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Prospectus
Prospectuses for
SINGLE PREMIUM VARIABLE
LIFE INSURANCE
Issued By
The Manufacturers Life
Insurance Company of America
and for
NASL SERIES TRUST
The Manufacturers Life
Insurance Company of America
NOTE: THE PROSPECTUS FOR SINGLE PREMIUM VARIABLE LIFE INSURANCE ISSUED BY THE
MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA AND THE PROSPECTUS FOR NASL
SERIES TRUST, INC. WHEN USED IN CONJUCTION WITH THE SINGLE PREMIUM VARIABLE
LIFE INSURANCE PROPSECTUS IS INTENDED FOR THE INFORMATION ONLY OF EXISTING
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICYOWNERS AND NOT FOR THE
SOLICITATION OF ADDITIONAL POLICY PURCHASES.
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PROSPECTUS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
SEPARATE ACCOUNT THREE
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
This prospectus describes the single premium variable life insurance policy
(the "Policy") issued by The Manufacturers Life Insurance Company of America
("Manufacturers Life of America" or "Company"), a stock life insurance company
that is an indirect wholly-owned subsidiary of The Manufacturers Life Insurance
Company ("Manufacturers Life"). The Policy is designed to provide lifetime
insurance coverage. It also may be surrendered for its Cash Surrender Value
during the life insured's lifetime. A Policy's death benefit and Cash Surrender
Value vary with the investment performance of the sub-accounts of Manufacturers
Life of America's Separate Account Three (the "Account") to which the
Policyowner allocates the Net Premium. The amount payable to the beneficiary
will never be less than the face amount specified in the Policy, as long as the
Policy remains in force, except that it will be reduced by the amount of any
outstanding loan plus interest. The Policy Value of a Policy varies daily.
There is no guaranteed minimum Policy Value.
Following a deduction for applicable premium taxes and after the expiration of
the fifteen day period described in this Prospectus, if applicable, the Net
Premium will be allocated as the Policyowner directs to one or more of the
sub-accounts of the Account. The assets of each sub-account will be used to
purchase shares of a particular portfolio of NASL Series Trust (APortfolio@).
The accompanying prospectus for NASL Series Trust and NASL Series Trust's
statement of additional information describe the investment objectives of the
Portfolios in which Net Premiums may be invested: the Emerging Growth Trust,
the Balanced Trust, the Capital Growth Bond Trust, the Money Market Trust, the
Quantitative Equity Trust (formerly Common Stock Fund), and the Real Estate
Securities Trust. Other sub-accounts and Portfolios may be added in the future.
This product is no longer being offered for sale.
Policyowners should note that their Policy could be a modified endowment
contract under federal tax law and any policy loan or surrender may result in
adverse tax consequences and a penalty.
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.
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The Manufacturers Life Insurance
Company of America
500 N. Woodward Avenue
Bloomfield Hills, Michigan 48304
Service Office:
200 Bloor Street East
Toronto, Ontario
M4W 1E5
TELEPHONE: (416) 926-6700
THE DATE OF THIS PROSPECTUS IS DECEMBER 31, 1996.
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PROSPECTUS CONTENTS
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DEFINITIONS...................................
INTRODUCTION TO POLICIES......................
What Is Single Premium Variable Life
Insurance?....................................
How Is The Net Premium Invested?..............
What Amounts Are Deducted From The Premium?...
What Other Policy Charges Are Made?...........
How Often Do The Death Benefit and Cash Value
Change?.......................................
What Is The Minimum Gross Single Premium For
Which A Policy Will Be Issued?................
What Are Some Federal Tax Considerations?.....
GENERAL INFORMATION ABOUT MANUFACTURERS LIFE
OF AMERICA, SEPARATE ACCOUNT THREE AND
NASL SERIES TRUST.............................
Who Are Manufacturers Life of America And
Manufacturers Life?...........................
What Is Manufacturers Life of America's
Separate Account Three?.......................
What Is NASL Series Trust?....................
What Are The Investment Objectives And Certain
Policies of The Portfolios?...................
DETAILED INFORMATION ABOUT THE POLICY AND
MANUFACTURERS LIFE OF AMERICA.................
What Are The Requirements For Issuance Of A
Policy?.......................................
Is There A Short-Term Cancellation Right, Or
"Free Look"?..................................
When Is The Net Premium Allocated To The
Account?......................................
How Is The Net Premium Allocated To The
Account?......................................
Are Transfers Between Sub-accounts Allowed?...
How Will Charges And Expenses Be Deducted?....
How Will The Policy Value Vary?...............
How Does The Surrender Of A Policy For Its
Cash Surrender Value Work?....................
How Is The Face Amount Determined?............
How Will A Policy's Death Benefit Vary?.......
Is There A Right To Make Additional Premium
Payments?.....................................
Under What Conditions Are Loans Available?....
How Are Loans And Loan Repayments
Administered?.................................
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When Are Proceeds Paid?......................
When Is A Policy In Default?.................
What Are The Reinstatement Rules?............
What Are The Exchange Privileges Of The
Policy?......................................
What Is The Tax Treatment Of Policy
Benefits?....................................
Who Sells The Policies And What Are The Sales
Commissions?.................................
What Responsibilities Has Manufacturers Life
Assumed?.....................................
What Are The Other General Policy
Provisions?..................................
What Are The Voting Rights?..................
Who Are The Directors And Officers Of
Manufacturers Life of America?...............
Under What Circumstances May Fund Shares Be
Substituted?.................................
What Reports Will Be Sent To Policyowners?...
What State Regulations Apply?................
Is There Any Litigation Pending?.............
Where Can Further Information Be Found?......
Legal Matters................................
Experts......................................
APPENDIX A...................................
FINANCIAL STATEMENTS.........................
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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 Single Premium Variable Life Insurance
Policy. More detailed information will be found later in the prospectus.
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DEFINITIONS
"Cash Value" equals the Policy Value less the surrender charge, reduced by any
accrued cost of insurance.
"Cash Surrender Value" equals the Cash Value less any Policy Debt.
"Gross Single Premium" is the initial sum of money paid for the face amount of
insurance.
"Investment Amount" is the amount invested in the sub-accounts of Separate
Account Three.
"Loan Account" is that part of the Policy Value which reflects policy loans and
accrued interest.
"Net Amount at Risk" is the death benefit as calculated immediately before the
cost of insurance deduction, minus the Policy Value, as of the end of the
current policy year.
"Net Premium" is the Gross Single Premium or any additional premium, less 2%
for state and local premium taxes.
"Net Single Premium" is the Gross Single Premium less 2% for state and local
premium taxes.
"Policy Debt" means all outstanding policy loans, including any outstanding
interest.
"Policy Value" equals the Investment Amount plus the amount in the Loan
Account.
"Service Office" is the office that we designate to service this policy.
"Valuation Period" is the period between two successive valuation dates
measured from the time the value of the assets in each sub-account is
determined. This determination is made as of the time each day that the net
asset value of the underlying shares of NASL Series Trust, Inc. is determined.
"Variable Insurance Amount" is the amount of insurance determined by
multiplying the Policy Value by the death benefit factor shown in the Policy
for the life insured's attained age.
INTRODUCTION TO POLICIES
WHAT IS SINGLE PREMIUM VARIABLE LIFE INSURANCE?
The Single Premium Variable Life Insurance Policy offered by Manufacturers Life
of America is, in many respects, similar to traditional "fixed-benefit" single
premium whole life insurance. In other respects, it is quite different.
The main similarities are:
- --The Policyowner pays a single premium for a Policy that provides a death
benefit which is payable to the beneficiary, while the Policy is in force, upon
the insured's death.
- --The Policy has a Policy Value that the Policyowner may borrow against by
taking a Policy loan.
- --The Policy may be surrendered for its Cash Surrender Value.
