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Prospectus for
Venture SVUL
A Flexible Premium
Survivorship Variable Life
Insurance Policy
Issued by
The Manufacturers Life Insurance
Company of America
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Prospectus
The Manufacturers Life Insurance
Company of America
Separate Account Three
Venture SVUL
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.
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 NASL Series Trust. The
accompanying prospectus for 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: the Emerging Growth Trust, the Quantitative
Equity Trust (formerly Common Stock Fund), the Real Estate Securities Trust, the
Balanced Trust, the Capital Growth Bond Trust, the Money Market Trust, the
International Stock Trust, the Pacific Rim Emerging Markets Trust, the Equity
Index Trust, the Equity Income Trust, the U.S. Government Securities Trust, the
Growth and Income Trust, the Equity Trust, the Conservative Asset Allocation
Trust, the Moderate Asset Allocation Trust, the Aggressive Asset Allocation
Trust, the Blue Chip Growth Trust and the International Small Cap Trust
(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.
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PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT IS
VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS FOR NASL SERIES TRUST.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The Manufacturers Life Insurance
Company of America
500 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 December 31, 1996.
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Prospectus Contents
Page
____
Introduction to Policies ............................................... 6
General Information About Manufacturers Life of
America, Separate Account Three,
and NASL Series Trust
Manufacturers Life of America and
Manufacturers Life ................................................ 15
Manufacturers Life of America's Separate
Account Three ..................................................... 15
NASL Series Trust ................................................. 15
What Are the Investment Objectives and Certain Policies
of the Portfolios? ................................................ 17
Selection of Sub-account(s)
Detailed Information About the Policies ................................ 19
PREMIUM PROVISIONS ................................................ 19
Policy Issue and Initial Premium .................................. 19
Premium Allocation ................................................ 20
Premium Limitations ............................................... 20
Short-Term Cancellation Right and
"Free Look" Provisions ............................................ 20
INSURANCE BENEFIT ................................................. 21
The Insurance Benefit ............................................. 21
No Lapse Guarantee ................................................ 21
Death Benefit Guarantee ........................................... 22
Death Benefit Options ............................................. 24
Death Benefit Option Changes ...................................... 25
Face Amount Changes ............................................... 26
POLICY VALUES ..................................................... 27
Policy Value ...................................................... 27
Transfers of Policy Value ......................................... 28
Policy Loans ...................................................... 30
Partial Withdrawals and Surrenders ................................ 33
CHARGES AND DEDUCTIONS ............................................ 34
Deductions from Premiums .......................................... 34
Surrender Charges ................................................. 34
Deferred Sales Charge ............................................. 35
Monthly Deductions ................................................ 39
Other Charges ..................................................... 40
Special Provisions for Group or
Sponsored Arrangements ............................................ 41
Special Provisions for Exchanges .................................. 42
THE GENERAL ACCOUNT ............................................... 42
OTHER GENERAL POLICY PROVISIONS ................................... 42
Policy Default .................................................... 43
Policy Reinstatement .............................................. 43
Miscellaneous Policy Provisions ................................... 43
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Page
____
OTHER PROVISIONS ....................................................... 44
Supplementary Benefits ............................................ 44
Payment of Proceeds ............................................... 45
Reports to Policyowners ........................................... 45
MISCELLANEOUS MATTERS .................................................. 45
Portfolio Share Substitution ...................................... 45
Federal Income Tax Considerations ................................. 46
Tax Status of the Policy .......................................... 46
Tax Treatment of Policy Benefits .................................. 48
The Company's Taxes ............................................... 50
Distribution of the Policy ........................................ 50
Responsibilities Assumed by
Manufacturers Life ................................................ 51
Voting Rights ..................................................... 51
Executive Officers and Directors .................................. 52
State Regulations ................................................. 54
Pending Litigation ................................................ 55
Additional Information ............................................ 55
Legal Matters ..................................................... 55
Experts ........................................................... 55
Financial Statements ................................................... 56
Appendices ............................................................. 85
A. Sample Illustrations of Policy
Values, Cash Surrender Values and
Death Benefits .................................................... 85
B. Definitions ................................................... 95
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 NASL SERIES TRUST, OR THE STATEMENT
OF ADDITIONAL INFORMATION OF NASL SERIES TRUST.
You are urged to examine this prospectus carefully.
The INTRODUCTION TO POLICIES will briefly describe the
Flexible Premium Survivorship Variable
Life Insurance Policy. More detailed information will
be found within.
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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 Portfolio of NASL Series Trust. 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 Portfolios currently offered are the: Emerging Growth Trust, Quantitative
Equity Trust (formerly Common Stock Fund), Real Estate Securities Trust,
Balanced Trust, Capital Growth Bond Trust, Money Market Trust, International
Stock Trust, Pacific Rim Emerging Markets Trust, Equity Index Trust, Equity
Income Trust, U.S. Government Securities Trust, Growth and Income Trust, Equity
Trust, Conservative Asset Allocation Trust, Moderate Asset Allocation Trust,
Aggressive Asset Allocation Trust, Blue Chip Growth Trust, and International
Small Cap Trust.
The Policy has a Policy Value reflecting premiums paid, 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.
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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
achieves or would have achieved 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 achieved 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
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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. At six-month intervals Manufacturers Life of America will
move amounts among the Investment Accounts as necessary to maintain the
policyowner's chosen allocation.
Currently, there is no charge for this program; however, Manufacturers Life of
America reserves the right to institute a charge on 90 days' notice to the
policyowner.
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
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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 (but in no event will the
sum of the deferred sales charge and the sales charge deducted from
premiums exceed the amount permitted by Section 27(a)(2) of the
Investment Company Act of 1940). 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
Investment Management Fees
investment management fee of 1.05% assessed against the assets of the
Emerging Growth Trust
investment management fee of .70% assessed against the assets of the
Quantitative Equity Trust (formerly Common Stock Trust)*
investment management fee of .70% assessed against the assets of the Real
Estate Securities Trust*
investment management fee of .80% assessed against the assets of the
Balanced Trust
investment management fee of .65% assessed against the assets of the
Capital Growth Bond Trust*
investment management fee of .50% assessed against the assets of the Money
Market Trust
investment management fee of 1.05% assessed against the assets of the
International Stock Trust
investment management fee of .85% assessed against the assets of the
Pacific Rim Emerging Markets Trust
investment management fee of .25% assessed against the assets of the Equity
Index Trust
investment management fee of .925% assessed against the assets of the Blue
Chip Growth Trust
investment management fee of 1.10% assessed against the assets of the
International Small Cap Trust
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- - investment management fee of .80% assessed against the assets of the
Equity Income Trust
- - investment management fee of .65% assessed against the assets of the
U.S. Government Securities Trust
- - investment management fee of .75% assessed against the assets of the
Growth and Income Trust
- - investment management fee of .75% assessed against the assets of the
Equity Trust
- - investment management fee of .75% assessed against the assets of the
Conservative Asset Allocation Trust
- - investment management fee of .75% assessed against the assets of the
Moderate Asset Allocation Trust
- - investment management fee of .75% assessed against the assets of the
Aggressive Asset Allocation Trust
Expenses
- - expenses of up to .75% assessed against the assets of the Pacific Rim
Emerging Markets Trust and International Stock Trust
- - expenses of up to .15% assessed against the assets of the
Equity Index Trust
- - expenses of up to .50% assessed against the assets of all other Trusts*
*NASL Financial Services, Inc. has voluntarily agreed to waive fees payable to
it and/or to reimburse expenses for a period of one year beginning the effective
date of this prospectus to the extent necessary to prevent the total of advisory
fees and expenses for the Quantitative Equity Trust (formerly Common Stock
Fund), Real Estate Securities Trust and Capital Growth Bond Trust for such
period from exceeding .50% of average net assets.
For all policies:
- transfer fee of $25 per transfer if the policyowner elects to
exercise the option to make more than twelve transfers in any Policy
Year. (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.
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:
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- - Emerging Growth Trust
- - Quantitative Equity Trust (formerly Common Stock Fund)
- - Real Estate Securities Trust
- - Balanced Trust
- - Capital Growth Bond Trust
- - Money Market Trust
- - International Stock Trust
- - Pacific Rim Emerging Markets Trust
- - Equity Index Trust
- - Equity Income Trust
- - U.S. Government Securities Trust
- - Growth and Income Trust
- - Equity Trust
- - Conservative Asset Allocation Trust
- - Moderate Asset Allocation Trust
- - Aggressive Asset Allocation Trust
- - Blue Chip Growth Trust
- - International Small Cap Trust
The policyowner may change the allocation of Net Premiums among the general
account and the sub-accounts at any time. See General Information About
Manufacturers Life of America, Separate Account Three and NASL Series Trust 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.
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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.
Twelve transfers per Policy Year may be made at no cost to the policyowner;
excess transfers will be permitted at a cost of $25 per transfer. All transfer
requests received at the same time are treated as a single transfer request.
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.
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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).
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Under certain circumstances, a Policy may be treated as a "Modified Endowment
Contract." If the Policy is a Modified Endowment Contract, then all pre-death
distributions, including Policy loans, will be treated first as a distribution
of taxable income and then as a return of investment in the Policy. In
addition, prior to age 59-1/2 any such distributions generally will be subject
to a 10% penalty tax. See Miscellaneous Matters - "Federal Income Tax
Considerations" (Tax Treatment of Policy Benefits).
If the Policy is not a Modified Endowment Contract, distributions generally
will be treated first as a return of investment in the Policy and then a
disbursement of taxable income. Moreover, loans will not be treated as
distributions. 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, 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 Tax provisions of the Internal Revenue Code. The
policyowner should consult his or her tax adviser regarding these taxes.
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General Information About Manufacturers
Life of America, Separate Account Three,
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 (U.S.A.) ("Manufacturers USA"), is a stock life insurance
company organized under the laws of Pennsylvania on April 11, 1977 and
redomesticated under the laws of Michigan on December 9, 1992. It is a licensed
life insurance company in the District of Columbia and all states of the United
States except New York. Manufacturers USA, a life insurance company organized in
1955 under the laws of Maine and redomesticated under the laws of Michigan on
December 30, 1992, is a wholly-owned subsidiary of Manulife Reinsurance
Corporation (U.S.A.), a life insurance company organized in 1983 under the laws
of Michigan which in turn is a wholly-owned subsidiary of Manufacturers Life, a
mutual life insurance company based in Toronto, Canada. Manufacturers Life and
its subsidiaries, together, constitute one of the largest life insurance
companies in North America and ranks among the 60 largest life insurers in the
world as measured by assets. Manufacturers Life and Manufacturers Life of
America have received the following ratings from independent rating agencies:
Standard and Poor's Insurance Rating Service -- AA+ (for claims paying ability),
A.M. Best Company -- A++ (for financial strength), Duff & Phelps Credit Rating
Co. -- AAA (for claims paying ability), and Moody's Investors Service, Inc. --
Aa3 (for claims paying ability). However, neither Manufacturers Life of America
nor Manufacturers Life guarantees the investment performance of the Separate
Account.
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.
NASL Series Trust
- - 15 -
<PAGE> 16
Each sub-account of the Separate Account will purchase shares only of a
particular NASL Trust. NASL Series Trust is registered under the 1940 Act as an
open-end management investment company. The Separate Account will purchase and
redeem shares of 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.
NASL Series Trust shares are issued to fund benefits under both variable annuity
contracts and variable life insurance policies issued by the Company or life
insurance companies affiliated with the Company. Manufacturers Life of America
will also purchase shares through its general account for certain limited
purposes including initial portfolio seed money. For a description of the
procedures for handling potential conflicts of interest arising from the funding
of such benefits see the accompanying NASL Series Trust prospectus.
NASL Series Trust receives investment advisory services from NASL Financial
Services, Inc. NASL Financial Services, Inc. is a registered investment adviser
under the Investment Advisers Act of 1940. NASL Series Trust also employs
subadvisers. The following subadvisers provide investment subadvisory services
to the indicated portfolios:
<TABLE>
<CAPTION>
PORTFOLIO SUBADVISER
<S> <C>
Aggressive Growth Portfolios
Pacific Rim Emerging Markets Trust Manufacturers Adviser Corporation*
International Small Cap Trust Founders Asset Management, Inc.
Emerging Growth Trust Warburg, Pincus Counsellors, Inc.
International Stock Trust Rowe Price-Fleming International, Inc.
Equity Portfolios
Equity Trust Fidelity Management Trust Company
Quantitative Equity Trust Manufacturers Adviser Corporation*
(formerly Common Stock Fund)
Equity Index Trust Manufacturers Adviser Corporation*
Blue Chip Growth Trust T. Rowe Price Associates, Inc.
Growth and Income Trust Wellington Management Company
Equity Income Trust T. Rowe Price Associates, Inc.
Real Estate Securities Trust Manufacturers Adviser Corporation*
Balanced Portfolios
Balanced Trust Founders Asset Management, Inc.
Aggressive Asset Allocation Trust Fidelity Management Trust Company
Moderate Asset Allocation Trust Fidelity Management Trust Company
Conservative Asset Allocation Trust Fidelity Management Trust Company
Bond Portfolios
Capital Growth Bond Trust Manufacturers Adviser Corporation*
U.S. Government Securities Trust Salomon Brothers Asset Management Inc
Money Market Portfolio
Money Market Trust Manufacturers Adviser Corporation*
</TABLE>
* Manufacturers Adviser Corporation is an indirect wholly-owned subsidiary of
Manufacturers Life.
- - 16 -
<PAGE> 17
What Are The Investment Objectives and Certain Policies Of The Portfolios?
The investment objectives and certain policies of the Portfolios currently
available to policyowners through corresponding sub-accounts are set forth
below. There is, of course, no assurance that these objectives will be met.
AGGRESSIVE GROWTH PORTFOLIOS
Pacific Rim Emerging Markets Trust. The investment objective of the Pacific Rim
Emerging Markets Trust is to achieve long-term growth of capital.
Manufacturers Adviser Corporation manages the Pacific Rim Emerging Markets
Trust and seeks to achieve this investment objective by investing in a
diversified portfolio that is comprised primarily of common stocks and
equity-related securities of corporations domiciled in countries of the Pacific
Rim region.
International Small Cap Trust. The investment objective of the International
Small Cap Trust is to seek long term capital appreciation. Founders Asset
Management, Inc. manages the International Small Cap Trust and will pursue this
objective by investing primarily in securities issued by foreign companies
which have total market capitalizations or annual revenues of $1 billion or
less. These securities may represent companies in both established and emerging
economies throughout the world.
Emerging Growth Trust. The investment objective of the Emerging Growth Trust is
maximum capital appreciation. Warburg, Pincus Counsellors, Inc. manages the
Emerging Growth Trust and will pursue this objective by investing primarily in
a portfolio of equity securities of domestic companies. The Emerging Growth
Trust ordinarily will invest at least 65% of its total assets in common stocks
or warrants of emerging growth companies that represent attractive
opportunities for maximum capital appreciation.
International Stock Trust. The investment objective of the International Stock
Trust is to achieve long-term growth of capital. Rowe Price-Fleming
International, Inc. manages the International Stock Trust and seeks to obtain
this objective by investing primarily in common stocks of established,
non-U.S. companies.
EQUITY PORTFOLIOS
Equity Trust. The principal investment objective of the Equity Trust is growth
of capital. Current income is a secondary consideration although growth of
income may accompany growth of capital. Fidelity Management Trust Company
manages the Equity Trust and seeks to attain the foregoing objective by
investing primarily in common stocks of United States issuers or securities
convertible into or which carry the right to buy common stocks.
Quantitative Equity Trust (formerly Common Stock Fund). The investment objective
of the Quantitative Equity Trust is to achieve intermediate and long-term growth
through capital appreciation and current income by investing in common stocks
and other equity securities of well established companies with promising
prospects for providing an above-average rate of return. Manufacturers Adviser
Corporation manages the Quantitative Equity Trust.
Equity Index Trust. The investment objective of the Equity Index Trust is to
achieve investment results which approximate the total return of publicly
traded common stocks in the aggregate, as represented by the Standard & Poor's
500 Composite Stock Price Index. Manufacturers Adviser Corporation manages the
Equity Index Trust.
Blue Chip Growth Trust. The primary investment objective of the Blue Chip Growth
Trust is to provide long-term growth of capital. Current income is a secondary
objective, and many of the stocks in the Portfolio are expected to pay
dividends. T. Rowe Price Associates, Inc. manages the Blue Chip Growth Trust.
Growth and Income Trust. The investment objective of the Growth and Income
Trust is to provide long-term growth of capital and income consistent with
prudent investment risk. Wellington Management Company manages the Growth and
Income Trust and seeks to achieve the Trust's objective by investing primarily
in a diversified portfolio of common stocks of U.S. issuers which Wellington
Management Company believes are of high quality.
