all such transfers will be
effected. However, net transfers out of a sub-account greater than 5% would be
permitted only if, and to the extent that, in the judgment of Manufacturers
Adviser Corporation, they would not result in detriment to the underlying Fund
or to the interests of policyowners or others with assets allocated to that
Fund. If and when transfers must be limited to avoid such detriment, some
requests will not be effected. In determining which requests will be effected,
transfers pursuant to the Dollar Cost Averaging program will be effected first,
followed by Asset Allocation Balancer transfers, written requests next and
telephone requests last. Within each such group, requests will be processed in
the order received, to the extent possible. Policyowners whose transfer requests
are not effected will be so notified. Current S.E.C. rules preclude the Company
from processing at a later date those requests that were not effected.
Accordingly, a new transfer request would have to be submitted in order to
effect a transfer that was not effected because of the limitations described in
this paragraph. Manufacturers Life of America may be permitted to limit
transfers in certain other circumstances. See Other Provisions -- "Payment Of
Proceeds."
DOLLAR COST AVERAGING. Manufacturers Life of America will offer policyowners a
Dollar Cost Averaging program. Under this program amounts will be automatically
transferred at predetermined intervals from one Investment Account to any other
Investment Account(s) or the Guaranteed Interest Account.
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<PAGE> 21
Under the Dollar Cost Averaging program the policyowner will designate an amount
to be transferred at predetermined intervals from one Investment Account into
any other Investment Account(s) or the Guaranteed Interest Account. Each
transfer under the Dollar Cost Averaging program must be of a minimum amount as
set by Manufacturers Life of America. Once set, this minimum may be changed at
any time at the discretion of Manufacturers Life of America. Currently, no
charge will be made for this program if the Policy Value exceeds $15,000 on the
date of transfer. Otherwise, there will be a charge of $5 for each transfer
under this program. The charge will be deducted from the value of the Investment
Account out of which the transfer occurs. If insufficient funds exist to effect
a Dollar Cost Averaging transfer, including the charge, if applicable, the
transfer will not be effected and the policyowner will be so notified.
Manufacturers Life of America reserves the right to cease to offer this program
on 90 days' written notice to the policyowner.
ASSET ALLOCATION BALANCER TRANSFERS. Manufacturers Life of America will also
offer policyowners the ability to have amounts automatically transferred among
stipulated Investment Accounts to maintain an allocated percentage in each
stipulated Investment Account.
Under the Asset Allocation Balancer program the policyowner will designate an
allocation of Policy Value among Investment Accounts. On the policy anniversary,
and at six month intervals thereafter, Manufacturers Life of America will move
amounts among the Investment Accounts as necessary to maintain the policyowner's
chosen allocation. Currently, the charge for this program is $15 per transfer or
series of transfers occurring on the same transfer date. This charge will be
deducted from all accounts affected by the Asset Allocation Balancer transfer in
the same proportion as the value in each account bears to the Policy Value
immediately after the transfer.
Manufacturers Life of America reserves the right to cease to offer this program
on 90 days' written notice to the policyowner.
POLICY LOANS
While the Policy is in force, the policyowner may borrow against the Policy
Value of his or her Policy. The Policy serves as the only security for the loan.
The minimum amount of any loan is $500. The maximum loan amount is the amount
which would cause the Modified Policy Debt to equal the loan value of the Policy
on the date of the loan. The loan value is the Policy's Cash Surrender Value
less the monthly deductions due to the next policy anniversary. The Modified
Policy Debt as of any date is the Policy Debt (the aggregate amount of policy
loans, including borrowed interest, less any loan repayments) plus the amount of
interest to be charged to the next policy anniversary, all discounted from the
next policy anniversary to such date at an annual rate of 4%. An amount equal to
the Modified Policy Debt is transferred to the Loan Account to ensure that a
sufficient amount will be available to pay interest on the Policy Debt at the
next policy anniversary.
For example, assume a Policy with a loan value of $5,000, no outstanding policy
loans and a loan interest rate of 5.75%. The maximum amount that can be borrowed
is an amount that will cause the Modified Policy Debt to equal $5,000. If the
loan is made on a policy anniversary, the maximum loan will be $4,917. This
amount at 5.75% interest will equal $5,200 one year later; $5,200 discounted to
the date of the loan at 4% (the Modified Policy Debt) equals $5,000. Because the
minimum rate of interest credited to the Loan Account is 4%, $5,000 must be
transferred to the Loan Account to ensure that $5,200 will be available at the
next policy anniversary to cover the interest accrued on the Policy Debt.
When a loan is made, Manufacturers Life of America will deduct from the
Investment Accounts or the Guaranteed Interest Account, and transfer to the Loan
Account, an amount which will result in the Loan Account value being equal to
the Modified Policy Debt. The policyowner may designate how the amount to be
transferred to the Loan Account is allocated among the accounts from which the
transfer is to be made. In the absence of instructions, the amount to be
transferred will be allocated to each account in the same proportion as the
value in each Investment Account and the Guaranteed Interest Account bears to
the Net Policy Value. A transfer from an Investment Account will result in the
cancellation of units of the underlying sub-account equal in value to the amount
transferred from the Investment Account. However, since the Loan Account is part
of the Policy Value, transfers made in connection with a loan will not change
the Policy Value.
A policy loan may result in a Policy's failing to satisfy the Cumulative Premium
Test, since the Policy Debt is subtracted from the sum of the premiums paid in
determining whether the Cumulative Premium Test is satisfied. As a result, the
death benefit guarantee may terminate. See Insurance Benefit -- "Death Benefit
Guarantee" and Other General Policy Provisions -- "Policy Default." Moreover, if
the death benefit guarantee is not in force, a policy loan may cause a Policy to
be more susceptible to going into default, since a policy loan will be reflected
in the Net Cash Surrender Value. See Other General Policy Provisions -- "Policy
Default." A policy loan will also affect 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 Funds selected by the policyowner or increasing in value at the rate
of interest credited for amounts allocated to the Guaranteed Interest Account.
Policy loans may have tax consequences. A policyowner considering the use of
systematic policy loans as one element of a comprehensive retirement income plan
should consult his or her personal tax adviser regarding the potential tax
consequences if such loans were to so reduce Policy Value that the Policy would
lapse, absent additional payments. The premium payment
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<PAGE> 22
necessary to avert lapse would increase with the age of the insured. See
Miscellaneous Matters -- Federal Income Tax Considerations (Tax Treatment of
Policy Benefits). Finally, a policy loan will affect the amount payable on the
death of the life insured, since the death benefit is reduced by the value of
the Loan Account at the date of death in arriving at the insurance benefit.
INTEREST CHARGED ON POLICY LOANS. Interest on the Policy Debt will accrue daily
and be payable annually on the policy anniversary. The rate of interest charged
will be fixed at an effective annual rate of 5.75%. If the interest due on a
policy anniversary is not paid by the policyowner, the interest will be borrowed
against the Policy.
INTEREST CREDITED TO THE LOAN ACCOUNT. Manufacturers Life of America will credit
interest to any amount in the Loan Account at an effective annual rate of at
least 4%. The actual rate credited is:
-- On amounts up to the Policy's Select Loan Amount, the rate of interest
charged on the policy loan less an interest rate differential,
currently 0%; provided, however, if at some time in the future it is
determined that the current differential could cause the loan to be
treated as a taxable distribution under any applicable ruling,
regulation or court decision, Manufacturers Life of America has the
right to increase the differential on all subsequent Select Loan
Amounts either (i) to an amount that may be prescribed in such ruling,
regulation or court decision that would result in the transaction being
treated as a loan under federal tax law or (ii) if no amount is
prescribed, to an amount that Manufacturers Life of America considers
to be more likely to result in the transaction being treated as a loan
under Federal tax law.
-- On amounts in excess of the Select Loan Amount as described above, the
rate of interest charged on the policy loan less an interest rate
differential, currently 1.75%.
Prior to the later of the tenth policy anniversary and the anniversary following
attained age 55, the amount available as a Select Loan is zero; after the later
of the tenth policy anniversary and the policy anniversary following attained
age 55, the amount available annually as a Select Loan is equal to 12% of the
Policy's Net Cash Surrender Value at the previous policy anniversary. The amount
available as a Select Loan applies to existing and new loans. If, at the time a
policyowner is considering a Select Loan, interest due currently on his or her
outstanding loans equals or exceeds the Select Loan Amount, the Select Loan
feature could not be used to withdraw additional cash from Policy Value. The
total of all loans, including the Select Loan Amount, cannot exceed the maximum
loan amount as described above.
To illustrate the amount available as a Select Loan, assume that a Policy has an
issue age of 47 and a Net Cash Surrender Value on the eleventh policy
anniversary of $10,000. The Select Loan Amount available during the twelfth
policy year is $1,200 (12% X $10,000). Assume that at the beginning of the
twelfth policy year, a loan of $1,500 is taken. $1,200 of that amount is
considered the Select Loan Amount, $300 an ordinary policy loan.
At the end of the twelfth policy year, assume that the Net Cash Surrender Value
is $9,000. The Select Loan Amount available during the thirteenth policy year is
$1,080 (12% X $9,000). If not already repaid, the $300 from the prior year's
loan that was not considered a Select Loan is immediately converted to a Select
Loan, leaving $780 of the Select Loan Amount available for the thirteenth policy
year (provided that the sum of all outstanding loans does not exceed the
Policy's maximum loan amount). The amount of any unpaid interest on the Select
Loan and the ordinary policy loan from the twelfth policy year also would be
borrowed as a Select Loan up to the maximum Select Loan Amount and thereby
reduce by that amount the $780 available for borrowing as a Select Loan during
the remainder of the thirteenth policy year.
LOAN ACCOUNT ADJUSTMENTS. When a loan is first taken out, and at specified
events thereafter, the value of the Loan Account is adjusted. Whenever the Loan
Account is adjusted, the difference between (i) the Loan Account before any
adjustment and (ii) the Modified Policy Debt at the time of adjustment, is
transferred between the Loan Account and the Investment Accounts or the
Guaranteed Interest Account. The amount transferred to or from the Loan Account
will be such that the value of the Loan Account is equal to the Modified Policy
Debt after the adjustment.
The specified events which cause an adjustment to the Loan Account are (i) a
policy anniversary, (ii) a partial or full loan repayment, (iii) a new loan
being taken out, or (iv) when an amount is needed to meet a monthly deduction. A
loan repayment may be implicit in that policy debt is effectively repaid upon
termination (i.e., upon death of the life insured, surrender or lapse of the
policy). In each of these instances, the Loan Account will be adjusted so that
any excess of the Loan Account over the Modified Policy Debt after the repayment
will be included in the termination proceeds.
Except as noted below in the Loan Repayments section, amounts transferred from
the Loan Account will be allocated to the Investment Accounts and the Guaranteed
Interest Account in the same proportion as the value in the corresponding "loan
sub-account" bears to the value of the Loan Account. A "loan sub-account" exists
for each Investment Account and for the Guaranteed Interest Account. Amounts
transferred to the Loan Account are allocated to the appropriate loan
sub-account to reflect the account from which the transfer was made.
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<PAGE> 23
LOAN ACCOUNT ILLUSTRATION. (Dollar amounts in this illustration have been
rounded to the nearest dollar.) The operation of the Loan Account may be
illustrated by consideration of a Policy with a loan value of $5,000, a loan
interest rate of 5.75%, and a maximum loan amount on a policy anniversary of
$4,917. For purposes of the illustration, assume that the Select Loan Amount is
zero. If a loan in the maximum amount of $4,917 is made, an amount equal to the
Modified Policy Debt, $5,000, is transferred to the Loan Account. At the next
policy anniversary the value of the Loan Account will have increased to $5,200
($5,000 X 1.04) reflecting interest credited at an effective annual rate of
4.0%. At that time the loan will have accrued interest charges of $283 ($4,917 X
.0575), bringing the Policy Debt to $5,200.
If the accrued interest charges are paid on the policy anniversary, the Policy
Debt will continue to be $4,917, and the Modified Policy Debt, reflecting
interest for the next policy year and discounting the Policy Debt and such
interest at 4%, will be $5,000. An amount will be transferred from the Loan
Account to the Guaranteed Interest Account or the Investment Accounts so that
the Loan Account value will equal the Modified Policy Debt. Since the Loan
Account value was $5,200, a transfer of $200 will be required ($5,200 - $5,000).
If, however, the accrued interest charges of $283 are borrowed, an amount will
be transferred from the Investment Accounts and the Guaranteed Interest Account
so that the Loan Account value will equal the Modified Policy Debt recomputed at
the policy anniversary. The new Modified Policy Debt is the Policy Debt, $5,200,
plus loan interest to be charged to the next policy anniversary, $299 ($5,200 X
.0575), discounted at 4%, which results in a figure of $5,288. Since the value
of the Loan Account was $5,200, a transfer of $88 will be required. This amount
is equivalent to the 1.75% interest rate differential on the $5,000 transferred
to the Loan Account on the previous policy anniversary.
LOAN REPAYMENTS. Policy Debt may be repaid in whole or in part at any time prior
to the death of the life insured provided the Policy is in force. When a
repayment is made, the amount is credited to the Loan Account and a transfer is
made to the Guaranteed Interest Account or the Investment Accounts so that the
Loan Account at that time equals the Modified Policy Debt. Loan repayments will
first be allocated to the Guaranteed Interest Account until the associated loan
sub-account is reduced to zero. Loan repayments will then be allocated to each
Investment Account in the same proportion as the value in the corresponding loan
sub-account bears to the value of the Loan Account. Amounts paid to the Company
not specifically designated in writing as loan repayments will be treated as
premiums.
PARTIAL WITHDRAWALS AND SURRENDERS
After a Policy has been in force for two policy years, the policyowner may make
a partial withdrawal of the Net Cash Surrender Value. The minimum amount that
may be withdrawn is $500. The policyowner should specify the portion of the
withdrawal to be taken from each Investment Account and the Guaranteed Interest
Account. In the absence of instructions the withdrawal will be allocated among
such accounts in the same proportion as the Policy Value in each account bears
to the Net Policy Value. No more than one partial withdrawal may be made in any
one policy month.
A partial withdrawal made during the Surrender Charge Period will usually result
in the assessment of a portion of the surrender charges to which the Policy is
subject (see Charges And Deductions -- "Surrender Charges") if the withdrawal is
in excess of the Withdrawal Tier Amount. The Withdrawal Tier Amount is equal to
10% of the Net Cash Surrender Value determined as of the previous policy
anniversary. The portion of a partial withdrawal that is considered to be in
excess of the Withdrawal Tier Amount includes all previous partial withdrawals
that have occurred in the current policy year. If the Option 1 death benefit is
in effect under a Policy from which a partial withdrawal is made, the face
amount of the Policy will be reduced. See Charges And Deductions -- Surrender
Charges (Charges On Partial Withdrawals).
A Policy may be surrendered for its Net Cash Surrender Value at any time while
the life insured is living. The Net Cash Surrender Value is equal to the Policy
Value less any surrender charges and outstanding monthly deductions due (the
"Cash Surrender Value") minus the value of the Loan Account. The Net Cash
Surrender Value will be determined at the end of the Business Day on which
Manufacturers Life of America receives the Policy and a written request for
surrender at its Service Office. After a Policy is surrendered, the insurance
coverage and all other benefits under the Policy will terminate. Surrender of a
Policy during the Surrender Charge Period will usually result in the assessment
by Manufacturers Life of America of surrender charges. See Charges And
Deductions -- "Surrender Charges."
CHARGES AND DEDUCTIONS
Charges under the Policy are assessed as (i) deductions from premiums, (ii)
surrender charges upon surrender, partial withdrawals, decreases in face amount
or lapse, (iii) monthly deductions, and (iv) other charges. These charges are
described below.
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DEDUCTIONS FROM PREMIUMS
Manufacturers Life of America deducts a charge of 2.35% of each premium payment
for state and local taxes. State and local taxes differ from state to state. The
2.35% rate is expected to be sufficient, on average, to pay state and local
taxes where required. Manufacturers Life of America also deducts a charge of
1.25% of each premium payment for federal taxes, an amount which is also
expected to be sufficient to pay federal taxes. However, if Manufacturers Life
of America incurs higher charges for state, local or federal taxes, or any other
taxes are incurred, it may make a charge for those taxes in addition to the
deductions for federal, state or local taxes currently being made from premium
payments.
SURRENDER CHARGES
Manufacturers Life of America will assess surrender charges upon surrender, a
partial withdrawal of Policy Value in excess of the Withdrawal Tier Amount, a
requested decrease in face amount, or lapse. The charges will usually be
assessed if any of the above transactions occurs within the Surrender Charge
Period unless the charges have been previously deducted. There are two surrender
charges -- a deferred underwriting charge and a deferred sales charge.
DEFERRED UNDERWRITING CHARGE. The deferred underwriting charge is $6 for each
$1,000 of face amount of life insurance coverage initially purchased or added by
increase. In effect, the charge applies only to the first $500,000 of face
amount initially purchased or the first $500,000 of each subsequent increase in
face amount. Thus, the charge made in connection with any one underwriting will
not exceed $3,000. The amount of the charge remains level for five years.
Following the fifth year after issuance of the Policy or a face amount increase,
the charge applicable to the initial face amount or increase will decrease each
month by varying rates depending upon the life insured's issue age until the
charge has decreased to zero. The applicable percentage of the deferred
underwriting charges to which the Policy is subject is illustrated by the
following table:
TABLE 1: DEFERRED UNDERWRITING CHARGES
<TABLE>
<CAPTION>
TRANSACTION OCCURS AFTER
MONTHLY DEDUCTION TAKEN PERCENT OF DEFERRED UNDERWRITING CHARGES BY ISSUE AGE*
FOR LAST MONTH PRECEDING ------------------------------------------------------
END OF MONTH* AGE
------------- ---
MONTH 0-50 51 52 53 54 55+
<S> <C> <C> <C> <C> <C> <C>
12 100% 100% 100% 100% 100% 100%
24 100% 100% 100% 100% 100% 100%
36 100% 100% 100% 100% 100% 100%
48 100% 100% 100% 100% 100% 100%
60 100% 100% 100% 100% 100% 100%
72 90% 88.89% 87.50% 85.71% 83.33% 80.00%
84 80% 77.78% 75.00% 71.43% 66.67% 60.00%
96 70% 66.67% 62.50% 57.14% 50.00% 40.00%
108 60% 55.56% 50.00% 42.86% 33.33% 20.00%
120 50% 44.44% 37.50% 28.57% 16.67% 0%
132 40% 33.33% 25.00% 14.28% 0%
144 30% 22.22% 12.50% 0%
156 20% 11.11% 0%
168 10% 0%
180 0%
</TABLE>
* Months not shown may be calculated by interpolation.
The deferred underwriting charge is designed to cover the administrative
expenses associated with underwriting and policy issue, including the costs of
processing applications, conducting medical examinations, determining the life
insured's risk class and establishing policy records. Manufacturers Life of
America does not expect to recover from the deferred underwriting charge any
amount in excess of its expenses associated with underwriting and policy issue.