The main differences are:
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- --The Policyowner may allocate the Policy's Net Premium among one or more of
certain of the investment sub-accounts of Manufacturers Life of America's
Separate Account Three. Each sub-account invests in the shares of a particular
Portfolio of NASL Series Trust. These Portfolios are the Emerging Growth Trust,
the Balanced Trust, the Capital Growth Trust, the Money Market Trust, the
Quantitative Equity Trust (formerly Common Stock Fund), and the Real Estate
Securities Trust.
- --The death benefit under a Policy can increase or decrease depending on the
investment performance of the Portfolios underlying the sub-account to which
the Policy's Net Premium is allocated; but the death benefit will never
decrease below the face amount of the Policy if the Policy remains in force.
- --The Policy offers the opportunity for appreciation of its Policy Value based
upon investment results. The Policy Value may increase or decrease each
Valuation Period. The Policyowner bears the risk of decreases in the Policy
Value, since no minimum amount is guaranteed.
HOW IS THE NET PREMIUM INVESTED?
The Net Premium is allocated to the Account and invested in shares of NASL
Series Trust, a series mutual fund. The sub-accounts of the Account each invest
in a particular Portfolio of the Series Trust. The Policyowner chooses the
sub-account(s) of the Account into which the Net Premium will be placed.
WHAT AMOUNTS ARE DEDUCTED FROM THE PREMIUM?
Upon purchase of a Policy, Manufacturers Life of America will deduct 2% from
the Gross Single Premium to pay state and local premium taxes. The amount
remaining after the deduction for premium taxes ("Net Premium") will be
allocated as directed by the Policyowner.
WHAT OTHER POLICY CHARGES ARE MADE?
Manufacturers Life of America makes an annual deduction for the cost of
insurance. The Account purchases shares of NASL Series Trust and the net asset
value of those shares reflects investment management fees and expenses.
A contingent deferred sales charge is imposed if the Policy is surrendered
within seven years after it is purchased. Consequently, the Policy is not
intended for short-term investment. The sales charge, which is a percent of the
Policy Value at the time of surrender, will never be greater than 7% of the
Gross Single Premium (See Detailed Information About the Policies -- "How Will
Charges And Expenses Be Deducted?").
HOW OFTEN DO THE DEATH BENEFIT AND CASH VALUE CHANGE?
The death benefit is adjusted on each Policy Anniversary (but not below the
face amount) depending on the investment results of the Funds underlying the
sub-account(s) in which the Policy participates. The Policy Value also changes
with the investment results of the underlying Portfolios and these changes take
place each Valuation Period. For more detailed information about how the death
benefit and Policy Value change, see Detailed Information About the
Policies.
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WHAT IS THE MINIMUM GROSS SINGLE PREMIUM FOR WHICH A POLICY WILL BE ISSUED?
Purchase of a Policy requires payment of a Gross Single Premium of at least
$10,000 and completion of an application form.
For a limited time, a Policy may be returned for a refund in accordance with
the terms of its "free look" provision (See Detailed Information About the
Policies -- "Is there a Short-Term Cancellation Right or "Free Look").
Each Policyowner should retain a copy of the Policy. The Policy, together with
the attached application, constitutes the entire agreement between the
Policyowner and Manufacturers Life of America.
WHAT ARE SOME FEDERAL TAX CONSIDERATIONS?
Section 7702A of the Internal Revenue Code provides that any life insurance
policy failing to satisfy a "7-pay" test will become a modified endowment
contract. Under this test, the cumulative premiums paid under a life insurance
policy at any time during the first seven policy years (or 7 policy years after
a material change in the Policy) may not exceed the sum of the net level
premiums that would have been paid had the policy provided for paid-up future
benefits after the payment of seven level annual premiums. For purposes of the
"7-pay" test, any portion of any premiums returned by the Company to the
Policyowner within 60 days after the end of a Policy year, will be deemed to
reduce the sum of premiums paid under the Policy during such Policy year.
Most withdrawals under a life insurance policy that becomes a modified
endowment contract will be taxed on an "income first" basis. Amounts received
by the owner of such a policy either directly or indirectly (including loans,
certain dividends, surrenders, partial withdrawals, or the pledge or assignment
of any portion of such a policy's value) will be includible in the owner's
gross income to a certain extent. In the case of a Policy offered by this
prospectus becoming a modified endowment contract, amounts received will be
includible in a Policyowner's gross income to the extent that the Policy Value
exceeds gross premiums paid. Also, an additional 10% tax penalty will be
imposed on withdrawals includible in gross income, except in certain
circumstances. This penalty will not apply to withdrawals that are: (a)
received after the Policyowner has reached age 59 1/2; (b) attributable to the
Policyowner's becoming disabled; or (c) one of a series of substantially equal
periodic payments made at least annually for the life of the Policyowner or
over the joint lives of the Policyowner and a designated beneficiary. For more
information about this and other federal tax matters, please refer to the
discussion in this prospectus under the heading "What Is The Tax Treatment Of
Policy Benefits?".
GENERAL INFORMATION ABOUT MANUFACTURERS LIFE OF AMERICA, SEPARATE ACCOUNT THREE
AND NASL SERIES TRUST
WHO ARE MANUFACTURERS LIFE OF AMERICA AND
MANUFACTURERS LIFE?
Manufacturers Life of America, a wholly-owned subsidiary of The Manufacturers
Life Insurance Company (U.S.A.) (AManufacturers 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
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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 financial strength). However, neither
Manufacturers Life of America nor Manufacturers Life guarantees the investment
performance of the Account.
WHAT IS 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. It is currently being
operated under Michigan Law. The Account holds assets that are segregated from
all of Manufacturers Life of America's other assets. The Account is used to
support single premium and flexible premium variable life insurance policies.
Manufacturers Life of America is the legal owner of the assets in the Account.
Manufacturers Life of America will at all times maintain assets in the Account
with a total market value at least equal to the reserves and other liabilities
relating to variable benefits under all the Policies participating in the
Account, whether single or flexible premium, less the aggregate amount of
Policy Debt. These assets may not be charged with liabilities which arise from
any other business Manufacturers Life of America conducts.
The 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 Account. For state
law purposes the Account is treated as a part or division of Manufacturers Life
of America.
WHAT IS NASL SERIES TRUST?
Each sub-account of the Account will purchase shares only of a particular
Portfolio of NASL Series Trust. NASL Series Trust is registered under the 1940
Act as an open-end management investment company. The Account will purchase and
redeem shares of NASL Series Trust 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 as
requested by Policyowners, and for other purposes not inconsistent with the
Policies. Any dividend or capital gain distribution received from a Portfolio
with respect to the Policies will be reinvested immediately at net asset value
in shares of that Portfolio and retained as assets of the corresponding
sub-account.
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:
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FUND SUBADVISER
Aggressive Growth Portfolio
Emerging Growth Trust Warburg, Pincus Counsellors, Inc.
Equity Portfolios
Real Estate Securities Trust Manufacturers Adviser Corporation*
Quantitative Equity Trust Manufacturers Adviser Corporation*
(formerly Common Stock Fund)
Balanced Portfolio
Balanced Trust Founders Asset Management, Inc.
Bond Portfolio
Capital Growth Bond Trust Manufacturers Adviser Corporation*
Money Market Portfolio
Money Market Trust Manufacturers Adviser Corporation*
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* Manufacturers Adviser Corporation is an indirect wholly-owned subsidiary
of Manufacturers Life.
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 PORTFOLIO
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.
EQUITY PORTFOLIOS
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.
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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 ASSETS PORTFOLIO
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.
BOND PORTFOLIO
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.
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.
DETAILED INFORMATION ABOUT THE POLICY AND MANUFACTURERS LIFE OF AMERICA
WHAT ARE THE REQUIREMENTS FOR ISSUANCE OF A POLICY?
