Prospectus for
Manulife Financial's Generation
A Flexible Premium
Survivorship Variable Life
Insurance Policy
Issued by
The Manufacturers Life Insurance
Company of America
<PAGE>
Prospectus
The Manufacturers Life Insurance
Company of America
Separate Account Three
Manulife Financial's Generation
Flexible Premium Survivorship Variable Life Insurance Policy
This prospectus describes the Flexible Premium Survivorship 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. In this prospectus the term
"policyowner" means one or more policyowners.
The Policies provide for: (1) a Net Cash Surrender Value that can be
received by partial withdrawals or surrender of the Policy; (2) Policy
loans; and (3) an insurance benefit payable at the last surviving 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 investment portfolio (a "Portfolio") of Manulife Series Fund,
Inc. ("Manulife Series Fund") or NASL Series Trust. The accompanying
prospectuses for Manulife Series Fund and NASL Series Trust, and the
corresponding statements of additional information, describe the investment
objectives of the Portfolios in which net premiums may be invested. The
Portfolios available for allocation of net premiums are the following
Funds of Manulife Series Fund: 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,
the Pacific Rim Emerging Markets Fund, and, subject to regulatory approval,
the Equity Index Fund (collectively the "Manulife Funds") and the following
Portfolios of NASL Series Trust: the Value Equity Trust, the U.S. Government
Securities Trust, the Growth and Income Trust, the Equity Trust, the
Conservative Asset Allocation Trust, the Moderate Asset Allocation Trust and
the Aggressive Asset Allocation Trust (collectively the "NASL Trusts").
Other sub-accounts and Portfolios 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 in the early
years, 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 the
Policy Date 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. AND NASL SERIES TRUST.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Manufacturers Life Insurance
Company of America
500 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 February 14, 1996.
<PAGE>
Prospectus Contents
Page
____
Introduction to Policies
General Information About Manufacturers Life of
America, Separate Account Three, Manulife Series
Fund and NASL Series trust
Manufacturers Life of America and
Manufacturers Life
Manufacturers Life of America's Separate
Account Three
Manulife Series Fund and NASL Series Trust
Investment Objectives of the
Portfolios
Selection of Sub-account(s)
Detailed Information About the Policies
PREMIUM PROVISIONS
Policy Issue and Initial Premium
Premium Allocation
Premium Limitations
Short-Term Cancellation Right and
"Free Look" Provisions
INSURANCE BENEFIT
The Insurance Benefit
No Lapse Guarantee
Death Benefit Guarantee
Death Benefit Options
Death Benefit Option Changes
Face Amount Changes
POLICY VALUES
Policy Value
Transfers of Policy Value
Policy Loans
Partial Withdrawals and Surrenders
CHARGES AND DEDUCTIONS
Deductions from Premiums
Surrender Charges
Deferred Sales Charge
Monthly Deductions
Other Charges
Special Provisions for Group or
Sponsored Arrangements
Special Provisions for Exchanges
THE GENERAL ACCOUNT
OTHER GENERAL POLICY PROVISIONS
Policy Default
Policy Reinstatement
Miscellaneous Policy Provisions
OTHER PROVISIONS
Supplementary Benefits
Payment of Proceeds
Reports to Policyowners
MISCELLANEOUS MATTERS
Fund Share Substitution
Federal Income Tax Considerations
Tax Status of the Policy
Tax Treatment of Policy Benefits
The Company's Taxes
Distribution of the Policy
Responsibilities Assumed by
Manufacturers Life
Voting Rights
Executive Officers and Directors
State Regulations
Pending Litigation
Additional Information
Legal Matters
Experts
Financial Statements
Appendices
A. Sample Illustrations of Policy
Values, Cash Surrender Values and
Death Benefits
B. Definitions
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO
MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS,
THE PROSPECTUS OF MANULIFE SERIES FUND OR NASL SERIES
TRUST, OR THE STATEMENT OF ADDITIONAL INFORMATION OF
MANULIFE SERIES FUND OR NASL SERIES TRUST.
You are urged to examine this prospectus carefully.
The INTRODUCTION TO POLICIES will briefly describe the
Flexible Premium Survivorship Variable
Life Insurance Policy. More detailed information will
be found within.
<PAGE>
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 at the time of the death of the last
surviving 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. If the Policy is owned by two or more persons,
the Company will require authorization from each policyowner before taking
any action on the Policy.
The Manulife Funds currently offered 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, Pacific
Rim Emerging Markets Fund, and, subject to regulatory approval, the Equity
Index Fund. The NASL Trusts currently offered are the: Value Equity Trust,
U.S. Government Securities Trust, Growth and Income Trust, Equity Trust,
Conservative Asset Allocation Trust, Moderate Asset Allocation Trust and
Aggressive Asset Allocation Trust.
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 receive 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, which will result in certain surrender charges being deducted
from the Policy Value. 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."
Death Benefit Guarantee
As long as the Death Benefit Guarantee 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 when the youngest life
insured attains or would have Attained Age 100, if Death Benefit Option 1
is maintained through the life of the Policy, (ii) prior to when the
youngest life insured attains or would have Attained Age 85 if Death
Benefit Option 2 is selected at any time regardless of the investment
performance of the Funds underlying the Policy Value. See Detailed
Information About the Policies; Premium Provisions- "Death Benefit
Guarantee."
No Lapse Guarantee
As long as the No Lapse Guarantee Cumulative Premium Test is satisfied, the
Company guarantees that the Policy will not go into default during the No
Lapse Guarantee Period. For lives insured with an average Issue Age of up
to and including age 70, the No Lapse Guarantee Period is 10 years. For
lives insured with an average Issue Age of 71 and older, the No Lapse
Guarantee Period decreases by one year for each year the average age
exceeds 70, until average age 77. From average age 77 to 85 the No Lapse
Guarantee Period is fixed at three years. The No Lapse Guarantee is not
available to lives insured whose average Issue Age exceeds 85. See
Detailed Information About the Policies; Premium Provisions- "No Lapse
Guarantee."
Dollar Cost Averaging. Manufacturers Life of America will offer
policyowners a Dollar Cost Averaging program. Under the Dollar Cost
Averaging program the policyowner will designate an amount which will 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 as of 90 days after written notice is sent to the policyowner.
Asset Allocation Balancer Transfers. 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 as of 90 days after written notice is sent to the policyowner.
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," Insurance Benefit- "No Lapse Guarantee" and "Death
Benefit Guarantee."
After the Initial Premium is paid there is no minimum premium required.
However, minimum premiums are required to maintain the Death Benefit
Guarantee or the No Lapse Guarantee. See Detailed Information About the
Policies; Insurance Benefit- "Death Benefit Guarantee" and "No Lapse
Guarantee." In addition, certain premium payments may be required to keep
the policy from lapsing. See Detailed Information About the Policies;
Other General Policy Provisions- "Policy Default."
Certain maximum premium limitations apply to the Policy, to ensure that 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 described below:
(1) Deductions from premiums
. 2.35% of all premiums paid, for state and local taxes, and 1.25%
of all premiums paid, for federal taxes, to the end of the tenth
Policy Year. Currently, the Company expects this deduction to
cease after the end of the tenth Policy Year.
. a sales charge of 5.5% of the premiums paid, in the current Policy
Year, up to a maximum of the Target Premium for the current Policy
Year. This deduction is taken to the end of the tenth Policy
Year. See Detailed Information About the Policies; Charges and
Deductions - "Deductions from Premiums."
(2) Surrender Charges
. upon surrender, partial withdrawal in excess of the Withdrawal
Tier Amount, decrease in face amount or lapse.
. deferred underwriting charge of $4 for each $1,000 of face amount.
. deferred sales charge of a maximum of 100% of the lower of
first-year premium or the Target Premium. See Detailed
Information About the Policies; Charges and Deductions -
"Surrender Charges."
(3) Monthly Deductions
. administration charge of $.04 per $1,000 of face amount per
month until the later of the end of the fifteenth Policy Year,
or when the youngest life insured reaches Attained Age 55.
The administration charge is 0 thereafter. This charge has a
minimum of $30 per month and a maximum of $60 per month.
. cost of insurance charge.
. mortality and expense risks charge of .067%
deducted monthly through the later of the tenth Policy Year
and the youngest life insured's Attained Age 55. It is
currently expected to be .0125% thereafter.
. supplementary benefit(s) charge(s)
If the Policy is still in force when the youngest of the lives
insured reaches or would have reached Age 100 no further monthly
deductions will be taken from the Policy Value. See Detailed
Information About the Policies; Charges and Deductions -
"Monthly Deductions."
(4) Other Charges
For the Manulife Funds:
. investment management fee of .50% per annum assessed against
assets of the Series Fund invested in any or all of the Emerging
Growth Equity Fund, Common Stock Fund, Real Estate Securities
Fund, Balanced Assets Fund, Capital Growth Bond Fund, and/or
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.
. investment management fee of .25% per annum assessed against
the assets of the Equity Index 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.
. expenses of up to .15% per annum assessed against the
assets of the Equity Index Fund.
For the NASL Trusts:
. investment management fee of .800% assessed against the assets of the
Value Equity Trust
. investment management fee of .650% assessed against the assets of the
U.S. Government Securities Trust
. investment management fee of .750% assessed against the assets of the
Growth and Income Trust
. investment management fee of .750% assessed against the assets of the
Equity Trust
. investment management fee of .750% assessed against the assets of the
Conservative Asset Allocation Trust
. investment management fee of .750% assessed against the assets of the
Moderate Asset Allocation Trust
. investment management fee of .750% assessed against the assets of the
Conservative Asset Allocation Trust
. expenses of up to .50% assessed against the assets of the NASL
Trusts.
For all policies:
. transfer fee of $35 if the policyowner elects to exercise the
option to make a second transfer in any Policy Month (multiple
requests received at the same time are treated as a single
transfer).
. 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.
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. See Detailed Information About the Policies;
Charges and Deductions - "Other Charges."
Investment Options
After deductions from premiums for federal, state and local taxes and the
premium charge, 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 one of the following:
Manulife Funds:
. 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
. Subject to regulatory approval, Equity Index Fund
NASL Trusts:
. Value Equity Trust
. U.S. Government Securities Trust
. Growth and Income Trust
. Equity Trust
. Conservative Asset Allocation Trust
. Moderate Asset Allocation Trust
. Aggressive Asset Allocation Trust
The policyowner may change the allocation of Net Premiums among the general
account and the sub-accounts at any time. See General Information About
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."
The Policy Value is the sum of the values in the Investment Accounts, the
Guaranteed Interest Account and the Loan Account.
Investment Account. An Investment Account is established under the Policy
for each sub-account of the Separate Account to which Net Premiums or
transfer amounts have been allocated. An Investment Account measures the
interest of the Policy in the corresponding sub-account.
The value of each Investment Account under the Policy varies each
Business Day and reflects the investment performance of the Portfolio
shares held in the corresponding sub-account. See Detailed Information
About the Policies; Policy Values-"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. See Detailed Information About the Policies; Policy Values-
"Policy Loans."
Transfers Are Permitted. A policyowner may make transfers among Investment
Accounts and the Guaranteed Interest 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. The maximum that may be
transferred out of the Guaranteed Interest Account in any one Policy Year
is the greater of $500 or 15% of the value in the Guaranteed Interest
Account as of the previous Policy Anniversary.
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. In most states 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. In most states 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."
Supplementary Benefits
A policyowner may choose to add certain supplementary benefits to the
Policy. These supplementary benefits include an estate preservation rider
and a policy split option.
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 or No Lapse 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 or No Lapse 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."
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 latest 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).
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. 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, in absence of additional payments. The premium payment
necessary to avert lapse would increase with the average age of the lives
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).
The United States Congress has in the past considered, is currently
considering, and in the future may consider legislation that, if enacted,
could change the tax treatment of life insurance policies. In addition,
the Treasury Department may amend existing regulations, or adopt new
interpretations of existing laws, state tax laws or, if the policyowner is
not a United States resident, foreign tax laws, may affect the tax
consequences to him or her, the lives insured or the beneficiary. These
laws may change from time to time without notice and, as a result, the tax
consequences may be altered. There is no way of predicting whether, when
or in what form any such change would be adopted. Any such change could
have a retroactive effect regardless of the date of enactment. The Company
suggests that a tax adviser be consulted.
Estate and Generation-Skipping Taxes
The proceeds of this life insurance policy may be taxable under Estate and
Generation-Skipping Taxes. The policyowner should consult his or her tax
adviser regarding these taxes.
General Information About Manufacturers
Life of America, Separate Account Three,
Manulife Series Fund And NASL Series Trust
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 was the first company to introduce survivorship life insurance -- a
sophisticated insurance product which revolutionized the estate planning
market. With five survivorship products, Manufacturers Life and its
subsidiaries offer the broadest second-to-die portfolio in the industry.
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 and NASL Series Trust
Each sub-account of the Separate Account will purchase shares only of a
particular Manulife Fund or NASL Trust. Manulife Series Fund and NASL
Series Trust are registered under the 1940 Act as open-end management
investment companies. The Separate Account will purchase and redeem shares
of Manulife Funds and NASL Trusts at net asset value. Shares will be
redeemed to the extent necessary for Manufacturers Life of America to
provide benefits under the Policies, to transfer assets from one
sub-account to another or to the general account as requested by
policyowners, and for other purposes consistent with the Policies. Any
dividend or capital gain distribution received from a Portfolio will be
reinvested immediately at net asset value in shares of that Portfolio and
retained as assets of the corresponding sub-account.
Manulife Series Fund and NASL Series Trust shares are issued to fund
benefits under both variable annuity contracts and variable life insurance
policies issued by the Company or life insurance companies affiliated with
the Company and, with respect to Manufacturers Life of America only, shares
of the Manulife Series Fund are also issued to its general account for certain
limited purposes including initial portfolio seed money. For a description of
the procedures for handling potential conflicts of interest arising from the
funding of such benefits see the accompanying Manulife Series Fund prospectus
and the accompanying NASL Series Trust prospectus.
Manulife 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.
NASL Series Trust receives investment advisory services from NASL Financial
Services, Inc. NASL Financial Services, Inc. is a registered investment
adviser under the Investment Advisers Act of 1940. NASL Series Trust also
employs subadvisers. Fidelity Management Trust Company provides
investment subadvisory services to the Equity, Conservative Asset
Allocation, Moderate Asset Allocation and Aggressive Asset Allocation
Trusts. Goldman Sachs Asset Management provides investment subadvisory
services to the Value Equity Trust. Wellington Management Company provides
investment subadvisory services to the Growth and Income Trust and Salomon
Brothers Asset Management Inc provides investment subadvisory services to
the U.S. Government Securities Trust.
Investment Objectives of the Portfolios
The investment objectives of the Portfolios 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.