- - 17 -
<PAGE> 18
Equity-Income Trust. The investment objective of the Equity-Income Trust (prior
to December 31, 1996, the "Value Equity Trust") is to provide substantial
dividend income and also long term capital appreciation. T. Rowe Price
Associates, Inc. manages the Equity-Income Trust and seeks to attain this
objective by investing primarily in dividend-paying common stocks, particularly
of established companies with favorable prospects for both increasing dividends
and capital appreciation.
Real Estate Securities Trust. The investment objective of the Real Estate
Securities Trust is to achieve a combination of long-term capital appreciation
and satisfactory current income by investing in real estate related equity and
debt securities. Manufacturers Adviser Corporation manages the Real Estate
Securities Trust.
BALANCED PORTFOLIOS
Balanced Trust. The investment objective of the Balanced Trust is current
income and capital appreciation. Founders Asset Management, Inc. is the
manager of the Balanced Trust and seeks to attain this objective by investing
in a balanced portfolio of common stocks, U.S. and foreign government
obligations and a variety of corporate fixed-income securities.
Automatic Asset Allocation Trusts (Aggressive, Moderate and Conservative). The
investment objective of each of the Automatic Asset Allocation Trusts is to
realize the highest potential total return consistent with a specified level of
risk tolerance -- conservative, moderate or aggressive. The amount of each
Portfolio's assets invested in each category of securities -- debt, equity, and
money market -- is dependent upon the judgment of Fidelity Management Trust
Company as to what percentages of each Portfolio's assets in each category will
contribute to the limitation of risk and the achievement of its investment
objective.
BOND PORTFOLIOS
Capital Growth Bond Trust. The investment objective of the Capital Growth Bond
Trust is to achieve growth of capital by investing in medium-grade or better
debt securities, with income as a secondary consideration. Manufacturers
Adviser Corporation manages the Capital Growth Bond Trust. The Capital Growth
Bond Trust differs from most "bond" funds in that its primary objective is
capital appreciation, not income.
U.S. Government Securities Trust. The investment objective of the U.S.
Government Securities Trust is to obtain a high level of current income
consistent with preservation of capital and maintenance of liquidity. Salomon
Brothers Asset Management Inc manages the U.S. Government Securities Trust and
seeks to attain its objective by investing a substantial portion of its assets
in debt obligations and mortgage-backed securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities and derivative securities
such as collateralized mortgage obligations backed by such securities.
MONEY MARKET PORTFOLIO
Money Market Trust. The investment objective of the Money Market Trust is to
obtain maximum current income consistent with preservation of principal and
liquidity. Manufacturers Adviser Corporation manages the Money Market Trust
and seeks to achieve this objective by investing in high quality, U.S. dollar
denominated money market instruments.
A full description of the NASL Series Trust, its investment objectives,
policies and restrictions, the risks associated therewith, its expenses, and
other aspects of its operation is contained in the accompanying NASL Series
Trust prospectus, which should be read together with this prospectus.
- - 18 -
<PAGE> 19
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 Trust. 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.
- - 19 -
<PAGE> 20
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
- - 20 -
<PAGE> 21
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
- - 21 -
<PAGE> 22
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
- - 22 -
<PAGE> 23
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.
- - 23 -
<PAGE> 24
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
- - 24 -
<PAGE> 25
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.
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<PAGE> 26
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.
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<PAGE> 27
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
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<PAGE> 28
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 or other office or entity so designated by
Manufacturers Life of America.
Units are valued as of the end of each Business Day. When an order involving
the crediting or redemption of units is received after the end of a Business
Day or on a day which is not a Business Day, the order will be processed on the
basis of unit values determined 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 Portfolio 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 twelve transfers each
Policy Year free of charge. Additional transfers may be made at a cost of $25
per transfer. This charge will be allocated among the Investment Accounts and
the Guaranteed Interest Account in the same proportion as the amount transferred
from each bears to the total amount transferred. For this purpose all transfer
requests received by Manufacturers Life of America on the same Business Day are
treated as a single transfer request.
The maximum amount that may be transferred from the Guaranteed Interest Account
in any one Policy Year
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<PAGE> 29
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 Trust.
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
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<PAGE> 30
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. At six-month intervals beginning six months after the
Policy Date, Manufacturers Life of America will move amounts among the
Investment Accounts as necessary to maintain the policyowner's chosen
allocation. A change to the policyowner premium allocation instructions will
automatically result in a change in Asset Allocation Balancer instructions so
that the two are identical unless the policyowner either instructs Manulife of
America otherwise or has elected the Dollar Cost Averaging program. Currently,
there is no charge for this program; however, Manufacturers Life of America
reserves the right to institute a charge on 90 days' written notice to the
policyowner.
Manufacturers Life of America reserves the right to cease to offer this program
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
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<PAGE> 31
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
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<PAGE> 32
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
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<PAGE> 33
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).
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<PAGE> 34
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
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<PAGE> 35
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 (but in no event will the sum of the
deferred sales charge and the sales charge deducted from premiums exceed
the amount permitted by Section 27(a)(2) of the Investment Company Act
of 1940).
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.
- - 35 -
<PAGE> 36
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.
<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%
</TABLE>
* <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 rated 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>
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
- - 36 -
<PAGE> 37
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
$1,614 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 $505 as described in Charges and
Deductions - "Deferred Sales Charge."
However, under the formula described above, the maximum sales charge allowable
would be $523. This is calculated as the sum of:
(i) 30% of one GAP, or $484 [.30 x $1,614 = $484], because one GAP
($1,614) is less than premiums paid ($2,000);
plus
(ii) 10% of premiums paid in excess of one GAP, or $39 (.1 x $386 = $39)
because premiums paid in excess of one GAP ($2,000 - $1,614 = $386) are
less than the amount of a second GAP ($1,614);
plus
(iii) $0, because no premiums in excess of two GAPs were paid.
Thus, (i) $484 plus (ii) $39 plus (iii) $0 equals $523.
Thus after applying the sales charge limitation calculation, the maximum
allowable sales charge is $523. However, since Manufacturers Life of America
has already deducted from premiums the sum of $27.78 (5.5% of $505) this
amount is deducted from $523 to arrive at a maximum deferred sales charge
of $495.22. The maximum deferred sales charge allowable is $495.22 which is
equal to the smaller of the deferred sales charge ($505) and the maximum
sales charge limitation ($495.22).
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.
- - 37 -
<PAGE> 38
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.
- - 38 -
<PAGE> 39
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.
- - 39 -
<PAGE> 40
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 $25
charge for each transfer in excess of twelve in a Policy Year and a $5 charge
for each Dollar Cost Averaging transfer when Policy Value does not exceed
$15,000. See Policy Values - "Transfers of Policy Value."
- - 40 -
<PAGE> 41
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 Trust" in the
Prospectus for NASL Series Trust that accompanies this Prospectus, and
(ii) other expenses already deducted from the assets of 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."
- - 41 -
<PAGE> 42
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
- - 42 -
<PAGE> 43
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
- - 43 -
<PAGE> 44
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
- - 44 -
<PAGE> 45
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 NASL
Series Trust which will include a list of the securities held in each Portfolio
as required by the 1940 Act.
Miscellaneous Matters
Portfolio 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 Trusts may
become unsuitable for investment by the Separate Account because of a change in
investment policy or a change in the applicable laws or regulations, because the
shares are no longer available for investment, or for some other reason. In that
event, Manufacturers Life of America may seek to substitute the shares of
another Trust or of an entirely different mutual fund. Before this can be done,
the approval of the S.E.C. and one or more state insurance departments may be
required.
Manufacturers Life of America also reserves the right to 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
- - 45 -
<PAGE> 46
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, charitable remainder trusts, and others,
including split dollar insurance plans, with respect to which Manufacturers
Life 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 under 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
- - 46 -
<PAGE> 47
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 NASL Series Trust,
intends to comply with the diversification requirements prescribed in Treas.
Reg. Sec. 1.817-5, which affect how NASL Series Trust's assets are to be
invested. The Company believes that the Separate Account will thus meet the
diversification requirement, and the Company will monitor continued compliance
with the requirement.
In certain circumstances, owners of variable life insurance Policies may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their Policies. In those circumstances,
income and gains from the separate account assets would be includible in the
variable policyowner's gross income. The IRS has stated in published rulings
that a variable policyowner will be considered the owner of separate account
assets if the policyowner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The
Treasury Department has also announced, in connection with the issuance of
regulations concerning diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor (i.e., the
policyowner), rather than the insurance company, to be treated as the owner of
the assets in the account." This announcement also stated that guidance would
be issued by way of regulations or rulings on the "extent to which
policyowners may direct their investments to particular subaccounts without
being treated as owners of the underlying assets."
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that policyowners were not owners of separate account assets. For example, the
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.
- - 47 -
<PAGE> 48
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 received which would cause the Policy to
become a Modified Endowment Contract (MEC) within 23 days of the next policy
anniversary, the Company will not apply the portion of the premium which would
cause MEC status (excess premium) to the Policy when received. The excess
premium will be placed in a suspense account until the next anniversary date, at
which point the excess premium along with interest, earned on the excess premium
at a rate of 3.5% from the date the premium was received, will be applied to the
Policy. The policyowner will be advised of this action and will be offered the
opportunity to have the premium credited as of the original date received or to
have the premium returned. If the policyowner does not respond, the premium and
interest will be applied to the Policy as of the first day of the next
anniversary.
If a premium is received which would cause the Policy to become a MEC more than
23 days prior to the next policy anniversary, the Company will refund any excess
premium to the policyowner. The portion of the premium which is not excess will
be applied as of the date received. The policyowner will be advised of this
action and will be offered the opportunity to return the premium and have it
credited to the account as of the original date received.
If, in connection with the application or issue of the Policy, the policyowner
acknowledges that the Policy is or will become a MEC, excess premiums that would
cause MEC status will be credited as of the date received.
Further, if a transaction occurs which reduces the face amount of the Policy,
the Policy will be retested, retroactive to the date of purchase, to determine
compliance with the seven-pay test based on the lower face amount. Failure to
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.
- - 48 -
<PAGE> 49
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.
- - 49 -
<PAGE> 50
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. The purchase and exercise
of the policy split option 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. It is
also not clear whether the cost of the policy split option, which is deducted
monthly from Policy Value, will be treated as a taxable distribution. Before
purchasing the policy split option or exercising rights provided by the policy
split option, please consult with a competent tax adviser regarding the possible
consequences.
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 65%
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, 0.15% 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.
- - 50 -
<PAGE> 51
Responsibilities Assumed by Manufacturers Life
Manufacturers Life and Manufacturers USA have entered into an agreement with
ManEquity, Inc. pursuant to which Manufacturers Life or Manufacturers USA, on
behalf of ManEquity, Inc., will pay the sales commissions in respect of the
Policies and certain other policies issued by Manufacturers Life of America,
prepare and maintain all books and records required to be prepared and
maintained by ManEquity, Inc. with respect to the Policies and such other
policies, and send all confirmations required to be sent by ManEquity, Inc. with
respect to the Policies and such other policies. ManEquity, Inc. will promptly
reimburse Manufacturers Life and Manufacturers USA for all sales commissions
paid by Manufacturers Life and Manufacturers USA and will pay Manufacturers Life
and Manufacturers USA for its other services under the agreement in such amounts
and at such times as agreed to by the parties.
Manufacturers Life and Manufacturers USA have also entered into a Service
Agreement with Manufacturers Life of America pursuant to which Manufacturers
Life and Manufacturers USA will provide to Manufacturers Life of America all
issue, administrative, general services and recordkeeping functions on behalf of
Manufacturers Life of America with respect to all of its insurance policies
including the Policies.
Finally, Manufacturers USA, has entered into a Stop Loss Reinsurance Agreement
with Manufacturers Life of America under which Manufacturers USA reinsures all
aggregate claims in excess of 110% of the expected claims for all flexible
premium variable life insurance policies issued by Manufacturers Life of
America. Under the agreement Manufacturers Life of America will automatically
reinsure the risk for any lives insured up to a maximum of $15,000,000
($10,000,000 if either insured is over age 70), 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
$15,000,000 and any aviation risk in excess of $5,000,000.
Voting Rights
As stated above, all of the assets held in the sub-accounts of the Separate
Account will be invested in shares of a particular Portfolio of NASL Series
Trust. Manufacturers Life of America is the legal owner of those shares and as
such has the right to vote upon certain matters that are required by the 1940
Act to be approved or ratified by the shareholders of a mutual fund and to vote
upon any other matters that may be voted upon at a shareholders' meeting.
However, Manufacturers Life of America will vote shares held in the sub-accounts
in accordance with instructions received from policyowners having an interest in
such sub-accounts.
Shares held in each sub-account for which no timely instructions from
policyowners are received, including shares not attributable to Policies, will
be voted by Manufacturers Life of America in the same proportion as those
shares in that sub-account for which instructions are received. Should the
applicable federal securities laws or regulations change so as to permit
Manufacturers Life of America to vote shares held in the Separate Account in
its own right, it may elect to do so.
The number of shares in each sub-account for which instructions may be given by
a policyowner is determined by dividing the portion of the Policy Value derived
from participation in that sub-account, if any, by the value of one share of the
corresponding NASL Trust. The number will be determined as of a date chosen by
Manufacturers Life of America, but not more than 90 days before
- - 51 -
<PAGE> 52
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:
- - 52 -
<PAGE> 53
<TABLE>
<CAPTION>
Position With
Manufacturers Life
Name of America Principal Occupation
<S> <C> <C>
Sandra M. Cotter Director Attorney 1989-present, Dykema
(34) Gossett
James D. Gallagher Director, Secretary, Vice President, Legal Services
(42) and General Counsel --January 1996-present, The
Manufacturers Life Insurance
Company; Vice President,
Secretary and General Counsel--
1994-present, North American
Security Life; Vice President
and Associate General Counsel--
1991-1994, The Prudential
Insurance Company of America
Bruce Gordon Director Vice President, U.S. Operations
(53) - Pensions -- 1990-present, The
Manufacturers Life Insurance
Company
Donald A. Guloien Director and President Senior Vice President, Business
(39) Development 1994-present, The
Manufacturers Life Insurance
Company; Vice President, U.S.
Individual Business -- 1990-1994,
The Manufacturers Life Insurance
Company
Theodore Kilkuskie, Jr. Director Vice President, U.S. Individual
(41) Insurance -- June 1995-present,
The Manufacturers Life Insurance
Company; Executive Vice President,
Mutual Funds -- January 1995-May 1995,
State Street Research; Vice President,
Mutual Funds -- 1987-1994, Metropolitan
Life Insurance Company
Joseph J. Pietroski Director Senior Vice President, General
(58) Counsel and Corporate Secretary --
1988-present, The Manufacturers
Life Insurance Company
</TABLE>
- - 53 -
<PAGE> 54
<TABLE>
<CAPTION>
Position With
Manufacturers Life
Name of America Principal Occupation
<S> <C> <C>
John D. Richardson Chairman and Director Senior Vice President and General
(58) Manager, U.S. Operations
1995-present, The Manufacturers
Life Insurance Company; Senior
Vice President and General
Manager, Canadian Operations
1992-1994, The Manufacturers Life
Insurance Company; Senior Vice
President, Financial Services
1992, The Manufacturers Life
Insurance Company; Executive Vice
Chairman and CFO -- 1989-1991,
Canada Trust
John R. Ostler Vice President, Chief Financial Vice President -- 1992-
(43) Actuary and Treasurer present, The Manufacturers Life
Insurance Company; Vice President,
Insurance Products -- 1990-1992,
The Manufacturers Life Insurance
Company
Douglas H. Myers Vice President, Assistant Vice President and
(42) Finance and Compliance Controller, U.S. Operations --
Controller 1988-present, The Manufacturers
Life Insurance Company
Hugh McHaffie Vice President Vice President & Product Actuary --
(37) June 1990-present, North American
Security Life
</TABLE>
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.
- - 54 -
<PAGE> 55
Pending Litigation
No litigation is pending that would have a material effect upon the Separate
Account or NASL Series Trust.
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 James D. Gallagher,
Esq., Secretary and General Counsel of Manufacturers Life of America. Jones &
Blouch L.L.P., Washington, D.C., has passed on certain matters relating to the
federal securities laws.
Experts
The financial statements for the period ended December 31, 1995 of The
Manufacturers Life Insurance Company of America and Separate Account Three of
The Manufacturers Life Insurance Company of America appearing in this prospectus
have been audited by Ernst & Young LLP, independent auditors, to the extent
indicated in their reports thereon also appearing elsewhere herein. Such
financial statements have been included herein in reliance upon such reports
given upon the authority of such firm as experts in auditing and accounting.
- - 55 -
<PAGE> 56
THE FOLLOWING FINANCIAL STATEMENTS OF SEPARATE ACCOUNT THREE OF THE
MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA AND THE MANUFACTURERS LIFE
INSURANCE COMPANY OF AMERICA FOR THE PERIOD ENDED SEPTEMBER 30, 1996 ARE
UNAUDITED.