Manufacturers Life of America will issue a Policy only upon payment of a Gross
Single Premium of at least $10,000.00 and completion of an application form. A
Policy may be issued on lives between the ages of 0 and 85. Before issuing any
Policy, Manufacturers Life of America will require evidence of insurability
satisfactory to it.
IS THERE A SHORT-TERM CANCELLATION RIGHT,
OR "FREE LOOK"?
A Policy may be returned for a full refund within 10 days after it is received,
within 45 days of the date of the execution of the application for insurance,
or within 10 days after Manufacturers Life of America mails or delivers a
notice of right of withdrawal, whichever is latest. The Policy can be mailed or
delivered to the Manufacturers Life of America agent who sold it or to the
Manufacturers Life of America Service Office. Immediately on such delivery or
mailing, the Policy shall be deemed void from the beginning. Within seven days
after receipt of the returned Policy at its Service Office, Manufacturers Life
of America will refund the premium paid without interest.
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WHEN IS THE NET PREMIUM ALLOCATED
TO THE ACCOUNT?
Where state law permits at the time the Policy is issued, the Net Premium --
that is, the amount of the Gross Single Premium or any additional premiums paid
less the deduction for premium taxes -- will be allocated on the Policy Date to
the Money-Market sub-account of the Account. Fifteen days after the Issue Date,
the entire Investment Amount will be allocated among the sub-accounts in
accordance with the Policyowner's direction on the Policy application form
provided that the Policyowner has not exercised his or her short-term
cancellation right. In all other states, the Net Premium will be allocated as
directed by the Policyowner on the Policy Date. If a Policy is issued, the
Policy Date will be the date the Manufacturers Life of America Service Office
receives a completed application with the Gross Single Premium for the Policy
and the Issue Date will be the date five days after the Policy is released by
the Company for delivery to the Policyowner. Both dates are set forth in the
Policy. Applications for a Policy must be accompanied by a check covering the
Gross Single Premium.
Between the date Manufacturers Life of America receives the Gross Single
Premium for the Policy and the date insurance coverage commences under the
Policy, the life insured may be covered under the terms of a conditional
insurance agreement.
HOW IS THE NET PREMIUM ALLOCATED TO THE ACCOUNT?
The Policyowner directs how the Net Premium, including any additional premiums,
will be allocated among the sub-accounts by specifying the desired allocation
on the Policy application form or other appropriate form. If no allocation is
specified for additional premiums they will be allocated in the same proportion
that the Investment Amount in each of the sub-accounts bears to the total at
the date such additional premiums are received. Allocations of the Net Premium
to a particular sub-account must be expressed as a percentage of the Net
Premium. Any allocation must be at least 10%, and all allocations must be in
whole numbers. For example, 33% can be selected but 33 1/3% cannot.
ARE TRANSFERS BETWEEN SUB-ACCOUNTS ALLOWED?
Fifteen days after the Issue Date, the Policyowner may transfer amounts from
one sub-account to another without charge once each calendar month. At such
time all or a portion of the amount credited to a sub-account may be
transferred. The Company will not permit transfers more often than once each
calendar month.
Transfer requests must be satisfactory to Manufacturers Life of America and in
writing, or by telephone if a currently valid telephone transfer authorization
form is on file. Although failure to follow reasonable procedures may result in
Manufacturers Life of America's liability for any losses due to unauthorized or
fraudulent telephone transfers, Manufacturers Life of America will not be
liable for following instructions communicated by telephone that it reasonably
believes to be genuine. Manufacturers Life of America will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine.
Such procedures shall consist of confirming a valid telephone authorization
form is on file, tape recording all telephone transactions and providing
written confirmation thereof.
Transfers will take effect at the end of each Valuation Period on which a
written or telephonic request is received at the Manufacturers Life of America
Service Office. The request may be in terms of dollars, such as a request to
transfer $10,000 from one sub-account to another, or may be in terms of a
percentage reallocation among sub-accounts. In the latter case, as with Net
Premium allocations, the percentages must be in whole numbers.
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HOW WILL CHARGES AND EXPENSES BE DEDUCTED?
PREMIUM DEDUCTIONS
Deduction For State And Local Premium Tax. The portion of the Net Premium
which may be allocated among the sub-accounts is equal to the Gross Single
Premium or any additional premiums paid, less the deduction Manufacturers Life
of America makes from such premiums for state and local premium taxes. This
deduction is equal to 2% of the Gross Single Premium and any additional
premiums paid. State and local premium taxes differ from state to state. The 2%
rate is expected to be enough, on average, to pay premium taxes where required.
ACCOUNT CHARGES
Mortality and Expense Risks Charge. As of March 1, 1993 Manufacturers Life of
America ceased deducting mortality and expense risks charges from this Account
with respect to the Policy.
Cost of Insurance Charge. On each Policy Anniversary, upon surrender and as of
the death of the life insured, Manufacturers Life of America deducts from the
assets in the Account relating to the Policy a charge for the cost of insurance
attributable to the period elapsed since the previous Policy Anniversary. Such
charge is based on, and is guaranteed not to exceed, an amount determined by
reference to the 1980 Commissioners Smoker -- Non-Smoker Standard Ordinary
Mortality Tables ("1980 CSO Tables"). The charge imposed varies based on the
amount of insurance provided during the year (Net Amount at Risk), and the life
insured's attained age, smoking status and sex, except in the case of a Policy
sold to a Montana resident, certain Massachusetts residents, and in certain
other circumstances (See "Legal Considerations").
The amount of the charge is determined by multiplying the cost of insurance
rate set out in the Policy for the life insured's age, sex and smoking status
by the Net Amount at Risk under the Policy. These rates are the maximum rates
based on the 1980 CSO Tables and cannot be increased. However, the rates
generally will increase as the life insured's attained age increases.
Manufacturers Life of America will not issue Policies with special rates for
persons who are substandard risks. Thus, proposed life insureds must provide
evidence of insurability sufficient to meet the Company's underwriting
requirements.
A Policyowner may request in the application for the Policy that the cost of
insurance be deducted, to the extent possible, against the assets in a single
sub-account relating to the Policy, or alternatively, that assets in a single
sub-account be immunized, to the extent possible, from any deduction for the
cost of insurance. If no such request is made, the cost of insurance will be
deducted from all sub-accounts in which the Policy participates in the same
proportion that the Investment Amount in each of the sub-accounts bears to the
total.
Sales Charge On Withdrawal. A contingent deferred sales charge may be imposed
upon surrender of the Policy. This charge compensates Manufacturers Life of
America for paying 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 charge is generally called
the "sales load". No sales load is applied if the Policy is surrendered after
the seventh Policy year. If the Policy is surrendered in the first year, the
charge will be 7% of the Policy Value. For each subsequent year the Policy is
in effect, the sales load as a percentage of the Policy Value is reduced by one
percentage point until it reaches 0% in the eighth year. In no event will the
sales load be greater than 7% of the Gross Single Premium. No sales load is
applied to a death benefit.
In Pennsylvania and possibly other states in which the Policies are sold, the
maximum sales load that may be deducted on surrender of a Policy will be
subject to an additional limitation based on a dollar amount per $1,000 of the
Policy's face amount. In general, the limitation will be operative only for
Policies issued on life insureds whose
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age at the time of issue exceeds 67. The limitation in such Policies will vary
from $41.99 to $60.00 for each $1,000 of face amount depending on the issue
age, sex and smoking status of the life insured and the period of time the
Policy has been outstanding.
Manufacturers Life of America does not expect to recover its total sales
expenses through the sales load. To the extent that the sales load is
insufficient to recover sales expenses, Manufacturers Life of America will pay
sales expenses from its other assets or surplus. These assets may include
proceeds from the mortality and expense risks charge described above.
Provision for Taxes. Currently, Manufacturers Life of America makes no charge
against the Account for federal, state or local taxes that may be attributable
to the 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 or establish a provision for those taxes.