Manulife Funds
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.
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.
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.
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.
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.
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.
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.
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.
Equity Index Fund. The investment objective of the Equity Index Fund is to
achieve investment results which approximate the total return of
publicly-traded common stocks in the aggregate, as represented by the
Standard & Poor's 500 Composite Stock Price Index.
A full description of the Manulife Series Fund, its investment objectives,
policies and restrictions, the risks associated therewith, its expenses,
and other aspects of its operation is contained in the accompanying
Manulife Series Fund prospectus, which should be read together with this
prospectus.
NASL Trusts
Equity Trust. The investment objective of the Equity Trust is to seek
growth of capital by investing primarily in common stocks of United States
issuers and securities convertible into or carrying the right to buy common
stocks.
Value Equity Trust. The investment objective of the Value Equity Trust is
to seek long-term growth of capital by investing primarily in common stocks
and securities convertible into or carrying the right to buy common stocks.
Growth and Income Trust. The investment objective of the Growth and Income
Trust is to seek long-term growth of capital and income, consistent with
prudent investment risk, by investing primarily in a diversified portfolio
of common stocks of U.S. issuers which the subadviser believes are of high
quality.
U.S. Government Securities Trust. The investment objective of the U.S.
Government Securities Trust is to seek a high level of current income
consistent with preservation of capital and maintenance of liquidity by
investing in debt obligations and mortgage-backed securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
derivative securities such as collateralized mortgage obligations backed by
such securities.
Automatic Asset Allocation Trusts. The investment objective of the
Automatic Asset Allocation Trusts is to seek the highest potential return
consistent with a specified level of risk tolerance -- conservative,
moderate or aggressive -- by investing primarily in debt, equity, and money
market securities.
. The Aggressive Asset Allocation Trust seeks the highest total return
consistent with an aggressive level of risk tolerance. The Trust
attempts to limit the decline in portfolio value in very adverse
market conditions to 15% over any twelve month period.
. The Moderate Asset Allocation Trust seeks the highest total return
consistent with a moderate level of risk tolerance. The Trust attempts
to limit the decline in portfolio value in very adverse market
conditions to 10% over any twelve month period.
. The Conservative Asset Allocation Trust seeks the highest total
return consistent with a conservative level of risk tolerance.
The Trust attempts to limit the decline in portfolio value in very
adverse market conditions to 5% over any twelve month period.
A full description of the NASL Series Trust, its investment objectives,
policies and restrictions, the risks associated therewith, its expenses,
and other aspects of its operation is contained in the accompanying NASL
Series Trust prospectus, which should be read together with this
prospectus.
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 $250,000. 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. Each 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 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 an Effective Date and a Policy Date. The
Effective Date is the date we become obligated under this Policy and when
we take the first Monthly Deductions, other than for backdated policies
(which are described below). It is the later of the date the Company's
underwriters approve issuance of the Policy, or the date at least the
Initial Premium is received at the Manufacturers of America Service Office.
The lives insured may be covered under the terms of a conditional insurance
agreement between the Policy Date and the Effective Date.
Under certain circumstances a Policy may be issued with a backdated Policy
Date. A Policy will not be backdated more than six months (12 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 for backdated Policies 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. As of the effective date, the premiums paid plus interest credited,
net of deductions for federal, state and local taxes, and the premium
charge, will be allocated among the Investment Accounts and/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.
The Policy Date is the date used to calculate the insurance age. It is the
date from which Policy Months, Policy Years, and Policy Anniversaries are
all determined. If the application accepted by the Company is accompanied
by a check for at least the Initial Premium, the Policy Date is the date
the application and check were received at the Manufacturers Life of
America Service Office. If the application accepted by the Company is not
accompanied by a check for at least the Initial Premium, the Policy Date is
calculated as seven days after issuance of the Policy (which is also the
"Issue Date"). Monthly deductions are made as of the Policy Date and at
the beginning of each Policy Month thereafter. However, if due prior to
the Effective Date on a backdated policy, they will be made as of the
Effective Date instead of the dates they were due, as described above.
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
with Additional Ratings. If the Initial Premium is not paid or if the
application is rejected, the Policy will be cancelled.
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 Portfolio shares held by
the corresponding sub-account of the Separate Account. Allocations among
the Investment Accounts and the Guaranteed Interest Account are made as a
percentage of the Net Premium. The percentage allocation to any account
may be any whole number between zero and 100, provided the total percentage
allocations equal 100. A policyowner may change the way in which Net
Premiums are allocated at any time without charge. The change will take
effect as of the date a written or telephone request for change, in a
format which is 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 any of the lives 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 a premium amount that will satisfy the requirements of the
No Lapse Guarantee Cumulative Premium Test or the Death Benefit Guarantee
Cumulative Premium Test (see Insurance Benefit - "No Lapse Guarantee" and
"Death Benefit Guarantee") be paid into the Policy as the Planned Premium.
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. See Premium Provisions - "Policy Default."
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 as of 90
days after written notice is sent to the policyowner. 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.
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 the increase is 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 last surviving life insured's
death, Manufacturers Life of America will pay, upon receipt of due proof of
death, an insurance benefit based on the death benefit option selected by
the policyowner. 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
last surviving 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.
No Lapse Guarantee
In those states where it is permitted and if elected by the policyowner, as
long as the No Lapse Guarantee Cumulative Premium Test (see below) is
satisfied during the No Lapse Guarantee Period, as described below,
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.
The No Lapse Guarantee Period is the first 10 Policy Years for lives
insured with an average issue age up to and including 70. For lives
insured with an average issue age of 71 and older, the No Lapse Guarantee
Period decreases by one year for each year the average issue age exceeds
70, until the average Issue Age reaches 77. For lives insured with an
average Issue Age between 77 and 85, the No Lapse Guarantee Period is three
years. The No Lapse Guarantee is not offered to lives insured whose
average Issue Age exceeds 85.
While the No Lapse Guarantee is in effect, Manufacturers Life of America
will determine at the beginning of each Policy Month whether the No Lapse
Guarantee Cumulative Premium Test, described below, has been met. If it
has not 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 No Lapse Guarantee in effect. This
required payment, as described in the notification to the policyowner, will
be equal to the outstanding premium requirement as of the date the No Lapse
Guarantee was not satisfied plus the Monthly No Lapse Guarantee Premium due
for the next two Policy Months. If the required payment is not received by
the end of the grace period, or if a death benefit option change occurs,
the No Lapse Guarantee will terminate, and the Policy may go into default.
A death benefit option change will also terminate the No Lapse Guarantee if
it is in effect at the time of the change. The No Lapse Guarantee cannot
be reinstated after it has been terminated. See Other General Policy
Provisions- "Policy Default," and Insurance Benefit "Death Benefit Option
Changes."
No Lapse Guarantee Cumulative Premium Test
The No Lapse Guarantee Cumulative Premium Test is satisfied if, as of the
beginning of the Policy Month, the sum of all premiums paid to date less
any partial withdrawals and less any Policy Debt is at least equal to the
sum of the Monthly No Lapse Guarantee Premiums due since the Policy Date,
as follows:
The Policy will satisfy the No Lapse Guarantee Cumulative Premium Test if
(a) is greater than or equal to (b), where:
(a) is the sum of all premiums paid, less any partial withdrawals and
less any Policy Debt;
and
(b) is the sum of the Monthly No Lapse Guarantee Premiums due since the
Policy Date.
The Monthly No Lapse Guarantee Premium is one-twelfth of the No Lapse
Guarantee Premium.
The No Lapse Guarantee Premium is equal to the Target Premium and any
Additional Rating, if applicable. The No Lapse Guarantee Premium is set
forth in the Policy. It is subject to change if the face amount of the
Policy is changed (see Insurance Benefit- "Face Amount Changes"); or if
there is any change in the supplementary benefits added to the Policy or in
the risk class of any life insured.
Death Benefit Guarantee
Where permitted by state law and elected by the policyowner, if the Death
Benefit Guarantee Cumulative Premium Test (see below) is satisfied any time
before the Death Benefit Guarantee terminates, 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.
If after the tenth Policy Year the Death Benefit Guarantee 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 will expire at the end of a Policy Year
specified in the Policy, currently (i) the year in which the youngest life
insured reaches or would have reached Attained Age 100 if death benefit
Option 1 is maintained throughout the life of the Policy and (ii) the year
in which the youngest life insured reaches or would have reached Attained
Age 85 if death benefit Option 2 is selected at any time. While the Death
Benefit Guarantee is in effect, Manufacturers Life of America will
determine at the beginning of each Policy Month whether the Death Benefit
Guarantee 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 stated in the notice to the
policyowner will be equal to the outstanding premium required to meet the
Death Benefit Guarantee Cumulative Premium Test or the Fund Value Test at
the date neither test was satisfied, plus the Monthly Minimum 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, and the Policy may go into default. Once the
Death Benefit Guarantee is terminated, it cannot be reinstated.
Death Benefit Guarantee Cumulative Premium Test
The Death Benefit Guarantee Cumulative Premium Test will be satisfied if
(a) is greater than or equal to (b), where:
(a) is the sum of all premiums paid, less any partial withdrawals and
less any Policy Debt;
and
(b) is the sum of the Monthly Death Benefit Guarantee Premiums due since
the Policy Date.
The Death Benefit Guarantee Premium is set forth in the Policy. It is
subject to change if the face amount of the Policy or the death benefit
option is changed (see Insurance Benefit- "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 any life insured.
Fund Value Test. The Fund Value Test is applicable after the end of the
tenth year of the Policy. The Fund Value Test is satisfied, if at the
beginning of the 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 or, if greater, the Policy Value 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 or, if
greater, the Policy Value multiplied by the applicable percentage in the
following table.
Age in the table below refers to the Age of the youngest life insured or
the Age such person would have reached.
Corridor
Age Percentage
___ __________
40 & below 250%
41 243
42 236
43 229
44 222
45 215
46 209
47 203
48 197
49 191
50 185
51 178
52 171
53 164
54 157
55 150
56 146
57 142
58 138
59 134
60 130
61 128
62 126
63 124
64 122
65 120
66 119
67 118
68 117
69 116
70 115
71 113
72 111
73 109
74 107
75-90 105
91 104
92 103
93 102
94 101
95 & above 100
Regardless of which death benefit option is in effect, the relationship of
Policy Value to death benefit will change whenever the "corridor
percentages" are used to determine the amount of the death benefit. 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 youngest life insured under a Policy with a face amount of $400,000 is
currently Age 40. If Option 1 is in effect, the corridor percentage will
produce a greater death benefit whenever the Policy Value exceeds $160,000
(250% x $160,000 = $400,000). If the Policy Value is less than $160,000,
an incremental change in Policy Value will have no effect on the death
benefit. If the Policy Value is greater than $160,000, 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 $160,010, the
death benefit would be increased to $400,025 (250% x $160,010 = $400,025).
If Option 2 were in effect in the above example, the corridor percentage
would produce a greater death benefit whenever the Policy Value exceeded
$266,667 (250% x $266,667 = $666,667). 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 $266,667, an incremental change in Policy
Value will have a dollar-for-dollar effect on the death benefit. If the
Policy Value is greater than $266,667, 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.
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 requests 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 for the amount of the death benefit to remain exactly
the same immediately after the change.
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. Thereafter, the death
benefit will vary with changes in the Policy Value. 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 $250,000.
If the change in death benefit is from Option 2 to Option 1, the new face
amount will be equal to the face amount prior to the change plus the Policy
Value on the Effective Date of the change. The increase in face amount
resulting from a change to Option 1 will not affect the amount of surrender
charges to which a Policy may be subject.
A 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. In the absence of such an election,
a change from Option 2 to Option 1 will be subject to satisfactory evidence
of insurability. 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 death benefit option change will terminate the No Lapse Guarantee, if it
is in effect at the time of the death benefit option change. See Insurance
Benefit - "No Lapse Guarantee." A change from Option 1 to Option 2 will
also shorten the Death Benefit Guarantee Period to the year in which the
lives insured reach average Attained Age 85.
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 and the No Lapse
Guarantee Premium, the Guideline Single Premium, Guideline Level Premium,
the monthly deductions and surrender charges (see "Charges and
Deductions"). Currently, each face amount increase or decrease (other than
a decrease resulting from a partial withdrawal or an increase or decrease
for a corporate-owned Policy), must be at least $100,000. Manufacturers
Life of America reserves the right to modify this minimum requirement as of
90 days after written notice is sent 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, except for corporate-owned Policies,
in which case increases may be made in any Policy Year, with no minimum
amount requirement. 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 Attained Age of any of the lives insured still
living at the effective date of the increase would be greater than the
maximum issue age for new Policies at that time. In addition, subject to
certain conditions as set forth in the Policy, the policyowner may be
entitled to increase the face amount of the Policy by a certain amount
without further evidence of insurability if there is an increase in federal
estate taxes within three years of the Policy Date. The policyowner is
entitled to this benefit if both insureds are standard risks and under age
75 at time of issue. If the policyowner is considered a substandard risk
in accordance with Manufacturers Life of America's normal underwriting
practices, the benefit may not be available.
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, following a prior
decrease 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. This is because surrender charges, if applicable,
will have been assessed in 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.
An additional premium may be required for a face amount increase, and new
Death Benefit Guarantee Premiums, No Lapse Guarantee Premiums, Guideline
Annual Premium, and Target 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 for corporate-owned Policies, in which case decreases may be made in
any Policy Year, with no minimum amount requirement. 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 $250,000.
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 Portfolios.
An Investment Account is established under each Policy for each sub-account
of the Separate Account to which net premiums or transfer amounts have been
allocated. Each Investment Account under a Policy measures the interest of
the Policy in the corresponding sub-account. The value of the Investment
Account established for a particular sub-account is equal to the number of
units of that sub-account credited to the Policy times the value of such
units.
Units of a particular sub-account are credited to a Policy when net
premiums are allocated to that sub-account or amounts are transferred to
that sub-account. Units of a sub-account are redeemed whenever amounts are
deducted, transferred or withdrawn from the sub-account. The number of
units credited or redeemed for a specific transaction is based on the
dollar amount of the transaction divided by the value of the unit as of the
end of the Business Day on which the transaction occurs. The number of
units credited or redeemed will be based on the applicable unit values as
of the Business Day on which the premium or transaction request is received
at the Manufacturers Life of America Service Office.
Units are valued as of the end of each Business Day. When an order
involving the crediting or redemption 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 as 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
as 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 Portfolio shares held by
that sub-account as of the end of such Business Day before any Policy
transactions are made for that day;
(b) is the net asset value of the underlying Fund shares held by that
sub-account as of 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 transfer amounts from one or more Investment Accounts or
the Company's general account to other Investment Accounts and/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 as of 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 request formats must be satisfactory to
Manufacturers Life of America and in writing or by telephone, if a
currently valid telephone transfer authorization form is on file.