DEFERRED SALES CHARGE. The maximum deferred sales charge is 50% of premiums paid
up to a maximum number of Target Premiums that varies (from -0.180 to 3.031)
according to the issue age of the life insured, the face amount at issue and the
amount of any increase. This charge compensates the Company for some of the
expenses of selling and distributing the Policies, including agents'
commissions, advertising, agent training and the printing of prospectuses and
sales literature.
21
<PAGE> 25
The deferred sales charge deducted in any policy year is not specifically
related to sales expenses incurred in that year. Instead, the Company expects
that the major portion of the sales expenses attributable to a Policy will be
incurred during the first policy year, although the deferred sales charge might
be deducted up to fifteen years later. Manufacturers Life of America anticipates
that the aggregate amounts received under the Policies for sales charges will be
insufficient to cover aggregate sales expenses. To the extent that sales
expenses exceed sales charges, Manufacturers Life of America will pay the excess
from its other assets or surplus, including amounts derived from the mortality
and expense risks charge described below. Manufacturers Life of America may
forego deducting a portion of the deferred sales charge if the Policy is
surrendered for its Net Cash Surrender Value at any time during the first two
years following issuance or following an increase in face amount or if the
increase is cancelled during the two-year period following the increase. See
Surrender Charges (Sales Charge Limitation) below.
The Target Premium for the initial face amount is specified in the Policy. A
Target Premium will be computed for each increase in face amount above the
highest face amount of coverage previously in effect, and the policyowner will
be advised of each new Target Premium. Target Premiums depend upon the face
amount of insurance provided at issue or by an increase and the issue age and
sex (unless unisex rates are required by law) of the life insured. The maximum
number of Target Premiums subject to the deferred sales charge varies, based on
the issue age of the life insured, the face amount at issue and the amount of
any increase, according to the following tables:
22
<PAGE> 26
TABLE 2: NUMBER OF TARGET PREMIUMS SUBJECT TO DEFERRED SALES CHARGE FOR
POLICIES ISSUED PRIOR TO JUNE 19, 1995
(APPLICABLE TO THE INITIAL FACE AMOUNT AND INCREASES)
<TABLE>
<CAPTION>
$250,000 UNDER $250,000 UNDER $250,000 UNDER
AGE OR MORE $250,000 AGE OR MORE $250,000 AGE OR MORE $250,000
--- -------- -------- --- ------- -------- --- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
*0 -0.031 -0.039 30 1.319 1.648 60 2.356 2.945
*1 -0.144 -0.180 31 1.366 1.707 61 2.375 2.968
*2 -0.081 -0.102 32 1.415 1.768 62 2.399 2.998
*3 -0.020 -0.025 33 1.459 1.823 63 2.425 3.031
4 0.037 0.046 34 1.503 1.878 64 2.380 2.975
5 0.096 0.120 35 1.542 1.927 65 2.269 2.836
6 0.166 0.207 36 1.590 1.987 66 2.124 2.655
7 0.221 0.276 37 1.633 2.041 67 2.006 2.507
8 0.281 0.351 38 1.672 2.090 68 1.888 2.360
9 0.340 0.425 39 1.718 2.147 69 1.787 2.233
10 0.391 0.488 40 1.756 2.195 70 1.691 2.113
11 0.453 0.566 41 1.790 2.237 71 1.592 1.990
12 0.514 0.642 42 1.832 2.290 72 1.494 1.867
13 0.560 0.700 43 1.869 2.336 73 1.396 1.745
14 0.614 0.767 44 1.904 2.380 74 1.317 1.646
15 0.560 0.700 45 1.937 2.421 75 1.241 1.551
16 0.606 0.757 46 1.969 2.461 76 1.162 1.452
17 0.658 0.822 47 2.000 2.500 77 1.084 1.355
18 0.718 0.897 48 2.032 2.540 78 1.010 1.262
19 0.767 0.958 49 2.062 2.577 79 0.946 1.182
20 0.817 1.021 50 2.093 2.616 80 0.887 1.108
21 0.870 1.087 51 2.123 2.653 81 0.831 1.038
22 0.924 1.155 52 2.154 2.692 82 0.779 0.973
23 0.973 1.216 53 2.182 2.727 83 0.733 0.916
24 1.026 1.282 54 2.211 2.763 84 0.688 0.860
25 1.075 1.343 55 2.234 2.792 85 0.646 0.807
26 1.125 1.406 56 2.259 2.823 86 0.606 0.757
27 1.177 1.471 57 2.284 2.855 87 0.567 0.708
28 1.228 1.535 58 2.307 2.883 88 0.530 0.662
29 1.274 1.592 59 2.333 2.916 89 0.493 0.616
90 0.484 0.605
</TABLE>
*A negative number of Target Premiums produces a negative deferred sales charge.
When combined with the deferred underwriting charge, a negative deferred sales
charge reduces the total surrender charge.
23
<PAGE> 27
TABLE 3: NUMBER OF TARGET PREMIUMS SUBJECT TO DEFERRED SALES CHARGE FOR
POLICIES ISSUED ON OR AFTER JUNE 19, 1995
(APPLICABLE TO THE INITIAL FACE AMOUNT AND INCREASES)
<TABLE>
<CAPTION>
$250,000 UNDER $250,000 UNDER $250,000 UNDER
AGE OR MORE $250,000 AGE OR MORE $250,000 AGE OR MORE $250,000
--- ------- -------- --- ------- -------- --- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
*0 -0.031 -0.039 30 1.319 1.648 60 2.356 2.945
*1 -0.144 -0.180 31 1.366 1.707 61 2.375 2.968
*2 -0.081 -0.102 32 1.415 1.768 62 2.399 2.998
*3 -0.020 -0.025 33 1.459 1.823 63 2.425 3.031
4 0.037 0.046 34 1.503 1.878 64 2.367 2.959
5 0.096 0.120 35 1.542 1.927 65 2.259 2.824
6 0.166 0.207 36 1.590 1.987 66 2.113 2.641
7 0.221 0.276 37 1.633 2.041 67 1.992 2.490
8 0.281 0.351 38 1.672 2.090 68 1.875 2.344
9 0.340 0.425 39 1.718 2.147 69 1.777 2.222
10 0.391 0.488 40 1.756 2.195 70 1.679 2.099
11 0.453 0.566 41 1.790 2.237 71 1.583 1.979
12 0.514 0.642 42 1.832 2.290 72 1.486 1.857
13 0.560 0.700 43 1.869 2.336 73 1.392 1.740
14 0.614 0.767 44 1.904 2.380 74 1.315 1.644
15 0.560 0.700 45 1.937 2.421 75 1.238 1.547
16 0.606 0.757 46 1.969 2.461 76 1.161 1.451
17 0.658 0.822 47 2.000 2.500 77 1.083 1.354
18 0.718 0.897 48 2.032 2.540 78 1.007 1.259
19 0.767 0.958 49 2.062 2.577 79 0.945 1.182
20 0.817 1.021 50 2.093 2.616 80 0.885 1.106
21 0.870 1.087 51 2.123 2.653 81 0.829 1.037
22 0.924 1.155 52 2.154 2.692 82 0.779 0.973
23 0.973 1.216 53 2.182 2.727 83 0.732 0.915
24 1.026 1.282 54 2.211 2.763 84 0.687 0.859
25 1.075 1.343 55 2.234 2.792 85 0.644 0.806
26 1.125 1.406 56 2.259 2.823 86 0.604 0.755
27 1.177 1.471 57 2.284 2.855 87 0.566 0.708
28 1.228 1.535 58 2.307 2.883 88 0.529 0.661
29 1.274 1.592 59 2.333 2.916 89 0.493 0.616
90 0.484 0.605
</TABLE>
*A negative number of Target Premiums produces a negative deferred sales charge.
When combined with the deferred underwriting charge, a negative deferred sales
charge reduces the total surrender charge.
24
<PAGE> 28
Except for surrenders to which the sales charge limitation provisions described
below apply, the maximum deferred sales charge will be in effect for at least
the first two years of the Surrender Charge Period. After that, the portion of
the deferred sales charge that remains in effect will grade down at a rate that
also varies according to the issue age of the life insured until, at the end of
the Surrender Charge Period, there is no deferred sales charge. The tables to be
used to reduce the applicable deferred sales charge during the Surrender Charge
Period are set forth in Appendix C to this Prospectus. The applicable table will
be set forth in each Policy and the policyowner will be informed of the table to
be used in connection with sales charges on increases in face amount.
In order to determine the deferred sales charge applicable to a face amount
increase, Manufacturers Life of America will treat a portion of the Policy Value
on the date of increase as a premium attributable to the increase. In addition,
a portion of each premium paid on or subsequent to the increase will be
attributed to the increase. In each case, the portion attributable to the
increase will be the ratio of the "guideline annual premium" for the increase to
the sum of the guideline annual premiums for the initial face amount and all
increases including the requested increase.
A "guideline annual premium" is a hypothetical amount based on S.E.C. rules that
is used to measure the maximum amount of the deferred sales charge that may be
imposed upon surrender, partial withdrawal, a decrease in face amount or lapse
during the first two years after issuance or after an increase in face amount.
The following example illustrates how deferred underwriting and deferred sales
charges are calculated using data from Tables 1, 2 and 3 above and from the
tables in Appendix C.
Assume a 36-year-old male (standard risk) whose Policy was issued prior to June
19, 1995, at age 30, and who has paid $9,000 in premiums under a Policy with a
Target Premium of $1,500 and a face amount of $100,000 surrenders his Policy
during the last month of the sixth policy year.
A deferred underwriting charge of $540 would be assessed. The maximum deferred
underwriting charge of $600 ($6 per $1,000 of face amount X 100) would be
multiplied by the 90% listed in Table 1 as applicable to surrenders during the
last month of the sixth policy year [90% X ($6 X 100) = $540].
A deferred sales charge of $1,192.74 would also be assessed. According to Table
2, the maximum number of Target Premiums subject to the deferred sales charge
for a person who was 30 years old when his or her Policy with a face amount less
than $250,000 was issued would be 1.648. Thus $2,472 (1.648 X $1,500) would be
the maximum amount of premiums subject to the 50% sales charge, producing a
maximum sales charge of $1,236 (50% X $2,472 = $1,236). Because the surrender
occurs during the last month of the sixth policy year, only 96.50% (from the
table in Appendix C for issue age 30) of the maximum sales charge remains
applicable [96.50% X (.50 X 1.648 X $1,500) = $1,192.74].
Sales Charge Limitation.If a Policy is surrendered or its face amount decreased
at any time during the first two years after issuance or after an increase in
face amount, Manufacturers Life of America will forego taking that part of the
deferred sales charge with respect to "premiums" paid for the initial face
amount or such increase (including the portion of Policy Value treated as
premiums for the increase, as described above), whichever is applicable, which
exceeds the sum of (i) 30% of the premiums paid up to the lesser of one
guideline annual premium or the maximum amount of premiums subject to the
deferred sales charge plus (ii) 10% of the premiums paid in excess of one
guideline annual premium, up to the lesser of two guideline annual premiums or
the maximum amount of premiums subject to the deferred sales charge, plus (iii)
9% of the premiums paid in excess of two guideline annual premiums up to the
maximum amount of premiums subject to the deferred sales charge.
The operation of the sales charge limitation for Policies issued prior to June
19, 1995 is illustrated by the following example. A 67-year-old male non-smoker
purchased a Policy with a face amount in excess of $250,000 when he was age 65.
He has paid $30,000 in premiums under the Policy and it has a guideline annual
premium (GAP) of $15,997 and a Target Premium (TP) of $11,835. He surrenders his
policy during the second policy year. In the absence of the sales charge
limitation, the maximum deferred sales charge would be 50% of the lesser of
premiums paid ($30,000) or the maximum amount of premiums subject to the
deferred sales charge (TP X Maximum Number of TP's = $11,835 X 2.269 = $26,854),
which results in 50% of $26,854 (the "Maximum Chargeable Amount" or "MCA") or
$13,427 as the maximum deferred sales charge. However, under the formula
described above, the maximum sales charge allowable would be $5,885. This is
calculated as the sum of:
(i) 30% of one GAP, or $4,799 [.30 X $15,997 = $4,799], because one GAP
($15,997) is less than premiums paid ($30,000) and less than the MCA
($26,854);
plus
25
<PAGE> 29
(ii) 10% of the MCA in excess of one GAP, or $1,086 (.10 X $10,857 =
$1,086) because the MCA in excess of one GAP ($26,854 - $15,997 =
$10,857) is less than premiums paid in excess of one GAP ($30,000 -
$15,997 = $14,003) and less than the amount of a second GAP ($15,997);
plus
(iii) $0, because no premiums in excess of two GAPs were paid and would not
have been chargeable in any event, as the MCA was less than two GAPs.
Thus, (i) $4,799 plus (ii) $1,086 plus (iii) $0 equals $5,885, the maximum sales
charge allowable.
If the Policy in the foregoing example were issued on or after June 19, 1995,
the maximum sales charge allowable would be $5,873 because the maximum amount of
Target Premiums subject to the deferred sales charge would be 2.259 (from Table
3) instead of 2.269 (from Table 2).
Since a deferred sales charge is deducted when a Policy terminates for failure
to make the required payment following the Policy's going into default, the
sales charge limitation will apply if the termination occurs during the two-year
period following issuance or any increase in face amount. If the Policy
terminates during the two years after a face amount increase, the sales charge
limitation will relate only to the sales charges applicable to the increase.
Charges On Partial Withdrawals.Whenever a portion of the surrender charges is
deducted as a result of a partial withdrawal of Policy Value in excess of the
Withdrawal Tier Amount, the Policy's remaining surrender charges will be reduced
by the amount of the charges taken. The surrender charges not assessed as a
result of the 10% free withdrawal provision remain in effect under the Policy
and may be assessed upon surrender or lapse, other partial withdrawals, or a
requested decrease in face amount. The portion of the surrender charges assessed
will be based on the ratio of the amount of the withdrawal in excess of the
Withdrawal Tier Amount to the Net Cash Surrender Value of the Policy less the
Withdrawal Tier Amount immediately prior to the withdrawal. The surrender
charges will be deducted from each Investment Account and the Guaranteed
Interest Account in the same proportion as the amount of the withdrawal taken
from such account bears to the total amount of the withdrawal. If the amount in
the account is insufficient to pay the portion of the surrender charges
allocated to that account, then the portion of the withdrawal allocated to that
account will be reduced so that the withdrawal plus the portion of the surrender
charges allocated to that account equal the value of that account. Units equal
to the amount of the partial withdrawal taken, and surrender charges deducted,
from each Investment Account will be cancelled based on the value of such units
determined at the end of the Business Day on which Manufacturers Life of America
receives a written request for withdrawal at its Service Office.
If the Option 1 death benefit is in effect under a Policy from which a partial
withdrawal is made, the face amount of the Policy will be reduced. If the death
benefit is equal to the face amount at the time of withdrawal, the face amount
will be reduced by the amount of the withdrawal plus the portion of the
surrender charges assessed. If the death benefit is based upon the Policy Value
times the applicable percentage set forth under Insurance Benefit -- "Death
Benefit Options" above, the face amount will be reduced only to the extent that
the amount of the withdrawal plus the portion of the surrender charges assessed
exceeds the difference between the death benefit and the face amount. Reductions
in face amount resulting from partial withdrawals will not incur any surrender
charges above the surrender charges applicable to the withdrawal. When the face
amount of a Policy is based on one or more increases subsequent to issuance of
the Policy, a reduction resulting from a partial withdrawal will be applied in
the same manner as a requested decrease in face amount, i.e., against the face
amount provided by the most recent increase, then against the next most recent
increases successively and finally against the initial face amount.
CHARGES ON DECREASES IN FACE AMOUNT. As with partial withdrawals, a portion of a
Policy's surrender charges will be deducted upon a decrease, or a cancellation
of an increase, in face amount requested by the policyowner. Since surrender
charges are determined separately for the initial face amount and each face
amount increase, and since a decrease in face amount will have a different
impact on each level of insurance coverage, the portion of the surrender charges
to be deducted with respect to each level of insurance coverage will be
determined separately. Such portion will be the same as the ratio of the amount
of the reduction in such coverage to the amount of such coverage prior to the
reduction. As noted under Insurance Benefit -- "Face Amount Changes," decreases
are applied to the most recent increase first and thereafter to the next most
recent increases successively. The charges will be deducted from the Policy
Value, and the amount so deducted will be allocated among the Investment
Accounts and the Guaranteed Interest Account in the same proportion as the
Policy Value in each bears to the Net Policy Value. Whenever a portion of the
surrender charges is deducted as a result of a decrease in face amount, the
Policy's remaining surrender charges will be reduced by the amount of the
charges taken.
CHARGES REMAINING AFTER FACE AMOUNT DECREASES OR PARTIAL WITHDRAWALS. Each time
a pro-rata deferred underwriting charge or a pro-rata deferred sales charge for
a face amount decrease or for a partial withdrawal is deducted, the remaining
deferred underwriting charge and deferred sales charge will be reduced
proportionately.
26
<PAGE> 30
The remaining deferred underwriting charge will be calculated using Table 1
above. The actual remaining charge will be the result of (a) divided by (b),
multi-plied by (c), where:
(a) is the grading percentage applicable to the life insured's issue age
and Policy duration;
(b) is the grading percentage applicable to the life insured's issued age
at the time of the last face amount decrease or partial withdrawal;
and
(c) is the remaining deferred sales charge prior to the last face amount
decrease or partial withdrawal less the deferred underwriting charge
deducted for that face amount decrease or partial withdrawal.
The remaining deferred sales charge will be calculated using Table 2 above and
Appendix C. The actual remaining charge will be the result of (a) divided by
(b), multiplied by (c), where:
(a) is the grading percentage applicable to the Policy duration;
(b) is the grading percentage at the time of the last face amount decrease
or partial withdrawal; and
(c) is the remaining deferred sales charge prior to the last face amount
decrease or partial withdrawal less the deferred sales charge deducted
for that face amount decrease or partial withdrawal.
Until the sum of premiums paid equals or exceeds the number of Target Premiums
subject to deferred sales charge multiplied by the Target Premium, subsequent
premium payments will increase the remaining deferred sales charge.
MONTHLY DEDUCTIONS
Each month a deduction consisting of an administration charge, a charge for the
cost of insurance, a charge for mortality and expense risks, and charge(s) for
any supplementary benefit(s) (see Other Provisions -- "Supplementary Benefits")
is deducted from Policy Value. The monthly deduction will be allocated among the
Investment Accounts and (other than the mortality and expense risks charge) the
Guaranteed Interest Account in the same proportion as the Policy Value in each
bears to the Net Policy Value. Monthly deductions due prior to the effective
date will be taken on the effective date instead of the dates they were due. If
the Policy is still in force when the life insured attains age 100, no further
monthly deductions will be taken from the Policy Value.
ADMINISTRATION CHARGE
The monthly administration charge is $35 plus $.01 per $1,000 of face amount
until the first anniversary and, thereafter, $10 plus $.01 per $1,000 of face
amount. The charge is designed to cover certain administrative expenses
associated with the Policy, including maintaining policy records, collecting
premiums and processing death claims, surrender and withdrawal requests and
various changes permitted under a Policy. Manufacturers Life of America does not
expect to recover from the monthly administration charge any amount in excess of
its accumulated administrative expenses relating to the Policies and the
Separate Account.