CHARGES TO NASL SERIES TRUST
The Account purchases shares of NASL Series Trust at net asset value. The net
asset value of those shares reflects investment management fees paid by NASL
Series Trust ranging from 0.25% to 1.10% per annum of the value of the average
daily net assets of the Portfolios and expenses ranging from 0.15% to 0.75% of
the average daily net assets of the Portfolios. Detailed information
concerning such fees and expenses is set forth in the prospectus for NASL
Series Trust that accompanies this prospectus.
HOW WILL THE POLICY VALUE VARY?
A Policy has a Policy Value which varies daily and serves as the basis for
determining the Policy's Cash Surrender Value and the Variable Insurance
Amount. The Policy Value is equal to the Investment Amount plus the balance in
the Policy's Loan Account. Because the Investment Amount will vary with the
investment performance of the sub-accounts selected by the Policyowner, the
Policy Value is not guaranteed and cannot be predicted in advance.
On the Policy Date, the Policy Value is equal to the Net Single Premium paid to
purchase the Policy. On any subsequent valuation date, the Policy Value will be
equal to its value on the previous valuation date (i) plus or minus any
increase or decrease in the value of the Policy's Investment Amount due to the
investment performance of the sub-accounts selected by the Policyowner during
the Valuation Period ending on the current valuation date, (ii) plus interest
at an annual rate of 7% credited during the Valuation Period on any Loan
Account balance and (iii) minus the charge for mortality and expense risks and
any deduction for the cost of insurance. As noted above, the charge for the
cost of insurance is deducted only on Policy Anniversaries, upon surrender, or
as of the life insured's death. In addition, the Policy Value will be increased
by the amount of any Net Premium received by Manufacturers Life of America at
its Service Office during the Valuation Period.
On Policy Anniversaries and on any valuation date when there is a transaction
affecting the Loan Account, the Policy Value will be reduced by any excess of
Policy Debt over the Loan Account balance. This adjustment is made in order to
permit Manufacturers Life of America to recover Policy loan interest in excess
of the interest it credits to the Policy's Loan Account and is made by
withdrawing the amount of such excess from one or more of the sub-accounts in
which the Investment Amount is invested.
HOW DOES THE SURRENDER OF A POLICY FOR ITS CASH SURRENDER VALUE WORK?
A Policy may be surrendered for its Cash Surrender Value while the life insured
is living. The Cash Surrender Value is equal to the Policy Value on the date of
surrender reduced by any applicable surrender charge and accrued cost of
insurance charges and by the amount of any Policy Debt (See "How Will Charges
and Expenses Be
14
<PAGE> 15
Deducted?"). To surrender a Policy, the Policyowner must deliver or mail it
together with a written request in a form acceptable to Manufacturers Life of
America, to the Manufacturers Life of America Service Office. The Cash
Surrender Value of the Policy will be determined as of the end of the Valuation
Period in which the written request for surrender and the Policy are received
at the Service Office. Upon surrender of the Policy, all rights of the
Policyowner and all insurance coverage under the Policy will terminate.
HOW IS THE FACE AMOUNT DETERMINED?
Manufacturers Life of America determines an initial amount of life insurance,
known as the "face amount," for the Net Single Premium paid for the Policy.
This amount is the amount of whole life insurance that can be provided by the
Net Single Premium and an assumed mortality based upon the 1980 CSO Tables and
an assumed interest rate of 4%. The face amount provided by the Net Single
Premium will depend on the life insured's sex, age at issue and smoking status.
Where applicable law prohibits sex-based premiums and benefits, 1980 CSO Tables
which do not differentiate on the basis of sex will be used in computing the
face amount. Set forth below is a table of face amounts that can be purchased
for representative life insureds with a Gross Single Premium of $10,000.
<TABLE>
<CAPTION>
MALE FEMALE
---------------- --------------------
ISSUE AGE SMOKER NON-SMOKER SMOKER NON-SMOKER
- --------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C>
35 $34,520. $42,080. $41,650. $47,210.
45 $25,180. $30,150. $30,360. $33,940.
55 $19,060. $22,010. $22,810. $24,830.
65 $15,160. $16,690. $17,530. $18,530.
</TABLE>
HOW WILL A POLICY'S DEATH BENEFIT VARY?
The death benefit provided by the Policy is the greater of the face amount set
forth in the Policy or the Variable Insurance Amount. The amount payable to the
beneficiary upon the life insured's death will never be less than the face
amount, as long as the Policy remains in force, provided there is no Policy
Debt. The Variable Insurance Amount is determined on each Policy Anniversary
and as of the life insured's date of death by multiplying the Policy Value by
the death benefit factor shown in the Policy for the life insured's attained
age. The Variable Insurance Amount will also be determined at any time
requested by the Policyowner. As reflected in the table of death benefit
factors contained in the Policy, the factors decrease in relation to increases
in the life insured's age. The amount obtained by use of the applicable death
benefit factor is the amount of whole life insurance that results from treating
the Policy Value as a Net Single Premium based on the assumptions of the
appropriate 1980 CSO Tables and an interest rate of 4%.
If the actual net investment performance of the sub-accounts selected by the
Policyowner should be equal to an effective annual rate of 4%, the Variable
Insurance Amount on each Policy Anniversary will equal the face amount provided
there are no policy loans. The Variable Insurance Amount on each Policy
Anniversary will exceed the face amount only if the Policy Value increases at a
rate in excess of 4%. The portion of the Policy Value equal to the Investment
Amount will increase at a rate in excess of 4% only if the investment
performance of NASL Series Trust is at a gross annual effective rate in excess
of 4% plus the applicable investment management fees of between 0.25% and 1.10%
and expenses of between 0.15% and 0.75% of average daily net assets of
Portfolios of NASL Series Trust on an annual basis.
15
<PAGE> 16
The death benefit payable to the life insured's beneficiary will be reduced by
any Policy Debt. Moreover, if the life insured should die during the grace
period following a default (See "When is a Policy in Default?"), the death
benefit will also be reduced by cost of insurance charges accrued to the date
of death. If the death benefit is to be paid in a single sum, Manufacturers
Life of America will pay interest from the date of death to the date of
payment.
IS THERE A RIGHT TO MAKE ADDITIONAL PREMIUM PAYMENTS?
An additional premium may be paid under a Policy provided it does not result in
an increase in the death benefit. Manufacturers Life of America will notify
Policyowners annually of the amount of any additional premium allowed. If an
additional premium is paid, the Policy Value will be increased by the amount of
the premium less the two percent deduction for premium taxes. The additional
premium will not increase the maximum sales charge to which the Policy may be
subject. Additional premiums will reduce cost of insurance charges by lowering
the Net Amount at Risk as well as reduce the possibility that a Policy may go
into default.
Since the Policy has been designed to provide for high Policy Value to death
benefit ratios and still qualify as life insurance under Section 7702 of the
Internal Revenue Code, additional premiums will be allowed as a practical
matter only when the compounded annual increase in Policy Value, excluding cost
of insurance charges, has been at a rate less than the 4% interest rate assumed
in the design of the Policy. When this situation occurs, the Variable Insurance
Amount will be less than the face amount of the Policy. At that time, an
additional premium sufficient to bring the Variable Insurance Amount up to the
level of the face amount will be allowed as long as the additional premium is
at least $1,000. An additional premium in an amount less than $1,000 will be
permitted only if it is used to bring the Policy out of default (See "When Is A
Policy In Default?").
UNDER WHAT CONDITIONS ARE LOANS AVAILABLE?
On or after the first Policy Anniversary, while the Policy is in force, the
Policyowner may borrow against the Cash Value of his or her Policy. Borrowing
under this provision cannot exceed 90% of the Cash Value. The Investment Amount
will be reduced by any loan. When a loan is made, Manufacturers Life of America
will deduct the amount of the loan from the sub-accounts designated by the
Policyowner or, in the absence of such designation, in the same proportion that
the Investment Amount in each of the sub-accounts bears to the total. The
amount of the loan continues to be part of the Policy Value.
