<PAGE> 1
Registration No.33-52310
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM S-6
POST-EFFECTIVE AMENDMENT NO. 12
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF l933
SEPARATE ACCOUNT THREE
OF
THE MANUFACTURERS LIFE
INSURANCE COMPANY OF AMERICA
(Exact name of trust)
THE MANUFACTURERS LIFE
INSURANCE COMPANY OF AMERICA
(Name of depositor)
______________________
500 N. Woodward Avenue
Bloomfield Hills, Michigan 48304
(Address of depositor's principal executive offices)
JAMES D. GALLAGHER
Secretary and General Counsel
The Manufacturers Life Insurance
Company of America
500 N. Woodward Avenue
Bloomfield Hills, Michigan 48304
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
_____ immediately upon filing pursuant to paragraph (b) of Rule 485
__X__ on May 1, 1998 pursuant to paragraph (b) of Rule 485
_____ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
_____ on , 1998 pursuant to paragraph (a)(1) of Rule 485
_____ 75 days after filing pursuant to paragraph (a)(2) of Rule 485
<PAGE> 2
SEPARATE ACCOUNT THREE
OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
Registration Statement on Form S-6
Cross-Reference Sheet
Form
N-8B-2
Item No. Caption in Prospectus
1 ----- Cover Page; General Information About Manufacturers Life of America,
Separate Account Three, and Manufacturers Investment Trust
(Manufacturers Life of America's Separate Account Three)
2 ----- Cover Page; General Information About Manufacturers Life of America,
Separate Account Three, and Manufacturers Investment Trust
(Manufacturers Life Of America And Manufacturers Life)
3 ----- *
4 ----- Miscellaneous Matters (Distribution of the Policy)
5 ----- General Information About Manufacturers Life Of America, Separate
Account Three, and Manufacturers Investment Trust (Manufacturers
Life of America's Separate Account Three)
6 ----- General Information About Manufacturers Life of America, Separate
Account Three, and Manufacturers Investment Trust (Manufacturers
Life of America's Separate Account Three)
7 ----- *
8 ----- *
9 ----- Miscellaneous Matters (Pending Litigation)
10 ---- Detailed Information About The Policies
11 ----- General Information About Manufacturers Life Of America, Separate
Account Three, and Manufacturers Investment Trust (Manufacturers
Investment Trust)
12 ----- General Information About Manufacturers Life Of America, Separate
Account Three, and Manufacturers Investment Trust (Manufacturers
Investment Trust)
13 ----- Detailed Information About The Policies (Charges and Deductions)
14 ----- Detailed Information About the Policies (Premium Provisions --
Policy Issue and Initial Premium); Miscellaneous Matters
(Responsibilities Assumed By Manufacturers Life)
15 ----- Detailed Information About The Policies (Premium Provisions --
Policy Issue and Initial Premium)
16 ----- **
17 ----- Detailed Information About The Policies (Policy Values -- Partial
Withdrawals and Surrenders); Other Provisions -- Payment of
Proceeds)
_____________
* Omitted since answer is negative or item is not applicable.
** Omitted.
<PAGE> 3
Form
N-8B-2
Item No. Caption in Prospectus
18 ----- General Information About Manufacturers Life Of America, Separate
Account Three, and Manufacturers Investment Trust
19 ----- Detailed Information About The Policies (Other Provisions -- Reports
To Policyowners); Miscellaneous Matters (Responsibilities Assumed By
Manufacturers Life)
20 ----- *
21 ----- Detailed Information About The Policies
22 ----- *
23 ----- **
24 ----- Detailed Information About the Policies (Other General Policy
Provisions)
25 ----- General Information About Manufacturers Life Of America, Separate
Account Three, and Manufacturers Investment Trust (Manufacturers
Life Of America And Manufacturers Life)
26 ----- *
27 ----- **
28 ----- Miscellaneous Matters (The Directors And Officers Of Manufacturers
Life Of America)
29 ----- General Information About Manufacturers Life Of America, Separate
Account Three, and Manufacturers Investment Trust (Manufacturers
Life Of America And Manufacturers Life)
30 ----- *
31 ----- *
32 ----- *
33 ----- *
34 ----- *
35 ----- **
36 ----- *
37 ----- *
38 ----- Miscellaneous Matters (Distribution of the Policy; Responsibilities
Assumed By Manufacturers Life)
39 ----- Miscellaneous Matters (Distribution of the Policy)
40 ----- *
41 ----- **
42 ----- *
43 ----- *
44 ----- Detailed Information About The Policies (Policy Values -- Policy
Value)
45 ----- *
46 ----- Detailed Information About The Policies (Policy Values -- Partial
Withdrawals and Surrenders; Other Provisions -- Payment of Proceeds)
47 ----- General Information About Manufacturers Life Of America, Separate
Account Three, and Manufacturers Investment Trust (Manufacturers
Investment Trust)
_____________
* Omitted since answer is negative or item is not applicable.
** Omitted.
<PAGE> 4
Form
N-8B-2
Item No. Caption in Prospectus
48 ----- *
49 ----- *
50 ----- General Information About Manufacturers Life Of America, Separate
Account Three, and Manufacturers Investment Trust (Manufacturers
Life Of America's Separate Account Three)
51 ----- Detailed Information About The Policies
52 ----- Detailed Information About The Policies (Miscellaneous Matters --
Portfolio Share Substitution)
53 ----- **
54 ----- *
55 ----- *
56 ----- *
57 ----- *
58 ----- *
59 ----- Financial Statements
______________
* Omitted since answer is negative or item is not applicable.
** Omitted.
<PAGE> 5
PART I
PROSPECTUS
<PAGE> 6
PROSPECTUSES FOR
VENTURE VUL
A FLEXIBLE PREMIUM
VARIABLE LIFE INSURANCE POLICY
Issued by
The Manufacturers Life Insurance Company of America
And for
Manufacturers Investment Trust
Printed May 1, 1998
[MANULIFE FINANCIAL LOGO]
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[LOGO]
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PROSPECTUS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
SEPARATE ACCOUNT THREE
VENTURE VUL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
This prospectus describes the flexible premium variable life insurance policy
(the "Policy") issued by The Manufacturers Life Insurance Company of America
("Manufacturers Life of America" or the "Company"), a stock life insurance
company that is an indirect wholly-owned subsidiary of The Manufacturers Life
Insurance Company ("Manufacturers Life"). The Policies are designed to provide
lifetime insurance protection together with flexibility as to the timing and
amount of premium payments, the investments underlying the Policy Value and the
amount of insurance coverage. This flexibility allows the policyowner to pay
premiums and adjust insurance coverage in light of his or her current financial
circumstances and insurance needs. The Policies provide for: (1) a Net Cash
Surrender Value that can be obtained by partial withdrawals or surrender of the
Policy; (2) policy loans; and (3) an insurance benefit payable at the life
insured's death.
Policy Value may be accumulated on a fixed basis or vary with the investment
performance of the sub-accounts of Manufacturers Life of America's Separate
Account Three (the "Separate Account") to which the policyowner allocates net
premiums.
The assets of each sub-account will be used to purchase shares of a particular
investment portfolio ("Portfolio") of Manufacturers Investment Trust. The
accompanying prospectus for Manufacturers Investment Trust, and the
corresponding statement of additional information, describes the investment
objectives of the Portfolios in which net premiums may be invested. The
Portfolios available for allocation of net premiums are the: Pacific Rim
Emerging Markets Trust, Science & Technology Trust, International Small Cap
Trust, Emerging Growth Trust, Pilgrim Baxter Growth Trust, Small/Mid Cap Trust,
International Stock Trust, Worldwide Growth Trust, Global Equity Trust, Small
Company Value Trust, Equity Trust, Growth Trust, Quantitative Equity Trust
(formerly the Common Stock Fund), Equity Index Trust, Blue Chip Growth Trust,
Real Estate Securities Trust, Value Trust, International Growth and Income
Trust, Growth and Income Trust, Equity-Income Trust, Balanced Trust, Aggressive
Asset Allocation Trust, Moderate Asset Allocation Trust, Conservative Asset
Allocation Trust, High Yield Trust, Strategic Bond Trust, Global Government Bond
Trust, Capital Growth Bond Trust, Investment Quality Bond Trust, U.S. Government
Securities Trust, Money Market Trust, Lifestyle Aggressive 1000 Trust, Lifestyle
Growth 820 Trust, Lifestyle Balanced 640 Trust, Lifestyle Moderate 460 Trust and
Lifestyle Conservative 280 Trust (collectively the "Manufacturers Trusts").
Other sub-accounts and Portfolios may be added in the future.
Prospective purchasers should ask a Manulife Financial representative if
changing, or adding to, existing insurance coverage would be advantageous.
Prospective purchasers should note that it may not be advisable to purchase a
Policy as a replacement for existing insurance.
BECAUSE OF THE SUBSTANTIAL NATURE OF THE SURRENDER CHARGES, THE POLICY IS NOT
SUITABLE FOR SHORT-TERM INVESTMENT PURPOSES. A POLICYOWNER CONTEMPLATING
SURRENDER OF A POLICY SHOULD PAY SPECIAL ATTENTION TO THE
<PAGE> 9
SALES CHARGE LIMITATION PROVISIONS DESCRIBED IN THIS PROSPECTUS, WHICH APPLY
ONLY DURING THE FIRST TWO YEARS FOLLOWING ISSUANCE OF THE POLICY OR FOLLOWING AN
INCREASE IN FACE AMOUNT.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT IS
VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS FOR MANUFACTURERS INVESTMENT
TRUST.
The Securities and Exchange Commission maintains a Web site (http://www.sec.gov)
that contains material incorporated by reference and other information regarding
registrants that file electronically with the Commission.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Manufacturers Life Insurance
Company of America
500 N. Woodward Avenue
Bloomfield Hills, Michigan 48304
Service Office:
200 Bloor Street East
Toronto, Ontario, Canada M4W 1E5
TELEPHONE: 1-800-827-4546
(1-800-VARILIN[E])
THE DATE OF THIS PROSPECTUS IS MAY 1, 1998.
<PAGE> 10
PROSPECTUS CONTENTS
<TABLE>
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PAGE
----
<S> <C>
INTRODUCTION TO POLICIES.................................... 1
GENERAL INFORMATION ABOUT MANUFACTURERS LIFE OF AMERICA
SEPARATE ACCOUNT THREE AND MANUFACTURERS INVESTMENT
TRUST.................................................. 8
Manufacturers Life of America And Manufacturers Life... 8
Manufacturers Life of America's Separate Account
Three................................................. 9
Manufacturers Investment Trust......................... 9
Investment Objectives and Certain Policies Of The
Portfolios............................................ 11
DETAILED INFORMATION ABOUT THE POLICIES..................... 15
PREMIUM PROVISIONS........................................ 15
Policy Issue And Initial Premium....................... 15
Premium Allocation..................................... 15
Premium Limitations.................................... 16
Short-Term Cancellation Right And "Free Look"
Provisions............................................ 16
INSURANCE BENEFIT......................................... 16
The Insurance Benefit.................................. 16
No Lapse Guarantee..................................... 17
No Lapse Guarantee Cumulative Premium Test............. 17
Death Benefit Guarantee................................ 17
Death Benefit Options.................................. 19
Death Benefit Option Changes........................... 19
Face Amount Changes.................................... 20
POLICY VALUES............................................. 21
Policy Value........................................... 21
Transfers Of Policy Value.............................. 22
Policy Loans........................................... 23
Partial Withdrawals And Surrenders..................... 26
Charges and Deductions................................. 27
Deductions From Premiums............................... 27
Surrender Charges...................................... 27
Monthly Deductions..................................... 33
Administration Charge.................................. 33
Cost Of Insurance Charge............................... 33
Mortality And Expense Risks Charge..................... 34
Other Charges.......................................... 35
Special Provisions For Group Or Sponsored
Arrangements.......................................... 36
Special Provisions For Exchanges....................... 36
The General Account.................................... 36
OTHER GENERAL POLICY PROVISIONS........................... 37
Policy Default......................................... 37
Policy Reinstatement................................... 37
Miscellaneous Policy Provisions........................ 38
OTHER PROVISIONS.......................................... 38
Supplementary Benefits................................. 38
Payment Of Proceeds.................................... 39
Reports To Policyowners................................ 39
MISCELLANEOUS MATTERS..................................... 39
Portfolio Share Substitution........................... 39
Federal Income Tax Considerations...................... 39
Tax Status Of The Policy............................... 40
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Tax Treatment Of Policy Benefits....................... 41
The Company's Taxes.................................... 43
Distribution Of The Policy............................. 43
Responsibilities Assumed By Manufacturers Life......... 43
Voting Rights.......................................... 44
Directors And Officers Of Manufacturers Life of
America............................................... 45
State Regulations...................................... 46
Pending Litigation..................................... 46
Additional Information................................. 46
Legal Matters.......................................... 46
Experts................................................ 46
Year 2000 Issues....................................... 47
Financial Statements........................................ 48
Appendices.................................................. 70
A. Sample Illustrations Of Policy Values, Cash Surrender
Values And Death Benefits................................. 70
B. Definitions............................................. 79
C. Deferred Sales Charge Tables............................ 82
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, THE PROSPECTUS OF MANUFACTURERS INVESTMENT TRUST, OR THE
STATEMENT OF ADDITIONAL INFORMATION OF MANUFACTURERS INVESTMENT TRUST.
You are urged to examine this prospectus carefully. The INTRODUCTION TO POLICIES
will briefly describe the Flexible Premium Variable Life Insurance Policy. More
detailed information will be found within.
<PAGE> 12
INTRODUCTION TO POLICIES
The following summary is intended to provide a general description of the most
important features of the Policy. It is not comprehensive and is qualified in
its entirety by the more detailed information contained in this prospectus.
Unless otherwise indicated or required by the context, the discussion throughout
this prospectus assumes that the Policy has not gone into default, there is no
outstanding Policy Debt, and the death benefit is not determined by the corridor
percentage test (see "Death Benefit Options").
GENERAL
The Policy provides a death benefit in the event of the death of the life
insured.
Premium payments may be made at any time and in any amount, subject to certain
limitations.
After certain deductions, premiums will be allocated, according to the
policyowner's instructions, to one or more of the general account and the
sub-accounts of Manufacturers Life of America's Separate Account Three. Assets
of the sub-accounts of Separate Account Three are invested in shares of a
particular Portfolio of Manufacturers Investment Trust. Allocation instructions
may be changed at any time and transfers among the accounts may be made subject
to certain restrictions (see "Transfers of Policy Value").
The Portfolios currently offered are the: Pacific Rim Emerging Markets Trust,
Science & Technology Trust, International Small Cap Trust, Emerging Growth
Trust, Pilgrim Baxter Growth Trust, Small/Mid Cap Trust, International Stock
Trust, Worldwide Growth Trust, Global Equity Trust, Small Company Value Trust,
Equity Trust, Growth Trust, Quantitative Equity Trust (formerly the Common Stock
Fund), Equity Index Trust, Blue Chip Growth Trust, Real Estate Securities Trust,
Value Trust, International Growth and Income Trust, Growth and Income Trust,
Equity-Income Trust, Balanced Trust, Aggressive Asset Allocation Trust, Moderate
Asset Allocation Trust, Conservative Asset Allocation Trust, High Yield Trust,
Strategic Bond Trust, Global Government Bond Trust, Capital Growth Bond Trust,
Investment Quality Bond Trust, U.S. Government Securities Trust, Money Market
Trust, Lifestyle Aggressive 1000 Trust, Lifestyle Growth 820 Trust, Lifestyle
Balanced 640 Trust, Lifestyle Moderate 460 Trust and Lifestyle Conservative 280
Trust (collectively the "Manufacturers Trusts"). Other sub-accounts and
Portfolios may be added in the future.
The Policy has a Policy Value reflecting premiums paid, the investment
performance of the accounts to which the policyowner has allocated premiums, and
certain charges for expenses and cost of insurance. The policyowner may obtain a
portion of the Policy Value by taking a policy loan or a partial withdrawal, or
by full surrender of the Policy.
DEATH BENEFIT
DEATH BENEFIT OPTIONS. The policyowner elects to have the Policy's death
benefit determined under one of two options:
- death benefit equal to the face amount of the Policy, or
- death benefit equal to the face amount of the Policy plus the Policy
Value.
Under either option, the death benefit may have to be increased to a multiple of
the Policy Value to satisfy the corridor percentage test under the definition of
life insurance in the Internal Revenue Code. See DETAILED INFORMATION ABOUT THE
POLICIES: INSURANCE BENEFIT -- "The Insurance Benefit" and "Death Benefit
Options."
THE POLICYOWNER MAY CHANGE THE DEATH BENEFIT OPTION. A change in the death
benefit option may be requested after the Policy has been in force for two
years. See Detailed Information About The Policies; Insurance Benefit -- "Death
Benefit Option Changes."
THE POLICYOWNER MAY INCREASE THE FACE AMOUNT. After the Policy has been in
force for two years, an increase in the face amount of the Policy may be
requested once per policy year. An increase in the face amount is subject to
satisfactory evidence of insurability and will usually result in the Policy's
being subject to
1
<PAGE> 13
new surrender charges. See DETAILED INFORMATION ABOUT THE POLICIES; INSURANCE
BENEFIT -- "Face Amount Changes."
THE POLICYOWNER MAY DECREASE THE FACE AMOUNT. A decrease in the face amount may
be requested once per policy year after the Policy has been in force for two
years, except during the two-year period following any increase in face amount.
In addition, during the two-year period following an increase in face amount,
the policyowner may choose to decrease the increased face amount which will
result in certain surrender charges being deducted from the policy value. During
the two-year period following an increase, the deferred sales charge for the
increase is subject to the Policy's sales charge limitation provisions. A
decrease in face amount may result in certain surrender charges being deducted
from the Policy Value. See DETAILED INFORMATION ABOUT THE POLICIES; INSURANCE
BENEFIT -- "Face Amount Changes."
PREMIUM PAYMENTS ARE FLEXIBLE
The policyowner may pay premiums at any time and in any amount, subject to
certain limitations. See DETAILED INFORMATION ABOUT THE POLICIES; PREMIUM
PROVISIONS -- "Policy Issue" and "Premium Limitations."
The policyowner must pay at least the Initial Premium to put the Policy in
force. See DETAILED INFORMATION ABOUT THE POLICIES; PREMIUM PROVISIONS --
"Policy Limitations" and "Death Benefit Guarantee."
After the Initial Premium is paid there is no minimum premium required. However,
by complying with the Cumulative Premium Test the policyowner can ensure the
Policy will not go into default for the first three policy years. For Policies
with a face amount of at least $250,000, the policyowner can ensure the Policy
will not go into default (i) prior to the life insured reaching age 100 if Death
Benefit Option 1 is maintained throughout the life of the Policy and (ii) prior
to the life insured reaching age 85 if Death Benefit Option 2 is selected at any
time, by satisfying the Cumulative Premium Test or the Fund Value Test. See
DETAILED INFORMATION ABOUT THE POLICIES; PREMIUM PROVISIONS -- "Death Benefit
Guarantee."
Certain maximum premium limitations apply to the Policy to ensure the Policy
qualifies as life insurance under rules defined in the Internal Revenue Code.
See DETAILED INFORMATION ABOUT THE POLICIES; PREMIUM PROVISIONS -- "Premium
Limitations."
SUMMARY OF CHARGES AND DEDUCTIONS
Charges under the Policy are assessed as:
(1) deductions from premiums
- the Company reserves the right to make a charge for state, local and
federal taxes in an amount not to exceed 3.60% (in Oregon no state
premium tax is deducted)
(2) surrender charges upon surrender, partial withdrawal in excess of the
Withdrawal Tier Amount, decrease in face amount or lapse
- deferred underwriting charge of $6 for each $1,000 of face amount
- deferred sales charge of a maximum of 50% of premiums paid up to a
maximum of 3.031 Target Premiums
(3) monthly deductions
- administration charge of $35 per month until the first policy
anniversary; thereafter, $10 per month (the right is reserved to
increase the administration charge by an additional amount of up to
$.01 per $1,000 of face amount per month)
- cost of insurance charge
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<PAGE> 14
- mortality and expense risks charge of .90% per annum through the
later of the tenth policy anniversary and the policyowner's attained
age 60 and, thereafter, .45% per annum
- supplementary benefit(s) charge(s)
(4) Other Charges
Investment Management Fees and Expenses
Investment management fees paid by Manufacturers Investment Trust
(excluding the Lifestyle Trusts) range from .25% to 1.10% of the assets
of the Portfolios. Maximum expenses range from .15% to .75% of the
assets of the Portfolios (excluding the Lifestyle Trusts). Because each
Lifestyle Trust will invest in shares of Underlying Portfolios (all of
the Portfolios except the Lifestyle Trusts) each will bear its pro rata
share of the fees and expenses incurred by the Underlying Portfolios.
(5) Certain Transfers
- transfer fee of $25 per transfer in excess of twelve transfers in any
policy year.
- transfer fee of $5 for each transfer under the Dollar Cost Averaging
program when Policy Value does not exceed $15,000
For a complete discussion of charges and deductions see the heading Charges And
Deductions in this Introduction and the references therein, and see also the
heading Transfers Are Permitted in this Introduction and the references therein.
INVESTMENT OPTIONS
Premiums will be allocated, according to the policyowner's instructions, to any
combination of the general account or one or more of the sub-accounts of
Manufacturers Life of America's Separate Account Three.
Each sub-account of Separate Account Three invests its assets in the shares of
one of the following portfolios:
- Pacific Rim Emerging Markets Trust
- Science & Technology Trust
- International Small Cap Trust
- Emerging Growth Trust
- Pilgrim Baxter Growth Trust
- Small/Mid Cap Trust
- International Stock Trust
- Worldwide Growth Trust
- Global Equity Trust
- Small Company Value Trust
- Equity Trust
- Growth Trust
- Quantitative Equity Trust
- Equity Index Trust
- Blue Chip Growth Trust
- Real Estate Securities Trust
- Value Trust
- International Growth and Income Trust
- Growth and Income Trust
- Equity-Income Trust
- Balanced Trust
- Aggressive Asset Allocation Trust
- Moderate Asset Allocation Trust
- Conservative Asset Allocation Trust
- High Yield Trust
- Strategic Bond Trust
- Global Government Bond Trust
- Capital Growth Bond Trust
- Investment Quality Bond Trust
- U.S. Government Securities Trust
- Money Market Trust
- Lifestyle Aggressive 1000 Trust
- Lifestyle Growth 820 Trust
- Lifestyle Balanced 640 Trust
- Lifestyle Moderate 460 Trust
- Lifestyle Conservative 280 Trust
The policyowner may change the allocation of net premiums among the general
account and the sub-accounts at any time. See GENERAL INFORMATION ABOUT
MANUFACTURERS LIFE OF AMERICA, SEPARATE
3
<PAGE> 15
ACCOUNT THREE, AND MANUFACTURERS INVESTMENT TRUST AND DETAILED INFORMATION ABOUT
THE POLICIES; Premium Provisions -- "Premium Allocation" and Policy Values --
"Policy Value."
THE POLICY VALUE
The Policy has a Policy Value which reflects the following: premium payments
made; investment performance of the sub-accounts to which amounts have been
allocated; interest credited by the Company to amounts allocated to the general
account; partial withdrawals; and deduction of charges described under "Charges
And Deductions" below.
The Policy Value is the sum of the values in the Investment Accounts, the
Guaranteed Interest Account and the Loan Account.
INVESTMENT ACCOUNT. An Investment Account is established under the Policy for
each sub-account of the Separate Account to which net premiums or transfer
amounts have been allocated. An Investment Account measures the interest of the
Policy in the corresponding sub-account.
The value of each Investment Account under the Policy varies each Business Day
and reflects the investment performance of the Portfolio shares held in the
corresponding sub-account. See DETAILED INFORMATION ABOUT THE POLICIES; Policy
Values -- "Policy Value."
GUARANTEED INTEREST ACCOUNT. The Guaranteed Interest Account consists of that
portion of the Policy Value based on net premiums allocated to, and amounts
transferred to, the general account of the Company.
Manufacturers Life of America credits interest on amounts in the Guaranteed
Interest Account at an effective annual rate guaranteed to be at least 4%. See
DETAILED INFORMATION ABOUT THE POLICIES and The General Account.
LOAN ACCOUNT. When a policy loan is made, Manufacturers Life of America will
establish a Loan Account under the Policy and will transfer an amount from the
Investment Accounts and the Guaranteed Interest Account to the Loan Account.
The Company will credit interest to amounts in the Loan Account at an effective
annual rate of at least 4%. The actual rate credited on loan amounts will be the
rate charged on loan amounts less an interest rate differential, currently
1.75%, except on Select Loan Amounts where the interest rate differential,
subject to change in certain circumstances, is currently 0%. See DETAILED
INFORMATION ABOUT THE POLICIES; Policy Values -- "Policy Loans."
TRANSFERS ARE PERMITTED. A policyowner may make transfers among the
sub-accounts of Separate Account Three and the Company's general account,
subject to certain restrictions.
Twelve transfers per policy year may be made at no cost to the policyowner;
excess transfers will be permitted at a cost of $25 per transfer. All transfer
requests received at the same time are treated as a single transfer request.
Certain restrictions may apply to transfer requests. See DETAILED INFORMATION
ABOUT THE POLICIES; Policy Values -- "Policy Value."
USING THE POLICY VALUE
BORROWING AGAINST THE POLICY VALUE. The policyowner may borrow against the
Policy Value. The minimum loan amount is $500.
Loan interest will be charged on a fixed basis at an effective annual rate of
5.75%. See DETAILED INFORMATION ABOUT THE POLICIES; Policy Values -- "Policy
Loans."
A POLICYOWNER MAY MAKE A PARTIAL WITHDRAWAL OF THE POLICY VALUE. After a Policy
has been in force for two years the policyowner may make a partial withdrawal of
the Policy Value. The minimum withdrawal
4
<PAGE> 16
amount is $500. The policyowner may specify that the withdrawal is to be made
from a specific Investment Account or the Guaranteed Interest Account.
A partial withdrawal may result in a reduction in the face amount of the Policy
and may also result in the assessment of a portion of the surrender charges to
which the Policy is subject. See DETAILED INFORMATION ABOUT THE POLICIES; Policy
Values -- "Partial Withdrawals and Surrenders" and Charges and Deductions --
"Surrender Charges."
THE POLICY MAY BE SURRENDERED FOR ITS NET CASH SURRENDER VALUE. The Net Cash
Surrender Value is equal to the Policy Value less surrender charges, outstanding
monthly deductions due and the value of the Loan Account. Surrender of a Policy
during the Surrender Charge Period will usually result in assessment of
surrender charges. See Detailed Information About the Policies; Policy Values --
"Partial Withdrawals and Surrenders" and Charges and Deductions -- "Surrender
Charges."
CHARGES AND DEDUCTIONS
1) DEDUCTIONS FROM PREMIUMS.
- the Company reserves the right to make a charge for state, local and
federal taxes in an amount not to exceed 3.60% (in Oregon no state
premium tax is deducted)
2) SURRENDER CHARGES. Manufacturers Life of America will usually deduct a
deferred underwriting charge and a deferred sales charge if, during the
Surrender Charge Period:
- the Policy is surrendered for its Net Cash Surrender Value,
- a partial withdrawal in excess of the Withdrawal Tier Amount is made,
- a decrease in face amount is requested, or
- the Policy lapses.
The deferred underwriting charge is $6 for each $1,000 of face amount of life
insurance coverage initially or added by increase. In effect, the charge applies
only to the first $500,000 of face amount initially purchased or the first
$500,000 of each subsequent increase in face amount. Thus, the charge made in
connection with any one underwriting will not exceed $3,000.
The full amount of the deferred underwriting charge will be in effect for five
years following Policy issue. Beginning in the sixth year these charges grade
downward over a maximum ten-year period. See DETAILED INFORMATION ABOUT THE
POLICIES; Charges And Deductions -- "Surrender Charges."
The maximum deferred sales charge is 50% of premiums paid up to a maximum number
of Target Premiums that varies (from -0.180 to 3.031) according to the issue age
of the life insured, the face amount at issue and the amount of any increase.
Subject to compliance with the sales charge limitation provisions described
below, the maximum deferred sales charge will be in effect for at least the
first two years of the Surrender Charge Period. After that, the portion of the
deferred sales charge that remains in effect will grade down at a rate that also
varies according to the issue age of the life insured until, at the end of the
Surrender Charge Period there is no deferred sales charge. See DETAILED
INFORMATION ABOUT THE POLICIES -- "Charges And Deductions" -- Surrender Charges.
Because of the sales charge limitation described below, the deferred sales
charge assessable under the Policy may increase at the beginning of the third
policy year. In the event of a face amount increase, the surrender charges
applicable to the increase will be those rates that would apply if a Policy were
issued to the life insured at his or her then attained age and based on the
amount of the increase.
LIMITATION OF SALES CHARGES. If the Policy is surrendered at any time during
the first two years following issuance or following an increase in face amount
or if the increase is cancelled during the two-year period following the
increase, then Manufacturers Life of America may forego deducting the maximum
deferred sales charge applicable to the Policy or the increase. See DETAILED
INFORMATION ABOUT THE POLICIES;
5
<PAGE> 17
Charges and Deductions -- "Surrender Charges." If the Policy is surrendered
after that two-year period, the full amount of the applicable sales charge will
apply.
3) MONTHLY DEDUCTIONS. At the beginning of each policy month Manufacturers
Life of America deducts from the Policy Value:
- an administration charge of $35 per month until the first policy
anniversary; thereafter $10 per month (the right is reserved to increase
the administration charge by an additional amount of up to $.01 per
$1,000 of face amount per month)
- a charge for the cost of insurance,
- a charge for mortality and expense risks of .90% per annum through the
later of the tenth policy anniversary and the policyowner's attained age
60 and, thereafter, .45% per annum. This charge is assessed against the
value of the policyowner's investment accounts, and
- charge(s) for any supplementary benefit(s) added to the Policy.
The cost of insurance charge varies based on the net amount at risk under the
Policy and the applicable cost of insurance rate. Cost of insurance rates vary
according to issue age, the duration of the coverage, sex (unless unisex rates
are required by law), any additional ratings indicated in the policy, and risk
class of the life insured. The maximum cost of insurance rate that can be
charged is guaranteed not to exceed the 1980 Commissioners Standard Ordinary
Smoker/Nonsmoker Mortality Tables. However, any additional ratings as indicated
in the Policy will be added to the cost of insurance rate. See DETAILED
INFORMATION ABOUT THE POLICIES; Charges and Deductions -- "Monthly Deductions."
If the Policy is still in force when the life insured attains age 100, no
further monthly deductions will be taken from the Policy Value.
4) OTHER CHARGES. Charges will be imposed on certain transfers of Policy
Values, including a $25 charge for each transfer in excess of twelve per
policy year and a $5 charge for each Dollar Cost Averaging transfer if
Policy Value does not exceed $15,000. See Policy Values -- "Transfers Of
Policy Value."
Certain expenses are, or will be, assessed against the assets of the Portfolios,
as follows.
Investment Management Fees and Expenses
Investment management fees paid by Manufacturers Investment Trust (excluding the
Lifestyle Trusts) range from .25% to 1.10% of the assets of the Portfolios.
Maximum expenses range from .15% to .75% of the assets of the Portfolios
(excluding the Lifestyle Trusts). Because each Lifestyle Trust will invest in
shares of Underlying Portfolios each will bear its pro rata share of the fees
and expenses incurred by the Underlying Portfolios. See DETAILED INFORMATION
ABOUT THE POLICIES; Charges and Deductions -- "Other Charges."
Manufacturers Life of America reserves the right to charge or establish a
provision for any federal, state or local taxes that may be attributable to the
Separate Account or the operations of the Company with respect to the Policies
in addition to the deductions for state, local and federal taxes currently being
made.
SUPPLEMENTARY BENEFITS
A policyowner may choose to add certain supplementary benefits to the Policy.
These supplementary benefits include an accidental death benefit, life insurance
for additional insured persons, acceleration of benefits in the event of
terminal illness, term insurance option, a disability benefit to waive the cost
of monthly deductions and an option to ensure a guaranteed Policy Value.
The cost of any supplementary benefits will be deducted from the Policy Value
monthly. See DETAILED INFORMATION ABOUT THE POLICIES; Other Provisions --
"Supplementary Benefits."
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<PAGE> 18
DEFAULT
Unless the Death Benefit Guarantee is in effect, the Policy will go into default
if the Net Cash Surrender Value at the beginning of any policy month would go
below zero after deducting the monthly charges then due. The Policy will not go
into default if the policy qualifies for the Death Benefit Guarantee. The
Company will notify the policyowner in the event the Policy goes into default,
and will allow a grace period in which the policyowner may make a premium
payment sufficient to bring the Policy out of default. If the required premium
is not paid during the grace period the Policy will terminate. See DETAILED
INFORMATION ABOUT THE POLICIES; Premium Provisions -- "Policy Default."
DEATH BENEFIT GUARANTEE
Except in the state of New Jersey where the Death Benefit Guarantee is not
available, on Policies issued and maintained with a minimum face amount of
$250,000, as long as the Cumulative Premium Test or, where applicable, the Fund
Value Test is satisfied, the Company guarantees that the Policy will not go into
default (i) prior to the life insured's attaining age 100 if Death Benefit
Option 1 is maintained throughout the life of the Policy and (ii) prior to the
life insured reaching age 85 if Death Benefit Option 2 is selected at any time,
regardless of the investment performance of the Funds underlying the Policy
Value. On Policies with face amounts of less than $250,000 there is no Death
Benefit Guarantee after the third policy anniversary. See DETAILED INFORMATION
ABOUT THE POLICIES; Premium Provisions -- "Death Benefit Guarantee."
REINSTATEMENT
A terminated policy may be reinstated by the policyowner within either the
21-day or five-year period following the date of termination, providing certain
conditions are met. See DETAILED INFORMATION ABOUT THE POLICIES; Premium
Provisions -- "Policy Reinstatement."
FREE LOOK
A Policy may be returned for a refund of premium within the later of:
- 10 days after it is received
- 45 days after the application for the Policy is signed
- 10 days after Manufacturers Life of America mails or delivers a notice
of this right of withdrawal.
If a policyowner requests an increase in face amount which results in new
surrender charges, the "free look" provision will also apply to the increase.
See DETAILED INFORMATION ABOUT THE POLICIES; PREMIUM PROVISIONS -- "Short-Term
Cancellation Right and 'Free Look' Provisions."
FEDERAL TAX MATTERS
Manufacturers Life of America believes that a Policy issued on a standard risk
class basis should meet the definition of a life insurance contract as set forth
in Section 7702 of the Internal Revenue Code of 1986. With respect to a Policy
issued on a substandard basis, there is less guidance available to determine if
such a Policy would satisfy the Section 7702 definition of a life insurance
contract, particularly if the policyowner pays the full amount of premiums
permitted under such a Policy. Assuming that a Policy qualifies as a life
insurance contract for Federal income tax payments, a policyowner should not be
deemed to be in constructive receipt of Policy Value under a Policy until there
is a distribution from the Policy. Moreover, death benefits payable under a
Policy should be completely excludable from the gross income of the beneficiary.
As a result, the beneficiary generally should not be taxed on these proceeds.
See MISCELLANEOUS MATTERS -- FEDERAL INCOME TAX CONSIDERATIONS -- (TAX STATUS OF
THE POLICY).
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<PAGE> 19
Under certain circumstances, a Policy may be treated as a "Modified Endowment
Contract." If the Policy is a Modified Endowment Contract, then all pre-death
distributions, including Policy loans, will be treated first as a distribution
of taxable income and then as a return of investment in the Policy. In addition,
prior to age 59 1/2 any such distributions generally will be subject to a 10%
penalty tax. See MISCELLANEOUS MATTERS -- FEDERAL INCOME TAX CONSIDERATIONS --
(TAX TREATMENT OF POLICY BENEFITS).
If the Policy is not a Modified Endowment Contract, distributions generally will
be treated first as a return of investment in the Policy and then a disbursement
of taxable income. Moreover, loans will not be treated as distributions. Select
Loans may, however, be treated as taxable distributions. A policyowner
considering the use of systematic policy loans as one element of a comprehensive
retirement income plan should consult his or her personal tax adviser regarding
the potential tax consequences if such loans were to so reduce Policy Value that
the Policy would lapse, absent additional payments. The premium payment
necessary to avert lapse would increase with the age of the insured. Finally,
neither distributions nor loans under a Policy that is not a Modified Endowment
Contract are subject to the 10% penalty tax. See MISCELLANEOUS MATTERS --
FEDERAL INCOME TAX CONSIDERATIONS -- (DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED
AS MODIFIED ENDOWMENT CONTRACTS).
The United States Congress has in the past considered, and in the future may
consider legislation that, if enacted, could change the tax treatment of life
insurance policies. In addition, the Treasury Department may amend existing
regulations, or adopt new interpretations of existing laws, state tax laws or,
if the policyowner is not a United States resident, foreign tax laws, which may
affect the tax consequences to him or her, the lives insured or the beneficiary.
These laws may change from time to time without notice and, as a result, the tax
consequences may be altered. There is no way of predicting whether, when or in
what form any such change would be adopted. Any such change could have a
retroactive effect regardless of the date of enactment. The Company suggests
that a tax adviser be consulted.
ESTATE AND GENERATION-SKIPPING TAXES
The proceeds of this life insurance policy may be taxable under Estate and
Generation-Skipping Tax provisions of the Internal Revenue Code. The policyowner
should consult his or her tax adviser regarding these taxes.
GENERAL INFORMATION ABOUT MANUFACTURERS LIFE OF AMERICA,
SEPARATE ACCOUNT THREE, AND MANUFACTURERS INVESTMENT TRUST
MANUFACTURERS LIFE OF AMERICA AND MANUFACTURERS LIFE
Manufacturers Life of America, a wholly-owned subsidiary of The Manufacturers
Life Insurance Company (U.S.A.) ("Manufacturers USA"), is a stock life insurance
company organized under the laws of Pennsylvania on April 11, 1977 and
redomesticated under the laws of Michigan on December 9, 1992. It is a licensed
life insurance company in the District of Columbia and all states of the United
States except New York. Manufacturers USA, a life insurance company organized in
1955 under the laws of Maine and redomesticated under the laws of Michigan on
December 30, 1992, is a wholly-owned subsidiary of Manulife Reinsurance
Corporation (U.S.A.), a life insurance company organized in 1983 under the laws
of Michigan which in turn is a wholly-owned subsidiary of Manufacturers Life, a
mutual life insurance company based in Toronto, Canada. Manufacturers Life and
its subsidiaries, together, constitute one of the largest life insurance
companies in North America and rank among the 60 largest life insurers in the
world as measured by assets. Manufacturers Life and Manufacturers Life of
America have received the following ratings from independent rating agencies:
Standard and Poor's Insurance Rating Service -- AA+ (for claims paying ability),
A.M. Best Company -- A++ (for financial strength), Duff & Phelps Credit Rating
Co. -- AAA (for claims paying ability), and Moody's Investors Service, Inc. --
Aa3 (for financial strength). However, neither Manufacturers Life of America nor
Manufacturers Life guarantees the investment performance of the Separate
Account.
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<PAGE> 20
MANUFACTURERS LIFE OF AMERICA'S SEPARATE ACCOUNT THREE
Manufacturers Life of America established its Separate Account Three on August
22, 1986 as a separate account under Pennsylvania law. Since December 9, 1992
the Separate Account has been operated under Michigan law. The Separate Account
holds assets that are segregated from all of Manufacturers Life of America's
other assets. The Separate Account is currently used only to support variable
life insurance policies.
Manufacturers Life of America is the legal owner of the assets in the Separate
Account. The income, gains and losses of the Separate Account, whether or not
realized, are, in accordance with applicable contracts, credited to or charged
against the Account without regard to the other income, gains or losses of
Manufacturers Life of America. Manufacturers Life of America will at all times
maintain assets in the Separate Account with a total market value at least equal
to the reserves and other liabilities relating to variable benefits under all
policies participating in the Separate Account. These assets may not be charged
with liabilities which arise from any other business Manufacturers Life of
America conducts. However, all obligations under the variable life insurance
policies are general corporate obligations of Manufacturers Life of America.