Although failure to follow reasonable procedures may result in
Manufacturers Life of America's liability for any losses arising 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 and remains in the Guaranteed Interest Account, the Policy Value,
other values based thereon and the death benefit will be determinable and
guaranteed. That is, future values and minimum levels of benefits can be
computed using guaranteed charges, guaranteed interest rate and the
guaranteed Mortality Table for a given death benefit option, Face Amount of
insurance and premium payment. Actual values will never be less than the
minimum guaranteed values provided the entire Policy Value remains in the
Guaranteed Interest Account.
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 Lives 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. After the conversion has
been effected, the policyholder may again transfer all or part of the
Policy Value back into the Investment Accounts and/or allocate net premiums
to the Investment Accounts. The Policy will then cease to be considered a
fixed-benefit Policy. Transfers from the Guaranteed Interest Account will
be subject to the limitations stated above.
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
Portfolio may have to be sold. Excessive sales of the investment portfolio
securities in such a situation could be detrimental to that Portfolio and
to policyowners with Policy Values allocated to sub-accounts investing in
that Portfolio. 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 as of a particular
Business Day would not reduce the number of shares of the underlying
Portfolio 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 Portfolio or to the interests of
policyowners or others with assets allocated to that Portfolio. 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 the Dollar Cost
Averaging program the policyowner will designate an amount which will 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 as of 90 days after written notice is sent to the policyowner.
Asset Allocation Balancer Transfers. 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 as of 90 days after written notice is sent to the policyowner.
Policy Loans
While the Policy is in force and has a loan value the policyowner may
borrow against the Policy Value of his or her Policy. The Policy serves as
the only security for the loan. In most states the minimum amount of any
loan is $500. The maximum loan amount is the amount which would cause the
Modified Policy Debt, as described below, to equal the loan value of the
Policy as of 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%. When a loan has been taken out, or when loan
interest charges are borrowed, 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 as of the next Policy Anniversary
to cover the interest accrued on the Policy Debt. The current credited
Interest Rate to the Loan Account is 4.5%.
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's 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 Policy loan may result in a Policy's failing to satisfy the Death Benefit
Guarantee Cumulative Premium Test and/or the No Lapse Guarantee Cumulative
Premium Test, since the Policy Debt is subtracted from the sum of the
premiums paid in determining whether these tests are satisfied. As a
result, the Death Benefit Guarantee and/or No Lapse Guarantee may
terminate. See Insurance Benefit - "Death Benefit Guarantee," "No Lapse
Guarantee," and Other General Policy Provisions - "Policy Default."
Moreover, if the Death Benefit Guarantee or No Lapse 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 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 last surviving 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 the rate of interest
charged on the Policy loan less an interest rate differential, currently
1.25%.
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 last surviving
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.
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. 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 $5,225
($5,000 x 1.045), reflecting interest credited at an effective annual rate
of 4.5%. 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 $5,225, a transfer of $225
will be required ($5,225 - $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
$5,225, a transfer of $63 will be required. This amount is equivalent to
the 1.25% interest rate differential on the $5,000 transferred to the Loan
Account on the previous Policy Anniversary.
Loan Repayments. Policy Debt may be repaid in whole or in part at any time
prior to the death of the last surviving 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. In most states
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
by the amount of the partial withdrawal and any surrender charges. 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 corridor 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. If there has been a prior increase in face amount, then the face
amount will be decreased in the same order as if the policyowner had
requested the decrease. 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 at least one of the lives 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 Policy Debt. The Net Cash Surrender Value will be determined
as of 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.
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 related to premium payments, an amount
which is also expected to be sufficient to pay federal taxes.
Currently, it is the Company's intent to cease these deductions at the end
of the tenth Policy Year. However, Manufacturers Life of America may
continue these deductions beyond the tenth Policy Year. In addition, if
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. Manufacturers Life of America also
deducts a sales charge of 5.5% of the premiums paid in each Policy Year, up
to a maximum of the Target Premium in the then current Policy Year. This
deduction is guaranteed to cease at the end of the tenth Policy Year, or 10
years after a face increase.
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 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. The charges will never exceed the allowable maximums under
standard non-forfeiture law.
Deferred Underwriting Charge. The deferred underwriting charge is $4 for
each $1,000 of face amount of life insurance coverage initially purchased
or added by increase. The charge applies only to the first $1,000,000 of
face amount initially purchased or the first $1,000,000 of each subsequent
increase in face amount. Thus, the charge made in connection with any one
underwriting will not exceed $4,000.
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
each 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, including the costs of processing
applications, conducting medical examinations, determining the risk classes
of the lives insured and establishing Policy records.
Deferred Sales Charge
The maximum deferred sales charge is equal to the premiums paid in the
first Policy Year up to a maximum of the Target Premium, multiplied by the
percentages shown in Table 1 below.
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. 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 any 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, except for an
increase in face amount which results from a change in the death benefit
option, 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, except those increases attributable to a death benefit
option change, and the issue age and sex (unless unisex rates are required
by law) of each life insured.
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 six years of the Surrender Charge Period for lives
insured with either an Average Issue Age (or an Average Attained Age at
time of face increase) of 0-75. For Average Ages higher than 75, the
portion of the deferred sales charge that remains in effect will grade down
at a rate that also varies according to Table 1 as described below.
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.
<PAGE>
<TABLE>
<CAPTION>
Table 1: The Deferred Underwriting Charge and the Surrender Charge
Grading Percentages During the Surrender Charge Period
(Applicable to the Initial Face Amount and Subsequent Increases)
Surrender Charge Average Age and Percentage of Charges** <F4>
Period* <F3> Average Age:
----------------- ---------------------------------------
0-75 76 77 78 79 80+
<S> <C> <C> <C> <C> <C> <C>
____ ____ ____ ____ ____ ____
12 100% 100% 100% 100% 100% 100%
24 100% 100% 100% 100% 100% 90%
36 100% 100% 100% 100% 90% 80%
48 100% 100% 100% 90% 80% 70%
60 100% 100% 90% 80% 70% 60%
72 100% 90% 80% 70% 60% 50%
84 90% 80% 70% 60% 50% 40%
96 80% 70% 60% 50% 40% 30%
108 70% 60% 50% 40% 30% 20%
120 60% 50% 40% 30% 20% 10%
132 50% 40% 30% 20% 10% 0%
144 40% 30% 20% 10% 0%
156 30% 20% 10% 0%
168 20% 10% 0%
180 0% 0%
* <F3> Periods shown are after end of Policy Month. Policy Months not
shown may be calculated by linear extrapolation.</F3>
**<F4> Average Age refers to the average Issue Age of the lives insured
when the Policy is first issued, or their average Attained Age at
the time of a subsequent face amount increase.</F4>
</TABLE>
The following example illustrates how deferred underwriting and sales
charges are calculated using data from Table 1 above.
Assume a 42-year-old male and a 42-year-old female (standard risks), whose
Policy was issued at an average Issue Age 35 and who have paid $9,000 in
premiums in equal installments under a Policy with a Target Premium of $505
and a face amount of $250,000, surrender their Policy during the last month
of the seventh Policy Year.
A deferred underwriting charge of $900 would be assessed. The maximum
deferred underwriting charge of $1,000 ($4 per $1,000 of face amount x 250)
would be multiplied by the 90% listed in Table 1 as applicable to
surrenders during the last month of the seventh Policy Year
(90% x ($4 x 250) = $900).
A deferred sales charge of $454.50 would be assessed. The deferred sales
charge is equal to the lower of premiums paid in the first Policy Year (or
first year after a face increase), in our example $9,000/7 = $1,285.71, or
the Target Premium ($505). Therefore the deferred sales charge is $505.
Because the surrender occurs during the last month of the seventh Policy
Year, only 90% (from Table 1) of the maximum sales charge remains
applicable [.90 x $505 = $454.50].
Sales Charge Limitation. The maximum sales charge that may be taken under
the Policy is 9% of 20 guideline annual premiums (GAPs) or, if the
insureds' joint life expectancy is less than 20 years, then the number of
years of life expectancy would replace 20 GAPs in determining the maximum
sales charge. However, if a Policy is surrendered or lapsed, or a face
amount decrease is requested 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
cumulative premiums paid to the surrender date 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 cumulative premiums paid to the
surrender date, plus (iii) 9% of the premiums paid in excess of two
guideline annual premiums.
The operation of the sales charge limitation that applies in the first two
years after issuance, or after an increase in face amount, is illustrated
by the following example. A 37-year-old male non-smoker and a 37-year-old
female non-smoker purchased a Policy with a face amount in excess of
$250,000 when their average Issue Age was 35. They have paid $2,000 in
premiums in equal installments under the Policy and it has a guideline
annual premium (GAP) of $1,432 and a Target Premium (TP) of $505. They
surrender the Policy during the second Policy Year. In the absence of the
sales charge limitation, the maximum deferred sales charge would be $454.50
(.90% of $505 = $454.50) as described in Charges and Deductions - "Deferred
Sales Charge."
However, under the formula described above, the maximum sales charge
allowable would be $438.50. This is calculated as the sum of:
(i) 30% of one GAP, or $430 [.30 x $1,432 = $430], because one GAP
($1,432) is less than premiums paid ($2,000);
plus
(ii) 10% of premiums paid in excess of one GAP, or $57 (.1 x $568 = $57)
because premiums paid in excess of one GAP ($2,000 - $1,432 = $568) are
less than the amount of a second GAP ($1,432);
plus
(iii) $0, because no premiums in excess of two GAPs were paid.
Thus, (i) $430 plus (ii) $57 plus (iii) $0 equals $487.
The maximum sales charge allowable is $438.50. The maximum sales charge of
$487 would be multiplied by the 90% listed in Table 1 as applicable to
surrenders during the last month of the seventh Policy Year (90% x 487 =
$438.50).
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 in excess of the Withdrawal Tier Amount in
each Policy Year, 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 redeemed based on the value of such
units determined as of the end of the Business Day on which Manufacturers
Life of America receives a written request for withdrawal at its Service
Office.
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 (other than by means of a Free Look), 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 are 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 portion of the deferred underwriting charge or a portion of the
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 as described below.
The remaining deferred underwriting and sales charge will be calculated
using Table 1 above. The actual remaining charges will be the result of
(a) multiplied by (b), where:
(a) is the grading percentage applicable as per Table 1, and
(b) 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.
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 as
of the Effective Date instead of the dates they were due. Monthly
deductions are due until the youngest of the lives insured attains or would
have Attained Age 100.
Administration Charge. The monthly administration charge is $.04 per
$1,000 of face amount until the later of the youngest living life insured's
Attained Age 55 or the end of the fifteenth Policy Year. Thereafter, the
charge is 0. This charge has a minimum of $30 per month and a maximum of
$60 per month.
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 each life insured's Issue Age, the duration of
the coverage, sex (unless unisex rates are required by law or are
requested), 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. 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 Attained
Age of the lives insured. 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 insured. 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 any 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, except in the case of Group or Sponsored Arrangements,
where the guaranteed rates are based on the 1980 Commissioners Extended
Term Mortality Table.
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 purchase(s) in states where the
unisex version of the Policy has been approved.
Currently, the State of Montana 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. Consequently, Policies issued to Montana residents will have
premiums and benefits which do not differentiate on the basis of sex.
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 a rate of .067% through the later of the tenth Policy
Year and the youngest life insured's Attained Age 55. Currently, it is
expected that this charge will reduce to .0125 per month thereafter. This
drop in the Mortality and Expense Risks Charge is not guaranteed. It is
assessed against the value of the policyowner's Investment Accounts by
redemption 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 the lives insured may live for a shorter period of
time than the Company estimated when it set the maximum mortality rates in
the Policy. The expense risk assumed is that expenses incurred in issuing
and administering the Policies will be greater than the Company estimated
when it set the guaranteed administration charge in the Policy.
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 Portfolios at net asset
value. The net asset value of those shares reflects:
(i) the deduction of investment management and expense fees, with
amounts as detailed in the caption "Management of the Funds" in the
Prospectus for Manulife Series Fund that accompanies this Prospectus,
(ii) the deduction of investment management and expense fees, with
amounts as detailed in the caption "Management of the Trust" in the
Prospectus for NASL Series Trust that accompanies this Prospectus,
(iii) other expenses already deducted from the assets of the Manulife
Series Funds, and
(iv) other expenses already deducted from the assets of the NASL Series
Trust.
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 reduction or elimination of withdrawal charges and
deductions for 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 or eliminate
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 arrangement, 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 request increases in face amount within the first Policy Year, and
decreases in face amount within one year of an increase in face amount.
See Charges and Deductions - "Cost of Insurance Charge."
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.
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. 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.
Charges under the policies being exchanged or the Policies issued in
exchange therefor may be reduced or eliminated. Policy loans made under
policies being exchanged may, 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 S.E.C. has not
reviewed the disclosures in this prospectus relating to the general
account.
Disclosures regarding the general account may, however, be subject to
certain generally applicable provisions of the federal securities laws
relating to the accuracy and completeness of statements made in a
prospectus.
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."
Manufacturers Life of America will hold the reserves required for any
portion of the Policy Value allocated to the Guaranteed Interest Account in
its general account.
However, an allocation of Policy Value to the Guaranteed Interest Account
does not entitle the policyowner to share in the investment experience of
the general account. Instead, Manufacturers Life of America guarantees
that the Policy Value in the Guaranteed Interest Account will accrue
interest daily at an effective annual rate of at least 4%, without regard
to the actual investment experience of the general account. 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 or the No Lapse 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 as
of the date of default, plus the monthly deductions due as of the date of
default and as of the beginning of each of the two Policy Months
thereafter, based on the Policy Value as of 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 last surviving 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 as of 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) All lives insured's risk classes are standard or preferred, and
(b) All lives insured's Attained Ages are 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 all lives 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
last surviving 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 last surviving life
insured dies and there is no surviving beneficiary, the policyowner, or the
policyowner's estate if one of the policyowners is the last surviving life
insured, will be the beneficiary. If a beneficiary dies before the seventh
day after the death of the last surviving life insured, the Company will
pay the insurance benefit as if the beneficiary had died before the last
surviving life insured.
Incontestability. Manufacturers Life of America will not contest the
validity of a Policy after it has been in force during the lifetime of the
last surviving life insured 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 lifetime of the last surviving life insured for two years. If a
Policy has been reinstated and been in force for less than two years from
the reinstatement date, the Company can contest any misrepresentation of a
fact material to the reinstatement.
Misstatement of Age or Sex. If any 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, or
are requested).