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 is based on the life insured's
issue age, the duration of the coverage, sex (unless unisex rates are required
by law), risk class, and, in the case of certain Policies issued in group or
sponsored arrangements providing for reduction in cost of insurance charges (see
"Special Provisions For Group Or Sponsored Arrangements"), the face amount of
the Policy. See Miscellaneous Matters -- "Legal Considerations." The rate is
determined separately for the initial face amount and for each increase in face
amount. Cost of insurance rates will generally increase with the life insured's
age. Any additional ratings as indicated in the Policy will be added to the cost
of insurance rate.
The cost of insurance rates used by Manufacturers Life of America reflect its
expectations as to future mortality experience as based on current experience.
The rates may be changed from time to time on a basis which does not unfairly
discriminate within the class of life insureds. In no event will the cost of
insurance rate exceed the guaranteed rate set forth in the Policy except to the
extent that an extra rate is imposed because of an additional rating applicable
to the life insured or if simplified underwriting is granted in a group or
sponsored arrangement (see "Special Provisions For Group Or Sponsored
Arrangements"). The guaranteed rates are based on the 1980 Commissioners
Standard Ordinary Smoker/Nonsmoker Mortality Tables.
27
<PAGE> 31
If requested by the applicant, Manufacturers Life of America may offer the
Policy with provisions based on actuarial tables that do not differentiate on
the basis of sex to such prospective purchasers in states where the unisex
version of the Policy has been approved.
The State of Montana currently prohibits the issuance of policies with
assumptions that distinguish between men and women in determining premiums and
policy benefits for policies issued on the life of any of its residents.
The net amount at risk to which the cost of insurance rate is applied is the
difference between the death benefit, divided by 1.0032737 (a factor which
reduces the net amount at risk for cost of insurance charge purposes by taking
into account assumed monthly earnings at an annual rate of 4%), and the Policy
Value. Because different cost of insurance rates may apply to different levels
of insurance coverage, the net amount at risk will be calculated separately for
each level of insurance coverage. When the Option 1 death benefit is in effect,
for purposes of determining the net amount at risk applicable to each level of
insurance coverage, the Policy Value is attributed first to the initial face
amount and then, if the Policy Value is greater than the initial face amount, to
each increase in face amount in the order made.
Because the calculation of the net amount at risk is different under the death
benefit options when more than one level of insurance coverage is in effect, a
change in the death benefit option may result in a different net amount at risk
for each level of insurance coverage than would have occurred had the death
benefit option not been changed. Since the cost of insurance is calculated
separately for each level of insurance coverage, any change in the net amount at
risk for a level of insurance coverage resulting from a change in the death
benefit option may affect the amount of the charge for the cost of insurance.
Partial withdrawals and decreases in face amount will also affect the manner in
which the net amount at risk for each level of insurance coverage is calculated.
MORTALITY AND EXPENSE RISKS CHARGE
Manufacturers Life of America deducts a monthly charge from the Policy Value for
the mortality and expense risks it assumes under the Policies. This charge is
made at the beginning of each policy month at an annual rate of .90% through the
later of the tenth anniversary of the Policy and the policyowner's attained age
of 60 and, thereafter, .45%. It is assessed against the value of the
policyowner's Investment Accounts by cancellation of units in the same
proportion as the value of each Investment Account bears to the total value of
the Investment Accounts. The mortality risk assumed is that lives insured may
live for a shorter period of time than the Company estimated. The expense risk
assumed is that expenses incurred in issuing and administering the Policies will
be greater than the Company estimated. Manufacturers Life of America will
realize a gain from this charge to the extent it is not needed to provide
benefits and pay expenses under the Policies.
OTHER CHARGES
Currently, Manufacturers Life of America makes no charge against the Separate
Account for federal, state or local taxes that may be attributable to the
Separate Account or to the operations of the Company with respect to the
Policies. However, if Manufacturers Life of America incurs any such taxes, it
may make a charge therefor, in addition to the deductions for federal, state or
local taxes currently being made from premium payments.
Charges will be imposed on certain transfers of Policy Values, including a $35
charge for a second transfer in a policy month, a $15 charge for each Asset
Allocation Balancer transfer and a $5 charge for each Dollar Cost Averaging
transfer when Policy Value does not exceed $15,000. See Policy Values --
"Transfers Of Policy Value."
The Separate Account purchases shares of the Series Fund at net asset value. The
net asset value of those shares reflects:
(i) an investment management fee equivalent to an annual rate of .50% of
the value of the average daily net assets of the Emerging Growth
Equity Fund, Common Stock Fund, Real Estate Securities Fund, Balanced
Assets Fund, Capital Growth Bond Fund and Money-Market Fund;
(ii) (a) an investment management fee equivalent to an annual rate of .85%
of the value of the first $100 million of average daily net assets and
(b) .70% of the value of the average daily net assets over $100
million of each of the International Fund and the Pacific Rim Emerging
Markets Fund;
(iii) expenses of up to .50% and .65% per annum assessed against the assets
of the International Fund and the Pacific Rim Emerging Markets Fund,
respectively; and
(iv) other expenses already deducted from the assets of the Series Fund.
28
<PAGE> 32
Detailed Information concerning such fees and expenses is set forth under the
caption "Management Of The Funds" in the Prospectus for the Series Fund that
accompanies this Prospectus.
SPECIAL PROVISIONS FOR GROUP OR SPONSORED ARRANGEMENTS
Where permitted by state insurance laws, Policies may be purchased under group
or sponsored arrangements, as well as on an individual basis. A "group
arrangement" includes a program under which a trustee, employer or similar
entity purchases Policies covering a group of individuals on a group basis. In
California all participants of group arrangements will be individually
underwritten. A "sponsored arrangement" includes a program under which an
employer permits group solicitation of its employees or an association permits
group solicitation of its members for the purchase of Policies on an individual
basis.
The charges and deductions described above may be reduced for Policies issued in
connection with group or sponsored arrangements. Such arrangements may include
sales without withdrawal charges and deductions to employees, officers,
directors, agents, immediate family members of the foregoing, and employees of
agents of Manufacturers Life and its subsidiaries. Manufacturers Life of America
will reduce the above charges and deductions in accordance with its rules in
effect as of the date an application for a Policy is approved. To qualify for
such a reduction, a group or sponsored arrangement must satisfy certain criteria
as to, for example, size of the group, expected number of participants and
anticipated premium payments from the group. Generally, the sales contacts and
effort, administrative costs and mortality cost per Policy vary based on such
factors as the size of the group or sponsored arrangements, the purposes for
which Policies are purchased and certain characteristics of its members. The
amount of reduction and the criteria for qualification will reflect the reduced
sales effort and administrative costs resulting from, and the different
mortality experience expected as a result of, sales to qualifying groups and
sponsored arrangements.
Manufacturers Life of America may modify from time to time, on a uniform basis,
both the amounts of reductions and the criteria for qualification. Reductions in
these charges will not be unfairly discriminatory against any person, including
the affected policyowners and all other policyowners funded by the Separate
Account.
In addition, groups and persons purchasing under a sponsored arrangement may
apply for simplified underwriting. If simplified underwriting is granted, the
cost of insurance charge may increase as a result of higher anticipated
mortality experience. In addition, groups or persons purchasing under a
sponsored arrangement may request increases or decreases in face amount at any
time after issue and decreases in face amount at any time after an increase in
face amount.
SPECIAL PROVISIONS FOR EXCHANGES
Manufacturers Life of America will permit owners of certain life insurance
policies issued either by the Company or Manufacturers Life to exchange their
policies for the Policies described in this prospectus. Charges under the
policies being exchanged or the Policies issued in exchange therefor may be
reduced or eliminated. Owners of certain policies may be entitled to convert
their policies to the Policies described in this prospectus. If they elect to
convert, they may receive a credit upon conversion in an amount up to their
first-year premium. Policy loans made under policies being exchanged may, in
some circumstances, be carried over to the new Policies without repayment at the
time of exchange. Policyowners considering an exchange should consult their tax
advisers as to the tax consequences of an exchange.
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 Securities and Exchange Commission has not
reviewed the disclosures in this prospectus relating to the general account.
Disclosures regarding the general account may, however, be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in a prospectus.
The general account of Manufacturers Life of America consists of all assets
owned by the Company other than those in its separate accounts. Subject to
applicable law, Manufacturers Life of America has sole discretion over the
investment of the assets of the general account.
A policyowner may elect to allocate net premiums to the Guaranteed Interest
Account or to transfer all or a portion of the Policy Value to the Guaranteed
Interest Account from the Investment Accounts. Transfers from the Guaranteed
Interest Account to the Investment Accounts are subject to restrictions. See
Policy Values -- "Transfers Of Policy Value" and "Policy Value." Manufacturers
Life of America will hold the reserves required for any portion of the Policy
Value allocated to the Guaranteed Interest Account in its general account.
However, an allocation of Policy Value to the Guaranteed Interest Account does
not entitle the policyowner to share in the investment experience of the general
account. Instead, Manufacturers Life of America
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<PAGE> 33
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. The Company may, at its
sole discretion, credit a higher rate of interest, although it is not obligated
to do so. The policyowner assumes the risk that interest credited may not exceed
the guaranteed minimum rate of 4% per year.
OTHER GENERAL POLICY PROVISIONS
POLICY DEFAULT
Unless the Death Benefit Guarantee is in effect, a Policy will go into default
if the Policy's Net Cash Surrender Value at the beginning of any policy month
would go below zero after deducting the monthly deductions then due.
Manufacturers Life of America will notify the policyowner of the default and
will allow a 61-day grace period in which the policyowner may make a premium
payment sufficient to bring the Policy out of default. The required payment will
be equal to the amount necessary to bring the Net Cash Surrender Value to zero,
if it was less than zero at the date of default, plus the monthly deductions due
at the date of default and at the beginning of each of the two policy months
thereafter, based on the Policy Value at the date of default. If the required
payment is not received by the end of the grace period, the Policy will
terminate and the Net Cash Surrender Value (subject to any applicable limitation
on surrender charges; see Charges And Deductions -- "Surrender Charges") as of
the date of default less the monthly deductions then due will be paid to the
policyowner. If the life insured should die during the grace period following a
Policy's going into default, the Policy Value used in the calculation of the
death benefit will be the Policy Value as of the date of default and the
insurance benefit payable will be reduced by any outstanding monthly deductions
due at the time of death.
POLICY REINSTATEMENT
A policyowner can reinstate a Policy which has terminated after going into
default at any time within 21 days following the date of termination without
furnishing evidence of insurability, subject to the following conditions:
(a) The life insured's risk class is standard or preferred.
(b) The life insured's attained age is less than 46.
A policyowner can reinstate a Policy which has terminated after going into
default at any time within the five-year period following the date of
termination subject to the following conditions:
(a) The Policy must not have been surrendered for its Net Cash Surrender
Value at the request of the policyowner;
(b) Evidence of the life insured's insurability satisfactory to
Manufacturers Life of America is furnished to it;
(c) A premium equal to the payment required during the 61-day grace period
following default to keep the Policy in force is paid to Manufacturers
Life of America; and
(d) An amount equal to any amounts paid by Manufacturers Life of America
in connection with the termination of the Policy is repaid to
Manufacturers Life of America.
If the reinstatement is approved, the date of reinstatement will be the later of
the date of the policyowner's written request or the date the required payment
is received at the Manufacturers Life of America Service Office.
MISCELLANEOUS POLICY PROVISIONS
BENEFICIARY. One or more beneficiaries of the Policy may be appointed by the
policyowner by naming them in the application. Beneficiaries may be appointed in
three classes -- primary, secondary and final. Thereafter the beneficiary may be
changed by the policyowner during the life insured's lifetime by giving written
notice to Manufacturers Life of America in a form satisfactory to it unless an
irrevocable designation has been elected. If the life insured dies and there is
no surviving beneficiary, the policyowner, or the policyowner's estate if the
policyowner is the life insured, will be the beneficiary. If a beneficiary dies
before the seventh day after the death of the life insured, the Company will pay
the insurance benefit as if the beneficiary had died before the life insured.
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 or the addition of a supplementary benefit after such increase or
addition has been in force during the life insured's lifetime for two years. If
a
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<PAGE> 34
Policy has been reinstated and been in force for less than two years from the
reinstatement date, the Company can contest any misrepresentation of a fact
material to the reinstatement.
MISSTATEMENT OF AGE OR SEX. If the life insured's stated age or sex or both in
the Policy are incorrect, Manufacturers Life of America will change the face
amount of insurance so that the death benefit will be that which the most recent
monthly charge for the cost of insurance would have bought for the correct age
and sex (unless unisex rates are required by law).
SUICIDE EXCLUSION. If the life insured, whether sane or insane, dies by suicide
within two years from the issue date, Manufacturers Life of America will pay
only the premiums paid less any partial withdrawals of the Net Cash Surrender
Value and any amount in the Loan Account. If the life insured should die by
suicide within two years after a face amount increase, the death benefit for the
increase will be limited to the monthly deduction for the increase.
ASSIGNMENT. Manufacturers Life of America will not be bound by an assignment
until it receives a copy of it at its Service Office. Manufacturers Life of
America assumes no responsibility for the validity or effects of any assignment.
OTHER PROVISIONS
SUPPLEMENTARY BENEFITS
Subject to certain requirements, one or more supplementary benefits may be added
to a Policy, including those providing term insurance for additional insureds,
providing term insurance options, providing accidental death coverage, waiving
monthly deductions upon disability, guaranteeing the Policy Value, accelerating
benefits in the event of terminal illness, and, in the case of corporate-owned
Policies, permitting a change of the life insured. More detailed information
concerning supplementary benefits may be obtained from an authorized agent of
the Company. The cost of any supplementary benefits will be deducted as part of
the monthly deduction. See Charges And Deductions -- "Monthly Deductions."
PAYMENT OF PROCEEDS
As long as the Policy is in force, Manufacturers Life of America will ordinarily
pay any policy loans, partial withdrawals, Net Cash Surrender Value or any
insurance benefit within seven days after receipt at the Manufacturers Life of
America Service Office of all the documents required for such a payment.
The Company may delay the payment of any policy loans, partial withdrawals, Net
Cash Surrender Value or the portion of any insurance benefit that depends on the
Guaranteed Interest Account value for up to six months; otherwise the Company
may delay payment for any period during which (i) the New York Stock Exchange is
closed for trading (except for normal holiday closings) or trading on the
Exchange is otherwise restricted; or (ii) an emergency exists as defined by the
S.E.C. or the S.E.C. requires that trading be restricted; or (iii) the S.E.C.
permits a delay for the protection of policyowners. Also, transfers may be
denied under the circumstances stated in clauses (i), (ii) and (iii) above and
under the circumstances previously set forth. See Policy Values -- "Transfers Of
Policy Value."
REPORTS TO POLICYOWNERS
Within 30 days after each policy anniversary, Manufacturers Life of America will
send the policyowner a statement showing, among other things, the amount of the
death benefit, the Policy Value and its allocation among the Investment
Accounts, the Guaranteed Interest Account and the Loan Account, the value of the
units in each Investment Account to which the Policy Value is allocated, any
Loan Account balance and any interest charged since the last statement, the
premiums paid and policy transactions made during the period since the last
statement and any other information required by law.
Within 10 days after any transaction involving purchase, sale, or transfer of
units of Investment Accounts, a confirmation statement will be sent.
Each policyowner will also be sent an annual and a semi-annual report for the
Series Fund which will include a list of the securities held in each Fund as
required by the 1940 Act.
MISCELLANEOUS MATTERS
FUND SHARE SUBSTITUTION
Although Manufacturers Life of America believes it to be highly unlikely, it is
possible that in the judgment of its management, one or more of the Funds may
become unsuitable for investment by the Separate Account because of a change in
investment policy or a change in the applicable laws or regulations, because the
shares are no longer available for investment, or for some
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<PAGE> 35
other reason. In that event, Manufacturers Life of America may seek to
substitute the shares of another Fund or of an entirely different mutual fund.
Before this can be done, the approval of the S.E.C. and one or more state
insurance departments may be required.
Manufacturers Life of America also reserves the right to combine other separate
accounts with the Separate Account, to establish additional sub-accounts within
the Separate Account, to operate the Separate Account as a management investment
company or other form permitted by law, to transfer assets from this Separate
Account to another separate account and from another separate account to this
Separate Account, and to de-register the Separate Account under the 1940 Act.
Any such change would be made only if permissible under applicable federal and
state law.
The investment objectives of the Separate Account will not be changed materially
without first filing the change with the Insurance Commissioner of the State of
Michigan. Policyowners will be advised of any such change at the time it is
made.
FEDERAL INCOME TAX CONSIDERATIONS
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 or of the
current interpretations by the Service. WE DO NOT MAKE ANY GUARANTEE REGARDING
THE TAX STATUS OF ANY POLICY OR ANY TRANSACTION REGARDING THE POLICIES.
TAX STATUS OF THE POLICY
Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code") sets
forth a definition of a life insurance contract for federal tax purposes. The
Secretary of Treasury (the "Treasury") is authorized to prescribe regulations
implementing Section 7702. However, while proposed regulations and other interim
guidance have been issued, final regulations have not been adopted and guidance
as to how Section 7702 is to be applied is limited. If a Policy were determined
not to be a life insurance contract for purposes of Section 7702, such Policy
would not provide the tax advantages normally provided by a life insurance
policy.
With respect to a Policy issued on the basis of a standard rate class, the
Company believes (largely in reliance on IRS Notice 88-128 and the proposed
mortality charge regulations under Section 7702, issued on July 5, 1991) that
such a Policy should meet the Section 7702 definition of a life insurance
contract.
With respect to a Policy that is issued on a substandard basis (i.e., a premium
class involving higher-than-standard mortality risk), there is less guidance, in
particular as to how mortality and other expense requirements of Section 7702
are to be applied in determining whether such a Policy meets the Section 7702
definition of a life insurance contract. Thus, it is not clear whether or not
such a Policy would satisfy Section 7702, particularly if the policyowner pays
the full amount of premiums permitted under the Policy.
If it is subsequently determined that a Policy does not satisfy Section 7702,
the Company may take whatever steps are appropriate and reasonable to attempt to
cause such a Policy to comply with Section 7702. For these reasons, the Company
reserves the right to restrict Policy transactions as necessary to attempt to
qualify it as a life insurance contract under Section 7702.
Section 817(h) of the Code requires that the investments of the Separate Account
be "adequately diversified" in accordance with Treasury regulations in order for
the Policy to qualify as a life insurance contract under Section 7702 of the
Code (discussed above). The Separate Account, through the Series Fund, intends
to comply with the diversification requirements prescribed in Treas. Reg. Sec.
1.817-5, which affect how the Series Fund's assets are to be invested. The
Company believes that the Separate Account will thus meet the diversification
requirement, and the Company will monitor continued compliance with the
requirement.