The Separate Account is registered with the Securities and Exchange Commission
("S.E.C.") under the Investment Company Act of 1940 ("1940 Act") as a unit
investment trust. A unit investment trust is a type of investment company which
invests its assets in specified securities, such as the shares of one or more
investment companies, rather than in a portfolio of unspecified securities.
Registration under the 1940 Act does not involve any supervision by the S.E.C.
of the management or investment policies or practices of the Separate Account.
For state law purposes the Separate Account is treated as a part or division of
Manufacturers Life of America.
MANUFACTURERS INVESTMENT TRUST
Each sub-account of the Separate Account will purchase shares only of a
particular Portfolio of Manufacturers Investment Trust. Manufacturers Investment
Trust is registered under the 1940 Act as an open-end management investment
company. The Separate Account will purchase and redeem shares of Manufacturers
Investment 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 or to the general
account as requested by policyowners, and for other purposes consistent with the
Policies. Any dividend or capital gain distribution received from a Portfolio
will be reinvested immediately at net asset value in shares of that Portfolio
and retained as assets of the corresponding sub-account.
Manufacturers Investment 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 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 Manufacturers Investment Trust
prospectus.
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<PAGE> 21
Manufacturers Investment Trust receives investment advisory services from
Manufacturers Securities Services, LLC. Manufacturers Securities Services, LLC
is a registered investment adviser under the Investment Advisers Act of 1940.
Manufacturers Investment Trust also employs subadvisers. The following
subadvisers provide investment subadvisory services to the indicated portfolios:
<TABLE>
<CAPTION>
PORTFOLIO SUBADVISER
--------- ----------
<S> <C>
AGGRESSIVE GROWTH PORTFOLIOS
Pacific Rim Emerging Markets Trust Manufacturers Adviser Corporation*
Science & Technology Trust T. Rowe Price Associates, Inc.
International Small Cap Trust Founders Asset Management, Inc.
Emerging Growth Trust Warburg, Pincus Counsellors, Inc.
Pilgrim Baxter Growth Trust Pilgrim Baxter & Associates, Ltd.
Small/Mid Cap Trust Fred Alger Management, Inc.
International Stock Trust Rowe Price-Fleming International, Inc.
GROWTH PORTFOLIOS
Worldwide Growth Trust Founders Asset Management, Inc.
Global Equity Trust Morgan Stanley Asset Management Inc.
Small Company Value Trust Rosenberg Institutional Equity Management
Equity Trust Fidelity Management Trust Company
Growth Trust Founders Asset Management, Inc.
Quantitative Equity Trust Manufacturers Adviser Corporation*
(formerly Common Stock Fund)
Equity Index Trust Manufacturers Adviser Corporation*
Blue Chip Growth Trust T. Rowe Price Associates, Inc.
Real Estate Securities Trust Manufacturers Adviser Corporation*
GROWTH & INCOME PORTFOLIOS
Value Trust Miller Anderson & Sherrerd, LLP
International Growth and Income Trust J.P. Morgan Investment Management Inc.
Growth and Income Trust Wellington Management Company
Equity-Income Trust T. Rowe Price Associates, Inc.
BALANCED PORTFOLIOS
Balanced Trust Founders Asset Management, Inc.
Aggressive Asset Allocation Trust Fidelity Management Trust Company
Moderate Asset Allocation Trust Fidelity Management Trust Company
Conservative Asset Allocation Trust Fidelity Management Trust Company
BOND PORTFOLIOS
High Yield Trust Miller Anderson & Sherrerd, LLP
Strategic Bond Trust Salomon Brothers Asset Management Inc
Global Government Bond Trust Oechsle International Advisors, L.P.
Capital Growth Bond Trust Manufacturers Adviser Corporation*
Investment Quality Bond Trust Wellington Management Company
U.S. Government Securities Trust Salomon Brothers Asset Management Inc
MONEY MARKET PORTFOLIOS
Money Market Trust Manufacturers Adviser Corporation*
LIFESTYLE PORTFOLIOS
Lifestyle Aggressive 1000 Trust Manufacturers Adviser Corporation*
Lifestyle Growth 820 Trust Manufacturers Adviser Corporation*
Lifestyle Balanced 640 Trust Manufacturers Adviser Corporation*
Lifestyle Moderate 460 Trust Manufacturers Adviser Corporation*
Lifestyle Conservative 280 Trust Manufacturers Adviser Corporation*
</TABLE>
- ---------------
* Manufacturers Adviser Corporation is an indirect wholly-owned subsidiary of
Manufacturers Life.
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<PAGE> 22
INVESTMENT OBJECTIVES AND CERTAIN POLICIES OF THE PORTFOLIOS
The investment objectives and certain policies of the Portfolios currently
available to policyowners through corresponding sub-accounts are set forth
below. There is, of course, no assurance that these objectives will be met.
AGGRESSIVE GROWTH PORTFOLIOS
PACIFIC RIM EMERGING MARKETS TRUST. The investment objective of the Pacific Rim
Emerging Markets Trust is to achieve longterm growth of capital. Manufacturers
Adviser Corporation ("MAC") manages the Pacific Rim Emerging Markets Trust and
seeks to achieve this investment objective by investing in a diversified
portfolio that is comprised primarily of common stocks and equity-related
securities of corporations domiciled in countries of the Pacific Rim region.
SCIENCE & TECHNOLOGY TRUST. The investment objective of the Science &
Technology Trust is long-term growth of capital. Current income is incidental to
the portfolio's objective. T. Rowe Price Associates, Inc. manages the Science &
Technology Trust.
INTERNATIONAL SMALL CAP TRUST. The investment objective of the International
Small Cap Trust is to seek long-term capital appreciation. Founders Asset
Management, Inc. ("Founders") manages the International Small Cap Trust and will
pursue this objective by investing primarily in securities issued by foreign
companies which have total market capitalizations or annual revenues of $1
billion or less. These securities may represent companies in both established
and emerging economies throughout the world.
EMERGING GROWTH TRUST. The investment objective of the Emerging Growth Trust is
maximum capital appreciation. Warburg, Pincus Counsellors, Inc. manages the
Emerging Growth Trust and will pursue this objective by investing primarily in a
portfolio of equity securities of domestic companies. The Emerging Growth Trust
ordinarily will invest at least 65% of its total assets in common stocks or
warrants of emerging growth companies that represent attractive opportunities
for maximum capital appreciation.
PILGRIM BAXTER GROWTH TRUST. The investment objective of the Pilgrim Baxter
Growth Trust is capital appreciation. Pilgrim Baxter & Associates, Ltd. ("PBHG")
manages the Pilgrim Baxter Growth Trust and seeks to achieve its objective by
investing in companies believed by PBHG to have an outlook for strong earnings
growth and the potential for significant capital appreciation.
SMALL/MID CAP TRUST. The investment objective of the Small/Mid Cap Trust is to
seek long term capital appreciation. Fred Alger Management, Inc. manages the
Small/Mid Cap Trust and will pursue this objective by investing at least 65% of
the portfolio's total assets (except during temporary defensive periods) in
small/mid cap equity securities.
INTERNATIONAL STOCK TRUST. The investment objective of the International Stock
Trust is to achieve long-term growth of capital. Rowe Price-Fleming
International, Inc. manages the International Stock Trust and seeks to obtain
this objective by investing primarily in common stocks of established, non-U.S.
companies.
GROWTH PORTFOLIOS
WORLDWIDE GROWTH TRUST. The investment objective of the Worldwide Growth Trust
is long-term growth of capital. Founders manages the Worldwide Growth Trust and
seeks to attain this objective by normally investing at least 65% of its total
assets in equity securities of growth companies in a variety of markets
throughout the world.
GLOBAL EQUITY TRUST. The investment objective of the Global Equity Trust is
long-term capital appreciation. Morgan Stanley Asset Management Inc. manages the
Global Equity Trust and intends to pursue this objective by investing primarily
in equity securities of issuers throughout the world, including U.S. issuers.
SMALL COMPANY VALUE TRUST. The investment objective of the Small Company Value
Trust is long-term growth of capital. Rosenberg Institutional Equity Management
manages the Small Company Value Trust and
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<PAGE> 23
intends to pursue this objective by investing in equity securities of smaller
companies which are traded principally in the markets of the United States.
EQUITY TRUST. The principal investment objective of the Equity Trust is growth
of capital. Current income is a secondary consideration although growth of
income may accompany growth of capital. Fidelity Management Trust Company
manages the Equity Trust and seeks to attain the foregoing objective by
investing primarily in common stocks of United States issuers or securities
convertible into or which carry the right to buy common stocks.
GROWTH TRUST. The investment objective of the Growth Trust is to seek long-term
growth of capital. Founders manages the Growth Trust and will pursue this
objective by investing, under normal market conditions, at least 65% of its
total assets in common stocks of well-established, high-quality growth companies
that Founders believes have the potential to increase earnings faster than the
rest of the market.
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. MAC manages
the Quantitative Equity Trust.
EQUITY INDEX TRUST. The investment objective of the Equity Index Trust is to
achieve investment results which approximate the total return of publicly traded
common stocks in the aggregate, as represented by the Standard & Poor's 500
Composite Stock Price Index. MAC manages the Equity Index Trust.
BLUE CHIP GROWTH TRUST. The primary investment objective of the Blue Chip
Growth Trust is to provide long-term growth of capital. Current income is a
secondary objective, and many of the stocks in the Portfolio are expected to pay
dividends. T. Rowe Price Associates, Inc. manages the Blue Chip Growth Trust.
REAL ESTATE SECURITIES TRUST. The investment objective of the Real Estate
Securities Trust is to achieve a combination of long-term capital appreciation
and satisfactory current income by investing in real estate related equity and
debt securities. MAC manages the Real Estate Securities Trust.
GROWTH & INCOME PORTFOLIOS
VALUE TRUST. The investment objective of the Value Trust is to realize an
above-average total return over a market cycle of three to five years,
consistent with reasonable risk. Miller Anderson & Sherrerd, LLP ("MAS") manages
the Value Trust and seeks to attain this objective by investing primarily in
common and preferred stocks, convertible securities, rights and warrants to
purchase common stocks, ADRs and other equity securities of companies with
equity capitalizations usually greater than $300 million.
INTERNATIONAL GROWTH AND INCOME TRUST. The investment objective of the
International Growth and Income Trust is to seek long-term growth of capital and
income. The portfolio is designed for investors with a long-term investment
horizon who want to take advantage of investment opportunities outside the
United States. J.P. Morgan Investment Management Inc. manages the International
Growth and Income Trust.
GROWTH AND INCOME TRUST. The investment objective of the Growth and Income
Trust is to provide long-term growth of capital and income consistent with
prudent investment risk. Wellington Management Company manages the Growth and
Income Trust and seeks to achieve the Trust's objective by investing primarily
in a diversified portfolio of common stocks of U.S. issuers which Wellington
Management Company believes are of high quality.
EQUITY-INCOME TRUST. The investment objective of the Equity-Income Trust (prior
to December 31, 1996, the "Value Equity Trust") is to provide substantial
dividend income and also long term capital appreciation. T. Rowe Price
Associates, Inc. manages the Equity-Income Trust and seeks to attain this
objective by investing primarily in dividend-paying common stocks, particularly
of established companies with favorable prospects for both increasing dividends
and capital appreciation.
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<PAGE> 24
BALANCED PORTFOLIOS
BALANCED TRUST. The investment objective of the Balanced Trust is current
income and capital appreciation. Founders Asset Management, Inc. is the manager
of the Balanced Trust and seeks to attain this objective by investing in a
balanced portfolio of common stocks, U.S. and foreign government obligations and
a variety of corporate fixed-income securities.
AUTOMATIC ASSET ALLOCATION TRUSTS (AGGRESSIVE, MODERATE AND CONSERVATIVE). The
investment objective of each of the Automatic Asset Allocation Trusts is to
realize the highest potential total return consistent with a specified level of
risk tolerance -- conservative, moderate or aggressive. The amount of each
Portfolio's assets invested in each category of securities -- debt, equity, and
money market -- is dependent upon the judgment of Fidelity Management Trust
Company as to what percentages of each Portfolio's assets in each category will
contribute to the limitation of risk and the achievement of its investment
objective.
BOND PORTFOLIOS
HIGH YIELD TRUST. The investment objective of High Yield Trust is to realize an
above-average total return over a market cycle of three to five years,
consistent with reasonable risk. MAS manages the High Yield Trust and seeks to
attain this objective by investing primarily in high yield debt securities,
including corporate bonds and other fixed-income securities.
STRATEGIC BOND TRUST. The investment objective of the Strategic Bond Trust is
to seek a high level of total return consistent with preservation of capital.
The Strategic Bond Trust seeks to achieve its objective by giving its
Subadviser, Salomon Brothers Asset Management Inc ("SBAM") broad discretion to
deploy the Strategic Bond Trust's assets among certain segments of the
fixed-income market as SBAM believes will best contribute to the achievement of
the portfolio's objective.
GLOBAL GOVERNMENT BOND TRUST. The investment objective of the Global Government
Bond Trust is to seek a high level of total return by placing primary emphasis
on high current income and the preservation of capital. Oechsle International
Advisors, L.P. manages the Global Government Bond Trust and intends to pursue
this objective by investing primarily in a selected global portfolio of
high-quality, fixed-income securities of foreign and U.S. governmental entities
and supranational issuers.
CAPITAL GROWTH BOND TRUST. The investment objective of the Capital Growth Bond
Trust is to achieve growth of capital by investing in medium-grade or better
debt securities, with income as a secondary consideration. MAC manages the
Capital Growth Bond Trust. The Capital Growth Bond Trust differs from most
"bond" funds in that its primary objective is capital appreciation, not income.
INVESTMENT QUALITY BOND TRUST. The investment objective of the Investment
Quality Bond Trust is to provide a high level of current income consistent with
the maintenance of principal and liquidity. Wellington Management Company
manages the Investment Quality Bond Trust and seeks to achieve the Trust's
objective by investing primarily in a diversified portfolio of investment grade
corporate bonds and U.S. Government bonds with intermediate to longer term
maturities.
U.S. GOVERNMENT SECURITIES TRUST. The investment objective of the U.S.
Government Securities Trust is to obtain a high level of current income
consistent with preservation of capital and maintenance of liquidity. SBAM
manages the U.S. Government Securities Trust and seeks to attain its objective
by investing a substantial portion of its assets in debt obligations and
mortgage-backed securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities and derivative securities such as collateralized
mortgage obligations backed by such securities.
MONEY MARKET PORTFOLIO
MONEY MARKET TRUST. The investment objective of the Money Market Trust is to
obtain maximum current income consistent with preservation of principal and
liquidity. MAC manages the Money Market Trust and seeks to achieve this
objective by investing in high quality, U.S. dollar denominated money market
instruments.
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<PAGE> 25
LIFESTYLE PORTFOLIOS
LIFESTYLE AGGRESSIVE 1000 TRUST. The investment objective of the Lifestyle
Aggressive 1000 Trust is to provide long term growth of capital. Current income
is not a consideration. MAC seeks to achieve this objective by investing
approximately 100% of the Lifestyle Trust's assets in Underlying Portfolios
which invest primarily in equity securities.
LIFESTYLE GROWTH 820 TRUST. The investment objective of the Lifestyle Growth
820 Trust is to provide long term growth of capital with consideration also
given to current income. MAC seeks to achieve this objective by investing
approximately 20% of the Lifestyle Trust's assets in Underlying Portfolios which
invest primarily in fixed income securities and approximately 80% of its assets
in Underlying Portfolios which invest primarily in equity securities.
LIFESTYLE BALANCED 640 TRUST. The investment objective of the Lifestyle
Balanced 640 Trust is to provide a balance between high level of current income
and growth of capital with a greater emphasis given to capital growth. MAC seeks
to achieve this objective by investing approximately 40% of the Lifestyle
Trust's assets in Underlying Portfolios which invest primarily in fixed income
securities and approximately 60% of its assets in Underlying Portfolios which
invest primarily in equity securities.
LIFESTYLE MODERATE 460 TRUST. The investment objective of the Lifestyle
Moderate 460 Trust is to provide a balance between a high level of current
income and growth of capital with a greater emphasis given to high income. MAC
seeks to achieve this objective by investing approximately 60% of the Lifestyle
Trust's assets in Underlying Portfolios which invest primarily in fixed income
securities and approximately 40% of its assets in Underlying Portfolios which
invest primarily in equity securities.
LIFESTYLE CONSERVATIVE 280 TRUST. The investment objective of the Lifestyle
Conservative 280 Trust is to provide a high level of current income with some
consideration also given to growth of capital. MAC seeks to achieve this
objective by investing approximately 80% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 60% of its assets in Underlying Portfolios which invest primarily
in equity securities.
A full description of the Manufacturers Investment Trust, its investment
objectives, policies and restrictions, the risks associated therewith, its
expenses, and other aspects of its operation is contained in the accompanying
Manufacturers Investment Trust prospectus, which should be read together with
this prospectus.
14
<PAGE> 26
DETAILED INFORMATION ABOUT THE POLICIES
PREMIUM PROVISIONS
POLICY ISSUE AND INITIAL PREMIUM
To purchase a Policy, an applicant must submit a completed application.
Manufacturers Life of America will issue a Policy only if it has a face amount
of at least $50,000 ($100,000 for preferred risk policies). A Policy will
generally be issued to persons between ages 0 and 90. In certain circumstances
the Company may at its sole discretion issue a Policy to persons above age 90.
Before issuing a Policy, Manufacturers Life of America will require evidence of
insurability satisfactory to it. A life insured will have a risk class of
preferred/non-smoker, preferred/smoker, standard/non-smoker or standard/smoker
as determined by underwriting rules. Persons failing to meet standard
underwriting requirements nonetheless may be eligible to purchase a Policy
provided an additional rating is assigned. Acceptance of an application is
subject to the Company's insurance underwriting rules. Each Policy is issued
with a policy date from which policy years, policy months and policy
anniversaries are all determined. Each Policy also has an effective date which
is the date the Company becomes obligated under the Policy and when the first
monthly deductions are taken. If an application is accompanied by a check for at
least the Initial Premium and the application is accepted, the policy date will
be the date the application and check were received at the Manufacturers Life of
America Service Office and the effective date will be the date Manufacturers
Life of America's underwriters approve issuance of the Policy. If an application
is accompanied by a check for at least the Initial Premium, the life insured may
be covered under the terms of a conditional insurance agreement until the
effective date. If an application accepted by the Company is not accompanied by
a check for at least the Initial Premium, the Policy will be issued with a
policy date which is seven days after issuance of the Policy (the "issue date")
and with an effective date which is the date the Service Office receives at
least the Initial Premium. In certain situations a different policy date may be
used. The Initial Premium must be received within 60 days after the policy date;
however, the Initial Premium may be required within 30 days on Policies issued
with Additional Ratings. If the Initial Premium is not paid or if the
application is rejected, the Policy will be cancelled and any premiums paid will
be returned to the applicant.
Under certain circumstances a Policy may be issued with a backdated policy date.
A Policy will not be backdated more than six months (twelve months where allowed
by state regulation) before the date of the application for the Policy. Monthly
deductions will be made for the period the policy date is backdated.
All premiums received prior to the effective date of a Policy will be credited
with interest from the date of receipt at the rate of return then being earned
on amounts allocated to the Money Market Trust. On the effective date, the
premiums paid plus interest credited, net of deductions for federal, state and
local taxes, will be allocated among the Investment Accounts or the Guaranteed
Interest Account in accordance with the policyowner's instructions.
All premiums received on or after the effective date of the Policy will be
allocated among the Investment Accounts or the Guaranteed Interest Account as of
the date the premiums were received at the Manufacturers Life of America Service
Office. Monthly deductions are due on the policy date and at the beginning of
each policy month thereafter. However, if due prior to the effective date, they
will be taken on the effective date instead of the dates they were due.
PREMIUM ALLOCATION
Net Premiums may be allocated to either the Guaranteed Interest Account for
accumulation at a rate of interest equal to at least 4% or to one or more of the
Investment Accounts for investment in the Portfolio shares held by the
corresponding sub-account of the Separate Account. Allocations among the
Investment Accounts and the Guaranteed Interest Account are made as a percentage
of the Net Premium. The percentage allocation to any account may be any whole
number between zero and 100, provided the total percentage allocations equal
100. A policyowner may change the way in which Net Premiums are allocated at
15
<PAGE> 27
any time without charge. The change will take effect on the date a written or
telephonic request for change, in a format satisfactory to the Company, is
received at the Manufacturers Life of America Service Office.
PREMIUM LIMITATIONS
After the payment of the Initial Premium, premiums may be paid at any time and
in any amount during the lifetime of the life insured subject to certain
limitations. After the Initial Premium, all premiums must be paid to the
Manufacturers Life of America Service Office. Unlike traditional insurance,
premiums are not payable at specified intervals or in specified amounts. A
Policy will be issued with a Planned Premium which is based on the amount of
premium the policyowner wishes to pay. It is recommended that the Planned
Premium be such that the Cumulative Premium Test (see Insurance Benefits --
"Death Benefit Guarantee") will be satisfied.
Manufacturers Life of America will send notices to the policyowner setting forth
the Planned Premium at the payment interval selected by the policyowner, unless
payment is being made pursuant to a pre-authorized payment plan. However, the
policyowner is under no obligation to make the indicated payment.
Manufacturers Life of America will not accept any premium payment which is less
than $50, unless the premium is payable pursuant to a pre-authorized payment
plan. In that case the Company will accept a payment of as little as $10.
Manufacturers Life of America may change these minimums on 90 days' written
notice. The Policies also limit the sum of the premiums that may be paid at any
time in order to preserve the qualification of the Policies as life insurance
for federal tax purposes. These limitations are set forth in each Policy.
Manufacturers Life of America reserves the right to refuse or refund any premium
payments that may cause the Policy to fail to qualify as life insurance under
applicable tax law.
SHORT-TERM CANCELLATION RIGHT AND "FREE LOOK" PROVISIONS
A Policy may be returned for a refund of the premium within 10 days after it is
received, within 45 days after the application for the Policy is signed, or
within 10 days after Manufacturers Life of America mails or delivers a notice of
right of withdrawal, whichever is latest. The Policy can be mailed or delivered
to the Manufacturers Life of America agent who sold it or to the Manufacturers
Life of America Service Office. Immediately on such delivery or mailing, the
Policy shall be deemed void from the beginning. Within seven days after receipt
of the returned Policy at its Service Office, Manufacturers Life of America will
refund any premium paid. Manufacturers Life of America reserves the right to
delay the refund of any premium paid by check until the check has cleared.
If a policyowner requests an increase in face amount which results in new
surrender charges, he or she will have the same rights as described above to
cancel the increase. If cancelled, the Policy Value and the surrender charges
will be recalculated to the amounts they would have been had the increase not
taken place. A policyowner may request a refund of all or any portion of
premiums paid during the free look period, and the Policy Value and the
surrender charges will be recalculated to the amounts they would have been had
the premiums not been paid.
INSURANCE BENEFIT
THE INSURANCE BENEFIT
If the Policy is in force at the time of the life insured's death, Manufacturers
Life of America will pay an insurance benefit based on the death benefit option
selected by the policyowner upon receipt of due proof of death. The amount
payable will be the death benefit under the selected option, plus any amounts
payable under any supplementary benefits added to the Policy, less the value of
the Loan Account at the date of death. The insurance benefit will be paid in one
sum unless another form of settlement option is agreed to by the beneficiary and
the Company. If the insurance benefit is paid in one sum, Manufacturers Life of
America will pay interest from the date of death to the date of payment. If the
life insured should die after the Company's
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<PAGE> 28
receipt of a request for surrender, no insurance benefit will be payable, and
Manufacturers Life of America will pay only the Net Cash Surrender Value.
NO LAPSE GUARANTEE
In those states where it is permitted, on Policies issued with a face amount of
at least $250,000 (calculated as described below), the policyowner may elect the
No Lapse Guarantee (in Illinois this benefit is known as Minimum Premium
Guarantee). If elected, as long as the No Lapse Guarantee Cumulative Premium
Test (see below) is satisfied during the No Lapse Guarantee Period, as described
below, Manufacturers Life of America will guarantee that the Policy will not go
into default (see OTHER GENERAL PROVISIONS -- "Policy Default"), even if a
combination of Policy loans, adverse investment experience and other factors
should cause the Policy's Net Cash Surrender Value to be insufficient to meet
the monthly deductions due at the beginning of a policy month. For purposes of
determining the face amount at issue for the No Lapse Guarantee, the face amount
shall include any amounts purchased under the supplementary insurance option.
The No Lapse Guarantee Period is the first 5 Policy Years for life insureds with
an issue age up to and including 85. It is not offered to life insureds whose
Issue Age exceeds 85.
While the No Lapse Guarantee is in effect, Manufacturers Life of America will
determine at the beginning of each policy month whether the No Lapse Guarantee
Cumulative Premium Test, described below, has been satisfied. If it has not been
satisfied, the Company will notify the policyowner of that fact and allow a
61-day grace period in which the policyowner may make a premium payment
sufficient to keep the No Lapse Guarantee in effect. This required payment, as
described in the notification to the policyowner, will be equal to the
outstanding premium requirement as of the date the No Lapse Guarantee was not
satisfied plus the Monthly No Lapse Guarantee Premium due for the next two
policy months. If the required payment is not received by the end of the grace
period, the No Lapse Guarantee will terminate, and the Policy subsequently may
go into default if the Policy's Net Cash Surrender Value is insufficient to meet
the monthly deductions due at the beginning of a policy month. A death benefit
option change will also terminate the No Lapse Guarantee if it is in effect at
the time of the change as will a decrease in face amount below $250,000. The No
Lapse Guarantee cannot be reinstated after it has been terminated. See OTHER
GENERAL POLICY PROVISIONS -- "Policy Default," and INSURANCE BENEFIT -- "Death
Benefit Option Changes."
NO LAPSE GUARANTEE CUMULATIVE PREMIUM TEST
The No Lapse Guarantee Cumulative Premium Test is satisfied if, as of the
beginning of the policy month, the sum of all premiums paid to date less any
partial withdrawals and less any Policy Debt is at least equal to the sum of the
Monthly No Lapse Guarantee Premiums due since the policy date, as follows:
The Policy will satisfy the No Lapse Guarantee Cumulative Premium Test if (a) is
greater than or equal to (b), where:
(a) is the sum of all premiums paid, less any partial withdrawals and less
any Policy Debt;
and
(b) is the sum of the Monthly No Lapse Guarantee Premiums due since the
policy date.
The Monthly No Lapse Guarantee Premium is one-twelfth of the No Lapse Guarantee
Premium. The No Lapse Guarantee Premium is set forth in the Policy. It is
subject to change if the face amount of the Policy is changed (see INSURANCE
BENEFIT -- "Face Amount Changes"), or if there is any change in the
supplementary benefits added to the Policy or in the risk class of any life
insured.
DEATH BENEFIT GUARANTEE
Policies With Face Amounts Of At Least $250,000. If permitted by state law and
elected by the policyowner, on policies issued and maintained with a minimum
face amount of $250,000, if the Cumulative Premium Test
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<PAGE> 29
(see below) is satisfied, Manufacturers Life of America will guarantee that the
Policy will not go into default (See OTHER GENERAL POLICY PROVISIONS -- "Policy
Default") even if a combination of policy loans, adverse investment experience
or other factors should cause the Policy's Net Cash Surrender Value to be
insufficient to meet the monthly deductions due at the beginning of a policy
month.
If permitted by state law and elected by the policyowner, on Policies issued and
maintained with a minimum face amount of $250,000, if after the tenth policy
anniversary the Cumulative Premium Test is not satisfied but the Fund Value Test
(see below) is satisfied, Manufacturers Life of America will keep the Death
Benefit Guarantee in effect.
This Death Benefit Guarantee, which is not available in the state of New Jersey,
will expire at the end of a policy year specified in the Policy, currently (i)
the year in which the life insured reaches attained age 100 if Death Benefit
Option 1 is maintained throughout the life of the Policy and (ii) the year in
which the life insured reaches attained age 85 if Death Benefit Option 2 is
selected at any time. While the guarantee is in effect, Manufacturers Life of
America will determine at the beginning of each policy month whether the
Cumulative Premium Test or the Fund Value Test has been satisfied. If neither
has been satisfied, the Company will notify the policyowner of that fact and
allow a 61-day grace period in which the policyowner may make a premium payment
sufficient to keep the Death Benefit Guarantee in effect. The required payment
will be equal to the outstanding premium required to meet the Cumulative Premium
Test at the date neither test was satisfied, plus the Monthly Death Benefit
Guarantee Premium due for the next two policy months. If the required payment is
not received by the end of the grace period, the Death Benefit Guarantee will
terminate. Once the Death Benefit Guarantee is terminated, it cannot be
reinstated.
POLICIES WITH FACE AMOUNTS UNDER $250,000. If permitted by state law and
elected by the policyowner, on Policies with a face amount less than $250,000 at
issue or after face amount decrease, if the Cumulative Premium Test is satisfied
in the first three years, Manufacturers Life of America will guarantee that the
Policy will not go into default even if a combination of policy loans, adverse
investment experience or other factors should cause the Policy's Net Cash
Surrender Value to be insufficient to meet the monthly deductions due at the
beginning of a policy month. After the third policy anniversary, there is no
Death Benefit Guarantee on (a) Policies issued with face amounts of less than
$250,000 or (b) Policies on which a face amount decrease has resulted in a face
amount of less than $250,000.
CUMULATIVE PREMIUM TEST. The Policy provides for a Cumulative Premium Test. The
Cumulative Premium Test is satisfied if at the beginning of each policy month
the sum of all premiums paid to date less any partial withdrawals and any Policy
Debt is at least equal to the sum of the Monthly Death Benefit Guarantee
Premiums due since the policy date. The Death Benefit Guarantee Premium will
increase when the insured attains age 70. The Death Benefit Guarantee Premiums
for ages 0-69 and age 70 and above are set forth in the Policy. It is subject to
change if the face amount of the Policy or the death benefit option is changed
(see -- "Death Benefit Option Changes" and "Face Amount Changes") or if there is
any change in the supplementary benefits added to the Policy or in the risk
class of the life insured.
FUND VALUE TEST. The Policy provides for a Fund Value Test. The Fund Value Test
is applicable after the tenth anniversary of the Policy. The Fund Value Test is
satisfied if at the beginning of each policy month the Net Policy Value is
greater than or equal to the Gross Single Premium.
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<PAGE> 30
DEATH BENEFIT OPTIONS
The Policy permits the policyowner to select one of two death benefit options --
Option 1 and Option 2. Under Option 1 the death benefit is the face amount of
the Policy at the date of death or, if greater, the Policy Value at the date of
death multiplied by the applicable percentage in the table set forth below.
Under Option 2 the death benefit is the face amount of the Policy plus the
Policy Value at the date of death or, if greater, the Policy Value at the date
of death multiplied by the applicable percentage in the following table:
<TABLE>
<CAPTION>
CORRIDOR
AGE PERCENTAGE
<S> <C>
40 & below 250%
41 243
42 236
43 229
44 222
45 215
46 209
47 203
48 197
49 191
50 185
</TABLE>
<TABLE>
<CAPTION>
CORRIDOR
AGE PERCENTAGE
<S> <C>
51 178%
52 171
53 164
54 157
55 150
56 146
57 142
58 138
59 134
60 130
61 128
</TABLE>
<TABLE>
<CAPTION>
CORRIDOR
AGE PERCENTAGE
<S> <C>
62 126%
63 124
64 122
65 120
66 119
67 118
68 117
69 116
70 115
71 113
72 111
</TABLE>
<TABLE>
<CAPTION>
CORRIDOR
AGE PERCENTAGE
<S> <C>
73 109%
74 107
75-90 105
91 104
92 103
93 102
94 101
95 & above 100
</TABLE>
Regardless of which death benefit option is in effect, the relationship of
Policy Value to death benefit will change whenever the "corridor percentages"
are used to determine the amount of the death benefit. This will occur whenever
multiplying the Policy Value by the applicable percentage set forth in the above
table results in a greater death benefit than would otherwise apply under the
selected option. For example, assume the life insured under a Policy with a face
amount of $100,000 has an attained age of 40. If Option 1 is in effect, the
corridor percentage will produce a greater death benefit whenever the Policy
Value exceeds $40,000 (250% X $40,000 = $100,000). If the Policy Value is less
than $40,000, an incremental change in Policy Value, up or down, will have no
effect on the death benefit. If the Policy Value is greater than $40,000, an
incremental change in Policy Value will result in a change in the death benefit
by a factor of 2.5. Thus, if the Policy Value were to increase to $40,010, the
death benefit would be increased to $100,025 (250% X $40,010 = $100,025).
If Option 2 were in effect in the above example, the corridor percentage would
produce a greater death benefit whenever the Policy Value exceeded $66,667 (250%
X 66,667 = 166,667). At that point the death benefit produced by multiplying the
Policy Value by 250% would result in a greater amount than adding the Policy
Value to the face amount of the Policy. If the Policy Value is less than
$66,667, an incremental change in Policy Value will have a dollar-for-dollar
effect on the death benefit. If the Policy Value is greater than $66,667, an
incremental change in Policy Value will result in a change in the death benefit
by a factor of 2.5 in the same manner as would be the case under Option 1 when
the corridor percentage determined the death benefit.
DEATH BENEFIT OPTION CHANGES
The death benefit option is selected initially by the policyowner in the
application. After the Policy has been in force for two years the death benefit
option may be changed effective as of any subsequent policy month. Written
request for a change must be received by Manufacturers Life of America at least
30 days prior to the beginning of a policy month in order to become effective on
that date. The Company reserves the right to limit a request for change if the
change would cause the Policy to fail to qualify as life insurance for tax
purposes.
A change in death benefit option will result in a change in the Policy's face
amount in order to avoid any change in the amount of the death benefit.
If the change in death benefit is from Option 1 to Option 2, the new face amount
will be equal to the face amount prior to the change minus the Policy Value on
the effective date of the change. A change to Option 2 will not be allowed if it
would cause the face amount of the Policy to go below the minimum face amount of
$50,000 ($100,000 for preferred risk policies). A change of death benefit option
to Option 2 will shorten the death benefit guarantee period to the year in which
the life insured reaches attained age 85.
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<PAGE> 31
If the change in death benefit is from Option 2 to Option 1, the new face amount
will be equal to the face amount prior to the change plus the Policy Value on
the effective date of the change. The increase in face amount resulting from a
change to Option 1 will not affect the amount of surrender charges to which a
Policy may be subject. The Company has the right to require satisfactory
evidence of insurability before permitting a change from Option 2 to Option 1.
The Company does not currently require evidence of insurability when making this
change.
Policyowners who wish to have level insurance coverage should generally select
Option 1. Under Option 1, increases in Policy Value usually will reduce the net
amount of risk under a Policy which will reduce cost of insurance charges. This
means that favorable investment performance should result in a faster increase
in Policy Value than would occur under an identical Policy with Option 2 in
effect. However, the larger Policy Value which may result under Option 1 will
not affect the amount of the death benefit unless the corridor percentages are
used to determine the death benefit.
Policyowners who want to have the Policy Value reflected in the death benefit so
that any increases in Policy Value will increase the death benefit should
generally select Option 2. Under Option 2, the net amount at risk will remain
level unless the corridor percentages are used to determine death benefit, in
which case increases in Policy Value will increase the net amount at risk.
FACE AMOUNT CHANGES
Subject to certain limitations, a policyowner may, upon written request,
increase or decrease the face amount of the Policy. A change in face amount may
affect the Death Benefit Guarantee Premium, the monthly deductions and surrender
charges (see "Charges And Deductions"). Currently, each increase or decrease
(other than a decrease resulting from a partial withdrawal) in face amount must
be at least $50,000 ($100,000 for increases in preferred risk policies and
$10,000 for increases in connection with Policies purchased under group or
sponsored arrangements). Manufacturers Life of America reserves the right to
increase or decrease the minimum face amount change on 90 days' written notice
to the policyowner. The Company also reserves the right to limit a change in
face amount to the extent necessary to prevent the Policy from failing to
qualify as life insurance for tax purposes.
INCREASES. Increases in face amount are subject to satisfactory evidence of
insurability. Increases may be made only once per policy year and only after the
second policy anniversary. An increase will become effective at the beginning of
the next policy month following the date Manufacturers Life of America approves
the requested increase. The Company reserves the right to refuse a requested
increase if the life insured's age at the effective date of the increase would
be greater than the maximum issue age for new Policies at that time.
An increase in face amount will usually result in the Policy's being subject to
new surrender charges. The new surrender charges will be computed as if a new
Policy were being purchased for the increase in face amount. For purposes of
determining the new deferred sales charge, a portion of the Policy Value at the
time of the increase, and a portion of the premiums paid on or subsequent to the
increase, will be deemed to be premiums attributable to the increase. See
CHARGES AND DEDUCTIONS -- "Surrender Charges." Any increase in face amount to a
level less than the highest face amount previously in effect will have no effect
on the surrender charges to which the Policy is subject, since surrender
charges, if applicable, will have been assessed in connection with the prior
decrease in face amount. The insurance coverage eliminated by the decrease of
the oldest face amount will be deemed to be restored first. As with the purchase
of a Policy, a policyowner will have free look and sales charge limitation
rights with respect to any increase resulting in new surrender charges.
No additional premium is required for a face amount increase. However, a premium
payment may be necessary to prevent the Policy from going into default, since
new surrender charges resulting from an increase would automatically reduce the
Net Cash Surrender Value of the Policy. Moreover, a new Death Benefit Guarantee
Premium will be determined.
20
<PAGE> 32
DECREASES. A decrease in the face amount may be requested only once per policy
year and only after the Policy has been in force for two years, except during
the two-year period following any increase in face amount. In addition, during
the two-year period following an increase in face amount, the policyowner may
choose to decrease the increased face amount and have the deferred sales charge
for the increase reduced by applicable limitations on sales charges attributable
to the increase. A decrease in face amount will become effective at the
beginning of the next policy month following the receipt of a properly executed
request. A decrease will not be allowed if it would cause the face amount to go
below the minimum face amount of $50,000 ($100,000 for preferred risk policies).
A decrease in face amount during the Surrender Charge Period will usually result
in surrender charges being deducted from the Policy Value. See CHARGES AND
DEDUCTIONS -- "Surrender Charges." For purposes of determining surrender and
cost of insurance charges, a decrease will reduce face amount in the following
order: (a) the face amount provided by the most recent increase, then (b) the
face amounts provided by the next most recent increases successively, and
finally (c) the initial face amount.
POLICY VALUES
POLICY VALUE
A Policy has a Policy Value, a portion of which is available to the policyowner
by making a policy loan or partial withdrawal or upon surrender of the Policy.
See "Policy Loans" and "Partial Withdrawals And Surrenders" below. The Policy
Value may also affect the amount of the death benefit. See INSURANCE BENEFIT --
"Death Benefit Options." The Policy Value at any time is equal to the sum of the
Values in the Investment Accounts, the Guaranteed Interest Account and the Loan
Account. The following discussion relates only to the Investment Accounts.
Policy loans are discussed under "Policy Loans" and the Guaranteed Interest
Account is discussed under "The General Account." The portion of the Policy
Value based on the Investment Accounts is not guaranteed and will vary each
Business Day with the investment performance of the underlying Portfolio.
An Investment Account is established under each Policy for each sub-account of
the Separate Account to which net premiums or transfer amounts have been
allocated. Each Investment Account under a Policy measures the interest of the
Policy in the corresponding sub-account. The value of the Investment Account
established for a particular sub-account is equal to the number of units of that
sub-account credited to the Policy times the value of such units.
Units of a particular sub-account are credited to a Policy when net premiums are
allocated to that sub-account or amounts are transferred to that sub-account.