- - 56 -
<PAGE> 57
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1996 (Unaudited)
<TABLE>
<CAPTION>
MANULIFE SERIES FUND INC
-------------------------------------------------------------------------------------
EMERGING GROWTH REAL ESTATE BALANCED CAPITAL GROWTH
EQUITY COMMON STOCK SECURITIES ASSETS BOND MONEY-MARKET
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- ------------ ----------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Investment in Manulife Series Fund, Inc.
at market value
Emerging Growth Equity Fund, $47,939,490
2,279,998 shares (cost $48,423,350)
Common Stock Fund, $25,119,781
1,317,870 shares (cost $20,913,546)
Real Estate Securities Fund, $13,516,354
844,657 shares (cost $12,145,299)
Balanced Assets Fund, $30,351,786
1,737,128 shares (cost $27,368,879)
Capital Growth Bond Fund, $13,710,082
1,221,007 shares (cost $13,500,879)
Money Market Fund, $16,913,522
1,585,607 shares (cost $17,517,647)
International Fund,
687,791 shares (cost $7,432,197)
Pacific Rim Emerging Markets Fund,
444,092 shares (cost $4,736,296)
Equity Index Fund,
240,592 shares (cost $2,486,917)
Investment in NASL Series Trust
at market value
Equity Trust
239,487 shares (cost $4,973,862)
Value Equity Trust
228,181 shares (cost $3,180,788)
Growth and Income Trust
186,771 shares (cost $3,255,123)
U.S. Government Securities Trust
93,147 shares (cost $1,210,093)
Conservative Asset Allocation Trust
22,539 shares (cost $263,758)
Moderate Asset Allocation Trust
29,852 shares (cost $363,308)
Aggressive Asset Allocation Trust
44,487 shares (cost $558,510)
----------- ----------- ----------- ----------- ----------- -----------
47,939,490 25,119,781 13,516,354 30,351,786 13,710,082 16,913,522
Receivable for Policy -related
Transactions 46,495 35,692 2,876 27,102 (27,540) (2,213)
----------- ----------- ----------- ----------- ----------- -----------
NET ASSETS $47,985,985 $25,155,473 $13,519,230 $30,378,888 $13,682,542 $16,911,309
=========== =========== =========== =========== =========== ===========
Units Outstanding 1,351,174 1,004,921 488,284 1,423,606 724,147 1,033,118
=========== =========== =========== =========== =========== ===========
Net asset value per unit $35.51 $25.03 $27.69 $21.34 $18.89 $16.37
=========== =========== =========== =========== =========== ===========
<CAPTION>
MANULIFE SERIES FUND INC NASL SERIES TRUST
-------------------------------------------- -------------------------------------
PACIFIC RIM *VALUE *GROWTH
INTERNATIONAL EMERGING MARKETS *EQUITY INDEX *EQUITY EQUITY AND INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ---------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investment in Manulife Series Fund, Inc.
at market value
Emerging Growth Equity Fund,
2,279,998 shares (cost $48,423,350)
Common Stock Fund,
1,317,870 shares (cost $20,913,546)
Real Estate Securities Fund,
844,657 shares (cost $12,145,299)
Balanced Assets Fund,
1,737,128 shares (cost $27,368,879)
Capital Growth Bond Fund,
1,221,007 shares (cost $13,500,879)
Money Market Fund,
1,585,607 shares (cost $17,517,647)
International Fund, $7,754,426
687,791 shares (cost $7,432,197)
Pacific Rim Emerging Markets Fund, $4,974,177
444,092 shares (cost $4,736,296)
Equity Index Fund, $2,558,579
240,592 shares (cost $2,486,917)
Investment in NASL Series Trust
at market value
Equity Trust $5,115,939
239,487 shares (cost $4,973,862)
Value Equity Trust $3,296,739
228,181 shares (cost $3,180,788)
Growth and Income Trust $3,335,078
186,771 shares (cost $3,255,123)
U.S. Government Securities Trust
93,147 shares (cost $1,210,093)
Conservative Asset Allocation Trust
22,539 shares (cost $263,758)
Moderate Asset Allocation Trust
29,852 shares (cost $363,308)
Aggressive Asset Allocation Trust
44,487 shares (cost $558,510)
---------- ---------- ---------- ---------- ---------- ----------
7,754,426 4,974,177 2,558,579 5,115,939 3,296,739 3,335,078
Receivable for Policy -related
Transactions 25,624 3,627 98,363 1,902 11,890 644
---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS $7,780,050 $4,977,804 $2,656,942 $5,117,841 $3,308,629 $3,335,722
========== ========== ========== ========== ========== ==========
Units Outstanding 676,732 435,816 249,872 476,513 309,524 308,161
========== ========== ========== ========== ========== ==========
Net asset value per unit $11.50 $11.42 $10.63 $10.74 $10.69 $10.82
========== ========== ========== ========== ========== ==========
<CAPTION>
NASL SERIES TRUST
-------------------------------------------------------------------------
*U.S. GOVERNMENT CONSERVATIVE *MODERATE *AGGRESSIVE
SECURITIES ASSET ALLOCATION ASSET ALLOCATION ASSET ALLOCATION
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
---------------- ---------------- ---------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Investment in Manulife Series Fund, Inc.
at market value
Emerging Growth Equity Fund, $47,939,490
2,279,998 shares (cost $48,423,350)
Common Stock Fund, 25,119,781
1,317,870 shares (cost $20,913,546)
Real Estate Securities Fund, 13,516,354
844,657 shares (cost $12,145,299)
Balanced Assets Fund, 30,351,786
1,737,128 shares (cost $27,368,879)
Capital Growth Bond Fund, 13,710,082
1,221,007 shares (cost $13,500,879)
Money Market Fund, 16,913,522
1,585,607 shares (cost $17,517,647)
International Fund, 7,754,426
687,791 shares (cost $7,432,197)
Pacific Rim Emerging Markets Fund, 4,974,177
444,092 shares (cost $4,736,296)
Equity Index Fund, 2,558,579
240,592 shares (cost $2,486,917)
Investment in NASL Series Trust
at market value
Equity Trust 5,115,939
239,487 shares (cost $4,973,862)
Value Equity Trust 3,296,739
228,181 shares (cost $3,180,788)
Growth and Income Trust 3,335,078
186,771 shares (cost $3,255,123)
U.S. Government Securities Trust $1,209,333 1,209,333
93,147 shares (cost $1,210,093)
Conservative Asset Allocation Trust $253,814 253,814
22,539 shares (cost $263,758)
Moderate Asset Allocation Trust $357,740 357,740
29,852 shares (cost $363,308)
Aggressive Asset Allocation Trust $568,803 568,803
44,487 shares (cost $558,510)
---------- -------- -------- -------- ------------
1,209,333 253,814 357,740 568,803 176,975,643
Receivable for Policy -related
Transactions (290) (23) 185 1,075 225,409
---------- -------- -------- -------- ------------
NET ASSETS $1,209,043 $253,791 $357,925 $569,878 $177,201,052
========== ======== ======== ======== ============
Units Outstanding 121,159 24,935 34,838 54,768
========== ======== ======== ========
Net asset value per unit $9.98 $10.18 $10.27 $10.41
========== ======== ======== ========
</TABLE>
* Reflects the period from commencement of operations February 14, 1996 through
September 30, 1996
See accompanying notes.
- - 57 -
<PAGE> 58
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF OPERATIONS
PERIOD ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
MANULIFE SERIES FUND INC
-------------------------------------------------------------------------
EMERGING REAL ESTATE
GROWTH EQUITY COMMON STOCK SECURITIES BALANCED ASSETS
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Net Investment Income: Dividends $ 4,762,788 $ 255,191 $ 726,499 $ 1,124,361
Realized and unrealized gain (loss)
from security transactions:
Proceeds from sales 3,285,457 697,397 573,619 1,694,589
Cost of securities sold 2,771,946 575,375 553,549 1,549,853
----------- ----------- ----------- -----------
Net realized gain (loss) 513,511 122,022 20,070 144,736
----------- ----------- ----------- -----------
Unrealized appreciation (depreciation)
of Investments
Beginning of Year 4,794,911 2,295,941 748,034 2,693,376
End of Period (483,860) 4,206,235 1,371,055 2,982,907
----------- ----------- ----------- -----------
Net unrealized depreciation
during the period (5,278,771) 1,910,294 623,021 289,531
----------- ----------- ----------- -----------
Net realized and unrealized gain (loss)
on investments (4,765,260) 2,032,316 643,091 434,267
----------- ----------- ----------- -----------
Net increase (decrease) in net
assets derived from operations $ (2,472) $ 2,287,507 $ 1,369,590 $ 1,558,628
=========== =========== =========== ===========
<CAPTION>
CAPITAL PACIFIC RIM
GROWTH BOND MONEY-MARKET INTERNATIONAL EMERGING MARKETS *EQUITY INDEX
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ------------- ------------ ---------------- --------------
<S> <C> <C> <C> <C> <C>
Net Investment Income: Dividends $ 498 $ 676,573 $ 17,405 $ 5,570 $ 0
Realized and unrealized gain (loss)
from security transactions:
Proceeds from sales 1,142,148 14,068,931 253,088 358,693 142,025
Cost of securities sold 1,214,395 13,357,768 220,322 303,239 138,134
----------- ----------- ----------- ----------- ---------
Net realized gain (loss) (72,247) 711,163 32,766 55,454 3,891
----------- ----------- ----------- ----------- ---------
Unrealized appreciation (depreciation)
of Investments
Beginning of Year 153,798 233,720 99,777 88,856 0
End of Period 209,203 (604,125) 322,229 237,881 71,662
----------- ----------- ----------- ----------- ---------
Net unrealized depreciation
during the period 55,405 (837,845) 222,452 149,025 71,662
----------- ----------- ----------- ----------- ---------
Net realized and unrealized gain (loss)
on investments (16,842) (126,682) 255,218 204,479 75,553
----------- ----------- ----------- ----------- ---------
Net increase (decrease) in net
assets derived from operations $ (16,344) $ 549,891 $ 272,623 $ 210,049 $ 75,553
=========== =========== =========== =========== =========
<CAPTION>
NASL SERIES TRUST
-------------------------------------------------------------------------
*VALUE *GROWTH *U.S. GOVERNMENT
*EQUITY EQUITY AND INCOME SECURITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Net Investment Income: Dividends $ 26,181 $ 8,790 $ 1,952 $ 26,995
Realized and unrealized gain (loss)
from security transactions:
Proceeds from sales 21,177 156,834 34,273 88,792
Cost of securities sold 21,417 134,296 9,306 92,449
----------- ----------- ----------- ----------
Net realized gain (loss) (240) 22,538 24,967 (3,657)
----------- ----------- ----------- ----------
Unrealized appreciation (depreciation)
of Investments
Beginning of Year 0 0 0 0
End of Period 142,077 115,951 79,955 (760)
----------- ----------- ----------- ----------
Net unrealized depreciation
during the period 142,077 115,951 79,955 (760)
----------- ----------- ----------- ----------
Net realized and unrealized gain (loss)
on investments 141,837 138,489 104,922 (4,417)
----------- ----------- ----------- ----------
Net increase (decrease) in net
assets derived from operations $ 168,018 $ 147,279 $ 106,874 $ 22,578
=========== =========== =========== ==========
<CAPTION>
*CONSERVATIVE *MODERATE *AGGRESSIVE
ASSET ALLOCATION ASSET ALLOCATION ASSET ALLOCATION
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Net Investment Income: Dividends $ 8,660 $ 2,105 $ 11,072 $ 7,654,640
Realized and unrealized gain (loss)
from security transactions:
Proceeds from sales 18,218 16,323 52,562 22,604,126
Cost of securities sold 11,494 2,140 52,251 21,007,934
----------- ----------- ----------- -----------
Net realized gain (loss) 6,724 14,183 311 1,596,192
----------- ----------- ----------- -----------
Unrealized appreciation (depreciation)
of Investments
Beginning of Year 0 0 0 11,108,413
End of Period (9,944) (5,568) 10,293 8,645,191
----------- ----------- ----------- -----------
Net unrealized depreciation
during the period (9,944) (5,568) 10,293 (2,463,222)
----------- ----------- ----------- -----------
Net realized and unrealized gain (loss)
on investments (3,220) 8,615 10,604 (867,030)
----------- ----------- ----------- -----------
Net increase (decrease) in net
assets derived from operations $ 5,440 $ 10,720 $ 21,676 $ 6,787,610
=========== =========== =========== ===========
</TABLE>
* Reflects the period from commencement of operations February 14, 1996 through
September 30, 1996.