Suicide Exclusion. Except for the last to die, if any of the lives insured
die by suicide within two years after the Issue Date, whether each life
insured is sane or insane, the Company will re-issue this Policy. The new
policy(ies) on the survivor(s) will be any single life permanent policy
that is available at time of re-issue. The suicide provision for any new
policy(ies) will be effective as of the original Issue Date.
If the last surviving life insured, whether sane or insane, dies by suicide
within two years from the Policy Date, Manufacturers Life of America will
pay only the premiums paid less any partial withdrawals of the Net Cash
Surrender Value and any amount in the Loan Account. If the last surviving
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
deductions 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 the Estate Preservation Rider, which rider
provides additional term insurance at no extra charge during the first
four policy years to protect against application of the "three year
contemplation of death rule," and an option to split the Policy into
two individual life policies upon divorce or certain federal tax law
changes without evidence of insurability ("Policy Split Option"). 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 seven 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 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 create new
Separate Accounts, combine other separate accounts with the Separate
Account (either from Manulife Series Fund, Inc. or another investment
company), 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, to de-register the Separate Account under the 1940 Act, and to
eliminate Sub-Accounts. Any such change would be made only if permissible
under applicable federal and state laws.
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.
The Policies may be used in various arrangements, including non-qualified
deferred compensation or salary continuance plans, executive bonus plans,
retiree medical benefit plans and others, including split dollar insurance
plans, with respect to which Manulife Financial took the lead in
establishing the method to be used to calculate the economic benefit
arising from the death benefit component of survivorship split dollar
arrangements with the "Greenberg to Greenberg" letter in 1983. The tax
consequences of all such plans may vary depending on the particular
facts and circumstances of each individual arrangement. Therefore, if the
use of such Policies in any such arrangement, the value of which depends in
part on its tax consequences, is contemplated, a qualified tax adviser
should be consulted for advice on the tax attributes of the particular
arrangement.
Tax Status of the Policy
Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code"),
sets forth a definition of a life insurance contract for federal tax
purposes. The Secretary of Treasury (the "Treasury") is authorized to
prescribe regulations to implement 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 has a reasonable belief (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 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 policyowner has additional flexibility in
allocating premium payments and Policy Values. These differences could
result in a policyowner 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 a policyowner from being considered the policyowner 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, 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 "seven-pay test"). 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, after the receipt of such premium
the Policy will become a Modified Endowment Contract.
Further, if a transaction occurs which reduces the face amount of the
Policy, the Policy will be retested, retroactive to the date of purchase,
to determine compliance with the seven-pay test based on the lower face
amount. Failure to comply would result in classification as a Modified
Endowment Contract regardless of any efforts by the Company to provide a
payment schedule that will not violate the seven-pay test.
The rules relating to whether a Policy will be treated as a Modified
Endowment Contract are extremely complex and cannot be adequately described
in the limited confines of this summary. Therefore, a current or
prospective policyowner should consult with a competent adviser to
determine whether a transaction will cause the Policy to be treated as a
Modified Endowment Contract.
Distributions from Policies Classified as Modified Endowment Contracts.
Policies classified as Modified Endowment Contracts will be subject to the
following tax rules: First, all partial withdrawals from such a Policy are
treated as ordinary income subject to tax up to the amount equal to the
excess (if any) of the Policy Value immediately before the distribution
over the investment in the Policy (described below) at such time. Second,
loans taken from or secured by such a Policy are treated as partial
withdrawals from the Policy and taxed accordingly. Past-due loan interest
that is added to the loan amount is treated as a loan. Third, a 10%
additional income tax is imposed on the portion of any distribution
(including distributions upon surrender) from, or loan taken from or
secured by, such a Policy that is included in income except where the
distribution or loan is made on or after the policyowner attains age 59-1/2,
is attributable to the policyowner 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.
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.
Taxation of Policy Split Option. This option permits a Policy to be split
into two other individual Policies upon the occurrence of a divorce of the
lives insured or certain changes in federal estate tax law. A policy split
could have adverse tax consequences. For example, it is not clear whether
a policy split will be treated as a nontaxable exchange under Sections 1031
through 1043 of the Code. If a policy split is not treated as a nontaxable
exchange, a split could result in the recognition of taxable income in an
amount up to any gain in the Policy at the time of the split. Before
exercising rights provided by the policy split option, please consult with
a competent tax adviser regarding the possible consequences of a policy
split.
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, Inc. 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. In the first Policy Year after issue
(or after a face amount increase), a registered representative will receive
first-year commissions not to exceed 40% of premiums paid up to the Target
Premium and 2% of premiums in excess thereof. In years 2 through 5
inclusive (following issue or face amount increase), a commission of 2% of
premiums paid in that period will be paid. Beginning with the first Policy
year end's Anniversary, 0.25% of the previous unloaned Policy Value will be
paid. In addition, registered representatives will be eligible for bonuses
of up to 90% of first-year commissions. Registered 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 Stop Loss 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 lives insured up to a
maximum of $10,000,000, 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 $10,000,000
and any aviation risk in excess of $5,000,000. Except for its obligations
to Manufacturers Life of America under this reinsurance agreement,
Manufacturers Life has no financial obligation for any Policy benefits.
Voting Rights
As stated above, all of the assets held in the sub-accounts of the Separate
Account will be invested in shares of a particular Portfolio of Manulife
Series Fund or NASL Series Trust. Manufacturers Life of America is the
legal owner of those shares and as such has the right to vote upon
certain matters that are required by the 1940 Act to be approved
or ratified by the shareholders of a mutual fund and to vote upon any other
matters that may be voted upon at a shareholders' meeting. However,
Manufacturers Life of America will vote shares held in the sub-accounts
in accordance with instructions received from policyowners having an interest
in such sub-accounts.
Shares held in each sub-account for which no timely instructions
from policyowners are received, including shares not attributable to
Policies, will be voted by Manufacturers Life of America in the same
proportion as those shares in that sub-account for which instructions are
received. Should the applicable federal securities laws or regulations
change so as to permit Manufacturers Life of America to vote shares
held in the Separate Account in its own right, it may elect to do so.
The number of shares in each sub-account for which instructions
may be given by a policyowner is determined by dividing the portion of the
Policy Value derived from participation in that sub-account, if any, by the
value of one share of the corresponding Manulife Fund or NASL Trust.
The number will be determined as of a date chosen by Manufacturers Life of
America, but not more than 90 days before the shareholders' meeting.
Fractional votes are counted. Voting instructions will be solicited in
writing at least 14 days prior to the meeting date.
Manufacturers Life of America may, if required by state insurance
officials, disregard voting instructions if such instructions would require
shares to be voted so as to cause a change in the sub-classification or
investment policies of one or more of the Portfolios, or to approve or
disapprove an investment management contract. In addition, Manufacturers
Life of America itself may disregard voting instructions that would require
changes in the investment policies or investment adviser, provided that
Manufacturers Life of America reasonably disapproves such changes in
accordance with applicable federal regulations. If Manufacturers Life of
America does disregard voting instructions, it will advise policyowners of
that action and its reasons for such action in the next communication to
policyowners.
Executive Officers and Directors
The directors and executive officers of Manufacturers Life of America,
together with their principal occupations during the past five years, are
as follows:
<PAGE>
Position with
Manufacturers Life
Name of America Principal Occupation
____ __________ ____________________
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,
Director Business Development--1994-
present, The 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
General Counsel, present, The Manufacturers
and Director Life Insurance Company
Joseph J. Pietroski Director Senior Vice President, General
Counsel and Corporate
Secretary -- 1988-present, The
Manufacturers LIfe Insurance
Company
John D. Richardson Chairman and Director Senior Vice President and
General Manager, U.S.
Operations--1995-present
The Manufacturers Life
Insurance Company; Senior
Vice President and General
Manager, Canadian Operations
- 1992-1994, The
Manufacturers Life Insurance
Company; Senior
Vice President, Financial
Services - 1992, The
Manufacturers Life
Insurance Company;
Executive Vice Chairman 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 --
1998 Operations -1988-1992,
The Manufacturers Life
Insurance Company
John R. Ostler Vice President, Financial Vice President--1992
Chief Actuary and -present, The Manufacturers
Treasurer Life Insurance Company; Vice
President, Insurance Products
--1990-1992, The Manufacturers
Life Insurance Company
Douglas H. Myers Vice President, Assistant Vice President and
Finance and Controller, U.S. Operations--
Compliance, 1998-present, The
Controller Manufacturers Life Insurance
Company
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 at the
S.E.C.'s principal office in Washington, D.C. upon payment of the
prescribed fee.
For further information you may also contact Manufacturers Life of
America's Service Office, the address and telephone number of which are on
the 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. Mayer, Brown & Platt, 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 for the period ended September
30, 1995 are unaudited. The financial statements of The Manufacturers Life
Insurance Company of America and The Manufacturers Life Insurance Company
of America Separate Account Three appearing in this prospectus for the
periods ending December 31 have been audited by Ernst & Young LLP,
independent auditors, to the extent indicated in their reports thereon also
appearing elsewhere herein. Such financial statements have been included
herein in reliance upon such reports given upon the authority of such
firm as experts in auditing and accounting. 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.
<PAGE>
The following financial statements of
Separate Account Three
for the period ended September 30, 1995 only
are unaudited.
<PAGE>
<TABLE>
<CAPTION>
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1995 (Unaudited)
Emerging Real Capital Pacific Rim
Growth Common Estate Balanced Growth Money- Emerging
Equity Stock Securities Assets Bond Market InternationalMarkets
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment in
Manulife Series
Fund, Inc. at
market value
Emerging Growth $29,470,698 $29,470,698
Equity Fund,
1,288,471 shares
(cost $25,184,536)
Common Stock Fund $12,436,512 12,436,512
766,942 shares
(cost $11,024,438)
Real Estate
Securities Fund, $8,377,241 8,377,241
571,032 shares
(cost $7,914,577)
Balanced Assets Fund, $19,418,919 19,418,919
1,194,329 shares
(cost $17,852,643)
Capital Growth Bond $9,014,464 9,014,464
Fund, 778,188 shares
(cost $8,591,439)
Money Market Fund, $10,822,504 10,822,504
1,011,823 shares
(cost $10,629,212)
<PAGE>
International Fund, $1,772,130 1,772,130
168,795 shares
(cost $1,695,316)
Pacific Rim $1,147,188 1,147,188
Emerging Markets
Fund, 114,380
shares (cost
$1,091,600)
______________________________________________________________________________________________________________
29,470,698 12,436,512 8,377,241 19,418,919 9,014,464 10,822,504 1,772,130 1,147,188 92,459,656
Receivable for
Policy-related
Transactions 25,635 5,537 (3,482) 29,666 35,533 232,515 (2,302) 705 323,807
--------------------------------------------------------------------------------------------------------------
NET ASSETS $29,496,333 $12,442,049 $8,373,759 $19,448,585 $9,049,997 $11,055,019 $1,769,828 $1,147,893 $92,783,463
==============================================================================================================
Units
Outstanding 850,529 590,510 348,907 1,017,718 498,897 710,020 169,686 113,653
==================================================================================================
Net asset
value per unit $34.68 $21.07 $24.00 $19.11 $18.14 $15.57 $10.43 $10.10
==================================================================================================
See accompanying notes.
<PAGE>
<CAPTION>
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF OPERATIONS
PERIOD ENDED SEPTEMBER 30, 1995 (Unaudited)
Emerging Real Capital Pacific Rim
Growth Common Estate Balanced Growth Money- Emerging
Equity Stock Securities Assets Bond Market InternationalMarkets
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Investment
Income:
Dividends $721,489 $0 $142,066 $24,806 $1,275 $468 $480 $1,453 $892,037
Realized and unrealized
gain (loss) from
security transactions:
Proceeds from
sales 1,064,105 632,239 716,496 568,059 519,634 5,899,591 154,143 184,196 9,738,463
Cost of securities
sold 877,815 651,870 735,854 603,592 549,737 5,793,608 156,097 192,863 9,561,436
-------------------------------------------------------------------------------------------------------------
Net realized
gain (loss) 186,290 (19,631) (19,358) (35,533) (30,103) 105,983 (1,954) (8,667) 177,027
-------------------------------------------------------------------------------------------------------------
Unrealized appreciation
(depreciation) of
Investments
Beginning of Year 78,088 (438,289) (280,544) (1,064,130) (542,982) (75,010) (3,406) (8,633) (2,334,906)
End of Period 4,286,162 1,412,074 462,664 1,566,276 423,025 193,292 76,814 55,588 8,475,895
-------------------------------------------------------------------------------------------------------------
Net unrealized
depreciation
during the period 4,208,074 1,850,363 743,208 2,630,406 966,007 268,302 80,220 64,221 10,810,801
-------------------------------------------------------------------------------------------------------------
Net realized and
unrealized gain
(loss) on
investments 4,394,364 1,830,732 723,850 2,594,873 935,904 374,285 78,266 55,554 10,987,828
-------------------------------------------------------------------------------------------------------------
Net increase
(decrease) in net
assets derived
from operations $5,115,853 $1,830,732 $865,916 $2,619,679 $937,179 $374,753 $78,746 $57,007 $11,879,865
=============================================================================================================
See accompanying notes.
<CAPTION>
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS
PERIOD ENDED SEPTEMBER 30, 1995 and DECEMBER 31, 1994 (Unaudited)
Real Estate
Emerging Growth Common Stock Securities
Equity Sub-Account Sub-Account Sub-Account
-----------------------------------------------------------------------------------
Period Ended Year Ended Period Ended Year Ended Period Ended Year Ended
Sept.30/95 Dec. 31/94 Sept.30/95 Dec. 31/94 Sept.30/95 Dec. 31/94
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $721,489 $43,907 $0 $267,928 $142,066 $75,896
Net realized gain (loss) 186,290 211,186 (19,631) (341) (19,358) 31,029
Unrealized appreciation
(depreciation) of
investments during the period
Increase (decrease) in
net assets 4,208,074 (255,344) 1,850,363 (435,910) 743,208 (305,376)
--------------------------------------------------------------------------------------
derived from operations 5,115,853 (251) 1,830,732 (168,323) 865,916 (198,451)
--------------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 10,164,632 12,590,008 4,546,125 5,554,746 3,143,823 4,874,992
Transfer on death (202,957) 0 0
Transfer of terminations (2,101,827) (1,565,370) (971,198) (649,516) (795,632) (663,869)
Transfer of policy loans (358,332) (86,018) (210,249) (36,417) (90,052) (6,117)
Net interfund transfers 2,491,046 823,390 1,300,789 421,280 12,039 318,546
-------------------------------------------------------------------------------------
9,992,562 11,762,010 4,665,467 5,290,093 2,270,178 4,523,552
-------------------------------------------------------------------------------------
Net increase in net assets 15,108,415 11,761,759 6,496,199 5,121,770 3,136,094 4,325,101
NET ASSETS
Beginning of Year 14,387,918 2,626,159 5,945,850 824,080 5,237,665 912,564
---------------------------------------------------------------------------------------
End of Period $29,496,333 $14,387,918 $12,442,049 $5,945,850 $8,373,759 $5,237,665
=======================================================================================
See accompanying notes.