Units of a sub-account are cancelled whenever amounts are deducted, transferred
or withdrawn from the sub-account. The number of units credited or cancelled for
a specific transaction is based on the dollar amount of the transaction divided
by the value of the unit at the end of the Business Day on which the transaction
occurs. The number of units credited with respect to a premium payment will be
based on the applicable unit values at the end of the Business Day on which the
premium is received at the Manufacturers Life of America Service Office or other
office or entity so designated by Manufacturers Life of America.
Units are valued at the end of each Business Day. A Business Day is deemed to
end at the time of the determination of the net asset value of the Fund shares.
When an order involving the crediting or cancelling of units is received after
the end of a Business Day or on a day which is not a Business Day, the order
will be processed on the basis of unit values determined at the end of the next
Business Day. Similarly, any determination of Policy Value, Investment Account
value or death benefit to be made on a day which is not a Business Day will be
made at the end of the next Business Day.
The value of a unit of each sub-account was initially fixed at $10. For each
subsequent Business Day the unit value is determined by multiplying the unit
value for the preceding Business Day by the "net investment
21
<PAGE> 33
factor" for the particular sub-account for such subsequent Business Day. The net
investment factor for a sub-account for any Business Day is equal to (a) divided
by (b), where:
(a) is the net asset value of the underlying Portfolio shares held by that
sub-account at the end of such Business Day before any policy
transactions are made on that day;
(b) is the net asset value of the underlying Portfolio shares held by that
sub-account at the end of the immediately preceding Business Day after
all policy transactions have been made for that day.
Manufacturers Life of America reserves the right to adjust the above formula for
any taxes determined by it to be attributable to the operations of the
sub-account.
TRANSFERS OF POLICY VALUE
A policyowner may change the extent to which his or her Policy Value is based
upon any specific sub-account of the Separate Account or the Company's general
account. Such changes are made by transferring amounts from one or more
Investment Accounts or the Company's general account to other Investment
Accounts or the Company's general account. A policyowner is permitted to make
twelve transfers each policy year free of charge. Additional transfers in each
policy year may be made at a cost of $25 per transfer. This charge will be
assessed against the Investment Account or Guaranteed Interest Account from
which the amount is being transferred. For this purpose all transfer requests
received by Manufacturers Life of America on the same Business Day are treated
as a single transfer request.
The maximum amount that may be transferred from the Guaranteed Interest Account
in any one policy year is the greater of $500 or 15% of the Guaranteed Interest
Account value at the previous policy anniversary. Any transfer which involves a
transfer out of the Guaranteed Interest Account may not involve a transfer to
the Investment Account for the Money Market Trust.
Transfer requests must be in a format satisfactory to Manufacturers Life of
America and in writing, or by telephone, if a currently valid telephone transfer
authorization form is on file. Although failure to follow reasonable procedures
may result in Manufacturers Life of America's liability for any losses resulting
from unauthorized or fraudulent telephone transfers, Manufacturers Life of
America will not be liable for following instructions communicated by telephone
that it reasonably believes to be genuine. Manufacturers Life of America will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. Such procedures shall consist of confirming a valid
telephone authorization form is on file, tape recording all telephone
transactions and providing written confirmation thereof.
The policyowner may effectively convert his or her Policy to a fixed benefit
policy by transferring the Policy Value in all of the Investment Accounts to the
Guaranteed Interest Account and by changing his or her allocation of net
premiums entirely to the Guaranteed Interest Account. As long as the entire
Policy Value is allocated to the Guaranteed Interest Account, the Policy Value,
other values based thereon and the death benefit will be determinable and
guaranteed. The Investment Account values to be transferred to the Guaranteed
Interest Account will be determined as of the Business Day on which
Manufacturers Life of America receives the request for conversion. There will be
no change in the issue age, risk class of the life insured or face amount as a
result of the conversion. A transfer of any or all of the Policy Value to the
Guaranteed Interest Account can be made at any time, even if a prior transfer
has been made during the policy month.
LIMITATIONS. To the extent that total surrenders, partial withdrawals and
transfers out of a sub-account exceed total net premium allocations and
transfers into that sub-account, portfolio securities of the underlying
Portfolio may have to be sold. Excessive sales of the investment portfolio
securities in such a situation could be detrimental to that Portfolio and to
policyowners with Policy Values allocated to sub-accounts investing in that
Portfolio. To protect the interests of all policyowners, the Policy's transfer
privilege is limited as described below.
22
<PAGE> 34
So long as effecting net transfers out of the Equity Index Sub-account in a
particular Business Day would not reduce the number of shares of the underlying
Equity Index Trust outstanding at the close of the prior Business Day by more
than 5%, all such transfers will be effected. However, net transfers out of that
sub-account greater than 5% would be permitted only if, and to the extent that,
in the judgment of Manufacturers Adviser Corporation, they would not result in
detriment to the underlying Equity Index Trust or to the interests of
policyowners or others with assets allocated to that Portfolio. If and when
transfers must be limited to avoid such detriment, some requests will not be
effected. In determining which requests will be effected, transfers pursuant to
the Dollar Cost Averaging program will be effected first, followed by Asset
Allocation Balancer transfers, written requests next and telephone requests
last. Within each such group, requests will be processed in the order received,
to the extent possible. Policyowners whose transfer requests are not effected
will be so notified. Current S.E.C. rules preclude the Company from processing
at a later date those requests that were not effected. Accordingly, a new
transfer request would have to be submitted in order to effect a transfer that
was not effected because of the limitations described in this paragraph.
Manufacturers Life of America may be permitted to limit transfers in certain
other circumstances. See Other Provisions -- "Payment Of Proceeds."
DOLLAR COST AVERAGING. Manufacturers Life of America will offer policyowners a
Dollar Cost Averaging program. Under this program amounts will be automatically
transferred at predetermined intervals from one Investment Account to any other
Investment Account(s) or the Guaranteed Interest Account.
Under the Dollar Cost Averaging program the policyowner will designate an amount
to be transferred at predetermined intervals from one Investment Account into
any other Investment Account(s) or the Guaranteed Interest Account. Each
transfer under the Dollar Cost Averaging program must be of a minimum amount as
set by Manufacturers Life of America. Once set, this minimum may be changed at
any time at the discretion of Manufacturers Life of America. Currently, no
charge will be made for this program if the Policy Value exceeds $15,000 on the
date of transfer. Otherwise, there will be a charge of $5 for each transfer
under this program. The charge will be deducted from the value of the Investment
Account out of which the transfer occurs. If insufficient funds exist to effect
a Dollar Cost Averaging transfer, including the charge, if applicable, the
transfer will not be effected and the policyowner will be so notified.
Manufacturers Life of America reserves the right to cease to offer this program
on 90 days' written notice to the policyowner.
ASSET ALLOCATION BALANCER TRANSFERS. Manufacturers Life of America will also
offer policyowners the ability to have amounts automatically transferred among
stipulated Investment Accounts to maintain an allocated percentage in each
stipulated Investment Account.
Under the Asset Allocation Balancer program the policyowner will designate an
allocation of Policy Value among Investment Accounts. At six month intervals,
beginning six months after the policy date, Manufacturers Life of America will
move amounts among the Investment Accounts as necessary to maintain the
policyowner's chosen allocation. A change to the policyowner's premium
allocation instructions will automatically result in a change in Asset
Allocation Balancer instructions so that the two are identical unless the
policyowner either instructs Manufacturers Life of America differently or a
Dollar Cost Averaging request is in effect. Currently, there is no charge for
this program; however, Manufacturers Life of America reserves the right to
institute a charge on 90 days' written notice to the policyowner.
Manufacturers Life of America reserves the right to cease to offer this program
on 90 days' written notice to the policyowner.
POLICY LOANS
While the Policy is in force, the policyowner may borrow against the Policy
Value of his or her Policy. The Policy serves as the only security for the loan.
The minimum amount of any loan is $500. The maximum loan amount is the amount
which would cause the Modified Policy Debt to equal the loan value of the Policy
on the date of the loan. The loan value is the Policy's Cash Surrender Value
less the monthly deductions due to the next policy anniversary. The Modified
Policy Debt as of any date is the Policy Debt (the aggregate amount of policy
loans, including borrowed interest, less any loan repayments) plus the amount of
interest to be
23
<PAGE> 35
charged to the next policy anniversary, all discounted from the next policy
anniversary to such date at an annual rate of 4%. An amount equal to the
Modified Policy Debt is transferred to the Loan Account to ensure that a
sufficient amount will be available to pay interest on the Policy Debt at the
next policy anniversary.
For example, assume a Policy with a loan value of $5,000, no outstanding policy
loans and a loan interest rate of 5.75%. The maximum amount that can be borrowed
is an amount that will cause the Modified Policy Debt to equal $5,000. If the
loan is made on a policy anniversary, the maximum loan will be $4,917. This
amount at 5.75% interest will equal $5,200 one year later; $5,200 discounted to
the date of the loan at 4% (the Modified Policy Debt) equals $5,000. Because the
minimum rate of interest credited to the Loan Account is 4%, $5,000 must be
transferred to the Loan Account to ensure that $5,200 will be available at the
next policy anniversary to cover the interest accrued on the Policy Debt.
When a loan is made, Manufacturers Life of America will deduct from the
Investment Accounts or the Guaranteed Interest Account, and transfer to the Loan
Account, an amount which will result in the Loan Account value being equal to
the Modified Policy Debt. The policyowner may designate how the amount to be
transferred to the Loan Account is allocated among the accounts from which the
transfer is to be made. In the absence of instructions, the amount to be
transferred will be allocated to each account in the same proportion as the
value in each Investment Account and the Guaranteed Interest Account bears to
the Net Policy Value. A transfer from an Investment Account will result in the
cancellation of units of the underlying sub-account equal in value to the amount
transferred from the Investment Account. However, since the Loan Account is part
of the Policy Value, transfers made in connection with a loan will not change
the Policy Value.
A policy loan may result in a Policy's failing to satisfy the Cumulative Premium
Test, since the Policy Debt is subtracted from the sum of the premiums paid in
determining whether the Cumulative Premium Test is satisfied. As a result, the
death benefit guarantee may terminate. See Insurance Benefit -- "Death Benefit
Guarantee" and Other General Policy Provisions -- "Policy Default." Moreover, if
the death benefit guarantee is not in force, a policy loan may cause a Policy to
be more susceptible to going into default, since a policy loan will be reflected
in the Net Cash Surrender Value. See Other General Policy Provisions -- "Policy
Default." A policy loan will also affect future Policy Values, since that
portion of the Policy Value in the Loan Account will increase in value at the
crediting interest rate rather than varying with the performance of the
underlying Funds selected by the policyowner or increasing in value at the rate
of interest credited for amounts allocated to the Guaranteed Interest Account.
Policy loans may have tax consequences. A policyowner considering the use of
systematic policy loans as one element of a comprehensive retirement income plan
should consult his or her personal tax adviser regarding the potential tax
consequences if such loans were to so reduce Policy Value that the Policy would
lapse, absent additional payments. The premium payment necessary to avert lapse
would increase with the age of the insured. See Miscellaneous Matters -- Federal
Income Tax Considerations (Tax Treatment of Policy Benefits). Finally, a policy
loan will affect the amount payable on the death of the life insured, since the
death benefit is reduced by the value of the Loan Account at the date of death
in arriving at the insurance benefit.
INTEREST CHARGED ON POLICY LOANS. Interest on the Policy Debt will accrue daily
and be payable annually on the policy anniversary. The rate of interest charged
will be fixed at an effective annual rate of 5.75%. If the interest due on a
policy anniversary is not paid by the policyowner, the interest will be borrowed
against the Policy.
INTEREST CREDITED TO THE LOAN ACCOUNT. Manufacturers Life of America will
credit interest to any amount in the Loan Account at an effective annual rate of
at least 4%. The actual rate credited is:
- On amounts up to the Policy's Select Loan Amount, the rate of interest
charged on the policy loan less an interest rate differential, currently
0%; provided, however, if at some time in the future it is determined
that the current differential could cause the loan to be treated as a
taxable distribution under any applicable ruling, regulation or court
decision, Manufacturers Life of America has the right to increase the
differential on all subsequent Select Loan Amounts either (i) to an
amount that may be prescribed in such ruling, regulation or court
decision that would result in the transaction being treated as a loan
under federal tax law or (ii) if no amount is prescribed, to an amount
that
24
<PAGE> 36
Manufacturers Life of America considers to be more likely to result in
the transaction being treated as a loan under Federal tax law.
- On amounts in excess of the Select Loan Amount as described above, the
rate of interest charged on the policy loan less an interest rate
differential, currently 1.75%.
Prior to the later of the tenth policy anniversary and the anniversary following
attained age 55, the amount available as a Select Loan is zero; after the later
of the tenth policy anniversary and the policy anniversary following attained
age 55, the amount available annually as a Select Loan is equal to 12% of the
Policy's Net Cash Surrender Value at the previous policy anniversary. The amount
available as a Select Loan applies to existing and new loans. If, at the time a
policyowner is considering a Select Loan, interest due currently on his or her
outstanding loans equals or exceeds the Select Loan Amount, the Select Loan
feature could not be used to withdraw additional cash from Policy Value. The
total of all loans, including the Select Loan Amount, cannot exceed the maximum
loan amount as described above.
To illustrate the amount available as a Select Loan, assume that a Policy has an
issue age of 47 and a Net Cash Surrender Value on the eleventh policy
anniversary of $10,000. The Select Loan Amount available during the twelfth
policy year is $1,200 (12% X $10,000). Assume that at the beginning of the
twelfth policy year, a loan of $1,500 is taken. $1,200 of that amount is
considered the Select Loan Amount, $300 an ordinary policy loan.
At the end of the twelfth policy year, assume that the Net Cash Surrender Value
is $9,000. The Select Loan Amount available during the thirteenth policy year is
$1,080 (12% X $9,000). If not already repaid, the $300 from the prior year's
loan that was not considered a Select Loan is immediately converted to a Select
Loan, leaving $780 of the Select Loan Amount available for the thirteenth policy
year (provided that the sum of all outstanding loans does not exceed the
Policy's maximum loan amount). The amount of any unpaid interest on the Select
Loan and the ordinary policy loan from the twelfth policy year also would be
borrowed as a Select Loan up to the maximum Select Loan Amount and thereby
reduce by that amount the $780 available for borrowing as a Select Loan during
the remainder of the thirteenth policy year.
LOAN ACCOUNT ADJUSTMENTS. When a loan is first taken out, and at specified
events thereafter, the value of the Loan Account is adjusted. Whenever the Loan
Account is adjusted, the difference between (i) the Loan Account before any
adjustment and (ii) the Modified Policy Debt at the time of adjustment, is
transferred between the Loan Account and the Investment Accounts or the
Guaranteed Interest Account. The amount transferred to or from the Loan Account
will be such that the value of the Loan Account is equal to the Modified Policy
Debt after the adjustment.
The specified events which cause an adjustment to the Loan Account are (i) a
policy anniversary, (ii) a partial or full loan repayment, (iii) a new loan
being taken out, or (iv) when an amount is needed to meet a monthly deduction. A
loan repayment may be implicit in that policy debt is effectively repaid upon
termination (i.e., upon death of the life insured, surrender or lapse of the
policy). In each of these instances, the Loan Account will be adjusted so that
any excess of the Loan Account over the Modified Policy Debt after the repayment
will be included in the termination proceeds.
Except as noted below in the Loan Repayments section, amounts transferred from
the Loan Account will be allocated to the Investment Accounts and the Guaranteed
Interest Account in the same proportion as the value in the corresponding "loan
sub-account" bears to the value of the Loan Account. A "loan sub-account" exists
for each Investment Account and for the Guaranteed Interest Account. Amounts
transferred to the Loan Account are allocated to the appropriate loan
sub-account to reflect the account from which the transfer was made.
LOAN ACCOUNT ILLUSTRATION. (Dollar amounts in this illustration have been
rounded to the nearest dollar.) The operation of the Loan Account may be
illustrated by consideration of a Policy with a loan value of $5,000, a loan
interest rate of 5.75%, and a maximum loan amount on a policy anniversary of
$4,917. For purposes of the illustration, assume that the Select Loan Amount is
zero. If a loan in the maximum amount of $4,917 is made, an amount equal to the
Modified Policy Debt, $5,000, is transferred to the Loan Account. At the next
policy anniversary the value of the Loan Account will have increased to $5,200
($5,000 X 1.04) reflecting
25
<PAGE> 37
interest credited at an effective annual rate of 4.0%. At that time the loan
will have accrued interest charges of $283 ($4,917 X .0575), bringing the Policy
Debt to $5,200.
If the accrued interest charges are paid on the policy anniversary, the Policy
Debt will continue to be $4,917, and the Modified Policy Debt, reflecting
interest for the next policy year and discounting the Policy Debt and such
interest at 4%, will be $5,000. An amount will be transferred from the Loan
Account to the Guaranteed Interest Account or the Investment Accounts so that
the Loan Account value will equal the Modified Policy Debt. Since the Loan
Account value was $5,200, a transfer of $200 will be required ($5,200 --
$5,000).
If, however, the accrued interest charges of $283 are borrowed, an amount will
be transferred from the Investment Accounts and the Guaranteed Interest Account
so that the Loan Account value will equal the Modified Policy Debt recomputed at
the policy anniversary. The new Modified Policy Debt is the Policy Debt, $5,200,
plus loan interest to be charged to the next policy anniversary, $299 ($5,200 X
.0575), discounted at 4%, which results in a figure of $5,288. Since the value
of the Loan Account was $5,200, a transfer of $88 will be required. This amount
is equivalent to the 1.75% interest rate differential on the $5,000 transferred
to the Loan Account on the previous policy anniversary.
LOAN REPAYMENTS. Policy Debt may be repaid in whole or in part at any time
prior to the death of the life insured provided the Policy is in force. When a
repayment is made, the amount is credited to the Loan Account and a transfer is
made to the Guaranteed Interest Account or the Investment Accounts so that the
Loan Account at that time equals the Modified Policy Debt. Loan repayments will
first be allocated to the Guaranteed Interest Account until the associated loan
sub-account is reduced to zero. Loan repayments will then be allocated to each
Investment Account in the same proportion as the value in the corresponding loan
sub-account bears to the value of the Loan Account. Amounts paid to the Company
not specifically designated in writing as loan repayments will be treated as
premiums.
PARTIAL WITHDRAWALS AND SURRENDERS
After a Policy has been in force for two policy years, the policyowner may make
a partial withdrawal of the Net Cash Surrender Value. The minimum amount that
may be withdrawn is $500. The policyowner should specify the portion of the
withdrawal to be taken from each Investment Account and the Guaranteed Interest
Account. In the absence of instructions the withdrawal will be allocated among
such accounts in the same proportion as the Policy Value in each account bears
to the Net Policy Value. No more than one partial withdrawal may be made in any
one policy month.
A partial withdrawal made during the Surrender Charge Period will usually result
in the assessment of a portion of the surrender charges to which the Policy is
subject (see Charges And Deductions -- "Surrender Charges") if the withdrawal is
in excess of the Withdrawal Tier Amount. The Withdrawal Tier Amount is equal to
10% of the Net Cash Surrender Value determined as of the previous policy
anniversary. The portion of a partial withdrawal that is considered to be in
excess of the Withdrawal Tier Amount includes all previous partial withdrawals
that have occurred in the current policy year. If the Option 1 death benefit is
in effect under a Policy from which a partial withdrawal is made, the face
amount of the Policy will be reduced. See CHARGES AND DEDUCTIONS -- SURRENDER
CHARGES (CHARGES ON PARTIAL WITHDRAWALS).
A Policy may be surrendered for its Net Cash Surrender Value at any time while
the life insured is living. The Net Cash Surrender Value is equal to the Policy
Value less any surrender charges and outstanding monthly deductions due (the
"Cash Surrender Value") minus the value of the Loan Account. The Net Cash
Surrender Value will be determined at the end of the Business Day on which
Manufacturers Life of America receives the Policy and a written request for
surrender at its Service Office. After a Policy is surrendered, the insurance
coverage and all other benefits under the Policy will terminate. Surrender of a
Policy during the Surrender Charge Period will usually result in the assessment
by Manufacturers Life of America of surrender charges. See Charges And
Deductions -- "Surrender Charges."
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<PAGE> 38
CHARGES AND DEDUCTIONS
Charges under the Policy are assessed as (i) deductions from premiums, (ii)
surrender charges upon surrender, partial withdrawals, decreases in face amount
or lapse, (iii) monthly deductions, and (iv) other charges. These charges are
described below.
DEDUCTIONS FROM PREMIUMS
Manufacturers Life of America currently makes no deduction of charges from
premium payments for state and local taxes. The maximum amount of deductions for
such charges which may be applicable to future premium payments is 2.35% (except
for Oregon where no premium tax is deducted). Manufacturers Life of America
currently makes no deduction of a charge from premium payments for federal
taxes. The maximum amount of deduction for such a charge which may be applicable
to future premium payments is 1.25%.
SURRENDER CHARGES
Manufacturers Life of America will assess surrender charges upon surrender, a
partial withdrawal of Policy Value in excess of the Withdrawal Tier Amount, a
requested decrease in face amount, or lapse. The charges will usually be
assessed if any of the above transactions occurs within the Surrender Charge
Period unless the charges have been previously deducted. There are two surrender
charges -- a deferred underwriting charge and a deferred sales charge.
DEFERRED UNDERWRITING CHARGE. The deferred underwriting charge is $6 for each
$1,000 of face amount of life insurance coverage initially purchased or added by
increase. In effect, the charge applies only to the first $500,000 of face
amount initially purchased or the first $500,000 of each subsequent increase in
face amount. Thus, the charge made in connection with any one underwriting will
not exceed $3,000. The amount of the charge remains level for five years.
Following the fifth year after issuance of the Policy or a face amount increase,
the charge applicable to the initial face amount or increase will decrease each
month by varying rates depending upon the life insured's issue age until the
charge has decreased to zero. The applicable percentage of the deferred
underwriting charges to which the Policy is subject is illustrated by the
following table:
TABLE 1: DEFERRED UNDERWRITING CHARGES
<TABLE>
<CAPTION>
TRANSACTION OCCURS AFTER
MONTHLY DEDUCTION TAKEN PERCENT OF DEFERRED UNDERWRITING CHARGES BY ISSUE AGE*
FOR LAST MONTH PRECEDING ------------------------------------------------------
END OF MONTH* AGE
- ------------------------ ------------------------------------------------------
MONTH 0-50 51 52 53 54 55+
- ------------------------ --------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
12 100% 100% 100% 100% 100% 100%
24 100% 100% 100% 100% 100% 100%
36 100% 100% 100% 100% 100% 100%
48 100% 100% 100% 100% 100% 100%
60 100% 100% 100% 100% 100% 100%
72 90% 88.89% 87.50% 85.71% 83.33% 80.00%
84 80% 77.78% 75.00% 71.43% 66.67% 60.00%
96 70% 66.67% 62.50% 57.14% 50.00% 40.00%
108 60% 55.56% 50.00% 42.86% 33.33% 20.00%
120 50% 44.44% 37.50% 28.57% 16.67% 0%
132 40% 33.33% 25.00% 14.28% 0%
144 30% 22.22% 12.50% 0%
156 20% 11.11% 0%
168 10% 0%
180 0%
</TABLE>
* Months not shown may be calculated by interpolation.
27
<PAGE> 39
The deferred underwriting charge is designed to cover the administrative
expenses associated with underwriting and policy issue, including the costs of
processing applications, conducting medical examinations, determining the life
insured's risk class and establishing policy records.
DEFERRED SALES CHARGE. The maximum deferred sales charge is 50% of premiums
paid up to a maximum number of Target Premiums that varies (from -0.180 to
3.031) according to the issue age of the life insured, the face amount at issue
and the amount of any increase. This charge compensates the Company for some of
the expenses of selling and distributing the Policies, including agents'
commissions, advertising, agent training and the printing of prospectuses and
sales literature.
The deferred sales charge deducted in any policy year is not specifically
related to sales expenses incurred in that year. Instead, the Company expects
that the major portion of the sales expenses attributable to a Policy will be
incurred during the first policy year, although the deferred sales charge might
be deducted up to fifteen years later. Manufacturers Life of America anticipates
that the aggregate amounts received under the Policies for sales charges will be
insufficient to cover aggregate sales expenses. To the extent that sales
expenses exceed sales charges, Manufacturers Life of America will pay the excess
from its other assets or surplus, including amounts derived from the mortality
and expense risks charge described below. Manufacturers Life of America may
forego deducting a portion of the deferred sales charge if the Policy is
surrendered for its Net Cash Surrender Value at any time during the first two
years following issuance or following an increase in face amount or if the
increase is cancelled during the two-year period following the increase. Where
such sales charge limitation is applicable, the deferred sales charge assessable
under the Policy will increase at the beginning of the third policy year. See
Surrender Charges (Sales Charge Limitation) below.
The Target Premium for the initial face amount is specified in the Policy. A
Target Premium will be computed for each increase in face amount above the
highest face amount of coverage previously in effect, and the policyowner will
be advised of each new Target Premium. Target Premiums depend upon the face
amount of insurance provided at issue or by an increase and the issue age and
sex (unless unisex rates are required by law) of the life insured. The maximum
number of Target Premiums subject to the deferred sales charge varies, based on
the issue age of the life insured, the face amount at issue and the amount of
any increase, according to the following tables:
28
<PAGE> 40
TABLE 2: NUMBER OF TARGET PREMIUMS SUBJECT TO DEFERRED SALES CHARGE FOR POLICIES
ISSUED PRIOR TO JULY 10, 1995
(APPLICABLE TO THE INITIAL FACE AMOUNT AND INCREASES)
<TABLE>
<CAPTION>
$250,000 UNDER $250,000 UNDER $250,000 UNDER
AGE OR MORE $250,000 AGE OR MORE $250,000 AGE OR MORE $250,000
--- -------- -------- --- -------- -------- --- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
*0 -0.031 -0.039 30 1.319 1.648 60 2.356 2.945
*1 -0.144 -0.180 31 1.366 1.707 61 2.375 2.968
*2 -0.081 -0.102 32 1.415 1.768 62 2.399 2.998
*3 -0.020 -0.025 33 1.459 1.823 63 2.425 3.031
4 0.037 0.046 34 1.503 1.878 64 2.380 2.975
5 0.096 0.120 35 1.542 1.927 65 2.269 2.836
6 0.166 0.207 36 1.590 1.987 66 2.124 2.655
7 0.221 0.276 37 1.633 2.041 67 2.006 2.507
8 0.281 0.351 38 1.672 2.090 68 1.888 2.360
9 0.340 0.425 39 1.718 2.147 69 1.787 2.233
10 0.391 0.488 40 1.756 2.195 70 1.691 2.113
11 0.453 0.566 41 1.790 2.237 71 1.592 1.990
12 0.514 0.642 42 1.832 2.290 72 1.494 1.867
13 0.560 0.700 43 1.869 2.336 73 1.396 1.745
14 0.614 0.767 44 1.904 2.380 74 1.317 1.646
15 0.560 0.700 45 1.937 2.421 75 1.241 1.551
16 0.606 0.757 46 1.969 2.461 76 1.162 1.452
17 0.658 0.822 47 2.000 2.500 77 1.084 1.355
18 0.718 0.897 48 2.032 2.540 78 1.010 1.262
19 0.767 0.958 49 2.062 2.577 79 0.946 1.182
20 0.817 1.021 50 2.093 2.616 80 0.887 1.108
21 0.870 1.087 51 2.123 2.653 81 0.831 1.038
22 0.924 1.155 52 2.154 2.692 82 0.779 0.973
23 0.973 1.216 53 2.182 2.727 83 0.733 0.916
24 1.026 1.282 54 2.211 2.763 84 0.688 0.860
25 1.075 1.343 55 2.234 2.792 85 0.646 0.807
26 1.125 1.406 56 2.259 2.823 86 0.606 0.757
27 1.177 1.471 57 2.284 2.855 87 0.567 0.708
28 1.228 1.535 58 2.307 2.883 88 0.530 0.662
29 1.274 1.592 59 2.333 2.916 89 0.493 0.616
90 0.484 0.605
</TABLE>
* A negative number of Target Premiums produces a negative deferred sales
charge. When combined with the deferred underwriting charge, a negative
deferred sales charge reduces the total surrender charge.
29
<PAGE> 41
TABLE 3: NUMBER OF TARGET PREMIUMS SUBJECT TO DEFERRED SALES CHARGE FOR POLICIES
ISSUED ON OR AFTER JULY 10, 1995
(APPLICABLE TO THE INITIAL FACE AMOUNT AND INCREASES)
<TABLE>
<CAPTION>
$250,000 UNDER $250,000 UNDER $250,000 UNDER
AGE OR MORE $250,000 AGE OR MORE $250,000 AGE OR MORE $250,000
- --- -------- -------- --- --------- --------- --- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
*0 -0.031 -0.039 30 1.319 1.648 60 2.356 2.945
*1 -0.144 -0.180 31 1.366 1.707 61 2.375 2.968
*2 -0.081 -0.102 32 1.415 1.768 62 2.399 2.998
*3 -0.020 -0.025 33 1.459 1.823 63 2.425 3.031
4 0.037 0.046 34 1.503 1.878 64 2.367 2.959
5 0.096 0.120 35 1.542 1.927 65 2.259 2.824
6 0.166 0.207 36 1.590 1.987 66 2.113 2.641
7 0.221 0.276 37 1.633 2.041 67 1.992 2.490
8 0.281 0.351 38 1.672 2.090 68 1.875 2.344
9 0.340 0.425 39 1.718 2.147 69 1.777 2.222
10 0.391 0.488 40 1.756 2.195 70 1.679 2.099
11 0.453 0.566 41 1.790 2.237 71 1.583 1.979
12 0.514 0.642 42 1.832 2.290 72 1.486 1.857
13 0.560 0.700 43 1.869 2.336 73 1.392 1.740
14 0.614 0.767 44 1.904 2.380 74 1.315 1.644
15 0.560 0.700 45 1.937 2.421 75 1.238 1.547
16 0.606 0.757 46 1.969 2.461 76 1.161 1.451
17 0.658 0.822 47 2.000 2.500 77 1.083 1.354
18 0.718 0.897 48 2.032 2.540 78 1.007 1.259
19 0.767 0.958 49 2.062 2.577 79 0.945 1.182
20 0.817 1.021 50 2.093 2.616 80 0.885 1.106
21 0.870 1.087 51 2.123 2.653 81 0.829 1.037
22 0.924 1.155 52 2.154 2.692 82 0.779 0.973
23 0.973 1.216 53 2.182 2.727 83 0.732 0.915
24 1.026 1.282 54 2.211 2.763 84 0.687 0.859
25 1.075 1.343 55 2.234 2.792 85 0.644 0.806
26 1.125 1.406 56 2.259 2.823 86 0.604 0.755
27 1.177 1.471 57 2.284 2.855 87 0.566 0.708
28 1.228 1.535 58 2.307 2.883 88 0.529 0.661
29 1.274 1.592 59 2.333 2.916 89 0.493 0.616
90 0.484 0.605
</TABLE>
* A negative number of Target Premiums produces a negative deferred sales
charge. When combined with the deferred underwriting charge, a negative
deferred sales charge reduces the total surrender charge.
Except for surrenders to which the sales charge limitation provisions described
below apply, the maximum deferred sales charge will be in effect for at least
the first two years of the Surrender Charge Period. After that, the portion of
the deferred sales charge that remains in effect will grade down at a rate that
also varies according to the issue age of the life insured until, at the end of
the Surrender Charge Period, there is no deferred sales charge. The tables to be
used to reduce the applicable deferred sales charge during the Surrender Charge
Period are set forth in Appendix C to this Prospectus. The applicable table will
be set forth in each Policy and the policyowner will be informed of the table to
be used in connection with sales charges on increases in face amount.
In order to determine the deferred sales charge applicable to a face amount
increase, Manufacturers Life of America will treat a portion of the Policy Value
on the date of increase as a premium attributable to the increase. In addition,
a portion of each premium paid on or subsequent to the increase will be
attributed to the increase. In each case, the portion attributable to the
increase will be the ratio of the "guideline annual
30
<PAGE> 42
premium" for the increase to the sum of the guideline annual premiums for the
initial face amount and all increases including the requested increase.
A "guideline annual premium" is a hypothetical amount based on S.E.C. rules that
is used by the Company to measure the maximum amount of the deferred sales
charge that may be imposed upon surrender, partial withdrawal, a decrease in
face amount or lapse during the first two years after issuance or after an
increase in face amount.
The following example illustrates how deferred underwriting and deferred sales
charges are calculated using data from Tables 1, 2 and 3 above and from the
tables in Appendix C.
Assume a 36-year-old male (standard risk) whose Policy was issued prior to July
10, 1995, at age 30, and who has paid $9,000 in premiums under a Policy with a
Target Premium of $1,500 and a face amount of $100,000 surrenders his Policy
during the last month of the sixth policy year.
A deferred underwriting charge of $540 would be assessed. The maximum deferred
underwriting charge of $600 ($6 per $1,000 of face amount X 100) would be
multiplied by the 90% listed in Table 1 as applicable to surrenders during the
last month of the sixth policy year [90% X ($6 X 100) = $540].
A deferred sales charge of $1,192.74 would also be assessed. According to Table
2, the maximum number of Target Premiums subject to the deferred sales charge
for a person who was 30 years old when his or her Policy with a face amount less
than $250,000 was issued would be 1.648. Thus $2,472 (1.648 X $1,500) would be
the maximum amount of premiums subject to the 50% sales charge, producing a
maximum sales charge of $1,236 (50% X $2,472 = $1,236). Because the surrender
occurs during the last month of the sixth policy year, only 96.50% (from the
table in Appendix C for issue age 30) of the maximum sales charge remains
applicable [96.50% X (.50 X 1.648 X $1,500) = $1,192.74].
SALES CHARGE LIMITATION. If a Policy is surrendered or its face amount
decreased at any time during the first two years after issuance or after an
increase in face amount, Manufacturers Life of America will forego taking that
part of the deferred sales charge with respect to "premiums" paid for the
initial face amount or such increase (including the portion of Policy Value
treated as premiums for the increase, as described above), whichever is
applicable, which exceeds the sum of (i) 30% of the premiums paid up to the
lesser of one guideline annual premium or the maximum amount of premiums subject
to the deferred sales charge plus (ii) 10% of the premiums paid in excess of one
guideline annual premium, up to the lesser of two guideline annual premiums or
the maximum amount of premiums subject to the deferred sales charge, plus (iii)
9% of the premiums paid in excess of two guideline annual premiums up to the
maximum amount of premiums subject to the deferred sales charge.
The operation of the sales charge limitation for Policies issued prior to July
10, 1995 is illustrated by the following example. A 67-year-old male non-smoker
purchased a Policy with a face amount in excess of $250,000 when he was age 65.
He has paid $30,000 in premiums under the Policy and it has a guideline annual
premium (GAP) of $15,997 and a Target Premium (TP) of $11,835. He surrenders his
policy during the second policy year. In the absence of the sales charge
limitation, the maximum deferred sales charge would be 50% of the lesser of
premiums paid ($30,000) or the maximum amount of premiums subject to the
deferred sales charge (TP X Maximum Number of TP's = $11,835 X 2.269 = $26,854),
which results in 50% of $26,854 (the "Maximum Chargeable Amount" or "MCA") or
$13,427 as the maximum deferred sales charge. However, under the formula
described above, the maximum sales charge allowable would be $5,885. This is
calculated as the sum of:
(i) 30% of one GAP, or $4,799 [.30 X $15,997 = $4,799], because one GAP
($15,997) is less than premiums paid ($30,000) and less than the MCA
($26,854);
plus
(ii) 10% of the MCA in excess of one GAP, or $1,086 (.10 X $10,857 =
$1,086) because the MCA in excess of one GAP ($26,854 - $15,997 =
$10,857) is less than premiums paid in excess of one GAP ($30,000 -
$15,997 = $14,003) and less than the amount of a second GAP
($15,997);
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<PAGE> 43
plus
(iii) $0, because no premiums in excess of two GAPs were paid and would not
have been chargeable in any event, as the MCA was less than two GAPs.
Thus, (i) $4,799 plus (ii) $1,086 plus (iii) $0 equals $5,885, the maximum sales
charge allowable.
If the Policy in the foregoing example were issued on or after July 10, 1995,
the maximum sales charge allowable would be $5,873 because the maximum amount of
Target Premiums subject to the deferred sales charge would be 2.259 (from Table
3) instead of 2.269 (from Table 2).
Since a deferred sales charge is deducted when a Policy terminates for failure
to make the required payment following the Policy's going into default, the
sales charge limitation will apply if the termination occurs during the two-year
period following issuance or any increase in face amount. If the Policy
terminates during the two years after a face amount increase, the sales charge
limitation will relate only to the sales charges applicable to the increase.
CHARGES ON PARTIAL WITHDRAWALS. Whenever a portion of the surrender charges is
deducted as a result of a partial withdrawal of Policy Value in excess of the
Withdrawal Tier Amount, the Policy's remaining surrender charges will be reduced
by the amount of the charges taken. The surrender charges not assessed as a
result of the 10% free withdrawal provision remain in effect under the Policy
and may be assessed upon surrender or lapse, other partial withdrawals, or a
requested decrease in face amount. The portion of the surrender charges assessed
will be based on the ratio of the amount of the withdrawal in excess of the
Withdrawal Tier Amount to the Net Cash Surrender Value of the Policy less the
Withdrawal Tier Amount immediately prior to the withdrawal. The surrender
charges will be deducted from each Investment Account and the Guaranteed
Interest Account in the same proportion as the amount of the withdrawal taken
from such account bears to the total amount of the withdrawal. If the amount in
the account is insufficient to pay the portion of the surrender charges
allocated to that account, then the portion of the withdrawal allocated to that
account will be reduced so that the withdrawal plus the portion of the surrender
charges allocated to that account equal the value of that account. Units equal
to the amount of the partial withdrawal taken, and surrender charges deducted,
from each Investment Account will be cancelled based on the value of such units
determined at the end of the Business Day on which Manufacturers Life of America
receives a written request for withdrawal at its Service Office.
If the Option 1 death benefit is in effect under a Policy from which a partial
withdrawal is made, the face amount of the Policy will be reduced. If the death
benefit is equal to the face amount at the time of withdrawal, the face amount
will be reduced by the amount of the withdrawal plus the portion of the
surrender charges assessed. If the death benefit is based upon the Policy Value
times the applicable percentage set forth under Insurance Benefit -- "Death
Benefit Options" above, the face amount will be reduced only to the extent that
the amount of the withdrawal plus the portion of the surrender charges assessed
exceeds the difference between the death benefit and the face amount. Reductions
in face amount resulting from partial withdrawals will not incur any surrender
charges above the surrender charges applicable to the withdrawal. When the face
amount of a Policy is based on one or more increases subsequent to issuance of
the Policy, a reduction resulting from a partial withdrawal will be applied in
the same manner as a requested decrease in face amount, i.e., against the face
amount provided by the most recent increase, then against the next most recent
increases successively and finally against the initial face amount.
CHARGES ON DECREASES IN FACE AMOUNT. As with partial withdrawals, a portion of
a Policy's surrender charges will be deducted upon a decrease, or a cancellation
of an increase, in face amount requested by the policyowner. Since surrender
charges are determined separately for the initial face amount and each face
amount increase, and since a decrease in face amount will have a different
impact on each level of insurance coverage, the portion of the surrender charges
to be deducted with respect to each level of insurance coverage will be
determined separately. Such portion will be the same as the ratio of the amount
of the reduction in such coverage to the amount of such coverage prior to the
reduction.
As noted under Insurance Benefit -- "Face Amount Changes," decreases are applied
to the most recent increase first and thereafter to the next most recent
increases successively. The charges will be deducted from
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<PAGE> 44
the Policy Value, and the amount so deducted will be allocated among the
Investment Accounts and the Guaranteed Interest Account in the same proportion
as the Policy Value in each bears to the Net Policy Value. Whenever a portion of
the surrender charges is deducted as a result of a decrease in face amount, the
Policy's remaining surrender charges will be reduced by the amount of the
charges taken.
