<PAGE> 1
As filed with the Securities and Exchange Commission on February 5, 1999.
Registration No. 333-66303
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. 1
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
(Exact name of Registrant)
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
Vice President, Secretary
and General Counsel
The Manufacturers Life Insurance Company
of America
73 Tremont Street
Boston, MA 02108
(Name and Address of Agent for Service)
Copy to:
J. Sumner Jones, Esq.
Jones & Blouch L.L.P.
1025 Thomas Jefferson Street, NW
Washington, DC 20007
Title of Securities Being Registered: Variable Life Insurance Contracts
Approximate date of commencement of proposed public offering: As soon after the
effective date of this Registration Statement as is practicable.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that the Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE> 2
Separate Account Three of
The Manufacturers Life Insurance Company of America
Registration Statement on Form S-6
Cross-Reference Sheet
FORM
N-8B-2
ITEM NO. CAPTION IN PROSPECTUS
1 Cover Page; General Information About Manufacturers (Separate
Account Three)
2 Cover Page; General Information About Manufacturers (Manufacturers
Life of America)
3 *
4 Other Information (Distribution of the Policy)
5 General Information About Manufacturers Life (Separate Account
Three)
6 General Information About Manufacturers (Separate Account Three)
7 *
8 *
9 Other Information (Litigation)
10 Death Benefits; Premium Payments; Charges and Deductions; Policy
Value; Policy Loans; Policy Surrender and Partial Withdrawals; Lapse
and Reinstatement; Other Provisions of the Policy; Other Information
11 General Information About Manufacturers (Manufacturers Investment
Trust)
12 General Information About Manufacturers (Manufacturers Investment
Trust)
13 Charges and Deductions
14 Issuing A Policy; Other Information (Responsibilities Assumed By
Manufacturers Life)
15 Issuing A Policy
16 **
17 Policy Surrender and Partial Withdrawals
18 General Information About Manufacturers
19 Other Information (Reports to Policyholders; Responsibilities
Assumed By Manufacturers Life)
20 *
21 Policy Loans
<PAGE> 3
22 *
23 **
24 Other Provisions of the Policy
25 General Information About Manufacturers (Manufacturers Life of
America)
26 *
27 **
28 Other Information (Officers and Directors)
29 General Information About Manufacturers (Manufacturers Life of
America)
30 *
31 *
32 *
33 *
34 *
35 **
36 *
37 *
38 Other Information (Distribution of the Policies; Responsibilities of
Manufacturers Life)
39 Other Information (Distribution of the Policies)
40 *
41 **
42 *
43 *
44 Policy Values --Determination of Policy Value; Units and Unit
Values)
45 *
46 Policy Surrender and Partial Withdrawals; Other Information --
Payment of Proceeds)
47 General Information About Manufacturers (Manufacturers Investment
Trust)
48 *
<PAGE> 4
49 *
50 General Information About Manufacturers
51 Issuing a Policy; Death Benefits; Premium Payments; Charges and
Deductions; Policy Value; Policy Loans; Policy Surrender and Partial
Withdrawals; Lapse and Reinstatement; Other Policy Provisions
52 Other Information (Substitution of Portfolio Shares)
53 **
54 *
55 *
56 *
57 *
58 *
59 Financial Statements
* Omitted since answer is negative or item is not applicable.
** Omitted.
<PAGE> 5
COVER PAGE
This prospectus describes Survivorship VUL, a flexible premium survivorship
variable universal life insurance policy (the "Policy") offered by The
Manufacturers Life Insurance Company of America (the "Company" or "Manufacturers
Life Of America"), a stock life insurance company that is an indirect
wholly-owned subsidiary of The Manufacturers Life Insurance Company
("Manufacturers Life").
The Policy is designed to provide lifetime insurance protection together with
flexibility as to the timing and amount of premium payments, the investments
underlying the Policy Value, and the amount of insurance coverage. This
flexibility allows the policyowner to pay premiums and adjust insurance coverage
in light of his or her current financial circumstances and insurance needs.
The Policy provides for:
(1) a Net Cash Surrender Value that can be obtained by surrendering the Policy;
(2) policy loans and partial withdrawals; and
(3) an insurance benefit payable at the death of the last-to-die of the Lives
Insured.
Unless the No-Lapse Guarantee is in effect, the Policy will remain in force so
long as the Net Cash Surrender Value is sufficient to cover charges assessed
against the Policy. If the No-Lapse Guarantee is in effect, the Policy will
remain in force as long as the No-Lapse Guarantee Cumulative Premium Test has
been met.
Policy Value may be accumulated on a fixed basis or vary with the investment
performance of the sub-accounts of Manufacturer 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 "Trust"). The accompanying prospectus for the Trust, and the
corresponding statement of additional information, describe the investment
objectives of the Portfolios. The Portfolios available for allocation of Net
Premiums are shown in the Policy Summary under "Investment Options and
Investment Advisers." Other sub-accounts and Portfolios may be added in the
future.
BECAUSE OF THE SUBSTANTIAL NATURE OF THE SURRENDER CHARGES, THE POLICY IS NOT
SUITABLE FOR SHORT-TERM INVESTMENT PURPOSES. ALSO, PROSPECTIVE PURCHASERS SHOULD
NOTE THAT IT MAY NOT BE ADVISABLE TO PURCHASE A POLICY AS A REPLACEMENT FOR
EXISTING INSURANCE.
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.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT IS
VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE TRUST.
THESE POLICIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC. NEITHER THE SEC
NOR ANY STATE HAS DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Manufacturers Life Insurance Company of America
500 North Woodward Avenue
Bloomfield Hills, Michigan 48304
The date of this Prospectus is _____, 1999.
<PAGE> 6
TABLE OF CONTENTS
Cover Page....................................................................
Table of Contents.............................................................
Definitions...................................................................
Policy Summary................................................................
General.....................................................................
Death Benefits..............................................................
Premiums....................................................................
Policy Value................................................................
Policy Loans................................................................
Surrender and Partial Withdrawals...........................................
Lapse and Reinstatement.....................................................
Charges and Deductions......................................................
Investment Options and Investment Advisers..................................
Table of Charges and Deductions.............................................
Table of Investment Management Fees and Expenses............................
Table of Investment Options and Investment Advisers.........................
General Information about Manufacturers.......................................
Manufacturers Life of America...............................................
Separate Account Three......................................................
Manufacturers Investment Trust..............................................
Investment Objectives of the Portfolios.....................................
Issuing A Policy..............................................................
Requirements................................................................
Temporary Insurance Agreement...............................................
Underwriting................................................................
Right to Examine the Policy.................................................
Death Benefits................................................................
Life Insurance Qualification................................................
Death Benefit Options.......................................................
Changing the Face Amount....................................................
Premium Payments..............................................................
Initial Premiums............................................................
Subsequent Premiums.........................................................
Maximum Premium Limitation..................................................
Premium Allocation..........................................................
Charges and Deductions........................................................
Amount Deducted from Premium................................................
Surrender Charges...........................................................
Monthly Charges.............................................................
Charges Assessed Against Assets of the Investment Accounts..................
Charges for Transfers.......................................................
Reduction in Charges........................................................
Special Provisions for Exchanges..............................................
Company Tax Considerations....................................................
Policy Value..................................................................
Determination of the Policy Value...........................................
Units and Unit Values.......................................................
Transfers of Policy Value...................................................
Policy Loans..................................................................
Effect of Policy Loan.......................................................
2
<PAGE> 7
Interest Charged on Policy Loans............................................
Loan Account................................................................
Policy Surrender and Partial Withdrawals......................................
Policy Surrender............................................................
Partial Withdrawals.........................................................
Lapse and Reinstatement.......................................................
Lapse.......................................................................
No-Lapse Guarantee..........................................................
No-Lapse Guarantee Cumulative Premium Test..................................
Reinstatement...............................................................
The General Account...........................................................
Fixed Account...............................................................
Other Provisions of the Policy..............................................
PolicyownerPolicyholder Rights..............................................
Beneficiary.................................................................
Incontestability............................................................
Misstatement of Age or Sex..................................................
Suicide Exclusion...........................................................
Supplementary Benefits......................................................
Tax Treatment of the Policy...................................................
Life Insurance Qualification................................................
Tax Treatment of Policy Benefits............................................
Alternate Minimum Tax.......................................................
Income Tax Reporting........................................................
Other Information.............................................................
Payment of Proceeds.........................................................
Reports to PolicyownerPolicyholders.........................................
Distribution of the Policies................................................
Responsibilities of Manufacturers Life......................................
Voting Rights...............................................................
Substitution of Portfolio Shares............................................
Records and Accounts........................................................
State Regulations...........................................................
Litigation..................................................................
Independent Auditors........................................................
Warrant Auditors............................................................
Further Information.........................................................
Officers and Directors......................................................
Impact of Year 2000.........................................................
Financial Statements........................................................
Appendix A - Sample Illustrations of Policy Values, Cash Surrender Values
and Death Benefits........................................................
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.
Examine this prospectus carefully. The Policy Summary will briefly describe the
Policy. More detailed information will be found further in the prospectus.
3
<PAGE> 8
DEFINITIONS
Additional Rating
is an increase to the Cost of Insurance Rate for any of the Lives Insured who do
not meet, at a minimum, the Company's underwriting requirements for the standard
Risk Classification.
Age
on any date is each of the Lives Insured's age on their birthday closest to
the policy date.
Attained Age
is the Age plus the number of whole years that have elapsed since the Policy
Date.
Business Day
is 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
will be determined as of the end of each Business Day. The Company will deem
each Business Day to end at the close of regularly scheduled trading of the New
York Stock Exchange (currently 4:00 p.m. Eastern Time) on that day.
Cash Surrender Value
is the Policy Value less the Surrender Charge and any outstanding Monthly
Deductions due.
Effective Date
is the date the underwriters approve issuance of the policy. If the policy is
approved without the initial premium, the Effective Date will be the date the
Company receives at least the minimum initial premium at our Service Office. In
either case, the Company will take the first Monthly Deduction on the Effective
Date.
Fixed Account
is that part of the Policy Value which reflects the value the policyowner has
in the general account of the Company.
Gross Withdrawal
is the amount of partial Net Cash Surrender Value the policyowner requests plus
any Surrender Charge applicable to the withdrawal.
Investment Account
is that part of the Policy Value which reflects the value the policyowner has in
one of the sub-accounts of the Separate Account.
Issue Date
4
<PAGE> 9
is the date the Company issued the Policy. The Issue Date is also the date
from which the Suicide and Validity provisions of the Policy are measured.
Life Insured
is the last-to-die of the Lives Insured.
Lives Insured
are the persons whose lives are insured under this policy. References to the
youngest of the Lives Insured means the youngest person insured under this
policy when it is first issued.
Loan Account
is that part of the Policy Value which reflects the value transferred from the
Fixed Account or the Investment Accounts as collateral for a policy loan.
Net Cash Surrender Value
is the Cash Surrender Value less the Policy Debt.
Net Policy Value
is the Policy Value less the value in the Loan Account.
Net Premium
is the gross premium paid less any amounts deducted from the premium. It is
the amount of premium allocated to the Fixed Account and/or Investment
Accounts.
No-Lapse Guarantee
When the Policy is in the No-Lapse Guarantee Period, as long as the No-Lapse
Guarantee Cumulative Premium Test is met, the Policy will not lapse, even when
the Net Cash Surrender Value falls to or below zero.
No-Lapse Guarantee Period
is set at issue and is fixed at ten years.
No-Lapse Guarantee Premium
is set at issue and is recalculated whenever there is a policy change.
No-Lapse Guarantee Cumulative Premium
is the minimum amount due to satisfy the No-Lapse Guarantee Cumulative Premium
Test. This amount will change if any of the following changes occur under the
Policy:
- - the face amount of insurance changes.
- - a Supplementary Benefit is added, changed or terminated.
- - the risk classification of any of the Lives Insured changes because of a
change in smoking status.
- - a temporary Additional Rating is added (due to a face amount increase), or
terminated.
5
<PAGE> 10
- - the Death Benefit Option Changes.
No-Lapse Guarantee Cumulative Premium Test
is a test that is satisfied if the sum of all premiums paid, less any gross
partial withdrawals and less any Policy Debt, is greater than or equal to the
sum of the monthly No-Lapse Guarantee Premiums due since the Policy Date.
Policy Date
is the date coverage takes effect under the Policy, provided the Company
receives the minimum initial premium at its Service Office, and is the date from
which charges for the first monthly deduction are calculated, and the date from
which Policy Years, Policy Months, and Policy Anniversaries are determined.
Policy Debt
as of any date equals (a) plus (b) plus (c) minus (d), where:
(a) is the total amount of loans borrowed as of such date;
(b) is the total amount of any unpaid loan interest charges which have been
borrowed against the policy on a Policy Anniversary;
(c) is any interest charges accrued from the last Policy Anniversary to the
current date; and
(d) is the total amount of loan repayments as of such date.
Policy Value
is the sum of the values in the Loan Account, the Fixed Account, and the
Investment Accounts.