<CAPTION>
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS (cont'd)
PERIOD ENDED SEPTEMBER 30, 1995 and DECEMBER 31, 1994 (Unaudited)
Balanced Assets Capital Growth Money Market
Sub-Account Bond Sub-Account Sub-Account
-----------------------------------------------------------------------------------
Period Ended Year Ended Period Ended Year Ended Period Ended Year Ended
Sept.30/95 Dec. 31/94 Sept.30/95 Dec. 31/94 Sept.30/95 Dec. 31/94
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $24,806 $603,014 $1,275 $311,297 $468 $186,610
Net realized gain (loss) (35,533) (1,270) (30,103) 8,755 105,983 12,880
Unrealized appreciation
(depreciation) of
investments during the period
Increase (decrease)
in net assets 2,630,406 (954,131) 966,007 (497,582) 268,302 (50,726)
--------------------------------------------------------------------------------------
derived from operations 2,619,679 (352,387) 937,179 (177,530) 374,753 148,764
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 5,251,842 9,721,164 2,381,173 3,709,555 11,964,737 9,185,855
Transfer on death 0 0 0
Transfer of terminations (1,256,759) (1,044,780) (501,086) (306,914) (1,196,819) (1,053,809)
Transfer of policy loans (175,440) (153,402) (169,797) (57,452) (36,615) (110)
Net interfund transfers 957,764 150,911 1,341,353 (184,732) (7,178,279) (1,923,048)
--------------------------------------------------------------------------------------
4,777,407 8,673,893 3,051,643 3,160,457 3,553,024 6,208,888
--------------------------------------------------------------------------------------
Net increase in net assets 7,397,086 8,321,506 3,988,822 2,982,927 3,927,777 6,357,652
NET ASSETS
Beginning of Year 12,051,499 3,729,993 5,061,175 2,078,248 7,127,242 769,590
-------------------------------------------------------------------------------------
End of Period $19,448,585 $12,051,499 $9,049,997 $5,061,175 $11,055,019 $7,127,242
=====================================================================================
See accompanying notes.
<CAPTION>
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS (cont'd)
PERIOD ENDED SEPTEMBER 30, 1995 and DECEMBER 31, 1994 (Unaudited)
*<F5> Pacific Rim
*<F5> International Emerging Markets
Sub-Account Sub-Account Total
-----------------------------------------------------------------------------------
Period Ended Period Ended Period Ended Period Ended Period Ended Year Ended
Sept.30/95 Dec. 31/94 Sept.30/95 Dec. 31/94 Sept.30/95 Dec. 31/94
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $480 $851 $1,453 $871 $892,037 $1,490,374
Net realized gain (loss) (1,954) (2) (8,667) (57) 177,027 262,180
Unrealized appreciation
(depreciation) of
investments during the period
Increase (decrease)
in net assets 80,220 (3,406) 64,221 (8,633) 10,810,801 (2,511,108)
-------------------------------------------------------------------------------------
derived from operations 78,746 (2,557) 57,007 (7,819) 11,879,865 (758,554)
-------------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 796,603 73,368 530,444 41,337 38,779,379 45,751,025
Transfer on death 0 0 (202,957) 0
Transfer of terminations (119,411) (4,461) (89,957) (2,998) (7,032,689) (5,291,717)
Transfer of policy loans (1,531) (768) (1,563) (768) (1,043,579) (341,052)
Net interfund transfers 687,407 262,432 407,469 214,741 19,588 83,520
------------------------------------------------------------------------------------
1,363,068 330,571 846,393 252,312 30,519,742 40,201,776
-------------------------------------------------------------------------------------
Net increase in net assets 1,441,814 328,014 903,400 244,493 42,399,607 39,443,222
NET ASSETS
Beginning of Year 328,014 0 244,493 0 50,383,856 10,940,634
-------------------------------------------------------------------------------------
End of Period $1,769,828 $328,014 $1,147,893 $244,493 $92,783,463 $50,383,856
=====================================================================================
*<F5> Reflects the period from commencement of operations October 4, 1994 through December 31, 1994.</F5>
See accompanying notes.
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements
September 30, 1995
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 certain variable life insurance 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.
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. Purchases and Sales of Manulife Series Fund, Inc. Shares
Purchases and sales of the shares of common stock of Manulife Series Fund,
Inc. for the period ended September 30, 1995 were $40,924,599 and $9,738,463
respectively, and for the year ended December 31, 1994 were $47,012,777 and
$5,377,813.
4. 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.<PAGE>
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.
Ernst & Young LLP
February 6, 1995
Philadelphia Pennsylvania
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statement of Assets and Liabilities
Year Ended December 31, 1994
*<F6>
Emerging Real Capital Pacific Rim
Growth Common Estate Balanced Growth Money- *<F6> Emerging
Equity Stock Securities Assets Bond Market InternationalMarkets
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Total
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Investment in
Manualife Series
Fund, Inc.-
at market value:
Emerging Growth
Equity Fund, $14,348,825 $14,348,825
773,490 Shares
(cost ($14,270,737)
Common Stock Fund, $5,928,854 5,928,854
443,671 shares
(cost $6,367,143)
Real Estate
Securities Fund, $5,219,386 5,219,386
391,124 shares
(cost $5,499,930)
Balanced Assets Fund, $12,029,839 12,029,839
873,324 shares
(cost $13,093,969)
Captial Growth Bond
Fund, $5,062,895 5,062,895
501,327 shares
(cost $5,605,877)
Money Market Fund, $7,123,443 7,123,443
694,147 shares
(cost $7,198,453)
International Fund, $327,988 327,988
33,406 shares
(cost $331,394)
Pacific Rim Emerging $244,461 244,461
Markets Fund,
25,987 shares
(cost $253,094) ____________________________________________________________________________________________________________
14,348,825 5,928,854 5,219,386 12,029,839 5,062,895 7,123,443 327,988 244,461 50,285,691
Receivable (payable)
for policy-related
transactions 39,093 16,996 18,279 21,660 (1,720) 3,799 26 32 98,165
-------------------------------------------------------------------------------------------------------------
Net assets $14,387,918 $5,945,850 $5,237,665 $12,051,499 $5,061,175 $7,127,242 $328,014 $244,493 $50,383,856
=============================================================================================================
Units
outstanding 524,532 342,306 244,066 745,300 320,125 477,058 33,642 25,818
================================================================================================
Net asset value
per unit $27.43 $17.37 $21.46 $16.17 $15.81 $14.94 $9.75 $9.47
================================================================================================
*<F6> Reflects the period from commencement of operations October 4, 1994 through December 31, 1994.</F6>
See accompanying notes.
<CAPTION>
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statement of Operations
Year Ended December 31, 1994
*<F7>
Emerging Real Capital Pacific Rim
Growth Common Estate Balanced Growth Money- *<F7> Emerging
Equity Stock Securities Assets Bond Market InternationalMarkets
Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Sub-Account Total
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividend income $43,907 $267,928 $75,896 $603,014 $311,297 $186,610 $851 $871 $1,490,374
Expenses:
Mortality and
expense risks
charge -- -- -- -- -- -- -- -- --
--------------------------------------------------------------------------------------------------------------
Net investment
income 43,907 267,928 75,896 603,014 311,297 186,610 851 871 1,490,374
--------------------------------------------------------------------------------------------------------------
Realized and
unrealized gain
(loss) on
investments:
Realized gain
(loss) from
security
transactions:
Proceeds from sales 491,049 461,407 428,802 627,251 375,016 2,993,307 82 899 5,377,813
Cost of securities
sold 279,863 461,748 397,773 628,521 366,261 2,980,427 84 956 5,115,633
----------------------------------------------------------------------------------------------------------
Net realized gain
(loss) 211,186 (341) 31,029 (1,270) 8,755 12,880 (2) (57) 262,180
----------------------------------------------------------------------------------------------------------
<PAGE>
Unrealized (appreciation)
depreciation of
investments:
Beginning of year 333,432 (2,379) 24,832 (109,999) (45,400) (24,284) -- -- 176,202
End of year 78,088 (438,289) (280,544) (1,064,130) (542,982) (75,010) (3,406) (8,633) (2,334,906)
-----------------------------------------------------------------------------------------------------------
Net unrealized
depreciation during
the year (255,344) (435,910) (305,376) (954,131) (497,582) (50,726) (3,406) (8,633) (2,511,108)
-----------------------------------------------------------------------------------------------------------
Net realized and
unrealized loss on
investments (44,158) (436,251) (274,347) (955,401) (488,827) (37,846) (3,408) (8,690) (2,248,928)
-----------------------------------------------------------------------------------------------------------
Net decrease in net
assets derived from
operations $(251) $(168,323) $(198,451) $ (352,387) $(177,530) $ 148,764 $ (2,557) $ (7,819) $ (758,554)
===========================================================================================================
*<F7> Reflects the period from commencement of operations October 4, 1994 through December 31, 1994.</F7>
See accompanying notes.
<CAPTION>
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Changes in Net Assets
Years ended December 31, 1994 and 1993
Real Estate
Emerging Growth Common Stock 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
<PAGE>
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
===================================================================================
See accompanying notes.
<PAGE>
<CAPTION>
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
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> <C>
From operations
Net investment income $ 603,014 $ 195,442 $ 311,297 $ 103,057 $ 186,610 $ 12,521
Net realized gain (loss) (1,270) 345,185 8,755 6,150 12,880 (998)
Unrealized (depreciation)
appreciation of
investments during the year (954,131) (361,715) (497,582) (63,182) (50,726) (621)
----------------------------------------------------------------------------------
Increase (decrease) in net
assets derived
from operations (352,387) 178,912 (177,530) 46,025 148,764 10,902
----------------------------------------------------------------------------------
From capital transactions
Additions (deductions) from:
Transfer of net premiums 9,721,164 2,223,408 3,709,555 1,542,401 9,185,855 677,589
Transfer on death ____ (42,338) ____ ____ ____ ____
Transfer of terminations (1,044,780) (57,543) (306,914) (22,391) (1,053,809) (125,188)
Transfer of policy loans (153,402) (115,269) (57,452) (63,465) (110) (101)
Net interfund transfers 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
-----------------------------------------------------------------------------------
Net increase in net assets 8,321,506 2,230,359 2,982,927 1,537,805 6,357,652 336,691
<PAGE>
Net assets
Beginning of Year 3,729,993 1,499,634 2,078,248 540,443 769,590 432,899
-----------------------------------------------------------------------------------
End of Year $ 12,051,499 $ 3,729,993 $ 5,061,175 $ 2,078,248 $ 7,127,242 $ 769,590
===================================================================================
See accompanying notes.
<CAPTION>
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
Pacific Rim
International Emerging Markets
Sub-Account Sub-Account Total
-------------------------------------------------------------------------------
Period ended Period ended Year ended Year ended
Dec. 31/94*<F8> Dec. 31/94*<F8> 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 gain (loss) (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
<PAGE>
Net assets
Beginning of Year ____ ____ 10,940,634 4,304,550
------------------------------------------------------------------------------
End of Year $ 328,014 $ 244,493 $ 50,383,856 $ 10,940,634
===============================================================================
*<F8> Reflects the period from commencement of operations October 4, 1994 through December 31, 1994.</F8>
See accompanying notes.
</TABLE>
<PAGE>
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.
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.
<PAGE>
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.
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
The following financial statements of
The Manufacturers Life Insurance Company of America
for the period ended September 30, 1995 only
are unaudited.