HOW ARE LOANS AND LOAN REPAYMENTS ADMINISTERED?
Manufacturers Life of America will charge interest at the rate of 8% per year
on any outstanding policy loan, accrued on a daily basis.
Manufacturers Life of America will establish a Loan Account under the Policy to
reflect Policy indebtedness and interest accrued thereon. The Policy will be
credited interest at the rate of 7% per year, accrued daily, on any amount
transferred to the Loan Account as the result of a Policy loan. On Policy
Anniversaries and on any date when there is a transaction affecting the Loan
Account, the Policy Debt will be reduced by any excess of Policy Debt over the
Loan Account balance. The amount of such excess will be deducted from the
Investment Amount.
When a loan repayment is made, Manufacturers Life of America will deduct an
equal amount from the Loan Account balance and credit the sub-account or sub-
accounts specified by the Policyowner. If no particular sub-accounts are
specified, Manufacturers Life of America will allocate the repayment in the
same proportion that the Investment Amount in each of the sub-accounts bears to
the total.
If, as a result of poor investment performance of the sub-accounts to which the
Net Premium of a Policy is allocated, the compounding effect of interest
charges, or any other reason, the Policy Debt should equal or exceed
16
<PAGE> 17
the Policy Value of the Policy, the Policy will be in default (See "When Is A
Policy In Default?"). Manufacturers Life of America will mail a notice to the
Policyowner at his or her last known address that the Policy will terminate
within 61 days from the date the Policy goes into default if an amount required
to bring the Policy out of default is not received beforehand. The minimum
amount required will be an amount sufficient to pay any outstanding and accrued
cost of insurance charges for the period ending 90 days after the date of
default.
A loan, whether repaid or not, will have a permanent effect on the death
benefit and Policy Value because the investment results of the Account will
apply only to the amount remaining in the Account. The effect of the loan is
likely to be greater the longer the loan is outstanding. Whether the effect is
favorable or unfavorable will depend on the investment results of the Account
while the loan is outstanding.
WHEN ARE PROCEEDS PAID?
As long as the Policy is in force, Manufacturers Life of America will
ordinarily pay any death benefit, Cash Surrender Value, or Policy loan proceeds
within seven days after receipt at the Manufacturers Life of America Service
Office of all the documents required for such a payment. Manufacturers Life of
America may delay payment of any Cash Surrender Value, Policy loan proceeds or
death benefit for any period during which the New York Stock Exchange is closed
for trading (except for normal holiday closings) or when the S.E.C. has
determined that a state of emergency exists which may make such payment
impractical.
WHEN IS A POLICY IN DEFAULT?
It is possible for unfavorable investment performance to cause a Policy to go
into default. A default exists whenever the Policy Value is equal to or less
than the Policy Debt or, in the absence of any Policy Debt, has been reduced to
0. In the event of a default, Manufacturers Life of America will notify the
Policyowner and advise him or her of the amount required to be paid to bring
the Policy out of default. The additional payment required will be an amount
which, after any deduction for premium taxes, is sufficient to pay outstanding
cost of insurance charges at the date of default and accrued cost of insurance
charges for the period ending 90 days after the date of default. A grace period
of 61 days from the date of default will be allowed for payment of the
additional amount. If the required amount is not paid by the end of the grace
period, the Policy will terminate (See "What are the Reinstatement Rules?"
below). If the life insured should die during the grace period, the death
benefit will be reduced by any Policy Debt and, in addition, accrued cost of
insurance charges up to the date of death.
When additional payments are made to bring a Policy out of default such
payments will first be applied to reduce Policy Debt and thereafter be treated
as additional premium payments.
WHAT ARE THE REINSTATEMENT RULES?
If the Policy terminates, it can be reinstated within 7 years if:
(1) It has not been surrendered for cash;
(2) Manufacturers Life of America receives evidence of insurability
satisfactory to it; and
(3) Manufacturers Life of America receives payment of an amount which, after
the deduction for any premium taxes, is at least equal to the sum of any
outstanding charges not previously paid for the grace period and the cost of
insurance charges for the balance of the policy year following the date of
reinstatement.
17
<PAGE> 18
Upon reinstatement, the Policy will have the same face amount as existed at the
end of the grace period, and the Investment Amount will equal the amount paid
to reinstate the Policy minus any premium taxes and outstanding charges not
previously paid for the grace period. Payments made to reinstate the Policy
will first be applied to reduce Policy Debt and thereafter be treated as
additional premium payments.
WHAT ARE THE EXCHANGE PRIVILEGES OF THE POLICY?
Three Year Conversion Right. The Policy may be exchanged for a fixed benefit
(single premium whole life participating) insurance policy on the life of the
life insured within 36 months after the date of issue. No evidence of
insurability will be required. All Policy Debt under the Policy must be paid
before the exchange. The date of exchange will be the date the Policy is
received by Manufacturers Life of America at its Service Office together with a
signed request for such an exchange. The exchange will be subject to an
equitable adjustment to reflect variances, if any, in the premiums and Policy
Values under the Policy and the new policy. The adjustment under the new policy
will reflect dividends which would have been paid on the new policy, assuming a
cash dividend option was elected. The Policyowner will receive the benefit of
any amount due the Policyowner as a result of the adjustment. If the adjustment
results in an amount due Manufacturers Life of America, Manufacturers Life of
America must have received by the exchange date an amount equal to the greater
of (i) the difference between the single premium, less dividends, which would
have been paid on the new policy and the premiums actually paid on the Policy,
plus interest on the difference at 8% per year, and (ii) the difference between
the Policy Value of the new policy and the Policy.
The new policy will be a single premium whole life participating policy offered
by the Company at the time the exchange is requested. At the option of the
Policyowner, the new policy will have a face amount equal to the death benefit
of this Policy at the time of exchange or the death benefit of the Policy less
the Policy Value of this Policy at the time of exchange. It will have the same
policy date as this Policy, and the premium rate for the new policy will be the
rate in effect on the policy date for the same class of risk as under this
Policy.
Conversion Right Upon Material Change In Investment Objective. The Policy may
also be exchanged for a fixed benefit (single premium whole life participating)
insurance policy issued by Manufacturers Life of America on the life of the
life insured within six months after the Policyowner receives notice of a
material change in the investment objective of the Account or within six months
of the effective date of the change, whichever is later. The Michigan Insurance
Commissioner determines whether a change in investment objective is material.
No evidence of insurability will be required. When exchanged, the new policy
will be issued, at the election of the Policyowner, either
(a) as of the original issue age of the life insured based on Manufacturers
Life of America's premium rates for a single premium whole life fixed benefit
insurance policy at the original issue age, for a face amount not exceeding the
death benefit of the Policy on the date of exchange; or
(b) as of the attained age of the life insured for a face amount not exceeding
the excess of the death benefit of the Policy on the date of exchange over its
Policy Value on the date of exchange if the Policyowner elects to surrender the
Policy for its Cash Surrender Value.
A premium or Cash Surrender Value adjustment will be made for exchanges under
(a) or (b) taking appropriate account of the premiums and dividends or Cash
Surrender Values under the Policy and the new policy. Upon written request
received at Manufacturers Life of America's Service Office a detailed statement
of the method of computing this adjustment will be provided.
18
<PAGE> 19
WHAT IS THE TAX TREATMENT OF POLICY BENEFITS?
The Policy should receive the same federal income tax treatment as
fixed-benefit life insurance. Section 7702 of the Internal Revenue Code of 1986
(the "Code") provides that if certain tests are met, life insurance policies
such as this Policy will be treated as life insurance for tax purposes. This
means that (1) the death benefit should be excludable from the gross income of
the beneficiary under Section 101(a)(1) of the Code; and (2) the Policyowner
should not be taxed on any part of the Account's assets attributable to the
Policy, including additions attributable to interest, dividends or
appreciation, until actual surrender of the Policy.