- - 58 -
<PAGE> 59
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS
PERIOD ENDED SEPTEMBER 30, 1996 and DECEMBER 31, 1995 (Unaudited)
<TABLE>
<CAPTION>
MANULIFE SERIES FUND INC
------------------------------------------------------------------------------
EMERGING GROWTH COMMON STOCK
EQUITY SUB-ACCOUNT SUB-ACCOUNT
---------------------------------- ----------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/96 DEC. 31/95 SEPT. 30/96 DEC. 31/95
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 4,762,788 $ 721,489 $ 255,191 $ 0
Net realized gain (loss) 513,511 206,155 122,022 (6,193)
Unrealized appreciation (depreciation)
of investments during the period
Increase (decrease) in net assets
derived from operations (5,278,771) 4,716,823 1,910,294 2,734,230
----------- ----------- ----------- -----------
(2,472) 5,644,467 2,287,507 2,728,037
----------- ----------- ----------- -----------
FROM CAPTIAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 16,984,332 15,025,111 7,299,290 6,620,667
Transfer on death 0 (202,957) 0 0
Transfer of terminations (3,386,826) (3,281,049) (1,622,836) (1,485,111)
Transfer of policy loans (501,398) (390,119) (93,992) (349,518)
Net interfund transfers 45,826 3,663,152 1,622,756 2,202,823
----------- ----------- ----------- -----------
13,141,934 14,814,138 7,205,218 6,988,861
----------- ----------- ----------- -----------
Net increase in net assets 13,139,462 20,458,605 9,492,725 9,716,898
NET ASSETS
Beginning of Year 34,846,523 14,387,918 15,662,748 5,945,850
----------- ----------- ----------- -----------
End of Period $47,985,985 $34,846,523 $25,155,473 $15,662,748
=========== =========== =========== ===========
<CAPTION>
MANULIFE SERIES FUND INC
------------------------------------------------------------------------------
REAL ESTATE SECURITIES BALANCED ASSETS
SUB-ACCOUNT SUB-ACCOUNT
---------------------------------- ----------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/96 DEC. 31/95 SEPT. 30/96 DEC. 31/95
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 726,499 $ 142,066 $ 1,124,361 $ 24,806
Net realized gain (loss) 20,070 (18,103) 144,736 (29,726)
Unrealized appreciation (depreciation)
of investments during the period
Increase (decrease) in net assets
derived from operations 623,021 1,028,578 289,531 3,757,506
----------- ----------- ----------- -----------
1,369,590 1,152,541 1,558,628 3,752,586
----------- ----------- ----------- -----------
FROM CAPTIAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 3,402,476 4,344,151 8,219,368 7,806,794
Transfer on death 0 0 0 0
Transfer of terminations (984,300) (1,139,201) (1,913,420) (1,853,986)
Transfer of policy loans (45,916) (80,626) (201,490) (304,332)
Net interfund transfers 219,930 42,920 (417,936) 1,681,177
----------- ----------- ----------- -----------
2,592,190 3,167,244 5,686,522 7,329,653
----------- ----------- ----------- -----------
Net increase in net assets 3,961,780 4,319,785 7,245,150 11,082,239
NET ASSETS
Beginning of Year 9,557,450 5,237,665 23,133,738 12,051,499
----------- ----------- ----------- -----------
End of Period $13,519,230 $ 9,557,450 $30,378,888 $23,133,738
=========== =========== =========== ===========
<CAPTION>
MANULIFE SERIES FUND INC
------------------------------------------------------------------------------
CAPITAL GROWTH MONEY-MARKET
BOND SUB-ACCOUNT SUB-ACCOUNT
---------------------------------- ----------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/96 DEC. 31/95 SEPT. 30/96 DEC. 31/95
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 498 $ 726,517 $ 676,573 $ 468
Net realized gain (loss) (72,247) (31,655) 711,163 215,301
Unrealized appreciation (depreciation)
of investments during the period
Increase (decrease) in net assets
derived from operations 55,405 696,780 (837,845) 308,730
----------- ----------- ----------- -----------
(16,344) 1,391,642 549,891 524,499
----------- ----------- ----------- -----------
FROM CAPTIAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 3,714,654 3,332,849 18,870,472 17,598,898
Transfer on death 0 0
Transfer of terminations (891,643) (716,686) (2,010,894) (1,962,294)
Transfer of policy loans (21,166) (159,472) (34,762) (66,223)
Net interfund transfers 422,889 1,564,644 (13,488,785) (10,196,735)
----------- ----------- ----------- -----------
3,224,734 4,021,335 3,336,031 5,373,646
----------- ----------- ----------- -----------
Net increase in net assets 3,208,390 5,412,977 3,885,922 5,898,145
<CAPTION>
MANULIFE SERIES FUND INC
------------------------------------------------------------------------------
CAPITAL GROWTH MONEY-MARKET
BOND SUB-ACCOUNT SUB-ACCOUNT
---------------------------------- ----------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/96 DEC. 31/95 SEPT. 30/96 DEC. 31/95
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
NET ASSETS
Beginning of Year 10,474,152 5,061,175 13,025,387 7,127,242
----------- ----------- ----------- -----------
End of Period $13,682,542 $10,474,152 $16,911,309 $13,025,387
=========== =========== =========== ===========
<CAPTION>
MANULIFE SERIES FUND INC
----------------------------------------------------------------------------------------
PACIFIC RIM
INTERNATIONAL EMERGING MARKETS *EQUITY INDEX
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------------------- ------------------------------- -------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
SEPT. 30/96 DEC. 31/95 SEPT. 30/96 DEC. 31/95 SEPT. 30/96
------------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 17,405 $ 59,169 $ 5,570 $ 19,281 $ 0
Net realized gain (loss) 32,766 9,897 55,454 6,582 3,891
Unrealized appreciation (depreciation)
of investments during the period
Increase (decrease) in net assets
derived from operations 222,452 103,183 149,025 97,489 71,662
----------- ----------- ----------- ----------- -----------
272,623 172,249 210,049 123,352 75,553
----------- ----------- ----------- ----------- -----------
FROM CAPTIAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 3,064,951 1,353,292 1,915,966 812,122 1,949,583
Transfer on death 0 0 0
Transfer of terminations (363,237) (180,239) (231,746) (131,282) (67,724)
Transfer of policy loans (24,975) (2,743) (31,059) (3,509) 0
Net interfund transfers 2,296,320 863,795 1,446,837 622,581 699,530
----------- ----------- ----------- ----------- -----------
4,973,059 2,034,105 3,099,998 1,299,912 2,581,389
----------- ----------- ----------- ----------- -----------
Net increase in net assets 5,245,682 2,206,354 3,310,047 1,423,264 2,656,942
NET ASSETS
Beginning of Year 2,534,368 328,014 1,667,757 244,493 0
----------- ----------- ----------- ----------- -----------
End of Period $ 7,780,050 $ 2,534,368 $ 4,977,804 $ 1,667,757 $2,656,942
=========== =========== =========== =========== ===========
<CAPTION>
NASL SERIES TRUST
--------------------------------------------------------------------------------
*VALUE *GROWTH *U.S. GOVERNMENT
*EQUITY EQUITY AND INCOME SECURITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ------------ ----------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
SEPT. 30/96 SEPT. 30/96 SEPT. 30/96 SEPT. 30/96
------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 26,181 $ 8,790 $ 1,952 $ 26,995
Net realized gain (loss) (240) 22,538 24,967 (3,657)
Unrealized appreciation (depreciation)
of investments during the period
Increase (decrease) in net assets
derived from operations 142,077 115,951 79,955 (760)
----------- ----------- ----------- -----------
168,018 147,279 106,874 22,578
----------- ----------- ----------- -----------
FROM CAPTIAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 2,585,524 1,793,203 982,709 451,282
Transfer on death 0 0 0 0
Transfer of terminations (125,831) (70,356) (41,719) (19,545)
Transfer of policy loans (20,491) (1,735) 0 (30,576)
Net interfund transfers 2,510,621 1,440,238 2,287,858 785,304
----------- ----------- ----------- -----------
4,949,823 3,161,350 3,228,848 1,186,465
----------- ----------- ----------- -----------
Net increase in net assets 5,117,841 3,308,629 3,335,722 1,209,043
NET ASSETS
Beginning of Year 0 0 0 0
----------- ----------- ----------- -----------
End of Period $ 5,117,841 $ 3,308,629 $ 3,335,722 $ 1,209,043
=========== =========== =========== ===========
<CAPTION>
NASL SERIES TRUST
-----------------------------------------------------------
*CONSERVATIVE *MODERATE *AGGRESSIVE
ASSET ALLOCATION ASSET ALLOCATION ASSET ALLOCATION
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
---------------- ---------------- ----------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED
SEPT. 30/96 SEPT. 30/96 SEPT. 30/96
---------------- --------------- ----------------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 8,660 $ 2,105 $ 11,072
Net realized gain (loss) 6,724 14,183 311
Unrealized appreciation (depreciation)
of investments during the period
Increase (decrease) in net assets
derived from operations (9,944) (5,568) 10,293
----------- ----------- -----------
5,440 10,720 21,676
----------- ----------- -----------
<CAPTION>
NASL SERIES TRUST
-----------------------------------------------------------
*CONSERVATIVE *MODERATE *AGGRESSIVE
ASSET ALLOCATION ASSET ALLOCATION ASSET ALLOCATION
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
---------------- ---------------- ----------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED
SEPT. 30/96 SEPT. 30/96 SEPT. 30/96
---------------- --------------- ----------------
<S> <C> <C> <C>
FROM CAPTIAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 126,544 223,819 282,023
Transfer on death 0 0 0
Transfer of terminations (22,387) (12,150) (34,611)
Transfer of policy loans 0 0 0
Net interfund transfers 144,194 135,536 300,790
----------- ----------- -----------
248,351 347,205 548,202
----------- ----------- -----------
Net increase in net assets 253,791 357,925 569,878
NET ASSETS
Beginning of Year 0 0 0
----------- ----------- -----------
End of Period $ 253,791 $ 357,925 $ 569,878
=========== =========== ===========
<CAPTION>
TOTAL
----------------------------------
PERIOD ENDED YEAR ENDED
SEPT. 30/96 DEC. 31/95
------------ -----------
<S> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 7,654,640 $ 1,693,796
Net realized gain (loss) $ 1,596,192 352,258
Unrealized appreciation (depreciation)
of investments during the period
Increase (decrease) in net assets
derived from operations $ (2,463,222) 13,443,319
------------- ------------
$ 6,787,610 15,489,373
------------- ------------
FROM CAPTIAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums $ 71,866,196 56,893,884
Transfer on death $ 0 (202,957)
Transfer of terminations $ (11,799,225) (10,749,848)
Transfer of policy loans $ (1,007,560) (1,356,542)
Net interfund transfers $ 451,908 444,357
------------- ------------
$ 59,511,319 45,028,894
------------- ------------
Net increase in net assets $ 66,298,929 60,518,267
NET ASSETS
Beginning of Year $ 110,902,123 50,383,856
------------- ------------
End of Period $ 177,201,052 $110,902,123
============= ============
</TABLE>
* Reflects the period from commencement of operations February 14, 1996 through
September 30, 1996
- - 62 -
<PAGE> 60
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements
September 30, 1996
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 sixteen investment sub-accounts, nine investment sub-accounts for
Manulife Series Fund, Inc., and seven investment sub-accounts for NASL Series
Trust, available for allocation of net premiums under 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 Manulife Reinsurance Corporation (U.S.A.)(the
Parent), (formerly The Manufacturers Life Insurance Company of Michigan), as a
separate investment account on February 6, 1987. The parent is a wholly-owned
subsidiary of The Manufacturers Life Insurance Company ("Manulife Financial"),
a mutual life insurance company based in Toronto, Canada.
The assets of the Separate Accounts are the property of The Manufacturers Life
of America. The portion of the Separate Account's assets applicable to the
Policies will not be chargeable with liabilities arising out of any other
business 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 The Manufacturers Life of America's general
account to cover the contingency that the guaranteed minimum death benefit
might exceed the death benefit which would have been payable in the absence of
such guarantee.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Separate Account in preparation of its financial statements:
a. Valuation of Investments - Investments are made among the nine Funds of
Manulife Series Fund, Inc. and among the seven Funds of the NASL Series
Trust and are valued at the reported net asset values of these Funds.
Transactions are recorded on the trade date. Net investment income and net
realized and unrealized gain (loss) on investments in Manulife Series
Fund, Inc. are reinvested.
b. Realized gains and losses on the sale of investments are computed on the
first-in, first-out basis.
c. Dividend income is recorded on the ex-dividend date.
- - 64 -
<PAGE> 61
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
d. Federal Income Taxes - Manufacturers Life of America, the Separate
Account's sponsor, is taxed as a "life insurance company" under the
Internal Revenue Code. Under these provisions of the Code, the operations
of the Separate Account form part of the sponsor's total operations and
are not taxed separately.
The current year's operations of the Separate Account are not expected to
affect the sponsor's tax liabilities and, accordingly, no charges were made
against the Separate Account for federal, state and local taxes. However, in
the future, should the sponsor incur significant tax liabilities related to
Separate Account operations, it intends to make a charge or establish a
provision within the Separate Account for such taxes.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. PREMIUM DEDUCTIONS
Manufacturers Life of America deducts certain charges for state, local, and
federal taxes from the gross premium before placing the remaining net premiums
in the sub-accounts.
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 period ended September 30, 1996 were $91,413,758 and $22,604,126
respectively, and for the year ended December 31, 1995 were $58,905,751 and
$13,953,509.
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.
- - 65 -
<PAGE> 62
THE FOLLOWING FINANCIAL STATEMENTS OF SEPARATE ACCOUNT THREE OF THE
MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA FOR THE PERIOD ENDED DECEMBER
31, 1995 ARE AUDITED.
- - 66 -
<PAGE> 63
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 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 Market
Sub-Account, International Sub-Account and Pacific Rim Emerging Markets
Sub-Account) as of December 31, 1995, and the related statement of
operations for the year then ended, and the statements of changes in net
assets for each of the periods presented herein. These financial
statements are the responsibility of The Manufacturers Life Insurance
Company of America's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Separate
Account Three of The Manufacturers Life Insurance Company of America at
December 31, 1995, the results of its operations for the year then ended
and the changes in its net assets for each of the periods presented
herein, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Philadelphia, Pennsylvania
February 2, 1996
- - 67 -
<PAGE> 64
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statement of Assets and Liabilities
December 31, 1995
<TABLE>
<CAPTION>
REAL ESTATE
EMERGING GROWTH COMMON STOCK SECURITIES BALANCED ASSETS
EQUITY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------ ------------ ----------- ---------------
<S> <C> <C> <C> <C>
ASSETS
Investment in Manulife Series Fund, Inc.--
at market value:
Emerging Growth Equity Fund,
1,503,318 shares (cost $29,944,573) $34,739,484
Common Stock Fund,
899,788 shares (cost $13,242,646) $15,538,587
Real Estate Securities Fund,
632,442 shares (cost $8,803,902) $9,551,936
Balanced Assets Fund,
1,347,671 shares (cost $20,423,372) $23,116,748
Capital Growth Bond Fund,
925,335 shares (cost $10,299,253)
Money Market Fund,
1,065,704 shares (cost $11,317,951)
International Fund,
232,902 shares (cost $2,384,926)
Pacific Rim Emerging Markets Fund,
154,166 shares (cost $1,507,605)
----------- ----------- ---------- -----------
34,739,484 15,538,587 9,551,936 23,116,748
Receivable for policy-related
transactions 107,039 124,161 5,514 16,990
----------- ----------- ---------- -----------
Net assets $34,846,523 $15,662,748 $9,557,450 $23,133,738
=========== =========== ========== ===========
Units outstanding 994,478 697,983 386,785 1,147,507
=========== =========== ========== ===========
Net asset value per unit $35.04 $22.44 $24.71 $20.16
=========== =========== ========== ===========
</TABLE>
See accompanying notes.
- - 68 -
<PAGE> 65
<TABLE>
<CAPTION>
PACIFIC RIM
CAPITAL GROWTH MONEY MARKET INTERNATIONAL EMERGING MARKETS
BOND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
---------------- ------------ ------------- ---------------- -----
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in Manulife Series Fund, Inc.--
at market value:
Emerging Growth Equity Fund,
1,503,318 shares (cost $29,944,573) $34,739,484
Common Stock Fund,
899,788 shares (cost $13,242,646) 15,538,587
Real Estate Securities Fund,
632,442 shares (cost $8,803,902) 9,551,936
Balanced Assets Fund,
1,347,671 shares (cost $20,423,372) 23,116,748
Capital Growth Bond Fund,
925,335 shares (cost $10,299,253) $10,453,051 10,453,051
Money Market Fund,
1,065,704 shares (cost $11,317,951) $11,551,671 11,551,671
International Fund,
232,902 shares (cost $2,384,926) $2,484,703 2,484,703
Pacific Rim Emerging Markets Fund,
154,166 shares (cost $1,507,605) $1,596,461 1,596,461
----------- ----------- ---------- ---------- ------------
10,453,051 11,551,671 2,484,703 1,596,461 109,032,641
Receivable for policy-related
transactions 21,101 1,473,716 49,665 71,296 1,869,482
----------- ----------- ---------- ---------- ------------
Net assets $10,474,152 $13,025,387 $2,534,368 $1,667,757 $110,902,123
=========== =========== ========== ========== ============
Units outstanding 550,981 825,436 233,582 158,081
=========== =========== ========== ==========
Net asset value per unit $19.01 $15.78 $10.85 $10.55
=========== =========== ========== ==========
</TABLE>
- - 69 -
<PAGE> 66
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statement of Operations
Year ended December 31, 1995
<TABLE>
<CAPTION>
EMERGING GROWTH COMMON STOCK REAL ESTATE SECURITIES BALANCED ASSETS
EQUITY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------ ------------ ---------------------- ---------------
<S> <C> <C> <C> <C>
Investment income:
Dividend income $ 721,489 $ -- $ 142,066 $ 24,806
---------- ---------- ---------- ----------
Realized and unrealized gain (loss) on
investments:
Realized gain (loss) from
security transactions:
Proceeds from sales 1,274,886 798,694 812,232 739,327
Cost of securities sold 1,068,731 804,887 830,335 769,053
---------- ---------- ---------- ----------
Net realized gain (loss) 206,155 (6,193) (18,103) (29,726)
---------- ---------- ---------- ----------
Unrealized appreciation (depreciation)
of investments:
Beginning of year 78,088 (438,289) (280,544) (1,064,130)
End of year 4,794,911 2,295,941 748,034 2,693,376
---------- ---------- ---------- ----------
Net unrealized appreciation during the year 4,716,823 2,734,230 1,028,578 3,757,506
---------- ---------- ---------- ----------
Net realized and unrealized gain
on investments 4,922,978 2,728,037 1,010,475 3,727,780
---------- ---------- ---------- ----------
Net increase in net assets derived
from operations $5,644,467 $2,728,037 $1,152,541 $3,752,586
========== ========== ========== ==========
</TABLE>
See accompanying notes.
- - 70 -
<PAGE> 67
<TABLE>
<CAPTION>
PACIFIC RIM
CAPITAL GROWTH MONEY MARKET INTERNATIONAL EMERGING MARKETS
BOND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
---------------- ------------ ------------- ---------------- -----
<S> <C> <C> <C> <C> <C>
Investment income:
Dividend income $ 726,517 $ 468 $ 59,169 $ 19,281 $ 1,693,796
---------- --------- -------- --------- -----------
Realized and unrealized gain (loss) on
investments:
Realized gain (loss) from
security transactions:
Proceeds from sales 798,441 8,849,535 344,439 335,955 13,953,509
Cost of securities sold 830,096 8,634,234 334,542 329,373 13,601,251
---------- --------- -------- --------- -----------
Net realized gain (loss) (31,655) 215,301 9,897 6,582 352,258
---------- --------- -------- --------- -----------
Unrealized appreciation (depreciation)
of investments:
Beginning of year (542,982) (75,010) (3,406) (8,633) (2,334,906)
End of year 153,798 233,720 99,777 88,856 11,108,413
---------- --------- -------- --------- -----------
Net unrealized appreciation during the year 696,780 308,730 103,183 97,489 13,443,319
---------- --------- -------- --------- -----------
Net realized and unrealized gain
on investments 665,125 524,031 113,080 104,071 13,795,577
---------- --------- -------- --------- -----------
Net increase in net assets derived
from operations $1,391,642 $ 524,499 $172,249 $ 123,352 $15,489,373
========== ========= ======== ========= ===========
</TABLE>
- - 71 -
<PAGE> 68
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Changes in Net Assets
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
EMERGING GROWTH COMMON STOCK REAL ESTATE SECURITIES
EQUITY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------------ ------------------------ ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/95 DEC. 31/94 DEC. 31/95 DEC. 31/94 DEC. 31/95 DEC. 31/94
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Investment income $ 721,489 $ 43,907 $ -- $ 267,928 $ 142,066 $ 75,896
Net realized gain (loss) 206,155 211,186 (6,193) (341) (18,103) 31,029
Unrealized appreciation
(depreciation) of invest-
ments during the year 4,716,823 (255,344) 2,734,230 (435,910) 1,028,578 (305,376)
----------- ----------- ----------- ---------- ---------- ----------
Increase (decrease) in net
assets derived from
operations 5,644,467 (251) 2,728,037 (168,323) 1,152,541 (198,451)
----------- ----------- ----------- ---------- ---------- ----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 15,025,111 12,590,008 6,620,667 5,554,746 4,344,151 4,874,992
Transfer on death (202,957) -- -- -- -- --
Transfer of terminations (3,281,049) (1,565,370) (1,485,111) (649,516) (1,139,201) (663,869)
Transfer of policy loans (390,119) (86,018) (349,518) (36,417) (80,626) (6,117)
Net interfund transfers 3,663,152 823,390 2,202,823 421,280 42,920 318,546
----------- ----------- ----------- ---------- ---------- ----------
14,814,138 11,762,010 6,988,861 5,290,093 3,167,244 4,523,552
----------- ----------- ----------- ---------- ---------- ----------
Net increase in net assets 20,458,605 11,761,759 9,716,898 5,121,770 4,319,785 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 year $34,846,523 $14,387,918 $15,662,748 $5,945,850 $9,557,450 $5,237,665
=========== =========== =========== ========== ========== ==========
</TABLE>
See accompanying notes.