Service Office Address
is 200 Bloor Street East, Toronto, Ontario, Canada M4W 1E5.
Surrender Charge Period
is the period following the Issue Date or following any increase in Face Amount
during which the Company will assess surrender charges. Surrender charges will
apply during this period if the policy terminates due to default, if the
policyowner surrenders the policy or makes a partial withdrawal.
Written Request
is the policyowner's request to the Company which must be in a form satisfactory
to the Company, signed and dated by the policyowner, and received at the Service
Office.
6
<PAGE> 11
POLICY SUMMARY
GENERAL
The Policy is a flexible premium survivorship variable universal life insurance
policy. 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 minimum death benefit percentage. The Policy's provisions may
vary in some states.
DEATH BENEFITS
The Policy provides a death benefit in the event of the death of the last-to-die
of the Lives Insured. There are two death benefit options. Under Option 1 the
death benefit is the Face Amount of the Policy at the date of death or, if
greater, the Minimum Death Benefit. Under Option 2 the death benefit is the Face
Amount plus the Policy Value of the Policy at the date of death or, if greater,
the Minimum Death Benefit. The policyowner may change the death benefit option
and increase or decrease the Face Amount.
PREMIUMS
Premium payments may be made at any time and in any amount, subject to certain
limitations as described under "Premium Payments - Subsequent Premiums." Net
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. Allocation instructions may be changed at any
time and transfers among the accounts may be made.
POLICY VALUE
The Policy has a Policy Value reflecting premiums paid, certain charges for
expenses and cost of insurance, and the investment performance of the accounts
to which the policyowner has allocated premiums. The policyowner may obtain a
portion of the Policy Value by taking a policy loan or a partial withdrawal, or
by full surrender of the Policy.
POLICY LOANS
The policyowner may borrow against the Cash Surrender Value of the Policy. Loan
interest at a rate of 5.25% is due and payable in arrears on each Policy
Anniversary. All outstanding Policy Debt will be deducted from proceeds payable
at the insured's death, or upon surrender.
SURRENDER AND PARTIAL WITHDRAWALS
The policyowner may make a partial withdrawal of the Policy Value. A partial
withdrawal may result in a reduction in the Face Amount of the Policy and an
assessment of a portion of the surrender charges to which the Policy is subject.
A Policy may be surrendered for its Net Cash Surrender Value at any time while
the Life Insured is living. The Net Cash Surrender Value is equal to the Policy
Value less Surrender Charges and outstanding Monthly Deductions due minus the
Policy Debt.
LAPSE AND REINSTATEMENT
Unless the No-Lapse Guarantee is in effect, a Policy will lapse (and terminate
without value) when the Net Cash Surrender Value is insufficient to pay the next
monthly deduction and a grace period of 61 days expires without an adequate
payment being made by the policyowner. If the No-Lapse Guarantee is in
7
<PAGE> 12
effect, the Policy will lapse if the No-Lapse Guarantee Cumulative Premium Test
(see definition) has not been met.
The Policies, therefore, differ in two important respects from conventional life
insurance policies. First, the failure to make planned premium payments will not
itself cause a Policy to lapse. Second, a Policy can lapse even if planned
premiums have been paid.
A lapsed Policy may be reinstated by the policyowner at any time within the five
year period following lapse provided none of the Lives Insured dies after the
policy termination and the Policy was not surrendered for its Net Cash Surrender
Value. Evidence of insurability is required, along with a certain amount of
premium as described under "Reinstatement."
CHARGES AND DEDUCTIONS
The Company assesses certain charges and deductions in connection with the
Policy. These include: (i) charges assessed monthly for mortality and expense
risks, cost of insurance, administration expenses, (ii) amounts deducted from
premiums paid (iii) and charges assessed on surrender or lapse. These charges
are summarized in the Table of Charges and Deductions.
In addition, there are charges deducted from each Portfolio of the Trust. These
charges are summarized in the Table of Investment Management Fees and Expenses.
INVESTMENT OPTIONS AND INVESTMENT ADVISERS
Net Premiums may be allocated to the general account or to one or more of the
sub-accounts of Manufacturers Life of America's Separate Account Three. Each of
the sub-accounts invests in the shares of one of the Portfolios of the Trust.
The Trust receives investment advisory services from Manufacturers Securities
Services, LLC ("MSS"). MSS is a registered investment adviser under the
Investment Advisers Act of 1940. The Trust also employs subadvisers. The Table
of Investment Options and Investment Advisers shows the subadvisers that provide
investment subadvisory services to the indicated Portfolios.
INVESTMENT MANAGEMENT FEES AND EXPENSES
The Separate Account purchases shares of the Portfolios at net asset value. The
net asset value of those shares reflects investment management fees and certain
expenses. The fees and expenses for each Portfolio for the Trust's last fiscal
year are shown in the Table of Investment Management Fees and Expenses. These
fees and expenses are described in detail in the accompanying Trust prospectus
to which reference should be made.
8
<PAGE> 13
TABLE OF CHARGES AND DEDUCTIONS
<TABLE>
<S> <C>
Amount Deducted from Premium 7.50% of each premium paid.
Surrender Charges A Surrender Charge is applicable during the first 15 Policy Years. The
Surrender Charge is determined by the following formula:
Surrender Charge = (Surrender Charge Rate)x(Grading Percentage)
The Grading Percentage is based on the issue age of the youngest
insured and the policy year in which the transaction causing the
assessment of the charge occurs and is set forth in the table under
"Surrender Charges."
The Surrender Charge Rate is calculated as follows:
Surrender Charge Rate = (Factor)x(Surrender Face Amount / 1000) +
(82.5%)x(Surrender Charge Premium)
The Surrender Charge Premium is the lesser of:
(a) the premiums paid during the first policy year;
(b) the premium amount used to measure the maximum Surrender Charge
under the Policy;
(c) the net level annual premium required to provide level insurance
to attained age 100 of the younger insured based on guaranteed monthly
mortality charges and an interest rate of 4%; and
(d) $60 per $1000 of Face Amount.
A portion of this charge may be assessed on a partial withdrawal, as
set forth under "Charges and Deductions - Surrender Charges on a
Partial Withdrawal."
Monthly Deductions
An administration charge of $30 plus $0.08 per $1,000 of current face
amount per policy month will be deducted in the first policy year. In
subsequent years, the administration charge will not exceed $15 plus
$0.02 per $1,000 of current Face Amount per policy month.
The cost of insurance charge.
Any additional charges for supplementary benefits.
A mortality and expense risks charge. This charge varies by Policy
Year as follows:
</TABLE>
9
<PAGE> 14
<TABLE>
<CAPTION>
Current and
Guaranteed Equivalent
Monthly Annual
Mortality Mortality and
and Expense Expense Risk
Policy Years Risks Charge Charge
<S> <C> <C>
1-20 0.063% 0.75%
21+ 0.033% 0.40%
</TABLE>
<TABLE>
<S> <C>
All of the above charges are deducted from the Net Policy Value.
Loan Charges A fixed loan interest rate of 5.25%.
Interest credited to amounts in the Loan Account will be equal to
the 5.25% rate charged to the loan less the current and maximum
loan spread of 1.25%.
Transfer Charge A charge of $25 per transfer for each transfer in excess of 12 in
a Policy Year.
</TABLE>
10
<PAGE> 15
TABLE OF INVESTMENT MANAGEMENT FEES AND EXPENSES
Annual Expenses of Each Portfolio
(as a percentage of a Portfolio's average net assets)
<TABLE>
<CAPTION>
Other Expenses
Management (After Expense Total Trust
Portfolio Fees Reimbursement)*** Annual Expenses
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Growth
Pacific Rim Emerging Markets........ 0.850% 0.570% 1.420%
Science & Technology................ 1.100% 0.160% 1.260%
International Small Cap............. 1.100% 0.210% 1.310%
Emerging Small Company.............. 1.050% 0.060% 1.110%
Pilgrim Baxter Growth............... 1.050% 0.130% 1.180%
Small/Mid Cap....................... 1.000% 0.050% 1.050%
International Stock................. 1.050% 0.330% 1.380%
Growth
Worldwide Growth.................... 1.000% 0.320% 1.320%
Global Equity....................... 0.900% 0.110% 1.010%
Small Company Value................. 1.050% 0.100%* 1.150%
Equity.............................. 0.750% 0.050% 0.800%
Growth.............................. 0.850% 0.100% 0.950%
Quantitative Equity................. 0.700% 0.070% 0.770%***
Blue Chip Growth.................... 0.925% 0.050% 0.975%
Equity Index........................ 0.250% 0.15%**** 0.40%****
Real Estate Securities.............. 0.700% 0.070% 0.770%***
Growth and Income
Value............................... 0.800% 0.160% 0.960%
International Growth and Income..... 0.950% 0.170% 1.120%
Growth and Income.................. 0.750% 0.040% 0.790%
Equity-Income....................... 0.800% 0.050% 0.850%
Balanced
Balanced............................ 0.800% 0.080% 0.880%
Aggressive Asset Allocation......... 0.750% 0.150% 0.900%
Moderate Asset Allocation.......... 0.750% 0.100% 0.850%
Conservative Asset Allocation....... 0.750% 0.140% 0.890%
Bond
High Yield.......................... 0.775% 0.110% 0.885%
Strategic Bond..................... 0.775% 0.100% 0.875%
Global Government Bond.............. 0.800% 0.130% 0.930%
Capital Growth Bond................. 0.650% 0.080% 0.730%***
Investment Quality Bond............. 0.650% 0.090% 0.740%
U.S. Government Securities.......... 0.650% 0.070% 0.720%
Money Market
Money Market........................ 0.500% 0.040% 0.540%
Lifestyle
Lifestyle Aggressive 1000#.......... 0% 1.116%** 1.116%
Lifestyle Growth 820#............... 0% 1.048%** 1.048%
Lifestyle Balanced 640#............. 0% 0.944%** 0.944%
Lifestyle Moderate 460#............. 0% 0.850%** 0.850%
Lifestyle Conservative 280#......... 0% 0.708%** 0.708%
</TABLE>
11
<PAGE> 16
#Each Lifestyle Trust will invest in shares of the Underlying Portfolios.
Therefore, each Lifestyle Trust will bear its pro rata share of the fees and
expenses incurred by the Underlying Portfolios and the investment return of each
Lifestyle Trust will be net of the Underlying Portfolio expenses. Each Lifestyle
Portfolio must also bear its own expenses. However, the Adviser is currently
paying these expenses as described in footnote ** below.
*Based on estimates of payments to be made during the current fiscal year.
** Reflects expenses of the other portfolios of the Trust in which the Lifestyle
Trust invests ("Underlying Portfolios"). MSS has voluntarily agreed to pay the
expenses of each Lifestyle Trust (excluding the expenses of the Underlying
Portfolios). This voluntary expense reimbursement may be terminated at any time.
If such expense reimbursement was not in effect, Total Trust Annual Expenses
would be .04% higher (based on expenses of the Lifestyle Trusts for the fiscal
year ended December 31, 1997) as noted in the chart below:
<TABLE>
<CAPTION>
Management Other Total Trust
Trust Portfolio Fees Expenses Annual Expenses
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lifestyle Aggressive 1000........... 0% 1.156% 1.156%
Lifestyle Growth 820................ 0% 1.088% 1.088%
Lifestyle Balanced 640.............. 0% 0.984% 0.984%
Lifestyle Moderate 460.............. 0% 0.890% 0.890%
Lifestyle Conservative 280.......... 0% 0.748% 0.748%
</TABLE>
***During the one year period ended December 31, 1997, MSS voluntarily waived
fees payable to it and/or reimbursed expenses to the extent necessary to prevent
"Total Trust Annual Expenses" for the Quantitative Equity, Real Estate and
Capital Growth Bond Trusts from exceeding .50% of the Trust's average net
assets. This voluntary fee waiver was terminated effective January 1, 1998.
Expenses shown in the table for these three Trusts do not reflect the fee
waiver.
****Under the Advisory Agreement, MSS has agreed to reduce its advisory fee or
reimburse the Equity Index Trust if the total of all expenses (excluding
advisory fees, taxes, portfolio brokerage commissions, interest, litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Trust's business) exceed an annual rate of 0.15% of the
average annual net assets of the Equity Index Trust. The expense limitation will
continue in effect from year to year unless otherwise terminated at any year end
by MSS on 30 days' notice to the Trust. If this expense reimbursement had not
been in effect, Total Trust Annual Expenses would have been 0.57%, and Other
Expenses would have been 0.32%, of the average annual net assets of the Equity
Index Trust.
TABLE OF INVESTMENT OPTIONS AND INVESTMENT ADVISERS
<TABLE>
<CAPTION>
Portfolio Subadviser
<S> <C>
Aggressive Growth
Pacific Rim Emerging Market Trust Manufacturers Adviser Corporation*
Science and Technology Trust T. Rowe Price Associates, Inc.
International Small Cap Trust Founders Asset Management, LLC
Emerging Small Company Trust Warburg Pincus Asset Management, 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
</TABLE>
12
<PAGE> 17
<TABLE>
<S> <C>
Worldwide Growth Trust Founders Asset Management, LLC
Global Equity Trust Morgan Stanley Dean Witter
Investment Management Inc.