In certain circumstances, distributions from the Policy prior to payment of the
death benefit under the Policy will be subject to adverse tax consequences.
Section 7702A of the Code provides that any life insurance policy failing to
satisfy a "7-pay" test will become a modified endowment contract. Under this
test, the cumulative premiums paid under a life insurance policy at any time
during the first seven policy years may not exceed the sum of the net level
premiums that would have been paid had the policy provided for paid-up future
benefits after the payment of seven level annual premiums.
In addition, a "material change" in the benefits under the Policy may subject
the Policy to a re-test under the "7-pay" test. A "material change" is defined
to include any increase in the death benefit under the Policy or any increase
in, or addition of, a qualified additional benefit under the Policy, excluding
(1) any increase which is attributable to the payment of premiums necessary to
fund the lowest level of the death benefit and qualified additional benefits
during the first seven Policy years and (2) certain cost-of-living increases
based on an established broad-based index.
Most withdrawals under a life insurance policy that becomes a modified
endowment contract will be taxed on an "income first" basis. Amounts received
by the owner of such a policy either directly or indirectly (including loans,
certain dividends, surrenders, partial withdrawals, or the pledge or assignment
of any portion of such a policy's value) will be includible in the owner's
gross income to a certain extent. In the case of a Policy offered by this
prospectus becoming a modified endowment contract, amounts received will be
includible in a Policyowner's gross income to the extent that the Policy Value
exceeds gross premiums paid. Also, an additional 10% tax penalty will be
imposed on withdrawals includible in gross income, except in certain
circumstances. This penalty will not apply to withdrawals that are: (a)
received after the Policyowner has reached age 59 1/2; (b) attributable to the
Policyowner's becoming disabled; or (c) one of a series of substantially equal
periodic payments made at least annually for the life of the policyowner or
over the joint lives of the policyowner and a designated beneficiary.
For purposes of determining the portion of an amount received upon a withdrawal
under the Policy that is includible in the Policyowner's gross income, all
modified endowment policies issued by the Company to the same Policyowner
during a calendar year will be aggregated with the Policy and treated as a
single policy.
In general, life insurance policies purchased before June 21, 1988 remain
subject to the provisions regarding withdrawals, such as loans and surrenders,
set forth in the next two paragraphs of this prospectus. However, in certain
circumstances, a Policy issued before June 21, 1988 may also become subject to
the "material change" rules and thus to the "7-pay" test. These circumstances
include the following:
(a) where on or after June 21, 1988, the death benefit under a policy is
increased and before June 21, 1988 the policyowner did not have a unilateral
right under a policy to obtain such an increase without providing additional
evidence of insurability; and
(b) where the death benefit under a policy increases by more than $150,000 over
the death benefit under a policy in effect on October 20, 1988. If a life
insurance policy, as of June 21, 1988, required at least 7 level annual premiums
and the owner of the policy makes at least 7 level annual premium payments over
the life of such a policy, this
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<PAGE> 20
provision will not apply.
Loans received under a Policy that is not a modified endowment contract should
be treated as indebtedness of the owner, and no part of any loan under the
Policy should be income to the Policyowner when received under current tax law.
However, interest charged on Policy loans, whether paid by the Policyowner or
added to the amount of the loan, is not tax deductible.
A surrender of a Policy that is not a modified endowment contract may have
other tax consequences. Upon any such surrender under current tax law, the
Policyowner will not be taxed on the Cash Surrender Value except for the
amount, if any, that exceeds gross premiums paid. Any unpaid Policy loan will
be treated upon surrender as forgiveness of the loan for tax purposes and thus
taken into account in determining the extent to which, if any, the Policyowner
has received amounts in excess of his or her investment that must be reported
as taxable income.
Policyowners should consult with their tax advisers before making a policy loan
or surrendering.
In connection with the issuance of regulations relating to diversification
requirements for separate accounts or funds underlying variable life and
annuity policies, the Treasury Department has announced that such regulations
do not provide guidance concerning the extent to which Policyowners may direct
their investments to particular sub-accounts of the Account. Regulations in
this regard are expected in the future. It is not clear what these regulations
will provide or whether they will be prospective only. It is possible that when
regulations are issued, the Policy may need to be modified to comply with such
regulations.
The individual situation of each Policyowner or beneficiary will determine
federal estate taxes and the state and local estate, inheritance, and other
taxes due if the Policyowner or insured dies.
WHO SELLS THE POLICIES AND WHAT ARE THE SALES COMMISSIONS?
ManEquity, Inc., an indirect wholly-owned subsidiary of Manufacturers Life,
will act as the principal underwriter of the Policies pursuant to a
Distribution Agreement with Manufacturers Life of America. ManEquity, Inc. is
registered as a broker-dealer under the Securities Exchange Act of 1934 and is
a member of the National Association of Securities Dealers. The Policies will
be sold by registered representatives of either ManEquity, Inc. or other
broker-dealers having distribution agreements with ManEquity, Inc. who are also
authorized by state insurance departments to do so. A registered representative
will receive commissions not to exceed 4% of the Gross Single Premium.
Representatives who meet certain productivity standards with regard to the sale
of the Policies will be eligible for additional compensation.
WHAT RESPONSIBILITIES HAS MANUFACTURERS LIFE ASSUMED?
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 this
Policy, prepare and maintain all books and records required to be prepared and
maintained by ManEquity, Inc. with respect to the Policy, and send all
confirmations required to be sent by ManEquity, Inc. with respect to the
Policy. ManEquity, Inc. will promptly reimburse Manufacturers Life or
Manufacturers USA for all sales commissions paid by Manufacturers Life or
Manufacturers USA and will pay Manufacturers Life or Manufacturers USA for its
other services under the agreement in such amounts and at such times as agreed
to by the parties.
Manufacturers Life and Manufacturers USA 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
20
<PAGE> 21
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 this Policy.
Finally, Manufacturers USA has entered into an Automatic Bulk Reinsurance
Agreement with Manufacturers Life of America pursuant to which Manufacturers
Life will automatically reinsure any risk under a Policy where the Net Amount
at Risk under any such Policy is in excess of $25,000 up to a maximum of
$7,500,000, except in the case of aviation risks where the maximum will be
$5,000,000. Under the reinsurance agreement, Manufacturers Life may also
consider reinsuring any nonaviation risk in excess of $7,500,000 and any
aviation risk in excess of $5,000,000. Except for its obligations to
Manufacturers Life of America under the reinsurance agreement, Manufacturers
Life has no financial obligation for any Policy benefits.
WHAT ARE THE OTHER GENERAL POLICY PROVISIONS?
Beneficiary. One or more beneficiaries of the Policy may be appointed by the
Policyowner by naming them in the application. Beneficiaries may be appointed
in three classes -- primary, secondary and final. Thereafter the beneficiary
may be changed by the Policyowner during the life insured's lifetime by giving
written notice to Manufacturers Life of America in a form satisfactory to it.
If the life insured dies and there is no surviving beneficiary, the
Policyowner, or the Policyowner's estate if the Policyowner is the life
insured, will be the beneficiary.
Incontestability. Manufacturers Life of America will not contest the Policy
after it has been in force during the life insured's lifetime for two years
from the Policy Date. If the Policy has been reinstated and been in force less
than two years from the reinstatement date the Company can contest any
misrepresentation of a fact material to the reinstatement.
Misstatement of Age or Sex. If the life insured's stated age or sex or both in
the Policy are incorrect, Manufacturers Life of America will change the
benefits payable to those which the Net Premium would have bought for the
correct age and sex.
Suicide Exclusion. If the life insured, whether sane or insane, dies by
suicide within one year from the date the Policy is issued, Manufacturers Life
of America will pay only the premium paid less any Policy Debt.