CHARGES REMAINING AFTER FACE AMOUNT DECREASES OR PARTIAL WITHDRAWALS. Each time
a pro-rata deferred underwriting charge or a pro-rata deferred sales charge for
a face amount decrease or for a partial withdrawal is deducted, the remaining
deferred underwriting charge and deferred sales charge will be reduced
proportionately.
The remaining deferred underwriting charge will be calculated using Table 1
above. The actual remaining charge will be the result of (a) divided by (b),
multiplied by (c), where:
(a) is the grading percentage applicable to the life insured's issue age
and Policy duration;
(b) is the grading percentage applicable to the life insured's issued age
at the time of the last face amount decrease or partial withdrawal;
and
(c) is the remaining deferred sales charge prior to the last face amount
decrease or partial withdrawal less the deferred underwriting charge
deducted for that face amount decrease or partial withdrawal.
The remaining deferred sales charge will be calculated using Table 2 above and
Appendix C. The actual remaining charge will be the result of (a) divided by
(b), multiplied by (c), where:
(a) (a) is the grading percentage applicable to the Policy duration;
(b) is the grading percentage at the time of the last face amount decrease
or partial withdrawal; and
(c) is the remaining deferred sales charge prior to the last face amount
decrease or partial withdrawal less the deferred sales charge deducted
for that face amount decrease or partial withdrawal.
Until the sum of premiums paid equals or exceeds the number of Target Premiums
subject to deferred sales charge multiplied by the Target Premium, subsequent
premium payments will increase the remaining deferred sales charge.
MONTHLY DEDUCTIONS
Each month a deduction consisting of an administration charge, a charge for the
cost of insurance, a charge for mortality and expense risks, and charge(s) for
any supplementary benefit(s) (see Other Provisions -- "Supplementary Benefits")
is deducted from Policy Value. The monthly deduction will be allocated among the
Investment Accounts and (other than the mortality and expense risks charge) the
Guaranteed Interest Account in the same proportion as the Policy Value in each
bears to the Net Policy Value. Monthly deductions due prior to the effective
date will be taken on the effective date instead of the dates they were due. If
the Policy is still in force when the life insured attains age 100, no further
monthly deductions will be taken from the Policy Value.
ADMINISTRATION CHARGE
The monthly administration charge is $35 until the first anniversary and,
thereafter, $10 (the right is reserved to increase the administration charge by
an additional amount of up to $.01 per $1,000 of face amount per month). The
charge is designed to cover certain administrative expenses associated with the
Policy, including maintaining policy records, collecting premiums and processing
death claims, surrender and withdrawal requests and various charges permitted
under a Policy.
COST OF INSURANCE CHARGE
The monthly charge for the cost of insurance is determined by multiplying the
applicable cost of insurance rate times the net amount at risk at the beginning
of each policy month. The cost of insurance rate is based on
33
<PAGE> 45
the life insured's issue age, the duration of the coverage, sex (unless unisex
rates are required by law), risk class, and, in the case of certain Policies
issued in group or sponsored arrangements providing for reduction in cost of
insurance charges (see "Special Provisions For Group Or Sponsored
Arrangements"), the face amount of the Policy. See Miscellaneous Matters --
"Legal Considerations." The rate is determined separately for the initial face
amount and for each increase in face amount. Cost of insurance rates will
generally increase with the life insured's age. Any additional ratings as
indicated in the Policy will be added to the cost of insurance rate.
The cost of insurance rates used by Manufacturers Life of America reflect its
expectations as to future mortality experience as based on current experience.
The rates may be changed from time to time on a basis which does not unfairly
discriminate within the class of life insureds. In no event will the cost of
insurance rate exceed the guaranteed rate set forth in the Policy except to the
extent that an extra rate is imposed because of an additional rating applicable
to the life insured or if simplified underwriting is granted in a group or
sponsored arrangement (see "Special Provisions For Group Or Sponsored
Arrangements"). The guaranteed rates are based on the 1980 Commissioners
Standard Ordinary Smoker/Nonsmoker Mortality Tables.
If requested by the applicant, Manufacturers Life of America may offer the
Policy with provisions based on actuarial tables that do not differentiate on
the basis of sex to such prospective purchasers in states where the unisex
version of the Policy has been approved.
The State of Montana currently prohibits the issuance of policies with
assumptions that distinguish between men and women in determining premiums and
policy benefits for policies issued on the life of any of its residents.
The net amount at risk to which the cost of insurance rate is applied is the
difference between the death benefit, divided by 1.0032737 (a factor which
reduces the net amount at risk for cost of insurance charge purposes by taking
into account assumed monthly earnings at an annual rate of 4%), and the Policy
Value. Because different cost of insurance rates may apply to different levels
of insurance coverage, the net amount at risk will be calculated separately for
each level of insurance coverage. When the Option 1 death benefit is in effect,
for purposes of determining the net amount at risk applicable to each level of
insurance coverage, the Policy Value is attributed first to the initial face
amount and then, if the Policy Value is greater than the initial face amount, to
each increase in face amount in the order made.
Because the calculation of the net amount at risk is different under the death
benefit options when more than one level of insurance coverage is in effect, a
change in the death benefit option may result in a different net amount at risk
for each level of insurance coverage than would have occurred had the death
benefit option not been changed. Since the cost of insurance is calculated
separately for each level of insurance coverage, any change in the net amount at
risk for a level of insurance coverage resulting from a change in the death
benefit option may affect the amount of the charge for the cost of insurance.
Partial withdrawals and decreases in face amount will also affect the manner in
which the net amount at risk for each level of insurance coverage is calculated.
MORTALITY AND EXPENSE RISKS CHARGE
Manufacturers Life of America deducts a monthly charge from the Policy Value for
the mortality and expense risks it assumes under the Policies. This charge is
made at the beginning of each policy month at an annual rate of .90% through the
later of the tenth anniversary of the Policy and the policyowner's attained age
of 60 and, thereafter, .45%. It is assessed against the value of the
policyowner's Investment Accounts by cancellation of units in the same
proportion as the value of each Investment Account bears to the total value of
the Investment Accounts. The mortality risk assumed is that lives insured may
live for a shorter period of time than the Company estimated. The expense risk
assumed is that expenses incurred in issuing and administering the Policies will
be greater than the Company estimated. Manufacturers Life of America estimates
that virtually all of the mortality and expense risks charge currently relates
to expense risks. Manufacturers Life of America will realize a gain from this
charge to the extent it is not needed to provide benefits and pay expenses under
the Policies.
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<PAGE> 46
OTHER CHARGES
Currently, Manufacturers Life of America makes no charge against the Separate
Account for federal, state or local taxes that may be attributable to the
Separate Account or to the operations of the Company with respect to the
Policies. However, if Manufacturers Life of America incurs any such taxes, it
may make a charge therefor.
Charges will be imposed on certain transfers of Policy Values, including a $25
charge for each transfer in excess of twelve in a policy year and a $5 charge
for each Dollar Cost Averaging transfer when Policy Value does not exceed
$15,000. See Policy Values -- "Transfers Of Policy Value."
The Separate Account purchases shares of Portfolios at net asset value. The net
asset value of those shares reflects the following investment management fees
and expenses:
<TABLE>
<CAPTION>
INVESTMENT
MANAGEMENT EXPENSES
FEES OF UP TO
---------- --------
<S> <C> <C>
Pacific Rim Emerging Markets Trust.......................... .850% .75%
Science & Technology Trust.................................. 1.100% .50%
International Small Cap Trust............................... 1.100% .75%
Emerging Growth Trust....................................... 1.050% .50%
Pilgrim Baxter Growth Trust................................. 1.050% .50%
Small/Mid Cap Trust......................................... 1.000% .50%
International Stock Trust................................... 1.050% .75%
Worldwide Growth Trust...................................... 1.000% .75%
Global Equity Trust......................................... .900% .75%
Small Company Value Trust................................... 1.050% .50%
Equity Trust................................................ .750% .50%
Growth Trust................................................ .850% .50%
Quantitative Equity Trust................................... .700% .50%
Equity Index Trust.......................................... .250% .15%
Blue Chip Growth Trust...................................... .925% .50%
Real Estate Securities Trust................................ .700% .50%
Value Trust................................................. .800% .50%
International Growth and Income Trust....................... .950% .75%
Growth and Income Trust..................................... .750% .50%
Equity-Income Trust......................................... .800% .50%
Balanced Trust.............................................. .800% .50%
Aggressive Asset Allocation Trust........................... .750% .50%
Moderate Asset Allocation Trust............................. .750% .50%
Conservative Asset Allocation Trust......................... .750% .50%
High Yield Trust............................................ .775% .50%
Strategic Bond Trust........................................ .775% .50%
Global Government Bond Trust................................ .800% .75%
Capital Growth Bond Trust................................... .650% .50%
Investment Quality Bond Trust............................... .650% .50%
U.S. Government Securities Trust............................ .650% .50%
Money Market Trust.......................................... .500% .50%
Lifestyle Aggressive 1000 Trust............................. None* N/A**
Lifestyle Growth 820 Trust.................................. None* N/A**
Lifestyle Balanced 640 Trust................................ None* N/A**
Lifestyle Moderate 460 Trust................................ None* N/A**
Lifestyle Conservative 280 Trust............................ None* N/A**
</TABLE>
* Because each Lifestyle Trust invests in shares of Underlying Portfolios, each
bears its pro rata share of the fees and expenses incurred by the Underlying
Portfolios.
** The Adviser has voluntarily agreed to pay the expenses of each of the
Lifestyle Trusts (excluding the expenses of the Underlying Portfolios). This
voluntary expense reimbursement may be terminated at any time.
35
<PAGE> 47
Detailed information concerning such fees and expenses is set forth under the
caption that accompanies this Prospectus and under the caption "Management of
The Trust" in the Prospectus for the Manufacturers Investment Trust that
accompanies this Prospectus.
SPECIAL PROVISIONS FOR GROUP OR SPONSORED ARRANGEMENTS
Where permitted by state insurance laws, Policies may be purchased under group
or sponsored arrangements, as well as on an individual basis. A "group
arrangement" includes a program under which a trustee, employer or similar
entity purchases Policies covering a group of individuals on a group basis. In
California all participants of group arrangements will be individually
underwritten. A "sponsored arrangement" includes a program under which an
employer permits group solicitation of its employees or an association permits
group solicitation of its members for the purchase of Policies on an individual
basis.
The charges and deductions described above may be reduced for Policies issued in
connection with group or sponsored arrangements. Such arrangements may include
sales without withdrawal charges and deductions to employees, officers,
directors, agents, immediate family members of the foregoing, and employees of
agents of Manufacturers Life and its subsidiaries. Manufacturers Life of America
will reduce the above charges and deductions in accordance with its rules in
effect as of the date an application for a Policy is approved. To qualify for
such a reduction, a group or sponsored arrangement must satisfy certain criteria
as to, for example, size of the group, expected number of participants and
anticipated premium payments from the group. Generally, the sales contacts and
effort, administrative costs and mortality cost per Policy vary based on such
factors as the size of the group or sponsored arrangements, the purposes for
which Policies are purchased and certain characteristics of its members. The
amount of reduction and the criteria for qualification will reflect the reduced
sales effort and administrative costs resulting from, and the different
mortality experience expected as a result of, sales to qualifying groups and
sponsored arrangements. Certain Policies issued prior to the effective date of
this Prospectus may provide for deductions from premiums up to an amount of
3.60% for state, local and federal taxes. In addition such Policies may also
provide for an administrative charge of $.01 per $1,000 of face amount per month
in addition to the charge of $35 per month in the first policy year and $10 per
month in subsequent policy years.
Manufacturers Life of America may modify from time to time, on a uniform basis,
both the amounts of reductions and the criteria for qualification. Reductions in
these charges will not be unfairly discriminatory against any person, including
the affected policyowners and all other policyowners funded by the Separate
Account.
In addition, groups and persons purchasing under a sponsored arrangement may
apply for simplified underwriting. If simplified underwriting is granted, the
cost of insurance charge may increase as a result of higher anticipated
mortality experience. In addition, groups or persons purchasing under a
sponsored arrangement may request increases or decreases in face amount at any
time after issue and decreases in face amount at any time after an increase in
face amount.
SPECIAL PROVISIONS FOR EXCHANGES
Manufacturers Life of America will permit owners of certain life insurance
policies issued either by the Company or Manufacturers Life to exchange their
policies for the Policies described in this prospectus. Charges under the
policies being exchanged or the Policies issued in exchange therefor may be
reduced or eliminated. Owners of certain policies may be entitled to convert
their policies to the Policies described in this prospectus. If they elect to
convert, they may receive a credit upon conversion in an amount up to their
first-year premium. Policy loans made under policies being exchanged may, in
some circumstances, be carried over to the new Policies without repayment at the
time of exchange. Policyowners considering an exchange should consult their tax
advisers as to the tax consequences of an exchange.
THE GENERAL ACCOUNT
By virtue of exclusionary provisions, interests in the general account of
Manufacturers Life of America have not been registered under the Securities Act
of 1933 and the general account has not been registered as an
36
<PAGE> 48
investment company under the Investment Company Act of 1940. Accordingly,
neither the general account nor any interests therein are subject to the
provisions of these acts, and as a result the staff of the Securities and
Exchange Commission has not reviewed the disclosures in this prospectus relating
to the general account. Disclosures regarding the general account may, however,
be subject to certain generally applicable provisions of the federal securities
laws relating to the accuracy and completeness of statements made in a
prospectus.
The general account of Manufacturers Life of America consists of all assets
owned by the Company other than those in its separate accounts. Subject to
applicable law, Manufacturers Life of America has sole discretion over the
investment of the assets of the general account.
A policyowner may elect to allocate net premiums to the Guaranteed Interest
Account or to transfer all or a portion of the Policy Value to the Guaranteed
Interest Account from the Investment Accounts. Transfers from the Guaranteed
Interest Account to the Investment Accounts are subject to restrictions. See
Policy Values -- "Transfers Of Policy Value" and "Policy Value." Manufacturers
Life of America will hold the reserves required for any portion of the Policy
Value allocated to the Guaranteed Interest Account in its general account.
However, an allocation of Policy Value to the Guaranteed Interest Account does
not entitle the policyowner to share in the investment experience of the general
account. Instead, Manufacturers Life of America guarantees that the Policy Value
in the Guaranteed Interest Account will accrue interest daily at an effective
annual rate of at least 4%, without regard to the actual investment experience
of the general account. The Company may, at its sole discretion, credit a higher
rate of interest, although it is not obligated to do so. The policyowner assumes
the risk that interest credited may not exceed the guaranteed minimum rate of 4%
per year.
OTHER GENERAL POLICY PROVISIONS
POLICY DEFAULT
Unless the Death Benefit Guarantee is in effect, a Policy will go into default
if the Policy's Net Cash Surrender Value at the beginning of any policy month
would go below zero after deducting the monthly deductions then due.
Manufacturers Life of America will notify the policyowner of the default and
will allow a 61-day grace period in which the policyowner may make a premium
payment sufficient to bring the Policy out of default. The required payment will
be equal to the amount necessary to bring the Net Cash Surrender Value to zero,
if it was less than zero at the date of default, plus the monthly deductions due
at the date of default and at the beginning of each of the two policy months
thereafter, based on the Policy Value at the date of default. If the required
payment is not received by the end of the grace period, the Policy will
terminate and the Net Cash Surrender Value (subject to any applicable limitation
on surrender charges; see Charges And Deductions -- "Surrender Charges") as of
the date of default less the monthly deductions then due will be paid to the
policyowner. If the life insured should die during the grace period following a
Policy's going into default, the Policy Value used in the calculation of the
death benefit will be the Policy Value as of the date of default and the
insurance benefit payable will be reduced by any outstanding monthly deductions
due at the time of death.
POLICY REINSTATEMENT
A policyowner can reinstate a Policy which has terminated after going into
default at any time within 21 days following the date of termination without
furnishing evidence of insurability, subject to the following conditions:
(a) The life insured's risk class is standard or preferred.
(b) The life insured's attained age is less than 46.
A policyowner can reinstate a Policy which has terminated after going into
default at any time within the five-year period following the date of
termination subject to the following conditions:
(a) The Policy must not have been surrendered for its Net Cash Surrender
Value at the request of the policyowner;
37
<PAGE> 49
(b) Evidence of the life insured's insurability satisfactory to
Manufacturers Life of America is furnished to it;
(c) A premium equal to the payment required during the 61-day grace period
following default to keep the Policy in force is paid to Manufacturers
Life of America; and
(d) An amount equal to any amounts paid by Manufacturers Life of America
in connection with the termination of the Policy is repaid to
Manufacturers Life of America.
If the reinstatement is approved, the date of reinstatement will be the later of
the date of the policyowner's written request or the date the required payment
is received at the Manufacturers Life of America Service Office.
MISCELLANEOUS POLICY PROVISIONS
BENEFICIARY. One or more beneficiaries of the Policy may be appointed by the
policyowner by naming them in the application. Beneficiaries may be appointed in
three classes -- primary, secondary and final. Thereafter the beneficiary may be
changed by the policyowner during the life insured's lifetime by giving written
notice to Manufacturers Life of America in a form satisfactory to it unless an
irrevocable designation has been elected. If the life insured dies and there is
no surviving beneficiary, the policyowner, or the policyowner's estate if the
policyowner is the life insured, will be the beneficiary. If a beneficiary dies
before the seventh day after the death of the life insured, the Company will pay
the insurance benefit as if the beneficiary had died before the life insured.
INCONTESTABILITY. Manufacturers Life of America will not contest the validity
of a Policy after it has been in force during the life insured's lifetime for
two years from the issue date. It will not contest the validity of an increase
in face amount or the addition of a supplementary benefit after such increase or
addition has been in force during the life insured's lifetime for two years. If
a Policy has been reinstated and been in force for less than two years from the
reinstatement date, the Company can contest any misrepresentation of a fact
material to the reinstatement.
MISSTATEMENT OF AGE OR SEX. If the life insured's stated age or sex or both in
the Policy are incorrect, Manufacturers Life of America will change the face
amount of insurance so that the death benefit will be that which the most recent
monthly charge for the cost of insurance would have bought for the correct age
and sex (unless unisex rates are required by law).
SUICIDE EXCLUSION. If the life insured, whether sane or insane, dies by suicide
within two years from the issue date, Manufacturers Life of America will pay
only the premiums paid less any partial withdrawals of the Net Cash Surrender
Value and any amount in the Loan Account. If the life insured should die by
suicide within two years after a face amount increase, the death benefit for the
increase will be limited to the monthly deduction for the increase.
ASSIGNMENT. Manufacturers Life of America will not be bound by an assignment
until it receives a copy of it at its Service Office. Manufacturers Life of
America assumes no responsibility for the validity or effects of any assignment.
OTHER PROVISIONS
SUPPLEMENTARY BENEFITS
Subject to certain requirements, one or more supplementary benefits may be added
to a Policy, including those providing term insurance for additional insureds,
providing term insurance options, providing accidental death coverage, waiving
monthly deductions upon disability, guaranteeing the Policy Value, accelerating
benefits in the event of terminal illness, and, in the case of corporate-owned
Policies, permitting a change of the life insured. More detailed information
concerning supplementary benefits may be obtained from an authorized agent of
the Company. The cost of any supplementary benefits will be deducted as part of
the monthly deduction. See Charges And Deductions -- "Monthly Deductions."
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<PAGE> 50
PAYMENT OF PROCEEDS
As long as the Policy is in force, Manufacturers Life of America will ordinarily
pay any policy loans, partial withdrawals, Net Cash Surrender Value or any
insurance benefit within seven days after receipt at the Manufacturers Life of
America Service Office of all the documents required for such a payment.
The Company may delay the payment of any policy loans, partial withdrawals, Net
Cash Surrender Value or the portion of any insurance benefit that depends on the
Guaranteed Interest Account value for up to six months; otherwise the Company
may delay payment for any period during which (i) the New York Stock Exchange is
closed for trading (except for normal holiday closings) or trading on the
Exchange is otherwise restricted; or (ii) an emergency exists as defined by the
S.E.C. or the S.E.C. requires that trading be restricted; or (iii) the S.E.C.
permits a delay for the protection of policyowners. Also, transfers may be
denied under the circumstances stated in clauses (i), (ii) and (iii) above and
under the circumstances previously set forth. See Policy Values -- "Transfers Of
Policy Value."
REPORTS TO POLICYOWNERS
Within 30 days after each policy anniversary, Manufacturers Life of America will
send the policyowner a statement showing, among other things, the amount of the
death benefit, the Policy Value and its allocation among the Investment
Accounts, the Guaranteed Interest Account and the Loan Account, the value of the
units in each Investment Account to which the Policy Value is allocated, any
Loan Account balance and any interest charged since the last statement, the
premiums paid and policy transactions made during the period since the last
statement and any other information required by law.
Within 10 days after any transaction involving purchase, sale, or transfer of
units of Investment Accounts, a confirmation statement will be sent.
Each policyowner will also be sent an annual and a semi-annual report for
Manufacturers Investment Trust which will include a list of the securities held
in each Portfolio as required by the 1940 Act.
MISCELLANEOUS MATTERS
PORTFOLIO SHARE SUBSTITUTION
Although Manufacturers Life of America believes it to be highly unlikely, it is
possible that in the judgment of its management, one or more of the Portfolios
may become unsuitable for investment by the Separate Account because of a change
in investment policy or a change in the applicable laws or regulations, because
the shares are no longer available for investment, or for some other reason. In
that event, Manufacturers Life of America may seek to substitute the shares of
another Portfolio or of an entirely different mutual fund. Before this can be
done, the approval of the S.E.C. and one or more state insurance departments may
be required.
Manufacturers Life of America also reserves the right to combine other separate
accounts with the Separate Account to establish additional sub-accounts within
the Separate Account, to operate the Separate Account as a management investment
company or other form permitted by law, to transfer assets from this Separate
Account to another separate account and from another separate account to this
Separate Account, and to de-register the Separate Account under the 1940 Act.
Any such change would be made only if permissible under applicable federal and
state law.
The investment objectives of the Separate Account will not be changed materially
without first filing the change with the Insurance Commissioner of the State of
Michigan. Policyowners will be advised of any such change at the time it is
made.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary provides a general description of the federal income tax
considerations associated with the Policy and does not purport to be complete or
to cover all situations. This discussion is not intended as tax advice. Counsel
or other competent tax advisers should be consulted for more complete
information. This discussion is based upon the Company's understanding of the
present federal income tax laws as they are currently interpreted by the
Internal Revenue Service (the "Service"). No representation is made as to the
39
<PAGE> 51
likelihood of continuation of the present federal income tax laws or of the
current interpretations by the Service. WE DO NOT MAKE ANY GUARANTEE REGARDING
THE TAX STATUS OF ANY POLICY OR ANY TRANSACTION REGARDING THE POLICIES.
The Policies may be used in various arrangements, including non-qualified
deferred compensation or salary continuance plans, split dollar insurance plans,
executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if the use of such
Policies in any such arrangement, the value of which depends in part on its tax
consequences, is contemplated, a qualified tax adviser should be consulted for
advice on the tax attributes of the particular arrangement.
TAX STATUS OF THE POLICY
Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code") sets
forth a definition of a life insurance contract for federal tax purposes. The
Secretary of Treasury (the "Treasury") is authorized to prescribe regulations
implementing Section 7702. However, while proposed regulations and other interim
guidance have been issued, final regulations have not been adopted and guidance
as to how Section 7702 is to be applied is limited. If a Policy were determined
not to be a life insurance contract for purposes of Section 7702, such Policy
would not provide the tax advantages normally provided by a life insurance
policy.
With respect to a Policy issued on the basis of a standard rate class, the
Company believes (largely in reliance on IRS Notice 88-128 and the proposed
mortality charge regulations under Section 7702, issued on July 5, 1991) that
such a Policy should meet the Section 7702 definition of a life insurance
contract.
With respect to a Policy that is issued on a substandard basis (i.e., a premium
class involving higher-than-standard mortality risk), there is less guidance, in
particular as to how mortality and other expense requirements of Section 7702
are to be applied in determining whether such a Policy meets the Section 7702
definition of a life insurance contract. Thus, it is not clear whether or not
such a Policy would satisfy Section 7702, particularly if the policyowner pays
the full amount of premiums permitted under the Policy.
If it is subsequently determined that a Policy does not satisfy Section 7702,
the Company may take whatever steps are appropriate and reasonable to attempt to
cause such a Policy to comply with Section 7702. For these reasons, the Company
reserves the right to restrict Policy transactions as necessary to attempt to
qualify it as a life insurance contract under Section 7702.
Section 817(h) of the Code requires that the investments of the Separate Account
be "adequately diversified" in accordance with Treasury regulations in order for
the Policy to qualify as a life insurance contract under Section 7702 of the
Code (discussed above). The Separate Account, through Manufacturers Investment
Trust, intends to comply with the diversification requirements prescribed in
Treas. Reg. Sec. 1.817-5, which affect how Manufacturers Investment Trust's
assets are to be invested. The Company believes that the Separate Account will
thus meet the diversification requirement, and the Company will monitor
continued compliance with the requirement.
In certain circumstances, owners of variable life insurance Policies may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their Policies. In those circumstances, income
and gains from the separate account assets would be includible in the variable
policyowner's gross income. The IRS has stated in published rulings that a
variable policyowner will be considered the owner of separate account assets if
the policyowner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. The Treasury Department
has also announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the policyowner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyowners may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets."
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that policyowners were not owners of separate account assets.
40
<PAGE> 52
For example, the Policy has many more Portfolios to which policyowners may
allocate premium payments and Policy Values than were available in the policies
described in the rulings. These differences could result in an owner being
treated as the owner of a pro rata portion of the assets of the Separate
Account. In addition, the Company does not know what standards will be set
forth, if any, in the regulations or rulings which the Treasury Department has
stated it expects to issue. The Company therefore reserves the right to modify
the Policy as necessary to attempt to prevent an owner from being considered the
owner of a pro rata share of the assets of the Separate Account.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. The Company believes that the proceeds and cash value increases of
a Policy should be treated in a manner consistent with a fixed-benefit life
insurance policy for federal income tax purposes. Thus, the death benefit under
the Policy should be excludable from the gross income of the beneficiary under
Section 101(a)(1) of the Code.
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's death benefit option, a Policy loan, a partial withdrawal, a surrender,
a change in ownership, a change of insured, the addition of an accelerated death
benefit rider, or an assignment of the Policy may have federal income tax
consequences. In addition, federal, state and local transfer, and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each policyowner or beneficiary. Generally, the policyowner
will not be deemed to be in constructive receipt of the Policy Value, including
increments thereof, until there is a distribution. The tax consequences of
distributions from, and loans taken from or secured by, a Policy depend on
whether the Policy is classified as a "Modified Endowment Contract." Upon a
complete surrender or lapse of a Policy or when benefits are paid at a Policy's
maturity date, if the amount received plus the amount of indebtedness exceeds
the total investment in the Policy, the excess will generally be treated as
ordinary income subject to tax, regardless of whether the Policy is or is not a
Modified Endowment Contract.
MODIFIED ENDOWMENT CONTRACTS. Section 7702A establishes a class of life
insurance contracts designated as "Modified Endowment Contracts," which applies
to Policies entered into or materially changed after June 20, 1988.
Because of the Policy's flexibility, classification as a Modified Endowment
Contract will depend on the individual circumstances of each Policy. In general,
a Policy will be a Modified Endowment Contract if the accumulated premiums paid
at any time during the first seven policy years exceed the sum of the net level
premiums which would have been paid on or before such time if the Policy
provided for paid-up future benefits after the payment of seven level annual
premiums. The determination of whether a Policy will be a Modified Endowment
Contract after a material change generally depends upon the relationship of the
death benefit and Policy Value at the time of such change and the additional
premiums paid in the seven years following the material change. If a premium is
received which would cause the Policy to become a Modified Endowment Contract
(MEC) within 23 days of the next policy anniversary, the Company will not apply
the portion of the premium which would cause MEC status (excess premium) to the
Policy when received. The excess premium will be placed in a suspense account
until the next anniversary date, at which point the excess premium along with
interest, earned on the excess premium at a rate of 3.5% from the date the
premium was received, will be applied to the Policy. The policyowner will be
advised of this action and will be offered the opportunity to have the premium
credited as of the original date received or to have the premium returned. If
the policyowner does not respond, the premium and interest will be applied to
the Policy as of the first day of the next anniversary.
If a premium is received which would cause the Policy to become a MEC more than
23 days prior to the next policy anniversary, the Company will refund any excess
premium to the policyowner. The portion of the premium which is not excess will
be applied as of the date received. The policyowner will be advised of this
action and will be offered the opportunity to return the premium and have it
credited to the account as of the original date received.
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<PAGE> 53
If, in connection with the application or issue of the Policy, the policyowner
acknowledges that the Policy is or will become a MEC, excess premiums that would
cause MEC status will be credited as of the date received.
Further, if a transaction occurs which reduces the face amount of the Policy
during the first seven years, the Policy will be retested retroactive to the
date of purchase, to determine compliance with the seven-pay test based on the
lower face amount. As well, if a reduction of the face amount occurs within
seven years of a material change, the Policy will be retested for compliance
retroactive to the date of the material change. Failure to comply would result
in classification as a Modified Endowment Contract regardless of any efforts by
the Company to provide a payment schedule that will not violate the seven-pay
test.
The rules relating to whether a Policy will be treated as a Modified Endowment
Contract are extremely complex and cannot be adequately described in the limited
confines of this summary. Therefore, a current or prospective policyowner should
consult with a competent adviser to determine whether a transaction will cause
the Policy to be treated as a Modified Endowment Contract.
DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS.
Policies classified as Modified Endowment Contracts will be subject to the
following tax rules: First, all partial withdrawals from such a Policy are
treated as ordinary income subject to tax up to the amount equal to the excess
(if any) of the Policy Value immediately before the distribution over the
investment in the Policy (described below) at such time. Second, loans taken
from or secured by such a Policy are treated as partial withdrawals from the
Policy and taxed accordingly. Past-due loan interest that is added to the loan
amount is treated as a loan. Third, a 10% additional income tax is imposed on
the portion of any distribution (including distributions upon surrender) from,
or loans taken from or secured by, such a Policy that is included in income
except where the distribution or loan is made on or after the policyowner
attains age 59 1/2, is attributable to the policyowner's becoming disabled, or
is part of a series of substantially equal periodic payments for the life (or
life expectancy) of the policyowner or the joint lives (or joint life
expectancies) of the policyowner and the policyowner's beneficiary.
DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS. A
distribution from a Policy that is not a Modified Endowment Contract is
generally treated as a tax-free recovery by the policyowner of the investment in
the Policy (described below) to the extent of such investment in the Policy, and
as a distribution of taxable income only to the extent the distribution exceeds
the investment in the Policy. An exception to this general rule occurs in the
case of a decrease in the Policy's death benefit or any other change that
reduces benefits under the Policy in the first 15 years after the Policy is
issued and that results in a cash distribution to the policyowner in order for
the Policy to continue complying with the Section 7702 definitional limits. Such
a cash distribution will be taxed in whole or in part as ordinary income (to the
extent of any gain in the Policy) under rules prescribed in Section 7702.
Loans from, or secured by, a Policy that is not a Modified Endowment Contract
are not treated as distributions. Instead, such loans are treated as
indebtedness of the policyowner. Select Loans may, however, be treated as a
distribution.
Finally, neither distributions (including distributions upon surrender) nor
loans from, or secured by, a Policy that is not a Modified Endowment Contract
are subject to the 10% additional tax.
POLICY LOAN INTEREST. Generally, personal interest paid on any loan under a
Policy which is owned by an individual is not deductible. In addition, except
for the transition rules described in the paragraph below, interest on any loan
under a Policy owned by a taxpayer and covering the life of any individual who
is an officer or employee of or is financially interested in the business
carried on by the taxpayer will not be tax deductible unless the employee is a
key person within the meaning of Section 264 of the Code. A deduction will not
be permitted for interest on a loan under a policy held on the life of a key
person to the extent the aggregate of such loans with respect to contracts
covering the key person exceeds $50,000. The number of employees who can qualify
as key persons depends in part on the size of the employer but cannot exceed 20
individuals.
For policies issued after June 20, 1986 and prior to January 1, 1994 a
transition rule permits all or a portion of the interest paid on policy debt
incurred before January 1, 1996 to be deducted. For policies issued in 1994 or
1995 the transition rule applies to indebtedness incurred before January 1,
1997. To be deducted the interest must be paid or accrued prior to January 1,
1999, and must meet other rules contained in Section 264 of the Code and section
501 of the Health Insurance Portability and Accountability Act of 1996.
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<PAGE> 54
Furthermore, if a non-natural person owns a policy, or is the direct or indirect
beneficiary under a policy, Section 264(f) of the Code disallows a pro-rata
portion of the taxpayer's interest expense allocable to unborrowed policy cash
values attributable to insurance held on the lives of individuals who are not
20% (or more) owners of the taxpayer-entity, officers, employees, or former
employees of the taxpayer.
The portion of the interest expense that is allocable to unborrowed policy cash
values is an amount that bears the same ratio to that interest expense as the
taxpayer's average unborrowed policy cash values under such life insurance
policies bears to the average adjusted bases for all assets of the taxpayer.
If the taxpayer is not the owner, but is the direct or indirect beneficiary
under the contract, then the amount of unborrowed cash value of the policy taken
into account in computing the portion of the taxpayer's interest expense
allocable to unborrowed policy cash values cannot exceed the benefit to which
the taxpayer is directly or indirectly entitled under the policy.
INVESTMENT IN THE POLICY. Investment in the Policy means (i) the aggregate
amount of any premiums or other consideration paid for a Policy, minus (ii) the
aggregate amount received under the Policy which has been excluded from gross
income of the policyowner (except that the amount of any loan from, or secured
by, a Policy that is a Modified Endowment Contract, to the extent such amount
has been excluded from gross income, will be disregarded), plus (iii) the amount
of any loan from, or secured by, a Policy that is a Modified Endowment Contract
to the extent that such amount has been included in the gross income of the
policyowner.
MULTIPLE POLICIES. All Modified Endowment Contracts that are issued by the
Company (or its affiliates) to the same policyowner during any calendar year are
treated as one Modified Endowment Contract for purposes of determining the
amount includible in the gross income under Section 72(e) of the Code.
THE COMPANY'S TAXES
As a result of the Omnibus Budget Reconciliation Act of 1990, insurance
companies are generally required to capitalize and amortize certain policy
acquisition expenses over a 10-year period rather than currently deducting such
expenses. This treatment applies to the deferred acquisition expenses of a
Policy and results in a significantly higher corporate income tax liability for
the Company. The Company makes a charge to premiums to compensate it for the
anticipated higher corporate income taxes.
At the present time, the Company makes no charge to the Separate Account for any
federal, state or local taxes that the Company incurs that may be attributable
to such Account or to the Policies. The Company, however, reserves the right in
the future to make a charge for any such tax or other economic burden resulting
from the application of the tax laws that it determines to be properly
attributable to the Separate Account or to the Policies.
DISTRIBUTION OF THE POLICY
ManEquity, Inc., an indirect wholly-owned subsidiary of Manufacturers Life, will
act as the principal underwriter of, and continuously offer, the Policies
pursuant to a Distribution Agreement with Manufacturers Life of America.
ManEquity, Inc. is registered as a broker-dealer under the Securities Exchange
Act of 1934 and is a member of the National Association of Securities Dealers.
The Policies will be sold by registered representatives of either ManEquity,
Inc. or other broker-dealers having distribution agreements with ManEquity, Inc.
who are also authorized by state insurance departments to do so. Compensation is
comprised of first-year commissions and bonus not to exceed 105% of premiums
paid up to the Target Premium, commissions not to exceed 2% of premiums in
excess thereof and, after the third anniversary, 0.15% of the Policy Value per
annum. If certain standards with regard to the sale of the Policies and certain
other policies issued by Manufacturers Life of America or Manufacturers Life
(USA) are met, additional compensation will be available.
RESPONSIBILITIES ASSUMED BY MANUFACTURERS LIFE
Manufacturers Life and Manufacturers USA have entered into an agreement with
ManEquity, Inc. pursuant to which Manufacturers Life or Manufacturers USA, on
behalf of ManEquity, Inc., will pay the sales
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<PAGE> 55
commissions in respect of the Policies and certain other policies issued by
Manufacturers Life of America, prepare and maintain all books and records
required to be prepared and maintained by ManEquity, Inc. with respect to the
Policies and such other policies, and send all confirmations required to be sent
by ManEquity, Inc. with respect to the Policies and such other policies.
ManEquity, Inc. will promptly reimburse Manufacturers Life or Manufacturers USA
for all sales commissions paid by Manufacturers Life and will pay Manufacturers
Life for their other services under the agreement in such amounts and at such
times as agreed to by the parties.
Manufacturers Life and Manufacturers USA have also entered into a Service
Agreement with Manufacturers Life of America pursuant to which Manufacturers
Life or Manufacturers USA will provide to Manufacturers Life of America all
issue, administrative, general services and recordkeeping functions on behalf of
Manufacturers Life of America with respect to all of its insurance policies
including the Policies.
Finally, Manulife Reinsurance Corporation (U.S.A.) has entered into a Stoploss
Reinsurance Agreement with Manufacturers Life of America under which Manulife
Reinsurance Corporation (U.S.A.) reinsures all aggregate claims in excess of
110% of the expected claims for all flexible premium variable life insurance
policies issued by Manufacturers Life of America. Under the agreement
Manufacturers Life of America will automatically reinsure the risk for any one
life up to a maximum of $7,500,000, except in the case of aviation risks where
the maximum will be $5,000,000. However, Manufacturers Life of America may also
consider reinsuring any non-aviation risks in excess of $7,500,000 and any
aviation risk in excess of $5,000,000.
VOTING RIGHTS
As stated above, all of the assets held in the sub-accounts of the Separate
Account will be invested in shares of a particular Portfolio of Manufacturers
Investment Trust. Manufacturers Life of America is the legal owner of those
shares and as such has the right to vote upon matters that are required by the
1940 Act to be approved or ratified by the shareholders of a mutual fund and to
vote upon any other matters that may be voted upon at a shareholders' meeting.
However, Manufacturers Life of America will vote shares held in the sub-accounts
in accordance with instructions received from policyowners having an interest in
such sub-accounts.
Shares held in each sub-account for which no timely instructions from
policyowners are received, including shares not attributable to Policies, will
be voted by Manufacturers Life of America in the same proportion as those shares
in that sub-account for which instructions are received. Should the applicable
federal securities laws or regulations change so as to permit Manufacturers Life
of America to vote shares held in the Separate Account in its own right, it may
elect to do so.
The number of shares in each sub-account for which instructions may be given by
a policyowner is determined by dividing the portion of the Policy Value derived
from participation in that sub-account, if any, by the value of one share of the
corresponding Portfolio of Manufacturers Investment Trust. The number will be
determined as of a date chosen by Manufacturers Life of America, but not more
than 90 days before the shareholders' meeting. Fractional votes are counted.
Voting instructions will be solicited in writing at least 14 days prior to the
shareholders' 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 Portfolios, or to approve or disapprove an investment
management contract. In addition, Manufacturers Life of America itself may
disregard voting instructions that would require changes in the investment
policies or investment adviser, provided that Manufacturers Life of America
reasonably disapproves such changes in accordance with applicable federal
regulations. If Manufacturers Life of America does disregard voting
instructions, it will advise policyowners of that action and its reasons for
such action in the next communication to policyowners.