Small Company Value Trust AXA Rosenberg Investment Management LLC
Equity Trust Fidelity Management Trust Company
Growth Trust Founders Asset Management, LLC
Quantitative Equity Trust Manufacturers Adviser Corporation*
Equity Index Trust Manufacturers Adviser Corporation*
Blue Chip Growth Trust T. Rowe Price Associates, Inc.
Real Estate Securities Trust Manufacturers Adviser Corporation*
Growth and Income
Value Trust Miller Anderson & Sherrerd, LLP
International Growth and Income Trust J.P. Morgan Investment Management, Inc.
Growth and Income Trust Wellington Management Company, LLP
Equity Income Trust T. Rowe Price Associates, Inc.
Balanced
Balanced Trust Founders Asset Management, LLC
Aggressive Asset Allocation Trust Fidelity Management Trust Company
Moderate Asset Allocation Trust Fidelity Management Trust Company
Conservative Asset Allocation Trust Fidelity Management Trust Company
Bond
High Yield Trust Miller Anderson & Sherrerd, LLP
Strategic Bond Trust Salomon Brothers Asset Management, Inc.
Global Government Bond Trust Oechsle International Advisors, LLC
Capital Growth Bond Trust Manufacturers Adviser Corporation*
Investment Quality Bond Trust Wellington Management Company, LLP
U.S. Government Securities Trust Salomon Brothers Asset Management, Inc.
Money Market
Money Market Trust Manufacturers Adviser Corporation*
Lifestyle
Lifestyle Aggressive Growth 1000 Trust Manufacturers Adviser Corporation*
Lifestyle Growth 820 Trust Manufacturers Adviser Corporation*
Lifestyle Balanced 640 Trust Manufacturers Adviser Corporation*
Lifestyle Moderate 460 Trust Manufacturers Adviser Corporation*
Lifestyle Conservative 280 Trust Manufacturers Adviser Corporation*
</TABLE>
*Manufacturers Adviser Corporation is an indirect wholly-owned subsidiary of
Manufacturers Life.
13
<PAGE> 18
GENERAL INFORMATION ABOUT MANUFACTURERS
MANUFACTURERS LIFE OF AMERICA
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. The ultimate parent of Manufacturers Life of America and
Manufacturers USA is 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. However,
neither Manufacturers Life of America nor Manufacturers Life guarantees the
investment performance of the Separate Account.
On January 20, 1998, the Board of Directors of Manufacturers Life announced that
it had asked the management of Manufacturers Life to prepare a plan for
conversion of Manufacturers Life from a mutual life insurance company to an
investor owned, publicly traded stock company. Any demutualization plan for
Manufacturers Life is subject to the approval of the Manulife Board of Directors
and policyowners as well as regulatory approval.
RATINGS
Manufacturers Life and Manufacturers Life of America have received the following
ratings from independent rating agencies:
<TABLE>
<S> <C>
Standard and Poor's Insurance Ratings Service: AA+ (for claims paying ability)
A.M. Best Company: A++ (for financial strength)
Duff & Phelps Credit Rating Co.: AAA (for claims paying ability)
Moody's Investors Service, Inc.: Aa2 (for financial strength)
</TABLE>
These ratings, which are current as of the date of this prospectus and are
subject to change, are assigned to The Manufacturers Life Insurance Company of
America as a measure of the Company's ability to honor the death benefit and
life annuitization guarantees but not specifically to its products, the
performance (return) of these products, the value of any investment in these
products upon withdrawal or to individual securities held in any portfolio.
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,
it 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.
ASSETS OF THE SEPARATE ACCOUNT
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.
14
<PAGE> 19
REGISTRATION
The Separate Account is registered with the Securities and Exchange Commission
("S.E.C.") under the Investment Company Act of 1940 ("1940 Act") as a unit
investment trust. A unit investment trust is a type of investment company which
invests its assets in specified securities, such as the shares of one or more
investment companies, rather than in a portfolio of unspecified securities.
Registration under the 1940 Act does not involve any supervision by the S.E.C.
of the management or investment policies or practices of the Separate Account.
For state law purposes the Separate Account is treated as a part or division of
Manufacturers Life of America.
MANUFACTURERS INVESTMENT TRUST
Each sub-account of the Separate Account will purchase shares only of a
particular Portfolio. The Trust is registered under the 1940 Act as an open-end
management investment company. The Separate Account will purchase and redeem
shares of the Portfolios 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 not inconsistent
with the Policies. Any dividend or capital gain distribution received from a
Portfolio with respect to the Policies will be reinvested immediately at net
asset value in shares of that Portfolio and retained as assets of the
corresponding sub-account.
The 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
may 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 Trust prospectus.
INVESTMENT OBJECTIVES 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. A
full description of the Trust, its investment objectives, policies and
restrictions, the risks associated therewith, its expenses, and other aspects of
its operation is contained in the accompanying Trust prospectus, which should be
read together with this prospectus.
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 and Technology Trust is long-term growth
of capital. Current income is incidental to the portfolio's objective. T. Rowe
Price Associates, Inc. ("T. Rowe Price") 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, LLC ("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.
15
<PAGE> 20
EMERGING SMALL COMPANY TRUST
The investment objective of the Emerging Small Company Trust is maximum capital
appreciation. Warburg Pincus Asset Management, Inc. manages the Emerging Small
Company Trust and will pursue this objective by investing primarily in a
portfolio of equity securities of domestic companies. The Emerging Small Company
Trust ordinarily will invest at least 65% of its total assets in common stocks
or warrants of emerging small 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 potential for
significant capital appreciation.
SMALL/MID CAP TRUST
The investment objective of the Small/Mid Cap Trust is to seek long-term capital
appreciation. Fred Alger Management, Inc. manages the Small/Mid Cap Trust and
will pursue this objective by investing at least 65% of the portfolio's total
assets (except during temporary defensive periods) in small/mid cap equity
securities.
INTERNATIONAL STOCK TRUST
The investment objective of the International Stock Trust is to achieve
long-term growth of capital. Rowe Price-Fleming International, Inc. manages the
International Stock Trust and seeks to obtain this objective by investing
primarily in common stocks of established, non-U.S. companies.
GROWTH PORTFOLIOS
WORLDWIDE GROWTH TRUST
The investment objective of the Worldwide Growth Trust is long-term growth of
capital. Founders manages the Worldwide Growth Trust and seeks to attain this
objective by normally investing at least 65% of its total assets in equity
securities of growth companies in a variety of markets throughout the world.
GLOBAL EQUITY TRUST
The investment objective of the Global Equity Trust is long-term capital
appreciation. Morgan Stanley Dean Witter Investment Management Inc. manages the
Global Equity Trust and intends to pursue this objective by investing primarily
in equity securities throughout the world, including U.S. issuers.
SMALL COMPANY VALUE TRUST
The investment objective of the Small Company Value Trust is to seek long-term
growth of capital. AXA Rosenberg Investment Management LLC 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 ("FMTC")
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.
16
<PAGE> 21
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
The investment objective of the Quantitative Equity Trust (formerly the "Common
Stock Fund") is to achieve intermediate and long-term growth through capital
appreciation and current income by investing in common stocks and other equity
securities of well established companies with promising prospects for providing
an above-average rate of return. 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
manages the Blue Chip Growth Trust.
REAL ESTATE SECURITIES TRUST
The investment objective of the Real Estate Securities Trust is to achieve a
combination of long-term capital appreciation and satisfactory current income by
investing in real estate related equity and debt securities. MAC manages the
Real Estate Securities Trust.
GROWTH & INCOME PORTFOLIOS
VALUE TRUST
The investment objective of the Value Trust is to realize an above-average total
return over a market cycle of three to five years, consistent with reasonable
risk. Miller Anderson & Sherrerd, LLP ("MAS") manages the Value Trust and seeks
to attain this objective by investing primarily in common and preferred stocks,
convertible securities, rights and warrants to purchase common stocks, ADRs and
other equity securities of companies with equity capitalizations usually greater
than $300 million.
INTERNATIONAL GROWTH AND INCOME TRUST
The investment objective of the International Growth and Income Trust is to seek
long-term growth of capital and income. The portfolio is designed for investors
with a long-term investment horizon who want to take advantage of investment
opportunities outside the United States. J.P. Morgan Investment Management Inc.
manages the International Growth and Income Trust.
GROWTH AND INCOME TRUST
The investment objective of the Growth and Income Trust is to provide long-term
growth of capital and income consistent with prudent investment risk. Wellington
Management Company, LLP ("Wellington Management") 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 believes are of high quality.
17
<PAGE> 22
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 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 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 FMTC 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, LLC 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.
18
<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 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 manages
the Lifestyle Aggressive 1000 Trust and 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
manages the Lifestyle Growth 820 Trust and 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 the assets in Underlying Portfolios which invest primarily in equity
securities.
LIFESTYLE BALANCED 640 TRUST
The investment objective of the Lifestyle Balanced 640 Trust is to provide a
balance between high level of current income and growth of capital with a
greater emphasis given to capital growth. MAC manages the Lifestyle Balanced 640
Trust and 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 high level of current income and growth of capital with a
greater emphasis given to high income. MAC manages the Lifestyle Moderate 460
Trust and 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.
19
<PAGE> 24
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 manages the Lifestyle Conservative 280 Trust and 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 20% of its assets in Underlying Portfolios which invest primarily
in equity securities.
ISSUING A POLICY
REQUIREMENTS
To purchase a Policy, an applicant must submit a completed application. A Policy
will not be issued until the underwriting process has been completed to the
Company's satisfaction.
Policies may be issued on a basis which does not distinguish between the
insured's sex and/or smoking status, with prior approval from the Company. A
Policy will generally be issued only on the lives of insureds from ages 0
through 90.
Each Policy is issued with a Policy Date, an Effective Date and an Issue Date
(see Definitions).
If an application is accompanied by a check for the initial premium and the
application is accepted:
(i) the Policy Date will be the date the application and check were received at
the Service Office (unless a special Policy Date is requested (See
"Backdating a Policy" below));
(ii) the Effective Date will be the date the Company's underwriters approve
issuance of the Policy; and
(iii) the Issue Date will be the date the Company issues the Policy.
If an application accepted by the Company is not accompanied by a check for the
initial premium:
(i) the Policy Date will be the date the Company issues the Policy (unless a
special Policy Date is requested (See "Backdating a Policy" below);
(ii) the Effective Date will be the date the Service Office receives the initial
premium; and
(iii) the Issue Date will be the date the Company issues the Policy.
The initial premium must be received within 60 days after the Policy Date. If
the premium is not paid or if the application is rejected, the Policy will be
canceled and any partial premiums paid will be returned to the applicant.
MINIMUM INITIAL FACE AMOUNT
Manufacturers Life of America will generally issue a Policy only if it has a
Face Amount of at least $250,000.
BACKDATING A POLICY
Under limited circumstances, the Company may backdate a Policy, upon request, by
assigning a Policy Date earlier than the date the application is signed.
However, in no event will a Policy be backdated earlier than the earliest date
allowed by state law, which is generally three months to one year prior to the
date of application for the Policy. Monthly deductions will be made for the
period the Policy Date is backdated. Regardless of whether or not a policy is
backdated, Net Premiums received prior to the Effective Date of a Policy will be
credited with interest from the date of receipt at the rate of return then being
earned on amounts allocated to the Money Market portfolio.
20
<PAGE> 25
TEMPORARY INSURANCE AGREEMENT
In accordance with the Company's underwriting practices, temporary insurance
coverage may be provided under the terms of a Temporary Insurance Agreement.
Generally, temporary life insurance may not exceed $5,000,000 and may not be in
effect for more than 90 days. This temporary insurance coverage will be issued
on a conditional receipt basis, which means that any benefits under such
temporary coverage will only be paid if the Lives Insured meet the Company's
usual and customary underwriting standards for the coverage applied for.
The acceptance of an application is subject to the Company's underwriting rules,
and the Company reserves the right to request additional information or to
reject an application for any reason.
Persons failing to meet standard underwriting classification may be eligible for
a Policy with an additional rating assigned to it.
RIGHT TO EXAMINE THE POLICY
A Policy may be returned for a refund within 10 days after it is received. Some
states provide a longer period of time to exercise this right. The Policy will
indicate if a longer time period applies. The Policy can be mailed or delivered
to the Manufacturers Life of America agent who sold it or to the 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, the Company will refund in full the payment made.
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 canceled, 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.
The Company reserves the right to delay the refund of any premium paid by check
until the check has cleared.
DEATH BENEFITS
If the Policy is in force at the time of the death of the last-to-die of the
Lives Insured, the Company will pay an insurance benefit. The amount payable
will be the death benefit under the selected death benefit option, plus any
amounts payable under any supplementary benefits added to the Policy, less the
Policy Debt and less any outstanding monthly deductions due. The insurance
benefit will be paid in one lump 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, the Company will pay interest from the date of death to the date of
payment. If the Life Insured should die after the Company's receipt of a request
for surrender, no insurance benefit will be payable, and the Company will pay
only the Net Cash Surrender Value.
