<PAGE> 1
Registration No.33-77256
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________
FORM S-6
POST-EFFECTIVE AMENDMENT NO. 7
TO THE 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, ESQ.
Secretary and General Counsel
The Manufacturers Life Insurance Notice to:
Company of America J. Sumner Jones, Esq.
500 N. Woodward Avenue Jones & Blouch L.L.P., Suite 405W
Bloomfield Hills, Michigan 48304 1025 Thomas Jefferson Street, N.W
(Name and Address of Agent for Service) Washington, D.C. 20007-0805
It is proposed that this filing will become effective:
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____ 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 pursuant to paragraph (a)(1) of Rule 485
____ 75 days after filing pursuant to paragraph (a)(2) of Rule 485
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SEPARATE ACCOUNT THREE
OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
Registration Statement on Form S-6
Cross-Reference Sheet
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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,
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 Series Trust)
12 ----- General Information About Manufacturers Life Of America, Separate Account Three, and
Manufacturers Investment Trust (Manufacturers Investment Series 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 ----- General Information About Manufacturers Life Of America, Separate Account Three, and
Manufacturers Investment Trust (Manufacturers Investment Trust)
17 ----- Detailed Information About The Policies (Policy Values -- Partial Withdrawals and Surrenders); Other
Provisions -- Payment of Proceeds)
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 ----- General Information About Manufacturers Life Of America, Separate Account Three, and Manufacturers
Investment Trust; Miscellaneous Matters (Responsibilities Assumed By Manufacturers Life)
21 ----- Detailed Information About The Policies (Policy Values -- Policy Loans)
22 ----- *
23 ----- **
24 ----- Detailed Information About the Policies (Other General Policy Provisions)
25 ----- General Information About Manufacturers Life Of America, Separate Account Three, Manufacturers
Investment Trust (Manufacturers Life Of America And Manufacturers Life)
26 ----- *
27 ----- General Information About Manufacturers Life Of America, Separate Account Three, and Manufacturers
Investment Trust (Manufacturers Life Of America And Manufacturers Life)
28 ----- Miscellaneous Matters (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 ----- *
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35 ----- Miscellaneous Matters (State Regulations)
36 ----- *
37 ----- *
38 ----- Miscellaneous Matters (Distribution of the Policy; Responsibilities Assumed By Manufacturers Life)
39 ----- Miscellaneous Matters (Distribution of the Policy)
40 ----- *
41(a)--- Miscellaneous Matters (Distribution of the Policy)
41(b)--- **
41(c)--- **
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)
48 ----- *
49 ----- *
50 ----- *
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
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* Omitted since answer is negative or item is not applicable.
** Omitted.
<PAGE> 4
PART I
INFORMATION REQUIRED IN PROSPECTUS
<PAGE> 5
PROSPECTUSES FOR
VENTURE SVUL
[LOGO]
A FLEXIBLE PREMIUM
SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
Issued by
The Manufacturers Life Insurance Company of America
And for
Manufacturers Investment Trust
Printed May 1998
[LOGO]
MANULIFE FINANCIAL
<PAGE> 6
[LOGO]
<PAGE> 7
PROSPECTUS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
SEPARATE ACCOUNT THREE
VENTURE SVUL
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
This prospectus describes the Flexible Premium Survivorship Variable Life
Insurance Policy (the "Policy") issued by The Manufacturers Life Insurance
Company of America ("Manufacturers Life of America" or the "Company"), a stock
life insurance company that is an indirect wholly-owned subsidiary of The
Manufacturers Life Insurance Company ("Manufacturers Life"). The Policies are
designed to provide lifetime insurance protection together with flexibility as
to the timing and amount of premium payments, the investments underlying the
Policy Value and the amount of insurance coverage. This flexibility allows the
policyowner to pay premiums and adjust insurance coverage in light of his or her
current financial circumstances and insurance needs. In this prospectus the term
"policyowner" means one or more policyowners.
The Policies provide for: (1) a Net Cash Surrender Value that can be received by
partial withdrawals or surrender of the Policy; (2) Policy loans; and (3) an
insurance benefit payable at the last surviving life insured's death.
Policy Value may be accumulated on a fixed basis or vary with the investment
performance of the sub-accounts of Manufacturers Life of America's Separate
Account Three (the "Separate Account") to which the policyowner allocates net
premiums. The assets of each sub-account will be used to purchase shares of a
particular investment portfolio (a "Portfolio") of Manufacturers Investment
Trust. The accompanying prospectus for Manufacturers Investment Trust, and the
corresponding statements of additional information, describe the investment
objectives of the Portfolios in which net premiums may be invested. The
Portfolios available for allocation of net premiums are the following: 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 IN THE EARLY YEARS,
THE POLICY IS NOT SUITABLE FOR SHORT-TERM INVESTMENT PURPOSES. A POLICYOWNER
CONTEMPLATING SURRENDER OF A POLICY SHOULD PAY SPECIAL ATTENTION TO THE SALES
CHARGE LIMITATION PROVISIONS DESCRIBED IN THIS PROSPECTUS, WHICH APPLY ONLY
DURING THE FIRST TWO YEARS FOLLOWING THE POLICY DATE OR FOLLOWING AN INCREASE IN
FACE AMOUNT.
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.
<PAGE> 8
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.
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 North 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> 9
PROSPECTUS CONTENTS
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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................................................. 8
Manufacturers Investment Trust......................... 9
What Are the Investment Objectives and Certain Policies
of the Portfolios?.................................... 10
DETAILED INFORMATION ABOUT THE POLICIES..................... 14
PREMIUM PROVISIONS........................................ 14
Policy Issue and Initial Premium....................... 14
Premium Allocation..................................... 14
Premium Limitations.................................... 15
Short-Term Cancellation Right and "Free Look"
Provisions............................................ 15
INSURANCE BENEFIT......................................... 15
The Insurance Benefit.................................. 15
No Lapse Guarantee..................................... 16
No Lapse Guarantee Cumulative Premium Test............. 16
Death Benefit Guarantee................................ 17
Death Benefit Guarantee Cumulative Premium Test........ 17
Death Benefit Options.................................. 17
Death Benefit Option Changes........................... 18
Face Amount Changes.................................... 19
POLICY VALUES............................................. 20
Policy Value........................................... 20
Transfers of Policy Value.............................. 21
Policy Loans........................................... 22
Partial Withdrawals and Surrenders..................... 24
Charges and Deductions................................. 25
Deductions from Premiums............................... 25
Surrender Charges...................................... 26
Deferred Sales Charge.................................. 26
Monthly Deductions..................................... 29
Other Charges.......................................... 31
Special Provisions for Group or Sponsored
Arrangements.......................................... 32
Special Provisions for Exchanges....................... 33
The General Account.................................... 33
OTHER GENERAL POLICY PROVISIONS........................... 34
Policy Default......................................... 34
Policy Reinstatement................................... 34
Miscellaneous Policy Provisions........................ 34
OTHER PROVISIONS.......................................... 35
Supplementary Benefits................................. 35
Payment of Proceeds.................................... 35
Reports to Policyowners................................ 36
MISCELLANEOUS MATTERS..................................... 36
Portfolio Share Substitution........................... 36
Federal Income Tax Considerations...................... 36
Tax Status of the Policy............................... 37
Tax Treatment of Policy Benefits....................... 38
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PAGE
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The Company's Taxes.................................... 40
Distribution of the Policy............................. 40
Responsibilities Assumed by Manufacturers Life......... 40
Voting Rights.......................................... 41
Executive Officers and Directors....................... 42
State Regulations...................................... 43
Pending Litigation..................................... 43
Additional Information................................. 43
Legal Matters.......................................... 43
Experts................................................ 43
Year 2000 Issues....................................... 43
Financial Statements................................... 45
Appendices.............................................
A. Sample Illustrations of Policy Values, Cash
Surrender Values and Death Benefits...................
B. Definitions.........................................
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, THE PROSPECTUS OF 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 Survivorship Variable Life Insurance
Policy. More detailed information will be found within.
<PAGE> 11
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 at the time of the death of the
last surviving life insured.
Premium payments may be made at any time and in any amount, subject to certain
limitations.
After certain deductions, premiums will be allocated, according to the
policyowner's instructions, to one or more of the general account and the
sub-accounts of Manufacturers Life of America's Separate Account Three. Assets
of the sub-accounts of Separate Account Three are invested in shares of a
particular Portfolio of 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"). If the Policy is
owned by two or more persons, the Company will require authorization from each
policyowner before taking any action on the Policy.
The Portfolios currently offered are the: 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 receive
a portion of the Policy Value by taking a Policy loan or a partial withdrawal,
or by full surrender of the Policy.
DEATH BENEFIT
DEATH BENEFIT OPTIONS. The policyowner elects to have the Policy's death
benefit determined under one of two options:
- a death benefit equal to the face amount of the Policy, or
- a death benefit equal to the face amount of the Policy plus the Policy
Value.
Under either option, the death benefit may have to be increased to a multiple of
the Policy Value to satisfy the corridor percentage test under the definition of
life insurance in the Internal Revenue Code. See DETAILED INFORMATION ABOUT THE
POLICIES; INSURANCE BENEFIT -- "The Insurance Benefit" and "Death Benefit
Options."
THE POLICYOWNER MAY CHANGE THE DEATH BENEFIT OPTION. A change in the death
benefit option may be requested after the Policy has been in force for two
years. See DETAILED INFORMATION ABOUT THE POLICIES; INSURANCE BENEFIT -- "Death
Benefit Option Changes."
THE POLICYOWNER MAY INCREASE THE FACE AMOUNT. After the Policy has been in
force for two years, an increase in the face amount of the Policy may be
requested once per Policy Year. An increase in the face amount is subject to
satisfactory evidence of insurability and will usually result in the Policy's
being subject to
1
<PAGE> 12
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."
DEATH BENEFIT GUARANTEE
As long as the Death Benefit Guarantee Cumulative Premium Test or, where
applicable, the Fund Value Test is satisfied, the Company guarantees that the
Policy will not go into default (i) prior to when the youngest life insured
achieves or would have achieved Attained Age 100, if Death Benefit Option 1 is
maintained through the life of the Policy, (ii) prior to when the youngest life
insured attains or would have achieved Attained Age 85 if Death Benefit Option 2
is selected at any time regardless of the investment performance of the Funds
underlying the Policy Value. See DETAILED INFORMATION ABOUT THE POLICIES;
PREMIUM PROVISIONS -- "Death Benefit Guarantee."
NO LAPSE GUARANTEE
As long as the No Lapse Guarantee Cumulative Premium Test is satisfied, the
Company guarantees that the Policy will not go into default during the No Lapse
Guarantee Period. For lives insured with an average Issue Age of up to and
including age 70, the No Lapse Guarantee Period is 10 years. For lives insured
with an average Issue Age of 71 and older, the No Lapse Guarantee Period
decreases by one year for each year the average age exceeds 70, until average
age 77. From average age 77 to 85 the No Lapse Guarantee Period is fixed at
three years. The No Lapse Guarantee is not available to lives insured whose
average Issue Age exceeds 85. See DETAILED INFORMATION ABOUT THE POLICIES;
PREMIUM PROVISIONS -- "No Lapse Guarantee."
DOLLAR COST AVERAGING.
Manufacturers Life of America will offer policyowners a Dollar Cost Averaging
program. Under the Dollar Cost Averaging program the policyowner will designate
an amount which will be transferred at predetermined intervals from one
Investment Account into any other Investment Account(s) or the Guaranteed
Interest Account.
Each transfer under the Dollar Cost Averaging program must be of a minimum
amount as set by Manufacturers Life of America. Once set, this minimum may be
changed at any time at the discretion of Manufacturers Life of America.
Currently, no charge will be made for this program if the Policy Value exceeds
$15,000 on the date of transfer. Otherwise, there will be a charge of $5 for
each transfer under this program. The charge will be deducted from the value of
the Investment Account out of which the transfer occurs. If insufficient funds
exist to effect a Dollar Cost Averaging transfer, including the charge, if
applicable, the transfer will not be effected and the policyowner will be so
notified.
Manufacturers Life of America reserves the right to cease to offer this program
as of 90 days after written notice is sent to the policyowner.
Asset Allocation Balancer Transfers. Under the Asset Allocation Balancer program
the policyowner will designate an allocation of Policy Value among Investment
Accounts. At six-month intervals Manufacturers
2
<PAGE> 13
Life of America will move amounts among the Investment Accounts as necessary to
maintain the policyowner's chosen allocation.
Currently, there is no charge for this program; however, Manufacturers Life of
America reserves the right to institute a charge on 90 days' notice to the
policyowner.
Manufacturers Life of America reserves the right to cease to offer this program
as of 90 days after written notice is sent to the policyowner.
PREMIUM PAYMENTS ARE FLEXIBLE
The policyowner may pay premiums at any time and in any amount, subject to
certain limitations. See DETAILED INFORMATION ABOUT THE POLICIES; PREMIUM
PROVISIONS -- "Policy Issue" and "Premium Limitations."
The policyowner must pay at least the Initial Premium to put the Policy in
force. See DETAILED INFORMATION ABOUT THE POLICIES; PREMIUM PROVISIONS --
"Policy Limitations," Insurance Benefit -- "No Lapse Guarantee" and "Death
Benefit Guarantee."
After the Initial Premium is paid there is no minimum premium required. However,
minimum premiums are required to maintain the Death Benefit Guarantee or the No
Lapse Guarantee. See DETAILED INFORMATION ABOUT THE POLICIES; INSURANCE BENEFIT
- -- "Death Benefit Guarantee" and "No Lapse Guarantee." In addition, certain
premium payments may be required to keep the Policy from lapsing. See DETAILED
INFORMATION ABOUT THE POLICIES; OTHER GENERAL POLICY PROVISIONS -- "Policy
Default." Certain maximum premium limitations apply to the Policy, to ensure
that the Policy qualifies as life insurance under rules defined in the Internal
Revenue Code. See DETAILED INFORMATION ABOUT THE POLICIES; PREMIUM PROVISIONS --
"Premium Limitations."
SUMMARY OF CHARGES AND DEDUCTIONS
Charges under the Policy are assessed as described below:
(1) Deductions from premiums
- 2.35% of all premiums paid, for state and local taxes (except for Oregon
where no premium tax is deducted), and 1.25% of all premiums paid, for
federal taxes, to the end of the tenth Policy Year. Currently, the
Company expects this deduction to cease after the end of the tenth Policy
Year.
- a sales charge of 5.5% of the premiums paid, in the current Policy Year,
up to a maximum of the Target Premium for the current Policy Year. This
deduction is taken to the end of the tenth Policy Year. See DETAILED
INFORMATION ABOUT THE POLICIES; CHARGES AND DEDUCTIONS -- "Deductions
from Premiums."
(2) Surrender Charges
- upon surrender, partial withdrawal in excess of the Withdrawal Tier
Amount, decrease in face amount or lapse.
- deferred underwriting charge of $4 for each $1,000 of face amount.
- deferred sales charge of a maximum of 100% of the lower of first-year
premium or the Target Premium (but in no event will the sum of the
deferred sales charge and the sales charge deducted from premiums exceed
the amount that would be permitted by Section 27(a)(2) of the Investment
Company Act of 1940 were such section applicable to the Policy). See
DETAILED INFORMATION ABOUT THE POLICIES; CHARGES AND DEDUCTIONS --
"Surrender Charges."
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<PAGE> 14
(3) Monthly Deductions
- administration charge of $.04 per $1,000 of face amount per month until
the later of the end of the fifteenth Policy Year, or when the youngest
life insured reaches Attained Age 55. The administration charge is 0
thereafter. This charge has a minimum of $30 per month and a maximum of
$60 per month.
- cost of insurance charge.
- mortality and expense risks charge of .067% deducted monthly through the
later of the tenth Policy Year and the youngest life insured's Attained
Age 55. It is currently expected to be .0125% thereafter.
- supplementary benefit(s) charge(s)
If the Policy is still in force when the youngest of the lives insured
reaches or would have reached Age 100 no further monthly deductions will
be taken from the Policy Value. See DETAILED INFORMATION ABOUT THE
POLICIES; CHARGES AND DEDUCTIONS -- "Monthly Deductions."
(4) Other Charges
Investment management fees 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.
For all policies:
- transfer fee of $25 per transfer if the policyowner elects to exercise
the option to make more than twelve transfers in any Policy Year.
(multiple requests received at the same time are treated as a single
transfer).
- transfer fee of $5 for each transfer under the Dollar Cost Averaging
program when Policy Value does not exceed $15,000.
Manufacturers Life of America reserves the right to charge or establish a
provision for any federal, state, or local taxes that may be attributable to the
Separate Account or the operations of the Company with respect to the Policies
in addition to the deductions for state, local, and federal taxes currently
being made. See DETAILED INFORMATION ABOUT THE POLICIES; CHARGES AND DEDUCTIONS
- -- "Other Charges."
INVESTMENT OPTIONS
After deductions from premiums for federal, state and local taxes and the
premium charge, Net Premiums will be allocated, according to the policyowner's
instructions, to any combination of the general account or one or more of the
sub-accounts of Manufacturers Life of America's Separate Account Three.
Each sub-account of Separate Account Three invests its assets in the shares of
one of the following:
- - 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
4
<PAGE> 15
- - 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 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."
The Policy Value is the sum of the values in the Investment Accounts, the
Guaranteed Interest Account and the Loan Account.
INVESTMENT ACCOUNT. An Investment Account is established under the Policy for
each sub-account of the Separate Account to which Net Premiums or transfer
amounts have been allocated. An Investment Account measures the interest of the
Policy in the corresponding sub-account.
The value of each Investment Account under the Policy varies each Business Day
and reflects the investment performance of the Portfolio shares held in the
corresponding sub-account. See DETAILED INFORMATION ABOUT THE POLICIES; Policy
Values -- "Policy Value."
GUARANTEED INTEREST ACCOUNT. The Guaranteed Interest Account consists of that
portion of the Policy Value based on net premiums allocated to, and amounts
transferred to, the general account of the Company.
Manufacturers Life of America credits interest on amounts in the Guaranteed
Interest Account at an effective annual rate guaranteed to be at least 4%. See
DETAILED INFORMATION ABOUT THE POLICIES AND THE GENERAL ACCOUNT.
LOAN ACCOUNT. When a Policy loan is made, Manufacturers Life of America will
establish a Loan Account under the Policy and will transfer an amount from the
Investment Accounts and the Guaranteed Interest Account to the Loan Account.
The Company will credit interest to amounts in the Loan Account at an effective
annual rate of at least 4%. The actual rate credited on loan amounts will be the
rate charged on loan amounts less an interest rate differential. See DETAILED
INFORMATION ABOUT THE POLICIES; Policy Values -- "Policy Loans."
TRANSFERS ARE PERMITTED. A policyowner may make transfers among Investment
Accounts and the Guaranteed Interest Account, subject to certain restrictions.
Twelve transfers per Policy Year may be made at no cost to the policyowner;
excess transfers will be permitted at a cost of $25 per transfer. All transfer
requests received at the same time are treated as a single transfer request. The
maximum that may be transferred out of the Guaranteed Interest Account in any
one Policy Year is the greater of $500 or 15% of the value in the Guaranteed
Interest Account as of the previous Policy Anniversary.
Certain restrictions may apply to transfer requests. See DETAILED INFORMATION
ABOUT THE POLICIES; Policy Values -- "Policy Value."
5
<PAGE> 16
USING THE POLICY VALUE
BORROWING AGAINST THE POLICY VALUE. The policyowner may borrow against the
Policy Value. In most states the minimum loan amount is $500.
Loan interest will be charged on a fixed basis at an effective annual rate of
5.75%. See DETAILED INFORMATION ABOUT THE POLICIES; Policy Values -- "Policy
Loans."
A Policyowner May Make a Partial Withdrawal of the Policy Value. After a Policy
has been in force for two years the policyowner may make a partial withdrawal of
the Policy Value. In most states the minimum withdrawal amount is $500. The
policyowner may specify that the withdrawal is to be made from a specific
Investment Account or the Guaranteed Interest Account.
A partial withdrawal may result in a reduction in the face amount of the Policy
and may also result in the assessment of a portion of the surrender charges to
which the Policy is subject. See DETAILED INFORMATION ABOUT THE POLICIES; Policy
Values -- "Partial Withdrawals and Surrenders" and Charges and Deductions --
"Surrender Charges."
The Policy May Be Surrendered for Its Net Cash Surrender Value. The Net Cash
Surrender Value is equal to the Policy Value less surrender charges, outstanding
monthly deductions due and the value of the Loan Account. Surrender of a Policy
during the Surrender Charge Period will usually result in assessment of
surrender charges. See DETAILED INFORMATION ABOUT THE POLICIES; Policy Values --
"Partial Withdrawals and Surrenders" and Charges and Deductions --"Surrender
Charges."
SUPPLEMENTARY BENEFITS
A policyowner may choose to add certain supplementary benefits to the Policy.
These supplementary benefits include an estate preservation rider and a policy
split option.
The cost of any supplementary benefits will be deducted from the Policy Value
monthly. See DETAILED INFORMATION ABOUT THE POLICIES; Other Provisions --
"Supplementary Benefits."