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<PAGE> 56
DIRECTORS AND OFFICERS OF MANUFACTURERS LIFE OF AMERICA
The Directors and Officers of Manufacturers Life of America, together with their
principal occupations during the past few years, are as follows:
<TABLE>
<CAPTION>
POSITION WITH
MANUFACTURERS LIFE
NAME OF AMERICA PRINCIPAL OCCUPATION
---- ------------------ --------------------
<S> <C> <C>
Sandra M. Cotter (35) Director Attorney 1989-present, Dykema Gossett
James D. Gallagher (43) Director, Secretary, and Vice President, Secretary and General Counsel --
General Counsel January 1997-present, ManUSA; Vice President, Legal
Services U.S. Operations -- January 1996-present, The
Manufacturers Life Insurance Company; Vice President,
Secretary and General Counsel -- 1994-present, The
Manufacturers Life Insurance Company of North America;
Vice President and Associate General Counsel --
1991-1994, The Prudential Insurance Company of America
Bruce Gordon (54) Director Vice President, U.S. Operations -- Pensions --
1990-present, The Manufacturers Life Insurance Company
Donald A. Guloien (41) Director and President Senior Vice President, Business Development
1994-present, The Manufacturers Life Insurance Company;
Vice President, U.S. Individual Business -- 1990-1994,
The Manufacturers Life Insurance Company
Theodore Kilkuskie, Jr. (42) Director, Vice President, Vice President, U.S. Individual Insurance -- January
U.S. Individual Insurance 1997- present, ManUSA; Vice President, U.S. Individual
Insurance -- June 1995-present, The Manufacturers Life
Insurance Company; Executive Vice President, Mutual
Funds -- January 1995-May 1995, State Street Research;
Vice President, Mutual Funds -- 1987-1994, Metropolitan
Life Insurance Company
Joseph J. Pietroski (59) Director Senior Vice President, General Counsel and Corporate
Secretary -- 1988-present, The Manufacturers Life
Insurance Company
John D. Richardson (60) Chairman and Director Executive Vice President and General Manager, U.S.
Operations 1995-present, The Manufacturers Life
Insurance Company; Senior Vice President and General
Manager, Canadian Operations 1992-1994
John R. Ostler (45) Vice President and Treasurer Financial Vice President -- 1992-present, The
Manufacturers Life Insurance Company
Douglas H. Myers (43) Vice President, Finance and Assistant Vice President and Controller, U.S.
Controller Operations -- 1988-present, The Manufacturers Life
Insurance Company
Victor Apps (49) Senior Vice President, Asia Senior Vice President and General Manager, Greater
China Division -- 1995-present, The Manufacturers Life
Insurance Company; Vice President and General Manger,
Greater China Division -- 1993-1995, The Manufacturers
Life Insurance Company; International Vice President --
1988-1993, Asia Pacific Division, The Manufacturers
Life Insurance Company
Felix Chee (51) Vice President, Investments Executive Vice President -- 1997 to present, The
Manufacturers Life Insurance Company; Chief Investment
Officer -- 1997 to present, The Manufacturers Life
Insurance Company, Senior Vice President and Treasurer
-- 1993-1994, The Manufacturers Life Insurance Company,
Senior Vice President, Corporate Finance -- April 1993
to September 1993, Ontario Hydro.
Robert A. Cook (43) Vice President, Marketing Vice President, Product Management -- 1996-present, The
Manufacturers Life Insurance Company; Sales and
Marketing Director, U.S. Division 1994-1995, The
Manufacturers Life Insurance Company; Vice President,
Corporation Strategic Review -- 1992-1993, The
Manufacturers Life Insurance Company
</TABLE>
45
<PAGE> 57
<TABLE>
<CAPTION>
POSITION WITH
MANUFACTURERS LIFE
NAME OF AMERICA PRINCIPAL OCCUPATION
---- ------------------ --------------------
<S> <C> <C>
Hugh C. McHaffie (39) Vice President Vice President, U.S. Annuities and Product Development
--1996 to present, The Manufacturers Life Insurance
Company; Vice President U.S. Annuities and Product
Development -- 1994 to present, The Manufacturers Life
Insurance Company of North America; Product Development
Executive -- 1990 to 1994, The Manufacturers Life
Insurance Company of North America.
John G. Vrysen (42) Vice President and Appointed Vice President and Chief Financial Officer, U.S.
Actuary Operations -- 1996 to present, The Manufacturers Life
Insurance Company, Vice President and Chief Actuary --
1986 to present, The Manufacturers Life Insurance
Company of North America.
</TABLE>
STATE REGULATIONS
Manufacturers Life of America is subject to regulation and supervision by the
Michigan Department of Insurance, which periodically examines its financial
condition and operations. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business. The
Policies have been filed with insurance officials, and meet all standards set by
law, in each jurisdiction where they are sold.
Manufacturers Life of America is required to submit annual statements of its
operations, including financial statements, to the insurance departments of the
various jurisdictions in which it does business for the purposes of determining
solvency and compliance with local insurance laws and regulations.
PENDING LITIGATION
No litigation is pending that would have a material effect upon the Separate
Account or Manufacturers Investment Trust.
ADDITIONAL INFORMATION
A registration statement under the Securities Act of 1933 has been filed with
the S.E.C. relating to the offering described in this prospectus. This
prospectus does not include all the information set forth in the registration
statement. The omitted information may be obtained from the S.E.C.'s principal
office in Washington, D.C. upon payment of the prescribed fee.
For further information you may also contact Manufacturers Life of America's
Service Office, the address and telephone number of which are on the cover page
of this prospectus.
LEGAL MATTERS
The legal validity of the policies has been passed on by James D. Gallagher,
Esq., Secretary and General Counsel of Manufacturers Life of America. Jones &
Blouch L.L.P., Washington, D.C., has passed on certain matters relating to the
federal securities laws.
EXPERTS
The financial statements for the period ended December 31, 1997 of The
Manufacturers Life Insurance Company of America and Separate Account Three of
The Manufacturers Life Insurance Company of America appearing in this prospectus
have been audited by Ernst & Young LLP, independent auditors, to the extent
indicated in their reports thereon also appearing elsewhere herein. Such
financial statements have been
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<PAGE> 58
included herein in reliance upon such reports given upon the authority of such
firm as experts in auditing and accounting.
YEAR 2000 ISSUES
Preparing computer systems to deal with the Year 2000 risk has become a major
issue for businesses throughout the world. Within the group of companies made up
of Manufacturers Life and its subsidiaries ("Manulife Financial"), a group-wide
program has been underway since 1996 to make all critical systems compliant by
the end of 1998 and other systems compliant by the end of 1999. Included in this
program are all systems applicable to and shared by the Company with Manulife
Financial. Based on a detailed assessment, Manulife Financial determined that a
portion of its software needs to be modified or replaced so that its computer
systems will function properly into the Year 2000 and beyond. Like most
companies, the Year 2000 issue represents a significant challenge for Manulife
Financial, and extensive resources have been dedicated to modifying existing
software and to converting to new software. However, there can be no assurances
that Manulife Financial's systems, nor those of other companies on which
Manulife Financial relies, will be fully converted on a timely basis and
therefore that all adverse effects on the Company due to the Year 2000 risk will
be avoided. Manulife Financial is presently consulting with vendors, customers,
subsidiaries, third-parties and other businesses with which it deals to ensure
that no material aspect of its, or the Company's operations will be hindered by
the Year 2000 risk.
The costs of the project and the date on which Manulife Financial plans to
complete the modifications are based on management's best estimates and are
subject to some uncertainty. Manulife Financial is using both internal and
external resources to reprogram, or replace, and test the software for Year 2000
modifications. The total cost of this program to Manulife Financial is estimated
to be $64 million, comprised of $55 million for specifically budgeted programs
and $9 million for general contingencies. Manulife Financial has incurred $15
million as at December 31, 1997 of which the Company will receive an allocation
due to its shared systems. The costs allocated are not expected to have a
material effect on the net operating income of the Company.
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<PAGE> 59
FINANCIAL STATEMENTS
The financial statements of Manufacturers Life of America included herein should
be distinguished from the financial statements of Separate Account Three and
should be considered only as bearing upon the ability of Manufacturers Life of
America to meet its obligations under the Policies.
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<PAGE> 60
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1997
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Statement of Assets and Liabilities......................... F-3
Statements of Operations.................................... F-4
Statements of Changes in Net Assets......................... F-9
Notes to Financial Statements............................... F-14
</TABLE>
F-1
<PAGE> 61
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 as of
December 31, 1997 and the related statements of operations and changes in net
assets for each of the three years in the period then ended. These financial
statements are the responsibility of The Manufacturers Life Insurance Company of
America's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1997, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Separate Account Three of The
Manufacturers Life Insurance Company of America at December 31, 1997 and the
results of its operations and the changes in its net assets for each of the
three years in the period then ended, in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
January 30, 1998
F-2
<PAGE> 62
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
SUB-ACCOUNT
NET ASSET UNITS NET ASSET
VALUE OUTSTANDING VALUE PER UNIT
------------ ----------- --------------
<S> <C> <C> <C>
Investment in NASL Series Trust -- at market value:
Emerging Growth Trust, 2,749,403 shares (cost
$2,788,469)............................................ $ 66,343,106 1,538,945 $43.11
Quantitative Equity Trust, 1,784,411 shares (cost
$3,209,002)............................................ 40,149,248 1,168,380 34.36
Real Estate Securities Trust, 1,275,685 shares
(cost $4,413,368)...................................... 25,603,002 649,627 39.41
Balanced Trust, 2,163,632 shares
(cost $2,191,149)...................................... 41,823,014 1,593,352 26.25
Capital Growth Bond Trust, 1,572,920 shares (cost
$2,383,490)............................................ 18,639,105 880,058 21.18
Money Market Trust, 2,942,758 shares
(cost $9,842,873)...................................... 29,427,581 1,689,057 17.42
International Stock Trust, 1,339,292 shares (cost
$5,809,008)............................................ 15,361,685 1,263,839 12.15
Pacific Rim Emerging Markets Trust, 608,649 shares
(cost $749,518)........................................ 4,357,924 571,156 7.63
Equity Index Trust, 1,576,166 shares (cost $9,727,057)... 19,670,555 1,282,564 15.34
Equity Trust, 856,317 shares (cost $7,546,578)........... 18,410,808 1,358,092 13.56
Value Equity Trust, 859,774 shares (cost $6,336,049)..... 14,822,505 1,005,924 14.74
Growth and Income Trust, 812,277 shares (cost
$10,572,071)........................................... 19,405,298 1,243,803 15.60
U.S. Government Securities Trust, 164,676 shares
(cost $396,173)........................................ 2,223,129 200,133 11.11
Conservative Asset Allocation Trust, 58,907 shares
(cost $262,252)........................................ 693,930 59,185 11.72
Moderate Asset Allocation Trust, 144,764 shares
(cost $1,176,117)...................................... 1,874,694 151,176 12.40
Aggressive Asset Allocation Trust, 154,889 shares
(cost $1,126,294)...................................... 2,224,207 170,944 13.01
International Small Cap Trust, 102,354 shares
(cost $1,438,102)...................................... 1,402,244 110,896 12.64
Blue Chip Growth Trust, 251,892 shares (cost
$3,441,491)............................................ 3,778,382 235,467 16.05
Science & Technology Trust, 78,196 shares (cost
$1,130,457)............................................ 1,065,029 75,729 14.06
Pilgram Baxter Growth Trust, 44,916 shares (cost
$578,260).............................................. 561,449 38,627 14.54
Small/Mid Cap Trust, 95,514 shares (cost $1,467,114)..... 1,471,877 96,429 15.26
Worldwide Growth Trust, 22,465 shares (cost $315,315).... 315,411 23,039 13.69
Global Equity Trust, 75,778 shares (cost $1,436,096)..... 1,468,584 100,693 14.58
Growth Trust, 72,591 shares (cost $1,232,689)............ 1,249,285 83,448 14.97
Value Trust, 73,039 shares (cost $1,065,837)............. 1,080,976 74,764 14.46
International Growth and Income Trust, 71,329 shares
(cost $824,398)........................................ 785,328 62,885 12.49
High Yield Trust, 78,982 shares (cost $1,036,632)........ 1,070,992 77,316 13.85
Strategic Bond Trust, 52,826 shares (cost $642,579)...... 653,990 48,010 13.62
Global Government Bond Trust, 15,761 shares
(cost $217,884)........................................ 221,760 16,782 13.21
Investment Quality Bond Trust, 21,517 shares (cost
$254,782).............................................. 261,007 19,211 13.59
Lifestyle Aggressive 1000 Trust, 180,325 shares
(cost $2,434,264)...................................... 2,428,972 169,592 14.32
Lifestyle Growth 820 Trust, 381,917 shares (cost
$5,244,093)............................................ 5,258,998 369,541 14.23
Lifestyle Balanced 640 Trust, 156,600 shares
(cost $2,058,841)...................................... 2,123,497 150,592 14.10
Lifestyle Moderate 460 Trust, 7,669 shares (cost
$101,541).............................................. 102,380 7,392 13.85
Lifestyle Conservative 280 Trust, 103 shares (cost
$1,302)................................................ 1,341 98 13.68
------------
Net assets................................................. $346,331,293
============
</TABLE>
See accompanying notes.
F-3
<PAGE> 63
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
EMERGING GROWTH SUB-ACCOUNT QUANTITATIVE EQUITY SUB-ACCOUNT
---------------------------------- ----------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net investment income:
Dividend income................... $ -- $7,702,014 $ 721,489 $ -- $4,240,752 $ --
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) from security
transactions:
Proceeds from sales............. 7,107,331 4,088,127 1,274,886 3,096,117 1,222,403 798,694
Cost of securities sold......... 5,908,528 3,518,688 1,068,731 2,122,759 976,262 804,887
---------- ---------- ---------- ---------- ---------- ----------
Net realized gain (loss).......... 1,198,803 569,439 206,155 973,358 246,141 (6,193)
---------- ---------- ---------- ---------- ---------- ----------
Unrealized appreciation
(depreciation) of investments:
Beginning of year............... (1,640,500) 4,794,911 78,088 1,534,960 2,295,941 (438,289)
End of year..................... 6,743,875 (1,640,500) 4,794,911 9,470,255 1,534,960 2,295,941
---------- ---------- ---------- ---------- ---------- ----------
Net unrealized appreciation
(depreciation) during the
year............................ 8,384,375 (6,435,411) 4,716,823 7,935,295 (760,981) 2,734,230
---------- ---------- ---------- ---------- ---------- ----------
Net realized and unrealized gain
(loss) on investments............. 9,583,178 (5,865,972) 4,922,978 8,908,653 (514,840) 2,728,037
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net
assets derived from operations.... $9,583,178 $1,836,042 $5,644,467 $8,908,653 $3,725,912 $2,728,037
========== ========== ========== ========== ========== ==========
<CAPTION>
REAL ESTATE SECURITIES SUB-ACCOUNT BALANCED SUB-ACCOUNT
---------------------------------- ----------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net investment income:
Dividend income................... $ -- $2,776,056 $ 142,066 $ -- $4,478,042 $ 24,806
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) from security
transactions:
Proceeds from sales............. 1,134,797 660,261 812,232 4,291,414 1,836,560 739,327
Cost of securities sold......... 898,569 631,891 830,335 3,671,860 1,674,031 769,053
---------- ---------- ---------- ---------- ---------- ----------
Net realized gain (loss).......... 236,228 28,370 (18,103) 619,554 162,529 (29,726)
---------- ---------- ---------- ---------- ---------- ----------
Unrealized appreciation
(depreciation) of investments:
Beginning of year............... 2,155,063 748,034 (280,544) 958,041 2,693,376 (1,064,130)
End of year..................... 5,819,409 2,155,063 748,034 6,626,043 958,041 2,693,376
---------- ---------- ---------- ---------- ---------- ----------
Net unrealized appreciation
(depreciation) during the
year............................ 3,664,346 1,407,029 1,028,578 5,668,002 (1,735,335) 3,757,506
---------- ---------- ---------- ---------- ---------- ----------
Net realized and unrealized gain
(loss) on investments............. 3,900,574 1,435,399 1,010,475 6,287,556 (1,572,806) 3,727,780
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net
assets derived from operations.... $3,900,574 $4,211,455 $1,152,541 $6,287,556 $2,905,236 $3,752,586
========== ========== ========== ========== ========== ==========
<CAPTION>
CAPITAL GROWTH BOND SUB-ACCOUNT
----------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95
---------- ---------- ----------
<S> <C> <C> <C>
Net investment income:
Dividend income................... $ -- $ 864,430 $ 726,517
Realized and unrealized gain (loss)
on investments:
Realized gain (loss) from security
transactions:
Proceeds from sales............. 1,876,127 1,292,420 798,441
Cost of securities sold......... 1,866,847 1,363,232 830,096
---------- ---------- ----------
Net realized gain (loss).......... 9,280 (70,812) (31,655)
---------- ---------- ----------
Unrealized appreciation
(depreciation) of investments:
Beginning of year............... (223,171) 153,798 (542,982)
End of year..................... 1,199,605 (223,171) 153,798
---------- ---------- ----------
Net unrealized appreciation
(depreciation) during the
year............................ 1,422,776 (376,969) 696,780
---------- ---------- ----------
Net realized and unrealized gain
(loss) on investments............. 1,432,056 (447,781) 665,125
---------- ---------- ----------
Net increase (decrease) in net
assets derived from operations.... $1,432,056 $ 416,649 $1,391,642
========== ========== ==========
</TABLE>
- ---------------
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
F-4
<PAGE> 64
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
MONEY MARKET INTERNATIONAL STOCK
SUB-ACCOUNT SUB-ACCOUNT
--------------------------------------- -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net investment income:
Dividend income............................................ $ 1,159,280 $ 1,505,315 $ 468 $ 209,753 $248,736
----------- ----------- ---------- --------- --------
Realized and unrealized gain (loss) on investments:
Realized and unrealized gain (loss) from security
transactions:
Proceeds from sales..................................... 18,425,413 17,344,859 8,849,535 780,310 289,302
Cost of securities sold................................. 19,340,111 16,936,049 8,634,234 656,813 250,445
----------- ----------- ---------- --------- --------
Net realized gain (loss)................................... (914,698) 408,810 215,301 123,497 38,857
----------- ----------- ---------- --------- --------
Unrealized appreciation (depreciation) of investments:
Beginning of year....................................... (914,724) 233,720 (75,010) 450,565 99,777
End of year............................................. 1 (914,724) 233,720 131,811 450,565
----------- ----------- ---------- --------- --------
Net unrealized appreciation (depreciation) during the
year..................................................... 914,725 (1,148,444) 308,730 (318,754) 350,788
----------- ----------- ---------- --------- --------
Net realized and unrealized gain (loss) on investments...... 27 (739,634) 524,031 (195,257) 389,645
----------- ----------- ---------- --------- --------
Net increase (decrease) in net assets derived from
operations................................................. $ 1,159,307 $ 765,681 $ 524,499 $ 14,496 $638,381
=========== =========== ========== ========= ========
<CAPTION>
INTERNATIONAL PACIFIC RIM
STOCK EMERGING MARKETS
SUB-ACCOUNT SUB-ACCOUNT
--------------- ---------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net investment income:
Dividend income............................................ $ 59,169 $ 12,667 $239,201 $ 19,281
-------- ----------- -------- --------
Realized and unrealized gain (loss) on investments:
Realized and unrealized gain (loss) from security
transactions:
Proceeds from sales..................................... 344,439 1,556,257 443,740 335,955
Cost of securities sold................................. 334,542 1,571,876 374,390 329,373
-------- ----------- -------- --------
Net realized gain (loss)................................... 9,897 (15,619) 69,350 6,582
-------- ----------- -------- --------
Unrealized appreciation (depreciation) of investments:
Beginning of year....................................... (3,406) 67,813 88,856 (8,633)
End of year............................................. 99,777 (2,120,317) 67,813 88,856
-------- ----------- -------- --------
Net unrealized appreciation (depreciation) during the
year..................................................... 103,183 (2,188,130) (21,043) 97,489
-------- ----------- -------- --------
Net realized and unrealized gain (loss) on investments...... 113,080 (2,203,749) 48,307 104,071
-------- ----------- -------- --------
Net increase (decrease) in net assets derived from
operations................................................. $172,249 $(2,191,082) $287,508 $123,352
======== =========== ======== ========
<CAPTION>
EQUITY INDEX EQUITY
SUB-ACCOUNT SUB-ACCOUNT
----------------------- -----------------------
YEAR *PERIOD YEAR *PERIOD
ENDED ENDED ENDED ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net investment income:
Dividend income............................................ $2,468,634 $449,782 $2,150,334 $ 26,181
---------- -------- ---------- --------
Realized and unrealized gain (loss) on investments:
Realized and unrealized gain (loss) from security
transactions:
Proceeds from sales..................................... 1,982,591 231,179 1,891,337 54,581
Cost of securities sold................................. 1,529,141 214,759 1,889,551 56,756
---------- -------- ---------- --------
Net realized gain (loss)................................... 453,450 16,420 1,786 (2,175)
---------- -------- ---------- --------
Unrealized appreciation (depreciation) of investments:
Beginning of year....................................... (46,898) -- 495,686 --
End of year............................................. 488,048 (46,898) 737,427 495,686
---------- -------- ---------- --------
Net unrealized appreciation (depreciation) during the
year..................................................... 534,946 (46,898) 241,741 495,686
---------- -------- ---------- --------
Net realized and unrealized gain (loss) on investments...... 988,396 (30,478) 243,527 493,511
---------- -------- ---------- --------
Net increase (decrease) in net assets derived from
operations................................................. $3,457,030 $419,304 $2,393,861 $519,692
========== ======== ========== ========
<CAPTION>
VALUE EQUITY
SUB-ACCOUNT
-----------------------
YEAR *PERIOD
ENDED ENDED
DEC. 31/97 DEC. 31/96
---------- ----------
<S> <C> <C>
Net investment income:
Dividend income............................................ $1,127,557 $ 8,790
---------- --------
Realized and unrealized gain (loss) on investments:
Realized and unrealized gain (loss) from security
transactions:
Proceeds from sales..................................... 1,288,325 438,548
Cost of securities sold................................. 1,107,952 417,223
---------- --------
Net realized gain (loss)................................... 180,373 21,325
---------- --------
Unrealized appreciation (depreciation) of investments:
Beginning of year....................................... 364,883 --
End of year............................................. 1,914,865 364,883
---------- --------
Net unrealized appreciation (depreciation) during the
year..................................................... 1,549,982 364,883
---------- --------
Net realized and unrealized gain (loss) on investments...... 1,730,355 386,208
---------- --------
Net increase (decrease) in net assets derived from
operations................................................. $2,857,912 $394,998
========== ========
</TABLE>
- ---------------
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
F-5
<PAGE> 65
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
U.S. GOVERNMENT CONSERVATIVE
GROWTH AND INCOME SECURITIES ASSET ALLOCATION
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------------- ------------------- -------------------
YEAR *PERIOD YEAR *PERIOD YEAR *PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
31/97 31/96 31/97 31/96 31/97 31/96
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net investment income:
Dividend income........................... $ 556,761 $ 1,952 $123,037 $ 26,995 $ 42,335 $ 8,660
---------- -------- -------- -------- -------- -------
Realized and unrealized gain (loss) on
investments:
Realized and unrealized gain (loss) from
security transactions:
Proceeds from sales................. 3,054,342 82,474 750,917 141,134 236,418 30,301
Cost of securities sold............. 2,467,777 77,312 752,455 149,988 228,648 31,365
---------- -------- -------- -------- -------- -------
Net realized gain (loss).................. 586,565 5,162 (1,538) (8,854) 7,770 (1,064)
---------- -------- -------- -------- -------- -------
Unrealized appreciation (depreciation) of
investments:
Beginning of year................... 405,558 -- 38,928 -- 6,566 --
End of year......................... 2,511,120 405,558 67,077 38,928 17,540 6,566
---------- -------- -------- -------- -------- -------
Net unrealized appreciation (depreciation)
during the year......................... 2,105,562 405,558 28,149 38,928 10,974 6,566
---------- -------- -------- -------- -------- -------
Net realized and unrealized gain (loss) on
investments............................... 2,692,127 410,720 26,611 30,074 18,744 5,502
---------- -------- -------- -------- -------- -------
Net increase (decrease) in net assets
derived from operations................... $3,248,888 $412,672 $149,648 $ 57,069 $ 61,079 $14,162
========== ======== ======== ======== ======== =======
<CAPTION>
INTERNATIONAL BLUE
SMALL CHIP **SCIENCE &
MODERATE AGGRESSIVE CAP GROWTH TECHNOLOGY
ASSET ALLOCATION ASSET ALLOCATION SUB- SUB- SUB-
SUB-ACCOUNT SUB-ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------------- ------------------- ------------- -------- -----------
YEAR *PERIOD YEAR *PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
31/97 31/96 31/97 31/96 31/97 31/97 31/97
-------- -------- -------- -------- ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net investment income:
Dividend income........................... $ 83,798 $ 2,105 $104,784 $11,072 $ 212 $104,304 $ 16,815
-------- ------- -------- ------- -------- -------- --------
Realized and unrealized gain (loss) on
investments:
Realized and unrealized gain (loss) from
security transactions:
Proceeds from sales................. 71,531 45,521 226,753 79,723 206,034 121,709 457,533
Cost of securities sold............. 65,973 45,706 204,492 82,946 203,025 128,505 477,311
-------- ------- -------- ------- -------- -------- --------
Net realized gain (loss).................. 5,558 (185) 22,261 (3,223) 3,009 (6,796) (19,778)
-------- ------- -------- ------- -------- -------- --------
Unrealized appreciation (depreciation) of
investments:
Beginning of year................... 23,967 -- 43,313 -- -- -- --
End of year......................... 101,169 23,967 164,721 43,313 (39,080) 239,382 (62,465)
-------- ------- -------- ------- -------- -------- --------
Net unrealized appreciation (depreciation)
during the year......................... 77,202 23,967 121,408 43,313 (39,080) 239,382 (62,465)
-------- ------- -------- ------- -------- -------- --------
Net realized and unrealized gain (loss) on
investments............................... 82,760 23,782 143,669 40,090 (36,071) 232,586 (82,243)
-------- ------- -------- ------- -------- -------- --------
Net increase (decrease) in net assets
derived from operations................... $166,558 $25,887 $284,453 $51,162 $(35,859) $336,890 $(65,428)
======== ======= ======== ======= ======== ======== ========
<CAPTION>
**PILGRAM
BAXTER
GROWTH
SUB-
ACCOUNT
---------
YEAR
ENDED
DECEMBER
31/97
---------
<S> <C>
Net investment income:
Dividend income........................... $ --
--------
Realized and unrealized gain (loss) on
investments:
Realized and unrealized gain (loss) from
security transactions:
Proceeds from sales................. 37,770
Cost of securities sold............. 36,070
--------
Net realized gain (loss).................. 1,700
--------
Unrealized appreciation (depreciation) of
investments:
Beginning of year................... --
End of year......................... (18,510)
--------
Net unrealized appreciation (depreciation)
during the year......................... (18,510)
--------
Net realized and unrealized gain (loss) on
investments............................... (16,810)
--------
Net increase (decrease) in net assets
derived from operations................... $(16,810)
========
</TABLE>
- ---------------
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
F-6
<PAGE> 66
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
**INTERNATIONAL
**SMALL/MID **WORLDWIDE **GLOBAL GROWTH AND
CAP GROWTH EQUITY **GROWTH **VALUE INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------------ ------------ ------------ ------------ ---------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97
------------ ------------------ ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income:
Dividend income........... $ -- $ 2,704 $ -- $ -- $ 33,133 $ --
------- ------- ------- ------- -------- --------
Realized and unrealized gain
(loss) on investments:
Realized and unrealized
gain (loss) from
security transactions:
Proceeds from sales..... 52,379 40,572 6,150 9,760 28,449 18,809
Cost of securities
sold.................. 43,433 38,790 5,777 8,653 25,668 18,622
------- ------- ------- ------- -------- --------
Net realized gain
(loss).................. 8,946 1,782 373 1,107 2,781 187
------- ------- ------- ------- -------- --------
Unrealized appreciation
(depreciation) of
investments:
Beginning of year....... -- -- -- -- -- --
End of year............. (4,182) (4,391) 32,115 15,489 (20,774) (39,257)
------- ------- ------- ------- -------- --------
Net unrealized
appreciation
(depreciation) during
the year................ (4,182) (4,391) 32,115 15,489 (20,774) (39,257)
------- ------- ------- ------- -------- --------
Net realized and unrealized
gain (loss) on
investments............... 4,764 (2,609) 32,488 16,596 (17,993) (39,070)
------- ------- ------- ------- -------- --------
Net increase (decrease) in
net assets derived from
operations................ $ 4,764 $ 95 $32,488 $16,596 $ 15,140 $(39,070)
======= ======= ======= ======= ======== ========
<CAPTION>
**GLOBAL
**STRATEGIC GOVERNMENT **INVESTMENT
**HIGH YIELD BOND BOND QUALITY BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ------------ ------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net investment income:
Dividend income........... $ 39,931 $ -- $ -- $ --
-------- ------- ------ ------
Realized and unrealized gain
(loss) on investments:
Realized and unrealized
gain (loss) from
security transactions:
Proceeds from sales..... 347,712 18,384 3,662 4,700
Cost of securities
sold.................. 339,830 17,681 3,587 4,564
-------- ------- ------ ------
Net realized gain
(loss).................. 7,882 703 75 136
-------- ------- ------ ------
Unrealized appreciation
(depreciation) of
investments:
Beginning of year....... -- -- -- --
End of year............. (13,453) 10,709 3,801 6,089
-------- ------- ------ ------
Net unrealized
appreciation
(depreciation) during
the year................ (13,453) 10,709 3,801 6,089
-------- ------- ------ ------
Net realized and unrealized
gain (loss) on
investments............... (5,571) 11,412 3,876 6,225
-------- ------- ------ ------
Net increase (decrease) in
net assets derived from
operations................ $ 34,360 $11,412 $3,876 $6,225
======== ======= ====== ======
</TABLE>
- ---------------
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
F-7
<PAGE> 67
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
**LIFESTYLE **LIFESTYLE **LIFESTYLE **LIFESTYLE **LIFESTYLE
AGGRESSIVE GROWTH BALANCED MODERATE CONSERVATIVE
1000 820 640 460 820
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
------------ ------------ ------------ ------------ ------------ -----------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97
------------ ------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Net investment income:
Dividend income.................. $ 4,916 $ 36,584 $ 16,038 $ 842 $ 9 $ 8,330,428
-------- -------- -------- ------ ---- -----------
Realized and unrealized gain (loss)
on investments:
Realized and unrealized gain
(loss) from security
transactions:
Proceeds from sales......... 18,722 53,801 152,797 2,366 173 49,351,462
Cost of securities sold..... 17,881 50,741 147,960 2,372 172 45,853,994
-------- -------- -------- ------ ---- -----------
Net realized gain (loss)......... 841 3,060 4,837 (6) 1 3,497,468
-------- -------- -------- ------ ---- -----------
Unrealized appreciation
(depreciation) of investments:
Beginning of year........... -- -- -- -- -- 3,720,050
End of year................. (11,049) (24,740) 43,781 3 29 33,986,146
-------- -------- -------- ------ ---- -----------
Net unrealized appreciation
(depreciation) during the
year.......................... (11,049) (24,740) 43,781 3 29 30,266,096
-------- -------- -------- ------ ---- -----------
Net realized and unrealized gain
(loss) on investments............ (10,208) (21,680) 48,618 (3) 30 33,763,564
-------- -------- -------- ------ ---- -----------
Net increase (decrease) in net
assets derived from operations... $ (5,292) $ 14,904 $ 64,656 $ 839 $ 39 $42,093,992
======== ======== ======== ====== ==== ===========
<CAPTION>
TOTAL
-------------------------
YEAR ENDED YEAR ENDED
DEC. 31/96 DEC. 31/95
----------- -----------
<S> <C> <C>
Net investment income:
Dividend income.................. $22,590,083 $ 1,693,796
----------- -----------
Realized and unrealized gain (loss)
on investments:
Realized and unrealized gain
(loss) from security
transactions:
Proceeds from sales......... 28,281,133 13,953,509
Cost of securities sold..... 26,801,043 13,601,251
----------- -----------
Net realized gain (loss)......... 1,480,090 352,258
----------- -----------
Unrealized appreciation
(depreciation) of investments:
Beginning of year........... 11,108,413 (2,334,906)
End of year................. 3,720,050 11,108,413
----------- -----------
Net unrealized appreciation
(depreciation) during the
year.......................... (7,388,363) 13,443,319
----------- -----------
Net realized and unrealized gain
(loss) on investments............ (5,908,273) 13,795,577
----------- -----------
Net increase (decrease) in net
assets derived from operations... $16,681,810 $15,489,373
=========== ===========
</TABLE>
- ---------------
* Reflects the period from commencement of operations February 14, 1996
through December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
See accompanying notes.