LIFE INSURANCE QUALIFICATION
This product uses the Guideline Premium Test to qualify as a life insurance
contract for purposes of Section 7702 of the Internal Revenue Code of 1986, as
amended.
GUIDELINE PREMIUM TEST
The Guideline Premium Test restricts the maximum premiums that may be paid into
a life insurance policy for a given death benefit. The policy's death benefit
must also be at least equal to the Minimum Death Benefit (described below).
Changes to the Policy may affect the maximum amount of premiums, such as:
21
<PAGE> 26
- - A change in the policy's Face Amount.
- - A change in the death benefit option.
- - Partial Withdrawals.
- - Addition or deletion of supplementary benefits.
Any of the above changes could cause the total premiums paid to exceed the new
maximum limit. In this situation, the Company will require the policyowner to
take a partial withdrawal. In addition, these changes could reduce the future
premium limitations.
MINIMUM DEATH BENEFIT
The Guideline Premium Test requires a life insurance policy to meet minimum
ratios of life insurance coverage to policy value. This is achieved by ensuring
that the death benefit is at all times at least equal to the Minimum Death
Benefit. The Minimum Death Benefit on any date is defined as the Policy Value on
that date times the applicable Minimum Death Benefit Percentage for the Attained
Age of the youngest of the Lives Insured would have reached if living. The
Minimum Death Benefit Percentages are shown in the Table of Minimum Death
Benefit Percentages.
TABLE OF MINIMUM DEATH BENEFIT PERCENTAGES
<TABLE>
<CAPTION>
- -------------------------------------------------------
Attained Age Applicable Percentage
- -------------------------------------------------------
<S> <C>
40 and under 250%
45 215%
50 185%
55 150%
60 130%
65 120%
70 115%
75 105%
90 105%
95 and above 100%
</TABLE>
To determine the Applicable Percentage in the above table, use the Attained Age
of the youngest of the Lives Insured, or the Attained Age such person would have
reached if living. For ages not shown, the Applicable Percentage can be found by
reducing the values proportionately
DEATH BENEFIT OPTIONS
There are two death benefit options, described below.
DEATH BENEFIT OPTION 1
Under Option 1 the death benefit is the Face Amount of the Policy at the date of
death or, if greater, the Minimum Death Benefit.
DEATH BENEFIT OPTION 2
Under Option 2 the death benefit is the Face Amount plus the Policy Value of the
Policy at the date of death or, if greater, the Minimum Death Benefit.
22
<PAGE> 27
CHANGING THE DEATH BENEFIT OPTION
The death benefit option may be changed on the first day of any policy month
once each Policy Year after the first Policy Year. The change will occur on the
first day of the next Policy Month after a written request for a change is
received at the Service Office. The Company reserves the right to limit a
request for a change if the change would cause the Policy to fail to qualify as
life insurance for tax purposes.
A change in the death benefit option will result in a change in the Policy's
Face Amount, in order to avoid any change in the amount of the death benefit, as
follows:
CHANGE 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 as of the date of the change. The Policy will not be assessed a
Surrender Charge for a reduction in Face Amount solely due to a change in the
death benefit option.
CHANGE 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 as of the date of the change. No new Surrender Charges will
apply to an increase in Face Amount solely due to a change in the death benefit
option.
CHANGING THE FACE AMOUNT
Subject to the limitations stated in this Prospectus, a policyowner may, upon
written request, increase or decrease the Face Amount of the Policy. The Company
reserves the right to limit a change in Face Amount so as to prevent the Policy
from failing to qualify as life insurance for tax purposes.
INCREASE IN FACE AMOUNT
Increases in Face Amount may be made once each Policy Year after the first
Policy Year. Any increase in Face Amount must be at least $50,000. An increase
will become effective at the beginning of the policy month following the date
Manufacturers Life of America approves the requested increase. Increases in Face
Amount are subject to satisfactory evidence of insurability. The Company
reserves the right to refuse a requested increase if any of the Lives Insureds'
Attained Ages at the effective date of the increase would be greater than the
maximum issue age for new Policies at that time.
NEW SURRENDER CHARGES FOR AN INCREASE
An increase in face amount will usually result in the Policy being subject to
new surrender charges. There will be no new surrender charges associated with
restoration of a prior decrease in Face Amount. As with the purchase of a
Policy, a policyowner will have free look right with respect to any increase
resulting in new surrender charges.
An additional premium may be required for a face amount increase, and a new
No-Lapse Guarantee Premium will be determined, if the No-Lapse Guarantee is in
effect at the time of the face amount increase.
INCREASE WITH PRIOR DECREASES
If, at the time of the increase, there have been prior decreases in Face Amount,
these prior decreases will be restored first. The insurance coverage eliminated
by the decrease of the oldest face amount will be deemed to be restored first.
DECREASE IN FACE AMOUNT
Decreases in Face Amount may be made once each Policy Year after the first
Policy Year. Any decrease in Face Amount must be at least $50,000. A written
request from a policy owner for a decrease in the Face Amount will be effective
at the beginning of the Policy Month following the date Manufacturers Life of
America approves the requested decrease. If there have been previous increases
in Face Amount, the
23
<PAGE> 28
decrease will be applied to the most recent increase first and thereafter to the
next most recent increases successively.
PREMIUM PAYMENTS
INITIAL PREMIUMS
No premiums will be accepted prior to receipt of a completed application by the
Company. All premiums received prior to the Effective Date of the Policy will be
held in the general account and credited with interest from the date of receipt
at the rate of return then being earned on amounts allocated to the Money Market
Trust.
The minimum initial premium is one-twelfth of the No-Lapse Guarantee Premium.
On the Effective Date, the Net Premiums paid plus interest credited will be
allocated among the Investment Accounts or the Fixed Account in accordance
with the policyowner's instructions.
SUBSEQUENT PREMIUMS
After the payment of the initial premium, premiums may be paid at any time and
in any amount until the youngest of the Lives Insured has reached Attained Age
100, or the date such person would have reached Attained Age 100, if living,
subject to the limitations on premium amount described below.
A Policy will be issued with a planned premium, which is based on the amount of
premium the policyowner wishes to pay. Manufacturers Life of America will send
notices to the policyowner setting forth the planned premium at the payment
interval selected by the policyowner. However, the policyowner is under no
obligation to make the indicated payment.
The Company may refuse any premium payment that would cause the Policy to fail
to qualify as life insurance under the Internal Revenue Code. The Company also
reserves the right to request evidence of insurability if a premium payment
would result in an increase in the Death Benefit that is greater than the
increase in Policy Value.
Payment of premiums will not guarantee that the Policy will stay in force.
Conversely, failure to pay premiums will not necessarily cause the Policy to
lapse.
All Net Premiums received on or after the Effective Date will be allocated among
Investment Accounts or the Fixed Account as of the Business Day the premiums
were received at the Service Office. Monthly deductions are due on the Policy
Date and at the beginning of each Policy Month thereafter. However, if due prior
to the Effective Date, they will be taken on the Effective Date instead of the
dates they were due.
MAXIMUM PREMIUM LIMITATION
In no event may the total of all premiums paid exceed the then current maximum
premium limitations established by federal income tax law for a Policy to
qualify as life insurance.
If, at any time, a premium is paid which would result in total premiums
exceeding the above maximum premium limitation, the Company will only accept
that portion of the premium which will make the total premiums equal to the
maximum. Any part of the premium in excess of that amount will be returned and
no further premiums will be accepted until allowed by the then current maximum
premium limitation.
24
<PAGE> 29
PREMIUM ALLOCATION
Premiums may be allocated to either the Fixed 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 Fixed Account are made as a percentage of the premium. The percentage
allocation to any account may be any number between zero and 100, provided the
total allocation equals 100. A policyowner may change the way in which premiums
are allocated at any time without charge. The change will take effect on the
date a written request for change satisfactory to the Company is received at the
Service Office.
CHARGES AND DEDUCTIONS
AMOUNT DEDUCTED FROM PREMIUM
Manufacturers Life of America deducts an amount from each premium payment,
equal to 7.50% of the premium.
SURRENDER CHARGES
The Company will deduct a Surrender Charge if during the first 15 years
following the Policy Date, or the effective date of a Face Amount increase:
- - the Policy is surrendered for its Net Cash Surrender Value,
- - a partial withdrawal is made in excess of the Withdrawal Tier Amount (see
below for a description of this amount), or
- - the Policy lapses.
SURRENDER CHARGE CALCULATION
The Surrender Charge for the initial Face Amount or for the amount of any
increase in Face Amount is determined by the following formula (the calculation
is also described in words below):
Surrender Charge = (Surrender Charge Rate)x(Grading Percentage)
Surrender Charge Rate (the calculation is also described in words below)
Surrender Charge Rate = (Factor) x (Surrender Face Amount / 1000) + (82.5%) x
(Surrender Charge Premium)
Definitions of the Formula Factors Above
Surrender Face Amount
If the Face Amount at the time of surrender is equal to or less than the initial
Face Amount, then the Surrender Face Amount is equal to the Face Amount at the
time of surrender. However, if the Face Amount has increased, then the surrender
charge is calculated separately on (a) the initial Face Amount and (b) on the
amount of Face Amount above the initial Face Amount. In the case of (a), the
Surrender Face Amount is equal to the initial Face Amount and in the case of (b)
the Surrender Face Amount is equal to the Face Amount above the initial Face
Amount.
The Factor is set forth in the following chart:
25
<PAGE> 30
<TABLE>
<CAPTION>
Issue Age Factor
--------- ------
<S> <C>
38 or younger 3.75
39 4.25
40 4.75
41 5.25
42 5.75
43 6.25
44 6.75
45 7.25
46 7.75
47 8.25
48 or older 8.50
</TABLE>
The Surrender Charge Premium is the lesser of:
(a) the premiums paid during the first policy year;
(b) the premium amount used to measure the maximum Surrender Charge under
the Policy;
(c) the net level annual premium ("Net Level Premium") required to provide
level insurance to attained age 100 of the younger insured based on
guaranteed maximum mortality charges and an interest rate of 4%; and
(d) $60 per $1000 of Face Amount.
Grading Percentage
The grading percentage is based on the issue age of the youngest insured and the
Policy Year in which the transaction causing the assessment of the charge
occurs as set forth in the table below:
<TABLE>
<CAPTION>
Surrender Charge Grading Percentage
Issue Ages of Younger Insured 0-75 76 77 78 79 80+
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Policy Year 1 93% 92% 92% 91% 90% 90%
Policy Year 2 86% 85% 84% 83% 81% 80%
Policy Year 3 80% 78% 76% 75% 72% 70%
Policy Year 4 73% 71% 69% 66% 63% 60%
Policy Year 5 66% 64% 61% 58% 54% 50%
Policy Year 6 60% 57% 53% 50% 45% 40%
Policy Year 7 53% 50% 46% 41% 36% 30%
Policy Year 8 46% 42% 38% 33% 27% 20%
Policy Year 9 40% 35% 30% 25% 18% 10%
Policy Year 10 33% 28% 23% 16% 9% 0%
Policy Year 11 26% 21% 15% 8% 0%
Policy Year 12 20% 14% 7% 0%
Policy Year 13 13% 7% 0%
Policy Year 14 6% 0%
Policy Year 15 0%
</TABLE>
26
<PAGE> 31
Formulas Described in Words
Surrender Charge
The Surrender Charge is determined by multiplying the Surrender Charge Rate by
the Grading Percentage, a percent which starts at 100% and grades down each
policy year to zero over a period not to exceed 15 years.
Surrender Charge Rate
The Surrender Charge Rate is equal to the sum of (a) plus (b) where (a) equals
the Factor multiplied by the Surrender Face Amount divided by 1000 and (b)
equals 82.5% times the Surrender Charge Premium.
Illustration of Surrender Charge Calculation
Assumptions
- - 50 year old male and 40 year old female (standard risks and nonsmoker
status)
- - Policy issued 7 years ago
- - $904 in premiums have been paid on the Policy in equal annual installments
over the 7 year period
- - the premium amount used to measure the maximum Surrender Charge under the
Policy is $2,188
- - Net Level Premium for the Policy is $2,541
- - Face Amount of the Policy is $250,000
- - Policy is surrendered during the last month of the seventh policy year
Surrender Charge
The Surrender Charge to be assessed would be $1,025, determined as follows:
First, the Surrender Charge Rate is determined by applying the Surrender Charge
Rate formula as set forth below.
Surrender Charge Rate = (Factor) x (Surrender Face Amount / 1000) + (82.5%) x
(Surrender Charge Premium)
1933.30 = (4.75) x ($250,000 / 1000) + (82.5%) x (904)
The Surrender Charge Rate is equal to 1933.30.
Second, the Surrender Charge Rate is entered into the Surrender Charge formula
and the Surrender Charge is determined as set forth below.
Surrender Charge = (Surrender Charge Rate) x (Grading Percentage)
$1,025 = (1933.30) x (53%)
The Surrender Charge is equal to $1,025.