DEFAULT
Unless the Death Benefit Guarantee or No Lapse Guarantee is in effect, the
Policy will go into default if the Net Cash Surrender Value at the beginning of
any Policy Month would go below zero after deducting the monthly charges then
due. The Policy will not go into default if the Policy qualifies for the Death
Benefit Guarantee or No Lapse Guarantee. The Company will notify the policyowner
in the event the Policy goes into default, and will allow a grace period in
which the policyowner may make a premium payment sufficient to bring the Policy
out of default. If the required premium is not paid during the grace period the
Policy will terminate. See DETAILED INFORMATION ABOUT THE POLICIES; Premium
Provisions -- "Policy Default."
REINSTATEMENT
A terminated policy may be reinstated by the policyowner within either the
21-day or five-year period following the date of termination, providing certain
conditions are met. See DETAILED INFORMATION ABOUT THE POLICIES; Premium
Provisions -- "Policy Reinstatement."
FREE LOOK
A Policy may be returned for a refund of premium within the latest of:
- 10 days after it is received
- 45 days after the application for the Policy is signed
- 10 days after Manufacturers Life of America mails or delivers a notice
of this right of withdrawal.
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<PAGE> 17
If a policyowner requests an increase in face amount which results in new
surrender charges, the "free look" provision will also apply to the increase.
See DETAILED INFORMATION ABOUT THE POLICIES; Premium Provisions -- "Short-Term
Cancellation Right" and "Free Look" Provisions.
FEDERAL TAX MATTERS
Manufacturers Life of America believes that a Policy issued on a standard risk
class basis should meet the definition of a life insurance contract as set forth
in Section 7702 of the Internal Revenue Code of 1986. With respect to a Policy
issued on a substandard basis, there is less guidance available to determine if
such a Policy would satisfy the Section 7702 definition of a life insurance
contract, particularly if the policyowner pays the full amount of premiums
permitted under such a Policy.
Assuming that a Policy qualifies as a life insurance contract for federal income
tax payments, a policyowner should not be deemed to be in constructive receipt
of Policy Value under a Policy until there is a distribution from the Policy.
Moreover, death benefits payable under a Policy should be completely excludable
from the gross income of the beneficiary. As a result, the beneficiary generally
should not be taxed on these proceeds. See Miscellaneous Matters -- "Federal
Income Tax Considerations" (Tax Status of the Policy).
Under certain circumstances, a Policy may be treated as a "Modified Endowment
Contract." If the Policy is a Modified Endowment Contract, then all pre-death
distributions, including Policy loans, will be treated first as a distribution
of taxable income and then as a return of investment in the Policy. In addition,
prior to age 59 1/2 any such distributions generally will be subject to a 10%
penalty tax. See Miscellaneous Matters -- "Federal Income Tax Considerations"
(Tax Treatment of Policy Benefits).
If the Policy is not a Modified Endowment Contract, distributions generally will
be treated first as a return of investment in the Policy and then a disbursement
of taxable income. Moreover, loans will not be treated as distributions. A
policyowner considering the use of systematic Policy loans as one element of a
comprehensive retirement income plan should consult his or her personal tax
adviser regarding the potential tax consequences if such loans were to so reduce
Policy Value that the Policy would lapse, in absence of additional payments. The
premium payment necessary to avert lapse would increase with the average age of
the lives insured. Finally, neither distributions nor loans under a Policy that
is not a Modified Endowment Contract are subject to the 10% penalty tax. See
Miscellaneous Matters -- "Federal Income Tax Considerations" (Distributions from
Policies Not Classified as Modified Endowment Contracts).
The United States Congress has in the past considered, and in the future may
consider legislation that, if enacted, could change the tax treatment of life
insurance policies. In addition, the Treasury Department may amend existing
regulations, or adopt new interpretations of existing laws, state tax laws or,
if the policyowner is not a United States resident, foreign tax laws, may affect
the tax consequences to him or her, the lives insured or the beneficiary. These
laws may change from time to time without notice and, as a result, the tax
consequences may be altered. There is no way of predicting whether, when or in
what form any such change would be adopted. Any such change could have a
retroactive effect regardless of the date of enactment. The Company suggests
that a tax adviser be consulted.
ESTATE AND GENERATION-SKIPPING TAXES
The proceeds of this life insurance policy may be taxable under Estate and
Generation-Skipping Tax provisions of the Internal Revenue Code. The policyowner
should consult his or her tax adviser regarding these taxes.
7
<PAGE> 18
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.
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.
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<PAGE> 19
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 also purchase shares through its general account for
certain limited purposes including initial portfolio seed money. For a
description of the procedures for handling potential conflicts of interest
arising from the funding of such benefits see the accompanying Manufacturers
Investment Trust prospectus.
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
Balance 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
</TABLE>
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<PAGE> 20
<TABLE>
<CAPTION>
PORTFOLIO SUBADVISER
--------- ----------
<S> <C>
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 Manufacturers Adviser Corporation*
Lifestyle Conservative 280 Trust Manufacturers Adviser Corporation*
</TABLE>
* Manufacturers Adviser Corporation is an indirect wholly-owned subsidiary of
Manufacturers Life.
WHAT ARE THE INVESTMENT OBJECTIVES AND CERTAIN POLICIES OF THE PORTFOLIOS?
The investment objectives and certain policies of the Portfolios currently
available to policyowners through corresponding sub-accounts are set forth
below. There is, of course, no assurance that these objectives will be met.
AGGRESSIVE GROWTH PORTFOLIOS
PACIFIC RIM EMERGING MARKETS TRUST. The investment objective of the Pacific Rim
Emerging Markets Trust is to achieve long-term growth of capital. Manufacturers
Adviser Corporation ("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.
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<PAGE> 21
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 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
11
<PAGE> 22
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.
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.
12
<PAGE> 23
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.
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 Growth
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.
13
<PAGE> 24
DETAILED INFORMATION ABOUT THE POLICIES
PREMIUM PROVISIONS
POLICY ISSUE AND INITIAL PREMIUM
To purchase a Policy, an applicant must submit a completed application.
Manufacturers Life of America will issue a Policy only if it has a face amount
of at least $250,000. A Policy will generally be issued to persons between ages
0 and 90. In certain circumstances the Company may at its sole discretion issue
a Policy to persons above age 90. Before issuing a Policy, Manufacturers Life of
America will require evidence of insurability satisfactory to it. Each life
insured will have a risk class of preferred/non-smoker, preferred/smoker,
standard/non-smoker or standard/smoker as determined by underwriting rules.
Persons failing to meet standard underwriting requirements may be eligible to
purchase a Policy provided an additional rating is assigned. Acceptance of an
application is subject to the Company's insurance underwriting rules.
Each Policy is issued with an Effective Date and a Policy Date. The Effective
Date is the date we become obligated under this Policy and when we take the
first Monthly Deductions, other than for backdated policies (which are described
below). It is the later of the date the Company's underwriters approve issuance
of the Policy, or the date at least the Initial Premium is received at the
Manufacturers of America Service Office. The lives insured may be covered under
the terms of a conditional insurance agreement between the Policy Date and the
Effective Date.
Under certain circumstances a Policy may be issued with a backdated Policy Date.
A Policy will not be backdated more than six months (12 months where 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 for backdated Policies prior to the Effective Date of a
Policy will be credited with interest from the date of receipt at the rate of
return then being earned on amounts allocated to the Money Market Trust. As of
the effective date, the premiums paid plus interest credited, net of deductions
for federal, state and local taxes, and the premium charge, will be allocated
among the Investment Accounts and/or the Guaranteed Interest Account in
accordance with the policyowner's instructions.
All premiums received on or after the Effective Date of the Policy will be
allocated among the Investment Accounts or the Guaranteed Interest Account as of
the date the premiums were received at the Manufacturers Life of America Service
Office.
The Policy Date is the date used to calculate the insurance age. It is the date
from which Policy Months, Policy Years, and Policy Anniversaries are all
determined. If the application accepted by the Company is accompanied by a check
for at least the Initial Premium, the Policy Date is the date the application
and check were received at the Manufacturers Life of America Service Office. If
the application accepted by the Company is not accompanied by a check for at
least the Initial Premium, the Policy Date is calculated as seven days after
issuance of the Policy (which is also the "Issue Date"). Monthly deductions are
made as of the Policy Date and at the beginning of each Policy Month thereafter.
However, if due prior to the Effective Date on a backdated policy, they will be
made as of the Effective Date instead of the dates they were due, as described
above.
The Initial Premium must be received within 60 days after the Policy Date;
however, the Initial Premium may be required within 30 days on Policies with
Additional Ratings. If the Initial Premium is not paid or if the application is
rejected, the Policy will be cancelled.
PREMIUM ALLOCATION
Net Premiums may be allocated to either the Guaranteed Interest Account for
accumulation at a rate of interest equal to at least 4% or to one or more of the
Investment Accounts for investment in the Portfolio shares held by the
corresponding sub-account of the Separate Account. Allocations among the
Investment Accounts and the Guaranteed Interest Account are made as a percentage
of the Net Premium. The
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<PAGE> 25
percentage allocation to any account may be any whole number between zero and
100, provided the total percentage allocations equal 100. A policyowner may
change the way in which Net Premiums are allocated at any time without charge.
The change will take effect as of the date a written or telephone request for
change, in a format which is satisfactory to the Company, is received at the
Manufacturers Life of America Service Office.
PREMIUM LIMITATIONS
After the payment of the Initial Premium, premiums may be paid at any time and
in any amount during the lifetime of any of the lives insured subject to certain
limitations. After the Initial Premium, all premiums must be paid to the
Manufacturers Life of America Service Office. Unlike traditional insurance,
premiums are not payable at specified intervals or in specified amounts. A
Policy will be issued with a Planned Premium which is based on the amount of
premium the policyowner wishes to pay. It is recommended that a premium amount
that will satisfy the requirements of the No Lapse Guarantee Cumulative Premium
Test or the Death Benefit Guarantee Cumulative Premium Test (see Insurance
Benefit -- "No Lapse Guarantee" and "Death Benefit Guarantee") be paid into the
Policy as the Planned Premium. Manufacturers Life of America will send notices
to the policyowner setting forth the Planned Premium at the payment interval
selected by the policyowner, unless payment is being made pursuant to a
pre-authorized payment plan. However, the policyowner is under no obligation to
make the indicated payment. See Premium Provisions -- "Policy Default."
Manufacturers Life of America will not accept any premium payment which is less
than $50, unless the premium is payable pursuant to a pre-authorized payment
plan. In that case the Company will accept a payment of as little as $10.
Manufacturers Life of America may change these minimums as of 90 days after
written notice is sent to the policyowner. The Policies also limit the sum of
the premiums that may be paid at any time, in order to preserve the
qualification of the Policies as life insurance for federal tax purposes. These
limitations are set forth in each Policy. Manufacturers Life of America reserves
the right to refuse or refund any premium payments that may cause the Policy to
fail to qualify as life insurance under applicable tax law.
SHORT-TERM CANCELLATION RIGHT AND "FREE LOOK" PROVISIONS
A Policy may be returned for a refund of the premium within 10 days after it is
received, within 45 days after the application for the Policy is signed, or
within 10 days after Manufacturers Life of America mails or delivers a notice of
right of withdrawal, whichever is latest. The Policy can be mailed or delivered
to the Manufacturers Life of America agent who sold it or to the Manufacturers
Life of America Service Office. Immediately on such delivery or mailing, the
Policy shall be deemed void from the beginning. Within seven days after receipt
of the returned Policy at its Service Office, Manufacturers Life of America will
refund any premium paid. Manufacturers Life of America reserves the right to
delay the refund of any premium paid by check until the check has cleared.
If a policyowner requests an increase in face amount which results in new
surrender charges, he or she will have the same rights as described above to
cancel the increase. If the increase is cancelled, the Policy Value and the
surrender charges will be recalculated to the amounts they would have been had
the increase not taken place. A policyowner may request a refund of all or any
portion of premiums paid during the free look period, and the Policy Value and
the surrender charges will be recalculated to the amounts they would have been
had the premiums not been paid.
INSURANCE BENEFIT
THE INSURANCE BENEFIT
If the Policy is in force at the time of the last surviving life insured's
death, Manufacturers Life of America will pay, upon receipt of due proof of
death, an insurance benefit based on the death benefit option selected by the
policyowner. The amount payable will be the death benefit under the selected
option, plus any amounts
15
<PAGE> 26
payable under any supplementary benefits added to the Policy, less the value of
the Loan Account at the date of death. The insurance benefit will be paid in one
sum unless another form of settlement option is agreed to by the beneficiary and
the Company. If the insurance benefit is paid in one sum, Manufacturers Life of
America will pay interest from the date of death to the date of payment. If the
last surviving life insured should die after the Company's receipt of a request
for surrender, no insurance benefit will be payable, and Manufacturers Life of
America will pay only the Net Cash Surrender Value.
NO LAPSE GUARANTEE
In those states where it is permitted and if elected by the policyowner, as long
as the No Lapse Guarantee Cumulative Premium Test (see below) is satisfied
during the No Lapse Guarantee Period, as described below, Manufacturers Life of
America will guarantee that the Policy will not go into default (see Other
General Policy Provisions -- "Policy Default"), even if a combination of Policy
loans, adverse investment experience or other factors should cause the Policy's
Net Cash Surrender Value to be insufficient to meet the monthly deductions due
at the beginning of a Policy Month.
The No Lapse Guarantee Period is the first 10 Policy Years for lives insured
with an average issue age up to and including 70. For lives insured with an
average issue age of 71 and older, the No Lapse Guarantee Period decreases by
one year for each year the average issue age exceeds 70, until the average Issue
Age reaches 77. For lives insured with an average Issue Age between 77 and 85,
the No Lapse Guarantee Period is three years. The No Lapse Guarantee is not
offered to lives insured whose average Issue Age exceeds 85.
While the No Lapse Guarantee is in effect, Manufacturers Life of America will
determine at the beginning of each Policy Month whether the No Lapse Guarantee
Cumulative Premium Test, described below, has been met. If it has not been
satisfied, the Company will notify the policyowner of that fact and allow a
61-day grace period in which the policyowner may make a premium payment
sufficient to keep the No Lapse Guarantee in effect. This required payment, as
described in the notification to the policyowner, will be equal to the
outstanding premium requirement as of the date the No Lapse Guarantee was not
satisfied plus the Monthly No Lapse Guarantee Premium due for the next two
Policy Months. If the required payment is not received by the end of the grace
period, or if a death benefit option change occurs, the No Lapse Guarantee will
terminate, and the Policy may go into default. A death benefit option change
will also terminate the No Lapse Guarantee if it is in effect at the time of the
change. The No Lapse Guarantee cannot be reinstated after it has been
terminated. See Other General Policy Provisions -- "Policy Default," and
Insurance Benefit "Death Benefit Option Changes."
NO LAPSE GUARANTEE CUMULATIVE PREMIUM TEST
The No Lapse Guarantee Cumulative Premium Test is satisfied if, as of the
beginning of the Policy Month, the sum of all premiums paid to date less any
partial withdrawals and less any Policy Debt is at least equal to the sum of the
Monthly No Lapse Guarantee Premiums due since the Policy Date, as follows:
The Policy will satisfy the No Lapse Guarantee Cumulative Premium Test if (a) is
greater than or equal to (b), where:
(a) is the sum of all premiums paid, less any partial withdrawals and less any
Policy Debt; and
(b) is the sum of the Monthly No Lapse Guarantee Premiums due since the Policy
Date.
The Monthly No Lapse Guarantee Premium is one-twelfth of the No Lapse Guarantee
Premium.
The No Lapse Guarantee Premium is equal to the Target Premium and any Additional
Rating, if applicable. The No Lapse Guarantee Premium is set forth in the
Policy. It is subject to change if the face amount of the Policy is changed (see
Insurance Benefit -- "Face Amount Changes"); or if there is any change in the
supplementary benefits added to the Policy or in the risk class of any life
insured.
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<PAGE> 27
DEATH BENEFIT GUARANTEE
Where permitted by state law and elected by the policyowner, if the Death
Benefit Guarantee Cumulative Premium Test (see below) is satisfied any time
before the Death Benefit Guarantee terminates, Manufacturers Life of America
will guarantee that the Policy will not go into default (See Other General
Policy Provisions -- "Policy Default") even if a combination of Policy loans,
adverse investment experience or other factors should cause the Policy's Net
Cash Surrender Value to be insufficient to meet the monthly deductions due at
the beginning of a Policy Month.
If after the tenth Policy Year the Death Benefit Guarantee Cumulative Premium
Test is not satisfied but the Fund Value Test (see below) is satisfied,
Manufacturers Life of America will keep the Death Benefit Guarantee in effect.
This Death Benefit Guarantee will expire at the end of a Policy Year specified
in the Policy, currently (i) the year in which the youngest life insured reaches
or would have reached Attained Age 100 if death benefit Option 1 is maintained
throughout the life of the Policy and (ii) the year in which the youngest life
insured reaches or would have reached Attained Age 85 if death benefit Option 2
is selected at any time. While the Death Benefit Guarantee is in effect,
Manufacturers Life of America will determine at the beginning of each Policy
Month whether the Death Benefit Guarantee Cumulative Premium Test or the Fund
Value Test has been satisfied. If neither has been satisfied, the Company will
notify the policyowner of that fact and allow a 61-day grace period in which the
policyowner may make a premium payment sufficient to keep the Death Benefit
Guarantee in effect. The required payment stated in the notice to the
policyowner will be equal to the outstanding premium required to meet the Death
Benefit Guarantee Cumulative Premium Test or the Fund Value Test at the date
neither test was satisfied, plus the Monthly Minimum Death Benefit Guarantee
Premium due for the next two Policy Months. If the required payment is not
received by the end of the grace period, the Death Benefit Guarantee will
terminate, and the Policy may go into default. Once the Death Benefit Guarantee
is terminated, it cannot be reinstated.
DEATH BENEFIT GUARANTEE CUMULATIVE PREMIUM TEST
The Death Benefit Guarantee Cumulative Premium Test will be satisfied if (a) is
greater than or equal to (b), where:
(a) is the sum of all premiums paid, less any partial withdrawals and less any
Policy Debt; and
(b) is the sum of the Monthly Death Benefit Guarantee Premiums due since the
Policy Date.
The Death Benefit Guarantee Premium is set forth in the Policy. It is subject to
change if the face amount of the Policy or the death benefit option is changed
(see Insurance Benefit -- "Death Benefit Option Changes" and "Face Amount
Changes") or if there is any change in the supplementary benefits added to the
Policy or in the risk class of any life insured.
FUND VALUE TEST. The Fund Value Test is applicable after the end of the tenth
year of the Policy. The Fund Value Test is satisfied, if at the beginning of the
Policy Month, the Net Policy Value is greater than or equal to the Gross Single
Premium.
DEATH BENEFIT OPTIONS
The Policy permits the policyowner to select one of two death benefit options --
Option 1 and Option 2. Under Option 1 the death benefit is the face amount of
the Policy or, if greater, the Policy Value multiplied by the applicable
percentage in the table set forth below. Under Option 2 the death benefit is the
face amount of the Policy plus the Policy Value or, if greater, the Policy Value
multiplied by the applicable percentage in the following table.
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<PAGE> 28
Age in the table below refers to the Age of the youngest life insured or the Age
such person would have reached.
<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 youngest life insured under a Policy
with a face amount of $400,000 is currently Age 40. If Option 1 is in effect,
the corridor percentage will produce a greater death benefit whenever the Policy
Value exceeds $160,000 (250% X $160,000 = $400,000). If the Policy Value is less
than $160,000, an incremental change in Policy Value will have no effect on the
death benefit. If the Policy Value is greater than $160,000, an incremental
change in Policy Value will result in a change in the death benefit by a factor
of 2.5. Thus, if the Policy Value were to increase to $160,010, the death
benefit would be increased to $400,025 (250% X $160,010 = $400,025).
If Option 2 were in effect in the above example, the corridor percentage would
produce a greater death benefit whenever the Policy Value exceeded $266,667
(250% X $266,667 = $666,667). At that point the death benefit produced by
multiplying the Policy Value by 250% would result in a greater amount than
adding the Policy Value to the face amount of the Policy. If the Policy Value is
less than $266,667, an incremental change in Policy Value will have a
dollar-for-dollar effect on the death benefit. If the Policy Value is greater
than $266,667, an incremental change in Policy Value will result in a change in
the death benefit by a factor of 2.5 in the same manner as would be the case
under Option 1 when the corridor percentage determined the death benefit.
DEATH BENEFIT OPTION CHANGES
The death benefit option is selected initially by the policyowner in the
application. After the Policy has been in force for two years the death benefit
option may be changed effective as of the next Policy Anniversary following a
request. Written requests for a change must be received by Manufacturers Life of
America at least 30 days prior to a Policy Anniversary in order to become
effective on that date. The Company reserves the right to limit a request for
change if the change would cause the Policy to fail to qualify as life insurance
for tax purposes.
A change in death benefit option will result in a change in the Policy's face
amount in order for the amount of the death benefit to remain exactly the same
immediately after the change.
If the change in death benefit is from Option 1 to Option 2, the new face amount
will be equal to the face amount prior to the change minus the Policy Value on
the Effective Date of the change. Thereafter, the death benefit will vary with
changes in the Policy Value. A change to Option 2 will not be allowed if it
would cause the face amount of the Policy to go below the minimum face amount of
$250,000.