- - 72 -
<PAGE> 69
<TABLE>
<CAPTION>
BALANCED ASSETS CAPITAL GROWTH MONEY MARKET
SUB-ACCOUNT BOND SUB-ACCOUNT SUB-ACCOUNT
-------------------------- ------------------------- -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/95 DEC. 31/94 DEC. 31/95 DEC. 31/94 DEC. 31/95 DEC. 31/94
----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Investment income $ 24,806 $ 603,014 $ 726,517 $ 311,297 $ 468 $ 186,610
Net realized gain (loss) (29,726) (1,270) (31,655) 8,755 215,301 12,880
Unrealized appreciation
(depreciation) of invest-
ments during the year 3,757,506 (954,131) 696,780 (497,582) 308,730 (50,726)
----------- ----------- ----------- ---------- ----------- ----------
Increase (decrease) in net
assets derived from
operations 3,752,586 (352,387) 1,391,642 (177,530) 524,499 148,764
----------- ----------- ----------- ---------- ----------- ----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 7,806,794 9,721,164 3,332,849 3,709,555 17,598,898 9,185,855
Transfer on death -- -- -- -- -- --
Transfer of terminations (1,853,986) (1,044,780) (716,686) (306,914) (1,962,294) (1,053,809)
Transfer of policy loans (304,332) (153,402) (159,472) (57,452) (66,223) (110)
Net interfund transfers 1,681,177 150,911 1,564,644 (184,732) (10,196,735) (1,923,048)
----------- ----------- ----------- ---------- ----------- ----------
7,329,653 8,673,893 4,021,335 3,160,457 5,373,646 6,208,888
----------- ----------- ----------- ---------- ----------- ----------
Net increase in net assets 11,082,239 8,321,506 5,412,977 2,982,927 5,898,145 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 year $23,133,738 $12,051,499 $10,474,152 $5,061,175 $13,025,387 $7,127,242
=========== =========== =========== ========== =========== ==========
</TABLE>
- - 73 -
<PAGE> 70
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Changes in Net Assets (continued)
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
PACIFIC RIM
INTERNATIONAL EMERGING MARKETS
SUB-ACCOUNT SUB-ACCOUNT TOTAL
---------------------------- --------------------------- --------------------------
YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/95 DEC. 31/94 DEC. 31/95 DEC. 31/94 DEC. 31/95 DEC. 31/94
---------- ------------- ---------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Investment income $ 59,169 $ 851 $ 19,281 $ 871 $ 1,693,796 $1,490,374
Net realized gain (loss) 9,897 (2) 6,582 (57) 352,258 262,180
Unrealized appreciation
(depreciation) of
invest-ments during the
year 103,183 (3,406) 97,489 (8,633) 13,443,319 (2,511,108)
---------- -------- ---------- -------- ------------ -----------
Increase (decrease) in net
assets derived from
operations 172,249 (2,557) 123,352 (7,819) 15,489,373 (758,554)
---------- -------- ---------- -------- ------------ -----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 1,353,292 73,368 812,122 41,337 56,893,884 45,751,025
Transfer on death -- -- -- -- (202,957) --
Transfer of terminations (180,239) (4,461) (131,282) (2,998) (10,749,848) (5,291,717)
Transfer of policy loans (2,743) (768) (3,509) (768) (1,356,542) (341,052)
Net interfund transfers 863,795 262,432 622,581 214,741 444,357 83,520
---------- -------- ---------- -------- ------------ -----------
2,034,105 330,571 1,299,912 252,312 45,028,894 40,201,776
---------- -------- ---------- -------- ------------ -----------
Net increase in net assets 2,206,354 328,014 1,423,264 244,493 60,518,267 39,443,222
NET ASSETS
Beginning of year 328,014 -- 244,493 -- 50,383,856 10,940,634
---------- -------- ---------- -------- ------------ -----------
End of year $2,534,368 $328,014 $1,667,757 $244,493 $110,902,123 $50,383,856
========== ======== ========== ======== ============ ===========
</TABLE>
*Reflects the period from commencement of operations October 4, 1994 through
December 31, 1994.
See accompanying notes.
- - 74 -
<PAGE> 71
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements
December 31, 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
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 Manulife Reinsurance Corporation (U.S.A.)
("MRC"), as a separate investment account on February 6, 1987. MRC is a life
insurance holding company organized in 1983 under Michigan law and a
wholly-owned subsidiary of The Manufacturers Life Insurance Company ("Manulife
Financial"), a mutual life insurance company based in Toronto, Canada.
The assets of the Separate Accounts are the property of Manufacturers Life of
America. The portion of the Separate Account's assets applicable to the Policies
will not be charged with liabilities arising out of any other business
Manufacturers Life of America may conduct.
The net assets may not be less than the amount required under state insurance
law to provide for death (without regard to the minimum death benefit guarantee)
and other Policy benefits.
Additional assets are held in Manufacturers Life of America's general account to
cover the contingency that the guaranteed minimum death benefit might exceed the
death benefit which would have been payable in the absence of such guarantee.
- - 75 -
<PAGE> 72
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Separate Account in preparation of its financial statements.
a. Valuation of Investments - Investments are made among the eight Funds of
Manulife Series Fund, Inc. and are valued at the reported net asset values
of these Funds. Transactions are recorded on the trade date. Net investment
income and net realized and unrealized gain (loss) on investments in
Manulife Series Fund, Inc. are reinvested.
b. Realized gains and losses on the sale of investments are computed on the
first-in, first-out basis.
c. Dividend income is recorded on the ex-dividend date.
d. Federal Income Taxes - Manufacturers Life of America, the Separate
Account's sponsor, is taxed as a "life insurance company" under the
Internal Revenue Code. Under these provisions of the Code, the operations
of the Separate Account form part of the sponsor's total operations and are
not taxed separately.
The current year's operations of the Separate Account are not expected to
affect the sponsor's tax liabilities and, accordingly, no charges were made
against the Separate Account for federal, state and local taxes. However,
in the future, should the sponsor incur significant tax liabilities related
to Separate Account operations, it intends to make a charge or establish a
provision within the Separate Account for such taxes.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
- - 76 -
<PAGE> 73
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
3. PREMIUM DEDUCTIONS
Manufacturers Life of America deducts certain charges for state, local, and
federal taxes from the gross premium before placing the remaining net premiums
in the sub-accounts.
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, 1995 were $58,905,751 and $13,953,509,
respectively, and for the year ended December 31, 1994 were $47,012,777 and
$5,377,813, respectively.
5. RELATED PARTY TRANSACTIONS
ManEquity, Inc., a registered broker-dealer and indirect wholly-owned subsidiary
of Manulife Financial, acts as the principal underwriter of the Policies
pursuant to a Distribution Agreement with Manufacturers Life of America.
Registered representatives of either ManEquity, Inc. or other broker-dealers
having distribution agreements with ManEquity, Inc. who are also authorized as
variable life insurance agents under applicable state insurance laws, sell the
Policies. Registered representatives are compensated on a commission basis.
Manufacturers Life of America has a formal service agreement with its affiliate,
Manulife Financial, which can be terminated by either party upon two months'
notice. Under this Agreement, Manufacturers Life of America pays for legal,
actuarial, investment and certain other administrative services.
- - 77 -
<PAGE> 74
THE FOLLOWING FINANCIAL STATEMENTS OF THE MANUFACTURERS LIFE INSURANCE COMPANY
OF AMERICA FOR THE PERIOD ENDED SEPTEMBER 30, 1996 ARE UNAUDITED.
- - 78 -
<PAGE> 75
The Manufacturers Life Insurance Company of America
Balance Sheet
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Assets
Bonds, at amortized cost (market $58,250,725 --1996
and $66,046,733- - 1995) $57,763,786 $62,757,202
Stocks 19,658,787 22,584,259
Short-term investments 1,666,000 0
Policy loans 8,633,442 6,955,292
------------ ------------
Total investments 87,722,015 92,296,753
Cash on hand and on deposit 7,118,793 9,674,362
Insurance premiums deferred and uncollected 1,329,534 504,818
Accrued investment income 1,050,518 1,059,536
Separate account assets 603,572,134 480,404,450
Funds receivable on reinsurance ceded 74,035 73,300
Receivable for undelivered securities 1,864,999 146,328
Taxes recoverable 8,926,316 3,308,316
Investment in subsidiary 1,590,846 1,080,184
Other assets 199,392 193,715
------------ ------------
$713,448,582 $588,741,762
============ ============
Liabilities, capital and surplus
Aggregate policy reserves $69,370,778 $63,426,096
Contract deposit funds 6,044,164 6,462,516
Amounts due from separate accounts (52,800,170) (39,799,129)
Interest maintenance and asset valuation reserves 5,503,906 4,742,400
Policy and contract claims 294,457 582,853
Provision for policyholder dividends payable 1,792,087 2,346,258
Amounts due to affiliates 11,529,256 9,049,217
Accrued liabilities 5,361,074 5,147,865
Amounts payable for undelivered securities 1,666,000 80,821
Separate account liablilities 603,572,134 480,404,450
------------ ------------
Total liabilities 652,333,686 532,443,347
Capital and surplus:
Common shares, par value $1.00; authorized,
5,000,000 shares; issued and outstanding shares
(4,501,858 -- 1996, 4,501,857 -- 1995) 4,501,858 4,501,857
Preferred shared, par value $100; authorized,
5,000,000 shares; issued and outstanding shares
(105,000 -- 1996 and 1995) 10,500,000 10,500,000
Surplus note 8,500,000 8,500,000
Capital paid in excess of par value 78,500,179 63,500,180
Surplus (40,887,141) (30,703,622)
------------ ------------
Total capital and surplus 61,114,896 56,298,415
------------ ------------
Total liablilities, capital, and surplus $713,448,582 $588,741,762
============ ============
</TABLE>
- - 79 -
<PAGE> 76
The Manufacturers Life Insurance Company of America
Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Life premiums $37,441,887 $26,917,056 $115,841,149 $82,246,124
Annuity deposits 9,109,896 9,176,744 27,904,066 29,606,973
Life premiums, reinsurance assumed (831,831) (372,238) 1,101,533 5,540,618
Investment income, net of investment expenses 1,437,890 1,197,939 4,188,644 3,854,192
Amortization of interest maintenance reserve 6,169 8,353 23,309 14,172
Commission and expense allowances on
reinsurance ceded 43,397 0 147,093
Foreign exchange gain (loss) (1,451) (329,945) 40,625 (329,662)
Other revenue (19,985) 37,106 68,843 92,821
----------- ----------- ------------ -----------
Total revenues 47,185,972 36,635,015 149,315,262 121,025,238
Benefits paid or provided:
Increase (decrease) in aggregate policy reserves (2,507,208) 412,750 5,944,682 10,575,029
Increase (decrease) in liability for deposit funds 531,581 (381,781) (418,352) (223,494)
Transfers to separate accounts, net 26,345,507 19,094,364 83,952,586 65,495,626
Death benefits (68,162) 694,831 2,782,394 2,163,196
Annuity benefits 66,181 (506,892) 401,929 30,802
Disability benefits 46,294 0 151,750
Surrender benefits 8,169,058 6,683,913 17,953,597 12,938,150
----------- ----------- ------------ -----------
32,583,251 25,997,185 110,768,586 90,979,309
Insurance expenses:
Management fee 6,587,000 5,289,000 16,820,000 16,764,000
Commissions 6,896,707 4,471,643 20,718,353 13,449,277
General expenses 3,908,813 4,665,024 15,695,580 9,470,575
Commission and expense allowances
on reinsurance assumed 55,942 13,329 386,701 942,979
Interest expense 142,375 0 427,125 0
----------- ----------- ------------ -----------
17,590,837 14,438,996 54,047,759 40,626,831
----------- ----------- ------------ -----------
Loss before policyholder's dividends
and federal income tax (2,988,116) (3,801,166) (15,501,083) (10,580,902)
Dividends to policyholders 45,402 263,345 569,900 2,172,621
----------- ----------- ------------ -----------
Loss before federal income tax (3,033,518) (4,064,511) (16,070,983) (12,753,523)
Federal income tax benefit (1,009,802) 0 (5,388,798) 0
----------- ----------- ------------ -----------
Net loss from operations after policyholders'
dividends and federal income tax (2,023,716) (4,064,511) (10,682,185) (12,753,523)
Net realized capital loss 48,859 38,348 (90,480) 630,788
----------- ----------- ------------ -----------
Net loss from operations ($1,974,857) ($4,026,163) ($10,772,665) ($12,122,735)
=========== =========== ============ ===========
</TABLE>
- - 80 -
<PAGE> 77
The Manufacturers Life Insurance Company of America
Statement of Changes in Capital and Surplus
(Unaudited)
<TABLE>
<CAPTION>
Capital
Paid in
Excess of
Capital Par Value Surplus Total
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $23,501,857 $63,500,180 ($30,703,622) $56,298,415
Net loss from operations (10,772,665) (10,772,665)
Issuance of common shares 1 14,999,999 15,000,000
Increase in asset valuation reserve (1,118,541) (1,118,541)
Increase in nonadmitted assets 58,854 58,854
Change in net unrealized capital
gains 1,754,077 1,754,077
Change in liability for reinsurance
in unauthorized companies (105,244) (105,244)
----------- ----------- ------------ -----------
Balance, September 30, 1996 $23,501,858 $78,500,179 ($40,887,141) $61,114,896
=========== =========== ============ ===========
</TABLE>
- - 81 -
<PAGE> 78
The Manufacturers Life Insurance Company of America
Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1996 1995
------------ ------------
<S> <C> <C>
Operating activities:
Premiums collected, net $144,041,813 $117,159,968
Policy benefits paid, net (21,547,307) (15,137,221)
Commissions and other expenses paid (51,399,430) (43,854,220)
Net investment income 4,116,058 3,569,190
Other income and expenses (2,402,311) (1,351,829)
Transfers to separate accounts, net (96,953,627) (72,596,690)
------------ ------------
Net cash (used in) provided by
operating activities (24,144,804) (12,210,802)
Investing activities
Sale, maturity, or repayment of investments 85,756,967 62,744,420
Purchase of investments (77,501,732) (67,892,880)
------------ ------------
Net cash used in investing activities 8,255,235 (5,148,460)
Financing activities
Issuance of stock 15,000,000 5,150,000
------------ ------------
Net cash provided by financing activities 15,000,000 5,150,000
------------ ------------
Net increase in cash and short-term
investments (889,569) (12,209,262)
Cash and short-term investments
at beginning of year 9,674,362 15,983,758
------------ ------------
Cash and short-term investments
at end of year $ 8,784,793 $ 3,774,496
============ ============
</TABLE>
- - 82 -
<PAGE> 79
The Manufacturers Life Insurance Company of America
Notes to Financial Statements
September 30, 1996
1. ORGANIZATION
ORGANIZATION
The Manufacturers Life Insurance Company of America (Manufacturers Life of
America or the Company) is a wholly-owned subsidiary of Manulife Reinsurance
Corporation (USA) (The Parent), (formerly Manufacturers Life Insurance Company
of Michigan), which is in turn a wholly-owned subsidiary of The Manufacturers
Life Insurance Company (Manulife Financial), a Canadian-based mutual life
insurance company (Notes 4 and 5).