<PAGE>
The Manufacturers Life Insurance Company of America
Balance Sheets
September 30 December 31
1995 1994
------------------------------
(Unaudited)
Assets
Bonds, at amortized cost (market
$60,296,680 - 1995 and
$51,080,395 - 1994) $57,902,241 $52,149,080
Stocks (Note 7) 24,052,190 25,629,580
Short-term investments 189,672 10,914,561
Policy loans 6,582,470 4,494,390
------------------------------
Total investments 88,726,573 93,187,611
Cash on hand and on deposit 3,584,824 5,069,197
Life insurance premiums deferred
and uncollected 247,393 13,646
Accrued investment income 1,047,513 796,333
Separate account assets 439,258,680 302,736,198
Funds receivable on reinsurance assumed 421,666 880,284
Receivable for undelivered securities 15,682 69,003
Other assets 156,570 333,651
------------------------------
Total assets $533,458,901 $403,085,923
==============================
Liabilities, capital and surplus
Aggregate policy reserves $33,749,082 $29,761,174
Contract deposit funds 2,750,817 3,938,425
Interest maintenance and asset
valuation reserves 4,209,156 111,566
Policy and contract claims 77,415 94,346
Provision for policyholder dividends
payable 2,379,081 1,385,409
Amounts due to affiliates 6,872,260 7,377,108
Accrued liabilities 3,803,608 4,773,565
Amounts payable for undelivered securities 7,841 3,512,459
Separate account liabilities 439,258,680 302,736,198
-----------------------------
Total liabilities 493,107,940 353,690,250
<PAGE>
Capital and surplus:
Common shares, par value $1.00;
authorized, 5,000,000 shares;
issued and outstanding shares
(4,501,856--1995 and 4,501,855-- 1994) 4,501,856 4,501,855
Preferred shared, par value $100;
authorized, 5,000,000 shares;
issued and outstanding shares
(105,000--1995 and 1994) 10,500,000 10,500,000
Capital paid in excess of par value 54,999,997 49,849,998
Surplus (29,650,892) (15,456,180)
------------------------------
Total capital and surplus 40,350,961 49,395,673
------------------------------
Total liabilities, capital, and surplus $533,458,901 $403,085,923
==============================
<PAGE>
<TABLE>
<CAPTION>
The Manufacturers Life Insurance Company of America
Statement of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
-------------------------- ------------------------
<S> <C> <C> <C> <C>
Revenues:
Life premiums $26,544,818 $21,796,303 $87,786,742 $73,901,637
Annuity deposits 9,176,744 15,984,688 29,606,973 63,516,003
Investment income, net of
investment expenses 1,197,939 595,134 3,854,192 2,193,338
Amortization of interest
maintenance reserve 8,353 (11,691) 14,172 27,901
Foreign exchange gain (loss) (329,945) 492,338 (329,662) 128,130
Other revenue 37,106 12,096 92,821 29,638
------------------------- -------------------------
Total revenues 36,635,015 38,868,868 121,025,238 139,796,647
Benefits paid or provided:
Increase (decrease) in
aggregate policy reserves (2,172,807) (2,690,406) 3,987,908 (4,359,854)
Increase (decrease) in
liability for deposit funds (701,354) (2,211,032) (1,187,608) 773,375
Transfers to separate
accounts, net 21,999,494 31,050,361 73,046,861 112,599,442
Death benefits 694,831 207,720 2,163,196 329,505
Annuity benefits (506,892) (21,953) 30,802 224,706
Surrender benefits 6,683,913 707,625 12,938,150 2,100,743
------------------------ -------------------------
25,997,185 27,042,315 90,979,309 111,667,917
<PAGE>
Insurance expenses:
Intercompany service fee 5,289,000 5,895,734 16,764,000 16,358,143
Commissions 4,471,643 5,562,635 13,449,277 17,953,310
General expenses 4,665,024 1,726,021 9,470,575 4,609,828
Commission and expense
allowances on
reinsurance assumed 13,329 53,332 942,979 583,192
------------------------ -------------------------
14,438,996 13,237,722 40,626,831 39,504,473
------------------------ -------------------------
Loss before policyholders'
dividends and federal
income tax benefit (3,801,166) (1,411,169) (10,580,902) (11,375,743)
Dividends to policyholders 263,345 (152,804) 2,172,621 593,435
------------------------ -------------------------
Loss before federal income tax
benefit (4,064,511) (1,258,365) (12,753,523) (11,969,178)
Federal income tax benefit - 99,969 - 499,393
------------------------ -------------------------
Net loss from operations after
policy-holders' dividends
and federal income tax (4,064,511) (1,358,334) (12,753,523) (12,468,571)
Net realized capital gain
(loss) net of transfer to
interest maintenance reserve 38,348 (75) 630,788 (554,046)
------------------------ --------------------------
($4,026,163) ($1,358,409) ($12,122,735) ($13,022,617)
======================== ==========================
</TABLE>
<PAGE>
The Manufacturers Life Insurance Company of America
Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30
1995 1994
-----------------------------
Operating activities:
Premiums collected, net $117,159,968 $137,421,718
Policy benefits paid, net (15,137,221) (2,797,112)
Commissions and other expenses paid (43,854,220) (35,341,889)
Net investment income 3,569,190 2,179,963
Dividends paid to policyholders (1,178,949) (724,935)
Other income and expenses (172,880) (786,657)
Transfers to separate accounts, net (72,596,690) (112,179,755)
-----------------------------
Net cash used in operating activities (12,210,802) (12,228,667)
Investing activities
Sale, maturity, or repayment of
investments 62,744,420 36,295,459
Purchase of investments (67,892,880) (27,311,651)
-----------------------------
Net cash (used in) provided by
investing activities (5,148,460) 8,983,808
Financing Activities
Issuance of stock 5,150,000 -
Net increase in cash and short-term
investments (12,209,262) (3,244,859)
Cash and short-term investments
at beginning of year 15,983,758 9,058,136
-----------------------------
Cash and short-term investments
at end of year $3,774,496 $5,813,277
=============================
<PAGE>
The Manufacturers Life Insurance Company of America
Statement of Changes in Capital and Surplus
(Unaudited)
Capital
Paid in
Excess of
Capital Par Value Surplus Total
-------------------------------------------------
Balance, December 31, 1994 $15,001,855 $49,849,998 ($15,456,180) $49,395,673
Net loss from operations (12,122,735) (12,122,735)
Issuance of common stock 1 5,149,999 5,150,000
Increase in asset valuation
reserve (2,869,008) (2,869,008)
Increase in nonadmitted assets (1,710,551) (1,710,551)
Change in liability for
reinsurance in unauthorized
companies (54,935) (54,935)
Change in net unrealized
capital gains 2,562,517 2,562,517
-------------------------------------------------
Balance, September 30, 1995 $15,001,856 $54,999,997 ($29,650,892) $40,350,961
=================================================
<PAGE>
The Manufacturers Life Insurance Company of America
Notes to Financial Statements
(Unaudited)
September 30, 1995
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 the nine months ended September 30, 1995, the Company received a
capital contribution of $5,150,000 from the Parent in return for one share
of common stock (par value $1).
Subsequent to the end of the period the Company received a capital
contribution of $7,420,000 from the Parent in return for one share of
common stock (par value $1).
2. Significant Accounting Policies
Basis of Presentation
The accompanying unaudited financial statements of The Manufacturers Life
Insurance Company of America have been prepared in accordance with
accounting practices prescribed or permitted for interim financial
information by the Insurance Department of Michigan (statutory practices)
and with the instructions to Form 10-Q and Article 10 Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements for mutual life insurance companies and their wholly-owned and
indirect subsidiaries.
Statutory 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, and (5) debt
securities are carried at amortized cost. Operating results for the nine
month period ended September 30, 1995 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1995. For
further information, refer to the financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 1994.
In April 1993, the Financial Accounting Standard Board issued
Interpretation 40, "Applicability of Generally Accepted Accounting
Principles to Mutual Life Insurance and Other Enterprises." The
interpretation, 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 quantified the effects of the
Interpretation on its general purpose financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
All amounts presented are expressed in U.S. Dollars.
Certain amounts from prior years have been restated to conform to the
current year's 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.
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, and for which
the contract holder, rather than the Company, bears the investment risk.
Separate account assets are recorded at market value. Operations of the
separate accounts are not included in the accompanying financial
statements.
Revenue Recognition
Both premium and investment income are recorded when due.
Reinsurance
Reinsurance premiums and claims are accounted for on a basis consistent
with that used in accounting for the original policies issued and the terms
of the reinsurance contracts. Premiums and claims are reported net of
reinsured amounts.
Policy Reserves
Certain policy reserves are calculated based on statutorily required
interest and mortality assumptions.
3. Investments and Investment Income
The amortized cost and market value of investments in fixed maturities
(bonds) as of September 30, 1995 is summarized as follows:
Quoted or
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------------------------------------
U.S. Government Securities $21,034,081 $706,256 $(49,695) $21,690,642
Foreign Government Securities 7,116,744 299,468 (13,898) 7,402,314
Corporate Securities 29,751,416 1,530,866 (78,558) 31,203,724
---------------------------------------------
$57,902,241 $2,536,590 (142,151) $60,296,680
==============================================
Proceeds from sales of investments in debt securities during the first nine
months of 1995 were $58,728,738. Gross gains of $2,416,264 and gross
losses of $199,627 were realized on those sales.
The amortized cost and market value of investments in fixed maturities
(bonds) as of December 31, 1994 is summarized as follows:
<PAGE>
Quoted or
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-----------------------------------------------
U.S. Government securities $34,265,162 $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
The amortized cost and market value of fixed maturities at September 30,
1995 by contractual maturities, are shown below. Expected maturities may
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without prepayment penalties.
Years to Maturity Amortized Cost Market Value
------------------ -------------------------------
One year or less $ 675,639 $ 679,474
Greater than 1; up to 5 years 5,706,420 5,786,646
Greater than 5; up to 10 years 17,870,070 19,000,568
Due after 10 years 33,650,112 34,829,992
-------------------------------
$57,902,241 $60,296,680
===============================
At September 30, 1995, $5,696,857 of bonds at amortized costs were on
deposit with government insurance departments to satisfy regulatory
regulations.
Major categories of net investment income for the nine months ended
September 30, 1995 were as follows:
<PAGE>
Net Investment Income
1995 1994
-------------------------------
Gross investment income:
Bond Income $3,190,652 $1,311,007
Dividends: Manulife Series
Fund, Inc. (Note 7) 7,848 407,610
Policy Loans 296,205 192,491
Short-term investments 624,593 366,387
-------------------------------
4,119,298 2,277,495
Investment Expenses (265,106) (84,157)
-------------------------------
Net investment income $3,854,192 $2,193,338
================================
4. Related Party Transactions
Manufacturers Life of America has a formal service agreement with Manulife
Financial which can be terminated by either party upon two months' notice.
Under the Agreement, Manufacturers Life of America will pay direct
operating expenses incurred each year by Manulife Financial on behalf of
Manufacturers Life of America. Services provided under the Agreement
include legal, actuarial, investment, data processing and certain other
administrative services. Costs incurred under this Agreement, for the nine
months ended September 30, 1995 and 1994, were $17,029,106 and $16,442,300
respectively.
In addition, the Company has several reinsurance agreements with Manulife
Financial which may be terminated upon the specified notice by either
party. These agreements are summarized as follows:
(a) The Company assumes two blocks of insurance from Manulife Financial
under coinsurance treaties. The Company's risk is limited to
$100,000 of initial face amount per claim plus a pro-rata share of
any increase in face amount.
(b) The Company cedes the risk in excess of $25,000 per life to Manulife
Financial under the terms of an automatic reinsurance agreement.
(c) The Company cedes a substantial portion of its risk on its Flexible
Premium Variable Life policies to Manulife Financial under the terms
of a stop loss reinsurance agreement.
(d) Under the terms of an automatic coinsurance agreement, the Company
cedes its risk on structured settlements to Manulife Financial.
Selected amounts for the nine months ended September 30, 1995 and 1994
relating to the above treaties reflected in the financial statements are as
follows:
<PAGE>
1995 1994
------------------------------
Life and annuity premiums assumed $ 5,540,617 $ 2,577,230
Other life and annuity
consideration ceded (431,357) (544,056)
Commissions and expense allowances
on reinsurance assumed (942,979) (583,192)
Policy reserves assumed 50,651,383 25,896,167
Policy reserves ceded 3,862,617 3,763,793
5. Federal Income Tax
The Company joins the Parent and another wholly-owned life insurance
subsidiary in filing a U.S. consolidated income tax return as a life
insurance group under provisions of the Internal Revenue Code. In
accordance with an income tax-sharing agreement dated December 29, 1983,
the Company's income tax provision (or benefit) is computed as if the
Company filed a separate income tax return. The Company receives no surtax
exemption. Tax benefits from operating losses are provided at the U.S.
statutory rate plus any tax credits attributable to the Company, provided
the consolidated group utilizes such benefits currently. The tax provision
or benefit is the estimated amount that the Company will receive from the
consolidated group under the tax sharing agreement.
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. Investment in Manulife Series Fund, Inc.
The Company markets variable life insurance and variable annuity products
through Separate Accounts which use Manulife Series Fund, Inc. as its
investment vehicle.
Common stock represents the Company's seed money investment in Manulife
Series Fund, Inc.
<PAGE>
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
<PAGE>
The Manufacturers Life Insurance Company of America
Balance Sheets
December 31
1994 1993
----------------------------
Assets
Bonds, at amortized cost (market
$51,082,395-1994
and $24,120,198-1993) $ 52,149,080 $ 23,375,773
Stocks (note 9) 25,629,580 40,549,278
Short-term investments 10,914,561 797,875
Policy loans 4,494,390 3,023,275
----------------------------
Total investments 93,187,611 67,746,201
Cash 5,069,197 8,260,261
Life insurance premiums deferred
and uncollected 13,646 31,574
Accrued investment income 796,333 468,968
Separate account assets 302,736,198 174,182,746
Funds receivable on reinsurance assumed 880,284 2,240,200
Receivable for undelivered securities 69,003 353,576
Other assets 333,651 108,260
-----------------------------
Total assets $ 403,085,923 $ 253,391,786
=============================
Liabilities, capital and surplus
Aggregate policy reserves $ 29,761,174 $ 13,019,605
Other contract deposits 3,938,425 3,284,211
Interest maintenance and asset
valuation reserves 111,566 431,400
Policy and contract claims 94,346 153,709
Provision for policyholder
dividends payable 1,385,409 1,016,502
Amounts due to affiliates 7,377,108 7,953,242
Payable for undelivered securities 3,512,459 -
Accrued liabilities 4,773,565 2,694,433
Separate account liabilities 302,736,198 174,182,746
----------------------------
Total liabilities 353,690,250 202,735,848
Capital and surplus:
Common shares, par value $1.00; authorized,
5,000,000 shares; issued and outstanding
4,501,855 shares (1,501,854 shares in 1993)
4,501,855 1,501,854
Preferred shares, par value $100;
authorized 5,000,000 shares; issued and
outstanding 105,000 shares (335,000
shares in 1993) 10,500,000 33,500,000
Capital paid in excess of par value 49,849,998 9,849,999
Surplus (deficit) (15,456,180) 5,804,085
-----------------------------
Total capital and surplus 49,395,673 50,655,938
-----------------------------
Total liabilities, capital and surplus $ 403,085,923 $ 253,391,786
See accompanying notes.
<PAGE>
The Manufacturers Life Insurance Company of America
Statements of Operations
Year ended December 31
Revenues: 1994 1993 1992
---------------------------------------
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 revenues 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)
See accompanying notes.
<PAGE>
The Manufacturers Life Insurance Company of America
Statements of Changes in Capital and Surplus
Capital
Paid in
Excess of Surplus
Capital Par Value (Deficit) Total
---------------------------------------------------
Balance, December 31, 1991 $29,001,853 $4,000,000 $19,650,265 $52,652,118
Net loss from operations (5,306,734) (5,306,734)
Issuance of preferred shares 6,000,000 6,000,000
Increase in asset valuation
reserve (8,813) (8,813)
Increase in nonadmitted assets (1,025,556) (1,025,556)
Change in liability for
reinsurance in
unauthorized companies (7,166) (7,166)
Company's share of increase
in separate account assets,
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
==================================================
See accompanying notes.
<PAGE>
The Manufacturers Life Insurance Company of America
Statements of Cash Flows
Year ended December 31
1994 1993 1992
-------------------------------------------
Operating activities
Premiums collected, net $193,478,637 $126,075,035 $39,842,600
Policy benefits paid, net (4,982,444) (2,829,812) (1,932,712)
Commissions and other
expenses paid (48,141,400) (35,203,997) (9,431,344)
Net investment income 3,343,515 3,197,892 1,356,553
Other income and expenses (1,946,063) (1,592,957) (1,849,180)
Transfers to separate
accounts, net (136,950,482) (98,220,292) (26,266,436)
Net cash provided by (used in)
operating activities 4,801,763 (8,574,131) 1,719,481
Investing activities
Sale, maturity, or repayment
of investments 73,187,733 28,248,633 11,975,475
Purchase of investments (91,063,874) (73,688,735) (24,400,135)
Net cash used in investing
activities (17,876,141) (45,440,102) (12,424,660)
Financing activities
Issuance of shares 20,000,000 5,850,000 6,000,000
Surplus withdrawn from
separate account - 48,701,076 6,000,000
Net cash provided by financing
activities 20,000,000 54,551,076 12,000,000
Net increase in cash and
short-term investments 6,925,622 536,843 1,294,821
Cash and short-term investments
at beginning of year 9,058,136 8,521,293 7,226,472
Cash and short-term investments
at end of year $15,983,758 $9,058,136 $8,521,293
See accompanying notes.