27
<PAGE> 32
The following calculation illustrates the maximum Surrender Charge that would
be payable on a Policy under the assumptions set forth below.
Illustration of maximum Surrender Charge Calculation
Assumptions
- - 50 year old male and 40 year old female (standard risks and nonsmoker
status)
- - Policy issued 7 years ago
- - $2,188 in premiums have been paid on the Policy in equal annual
installments over the 7 year period
- - the premium amount used to measure the maximum Surrender Charge under the
Policy is $2,188
- - Net Level Premium for the Policy is $2,541
- - Face Amount of the Policy is $250,000
- - Policy is surrendered during the last month of the seventh policy year
Maximum Surrender Charge
The maximum Surrender Charge to be assessed would be $1,586, determined as
follows:
First, the Surrender Charge Rate is determined by applying the Surrender Charge
Rate formula as set forth below.
Surrender Charge Rate = (Factor) x (Surrender Face Amount / 1000) + (82.5%) x
(Surrender Charge Premium)
2,992.60 = (4.75) x ($250,000 / 1000) + (82.5%) x (2,188)
The Surrender Charge Rate is equal to 2,992.60.
Second, the Surrender Charge Rate is entered into the Surrender Charge formula
and the Surrender Charge is determined as set forth below.
Surrender Charge = (Surrender Charge Rate)x (Grading Percentage)
$1,586 = (2992.60) x (53%)
The maximum Surrender Charge payable on the Policy is equal to $1,586.
Manufacturers Life of America may reduce the surrender charge as described above
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 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.
SURRENDER CHARGES ON A PARTIAL WITHDRAWAL
A partial withdrawal will result in the assessment of a portion of the Surrender
Charges to which the Policy is subject. The portion of the Surrender Charges
assessed will be based on the ratio of the amount of the withdrawal which
exceeds the Withdrawal Tier Amount to the Net Cash Surrender Value of the Policy
as at the date of the withdrawal. The Surrender Charges will be deducted from
the Policy Value at the time of the partial withdrawal on a pro-rata basis from
each of the Investment Accounts and the Fixed
28
<PAGE> 33
Account. If the amount in the accounts is not sufficient to pay the Surrender
Charges assessed, then the amount of the withdrawal will be reduced.
Whenever a portion of the surrender charges is deducted as a result of a partial
withdrawal, the Policy's remaining surrender charges will be reduced in the same
proportion that the surrender charge deducted bears to the total surrender
charge immediately before the partial withdrawal.
WITHDRAWAL TIER AMOUNT
The Withdrawal Tier Amount is equal to 10% of the Net Cash Surrender Value as at
the last Policy Anniversary. In determining what, if any, portion of a partial
withdrawal is in excess of the Withdrawal Tier Amount, all previous partial
withdrawals that have occurred in the current Policy Year are included.
MONTHLY CHARGES
On the Policy Date and at the beginning of each Policy Month, a deduction is due
from the Net Policy Value to cover certain charges in connection with the Policy
until the youngest of the Lives Insured reaches Attained Age 100, or the date
such person would have reached Attained Age 100, if living. If there is a
Policy Debt under the Policy, loan interest and principal will continue to be
payable at the beginning of each Policy Month. Monthly deductions due prior to
the Effective Date will be taken on the Effective Date instead of the dates they
were due. The charges consist of:
(i) a monthly administration charge;
(ii) a monthly charge for the cost of insurance;
(iii) a monthly mortality and expense risk charge;
(iv) a monthly charge for any supplementary benefits added to the Policy.
Unless otherwise allowed by the Company and specified by the policyowner, the
Monthly Deduction will be allocated among the Investment Accounts and the
Fixed Account in the same proportion as the Policy value in each bears to the
Net Policy Value.
ADMINISTRATION CHARGE
This charge will be equal to $30 plus $0.08 per $1,000 of current face amount
per Policy Month in the first Policy Year. For all subsequent Policy Years, the
administration charge will not exceed $15 plus $0.02 per $1,000 of current face
amount per Policy 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 the 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 and the net amount at risk are
determined separately for the initial Face Amount and for each increase in Face
Amount. In determining the net amount at risk, if there have been increases in
the Face Amount, the Policy Value shall first be considered a part of the
initial Face Amount. If the Policy Value exceeds the initial Face Amount, it
shall then be considered a part of the additional increases in Face Amount
resulting from the increases, in the order the increases occurred.
The net amount at risk is equal to the greater of zero, or the result of (a)
minus (b) where:
(a) is the death benefit as of the first day of the Policy Month, divided by
1.0032737; and
(b) is the Policy Value as of the first day of the Policy Month prior to
deduction of monthly cost of insurance.
29
<PAGE> 34
The rates for the cost of insurance are blended and based upon the Attained Age,
sex, and Risk Classification of the Lives Insured.
Cost of insurance rates will generally increase with the age of each of the
Lives Insured. The first year cost of insurance rate is guaranteed.
The cost of insurance rates reflect the Company's expectations as to future
mortality experience. The rates may be re-determined from time to time on a
basis which does not unfairly discriminate within the class of Lives Insured. In
no event will the cost of insurance rates exceed the guaranteed rates set forth
in the Policy except to the extent that an extra charge is imposed because of an
additional rating applicable to the Lives Insured. After the first Policy Year,
the cost of insurance will generally increase on each Policy Anniversary. The
guaranteed rates are based on the 1980 Commissioners Standard Ordinary
Smoker/Non-Smoker Mortality Tables.
CHARGES FOR SUPPLEMENTARY BENEFITS
If the Policy includes Supplementary Benefits, a charge will be made applicable
to such Supplementary Benefit.
MORTALITY AND EXPENSE RISK CHARGE
A monthly charge is assessed against the Policy Value equal to a percentage of
the Policy Value. This charge is to compensate the Company for the mortality and
expense risks it assumes under the Policy. The mortality risk assumed is that
Lives Insured may live for a shorter period of time than the Company estimated.
The expense risk assumed is that expenses incurred in issuing and administering
the Policy will be greater than the Company estimated. The Company will realize
a gain from this charge to the extent it is not needed to provide benefits and
pay expenses under the Policy.
The charge varies by Policy Year as follows:
<TABLE>
<CAPTION>
Current and Guaranteed Monthly Equivalent Annual
Mortality and Mortality and
Policy Year Expense Risks Charge Risks Charge
<S> <C> <C>
1-20 0.063% 0.75%
21+ 0.033% 0.40%
</TABLE>
CHARGES FOR TRANSFERS
A charge of $25 will be imposed on each transfer in excess of twelve in a Policy
Year, other than transfers made pursuant to the Dollar Cost Averaging or Asset
Allocation Balancer programs.
REDUCTION IN CHARGES
The Policy is available for purchase by corporations and other groups or
sponsoring organizations. Group or sponsored arrangements may include reduction
or elimination of withdrawal charges and deductions for employees, officers,
directors, agents, immediate family members of the foregoing, and employees or
agents of Manufacturers Life and its subsidiaries. Manufacturers Life of America
reserves the right to reduce any of the Policy's loads or charges on certain
cases where it is expected that the amount or nature of such cases will result
in savings of sales, underwriting, administrative, commissions or other costs.
Eligibility for these reductions and the amount of reductions will be determined
by a number of factors, including the number of lives to be insured, the total
premiums expected to be paid, total assets under management for the policyowner,
the nature of the relationship among the insured individuals, the purpose for
which the policies are being purchased, expected persistency of the individual
policies, and any other circumstances which Manufacturers Life of America
believes to be relevant to the expected reduction of its expenses.
30
<PAGE> 35
Some of these reductions may be guaranteed and others may be subject to
withdrawal or modification, on a uniform case basis. Reductions in charges will
not be unfairly discriminatory to any policyowners. Manufacturers Life of
America may modify from time to time, on a uniform basis, both the amounts of
reductions and the criteria for qualification.
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
The Company will permit owners of certain fixed life insurance policies issued
either by the Company or Manufacturers Life Insurance Company (U.S.A.) to
exchange their policies for the Policies described in this prospectus (and
likewise, owners of policies described in this Prospectus may also exchange
their Policies for certain fixed policies issued either by the Company or by
Manufacturers Life Insurance Company (U.S.A)). Policyowners considering an
exchange should consult their tax advisers as to the tax consequences of an
exchange.
COMPANY TAX CONSIDERATIONS
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.
POLICY VALUE
DETERMINATION OF THE 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.
The Policy Value may also affect the amount of the death benefit. The Policy
Value at any time is equal to the sum of the values in the Investment Accounts,
the Fixed Account, and the Loan Account.
INVESTMENT ACCOUNTS
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.
FIXED ACCOUNT
Amounts in the Fixed Account do not vary with the investment performance of
any sub-account. Instead, these amounts are credited with interest at a rate
determined by Manufacturers Life of America. For a detailed description of the
Fixed Account, see "The General Account - Fixed Account".
LOAN ACCOUNT
Amounts borrowed from the Policy are transferred to the Loan Account. Amounts in
the Loan Account do not vary with the investment performance of any sub-account.
Instead, these amounts are credited with interest at a rate which is equal to
the amount charged on the outstanding Policy Debt less the Loan Spread. For a
detailed description of the Loan Account, see "Policy Loans - Loan Account".
31
<PAGE> 36
UNITS AND UNIT VALUES
CREDITING AND CANCELING 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 canceled whenever amounts are deducted, transferred
or withdrawn from the sub-account. The number of units credited or canceled for
a specific transaction is based on the dollar amount of the transaction divided
by the value of the unit on the Business Day on which the transaction occurs.
The number of units credited with respect to a premium payment will be based on
the applicable unit values for the Business Day on which the premium is received
at the Service Office, except for any premiums received before the Effective
Date. For premiums received before the Effective Date, the values will be
determined on the Effective Date.
Units are valued at the end of each Business Day. When an order involving the
crediting or canceling 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 on 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 on the next Business Day.
UNIT VALUES
The value of a unit of each sub-account was initially fixed at $10.00. For each
subsequent Business Day the unit value for that sub-account is determined by
multiplying the unit value for the immediately preceding Business Day by the net
investment factor for the that sub-account on such subsequent Business Day.
The net investment factor for a sub-account on 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 on that day; and
(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 were made for that day;
The value of a unit may increase, decrease, or remain the same, depending on the
investment performance of a sub-account from one Business Day to the next.
TRANSFERS OF POLICY VALUE
At any time, a policyowner may transfer Policy Value from one sub-account to
another or to the Fixed Account. Transfer requests must be in writing in a
format satisfactory to the Company, or by telephone if a currently valid
telephone transfer authorization form is on file.
The Company reserves the right to impose limitations on transfers, including the
maximum amount that may be transferred. In addition, transfer privileges are
subject to any restrictions that may be imposed by the Trust.
While the Policy is in force, the policyowner may transfer the Policy Value from
any of the Investment Accounts to the Fixed Account without incurring transfer
charges:
(a) within eighteen months after the Issue Date; or
(b) within 60 days of the effective date of a material change in the investment
objectives of any of the sub-accounts or within 60 days of the date of
notification of such change, whichever is later.
32
<PAGE> 37
TRANSFER CHARGES
A policyowner may make up to twelve transfers each Policy Year free of charge.
Additional transfers in each Policy Year may be made at a cost of $25 per
transfer. This charge will be deducted from the Investment Account or the
Fixed Account to which the transfer is being made. All transfer requests
received by the Company on the same Business Day are treated as a single
transfer request.
Transfers under the Dollar Cost Averaging and Asset Allocation Balancer
programs do not count against the number of free transfers permitted per Policy
Year.
TRANSFERS INVOLVING FIXED ACCOUNT
The maximum amount that may be transferred from the Fixed Account in any one
Policy Year is the greater of $500 or 15% of the Fixed Account Value at the
previous Policy Anniversary. Any transfer which involves a transfer out of the
Fixed Account may not involve a transfer to the Investment Account for the
Money Market Trust.
TELEPHONE TRANSFERS
Although failure to follow reasonable procedures may result in the Company being
liable for any losses resulting from unauthorized or fraudulent telephone
transfers, Manufacturers Life of America will not be liable for following
instructions communicated by telephone that the Company reasonably believes to
be genuine. The Company will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Such procedures shall
consist of confirming that a valid telephone authorization form is on file, tape
recording of all telephone transactions and providing written confirmation
thereof.
DOLLAR COST AVERAGING
The Company 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 Fixed Account. Currently, no charge
will be made for this program. If insufficient funds exist to effect a Dollar
Cost Averaging transfer, the transfer will not be effected and the policyowner
will be so notified.
The Company 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, the Company 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 Manufacturers
of America otherwise or has elected the Dollar Cost Averaging program.
Currently, there is no charge for this program; however, the Company reserves
the right to institute a charge on 90 days' written notice to the policyowner.
The Company reserves the right to cease to offer this program as of 90 days
after written notice is sent to the policyowner.
POLICY LOANS
At any time while this Policy is in force, a policyowner may borrow against the
Policy Value of the Policy. The amount of any loan cannot exceed 90% of the
Policy's Net Cash Surrender Value. The Policy serves as the only security for
the loan. Policy loans may have tax consequences, see "Tax Treatment of Policy
Benefits - Policy Loan Interest."