The Company issues and sells variable universal life and variable annuity
products in the United States. The Company also has a branch operation in
Taiwan to develop and market traditional insurance for the Taiwanese market. At
September 30, 1996 the Company had assets of $16,056,539 and liabilities of
$10,333,710 in the Taiwan branch.
During the nine months ended September 30, 1996, the Company received a capital
contribution of $15,000,000 from the Parent in return for one share of common
stock (par value $1).
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited financial statements of The Manufacturers Life
Insurance Company of America have been prepared in accordance with accounting
practices for interim financial information and with the instructions to Form
10-Q and Article 10 of regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements and should be read in conjunction
with the financial statements and footnotes thereto included in the Annual
Report on Form 10-K of the Company the year ended December 31, 1995. In the
opinion of management, all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the financial statements for
these interim periods have been included. The results of interim periods are
not necessarily indicative of the results to be obtained for a full fiscal
year.
- - 83 -
<PAGE> 80
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF PRESENTATION (CONTINUED)
In April 1993, the Financial Accounting Standard Board issued Interpretation
40, "Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises." The Interpretation as amended is effective
for 1996 annual financial statements and thereafter, will no longer allow
statutory financial statements to be described as being prepared in conformity
with generally accepted accounting principles (GAAP). Upon the effective date
of the Interpretation, in order for financial statements to be described as
being prepared in accordance with GAAP, life insurance companies will be
required to adopt all applicable standards promulgated by the FASB in any
general purpose financial statements such companies may issue. While GAAP
standards have recently been developed for mutual life insurance companies, the
Company has not yet completed the complex and extensive historical calculations
and thus is unable to quantify the effects of the Interpretation on its
financial statements. Thus the accompanying financial statements are presented
in accordance with statutory accounting practices prescribed by the Insurance
Department of the State of Michigan.
All amounts presented are expressed in U.S. Dollars.
STOCKS
Stocks are carried at market value.
BONDS
Bonds not backed by other loans are carried at amortized cost as computed using
the interest method. Loan backed bonds and other structured securities are
valued at amortized cost using the interest method including anticipated
prepayments. Prepayment assumptions are updated periodically and are accounted
for using the prospective method. Gains and losses on sales of bonds are
calculated on the specific identification method and recognized into income
based on NAIC prescribed formulas. Short-term investments include investments
with maturities of less than one year at the date of acquisition. Market
values disclosed are based on NAIC quoted values.
POLICY LOANS
Policy loans are reported at unpaid principal balances which approximate fair
value.
ASSET VALUATION RESERVE AND INTEREST MAINTENANCE RESERVE
The Asset Valuation Reserve and Interest Maintenance Reserve were determined by
NAIC prescribed formulas and are reported as liabilities rather than as
valuation allowances or appropriations of surplus.
POLICY AND CONTRACT CLAIMS
Policy and contract claims are determined on an individual case basis for
reported losses. Estimates of incurred but not reported losses are developed
on the basis of past experience.
- - 84 -
<PAGE> 81
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEPARATE ACCOUNTS
Separate account assets and liabilities reported in the accompanying financial
statements represent funds that are separately administered, principally for
variable annuity and variable life contracts. For the majority of these
contracts the contractholder, rather than the Company, bears the investment
risk. Separate account assets are recorded at market value. Operations of the
separate accounts are not included in the accompanying financial statements.
REVENUE RECOGNITION
Both premium and investment income are recorded when due.
REINSURANCE
Reinsurance premiums and claims are accounted for on a basis consistent with
that used in accounting for the original policies issued and the terms of the
reinsurance contracts. Premiums and claims are reported net of reinsured
amounts.
POLICY RESERVES
Certain policy reserves are calculated based on statutorily required interest
and mortality assumptions.
3. INVESTMENTS AND INVESTMENT INCOME
The amortized cost and market value of investments in fixed maturities (bonds)
as of September 30, 1996 is summarized as follows:
<TABLE>
<CAPTION>
QUOTED OR
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZE MARKET
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
<S> <C <C> <C> <C>
U.S. Government $23,574,727 $432,425 $(199,428) $23,807,724
Foreign Government 9,258,320 75,039 (43,707) 9,289,652
Corporate 24,930,739 558,435 (335,825) 25,153,349
----------- ---------- ---------- -----------
$57,763,786 $1,065,899 $(578,960) $58,250,725
=========== ========== ========== ===========
</TABLE>
- - 85 -
<PAGE> 82
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED)
Proceeds from sales of investments in debt securities during 1996 were
$81,149,600. Gross gains of $1,101,200 and gross losses of $1,615,209 were
realized on those sales.
The amortized cost and market value of investments in fixed maturities (bonds)
as of December 31, 1995 is summarized as follows:
<TABLE>
<CAPTION>
QUOTED OR
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
United States Government $15,145,033 $ 681,032 $(57,916) $15,768,149
Foreign Government 6,071,376 157,635 -- 6,229,011
Corporate 31,046,219 2,508,780 -- 33,554,999
Mortgage-backed securities:
U.S. Government agencies 9,522,771 -- -- 9,522,771
Corporate 971,803 -- -- 971,803
----------- ---------- -------- -----------
$62,757,202 $3,347,447 $(57,916) $66,046,733
=========== ========== ======== ===========
</TABLE>
The amortized cost and market value of fixed maturities at September 30, 1996
by contractual maturities, are shown below. Expected maturities may differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
YEARS TO MATURITY AMORTIZED COST MARKET VALUE
----------------- -------------- ------------
<S> <C> <C>
One year or less $ 3,370,562 $ 3,370,561
Greater than 1; up to 5 years 3,177,517 3,207,447
Greater than 5; up to 10 years 27,522,948 27,717,746
Due after 10 years 23,692,759 23,954,971
----------- -----------
$57,763,786 $58,250,725
=========== ===========
</TABLE>
At September 30, 1996, $10,644,347 of bonds at amortized cost were on deposit
with government insurance departments to satisfy regulatory regulations.
- - 86 -
<PAGE> 83
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED)
Major categories of net investment income for the first nine months were as
follows:
<TABLE>
<CAPTION>
NET INVESTMENT INCOME
1996 1995
--------- ----------
<S> <C> <C>
Gross investment income:
Bond Income $3,285,074 $3,190,652
Policy Loans 434,845 296,205
Short-term investments 645,903 624,593
Dividend Income 95,983 7,848
---------- ----------
4,461,805 4.119,298
Investment Expenses (273,161) (265,106)
---------- ----------
Net investment income $4,188,644 $3,854,192
========== ==========
</TABLE>
4. RELATED PARTY TRANSACTIONS
Manufacturers Life of America has a formal service agreement with Manulife
Financial which can be terminated by either party upon two months' notice.
Under the Agreement, Manufacturers Life of America will pay direct operating
expenses incurred each year by Manulife Financial on behalf of Manufacturers
Life of America. Services provided under the Agreement include legal,
actuarial, investment, data processing and certain other administrative
services. Costs incurred under this Agreement were $17,090,426 in the first
nine months of 1996, and $17,029,106 in 1995. In addition, there was
$4,916,476 agents' bonuses in 1996 and $3,697,487 in 1995 which were allocated
to the Company and are included in commissions.
In addition, the Company has several reinsurance agreements with Manulife
Financial which may be terminated upon the specified notice by either party.
These agreements are summarized as follows:
(a) The Company assumes two blocks of insurance from Manulife Financial under
coinsurance treaties. The Company's risk is limited to $100,000 of
initial face amount per claim plus a pro-rata share of any increase in
face amount.
(b) The Company cedes the risk in excess of $25,000 per life to Manulife
Financial under the terms of an automatic reinsurance agreement.
(c) The Company cedes a substantial portion of its risk on its Flexible
Premium Variable Life policies to Manulife Financial under the terms of a
stop loss reinsurance agreement.
- - 87 -
<PAGE> 84
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
(d) Under the terms of an automatic coinsurance agreement, the Company cedes
its risk on structured settlements to Manulife Financial.
Selected amounts relating to the above treaties reflected in the financial
statements are as follows:
<TABLE>
<CAPTION>
1996 1995
__________ __________
<S> <C> <C>
Life and annuity premiums assumed $ 1,101,533 $ 5,540,618
Other life and annuity
consideration ceded (371,518) (431,357)
Commissions and expense allowances
on reinsurance assumed (386,701) (942,979)
Policy reserves assumed 45,019,396 47,386,235
Policy reserves ceded 3,853,375 3,833,247
</TABLE>
5. FEDERAL INCOME TAX
The Company joins the Parent, The Manufacturers Life Insurance Co. (USA) and
Manulife Reinsurance Limited in filing a U.S. consolidated income tax return as
a life insurance group under provisions of the Internal Revenue Code. In
accordance with an income tax-sharing agreement dated December 29, 1983, the
Company's income tax provision (or benefit) is computed as if the Company filed
a separate income tax return. The Company receives no surtax exemption. Tax
benefits from operating losses are provided at the U.S. statutory rate plus any
tax credits attributable to the Company, provided the consolidated group
utilizes such benefits currently. Taxes recoverable in the financial
statements represent tax-related amounts receivable from affiliates.
- - 88 -
<PAGE> 85
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
6. STATUTORY RESTRICTIONS ON DIVIDENDS
The Company is subject to statutory limitations on the payment of dividends to
its Parent. The Company cannot pay dividends during 1996 without the prior
approval of insurance regulatory authorities.
7. INVESTMENT IN SEPARATE ACCOUNTS
The Company markets variable life insurance and variable annuity products
through Separate Accounts which use Manulife Series Fund, Inc. as an
investment vehicle.
Common stock in the amount of $19,658,787 represents the Company's seed money
investment in Manulife Series Fund, Inc..
- - 89 -
<PAGE> 86
THE FOLLOWING FINANCIAL STATEMENTS OF THE MANUFACTURERS LIFE INSURANCE COMPANY
OF AMERICA FOR THE PERIOD ENDED DECEMBER 31, 1995 ARE AUDITED.
- - 90 -
<PAGE> 87
Report of Independent Auditors
The Board of Directors
The Manufacturers Life Insurance
Company of America
We have audited the accompanying balance sheets of The Manufacturers Life
Insurance Company of America as of December 31, 1995 and 1994, and the related
statements of operations, changes in capital and surplus, and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Manufacturers Life
Insurance Company of America at December 31, 1995 and 1994, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles and with reporting practices prescribed or permitted by the Insurance
Department of the State of Michigan.
Philadelphia, Pennsylvania ERNST & YOUNG LLP
February 2, 1996
- - 91 -
<PAGE> 88
The Manufacturers Life Insurance Company of America
Balance Sheets
<TABLE>
DECEMBER 31
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Bonds, at amortized cost (market $66,046,733--
1995 and $51,082,395--1994) $ 62,757,202 $ 52,149,080
Stocks 22,584,259 25,629,580
Short-term investments -- 10,914,561
Policy loans 6,955,292 4,494,390
------------ ------------
Total investments 92,296,753 93,187,611
Cash 9,674,362 5,069,197
Life insurance premiums deferred and uncollected 504,818 13,646
Accrued investment income 1,059,536 796,333
Separate account assets 480,404,450 302,736,198
Funds receivable on reinsurance assumed -- 880,284
Receivable for undelivered securities 146,328 69,003
Taxes recoverable 3,308,316 --
Investment in subsidiary 1,080,184 --
Other assets 267,015 333,651
------------ ------------
Total assets $588,741,762 $403,085,923
============ ============
LIABILITIES, CAPITAL AND SURPLUS
Aggregate policy reserves $ 26,683,090 $ 29,761,174
Other contract deposits 1,238,943 3,938,425
Interest maintenance and asset valuation reserves 4,742,400 111,566
Policy and contract claims 582,853 94,346
Provision for policyholder dividends payable 2,346,258 1,385,409
Amounts due to affiliates 9,049,217 7,377,108
Payable for undelivered securities 80,821 3,512,459
Accrued liabilities 7,315,315 4,773,565
Separate account liabilities 480,404,450 302,736,198
------------ ------------
Total liabilities 532,443,347 353,690,250
Capital and surplus:
Common shares, par value $1.00; authorized,
5,000,000 shares; issued and outstanding
4,501,857 shares (4,501,855 shares in 1994) 4,501,857 4,501,855
Preferred shares, par value $100; authorized
5,000,000 shares; issued and outstanding
105,000 shares 10,500,000 10,500,000
Surplus note 8,500,000 --
Capital paid in excess of par value 63,500,180 49,849,998
Deficit (30,703,622) (15,456,180)
------------ ------------
Total capital and surplus 56,298,415 49,395,673
------------ ------------
Total liabilities, capital and surplus $588,741,762 $403,085,923
============ ============
</TABLE>
See accompanying notes.
- - 92 -
<PAGE> 89
The Manufacturers Life Insurance Company of America
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Life and annuity premiums, principally
reinsurance assumed $ 5,956,997 $ 25,385,628 $ 12,745,981
Other life and annuity considerations 153,859,957 168,075,003 113,332,974
Investment income, net of investment
expenses 5,840,560 3,588,629 3,323,962
Amortization of interest maintenance reserve 23,975 19,527 32,866
Commission and expense allowance
on reinsurance ceded 147,109 187,694 --
Foreign exchange (loss) gain (284,127) 114,728 (197,971)
Other revenue 211,191 54,763 33,935
------------ ------------ ------------
Total revenues 165,755,662 197,425,972 129,271,747
Benefits paid or provided:
(Decrease) increase in aggregate policy reserves (3,078,084) 16,741,569 5,168,484
(Decrease) increase in liability for deposit funds (2,699,482) 654,214 2,820,520
Transfers to separate accounts, net 99,807,392 136,896,150 98,601,141
Death benefits 3,981,377 640,875 582,534
Disability benefits 123,786 -- --
Maturity benefits 207,719 580,615 79,253
Surrender benefits 22,028,224 3,701,591 2,319,926
------------ ------------ ------------
120,370,932 159,215,014 109,571,858
Insurance expenses:
Management fee 22,864,000 21,222,310 12,378,288
Commissions 21,411,198 23,416,110 14,742,130
General expenses 15,475,621 8,260,467 5,108,104
Commissions and expense allowances
on reinsurance assumed 1,014,163 810,252 329,634
------------ ------------ ------------
60,764,982 53,709,139 32,558,156
------------ ------------ ------------
Loss before policyholders' dividends
and federal income tax (15,380,252) (15,498,181) (12,858,267)
Dividends to policyholders 2,367,002 1,149,719 837,454
------------ ------------ ------------
Loss before federal income tax (17,747,254) (16,647,900) (13,695,721)
Federal income tax benefit (4,115,770) -- (324,643)
------------ ------------ ------------
Net loss from operations after policyholders'
dividends and federal income tax (13,631,484) (16,647,900) (13,371,078)
Net realized capital gains (net of capital
gains tax of $807,453 in 1995; $0 in 1994,
and $236,415 in 1993, and $1,567,770 in
1995, $(554,000) in 1994, and $347,292 in
1993 transferred (from) to the interest
maintenance reserve) (73,343) (3,012,485) 93,618
------------ ------------ ------------
Net loss from operations $(13,704,827) $(19,660,385) $(13,277,460)
============ ============ ============
</TABLE>
See accompanying notes.
- - 93 -
<PAGE> 90
The Manufacturers Life Insurance Company of America
Statements of Changes in Capital and Surplus
<TABLE>
<CAPTION>
CAPITAL
PAID IN
EXCESS OF SURPLUS
CAPITAL PAR VALUE (DEFICIT) TOTAL
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1992 $35,001,853 $ 4,000,000 $ 16,542,195 $55,544,048
Net loss from operations (13,277,460) (13,277,460)
Issuance of preferred shares 1 5,849,999 5,850,000
Increase in asset valuation reserve (13,076) (13,076)
Increase in nonadmitted assets (133,575) (133,575)
Change in net unrealized capital
losses (1,592,242) (1,592,242)
Change in liability for reinsurance
in unauthorized companies (29,905) (29,905)
Company's share of increase in
separate account assets, net 4,308,148 4,308,148
----------- ----------- ------------ -----------
Balance, December 31, 1993 35,001,854 9,849,999 5,804,085 50,655,938
Net loss from operations (19,660,385) (19,660,385)
Issuance of common stocks 1 19,999,999 20,000,000
Capital restructuring of preference
shares (20,000,000) 20,000,000 --
Increase in asset valuation reserve (55,286) (55,286)
Increase in nonadmitted assets (1,021,357) (1,021,357)
Change in net unrealized capital
losses (425,082) (425,082)
Change in liability for reinsurance
in unauthorized companies (98,155) (98,155)
----------- ----------- ------------ -----------
Balance, December 31, 1994 15,001,855 49,849,998 (15,456,180) 49,395,673
Net loss from operations (13,704,827) (13,704,827)
Issuance of common shares 2 12,569,998 12,570,000
Issuance of surplus note 8,500,000 8,500,000
Contribution of Manufacturers
Adviser Corporation 1,080,184 1,080,184
Increase in asset valuation reserve (3,285,208) (3,285,208)
Increase in nonadmitted assets (1,053,124) (1,053,124)
Change in net unrealized capital
losses 2,921,742 2,921,742
Change in liability for reinsurance
in unauthorized companies (126,025) (126,025)
----------- ----------- ------------ -----------
Balance, December 31, 1995 $23,501,857 $63,500,180 $(30,703,622) $56,298,415
=========== =========== ============ ===========
</TABLE>
See accompanying notes.