<PAGE>
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.
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.
Since certain GAAP standards have yet to be fully developed for mutual
life insurance companies, the Company is currently 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.
Separate Accounts
Separate account assets and liabilities reported in the accompanying
financial statements represent funds that are separately administered,
principally for variable annuity and variable life contracts. For the
majority of these contracts the contractholder, rather than the Company,
bears the investment risk. Separate account assets are recorded at market
value. Operations of the separate accounts are not included in the
accompanying financial statements.
Revenue Recognition
Both premium and investment income are recorded when due.
Reinsurance
Reinsurance premiums and claims are accounted for on a basis consistent
with that used in accounting for the original policies issued and the terms
of the reinsurance contracts. Premiums and claims are reported net of
reinsured amounts.
Policy Reserves
Certain policy reserves are calculated based on statutorily required
interest and mortality assumptions.
3. Investments and Investment Income
The amortized cost and market value of investments in fixed maturities
(bonds) as of December 31, 1994 are summarized as follows:
Quoted or
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------------------------------------------
U.S. Government securities $34,265,152 $ 243,971 $(441,592) $34,067,531
Foreign government
securities 7,388,458 - (294,385) 7,094,073
Corporate securities 10,495,470 2,457 (577,136) 9,920,791
---------------------------------------------------
$52,149,080 $ 246,428 $ (1,313,113) $ 51,082,395
===================================================
Proceeds from sales of investments in debt securities during 1994 were
$43,175,845. Gross gains of $167,738 and gross losses of $1,006,702 were
realized on those sales.
The amortized cost and market value of investments in fixed maturities
(bonds) as of December 31, 1993 are summarized as follows:
Quoted or
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------------------------------------------------
U.S. Government securities $ 15,473,821 $ 725,851 $ (19,830) $ 16,179,842
Foreign government
securities 3,277,886 39,710 (5,316) 3,312,280
Corporate securities 4,624,066 47,402 (43,392) 4,628,076
--------------------------------------------------
$23,375,773 $ 812,963 $ (68,538) $24,120,198
Proceeds from sales of investments in debt securities during 1993 were
$28,248,633. Gross gains of $694,800 and gross losses of $17,715 were
realized on those sales.
The investments above are valued, for financial statement purposes, as
described in Note 2 to these financial statements.
The amortized cost and market value of fixed maturities at December 31,
1994 by contractual maturities, are shown below. Expected maturities may
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without prepayment penalties.
Years to Maturity Amortized Cost Market Value
------------------ --------------- ------------
One year or less $ 107,413 $ 108,160
Greater than 1; up to 5 years 5,213,296 5,217,002
Greater than 5; up to 10 years 24,217,449 23,599,525
Due after 10 years 22,610,922 22,157,708
------------------------------
$52,149,080 $51,082,395
==============================
At December 31, 1994, $4,447,934 of bonds at amortized cost were on deposit
with government insurance departments to satisfy regulatory regulations.
Major categories of net investment income for each year were as follows:
Net Investment Income
1994 1993 1992
--------------------------------------
Gross investment income:
Dividends; Manulife Series
Fund, Inc. (Note 9) $ 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) (89,186) (58,423)
--------------------------------------
Net investment income $3,588,629 $3,323,962 $1,430,454
======================================
4. Related Party Transactions
The Company has a formal service agreement with Manulife Financial which
can be terminated by either party upon two months' notice. Under the
Agreement, the Company will pay direct operating expenses incurred each
year by Manulife Financial on behalf of the Company. Services provided
under the Agreement include legal, actuarial, investment, data processing
and certain other administrative services. Costs incurred under this
Agreement were $21,326,446 in 1994, $12,467,474 in 1993, and $4,919,667 in
1992. In addition, there were $7,795,184 agents' bonuses in 1994,
$5,363,558 in 1993, and $1,871,799 in 1992 which were allocated to the
Company and are included in commissions.
The Company has reinsurance agreements with Manulife Financial which may be
terminated upon the specified notice by either party. These agreements are
summarized as follows:
(a) The Company assumes two blocks of insurance from Manulife Financial
under coinsurance treaties. The Company's risk is limited to $100,000
of initial face amount per claim plus a pro-rata share of any increase
in face amount.
(b) The Company cedes the risk in excess of $25,000 per life to Manulife
Financial under the terms of an automatic reinsurance agreement.
(c) The Company cedes a substantial portion of its risk on its Flexible
Premium Variable Life policies to Manulife Financial under the terms of
a stop loss reinsurance agreement.
(d) Under the terms of an automatic coinsurance agreement, the Company
cedes its risk on structured settlements to Manulife Financial.
Selected amounts relating to the above treaties reflected in the financial
statements are as follows:
1994 1993 1992
---------------------------------------------
Life and annuity premiums assumed $25,385,628 $12,745,981 $6,579,233
Other life and annuity
considerations ceded (437,650) (201,685) (114,505)
Commissions and expense allowances
on reinsurance assumed (810,252) (329,634) (269,141)
Policy reserves assumed 47,672,591 23,070,952 10,799,350
Policy reserves ceded 3,786,647 3,782,156 3,662,930
During 1992 and 1993 the Company assumed the first $50,000 of initial face
amount on two blocks of business. This resulted in transfers of $5,031,000
and $10,837,000, respectively, to establish the initial reserves. In 1994
the treaties were amended to assume the first $100,000 of initial face
amount for the same blocks of business. This resulted in a transfer of
$21,477,000 to establish the additional reserve. Commissions equal to 17%
are charged for all renewed premiums related to these contracts.
During 1994, the Company terminated another treaty resulting in a premium
to Manulife Financial to transfer the reserve of $799,874.
5. Federal Income Tax
The Company joins the Parent, The Manufacturers Life Insurance Co. (U.S.A.)
and Manufacturers Reinsurance Limited in filing a U.S. consolidated income
tax return as a life insurance group under provisions of the Internal
Revenue Code. In accordance with an income tax-sharing agreement dated
December 29, 1983, the Company's income tax provision (or benefit) is
computed as if the Company filed a separate income tax return. The Company
receives no surtax exemption. Tax benefits from operating losses are
provided at the U.S. statutory rate plus any tax credits attributable to
the Company, provided the consolidated group utilizes such benefits
currently. In 1994, 1993 and 1992, the Company's provision (benefit)
based upon the above agreement will be paid to one or more members of
the consolidated groups in accordance with the income tax-sharing
agreement.
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:
1994 1993 1992
--------------------------------------
Life insurance premiums assumed $ - $ - $28,887,669
Life insurance premiums ceded (218,767) (130,913) (28,809,307)
During 1992, the Company assumed and ceded a significant block of business
on a yearly renewable term basis. This contract was not renewed in 1993.
8. Aggregate Policy Reserves
Aggregate policy reserves for life policies including variable life are
based on statutory mortality tables and interest assumptions using either
the net level or commissioners' reserve valuation method. The composition
of the aggregate policy reserves at December 31, 1994 and 1993 is as
follows:
Mortality Interest
Aggregate Reserves Table Rates
- ------------------------ ---------- ---------
1994 1993
- ------------------------
$ - $ 758,158 1958 CSO 4%
28,553,885 11,792,874 1980 CSO 4%
(189,080) (62,228) Reinsurance ceded
1,396,369 530,801 Miscellaneous
- -------------------------
$29,761,174 $13,019,605
=========================
9. Investment in Separate Accounts
During 1984, the Company initiated plans to market variable life insurance
products through Separate Account One of The Manufacturers Life Insurance
Company of America ("Separate Account One") using Manulife Series Fund,
Inc. as its investment vehicle. Initial capitalization was $15,000,000.
Through 1988, the Company provided an additional capitalization of
$6,000,000.
In December 1993, the Company transferred all of its shares, related to
seed money, in Manulife Series Fund, Inc. out of Separate Account One to
the General Account. At December 31, 1994, the $25,629,580 common stock
represents the Company's seed money investment in Manulife Series Fund,
Inc.
During 1994, 1993, and 1992, the following dividends were received from
Manulife Series Fund, Inc.:
1994 1993 1992
-----------------------------------------
Separate Account One $ 38,732 $1,610,693 $3,166,712
Separate Account Two 4,574,620 7,377,861 1,706,218
Separate Account Three 1,490,374 666,141 277,830
Separate Account Four 3,072,376 4,966,559 1,578,932
General Account 1,244,794 1,440,392 -
Dividends have been reinvested by the Company in Manulife Series Fund, Inc.
During 1993, the Company withdrew $8,000,000 of its seed money and
accumulated earnings from Separate Account One and the Manulife Series
Fund, Inc. and utilized these funds to pay down its intercompany debt.
During 1994, the Company withdrew $13,011,137 of its seed money and
accumulated earnings from the Manulife Series Fund, Inc. and utilized these
funds to pay down its intercompany debt.
<PAGE>
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 lives insured of given ages would vary over time
if the return on the assets of the Portfolios was a uniform, gross,
after-tax, annual rate of 0%, 6% or 12%. The Policy Values, Death Benefits
and Cash Surrender Values would be different from those shown if the
returns averaged 0%, 6% or 12%, but fluctuated over and under those
averages throughout the years. The charges reflected in the tables include
those for deductions from premiums, surrender charges, and monthly
deductions.
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 expenses and fees borne by the
Portfolios have been deducted from the gross return. For the purposes of
illustration, this deduction has been set at 0.76% per annum, which
represents an equal allocation of expenses among the Portfolios. In the
tables, gross annual rates of return of 0%, 6% and 12% correspond to
approximate net annual rates of return of -.75%, 5.2%, and 11.16%.
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 a Policy issued to a male non-smoker and female non-smoker, 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 lives insured's issue ages, sex (unless
unisex rates are required by law, or are requested) and risk classes, any
additional ratings and the death benefit option, face amount and planned
premium requested. Illustrations for smokers would show less favorable
results than the illustrations shown below.
From time to time, in advertisements or sales literature for the Policies
that quote performance data of one or more of the Portfolios, the Company
may include 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 1, 1994.
However, total return data may be advertised for as long a period of time
as the underlying Portfolio has been in existence. The results for any
period prior to the Policies' being offered would be calculated as if the
Policies had been offered during that period of time, with all charges
assumed to be those applicable to the Policies.
<PAGE>
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
Male Non-Smoker Issue Age 55 (Standard) and
Female Non-Smoker Issue Age 50 (Standard)
$500,000 Face Amount Death Benefit Option 1
$7,500 Annual Planned Premium
ASSUMING CURRENT CHARGES
0% Hypothetical
Gross Investment Return
----------------------------
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1)<F9> (2)<F10> (4)<F12>
- ------- ------------ ------- ---------- --------
1 $ 7,875 $6,576(3) $ 2,419(3) $ 500,000(3)
<F11> <F11> <F11>
2 16,144 13,014 8,116 500,000
3 24,826 19,318 14,200 500,000
4 33,942 25,486 20,368 500,000
5 43,514 31,512 26,394 500,000
6 53,565 37,393 32,275 500,000
7 64,118 43,121 38,515 500,000
8 75,199 48,693 44,598 500,000
9 86,834 54,099 50,517 500,000
10 99,051 59,332 56,261 500,000
15 169,931 86,957 86,957 500,000
20 260,394 109,546 109,546 500,000
25 375,851 120,425 120,425 500,000
30 523,206 103,929 103,929 500,000
6% Hypothetical
Gross Investment Return
----------------------------
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1)<F9> (2)<F10> (4)<F12>
- ------- ------------ ------- ---------- --------
1 $ 7,875 $6,981(3) $ 2,824(3) $ 500,000(3)
<F11> <F11> <F11>
2 16,144 14,229 9,331 500,000
3 24,826 21,758 16,640 500,000
4 33,942 29,575 24,457 500,000
5 43,514 37,687 32,569 500,000
6 53,565 46,100 40,982 500,000
7 64,118 54,820 50,214 500,000
8 75,199 63,853 59,759 500,000
9 86,834 73,205 69,623 500,000
10 99,051 82,881 79,810 500,000
15 169,931 142,897 142,897 500,000
20 260,394 217,202 217,202 500,000
25 375,851 306,880 306,880 500,000
30 523,206 417,385 417,385 500,000
<PAGE>
12% Hypothetical
Gross Investment Return
----------------------------
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1)<F9> (2)<F10>
- ------- ------------ ------- ---------- --------
1 $ 7,875 $ 7,386(3) $ 3,229(3) $ 500,000(3)
<F11> <F11> <F11>
2 16,144 15,492 10,594 500,000
3 24,826 24,395 19,277 500,000
4 33,942 34,171 29,053 500,000
5 43,514 44,904 39,786 500,000
6 53,565 56,687 51,569 500,000
7 64,118 69,622 65,016 500,000
8 75,199 83,822 79,728 500,000
9 86,834 99,412 95,830 500,000
10 99,051 116,530 113,459 500,000
15 169,931 241,313 241,313 500,000
20 260,394 453,079 453,079 525,572
25 375,851 810,288 810,288 867,008
30 523,206 1,407,585 1,407,585 1,477,964
(1)<F9> 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.</F9>
(2)<F10> Assumes net interest of 5% compounded annually.</F10>
(3)<F11> Provided the No Lapse Guarantee Cumulative Premium Test has been
and continues to be met, the No Lapse Guarantee will keep the
Policy in force until the end of the first 10 Policy Years.