Assignment. Manufacturers Life of America will not be deemed to know of or be
bound by an assignment unless 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. In the event of the Policy's assignment for
collateral purposes, Manufacturers Life of America may require the written
consent of the Policyowner as well as the collateral assignee of the Policy
before treating as complete any request for a cash surrender of the Policy or a
loan against the Policy's Cash Value.
Settlement Options. The Policy grants Policyowners, or beneficiaries, five
optional ways of receiving Policy proceeds, other than in a lump sum. The
proceeds may be payable (i) in equal installments for a specified period of not
less than 5 years and not more than 30, (ii) in equal installments for the life
of the annuitant with the guarantee that if the annuitant does not survive for
a period of either 10 or 20 years or for a period when the total payments made
equal the proceeds payable, payments will continue for the remainder of such
period, (iii) in installments of a specified amount together with interest
until the proceeds are exhausted, (iv) in equal installments for the joint
lives of two annuitants with a guarantee that payments will continue for at
least 10 years, and (v) by leaving the proceeds on deposit at interest with
withdrawals permitted not more frequently than monthly by the payee until the
proceeds are exhausted. Any Manufacturers Life of America agent authorized to
sell the Policy can explain these options upon request.
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<PAGE> 22
WHAT ARE THE VOTING RIGHTS?
As stated above, all of the assets held in the sub-accounts of the 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 matter that may be voted upon at a shareholders' meeting. However,
Manufacturers Life of America will vote shares of NASL Series Trust held in the
Account in accordance with instructions received from Policyowners. Portfolio
shares held in each sub-account for which no timely instructions from
Policyowners are received, including shares not attributable to Policies, will
be voted by Manufacturers Life of America in the same proportion as those
shares in that sub-account for which instructions are received. Should the
applicable federal securities laws or regulations change so as to permit
Manufacturers Life of America to vote shares of NASL Series Trust held in the
Account in its own right, it may elect to do so.
The number of Portfolio shares in each sub-account for which instructions may
be given by a Policyowner is determined by dividing the portion of that
Policy's Investment Amount in that sub-account, if any, by the value of one
share of the corresponding Portfolio. The number will be determined as of a
date chosen by Manufacturers Life of America, but not more than 90 days before
the meeting of shareholders of NASL Series Trust. Fractional votes are counted.
Voting instructions will be solicited in writing at least 14 days prior to the
meeting.
Manufacturers Life of America may, if required by state insurance officials,
disregard voting instructions if such instructions would require shares to be
voted so as to cause a change in the sub-classification or investment policies
of one or more of the Funds, or to approve or disapprove an investment
management contract for the NASL Series Trust. In addition, Manufacturers Life
of America itself may disregard voting instructions that would require changes
in the investment policies or investment adviser of one or more of the
Portfolios, 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
semi-annual report to Policyowners.
WHO ARE THE DIRECTORS AND OFFICERS OF MANUFACTURERS LIFE OF AMERICA?
The directors and executive officers of Manufacturers Life of America, together
with their principal occupations during the past five years, are as follows:
<TABLE>
<CAPTION>
Position With
Manufacturers Life
Name of America Principal Occupation
<S> <C> <C>
Sandra M. Cotter Director Attorney 1989-present, Dykema
(34) Gossett
</TABLE>
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<PAGE> 23
<TABLE>
<CAPTION>
Position With
Manufacturers Life
Name of America Principal Occupation
<S> <C> <C>
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>
23
<PAGE> 24
<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>
UNDER WHAT CIRCUMSTANCES MAY FUND SHARES BE SUBSTITUTED?
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 Portfolios
may become unsuitable for investment by the Account because of a change in
investment policy or a change in the tax laws, because the shares are no longer
available for investment, or for some other reason. In that event Manufacturers
Life of America may seek to substitute the shares of another Portfolio or of an
entirely different mutual fund. Before this can be done, the approval of the
S.E.C. and one or more state insurance departments may be required.
24
<PAGE> 25
Manufacturers Life of America also reserves the right to combine other separate
accounts with the Account, to establish additional sub-accounts within the
Account, to operate the Account as a management investment company or other
form permitted by law, and to deregister the Account under the 1940 Act. Any
such change would be made only if permissible under applicable federal and
state law.
WHAT REPORTS WILL BE SENT TO POLICYOWNERS?
Once each Policy year Policyowners will be sent statements showing, among other
things, the amount of the death benefit, the Investment Amount, and any Policy
Debt (including interest charged for the preceding Policy year) as of the
Policy Anniversary.
The statement will also show the amount of the Policy Value derived from
participation in each sub-account.
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.
WHAT STATE REGULATIONS APPLY?
Manufacturers Life of America is subject to regulation and supervision by the
Michigan Department of Insurance, which periodically examines its financial
condition and operations. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business. The
Policy has been filed with insurance officials and meets all standards set by
law in each jurisdiction where it is sold.
Manufacturers Life of America is required to submit annual statements of its
operations, including financial statements, to the insurance departments of the
various jurisdictions in which it does business for the purposes of determining
solvency and compliance with local insurance laws and regulations.
IS THERE ANY LITIGATION PENDING?
No litigation is pending that would have a material effect upon the Account or
NASL Series Trust.
WHERE CAN FURTHER INFORMATION BE FOUND?
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 first 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 matters relating to the federal
securities laws.
25
<PAGE> 26
EXPERTS
The financial statements of The Manufacturers Life Insurance Company of America
and of Separate Account Three of The Manufacturers Life Insurance Company of
America appearing in this prospectus for the periods ending December 31, 1995
have been audited by Ernst & Young LLP, independent auditors to the extent
indicated in their reports thereon also appearing elsewhere herein. Such
financial statements have been included herein in reliance upon such reports
given upon the authority of such firm as experts in auditing and accounting.
Actuarial matters included in this prospectus have been examined by John R.
Ostler, Vice President, Chief Actuary and Treasurer of Manufacturers Life of
America, whose opinion is filed as an exhibit to the registration statement.