If the change in death benefit is from Option 2 to Option 1, the new face amount
will be equal to the face amount prior to the change plus the Policy Value on
the Effective Date of the change. The increase in face amount resulting from a
change to Option 1 will not affect the amount of surrender charges to which a
Policy
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<PAGE> 29
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.
A death benefit option change will terminate the No Lapse Guarantee, if it is in
effect at the time of the death benefit option change. See Insurance Benefit --
"No Lapse Guarantee." A change from Option 1 to Option 2 will also shorten the
Death Benefit Guarantee Period to the year in which the lives insured reach
average Attained Age 85.
Policyowners who wish to have level insurance coverage should generally select
Option 1. Under Option 1 increases in Policy Value usually will reduce the net
amount of risk under a Policy which will reduce cost of insurance charges. This
means that favorable investment performance should result in a faster increase
in Policy Value than would occur under an identical Policy with Option 2 in
effect. However, the larger Policy Value which may result under Option 1 will
not affect the amount of the death benefit unless the corridor percentages are
used to determine the death benefit.
Policyowners who want to have the Policy Value reflected in the death benefit so
that any increases in Policy Value will increase the death benefit should
generally select Option 2. Under Option 2 the net amount at risk will remain
level unless the corridor percentages are used to determine death benefit, in
which case increases in Policy Value will increase the net amount at risk.
FACE AMOUNT CHANGES
Subject to certain limitations, a policyowner may, upon written request,
increase or decrease the face amount of the Policy. A change in face amount may
affect the Death Benefit Guarantee Premium and the No Lapse Guarantee Premium,
the Guideline Single Premium, Guideline Level Premium, the monthly deductions
and surrender charges (see "Charges and Deductions"). Currently, each face
amount increase or decrease (other than a decrease resulting from a partial
withdrawal or an increase or decrease for a corporate-owned Policy), must be at
least $100,000. Manufacturers Life of America reserves the right to modify this
minimum requirement as of 90 days after written notice is sent to the
policyowner. The Company also reserves the right to limit a change in face
amount to the extent necessary to prevent the Policy from failing to qualify as
life insurance for tax purposes.
INCREASES. Increases in face amount are subject to satisfactory evidence of
insurability. Increases may be made only once per Policy Year and only after the
second Policy Anniversary, except for corporate-owned Policies, in which case
increases may be made in any Policy Year, with no minimum amount requirement. An
increase will become effective at the beginning of the next Policy Month
following the date Manufacturers Life of America approves the requested
increase. The Company reserves the right to refuse a requested increase if the
Attained Age of any of the lives insured still living at the effective date of
the increase would be greater than the maximum issue age for new Policies at
that time. In addition, subject to certain conditions as set forth in the
Policy, the policyowner may be entitled to increase the face amount of the
Policy by a certain amount without further evidence of insurability if there is
an increase in federal estate taxes within three years of the Policy Date. The
policyowner is entitled to this benefit if both insureds are standard risks and
under age 75 at time of issue. If the policyowner is considered a substandard
risk in accordance with Manufacturers Life of America's normal underwriting
practices, the benefit may not be available.
An increase in face amount will usually result in the Policy's being subject to
new surrender charges. The new surrender charges will be computed as if a new
Policy were being purchased for the increase in face amount. For purposes of
determining the new deferred sales charge, a portion of the Policy Value at the
time of the increase, and a portion of the premiums paid on or subsequent to the
increase, will be deemed to be premiums attributable to the increase. See
Charges and Deductions -- "Surrender Charges." Any increase in face amount,
following a prior decrease in face amount to a level less than the highest face
amount previously in effect will have no effect on the surrender charges to
which the Policy is subject. This is because surrender charges, if applicable,
will have been assessed in connection with the prior decrease in face amount.
The insurance coverage eliminated by the decrease of the oldest face amount will
be deemed to be restored first.
19
<PAGE> 30
As with the purchase of a Policy, a policyowner will have free look and sales
charge limitation rights with respect to any increase resulting in new surrender
charges.
An additional premium may be required for a face amount increase, and new Death
Benefit Guarantee Premiums, No Lapse Guarantee Premiums, Guideline Annual
Premium, and Target Premium will be determined.
DECREASES. A decrease in the face amount may be requested only once per Policy
Year and only after the Policy has been in force for two years, except for
corporate-owned Policies, in which case decreases may be made in any Policy
Year, with no minimum amount requirement. In addition, during the two-year
period following an increase in face amount, the policyowner may 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 $250,000.
A decrease in face amount during the Surrender Charge Period will usually result
in surrender charges being deducted from the Policy Value. See Charges and
Deductions -- "Surrender Charges." For purposes of determining surrender and
cost of insurance charges, a decrease will reduce face amount in the following
order: (a) the face amount provided by the most recent increase, then (b) the
face amounts provided by the next most recent increases successively, and
finally (c) the initial face amount.
POLICY VALUES
POLICY VALUE
A Policy has a Policy Value, a portion of which is available to the policyowner
by making a Policy loan or partial withdrawal or upon surrender of the Policy.
See "Policy Loans" and "Partial Withdrawals and Surrenders" below. The Policy
Value may also affect the amount of the death benefit. See Insurance Benefit --
"Death Benefit Options." The Policy Value at any time is equal to the sum of the
Values in the Investment Accounts, the Guaranteed Interest Account and the Loan
Account. The following discussion relates only to the Investment Accounts.
Policy loans are discussed under "Policy Loans" and the Guaranteed Interest
Account is discussed under "The General Account." The portion of the Policy
Value based on the Investment Accounts is not guaranteed and will vary each
Business Day with the investment performance of the underlying Portfolios.
An Investment Account is established under each Policy for each sub-account of
the Separate Account to which net premiums or transfer amounts have been
allocated. Each Investment Account under a Policy measures the interest of the
Policy in the corresponding sub-account. The value of the Investment Account
established for a particular sub-account is equal to the number of units of that
sub-account credited to the Policy times the value of such units.
Units of a particular sub-account are credited to a Policy when net premiums are
allocated to that sub-account or amounts are transferred to that sub-account.
Units of a sub-account are redeemed whenever amounts are deducted, transferred
or withdrawn from the sub-account. The number of units credited or redeemed for
a specific transaction is based on the dollar amount of the transaction divided
by the value of the unit as of the end of the Business Day on which the
transaction occurs. The number of units credited or redeemed will be based on
the applicable unit values as of the Business Day on which the premium or
transaction request is received at the Manufacturers Life of America Service
Office or other office or entity so designated by Manufacturers Life of America.
Units are valued as of the end of each Business Day. When an order involving the
crediting or redemption of units is received after the end of a Business Day or
on a day which is not a Business Day, the order will be processed on the basis
of unit values determined as of the next Business Day. Similarly, any
determination of Policy Value, Investment Account value or death benefit to be
made on a day which is not a Business Day will be made as of the next Business
Day.
20
<PAGE> 31
The value of a unit of each sub-account was initially fixed at $10. For each
subsequent Business Day the unit value is determined by multiplying the unit
value for the preceding Business Day by the "net investment factor" for the
particular sub-account for such subsequent Business Day. The net investment
factor for a sub-account for any Business Day is equal to (a) divided by (b),
where:
(a) is the net asset value of the underlying Portfolio shares held by that
sub-account as of the end of such Business Day before any Policy
transactions are made for that day;
(b) is the net asset value of the underlying Portfolio shares held by that
sub-account as of the end of the immediately preceding Business Day after
all Policy transactions have been made for that day.
Manufacturers Life of America reserves the right to adjust the above formula for
any taxes determined by it to be attributable to the operations of the
sub-account.
TRANSFERS OF POLICY VALUE
A policyowner may transfer amounts from one or more Investment Accounts or the
Company's general account to other Investment Accounts and/or the Company's
general account. A policyowner is permitted to make twelve transfers each Policy
Year free of charge. Additional transfers may be made at a cost of $25 per
transfer. This charge will be 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 as of the previous Policy Anniversary.
Any transfer which involves a transfer out of the Guaranteed Interest Account
may not involve a transfer to the Investment Account for the Money Market Trust.
Transfer request formats must be satisfactory to Manufacturers Life of America
and in writing or by telephone, if a currently valid telephone transfer
authorization form is on file.
Although failure to follow reasonable procedures may result in Manufacturers
Life of America's liability for any losses arising from unauthorized or
fraudulent telephone transfers, Manufacturers Life of America will not be liable
for following instructions communicated by telephone that it reasonably believes
to be genuine. Manufacturers Life of America will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine. Such
procedures shall consist of confirming a valid telephone authorization form is
on file, tape recording all telephone transactions and providing written
confirmation thereof.
The policyowner may effectively convert his or her Policy to a fixed benefit
Policy by transferring the Policy Value in all of the Investment Accounts to the
Guaranteed Interest Account and by changing his or her allocation of net
premiums entirely to the Guaranteed Interest Account. As long as the entire
Policy Value is allocated to the Guaranteed Interest Account and remains in the
Guaranteed Interest Account, the Policy Value, other values based thereon and
the death benefit will be determinable and guaranteed. That is, future values
and minimum levels of benefits can be computed using guaranteed charges,
guaranteed interest rate and the guaranteed Mortality Table for a given death
benefit option, Face Amount of insurance and premium payment. Actual values will
never be less than the minimum guaranteed values provided the entire Policy
Value remains in the Guaranteed Interest Account.
The Investment Account values to be transferred to the Guaranteed Interest
Account will be determined as of the Business Day on which Manufacturers Life of
America receives the request for conversion. There will be no change in the
Issue Age, risk class of the Lives Insured or face amount as a result of the
conversion. A transfer of any or all of the Policy Value to the Guaranteed
Interest Account can be made at any time, even if a prior transfer has been made
during the Policy Month. After the conversion has been effected, the
policyholder may again transfer all or part of the Policy Value back into the
Investment Accounts and/or allocate net premiums to the Investment Accounts. The
Policy will then cease to be considered a fixed-benefit Policy. Transfers from
the Guaranteed Interest Account will be subject to the limitations stated above.
21
<PAGE> 32
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 policyowners, the Policy's transfer
privilege is limited as described below.
So long as effecting net transfers out of the Equity Index Sub-account as of 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 the Dollar Cost Averaging program the
policyowner will designate an amount which will be transferred at predetermined
intervals from one Investment Account into any other Investment Account(s) or
the Guaranteed Interest Account. Each transfer under the Dollar Cost Averaging
program must be of a minimum amount as set by Manufacturers Life of America.
Once set, this minimum may be changed at any time at the discretion of
Manufacturers Life of America. Currently, no charge will be made for this
program if the Policy Value exceeds $15,000 on the date of transfer. Otherwise,
there will be a charge of $5 for each transfer under this program. The charge
will be deducted from the value of the Investment Account out of which the
transfer occurs. If insufficient funds exist to effect a Dollar Cost Averaging
transfer, including the charge, if applicable, the transfer will not be effected
and the policyowner will be so notified.
Manufacturers Life of America reserves the right to cease to offer this program
as of 90 days after written notice is sent to the policyowner.
ASSET ALLOCATION BALANCER TRANSFERS. Under the Asset Allocation Balancer
program the policyowner will designate an allocation of Policy Value among
Investment Accounts. At six-month intervals beginning six months after the
Policy Date, Manufacturers Life of America will move amounts among the
Investment Accounts as necessary to maintain the policyowner's chosen
allocation. A change to the policyowner premium allocation instructions will
automatically result in a change in Asset Allocation Balancer instructions so
that the two are identical unless the policyowner either instructs Manulife of
America otherwise or has elected the Dollar Cost Averaging program. Currently,
there is no charge for this program; however, Manufacturers Life of America
reserves the right to institute a charge on 90 days' written notice to the
policyowner.
Manufacturers Life of America reserves the right to cease to offer this program
as of 90 days after written notice is sent to the policyowner.
POLICY LOANS
While the Policy is in force and has a loan value the policyowner may borrow
against the Policy Value of his or her Policy. The Policy serves as the only
security for the loan. In most states the minimum amount of any loan is $500.
The maximum loan amount is the amount which would cause the Modified Policy
Debt, as described below, to equal the loan value of the Policy as of the date
of the loan. The loan value is the Policy's Cash Surrender Value less the
monthly deductions due to the next Policy Anniversary. The Modified Policy Debt
as
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<PAGE> 33
of any date is the Policy Debt (the aggregate amount of policy loans, including
borrowed interest, less any loan repayments) plus the amount of interest to be
charged to the next Policy Anniversary, all discounted from the next Policy
Anniversary to such date at an annual rate of 4%. When a loan has been taken
out, or when loan interest charges are borrowed, an amount equal to the Modified
Policy Debt is transferred to the Loan Account to ensure that a sufficient
amount will be available to pay interest on the Policy Debt at the next Policy
Anniversary.
For example, assume a Policy with a loan value of $5,000, no outstanding Policy
loans and a loan interest rate of 5.75%. The maximum amount that can be borrowed
is an amount that will cause the Modified Policy Debt to equal $5,000. If the
loan is made on a Policy Anniversary, the maximum loan will be $4,917. This
amount at 5.75% interest will equal $5,200 one year later; $5,200 discounted to
the date of the loan at 4% (the Modified Policy Debt) equals $5,000. Because the
minimum rate of interest credited to the Loan Account is 4%, $5,000 must be
transferred to the Loan Account to ensure that $5,200 will be available as of
the next Policy Anniversary to cover the interest accrued on the Policy Debt.
The current credited Interest Rate to the Loan Account is 4.5%.
When a loan is made, Manufacturers Life of America will deduct from the
Investment Accounts or the Guaranteed Interest Account, and transfer to the Loan
Account, an amount which will result in the Loan Account value's being equal to
the Modified Policy Debt. The policyowner may designate how the amount to be
transferred to the Loan Account is allocated among the accounts from which the
transfer is to be made. In the absence of instructions, the amount to be
transferred will be allocated to each account in the same proportion as the
value in each Investment Account and the Guaranteed Interest Account bears to
the Net Policy Value.
A Policy loan may result in a Policy's failing to satisfy the Death Benefit
Guarantee Cumulative Premium Test and/or the No Lapse Guarantee Cumulative
Premium Test, since the Policy Debt is subtracted from the sum of the premiums
paid in determining whether these tests are satisfied. As a result, the Death
Benefit Guarantee and/or No Lapse Guarantee may terminate. See Insurance Benefit
- -- "Death Benefit Guarantee," "No Lapse Guarantee," and Other General Policy
Provisions -- "Policy Default." Moreover, if the Death Benefit Guarantee or No
Lapse Guarantee is not in force, a Policy loan may cause a Policy to be more
susceptible to going into default, since a Policy loan will be reflected in the
Net Cash Surrender Value. See Other General Policy Provisions -- "Policy
Default." A Policy loan will also affect future Policy Values, since that
portion of the Policy Value in the Loan Account will increase in value at the
crediting interest rate rather than varying with the performance of the
underlying Funds selected by the policyowner or increasing in value at the rate
of interest credited for amounts allocated to the Guaranteed Interest Account.
Policy loans may have tax consequences. A policyowner considering the use of
systematic Policy loans as one element of a comprehensive retirement income plan
should consult his or her personal tax adviser regarding the potential tax
consequences if such loans were to so reduce Policy Value that the Policy would
lapse, absent additional payments. The premium payment necessary to avert lapse
would increase with the age of the insured. See Miscellaneous Matters --
"Federal Income Tax Considerations" (Tax Treatment of Policy Benefits). Finally,
a Policy loan will affect the amount payable on the death of the last surviving
life insured, since the death benefit is reduced by the value of the Loan
Account at the date of death in arriving at the insurance benefit.
INTEREST CHARGED ON POLICY LOANS. Interest on the Policy Debt will accrue daily
and be payable annually on the Policy Anniversary. The rate of interest charged
will be fixed at an effective annual rate of 5.75%. If the interest due on a
Policy Anniversary is not paid by the policyowner, the interest will be borrowed
against the Policy.
INTEREST CREDITED TO THE LOAN ACCOUNT. Manufacturers Life of America will
credit interest to any amount in the Loan Account at an effective annual rate of
at least 4%. The actual rate credited is the rate of interest charged on the
Policy loan less an interest rate differential, currently 1.25%.
LOAN ACCOUNT ADJUSTMENTS. When a loan is first taken out, and at specified
events thereafter, the value of the Loan Account is adjusted. Whenever the Loan
Account is adjusted, the difference between (i) the Loan Account before any
adjustment and (ii) the Modified Policy Debt at the time of adjustment, is
transferred between the Loan Account and the Investment Accounts or the
Guaranteed Interest Account. The amount
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<PAGE> 34
transferred to or from the Loan Account will be such that the value of the Loan
Account is equal to the Modified Policy Debt after the adjustment.
The specified events which cause an adjustment to the Loan Account are (i) a
Policy Anniversary, (ii) a partial or full loan repayment, (iii) a new loan
being taken out, or (iv) when an amount is needed to meet a monthly deduction. A
loan repayment may be implicit in that Policy Debt is effectively repaid upon
termination (i.e., upon death of the last surviving life insured, surrender or
lapse of the policy). In each of these instances, the Loan Account will be
adjusted so that any excess of the Loan Account over the Modified Policy Debt
after the repayment will be included in the termination proceeds.
Except as noted below in the Loan Repayments section, amounts transferred from
the Loan Account will be allocated to the Investment Accounts and the Guaranteed
Interest Account in the same proportion as the value in the corresponding "loan
sub-account" bears to the value of the Loan Account. A "loan sub-account" exists
for each Investment Account and for the Guaranteed Interest Account. Amounts
transferred to the Loan Account are allocated to the appropriate loan
sub-account to reflect the account from which the transfer was made.
LOAN ACCOUNT ILLUSTRATION. (Dollar amounts in this illustration have been
rounded to the nearest dollar).
The operation of the Loan Account may be illustrated by consideration of a
Policy with a loan value of $5,000, a loan interest rate of 5.75%, and a maximum
loan amount on a Policy Anniversary of $4,917. If a loan in the maximum amount
of $4,917 is made, an amount equal to the Modified Policy Debt, $5,000, is
transferred to the Loan Account. At the next Policy Anniversary the value of the
Loan Account will have increased to $5,225 ($5,000 x 1.045), reflecting interest
credited at an effective annual rate of 4.5%. At that time the loan will have
accrued interest charges of $283 ($4,917 x .0575) bringing the Policy Debt to
$5,200.
If the accrued interest charges are paid on the Policy Anniversary, the Policy
Debt will continue to be $4,917, and the Modified Policy Debt, reflecting
interest for the next Policy Year and discounting the Policy Debt and such
interest at 4%, will be $5,000. An amount will be transferred from the Loan
Account to the Guaranteed Interest Account or the Investment Accounts so that
the Loan Account value will equal the Modified Policy Debt. Since the Loan
Account value was $5,225, a transfer of $225 will be required ($5,225-$5,000).
If, however, the accrued interest charges of $283 are borrowed, an amount will
be transferred from the Investment Accounts and the Guaranteed Interest Account
so that the Loan Account value will equal the Modified Policy Debt recomputed at
the Policy Anniversary. The new Modified Policy Debt is the Policy Debt, $5,200,
plus loan interest to be charged to the next Policy Anniversary, $299 ($5,200 X
.0575), discounted at 4%, which results in a figure of $5,288. Since the value
of the Loan Account was $5,225, a transfer of $63 will be required. This amount
is equivalent to the 1.25% interest rate differential on the $5,000 transferred
to the Loan Account on the previous Policy Anniversary.
LOAN REPAYMENTS. Policy Debt may be repaid in whole or in part at any time
prior to the death of the last surviving life insured provided the Policy is in
force. When a repayment is made, the amount is credited to the Loan Account and
a transfer is made to the Guaranteed Interest Account or the Investment Accounts
so that the Loan Account at that time equals the Modified Policy Debt. Loan
repayments will first be allocated to the Guaranteed Interest Account until the
associated loan sub-account is reduced to zero. Loan repayments will then be
allocated to each Investment Account in the same proportion as the value in the
corresponding loan sub-account bears to the value of the Loan Account. Amounts
paid to the Company not specifically designated in writing as loan repayments
will be treated as premiums.
PARTIAL WITHDRAWALS AND SURRENDERS
After a Policy has been in force for two Policy Years, the policyowner may make
a partial withdrawal of the Net Cash Surrender Value. In most states the minimum
amount that may be withdrawn is $500. The policyowner should specify the portion
of the withdrawal to be taken from each Investment Account and the Guaranteed
Interest Account. In the absence of instructions the withdrawal will be
allocated among such
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<PAGE> 35
accounts in the same proportion as the Policy Value in each account bears to the
Net Policy Value. No more than one partial withdrawal may be made in any one
Policy Month.