- - 94 -
<PAGE> 91
The Manufacturers Life Insurance Company of America
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Premiums collected, net $159,337,079 $193,478,637 $126,075,035
Policy benefits paid, net (25,827,767) (4,982,444) (2,829,812)
Commissions and other expenses paid (62,302,890) (48,141,400) (35,203,997)
Net investment income 5,570,951 3,343,515 3,197,892
Other income and expenses (3,607,415) (1,946,063) (1,592,957)
Transfers to separate accounts, net (98,031,353) (136,950,482) (98,220,292)
------------ ------------ ------------
Net cash (used in) provided by
operating activities (24,861,395) 4,801,763 (8,574,131)
INVESTING ACTIVITIES
Sale, maturity, or repayment of investments 74,009,501 73,187,733 28,248,633
Purchase of investments (77,607,686) (91,063,874) (73,688,735)
------------ ------------ ------------
Net cash used in investing activities (3,598,185) (17,876,141) (45,440,102)
FINANCING ACTIVITIES
Issuance of shares 12,570,000 20,000,000 5,850,000
Contribution of Manufacturers Adviser
Corporation 1,080,184 -- --
Issuance of surplus notes 8,500,000 -- --
Surplus withdrawn from separate account -- -- 48,701,076
------------ ------------ ------------
Net cash provided by financing activities 22,150,184 20,000,000 54,551,076
------------ ------------ ------------
Net (decrease) increase in cash and
short-term investments (6,309,396) 6,925,622 536,843
Cash and short-term investments
at beginning of year 15,983,758 9,058,136 8,521,293
------------ ----------- ------------
Cash and short-term investments
at end of year $ 9,674,362 $15,983,758 $ 9,058,136
============ =========== ============
</TABLE>
See accompanying notes.
- - 95 -
<PAGE> 92
The Manufacturers Life Insurance Company of America
Notes to Financial Statements
December 31, 1995
1. ORGANIZATION
ORGANIZATION
The Manufacturers Life Insurance Company of America (Manufacturers Life of
America or the Company) is a wholly-owned subsidiary of Manulife Reinsurance
Corporation (U.S.A.) (the Parent), (formerly Manufacturers Life Insurance
Company of Michigan), which is in turn a wholly-owned subsidiary of The
Manufacturers Life Insurance Company (Manulife Financial), a Canadian-based
mutual life insurance company (Notes 4 and 5).
The Company issues and sells variable universal life and variable annuity
products in the United States. The Company also has a branch operation in Taiwan
to develop and market traditional insurance for the Taiwanese market. At
December 31, 1995 the Company had assets of $11,234,000 and liabilities of
$5,696,000 in the Taiwan branch.
During 1995, the Company's parent contributed $12,570,000 of capital in return
for 2 shares of the Company's common stock par value $1 with the remaining
$12,569,998 being recorded as contributed surplus. During 1995, the Company's
parent transferred 100% of the outstanding stock of Manufacturers Adviser
Corporation to the Company which was recorded at book values as contributed
surplus. During 1995, the Company's parent also contributed $8,500,000 in return
for a 10-year surplus note bearing interest at 6.625%.
Subsequent to the year end, the Parent contributed $15,000,000 capital in return
for 1 share of the Company's common stock par value $1 with the remaining
$14,999,999 being recorded as contributed surplus.
During 1994, the Company's parent contributed $20,000,000 of capital in return
for 1 share of the Company's common stock par value $1 with the remaining
$19,999,999 being recorded as contributed surplus. During 1994, the Company
restructured its capital by exchanging 230,000 shares of preferred stock with a
par value of $23,000,000 for 3,000,000 shares of common stock par value
$3,000,000 with the remaining $20,000,000 being recorded as contributed surplus.
The Parent contributed $5,850,000 in capital in return for 1 share of common
stock during 1993.
- - 96 -
<PAGE> 93
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements of Manufacturers Life of America have been
prepared in accordance with accounting practices prescribed or permitted by the
Insurance Department of Michigan, which are considered generally accepted
accounting principles for mutual life insurance companies and their wholly-owned
direct and indirect subsidiaries. Such practices differ in certain respects from
generally accepted accounting principles followed by stock life insurance
companies in determining financial position and results of operations. In
general, the differences are: (1) commissions and other costs of acquiring and
writing policies are charged to expense in the year incurred rather than being
amortized over the related policy term; (2) certain non-admitted assets are
excluded from the balance sheet; (3) deferred income taxes are not provided for
timing differences in recording certain items for financial statement and tax
purposes; (4) certain transactions are reflected directly to surplus rather than
reflected in net income from operations (for example, certain transactions
related to the separate accounts); and (5) debt securities are carried at
amortized cost.
In April 1993, the Financial Accounting Standards Board issued Interpretation
No. 40, "Applicability of Generally Accepted Accounting Principles to Mutual
Life Insurance and Other Enterprises." The Interpretation as amended is
effective for 1996 annual financial statements and thereafter, and will no
longer allow statutory financial statements to be described as being prepared in
conformity with generally accepted accounting principles (GAAP). Upon the
effective date of the Interpretation, in order for financial statements to be
described as being prepared in accordance with GAAP, life insurance companies
will be required to adopt all applicable standards promulgated by the FASB in
any general purpose financial statements such companies may issue. While GAAP
standards have recently been developed for mutual life insurance companies, the
Company has not yet completed the complex and extensive historical calculations
and thus is unable to quantify the effects of the Interpretation on its
financial statements.
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could impact
the amounts reported and disclosed herein.
All amounts presented are expressed in U.S. Dollars. Certain amounts from prior
periods have been reclassified to conform with current-period presentation.
- - 97 -
<PAGE> 94
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCKS
Stocks are carried at market value.
BONDS
Bonds not backed by other loans are carried at amortized cost as computed using
the interest method. Loan backed bonds and other structured securities are
valued at amortized cost using the interest method including anticipated
prepayments. Prepayment assumptions are updated periodically and are accounted
for using the prospective method. Gains and losses on sales of bonds are
calculated on the specific identification method and recognized into income
based on NAIC prescribed formulas. Short-term investments include investments
with maturities of less than one year at the date of acquisition. Market values
disclosed are based on NAIC quoted values.
POLICY LOANS
Policy loans are reported at unpaid principal balances which approximate fair
value.
ASSET VALUATION RESERVE AND INTEREST MAINTENANCE RESERVE
The Asset Valuation Reserve and Interest Maintenance Reserve were determined by
NAIC prescribed formulas and are reported as liabilities rather than as
valuation allowances or appropriations of surplus.
POLICY AND CONTRACT CLAIMS
Policy and contract claims are determined on an individual case basis for
reported losses. Estimates of incurred but not reported losses are developed on
the basis of past experience.
- - 98 -
<PAGE> 95
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEPARATE ACCOUNTS
Separate account assets and liabilities reported in the accompanying financial
statements represent funds that are separately administered, principally for
variable annuity and variable life contracts. For the majority of these
contracts the contractholder, rather than the Company, bears the investment
risk. Separate account assets are recorded at market value. Operations of the
separate accounts are not included in the accompanying financial statements.
REVENUE RECOGNITION
Both premium and investment income are recorded when due.
INVESTMENT IN SUBSIDIARIES
The investment in Manufacturers Adviser Corporation ("MAC") is carried at net
equity of MAC as computed under generally accepted accounting principles.
Undistributed income and loss is treated as a component of unrealized gains and
losses and applies directly to capital and surplus.
REINSURANCE
Reinsurance premiums and claims are accounted for on a basis consistent with
that used in accounting for the original policies issued and the terms of the
reinsurance contracts. Premiums and claims are reported net of reinsured
amounts.
POLICY RESERVES
Certain policy reserves are calculated based on statutorily required interest
and mortality assumptions.
- - 99 -
<PAGE> 96
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
3. INVESTMENTS AND INVESTMENT INCOME
The amortized cost and market value of investments in fixed maturities (bonds)
as of December 31, 1995 is summarized as follows:
<TABLE>
<CAPTION>
QUOTED OR
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
NAME OF PERSON COST GAINS LOSSES VALUE
- -------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
United States Government $15,145,033 $ 681,032 $ (57,916) $15,768,149
Foreign governments 6,071,376 157,635 -- 6,229,011
Corporate 31,046,219 2,508,780 -- 33,554,999
Mortgage-backed securities:
U.S. Government agencies 9,522,771 -- -- 9,522,771
Corporate 971,803 -- -- 971,803
----------- ---------- ---------- -----------
$62,757,202 $3,347,447 $ (57,916) $66,046,733
=========== ========== ========== ===========
</TABLE>
Proceeds from sales of investments in debt securities during 1995 were
$67,506,660. Gross gains of $2,630,790 and gross losses of $218,778 were
realized on those sales.
The amortized cost and market value of investments in fixed maturities (bonds)
as of December 31, 1994 is summarized as follows:
<TABLE>
<CAPTION>
QUOTED OR
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
NAME OF PERSON COST GAINS LOSSES VALUE
- -------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
United States Government $31,784,581 $ 243,971 $ (441,592) $31,586,960
Foreign governments 7,388,458 -- (294,385) 7,094,073
Corporate 9,986,244 2,457 (577,136) 9,411,565
Mortgage-backed securities:
U.S. Government agencies 2,480,571 -- -- 2,480,571
Corporate 509,226 -- -- 509,226
----------- --------- ----------- -----------
$52,149,080 $ 246,428 $(1,313,113) $51,082,395
=========== ========= =========== ===========
</TABLE>
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.
- - 100 -
<PAGE> 97
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED)
The amortized cost and market value of fixed maturities at December 31, 1995 by
contractual maturities, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
YEARS TO MATURITY AMORTIZED COST MARKET VALUE
----------------- -------------- ------------
<S> <C> <C>
One year or less $ 564,857 $ 564,857
Greater than 1; up to 5 years 4,079,679 4,181,361
Greater than 5; up to 10 years 14,786,283 15,858,075
Due after 10 years 32,831,809 34,947,866
Mortgage-backed securities 10,494,574 10,494,574
----------- -----------
$62,757,202 $66,046,733
=========== ===========
</TABLE>
At December 31, 1995, $6,617,749 of bonds at amortized cost were on deposit
with government insurance departments to satisfy regulatory regulations.
Major categories of net investment income for each year were as follows:
<TABLE>
<CAPTION>
NET INVESTMENT INCOME
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Gross investment income:
Dividends; Manulife Series
Fund, Inc. (Note 9) $ 645,908 $1,244,794 $1,440,392
Bond income 4,430,236 1,712,294 1,422,064
Policy loans 360,406 236,972 166,514
Short-term investments 754,346 501,477 384,178
---------- ---------- ----------
6,190,896 3,695,537 3,413,148
Investment expenses (350,336) (106,908) (89,186)
---------- ---------- ----------
Net investment income $5,840,560 $3,588,629 $3,323,962
========== ========== ==========
</TABLE>
- - 101 -
<PAGE> 98
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
4. RELATED PARTY TRANSACTIONS
Manufacturers Life of America has a formal service agreement with Manulife
Financial which can be terminated by either party upon two months' notice. Under
the Agreement, Manufacturers Life of America will pay direct operating expenses
incurred each year by Manulife Financial on behalf of Manufacturers Life of
America. Services provided under the Agreement include legal, actuarial,
investment, data processing and certain other administrative services. Costs
incurred under this Agreement were $23,211,484 in 1995, $21,326,446 in 1994, and
$12,467,474 in 1993. In addition, there were $5,052,062 agents' bonuses in 1995,
$7,795,184 in 1994, and $5,363,558 in 1993 which were allocated to the Company
and are included in commissions.
In addition, the Company has several reinsurance agreements with Manulife
Financial which may be terminated upon the specified notice by either party.
These agreements are summarized as follows:
(a) The Company assumes two blocks of insurance from Manulife Financial under
coinsurance treaties. The Company's risk is limited to $100,000 of initial
face amount per claim plus a pro-rata share of any increase in face amount.
(b) The Company cedes the risk in excess of $25,000 per life to Manulife
Financial under the terms of an automatic reinsurance agreement.
(c) The Company cedes a substantial portion of its risk on its Flexible Premium
Variable Life policies to Manulife Financial under the terms of a stop loss
reinsurance agreement.
(d) Under the terms of an automatic coinsurance agreement, the Company cedes
its risk on structured settlements to Manulife Financial.
- - 102 -
<PAGE> 99
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
Selected amounts relating to the above treaties reflected in the financial
statements are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Life and annuity premiums
assumed $5,956,997 $25,385,628 $12,745,981
Other life and annuity
considerations ceded (598,330) (437,650) (201,685)
Commissions and expense
allowances
on reinsurance assumed (1,014,163) (810,252) (329,634)
Policy reserves assumed 48,714,791 47,672,591 23,070,952
Policy reserves ceded 3,833,247 3,786,647 3,782,156
</TABLE>
During 1993, the Company assumed the first $50,000 of initial face amount on
two blocks of business. This resulted in transfers of $10,837,000 to establish
the initial reserves. In 1994 the treaties were amended to assume the first
$100,000 of initial face amount for the same blocks of business. This resulted
in a transfer of $21,477,000 to establish the additional reserve. Commissions
equal to 17% are charged for all renewed premiums related to these contracts.
During 1994, the Company terminated another treaty resulting in a premium to
Manulife Financial to transfer the reserve of $799,874.
Manulife Financial provides a claims paying guarantee to all U.S. policyholders.
5. FEDERAL INCOME TAX
The Company joins the Parent, The Manufacturers Life Insurance Co. (U.S.A.) and
Manufacturers Reinsurance Limited in filing a U.S. consolidated income tax
return as a life insurance group under provisions of the Internal Revenue Code.
In accordance with an income tax-sharing agreement dated December 29, 1983, the
Company's income tax provision (or benefit) is computed as if the Company filed
a separate income tax return. The Company receives no surtax exemption. Tax
benefits from operating losses are provided at the U.S. statutory rate plus any
tax credits attributable to the Company, provided the consolidated group
utilizes such benefits currently. Taxes recoverable in the financial statements
represent tax-related amounts receivable from affiliates.
- - 103 -
<PAGE> 100
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
5. FEDERAL INCOME TAX
The Company, Parent and The Manufacturers Life Insurance Co. (U.S.A.) have
available consolidated net operating losses of approximately $51,400,000 which
will expire in the year 2009 and capital loss carryforwards of approximately
$102,800,000 which will expire in 1999. The losses of the Company, Parent and
the Manufacturers Life Insurance Co. (U.S.A.) may be used to offset the
ordinary and capital gain income of Manufacturers Reinsurance Limited.
6. STATUTORY RESTRICTIONS ON DIVIDENDS
The Company is subject to statutory limitations on the payment of dividends to
its Parent. The Company cannot pay dividends during 1995 without the prior
approval of insurance regulatory authorities.
7. REINSURANCE
The Company cedes reinsurance as a party to several reinsurance treaties with
major unrelated insurance companies. The Company remains obligated for amounts
ceded in the event reinsurers do not meet their obligations.
Summary financial information related to these reinsurance activities is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Life insurance premiums ceded $275,145 $218,767 $130,913
</TABLE>
- - 104 -
<PAGE> 101
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
8. RESERVES
Aggregate policy reserves for life policies including variable life, are based
on statutory mortality tables and interest assumptions using either the net
level or commissioners' reserve valuation method. The composition of the
aggregate policy reserves at December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
MORTALITY INTEREST
AGGREGATE RESERVES TABLE RATES
------------------ ----- --------
1995 1994
---- ----
<S> <C> <C> <C>
$25,561,456 $28,553,885 1980 CSO 4%
(173,768) (189,080) Reinsurance ceded
1,295,402 1,396,369 Miscellaneous
- ----------- -----------
$26,683,090 $29,761,174
=========== ===========
</TABLE>
At December 31, 1995 the Company's annuity reserves and deposit fund liabilities
are comprised as follows:
<TABLE>
<CAPTION>
AMOUNT PERCENT
------ -------
(in 000's)
<S> <C> <C>
Subject to discretionary withdrawal:
With market value adjustment $222,994 97.8%
At book value less current surrender charge 1,239 .5%
Not subject to discretionary withdrawal 3,863 1.7%
-------- -----
Total gross annuity actuarial reserves and
deposit fund liabilities $228,096 100%
======== =====
</TABLE>
9. INVESTMENT IN SEPARATE ACCOUNTS
During 1984, the Company initiated plans to market variable life insurance
products through Separate Account One of The Manufacturers Life Insurance
Company of America ("Separate Account One") using Manulife Series Fund, Inc. as
its investment vehicle. Initial capitalization was $15,000,000. Through 1988,
the Company provided an additional capitalization of $6,000,000.