33
<PAGE> 38
LOAN VALUE
The Loan Value is equal to the Policy's Net Cash Surrender Value less the
monthly deductions due to the next Policy Anniversary.
EFFECT OF POLICY LOAN
A policy loan will have an effect on 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
Portfolios or increasing in value at the rate of interest credited for amounts
allocated to the Fixed Account. 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 "Lapse and Reinstatement." In addition, a policy
loan may result in a Policy's failing to satisfy the No-Lapse Guarantee
Cumulative Premium Test since the Policy Debt is subtracted from the sum of the
premiums paid in determining whether this test is satisfied. Finally, a policy
loan will affect the amount payable on the death of the last-to-die of the Lives
Insured, since the death benefit is reduced by the Policy Debt 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 an effective annual
rate of 5.25%. If the interest due on a Policy Anniversary is not paid by the
policyowner, the interest will be borrowed against the Policy.
The Policy will go into default at any time the Policy Debt exceeds the Policy
Value. At least 61 days prior to termination, the Company will send the
policyowner a notice of the pending termination. Payment of interest on the
Policy Debt during the 61 day grace period will bring the policy out of default.
LOAN ACCOUNT
When a loan is made, an amount equal to the loan, discounted by 4%, will be
deducted from the Investment Accounts or the Fixed Account and transferred to
the Loan Account. 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 Fixed Account bears to the Net Policy Value. A transfer from
an Investment Account will result in the cancellation of units of the underlying
sub-account equal in value to the amount transferred from the Investment
Account. However, since the Loan Account is part of the Policy Value, transfers
made in connection with a loan will not change the Policy Value.
INTEREST CREDITED TO THE LOAN ACCOUNT
Interest will be credited to amounts in the Loan Account at an effective annual
rate of at least 4.00%. The actual rate credited is equal to the rate of
interest charged on the policy loan less the Loan Interest Credited
Differential, which is currently 1.25% and is guaranteed not to exceed this
amount.
LOAN REPAYMENTS
Policy Debt may be repaid in whole or in part at any time prior to the death of
the last-to-die of the Lives Insured, provided that the Policy is in force. When
a repayment is made, the amount is credited to the Loan Account and transferred
to the Fixed Account or the Investment Accounts. Loan repayments will be
allocated first to the Fixed Account until the associated Loan sub-account is
reduced to zero and then 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.
34
<PAGE> 39
Amounts paid to the Company not specifically designated in writing as loan
repayments will be treated as premiums.
POLICY SURRENDER AND PARTIAL WITHDRAWALS
POLICY SURRENDER
A Policy may be surrendered for its Net Cash Surrender Value at any time while
the Life Insured is living. The Net Cash Surrender Value is equal to the Policy
Value less any surrender charges and outstanding monthly deductions due (the
"Cash Surrender Value") minus the Policy Debt. If there have been any prior Face
Amount increases, the Surrender Charge will be the sum of the Surrender Charge
for the Initial Face Amount plus the Surrender Charge for each increase. 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.
PARTIAL WITHDRAWALS
A policyowner may make a partial withdrawal of the Net Cash Surrender Value once
each Policy Month after the first Policy Anniversary. The policyowner may
specify the portion of the withdrawal to be taken from each Investment Account
and the Fixed Account. In the absence of instructions, the withdrawal will be
allocated among such accounts in the same proportion as the Policy Value in each
account bears to the Net Policy Value. For information on Surrender Charges on a
Partial Withdrawal see "Charges and Deductions - Surrender Charges."
REDUCTION IN FACE AMOUNT DUE TO A PARTIAL WITHDRAWAL
If Death Benefit Option 1 is in effect when a partial withdrawal is made, the
Face Amount of the Policy will be reduced by the amount of the withdrawal plus
any applicable Surrender Charges.
If the death benefit is based upon the Policy Value times the minimum death
benefit percentage set forth under "Death Benefit Minimum Death Benefit," the
Face Amount will be reduced only to the extent that the amount of the withdrawal
plus the portion of the Surrender Charge assessed exceeds the difference between
the death benefit and the Face Amount. 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.
LAPSE AND REINSTATEMENT
LAPSE
Unless the No-Lapse Guarantee is in effect, a Policy will go into default if at
the beginning of any Policy Month the Policy's Net Cash Surrender Value would be
zero or below after deducting the monthly deduction then due. Therefore, a
Policy could lapse eventually if increases in Policy Value (prior to deduction
of Policy charges) are not sufficient to cover Policy charges. A lapse could
have adverse tax consequences as described under "Tax Treatment of the Policy -
Tax Treatment of Policy Benefits - Surrender or Lapse." 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 on the date of default, plus the monthly deductions due at the date of
default and payable at the beginning of each of the two Policy Months
thereafter, plus any applicable premium load. If the required payment is not
received by the end of the grace period, the Policy will terminate with no
value.
35
<PAGE> 40
NO-LAPSE GUARANTEE
In those states where it is permitted, as long as the No-Lapse Guarantee
Cumulative Premium Test is satisfied during the No-Lapse Guarantee Period, as
described below, the Company will guarantee that the Policy will not go into
default , even if 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 Monthly No-Lapse Guarantee Premium is one-twelfth of the No-Lapse Guarantee
Premium.
The No-Lapse Guarantee Premium is set at issue and reflects any Additional
Rating and Supplementary Benefits, if applicable. It is subject to change if the
face amount of the Policy is changed, if there is a Death Benefit Option change,
or if there is any change in the supplementary benefits added to the Policy or
in the risk classification of any Lives Insured because of a change in smoking
status.
The No-Lapse Guarantee Period is fixed at ten years.
While the No-Lapse Guarantee is in effect, the Company will determine at the
beginning of the Policy Month that the Policy would otherwise be in default,
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 policy from going into default. This
required payment, as described in the notification to the policyowner, will be
equal to the lesser of:
(a) the outstanding premium requirement to satisfy the No-Lapse Guarantee
Cumulative Premium Test at the date of default, plus the Monthly No-Lapse
Guarantee Premium due for the next two Policy Months, or
(b) the amount necessary to bring the Net Cash Surrender Value to zero plus the
monthly deductions due, plus the next two monthly deductions plus the
applicable premium load.
If the required payment is not received by the end of the grace period, the
No-Lapse Guarantee and the Policy will terminate.
NO-LAPSE GUARANTEE CUMULATIVE PREMIUM TEST
The No-Lapse Guarantee Cumulative Premium Test is satisfied if, as of the
beginning of the Policy Month that the Policy would otherwise be in default,
the sum of all premiums paid to date less any gross withdrawals and less any
policy debt, is at least equal to the sum of the Monthly No-Lapse Guarantee
Premiums due from the Policy Date to the date of the test.
DEATH DURING GRACE PERIOD
If the Life Insured should die during the grace period, 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 will be reduced by any outstanding Monthly
Deductions due at the time of death.
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 classifications are standard or preferred, and
36
<PAGE> 41
(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) Evidence of all Lives Insured's insurability, or on the survivor(s) who were
insured at the end of the grace period, satisfactory to the Company is provided
to the Company;
(b) A premium equal to the amount that was required to bring the Policy out of
default immediately prior to termination, plus the next two monthly
deductions;
(c) The Policy cannot be reinstated if any of the Lives Insured die after the
Policy has terminated.
If the reinstatement is approved, the date of reinstatement will be the later of
the date the Company approves the policyowner's request or the date the required
payment is received at the Company's Service Office. In addition, any surrender
charges will be reinstated to the amount they were at the date of default. The
Policy Value on the date of reinstatement, prior to the crediting of any Net
Premium paid on the reinstatement, will be equal to the Policy Value on the date
the Policy terminated.
THE GENERAL ACCOUNT
The general account of Manufacturers Life of America consists of all assets
owned by the Company other than those in the Separate Account and other separate
accounts of the Company. Subject to applicable law, Manufacturers Life of
America has sole discretion over the investment of the assets of 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.
FIXED ACCOUNT
A policyowner may elect to allocate net premiums to the Fixed Account or to
transfer all or a portion of the Policy Value to the Fixed Account from the
Investment Accounts. Manufacturers Life of America will hold the reserves
required for any portion of the Policy Value allocated to the Fixed Account in
its general account. Transfers from the Fixed Account to the Investment
Accounts are subject to restrictions.
POLICY VALUE IN THE FIXED ACCOUNT
The Policy Value in the Fixed Account is equal to:
(a) the portion of the net premiums allocated to it; plus
(b) any amounts transferred to it; plus
(c) interest credited to it; less
(d) any charges deducted from it; less
(e) any partial withdrawals from it; less
(f) any amounts transferred from it.
37
<PAGE> 42
INTEREST ON THE FIXED ACCOUNT
An allocation of Policy Value to the Fixed 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
Fixed 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. Consequently, if a policyowner pays the planned premiums, allocates all
net premiums only to the general account and makes no transfers, partial
withdrawals, or policy loans, the minimum amount and duration of the death
benefit of the Policy will be determinable and guaranteed.
OTHER PROVISIONS OF THE POLICY
POLICYOWNER RIGHTS
Unless otherwise restricted by a separate agreement, the policyowner may:
- - Vary the premiums paid under the Policy.
- - Change the death benefit option.
- - Change the premium allocation for future premiums.
- - Transfer amounts between sub-accounts.
- - Take loans and/or partial withdrawals.
- - Surrender the contract.
- - Transfer ownership to a new owner.
- - Name a contingent owner that will automatically become owner if the
policyowner dies before the insured.
- - Change or revoke a contingent owner.
- - Change or revoke a beneficiary.
ASSIGNMENT OF RIGHTS
Manufacturers Life of America will not be bound by an assignment until it
receives a copy of the assignment at its Service Office. Manufacturers Life of
America assumes no responsibility for the validity or effects of any assignment.
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. Beneficiaries may also be revocable or
irrevocable. Unless an irrevocable designation has been elected, the beneficiary
may be changed by the policyowner during the Lives Insured lifetime by giving
written notice to Manufacturers Life of America in a form satisfactory to the
Company. The change will take effect as of the date such notice is signed. If
the Life Insured dies and there is no surviving beneficiary, the policyowner, or
the policyowner's estate if the policyowner is the Life Insured, will be the
beneficiary. If a beneficiary dies before the seventh day after the death of the
Life Insured, the Company will pay the insurance benefit as if the beneficiary
had died before the Life Insured.
INCONTESTABILITY
Manufacturers Life of America will not contest the validity of a Policy after it
has been in force during any Lives Insured's lifetime for two years from the
Issue Date. It will not contest the validity of an increase in Face Amount,
after such increase or addition has been in force during the lifetime of the
Lives Insured for two years. If a Policy has been reinstated and been in force
during the lifetime of the Lives Insured for less than two years from the
reinstatement date, the Company can contest any misrepresentation of a fact
material to the reinstatement.
38
<PAGE> 43
MISSTATEMENT OF AGE OR SEX
If the stated age or sex or both of any of the Lives Insured in the Policy are
incorrect, Manufacturers Life of America will change the Face Amount so that the
death benefit will be that which the most recent monthly charge for the cost of
insurance would have purchased for the correct age and sex.
SUICIDE EXCLUSION
If any of the Lives Insured dies by suicide within two years after the Issue
Date, the Policy will terminate and the Company will pay only the premiums paid
less any partial Net Cash Surrender Value withdrawal and less any Policy Debt.
If any of the Lives Insured dies by suicide within two years after the effective
date of an applied for increase in Face Amount, the Company will credit the
amount of any Monthly Deductions taken for the increase and reduce the Face
Amount to what it was prior to the increase. If the last death is by suicide,
the Death Benefit for that increase will be limited to the Monthly Deductions
taken for the increase.
The Company reserve the right to obtain evidence of the manner and cause of
death of the Lives Insured.
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 policies upon divorce, or certain
federal tax law changes without evidence of insurability (the "Policy Split
Option"). More detailed information concerning these 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.
TAX TREATMENT OF THE POLICY
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 nor of the
current interpretations by the Service. MANUFACTURERS LIFE OF AMERICA DOES 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 continuation plans, split dollar insurance
plans, executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if the use of such
Policies in any such arrangement, the value of which depends in part on the tax
consequences, is contemplated, a qualified tax adviser should be consulted for
advice on the tax attributes of the particular arrangement.
LIFE INSURANCE QUALIFICATION
There are several requirements that must be met for a Policy to be considered a
Life Insurance Contract under the Internal Revenue Code, and thereby to enjoy
the tax benefits of such a contract:
1. The Policy must satisfy the definition of life insurance under Section 7702
of the Internal Revenue Code of 1986 (the "Code").
39
<PAGE> 44
2. The investments of the Separate Account must be "adequately diversified" in
accordance with Section 817(h) of the Code and Treasury Regulations.
3. The Policy must be a valid life insurance contract under applicable state
law.
4. The Policyowner must not possess "incidents of ownership" in the assets of
the Separate Account.
These four items are discussed in detail below.