A partial withdrawal made during the Surrender Charge Period will usually result
in the assessment of a portion of the surrender charges to which the Policy is
subject (see Charges and Deductions -- "Surrender Charges") if the withdrawal is
in excess of the Withdrawal Tier Amount. The Withdrawal Tier Amount is equal to
10% of the Net Cash Surrender Value determined as of the previous Policy
Anniversary. The portion of a partial withdrawal that is considered to be in
excess of the Withdrawal Tier Amount includes all previous partial withdrawals
that have occurred in the current Policy Year. If the Option 1 death benefit is
in effect under a Policy from which a partial withdrawal is made, the face
amount of the Policy will be reduced by the amount of the partial withdrawal and
any surrender charges. If the death benefit is equal to the face amount at the
time of withdrawal, the face amount will be reduced by the amount of the
withdrawal plus the portion of the surrender charges assessed. If the death
benefit is based upon the Policy Value times the corridor percentage set forth
under Insurance Benefit -- "Death Benefit Options" above, the face amount will
be reduced only to the extent that the amount of the withdrawal plus the portion
of the surrender charges assessed exceeds the difference between the death
benefit and the face amount. Reductions in face amount resulting from partial
withdrawals will not incur any surrender charges above the surrender charges
applicable to the withdrawal. When the face amount of a Policy is based on one
or more increases subsequent to issuance of the Policy, a reduction resulting
from a partial withdrawal will be applied in the same manner as a requested
decrease in face amount, i.e. against the face amount provided by the most
recent increase, then against the next most recent increases successively and
finally against the initial face amount. If there has been a prior increase in
face amount, then the face amount will be decreased in the same order as if the
policyowner had requested the decrease. See Charges and Deductions -- "Surrender
Charges" (Charges on Partial Withdrawals).
A Policy may be surrendered for its Net Cash Surrender Value at any time while
at least one of the lives insured is living. The Net Cash Surrender Value is
equal to the Policy Value less any surrender charges and outstanding monthly
deductions due (the "Cash Surrender Value") minus the value of the Policy Debt.
The Net Cash Surrender Value will be determined as of the end of the Business
Day on which Manufacturers Life of America receives the Policy and a written
request for surrender at its Service Office. After a Policy is surrendered, the
insurance coverage and all other benefits under the Policy will terminate.
Surrender of a Policy during the Surrender Charge Period will usually result in
the assessment by Manufacturers Life of America of surrender charges. See
Charges and Deductions -- "Surrender Charges."
CHARGES AND DEDUCTIONS
Charges under the Policy are assessed as (i) deductions from premiums, (ii)
surrender charges upon surrender, partial withdrawals, decreases in face amount
or lapse, (iii) monthly deductions, and (iv) other charges. These charges are
described below.
DEDUCTIONS FROM PREMIUMS
Manufacturers Life of America deducts a charge of 2.35% of each premium payment
for state and local taxes, except for Policies issued in Oregon where no premium
tax is deducted. State and local taxes differ from state to state. The 2.35%
rate is expected to be sufficient, on average, to pay state and local taxes
where required.
Manufacturers Life of America also deducts a charge of 1.25% of each premium
payment for federal taxes related to premium payments, an amount which is also
expected to be sufficient to pay federal taxes.
Currently, it is the Company's intent to cease these deductions at the end of
the tenth Policy Year. However, Manufacturers Life of America may continue these
deductions beyond the tenth Policy Year. In addition, if any other taxes are
incurred, it may make a charge for those taxes in addition to the deductions for
federal, state or local taxes currently being made from premium payments.
Manufacturers Life of America also deducts a sales charge of 5.5% of the
premiums paid in each Policy Year, up to a maximum of the Target
25
<PAGE> 36
Premium in the then current Policy Year. This deduction is guaranteed to cease
at the end of the tenth Policy Year, or 10 years after a face increase.
SURRENDER CHARGES
Manufacturers Life of America will assess surrender charges upon surrender, a
partial withdrawal of Policy Value in excess of the Withdrawal Tier Amount, a
requested decrease in face amount, or lapse. The charges will be assessed if any
of the above transactions occurs within the Surrender Charge Period unless the
charges have been previously deducted. There are two surrender charges -- a
deferred underwriting charge and a deferred sales charge. The charges will never
exceed the allowable maximums under standard non-forfeiture law.
In states where approved, Manufacturers Life of America will reduce the
surrender charge as described below on Policies where the anticipated annual
premium is $100,000 or greater and the Policy is issued as part of an employer
sponsored split dollar or keyman arrangement: 80% of the Surrender Charge
(deferred underwriting charge and deferred sales charge) will be waived during
the first year of the Policy, 60% during the second year and 40% during the
third year. The full Surrender Charge will be imposed if the surrender takes
place in a fourth or subsequent policy year.
DEFERRED UNDERWRITING CHARGE. The deferred underwriting charge is $4 for each
$1,000 of face amount of life insurance coverage initially purchased or added by
increase. The charge applies only to the first $1,000,000 of face amount
initially purchased or the first $1,000,000 of each subsequent increase in face
amount. Thus, the charge made in connection with any one underwriting will not
exceed $4,000.
The deferred underwriting charge is designed to cover the administrative
expenses associated with underwriting and Policy issue, including the costs of
processing applications, conducting medical examinations, determining each life
insured's risk class and establishing Policy records. Manufacturers Life of
America does not expect to recover from the deferred underwriting charge any
amount in excess of its expenses associated with underwriting and Policy issue,
including the costs of processing applications, conducting medical examinations,
determining the risk classes of the lives insured and establishing Policy
records.
DEFERRED SALES CHARGE
The maximum deferred sales charge is equal to the premiums paid in the first
Policy Year up to a maximum of the Target Premium, multiplied by the percentages
shown in Table 1 below (but in no event will the sum of the deferred sales
charge and the sales charge deducted from premiums exceed the amount that would
be permitted by Section 27(a)(2) of the Investment Company Act of 1940 were such
section applicable to the Policy).
This charge compensates the Company for some of the expenses of selling and
distributing the Policies, including agents' commissions, advertising, agent
training and the printing of prospectuses and sales literature. The deferred
sales charge deducted in any Policy Year is not specifically related to sales
expenses incurred in that year. Instead, the Company expects that the major
portion of the sales expenses attributable to a Policy will be incurred during
the first Policy Year, although the deferred sales charge might be deducted up
to fifteen years later. Manufacturers Life of America anticipates that the
aggregate amounts received under the Policies for sales charges will be
insufficient to cover aggregate sales expenses. To the extent that sales
expenses exceed sales charges, Manufacturers Life of America will pay the excess
from its other assets or surplus, including amounts derived from the mortality
and expense risks charge described below. Manufacturers Life of America may
forego deducting a portion of the deferred sales charge if the Policy is
surrendered for its Net Cash Surrender Value at any time during the first two
years following issuance or following an increase in face amount or if the
increase is cancelled during the two-year period following any increase. 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.
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<PAGE> 37
The Target Premium for the initial face amount is specified in the Policy. A
Target Premium will be computed for each increase in face amount above the
highest face amount of coverage previously in effect, except for an increase in
face amount which results from a change in the death benefit option, and the
policyowner will be advised of each new Target Premium. Target Premiums depend
upon the face amount of insurance provided at issue or by an increase, except
those increases attributable to a death benefit option change, and the issue age
and sex (unless unisex rates are required by law) of each life insured.
Except for surrenders to which the sales charge limitation provisions described
below apply, the maximum deferred sales charge will be in effect for at least
the first six years of the Surrender Charge Period for lives insured with either
an Average Issue Age (or an Average Attained Age at time of face increase) of
0-75. For Average Ages higher than 75, the portion of the deferred sales charge
that remains in effect will grade down at a rate that also varies according to
Table 1 as described below.
In order to determine the deferred sales charge applicable to a face amount
increase, Manufacturers Life of America will treat a portion of the Policy Value
on the date of increase as a premium attributable to the increase. In addition,
a portion of each premium paid on or subsequent to the increase will be
attributed to the increase. In each case, the portion attributable to the
increase will be the ratio of the "Guideline Annual Premium" for the increase to
the sum of the guideline annual premiums for the initial face amount and all
increases including the requested increase.
A "Guideline Annual Premium" is a hypothetical amount based on S.E.C. rules that
is used 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.
TABLE 1: THE DEFERRED UNDERWRITING CHARGE AND THE SURRENDER CHARGE GRADING
PERCENTAGES DURING THE SURRENDER CHARGE PERIOD (APPLICABLE TO THE INITIAL FACE
AMOUNT AND SUBSEQUENT INCREASES)
<TABLE>
<CAPTION>
AVERAGE AGE AND PERCENTAGE OF CHARGES**
SURRENDER CHARGE PERIOD* AVERAGE AGE:
- ------------------------ ----------------------------------------------------------------
0-75 76 77 78 79 80+
<S> <C> <C> <C> <C> <C> <C>
12 100% 100% 100% 100% 100% 100%
24 100% 100% 100% 100% 100% 90%
36 100% 100% 100% 100% 90% 80%
48 100% 100% 100% 90% 80% 70%
60 100% 100% 90% 80% 70% 60%
72 100% 90% 80% 70% 60% 50%
84 90% 80% 70% 60% 50% 40%
96 80% 70% 60% 50% 40% 30%
108 70% 60% 50% 40% 30% 20%
120 60% 50% 40% 30% 20% 10%
132 50% 40% 30% 20% 10% 0%
144 40% 30% 20% 10% 0%
156 30% 20% 10% 0%
168 20% 10% 0%
180 0% 0%
</TABLE>
* Periods shown are after end of Policy Month. Policy Months not shown may be
calculated by linear extrapolation.
**Average Age refers to the average rated Issue Age of the lives insured when
the Policy is first issued, or their average Attained Age at the time of a
subsequent face amount increase.
The following example illustrates how deferred underwriting and sales charges
are calculated using data from Table 1 above.
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<PAGE> 38
Assume a 42-year-old male and a 42-year-old female (standard risks), whose
Policy was issued at an average Issue Age 35 and who have paid $9,000 in
premiums in equal installments under a Policy with a Target Premium of $505 and
a face amount of $250,000, surrender their Policy during the last month of the
seventh Policy Year.
A deferred underwriting charge of $900 would be assessed. The maximum deferred
underwriting charge of $1,000 ($4 per $1,000 of face amount x 250) would be
multiplied by the 90% listed in Table 1 as applicable to surrenders during the
last month of the seventh Policy Year (90% X ($4 X 250) = $900).
A deferred sales charge of $454.50 would be assessed. The deferred sales charge
is equal to the lower of premiums paid in the first Policy Year (or first year
after a face increase), in our example $9,000/7 = $1,285.71, or the Target
Premium ($505). Therefore the deferred sales charge is $505. Because the
surrender occurs during the last month of the seventh Policy Year, only 90%
(from Table 1) of the maximum sales charge remains applicable [.90 X $505 =
$454.50].
SALES CHARGE LIMITATION. The maximum sales charge that may be taken under the
Policy is 9% of 20 guideline annual premiums (GAPs) or, if the insureds' joint
life expectancy is less than 20 years, then the number of years of life
expectancy would replace 20 GAPs in determining the maximum sales charge.
However, if a Policy is surrendered or lapsed, or a face amount decrease is
requested at any time during the first two years after issuance or after an
increase in face amount, Manufacturers Life of America will forego taking that
part of the deferred sales charge with respect to "premiums" paid for the
initial face amount or such increase (including the portion of Policy Value
treated as premiums for the increase, as described above), whichever is
applicable, which exceeds the sum of (i) 30% of the premiums paid up to the
lesser of one guideline annual premium or the cumulative premiums paid to the
surrender date plus (ii) 10% of the premiums paid in excess of one guideline
annual premium, up to the lesser of two guideline annual premiums or the
cumulative premiums paid to the surrender date, plus (iii) 9% of the premiums
paid in excess of two guideline annual premiums.
The operation of the sales charge limitation that applies in the first two years
after issuance, or after an increase in face amount, is illustrated by the
following example. A 37-year-old male non-smoker and a 37-year-old female
non-smoker purchased a Policy with a face amount in excess of $250,000 when
their average Issue Age was 35. They have paid $2,000 in premiums in equal
installments under the Policy and it has a guideline annual premium (GAP) of
$1,614 and a Target Premium (TP) of $505. They surrender the Policy during the
second Policy Year. In the absence of the sales charge limitation, the maximum
deferred sales charge would be $505 as described in Charges and Deductions --
"Deferred Sales Charge."
However, under the formula described above, the maximum sales charge allowable
would be $523. This is calculated as the sum of:
(i) 30% of one GAP, or $484 [.30 X $1,614 = $484], because one GAP ($1,614) is
less than premiums paid ($2,000);
plus
(ii) 10% of premiums paid in excess of one GAP, or $39 (.1 X $386 = $39)
because premiums paid in excess of one GAP ($2,000 - $1,614 = $386) are
less than the amount of a second GAP ($1,614);
plus
(iii) $0, because no premiums in excess of two GAPs were paid.
Thus, (i) $484 plus (ii) $39 plus (iii) $0 equals $523.
Thus after applying the sales charge limitation calculation, the maximum
allowable sales charge is $523. However, since Manufacturers Life of America has
already deducted from premiums the sum of $27.78 (5.5% of $505) this amount is
deducted from $523 to arrive at a maximum deferred sales charge of $495.22. The
maximum deferred sales charge allowable is $495.22 which is equal to the smaller
of the deferred sales charge ($505) and the maximum sales charge limitation
($495.22).
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<PAGE> 39
Since a deferred sales charge is deducted when a Policy terminates for failure
to make the required payment following the Policy's going into default, the
sales charge limitation will apply if the termination occurs during the two-year
period following issuance or any increase in face amount. If the Policy
terminates during the two years after a face amount increase, the sales charge
limitation will relate only to the sales charges applicable to the increase.
CHARGES ON PARTIAL WITHDRAWALS. Whenever a portion of the surrender charges is
deducted as a result of a partial withdrawal of Policy Value in excess of the
Withdrawal Tier Amount, the Policy's remaining surrender charges will be reduced
by the amount of the charges taken. The surrender charges not assessed as a
result of the 10% free withdrawal provision remain in effect under the Policy
and may be assessed upon surrender or lapse, other partial withdrawals in excess
of the Withdrawal Tier Amount in each Policy Year, or a requested decrease in
face amount. The portion of the surrender charges assessed will be based on the
ratio of the amount of the withdrawal in excess of the Withdrawal Tier Amount to
the Net Cash Surrender Value of the Policy less the Withdrawal Tier Amount
immediately prior to the withdrawal. The surrender charges will be deducted from
each Investment Account and the Guaranteed Interest Account in the same
proportion as the amount of the withdrawal taken from such account bears to the
total amount of the withdrawal. If the amount in the account is insufficient to
pay the portion of the surrender charges allocated to that account, then the
portion of the withdrawal allocated to that account will be reduced so that the
withdrawal plus the portion of the surrender charges allocated to that account
equal the value of that account. Units equal to the amount of the partial
withdrawal taken, and surrender charges deducted, from each Investment Account
will be redeemed based on the value of such units determined as of the end of
the Business Day on which Manufacturers Life of America receives a written
request for withdrawal at its Service Office.
CHARGES ON DECREASES IN FACE AMOUNT. As with partial withdrawals, a portion of
a Policy's surrender charges will be deducted upon a decrease, or a cancellation
of an increase (other than by means of a Free Look), in face amount requested by
the policyowner. Since surrender charges are determined separately for the
initial face amount and each face amount increase, and since a decrease in face
amount will have a different impact on each level of insurance coverage, the
portion of the surrender charges to be deducted with respect to each level of
insurance coverage will be determined separately. Such portion will be the same
as the ratio of the amount of the reduction in such coverage to the amount of
such coverage prior to the reduction. As noted under "Insurance Benefit -- Face
Amount Changes," decreases are applied to the most recent increase first and
thereafter to the next most recent increases successively. The charges will be
deducted from the Policy Value, and the amount so deducted will be allocated
among the Investment Accounts and the Guaranteed Interest Account in the same
proportion as the Policy Value in each bears to the Net Policy Value. Whenever a
portion of the surrender charges are deducted as a result of a decrease in face
amount, the Policy's remaining surrender charges will be reduced by the amount
of the charges taken.
CHARGES REMAINING AFTER FACE AMOUNT DECREASES OR PARTIAL WITHDRAWALS. Each time
a portion of the deferred underwriting charge or a portion of the deferred sales
charge for a face amount decrease or for a partial withdrawal is deducted, the
remaining deferred underwriting charge and deferred sales charge will be reduced
as described below.
The remaining deferred underwriting and sales charge will be calculated using
Table 1 above. The actual remaining charges will be the result of (a) multiplied
by (b), where:
(a) is the grading percentage applicable as per Table 1, and
(b) is the remaining deferred sales charge prior to the last face amount
decrease or partial withdrawal less the deferred sales charge deducted for
that face amount decrease or partial withdrawal.
MONTHLY DEDUCTIONS
Each month a deduction consisting of an administration charge, a charge for the
cost of insurance, a charge for mortality and expense risks, and charge(s) for
any supplementary benefit(s) (see Other Provisions -- "Supplementary Benefits")
is deducted from Policy Value. The monthly deduction will be allocated among
29
<PAGE> 40
the Investment Accounts and (other than the mortality and expense risks charge)
the Guaranteed Interest Account in the same proportion as the Policy Value in
each bears to the Net Policy Value. Monthly Deductions due prior to the
Effective Date will be taken as of the Effective Date instead of the dates they
were due. Monthly deductions are due until the youngest of the lives insured
attains or would have Attained Age 100.
ADMINISTRATION CHARGE. The monthly administration charge is $.04 per $1,000 of
face amount until the later of the youngest living life insured's Attained Age
55 or the end of the fifteenth Policy Year. Thereafter, the charge is 0. This
charge has a minimum of $30 per month and a maximum of $60 per month.
The charge is designed to cover certain administrative expenses associated with
the Policy, including maintaining Policy records, collecting premiums and
processing death claims, surrender and withdrawal requests and various changes
permitted under a Policy.
COST OF INSURANCE CHARGE. The monthly charge for the cost of insurance is
determined by multiplying the applicable cost of insurance rate times the net
amount at risk at the beginning of each Policy Month. The cost of insurance rate
is based on each life insured's Issue Age, the duration of the coverage, sex
(unless unisex rates are required by law or are requested), risk class, and, in
the case of certain Policies issued in group or sponsored arrangements providing
for reduction in cost of insurance charges (see "Special Provisions for Group or
Sponsored Arrangements"), the face amount of the Policy. The rate is determined
separately for the initial face amount and for each increase in face amount.
Cost of insurance rates will generally increase with the Attained Age of the
lives insured. Any Additional Ratings as indicated in the Policy will be added
to the cost of insurance rate.
The cost of insurance rates used by Manufacturers Life of America reflect its
expectations as to future mortality experience as based on current experience.
The rates may be changed from time to time on a basis which does not unfairly
discriminate within the class of life insured. In no event will the cost of
insurance rate exceed the guaranteed rate set forth in the Policy except to the
extent that an extra rate is imposed because of an Additional Rating applicable
to any life insured or if simplified underwriting is granted in a group or
sponsored arrangement (see "Special Provisions for Group or Sponsored
Arrangements"). The guaranteed rates are based on the 1980 Commissioners
Standard Ordinary Smoker/Nonsmoker Mortality Tables, except in the case of Group
or Sponsored Arrangements, where the guaranteed rates are based on the 1980
Commissioners Extended Term Mortality Table.
If requested by the applicant, Manufacturers Life of America may offer the
Policy with provisions based on actuarial tables that do not differentiate on
the basis of sex to such prospective purchase(s) in states where the unisex
version of the Policy has been approved.
Currently, the State of Montana prohibits the issuance of policies with
assumptions that distinguish between men and women in determining premiums and
Policy benefits for Policies issued on the life of any of its residents.
Consequently, Policies issued to Montana residents will have premiums and
benefits which do not differentiate on the basis of sex.
The net amount at risk to which the cost of insurance rate is applied is the
difference between the death benefit, divided by 1.0032737 (a factor which
reduces the net amount at risk for cost of insurance charge purposes by taking
into account assumed monthly earnings at an annual rate of 4%), and the Policy
Value. Because different cost of insurance rates may apply to different levels
of insurance coverage, the net amount at risk will be calculated separately for
each level of insurance coverage. When the Option 1 death benefit is in effect,
for purposes of determining the net amount at risk applicable to each level of
insurance coverage, the Policy Value is attributed first to the initial face
amount and then, if the Policy Value is greater than the initial face amount, to
each increase in face amount in the order made.
Because the calculation of the net amount at risk is different under the death
benefit options when more than one level of insurance coverage is in effect, a
change in the death benefit option may result in a different net amount at risk
for each level of insurance coverage than would have occurred had the death
benefit option not been changed. Since the cost of insurance is calculated
separately for each level of insurance coverage, any change in the net amount at
risk for a level of insurance coverage resulting from a change in the death
benefit
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<PAGE> 41
option may affect the amount of the charge for the cost of insurance. Partial
withdrawals and decreases in face amount will also affect the manner in which
the net amount at risk for each level of insurance coverage is calculated.
MORTALITY AND EXPENSE RISKS CHARGE. Manufacturers Life of America deducts a
monthly charge from the Policy Value for the mortality and expense risks it
assumes under the Policies. This charge is made at the beginning of each Policy
Month at a rate of .067% through the later of the tenth Policy Year and the
youngest life insured's Attained Age 55. Currently, it is expected that this
charge will reduce to .0125 per month thereafter. This drop in the Mortality and
Expense Risks Charge is not guaranteed. It is assessed against the value of the
policyowner's Investment Accounts by redemption of units in the same proportion
as the value of each Investment Account bears to the total value of the
Investment Accounts. The mortality risk assumed is that the lives insured may
live for a shorter period of time than the Company estimated when it set the
maximum mortality rates in the Policy. The expense risk assumed is that expenses
incurred in issuing and administering the Policies will be greater than the
Company estimated when it set the guaranteed administration charge in the
Policy. Manufacturers Life of America will realize a gain from this charge to
the extent it is not needed to provide benefits and pay expenses under the
Policies.