F-8
<PAGE> 68
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
EMERGING GROWTH QUANTITATIVE EQUITY
IES SUB-ACCOUNT SUB-ACCOUNT
--------------------------------------- ---------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income..... $ -- $ 7,702,014 $ 721,489 $ -- $ 4,240,752 $ --
Net realized gain
(loss)................... 1,198,803 569,439 206,155 973,358 246,141 (6,193)
Net unrealized
appreciation
(depreciation) of
investments during the
period................... 8,384,375 (6,435,411) 4,716,823 7,935,295 (760,981) 2,734,230
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in
net assets derived from
operations............... 9,583,178 1,836,042 5,644,467 8,908,653 3,725,912 2,728,037
----------- ----------- ----------- ----------- ----------- -----------
FROM CAPITAL TRANSACTIONS
Additions (deductions)
from:
Transfer of net
premiums............... 16,038,468 22,504,630 15,025,111 7,834,132 9,633,477 6,620,667
Transfer on death........ -- -- (202,957) -- -- --
Transfer of
terminations........... (6,450,838) (4,593,540) (3,281,049) (4,132,053) (2,214,864) (1,485,111)
Transfer of policy
loans.................. (358,214) (610,713) (390,119) (432,977) (113,064) (349,518)
Net interfund
transfers.............. (6,440,946) (11,484) 3,663,152 (60,101) 1,337,385 2,202,823
----------- ----------- ----------- ----------- ----------- -----------
2,788,470 17,288,893 14,814,138 3,209,001 8,642,934 6,988,861
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in
net assets............... 12,371,648 19,124,935 20,458,605 12,117,654 12,368,846 9,716,898
NET ASSETS
Beginning of year......... 53,971,458 34,846,523 14,387,918 28,031,594 15,662,748 5,945,850
----------- ----------- ----------- ----------- ----------- -----------
End of year............... $66,343,106 $53,971,458 $34,846,523 $40,149,248 $28,031,594 $15,662,748
=========== =========== =========== =========== =========== ===========
<CAPTION>
REAL ESTATE SECURITIES BALANCED
SUB-ACCOUNT SUB-ACCOUNT
----------- ------------------------- ---------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income..... $ -- $ 2,776,056 $ 142,066 $ -- $ 4,478,042 $ 24,806
Net realized gain
(loss)................... 236,228 28,370 (18,103) 619,554 162,529 (29,726
Net unrealized
appreciation
(depreciation) of
investments during the
period................... 3,664,346 1,407,029 1,028,578 5,668,002 (1,735,335) 3,757,506
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in
net assets derived from
operations............... 3,900,574 4,211,455 1,152,541 6,287,556 2,905,236 3,752,586
----------- ----------- ----------- ----------- ----------- -----------
FROM CAPITAL TRANSACTIONS
Additions (deductions)
from:
Transfer of net
premiums............... 5,723,061 4,465,307 4,344,151 8,963,510 10,619,657 7,806,794
Transfer on death........ -- -- -- (44,313) -- --
Transfer of
terminations........... (2,219,786) (1,347,117) (1,139,201) (3,729,355) (2,563,981) (1,853,986
Transfer of policy
loans.................. (369,877) (65,858) (80,626) (417,435) (355,780) (304,332
Net interfund
transfers.............. 1,279,970 467,823 42,920 (2,581,258) (394,561) 1,681,177
----------- ----------- ----------- ----------- ----------- -----------
4,413,368 3,520,155 3,167,244 2,191,149 7,305,335 7,329,653
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in
net assets............... 8,313,942 7,731,610 4,319,785 8,478,705 10,210,571 11,082,239
NET ASSETS
Beginning of year......... 17,289,060 9,557,450 5,237,665 33,344,309 23,133,738 12,051,499
----------- ----------- ----------- ----------- ----------- -----------
End of year............... $25,603,002 $17,289,060 $ 9,557,450 $41,823,014 $33,344,309 $23,133,738
=========== =========== =========== =========== =========== ===========
<CAPTION>
CAPITAL GROWTH BOND
SUB-ACCOUNT
---------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95
----------- ----------- -----------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income..... $ -- $ 864,430 $ 726,517
Net realized gain
(loss)................... 9,280 (70,812) (31,655)
Net unrealized
appreciation
(depreciation) of
investments during the
period................... 1,422,776 (376,969) 696,780
----------- ----------- -----------
Net increase (decrease) in
net assets derived from
operations............... 1,432,056 416,649 1,391,642
----------- ----------- -----------
FROM CAPITAL TRANSACTIONS
Additions (deductions)
from:
Transfer of net
premiums............... 4,146,312 4,480,626 3,332,849
Transfer on death........ -- -- --
Transfer of
terminations........... (1,575,696) (1,205,581) (716,686)
Transfer of policy
loans.................. (105,540) (27,779) (159,472)
Net interfund
transfers.............. (81,587) 685,493 1,564,644
----------- ----------- -----------
2,383,489 3,932,759 4,021,335
----------- ----------- -----------
Net increase (decrease) in
net assets............... 3,815,545 4,349,408 5,412,977
NET ASSETS
Beginning of year......... 14,823,560 10,474,152 5,061,175
----------- ----------- -----------
End of year............... $18,639,105 $14,823,560 $10,474,152
=========== =========== ===========
</TABLE>
- ---------------
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
F-9
<PAGE> 69
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
MONEY MARKET INTERNATIONAL STOCK
SUB-ACCOUNT SUB-ACCOUNT
------------ -------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
------------ ------------ ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment
income............... $ 1,159,280 $ 1,505,315 $ 468 $ 209,753 $ 248,736 $ 59,169
Net realized gain
(loss)............... (914,698) 408,810 215,301 123,497 38,857 9,897
Net unrealized
appreciation
(depreciation) of
investments during
the period........... 914,725 (1,148,444) 308,730 (318,754) 350,788 103,183
------------ ------------ ------------ ----------- ---------- ----------
Net increase (decrease)
in net assets derived
from operations...... 1,159,307 765,681 524,499 14,496 638,381 172,249
------------ ------------ ------------ ----------- ---------- ----------
FROM CAPITAL
TRANSACTIONS
Additions (deductions)
from:
Transfer of net
premiums........... 33,859,872 23,926,029 17,598,898 5,795,630 4,320,339 1,353,292
Transfer on death.... -- -- -- -- -- --
Transfer of
terminations....... (2,797,321) (2,399,186) (1,962,294) (1,224,478) (555,702) (180,239)
Transfer of policy
loans.............. (282,014) (34,484) (66,223) (106,208) (31,389) (2,743)
Net interfund
transfers.......... (20,937,650) (16,858,040) (10,196,735) 1,344,064 2,632,184 863,795
------------ ------------ ------------ ----------- ---------- ----------
9,842,887 4,634,319 5,373,646 5,809,008 6,365,432 2,034,105
------------ ------------ ------------ ----------- ---------- ----------
Net increase (decrease)
in net assets........ 11,002,194 5,400,000 5,898,145 5,823,504 7,003,813 2,206,354
NET ASSETS
Beginning of year...... 18,425,387 13,025,387 7,127,242 9,538,181 2,534,368 328,014
------------ ------------ ------------ ----------- ---------- ----------
End of year............ $ 29,427,581 $18,425,387 $ 13,025,387 $15,361,685 $9,538,181 $2,534,368
============ ============ ============ =========== ========== ==========
<CAPTION>
PACIFIC RIM
EMERGING MARKETS EQUITY INDEX EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------------------------- --------------------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96
----------- ---------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment
income............... $ 12,667 $ 239,201 $ 19,281 $ 2,468,634 $ 449,782 $ 2,150,334 $ 26,181
Net realized gain
(loss)............... (15,619) 69,350 6,582 453,450 16,420 1,786 (2,175)
Net unrealized
appreciation
(depreciation) of
investments during
the period........... (2,188,130) (21,043) 97,489 534,946 (46,898) 241,741 495,686
----------- ---------- ---------- ----------- ---------- ----------- ----------
Net increase (decrease)
in net assets derived
from operations...... (2,191,082) 287,508 123,352 3,457,030 419,304 2,393,861 519,692
----------- ---------- ---------- ----------- ---------- ----------- ----------
FROM CAPITAL
TRANSACTIONS
Additions (deductions)
from:
Transfer of net
premiums........... 2,059,145 2,541,885 812,122 7,852,789 5,327,031 7,868,634 4,931,946
Transfer on death.... -- -- -- -- -- -- --
Transfer of
terminations....... (620,211) (354,050) (131,282) (781,683) (136,828) (1,054,893) (260,549)
Transfer of policy
loans.............. (58,638) (25,816) (3,509) (721,710) -- (45,576) (65,890)
Net interfund
transfers.......... (630,778) 1,682,204 622,581 3,377,661 876,961 778,412 3,345,171
----------- ---------- ---------- ----------- ---------- ----------- ----------
749,518 3,844,223 1,299,912 9,727,057 6,067,164 7,546,577 7,950,678
----------- ---------- ---------- ----------- ---------- ----------- ----------
Net increase (decrease)
in net assets........ (1,441,564) 4,131,731 1,423,264 13,184,087 6,486,468 9,940,438 8,470,370
NET ASSETS
Beginning of year...... 5,799,488 1,667,757 244,493 6,486,468 -- 8,470,370 --
----------- ---------- ---------- ----------- ---------- ----------- ----------
End of year............ $ 4,357,924 $5,799,488 $1,667,757 $19,670,555 $6,486,468 $18,410,808 $8,470,370
=========== ========== ========== =========== ========== =========== ==========
</TABLE>
- ---------------
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
F-10
<PAGE> 70
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
VALUE EQUITY GROWTH AND INCOME U.S. GOVERNMENT SECURITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------------------- --------------------------- ----------------------------
YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96
----------- ------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income............... $1,127,557 $ 8,790 $ 556,761 $ 1,952 $ 123,037 $ 26,995
Net realized gain (loss)............ 180,373 21,325 586,565 5,162 (1,538) (8,854)
Net unrealized appreciation
(depreciation) of investments
during the period.................. 1,549,982 364,883 2,105,562 405,558 28,149 38,928
----------- ---------- ----------- ---------- ---------- ----------
Net increase (decrease) in net
assets derived from operations..... 2,857,912 394,998 3,248,888 412,672 149,648 57,069
----------- ---------- ----------- ---------- ---------- ----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums........... 4,090,507 3,266,118 7,079,242 2,527,210 745,345 757,201
Transfer on death.................. -- -- -- -- -- --
Transfer of terminations........... (793,110) (147,201) (910,308) (98,012) (221,531) (35,748)
Transfer of policy loans........... (69,774) (36,263) (76,204) (13,676) (50,875) (30,576)
Net interfund transfers............ 3,108,426 2,150,892 4,479,340 2,756,146 (76,765) 929,361
----------- ---------- ----------- ---------- ---------- ----------
6,336,049 5,233,546 10,572,070 5,171,668 396,174 1,620,238
----------- ---------- ----------- ---------- ---------- ----------
Net increase (decrease) in net
assets............................. 9,193,961 5,628,544 13,820,958 5,584,340 545,822 1,677,307
NET ASSETS
Beginning of year................... 5,628,544 -- 5,584,340 -- 1,677,307 --
----------- ---------- ----------- ---------- ---------- ----------
End of year......................... $14,822,505 $5,628,544 $19,405,298 $5,584,340 $2,223,129 $1,677,307
=========== ========== =========== ========== ========== ==========
<CAPTION>
CONSERVATIVE ASSET ALLOCATION MODERATE ASSET ALLOCATION AGGRESSIVE ASSET ALLOCATION
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------------------- --------------------------- ----------------------------
YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96
------------- ------------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income............... $ 42,335 $ 8,660 $ 83,798 $ 2,105 $ 140,784 $ 11,072
Net realized gain (loss)............ 7,770 (1,064) 5,558 (185) 22,261 (3,223)
Net unrealized appreciation
(depreciation) of investments
during the period.................. 10,974 6,566 77,202 23,967 121,408 43,313
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net
assets derived from operations..... 61,079 14,162 166,558 25,887 284,453 51,162
---------- ---------- ---------- ---------- ---------- ----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums........... 334,314 143,807 692,412 348,167 1,008,793 387,073
Transfer on death.................. -- -- -- -- -- --
Transfer of terminations........... (34,376) (33,413) (104,738) (25,611) (143,026) (58,999)
Transfer of policy loans........... -- -- (346) -- (2,986) --
Net interfund transfers............ (37,686) 246,043 588,790 183,575 263,513 434,224
---------- ---------- ---------- ---------- ---------- ----------
262,252 356,437 1,176,118 506,131 1,126,294 762,298
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net
assets............................. 323,331 370,599 1,342,676 532,018 1,410,747 813,460
NET ASSETS
Beginning of year................... 370,599 -- 532,018 -- 813,460 --
---------- ---------- ---------- ---------- ---------- ----------
End of year......................... $ 693,930 $ 370,599 $1,874,694 $ 532,018 $2,224,207 $ 813,460
========== ========== ========== ========== ========== ==========
<CAPTION>
INTERNATIONAL BLUE CHIP
SMALL CAP GROWTH
SUB-ACCOUNT SUB-ACCOUNT
------------- -----------
YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/97
------------- -----------
<S> <C> <C>
FROM OPERATIONS
Net investment income............... $ 212 $ 104,304
Net realized gain (loss)............ 3,009 (6,796)
Net unrealized appreciation
(depreciation) of investments
during the period.................. (39,080) 239,382
---------- ----------
Net increase (decrease) in net
assets derived from operations..... (35,859) 336,890
---------- ----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums........... 609,617 1,748,929
Transfer on death.................. -- --
Transfer of terminations........... (48,039) (152,046)
Transfer of policy loans........... (2,873) (5,593)
Net interfund transfers............ 879,398 1,850,202
---------- ----------
1,438,103 3,441,492
---------- ----------
Net increase (decrease) in net
assets............................. 1,402,244 3,778,382
NET ASSETS
Beginning of year................... -- --
---------- ----------
End of year......................... $1,402,244 $3,778,382
========== ==========
</TABLE>
- ---------------
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
F-11
<PAGE> 71
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
**PILGRAM
**SCIENCE & BAXTER **SMALL/MID **WORLDWIDE **GLOBAL
TECHNOLOGY GROWTH CAP GROWTH EQUITY **GROWTH **VALUE
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ------------ ------------ ------------ ------------ ------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97
------------ ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income...... $ 16,815 $ -- $ -- $ 2,704 $ -- $ -- $ 33,133
Net realized gain (loss)... (19,778) 1,700 8,946 1,782 373 1,107 2,781
Net unrealized appreciation
(depreciation) of
investments during the
period................... (62,465) (18,510) (4,182) (4,391) 32,115 15,489 (20,774)
---------- -------- ---------- -------- ---------- ---------- ----------
Net increase (decrease) in
net assets derived from
operations............... (65,428) (16,810) 4,764 95 32,488 16,596 15,140
---------- -------- ---------- -------- ---------- ---------- ----------
FROM CAPITAL TRANSACTIONS
Additions (deductions)
from:
Transfer of net
premiums............... 361,963 141,492 757,544 143,932 697,468 470,000 346,369
Transfer on death........ -- -- -- -- -- -- --
Transfer of
terminations........... (21,603) (7,886) (32,683) (4,603) (22,616) (29,691) (21,998)
Transfer of policy
loans.................. (904) -- (269) (1,290) (283) (2,329) (1,030)
Net interfund
transfers.............. 791,001 444,653 742,521 177,277 761,527 794,709 742,495
---------- -------- ---------- -------- ---------- ---------- ----------
1,130,457 578,259 1,467,113 315,316 1,436,096 1,232,689 1,065,836
---------- -------- ---------- -------- ---------- ---------- ----------
Net increase (decrease) in
net assets............... 1,065,029 561,449 1,471,877 315,411 1,468,584 1,249,285 1,080,976
NET ASSETS
Beginning of year.......... -- -- -- -- -- -- --
---------- -------- ---------- -------- ---------- ---------- ----------
End of year................ $1,065,029 $561,449 $1,471,877 $315,411 $1,468,584 $1,249,285 $1,080,976
========== ======== ========== ======== ========== ========== ==========
<CAPTION>
**INTERNATIONAL **GLOBAL
GROWTH AND **STRATEGIC GOVERNMENT **INVESTMENT
INCOME **HIGH YIELD BOND BOND QUALITY BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------- ------------ ------------ ------------ ------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97
--------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income...... $ -- $ 39,931 $ -- $ -- $ --
Net realized gain (loss)... 187 7,882 703 75 136
Net unrealized appreciation
(depreciation) of
investments during the
period................... (39,257) (13,453) 10,709 3,801 6,089
-------- ---------- -------- -------- --------
Net increase (decrease) in
net assets derived from
operations............... (39,070) 34,360 11,412 3,876 6,225
-------- ---------- -------- -------- --------
FROM CAPITAL TRANSACTIONS
Additions (deductions)
from:
Transfer of net
premiums............... 744,217 276,881 273,501 58,746 75,411
Transfer on death........ -- -- -- -- --
Transfer of
terminations........... (9,912) (31,310) (11,295) (2,335) (3,321)
Transfer of policy
loans.................. -- (6,696) (504) -- --
Net interfund
transfers.............. 90,093 797,757 380,876 161,473 182,692
-------- ---------- -------- -------- --------
824,398 1,036,632 642,578 217,884 254,782
-------- ---------- -------- -------- --------
Net increase (decrease) in
net assets............... 785,328 1,070,992 653,990 221,760 261,007
NET ASSETS
Beginning of year.......... -- -- -- -- --
-------- ---------- -------- -------- --------
End of year................ $785,328 $1,070,992 $653,990 $221,760 $261,007
======== ========== ======== ======== ========
</TABLE>
- ---------------
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
F-12
<PAGE> 72
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
**LIFESTYLE **LIFESTYLE **LIFESTYLE **LIFESTYLE **LIFESTYLE
AGGRESSIVE GROWTH BALANCED MODERATE CONSERVATIVE
1000 820 640 460 280
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
------------ ------------ ------------ ------------ ------------ ------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income.............. $ 4,916 $ 36,584 $ 16,038 $ 842 $ 9 $ 8,330,428
Net realized gain (loss)........... 841 3,060 4,837 (6) 1 3,497,468
Net unrealized appreciation
(depreciation) of investments
during the period................ (11,049) (24,740) 43,781 3 29 30,266,096
---------- ---------- ---------- -------- ------ ------------
Net increase (decrease) in net
assets derived from operations... (5,292) 14,904 64,656 839 39 42,093,992
---------- ---------- ---------- -------- ------ ------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums......... 421,769 2,011,046 568,684 92,570 150 123,892,455
Transfer on death................ -- -- -- -- -- (44,313)
Transfer of terminations......... (47,502) (85,509) (122,871) (2,513) (224) (27,451,360)
Transfer of policy loans......... (3,766) (826) -- -- -- (3,124,737)
Net interfund transfers.......... 2,063,763 3,319,383 1,613,028 11,484 1,376 179,113
---------- ---------- ---------- -------- ------ ------------
2,434,264 5,244,094 2,058,841 101,541 1,302 93,451,158
---------- ---------- ---------- -------- ------ ------------
Net increase (decrease) in net
assets........................... 2,428,972 5,258,998 2,123,497 102,380 1,341 135,545,150
NET ASSETS
Beginning of year.................. -- -- -- -- -- 210,786,143
---------- ---------- ---------- -------- ------ ------------
End of year........................ $2,428,972 $5,258,998 $2,123,497 $102,380 $1,341 $346,331,293
========== ========== ========== ======== ====== ============
<CAPTION>
TOTAL
---------------------------
YEAR ENDED YEAR ENDED
DEC. 31/96 DEC. 31/95
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income.............. $ 22,590,083 $ 1,693,796
Net realized gain (loss)........... 1,480,090 352,258
Net unrealized appreciation
(depreciation) of investments
during the period................ (7,388,363) 13,443,319
------------ ------------
Net increase (decrease) in net
assets derived from operations... 16,681,810 15,489,373
------------ ------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums......... 100,180,503 56,893,884
Transfer on death................ -- (202,957)
Transfer of terminations......... (16,030,382) (10,749,848)
Transfer of policy loans......... (1,411,288) (1,356,542)
Net interfund transfers.......... 463,377 444,357
------------ ------------
83,202,210 45,028,894
------------ ------------
Net increase (decrease) in net
assets........................... 99,884,020 60,518,267
NET ASSETS
Beginning of year.................. 110,902,123 50,383,856
------------ ------------
End of year........................ $210,786,143 $110,902,123
============ ============
</TABLE>
- ---------------
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
F-13
<PAGE> 73
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
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 comprised of
investment sub-accounts available for allocation of net premiums under single
premium variable life and variable universal life insurance policies (the
"Policies") issued by The Manufacturers Life Insurance Company of America
("Manufacturers Life of America"). The Separate Account was established by
Manufacturers Life of America, a life insurance company organized in 1983 under
Michigan law. Manufacturers Life of America is an indirect, wholly-owned
subsidiary of The Manufacturers Life Insurance Company ("Manulife Financial"), a
Canadian mutual life insurance company. On January 1, 1996, Manulife Financial
merged with North American Life Assurance Company and, as a result, acquired
control of the NASL Series Trust which, effective October 31, 1997, was renamed
Manufacturers Investment Trust. Each investment sub-account invests solely in
shares of a particular Manufacturers Investment Trust or, prior to the merger, a
Manulife Series Fund. NASL Series D Trust and, prior to the merger, Manulife
Series Fund are registered under the Investment Company Act of 1940 as open-end
management investment companies.
The International Small Cap and Blue Chip Growth Trusts were added to the
Separate Account on January 1, 1997 as investment options for variable universal
life policy holders of Manufacturers Life of America. The Science & Technology,
Pilgram Baxter Growth, Small/Mid Cap, Worldwide Growth, Global Equity, Growth,
Value, International Growth and Income, High Yield, Strategic Bond, Global
Government Bond, Investment Quality Bond, Lifestyle Aggressive 1000, Lifestyle
Growth 820, Lifestyle Balanced 640, Lifestyle Moderate 460, and Lifestyle
Conservative 280 Trusts were added to the Separate Account on May 1, 1997 as
investment options for variable universal life policy holders of Manufacturers
Life of America.
The Equity Index Fund, Equity, Value Equity, Growth and Income, U.S. Government
Securities, Conservative Asset Allocation, Moderate Asset Allocation, and
Aggressive Asset Allocation Trusts were added to the Separate Account on
February 14, 1996 as investment options for variable universal life policy
holders of Manufacturers Life of America.
Effective December 31, 1996, Manulife Series Fund, Inc. was merged into the
Manufacturers Investment Trust (formerly the NASL Series Trust). As a result,
the following sub-accounts of the Separate Account were renamed to correspond
with the fund names of the Manufacturers Investment Trust.
<TABLE>
<CAPTION>
MANULIFE SERIES FUND, INC. MANUFACTURERS INVESTMENT TRUST
SUB-ACCOUNTS SUB-ACCOUNTS
<S> <C>
Emerging Growth Equity Fund Emerging Growth Trust
Common Stock Fund Quantitative Equity Trust
Real Estate Securities Fund Real Estate Securities Trust
Balanced Assets Fund Balanced Trust
Capital Growth Bond Fund Capital Growth Bond Trust
Money Market Fund Money Market Trust
International Fund International Stock Trust
Pacific Rim Emerging Markets Fund Pacific Rim Emerging Markets Trust
Equity Index Fund Equity Index Trust
</TABLE>
All references hereinafter to Manufacturers Investment Trust would have been to
Manulife Series Fund, Inc. prior to December 31, 1996.
Manufacturers Life of America is the legal owner of the Separate Account.
Manufacturers Life of America is required to maintain assets in the Separate
Account with a total market value at least equal to the reserves and other
liabilities relating to the variable benefits under all policies participating
in the Separate Account. These
F-14
<PAGE> 74
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
assets may not be charged with liabilities which arise from any other business
Manufacturers Life of America conducts. However, all obligations under the
variable policies are general corporate obligations of Manufacturers Life of
America.
Additional assets are held in Manufacturers Life of America's general account to
cover the contingency that the guaranteed minimum death benefit might exceed the
death benefit which would have been payable in the absence of such guarantee.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Separate Account in preparation of its financial statements:
a. Valuation of Investments -- Investments are made among the thirty-five Trusts
of Manufacturers Investment Trust and are valued at the reported net asset
values of these Trusts. Transactions are recorded on the trade date. Net
investment income and net realized gains on investments in Manufacturers
Investment Trust are reinvested.
b. Realized gains and losses on the sale of investments are computed on the
first-in, first-out basis.
c. Dividend income is recorded on the ex-dividend date.
d. Federal Income Taxes -- Manufacturers Life of America, the Separate Account's
sponsor, is taxed as a "life insurance company" under the Internal Revenue Code.
Under these provisions of the Code, the operations of the Separate Account form
part of the sponsor's total operations and are not taxed separately.
The current year's operations of the Separate Account are not expected to affect
the sponsor's tax liabilities and, accordingly, no charges were made against the
Separate Account for federal, state and local taxes. However, in the future,
should the sponsor incur significant tax liabilities related to the Separate
Account's operations, it intends to make a charge or establish a provision
within the Separate Account for such taxes.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. 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 MANUFACTURERS INVESTMENT TRUST SHARES
Purchases and sales of the shares of common stock of Manufacturers Investment
Trust for the year ended December 31, 1997 were $152,223,137 and $49,351,462,
respectively, and for the year ended December 31, 1996 were $135,942,906 and
$28,281,133, 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
F-15
<PAGE> 75
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
America. Registered representatives of either ManEquity, Inc. or other
broker-dealers having distribution agreements with ManEquity, Inc. who are also
authorized as variable life insurance agents under applicable state insurance
laws, sell the Policies. Registered representatives are compensated on a
commission basis.
Manufacturers Life of America has a formal service agreement with its
affiliates, Manulife Financial and The Manufacturers Life Insurance Company
(U.S.A.), which can be terminated by either party upon two months notice. Under
this Agreement, Manufacturers Life of America pays for legal, actuarial,
investment and certain other administrative services.
F-16
<PAGE> 76
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
WITH REPORT OF INDEPENDENT AUDITORS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-18
Consolidated Balance Sheets................................. F-19
Consolidated Statements of Income........................... F-20
Consolidated Statements of Changes in Capital And Surplus... F-21
Consolidated Statements of Cash Flows....................... F-22
Notes to Consolidated Financial Statements.................. F-23
</TABLE>
F-17
<PAGE> 77
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
We have audited the accompanying consolidated balance sheets of The
Manufacturers Life Insurance Company of America as of December 31, 1997 and
1996, and the related consolidated statements of income, changes in capital and
surplus and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Manufacturers
Life Insurance Company of America at December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 20, 1998
F-18
<PAGE> 78
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS AT DECEMBER 31
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS ($ THOUSANDS)
Investments:
Securities available-for-sale, at fair value: (note 4)
Fixed maturity (amortized cost: 1997 $66,565; 1996
$50,456).............................................. $ 67,893 $ 51,708
Equity (cost: 1997 $20,153; 1996 $19,450).............. 19,460 21,572
Mortgage loans......................................... 131 645
Policy loans........................................... 14,673 9,822
Cash and short-term investments........................ 22,012 17,493
---------- ----------
Total investments........................................... $ 124,169 $ 101,240
========== ==========
Guaranteed annuity contracts (note 5)....................... $ -- $ 171,691
Deferred acquisition costs (note 6)......................... 130,355 102,610
Income taxes recoverable.................................... 5,679 10,549
Deferred income taxes (note 7).............................. -- 1,041
Other assets................................................ 9,364 7,378
Separate account assets..................................... 897,044 668,094
---------- ----------
Total assets................................................ $1,166,611 $1,062,603
========== ==========
LIABILITIES, CAPITAL AND SURPLUS ($ THOUSANDS)
Liabilities:
Policyholder liabilities and accruals.................. $ 94,477 $ 91,915
Bonds payable (note 5)................................. -- 158,760
Notes payable (note 8)................................. 41,500 8,500
Due to affiliates...................................... 13,943 11,122
Deferred income taxes (note 7)......................... 1,174 --
Other liabilities...................................... 11,704 7,582
Separate account liabilities........................... 897,044 668,094
---------- ----------
Total liabilities........................................... $1,052,842 $ 945,973
Capital and Surplus:
Common shares (note 9)................................. $ 4,502 $ 4,502
Preferred shares (note 9).............................. 10,500 10,500
Contributed surplus.................................... 98,569 98,569
Retained earnings (deficit)............................ (1,910) 1,726
Foreign currency translation adjustment................ (5,272) --
Net unrealized gains on securities available-for-sale
(note 4).............................................. 380 1,333
---------- ----------
Total capital and surplus................................... $ 106,769 $ 116,630
---------- ----------
Total liabilities, capital and surplus...................... $1,166,611 $1,062,603
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE> 79
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------
1997 1996 1995
--------- --------- ---------
($ THOUSANDS)
<S> <C> <C> <C>
Revenue:
Premiums............................................... $ 5,334 $ 12,898 $ 15,293
Fee income............................................. 41,955 40,434 24,986
Net investment income (note 4)......................... 8,275 19,651 18,729
Realized investment gains (losses)..................... 118 (119) 3,084
Other.................................................. 544 668 82
------- -------- --------
Total Revenue............................................... $56,226 $ 73,532 $ 62,174
------- -------- --------
Benefits and expenses:
Policyholder benefits and claims....................... $ 6,733 $ 14,473 $ 16,905
Operating costs and expenses........................... 41,742 34,581 30,728
Commissions............................................ 2,838 10,431 5,859
Amortization of deferred acquisition costs (note 6).... 4,860 13,240 5,351
Interest expense....................................... 2,750 12,251 12,251
Policyholder dividends................................. 1,416 872 1,886
------- -------- --------
Total benefits and expenses................................. 60,339 85,848 72,980
------- -------- --------
Loss before income taxes.................................... (4,113) (12,316) (10,806)
------- -------- --------
Income tax benefit (note 7)................................. 477 3,909 3,960
------- -------- --------
Net loss.................................................... $(3,636) $ (8,407) $ (6,846)
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
<PAGE> 80
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
<TABLE>
<CAPTION>
NET
UNREALIZED FOREIGN TOTAL
RETAINED GAINS (LOSSES) CURRENCY CAPITAL
CAPITAL CONTRIBUTED EARNINGS ON SECURITIES TRANSLATION AND
STOCK SURPLUS (DEFICIT) AVAILABLE-FOR-SALE ADJUSTMENT SURPLUS
------- ----------- --------- ------------------ ----------- --------
($ THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31
1997
Balance, January 1.................... $15,002 $98,569 $ 1,726 $1,333 -- $116,630
Net loss during the year......... (3,636) (3,636)
Change in unrealized gain (loss)
net of taxes (note 4).......... (953) (953)
Other............................ (5,272) (5,272)
------- ------- ------- ------ ------- --------
Balance, December 31 (Note 9)......... $15,002 $98,569 $(1,910) $ 380 $(5,272) $106,769
------- ------- ------- ------ ------- --------
1996
Balance, January 1.................... $15,002 $83,569 $10,133 $1,816 -- $110,520
Net loss during the year......... (8,407) (8,407)
Change in unrealized gain (loss),
net of taxes (note 4).......... (483) (483)
Issuance of shares (note 9)...... 15,000 15,000
------- ------- ------- ------ ------- --------
Balance, December 31.................. $15,002 $98,569 $ 1,726 $1,333 -- $116,630
------- ------- ------- ------ ------- --------
1995
Balance, January 1.................... $15,002 $70,999 $16,979 $(1,141) -- $101,839
Net loss during the year......... (6,846) (6,846)
Change in unrealized gain (loss),
net of taxes................... 0 2,957 2,957
Issuance of shares (note 9)...... 12,570 12,570
------- ------- ------- ------ ------- --------
Balance, December 31.................. $15,002 $83,569 $10,133 $1,816 -- $110,520
------- ------- ------- ------ ------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE> 81
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
--------------------------------
1997 1996 1995
--------- --------- --------
($ THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Loss.................................................... $ (3,636) $ (8,407) $ (6,846)
Adjustments to reconcile net loss to net cash used in
operating activities:
Additions (decreases) to policy liabilities............ (2,147) 3,287 7,329
Deferred acquisition costs............................. (33,544) (36,024) (28,147)
Amortization of deferred acquisition costs............. 4,860 13,240 5,351
Realized (gains) losses on investments................. (118) 119 (3,084)
Decreases to deferred income taxes..................... 2,730 777 1,168
Other.................................................. 7,144 6,540 (5,336)
--------- --------- --------
Net cash used in operating activities....................... (24,711) (20,468) (29,565)
INVESTING ACTIVITIES:
Fixed maturity securities sold.............................. 73,772 120,234 67,507
Fixed maturity securities purchased......................... (89,763) (108,401) (76,402)
Equity securities sold...................................... 10,586 25,505 6,500
Equity securities purchased................................. (11,289) (22,203) (1,726)
Mortgage loans repaid....................................... 514 6,669 77,086
Policy loans advanced....................................... (4,851) (2,867) (2,461)
Guaranteed annuity contracts................................ 171,691 (16,356) (79,710)
--------- --------- --------
Cash provided by (used in) investing activities............. 150,660 2,581 (9,206)
FINANCING ACTIVITIES:
Receipts from variable life and annuity policies credited to
policyholder account balances............................. 7,582 5,493 9,017
Withdrawals of policyholder account balances on variable
life and annuity policies................................. (3,252) (2,994) (3,173)
Bonds payable repaid........................................ (158,760) -- --
Issuance of shares.......................................... -- 15,000 12,570
Issuance of promissory note................................. 33,000 -- --
Issuance of surplus notes................................... -- -- 8,500
--------- --------- --------
Cash provided by (used in) financing activities............. (121,430) 17,499 26,914
--------- --------- --------
CASH AND SHORT-TERM INVESTMENTS:
Increase (decrease) during the year......................... 4,519 (388) (11,857)
Balance, beginning of year.................................. 17,493 17,881 29,738
--------- --------- --------
BALANCE, END OF YEAR........................................ $ 22,012 $ 17,493 $ 17,881
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE> 82
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(IN THOUSANDS OF DOLLARS)
1. ORGANIZATION
The Manufacturers Life Insurance Company of America ("ManAmerica" or the
"Company") is a wholly-owned subsidiary of The Manufacturers Life Insurance
Company (U.S.A.) ("ManUSA" or the "Parent"), which is in turn an indirectly
owned subsidiary of The Manufacturers Life Insurance Company ("Manulife
Financial"), a Canadian-based mutual life insurance company. The Company markets
variable annuity and variable life products in the United States and traditional
insurance products in Taiwan.
2. BASIS OF PRESENTATION
a) Adoption of Generally Accepted Accounting Principles
The accompanying consolidated financial statements of The Manufacturers Life
Insurance Company of America and its wholly-owned subsidiaries have been
prepared in accordance with generally accepted accounting principles ("GAAP").
Prior to 1996, the Company prepared its financial statements in conformity with
statutory accounting practices prescribed or permitted by the Insurance
Department of the State of Michigan which practices were considered GAAP for
mutual life insurance companies and their wholly-owned direct and indirect
subsidiaries. Financial Accounting Standard Board Interpretation 40,
"Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises" ("FIN 40") as amended, which is effective for
1996 annual financial statements and thereafter, no longer permits statutory
based financial statements to be described as being prepared in conformity with
GAAP. Accordingly, the Company has adopted GAAP including Statement of Financial
Accounting Standards 120 ("FAS 120"), "Accounting and Reporting by Mutual Life
Insurance Enterprises and by Insurance Enterprises for Certain Long Duration
Participating Contracts", which addresses the accounting for long-duration
insurance and reinsurance contracts, including all participating business.
Pursuant to the requirements of FIN 40 and FAS 120, the effect of the changes in
accounting have been applied retroactively and the previously issued 1995
financial statements have been restated for the change.
The adoption had the effect of increasing net income for 1995 by approximately
$6,859.
b) Recent Accounting Standards
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("FAS") No. 129 "Disclosure of Information about
Capital Structure," FAS No. 130 "Reporting Comprehensive Income," and FAS No.
131 "Disclosures about Segments of an Enterprise and Related Information." These
new accounting standards, which will be effective for the 1998 financial
statements, will result primarily in additional disclosures in the Company's
financial statements and are not expected to have a material effect on the
Company's financial position and results of operations.
c) Reorganization
On December 20, 1995, Manulife Reinsurance Corporation (U.S.A.) ("MRC")
transferred to the Company all of the common and preferred shares of
Manufacturers Adviser Corporation ("MAC"), an investment adviser registered
under the Investment Advisers Act of 1940.
On December 31, 1996, ManUSA transferred to the Company all of the common and
preferred shares of Manulife Holding Corporation ("Holdco"), an investment
holding company. Holdco has primarily two wholly-owned subsidiaries, ManEquity
Inc., a registered broker/dealer, and the Manufacturers Life Mortgage
F-23
<PAGE> 83
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Securities Corporation ("MLMSC"), an issuer of mortgage-backed US Dollar bonds.
The Company then transferred all the common and preferred shares of MAC to
Holdco for two shares of $1 common stock of Holdco.
These transfers have been accounted for using the pooling-of-interests method of
accounting. Under this method, the assets, liabilities, capital and surplus,
revenues and expenses of each separate entity are combined retroactively at
their historical carrying values to form the financial statements of the Company
for all periods presented to give effect to the reorganization as if the
structure in place at December 31, 1996 had been in place as of the earliest
period presented in these consolidated financial statements. The accounts of all
subsidiary companies are therefore combined and all significant inter-company
balances and transactions are eliminated on combination. In addition, the
capital and surplus of the Company has been restated retroactively to reflect
the capital structure in place at December 31, 1996.
The revenues and net income reported by the separate entities and the combined
amounts presented in the accompanying consolidated financial statements are as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31
-------------------
1996 1995
-------- --------
($ THOUSANDS)
<S> <C> <C>
Revenue:
ManAmerica................................................ $54,404 $45,655
Holdco.................................................... 15,543 13,828
MAC....................................................... 3,585 2,691
------- -------
Total revenue............................................... $73,532 $62,174
======= =======
Net Income (loss):
ManAmerica................................................ $(8,676) $(7,402)
Holdco.................................................... (670) (10)
MAC....................................................... 939 566
------- -------
Total net loss.............................................. $(8,407) $(6,846)
======= =======
</TABLE>
In October 1997, MLMSC was absorbed into Holdco subsequent to the maturity and
repayment of the mortgage-backed US dollar bonds. All assets and liabilities of
MLMSC were transferred to Holdco at their respective book values.
3. SIGNIFICANT ACCOUNTING POLICIES
a) Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from reported results using those estimates.
b) Investments
The Company classifies all of its fixed maturity and equity securities as
available-for-sale and records these securities at fair value. Realized gains
and losses on sales of securities classified as available-for-sale are
recognized in net income using the specific identification method. Changes in
the fair value of securities available-for-sale are reflected directly in
surplus after adjustments for deferred taxes and deferred acquisition costs.
Discounts and premiums on investments are amortized using the effective interest
method.
F-24
<PAGE> 84
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Mortgage loans are reported at amortized cost, net of a provision for losses.
The provision for losses is established for mortgage loans which are considered
to be impaired when the Company has determined that it is probable that all
amounts due under contractual terms will not be collected. Impaired loans are
reported at the lower of unpaid principal or fair value of the underlying
collateral.
Policy loans are reported at aggregate unpaid balances which approximate fair
value.
Short-term investments include investments with maturities of less than one year
at the date of acquisition.
c) Deferred Acquisition Costs (DAC)
Commissions and other expenses which vary with and are primarily related to the
production of new business are deferred to the extent recoverable and included
as an asset. DAC associated with variable annuity and variable life insurance
contracts is charged to expense in relation to the estimated gross profits of
those contracts. The amortization is adjusted retrospectively when estimates of
current or future gross profits are revised. DAC associated with traditional
life insurance policies is charged to expense over the premium paying period of
the related policies. DAC is adjusted for the impact on estimated future gross
profits assuming the unrealized gains or losses on securities had been realized
at year-end. The impact of any such adjustments is included in net unrealized
gains (losses) in Capital and Surplus. DAC is reviewed annually to determine
recoverability from future income and, if not recoverable, it is immediately
expensed.
d) Policyholder Liabilities
For variable annuity and variable life contracts, reserves equal the
policyholder account value. Account values are increased for deposits received
and interest credited and are reduced by withdrawals, mortality charges and
administrative expenses charged to the policyholders. Policy charges which
compensate the Company for future services are deferred and recognized in income
over the period earned, using the same assumptions used to amortize DAC.
Policyholder liabilities for traditional life insurance policies sold in Taiwan
are computed using the net level premium method and are based upon estimates as
to future mortality, persistency, maintenance expense and interest rate yields
that were established in the year of issue.
e) Separate Accounts
Separate account assets and liabilities represent funds that are separately
administered, principally for variable annuity and variable life contracts, and
for which the contract holder, rather than the Company, bears the investment
risk. Separate account contract holders have no claim against the assets of the
general account of the Company. Separate account assets are recorded at market
value. Operations of the separate accounts are not included in the accompanying
financial statements.
f) Revenue Recognition
Fee income from variable annuity and variable life insurance policies consists
of policy charges for the cost of insurance, expenses and surrender charges that
have been assessed against the policy account balances. Policy charges that are
designed to compensate the company for future services are deferred and
recognized in income over the period benefited, using the same assumptions used
to amortize DAC. Premiums on long-duration life insurance contracts are
recognized as revenue when due. Investment income is recorded when due.
F-25
<PAGE> 85
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
g) Expenses
Expenses for variable annuity and variable life insurance policies include
interest credited to policy account balances and benefit claims incurred during
the period in excess of policy account balances.
h) Reinsurance
The Company is routinely involved in reinsurance transactions in order to
minimize exposure to large risks. Life reinsurance is accomplished through
various plans including yearly renewable term, co-insurance and modified
co-insurance. Reinsurance premiums and claims are accounted for on a basis
consistent with that used in accounting for the original policies issued and the
terms of the reinsurance contracts. Premiums and claims are reported net of
reinsured amounts. Amounts paid with respect to ceded reinsurance contracts are
reported as reinsurance receivables in other assets.
i) Foreign Exchange
The Company's Taiwanese branch balance sheet and statement of income are
translated at the current exchange and average exchange rates for the year
respectively. The resultant translation adjustments are included as a separate
component in capital and surplus. In prior years, there were no reported
translation adjustments as there were no significant movements in foreign
currency exchange rates.
j) Income Tax
Income taxes have been provided for in accordance with Statement of Financial
Accounting Standards 109 ("FAS109") "Accounting for Income Taxes." The Company
joins ManUSA, MRC, Capitol Bankers Life Insurance Company and Manulife
Reinsurance Limited ("MRL") in filing a U.S. consolidated income tax return as a
life insurance group under provisions of the Internal Revenue Code. In
accordance with an income tax sharing agreement, the Company's income tax
provision (or benefit) is computed as if the Company filed a separate income tax
return. Tax benefits from operating losses are provided at the U.S. statutory
rate plus any tax credits attributable to the Company, provided the consolidated
group utilizes such benefits currently. Deferred income taxes result from
temporary differences between the tax basis of assets and liabilities and their
recorded amounts for financial reporting purposes. Income taxes recoverable
represents amounts due from ManUSA in connection with the consolidated return.
4. INVESTMENTS AND INVESTMENT INCOME
a) Fixed Maturity and Equity Securities
At December 31, 1997, all fixed maturity and equity securities have been
classified as available-for-sale and reported at fair value. The amortized cost
and fair value is summarized as follows:
<TABLE>
<CAPTION>
GROSS
GROSS UNREALIZED
AMORTIZED COST UNREALIZED GAINS LOSSES FAIR VALUE
----------------- ----------------- --------------- -----------------
1997 1996 1997 1996 1997 1996 1997 1996
------- ------- ------- ------- ------- ----- ------- -------
($ THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AS AT DECEMBER 31,
Fixed maturity securities:
U.S. government......... $51,694 $ 9,219 $ 937 $ 386 $ (135) $ (98) $52,496 $ 9,507
Foreign governments..... 6,922 9,227 203 221 (14) (8) 7,111 9,440
Corporate............... 7,949 32,010 415 981 (78) (230) 8,286 32,761
------- ------- ------ ------ ------- ----- ------- -------
Total fixed maturity
securities........... $66,565 $50,456 $1,555 $1,588 $ (227) $(336) $67,893 $51,708
Equity securities....... $20,153 $19,450 $1,496 $2,134 $(2,189) $ (12) $19,460 $21,572
------- ------- ------ ------ ------- ----- ------- -------
</TABLE>
F-26
<PAGE> 86
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Proceeds from sales of fixed maturity securities during 1997 were $73,772 (1996
$120,234; 1995 $67,507). Gross gains of $955 and gross losses of $837 were
realized on those sales (1996 $1,858 and $1,837; 1995 $2,630 and $218
respectively).
Proceeds from sale of equity securities during 1997 were $10,586 (1996 $25,505;
1995 $6,500). Gross gains of $NIL and gross losses of $NIL were realized on
those sales (1996 $NIL and $140; 1995 $785 and $113 respectively).
The contractual maturities of fixed maturity securities at December 31, 1997 are
shown below. Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
prepayment penalties. Corporate requirements and investment strategies may
result in the sale of investments before maturity.
<TABLE>
<CAPTION>
AMORTIZED COST FAIR VALUE
-------------- ----------
($ THOUSANDS)
<S> <C> <C>
Fixed maturity securities
One year or less.......................................... $ 1,654 $ 1,651
Greater than 1; up to 5 years............................. 3,876 3,953
Greater than 5; up to 10 years............................ 50,353 50,655
Due after 10 years........................................ 10,682 11,634
------- -------
Total fixed maturity securities............................. $66,565 $67,893
======= =======
</TABLE>
UNREALIZED GAINS (LOSSES) ON SECURITIES AVAILABLE-FOR-SALE
Net unrealized gains (losses) on fixed maturity and equity securities included
in capital and surplus were as follows:
<TABLE>
<CAPTION>
AS AT DECEMBER 31
---------------------
1997 1996
------- -------
($ THOUSANDS)
<S> <C> <C>
Gross unrealized gains...................................... $ 3,051 $ 3,722
Gross unrealized losses..................................... (2,416) (348)
DAC and other fair value adjustments........................ (50) (1,321)
Deferred income taxes....................................... (205) (720)
------- -------
Net unrealized gains (losses) on securities
available-for-sale........................................ $ 380 $ 1,333
------- -------
</TABLE>
F-27
<PAGE> 87
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
b) Investment Income
Income by type of investment was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
----------------------------------
1997 1996 1995
------ ------- -------
($ THOUSANDS)
<S> <C> <C> <C>
Fixed maturity securities............................ $4,545 $ 4,447 $ 4,430
Mortgage loans....................................... 67 278 3,076
Equity securities.................................... 331 671 646
Guaranteed annuity contracts......................... 2,796 13,196 9,691
Other investments.................................... 705 1,419 1,235
------ ------- -------
Gross investment income.............................. 8,444 20,011 19,078
------ ------- -------
Investment expenses.................................. 169 360 349
------ ------- -------
Net Investment Income................................ $8,275 $19,651 $18,729
====== ======= =======
</TABLE>
5. GUARANTEED ANNUITY CONTRACTS AND BONDS PAYABLE
The Company's wholly-owned subsidiary, Manufacturers Life Mortgage Securities
Corporation, has historically invested amounts received as repayments of
mortgage loans in annuities issued by ManUSA. These annuities were collateral
for the 8 1/4% mortgage-backed bonds payable. On March 1, 1997 the annuities
matured and the proceeds were used to repay the bonds payable.