DEFINITION OF LIFE INSURANCE
Section 7702 of the Code sets forth a definition of a life insurance contract
for federal tax purposes. For a Policy to be a life insurance contract, it must
satisfy either the cash value accumulation test or the guideline premium test.
The cash value accumulation test requires a minimum death benefit for a given
Policy Value. The guideline premium test also requires a minimum death
benefit, but in addition limits the total premiums that can be paid into a
Policy for a given amount of death benefit.
With respect to a Policy which is issued on the basis of a standard rate class,
the Company believes (largely in reliance on IRS Notice 88-128 and the proposed
mortality charge regulations under Section 7702, issued on July 5, 1991) that
such a Policy should meet the Section 7702 definition of a life insurance
contract.
With respect to a Policy that is issued on a substandard basis (i.e., a rate
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.
The Secretary of the Treasury (the "Treasury") is authorized to prescribe
regulations implementing Section 7702. However, while proposed regulations and
other interim guidance have been issued, final regulations have not been adopted
and guidance as to how Section 7702 is to be applied is limited. If a Policy
were determined not to be a life insurance contract for purposes of Section
7702, such a Policy would not provide the tax advantages normally provided by a
life insurance 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.
DIVERSIFICATION
Section 817(h) of the Code requires that the investments of the Separate Account
be "adequately diversified" in accordance with Treasury regulations in order for
the Policy to qualify as a life insurance contract under Section 7702 of the
Code (discussed above). The Separate Account, through the Trust, intends to
comply with the diversification requirements prescribed in Treas. Reg. Sec.
1.817-5, which affect how the 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.
STATE LAW
State regulations require that the policyowner have appropriate insurable
interest in the Life Insured. Failure to establish an insurable interest may
result in the Policy not qualifying as a life insurance contract for federal tax
purposes.
INVESTOR CONTROL
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
40
<PAGE> 45
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
sub-accounts without being treated as owners of the underlying assets". As of
the date of this prospectus, no such guidance has been issued.
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that policyowners were not owners of separate account assets. For example, the
policyowner has additional flexibility in allocating premium payments and Policy
Values. These differences could result in an owner being treated as the owner of
a pro-rata portion of the assets of the Separate Account. In addition, the
Company does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has stated it expects to
issue. The Company therefore reserves the right to modify the Policy as
necessary to attempt to prevent an owner from being considered the owner of a
pro rata share of the assets of the Separate Account.
TAX TREATMENT OF POLICY BENEFITS
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes. 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.
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's death benefit option, a Policy loan, partial withdrawal, surrender,
change in ownership, the addition of an accelerated death benefit rider, or an
assignment of the Policy may have federal income tax consequences. In addition,
federal, state and local transfer, and other tax consequences of ownership or
receipt of Policy proceeds depend on the circumstances of each policyowner or
beneficiary.
DEATH BENEFIT
The death benefit under the Policy should be excludible from the gross income of
the beneficiary under Section 101(a)(1) of the Code.
CASH VALUES
Generally, the policyowner will not be deemed to be in constructive receipt of
the Policy Value until there is a distribution. This includes additions
attributable to interest, dividends, appreciation or gains realized on transfers
among sub-accounts.
INVESTMENT IN THE POLICY
Investment in the Policy means:
(a) the aggregate amount of any premiums or other consideration paid for a
Policy; minus
(b) the aggregate amount, other than loan amounts, received under the Policy
which has been excluded from the gross income of the policyowner (except
that the amount of any loan from, or secured by, a Policy that is a MEC, to
the extent such amount has been excluded from gross income, will be
disregarded); plus
(c) the amount of any loan from, or secured by a Policy that is a MEC to the
extent that such amount has been included in the gross income of the
policyowner.
The repayment of a policy loan, or the payment of interest on a loan, does not
affect the Investment in the Policy.
41
<PAGE> 46
SURRENDER OR LAPSE
Upon a complete surrender or lapse of a Policy, if the amount received plus the
amount of Policy Debt exceeds the total investment in the Policy, the excess
will generally be treated as ordinary income subject to tax.
If, at the time of lapse, a Policy has a loan, the loan is extinguished and the
amount of the loan is a deemed payment to the policyholder. If the amount of
this deemed payment exceeds the investment in the contract, the excess is
taxable income and is subject to Internal Revenue Service reporting
requirements."
DISTRIBUTIONS
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" or "MEC".
DISTRIBUTIONS FROM NON-MEC'S
A distribution from a non-MEC is generally treated as a tax-free recovery by the
policyowner of the Investment in the Policy 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. Loans from, or secured by, a
non-MEC are not treated as distributions. Instead, such loans are treated as
indebtedness of the policyowner.
Force Outs
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 to
comply 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. Changes include partial
withdrawals and death benefit option changes.
DISTRIBUTIONS FROM MEC'S
Policies classified as MEC's will be subject to the following tax rules:
(a) 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 at such time.
(b) 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.
(c) Third, a 10% additional income tax is imposed on the portion of any
distribution (including distributions on surrender) from, or loan taken
from or secured by, such a policy that is included in income except where
the distribution or loan:
(i) is made on or after the policyowner attains age 59 1/2;
(ii) is attributable to the policyowner becoming disabled; or
(iii) 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.
These exceptions are not likely to apply in situations where the Policy is not
owned by an individual.
Definition of 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.
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
"seven-pay premium limit". The seven-pay premium limit on
42
<PAGE> 47
any date is equal to the sum of the net level premiums that would have been paid
on or before such date if the policy provided for paid-up future benefits after
the payment of seven level annual premiums (the "seven-pay premium").
The rules relating to whether a Policy will be treated as a MEC 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 MEC.
Material Changes
A policy that is not a MEC may become a MEC if it is "materially changed". If
there is a material change to the policy, the seven year testing period for MEC
status is restarted. The material change rules for determining whether a Policy
is a MEC are complex. In general, however, the determination of whether a Policy
will be a MEC after a material change generally depends upon the relationship
among the death benefit of the Policy at the time of such change, the Policy
Value at the time of the change, and the additional premiums paid into the
Policy during the seven years starting with the date on which the material
change occurs.
Reductions in Face Amount
If there is a reduction in benefits during any Policy Year, the seven-pay
premium limit is recalculated as if the policy had been originally issued at the
reduced benefit level. Failure to comply would result in classification as a MEC
regardless of any efforts by the Company to provide a payment schedule that will
not violate the seven pay test.
Exchanges
A life insurance contract received in exchange for a MEC will also be treated as
a MEC.
Processing of Premiums
If a premium is received which would cause the Policy to become a 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.
Multiple Policies
All MEC's that are issued by a Company (or its affiliates) to the same
policyowner during any calendar year are treated as one MEC for purposes of
determining the amount includible in gross income under Section 72(e) of the
Code.
POLICY LOAN INTEREST
Generally, personal interest paid on any loan under a Policy which is owned by
an individual is not deductible. For policies purchased on or after January 1,
1996, interest on any loan under a Policy owned by a taxpayer and covering the
life of any individual who is an officer or employee of or is financially
interested in the business carried on by the taxpayer will not be tax deductible
unless the employee is a key
43
<PAGE> 48
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 exceed $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.
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 bear to the average adjusted bases for all assets of the taxpayer.
If the taxpayer is not the Policyowner, but is the direct or indirect
beneficiary under the Policy, then the amount of unborrowed cash value of the
Policy taken into account in computing the portion of the taxpayer's interest
expense allocable to unborrowed Policy cash values cannot exceed the benefit to
which the taxpayer is directly or indirectly entitled under the Policy.
POLICY EXCHANGES
A policyowner generally will not recognize gain upon the exchange of a Policy
for another life insurance policy issued by the Company or another insurance
company, except to the extent that the policyowner receives cash in the exchange
or is relieved of Policy indebtedness as a result of the exchange. In no event
will the gain recognized exceed the amount by which the Policy Value (including
any unpaid loans) exceeds the policyowner's Investment in the Policy.
OTHER TRANSACTIONS
A transfer of the Policy, a change in the owner, a change in the beneficiary,
and certain other changes to the Policy, as well as particular uses of the
Policy (including use in a so called "split-dollar" arrangement) may have tax
consequences depending upon the particular circumstances and should not be
undertaken prior to consulting with a qualified tax adviser. For instance, if
the owner transfers the Policy or designates a new owner in return for valuable
consideration (or, in some cases, if the transferor is relieved of a liability
as a result of the transfer), then the Death Benefit payable upon the death of
the Insured may in certain circumstances be includible in taxable income to the
extent that the Death Benefit exceeds the prior consideration paid for the
transfer and any premiums or other amounts subsequently paid by the transferee.
Further, in such a case, if the consideration received exceeds the transferor's
Investment in the Policy, the difference will be taxed to the transferor as
ordinary income.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the individual
circumstances of each policyowner and beneficiary.
ALTERNATE MINIMUM TAX
Corporate owners may be subject to Alternate Minimum Tax on the annual increases
in Cash Surrender Values and on the Death Benefit proceeds.
INCOME TAX REPORTING
In certain employer-sponsored life insurance arrangements, including equity
split dollar arrangements, participants may be required to report for income tax
purposes, one or more of the following:
(a) the value each year of the life insurance protection provided;
(b) an amount equal to any employer-paid premiums; or
(c) some or all of the amount by which the current value exceeds the employer's
interest in the Policy.
44
<PAGE> 49
Participants should consult with their tax adviser to determine the tax
consequences of these arrangements.
OTHER INFORMATION
PAYMENT OF PROCEEDS
As long as the Policy is in force, Manufacturers Life of America will ordinarily
pay any policy loans, surrenders, partial withdrawals or insurance benefit
within seven days after receipt at its Service Office of all the documents
required for such a payment. The Company may delay for up to six months the
payment from the Fixed Account of any policy loans, surrenders, partial
withdrawals, or insurance benefit. In the case of any such payments from any
Investment Account, the Company may delay payment during any period during which
(i) the New York Stock Exchange is closed for trading (except for normal weekend
and holiday closings), (ii) trading on the New York Stock Exchange is
restricted, (iii) an emergency exists as a result of which disposal of
securities held in the Separate Account is not reasonably practicable or it is
not reasonably practicable to determine the value of the Separate Account's net
assets or (iv) the SEC, by order, so permits for the protection of security
holders; provided that applicable rules and regulations of the SEC shall govern
as to whether the conditions described in (ii) and (iii) exist.
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 death benefit;
- - the Policy Value and its allocation among the Investment Accounts, the
Fixed Account and the Loan Account;
- - the value of the units in each Investment Account to which the Policy Value
is allocated;
- - the Policy Debt and any loan interest charged since the last report;
- - the premiums paid and other Policy transactions made during the period
since the last report; and
- - any other information required by law.
Each policyowner will also be sent an annual and a semi-annual report for the
Trust which will include a list of the securities held in each Portfolio as
required by the 1940 Act.
DISTRIBUTION OF THE POLICIES
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.
ManEquity, Inc. is located at 200 Bloor Street East, Toronto, Ontario, Canada,
M4W 1ES and was organized under the laws of Colorado on May 4, 1970. The
directors of ManEquity, Inc. are: John Richardson, Roy Bubbs, Bruce Gordon, Gary
Buchanan and Douglas Myers. The officers of ManEquity, Inc. are: (i) Douglas
Myers - President, (ii) Gary Buchanan - Vice President, Compliance, (iii) Thomas
Reives - Treasurer, (iv) Brian Buckley - Secretary and General Counsel. The
Policies will be sold by registered representatives of either ManEquity or other
broker-dealers having distribution agreements with ManEquity who are also
authorized by state insurance departments to do so.
A registered representative will receive commissions not to exceed 105% of
premiums in the first year, 2% of all premiums paid in the second year and
after, and after the second anniversary 0.15% of the Policy Value per year.
Representatives who meet certain productivity standards with regard to the sale
of the Policies and certain other policies issued by Manufacturers Life of
America or Manufacturers Life will be eligible for additional compensation.
45
<PAGE> 50
RESPONSIBILITIES OF MANUFACTURERS LIFE
Manufacturers Life and Manufacturers USA have entered into an agreement with
ManEquity, Inc. pursuant to which Manufacturers Life or Manufacturers USA, on
behalf of ManEquity, Inc. will pay the sales commissions in respect of the
Policies and certain other policies issued by Manufacturers Life of America,
prepare and maintain all books and records required to be prepared and
maintained by ManEquity, Inc. with respect to the policies and such other
policies, and send all confirmations required to be sent by ManEquity, Inc. with
respect to the Policies and such other policies. ManEquity, Inc. will promptly
reimburse Manufacturers Life or Manufacturers USA for all sales commissions paid
by Manufacturers Life or Manufacturers USA and will pay Manufacturers Life or
Manufacturers USA for its other services under the agreement in such amounts and
at such times as agreed to by the parties.
Manufacturers Life and Manufacturers USA have also entered into a Service
Agreement with Manufacturers Life of America pursuant to which Manufacturers
Life and Manufacturers USA will provide to Manufacturers Life of America all
issue, administrative, general services and recordkeeping functions on behalf of
Manufacturers Life of America with respect to all of its insurance policies
including the Policies.