OTHER CHARGES
Currently, Manufacturers Life of America makes no charge against the Separate
Account for federal, state or local taxes that may be attributable to the
Separate Account or to the operations of the Company with respect to the
Policies. However, if Manufacturers Life of America incurs any such taxes, it
may make a charge therefor, in addition to the deductions for federal, state or
local taxes currently being made from premium payments.
Charges will be imposed on certain Transfers of Policy Values, including a $25
charge for each transfer in excess of twelve in a Policy Year and a $5 charge
for each Dollar Cost Averaging transfer when Policy Value does not exceed
$15,000. See Policy Values -- "Transfers of Policy Value."
The Separate Account purchases shares of the Portfolios at net asset value. The
net asset value of those shares reflects the following investment management
fees and other expenses:
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<PAGE> 42
<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.
Detailed information concerning such fees and expenses is set forth 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.
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<PAGE> 43
The charges and deductions described above may be reduced for Policies issued in
connection with group or sponsored arrangements. Such arrangements may include
reduction or elimination of withdrawal charges and deductions for employees,
officers, directors, agents, immediate family members of the foregoing, and
employees of agents of Manufacturers Life and its subsidiaries. Manufacturers
Life of America will reduce or eliminate the above charges and deductions in
accordance with its rules in effect as of the date an application for a Policy
is approved. To qualify for such a reduction, a group or sponsored arrangement
must satisfy certain criteria as to, for example, size of the group, expected
number of participants and anticipated premium payments from the group.
Generally, the sales contacts and effort, administrative costs and mortality
cost per Policy vary based on such factors as the size of the group or sponsored
arrangement, the purposes for which Policies are purchased and certain
characteristics of its members. The amount of reduction and the criteria for
qualification will reflect the reduced sales effort and administrative costs
resulting from, and the different mortality experience expected as a result of,
sales to qualifying groups and sponsored arrangements.
Manufacturers Life of America may modify from time to time, on a uniform basis,
both the amounts of reductions and the criteria for qualification. Reductions in
these charges will not be unfairly discriminatory against any person, including
the affected policyowners and all other policyowners funded by the Separate
Account.
In addition, groups and persons purchasing under a sponsored arrangement may
request increases in face amount within the first Policy Year, and decreases in
face amount within one year of an increase in face amount. See Charges and
Deductions -- "Cost of Insurance Charge."
In addition, groups and persons purchasing under a sponsored arrangement may
apply for simplified underwriting. If simplified underwriting is granted, the
cost of insurance charge may increase as a result of higher anticipated
mortality experience.
SPECIAL PROVISIONS FOR EXCHANGES
Manufacturers Life of America will permit owners of certain life insurance
policies issued either by the Company or Manufacturers Life to exchange their
policies for the Policies described in this prospectus. Owners of certain
policies may be entitled to convert their policies to the Policies described in
this prospectus. If they elect to convert, they may receive a credit upon
conversion in an amount up to their first-year premium. Charges under the
policies being exchanged or the Policies issued in exchange therefor may be
reduced or eliminated. Policy loans made under policies being exchanged may, in
some circumstances, be carried over to the new Policies without repayment at the
time of exchange. Policyowners considering an exchange should consult their tax
advisers as to the tax consequences of an exchange.
THE GENERAL ACCOUNT
By virtue of exclusionary provisions, interests in the general account of
Manufacturers Life of America have not been registered under the Securities Act
of 1933 and the general account has not been registered as an investment company
under the Investment Company Act of 1940. Accordingly, neither the general
account nor any interests therein are subject to the provisions of these acts,
and as a result the staff of the S.E.C. has not reviewed the disclosures in this
prospectus relating to the general account.
Disclosures regarding the general account may, however, be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in a prospectus.
The general account of Manufacturers Life of America consists of all assets
owned by the Company other than those in its separate accounts. Subject to
applicable law, Manufacturers Life of America has sole discretion over the
investment of the assets of the general account.
A policyowner may elect to allocate net premiums to the Guaranteed Interest
Account or to transfer all or a portion of the Policy Value to the Guaranteed
Interest Account from the Investment Accounts. Transfers from the Guaranteed
Interest Account to the Investment Accounts are subject to restrictions. See
Policy Values -- "Transfers of Policy Value."
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<PAGE> 44
Manufacturers Life of America will hold the reserves required for any portion of
the Policy Value allocated to the Guaranteed Interest Account in its general
account.
However, an allocation of Policy Value to the Guaranteed Interest Account does
not entitle the policyowner to share in the investment experience of the general
account. Instead, Manufacturers Life of America guarantees that the Policy Value
in the Guaranteed Interest Account will accrue interest daily at an effective
annual rate of at least 4%, without regard to the actual investment experience
of the general account. The Company may, at its sole discretion, credit a higher
rate of interest, although it is not obligated to do so. The policyowner assumes
the risk that interest credited may not exceed the guaranteed minimum rate of 4%
per year.
OTHER GENERAL POLICY PROVISIONS
POLICY DEFAULT
Unless the Death Benefit Guarantee or the No Lapse Guarantee is in effect, a
Policy will go into default if the Policy's Net Cash Surrender Value at the
beginning of any Policy Month would go below zero after deducting the monthly
deductions then due. Manufacturers Life of America will notify the policyowner
of the default and will allow a 61-day grace period in which the policyowner may
make a premium payment sufficient to bring the Policy out of default. The
required payment will be equal to the amount necessary to bring the Net Cash
Surrender Value to zero, if it was less than zero as of the date of default,
plus the monthly deductions due as of the date of default and as of the
beginning of each of the two Policy Months thereafter, based on the Policy Value
as of the date of default. If the required payment is not received by the end of
the grace period, the Policy will terminate and the Net Cash Surrender Value
(subject to any applicable limitation on surrender charges; see Charges and
Deductions -- "Surrender Charges") as of the date of default less the monthly
deductions then due will be paid to the policyowner. If the last surviving life
insured should die during the grace period following a Policy's going into
default, the Policy Value used in the calculation of the death benefit will be
the Policy Value as of the date of default and the insurance benefit payable
will be reduced by any outstanding monthly deductions due as of the time of
death.
POLICY REINSTATEMENT
A policyowner can reinstate a Policy which has terminated after going into
default at any time within 21 days following the date of termination without
furnishing evidence of insurability, subject to the following conditions:
(a) All lives insured's risk classes are standard or preferred, and
(b) All lives insured's Attained Ages are less than 46.
A policyowner can reinstate a Policy which has terminated after going into
default at any time within the five-year period following the date of
termination subject to the following conditions:
(a) The Policy must not have been surrendered for its Net Cash Surrender Value
at the request of the policyowner;
(b) Evidence of all lives insured's insurability satisfactory to Manufacturers
Life of America is furnished to it;
(c) A premium equal to the payment required during the 61-day grace period
following default to keep the Policy in force is paid to Manufacturers Life
of America; and
(d) An amount equal to any amounts paid by Manufacturers Life of America in
connection with the termination of the Policy is repaid to Manufacturers
Life of America.
If the reinstatement is approved, the date of reinstatement will be the later of
the date of the policyowner's written request or the date the required payment
is received at the Manufacturers Life of America Service Office.
MISCELLANEOUS POLICY PROVISIONS
BENEFICIARY. One or more beneficiaries of the Policy may be appointed by the
policyowner by naming them in the application. Beneficiaries may be appointed in
three classes -- primary, secondary and final.
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<PAGE> 45
Thereafter the beneficiary may be changed by the policyowner during the last
surviving life insured's lifetime by giving written notice to Manufacturers Life
of America in a form satisfactory to it unless an irrevocable designation has
been elected. If the last surviving life insured dies and there is no surviving
beneficiary, the policyowner, or the policyowner's estate if one of the
policyowners is the last surviving life insured, will be the beneficiary. If a
beneficiary dies before the seventh day after the death of the last surviving
life insured, the Company will pay the insurance benefit as if the beneficiary
had died before the last surviving life insured.
INCONTESTABILITY. Manufacturers Life of America will not contest the validity
of a Policy after it has been in force during the lifetime of the last surviving
life insured for two years from the Issue Date. It will not contest the validity
of an increase in face amount or the addition of a supplementary benefit after
such increase or addition has been in force during the lifetime of the last
surviving life insured for two years. If a Policy has been reinstated and been
in force for less than two years from the reinstatement date, the Company can
contest any misrepresentation of a fact material to the reinstatement.
MISSTATEMENT OF AGE OR SEX. If any life insured's stated Age or sex or both in
the Policy are incorrect, Manufacturers Life of America will change the face
amount of insurance so that the death benefit will be that which the most recent
monthly charge for the cost of insurance would have bought for the correct Age
and sex (unless unisex rates are required by law, or are requested).
SUICIDE EXCLUSION. Except for the last to die, if any of the lives insured die
by suicide within two years after the Issue Date, whether each life insured is
sane or insane, the Company will re-issue this Policy. The new policy(ies) on
the survivor(s) will be any single life permanent policy that is available at
time of re-issue. The suicide provision for any new policy(ies) will be
effective as of the original Issue Date.
If the last surviving life insured, whether sane or insane, dies by suicide
within two years from the Policy Date, Manufacturers Life of America will pay
only the premiums paid less any partial withdrawals of the Net Cash Surrender
Value and any amount in the Loan Account. If the last surviving life insured
should die by suicide within two years after a face amount increase, the death
benefit for the increase will be limited to the monthly deductions for the
increase.
ASSIGNMENT. Manufacturers Life of America will not be bound by an assignment
until it receives a copy of it at its Service Office. Manufacturers Life of
America assumes no responsibility for the validity or effects of any assignment.
OTHER PROVISIONS
SUPPLEMENTARY BENEFITS
Subject to certain requirements, one or more supplementary benefits may be added
to a Policy, including the Estate Preservation Rider, which provides additional
term insurance at no extra charge during the first four policy years to protect
against application of the "three year contemplation of death rule," and an
option to split the Policy into two individual life policies upon divorce or
certain federal tax law changes without evidence of insurability ("Policy Split
Option"). More detailed information concerning supplementary benefits may be
obtained from an authorized agent of the Company. The cost of any supplementary
benefits will be deducted as part of the monthly deduction. See Charges and
Deductions -- "Monthly Deductions."
PAYMENT OF PROCEEDS
As long as the Policy is in force, Manufacturers Life of America will ordinarily
pay any Policy loans, partial withdrawals, Net Cash Surrender Value or any
insurance benefit within seven days after receipt at the Manufacturers Life of
America Service Office of all the documents required for such a payment.
The Company may delay the payment of any Policy loans, partial withdrawals, Net
Cash Surrender Value or the portion of any insurance benefit that depends on the
Guaranteed Interest Account value for up to six months; otherwise the Company
may delay payment for any period during which (i) the New York Stock Exchange is
closed for trading (except for normal holiday closings) or trading on the
Exchange is otherwise restricted; or (ii) an emergency exists as defined by the
S.E.C. or the S.E.C. requires that trading be restricted; or (iii) the S.E.C.
permits a delay for the protection of policyowners. Also, Transfers may be
denied
35
<PAGE> 46
under the circumstances stated in clauses (i), (ii) and (iii) above and under
the circumstances previously set forth. See Policy Values -- "Transfers of
Policy Value."
REPORTS TO POLICYOWNERS
Within 30 days after each Policy Anniversary, Manufacturers Life of America will
send the policyowner a statement showing, among other things, the amount of the
death benefit, the Policy Value and its allocation among the Investment
Accounts, the Guaranteed Interest Account and the Loan Account, the value of the
units in each Investment Account to which the Policy Value is allocated, any
Loan Account balance and any interest charged since the last statement, the
premiums paid and Policy transactions made during the period since the last
statement and any other information required by law.
Within seven days after any transaction involving purchase, sale, or transfer of
units of Investment Accounts, a confirmation statement will be sent.
Each policyowner will also be sent an annual and a semi-annual report for
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 Trusts may
become unsuitable for investment by the Separate Account because of a change in
investment policy or a change in the applicable laws or regulations, because the
shares are no longer available for investment, or for some other reason. In that
event, Manufacturers Life of America may seek to substitute the shares of
another Trust or of an entirely different mutual fund. Before this can be done,
the approval of the S.E.C. and one or more state insurance departments may be
required.
Manufacturers Life of America also reserves the right to create new Separate
Accounts, 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, to de-register the
Separate Account under the 1940 Act, and to eliminate Sub-Accounts. Any such
change would be made only if permissible under applicable federal and state
laws.
The investment objectives of the Separate Account will not be changed materially
without first filing the change with the Insurance Commissioner of the State of
Michigan. Policyowners will be advised of any such change at the time it is
made.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary provides a general description of the federal income tax
considerations associated with the Policy and does not purport to be complete or
to cover all situations. This discussion is not intended as tax advice. Counsel
or other competent tax advisers should be consulted for more complete
information. This discussion is based upon the Company's understanding of the
present federal income tax laws as they are currently interpreted by the
Internal Revenue Service (the "Service"). No representation is made as to the
likelihood of continuation of the present federal income tax laws or of the
current interpretations by the Service. WE DO NOT MAKE ANY GUARANTEE REGARDING
THE TAX STATUS OF ANY POLICY OR ANY TRANSACTION REGARDING THE POLICIES.
The Policies may be used in various arrangements, including non-qualified
deferred compensation or salary continuance plans, executive bonus plans,
retiree medical benefit plans, charitable remainder trusts, and others,
including split dollar insurance plans, with respect to which Manufacturers Life
took the lead in establishing the method to be used to calculate the economic
benefit arising from the death benefit component of survivorship split dollar
arrangements with the "Greenberg to Greenberg" letter in 1983. The tax
consequences of all such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if the use of such
Policies under such arrangement, the value of which
36
<PAGE> 47
depends in part on its tax consequences, is contemplated, a qualified tax
adviser should be consulted for advice on the tax attributes of the particular
arrangement.
TAX STATUS OF THE POLICY
Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code"), sets
forth a definition of a life insurance contract for federal tax purposes. The
Secretary of Treasury (the "Treasury") is authorized to prescribe regulations to
implement Section 7702. However, while proposed regulations and other interim
guidance have been issued, final regulations have not been adopted and guidance
as to how Section 7702 is to be applied is limited. If a Policy were determined
not to be a life insurance contract for purposes of Section 7702, such Policy
would not provide the tax advantages normally provided by a life insurance
policy.
With respect to a Policy issued on the basis of a standard rate class, the
Company has a reasonable belief (largely in reliance on IRS Notice 88-128 and
the proposed mortality charge regulations under Section 7702, issued on July 5,
1991) that such a Policy should meet the Section 7702 definition of a life
insurance contract.
With respect to a Policy that is issued on a substandard basis (i.e., a premium
class involving higher-than-standard mortality risk), there is less guidance, in
particular as to how mortality and other expense requirements of Section 7702
are to be applied in determining whether such a Policy meets the Section 7702
definition of a life insurance contract. Thus, it is not clear whether or not
such a Policy would satisfy Section 7702, particularly if the policyowner pays
the full amount of premiums permitted under the Policy.
If it is subsequently determined that a Policy does not satisfy Section 7702,
the Company may take whatever steps are appropriate and reasonable to attempt to
cause such a Policy to comply with Section 7702. For these reasons, the Company
reserves the right to restrict Policy transactions as necessary to attempt to
qualify it as a life insurance contract under Section 7702.
Section 817(h) of the Code requires that the investments of the Separate Account
be "adequately diversified" in accordance with Treasury regulations in order for
the Policy to qualify as a life insurance contract under Section 7702 of the
Code (discussed above). The Separate Account, through 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. 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 a policyowner being treated as the
owner of a pro rata portion of the assets of the Separate Account. In addition,
the Company does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has stated it expects to
issue. The Company therefore reserves the right to modify the Policy as
necessary to attempt to prevent a policyowner from being considered the
policyowner of a pro rata share of the assets of the Separate Account.
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<PAGE> 48
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. The Company believes that the proceeds and cash value increases of
a Policy should be treated in a manner consistent with a fixed-benefit life
insurance policy for federal income tax purposes. Thus, the death benefit under
the Policy should be excludable from the gross income of the beneficiary under
Section 101(a)(1) of the Code.
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's death benefit option, a Policy loan, a partial withdrawal, a surrender,
a change in ownership, or an assignment of the Policy may have federal income
tax consequences. In addition, federal, state and local transfer, and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each policyowner or beneficiary. Generally, the policyowner
will not be deemed to be in constructive receipt of the Policy Value, including
increments thereof, until there is a distribution. The tax consequences of
distributions from, and loans taken from or secured by, a Policy depend on
whether the Policy is classified as a "Modified Endowment Contract." Upon a
complete surrender or lapse of a Policy or when benefits are paid at a Policy's
maturity date, if the amount received plus the amount of indebtedness exceeds
the total investment in the Policy, the excess will generally be treated as
ordinary income subject to tax, regardless of whether the Policy is or is not a
Modified Endowment Contract.
MODIFIED ENDOWMENT CONTRACTS. Section 7702A establishes a class of life
insurance contracts designated as "Modified Endowment Contracts," which applies
to Policies entered into or materially changed after June 20, 1988.
Because of the Policy's flexibility, classification as a Modified Endowment
Contract will depend on the individual circumstances of each Policy. In general,
a Policy will be a Modified Endowment Contract if the accumulated premiums paid
at any time during the first seven Policy Years exceed the sum of the net level
premiums which would have been paid on or before such time if the Policy
provided for paid-up future benefits after the payment of seven level annual
premiums (the "seven-pay test"). The determination of whether a Policy will be a
Modified Endowment Contract after a material change generally depends upon the
relationship of the death benefit and Policy Value at the time of such change
and the additional premiums paid in the seven years following the material
change. If a premium is received which would cause the Policy to become a
Modified Endowment Contract (MEC) within 23 days of the next policy anniversary,
the Company will not apply the portion of the premium which would cause MEC
status (excess premium) to the Policy when received. The excess premium will be
placed in a suspense account until the next anniversary date, at which point the
excess premium along with interest, earned on the excess premium at a rate of
3.5% from the date the premium was received, will be applied to the Policy. The
policyowner will be advised of this action and will be offered the opportunity
to have the premium credited as of the original date received or to have the
premium returned. If the policyowner does not respond, the premium and interest
will be applied to the Policy as of the first day of the next anniversary.
If a premium is received which would cause the Policy to become a MEC more than
23 days prior to the next policy anniversary, the Company will refund any excess
premium to the policyowner. The portion of the premium which is not excess will
be applied as of the date received. The policyowner will be advised of this
action and will be offered the opportunity to return the premium and have it
credited to the account as of the original date received.
If, in connection with the application or issue of the Policy, the policyowner
acknowledges that the Policy is or will become a MEC, excess premiums that would
cause MEC status will be credited as of the date received.
Further, if a transaction occurs which reduces the face amount of the Policy,
the Policy will be retested, retroactive to the date of purchase, to determine
compliance with the seven-pay test based on the lower face amount. Failure to
comply would result in classification as a Modified Endowment Contract
regardless of any efforts by the Company to provide a payment schedule that will
not violate the seven-pay test.
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<PAGE> 49
The rules relating to whether a Policy will be treated as a Modified Endowment
Contract are extremely complex and cannot be adequately described in the limited
confines of this summary. Therefore, a current or prospective policyowner should
consult with a competent adviser to determine whether a transaction will cause
the Policy to be treated as a Modified Endowment Contract.
DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS.
Policies classified as Modified Endowment Contracts will be subject
to the following tax rules. First, all partial withdrawals from such a Policy
are treated as ordinary income subject to tax up to the amount equal to the
excess (if any) of the Policy Value immediately before the distribution over the
investment in the Policy (described below) at such time. Second, loans taken
from or secured by such a Policy are treated as partial withdrawals from the
Policy and taxed accordingly. Past-due loan interest that is added to the loan
amount is treated as a loan. Third, a 10% additional income tax is imposed on
the portion of any distribution (including distributions upon surrender) from,
or loan taken from or secured by, such a Policy that is included in income
except where the distribution or loan is made on or after the policyowner
attains age 59 1/2, is attributable to the policyowner becoming disabled, or is
part of a series of substantially equal periodic payments for the life (or life
expectancy) of the policyowner or the joint lives (or joint life expectancies)
of the policyowner and the policyowner's beneficiary.
DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS. A
distribution from a Policy that is not a Modified Endowment Contract is
generally treated as a tax-free recovery by the policyowner of the investment in
the Policy (described below) to the extent of such investment in the Policy, and
as a distribution of taxable income only to the extent the distribution exceeds
the investment in the Policy. An exception to this general rule occurs in the
case of a decrease in the Policy's death benefit or any other change that
reduces benefits under the Policy in the first 15 years after the Policy is
issued and that results in a cash distribution to the policyowner in order for
the Policy to continue complying with the Section 7702 definitional limits. Such
a cash distribution will be taxed in whole or in part as ordinary income (to the
extent of any gain in the Policy) under rules prescribed in Section 7702.
Loans from, or secured by, a Policy that is not a Modified Endowment Contract
are not treated as distributions. Instead, such loans are treated as
indebtedness of the policyowner.