In October 1997, MLMSC was absorbed into Manulife Holding Corporation.
6. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------
1997 1996 1995
--------- --------- ---------
($ THOUSANDS)
<S> <C> <C> <C>
Balance at January 1,................................. $102,610 $ 78,829 $ 60,124
Capitalization........................................ 33,544 36,024 28,147
Accretion of interest................................. 9,357 6,344 4,992
Amortization.......................................... (16,864) (19,159) (10,852)
Effect of net unrealized gains (losses) on securities
available for sale.................................. 1,268 996 (4,091)
Other................................................. 440 (424) 509
-------- -------- --------
Balance at December 31................................ $130,355 $102,610 $ 78,829
======== ======== ========
</TABLE>
F-28
<PAGE> 88
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
Components of income tax benefit were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------
1997 1996 1995
--------- --------- ---------
($ THOUSANDS)
<S> <C> <C> <C>
Current expense (benefit)................................ $(3,207) $(4,686) $(5,128)
Deferred expense (benefit)............................... 2,730 777 1,168
------- ------- -------
Total Benefit............................................ $ (477) $(3,909) $(3,960)
======= ======= =======
</TABLE>
The Company's deferred income tax liability, which results from tax effecting
the differences between financial statement values and tax values of assets and
liabilities at each balance sheet date, relates to the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31
-------------------
1997 1996
-------- --------
($ THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Differences in computing policy reserves............... $34,291 $28,508
Policyholder dividends payable......................... 240 283
Investments............................................ 793 --
------- -------
Deferred tax assets......................................... $35,324 $28,791
======= =======
Deferred tax liabilities:
Deferred acquisition costs............................. $30,682 $25,522
Investments............................................ 166 928
Other deferred tax liabilities......................... 5,650 1,300
------- -------
Deferred tax liabilities.................................... 36,498 27,750
------- -------
Net deferred tax assets (liabilities)....................... $(1,174) $ 1,041
======= =======
</TABLE>
The Company and its US insurance affiliates have available capital loss
carryforwards of $4,800 which will begin to expire in 1999 and can only be used
by Capitol Bankers Life Insurance Company.
8. NOTES PAYABLE
a) The Company has an outstanding surplus debenture in the amount of
$8,500 plus interest at 6.7% issued on December 31, 1995 to ManUSA which
matures on December 31, 2005. Payments of principal and interest cannot be
made without prior approval of the Insurance Commissioner of the State of
Michigan and the Company's Board of Directors, and to the extent the
Company has sufficient unassigned surplus on a statutory basis available
for such payment.
b) The Company has an outstanding promissory note in the amount of
$33,000 plus interest at 6.95% issued on December 5, 1997 payable to ManUSA
which matures on February 1, 2007.
F-29
<PAGE> 89
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. CAPITAL AND SURPLUS
The Company has two classes of capital stock, as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31:
-------------------------
1997 1996
----------- -----------
($ THOUSANDS)
<S> <C> <C>
Authorized:
5,000,000 Common shares, Par value $1.00
5,000,000 Preferred shares, Par value $100.00
Issued and Outstanding:
4,501,860 Common shares............................... $ 4,501,860 $ 4,501,860
105,000 Preferred shares.............................. 10,500,000 10,500,000
----------- -----------
Total...................................................... $15,001,860 $15,001,860
=========== ===========
</TABLE>
During 1996, the Company issued two common shares to its Parent Company in
return for a capital contribution of $15,000.
During 1995, the Company issued one common share to its Parent Company in return
for a capital contribution of $12,570.
The Company is subject to statutory limitations on the payment of dividends to
its Parent. Under Michigan Insurance Law, the payment of dividends to
shareholders is restricted to the surplus earnings of the Company, unless prior
approval is obtained from the Michigan Insurance Bureau.
The aggregate statutory capital and surplus of the Company at December 31, 1997
was $56,598 (1996 $76,202). The aggregate statutory net loss of the Company for
the year ended 1997 was $2,550 (1996 $15,961; 1995 $13,705). State regulatory
authorities prescribe statutory accounting practices that differ in certain
respects from generally accepted accounting principles followed by stock life
insurance companies. The significant differences relate to investments, deferred
acquisition costs, deferred income taxes, non-admitted asset balances and
reserve calculation assumptions.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and the estimated fair values of certain of the Company's
financial instruments at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
-------- --------
($ THOUSANDS)
<S> <C> <C>
Assets:
Fixed maturity and equity securities................... $87,353 $87,353
Mortgage loans......................................... 131 131
Policy loans........................................... 14,673 14,673
Liabilities:
Promissory note........................................ 33,000 33,000
Surplus note........................................... 8,500 8,220
</TABLE>
The following methods and assumptions were used to estimate the fair values of
the above financial instruments:
F-30
<PAGE> 90
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fixed Maturity And Equity Securities: Fair values of fixed maturity
and equity securities were based on quoted market prices, where available.
Fair values were estimated using values obtained from independent pricing
services.
Mortgage Loans: Fair value of mortgage loans was estimated using
discounted cash flows using contractual maturities and discount rates that
were based on U.S. Treasury rates for similar maturity ranges, adjusted for
risk, based on property type.
Policy Loans: Carrying values approximate fair values.
Promissory Note: Carrying value approximates fair value.
Surplus Note: Fair value was estimated using current interest rates
that were based on U.S. Treasuries for similar maturity ranges.
11. RELATED PARTY TRANSACTIONS
The Company has a formal service agreement with Manulife Financial which can be
terminated by either party upon two months' notice. Under the Agreement, the
Company will pay direct operating expenses incurred each year by Manulife
Financial on its behalf. Services provided under the agreement include legal,
actuarial, investment, data processing and certain other administrative
services. Costs incurred under this agreement were $30,873, $26,982 and $23,210
in 1997, 1996 and 1995 respectively. In addition, there were $11,249, $6,934 and
$5,052 of agents bonuses allocated to the Company during 1997, 1996 and 1995,
respectively, which are included in commissions.
The Company has several reinsurance agreements with affiliated companies 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 ManUSA 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 $25,000 per life to MRC under the
terms of an automatic reinsurance agreement
(c) The Company cedes a substantial portion of its risk on its Flexible Premium
Variable Life policies to MRC under the terms of a stop loss reinsurance
agreement.
Selected amounts relating to the above treaties reflected in the financial
statements are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------
1997 1996 1995
--------- --------- ---------
($ THOUSANDS)
<S> <C> <C> <C>
Life and annuity premiums assumed........................ $ 509 $ 676 $ 5,959
Life and annuity premiums ceded.......................... 1,157 -- --
Policy reserves assumed.................................. 40,975 44,497 47,386
Policy reserves ceded.................................... 130 304 3,838
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts to affiliates were $3,972,
$NIL and $NIL during 1997, 1996 and 1995 respectively.
The Company markets variable life insurance and variable annuity products
through Separate Accounts which use Manufacturers Investment Trust (formerly
NASL Series Trust) as its investment vehicle. The Manufacturers Investment Trust
is an entity sponsored by an affiliated company, The Manufacturers Life
Insurance of North America (formerly North American Security Life Insurance
Company).
F-31
<PAGE> 91
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Manulife Financial provides a claims paying guarantee to the Company's U.S.
policyholders.
12. REINSURANCE
In the normal course of business, the Company assumes and cedes reinsurance as a
party to several reinsurance treaties with major unrelated insurance companies.
The Company remains liable for amounts ceded in the event that reinsurers do not
meet their obligations.
The effects of reinsurance on premiums were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31
------------------------------
1997 1996 1995
-------- -------- --------
($ THOUSANDS)
<S> <C> <C> <C>
Direct premiums............................................ $8,572 $12,998 $9,809
Reinsurance ceded.......................................... 2,590 776 475
------ ------- ------
Total Premiums............................................. $5,982 $12,222 $9,334
====== ======= ======
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts were $909, $357 and $170
during 1997, 1996 and 1995 respectively.
13. FOREIGN OPERATIONS
The Company markets traditional life insurance products in Taiwan through its
Taiwanese Branch. The carrying amount of net assets located in Taiwan as at
December 31, 1997 and 1996 was $6,006 and $15,080 respectively.
The net income (loss) related to the Taiwan and U.S. business was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------
1997 1996 1995
--------- --------- ---------
($ THOUSANDS)
<S> <C> <C> <C>
Taiwan.................................................. $(2,835) $(17,530) $(9,332)
U.S..................................................... (801) 9,123 2,486
------- -------- -------
Total................................................... $(3,636) $ (8,407) $(6,846)
======= ======== =======
</TABLE>
14. CONTINGENCIES
The Company is subject to various lawsuits that have arisen in the course of its
business. Contingent liabilities arising from litigation, income taxes and other
matters are not considered material in relation to the financial position of the
Company.
F-32
<PAGE> 92
APPENDIX A
SAMPLE ILLUSTRATIONS OF POLICY VALUES, CASH SURRENDER VALUES AND DEATH BENEFITS
The following tables have been prepared to help show how values under the Policy
change with investment performance. The tables include both Policy Values and
Cash Surrender Values as well as Death Benefits. The Policy Value is the sum of
the values in the Investment Accounts, as the tables assume no values in the
Guaranteed Interest Account or Loan Account. The Cash Surrender Value is the
Policy Value less any applicable surrender charges. The tables illustrate how
Policy Values and Cash Surrender Values, which reflect all applicable charges
and deductions, and Death Benefits of the Policy on an insured of a given age
would vary over time if the return on the assets of the Portfolio was a uniform,
gross, after-tax, annual rate of 0%, 6% or 12%. The Policy Values, Death
Benefits and Cash Surrender Values would be different from those shown if the
returns averaged 0%, 6% or 12%, but fluctuated over and under those averages
throughout the years. The charges reflected in the tables include those for:
deductions from premiums for state, local and federal taxes, deferred
underwriting and sales charges, and monthly deductions for administration, cost
of insurance and mortality and expense risks.
The amounts shown for the Policy Value, Death Benefit and Cash Surrender Value
as of each policy year reflect the fact that the net investment return on the
assets held in the sub-accounts is lower than the gross, after-tax return. This
is because the expenses and fees borne by the Portfolios are deducted from the
gross return. The illustrations reflect an average of the Trusts' expenses,
which is approximately 0.954% on an annual basis. The gross annual rates of
return of 0%, 6% and 12% correspond to approximate net annual rates of return of
- -0.949%, 4.994% and 10.937%.
The tables assume that no premiums have been allocated to the Guaranteed
Interest Account, that planned premiums are paid on the policy anniversary and
that no transfers, partial withdrawals, policy loans, changes in death benefit
options or changes in face amount have been made. The tables reflect the fact
that no charges for federal, state or local taxes are currently made against the
Separate Account. If such a charge is made in the future, it would take a higher
gross rate of return to produce after-tax returns of 0%, 6% and 12% than it does
now.
There are two tables shown for each combination of age and death benefit option
for male non-smokers, one based on current cost of insurance and monthly
administration charges and the other based on the maximum administration
charges, deductions from premiums and cost of insurance charges based on the
1980 Commissioners Standard Ordinary Smoker/Nonsmoker Mortality Tables. The
current waiver of deductions from premiums and current monthly administration
charges and cost of insurance charges are not guaranteed and may be changed.
Upon request, Manufacturers Life of America will furnish a comparable
illustration based on the proposed life insured's age, sex (unless unisex rates
are required by law) and risk class, any additional ratings and the death
benefit option, face amount and planned premium requested. Illustrations for
smokers would show less favorable results than the illustrations shown below.
From time to time, in advertisements or sales literature for the Policies that
quote performance data of one or more of the Portfolios, the Company may include
cash surrender values and death benefit figures computed using the same
methodology as that used in the following illustrations, but with the average
annual total return of the Portfolios for which performance data is shown in the
advertisement replacing the hypothetical rates of return shown in the following
tables. This information may be shown in the form of graphs, charts, tables and
examples.
The Policies have been offered to the public only since September 10, 1993.
However, total return data may be advertised for as long a period of time as the
underlying Portfolio has been in existence. The results for any period prior to
the Policies' being offered would be calculated as if the Policies had been
offered during that period of time, with all charges assumed to be those
applicable to the Policies.
F-33
<PAGE> 93
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$5,960 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical
Gross Investment Return Gross Investment Return
------------------------------------------------ ---------------------------------------------------
End of Accumulated Cash Cash
Policy Premiums Policy Surrender Death Policy Surrender Death
Year(1) (2) Value Value(3)(4) Benefit Value Value(3)(4) Benefit
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 6,258 $ 4,614 $ 0 $ 500,000 $ 4,925 $ 271 $ 500,000
2 12,829 9,407 4,636 500,000 10,324 5,553 500,000
3 19,728 14,068 7,546 500,000 15,897 9,375 500,000
4 26,973 18,596 12,127 500,000 21,649 15,180 500,000
5 34,579 22,981 16,561 500,000 27,577 21,157 500,000
6 42,566 27,251 21,131 500,000 33,713 27,592 500,000
7 50,953 31,368 25,548 500,000 40,026 34,206 500,000
8 59,758 35,336 29,823 500,000 46,528 41,008 500,000
9 69,004 39,149 34,146 500,000 53,219 48,215 500,000
10 78,712 42,811 38,748 500,000 60,108 56,045 500,000
15 135,039 58,611 58,611 500,000 97,596 97,596 500,000
20 206,927 69,484 69,484 500,000 140,362 140,362 500,000
25 298,676 74,497 74,497 500,000 189,390 189,390 500,000
30 415,774 70,948 70,948 500,000 249,721 249,721 500,000
<CAPTION>
12% Hypothetical
Gross Investment Return
---------------------------------------------
End of Cash
Policy Policy Surrender Death
Year(1) Value Value(3)(4) Benefit
<S> <C> <C> <C>
1 $ 5,237 $ 583 $ 500,000
2 11,278 6,508 500,000
3 17,877 11,355 500,000
4 25,085 18,616 500,000
5 32,955 26,535 500,000
6 41,580 35,460 500,000
7 50,998 45,177 500,000
8 61,293 55,773 500,000
9 72,550 67,546 500,000
10 84,870 80,808 500,000
15 166,561 166,561 500,000
20 297,108 297,108 500,000
25 507,829 507,829 680,491
30 859,860 859,860 1,049,029
</TABLE>
- ---------------
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force
until the end of the first 5 Policy Years. Provided the Cumulative Premium
Test or the Fund Value Test has been and continues to be met, the Death
Benefit Guarantee will keep the Policy in force on all policies for the
first three years and until age 100 on Policies issued and maintained with a
minimum face amount of $250,000 and Death Benefit Option 1; to age 85 on
policies issued and maintained with a face amount of at least $250,000 and
if Death benefit Option 2 is selected at any time.
(4) Cash Surrender Values for first two years reflect sales charge limitations
imposed by the S.E.C.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 94
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$5,960 ANNUAL PLANNED PREMIUM
ASSUMING GUARANTEED CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical
Gross Investment Return Gross Investment Return
----------------------- -----------------------
End of Accumulated Cash Cash
Policy Premiums Policy Surrender Death Policy Surrender Death
Year(1) (2) Value Value(3)(4) Benefit Value Value(3)(4) Benefit
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 6,258 $ 4,338 $ 0 $ 500,000 $ 4,635 $ 0 $ 500,000
2 12,829 8,863 4,092 500,000 9,733 4,963 500,000
3 19,728 13,259 6,737 500,000 14,993 8,471 500,000
4 26,973 17,526 11,057 500,000 20,418 13,949 500,000
5 34,579 21,657 15,237 500,000 26,007 19,586 500,000
6 42,566 25,650 19,530 500,000 31,762 25,642 500,000
7 50,953 29,495 23,675 500,000 37,679 31,859 500,000
8 59,758 33,196 27,676 500,000 43,768 38,248 500,000
9 69,004 36,743 31,740 500,000 50,024 45,020 500,000
10 78,712 40,139 36,077 500,000 56,456 52,394 500,000
15 135,039 54,654 54,654 500,000 91,207 91,207 500,000
20 206,927 63,667 63,667 500,000 130,114 130,114 500,000
25 298,676 64,609 64,609 500,000 172,001 172,001 500,000
30 415,774 53,954 53,954 500,000 220,462 220,462 500,000
<CAPTION>
12% Hypothetical
Gross Investment Return
-----------------------
End of Cash
Policy Policy Surrender Death
Year(1) Value Value(3)(4) Benefit
<S> <C> <C> <C>
1 $ 4,933 280 $ 500,000
2 10,640 5,873 500,000
3 16,871 10,355 500,000
4 23,674 17,215 500,000
5 31,099 24,695 500,000
6 39,206 33,111 500,000
7 48,054 42,270 500,000
8 57,722 52,251 500,000
9 68,283 63,345 500,000
10 79,835 75,857 500,000
15 156,172 156,172 500,000
20 277,565 277,565 500,000
25 473,143 473,143 634,012
30 799,351 799,351 975,209
</TABLE>
- ---------------
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force
until the end of the first 5 Policy Years. Provided the Cumulative Premium
Test or the Fund Value Test has been and continues to be met, the Death
Benefit Guarantee will keep the Policy in force on all policies for the
first three years and until age 100 on Policies issued and maintained with a
minimum face amount of $250,000 and Death Benefit Option 1; to age 85 on
policies issued and maintained with a face amount of at least $250,000 and
if Death benefit Option 2 is selected at any time.
(4) Cash Surrender Values for first two years reflect sales charge limitations
imposed by the S.E.C.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 95
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$7,450 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical
Gross Investment Return Gross Investment Return
------------------------------------------------ ---------------------------------------------------
End of Accumulated Cash Cash
Policy Premiums Policy Surrender Death Policy Surrender Death
Year(1) (2) Value Value(3)(4) Benefit Value Value(3)(4) Benefit
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 7,823 $ 6,067 $ 930 $ 506,067 $ 6,466 $ 1,329 $ 506,466
2 16,036 12,279 7,142 512,279 13,459 8,321 513,459
3 24,660 18,323 11,801 518,323 20,679 14,157 520,679
4 33,716 24,197 17,728 524,197 28,131 21,662 528,131
5 43,224 29,892 23,472 529,892 35,812 29,392 535,812
6 53,208 35,435 29,315 535,435 43,755 37,635 543,755
7 63,691 40,788 34,967 540,788 51,928 46,108 551,928
8 74,698 45,953 40,432 545,953 60,341 54,821 560,341
9 86,255 50,922 45,919 550,922 68,991 63,987 568,991
10 98,391 55,699 51,637 555,699 77,887 73,824 577,887
15 168,798 76,419 76,419 577,419 125,987 125,987 625,987
20 258,658 90,947 90,947 590,947 179,636 179,636 679,636
25 373,345 98,160 98,160 598,160 238,189 238,189 738,189
30 519,718 95,367 95,367 595,367 303,091 303,091 803,091
<CAPTION>
12% Hypothetical
Gross Investment Return
------------------------------------
End of Cash
Policy Policy Surrender Death
Year(1) Value Value(3)(4) Benefit
<S> <C> <C> <C>
1 $ 6,866 $ 1,729 $506,866
2 14,686 9,549 514,686
3 23,227 16,705 523,227
4 32,555 26,086 532,555
5 42,734 36,314 542,734
6 53,875 47,754 553,875
7 66,029 60,209 566,029
8 79,297 73,776 579,297
9 93,777 88,773 593,777
10 109,589 105,526 609,589
15 213,281 213,281 713,281
20 374,069 374,069 874,069
25 624,487 624,487 1,124,487
30 1,034,482 1,034,482 1,534,482
</TABLE>
- ---------------
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force
until the end of the first 5 Policy Years. Provided the Cumulative Premium
Test or the Fund Value Test has been and continues to be met, the Death
Benefit Guarantee will keep the Policy in force on all policies for the
first three years and until age 100 on Policies issued and maintained with a
minimum face amount of $250,000 and Death Benefit Option 1; to age 85 on
policies issued and maintained with a face amount of at least $250,000 and
if Death benefit Option 2 is selected at any time.
(4) Cash Surrender Values for first two years reflect sales charge limitations
imposed by the S.E.C.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 96
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$7,450 ANNUAL PLANNED PREMIUM
ASSUMING GUARANTEED CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical
Gross Investment Return Gross Investment Return
--------------------------------------------------- ---------------------------------------------------
End of Accumulated Cash Cash
Policy Premiums Policy Surrender Death Policy Surrender Death
Year(1) (2) Value Value(3)(4) Benefit Value Value(3)(4) Benefit
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 7,823 $ 5,740 $ 603 $ 505,740 $ 6,121 $ 984 $ 506,121
2 16,036 11,632 6,495 511,632 12,756 7,619 512,756
3 24,660 17,362 10,840 517,362 19,604 13,082 519,604
4 33,716 22,927 16,458 522,927 26,668 20,199 526,668
5 43,224 28,321 21,901 528,321 33,947 27,527 533,947
6 53,208 33,542 27,422 533,542 41,445 35,325 541,445
7 63,691 38,578 32,758 538,578 49,155 43,335 549,155
8 74,698 43,432 37,912 543,432 57,086 51,565 557,086
9 86,255 48,094 43,091 548,094 65,231 60,227 565,231
10 98,391 52,556 48,504 551,556 73,599 69,536 573,599
15 168,798 71,714 71,714 571,714 118,572 118,572 618,572
20 258,658 84,327 84,327 581,327 167,887 167,887 668,887
25 373,345 87,135 87,135 587,135 218,065 218,065 718,065
30 519,718 77,092 77,092 577,092 268,832 268,832 768,832
<CAPTION>
12% Hypothetical
Gross Investment Return
-----------------------------------
End of Cash
Policy Policy Surrender Death
Year(1) Value Value(3)(4) Benefit
<S> <C> <C> <C>
1 $ 6,503 $ 1,365 $ 506,503
2 13,926 8,788 513,926
3 22,029 15,507 522,029
4 30,876 24,407 530,876
5 40,528 34,108 540,528
6 51,061 44,941 551,061
7 62,547 56,727 562,547
8 75,081 69,560 575,081
9 88,750 83,747 588,750
10 103,668 99,605 603,668
15 201,198 201,198 701,198
20 351,523 351,523 851,523
25 581,560 581,560 1,081,560
30 953,480 953,480 1,453,480
</TABLE>
- ---------------
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force
until the end of the first 5 Policy Years. Provided the Cumulative Premium
Test or the Fund Value Test has been and continues to be met, the Death
Benefit Guarantee will keep the Policy in force on all policies for the
first three years and until age 100 on Policies issued and maintained with a
minimum face amount of $250,000 and Death Benefit Option 1; to age 85 on
policies issued and maintained with a face amount of at least $250,000 and
if Death benefit Option 2 is selected at any time.
(4) Cash Surrender Values for first two years reflect sales charge limitations
imposed by the S.E.C.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 97
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$15,095 ANNUAL PLANNED PREMIUM*
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical
Gross Investment Return Gross Investment Return
------------------------------------------------ ---------------------------------------------------
End of Accumulated Cash Cash
Policy Premiums Policy Surrender Death Policy Surrender Death
Year(1) (2) Value Value(3)(4) Benefit Value Value(3)(4) Benefit
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 15,850 $ 10,718 $ 3,337 $ 500,000 $ 11,478 $ 4,097 $ 500,000
2 32,492 21,323 12,806 500,000 23,518 15,000 500,000
3 49,966 31,482 15,567 500,000 35,803 19,888 500,000
4 68,314 41,474 25,888 500,000 48,630 33,045 500,000
5 87,580 51,319 36,080 500,000 62,045 46,807 500,000
6 107,809 60,996 47,255 500,000 76,057 62,317 500,000
7 129,049 70,346 60,040 500,000 90,539 80,233 500,000
8 151,351 79,304 72,433 500,000 105,454 98,583 500,000
9 174,768 87,920 84,484 500,000 120,880 117,445 500,000
10 199,356 96,183 96,183 500,000 136,853 136,853 500,000
15 342,015 136,983 137,983 500,000 233,079 233,079 500,000
20 527,441 163,908 163,908 500,000 356,307 356,307 500,000
25 764,098 130,219 130,219 500,000 515,275 515,275 541,039
30 1,066,138 2,731 2,731 500,000(5) 718,254 718,254 754,167
<CAPTION>
12% Hypothetical
Gross Investment Return
------------------------------------
End of Cash
Policy Policy Surrender Death
Year(1) Value Value(3)(4) Benefit
<S> <C> <C> <C>
1 $ 12,241 $ 4,860 $500,000
2 25,808 17,290 500,000
3 40,493 24,579 500,000
4 56,712 41,127 500,000
5 74,653 59,414 500,000
6 94,484 80,744 500,000
7 116,264 105,958 500,000
8 140,160 133,289 500,000
9 166,476 163,040 500,000
10 195,507 195,507 500,000
15 405,181 405,181 500,000
20 765,780 765,780 819,384
25 1,347,742 1,347,742 1,415,129
30 2,269,248 2,269,248 2,382,710
</TABLE>
- ---------------
* Note that the second tier Death Benefit Guarantee Premium level of $16,240 is
paid from age 70.
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force
until the end of the first 5 Policy Years. Provided the Cumulative Premium
Test or the Fund Value Test has been and continues to be met, the Death
Benefit Guarantee will keep the Policy in force on all policies for the
first three years and until age 100 on Policies issued and maintained with a
minimum face amount of $250,000 and Death Benefit Option 1; to age 85 on
policies issued and maintained with a face amount of at least $250,000 and
if Death benefit Option 2 is selected at any time.
(4) Cash Surrender Values for first two years reflect sales charge limitations
imposed by the S.E.C.
(5) In the absence of additional premium payments, the Policy will lapse, unless
the Death Benefit Guarantee is in effect.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 98
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$15,095 ANNUAL PLANNED PREMIUM*
ASSUMING GUARANTEED CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical
Gross Investment Return Gross Investment Return
--------------------------------------------------- ---------------------------------------------------
End of Accumulated Cash Cash
Policy Premiums Policy Surrender Death Policy Surrender Death
Year(1) (2) Value Value(3)(4) Benefit Value Value(3)(4) Benefit
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 15,850 $ 10,042 $ 2,661 $ 500,000 $ 10,765 $ 3,384 $ 500,000
2 32,492 19,891 11,373 500,000 21,968 13,450 500,000
3 49,966 29,243 13,328 500,000 33,316 17,401 500,000
4 68,314 38,087 22,502 500,000 44,804 29,219 500,000
5 87,580 46,390 31,152 500,000 56,406 41,168 500,000
6 107,809 54,120 40,380 500,000 68,102 54,362 500,000
7 129,049 61,242 50,936 500,000 79,868 69,562 500,000
8 151,351 67,701 60,830 500,000 91,663 84,792 500,000
9 174,768 73,429 69,993 500,000 103,441 100,005 500,000
10 199,356 78,355 78,355 500,000 115,153 115,153 500,000
15 342,015 90,953 90,953 500,000 175,935 175,935 500,000
20 527,441 74,206 74,206 500,000 240,546 240,546 500,000
25 764,098 0(5) 0(5) 500,000(5) 300,694 300,694 500,000
30 1,066,138 0(5) 0(5) 500,000(5) 362,731 362,731 500,000
<CAPTION>
12% Hypothetical
Gross Investment Return
-----------------------------------
End of Cash
Policy Policy Surrender Death
Year(1) Value Value(3)(4) Benefit
<S> <C> <C> <C>
1 $ 11,492 $ 4,111 $ 500,000
2 24,136 15,619 500,000
3 37,739 21,825 500,000
4 52,398 36,813 500,000
5 68,202 52,964 500,000
6 85,264 71,524 500,000
7 103,712 93,406 500,000
8 123,685 116,814 500,000
9 145,343 141,907 500,000
10 168,884 168,884 500,000
15 333,980 333,980 500,000
20 634,129 634,129 678,518
25 1,127,274 1,127,274 1,183,638
30 1,903,391 1,903,391 1,998,561
</TABLE>
- ---------------
* Note that the second tier Death Benefit Guarantee Premium level of $16,240 is
paid from age 70.
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force
until the end of the first 5 Policy Years. Provided the Cumulative Premium
Test or the Fund Value Test has been and continues to be met, the Death
Benefit Guarantee will keep the Policy in force on all policies for the
first three years and until age 100 on Policies issued and maintained with a
minimum face amount of $250,000 and Death Benefit Option 1; to age 85 on
policies issued and maintained with a face amount of at least $250,000 and
if Death benefit Option 2 is selected at any time.
(4) Cash Surrender Values for first two years reflect sales charge limitations
imposed by the S.E.C.
(5) In the absence of additional premium payments, the Policy will lapse, unless
the Death Benefit Guarantee is in effect.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 99
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$17,920 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical
Gross Investment Return Gross Investment Return
------------------------------------------------ ---------------------------------------------------
End of Accumulated Cash Cash
Policy Premiums Policy Surrender Death Policy Surrender Death
Year(1) (2) Value Value(3)(4) Benefit Value Value(3)(4) Benefit
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 18,816 $ 13,394 $ 5,018 $ 513,394 $ 14,315 $ 5,939 $ 514,315
2 38,573 26,532 15,593 526,532 29,199 18,261 529,199
3 59,317 39,066 23,152 539,066 44,313 28,399 544,313
4 81,099 51,294 35,709 551,294 59,960 44,375 559,960
5 103,970 63,237 47,999 563,237 76,181 60,942 576,181
6 127,985 74,872 61,132 574,872 92,966 79,226 592,966
7 153,200 86,015 75,709 586,015 110,145 99,839 610,145
8 179,676 96,580 89,709 596,580 127,634 120,764 627,634
9 207,476 106,619 103,183 606,619 145,490 142,055 645,490
10 236,666 116,124 116,124 616,124 163,709 163,709 663,709
15 406,022 160,845 160,845 660,845 268,285 268,285 768,285
20 622,169 174,194 174,194 674,194 367,040 367,040 867,040
25 898,033 101,614 101,614 601,614 392,033 392,033 892,033
30 1,250,113 0(5) 0(5) 500,000(5) 323,023 323,023 823,023
<CAPTION>
12% Hypothetical
Gross Investment Return
---------------------------------------------------
End of Cash
Policy Policy Surrender Death
Year(1) Value Value(3)(4) Benefit
<S> <C> <C> <C>
1 $ 15,238 $ 6,862 $ 515,238
2 31,980 21,041 531,980
3 50,001 34,087 550,001
4 69,733 54,148 569,733
5 91,363 76,125 591,363
6 115,050 101,309 615,050
7 140,795 130,489 640,795
8 168,703 161,832 668,703
9 199,032 195,597 699,032
10 232,006 232,006 732,006
15 458,720 458,720 958,720
20 795,725 795,725 1,295,725
25 1,244,482 1,244,482 1,736,159
30 1,836,159 1,836,159 2,344,482
</TABLE>
- ---------------
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force
until the end of the first 5 Policy Years. Provided the Cumulative Premium
Test or the Fund Value Test has been and continues to be met, the Death
Benefit Guarantee will keep the Policy in force on all policies for the
first three years and until age 100 on Policies issued and maintained with a
minimum face amount of $250,000 and Death Benefit Option 1; to age 85 on
policies issued and maintained with a face amount of at least $250,000 and
if Death benefit Option 2 is selected at any time.
(4) Cash Surrender Values for first two years reflect sales charge limitations
imposed by the S.E.C.
(5) Provided the Death Benefit Guarantee has been in effect, the Policy will
have been kept in force until the end of the policy year in which the life
insured reached attained age 85, at which time the Death Benefit Guarantee
will expire and in the absence of additional premium payments, the Policy
will lapse.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 100
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$17,920 ANNUAL PLANNED PREMIUM
ASSUMING GUARANTEED CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical
Gross Investment Return Gross Investment Return
--------------------------------------------------- ---------------------------------------------------
End of Accumulated Cash Cash
Policy Premiums Policy Surrender Death Policy Surrender Death
Year(1) (2) Value Value(3)(4) Benefit Value Value(3)(4) Benefit
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 18,816 $ 12,621 $ 4,245 $ 512,621 $ 13,499 $ 5,123 $ 513,499
2 38,573 24,908 13,969 524,908 27,440 16,501 527,440
3 59,317 36,543 20,629 536,543 41,506 25,592 541,506
4 81,099 47,506 31,921 547,506 55,669 40,084 555,669
5 103,970 57,749 42,511 557,749 69,871 54,633 569,871
6 127,985 67,227 53,486 567,227 84,052 70,312 584,052
7 153,200 75,888 65,582 575,888 98,146 87,840 598,146
8 179,676 83,659 76,788 583,659 112,056 105,185 612,056
9 207,476 90,453 87,018 590,453 125,669 122,233 625,669
10 236,666 96,179 96,179 596,179 138,860 138,860 638,860
15 406,022 108,762 108,762 608,762 198,852 198,852 698,852
20 622,169 79,172 79,172 579,172 226,343 226,343 726,343
25 898,033 0(5) 0(5) 500,000(5) 180,769 180,769 680,769
30 1,250,113 0(5) 0(5) 0(5) 8,085 8,085 508,085
<CAPTION>
12% Hypothetical
Gross Investment Return
-----------------------------------
End of Cash
Policy Policy Surrender Death
Year(1) Value Value(3)(4) Benefit
<S> <C> <C> <C>
1 $ 14,380 $ 6,004 $ 514,380
2 30,080 19,142 530,080
3 46,889 30,975 546,889
4 64,882 49,297 564,882
5 84,112 68,873 584,112
6 104,639 90,898 604,639
7 126,524 116,218 626,524
8 149,808 142,937 649,808
9 174,519 171,084 674,519
10 200,684 200,684 700,684
15 363,211 363,211 863,211
20 576,018 576,018 1,076,018
25 833,780 833,780 1,333,780
30 1,124,290 1,124,290 1,624,290
</TABLE>
- ---------------
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force
until the end of the first 5 Policy Years. Provided the Cumulative Premium
Test or the Fund Value Test has been and continues to be met, the Death
Benefit Guarantee will keep the Policy in force on all policies for the
first three years and until age 100 on Policies issued and maintained with a
minimum face amount of $250,000 and Death Benefit Option 1; to age 85 on
policies issued and maintained with a face amount of at least $250,000 and
if Death benefit Option 2 is selected at any time.
(4) Cash Surrender Values for first two years reflect sales charge limitations
imposed by the S.E.C.
(5) Provided the Death Benefit Guarantee has been in effect, the Policy will
have been kept in force until the end of the policy year in which the life
insured reached attained age 85, at which time the Death Benefit Guarantee
will expire and in the absence of additional premium payments, the Policy
will lapse.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
<PAGE> 101
APPENDIX B
DEFINITIONS
The following terms have the following meanings when used in this Prospectus:
ADDITIONAL RATING -- an addition to the cost of insurance rate for insureds who
do not meet at least the underwriting requirements of the standard risk class.
BUSINESS DAY -- any day that the New York Stock Exchange is open for trading and
trading is not restricted. The net asset value of the underlying shares of a
sub-account of the Separate Account will be determined at the end of each
Business Day.
CASH SURRENDER VALUE -- the Policy Value less the deferred sales charge, the
deferred underwriting charge and any outstanding monthly deductions due.
CUMULATIVE PREMIUM TEST -- a test that, if satisfied in the first three policy
years and, where applicable, if satisfied in subsequent policy years, will
maintain the Death Benefit Guarantee. To satisfy the Cumulative Premium Test,
the sum of premiums paid, less withdrawals, and less policy loans, must equal or
exceed the sum of Death Benefit Guarantee Premiums since issue as at the
beginning of each policy month.
DEATH BENEFIT GUARANTEE -- Manufacturers Life of America's guarantee that the
Policy will not go into default even if a combination of policy loans, adverse
investment experience or other factors should cause the Policy's Net Cash
Surrender Value to be insufficient to meet the monthly deductions due at the
beginning of a policy month.
DEATH BENEFIT GUARANTEE PREMIUM -- a measure of premium used in determining
compliance with the Cumulative Premium Test. The Death Benefit Guarantee Premium
as an annual amount is established by the Company based on issue age, sex
(unless unisex rates are required by law), risk class, death benefit option,
supplementary benefits and additional ratings. The Death Benefit Guarantee
Premium, which is set forth in the Policy, will increase, when the policyowner
reaches attained age 70, to an amount as specified in the Policy.
EFFECTIVE DATE -- the date that Manufacturers Life of America becomes obligated
under the Policy and when the first monthly deductions are taken.
FUND VALUE TEST -- a test which, if satisfied in applicable policy years will
maintain the Death Benefit Guarantee feature. To satisfy the Fund Value Test,
the Gross Single Premium at the beginning of any applicable policy month must
not be greater than the Net Policy Value.
GROSS SINGLE PREMIUM -- the amount of premium needed to endow the Policy to the
expiration of the Death Benefit Guarantee assuming 4% interest and current
charges.
GUARANTEED INTEREST ACCOUNT -- that part of the Policy Value which reflects the
value the policyowner has in the general account of Manufacturers Life of
America.
GUIDELINE ANNUAL PREMIUM -- an amount defined by S.E.C. regulation. It is used
to determine maximum sales charges that may be deducted during the first two
years following issuance of a Policy.
INITIAL PREMIUM -- at least 1/12 of the Target Premium. The Initial Premium must
be received within 60 days after the policy date.
INVESTMENT ACCOUNT -- that part of the Policy Value which reflects the value the
policyowner has in one of the sub-accounts of the Separate Account.
ISSUE AGE -- the age on the nearest birthday, at policy date, as shown in the
Policy.
LOAN ACCOUNT -- that part of the Policy Value which reflects the value the
policyowner has transferred from the Guaranteed Interest Account or the
Investment Accounts as collateral for a policy loan.
<PAGE> 102
MODIFIED POLICY DEBT -- as of any date, the Policy Debt plus the amount of
interest to be charged to the next policy anniversary, all discounted from the
next policy anniversary to such date at an annual rate of 4%.
MONTHLY DEATH BENEFIT GUARANTEE PREMIUM -- 1/12 of the Death Benefit Guarantee
Premium.
MONTHLY NO LAPSE GUARANTEE PREMIUM -- 1/12 of the No Lapse Guarantee Premium.
NET CASH SURRENDER VALUE -- the Cash Surrender Value less Policy Debt.
NET POLICY VALUE -- the Policy Value less the value in the Loan Account.
NET PREMIUM -- amount of premium allocated to the Investment Accounts or
Guaranteed Interest Account. It equals gross premiums less the deduction for
state, local and federal taxes.
NO LAPSE GUARANTEE -- Manufacturers Life of America guarantees that the Policy
will not go into default even if a combination of Policy loans, adverse
investment experience and other factors should cause the Policy's Net Cash
Surrender Value to be insufficient to meet the monthly deductions due at the
beginning of a policy month. In Illinois this benefit is known as the Minimum
Premium Guarantee.
NO LAPSE GUARANTEE CUMULATIVE PREMIUM TEST -- a test that, if satisfied in the
No Lapse Guarantee Period, will maintain the No Lapse Guarantee. To satisfy the
No Lapse Guarantee Cumulative Premium Test, the sum of premiums paid, less
withdrawals, and less Policy loans must equal or exceed the sum of No Lapse
Guarantee Premiums since issue as at the beginning of each policy month.
NO LAPSE GUARANTEE PERIOD -- is the first 5 policy years for life insureds with
an issue age up to and including 85. It is not offered to life insureds whose
Issue Age exceeds 85.
NO LAPSE GUARANTEE PREMIUM -- is a measure of premium used in determining
compliance with the No Lapse Guarantee Cumulative Premium Test. The No Lapse
Guarantee premium for each policyowner is set forth in the Policy.
PLANNED PREMIUM -- The premium the policyowner plans to pay periodically.
Subject to certain requirements of law, the Planned Premium may be changed at
any time.
POLICY DATE -- The date from which policy years, policy months and policy
anniversaries are determined. Monthly deductions are due on the policy date. If
a check for at least the Initial Premium accompanies the application, the policy
date is the date the application and check are received at the Service office.