In certain circumstances, owners of variable life insurance Policies may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their Policies. In those circumstances, income
and gains from the separate account assets would be includible in the variable
policyowner's gross income. The IRS has stated in published rulings that a
variable policyowner will be considered the owner of separate account assets if
the policyowner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. The Treasury Department
has also announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the
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<PAGE> 36
investor (i.e., the policyowner), rather than the insurance company, to be
treated as the owner of the assets in the account." This announcement also
stated that guidance would be issued by way of regulations or rulings on the
"extent to which policyowners may direct their investments to particular
subaccounts without being treated as owners of the underlying assets." 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 policyowners were not owners of separate account assets. For example, the
owner has additional flexibility in allocating premium payments and Policy
Values. These differences could result in an owner being treated as the owner of
a pro rata portion of the assets of the Separate Account. In addition, the
Company does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has stated it expects to
issue. The Company therefore reserves the right to modify the Policy as
necessary to attempt to prevent an owner from being considered the owner of a
pro rata share of the assets of the Separate Account.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. The Company believes that the proceeds and cash value increases of a
Policy should be treated in a manner consistent with a fixed-benefit life
insurance policy for federal income tax purposes. Thus, the death benefit under
the Policy should be excludable from the gross income of the beneficiary under
Section 101(a)(1) of the Code.
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's death benefit option, a Policy loan, a partial withdrawal, a surrender,
a change in ownership, a change of insured, the addition of an accelerated death
benefit rider, or an assignment of the Policy may have federal income tax
consequences. In addition, federal, state and local transfer, and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each policyowner or beneficiary.
Generally, the policyowner will not be deemed to be in constructive receipt of
the Policy Value, including increments thereof, until there is a distribution.
The tax consequences of distributions from, and loans taken from or secured by,
a Policy depend on whether the Policy is classified as a "Modified Endowment
Contract." Upon a complete surrender or lapse of a Policy or when benefits are
paid at a Policy's maturity date, if the amount received plus the amount of
indebtedness exceeds the total investment in the Policy, the excess will
generally be treated as ordinary income subject to tax, regardless of whether
the Policy is or is not a Modified Endowment Contract.
MODIFIED ENDOWMENT CONTRACTS. Section 7702A establishes a class of life
insurance contracts designated as "Modified Endowment Contracts," which applies
to Policies entered into or materially changed after June 20, 1988.
Because of the Policy's flexibility, classification as a Modified Endowment
Contract will depend on the individual circumstances of each Policy. In general,
a Policy will be a Modified Endowment Contract if the accumulated premiums paid
at any time during the first seven policy years exceed the sum of the net level
premiums which would have been paid on or before such time if the Policy
provided for paid-up future benefits after the payment of seven level annual
premiums. The determination of whether a Policy will be a Modified Endowment
Contract after a material change generally depends upon the relationship of the
death benefit and Policy Value at the time of such change and the additional
premiums paid in the seven years following the material change. If a premium is
credited or transaction conducted which would cause the Policy to become a
Modified Endowment Contract, the Company will notify the policyowner that unless
a refund of the excess premium is requested by the policyowner within 45 days of
the policy anniversary next occurring thereafter, the Policy will become a
Modified Endowment Contract.
Further, if a transaction occurs which reduces the face amount of the Policy
during the first seven years, the Policy will be retested retroactive to the
date of purchase to determine compliance with the seven pay test based on the
lower face amount. As well, if a reduction of the face amount occurs within
seven years of a material change, the Policy will be retested for compliance
retroactive to the date of the material change. Failure to comply would result
in classification as a Modified Endowment Contract regardless of any efforts by
the Company to provide a payment schedule that will not violate the seven pay
test.
The rules relating to whether a Policy will be treated as a Modified Endowment
Contract are extremely complex and cannot be adequately described in the limited
confines of this summary. Therefore, a current or prospective policyowner should
consult with a competent adviser to determine whether a transaction will cause
the Policy to be treated as a Modified Endowment Contract.
DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS. Policies
classified as Modified Endowment Contracts will be subject to the following tax
rules: First, all partial withdrawals from such a Policy are treated as ordinary
income subject to tax up to the amount equal to the excess (if any) of the
Policy Value immediately before the distribution over
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<PAGE> 37
the investment in the Policy (described below) at such time. Second, loans taken
from or secured by such a Policy are treated as partial withdrawals from the
Policy and taxed accordingly. Past-due loan interest that is added to the loan
amount is treated as a loan. Third, a 10% additional income tax is imposed on
the portion of any distribution (including distributions upon surrender) from,
or loans taken from or secured by, such a Policy that is included in income
except where the distribution or loan is made on or after the policyowner
attains age 59 1/2, is attributable to the policyowner's becoming disabled, or
is part of a series of substantially equal periodic payments for the life (or
life expectancy) of the policyowner or the joint lives (or joint life
expectancies) of the policyowner and the policyowner's beneficiary.
DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS. A
distribution from a Policy that is not a Modified Endowment Contract is
generally treated as a tax-free recovery by the policyowner of the investment in
the Policy (described below) to the extent of such investment in the Policy, and
as a distribution of taxable income only to the extent the distribution exceeds
the investment in the Policy. An exception to this general rule occurs in the
case of a decrease in the Policy's death benefit or any other change that
reduces benefits under the Policy in the first 15 years after the Policy is
issued and that results in a cash distribution to the policyowner in order for
the Policy to continue complying with the Section 7702 definitional limits. Such
a cash distribution will be taxed in whole or in part as ordinary income (to the
extent of any gain in the Policy) under rules prescribed in Section 7702.
Loans from, or secured by, a Policy that is not a Modified Endowment Contract
are not treated as distributions. Instead, such loans are treated as
indebtedness of the policyowner. Select Loans may, however, be treated as a
distribution.
Finally, neither distributions (including distributions upon surrender) nor
loans from, or secured by, a Policy that is not a Modified Endowment Contract
are subject to the 10% additional tax.
POLICY LOAN INTEREST. Generally, personal interest paid on any loan under a
Policy which is owned by an individual is not deductible. In addition, interest
on any loan under a Policy owned by a taxpayer and covering the life of any
individual who is an officer or employee of or is financially interested in the
business carried on by that taxpayer will not be tax deductible to the extent
the aggregate amount of such loans with respect to contracts covering such
individual exceeds $50,000. The deduction of interest on Policy loans may also
be subject to other restrictions under Section 264 of the Code.
INVESTMENT IN THE POLICY. Investment in the Policy means (i) the aggregate
amount of any premiums or other consideration paid for a Policy, minus (ii) the
aggregate amount received under the Policy which has been excluded from gross
income of the policyowner (except that the amount of any loan from, or secured
by, a Policy that is a Modified Endowment Contract, to the extent such amount
has been excluded from gross income, will be disregarded), plus (iii) the amount
of any loan from, or secured by, a Policy that is a Modified Endowment Contract
to the extent that such amount has been included in the gross income of the
policyowner.
MULTIPLE POLICIES. All Modified Endowment Contracts that are issued by the
Company (or its affiliates) to the same policyowner during any calendar year are
treated as one Modified Endowment Contract for purposes of determining the
amount includible in the gross income under Section 72(e) of the Code.
THE COMPANY'S TAXES
As a result of the Omnibus Budget Reconciliation Act of 1990, insurance
companies are generally required to capitalize and amortize certain policy
acquisition expenses over a 10-year period rather than currently deducting such
expenses. This treatment applies to the deferred acquisition expenses of a
Policy and results in a significantly higher corporate income tax liability for
the Company. The Company makes a charge to premiums to compensate it for the
anticipated higher corporate income taxes.
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.
DISTRIBUTION OF THE POLICY
ManEquity, Inc., an indirect wholly-owned subsidiary of Manufacturers Life, will
act as the principal underwriter of, and continuously offer, the Policies
pursuant to a Distribution Agreement with Manufacturers Life of America.
ManEquity, Inc. is registered as a broker-dealer under the Securities Exchange
Act of 1934 and is a member of the National Association of Securities Dealers.
The Policies will be sold by registered representatives of either ManEquity,
Inc. or other broker-dealers having distribution agreements with ManEquity, Inc.
who are also authorized by state insurance departments to do so. A registered
representative will receive first-year commissions not to exceed 50% of premiums
paid up to the Target Premium, commissions of 2% of premiums in excess thereof
and, after the third anniversary, 0.15% of the Policy Value per annum. In
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addition representatives will be eligible for bonuses of up to 90% of first-year
commissions. Representatives who meet certain 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 ASSUMED BY MANUFACTURERS LIFE
Manufacturers Life has entered into an agreement with ManEquity, Inc. pursuant
to which Manufacturers Life, on behalf of ManEquity, Inc., will pay the sales
commissions in respect of the Policies and certain other policies issued by
Manufacturers Life of America, prepare and maintain all books and records
required to be prepared and maintained by ManEquity, Inc. with respect to the
Policies and such other policies, and send all confirmations required to be sent
by ManEquity, Inc. with respect to the Policies and such other policies.
ManEquity, Inc. will promptly reimburse Manufacturers Life for all sales
commissions paid by Manufacturers Life and will pay Manufacturers Life for its
other services under the agreement in such amounts and at such times as agreed
to by the parties.
Manufacturers Life has also entered into a Service Agreement with Manufacturers
Life of America pursuant to which Manufacturers Life will provide to
Manufacturers Life of America 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 Life has entered into a Stoploss Reinsurance Agreement
with Manufacturers Life of America under which Manufacturers Life reinsures all
aggregate claims in excess of 110% of the expected claims for all flexible
premium variable life insurance policies issued by Manufacturers Life of
America. Under the agreement Manufacturers Life of America 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 Life of America may also consider reinsuring any non-aviation
risks in excess of $7,500,000 and any aviation risk in excess of $5,000,000.
VOTING RIGHTS
As stated above, all of the assets held in the sub-accounts of the Separate
Account will be invested in shares of a particular Fund of the Series Fund.
Manufacturers Life of America is the legal owner of those shares and as such has
the right to vote to elect the Board of Directors of the Series Fund, to vote
upon certain matters that are required by the 1940 Act to be approved or
ratified by the shareholders of a mutual fund and to vote upon any other matters
that may be voted upon at a shareholders' meeting. However, Manufacturers Life
of America will vote shares of the Series Fund held in the sub-accounts in
accordance with instructions received from policyowners having an interest in
such sub-accounts.
Fund shares held in each sub-account for which no timely instructions from
policyowners are received, including shares not attributable to Policies, will
be voted by Manufacturers Life of America in the same proportion as those shares
in that sub-account for which instructions are received. Should the applicable
federal securities laws or regulations change so as to permit Manufacturers Life
of America to vote shares of the Series Fund held in the Separate Account in its
own right, it may elect to do so.
The number of Fund shares in each sub-account for which instructions may be
given by a policyowner is determined by dividing the portion of the Policy Value
derived from participation in that sub-account, if any, by the value of one
share of the corresponding Fund. The number will be determined as of a date
chosen by Manufacturers Life of America, but not more than 90 days before the
meeting of the Series Fund. Fractional votes are counted. Voting instructions
will be solicited in writing at least 14 days prior to the meeting of the Series
Fund.
Manufacturers Life of America may, if required by state insurance officials,
disregard voting instructions if such instructions would require shares to be
voted so as to cause a change in the sub-classification or investment policies
of one or more of the Funds, or to approve or disapprove an investment
management contract for the Series Fund. In addition, Manufacturers Life of
America itself may disregard voting instructions that would require changes in
the investment policies or investment adviser of one or more of the Funds,
provided that Manufacturers Life of America reasonably disapproves such changes
in accordance with applicable federal regulations. If Manufacturers Life of
America does disregard voting instructions, it will advise policyowners of that
action and its reasons for such action in the next communication to
policyowners.
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DIRECTORS AND OFFICERS OF MANUFACTURERS LIFE OF AMERICA
The directors and executive officers of Manufacturers Life of America, together
with their principal occupations during the past five years, are as follows:
<TABLE>
<CAPTION>
POSITION WITH
MANUFACTURERS
NAME LIFE OF AMERICA PRINCIPAL OCCUPATION
---- --------------- --------------------
<S> <C> <C>
Sandra M. Cotter Director Attorney -- 1989-present, Dykema Gossett
Leonard V. Day, Jr. Director General Manager, Philadelphia Branch -- 1970-present, The Manufacturers
Life Insurance Company
Donald A. Guloien President and Senior Vice President, Business Development -- 1994-present, The
Director Manufacturers Life Insurance Company; Vice President, U.S. Individual
Business -- 1990-1994, The Manufacturers Life Insurance Company
Stephen C. Nesbitt Secretary, Legal Vice President -- 1990-present, The Manufacturers Life Insurance
General Counsel Company
and Director
Joseph J. Pietroski Director Senior Vice President, General Counsel and Corporate Secretary --
1988-present, The Manufacturers Life Insurance Company
John D. Richardson Chairman and Senior Vice President and General Manager, U.S. Operations --
Director 1995-present, The Manufacturers Life Insurance Company; Senior Vice
President and General Manager, Canadian Operations -- 1992-1994, The
Manufacturers Life Insurance Company; Senior Vice President, Financial
Services -- 1992, The Manufacturers Life Insurance Company; Executive
Vice Chairman and CFO -- 1989-1991, Canada Trust
Diane M. Schwartz Director Senior Vice President, International Operations -- 1992-present, The
Manufacturers Life Insurance Company; Senior Vice President and General
Manager, U.S. Operations -- 1988-1992, The Manufacturers Life Insurance
Company
Robin Bolton Vice President, Assistant Vice President, Variable and Annuity Products -- 1992-present,
Marketing The Manufacturers Life Insurance Company; Assistant Vice President,
Variable Universal Life Products -- 1991-1992, The Manufacturers Life
Insurance Company; Director, Agencies -- 1990-1991, The Manufacturers
Life Insurance Company; Assistant Vice President, Finance and Planning --
1987-1991, The Manufacturers Life Insurance Company
John R. Ostler Vice President, Financial Vice President -- 1992-present, The Manufacturers Life
Chief Actuary and Insurance Company; Vice President, Insurance Products --
Treasurer 1990-1992, The Manufacturers Life Insurance Company
Douglas H. Myers Vice President, Assistant Vice President and Controller, U.S. Operations --
Finance and 1988-present, The Manufacturers Life Insurance Company
Compliance,
Controller
</TABLE>
36
<PAGE> 40
STATE REGULATIONS
Manufacturers Life of America is subject to regulation and supervision by the
Michigan Department of Insurance, which periodically examines its financial
condition and operations. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business. The
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.
PENDING LITIGATION
No litigation is pending that would have a material effect upon the Separate
Account or the Series Fund.
ADDITIONAL 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.
For further information you may also contact Manufacturers Life of America's
Service Office, the address and telephone number of which are on the cover page
of this prospectus.
LEGAL MATTERS
The legal validity of the policies has been passed on by Stephen C. Nesbitt,
Esq., Secretary and General Counsel of Manufacturers Life of America. Jones &
Blouch, Washington, D.C., has passed on certain matters relating to the federal
securities laws.
EXPERTS
The financial statements of The Manufacturers Life Insurance Company of America
and of The Manufacturers Life Insurance Company of America Separate Account
Three appearing in this prospectus have been audited by Ernst & Young,
independent auditors, as set forth in their reports appearing elsewhere herein,
and are included in reliance upon such reports given upon the authority of such
firm as experts in auditing and accounting.
Actuarial matters included in this prospectus have been examined by John R.
Ostler, Vice President, Chief Actuary and Treasurer of Manufacturers Life of
America, whose opinion is filed as an exhibit to the registration statement.
37
<PAGE> 41
Report of Independent Auditors
To the Board of Directors
The Manufacturers Life Insurance
Company of America
We have audited the statement of assets and liabilities as of December 31, 1994
and the statement of operations, and the statements of changes in net assets for
each of the periods presented herein of Separate Account Three of The
Manufacturers Life Insurance Company of America (comprising, respectively, the
Emerging Growth Equity Sub-Account, Common Stock Sub-Account, Real Estate
Securities Sub-Account, Balanced Assets Sub-Account, Capital Growth Bond
Sub-Account, Money Markets Sub-Account, International Sub-Account and Pacific
Rim Emerging Markets Sub-Account). These financial statements are the
responsibility of the management of The Manufacturers Life Insurance Company of
America. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
sub-accounts constituting Separate Account Three of The Manufacturers Life
Insurance Company of America at December 31, 1994, and the results of their
operations and changes in their net assets for each of the periods presented
herein, in conformity with generally accepted accounting principles.
February 6, 1995
38
<PAGE> 42
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statement of Assets and Liabilities
Year Ended December 31, 1994
<TABLE>
<CAPTION>
EMERGING GROWTH COMMON STOCK REAL ESTATE
EQUITY SUB-ACCOUNT SUB-ACCOUNT SECURITIES SUB-ACCOUNT
---------------------------------------------------------------
<S> <C> <C> <C>
Assets
Investment in Manulife Series Fund, Inc. --
at market value:
Emerging Growth Equity Fund, $14,348,825
773,490 shares (cost $14,270,737)
Common Stock Fund, $5,928,854
443,671 shares (cost $6,367,143)
Real Estate Securities Fund, $5,219,386
391,124 shares (cost $5,499,930)
Balanced Assets Fund,
873,324 shares (cost $13,093,969)
Capital Growth Bond Fund,
501,327 shares (cost $5,605,877)
Money Market Fund,
694,147 shares (cost $7,198,453)
International Fund,
33,406 shares (cost $331,394)
Pacific Rim Emerging Markets Fund,
25,987 shares (cost $253,094)
---------------------------------------------------------------
14,348,825 5,928,854 5,219,386
Receivable (payable) for policy-related transactions
39,093 16,996 18,279
---------------------------------------------------------------
Net assets $14,387,918 $5,945,850 $5,237,665
===============================================================
Units outstanding 524,532 342,306 244,066
===============================================================
Net asset value per unit $ 27.43 $ 17.37 $ 21.46
===============================================================
</TABLE>
*Reflects the period from commencement of operations October 4, 1994 through
December 31, 1994.
See accompanying notes.
39
<PAGE> 43
<TABLE>
<CAPTION>
*PACIFIC RIM
BALANCED ASSETS CAPITAL GROWTH BOND MONEY MARKET *INTERNATIONAL EMERGING MARKETS
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$14,348,825
5,928,854
5,219,386
$12,029,839 12,029,839
$5,062,895 5,062,895
$7,123,443 7,123,443
$327,988 327,988
$244,461 244,461
----------------------------------------------------------------------------------------------------------------------------------
12,029,839 5,062,895 7,123,443 327,988 244,461 50,285,691
21,660 (1,720) 3,799 26 32 98,165
----------------------------------------------------------------------------------------------------------------------------------
$12,051,499 $5,061,175 $7,127,242 $328,014 $244,493 $50,383,856
==================================================================================================================================
745,300 320,125 477,058 33,642 25,818
================================================================================================================
$ 16.17 $ 15.81 $ 14.94 $ 9.75 $ 9.47
================================================================================================================
</TABLE>
40
<PAGE> 44
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statement of Operations
Year Ended December 31, 1994
<TABLE>
<CAPTION>
EMERGING GROWTH COMMON STOCK REAL ESTATE SECURITIES
EQUITY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment income:
Dividend income $ 43,907 $ 267,928 $ 75,896
Expenses:
Mortality and expense risks charge -- -- --
------------------------------------------------------------
Net investment income 43,907 267,928 75,896
------------------------------------------------------------
Realized and unrealized gain (loss) on
investments:
Realized gain (loss) from security
transactions:
Proceeds from sales 491,049 461,407 428,802
Cost of securities sold 279,863 461,748 397,773
------------------------------------------------------------
Net realized gain (loss) 211,186 (341) 31,029
------------------------------------------------------------
Unrealized (appreciation) depreciation of
investments:
Beginning of year 333,432 (2,379) 24,832
End of year 78,088 (438,289) (280,544)
------------------------------------------------------------
Net unrealized depreciation during the year (255,344) 435,910 305,376
------------------------------------------------------------
Net realized and unrealized loss on investments (44,158) (436,851) (274,347)
------------------------------------------------------------
Net decrease in net assets derived from
operations $ (251) $(168,323) $(198,451)
============================================================
</TABLE>
*Reflects the period from commencement of operations October 4, 1994 through
December 31, 1994.