Finally, neither distributions (including distributions upon surrender) nor
loans from, or secured by, a Policy that is not a Modified Endowment Contract
are subject to the 10% additional tax.
POLICY LOAN INTEREST. Generally, personal interest paid on any loan under a
Policy which is owned by an individual is not deductible. In addition, 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 that 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.
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
39
<PAGE> 50
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.
TAXATION OF POLICY SPLIT OPTION. This option permits a Policy to be split into
two other individual Policies upon the occurrence of a divorce of the lives
insured or certain changes in federal estate tax law. The purchase and exercise
of the policy split option could have adverse tax consequences. For example, it
is not clear whether a policy split will be treated as a nontaxable exchange
under Sections 1031 through 1043 of the Code. If a policy split is not treated
as a nontaxable exchange, a split could result in the recognition of taxable
income in an amount up to any gain in the Policy at the time of the split. It is
also not clear whether the cost of the policy split option, which is deducted
monthly from Policy Value, will be treated as a taxable distribution. Before
purchasing the policy split option or exercising rights provided by the policy
split option, please consult with a competent tax adviser regarding the possible
consequences.
THE COMPANY'S TAXES
As a result of the Omnibus Budget Reconciliation Act of 1990, insurance
companies are generally required to capitalize and amortize certain Policy
acquisition expenses over a 10-year period rather than currently deducting such
expenses. This treatment applies to the deferred acquisition expenses of a
Policy and results in a significantly higher corporate income tax liability for
the Company. The Company makes a charge to premiums to compensate it for the
anticipated higher corporate income taxes.
At the present time, the Company makes no charge to the Separate Account for any
federal, state or local taxes that the Company incurs that may be attributable
to such Account or to the Policies. The Company, however, reserves the right in
the future to make a charge for any such tax or other economic burden resulting
from the application of the tax laws that it determines to be properly
attributable to the Separate Account or to the Policies.
DISTRIBUTION OF THE POLICY
ManEquity, Inc., an indirect wholly-owned subsidiary of Manufacturers Life, will
act as the principal underwriter of, and continuously offer, the Policies
pursuant to a Distribution Agreement with Manufacturers Life of America.
ManEquity, Inc. is registered as a broker-dealer under the Securities Exchange
Act of 1934 and is a member of the National Association of Securities Dealers,
Inc. The Policies will be sold by registered representatives of either
ManEquity, Inc. or other broker-dealers having distribution agreements with
ManEquity, Inc. who are also authorized by state insurance departments to do so.
Compensation is comprised of first-year commissions and bonus not to exceed
136.5% of premiums paid up to the Target Premium, commissions not to exceed 2%
of premiums in excess thereof, and beginning with the first Policy Year end's
Anniversary, 0.15% of the previous unloaned Policy Value will be paid. 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
40
<PAGE> 51
commissions in respect of the Policies and certain other policies issued by
Manufacturers Life of America, prepare and maintain all books and records
required to be prepared and maintained by ManEquity, Inc. with respect to the
Policies and such other policies, and send all confirmations required to be sent
by ManEquity, Inc. with respect to the Policies and such other policies.
ManEquity, Inc. will promptly reimburse Manufacturers Life and Manufacturers USA
for all sales commissions paid by Manufacturers Life and Manufacturers USA and
will pay Manufacturers Life and Manufacturers USA for 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 and Manufacturers USA will provide to Manufacturers Life of America all
issue, administrative, general services and recordkeeping functions on behalf of
Manufacturers Life of America with respect to all of its insurance policies
including the Policies.
Finally, Manulife Reinsurance Corporation (U.S.A.) has entered into a Stop Loss
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 lives
insured up to a maximum of $15,000,000 ($10,000,000 if either insured is over
age 70), except in the case of aviation risks where the maximum will be
$5,000,000. However, Manufacturers Life of America may also consider reinsuring
any non-aviation risks in excess of $15,000,000 and any aviation risk in excess
of $5,000,000.
VOTING RIGHTS
As stated above, all of the assets held in the sub-accounts of the Separate
Account will be invested in shares of a particular Portfolio of Manufacturers
Investment Trust. Manufacturers Life of America is the legal owner of those
shares and as such has the right to vote upon certain matters that are required
by the 1940 Act to be approved or ratified by the shareholders of a mutual fund
and to vote upon any other matters that may be voted upon at a shareholders'
meeting. However, Manufacturers Life of America will vote shares held in the
sub-accounts in accordance with instructions received from policyowners having
an interest in such sub-accounts.
Shares held in each sub-account for which no timely instructions from
policyowners are received, including shares not attributable to Policies, will
be voted by Manufacturers Life of America in the same proportion as those shares
in that sub-account for which instructions are received. Should the applicable
federal securities laws or regulations change so as to permit Manufacturers Life
of America to vote shares held in the Separate Account in its own right, it may
elect to do so.
The number of shares in each sub-account for which instructions may be given by
a policyowner is determined by dividing the portion of the Policy Value derived
from participation in that sub-account, if any, by the value of one share of the
corresponding Manufacturers Trust. The number will be determined as of a date
chosen by Manufacturers Life of America, but not more than 90 days before the
shareholders' meeting. Fractional votes are counted. Voting instructions will be
solicited in writing at least 14 days prior to the meeting date.
Manufacturers Life of America may, if required by state insurance officials,
disregard voting instructions if such instructions would require shares to be
voted so as to cause a change in the sub-classification or investment policies
of one or more of the Portfolios, or to approve or disapprove an investment
management contract. In addition, Manufacturers Life of America itself may
disregard voting instructions that would require changes in the investment
policies or investment adviser, provided that Manufacturers Life of America
reasonably disapproves such changes in accordance with applicable federal
regulations. If Manufacturers Life of America does disregard voting
instructions, it will advise policyowners of that action and its reasons for
such action in the next communication to policyowners.
41
<PAGE> 52
EXECUTIVE OFFICERS AND DIRECTORS
The directors and executive officers of Manufacturers Life of America, together
with their principal occupations during the past five years, are as follows:
<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>
42
<PAGE> 53
<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 at the S.E.C.'s principal
office in Washington, D.C. upon payment of the prescribed fee.
For further information you may also contact Manufacturers Life of America's
Service Office, the address and telephone number of which are on the cover page
of this prospectus.
LEGAL MATTERS
The legal validity of the policies has been passed on by James D. Gallagher,
Esq., Secretary and General Counsel of Manufacturers Life of America. Jones &
Blouch L.L.P., Washington, D.C., has passed on certain matters relating to the
federal securities laws.
EXPERTS
The financial statements for the period ended December 31, 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 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
43
<PAGE> 54
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 of 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.
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.
44
<PAGE> 55
Financial Statements
Separate Account Three of
The Manufacturers Life Insurance
Company of America
Three years ended December 31, 1997
with Report of Independent Auditors
F-1
<PAGE> 56
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
FINANCIAL STATEMENTS
Three years ended December 31, 1997
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-3
Audited Financial Statements
Statement of Assets and Liabilities......................... F-4
Statements of Operations.................................... F-6
Statements of Changes in Net Assets......................... F-16
Notes to Financial Statements............................... F-25
</TABLE>
F-2
<PAGE> 57
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-3
<PAGE> 58
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
SUB-ACCOUNT
NET ASSET UNITS NET ASSET
VALUE OUTSTANDING VALUE PER UNIT
------------ ----------- --------------
<S> <C> <C> <C>
Assets
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-4
<PAGE> 59
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F-5
<PAGE> 60
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
EMERGING GROWTH QUANTITATIVE EQUITY
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>
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
=========== =========== ========== ========== ========== ==========
</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-6
<PAGE> 61
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
REAL ESTATE SECURITIES BALANCED CAPITAL GROWTH BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------------------------ ------------------------------------ ------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED 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 DEC. 31/97 DEC. 31/96 DEC. 31/95
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $2,776,056 $ 142,066 $ -- $4,478,042 $ 24,806 $ -- $ 864,430 $ 726,517
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
1,134,797 660,261 812,232 4,291,414 1,836,560 739,327 1,876,127 1,292,420 798,441
898,569 631,891 830,335 3,671,860 1,674,031 769,053 1,866,847 1,363,232 830,096
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
236,228 28,370 (18,103) 619,554 162,529 (29,726) 9,280 (70,812) (31,655)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
2,155,063 748,034 (280,544) 958,041 2,693,376 (1,064,130) (223,171) 153,798 (542,982)
5,819,409 2,155,063 748,034 6,626,043 958,041 2,693,376 1,199,605 (223,171) 153,798
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
3,664,346 1,407,029 1,028,578 5,668,002 (1,735,335) 3,757,506 1,422,776 (376,969) 696,780
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
3,900,574 1,435,399 1,010,475 6,287,556 (1,572,806) 3,727,780 1,432,056 (447,781) 665,125
---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$3,900,574 $4,211,455 $1,152,541 $6,287,556 $2,905,236 $3,752,586 $1,432,056 $ 416,649 $1,391,642
========== ========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
F-7
<PAGE> 62
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
INTERNATIONAL STOCK
MONEY MARKET SUB-ACCOUNT
SUB-ACCOUNT ------------------------------------
-------------------------------------- YEAR YEAR
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED 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................................. $ 1,159,280 $ 1,505,315 $ 468 $ 209,753 $248,736 $ 59,169
----------- ----------- ---------- ---------- -------- --------
Realized and unrealized gain (loss) on
investments:
Realized and unrealized gain (loss) from
security transactions:
Proceeds from sales........................... 18,425,413 17,344,859 8,849,535 780,310 289,302 344,439
Cost of securities sold....................... 19,340,111 16,936,049 8,634,234 656,813 250,445 334,542
----------- ----------- ---------- ---------- -------- --------
Net realized gain (loss)........................ (914,698) 408,810 215,301 123,497 38,857 9,897
----------- ----------- ---------- ---------- -------- --------
Unrealized appreciation (depreciation) of
investments:
Beginning of year............................. (914,724) 233,720 (75,010) 450,565 99,777 (3,406)
End of year................................... 1 (914,724) 233,720 131,811 450,565 99,777
----------- ----------- ---------- ---------- -------- --------
Net unrealized appreciation (depreciation)
during the year............................... 914,725 (1,148,444) 308,730 (318,754) 350,788 103,183
----------- ----------- ---------- ---------- -------- --------
Net realized and unrealized gain (loss) on
investments..................................... 27 (739,634) 524,031 (195,257) 389,645 113,080
----------- ----------- ---------- ---------- -------- --------
Net increase (decrease) in net assets derived from
operations...................................... $ 1,159,307 $ 765,681 $ 524,499 $ 14,496 $638,381 $172,249
=========== =========== ========== ========== ======== ========
</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> 63
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
PACIFIC RIM
EMERGING MARKETS EQUITY INDEX EQUITY VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------------------------------------- ----------------------------- ----------------------------- -------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96 DEC. 31/97
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 12,667 $239,201 $ 19,281 $2,468,634 $449,782 $2,150,334 $ 26,181 $1,127,557
----------- -------- -------- ---------- -------- ---------- -------- ----------
1,556,257 443,740 335,955 1,982,591 231,179 1,891,337 54,581 1,288,325
1,571,876 374,390 329,373 1,529,141 214,759 1,889,551 56,756 1,107,952
----------- -------- -------- ---------- -------- ---------- -------- ----------
(15,619) 69,350 6,582 453,450 16,420 1,786 (2,175) 180,373
----------- -------- -------- ---------- -------- ---------- -------- ----------
67,813 88,856 (8,633) (46,898) -- 495,686 -- 364,883
(2,120,317) 67,813 88,856 488,048 (46,898) 737,427 495,686 1,914,865
----------- -------- -------- ---------- -------- ---------- -------- ----------
(2,188,130) (21,043) 97,489 534,946 (46,898) 241,741 495,686 1,549,982
----------- -------- -------- ---------- -------- ---------- -------- ----------
(2,203,749) 48,307 104,071 988,396 (30,478) 243,527 493,511 1,730,355
----------- -------- -------- ---------- -------- ---------- -------- ----------
$(2,191,082) $287,508 $123,352 $3,457,030 $419,304 $2,393,861 $519,692 $2,857,912
=========== ======== ======== ========== ======== ========== ======== ==========
<CAPTION>
VALUE EQUITY
SUB-ACCOUNT
-------------
*PERIOD ENDED
DEC. 31/96
-------------
<S> <C>
$ 8,790
--------
438,548
417,223
--------
21,325
--------
--
364,883
--------
364,883
--------
386,208
--------
$394,998
========
</TABLE>
F-9
<PAGE> 64
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 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>
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
========== ======== ======== ======= ======= =======
</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-10
<PAGE> 65
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
**PILGRAM
MODERATE AGGRESSIVE INTERNATIONAL BLUE CHIP **SCIENCE & BAXTER
ASSET ALLOCATION ASSET ALLOCATION SMALL CAP GROWTH TECHNOLOGY GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------------------- ----------------------------- ------------- ------------- ------------- -------------
YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED YEAR ENDED *PERIOD ENDED *PERIOD ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 83,798 $ 2,105 $140,784 $11,072 $ 212 $104,304 $ 16,815 $ --
-------- ------- -------- ------- -------- -------- -------- --------
71,531 45,521 226,753 79,723 206,034 121,709 457,533 37,770
65,973 45,706 204,492 82,946 203,025 128,505 477,311 36,070
-------- ------- -------- ------- -------- -------- -------- --------
5,558 (185) 22,261 (3,223) 3,009 (6,796) (19,778) 1,700
-------- ------- -------- ------- -------- -------- -------- --------
23,967 -- 43,313 -- -- -- -- --
101,169 23,967 164,721 43,313 (39,080) 239,382 (62,465) (18,510)
-------- ------- -------- ------- -------- -------- -------- --------
77,202 23,967 121,408 43,313 (39,080) 239,382 (62,465) (18,510)
-------- ------- -------- ------- -------- -------- -------- --------
82,760 23,782 143,669 40,090 (36,071) 232,586 (82,243) (16,810)
-------- ------- -------- ------- -------- -------- -------- --------
$166,558 $25,887 $284,453 $51,162 $(35,859) $336,890 $(65,428) $(16,810)
======== ======= ======== ======= ======== ======== ======== ========
</TABLE>
F-11
<PAGE> 66
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
**GLOBAL
**SMALL/MID **WORLDWIDE EQUITY **GROWTH
CAP GROWTH SUB-ACCOUNT SUB-ACCOUNT
SUB-ACCOUNT SUB-ACCOUNT ----------- -----------
------------ ------------ PERIOD PERIOD
PERIOD ENDED PERIOD ENDED ENDED ENDED
DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net investment income:
Dividend income........................................ $ -- $ 2,704 $ -- $ --
------- ------- ------- -------
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
Cost of securities sold........................... 43,433 38,790 5,777 8,653
------- ------- ------- -------
Net realized gain (loss)............................... 8,946 1,782 373 1,107
------- ------- ------- -------
Unrealized appreciation (depreciation) of investments:
Beginning of year................................. -- -- -- --
End of year....................................... (4,182) (4,391) 32,115 15,489
------- ------- ------- -------
Net unrealized appreciation (depreciation) during the
year................................................. (4,182) (4,391) 32,115 15,489
------- ------- ------- -------
Net realized and unrealized gain (loss) on investments...... 4,764 (2,609) 32,488 16,596
------- ------- ------- -------
Net increase (decrease) in net assets derived from
operations................................................ $ 4,764 $ 95 $32,488 $16,596
======= ======= ======= =======
</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-12
<PAGE> 67
<TABLE>
<CAPTION>
**INTERNATIONAL **GLOBAL
GROWTH AND **STRATEGIC GOVERNMENT **INVESTMENT
**VALUE INCOME **HIGH YIELD BOND BOND QUALITY BOND
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>
33,133 $ -- $ 39,931 $ -- $ -- $ --
-------- -------- -------- ------- ------ ------
28,449 18,809 347,712 18,384 3,662 4,700
25,668 18,622 339,830 17,681 3,587 4,564
-------- -------- -------- ------- ------ ------
2,781 187 7,882 703 75 136
-------- -------- -------- ------- ------ ------
-- -- -- -- -- --
(20,774) (39,257) (13,453) 10,709 3,801 6,089
-------- -------- -------- ------- ------ ------
(20,774) (39,257) (13,453) 10,709 3,801 6,089
-------- -------- -------- ------- ------ ------
(17,993) (39,070) (5,571) 11,412 3,876 6,225
-------- -------- -------- ------- ------ ------
$ 15,140 $(39,070) $ 34,360 $11,412 $3,876 $6,225
======== ======== ======== ======= ====== ======
</TABLE>
F-13
<PAGE> 68
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 820 640 460 280
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
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
-------- -------- -------- ------ ---- -----------
<CAPTION>
<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>
<S> <C> <C>
TOTAL
YEAR ENDED YEAR ENDED
DEC. 31/96 DEC. 31/95
----------- -----------
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-14
<PAGE> 69
(This page intentionally left blank)
F-15
<PAGE> 70
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
EMERGING GROWTH QUANTITATIVE EQUITY
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
=========== =========== =========== =========== =========== ===========
</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-16
<PAGE> 71
<TABLE>
<CAPTION>
REAL ESTATE BALANCED CAPITAL GROWTH BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------------------------------- --------------------------------------- ---------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED 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 DEC. 31/97 DEC. 31/96 DEC. 31/95
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 2,776,056 $ 142,066 $ -- $44,478,042 $ 24,806 $ -- $ 864,430 $ 726,517
236,228 28,370 (18,103) 619,554 162,529 (29,726) 9,280 (70,812) (31,655)
3,664,346 1,407,029 1,028,578 5,668,002 (1,735,335) 3,757,506 1,422,776 (376,969) 696,780
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
3,900,574 4,211,455 1,152,541 6,287,556 2,905,236 3,752,586 1,432,056 416,649 1,391,642
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
5,723,061 4,465,307 4,344,151 8,963,510 10,619,657 7,806,794 4,146,312 4,480,626 3,332,849
-- -- -- (44,313) -- -- -- -- --
(2,219,786) (1,347,117) (1,139,201) (3,729,355) (2,563,981) (1,853,986) (1,575,696) (1,205,581) (716,686)
(369,877) (65,858) (80,626) (417,435) (355,780) (304,332) (105,540) (27,779) (159,472)
1,279,970 467,823 42,920 (2,581,258) (394,561) 1,681,177 (81,587) 685,493 1,564,644
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
4,413,368 3,520,155 3,167,244 2,191,149 7,305,335 7,329,653 2,383,489 3,932,759 4,021,335
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
8,313,942 7,731,610 4,319,785 8,478,705 10,210,571 11,082,239 3,815,545 4,349,408 5,412,977
17,289,060 9,557,450 5,237,665 33,344,309 23,133,738 12,051,499 14,823,560 10,474,152 5,061,175
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$25,603,002 $17,289,060 $ 9,557,450 $41,823,014 $33,344,309 $23,133,738 $18,639,105 $14,823,560 $10,474,152
=========== =========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
F-17
<PAGE> 72
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
============ ============ ============ =========== ========== ==========
</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-18
<PAGE> 73
<TABLE>
<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>
$ 12,667 $ 239,201 $ 19,281 $ 2,468,634 $ 449,782 $ 2,150,334 $ 26,181
(15,619) 69,350 6,582 453,450 16,420 1,786 (2,175)
)
(2,188,130 (21,043) 97,489 534,946 (46,898) 241,741 495,686
----------- ----------- ---------- ----------- ---------- ----------- ----------
)
(2,191,082 287,508 123,352 3,457,030 419,304 2,393,861 519,692
----------- ----------- ---------- ----------- ---------- ----------- ----------
2,059,145 2,541,885 812,122 7,852,789 5,327,031 7,868,634 4,931,946
-- -- -- -- -- -- --
(620,211) (354,050) (131,282) (781,683) (136,828) (1,054,893) (260,549)
(58,638) (25,816) (3,509) (721,710) -- (45,576) (65,890)
(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
----------- ----------- ---------- ----------- ---------- ----------- ----------
)
(1,441,564 4,131,731 1,423,264 13,184,087 6,486,468 9,940,438 8,470,370
5,799,488 1,667,757 244,493 6,486,468 -- 8,470,370 --
----------- ----------- ---------- ----------- ---------- ----------- ----------
$ 4,357,924 $ 5,799,488 $1,667,757 $19,670,555 $6,486,468 $18,410,808 $8,470,370
=========== =========== ========== =========== ========== =========== ==========
</TABLE>
F-19
<PAGE> 74
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
U.S. GOVERNMENT
VALUE EQUITY GROWTH AND INCOME 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
=========== ========== =========== ========== ========== ==========
</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-20
<PAGE> 75
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
CONSERVATIVE ASSET MODERATE ASSET AGGRESSIVE ASSET INTERNATIONAL BLUE CHIP
ALLOCATION ALLOCATION ALLOCATION SMALL CAP GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------------------- -------------------------- -------------------------- ------------- -----------
YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/97
---------- ------------- ---------- ------------- ---------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 42,335 $ 8,660 $ 83,798 $ 2,105 $ 140,784 $ 11,072 $ 212 $ 104,304
7,770 (1,064) 5,558 (185) 22,261 (3,223) 3,009 (6,796)
10,974 6,566 77,202 23,967 121,408 43,313 (39,080) 239,382
-------- -------- ---------- ---------- ---------- -------- ---------- ----------
61,079 14,162 166,558 25,887 284,453 51,162 (35,859) 336,890
-------- -------- ---------- ---------- ---------- -------- ---------- ----------
334,314 143,807 692,412 348,167 1,008,793 387,073 609,617 1,748,929
-- -- -- -- -- -- -- --
(34,376) (33,413) (104,738) (25,611) (143,026) (58,999) (48,039) (152,046)
-- -- (346) -- (2,986) -- (2,873) (5,593)
(37,686) 246,043 588,790 183,575 263,513 434,224 879,398 1,850,202
-------- -------- ---------- ---------- ---------- -------- ---------- ----------
262,252 356,437 1,176,118 506,131 1,126,294 762,298 1,438,103 3,441,492
-------- -------- ---------- ---------- ---------- -------- ---------- ----------
323,331 370,599 1,342,676 532,018 1,410,747 813,460 1,402,244 3,778,382
370,599 -- 532,018 -- 813,460 -- -- --
-------- -------- ---------- ---------- ---------- -------- ---------- ----------
$693,930 $370,599 $1,874,694 $ 532,018 $2,224,207 $813,460 $1,402,244 $3,778,382
======== ======== ========== ========== ========== ======== ========== ==========
</TABLE>
F-21
<PAGE> 76
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
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.................................. $ 16,815 $ -- $ -- $ 2,704 $ --
Net realized gain (loss)............................... (19,778) 1,700 8,946 1,782 373
Net unrealized appreciation (depreciation) of
investments during the period........................ (62,465) (18,510) (4,182) (4,391) 32,115
---------- -------- ---------- -------- ----------
Net increase (decrease) in net assets derived from
operations........................................... (65,428) (16,810) 4,764 95 32,488
---------- -------- ---------- -------- ----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums............................... 361,963 141,492 757,544 143,932 697,468
Transfer on death...................................... -- -- -- -- --
Transfer of terminations............................... (21,603) (7,886) (32,683) (4,603) (22,616)
Transfer of policy loans............................... (904) -- (269) (1,290) (283)
Net interfund transfers................................ 791,001 444,653 742,521 177,277 761,527
---------- -------- ---------- -------- ----------
1,130,457 578,259 1,467,113 315,316 1,436,096
---------- -------- ---------- -------- ----------
Net increase (decrease) in net assets.................. 1,065,029 561,449 1,471,877 315,411 1,468,584
NET ASSETS
Beginning of year...................................... -- -- -- -- --
---------- -------- ---------- -------- ----------
End of year............................................ $1,065,029 $561,449 $1,471,877 $315,411 $1,468,584
========== ======== ========== ======== ==========
</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-22
<PAGE> 77
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
**INTERNATIONAL **GLOBAL
GROWTH AND **STRATEGIC GOVERNMENT **INVESTMENT
**GROWTH **VALUE INCOME **HIGH YIELD BOND BOND QUALITY BOND
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>
$ -- $ 33,133 $ -- $ 39,931 $ -- $ -- $ --
1,107 2,781 187 7,882 703 75 136
15,489 (20,774) (39,257) (13,453) 10,709 3,801 6,089
---------- ---------- -------- ---------- -------- -------- --------
16,596 15,140 (39,070) 34,360 11,412 3,876 6,225
---------- ---------- -------- ---------- -------- -------- --------
470,000 346,369 744,217 276,881 273,501 58,746 75,411
-- -- -- -- -- -- --
(29,691) (21,998) (9,912) (31,310) (11,295) (2,335) (3,321)
(2,329) (1,030) -- (6,696) (504) -- --
794,709 742,495 90,093 797,757 380,876 161,473 182,692
---------- ---------- -------- ---------- -------- -------- --------
1,232,689 1,065,836 824,398 1,036,632 642,578 217,884 254,782
---------- ---------- -------- ---------- -------- -------- --------
1,249,285 1,080,976 785,328 1,070,992 653,990 221,760 261,007
-- -- -- -- -- -- --
---------- ---------- -------- ---------- -------- -------- --------
$1,249,285 $1,080,976 $785,328 $1,070,992 $653,990 $221,760 $261,007
========== ========== ======== ========== ======== ======== ========
</TABLE>
F-23
<PAGE> 78
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
See accompanying notes.