26
<PAGE> 27
APPENDIX A TABLE OF DEATH BENEFIT FACTORS
<TABLE>
<CAPTION>
DEATH BENEFIT FACTORS DEATH BENEFIT FACTORS
PER $1.00 OF POLICY VALUE PER $1.00 OF POLICY VALUE
MALE, NON-SMOKER MALE, SMOKER
LIFE DEATH LIFE DEATH LIFE DEATH LIFE DEATH
INSURED'S BENEFIT INSURED BENEFIT INSURED'S BENEFIT INSURED'S BENEFIT
ATTAINED AGE FACTOR ATTAINED AGE FACTOR ATTAINED AGE FACTOR ATTAINED AGE FACTOR
- ------------ ------ ------------ ------ ------------ ------ ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
0 10.106 50 2.179 0 10.106 50 2.568
1 10.103 51 2.119 1 10.103 51 2.489
2 9.810 52 2.062 2 9.810 52 2.412
3 9.516 53 2.008 3 9.516 53 2.339
4 9.227 54 1.955 4 9.227 54 2.269
5 8.942 55 1.906 5 8.942 55 2.201
6 8.660 56 1.858 6 8.660 56 2.137
7 8.383 57 1.813 7 8.383 57 2.075
8 8.108 58 1.770 8 8.108 58 2.016
9 7.839 59 1.728 9 7.839 59 1.960
10 7.575 60 1.689 10 7.575 60 1.905
11 7.319 61 1.651 11 7.319 61 1.854
12 7.072 62 1.615 12 7.072 62 1.804
13 6.835 63 1.580 13 6.835 63 1.757
14 6.611 64 1.547 14 6.611 64 1.712
15 6.398 65 1.516 15 6.398 65 1.669
16 6.207 66 1.487 16 7.666 66 1.628
17 6.027 67 1.459 17 7.442 67 1.590
18 5.856 68 1.432 18 7.227 68 1.553
19 5.690 69 1.407 19 7.020 69 1.518
20 5.530 70 1.382 20 6.818 70 1.484
21 5.374 71 1.359 21 6.620 71 1.452
22 5.221 72 1.337 22 6.426 72 1.423
23 5.069 73 1.316 23 6.235 73 1.394
24 4.920 74 1.297 24 6.046 74 1.367
25 4.772 75 1.278 25 5.860 75 1.342
26 4.626 76 1.261 26 5.676 76 1.319
27 4.482 77 1.245 27 5.496 77 1.297
28 4.340 78 1.230 28 5.320 78 1.276
29 4.202 79 1.216 29 5.147 79 1.257
30 4.067 80 1.203 30 4.979 80 1.238
31 3.936 81 1.190 31 4.815 81 1.221
32 3.809 82 1.177 32 4.656 82 1.204
33 3.686 83 1.166 33 4.502 83 1.188
34 3.567 84 1.155 34 4.352 84 1.174
35 3.452 85 1.145 35 4.208 85 1.161
36 3.341 86 1.136 36 4.068 86 1.148
37 3.233 87 1.127 37 3.933 87 1.137
38 3.130 88 1.119 38 3.803 88 1.126
39 3.031 89 1.110 39 3.677 89 1.116
40 2.936 90 1.102 40 3.556 90 1.106
27
<PAGE> 28
41 2.845 91 1.094 41 3.439 91 1.097
42 2.758 92 1.086 42 3.327 92 1.087
43 2.674 93 1.076 43 3.219 93 1.077
44 2.594 94 1.066 44 3.115 94 1.066
45 2.518 95 1.054 45 3.015 95 1.054
46 2.444 96 1.041 46 2.919 96 1.041
47 2.374 97 1.027 47 2.826 97 1.027
48 2.306 98 1.013 48 2.737 98 1.013
49 2.241 99 1.000 49 2.651 99 1.000
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
DEATH BENEFIT FACTORS DEATH BENEFIT FACTORS
PER $1.00 OF POLICY VALUE PER $1.00 OF POLICY VALUE
FEMALE, NON-SMOKER FEMALE, SMOKER
LIFE DEATH LIFE DEATH LIFE DEATH LIFE DEATH
INSURED'S BENEFIT INSURED BENEFIT INSURED'S BENEFIT INSURED'S BENEFIT
ATTAINED AGE FACTOR ATTAINED AGE FACTOR ATTAINED AGE FACTOR ATTAINED AGE FACTOR
- ------------ ------ ------------ ------ ------------ ------ ------------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
0 12.656 50 2.623 0 12.656 50 2.896
1 12.594 51 2.549 1 12.594 51 2.807
2 12.233 52 2.478 2 12.233 52 2.721
3 11.871 53 2.410 3 11.871 53 2.639
4 11.513 54 2.344 4 11.513 54 2.560
5 11.161 55 2.281 5 11.161 55 2.483
6 10.815 56 2.220 6 10.815 56 2.410
7 10.474 57 2.162 7 10.474 57 2.339
8 10.141 58 2.105 8 10.141 58 2.271
9 9.814 59 2.050 9 9.814 59 2.204
10 9.494 60 1.996 10 9.494 60 2.140
11 9.182 61 1.944 11 9.182 61 2.078
12 8.879 62 1.893 12 8.879 62 2.019
13 8.586 63 1.844 13 8.586 63 1.961
14 8.303 64 1.798 14 8.303 64 1.906
15 8.031 65 1.753 15 8.031 65 1.853
16 7.773 66 1.711 16 8.838 66 1.803
17 7.525 67 1.670 17 8.557 67 1.755
18 7.285 68 1.631 18 8.285 68 1.709
19 7.053 69 1.594 19 8.022 69 1.665
20 6.829 70 1.557 20 7.767 70 1.623
21 6.611 71 1.521 21 7.520 71 1.581
22 6.399 72 1.487 22 7.279 72 1.542
23 6.193 73 1.455 23 7.045 73 1.504
24 5.993 74 1.424 24 6.817 74 1.469
25 5.800 75 1.395 25 6.597 75 1.435
26 5.611 76 1.368 26 6.382 76 1.404
27 5.429 77 1.342 27 6.174 77 1.374
28 5.252 78 1.318 28 5.972 78 1.346
29 5.081 79 1.295 29 5.776 79 1.320
30 4.916 80 1.273 30 5.585 80 1.295
31 4.755 81 1.253 31 5.401 81 1.271
32 4.600 82 1.233 32 5.223 82 1.249
33 4.450 83 1.214 33 5.050 83 1.228
34 4.305 84 1.197 34 4.882 84 1.209
35 4.165 85 1.181 35 4.721 85 1.191
36 4.030 86 1.166 36 4.564 86 1.174
37 3.900 87 1.153 37 4.413 87 1.158
38 3.775 88 1.140 38 4.268 88 1.144
39 3.665 89 1.128 39 4.128 89 1.131
40 3.540 90 1.116 40 3.993 90 1.118
41 3.430 91 1.104 41 3.864 91 1.105
42 3.325 92 1.093 42 3.739 92 1.093
43 3.225 93 1.081 43 3.620 93 1.081
44 3.128 94 1.069 44 3.505 94 1.069
45 3.036 95 1.056 45 3.394 95 1.056
46 2.947 96 1.042 46 3.287 96 1.042
47 2.861 97 1.028 47 3.184 97 1.028
48 2.779 98 1.013 48 3.084 98 1.013
49 2.699 99 1.000 49 2.989 99 1.000
</TABLE>
29
<PAGE> 30
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.
63
<PAGE> 31
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.
64
<PAGE> 32
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>
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.
65
<PAGE> 33
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 CAPITAL 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 CAPITAL 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 CAPITAL 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 CAPITAL 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 CAPITAL 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 CAPITAL 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 CAPITAL 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.
66
<PAGE> 34
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.
67
<PAGE> 35
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.
68
<PAGE> 36
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.
79
<PAGE> 37
Report of Independent Auditors
To the Board of Directors
The Manufacturers Life Insurance
Company of America
We have audited the accompanying statement of assets and liabilities of Separate
Account 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
February 2, 1996 ERNST & YOUNG LLP
Philadelphia, Pennsylvania
80
<PAGE> 38
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.
81
<PAGE> 39
<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>
82
<PAGE> 40
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.
83
<PAGE> 41
<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>
84
<PAGE> 42
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.
85
<PAGE> 43
<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>
86
<PAGE> 44
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.
87
<PAGE> 45
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.
88
<PAGE> 46
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.
89
<PAGE> 47
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.
90
<PAGE> 48
THE FOLLOWING FINANCIAL STATEMENTS OF THE MANUFACTURERS LIFE INSURANCE COMPANY
OF AMERICA FOR THE PERIOD ENDED SEPTEMBER 30, 1996 ARE UNAUDITED.
91
<PAGE> 49
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>
92
<PAGE> 50
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>
93
<PAGE> 51
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>
94
<PAGE> 52
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>
95
<PAGE> 53
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.
96
<PAGE> 54
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.
97
<PAGE> 55
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>
98
<PAGE> 56
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.
99
<PAGE> 57
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.
100
<PAGE> 58
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.
101
<PAGE> 59
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..
102
<PAGE> 60
THE FOLLOWING FINANCIAL STATEMENTS OF THE MANUFACTURERS LIFE INSURANCE COMPANY
OF AMERICA FOR THE PERIOD ENDED DECEMBER 31, 1995 ARE AUDITED.
103
<PAGE> 61
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
104
<PAGE> 62
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.
105
<PAGE> 63
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.
106
<PAGE> 64
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.
107
<PAGE> 65
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.
108
<PAGE> 66
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.
109
<PAGE> 67
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.
110
<PAGE> 68
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.
111
<PAGE> 69
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.
112
<PAGE> 70
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.
113
<PAGE> 71
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>
114
<PAGE> 72
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.
115
<PAGE> 73
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.
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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>
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<PAGE> 75
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.
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<PAGE> 76
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.
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