See accompanying notes.
41
<PAGE> 45
<TABLE>
<CAPTION>
*PACIFIC RIM
BALANCED ASSETS CAPITAL GROWTH BOND MONEY MARKET *INTERNATIONAL EMERGING MARKETS
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 603,014 $ 311,297 $ 186,610 $ 851 $ 871 $ 1,490,374
-- -- -- -- -- --
--------------------------------------------------------------------------------------------------------------------------------
603,014 311,297 186,610 851 871 1,490,374
--------------------------------------------------------------------------------------------------------------------------------
627,251 375,016 2,993,307 82 899 5,377,813
628,521 366,261 2,980,427 84 956 5,115,633
--------------------------------------------------------------------------------------------------------------------------------
(1,270) 8,755 12,880 (2) (57) 262,180
--------------------------------------------------------------------------------------------------------------------------------
(109,999) (45,400) (24,284) -- -- 176,202
(1,064,130) (542,982) (75,010) (3,406) (8,633) (2,334,906)
--------------------------------------------------------------------------------------------------------------------------------
(954,131) (497,582) (50,726) (3,406) (8,633) (2,511,108)
--------------------------------------------------------------------------------------------------------------------------------
(955,401) (488,827) (37,846) (3,408) (8,690) (2,248,928)
--------------------------------------------------------------------------------------------------------------------------------
$ (352,387) $(177,530) $ 148,764 $(2,557) $(7,819) $ (758,554)
================================================================================================================================
</TABLE>
42
<PAGE> 46
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Changes in Net Assets
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
EMERGING GROWTH COMMON STOCK REAL ESTATE SECURITIES
EQUITY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-----------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/94 DEC. 31/93 DEC. 31/94 DEC. 31/93 DEC. 31/94 DEC. 31/93
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 43,907 $ 251,345 $ 267,928 $ 38,418 $ 75,896 $ 62,048
Net realized gain (loss) 211,186 24,226 (341) 100,980 31,029 7,545
Unrealized depreciation)
appreciation of investments
during the year (255,344) 28,423 (435,910) (88,251) (305,376) (13,818)
-----------------------------------------------------------------------------------------------
Increase (decrease) in net
assets derived from
operations (251) 303,994 (168,323) 51,147 (198,451) 55,775
-----------------------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 12,590,008 1,239,654 5,554,746 581,711 4,874,992 647,750
Transfer on death -- -- -- -- -- --
Transfer of terminations (1,565,370) (58,498) (649,516) (366,106) (663,869) (18,153)
Transfer of policy loans (86,018) (26,763) (36,417) (8,300) (6,117) (23,327)
Net interfund transfers 823,390 172,225 421,280 (89,887) 318,546 70,007
-----------------------------------------------------------------------------------------------
11,762,010 1,326,618 5,290,093 117,418 4,523,552 676,277
-----------------------------------------------------------------------------------------------
Net increase in net assets 11,761,759 1,630,612 5,121,770 168,565 4,325,101 732,052
NET ASSETS
Beginning of year 2,626,159 995,547 824,080 655,515 912,564 180,512
-----------------------------------------------------------------------------------------------
End of year $14,387,918 $2,626,159 $5,945,850 $ 824,080 $5,237,665 $912,564
===============================================================================================
</TABLE>
See accompanying notes.
43
<PAGE> 47
<TABLE>
<CAPTION>
BALANCED ASSETS CAPITAL GROWTH MONEY MARKET
SUB-ACCOUNT BOND SUB-ACCOUNT SUB-ACCOUNT
---------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/94 DEC. 31/93 DEC. 31/94 DEC. 31/93 DEC. 31/94 DEC. 31/93
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 603,014 $ 195,442 $ 311,297 $ 103,057 $ 186,610 $ 12,521
(1,270) 345,185 8,755 6,150 12,880 (998)
(954,131) (361,715) (497,582) (63,182) (50,726) (621)
---------------------------------------------------------------------------------------------
(352,387) 178,912 (177,530) 46,025 148,764 10,902
---------------------------------------------------------------------------------------------
9,721,164 2,223,408 3,709,555 1,542,401 9,185,855 677,589
-- (42,338) -- -- -- --
(1,044,780) (57,543) (306,914) (22,391) (1,053,809) (125,188)
(153,402) (115,269) (57,452) (63,465) (110) (101)
150,911 43,189 (184,732) 35,235 (1,923,048) (226,511)
---------------------------------------------------------------------------------------------
8,673,893 2,051,447 3,160,457 1,491,780 6,208,888 325,789
---------------------------------------------------------------------------------------------
8,321,506 2,230,359 2,982,927 1,537,805 6,357,652 336,691
3,729,993 1,499,634 2,078,248 540,443 769,590 432,899
---------------------------------------------------------------------------------------------
$ 12,051,499 $ 3,729,993 $ 5,061,175 $ 2,078,248 $ 7,127,242 $ 769,590
=============================================================================================
</TABLE>
44
<PAGE> 48
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Changes in Net Assets (continued)
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
INTERNATIONAL PACIFIC RIM EMERGING
SUB-ACCOUNT MARKETS SUB-ACCOUNT TOTAL
PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/94* DEC. 31/94* DEC. 31/94 DEC. 31/93
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 851 $ 871 $ 1,490,374 $ 662,831
Net realized (loss) gain (2) (57) 262,180 483,088
Unrealized (depreciation)
appreciation of investments
during the year (3,406) (8,633) (2,511,108) (499,164)
-----------------------------------------------------------------------------
Increase (decrease) in net
assets derived from
operations (2,557) (7,819) (758,554) 646,755
-----------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 73,368 41,337 45,751,025 6,912,513
Transfer on death -- -- -- (42,338)
Transfer of terminations (4,461) (2,998) (5,291,717) (647,879)
Transfer of policy loans (768) (768) (341,052) (237,225)
Net interfund transfers 262,432 214,741 83,520 4,258
-----------------------------------------------------------------------------
330,571 252,312 40,201,776 5,989,329
-----------------------------------------------------------------------------
Net increase in net assets 328,014 244,493 39,443,222 6,636,084
NET ASSETS
Beginning of year -- 10,940,634 4,304,550
-----------------------------------------------------------------------------
End of year $328,014 $244,493 $50,383,856 $10,940,634
=============================================================================
</TABLE>
*Reflects the period from commencement of operations October 4, 1994 through
December 31, 1994.
See accompanying notes.
45
<PAGE> 49
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes To Financial Statements
DECEMBER 31, 1994
1. ORGANIZATION
Separate Account Three of The Manufacturers Life Insurance Company of America
(the "Separate Account") is a unit investment trust registered under the
Investment Company Act of 1940, as amended. The Separate Account is currently
comprised of eight investment sub-accounts, one for each series of shares of
Manulife Series Fund, Inc., available for allocation of net premiums under
single premium variable life insurance policies (the "Policies") issued by The
Manufacturers Life Insurance Company of America ("Manufacturers Life of
America").
The Separate Account was established by Manufacturers Life of America, a
wholly-owned subsidiary of The Manufacturers Life Insurance Company of Michigan
("MLIM"), as a separate investment account on February 6, 1987. MLIM is a life
insurance holding company organized in 1983 under Michigan law and a
wholly-owned subsidiary of The Manufacturers Life Insurance Company ("Manulife
Financial"), a mutual life insurance company based in Toronto, Canada.
The assets of the Separate Accounts are the property of Manufacturers Life of
America. The portion of the Separate Account's assets applicable to the Policies
will not be chargeable with liabilities arising out of any other business
Manufacturers Life of America may conduct.
The net assets may not be less than the amount required under state insurance
law to provide for death (without regard to the minimum death benefit guarantee)
and other Policy benefits.
Additional assets are held in Manufacturers Life of America's general account to
cover the contingency that the guaranteed minimum death benefit might exceed the
death benefit which would have been payable in the absence of such guarantee.
In September 1993, Manufacturers Life of America began to market a new life
insurance product, Horizon Variable Universal Life, through Separate Account
Three. In September 1994, Manufacturers Life of America added Generation, a
survivorship variable life product sold through Separate Account Three.
46
<PAGE> 50
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes To Financial Statements
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Separate Account in preparation of its financial statements.
a. Valuation of Investments - Investments are made among the eight Funds of
Manulife Series Fund, Inc. and are valued at the reported net asset values
of these Funds. Transactions are recorded on the trade date.
b. Realized gains and losses on the sale of investments are computed on the
first-in, first-out basis.
c. Dividend income is recorded on the ex-dividend date.
d. Federal Income Taxes - Manufacturers Life of America, the Separate Account's
sponsor, is taxed as a "life insurance company" under the Internal Revenue
Code. Under these provisions of the Code, the operations of the Separate
Account form part of the sponsor's total operations and are not taxed
separately.
The current year's operations of the Separate Account are not expected to affect
the sponsor's tax liabilities and, accordingly, no charges were made against the
Separate Account for federal, state and local taxes. However, in the future,
should the sponsor incur significant tax liabilities related to Separate Account
operations, it intends to make a charge or establish a provision within the
Separate Account for such taxes.
3. MORTALITY AND EXPENSE RISKS CHARGE
Until March 1993, Manufacturers Life of America deducted from the assets of the
Separate Account a daily charge equivalent to an annual rate of 0.50% of the
average net value of the Separate Account's assets for mortality and expense
risks. After March 1993, mortality expense charges are only applied to Horizon
Variable Universal Life and Generation Survivorship Variable Universal Life
policies and are deducted as a policy charge rather than an expense of the
Separate Account.
4. PURCHASES AND SALES OF MANULIFE SERIES FUND, INC. SHARES
Purchases and sales of the shares of common stock of Manulife Series Fund, Inc.
for the year ended December 31, 1994 were $47,012,777 and $5,377,813,
respectively, and for the year ended December 31, 1993 were $8,804,293 and
$2,194,923, respectively.
47
<PAGE> 51
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes To Financial Statements
5. RELATED PARTY TRANSACTIONS
ManEquity, Inc., a registered broker-dealer and indirect wholly-owned subsidiary
of Manulife Financial, acts as the principal underwriter of the Policies
pursuant to a Distribution Agreement with Manufacturers Life of America.
Registered representatives of either ManEquity, Inc. or other broker-dealers
having distribution agreements with ManEquity, Inc. who are also authorized as
variable life insurance agents under applicable state insurance laws, sell the
Policies. Registered representatives are compensated on a commission basis.
Manufacturers Life of America has a formal service agreement with its affiliate,
Manulife Financial, which can be terminated by either party upon two months'
notice. Under this Agreement, Manufacturers Life of America pays for legal,
actuarial, investment and certain other administrative services.
48
<PAGE> 52
[THIS PAGE INTENTIONALLY LEFT BLANK]
49
<PAGE> 53
Report of Independent Auditors
The Board of Directors
The Manufacturers Life Insurance
Company of America
We have audited the accompanying balance sheets of The Manufacturers Life
Insurance Company of America as of December 31, 1994 and 1993, and the related
statements of operations, changes in capital and surplus, and cash flows for
each of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Manufacturers Life
Insurance Company of America at December 31, 1994 and 1993, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles and with reporting practices prescribed or permitted by the Insurance
Department of the State of Michigan.
Philadelphia, Pennsylvania ERNST & YOUNG LLP
February 20, 1995
50
<PAGE> 54
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1994 1993
------------------------------
<S> <C> <C>
ASSETS
Bonds, at amortized cost (market $51,082,395--1994
and $24,120,198--1993) $ 52,149,080 $ 23,375,773
Stocks (note 9) 25,629,580 40,549,278
Short-term investments 10,914,561 797,875
Policy loans 4,494,390 3,023,275
------------------------------
Total investments 93,187,611 67,746,201
Cash 5,069,197 8,260,261
Life insurance premiums deferred and uncollected 13,646 31,574
Accrued investment income 796,333 468,968
Separate account assets 302,736,198 174,182,746
Funds receivable on reinsurance assumed 880,284 2,240,200
Receivable for undelivered securities 69,003 353,576
Other assets 333,651 108,260
------------------------------
Total assets $ 403,085,923 $ 253,391,786
==============================
LIABILITIES, CAPITAL AND SURPLUS
Aggregate policy reserves $ 29,761,174 $ 13,019,605
Other contract deposits 3,938,425 3,284,211
Interest maintenance and asset valuation reserves 111,566 431,400
Policy and contract claims 94,346 153,709
Provision for policyholder dividends payable 1,385,409 1,016,502
Amounts due to affiliates 7,377,108 7,953,242
Payable for undelivered securities 3,512,459 -
Accrued liabilities 4,773,565 2,694,433
Separate account liabilities 302,736,198 174,182,746
------------------------------
Total liabilities 353,690,250 202,735,848
Capital and surplus:
Common shares, par value $1.00; authorized,
5,000,000 shares; issued and outstanding
4,501,855 shares (1,501,854 shares in 1993) 4,501,855 1,501,854
Preferred shares, par value $100; authorized
5,000,000 shares; issued and outstanding
105,000 shares (335,000 shares in 1993) 10,500,000 33,500,000
Surplus (deficit) (15,456,180) 5,804,085
Capital paid in excess of par value 49,849,998 9,849,999
------------------------------
Total capital and surplus 49,395,673 50,655,938
------------------------------
Total liabilities, capital and surplus $ 403,085,923 $ 253,391,786
==============================
</TABLE>
See accompanying notes.
51
<PAGE> 55
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
------------------------------------------------
<S> <C> <C> <C>
Revenues:
Life and annuity premiums, principally
reinsurance assumed $ 25,385,628 $ 12,745,981 $ 6,579,233
Other life and annuity considerations 168,075,003 113,332,974 33,268,869
Investment income, net of investment
expenses ($106,908 in 1994,
$89,186 in 1993, $58,423 in 1992) 3,588,629 3,323,962 1,430,454
Amortization of interest maintenance reserve 19,527 32,866 7,707
Commission and expense allowance
on reinsurance ceded 187,694 -- --
Foreign exchange gain (loss) 114,728 (197,971) 24,657
Other revenue 54,763 33,935 4,903
------------------------------------------------
Total revenues 197,425,972 129,271,747 41,315,823
Benefits paid or provided:
Increase in aggregate policy reserves 16,741,569 5,168,484 3,625,964
Increase in liability for deposit funds 654,214 2,820,520 422,369
Transfers to separate accounts, net 136,896,150 98,601,141 26,789,260
Death benefits 640,875 582,534 286,278
Maturity benefits 580,615 79,253 --
Surrender benefits 3,701,591 2,319,926 1,596,434
------------------------------------------------
159,215,014 109,571,858 32,720,305
Insurance expenses:
Management fee 21,222,310 12,378,288 4,861,244
Commissions 23,416,110 14,742,130 5,192,462
General expenses 8,260,467 5,108,104 2,744,475
Commissions and expense allowances
on reinsurance assumed 810,252 329,634 269,141
------------------------------------------------
53,709,139 32,558,156 13,067,322
------------------------------------------------
Loss before policyholders' dividends
and federal income tax (15,498,181) (12,858,267) (4,471,804)
Dividends to policyholders 1,149,719 837,454 634,652
------------------------------------------------
Loss before federal income tax (16,647,900) (13,695,721) (5,106,456)
Federal income tax provision (benefit) -- (324,643) 339,539
------------------------------------------------
Net loss from operations after policyholders'
dividends and federal income tax (16,647,900) (13,371,078) (5,445,995)
Net realized capital gains (excluding capital gains
tax of $0 in 1994, $236,415 in 1993, and $0 in
1992 and $(554,000) in 1994, $347,292 in 1993,
and $68,401 in 1992 transferred to (from) the
interest maintenance reserve) (3,012,485) 93,618 139,261
------------------------------------------------
Net loss from operations $ (19,660,385) $ (13,277,460) $ (5,306,734)
================================================
</TABLE>
See accompanying notes.
52
<PAGE> 56
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
<TABLE>
<CAPTION>
CAPITAL
PAID IN
EXCESS OF SURPLUS
CAPITAL PAR VALUE (DEFICIT) TOTAL
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1991 $ 29,001,853 $ 4,000,000 $ 19,650,265 $ 52,652,118
Net loss from operations (5,306,734) (5,306,734)
Issuance of preferred shares 6,000,000 6,000,000
Increase in asset valuation reserve (8,813) (8,813)
Increase in nonadmitted assets (1,025,556) (1,025,556)
Change in liability for reinsurance
in unauthorized companies (7,166) (7,166)
Company's share of increase
in separate account assets, net 3,240,199 3,240,199
-------------------------------------------------------------
Balance, December 31, 1992 35,001,853 4,000,000 16,542,195 55,544,048
Net loss from operations (13,277,460) (13,277,460)
Issuance of common stocks 1 5,849,999 5,850,000
Increase in asset valuation reserve (13,076) (13,076)
Increase in nonadmitted assets (133,575) (133,575)
Change in net unrealized capital
losses (1,592,242) (1,592,242)
Change in liability for reinsurance
in unauthorized companies (29,905) (29,905)
Company's share of increase in
separate account assets 4,308,148 4,308,148
-------------------------------------------------------------
Balance, December 31, 1993 35,001,854 9,849,999 5,804,085 50,655,938
Net loss from operations (19,660,385) (19,660,385)
Issuance of common shares 1 19,999,999 20,000,000
Capital restructuring of preference
shares (20,000,000) 20,000,000 --
Increase in asset valuation reserve (55,286) (55,286)
Increase in nonadmitted assets (1,021,357) (1,021,357)
Change in net unrealized capital
losses (425,082) (425,082)
Change in liability for reinsurance
in unauthorized companies (98,155) (98,155)
-------------------------------------------------------------
Balance, December 31, 1994 $ 15,001,855 $ 49,849,998 $(15,456,180) $ 49,395,673
=============================================================
</TABLE>
See accompanying notes.
53
<PAGE> 57
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1994 1993 1992
------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums collected, net $ 193,478,637 $ 126,075,035 $ 39,842,600
Policy benefits paid, net (4,982,444) (2,829,812) (1,932,712)
Commissions and other expenses paid (48,141,400) (35,203,997) (9,431,344)
Net investment income 3,343,515 3,197,892 1,356,553
Other income and expenses (1,946,063) (1,592,957) (1,849,180)
Transfers to separate accounts, net (136,950,482) (98,220,292) (26,266,436)
------------------------------------------------
Net cash provided by (used in)
operating activities 4,801,763 (8,574,131) 1,719,481
INVESTING ACTIVITIES
Sale, maturity, or repayment of investments 73,187,733 28,248,633 11,975,475
Purchase of investments (91,063,874) (73,688,735) (24,400,135)
------------------------------------------------
Net cash used in investing activities (17,876,141) (45,440,102) (12,424,660)
FINANCING ACTIVITIES
Issuance of shares 20,000,000 5,850,000 6,000,000
Surplus withdrawn from separate account -- 48,701,076 6,000,000
------------------------------------------------
Net cash provided by financing activities 20,000,000 54,551,076 12,000,000
------------------------------------------------
Net increase in cash and short-term
investments 6,925,622 536,843 1,294,821
Cash and short-term investments
at beginning of year 9,058,136 8,521,293 7,226,472
------------------------------------------------
Cash and short-term investments
at end of year $ 15,983,758 $ 9,058,136 $ 8,521,293
================================================
</TABLE>
See accompanying notes.