F-24
<PAGE> 79
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 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 Trust Real Estate Securities Fund
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.
F-25
<PAGE> 80
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-26
<PAGE> 81
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
FINANCIAL STATEMENTS -- (CONTINUED)
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. Related Party Transactions
5. RELATED PARTY TRANSACTIONS
ManEquity, Inc., a registered broker-dealer and indirect wholly-owned subsidiary
of Manulife Financial, acts as the principal underwriter of the Policies
pursuant to a Distribution Agreement with Manufacturers Life of America.
Registered representatives of either ManEquity, Inc. or other broker-dealers
having distribution agreements with ManEquity, Inc. who are also authorized as
variable life insurance agents under applicable state insurance laws, sell the
Policies. Registered representatives are compensated on a commission basis.
Manufacturers Life of America has a formal service agreement with its
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-27
<PAGE> 82
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-29
Audited Consolidated Financial Statements
Consolidated Balance Sheets................................. F-30
Consolidated Statements of Income........................... F-31
Consolidated Statements of Changes in Capital And Surplus... F-32
Consolidated Statements of Cash Flows....................... F-33
Notes to Consolidated Financial Statements.................. F-34
</TABLE>
F-28
<PAGE> 83
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-29
<PAGE> 84
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 $1,062,603
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE> 85
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------
1997 1996 1995
--------- --------- ---------
($ 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-31
<PAGE> 86
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 -- $110,520
------- ------- ------- ------ ------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE> 87
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
--------------------------------
1997 1996 1995
--------- --------- --------
($ 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-33
<PAGE> 88
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-34
<PAGE> 89
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-35
<PAGE> 90
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-36
<PAGE> 91
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-37
<PAGE> 92
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-38
<PAGE> 93
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-39
<PAGE> 94
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
$33,000 plus interest at 6.95% issued on December 5, 1997 payable to ManUSA
which matures on February 1, 2007.
F-40
<PAGE> 95
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. CAPITAL AND SURPLUS
The Company has two classes of capital stock, as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31:
-------------------------
1997 1996
----------- -----------
($ 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-41
<PAGE> 96
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 $NIL during 1997, 1996 and 1995 respectively.
The Company markets variable life insurance and variable annuity products
through Separate Accounts which use Manufacturers Investment Trust (formerly
NASL Series Trust) as its investment vehicle. The Manufacturers Investment Trust
is an entity sponsored by an affiliated company, The Manufacturers Life
Insurance of North America (formerly North American Security Life Insurance
Company).
F-42
<PAGE> 97
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Manulife Financial provides a claims paying guarantee to the Company's U.S.
policyholders.
12. REINSURANCE
In the normal course of business, the Company assumes and cedes reinsurance as a
party to several reinsurance treaties with major unrelated insurance companies.
The Company remains liable for amounts ceded in the event that reinsurers do not
meet their obligations.
The effects of reinsurance on premiums were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31
------------------------------
1997 1996 1995
-------- -------- --------
($ 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-43
<PAGE> 98
APPENDIX A
SAMPLE ILLUSTRATIONS OF POLICY VALUES, CASH SURRENDER VALUES AND DEATH BENEFITS
The following tables have been prepared to help show how values under the Policy
change with investment performance. The tables include both Policy Values and
Cash Surrender Values as well as Death Benefits. The Policy Value is the sum of
the values in the Investment Accounts, as the tables assume no values in the
Guaranteed Interest Account or Loan Account. The Cash Surrender Value is the
Policy Value less any applicable surrender charges. The tables illustrate how
Policy Values and Cash Surrender Values, which reflect all applicable charges
and deductions, and Death Benefits of the Policy on lives insured of given ages
would vary over time if the return on the assets of the Portfolios was a
uniform, gross, after-tax, annual rate of 0%, 6% or 12%. The Policy Values,
Death Benefits and Cash Surrender Values would be different from those shown if
the returns averaged 0%, 6% or 12%, but fluctuated over and under those averages
throughout the years. The charges reflected in the tables include those for
deductions from premiums, surrender charges, and monthly deductions.
The amounts shown for the Policy Value, Death Benefit and Cash Surrender Value
as of each Policy Year reflect the fact that the net investment return on the
assets held in the sub-accounts is lower than the gross, after-tax return. This
is because the expenses and fees borne by Manufacturers Investment Trust are
deducted from the gross return. The illustrations reflect an average of those
Portfolios' current expenses, which is approximately 0.954% per annum. 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 a Policy issued to a male non-smoker and female non-smoker, one based on
current cost of insurance charges assessed by the Company and the other based on
the maximum cost of insurance charges based on the 1980 Commissioners Standard
Ordinary Smoker/Nonsmoker Mortality Tables. Current cost of insurance charges
are not guaranteed and may be changed. Upon request, Manufacturers Life of
America will furnish a comparable illustration based on the proposed lives
insured's issue ages, sex (unless unisex rates are required by law, or are
requested) and risk classes, any additional ratings and the death benefit
option, face amount and planned premium requested. Illustrations for smokers
would show less favorable results than the illustrations shown below.
From time to time, in advertisements or sales literature for the Policies that
quote performance data of one or more of the Portfolios, the Company may include
cash surrender values and death benefit figures computed using the same
methodology as that used in the following illustrations, but with the average
annual total return of the Fund for which performance data is shown in the
advertisement replacing the hypothetical rates of return shown in the following
tables. This information may be shown in the form of graphs, charts, tables and
examples.
The Policies have been offered to the public only since September 1, 1994.
However, total return data may be advertised for as long a period of time as the
underlying Portfolio has been in existence. The results for any period prior to
the Policies' being offered would be calculated as if the Policies had been
offered during that period of time, with all charges assumed to be those
applicable to the Policies.
<PAGE> 99
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$7,500 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical
Gross Investment Return
------------------------
End of Accumulated Cash
Policy Premiums Policy Surrender Death
Year(1) (2) Value Value(4) Benefit
<S> <C> <C> <C> <C>
1 $ 7,875 $ 6,563(3) $ 2,406(3) $500,000(3)
2 16,144 12,975 8,077 500,000
3 24,826 19,242 14,124 500,000
4 33,942 25,360 20,242 500,000
5 43,514 31,326 26,208 500,000
6 53,565 37,136 32,018 500,000
7 64,118 42,784 38,177 500,000
8 75,199 48,264 44,170 500,000
9 86,834 53,571 49,988 500,000
10 99,051 58,695 55,624 500,000
15 169,931 85,604 85,604 500,000
20 260,394 107,236 107,236 500,000
25 375,851 116,931 116,931 500,000
30 523,206 98,951 98,951 500,000
<CAPTION>
6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return
----------------------- -----------------------
End of Cash Cash
Policy Policy Surrender Death Policy Surrender Death
Year(1) Value Value(4) Benefit Value Value(4) Benefit
<S> <C> <C> <C> <C> <C> <C>
1 $ 6,967(3) $ 2,810(3) $500,000(3) $ 7,371(3) $ 3,214(3) $ 500,000(3)
2 14,186 9,288 500,000 15,445 10,547 500,000
3 21,670 16,552 500,000 24,295 19,177 500,000
4 29,425 24,307 500,000 33,993 28,875 500,000
5 37,457 32,339 500,000 44,620 39,502 500,000
6 45,769 40,651 500,000 56,263 51,144 500,000
7 54,366 49,760 500,000 69,017 64,411 500,000
8 63,254 59,160 500,000 82,991 78,896 500,000
9 72,437 68,854 500,000 98,300 94,718 500,000
10 81,916 78,845 500,000 115,075 112,004 500,000
15 140,385 140,385 500,000 236,638 236,638 500,000
20 211,902 211,902 500,000 440,782 440,782 511,307
25 296,780 296,780 500,000 782,160 782,160 836,911
30 398,550 398,550 500,000 1,347,396 1,347,396 1,414,765
</TABLE>
- ---------------
(1) All values shown are as of the end of the Policy Year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the Policy Anniversary, (b) no Policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force
until the end of the first 10 Policy Years. Provided the Death Benefit
Guarantee Cumulative Premium Test or the Fund Value Test has been and
continues to be met, the Guaranteed Death Benefit will keep the Policy in
force until the Policy Anniversary on which the lives insured are average
Attained Age 100 years old.
(4) Cash Surrender Value for first two years reflects sales charge limitations
imposed by the S.E.C.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF 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 SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$7,500 ANNUAL PLANNED PREMIUM
ASSUMING GUARANTEED CHARGES
<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(4) Benefit Value Value(4) Benefit
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 7,875 $ 6,563(3) $ 2,406(3) $ 500,000(3) $ 6,967(3) $ 2,810(3) $ 500,000(3)
2 16,144 12,974 8,077 500,000 14,185 9,288 500,000
3 24,826 19,230 14,112 500,000 21,658 16,540 500,000
4 33,942 25,322 20,204 500,000 29,386 24,268 500,000
5 43,514 31,243 26,125 500,000 37,368 32,250 500,000
6 53,565 36,982 31,864 500,000 45,604 40,486 500,000
7 64,118 42,529 37,923 500,000 54,090 49,484 500,000
8 75,199 47,870 43,776 500,000 62,822 58,727 500,000
9 86,834 52,991 49,408 500,000 71,795 68,212 500,000
10 99,051 57,874 54,803 500,000 81,000 77,929 500,000
15 169,931 78,518 78,518 500,000 130,885 130,885 500,000
20 260,394 88,424 88,424 500,000 184,788 184,788 500,000
25 375,85 73,799 73,799 500,000 234,985 234,985 500,000
30 523,26 2,921(5) 2,921(5) 0(5) 269,220 269,220 500,000
<CAPTION>
12% Hypothetical
Gross Investment Return
-----------------------
End of Cash
Policy Policy Surrender Death
Year(1) Value Value(4) Benefit
<S> <C> <C> <C>
1 $ 7,371(3) $ 3,214(3) $ 500,000(3)
2 15,444 10,547 500,000
3 24,282 19,164 500,000
4 33,951 28,833 500,000
5 44,526 39,408 500,000
6 56,086 50,968 500,000
7 68,718 64,111 500,000
8 82,518 78,424 500,000
9 97,593 94,010 500,000
10 114,059 110,988 500,000
15 223,409 223,409 500,000
20 398,728 398,728 500,000
25 684,631 684,631 732,556
30 1,140,853 1,140,853 1,197,896
</TABLE>
- ---------------
(1) All values shown are as of the end of the Policy Year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the Policy Anniversary, (b) no Policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force
until the end of the first 10 Policy Years. Provided the Death Benefit
Guarantee Cumulative Premium Test or the Fund Value Test has been and
continues to be met, the Guaranteed Death Benefit will keep the Policy in
force until the Policy Anniversary on which the lives insured are average
Attained Age 100 years old.
(4) Cash Surrender Value for first two years reflects sales charge limitations
imposed by the S.E.C.
(5) In the absence of additional premium payments, the Policy will lapse.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF 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
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$8,200 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<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(4) Benefit Value Value(4) Benefit
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 8,610 $ 7,226(3) $ 2,766(3) $ 507,226(3) $ 7,669(3) $ 3,209(3) $ 507,669(3)
2 17,651 14,288 9,170 514,288 15,619 10,501 515,619
3 27,143 21,191 16,073 521,191 23,862 18,744 523,862
4 37,110 27,932 22,814 527,932 32,403 27,285 532,403
5 47,576 34,505 29,387 534,505 41,247 36,129 541,247
6 58,564 40,904 35,786 540,904 50,397 45,278 550,397
7 70,103 47,122 42,515 547,122 59,855 55,248 559,855
8 82,218 53,151 49,057 553,151 69,623 65,529 569,623
9 94,939 58,983 55,400 558,983 79,701 76,119 579,701
10 108,296 64,605 61,534 564,605 90,087 87,016 590,087
15 185,791 93,749 93,749 593,749 153,358 153,358 653,358
20 284,698 115,737 115,737 615,737 227,116 227,116 727,116
25 410,930 121,921 121,921 621,921 303,855 303,855 803,855
30 572,038 92,927 92,927 592,927 361,323 361,323 861,323
<CAPTION>
12% Hypothetical
Gross Investment Return
-----------------------
End of Cash
Policy Policy Surrender Death
Year(1) Value Value(4) Benefit
<S> <C> <C> <C>
1 $ 8,114(3) $ 3,654(3) $ 508,114(3)
2 17,003 11,885 517,003
3 26,747 21,629 526,747
4 37,426 32,308 537,426
5 49,123 44,005 549,123
6 61,934 56,816 561,934
7 75,957 71,351 575,957
8 91,305 87,210 591,305
9 108,096 104,513 608,096
10 126,459 123,388 626,459
15 257,985 257,985 757,985
20 470,090 470,090 970,090
25 804,841 804,841 1,304,841
30 1,317,895 1,317,895 1,817,895
</TABLE>
- ---------------
(1) All values shown are as of the end of the Policy Year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the Policy Anniversary, (b) no Policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force
until the end of the first 10 Policy Years. Provided the Death Benefit
Guarantee Cumulative Premium Test or the Fund Value Test has been and
continues to be met, the Guaranteed Death Benefit will keep the Policy in
force until the Policy Anniversary on which the lives insured are average
Attained Age 85 years old.
(4) Cash Surrender Value for first two years reflects sales charge limitations
imposed by the S.E.C.
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> 102
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$8,200 ANNUAL PLANNED PREMIUM
ASSUMING GUARANTEED CHARGES
<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(4) Benefit Value Value(4) Benefit
<S> <C> <C> <C> <C> <C> <C> <C>
1 $ 8,610 $ 7,226(3) $ 2,766(3) $ 507,226(3) $ 7,669(3) $ 3,209(3) $ 507,669(3)
2 17,651 14,287 9,169 514,287 15,618 10,500 515,618
3 27,143 21,179 16,061 521,179 23,849 18,731 523,849
4 37,110 27,892 22,774 527,892 32,361 27,242 532,361
5 47,576 34,416 29,298 534,416 41,152 36,034 541,152
6 58,564 40,739 35,621 540,739 50,218 45,100 550,218
7 70,103 46,847 42,240 546,847 59,551 54,945 559,551
8 82,218 52,722 48,627 552,722 69,143 65,048 569,143
9 94,939 58,346 54,763 558,346 78,979 75,396 578,979
10 108,296 63,695 60,624 563,695 89,041 85,970 589,041
15 185,791 85,814 85,814 585,814 142,440 142,440 642,440
20 284,698 94,439 94,439 594,439 194,668 194,668 694,668
25 410,930 73,846 73,846 573,846 226,161 226,161 726,161
30 572,038 0(5) 0(5) 0(5) 198,146 198,146 698,146
<CAPTION>
12% Hypothetical
Gross Investment Return
-----------------------
End of Cash
Policy Policy Surrender Death
Year(1) Value Value(4) Benefit
<S> <C> <C> <C>
1 $ 8,114(3) $ 3,654(3) $ 508,114(3)
2 17,002 11,884 517,002
3 26,734 21,616 526,734
4 37,381 32,263 537,381
5 49,022 43,904 549,022
6 61,740 56,622 561,740
7 75,623 71,017 575,623
8 90,767 86,673 590,767
9 107,276 103,693 607,276
10 125,254 122,183 625,254
15 242,330 242,330 742,330
20 416,286 416,286 916,286
25 659,980 659,980 1,159,980
30 977,179 977,179 1,477,179
</TABLE>
- ---------------
(1) All values shown are as of the end of the Policy Year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the Policy Anniversary, (b) no Policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force
until the end of the first 10 Policy Years. Provided the Death Benefit
Guarantee Cumulative Premium Test or the Fund Value Test has been and
continues to be met, the Guaranteed Death Benefit will keep the Policy in
force until the Policy Anniversary on which the lives insured are average
Attained Age 85 years old.
(4) Cash Surrender Value for first two years reflects sales charge limitations
imposed by the S.E.C.
(5) In the absence of additional premium payments, the Policy will lapse.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF 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> 103
APPENDIX B
DEFINITIONS
The following terms have the following meanings when used in this Prospectus:
ADDITIONAL RATING -- an addition to the cost of insurance rate for lives insured
who do not meet at least the underwriting requirements of the standard risk
class.
AGE -- at a specific date means, for each of the lives insured, the age on the
nearest birthday. If no specific date is mentioned, age means the age on the
birthday nearest to the Policy Anniversary.
ATTAINED AGE -- Issue Age plus duration the policy has been in force since the
Policy Date.
BUSINESS DAY -- any day that the New York Stock Exchange is open for trading and
trading is not restricted. The net asset value of the underlying shares of a
sub-account of the Separate Account will be determined as of the end of each
Business Day. A Business Day is deemed to end at 4:00 p.m. Eastern Time.
CASH SURRENDER VALUE -- the Policy Value less the deferred sales charge, the
deferred underwriting charge and any outstanding monthly deductions due.
DEATH BENEFIT GUARANTEE -- Manufacturers Life of America guarantees that the
Policy will not go into default even if a combination of Policy loans, adverse
investment experience or other factors should cause the Policy's Net Cash
Surrender Value to be insufficient to meet the monthly deductions due at the
beginning of a Policy Month.