If an application accepted by the Company is not accompanied by a check for the
Initial Premium, the policy will be issued with a policy date which is 7 days
after issuance of the policy.
POLICY DEBT -- as of any date, the aggregate amount of policy loans, including
borrowed interest, less any loan repayments.
POLICY VALUE -- the sum of the values in the Loan Account, the Guaranteed
Interest Account and the Investment Accounts.
SELECT LOAN -- A loan on which the differential between the interest credited
and the interest charged is currently 0%; provided, however, if at some time in
the future it is determined that the current differential could cause the loan
to be treated as a taxable distribution under any applicable ruling, regulation
or court decision, Manufacturers Life of America has the right to increase the
differential on all subsequent Select Loans either (i) to an amount that may be
presented in such ruling, regulation or court decision that would result in the
transaction being treated as a loan under federal tax law or (ii) if no amount
is prescribed, to an amount that Manufacturers Life of America feels would be
more likely to result in the transaction being treated as a loan under Federal
tax law.
SELECT LOAN AMOUNT -- the amount of any Select Loan.
SERVICE OFFICE -- the office designated to service the Policies, which is shown
on the cover page of this prospectus.
<PAGE> 103
SURRENDER CHARGE PERIOD -- the period (usually 15 years) following issuance of
the Policy or any increase in face amount during which surrender charges may be
assessed if the Policy is surrendered or lapsed, the face amount is decreased or
a partial withdrawal takes place.
TARGET PREMIUM -- a premium amount used to measure the maximum deferred sales
charge under a Policy. The Target Premium for the initial face amount is set
forth in the Policy. The policyowner will be advised of the Target Premium for
any increase in face amount.
WITHDRAWAL TIER AMOUNT -- as of any date, the net Cash Surrender Value at the
previous anniversary multiplied by 10%.
<PAGE> 104
APPENDIX C
The maximum deferred sales charge is 50% of premiums received up to a specified
number of Target Premiums that varies (from -0.180 to 3.031) with the issue age
of the life insured, the face amount of the Policy and the amount of any
increase. Beginning after two policy years, that maximum deferred sales charge
decreases over time according to a pattern that varies with the issue age of the
life insured. In all cases, the deferred sales charge is eliminated entirely by
the last month of the 15th policy year. The same pattern applies to sales
charges occasioned by face amount increases, with time periods and issue age
computed using the date of the increase in face amount rather than the Policy
Date.
The following tables show the percentage of the maximum sales charge that would
be applicable in the last month of the years shown. The percentages for other
months would be derived by interpolation.
If the transaction occurs in the last month of
<TABLE>
<CAPTION>
ISSUE AGE
POLICY ---------------------------------------------------------------------------------------------------------------------------
YEAR* 0 1 2 3 4 5 6 7 8
- ------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9666 0.9500 0.9642 0.9444 0.9555 0.9811 0.9843 0.9866 0.9885
4 0.9666 0.9500 0.9285 0.9444 0.9555 0.9622 0.9687 0.9600 0.9655
5 0.9333 0.9000 0.8928 0.9166 0.9111 0.9433 0.9531 0.9466 0.9540
6 0.9333 0.9000 0.8928 0.9166 0.9111 0.9433 0.9531 0.9466 0.9540
7 0.9333 0.9000 0.8928 0.9166 0.9111 0.9433 0.9531 0.9466 0.9540
8 0.9333 0.9000 0.8928 0.9166 0.9111 0.9433 0.9531 0.9466 0.9540
9 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503
10 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803
11 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442
12 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082
13 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721
14 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
<CAPTION>
ISSUE AGE
POLICY -----------------------------------------------------------------------------------------------
YEAR* 9 10 11 12 13 14 15
- ------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9861 0.9873 0.9885 0.9895 0.9875 0.9940 0.9898
4 0.9696 0.9734 0.9765 0.9722 0.9751 0.9831 0.9796
5 0.9595 0.9646 0.9609 0.9652 0.9689 0.9719 0.9695
6 0.9595 0.9646 0.9609 0.9652 0.9689 0.9719 0.9695
7 0.9595 0.9646 0.9609 0.9652 0.9689 0.9719 0.9695
8 0.9595 0.9646 0.9609 0.9652 0.9689 0.9719 0.9695
9 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503
10 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803
11 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442
12 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082
13 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721
14 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
<TABLE>
<CAPTION>
ISSUE AGE
POLICY ---------------------------------------------------------------------------------------------------------------------------
YEAR* 16 17 18 19 20 21 22 23 24
- ------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9912 0.9872 0.9884 0.9842 0.9903 0.9867 0.9878 0.9887 0.9896
4 0.9788 0.9795 0.9768 0.9789 0.9806 0.9778 0.9796 0.9804 0.9792
5 0.9718 0.9681 0.9653 0.9631 0.9661 0.9646 0.9674 0.9699 0.9688
6 0.9667 0.9667 0.9653 0.9631 0.9661 0.9646 0.9674 0.9699 0.9688
7 0.9333 0.9333 0.9333 0.9333 0.9333 0.9396 0.9396 0.9396 0.9396
8 0.9000 0.9000 0.9000 0.9000 0.9000 0.9060 0.9060 0.9060 0.9060
9 0.8333 0.8333 0.8333 0.8333 0.8333 0.8389 0.8389 0.8389 0.8389
10 0.6667 0.6667 0.6667 0.6667 0.6667 0.6711 0.6711 0.6711 0.6711
11 0.5333 0.5333 0.5333 0.5333 0.5333 0.5369 0.5369 0.5369 0.5369
12 0.4000 0.4000 0.4000 0.4000 0.4000 0.4027 0.4027 0.4027 0.4027
13 0.2667 0.2667 0.2667 0.2667 0.2667 0.2685 0.2685 0.2685 0.2685
14 0.1330 0.1330 0.1330 0.1330 0.1330 0.1342 0.1342 0.1342 0.1342
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
<CAPTION>
ISSUE AGE
POLICY -----------------------------------------------------------------------------------------------
YEAR* 25 26 27 28 29 30 31
- ------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9901 0.9885 0.9889 0.9897 0.9887 0.9889 0.9885
4 0.9803 0.9793 0.9779 0.9770 0.9757 0.9772 0.9771
5 0.9679 0.9678 0.9678 0.9659 0.9644 0.9650 0.9624
6 0.9679 0.9678 0.9678 0.9659 0.9644 0.9650 0.9624
7 0.9396 0.9432 0.9469 0.9507 0.9545 0.9583 0.9622
8 0.9060 0.9122 0.9184 0.9247 0.9310 0.9375 0.9441
9 0.8389 0.8446 0.8503 0.8562 0.8621 0.8681 0.8741
10 0.6711 0.6757 0.6803 0.6849 0.6897 0.6944 0.6993
11 0.5369 0.5405 0.5442 0.5479 0.5517 0.5556 0.5594
12 0.4027 0.4054 0.4082 0.4110 0.4138 0.4167 0.4196
13 0.2685 0.2703 0.2721 0.2740 0.2759 0.2778 0.2797
14 0.1342 0.1351 0.1361 0.1370 0.1379 0.1389 0.1399
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
*Months not shown may be calculated by interpolation.
<PAGE> 105
If the transaction occurs in the last month of
<TABLE>
<CAPTION>
ISSUE AGE
POLICY ---------------------------------------------------------------------------------------------------------------------------
YEAR* 32 33 34 35 36 37 38 39 40
- ------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9878 0.9886 0.9883 0.9888 0.9860 0.9859 0.9868 0.9858 0.9849
4 0.9741 0.9758 0.9751 0.9739 0.9733 0.9728 0.9725 0.9714 0.9706
5 0.9634 0.9630 0.9614 0.9602 0.9593 0.9577 0.9573 0.9572 0.9529
6 0.9634 0.9630 0.9614 0.9602 0.9593 0.9577 0.9573 0.9572 0.9529
7 0.9634 0.9630 0.9614 0.9602 0.9593 0.9577 0.9573 0.9572 0.9529
8 0.9507 0.9574 0.9614 0.9602 0.9593 0.9577 0.9573 0.9572 0.9529
9 0.8803 0.8865 0.8929 0.8993 0.8999 0.9006 0.9012 0.9019 0.9025
10 0.7042 0.7092 0.7143 0.7194 0.7199 0.7205 0.7210 0.7215 0.7220
11 0.5634 0.5674 0.5714 0.5755 0.5760 0.5764 0.5768 0.5772 0.5776
12 0.4225 0.4255 0.4286 0.4317 0.4320 0.4323 0.4326 0.4329 0.4332
13 0.2817 0.2837 0.2857 0.2878 0.2880 0.2882 0.2884 0.2886 0.2888
14 0.1408 0.1418 0.1429 0.1439 0.1440 0.1441 0.1442 0.1443 0.1444
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
<CAPTION>
ISSUE AGE
POLICY -----------------------------------------------------------------------------------------------
YEAR* 41 42 43 44 45 46 47
- ------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9850 0.9828 0.9839 0.9822 0.9833 0.9819 0.9808
4 0.9692 0.9680 0.9664 0.9651 0.9659 0.9639 0.9627
5 0.9526 0.9501 0.9496 0.9480 0.9473 0.9446 0.9425
6 0.9526 0.9501 0.9496 0.9480 0.9473 0.9446 0.9425
7 0.9526 0.9501 0.9496 0.9480 0.9473 0.9190 0.9176
8 0.9526 0.9501 0.9496 0.9480 0.9473 0.9117 0.9104
9 0.9032 0.9038 0.9045 0.9051 0.9058 0.9045 0.9032
10 0.7225 0.7231 0.7236 0.7241 0.7246 0.7236 0.7225
11 0.5780 0.5785 0.5789 0.5793 0.5797 0.5789 0.5780
12 0.4335 0.4338 0.4342 0.4345 0.4348 0.4342 0.4335
13 0.2890 0.2892 0.2894 0.2896 0.2899 0.2894 0.2890
14 0.1445 0.1446 0.1447 0.1448 0.1449 0.1447 0.1445
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
<TABLE>
<CAPTION>
ISSUE AGE
POLICY ---------------------------------------------------------------------------------------------------------------------------
YEAR* 48 49 50 51 52 53 54 55 56
- ------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9809 0.9796 0.9786 0.9795 0.9779 0.9770 0.9763 0.9761 0.9738
4 0.9619 0.9598 0.9577 0.9573 0.9563 0.9541 0.9523 0.9512 0.9477
5 0.9418 0.9385 0.9354 0.9351 0.9330 0.9300 0.9268 0.9250 0.9207
6 0.9365 0.9251 0.9137 0.9023 0.8910 0.8797 0.8684 0.8571 0.8689
7 0.9163 0.9150 0.9101 0.8567 0.8032 0.7498 0.6963 0.6429 0.6517
8 0.9091 0.9078 0.9029 0.8080 0.7132 0.6183 0.5235 0.4286 0.4345
9 0.9019 0.9006 0.8993 0.7623 0.6253 0.4883 0.3513 0.2143 0.2172
10 0.7215 0.7205 0.7194 0.5755 0.4316 0.2878 0.1439 0.0000 0.0000
11 0.5772 0.5764 0.5755 0.4316 0.2876 0.1439 0.0000 0.0000 0.0000
12 0.4329 0.4323 0.4317 0.2878 0.1439 0.0000 0.0000 0.0000 0.0000
13 0.2886 0.2882 0.2878 0.1439 0.0000 0.0000 0.0000 0.0000 0.0000
14 0.1443 0.1441 0.1439 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
<CAPTION>
ISSUE AGE
POLICY -----------------------------------------------------------------------------------------------
YEAR* 57 58 59 60 61 62 63
- ------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9731 0.9720 0.9707 0.9711 0.9700 0.9690 0.9678
4 0.9460 0.9441 0.9417 0.9410 0.9389 0.9367 0.9341
5 0.9192 0.9160 0.9128 0.9109 0.9078 0.9044 0.9006
6 0.8811 0.8939 0.9071 0.9087 0.9039 0.8986 0.8937
7 0.6608 0.6704 0.6803 0.6907 0.7015 0.7128 0.7247
8 0.4406 0.4469 0.4536 0.4605 0.4677 0.4752 0.4831
9 0.2203 0.2235 0.2268 0.2302 0.2338 0.2376 0.2416
10 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
11 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
12 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
13 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
14 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
<PAGE> 106
<TABLE>
<CAPTION>
ISSUE AGE
POLICY -------------------------------------------------------------------------------------------------------------
YEAR* 64 65 66 67 68 69 70 71
- ------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9650 0.9638 0.9637 0.9612 0.9597 0.9573 0.9572 0.9559
4 0.9315 0.9277 0.9261 0.9224 0.9196 0.9158 0.9144 0.9129
5 0.8966 0.8916 0.8874 0.8836 0.8796 0.8745 0.8727 0.8700
6 0.8872 0.8823 0.8769 0.8719 0.8665 0.8612 0.8582 0.8554
7 0.7370 0.7500 0.7500 0.7500 0.7500 0.7500 0.7500 0.7500
8 0.4914 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000
9 0.2457 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500
10 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
11 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
12 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
13 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
14 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
<CAPTION>
ISSUE AGE
POLICY -------------------------------------------------------------------------------------------------------------
YEAR* 72 73 74 75 76 77 78 79
- ------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9555 0.9532 0.9518 0.9504 0.9491 0.9464 0.9436 0.9422
4 0.9113 0.9078 0.9050 0.9021 0.8982 0.8939 0.8885 0.8856
5 0.8676 0.8623 0.8581 0.8526 0.8472 0.8404 0.8347 0.8301
6 0.8520 0.8441 0.8387 0.8317 0.8239 0.8170 0.8099 0.8054
7 0.7500 0.7500 0.7500 0.7500 0.7500 0.7500 0.7500 0.7500
8 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000
9 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500
10 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
11 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
12 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
13 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
14 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
*Months not shown may be calculated by interpolation.
If the transaction occurs in the last month of
<TABLE>
<CAPTION>
ISSUE AGE
POLICY -------------------------------------------------------------------------------------------------------------
YEAR* 80 81 82 83 84 85 86 87
- ------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9405 0.9388 0.9375 0.9362 0.9360 0.9345 0.9320 0.9303
4 0.8824 0.8806 0.8777 0.8762 0.8747 0.8705 0.8663 0.8608
5 0.8267 0.8235 0.8204 0.8176 0.8145 0.8079 0.8009 0.7899
6 0.8016 0.7971 0.7940 0.7897 0.7842 0.7749 0.7627 0.7451
7 0.7500 0.7500 0.7500 0.7500 0.7500 0.7405 0.7232 0.6964
8 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000
9 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500
10 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
11 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
12 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
13 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
14 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
<CAPTION>
ISSUE AGE
POLICY -------------------------------------------------------------------------------------------------------------
YEAR* 88 89 90 91 92 93 94 95
- ------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 0.0000 0.0000 0.0000 0.0000 0.0000
2 1.0000 1.0000 1.0000 0.0000 0.0000 0.0000 0.0000 0.0000
3 0.9261 0.9191 0.9115 0.0000 0.0000 0.0000 0.0000 0.0000
4 0.8510 0.8357 0.8165 0.0000 0.0000 0.0000 0.0000 0.0000
5 0.7732 0.7483 0.7136 0.0000 0.0000 0.0000 0.0000 0.0000
6 0.7192 0.6822 0.6308 0.0000 0.0000 0.0000 0.0000 0.0000
7 0.6597 0.6068 0.5399 0.0000 0.0000 0.0000 0.0000 0.0000
8 0.5000 0.5000 0.4439 0.0000 0.0000 0.0000 0.0000 0.0000
9 0.2500 0.2500 0.2500 0.0000 0.0000 0.0000 0.0000 0.0000
10 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
11 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
12 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
13 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
14 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
*Months not shown may be calculated by interpolation.
<PAGE> 107
[MANULIFE FINANCIAL LOGO]
<PAGE> 108
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 109
PART II
OTHER INFORMATION
UNDERTAKINGS
Representation of Insurer Pursuant to Section 26 of the Investment Company Act
of 1940.
The Manufacturers Life Insurance Company of America hereby represents that the
fees and charges deducted under the contracts issued pursuant to this
registration statement, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed
by the Company.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet;
The Prospectus, consisting of 96 pages;
Representation pursuant to Section 26 of the Investment Company Act of
1940;
The signatures;
Written consents of the following persons:
Jones & Blouch L.L.P.
Ernst & Young LLP
Brian R. Koop
The following exhibits are filed as part of this Registration Statement:
1. Copies of all exhibits required by paragraph A of the instructions as to
exhibits in Form N-8B-2 are set forth below under designations based on
such instructions:
A(1) Resolutions of Board of Directors of The Manufacturers Life
Insurance Company of America establishing Separate Account
Three. Previously filed as Exhibit A(1) to the Registration
Statement on Form S-6 filed by The Manufacturers Life
Insurance Company of America on September 23, 1992 (file No.
33-52310).
A(3)(a)(i) Distribution Agreement between The Manufacturers Life
Insurance Company of America and ManEquity, Inc. Previously
filed as Exhibit A(3)(a)(i) to the Registration Statement on
Form S-6 filed by The Manufacturers Life Insurance Company of
America on September 23, 1992 (file No. 33-52310).
A(3)(a)(ii) Amendment to Distribution Agreement. Previously filed as
Exhibit A(3)(a)(ii) to the Registration Statement on Form S-6
filed by The Manufacturers Life Insurance Company of America
on September 23, 1992 (file No. 33-52310).
II-1
<PAGE> 110
A(3)(b)(i) Specimen agreement between ManEquity, Inc. and registered
representatives. Previously filed as Exhibit A(3)(b)(i) to
the Registration Statement on Form S-6 filed by The
Manufacturers Life Insurance Company of America on September
23, 1992 (file No. 33-52310).
A(3)(b)(ii) Specimen agreement between ManEquity, Inc. and dealers.
Previously filed as Exhibit A(3)(b)(ii) to Pre-Effective
Amendment No. 1 to the Registration Statement on Form S-6
filed by The Manufacturers Life Insurance Company of America
on June 21, 1993 (file No. 33-52310).
A(3)(c) Schedule of Sales Commissions. Previously filed as Exhibit
A(3)(c) to Pre-Effective Amendment No. 1 to the Registration
Statement on Form S-6 filed by The Manufacturers Life
Insurance Company of America on June 21, 1993 (file No.
33-52310).
A(5)(a) Form of Flexible Premium Variable Life Insurance Policy.
Previously filed as Exhibit A(5)(a) to the Pre-Effective
Amendment No. 2 to the Registration Statement on Form S-6
filed by The Manufacturers Life Insurance Company of America
on September 10, 1993 (file No. 33-52310).
A(5)(a)(i) Endorsement No. 776-1ua to Flexible Premium Variable Life
Insurance Policy. Previously filed as Exhibit A(5)(a)(i) to
the Post-Effective Amendment No. 11 to the Registration
Statement on Form S-6 filed by The Manufacturers Life
Insurance Company of America on April 29, 1997 (file No.
33-52310).**
A(5)(a)(ii) Endorsement No. 770-10ua to Flexible Premium Variable Life
Insurance Policy. Previously filed as Exhibit A(5)(a)(ii) to
the Post-Effective Amendment No. 11 to the Registration
Statement on Form S-6 filed by The Manufacturers Life
Insurance Company of America on April 29, 1997 (file No.
33-52310).**
A(6)(a) Restated Articles of Redomestication of The Manufacturers
Life Insurance Company of America. Incorporated by reference
to Exhibit 3(a)(i) to Post-Effective Amendment No. 6 on
Form S-1 filed by The Manufacturers Life Insurance Company
of America on December 9, 1996 (file No. 33-57020).**
A(6)(b) By-Laws of The Manufacturers Life Insurance Company of
America. Incorporated by reference to Exhibit 3(b)(i) to
Post-Effective Amendment No. 6 on Form S-1 filed by The
Manufacturers Life Insurance Company of America on
December 9, 1996 (file No. 33-57020).**
A(8)(a) Service Agreement between The Manufacturers Life Insurance
Company of America and The Manufacturers Life Insurance
Company. Previously filed as Exhibit A(8)(a) to the
Registration Statement on Form S-6 filed by The Manufacturers
Life Insurance Company of America on September 23, 1992 (file
No. 33-52310).
** Filed electronically
II-2
<PAGE> 111
A(8)(a)(i) Amendment to Service Agreement (re redomestication).
Previously filed as Exhibit A(8)(a)(i) to Pre-Effective
Amendment No. 1 to the Registration Statement on Form S-6
filed by The Manufacturers Life Insurance Company of America
on June 21, 1993 (file No. 33-52310).
A(8)(a)(ii) Amendment to Service Agreement (re extension of term).
Previously filed as Exhibit A(8)(a)(ii) to Pre-Effective
Amendment No. 1 to the Registration Statement on Form S-6
filed by The Manufacturers Life Insurance Company of America
on June 21, 1993 (file No. 33-52310).
A(8)(a)(iii) Amendment to Service Agreement (re Miscellaneous). Previously
filed as Exhibit A(8)(a)(iii) to Pre-Effective Amendment No. 2
to the Registration Statement on Form S-6 filed by The
Manufacturers Life Insurance Company of America on September
10, 1993 (file No. 33-52310).
A(8)(b) Stoploss Reinsurance Agreement between The Manufacturers Life
Insurance Company of America and The Manufacturers Life
Insurance Company. Previously filed as Exhibit A(8)(b) to
Pre-Effective Amendment No. 1 to the Registration Statement on
Form S-6 filed by The Manufacturers Life Insurance Company of
America on June 21, 1993 (file No. 33-52310).
A(8)(c) Service Agreement between The Manufacturers Life Insurance
Company and ManEquity, Inc. dated January 2, 1991 as amended
March 1, 1994. Previously filed as Exhibit A(8)(c) to
Post-Effective Amendment No. 2 to the Registration Statement
on Form S-6 filed by The Manufacturers Life Insurance Company
of America on April 26, 1994 (file No. 33-52310).
II-3
<PAGE> 112
A(10) Form of Application for Flexible Premium Variable Life
Insurance Policy. Previously filed as Exhibit (A)(10) to
Post-Effective Amendment No. 7 on Form S-6 filed by The
Manufacturers Life Insurance Company of America on April 26,
1996 (file No. 33-52310).**
A(10)(a) Form of Application Supplement for Flexible Premium Variable
Life Insurance Policy. Previously filed as Exhibit A(10)(a) to
Post Effective Amendment No. 9 on Form S-6 filed by The
Manufacturers Life Insurance Company of America on December
23, 1996 (File No. 33-52310)**
2. See Exhibit A(5).
3. Opinion and consent of James D. Gallagher, Esq., General Counsel of The
Manufacturers Life Insurance Company of America. Previously filed as
Exhibit 3 to the Post-Effective Amendment No.9 to the Registration
Statement on Form S-6 filed by The Manufacturers Life Insurance Company of
America on December 23, 1996 (file No. 33-52310)**
4. No financial statements are omitted from the prospectus pursuant to
instruction 1(b) or (c) of Part I.
5. Not applicable.
6. Opinion and consent of Brian R. Koop, actuary of The Manufacturers Life
Insurance Company of America.
7. Form of notice of withdrawal right ("free look" notice). Previously
filed as Exhibit 7 to the Registration Statement on Form S-6 filed by The
Manufacturers Life Insurance Company of America on September 23, 1992
(file No. 33-52310).
8(a). Form of notice of right of surrender while sales charge limitation
applies (initial purchase). Previously filed as Exhibit 8(a) to the
Registration Statement on Form S-6 filed by The Manufacturers Life
Insurance Company of America on September 23, 1992 (file No. 33-52310).
8(b). Form of notice of cancellation right (face amount increase). Previously
filed as Exhibit 8(b) to the Registration Statement on Form S-6 filed by
The Manufacturers Life Insurance Company of America on September 23, 1992
(file No. 33-52310).
8(c). Form of notice of right of surrender while sales charge limitation
applies (default). Previously filed as Exhibit 8(c) to the Registration
Statement on Form S-6 filed by The Manufacturers Life Insurance Company of
America on September 23, 1992 (file No. 33-52310).
** Filed electronically
II-4
<PAGE> 113
9. Memorandum Regarding Issuance, Face Amount Increase, Redemption
and Transfer Procedures for the Policies. Previously filed as
Exhibit 9 to Post Effective Amendment No. 8 on Form S-6 filed by
the Manufacturers Life Insurance Company of America on December 1, 1996
(file no. 33-52310).**
10. Consent of Ernst & Young LLP.
11. Consent of Jones & Blouch L.L.P.
12. Power of Attorney. Incorporated by reference of Exhibit 12 to Post
Effective Amendment No. 10 to the Registration Statement on Form S-6
filed by The Manufacturers Life Insurance Company of America on
February 28, 1997 (File No. 33-52310).**
** Filed electronically.
II-5
<PAGE> 114
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the registrant,
SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA,
and the depositor, THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA, certify
that the registrant meets all of the requirements for effectiveness of this
amended registration statement pursuant to Rule 485(b) under the Securities Act
of 1933 and have duly caused this amendment to the registration statement to be
signed on their behalf by the undersigned thereunto duly authorized, and the
seal of the depositor to be hereunto affixed and attested, all in the City of
Toronto, Province of Ontario, Canada, on the 27th day of April, 1998.
<TABLE>
<S> <C>
SEPARATE ACCOUNT THREE OF THE
MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
(Registrant)
By: THE MANUFACTURERS LIFE
INSURANCE COMPANY OF AMERICA
(Depositor)
By: /s/ Donald A. Guloien
------------------------------------
DONALD A. GULOIEN
President
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
[SEAL]
By: /s/ Donald A. Guloien
------------------------------------
DONALD A. GULOIEN
President
</TABLE>
Attest
/s/ James D. Gallagher
- ----------------------------
JAMES D. GALLAGHER
Secretary
II-6
<PAGE> 115
SIGNATURES
Pursuant to the requirements of the Securities Act of l933, this amended
registration statement has been signed by the following persons in the
capacities indicated on this 27th day of April 1998.
<TABLE>
<CAPTION>
Signature Title Date
----------- ------- ------
<S> <C> <C>
* Chairman and Director
---------------------- ----------------
JOHN D. RICHARDSON
* President and Director
---------------------- (Principal Executive Officer) ----------------
DONALD A. GULOIEN
*
---------------------- Director ----------------
SANDRA M. COTTER
/s/ James D. Gallagher Director April 27, 1998
---------------------- ----------------
JAMES D. GALLAGHER
* Director
---------------------- ----------------
BRUCE GORDON
* Director
----------------------- ----------------
JOSEPH J. PIETROSKI
*
---------------------- Director ----------------
THEODORE KILKUSKIE, JR.
* Vice President, Finance
---------------------- (Principal Financial ----------------
DOUGLAS H. MYERS and Accounting Officer)
*/s/ James D. Gallagher April 27, 1998
---------------------- ----------------
JAMES D. GALLAGHER
Pursuant to Power of Attorney
</TABLE>
II-7
<PAGE> 116
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- ------------------
<S> <C> <C>
99.A(1) Resolutions of Board Previously filed as
of Directors of The Exhibit A(1) to the
Manufacturers Life Registration Statement
Insurance Company of on Form S-6 filed by
America establishing The Manufacturers Life
Separate Account Three Insurance Company of
America on September 23,
1992 (file No. 33-52310).
99.A(3)(a)(i) Distribution Agreement Previously filed as
between The Manufacturers Exhibit A(3)(a)(i) to
Life Insurance Company of the Registration State-
America and ManEquity, Inc. ment on Form S-6 filed
by The Manufacturers
Life Insurance Company
of America on September
23, 1992 (file No. 33-52310).
99.A(3)(a)(ii) Amendment to Distribution Previously filed as
Agreement Exhibit A(3)(a)(ii) to
the Registration State-
ment on Form S-6 filed
by The Manufacturers
Life Insurance Company
of America on September 23,
1992 (file No. 33-52310).
99.A(3)(b)(i) Specimen agreement Previously filed as
between ManEquity, Inc. Exhibit A(3)(b)(i) to
and registered repre- the Registration
sentatives. Statement on Form S-6
filed by The Manufacturers
Life Insurance Company of
America on September 23,
1992 (file No. 33-52310).
99.A(3)(b)(ii) Specimen agreement Previously filed as
between ManEquity, Inc. Exhibit A(3)(b)(ii) to
and dealers. Pre-Effective Amendment
No. 1 to the Registration
Statement on Form S-6 filed
by The Manufacturers Life
Insurance Company of America
on June 21, 1993 (file No.
33-52310).
</TABLE>
II-8
<PAGE> 117
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- ------------------
<S> <C> <C>
99. A(3)(c) Schedule of Sales Previously filed as
Commissions. Exhibit A(3)(c) to
Pre-Effective Amendment
No. 1 to the Registra-
tion Statement on Form
S-6 filed by The Manu-
facturers Life Insurance
Company of America on
June 21, 1993 (file
No. 33-52310).
99. A(5)(a) Form of Flexible Premium Previously filed as
Variable Life Insurance Exhibit A(5)(a) to Pre-
Policy. Effective Amendment No.2
to the Registration
Statement on Form S-6
filed by The Manufacturers
Life Insurance Company of
America on September 10,
1993 (file No. 33-52310).
99. A(5)(a)(i) Endorsement No. 776-1ua to Previously filed as Exhibit
Flexible Premium Variable A(5)(a)(i) to Post-
Life Insurance Policy Effective Amendment No. 11
to the Registration Statement
on Form S-6 filed by The
Manufacturers Life Insurance
Company of America on April 29,
1997 (file No. 33-52310).**
99. A(5)(a)(ii) Endorsement No. 770-10ua to Previously filed as Exhibit
Flexible Premium Variable A(5)(a)(ii) to Post-
Life Insurance Policy Effective Amendment No. 11
to the Registration Statement
on Form S-6 filed by The
Manufacturers Life Insurance
Company of America on April 29,
1997 (file No. 33-52310).**
99. A(6)(a) Restated Articles of Redomes- Incorporated by reference
tication of The Manu- to Exhibit A(3)(i) to
facturers Life Insurance Post-Effective Amendment
Company of America. No. 6 on Form S-1 filed by The
Manufacturers Life Insurance
Company of America on
December 9, 1996 (file
No. 33-57020).**
99. A(6)(b) By-Laws of The Manu- Incorporated by reference
facturers Life Insurance to Exhibit A(3)b) to Post-
Company of America. Effective Amendment No. 6 on
Form S-1 filed by The
Manufacturers Life Insurance
Company of America on
December 9, 1996 (file
No. 33-57020).**
</TABLE>
** Filed electronically
II-9
<PAGE> 118
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- ------------------
<S> <C> <C>
99.A(8)(a) Service Agreement between Previously filed as
The Manufacturers Life Exhibit A(8)(a) to the
Insurance Company of Registration Statement
America and The Manu- on Form S-6 filed by The
facturers Life Insurance Manufacturers Life
Company. Insurance Company of
America on September 23,
1992 (file No.
33-52310).
99.A(8)(a)(i) Amendment to Service Previously filed as
Agreement (re Exhibit A(8)(a)(i) to
redomestication). Pre-Effective Amendment
No. 1 to the Registra-
tion Statement on Form
S-6 filed by The Manu-
facturers Life Insurance
Company America on June
21, 1993 (file No.
33-52310).
99.A(8)(a)(ii) Amendment to Service Previously filed as
Agreement (re extension Exhibit A(8)(a)(ii) to
of term). Pre-Effective Amendment
No. 1 to the Registra-
tion Statement on Form
S-6 filed by The Manu-
facturers Life Insurance
Company America on June 21,
1993 (file No. 33-52310).
99.A(8)(a)(iii) Amendment to Service Previously filed as
Agreement (re Miscellaneous). Exhibit A(8)(a)(iii) to
Pre-Effective Amendment
No. 2 to the Registra-
tion Statement on Form
S-6 filed by The Manu-
facturers Life Insurance
Company America on
September 21, 1993
(file No. 33-52310).
</TABLE>
II-10
<PAGE> 119
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- ------------------
<S> <C> <C>
99.A(8)(b) Stoploss Reinsurance Previously filed as
Agreement between The Exhibit A(8)(b) to Pre-
Manufacturers Life Effective Amendment
Insurance Company of No. 1 to the Registra-
America and The Manu- tion Statement on Form
facturers Life Insurance S-6 filed by The Manu-
Company. facturers Life Insurance
Company of America on
June 21, 1993 (file No.
33-52310).
99.A(8)(c) Service Agreement Previously filed as
between The Manufacturers Exhibit A(8)(c) to Post-
Life Insurance Company Effective Amendment No. 2
and ManEquity, Inc. dated to the Registration
January 2, 1991 as amended Statement on Form S-6
March 1, 1994. filed by The Manufac-
turers Life Insurance
Company of America on
April 26, 1994
(file No. 33-52310).
99.A(10) Form of Application for Previously filed as
Flexible Premium Variable Exhibit A(10) to Post-
Life Insurance Policy. Effective Amendment No. 7
on Form S-6 filed by
The Manufacturers Life
Insurance Company America
on April 26, 1996
(file No. 33-52310).**
99.A(10)(a) Form of Application Previously filed as
Supplement for Flexible Exhibit (A)(10)(a) to Post-
Premium Variable Life Effective Amendment No. 9
Insurance Policy. on Form S-6 filed by
The Manufacturers Life
Insurance Company of
America on December 23, 1996
(file No. 33-52310).**
</TABLE>
** Filed electronically
II-11
<PAGE> 120
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ---------- ----------- ------------------
<S> <C> <C>
99.2. See Exhibit A(5).
99.3. Opinion and consent of Previously filed as
James D. Gallagher, Esq., Exhibit 3 to the
General Counsel of The Post Effective Amendment
Manufacturers Life Insurance No. 9 to the Registration
Company of America. Statement on Form S-6 filed
by The Manufacturers Life
Insurance Company of
America on December 23,
1996 (file No.33-52310).**
99.4. No financial statements
are omitted from the
prospectus pursuant to
instruction 1(b) or (c)
of Part I.
99.5. Not applicable.
99.6. Opinion and consent of
Brian R. Koop actuary
of The Manufacturers Life
Insurance Company of America.
99.7. Form of notice of withdrawal Previously filed as
right ("free look" notice). Exhibit 7 to the
Registration Statement
on Form S-6 filed by The
Manufacturers Life
Insurance Company of
America on September 23,
1992 (file No.33-52310).
</TABLE>
** Filed electronically
II-12
<PAGE> 121
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- -------------------
<S> <C> <C>
99.8(a). Form of notice of right of Previously filed as
surrender while sales charge Exhibit 8(a) to the
limitation applies (initial Registration Statement
purchase). on Form S-6 filed by The
Manufacturers Life
Insurance Company of
America on September 23,
1992 (file No.33-52310)
99.8(b). Form of notice of Previously filed as
cancellation right Exhibit 8(b) to the
(face amount increase). Registration Statement
on Form S-6 filed by The
Manufacturers Life
Insurance Company of
America on September 23,
1992 (file No.33-52310)
99.8(c). Form of notice of right Previously filed as
of surrender while sales Exhibit 8(c) to the
charge limitation applies Registration Statement
(default). on Form S-6 filed by The
Manufacturers Life
Insurance Company of
America on September 23,
1992 (file No.33-52310)
99.9. Memorandum Regarding Previously filed as
Issuance, Face Amount Exhibit 9 to Post-
Increase, Redemption Effective Amendment No.
and Transfer Procedures 8 on Form S-6 filed by
for the Policies. The Manufactureres Life
Insurance Company of
America on December 1,
1996 (file No.33-55310).**
99.C.1. Consent of Ernst &
Young LLP.
99.C.6. Consent of Jones &
Blouch L.L.P.
99.12. Power of Attorney Previously filed as
Exhibit (12) to Post-
Effective Amendment No.
10 on Form S-6 filed by
The Manufacturers Life
Insurance Company of
America on February 28,
1997 (file No.33-52310)**
</TABLE>
** Filed electronically
II-13
<PAGE> 1
EXHIBIT 99.6
April 24, 1998
The Manufacturers Life Insurance Company of America
500 N. Woodward Avenue
Suite 250
Bloomfield Hills Michigan 48304
U.S.A.
Gentlemen:
This opinion is furnished in connection with the filing of Post-Effective
Amendment No. 12 to Registration Statement No. 33-52310 on Form S-6
("Registration Statement") which covers premiums expected to be received under
Flexible Premium Variable Life Insurance Policies ("Policies") to be offered by
The Manufacturers Life Insurance Company of America ("Company"). The prospectus
included in the Registration Statement describes Policies which will be offered
by the Company in each State where they have been approved by appropriate State
insurance authorities. I am familiar with the Policy form and the amended
Registration Statement and Exhibits thereto. In my opinion:
(1) The table of corridor percentages shown under the caption "Death Benefit
Options" is consistent with the Policy's provisions.
(2) The illustrations of death benefits based on Policy Value multiplied by
corridor percentage shown under the caption "Death Benefit Options",
based on the assumptions stated in the illustrations, are consistent
with the provisions of the Policy.
(3) The illustration of Modified Policy Debt shown in the second paragraph
under the caption "Policy Loans", based on the assumptions stated in the
illustration, is consistent with the Policy's provisions.
(4) The illustration of an application of the loan tier amount shown under
the sub-caption "Interest Credited to the Loan Account" of the caption
"Policy Loans", based on the assumptions stated in the illustration, is
consistent with the provisions of the Policy.
(5) The Loan Account illustration shown as a sub-caption under the caption
"Policy Loans", based on the assumption stated in the illustration, is
consistent with the Policy's provisions.
(6) The table under the sub-caption "Deferred Underwriting Charge" of the
caption "Surrender Charges" showing, on an annual basis, the deferred
underwriting charges applied to the Policy after issuance of the
Policy or a face amount increase, is consistent with the provisions of
the Policy.
(7) The two illustrations of the operation of the maximum sales charge shown
under the sub-caption "Sales Charge Limitation" of the caption
"Surrender Charges", based on the assumptions stated in the
illustration, are consistent with the Policy's sales charge structure.
(8) The illustrations of Policy Values, Cash Surrender Values, and Death
Benefits for the Policy shown in the Appendix under the caption "Sample
Illustrations Of Policy Values, Cash Surrender Values and Death
Benefits", based on the assumptions stated in the illustrations, are
consistent with the provisions of the Policy. The rate structure of the
Policy has not been designed so as to make the relationship between
premiums and benefits, as shown in these illustrations, appear to be
correspondingly more favorable to a prospective purchaser of the Policy
for male ages 35 and 55, than to prospective purchasers of the Policy
for females or males at other ages.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ BRIAN R. KOOP
Brian R. Koop
FSA, FCIA, MAAA
<PAGE> 1
Exhibit 99.C1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 20, 1998 accompanying the financial statements of
The Manufacturers Life Insurance Company of America and to the use of our report
dated January 30, 1998 accompanying the financial statements of Separate Account
Three of The Manufacturers Life Insurance Company of America, in Post-Effective
Amendment No. 12 to the Registration Statement No. 33-52310 on Form S-6 and
related prospectus of Separate Account Three of The Manufacturers Life Insurance
Company of America.
Philadelphia, Pennsylvania /s/ Ernst & Young LLP
April 24,1998
<PAGE> 1
EXHIBIT 99.C6
Jones & Blouch L.L.P.
Suite 405 West
1025 THOMAS JEFFERSON STREET, N.W.
WASHINGTON, D.C. 20007-0805
(202) 223-3500
April 24, 1998
The Board of Directors
The Manufacturers Life Insurance
Company of America
500 N. Woodward Avenue
Bloomfield Hills, MI 48304
Dear Sirs:
We hereby consent to the reference to this firm under the caption "Legal
Matters" in the prospectus contained in post-effective amendment No. 12 to the
registration statement on Form S-6 of The Manufacturers Life Insurance Company
of America, File No. 33-52310, to be filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933.
Very truly yours,
/s/ Jones & Blouch L.L.P.
Jones & Blouch L.L.P.