54
<PAGE> 58
The Manufacturers Life Insurance Company of America
Notes to Financial Statements
December 31, 1994
1. ORGANIZATION
The Manufacturers Life Insurance Company of America (Manufacturers Life of
America or the Company) is a wholly-owned subsidiary of The Manufacturers Life
Insurance Company of Michigan (the Parent), which is in turn a wholly-owned
subsidiary of The Manufacturers Life Insurance Company (Manulife Financial), a
Canadian-based mutual life insurance company (Notes 4 and 5).
During 1994, the Company's parent contributed $20,000,000 capital in return for
1 share of the Company's common stock par value $1 with the remaining
$19,999,999 being recorded as contributed surplus. During 1994 the Company
restructured its capital by exchanging 230,000 shares of preferred stock with a
par value of $23,000,000 for 3,000,000 shares of common stock par value
$3,000,000 with the remaining $20,000,000 being recorded as contributed surplus.
The Parent contributed $5,850,000 in capital in return for 1 share of common
stock during 1993, $6,000,000 in capital in return for 60,000 shares of
preferred stock during 1992.
During 1991, the Company invested $1,800,000 to fund initial branch operations
in Taiwan. This investment in Taiwan was increased by $6,000,000 in 1992 and a
further investment of $5,200,000 in 1993. There was no new funding in 1994 for
the Taiwan branch.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements of Manufacturers Life of America have been
prepared in accordance with accounting practices prescribed or permitted by the
Insurance Department of Michigan, which are considered generally accepted
accounting principles for mutual life insurance companies and their wholly-owned
direct and indirect subsidiaries. Such practices differ in certain respects from
generally accepted accounting principles followed by stock life insurance
companies in determining financial position and results of operations. In
general, the differences are: (1) commissions and other costs of acquiring and
writing policies are charged to expense in the year incurred rather than being
amortized over the related policy term; (2) certain non-admitted assets are
excluded from the balance sheet; (3) deferred income taxes are not provided for
timing differences in recording certain items for financial statement and tax
purposes; (4) certain transactions are reflected directly to surplus rather than
reflected in net income from operations (for example, certain transactions
related to the separate accounts); and (5) debt securities are carried at
amortized cost.
55
<PAGE> 59
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION (CONTINUED)
In April 1993, the Financial Accounting Standards Board issued Interpretation
40, "Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises". The interpretation, which has been amended to
be effective for 1996 annual financial statements and thereafter, will no longer
allow statutory financial statements to be described as being prepared in
conformity with generally accepted accounting principles (GAAP). This will
require life insurance companies to adopt all applicable standards promulgated
by the FASB in any general purpose financial statements such companies may
issue. While GAAP standards have recently been developed for mutual life
insurance companies, the Company has not yet completed the complex and extensive
historical calculations and thus is unable to quantify the effects of the
Interpretation on its financial statements.
All amounts presented are expressed in U.S. Dollars. Certain amounts from prior
periods have been reclassified to conform with current period presentation.
STOCKS
Stocks are carried at market value.
BONDS
Bonds are carried at amortized cost. Discounts and premiums on investments are
amortized using the effective interest method. Gains and losses on sales of
bonds are calculated on the specific identification method and recognized into
income based on NAIC prescribed formulas. Short-term investments include
investments with maturities of less than one year at the date of acquisition.
Market values disclosed are based on NAIC quoted values.
ASSET VALUATION RESERVE AND INTEREST MAINTENANCE RESERVE
The Asset Valuation Reserve and Interest Maintenance Reserve were determined by
NAIC prescribed formulas and are reported as liabilities rather than as
valuation allowances or appropriations of surplus.
POLICY AND CONTRACT CLAIMS
Policy and contract claims are determined on an individual case basis for
reported losses. Estimates of incurred but not reported losses are developed on
the basis of past experience.
56
<PAGE> 60
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEPARATE ACCOUNTS
Separate account assets and liabilities reported in the accompanying financial
statements represent funds that are separately administered, principally for
variable annuity and variable life contracts. For the majority of these
contracts the contractholder, rather than the Company, bears the investment
risk. Separate account assets are recorded at market value. Operations of the
separate accounts are not included in the accompanying financial statements.
REVENUE RECOGNITION
Both premium and investment income are recorded when due.
REINSURANCE
Reinsurance premiums and claims are accounted for on a basis consistent with
that used in accounting for the original policies issued and the terms of the
reinsurance contracts. Premiums and claims are reported net of reinsured
amounts.
POLICY RESERVES
Certain policy reserves are calculated based on statutorily required interest
and mortality assumptions.
3. INVESTMENTS AND INVESTMENT INCOME
The amortized cost and market value of investments in fixed maturities (bonds)
as of December 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
QUOTED OR
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government securities $ 34,265,152 $ 243,971 $ (441,592) $ 34,067,531
Foreign government securities 7,388,458 - (294,385) 7,094,073
Corporate securities 10,495,470 2,457 (577,136) 9,920,791
------------------------------------------------------------
$ 52,149,080 $ 246,428 $ (1,313,113) $ 51,082,395
============================================================
</TABLE>
57
<PAGE> 61
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED)
Proceeds from sales of investments in debt securities during 1994 were
$43,175,845. Gross gains of $167,738 and gross losses of $1,006,702 were
realized on those sales.
The amortized cost and market value of investments in fixed maturities (bonds)
as of December 31, 1993 are summarized as follows:
<TABLE>
<CAPTION>
QUOTED OR
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government securities $ 15,473,821 $ 725,851 $ (19,830) $ 16,179,842
Foreign government securities 3,277,886 39,710 (5,316) 3,312,280
Corporate securities 4,624,066 47,402 (43,392) 4,628,076
------------------------------------------------------------
$ 23,375,773 $ 812,963 $ (68,538) $ 24,120,198
============================================================
</TABLE>
Proceeds from sales of investments in debt securities during 1993 were
$28,248,633. Gross gains of $694,800 and gross losses of $17,715 were realized
on those sales.
The amortized cost and market value of fixed maturities at December 31, 1994 by
contractual maturities, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
YEARS TO MATURITY AMORTIZED COST MARKET VALUE
----------------- --------------------------------
<S> <C> <C>
One year or less $ 107,413 $ 108,160
Greater than 1; up to 5 years 5,213,296 5,217,002
Greater than 5; up to 10 years 24,217,449 23,599,525
Due after 10 years 22,610,922 22,157,708
--------------------------------
$52,149,080 $51,082,395
================================
</TABLE>
At December 31, 1994, $4,447,934 of bonds at amortized cost were on deposit with
government insurance departments to satisfy regulatory regulations.
58
<PAGE> 62
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED)
Major categories of net investment income for each year were as follows:
<TABLE>
<CAPTION>
NET INVESTMENT INCOME
1994 1993 1992
------------------------------------------
<S> <C> <C> <C>
Gross investment income:
Dividends; Manulife Series Fund, Inc. $ 1,244,794 $ 1,440,392 -
Bond income 1,712,294 1,422,064 1,043,273
Policy loans 236,972 166,514 131,606
Short-term investments 501,477 384,178 313,998
------------------------------------------
3,695,537 3,413,148 1,488,877
Investment expenses (106,908) (89,786) (58,423)
------------------------------------------
Net investment income $ 3,588,629 $ 3,323,962 $ 1,430,454
==========================================
</TABLE>
4. RELATED PARTY TRANSACTIONS
The Company has a formal service agreement with Manulife Financial which can be
terminated by either party upon two months' notice. Under the Agreement, the
Company will pay direct operating expenses incurred each year by Manulife
Financial on behalf of the Company. Services provided under the Agreement
include legal, actuarial, investment, data processing and certain other
administrative services. Costs incurred under this Agreement were $21,326,446 in
1994, $12,467,474 in 1993, and $4,919,667 in 1992. In addition, there were
$7,795,184 agents' bonuses in 1994, $5,363,558 in 1993, and $1,871,799 in 1992
which were allocated to the Company and are included in commissions.
The Company has reinsurance agreements with Manulife Financial which may be
terminated upon the specified notice by either party. These agreements are
summarized as follows:
(a) The Company assumes two blocks of insurance from Manulife Financial under
coinsurance treaties. The Company's risk is limited to $100,000 of initial
face amount per claim plus a pro-rata share of any increase in face amount.
(b) The Company cedes the risk in excess of $25,000 per life to Manulife
Financial under the terms of an automatic reinsurance agreement.
(c) The Company cedes a substantial portion of its risk on its Flexible Premium
Variable Life policies to Manulife Financial under the terms of a stop loss
reinsurance agreement.
59
<PAGE> 63
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
(d) Under the terms of an automatic coinsurance agreement, the Company cedes its
risk on structured settlements to Manulife Financial.
Selected amounts relating to the above treaties reflected in the financial
statements are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------------------
<S> <C> <C> <C>
Life and annuity premiums assumed $ 25,385,628 $ 12,745,981 $ 6,579,233
Other life and annuity
considerations ceded (437,650) (201,685) (114,505)
Commissions and expense allowances
on reinsurance assumed (810,252) (329,634) (269,141)
Policy reserves assumed 47,672,591 23,070,952 10,799,350
Policy reserves ceded 3,786,647 3,782,156 3,662,930
</TABLE>
During 1992 and 1993 the Company assumed the first $50,000 of initial face
amount on two blocks of business. This resulted in transfers of $5,031,000 and
$10,837,000, respectively, to establish the initial reserves. In 1994 the
treaties were amended to assume the first $100,000 of initial face amount for
the same blocks of business. This resulted in a transfer of $21,477,000 to
establish the additional reserve. Commissions equal to 17% are charged for all
renewed premiums related to these contracts.
During 1994, the Company terminated another treaty resulting in a premium to
Manulife Financial to transfer the reserve of $799,874.
5. FEDERAL INCOME TAX
The Company joins the Parent, The Manufacturers Life Insurance Co. (U.S.A.) and
Manufacturers Reinsurance Limited in filing a U.S. consolidated income tax
return as a life insurance group under provisions of the Internal Revenue Code.
In accordance with an income tax-sharing agreement dated December 29, 1983, the
Company's income tax provision (or benefit) is computed as if the Company filed
a separate income tax return. The Company receives no surtax exemption. Tax
benefits from operating losses are provided at the U.S. statutory rate plus any
tax credits attributable to the Company, provided the consolidated group
utilizes such benefits currently.
60
<PAGE> 64
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
5. FEDERAL INCOME TAX (CONTINUED)
The Company, Parent and The Manufacturers Life Insurance Co. (U.S.A.) have
available consolidated net operating losses of approximately $92,600,000 which
will expire in the years 2007 to 2009, and capital loss carryforwards of
$129,600,000 which will expire in 1999. The losses of the Company, Parent and
The Manufacturers Life Insurance Co. (U.S.A.) may be used to offset the ordinary
and capital gain income of Manufacturers Reinsurance Limited. However, losses of
Manufacturers Reinsurance Limited may not be used to offset the income of the
other members of the consolidated group.
6. STATUTORY RESTRICTIONS ON DIVIDENDS
The Company is subject to statutory limitations on the payment of dividends to
its Parent. The Company cannot pay dividends during 1995 without the prior
approval of insurance regulatory authorities.
7. REINSURANCE
The Company cedes reinsurance as a party to several reinsurance treaties with
major unrelated insurance companies.
Summary financial information related to these reinsurance activities is as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Life insurance premiums assumed $ - $ - $ 28,887,669
Life insurance premiums ceded (218,767) (130,913) (28,809,307)
</TABLE>
During 1992, the Company assumed and ceded a significant block of business on a
yearly renewable term basis. This contract was not renewed in 1993.
61
<PAGE> 65
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
8. AGGREGATE POLICY RESERVES
Aggregate policy reserves for life policies including variable life are based on
statutory mortality tables and interest assumptions using either the net level
or commissioners' reserve valuation method. The composition of the aggregate
policy reserves at December 31, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
MORTALITY INTEREST
AGGREGATE RESERVES TABLE RATES
------------------------------------- ----- -----
1994 1993
-------------------------------------
<S> <C> <C> <C>
$ - $ 758,158 1958 CSO 4%
28,553,885 11,792,874 1980 CSO 4%
(189,080) (62,228) Reinsurance ceded
1,396,369 530,801 Miscellaneous
-------------------------------------
$ 29,761,174 $ 13,019,605
=====================================
</TABLE>
9. INVESTMENT IN SEPARATE ACCOUNTS
During 1984, the Company initiated plans to market variable life insurance
products through Separate Account One of The Manufacturers Life Insurance
Company of America ("Separate Account One") using Manulife Series Fund, Inc. as
its investment vehicle. Initial capitalization was $15,000,000. Through 1988,
the Company provided an additional capitalization of $6,000,000.
In December 1993, the Company transferred all of its shares, related to seed
money, in Manulife Series Fund, Inc. out of Separate Account One to the General
Account. At December 31, 1994, the $25,629,580 common stock represents the
Company's seed money investment in Manulife Series Fund, Inc.
During 1994, 1993, and 1992, the following dividends were received from Manulife
Series Fund, Inc.:
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------
<S> <C> <C> <C>
Separate Account One $ 38,732 $1,610,693 $3,166,712
Separate Account Two 4,574,620 7,377,861 1,706,218
Separate Account Three 1,490,374 666,141 277,830
Separate Account Four 3,072,376 4,966,559 1,578,932
General Account 1,244,794 1,440,392 -
</TABLE>
62
<PAGE> 66
Dividends have been reinvested by the Company in Manulife Series Fund, Inc.
During 1993, the Company withdrew $8,000,000 of its seed money and accumulated
earnings from Separate Account One and the Manulife Series Fund, Inc. and
utilized these funds to pay down its intercompany debt.
During 1994, the Company withdrew $13,011,137 of its seed money and accumulated
earnings from the Manulife Series Fund, Inc. and utilized these funds to pay
down its intercompany debt.
63
<PAGE> 67
APPENDIX A
SAMPLE ILLUSTRATIONS OF POLICY VALUES, CASH SURRENDER VALUES AND DEATH BENEFITS
The following tables have been prepared to help show how values under the Policy
change with investment performance. The tables include both Policy Values and
Cash Surrender Values as well as Death Benefits. The Policy Value is the sum of
the values in the Investment Accounts, as the tables assume no values in the
Guaranteed Interest Account or Loan Account. The Cash Surrender Value is the
Policy Value less any applicable surrender charges. The tables illustrate how
Policy Values and Cash Surrender Values, which reflect all applicable charges
and deductions, and Death Benefits of the Policy on an insured of a given age
would vary over time if the return on the assets of the Funds was a uniform,
gross, after-tax, annual rate of 0%, 6% or 12%. The Policy Values, Death
Benefits and Cash Surrender Values would be different from those shown if the
returns averaged 0%, 6% or 12%, but fluctuated over and under those averages
throughout the years. The charges reflected in the tables include those for:
deductions from premiums for state, local and federal taxes, deferred
underwriting and sales charges, and monthly deductions for administration, cost
of insurance and mortality and expense risks.
The amounts shown for the Policy Value, Death Benefit and Cash Surrender Value
as of each policy year reflect the fact that the net investment return on the
assets held in the sub-accounts is lower than the gross, after-tax return. This
is because the expenses and fees borne by the Series Fund are deducted from the
gross return. The illustrations reflect an average of the Funds' expenses, which
is approximately 0.73% on an annual basis. The gross annual rates of return of
0%, 6% and 12% correspond to approximate net annual rates of return of -0.5%,
5.5% and 11.4% in the first set of illustrations and to approximate net annual
rates of return of -0.73%, 5.23%, and 11.18% in the second set of illustrations.
The tables assume that no premiums have been allocated to the Guaranteed
Interest Account, that planned premiums are paid on the policy anniversary and
that no transfers, partial withdrawals, policy loans, changes in death benefit
options or changes in face amount have been made. The tables reflect the fact
that no charges for federal, state or local taxes are currently made against the
Separate Account. If such a charge is made in the future, it would take a higher
gross rate of return to produce after-tax returns of 0%, 6% and 12% than it does
now.
There are two tables shown for each combination of age and death benefit option
for male non-smokers, one based on current cost of insurance charges assessed by
the Company and the other based on the maximum cost of insurance charges based
on the 1980 Commissioners Standard Ordinary Smoker/Nonsmoker Mortality Tables.
Current cost of insurance charges are not guaranteed and may be changed. Upon
request, Manufacturers Life of America will furnish a comparable illustration
based on the proposed life insured's age, sex (unless unisex rates are required
by law) and risk class, any additional ratings and the death benefit option,
face amount and planned premium requested. Illustrations for smokers would show
less favorable results than the illustrations shown below.
From time to time, in advertisements or sales literature for the Policies that
quote performance data of one or more of the Funds, the Company may include cash
surrender values and death benefit figures computed using the same methodology
as that used in the following illustrations, but with the average annual total
return of the Fund for which performance data is shown in the advertisement
replacing the hypothetical rates of return shown in the following tables. This
information may be shown in the form of graphs, charts, tables and examples.
The Policies have been offered to the public only since September 10, 1993.
However, total return data may be advertised for as long a period of time as the
underlying Fund 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 those applicable to
the Policies.
64
<PAGE> 68
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$5,960 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
END OF CASH CASH CASH
POLICY ACCUMULATED POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR(1) PREMIUMS(2) VALUE VALUE(3)(4) BENEFIT VALUE VALUE(3)(4) BENEFIT VALUE VALUE(3)(4) BENEFIT
------- ----------- ----- ----------- ------- ----- ----------- ------- ----- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 6,258 $ 4,354 $ 0 $500,000 $ 4,652 $ 0 $500,000 $ 4,950 $ 244 $ 500,000
2 12,829 8,902 4,080 500,000 9,776 4,954 500,000 10,687 5,865 500,000
3 19,728 13,332 6,810 500,000 15,077 8,555 500,000 16,965 10,443 500,000
4 26,973 17,642 11,173 500,000 20,556 14,087 500,000 23,836 17,367 500,000
5 34,579 21,822 15,402 500,000 26,211 19,791 500,000 31,350 24,930 500,000
6 42,566 25,898 19,778 500,000 32,075 25,955 500,000 39,600 33,480 500,000
7 50,953 29,834 24,014 500,000 38,120 32,299 500,000 48,626 42,806 500,000
8 59,758 33,633 28,113 500,000 44,354 38,834 500,000 58,511 52,991 500,000
9 69,004 37,286 32,283 500,000 50,779 45,776 500,000 69,338 64,335 500,000
10 78,712 40,798 36,736 500,000 57,406 53,344 500,000 81,211 77,149 500,000
15 135,039 55,979 55,979 500,000 93,638 93,638 500,000 160,415 160,415 500,000
20 206,927 66,389 66,389 500,000 135,277 135,277 500,000 288,234 288,234 500,000
25 298,676 71,008 71,008 500,000 183,371 183,371 500,000 497,176 497,176 666,216
30 415,774 66,912 66,912 500,000 242,837 242,837 500,000 850,080 850,080 1,037,097
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the Cumulative Premium Test or the Fund Value Test has been and
continues to be met, the Death Benefit Guarantee will keep the Policy in
force until the end of the policy year in which the life insured attained
age 100 for Policies issued and maintained with face amounts of at least
$250,000 and for the first three years for Policies with face amounts under
$250,000.