DEATH BENEFIT GUARANTEE CUMULATIVE PREMIUM TEST -- a test that, if satisfied to
youngest Attained Age 100 for death benefit Option 1 Policies, and youngest
Attained Age 85 for death benefit Option 2 Policies, will maintain the Death
Benefit Guarantee. To satisfy the Death Benefit Guarantee Cumulative Premium
Test, the sum of premiums paid, less withdrawals, and less Policy loans must
equal or exceed the sum of Death Benefit Guarantee Premiums since issue as at
the beginning of each Policy Month.
DEATH BENEFIT GUARANTEE PREMIUM -- a measure of premium used in determining
compliance with the Death Benefit Guarantee Cumulative Premium Test. The Death
Benefit Guarantee Premium as an annual amount is established by the Company
based on the individual life insured's Issue Age, sex (unless unisex rates are
required by law or are requested), risk class, death benefit option,
supplementary benefits and additional ratings.
EFFECTIVE DATE -- the date that Manufacturers Life of America becomes obligated
under the Policy and when the first monthly deductions are taken. It is the
later of the date the underwriters approve issuance of the Policy, or the date
at least the Initial Premium is received at the Service Office.
FUND VALUE TEST -- a test which, if satisfied in applicable Policy Years, will
maintain the Death Benefit Guarantee. To satisfy the Fund Value Test the Gross
Single Premium at the beginning of any applicable Policy Month must not be
greater than the Net Policy Value.
GROSS SINGLE PREMIUM -- the amount of premium, based on each life insured's
Attained Age, the duration of the coverage, sex (unless unisex rates are
required by law or are requested), and risk class, needed to endow the Policy at
the age the Death Benefit Guarantee terminates, assuming 4% interest and current
charges.
GUARANTEED INTEREST ACCOUNT -- that part of the Policy Value which reflects the
value the policyowner has in the general account of Manufacturers Life of
America.
GUIDELINE ANNUAL PREMIUM (GAP) -- an amount defined by S.E.C. regulation. It is
used to determine maximum sales charges that may be deducted under the Policy.
INITIAL PREMIUM -- at least 1/12 of the Target Premium.
INVESTMENT ACCOUNT -- that part of the Policy Value which reflects the value the
policyowner has in one of the sub-accounts of the Separate Account.
<PAGE> 104
ISSUE AGE -- the Age nearest birthday, at Policy Date, as shown in the Policy.
If there is an Additional Rate based on age, the Issue Age will be adjusted to
reflect the underwriting class.
LOAN ACCOUNT -- that part of the Policy Value which reflects the value the
policyowner has transferred from the Guaranteed Interest Account or the
Investment Accounts as collateral for a Policy loan.
MODIFIED POLICY DEBT -- as of any date, the Policy Debt plus the amount of
interest to be charged to the next Policy Anniversary, all discounted from the
next Policy Anniversary to such date at an annual rate of 4%.
MONTHLY DEATH BENEFIT GUARANTEE PREMIUM -- 1/12 of the Death Benefit Guarantee
Premium.
MONTHLY NO LAPSE GUARANTEE PREMIUM -- 1/12 of the No Lapse Guarantee Premium.
NET CASH SURRENDER VALUE -- the Cash Surrender Value less the Policy Debt.
NET POLICY VALUE -- the Policy Value less the value in the Loan Account.
NET PREMIUM -- amount of premium allocated to the Investment Accounts and/or the
Guaranteed Interest Account. It equals gross premiums less the deductions for
premium charge and state, local and federal taxes.
NO LAPSE GUARANTEE -- Manufacturers Life of America guarantees that the Policy
will not go into default even if a combination of Policy loans, adverse
investment experience or other factors should cause the Policy's Net Cash
Surrender Value to be insufficient to meet the monthly deductions due at the
beginning of a Policy Month.
The No Lapse Guarantee requires a lower cumulative premium than the Death
Benefit Guarantee, and in return guarantees a shorter number of years that the
Policy will stay in force if the No Lapse Guarantee Cumulative Premium Test is
met.
NO LAPSE GUARANTEE CUMULATIVE PREMIUM TEST -- a test that, if satisfied in the
No Lapse Guarantee Period, will maintain the No Lapse Guarantee. To satisfy the
No Lapse Guarantee Cumulative Premium Test, the sum of premiums paid, less
withdrawals, and less Policy loans must equal or exceed the sum of No Lapse
Guarantee Premiums since issue as at the beginning of each Policy Month.
NO LAPSE GUARANTEE PERIOD -- is the first 10 Policy Years for lives insured with
an average Issue Age up to and including age 70. For lives insured with an
average Issue Age of 71 and older, the No Lapse Guarantee Period decreases by
one year for each year the average Issue Age exceeds 70, until age 77. After age
77 the No Lapse Guarantee Period is fixed at three years.
The No Lapse Guarantee is available only to lives insured whose average Issue
Age is 85 or less.
NO LAPSE GUARANTEE PREMIUM -- is equal to Target Premium, and is a measure of
premium used in determining compliance with the No Lapse Guarantee Premium Test.
PLANNED PREMIUM -- the premium the policyowner plans to pay periodically.
Subject to certain requirements of law, the Planned Premium may be changed at
any time.
POLICY DATE -- the date from which Policy Years, Policy Months and Policy
Anniversaries are determined. Monthly deductions are due on the Policy Date.
POLICY DEBT -- as of any date, the aggregate amount of Policy loans, including
borrowed interest, less any loan repayments.
POLICY VALUE -- the sum of the values in the Loan Account, the Guaranteed
Interest Account and the Investment Accounts.
SERVICE OFFICE -- the office designated to service the Policies, which is shown
on the cover page of this prospectus.
SURRENDER CHARGE PERIOD -- the period (usually 15 years) following the Policy
Date or any increase in face amount during which surrender charges may be
assessed if the Policy is surrendered or lapsed, the face
<PAGE> 105
amount is decreased or a partial withdrawal takes place. There are two surrender
charges under the Policy: a Deferred Underwriting Charge and a Deferred Sales
Charge.
TARGET PREMIUM (TP) -- premium amount used to determine the maximum sales charge
and deferred sales charge under a Policy and to determine the level of
compensation the agent shall receive. The Target Premium for the initial face
amount is set forth in the Policy.
This premium is based on each individual life insured's Issue Age, sex (unless
unisex rates are required by law or are requested), risk class, death benefit
option, supplementary benefits and additional ratings. The policyowner will be
advised of the Target Premium for any increase in face amount.
WITHDRAWAL TIER AMOUNT -- of any date is the net Cash Surrender Value at the
previous anniversary, multiplied by 10%.
<PAGE> 106
[MANULIFE FINANCIAL LOGO]
<PAGE> 107
PART II. OTHER INFORMATION
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;
Cross-Reference Sheet;
The Prospectus, consisting of 96 pages;
Representation of Insurer 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.
Incorporated by reference to Exhibit A(1) to the Registration
Statement on Form S-6 filed by The Manufacturers Life Insurance
Company of America on April 4, 1994 (File No. 33-77256).
A(3)(a)(i) Distribution Agreement between The Manufacturers Life Insurance
Company of America and ManEquity, Inc. Incorporated by reference
to Exhibit A(3)(a)(i) to the Registration Statement on Form S-6
filed by The Manufacturers Life Insurance Company of America on
April 4, 1994 (File No. 33-77256).
A(3)(a)(ii) Amendment to Distribution Agreement (re Variable Life).
Incorporated by reference to Exhibit A(3)(a)(ii) to the
Registration Statement on Form S-6 filed by The Manufacturers Life
Insurance Company of America on April 4, 1994 (File No. 33-77256).
A(3)(a)(iii) Amendment to Distribution Agreement (re redomestication).
Incorporated by reference to Exhibit A(3)(a)(iii) to the
Registration Statement on Form S-6 filed by The Manufacturers Life
Insurance Company of America on April 4, 1994 (File No. 33-77256).
A(3)(b)(i) Specimen Agreement between ManEquity, Inc. and registered
representatives. Incorporated by reference to Exhibit A(3)(b)(i)
to the Registration Statement on Form S-6 filed by The
Manufacturers Life Insurance Company of America on April 4, 1994
(File No. 33-77256).
A(3)(b)(ii) Specimen Agreement between ManEquity, Inc. and dealers.
Incorporated by reference to Exhibit A(3)(b)(ii) to the
Registration Statement on Form S-6 filed by The Manufacturers Life
Insurance Company of America on April 4, 1994 (File No. 33-77256).
A(3)(c) Schedule of Sales Commissions. Incorporated by reference to
Exhibit A(3)(c) to the Registration Statement on Form S-6 filed by
The Manufacturers Life Insurance Company of America on April 4,
1994 (File No. 33-77256).
A(5)(a) Specimen Flexible Premium Variable Life Insurance Policy.
Incorporated by reference to Exhibit A(5)(a) to the Pre- Effective
Amendment No. 1 to the Registration Statement on Form S-6 filed by
The Manufacturers Life Insurance Company of America on August 12,
1994 (File No. 33-77256).
A(5)(a)(i) Endorsement to Policy. Incorporated by reference to Exhibit
A(5)(a)(i) to Post-Effective Amendment No. 6 to the Registration
Statement on Form S-6 filed by The Manufacturers Life Insurance
Company of America on April 30, 1997 (File No. 33-77256).**
II-1
<PAGE> 108
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 to the Registration
Statement 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 to the Registration Statement 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.
(Amended and Restated as of July 1, 1993). Incorporated by
reference to Exhibit A(8)(a) to the Registration Statement on Form
S-6 filed by The Manufacturers Life Insurance Company of America
on April 4, 1994 (File No. 33-77256).
A(8)(b) Specimen Stoploss Reinsurance Agreement between The
Manufacturers Life Insurance Company of America and The
Manufacturers Life Insurance Company. Incorporated by reference to
Exhibit A(8)(b) to the Registration Statement on Form S-6 filed by
The Manufacturers Life Insurance Company of America on April 4,
1994 (File No. 33-77256).
A(8)(c) Service Agreement between The Manufacturers Life Insurance
Company and ManEquity. Incorporated by reference to Exhibit
A(8)(c) to the Registration Statement on Form S-6 filed by The
Manufacturers Life Insurance Company of America on April 4, 1994
(File No. 33-77256).
A(10) Specimen Application for Flexible Premium Variable Life
Insurance Policy. Incorporated by reference to Exhibit A(10) to
Post Effective Amendment No. 3 to the Registration Statement on
Form S-6 filed by The Manufacturers Life Insurance Company of
America on April 26, 1996 (File No. 33-77256).**
A(10)(a) Specimen Application Supplement for Flexible Premium Variable Life
Insurance Policy. Incorporated by reference to Exhibit A(10)(a) to
Post Effective Amendment No. 5 to the Registration Statement on
Form S-6 filed by The Manufacturers Life Insurance Company of
America on December 23, 1996 (File No. 33-77256).**
2. See Exhibit 1.A(5)(a).
3. Opinion and consent of James D. Gallagher, Esq., General Counsel
of The Manufacturers Life Insurance Company of America.
Incorporated by reference to Exhibit 3 to Post Effective Amendment
No. 5 to the Registration Statement on Form S-6 filed by The
Manufacturers Life Insurance Company of America on December 23,
1996 (File No. 33-77256).**
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. Specimen notice of withdrawal right ("free look" notice).
Incorporated by reference to Exhibit 7 to Pre-effective Amendment
No. 1 to the Registration Statement on Form S-6 filed by The
Manufacturers Life Insurance Company of America on August 12, 1994
(File No. 33-77256).
8(a). Specimen notice of right of surrender while sales charge
limitation applies (initial purchase). Incorporated by reference
to Exhibit 8(a) to Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-6 filed by The Manufacturers Life
Insurance Company of America on August 12, 1994 (File No.
33-77256).
8(b). Specimen notice of cancellation right (face amount increase).
Incorporated by reference to Exhibit 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 August 12,
1994 (File No. 33-77256).
8(c). Specimen notice of right of surrender while sales charge
limitation applies (default). Incorporated by reference to Exhibit
8(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 August 12, 1994 (File No. 33-77256).
II-2
<PAGE> 109
9. Memorandum Regarding Issuance, Face Amount Increase, Redemption
and Transfer Procedures for the Policies. Incorporated by
reference to Exhibit 9 to Post-Effective Amendment No. 4 to the
Registration Statement on Form S-6 filed by The Manufacturers Life
Insurance Company of America on November 1, 1996 (File no.
33-77256)**
10. Consent of Ernst & Young LLP.**
11. Consent of Jones & Blouch L.L.P.**
12. Power of Attorney. Incorporated by reference to 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-3
<PAGE> 110
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.
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
By: /s/ Donald A. Guloien
-----------------------------
DONALD A. GULOIEN
President
[SEAL]
Attest
/s/ James D. Gallagher
- -----------------------------
JAMES D. GALLAGHER
Secretary
II-4
<PAGE> 111
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-5
<PAGE> 112
EXHIBITS INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Sequentially Numbered Page
- ----------- ----------- --------------------------
<S> <C> <C>
99.A(1) Resolutions of Board of Incorporated by reference
Directors of The to Exhibit A(1) to the
Manufacturers Life Insurance Registration Statement on
Company of America Form S-6 filed by The
establishing Separate Account Manufacturers Life
Three. Insurance Company of
America on April 4,
1994(File No. 33-77256).
99.A(3)(a)(i) Distribution Agreement Incorporated by reference
between The Manufacturers to Exhibit A(3)(a)(i) to
Life Insurance Company of the Registration
America and ManEquity, Inc. Statement on Form S-6
filed by The
Manufacturers Life
Insurance Company of
America on April 4, 1994
(File No. 33-77256).
99.A(3)(a)(ii) Amendment to Distribution Incorporated by reference
Agreement (re Variable Life). to Exhibit A(3)(a)(ii) to
the Registration
Statement on Form S-6
filed by The
Manufacturers Life
Insurance Company of
America on April 4, 1994
(File No. 33-77256).
99.A(3)(a)(iii) Amendment to Distribution Incorporated by reference
Agreement (re to Exhibit A(3)(a)(iii)
redomestication). to the Registration
Statement on Form S-6
filed by The
Manufacturers Life
Insurance Company of
America on April 4, 1994
(File No. 33-77256).
99.A(3)(b)(i) Specimen agreement between Incorporated by reference
ManEquity, Inc. and to Exhibit A(3)(b)(i) to
registered representatives the Registration State
ment on Form S-6 filed by
The Manufacturers Life
Insurance Company of
America on April 4, 1994
(File No. 33-77256).
99.A(3)(b)(ii) Specimen agreement between Incorporated by reference
ManEquity, Inc. and dealers. to Exhibit A(3)(b)(ii) to
the Registration
Statement on Form S-6
filed by The
Manufacturers Life
Insurance Company of
America on April 4, 1994
(File No. 33-77256).
99.A(3)(c) Schedule of Sales Commissions. Incorporated by reference
to Exhibit A(3)(c) to the
Registration Statement on
Form S-6 filed by The
Manufacturers Life
Insurance Company of
America on April 4, 1994
(File No. 33-77256).
</TABLE>
II-6
<PAGE> 113
<TABLE>
<S> <C> <C>
99.A(5)(a) Specimen Flexible Incorporated by
Premium Variable reference to Exhibit
Life Insurance A(5)(a) to Pre-
Policy Effective Amendment
No.1 to the
Registration
Statement on Form S-6
filed by The
Manufacturers Life
Insurance Company of
America on August 12, 1994
(File No. 33-77256).
99.A(5)(a)(i) Endorsement to Policy ** Incorporated by reference
to Exhibit A(5)(a)(i) to
Post-Effective Amendment
No. 6 to the Registration
Statement on Form S-6 filed
by The Manufacturers Life
Insurance Company of America
on April 30, 1997 (File No.
33-77256).
99.A(6)(a) Restated Articles of Incorporated by
Redomestication reference to Exhibit
The Manufacturers 3(a)(i) to the Post
Life Insurance Effective Amendment
Company of America.** No. 6 to the
Registration
Statement 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 Incorporated by
Manufacturers Life reference to Exhibit
Insurance Company 3(b)(i) to the Post
of America.** Effective Amendment
No. 6 to the
Registration
Statement on Form S-1
filed by The
Manufacturers Life
Insurance Company of
America on December 9, 1996
(File No. 33-57020).
99.A(8)(a) Service Agreement Incorporated by
between The reference to Exhibit
Manufacturers Life A(8)(a) to the
Insurance Company Registration
of America and The Statement on Form S-6
Manufacturers Life filed by The
Insurance Company Manufacturers Life
(Amended and Insurance Company of
Restated as of America on April 4, 1994
July 1, 1993). (File No. 33-77256).
99.A(8)(b) Specimen Stoploss Incorporated by
Reinsurance reference to Exhibit
Agreement between A(8)(b) to the
The Manufacturers Registration
Life Insurance Statement on Form S-6
Company of America filed by The
and The Manufacturers Life
Manufacturers Life Insurance Company of
Insurance Company. America on April 4, 1994
(File No. 33-77256).
99.A(8)(c) Service Agreement Incorporated by
between The reference to Exhibit
Manufacturers Life A(8)(c) to the
Insurance Company Registration
and ManEquity. Statement on Form S-6
filed by The
Manufacturers Life
Insurance Company of
America on April 4, 1994
(File No. 33-77256).
99.A(10) Specimen Incorporated by
Application for reference to Exhibit
Flexible Premium A(10) to the
Variable Life Post-Effective
Insurance Policy.** Amendment No. 3 to
the Registration
Statement on Form S-6
filed By The
Manufacturers Life
Insurance Company of
America on April 26, 1996
(File No. 33-77256).
</TABLE>
** Filed Electronically.
II-7
<PAGE> 114
<TABLE>
<S> <C> <C>
99.A(10)(a) Specimen Application Incorporated by
Supplement for Flexible reference to
Premium Variable Life Exhibit A(10)(a) to
Insurance Policy.** Post-Effective
Amendment No. 5 to
the Registration Statement
on Form S-6 filed
by The Manufacturers
Life Insurance Company
of America on
December 23, 1996
(File No. 33-77256)
99.2. See Exhibit 1A(5)(a).
99.3. Opinion and consent Incorporated by
of James D. reference to
Gallagher, Esq., Exhibit 3 to the
General Counsel of Post-Effective
The Manufacturers Amendment No. 5 to
Life Insurance 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. 33-77256).
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. Specimen notice of Incorporated by
withdrawal right reference to
("free look" Exhibit 7 to
notice). Pre-Effective
Amendment No.1 to
the Registration
Statement on Form
S-6 filed by The
Manufacturers Life
Insurance Company
of America on
August 12, 1994
(File No. 33-77256).
99.8(a). Specimen notice of Incorporated by
right of surrender reference to
while sales charge Exhibit 8(a) to
limitation Pre- Effective
applies(initial Amendment No.1 to
purchase). the Registration
Statement on Form
S-6 filed by The
Manufacturers Life
Insurance Company
of America on
August 12, 1994
(File No. 33-77256).
99.8(b). Specimen notice of Incorporated by
cancellation right reference to
(face amount Exhibit 8(b) to
increase). Pre-Effective
Amendment No.1 to
the Registration
Statement on Form
S-6 filed by The
Manufacturers Life
Insurance Company
of America on
August 12, 1994
(File No. 33-77256).
99.8(c). Specimen notice of Incorporated by
right of surrender reference Exhibit
while sales charge 8(c) to Pre-
limitation Effective Amendment
applies(default). No.1 to the
Registration
Statement on Form
S-6 filed by The
Manufacturers Life
Insurance Company
of America on
August 12, 1994
(File No. 33-77256).
</TABLE>
** Filed electronically
II-8
<PAGE> 115
<TABLE>
<S> <C> <C>
99.9. Memorandum Regarding Issuance, Incorporated by
Face Amount Increase, Redemption reference to
and Transfer Procedures for the Exhibit 9 to
Policies.** Post-Effective
Amendment No. 4 to
the Registration
Statement on Form
S-6 filed by The
Manufacturers Life
Insurance Company
of America on
November 1, 1996
(File No. 33-77256)
99.24 Power of Attorney** Incorporated by reference
to 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)
99.C1 Consent of Ernst & Young LLP.**
99.C6 Consent of Jones & Blouch
L.L.P. **
</TABLE>
** Filed electronically
88
<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. 7 to Registration Statement No. 33-77256 on Form S-6
("Registration Statement") which covers premiums expected to be received under
Flexible Premium Survivorship 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 provision.
(4) 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.
(5) Table 1 under the caption "Deferred Sales Charge" showing the Deferred
Underwriting Charge and the Surrender Charge grading percentages
during the surrender charge period, is consistent with the provisions
of the Policy.
(6) The illustration of the operation of the deferred sales charge shown
under the caption "Deferred Sales Charge", based on the assumptions
stated in the illustration, is consistent with the Policy's sales
charge structure.
(7) The illustration of the operation of the maximum sales charge shown
under the sub-caption "Sales Charge Limitation" of the caption
"Deferred Sales Charge", based on the assumptions stated in the
illustration, is consistent with the Policy's sales charge structure.
(8) The illustration of the Policy Values, Cash Surrender Values, and
Death Benefits for the Policy shown in Appendix A 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 age 55 and female age 50, than to prospective
purchasers of the Policy for males/females 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. 7 to the Registration Statement No. 33-77256 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. 7 to the
registration statement on Form S-6 of Separate Account Three of The
Manufacturers Life Insurance Company of America, File No. 33-77256, 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.