- - 105 -
<PAGE> 102
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
9. INVESTMENT IN SEPARATE ACCOUNTS (CONTINUED)
In December 1993, the Company transferred all of its shares, related to seed
money, in Manulife Series Fund, Inc. out of Separate Account One to the General
Account. At December 31, 1995, the $22,584,259 common stock represents the
Company's seed money investment in Manulife Series Fund, Inc.
During 1995, 1994, and 1993, the following dividends were received from Manulife
Series Fund, Inc.:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- -----------
<S> <C> <C> <C>
Separate Account One $ 24,041 $ 38,732 $1,610,693
Separate Account Two 3,520,461 4,574,620 7,377,861
Separate Account Three 1,693,796 1,490,374 666,141
Separate Account Four 2,445,127 3,072,376 4,966,559
General Account 645,908 1,244,794 1,440,392
</TABLE>
Dividends have been reinvested by the Company in Manulife Series Fund, Inc.
During 1993, the Company withdrew $8,000,000 of its seed money and accumulated
earnings from Separate Account One and the Manulife Series Fund, Inc. and
utilized these funds to pay down its intercompany debt.
During 1994, the Company withdrew $13,011,137 of its seed money and accumulated
earnings from the Manulife Series Fund, Inc. and utilized these funds to pay
down its intercompany debt.
During 1995, the Company withdrew $6,500,000 of its seed money and accumulated
earnings from the Manulife Series Fund, Inc. and utilized these funds to pay
down its intercompany debt.
- - 106 -
<PAGE> 103
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
0.90% (for current charges) and 1.27% (for guaranteed charges) 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 -0.89%, 5.05%, and 11.00% (with current charges) and
- -1.27%, 4.66% and 10.58% (with guaranteed charges).
The tables assume that no premiums have been allocated to the Guaranteed
Interest Account, that planned premiums are paid on the Policy Anniversary and
that no transfers, partial withdrawals, Policy loans, changes in death benefit
options or changes in face amount have been made. The tables reflect the fact
that no charges for federal, state or local taxes are currently made against
the Separate Account. If such a charge is made in the future, it 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
- - 107 -
<PAGE> 104
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.
- 108 -
<PAGE> 105
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
----------------------------
<TABLE>
<CAPTION>
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1) (2) (3) (3,5)
- ------- ----------- --------- --------- --------
<S> <C> <C> <C> <C>
1 $ 7,875 $ 6,567(4) $ 2,410(4) $500,000(4)
2 16,144 12,986 8,088 500,000
3 24,826 19,264 14,146 500,000
4 33,942 25,397 20,279 500,000
5 43,514 31,380 26,262 500,000
6 53,565 37,210 32,092 500,000
7 64,118 42,881 38,275 500,000
8 75,199 48,388 44,294 500,000
9 86,834 53,724 50,141 500,000
10 99,051 58,879 55,809 500,000
15 169,931 85,994 85,994 500,000
20 260,394 107,900 107,900 500,000
25 375,851 117,934 117,934 500,000
30 523,206 100,375 100,375 500,000
</TABLE>
<TABLE>
<CAPTION>
6% Hypothetical
Gross Investment Return
----------------------------
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1) (2) (3) (3,5)
- ------- ----------- --------- --------- --------
<S> <C> <C> <C> <C>
1 $ 7,875 $ 6,971(4) $ 2,814(4) $500,000(4)
2 16,144 14,198 9,301 500,000
3 24,826 21,696 16,578 500,000
4 33,942 29,469 24,351 500,000
5 43,514 37,523 32,405 500,000
6 53,565 45,865 40,747 500,000
7 64,118 54,498 49,891 500,000
8 75,199 63,427 59,333 500,000
9 86,834 72,659 69,076 500,000
10 99,051 82,195 79,124 500,000
15 169,931 141,109 141,109 500,000
20 260,394 213,425 213,425 500,000
25 375,851 299,674 299,674 500,000
30 523,206 403,930 403,930 500,000
</TABLE>
- - 109 -
<PAGE> 106
12% Hypothetical
Gross Investment Return
----------------------------
<TABLE>
<CAPTION>
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1) (2) (3) (3,5)
- ------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
1 $ 7,875 $ 7,376(4) $ 3,219(4) $ 500,000(4)
2 16,144 15,459 10,561 500,000
3 24,826 24,324 19,206 500,000
4 33,942 34,045 28,927 500,000
5 43,514 44,702 39,584 500,000
6 53,565 56,385 51,267 500,000
7 64,118 69,192 64,586 500,000
8 75,199 83,231 79,137 500,000
9 86,834 98,621 95,039 500,000
10 99,051 115,495 112,424 500,000
15 169,931 237,984 237,984 500,000
20 260,394 444,316 444,316 515,406
25 375,851 790,217 790,217 845,532
30 523,206 1,364,581 1,364,581 1,432,810
</TABLE>
(1) All values shown are as of the end of the Policy Year indicated,
have been rounded to the nearest dollar, and assume that
(a) premiums paid after the initial premium are received on
the Policy Anniversary, (b) no Policy loan has been made,
(c) no partial withdrawal of the Cash Surrender Value has been
made and (d) no premiums have been allocated to the Guaranteed
Interest Account.
(2) Assumes net interest of 5% compounded annually.
(3) NASL Financial Services, Inc. has voluntarily agreed to waive fees
payable to it and/or to reimburse expenses for a period of one year
from December 31, 1996 to the extent necessary to prevent the total of
advisory fees and expenses for the Quantitative Equity Trust, Real
Estate Securities Trust and Capital Growth Bond Trust for such period
from exceeding .50% of average net assets. The investment management
fees and expenses used to calculate the policy values do not reflect
this waiver. If this waiver were reflected in the calculations,
Policy Values and Cash Surrender Values would be slightly higher.
(4) Provided the 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.
(5) Cash Surrender Value for first two years reflects sales charge
limitations imposed by the S.E.C.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT
THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
- - 110 -
<PAGE> 107
INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT
RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER
VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD
OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
- - 111 -
<PAGE> 108
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
----------------------------
<TABLE>
<CAPTION>
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1) (2) (4)
- ------- ------------ ------- --------- --------
<S> <C> <C> <C> <C>
1 $ 7,875 $ 6,541(3) $ 2,384(3) $500,000(3)
2 16,144 12,911 8,014 500,000
3 24,826 19,106 13,988 500,000
4 33,942 25,119 20,001 500,000
5 43,514 30,943 25,825 500,000
6 53,565 36,570 31,452 500,000
7 64,118 41,988 37,382 500,000
8 75,199 47,185 43,091 500,000
9 86,834 52,149 48,566 500,000
10 99,051 56,861 53,790 500,000
15 169,931 76,477 76,477 500,000
20 260,394 85,125 85,125 500,000
25 375,851 69,096 69,096 500,000
30 523,206 0(5) 0(5) 0(5)
</TABLE>
6% Hypothetical
Gross Investment Return
----------------------------
<TABLE>
<CAPTION>
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1) (2) (4)
- ------- ------------ ------- --------- --------
<S> <C> <C> <C> <C>
1 $ 7,875 $ 6,944(3) $ 2,787(3) $500,000(3)
2 16,144 14,116 9,218 500,000
3 24,826 21,516 16,398 500,000
4 33,942 29,144 24,025 500,000
5 43,514 36,997 31,879 500,000
6 53,565 45,071 39,953 500,000
7 64,118 53,363 48,757 500,000
8 75,199 61,865 57,770 500,000
9 86,834 70,569 66,986 500,000
10 99,051 79,465 76,394 500,000
15 169,931 127,078 127,078 500,000
20 260,394 177,092 177,092 500,000
25 375,851 220,708 220,708 500,000
30 523,206 242,497 242,497 500,000
</TABLE>
- - 112 -
<PAGE> 109
12% Hypothetical
Gross Investment Return
----------------------------
<TABLE>
<CAPTION>
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1) (2)
- ------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1 $ 7,875 $ 7,347(3) $ 3,190(3) $ 500,000(3)
2 16,144 15,368 10,470 500,000
3 24,826 24,120 19,002 500,000
4 33,942 33,665 28,547 500,000
5 43,514 44,069 38,950 500,000
6 53,565 55,403 50,285 500,000
7 64,118 67,748 63,142 500,000
8 75,199 81,189 77,094 500,000
9 86,834 95,820 92,237 500,000
10 99,051 111,745 108,674 500,000
15 169,931 216,301 216,301 500,000
20 260,394 380,645 380,645 500,000
25 375,851 645,123 645,123 690,282
30 523,206 1,060,996 1,060,996 1,114,046
</TABLE>
(1) All values shown are as of the end of the Policy Year indicated,
have been rounded to the nearest dollar, and assume that
(a) premiums paid after the initial premium are received on
the Policy Anniversary, (b) no Policy loan has been made,
(c) no partial withdrawal of the Cash Surrender Value has been
made and (d) no premiums have been allocated to the Guaranteed
Interest Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the 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.
(4) Cash Surrender Value for first two years reflects sales charge
limitations imposed by the S.E.C.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT
THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT
RETURNS FOR THE FUNDS OF 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.
- - 113 -
<PAGE> 110
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
----------------------------
<TABLE>
<CAPTION>
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1) (2) (3) (3,5)
- ------- ----------- -------- --------- --------
<S> <C> <C> <C> <C>
1 $ 8,610 $ 7,230(4) $ 2,770(4) $507,230(4)
2 17,651 14,300 9,182 514,300
3 27,143 21,216 16,098 521,216
4 37,110 27,972 22,854 527,972
5 47,576 34,564 29,446 534,564
6 58,564 40,985 35,867 540,985
7 70,103 47,229 42,623 547,229
8 82,218 53,288 49,193 553,288
9 94,939 59,151 55,568 559,151
10 108,296 64,807 61,736 564,807
15 185,791 94,174 94,174 594,174
20 284,698 116,445 116,445 616,445
25 410,930 122,939 122,939 622,939
30 572,038 94,213 94,213 594,213
</TABLE>
6% Hypothetical
Gross Investment Return
----------------------------
<TABLE>
<CAPTION>
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1) (2) (3) (3,5)
- ------- ----------- -------- --------- --------
<S> <C> <C> <C> <C>
1 $ 8,610 $ 7,674(4) $ 3,214(4) $507,674(4)
2 17,651 15,633 10,514 515,633
3 27,143 23,890 18,772 523,890
4 37,110 32,451 27,333 532,451
5 47,576 41,320 36,202 541,320
6 58,564 50,502 45,384 550,502
7 70,103 59,999 55,393 559,999
8 82,218 69,813 65,719 569,813
9 94,939 79,945 76,363 579,945
10 108,296 90,393 87,322 590,393
15 185,791 154,145 154,145 654,145
20 284,698 228,735 228,735 728,735
25 410,930 306,775 306,775 806,775
30 572,038 366,121 366,121 866,121
</TABLE>
- - 114 -
<PAGE> 111
12% Hypothetical
Gross Investment Return
----------------------------
<TABLE>
<CAPTION>
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1) (2) (3) (3,5)
- ------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1 $ 8,610 $ 8,118(4) $ 3,658(4) $ 508,118(4)
2 17,651 17,018 11,900 517 018
3 27,143 26,779 21,661 526,779
4 37,110 37,482 32,364 537,482
5 47,576 49,214 44,096 549,214
6 58,564 62,069 56,951 562,069
7 70,103 76,149 71,543 576,149
8 82,218 91,569 87,474 591,569
9 94,939 108,448 104,866 608,448
10 108,296 126,920 123,849 626,920
15 185,791 259,448 259,448 759,448
20 284,698 473,845 473,845 973,845
25 410,930 813,416 813,416 1,313,416
30 572,038 1,336,062 1,336,062 1,836,062
</TABLE>
(1) All values shown are as of the end of the Policy Year indicated,
have been rounded to the nearest dollar, and assume that
(a) premiums paid after the initial premium are received on
the Policy Anniversary, (b) no Policy loan has been made,
(c) no partial withdrawal of the Cash Surrender Value has been
made and (d) no premiums have been allocated to the Guaranteed
Interest Account.
(2) Assumes net interest of 5% compounded annually.
(3) NASL Financial Services, Inc. has voluntarily agreed to waive fees
payable to it and/or to reimburse expenses for a period of one year
from December 31, 1996 to the extent necessary to prevent the
total of advisory fees and expenses for the Quantitative Equity Trust,
Real Estate Securities Trust and Capital Growth Bond Trust for such
period from exceeding .50% of average net assets. The investment
management fees and expenses used to calculate the policy values do
not reflect this waiver. If this waiver were reflected in the
calculations, Policy Values and Cash Surrender Values would be
slightly higher.
(4) Provided the 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.
(5) Cash Surrender Value for first two years reflects sales charge
limitations imposed by the S.E.C.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT
THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
- - 115 -
<PAGE> 112
INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT
RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER
VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD
OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
- - 116 -
<PAGE> 113
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
----------------------------
<TABLE>
<CAPTION>
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1) (2) (4)
- ------- ------------ ------- --------- --------
<S> <C> <C> <C> <C>
1 $ 8,610 $ 7,202(3) $ 2,742(3) $507,202(3)
2 17,651 14,218 9,100 514,218
3 27,143 21,043 15,925 521,043
4 37,110 27,669 22,551 527,669
5 47,576 34,087 28,969 534,087
6 58,564 40,286 35,167 540,286
7 70,103 46,252 41,645 546,252
8 82,218 51,969 47,875 551,969
9 94,939 57,421 53,839 557,421
10 108,296 62,584 59,513 562,584
15 185,791 83,605 83,605 583,605
20 284,698 90,997 90,997 590,997
25 410,930 69,368 69,368 569,368
30 572,038 0(5) 0(5) 0(5)
</TABLE>
6% Hypothetical
Gross Investment Return
----------------------------
<TABLE>
<CAPTION>
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1) (2) (4)
- ------- ----------- -------- --------- --------
<S> <C> <C> <C> <C>
1 $ 8,610 $ 7,644(3) $ 3,184(3) $507,644(3)
2 17,651 15,542 10,424 515,542
3 27,143 23,693 18,575 523,693
4 37,110 32,094 26,976 532,094
5 47,576 40,743 35,625 540,743
6 58,564 49,632 44,514 549,632
7 70,103 58,753 54,146 558,753
8 82,218 68,091 63,997 569,091
9 94,939 77,634 74,051 577,634
10 108,296 87,358 84,288 587,358
15 185,791 138,326 138,326 638,326
20 284,698 186,679 186,679 686,679
25 410,930 212,723 212,723 712,723
30 572,038 178,027 178,027 678,027
</TABLE>
- - 117 -
<PAGE> 114
12% Hypothetical
Gross Investment Return
----------------------------
<TABLE>
<CAPTION>
End of Cash
Policy Accumulated Policy Surrender Death
Year Premium Value Value Benefit
(1) (2)
- ------- ----------- -------- --------- ----------
<S> <C> <C> <C> <C>
1 $ 8,610 $ 8,087(3) $ 3,627(3) $ 508,087(3)
2 17,651 16,918 11,800 516,918
3 27,143 26,556 21,438 526,556
4 37,110 37,066 31,948 537,066
5 47,576 48,519 43,401 548,519
6 58,564 60,990 55,872 560,990
7 70,103 74,558 69,952 574,558
8 82,218 89,308 85,214 589,308
9 94,939 105,331 101,748 605,331
10 108,296 122,720 119,649 622,720
15 185,791 234,660 234,660 734,660
20 284,698 397,578 397,578 897,578
25 410,930 619,576 619,576 1,119,576
30 572,038 896,677 896,677 1,396,677
</TABLE>
(1) All values shown are as of the end of the Policy Year indicated,
have been rounded to the nearest dollar, and assume that
(a) premiums paid after the initial premium are received on
the Policy Anniversary, (b) no Policy loan has been made,
(c) no partial withdrawal of the Cash Surrender Value has been
made and (d) no premiums have been allocated to the Guaranteed
Interest Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the 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.
(4) Cash Surrender Value for first two years reflects sales charge
limitations imposed by the S.E.C.
(5) In the absence of additional premium payments, the policy will
lapse.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT
THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE
DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS
MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS,
INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT
RETURNS FOR THE FUNDS OF NASL SERIES TRUST. THE POLICY VALUE, CASH SURRENDER
VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF
ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD
OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY
YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN
CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
- - 118 -
<PAGE> 115
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.
- - 119 -
<PAGE> 116
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
- - 120 -
<PAGE> 117
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%.
- - 121 -