(4) Cash Surrender Values for first two years reflect sales charge limitations
imposed by the S.E.C.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANULIFE SERIES FUND, Inc. 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.[QDJ,L]
65
<PAGE> 69
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$5,960 ANNUAL PLANNED PREMIUM
ASSUMING GUARANTEED CHARGES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
END OF CASH CASH CASH
POLICY ACCUMULATED POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR(1) PREMIUMS(2) VALUE VALUE(3)(4) BENEFIT VALUE VALUE(3)(4) BENEFIT VALUE VALUE(3)(4) BENEFIT
------- ----------- ----- ----------- ------- ----- ----------- ------- ----- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 6,258 $ 4,354 $ 0 $500,000 $ 4,652 $ 0 $500,000 $ 4,950 $ 244 $ 500,000
2 12,829 8,899 4,077 500,000 9,773 4,951 500,000 10,684 5,862 500,000
3 19,728 13,326 6,804 500,000 15,070 8,548 500,000 16,958 10,436 500,000
4 26,973 17,632 11,163 500,000 20,545 14,076 500,000 23,824 17,355 500,000
5 34,579 21,811 15,391 500,000 26,198 19,778 500,000 31,335 24,915 500,000
6 42,566 25,860 19,740 500,000 32,034 25,914 500,000 39,556 33,436 500,000
7 50,953 29,770 23,950 500,000 38,050 32,229 500,000 48,550 42,730 500,000
8 59,758 33,543 28,023 500,000 44,254 38,734 500,000 58,400 52,880 500,000
9 69,004 37,168 32,165 500,000 50,646 45,642 500,000 69,186 64,183 500,000
10 78,712 40,650 36,588 500,000 57,235 53,172 500,000 81,012 76,950 500,000
15 135,039 55,572 55,572 500,000 93,133 93,133 500,000 159,786 159,786 500,000
20 206,927 65,320 65,320 500,000 133,975 133,975 500,000 286,671 286,671 500,000
25 298,676 66,948 66,948 500,000 178,940 178,940 500,000 493,123 493,123 660,785
30 415,774 57,052 57,052 500,000 232,512 232,512 500,000 840,685 840,685 1,025,636
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the Cumulative Premium Test or the Fund Value Test has been and
continues to be met, the Death Benefit Guarantee will keep the Policy in
force until the end of the policy year in which the life insured attained
age 100 for Policies issued and maintained with face amounts of at least
$250,000 and for the first three years for Policies with face amounts under
$250,000.
(4) Cash Surrender Values for first two years reflect sales charge limitations
imposed by the S.E.C.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANULIFE SERIES FUND, Inc. 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.[QDJ,L]
66
<PAGE> 70
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$7,450 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
END OF CASH CASH CASH
POLICY ACCUMULATED POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR(1) PREMIUMS(2) VALUE VALUE(3)(4) BENEFIT VALUE VALUE(3)(4) BENEFIT VALUE VALUE(3)(4) BENEFIT
------- ----------- ----- ----------- ------- ----- ----------- ------- ----- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 7,823 $ 5,759 $ 622 $ 505,759 $ 6,141 $ 1,004 $506,141 $ 6,524 $ 1,386 $ 506,524
2 16,036 11,681 6,543 511,681 12,809 7,672 512,809 13,984 8,847 513,984
3 24,660 17,453 10,931 517,453 19,708 13,186 519,708 22,148 15,626 522,148
4 33,716 23,073 16,604 523,073 26,841 20,372 526,841 31,080 24,611 531,080
5 43,224 28,531 22,110 528,531 34,207 27,786 534,207 40,847 34,427 540,847
6 53,208 33,852 27,732 533,852 41,839 35,718 541,839 51,558 45,438 551,558
7 63,691 38,999 33,179 538,999 49,706 43,886 549,706 63,266 57,445 563,266
8 74,698 43,974 38,453 543,974 57,818 52,298 557,818 76,071 70,551 576,071
9 86,255 48,767 43,764 548,767 66,174 61,171 566,174 90,075 85,071 590,075
10 98,391 53,382 49,319 553,382 74,784 70,721 574,784 105,397 101,335 605,397
15 168,798 73,469 73,469 573,469 121,593 121,593 621,593 206,527 206,527 706,527
20 258,658 87,603 87,603 587,603 174,281 174,281 674,281 364,984 364,984 864,984
25 373,345 94,571 94,571 594,571 232,343 232,343 732,343 614,466 614,466 1,114,466
30 519,718 91,492 91,492 591,492 297,253 297,253 797,253 1,027,209 1,027,209 1,527,209
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the Cumulative Premium Test or the Fund Value Test has been and
continues to be met, the Death Benefit Guarantee will keep the Policy in
force until the end of the policy year in which the life insured reaches
attained age 85 for Policies issued and maintained with face amounts of at
least $250,000 and for the first three years for Policies with face amounts
under $250,000.
(4) Cash Surrender Values for first two years reflect sales charge limitations
imposed by the S.E.C.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANULIFE SERIES FUND, Inc. 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.
67
<PAGE> 71
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$7,450 ANNUAL PLANNED PREMIUM
ASSUMING GUARANTEED CHARGES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
END OF CASH CASH CASH
POLICY ACCUMULATED POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR(1) PREMIUMS(2) VALUE VALUE(3)(4) BENEFIT VALUE VALUE(3)(4) BENEFIT VALUE VALUE(3)(4) BENEFIT
------- ----------- ----- ----------- ------- ----- ----------- ------- ----- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 7,823 $ 5,759 $ 622 $505,759 $ 6,141 $ 1,004 $506,141 $ 6,524 $ 1,386 $ 506,524
2 16,036 11,678 6,541 511,678 12,806 7,669 512,806 13,981 8,844 513,981
3 24,660 17,447 10,925 517,447 19,701 13,179 519,701 22,141 15,618 522,141
4 33,716 23,063 16,594 523,063 26,831 20,361 526,831 31,068 24,599 531,068
5 43,224 28,519 22,099 528,519 34,194 27,773 534,194 40,832 34,412 540,832
6 53,208 33,813 27,693 533,813 41,796 35,675 541,796 51,511 45,391 551,511
7 63,691 38,932 33,111 538,932 49,632 43,811 549,632 63,184 57,364 563,184
8 74,698 43,879 38,359 543,879 57,711 52,191 557,711 75,951 70,431 575,951
9 86,255 48,642 43,639 548,642 66,030 61,027 566,030 89,909 84,906 589,909
10 98,391 53,224 49,162 553,224 74,599 70,536 574,599 105,178 101,115 605,178
15 168,798 73,029 73,029 573,029 121,024 121,024 621,024 205,780 205,780 705,780
20 258,658 86,418 86,418 586,418 172,716 172,716 672,716 362,814 362,814 862,814
25 373,345 90,025 90,025 590,025 226,445 226,445 726,445 606,387 606,387 1,106,387
30 519,718 80,755 80,755 580,755 282,492 282,492 782,492 1,005,482 1,005,482 1,505,482
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the Cumulative Premium Test or the Fund Value Test has been and
continues to be met, the Death Benefit Guarantee will keep the Policy in
force until the end of the policy year in which the life insured reaches
attained age 85 for Policies issued and maintained with face amounts of at
least $250,000 and for the first three years for Policies with face amounts
under $250,000.
(4) Cash Surrender Values for first two years reflect sales charge limitations
imposed by the S.E.C.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANULIFE SERIES FUND, Inc. 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.[QDJ,L]
68
<PAGE> 72
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$15,095 ANNUAL PLANNED PREMIUM*
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
END OF CASH CASH CASH
POLICY ACCUMULATED POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR(1) PREMIUMS(2) VALUE VALUE(3)(4) BENEFIT VALUE VALUE(3)(4) BENEFIT VALUE VALUE(3)(4) BENEFIT
------- ----------- ----- ----------- ------- ----- ----------- ------- ----- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 15,850 $ 10,148 $ 2,647 $500,000 $ 10,875 $ 3,375 $500,000 $ 11,606 $ 4,105 $ 500,000
2 32,492 20,210 11,573 500,000 22,308 13,671 500,000 24,497 15,860 500,000
3 49,966 29,853 13,938 500,000 33,981 18,066 500,000 38,463 22,548 500,000
4 68,314 39,354 23,769 500,000 46,192 30,606 500,000 53,917 38,332 500,000
5 87,580 48,734 33,496 500,000 58,989 43,750 500,000 71,049 55,810 500,000
6 107,809 57,970 44,230 500,000 72,380 58,640 500,000 90,023 76,283 500,000
7 129,049 66,902 56,595 500,000 86,238 75,932 500,000 110,895 100,589 500,000
8 151,351 75,461 68,590 500,000 100,527 93,656 500,000 133,829 126,958 500,000
9 174,768 83,696 80,261 500,000 115,323 111,888 500,000 159,126 155,691 500,000
10 199,356 91,607 91,607 500,000 130,663 130,663 500,000 187,083 187,083 500,000
15 342,015 130,712 130,712 500,000 223,547 223,547 500,000 390,247 390,247 500,000
20 524,087 155,685 155,685 500,000 342,635 342,635 500,000 744,787 744,787 396,922
25 756,463 117,978 117,978 500,000 495,451 495,451 520,224 1,323,688 1,323,688 1,389,872
30 1,053,039 0(5) 0(5) 500,000(5) 697,847 697,847 732,739 2,250,883 2,250,883 2,363,427
</TABLE>
*Note that the second tier Death Benefit Guarantee Premium level of $16,240 is
paid from age 70.
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.[QDJ,L]
(2) Assumes net interest of 5% compounded annually.[QDJ,L]
(3) Provided the Cumulative Premium Test or the Fund Value Test has been and
continues to be met, the Death Benefit Guarantee will keep the Policy in
force until the end of the policy year in which the life insured reaches
attained age 100 for Policies issued and maintained with face amounts of at
least $250,000 and for the first three years for Policies with face amounts
under $250,000.
(4) Cash Surrender Values for first two years reflect sales charge limitations
imposed by the S.E.C.
(5) In the absence of additional premium payments, the Policy will lapse, unless
the Death Benefit Guarantee is in effect.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANULIFE SERIES FUND, Inc. 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.
69
<PAGE> 73
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$15,095 ANNUAL PLANNED PREMIUM*
ASSUMING GUARANTEED CHARGES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
END OF CASH CASH CASH
POLICY ACCUMULATED POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR(1) PREMIUMS(2) VALUE VALUE(3)(4) BENEFIT VALUE VALUE(3)(4) BENEFIT VALUE VALUE(3)(4) BENEFIT
------- ----------- ----- ----------- ------- ----- ----------- ------- ----- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 15,850 $10,148 $ 2,647 $500,000 $ 10,875 $ 3,375 $500,000 $ 11,606 $ 4,105 $ 500,000
2 32,492 20,045 11,408 500,000 22,137 13,500 500,000 24,322 15,685 500,000
3 49,966 29,466 13,552 500,000 33,574 17,659 500,000 38,035 22,120 500,000
4 68,314 38,400 22,814 500,000 45,181 29,596 500,000 52,849 37,264 500,000
5 87,580 46,810 31,572 500,000 56,936 41,698 500,000 68,864 53,626 500,000
6 107,809 54,666 40,926 500,000 68,820 55,080 500,000 86,199 72,459 500,000
7 129,049 61,931 51,625 500,000 80,813 70,506 500,000 104,996 94,690 500,000
8 151,351 68,548 61,677 500,000 92,876 86,005 500,000 125,406 118,535 500,000
9 174,768 74,449 71,014 500,000 104,967 101,532 500,000 147,605 144,170 500,000
10 199,356 79,563 79,563 500,000 117,043 117,043 500,000 171,811 171,811 500,000
15 342,015 93,333 93,333 500,000 180,683 180,683 500,000 343,319 343,319 500,000
20 524,087 78,132 78,132 500,000 251,005 251,005 500,000 657,386 657,386 703,403
25 756,463 0(5) 0(5) 500,000 323,849 323,849 500,000 1,177,421 1,177,421 1,236,292
30 1,053,039 0(5) 0(5) 500,000 420,264 420,264 500,000 2,005,257 2,005,257 2,105,520
</TABLE>
*Note that the second tier Death Benefit Guarantee Premium level of $16,240 is
paid from age 70.
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the Cumulative Premium Test or the Fund Value Test has been and
continues to be met, the Death Benefit Guarantee will keep the Policy in
force until the end of the policy year in which the life insured reaches
attained age 100 for Policies issued and maintained with face amounts of at
least $250,000 and for the first three years for Policies with face amounts
under $250,000.
(4) Cash Surrender Values for first two years reflect sales charge limitations
imposed by the S.E.C.
(5) In the absence of additional premium payments, the Policy will lapse, unless
the Death Benefit Guarantee is in effect.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANULIFE SERIES FUND, Inc. 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.
70
<PAGE> 74
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$17,920 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
END OF CASH CASH CASH
POLICY ACCUMULATED POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR(1) PREMIUMS(2) VALUE VALUE(3)(4) BENEFIT VALUE VALUE(3)(4) BENEFIT VALUE VALUE(3)(4) BENEFIT
------- ----------- ----- ----------- ------- ----- ----------- ------- ----- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 18,816 $ 12,734 $ 4,358 $512,734 $ 13,617 $ 5,241 $513,617 $ 14,502 $ 6,126 $ 514,502
2 38,573 25,252 14,313 525,252 27,807 16,868 527,807 30,471 19,532 530,471
3 59,317 37,205 21,290 537,205 42,231 26,316 542,231 47,681 31,766 547,681
4 81,099 48,887 33,302 548,887 57,193 41,608 557,193 66,562 50,977 566,562
5 103,970 60,321 45,083 560,321 72,735 57,496 572,735 87,304 72,065 587,304
6 127,985 71,481 57,741 571,481 88,851 75,111 588,851 110,064 96,324 610,064
7 153,200 82,182 71,876 582,182 105,370 95,064 605,370 134,847 124,541 634,847
8 179,676 92,335 85,465 592,335 122,211 115,340 622,211 161,757 154,886 661,757
9 207,476 101,992 98,557 601,992 139,431 135,996 639,431 191,054 187,619 691,054
10 236,666 111,143 111,143 611,143 157,027 157,027 657,027 222,965 222,965 722,965
15 406,022 154,350 154,350 654,350 258,580 258,580 758,580 443,767 443,767 943,767
20 622,169 166,620 166,620 666,620 354,843 354,843 854,843 774,954 774,954 1,274,954
25 898,033 92,703 92,703 592,703 377,515 377,515 877,515 1,211,255 1,211,255 1,711,255
30 1,250,113 0(5) 0(5) 500,000(5) 305,369 305,369 805,369 1,820,142 1,820,142 2,320,142
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the Cumulative Premium Test or the Fund Value Test has been and
continues to be met, the Death Benefit Guarantee will keep the Policy in
force until the end of the policy year in which the life insured reaches
attained age 85 for Policies issued and maintained with face amounts of at
least $250,000 and for the first three years for Policies with face amounts
under $250,000.
(4) Cash Surrender Values for first two years reflect sales charge limitations
imposed by the S.E.C.
(5) Provided the Death Benefit Guarantee has been in effect, the Policy will
have been kept in force until the end of the policy year in which the life
insured reached attained age 85, at which time the Death Benefit Guarantee
will expire and in the absence of additional premium payments, the Policy
will lapse.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANULIFE SERIES FUND, Inc. 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.
71
<PAGE> 75
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$17,920 ANNUAL PLANNED PREMIUM
ASSUMING GUARANTEED CHARGES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- -----------------------
END OF CASH CASH CASH
POLICY ACCUMULATED POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR(1) PREMIUMS(2) VALUE VALUE(3)(4) BENEFIT VALUE VALUE(3)(4) BENEFIT VALUE VALUE(3)(4) BENEFIT
------- ----------- ----- ----------- ------- ----- ----------- ------- ----- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 18,816 $ 12,734 $ 4,358 $512,734 $ 13,617 $ 5,241 $513,617 $ 14,502 $ 6,126 $ 514,502
2 38,573 25,079 14,141 525,079 27,628 16,690 527,628 30,287 19,348 530,287
3 59,317 36,799 20,884 536,799 41,801 25,886 541,801 47,227 31,312 547,227
4 81,099 47,869 32,284 547,869 56,106 40,521 556,106 65,404 49,819 565,404
5 103,970 58,241 43,002 558,241 70,489 55,250 570,489 84,881 69,642 584,881
6 127,985 67,867 54,126 567,867 84,890 71,150 584,890 105,727 91,986 605,727
7 153,200 76,694 66,388 576,694 99,246 88,940 599,246 128,013 117,706 628,013
8 179,676 84,647 77,776 584,647 113,461 106,590 613,461 151,790 144,920 651,790
9 207,476 91,635 88,200 591,635 127,423 123,988 627,423 177,102 173,667 677,102
10 236,666 97,566 97,566 597,566 141,009 141,009 641,009 203,988 203,988 703,988
15 406,022 111,294 111,294 611,294 203,787 203,787 703,787 372,751 372,751 872,751
20 622,169 82,704 82,704 582,704 235,376 235,376 735,376 598,604 598,604 1,098,604
25 898,033 0(5) 0(5) 500,000(5) 194,912 194,912 694,912 881,421 881,421 1,381,421
30 1,250,113 0(5) 0(5) 500,000(5) 27,404 27,404 527,404 1,217,533 1,217,533 1,717,533
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the Cumulative Premium Test or the Fund Value Test has been and
continues to be met, the Death Benefit Guarantee will keep the Policy in
force until the end of the policy year in which the life insured reaches
attained age 85 for Policies issued and maintained with face amounts of at
least $250,000 and for the first three years for Policies with face amounts
under $250,000.
(4) Cash Surrender Values for first two years reflect sales charge limitations
imposed by the S.E.C.
(5) Provided the Death Benefit Guarantee has been in effect, the Policy will
have been kept in force until the end of the policy year in which the life
insured reached attained age 85, at which time the Death Benefit Guarantee
will expire and in the absence of additional premium payments, the Policy
will lapse.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANULIFE SERIES FUND, Inc. 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.
72
<PAGE> 76
APPENDIX B
DEFINITIONS
The following terms have the following meanings when used in this Prospectus:
ADDITIONAL RATING -- an addition to the cost of insurance rate for insureds who
do not meet at least the underwriting requirements of the standard risk class.
BUSINESS DAY -- any day that the New York Stock Exchange is open for trading and
trading is not restricted. The net asset value of the underlying shares of a
sub-account of the Separate Account will be determined at the end of each
Business Day.