Provided the Death Benefit Guarantee Cumulative Premium Test or
the Fund Value Test has been and continues to be met, the
Guaranteed Death Benefit will keep the Policy in force until the
Policy Anniversary on which the lives insured are average Attained
Age 100 years old.</F11>
(4)<F12> Cash Surrender Value for first two years reflects sales charge
limitations imposed by the S.E.C.</F12>
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. AND NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE
AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
Male Non-Smoker Issue Age 55 (Standard) and
Female Non-Smoker Issue Age 50 (Standard)
$500,000 Face Amount Death Benefit Option 1
$7,500 Annual Planned Premium
ASSUMING GUARANTEED CHARGES
0% Hypothetical
Gross Investment Return
----------------------------
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1)<F13> (2)<F14> (4)<F16>
- ------- ------------ ------- ---------- --------
1 $ 7,875 $ 6,576(3) $ 2,419(3) $ 500,000(3)
<F15> <F15> <F15>
2 16,144 13,013 8,116 500,000
3 24,826 19,306 14,188 500,000
4 33,942 25,448 20,330 500,000
5 43,514 31,429 26,310 500,000
6 53,565 37,238 32,120 500,000
7 64,118 42,866 38,260 500,000
8 75,199 48,297 44,203 500,000
9 86,834 53,517 49,935 500,000
10 99,051 58,508 55,437 500,000
15 169,931 79,807 79,807 500,000
20 260,394 90,527 90,527 500,000
25 375,851 76,832 76,832 500,000
30 523,206 6,961 6,961 500,000
6% Hypothetical
Gross Investment Return
----------------------------
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1)<F13> (2)<F14> (4)<F16>
- ------- ------------ ------- ---------- --------
1 $ 7,875 $ 6,981(3) $ 2,824(3) $500,000(3)
<F15> <F15> <F15>
2 16,144 14,228 9,331 500,000
3 24,826 21,746 16,628 500,000
4 33,942 29,535 24,417 500,000
5 43,514 37,599 32,481 500,000
6 53,565 45,935 40,817 500,000
7 64,118 54,543 49,936 500,000
8 75,199 63,419 59,325 500,000
9 86,834 72,562 68,979 500,000
10 99,051 81,962 78,891 500,000
15 169,931 133,293 133,293 500,000
20 260,394 189,707 189,707 500,000
25 375,851 244,218 244,218 500,000
30 523,206 286,746 286,746 500,000
<PAGE>
12% Hypothetical
Gross Investment Return
----------------------------
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1)<F13> (2)<F14>
- ------- ------------ ------- ---------- --------
1 $ 7,875 $ 7,386(3) $ 3,229(3) $ 500,000(3)
<F15> <F15> <F15>
2 16,144 15,492 10,594 500,000
3 24,826 24,382 19,264 500,000
4 33,942 34,129 29,011 500,000
5 43,514 44,810 39,692 500,000
6 53,565 56,510 51,392 500,000
7 64,118 69,322 64,716 500,000
8 75,199 83,348 79,254 500,000
9 86,834 98,703 95,120 500,000
10 99,051 115,511 112,440 500,000
15 169,931 227,912 227,912 500,000
20 260,394 410,313 410,313 500,000
25 375,851 710,088 710,088 759,794
30 523,206 1,192,968 1,192,968 1,252,616
(1)<F13> 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.</F13>
(2)<F14> Assumes net interest of 5% compounded annually.</F14>
(3)<F15> Provided the No Lapse Guarantee Cumulative Premium Test has been
and continues to be met, the No Lapse Guarantee will keep the
Policy in force until the end of the first 10 Policy Years.
Provided the Death Benefit Guarantee Cumulative Premium Test or
the Fund Value Test has been and continues to be met, the
Guaranteed Death Benefit will keep the Policy in force until the
Policy Anniversary on which the lives insured are average Attained
Age 100 years old.</F15>
(4)<F16> Cash Surrender Value for first two years reflects sales charge
limitations imposed by the S.E.C.</F16>
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. AND NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE
AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
Male Non-Smoker Issue Age 55 (Standard) and
Female Non-Smoker Issue Age 50 (Standard)
$500,000 Face Amount Death Benefit Option 2
$8,200 Annual Planned Premium
ASSUMING CURRENT CHARGES
0% Hypothetical
Gross Investment Return
----------------------------
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1)<F17> (2)<F18> (4)<F20>
- ------- ------------ ------- ---------- --------
1 $ 8,610 $ 7,240(3) $ 2,780(3) $507,240(3)
<F19> <F19> <F19>
2 17,651 14,331 9,212 514,331
3 27,143 21,276 16,157 521,276
4 37,110 28,070 22,952 528,070
5 47,576 34,709 29,591 534,709
6 58,564 41,186 36,068 541,186
7 70,103 47,493 42,887 547,493
8 82,218 53,622 49,528 553,622
9 94,939 59,563 55,981 559,563
10 108,296 65,304 62,234 565,304
15 185,791 95,223 95,223 595,223
20 284,698 118,198 118,198 618,198
25 410,930 125,469 125,469 625,469
30 572,038 97,422 97,422 597,422
6% Hypothetical
Gross Investment Return
----------------------------
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1)<F17> (2)<F18> (4)<F20>
- ------- ------------ ------- ---------- --------
1 $ 8,610 $ 7,685(3) 3,225(3) 507,685(3)
<F19> <F19> <F19>
2 17,651 15,666 10,548 515,666
3 27,143 23,958 18,840 523,958
4 37,110 32,568 27,450 532,568
5 47,576 41,500 36,382 541,500
6 58,564 50,761 45,643 550,761
7 70,103 60,253 55,747 560,353
8 82,218 70,281 66,187 570,281
9 94,939 80,546 76,963 580,546
10 108,296 91,146 88,075 591,146
15 185,791 156,090 156,090 656,090
20 284,698 232,749 232,749 732,749
25 410,930 314,045 314,045 814,045
30 572,038 378,121 378,121 878,121
<PAGE>
12% Hypothetical
Gross Investment Return
----------------------------
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1)<F17> (2)<F18>
- ------- ------------ ------- ---------- --------
1 $ 8,610 $ $8,130(3) $3,670(3) $508,130(3)
<F19> <F19> <F19>
2 17,651 17,055 11,936 517,055
3 27,143 26,857 21,739 526,857
4 37,110 37,621 32,503 537,621
5 47,576 49,436 44,318 549,436
6 58,564 62,401 57,283 562,401
7 70,103 76,622 72,016 576,622
8 82,218 92,218 88,124 592,218
9 94,939 109,316 105,734 609,316
10 108,296 128,054 124,983 628,054
15 185,791 263,064 263,064 763,064
20 284,698 483,167 483,167 983,167
25 410,930 834,790 834,790 1,334,790
30 572,038 1,381,554 1,381,554 1,881,554
(1)<F17> 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.</F17>
(2)<F18> Assumes net interest of 5% compounded annually.</F18>
(3)<F19> Provided the No Lapse Guarantee Cumulative Premium Test has been
and continues to be met, the No Lapse Guarantee will keep the
Policy in force until the end of the first 10 Policy Years.
Provided the Death Benefit Guarantee Cumulative Premium Test or
the Fund Value Test has been and continues to be met, the
Guaranteed Death Benefit will keep the Policy in force until the
Policy Anniversary on which the lives insured are average Attained
Age 85 years old.</F19>
(4)<F20> Cash Surrender Value for first two years reflects sales charge
limitations imposed by the S.E.C.</F20>
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. AND NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE
AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
Male Non-Smoker Issue Age 55 (Standard) and
Female Non-Smoker Issue Age 50 (Standard)
$500,000 Face Amount Death Benefit Option 2
$8,200 Annual Planned Premium
ASSUMING GUARANTEED CHARGES
0% Hypothetical
Gross Investment Return
----------------------------
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1)<F21> (2)<F22> (4)<F24>
- ------- ------------ ------- ---------- --------
1 $ 8,610 $ 7,240(3) $ 2,780(3) $507,240(3)
<F23> <F23> <F23>
2 17,651 14,330 9,212 514,330
3 27,143 21,263 16,145 521,263
4 37,110 28,030 22,912 528,030
5 47,576 34,620 29,502 534,620
6 58,564 41,021 35,903 541,021
7 70,103 47,217 42,611 547,217
8 82,218 53,191 49,096 553,191
9 94,939 58,923 55,341 558,923
10 108,296 64,390 61,319 564,390
15 185,791 87,210 87,210 587,210
20 284,698 96,633 96,633 596,633
25 410,930 76,732 76,732 576,732
30 572,038 0 (5) 0 (5) 0 (5)
<F25> <F25> <F25>
6% Hypothetical
Gross Investment Return
----------------------------
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1)<F21> (2)<F22> (4)<F24>
- ------- ------------ ------- ---------- --------
1 $ 8,610 $ 7,685(3) $ 3,225(3) $507,685(3)
<F23> <F23> <F23>
2 17,651 15,666 10,547 515,666
3 27,143 23,945 18,827 523,945
4 37,110 32,525 27,407 532,525
5 47,576 41,405 36,287 541,405
6 58,564 50,582 45,464 550,582
7 70,103 60,049 55,443 560,049
8 82,218 69,799 65,704 569,799
9 94,939 79,820 76,237 579,820
10 108,296 90,095 87,024 579,095
15 185,791 145,042 145,042 645,042
20 284,698 199,773 199,773 699,773
25 410,930 234,847 234,847 734,847
30 572,038 211,336 211,336 711,336
<PAGE>
12% Hypothetical
Gross Investment Return
----------------------------
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1)<F21> (2)<F22>
- ------- ------------ ------- ---------- --------
1 $ 8,610 $ 8,130(3) $ 3,670(3) $ 508,130(3)
<F23> <F23> <F23>
2 17,651 17,054 11,936 517,054
3 27,143 26,844 21,726 526,844
4 37,110 37,577 32,459 537,577
5 47,576 49,335 44,216 549,335
6 58,564 62,206 57,088 562,206
7 70,103 76,287 71,681 576,287
8 82,218 91,679 87,584 591,679
9 94,939 108,492 104,910 608,492
10 108,296 126,843 123,772 626,843
15 185,791 247,188 247,188 747,188
20 284,698 428,268 428,268 928,268
25 410,930 686,169 686,169 1,186,169
30 572,038 1,030,031 1,030,031 1,530,031
(1)<F21> 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.</F21>
(2)<F22> Assumes net interest of 5% compounded annually.</F22>
(3)<F23> Provided the No Lapse Guarantee Cumulative Premium Test has been
and continues to be met, the No Lapse Guarantee will keep the
Policy in force until the end of the first 10 Policy Years.
Provided the Death Benefit Guarantee Cumulative Premium Test or
the Fund Value Test has been and continues to be met, the
Guaranteed Death Benefit will keep the Policy in force until the
Policy Anniversary on which the lives insured are average Attained
Age 85 years old.</F23>
(4)<F24> Cash Surrender Value for first two years reflects sales charge
limitations imposed by the S.E.C.</F24>
(5)<F25> In the absence of additional premium payments, the policy will
lapse.</F25>
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. AND NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER VALUE
AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR
INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED
OVER ANY PERIOD OF TIME.
<PAGE>
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 lives
insured who do not meet at least the underwriting requirements of the
standard risk class.
Age - at a specific date means, for each of the lives insured, the age on
the nearest birthday. If no specific date is mentioned, age means the age
on the birthday nearest to the Policy Anniversary.
Attained Age - Issue Age plus duration the policy has been in force since
the Policy Date.
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 as of
the end of each Business Day. A Business Day is deemed to end at 4:00 p.m.
Eastern Time.
Cash Surrender Value - the Policy Value less the deferred sales charge, the
deferred underwriting charge and any outstanding monthly deductions due.
Death Benefit Guarantee - Manufacturers Life of America guarantees 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 Cumulative Premium Test - a test that, if satisfied
to youngest Attained Age 100 for death benefit Option 1 Policies, and
youngest Attained Age 85 for death benefit Option 2 Policies, will maintain
the Death Benefit Guarantee. To satisfy the Death Benefit Guarantee
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 Premium - a measure of premium used in determining
compliance with the Death Benefit Guarantee Cumulative Premium Test. The
Death Benefit Guarantee Premium as an annual amount is established by the
Company based on the individual life insured's Issue Age, sex (unless
unisex rates are required by law or are requested), risk class, death
benefit option, supplementary benefits and additional ratings.
Effective Date - the date that Manufacturers Life of America becomes
obligated under the Policy and when the first monthly deductions are taken.
It is the later of the date the underwriters approve issuance of the
Policy, or the date at least the Initial Premium is received at the Service
Office.
Fund Value Test - a test which, if satisfied in applicable Policy Years,
will maintain the Death Benefit Guarantee. 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, based on each life insured's
Attained Age, the duration of the coverage, sex (unless unisex rates are
required by law or are requested), and risk class, needed to endow the
Policy at the age the Death Benefit Guarantee terminates, 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 (GAP) - an amount defined by S.E.C. regulation.
It is used to determine maximum sales charges that may be deducted under
the Policy.
Initial Premium - at least 1/12 of the Target Premium.
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.
Issue Age - the Age nearest birthday, at Policy Date, as shown in the
Policy. If there is an Additional Rate based on age, the Issue Age will be
adjusted to reflect the underwriting class.
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.
Monthly No Lapse Guarantee Premium - 1/12 of the No Lapse Guarantee
Premium.
Net Cash Surrender Value - the Cash Surrender Value less the Policy Debt.
Net Policy Value - the Policy Value less the value in the Loan Account.
Net Premium - amount of premium allocated to the Investment Accounts and/or
the Guaranteed Interest Account. It equals gross premiums less the
deductions for premium charge and state, local and federal taxes.
No Lapse Guarantee - Manufacturers Life of America guarantees 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.
The No Lapse Guarantee requires a lower cumulative premium than the Death
Benefit Guarantee, and in return guarantees a shorter number of years that
the Policy will stay in force if the No Lapse Guarantee Cumulative Premium
Test is met.
No Lapse Guarantee Cumulative Premium Test - a test that, if satisfied in
the No Lapse Guarantee Period, will maintain the No Lapse Guarantee. To
satisfy the No Lapse Guarantee Cumulative Premium Test, the sum of premiums
paid, less withdrawals, and less Policy loans must equal or exceed the sum
of No Lapse Guarantee Premiums since issue as at the beginning of each
Policy Month.
No Lapse Guarantee Period - is the first 10 Policy Years for lives insured
with an average Issue Age up to and including age 70. For lives insured
with an average Issue Age of 71 and older, the No Lapse Guarantee Period
decreases by one year for each year the average Issue Age exceeds 70, until
age 77. After age 77 the No Lapse Guarantee Period is fixed at three
years.
The No Lapse Guarantee is available only to lives insured whose average
Issue Age is 85 or less.
No Lapse Guarantee Premium - is equal to Target Premium, and is a measure
of premium used in determining compliance with the No Lapse Guarantee
Premium Test.
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.
Policy Debt - as of any date, the aggregate amount of Policy loans,
including borrowed interest, less any loan repayments.
Policy Value - the sum of the values in the Loan Account, the Guaranteed
Interest Account and the Investment Accounts.
Service Office - the office designated to service the Policies, which is
shown on the cover page of this prospectus.
Surrender Charge Period - the period (usually 15 years) following the
Policy Date 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. There are two surrender
charges under the Policy: a Deferred Underwriting Charge and a Deferred
Sales Charge.
Target Premium (TP) - a premium amount used to determine the maximum sales
charge and deferred sales charge under a Policy and to determine the level
of compensation the agent shall receive. The Target Premium for the
initial face amount is set forth in the Policy.
This premium is based on each individual life insured's Issue Age, sex
(unless unisex rates are required by law or are requested), risk class,
death benefit option, supplementary benefits and additional ratings. The
policyowner will be advised of the Target Premium for any increase in face
amount.
Withdrawal Tier Amount - as of any date is the net Cash Surrender Value at
the previous anniversary, multiplied by 10%.