CASH SURRENDER VALUE -- the Policy Value less the deferred sales charge, the
deferred underwriting charge and any outstanding monthly deductions due.
CUMULATIVE PREMIUM TEST -- a test that, if satisfied in the first three policy
years and, where applicable, if satisfied in subsequent policy years, will
maintain the Death Benefit Guarantee. To satisfy the Cumulative Premium Test,
the sum of premiums paid, less withdrawals, and less policy loans, must equal or
exceed the sum of Death Benefit Guarantee Premiums since issue as at the
beginning of each policy month.
DEATH BENEFIT GUARANTEE -- Manufacturers Life of America's guarantee that the
Policy will not go into default even if a combination of policy loans, adverse
investment experience or other factors should cause the Policy's Net Cash
Surrender Value to be insufficient to meet the monthly deductions due at the
beginning of a policy month.
DEATH BENEFIT GUARANTEE PREMIUM -- a measure of premium used in determining
compliance with the Cumulative Premium Test. The Death Benefit Guarantee Premium
as an annual amount is established by the Company based on issue age, sex
(unless unisex rates are required by law), risk class, death benefit option,
supplementary benefits and additional ratings. The Death Benefit Guarantee
Premium, which is set forth in the Policy, will increase, when the policyowner
reaches attained age 70, to an amount as specified in the Policy.
EFFECTIVE DATE -- the date that Manufacturers Life of America becomes obligated
under the Policy and when the first monthly deductions are taken.
FUND VALUE TEST -- a test which, if satisfied in applicable policy years will
maintain the Death Benefit Guarantee feature. To satisfy the Fund Value Test,
the Gross Single Premium at the beginning of any applicable policy month must
not be greater than the Net Policy Value.
GROSS SINGLE PREMIUM -- the amount of premium needed to endow the Policy to the
expiration of the Death Benefit Guarantee assuming 4% interest and current
charges.
GUARANTEED INTEREST ACCOUNT -- that part of the Policy Value which reflects the
value the policyowner has in the general account of Manufacturers Life of
America.
GUIDELINE ANNUAL PREMIUM -- an amount defined by S.E.C. regulation. It is used
to determine maximum sales charges that may be deducted during the first two
years following issuance of a Policy.
INITIAL PREMIUM -- at least 1/12 of the Target Premium. The Initial Premium must
be received within 60 days after the policy date.
INVESTMENT ACCOUNT -- that part of the Policy Value which reflects the value the
policyowner has in one of the sub-accounts of the Separate Account.
LOAN ACCOUNT -- that part of the Policy Value which reflects the value the
policyowner has transferred from the Guaranteed Interest Account or the
Investment Accounts as collateral for a policy loan.
MODIFIED POLICY DEBT -- as of any date, the Policy Debt plus the amount of
interest to be charged to the next policy anniversary, all discounted from the
next policy anniversary to such date at an annual rate of 4%.
MONTHLY DEATH BENEFIT GUARANTEE PREMIUM -- 1/12 of the Death Benefit Guarantee
Premium.
NET CASH SURRENDER VALUE -- the Cash Surrender Value less Policy Debt.
73
<PAGE> 77
NET POLICY VALUE -- the Policy Value less the value in the Loan Account.
NET PREMIUM -- amount of premium allocated to the Investment Accounts or
Guaranteed Interest Account. It equals gross premiums less the deduction for
state, local and federal taxes.
PLANNED PREMIUM -- The premium the policyowner plans to pay periodically.
Subject to certain requirements of law, the Planned Premium may be changed at
any time.
POLICY DATE -- The date from which policy years, policy months and policy
anniversaries are determined. Monthly deductions are due on the policy date. If
a check for at least the Initial Premium accompanies the application, the policy
date is the date the application and check are received at the Service office.
If an application accepted by the Company is not accompanied by a check for the
Initial Premium, the policy will be issued with a policy date which is 7 days
after issuance of the policy.
POLICY DEBT -- as of any date, the aggregate amount of policy loans, including
borrowed interest, less any loan repayments.
POLICY VALUE -- the sum of the values in the Loan Account, the Guaranteed
Interest Account and the Investment Accounts.
SELECT LOAN -- A loan on which the differential between the interest credited
and the interest charged is currently 0%; provided, however, if at some time in
the future it is determined that the current differential could cause the loan
to be treated as a taxable distribution under any applicable ruling, regulation
or court decision, Manufacturers Life of America has the right to increase the
differential on all subsequent Select Loans either (i) to an amount that may be
presented in such ruling, regulation or court decision that would result in the
transaction being treated as a loan under federal tax law or (ii) if no amount
is prescribed, to an amount that Manufacturers Life of America feels would be
more likely to result in the transaction being treated as a loan under Federal
tax law.
SELECT LOAN AMOUNT -- the amount of any Select Loan.
SERVICE OFFICE -- the office designated to service the Policies, which is shown
on the cover page of this prospectus.
SURRENDER CHARGE PERIOD -- the period (usually 15 years) following issuance of
the Policy or any increase in face amount during which surrender charges may be
assessed if the Policy is surrendered or lapsed, the face amount is decreased or
a partial withdrawal takes place.
TARGET PREMIUM -- a premium amount used to measure the maximum deferred sales
charge under a Policy. The Target Premium for the initial face amount is set
forth in the Policy. The policyowner will be advised of the Target Premium for
any increase in face amount.
WITHDRAWAL TIER AMOUNT -- as of any date, the net Cash Surrender Value at the
previous anniversary multiplied by 10%.
74
<PAGE> 78
APPENDIX C
The maximum deferred sales charge is 50% of premiums received up to a specified
number of Target Premiums that varies (from 0.180 to 3.031) with the issue age
of the life insured, the face amount of the Policy and the amount of any
increase. Beginning after two policy years, that maximum deferred sales charge
decreases over time according to a pattern that varies with the issue age of the
life insured. In all cases, the deferred sales charge is eliminated entirely by
the last month of the 15th policy year. The same pattern applies to sales
charges occasioned by face amount increases, with time periods and issue age
computed using the date of the increase in face amount rather than the Policy
Date.
The following tables show the percentage of the maximum sales charge that would
be applicable in the last month of the years shown. The percentages for other
months would be derived by interpolation.
75
<PAGE> 79
APPENDIX C
If the transaction occurs in the last month of
<TABLE>
<CAPTION>
POLICY ISSUE AGE
YEAR* 0 1 2 3 4 5 6 7
----- - - - - - - - -
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9666 0.9500 0.9642 0.9444 0.9555 0.9811 0.9843 0.9866
4 0.9666 0.9500 0.9285 0.9444 0.9555 0.9622 0.9687 0.9600
5 0.9333 0.9000 0.8928 0.9166 0.9111 0.9433 0.9531 0.9466
6 0.9333 0.9000 0.8928 0.9166 0.9111 0.9433 0.9531 0.9466
7 0.9333 0.9000 0.8928 0.9166 0.9111 0.9433 0.9531 0.9466
8 0.9333 0.9000 0.8928 0.9166 0.9111 0.9433 0.9531 0.9466
9 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503
10 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803
11 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442
12 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082
13 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721
14 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
<TABLE>
<CAPTION>
POLICY ISSUE AGE
YEAR* 8 9 10 11 12 13 14 15
----- - - -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9885 0.9861 0.9873 0.9885 0.9895 0.9875 0.9940 0.9898
4 0.9655 0.9696 0.9734 0.9765 0.9722 0.9751 0.9831 0.9796
5 0.9540 0.9595 0.9646 0.9609 0.9652 0.9689 0.9719 0.9695
6 0.9540 0.9595 0.9646 0.9609 0.9652 0.9689 0.9719 0.9695
7 0.9540 0.9595 0.9646 0.9609 0.9652 0.9689 0.9719 0.9695
8 0.9540 0.9595 0.9646 0.9609 0.9652 0.9689 0.9719 0.9695
9 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503
10 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803
11 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442
12 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082
13 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721
14 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
76
<PAGE> 80
<TABLE>
<CAPTION>
POLICY ISSUE AGE
YEAR* 16 17 18 19 20 21 22 23
----- -- -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9912 0.9872 0.9884 0.9842 0.9903 0.9867 0.9878 0.9887
4 0.9788 0.9795 0.9768 0.9789 0.9806 0.9778 0.9796 0.9804
5 0.9718 0.9681 0.9653 0.9631 0.9661 0.9646 0.9674 0.9699
6 0.9667 0.9667 0.9653 0.9631 0.9661 0.9646 0.9674 0.9699
7 0.9333 0.9333 0.9333 0.9333 0.9333 0.9396 0.9396 0.9396
8 0.9000 0.9000 0.9000 0.9000 0.9000 0.9060 0.9060 0.9060
9 0.8333 0.8333 0.8333 0.8333 0.8333 0.8389 0.8389 0.8389
10 0.6667 0.6667 0.6667 0.6667 0.6667 0.6711 0.6711 0.6711
11 0.5333 0.5333 0.5333 0.5333 0.5333 0.5369 0.5369 0.5369
12 0.4000 0.4000 0.4000 0.4000 0.4000 0.4027 0.4027 0.4027
13 0.2667 0.2667 0.2667 0.2667 0.2667 0.2685 0.2685 0.2685
14 0.1330 0.1330 0.1330 0.1330 0.1330 0.1342 0.1342 0.1342
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
*Months not shown may be calculated by interpolation.
77
<PAGE> 81
If the transaction occurs in the last month of
<TABLE>
<CAPTION>
POLICY ISSUE AGE
YEAR* 24 25 26 27 28 29 30 31
----- -- -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9896 0.9901 0.9885 0.9889 0.9897 0.9887 0.9889 0.9885
4 0.9792 0.9803 0.9793 0.9779 0.9770 0.9757 0.9772 0.9771
5 0.9688 0.9679 0.9678 0.9678 0.9659 0.9644 0.9650 0.9624
6 0.9688 0.9679 0.9678 0.9678 0.9659 0.9644 0.9650 0.9624
7 0.9396 0.9396 0.9432 0.9469 0.9507 0.9545 0.9583 0.9622
8 0.9060 0.9060 0.9122 0.9184 0.9247 0.9310 0.9375 0.9441
9 0.8389 0.8389 0.8446 0.8503 0.8562 0.8621 0.8681 0.8741
10 0.6711 0.6711 0.6757 0.6803 0.6849 0.6897 0.6944 0.6993
11 0.5369 0.5369 0.5405 0.5442 0.5479 0.5517 0.5556 0.5594
12 0.4027 0.4027 0.4054 0.4082 0.4110 0.4138 0.4167 0.4196
13 0.2685 0.2685 0.2703 0.2721 0.2740 0.2759 0.2778 0.2797
14 0.1342 0.1342 0.1351 0.1361 0.1370 0.1379 0.1389 0.1399
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
<TABLE>
<CAPTION>
POLICY ISSUE AGE
YEAR* 32 33 34 35 36 37 38 39
----- -- -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9878 0.9886 0.9883 0.9888 0.9860 0.9859 0.9868 0.9858
4 0.9741 0.9758 0.9751 0.9739 0.9733 0.9728 0.9725 0.9714
5 0.9634 0.9630 0.9614 0.9602 0.9593 0.9577 0.9573 0.9572
6 0.9634 0.9630 0.9614 0.9602 0.9593 0.9577 0.9573 0.9572
7 0.9634 0.9630 0.9614 0.9602 0.9593 0.9577 0.9573 0.9572
8 0.9507 0.9574 0.9614 0.9602 0.9593 0.9577 0.9573 0.9572
9 0.8803 0.8865 0.8929 0.8993 0.8999 0.9006 0.9012 0.9019
10 0.7042 0.7092 0.7143 0.7194 0.7199 0.7205 0.7210 0.7215
11 0.5634 0.5674 0.5714 0.5755 0.5760 0.5764 0.5768 0.5772
12 0.4225 0.4255 0.4286 0.4317 0.4320 0.4323 0.4326 0.4329
13 0.2817 0.2837 0.2857 0.2878 0.2880 0.2882 0.2884 0.2886
14 0.1408 0.1418 0.1429 0.1439 0.1440 0.1441 0.1442 0.1443
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
78
<PAGE> 82
<TABLE>
<CAPTION>
POLICY ISSUE AGE
YEAR* 40 41 42 43 44 45 46 47
----- -- -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9849 0.9850 0.9828 0.9839 0.9822 0.9833 0.9819 0.9808
4 0.9706 0.9692 0.9680 0.9664 0.9651 0.9659 0.9639 0.9627
5 0.9529 0.9526 0.9501 0.9496 0.9480 0.9473 0.9446 0.9425
6 0.9529 0.9526 0.9501 0.9496 0.9480 0.9473 0.9446 0.9425
7 0.9529 0.9526 0.9501 0.9496 0.9480 0.9473 0.9190 0.9176
8 0.9529 0.9526 0.9501 0.9496 0.9480 0.9473 0.9117 0.9104
9 0.9025 0.9032 0.9038 0.9045 0.9051 0.9058 0.9045 0.9032
10 0.7220 0.7225 0.7231 0.7236 0.7241 0.7246 0.7236 0.7225
11 0.5776 0.5780 0.5785 0.5789 0.5793 0.5797 0.5789 0.5780
12 0.4332 0.4335 0.4338 0.4342 0.4345 0.4348 0.4342 0.4335
13 0.2888 0.2890 0.2892 0.2894 0.2896 0.2899 0.2894 0.2890
14 0.1444 0.1445 0.1446 0.1447 0.1448 0.1449 0.1447 0.1445
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
*Months not shown may be calculated by interpolation.
79
<PAGE> 83
<TABLE>
<CAPTION>
POLICY ISSUE AGE
YEAR* 48 49 50 52 52 53 54 55
----- -- -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9809 0.9796 0.9786 0.9795 0.9779 0.9770 0.9763 0.9761
4 0.9619 0.9598 0.9577 0.9573 0.9563 0.9541 0.9523 0.9512
5 0.9418 0.9385 0.9354 0.9351 0.9330 0.9300 0.9268 0.9250
6 0.9365 0.9251 0.9137 0.9023 0.8910 0.8797 0.8684 0.8571
7 0.9163 0.9150 0.9101 0.8567 0.8032 0.7498 0.6963 0.6429
8 0.9091 0.9078 0.9029 0.8080 0.7132 0.6183 0.5235 0.4286
9 0.9019 0.9006 0.8993 0.7623 0.6253 0.4883 0.3513 0.2143
10 0.7215 0.7205 0.7194 0.5755 0.4316 0.2878 0.1439 0.0000
11 0.5772 0.5764 0.5755 0.4316 0.2876 0.1439 0.0000 0.0000
12 0.4329 0.4323 0.4317 0.2878 0.1439 0.0000 0.0000 0.0000
13 0.2886 0.2882 0.2878 0.1439 0.0000 0.0000 0.0000 0.0000
14 0.1443 0.1441 0.1439 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
<TABLE>
<CAPTION>
POLICY ISSUE AGE
YEAR* 56 57 58 59 60 61 62 63
----- -- -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9738 0.9731 0.9720 0.9707 0.9711 0.9700 0.9690 0.9678
4 0.9477 0.9460 0.9441 0.9417 0.9410 0.9389 0.9367 0.9341
5 0.9207 0.9192 0.9160 0.9128 0.9109 0.9078 0.9044 0.9006
6 0.8689 0.8811 0.8939 0.9071 0.9087 0.9039 0.8986 0.8937
7 0.6517 0.6608 0.6704 0.6803 0.6907 0.7015 0.7128 0.7247
8 0.4345 0.4406 0.4469 0.4536 0.4605 0.4677 0.4752 0.4831
9 0.2172 0.2203 0.2235 0.2268 0.2302 0.2338 0.2376 0.2416
10 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
11 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
12 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
13 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
14 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
80
<PAGE> 84
<TABLE>
<CAPTION>
POLICY ISSUE AGE
YEAR* 64 65 66 67 68 69 70 71
----- -- -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9650 0.9638 0.9637 0.9612 0.9597 0.9573 0.9572 0.9559
4 0.9315 0.9277 0.9261 0.9224 0.9196 0.9158 0.9144 0.9129
5 0.8966 0.8916 0.8874 0.8836 0.8796 0.8745 0.8727 0.8700
6 0.8872 0.8823 0.8769 0.8719 0.8665 0.8612 0.8582 0.8554
7 0.7370 0.7500 0.7500 0.7500 0.7500 0.7500 0.7500 0.7500
8 0.4914 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000
9 0.2457 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500
10 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
11 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
12 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
13 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
14 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
*Months not shown may be calculated by interpolation.
81
<PAGE> 85
If the transaction occurs in the last month of
<TABLE>
<CAPTION>
POLICY ISSUE AGE
YEAR* 72 73 74 75 76 77 78 79
----- -- -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9555 0.9532 0.9518 0.9504 0.9491 0.9464 0.9436 0.9422
4 0.9113 0.9078 0.9050 0.9021 0.8982 0.8939 0.8885 0.8856
5 0.8676 0.8623 0.8581 0.8526 0.8472 0.8404 0.8347 0.8301
6 0.8520 0.8441 0.8387 0.8317 0.8239 0.8170 0.8099 0.8054
7 0.7500 0.7500 0.7500 0.7500 0.7500 0.7500 0.7500 0.7500
8 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000
9 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500
10 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
11 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
12 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
13 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
14 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
<TABLE>
<CAPTION>
POLICY ISSUE AGE
YEAR* 80 81 82 83 84 85 86 87
----- -- -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9405 0.9388 0.9375 0.9362 0.9360 0.9345 0.9320 0.9303
4 0.8824 0.8806 0.8777 0.8762 0.8747 0.8705 0.8663 0.8608
5 0.8267 0.8235 0.8204 0.8176 0.8145 0.8079 0.8009 0.7899
6 0.8016 0.7971 0.7940 0.7897 0.7842 0.7749 0.7627 0.7451
7 0.7500 0.7500 0.7500 0.7500 0.7500 0.7405 0.7232 0.6964
8 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000
9 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500
10 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
11 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
12 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
13 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
14 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
82
<PAGE> 86
<TABLE>
<CAPTION>
POLICY ISSUE AGE
YEAR* 88 89 90 91 92 93 94 95
----- -- -- -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 0.0000 0.0000 0.0000 0.0000 0.0000
2 1.0000 1.0000 1.0000 0.0000 0.0000 0.0000 0.0000 0.0000
3 0.9261 0.9191 0.9115 0.0000 0.0000 0.0000 0.0000 0.0000
4 0.8510 0.8357 0.8165 0.0000 0.0000 0.0000 0.0000 0.0000
5 0.7732 0.7483 0.7136 0.0000 0.0000 0.0000 0.0000 0.0000
6 0.7192 0.6822 0.6308 0.0000 0.0000 0.0000 0.0000 0.0000
7 0.6597 0.6068 0.5399 0.0000 0.0000 0.0000 0.0000 0.0000
8 0.5000 0.5000 0.4439 0.0000 0.0000 0.0000 0.0000 0.0000
9 0.2500 0.2500 0.2500 0.0000 0.0000 0.0000 0.0000 0.0000
10 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
11 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
12 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
13 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
14 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
*Months not shown may be calculated by interpolation.
83