Finally, Manufacturers Life of America may, from time to time in its sole
discretion, enter into one or more reinsurance agreements with other life
insurance companies under which policies issued by it may be reinsured, such
that its total amount at risk under a policy would be limited for the life of an
insured.
VOTING RIGHTS
As stated previously, all of the assets held in the sub-accounts of the Separate
Account will be invested in shares of a particular Portfolio of the 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 the Policies, will be voted by Manufacturers Life of America in the same
proportion as those shares in that sub-account for which instructions are
received. Should the applicable federal securities laws or regulations change so
as to permit Manufacturers Life of America to vote shares held in the Separate
Account in its own right, it may elect to do so.
The number of shares in each sub-account for which instructions may be given by
a policyowner is determined by dividing the portion of the Policy Value derived
from participation in that sub-account, if any, by the value of one share of the
corresponding Portfolio. 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.
Manufacturers Life of America may, if required by state 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, the Company 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.
SUBSTITUTION OF PORTFOLIO SHARES
It is possible that in the judgment of the management of Manufacturers Life of
America, one or more of the Portfolios may become unsuitable for investment by
the Separate Account because of a change in
46
<PAGE> 51
investment policy or a change in the applicable laws or regulation, because the
shares are no longer available for investment, or for some other reason. In that
event, Manufacturers Life of America may seek to substitute the shares of
another Portfolio or of an entirely different mutual fund. Before this can be
done, the approval of the S.E.C. and one or more state insurance departments may
be required.
Manufacturers Life of America also reserves the right (i) to combine other
separate accounts with the Separate Account, (ii) to create new separate
accounts, (iii) to establish additional sub-accounts within the Separate Account
to invest in additional portfolios of the Trust or another management investment
company, (iv) to eliminate existing sub-accounts and to stop accepting new
allocations and transfers into the corresponding portfolio, (v) to combine
sub-accounts or to transfer assets in one sub-account to another sub-account or
(vi) to transfer assets from the Separate Account to another separate account
and from another separate account to the Separate Account. The Company also
reserves the right to operate the Separate Account as a management investment
company or other form permitted by law, and to de-register the Separate Account
under the 1940 Act. Any such change would be made only if permissible under
applicable federal and state law.
RECORDS AND ACCOUNTS
The Service Office will perform administrative functions, such as decreases,
increases, surrenders and partial withdrawals, and fund transfers on behalf of
the Company.
All records and accounts relating to the Separate Account and the Portfolios
will be maintained by the Company. All financial transactions will be handled by
the Company. All reports required to be made and information required to be
given will be provided by the Company.
STATE REGULATIONS
Manufacturers Life of America is subject to the 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.
LITIGATION
No litigation is pending that would have a material effect upon the Separate
Account or the Trust.
INDEPENDENT AUDITORS
The financial statements of The Manufacturers Life Insurance Company of America
and Separate Account Three of The Manufacturers Life Insurance Company of
America at December 31, 1997 appearing in this prospectus and for the year then
ended appearing in this prospectus have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon also appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of such firm as experts in auditing and accounting.
FURTHER INFORMATION
A registration statement under the Securities Act of 1933 has been filed with
the S.E.C. relating to the offering described in this prospectus. This
prospectus does not include all the information set forth in the registration
statement. The omitted information may be obtained from the SEC's principal
office in Washington D.C. upon payment of the prescribed fee. The Commission
also maintains a Web site that
47
<PAGE> 52
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission which is
located at http://www.sec.gov.
For further information you may also contact Manufacturers Life of America's
Home Office, the address and telephone number of which are on the first page of
the prospectus.
48
<PAGE> 53
OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
Position with Manufacturers
Name Life of America Principal Occupation
<S> <C> <C>
Sandra M. Cotter (35) Director (since December 1992) Attorney 1989 - present, Dykema Gosset
James D. Gallagher (43) Director, Secretary and General Vice President, Secretary and General Counsel -
Counsel (since May 1996) 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 (since May 1996) Vice President, U.S. Operations - Pensions -
1990 - present, The Manufacturers Life
Insurance Company
Donald A. Guloien (41) Director and President (since Executive Vice President, Business
August 1990) Development - 1999 - present, The
Manufacturers Life Insurance Company; Senior
Vice President, Business Development - 1994 -
1998, The Manufacturers Life Insurance
Company; Vice President, U.S. Individual
Business - 1990 - 1994, The Manufacturers Life
Insurance Company
Theodore Kilkuskie, Jr. Director, Vice President U.S. Senior Vice President, Annuities - 1999 -
(42) Individual Insurance present, The Manufacturers Life Insurance
Company; President, The Manufacturers Life
Insurance Company of North America - 1999 -
present; Vice President, U.S. Individual
Insurance - January 1997 - present, ManUSA;
Vice President, U.S. Individual Insurance June
1995 - 1998, 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 (since July 1992) Senior Vice President, General Counsel and
Corporate Secretary - 1988 - present, The
Manufacturers Life Insurance Company
John D. Richardson (60) Chairman and Director Senior Executive Vice President, U.S.
(since January 1995) Individual Insurance - 1999 - present, The
Manufacturers Life Insurance Company; Executive
Vice President and General Manager, U.S.
Operations - 1995 - 1998, 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 Assistant Vice President and Controller, U.S.
and Compliance 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 Manager, Greater China
Division - 1993 - 1995, The Manufacturers Life
Insurance Company
</TABLE>
49
<PAGE> 54
<TABLE>
<CAPTION>
Position with Manufacturers
Name Life of America Principal Occupation
<S> <C> <C>
Robert A. Cook (43) Vice President, Marketing Senior Vice President, U.S. Individual
Insurance - 1999 - present; The Manufacturers
Life Insurance Company; Vice President,
Product Management - 1996 - 1998, The
Manufacturers Life Insurance Company; Sales
and Marketing Director, U.S. Division - 1994 -
1995, 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
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 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, Appointed Vice President and Chief Financial Officer,
Actuary U.S. Operations - 1996 to present, The
Manufacturers Life Insurance Company; Vice
President and Chief Actuary - 1996 to present, The
Manufacturers Life Insurance Company of North
America; Vice President and Chief Actuary -
1992 to present, The Manufacturers Life Insurance
Company of New York.
</TABLE>
IMPACT OF YEAR 2000
Preparing computer systems to deal with the Year 2000 risk has become a
major issue for businesses throughout the world. Within the group of companies
made up of Manufacturers Life and its subsidiaries ("Manulife Financial"), a
group-wide program has been underway since 1996 to make all critical systems
compliant by the end of 1998 and other systems compliant by the end of 1999.
Included in this program are all systems applicable to and shared by the Company
with Manulife Financial. Based on a detailed assessment, Manulife Financial
determined that a portion of its software needs to be modified or replaced so
that its computer systems will function properly into the Year 2000 and beyond.
Like most companies, the Year 2000 issue represents a significant challenge for
Manulife Financial and extensive resources have been dedicated to modifying
existing software and to converting to new software. However, there can be no
assurances that Manulife Financial's systems, nor those of other companies on
which Manulife Financial relies, will be fully converted on a timely basis and
therefore that all adverse effects on the Company due to the Year 2000 risk will
be avoided. Manulife Financial is presently consulting with vendors, customers,
subsidiaries, third-parties and other businesses with which it deals to ensure
that no material aspect of its, or the Company's, operations will be hindered by
the Year 2000 risk.
The costs of the project and the date on which Manulife Financial
plans to complete the modifications are based on management's best estimates and
are subject to some uncertainty. Manulife Financial is using both internal and
external resources to reprogram, or replace, and test the software for Year 2000
modifications. The total cost of this program to Manulife Financial is
estimated to be $64 million, comprised of $55 million for specifically budgeted
programs and $9 million for general contingencies. Manufacturers Life has
incurred $15 million as at December 31, 1997 of which the
50
<PAGE> 55
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.
ILLUSTRATIONS
The tables set forth in Appendix A illustrate the way in which a Policy's
Death Benefit, Policy Value, and Cash Surrender Value could vary over an
extended period of time.
51
<PAGE> 56
Financial Statements
Separate Account Three of
The Manufacturers Life Insurance
Company of America
Nine months ended September 30, 1998
(with December 31, 1997 comparative)
<PAGE> 57
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
ASSETS
INVESTMENT IN MANUFACTURERS INVESTMENT NET ASSET UNITS NAV PER
TRUST AT MARKET VALUE SHARES VALUE OUTSTANDING UNIT
<S> <C> <C> <C> <C>
Emerging Growth Trust, 2,814,190 shares (cost $62,199,132) 56,114,940 1,553,858 36.11
Quantitative Equity Trust, 2,043,239 shares (cost $37,754,793) 41,293,868 1,186,859 34.79
Real Estate Securities Trust, 1,550,820 shares (cost $24,760,452) 23,246,799 695,559 33.42
Balanced Trust, 2,570,234 shares (cost $43,262,632) 46,598,336 1,662,740 28.03
Capital Growth Bond Trust, 1,724,682 shares (cost $19,444,642) 20,747,930 912,034 22.75
Money Market Trust, 3,116,708 shares (cost $31,167,082) 31,167,082 1,722,076 18.10
International Stock Trust, 1,493,272 shares (cost $17,700,432) 16,799,305 1,409,063 11.92
Pacific Rim Emerging Markets Trust, 700,648 shares (cost $4,752,835) 3,846,556 657,493 5.85
Equity Index Trust, 2,458,005 shares (cost $31,691,444) 31,929,483 1,962,877 16.27
International Small Cap Trust, 159,871 shares (cost $2,460,476) 2,153,466 172,707 12.47
Equity Trust, 1,193,059 shares (cost $24,394,038) 19,446,865 1,566,997 12.41
Value Equity Trust, 1,034,036 shares (cost $16,132,102) 16,534,229 1,142,469 14.47
Growth and Income Trust, 1,036,479 shares (cost $23,328,878) 24,523,102 1,492,812 16.43
U.S. Government Securities Trust, 210,148 shares (cost $2,787,678) 2,897,946 243,229 11.91
Conservative Asset Allocation Trust, 77,541 shares (cost $894,227) 871,559 70,686 12.33
Moderate Asset Allocation Trust, 220,209 shares (cost $2,762,168) 2,642,510 205,821 12.84
Aggressive Asset Allocation Trust, 223,376 shares (cost $3,069,273) 2,932,930 219,925 13.34
Blue Chip Growth Trust, 471,751 shares (cost $7,293,675) 7,151,747 432,883 16.52
Science & Technology Trust, 229,364 shares (cost $3,119,136) 3,043,666 222,128 13.70
Pilgram Baxter Growth Trust, 84,500 shares (cost $1,084,579) 833,166 72,670 11.47
Small/Mid Cap Trust, 233,467 shares (cost $3,891,209) 3,621,079 235,702 15.36
Worldwide Growth Trust, 58,774 shares (cost $901,690) 794,618 60,272 13.18
Global Equity Trust, 192,979 shares (cost $3,495,426) 3,367,490 240,222 14.02
Growth Trust, 207,543 shares (cost $3,993,559) 3,578,041 229,279 15.61
Value Trust, 225,665 shares (cost $3,433,360) 2,902,046 231,002 12.56
International Growth & Income Trust, 107,220 shares (cost $1,158,257) 1,006,797 90,035 11.18
High Yield Trust, 151,273 shares (cost $2,102,914) 1,993,780 147,706 13.50
Strategic Bond Trust, 207,084 shares (cost $2,508,217) 2,377,319 175,866 13.52
Global Government Bond Trust, 26,034 shares (cost $354,758) 348,334 25,137 13.86
Investment Quality Bond Trust, 84,927 shares (cost $1,026,697) 1,054,793 71,633 14.72
Lifestyle Aggressive 1000 Trust, 272,055 shares (cost $3,746,259) 3,106,869 243,114 12.78
Lifestyle Growth 820 Trust, 1,005,155 shares (cost $13,903,487) 12,272,941 924,886 13.27
Lifestyle Balanced 640 Trust, 355,895 shares (cost $4,759,763) 4,370,394 324,779 13.46
Lifestyle Moderate 460 Trust, 41,286 shares (cost $558,963) 535,062 38,137 14.03
Lifestyle Conservative 280 Trust, 12,145 shares (cost $155,849) 156,798 10,903 14.38
Small Company Value Trust, 10,166 shares (cost $121,161) 103,392 13,551 7.63
-----------
TOTAL 396,365,238
===========
</TABLE>
<PAGE> 58
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDING SEPTEMBER 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
EMERGING QUANTITATIVE REAL ESTATE
GROWTH EQUITY SECURITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------------------------------------
<S> <C> <C> <C>
Net Investment Income: Dividend Income $ 995,471 $ 5,169,494 $ 3,092,425
Realized gain (loss) on investments:
Realized gain (loss) from security transactions:
Proceeds from sales 4,702,159 3,320,056 2,016,347
Cost of securities sold 3,586,446 2,031,434 1,673,299
------------------------------------------------
Net realized gain (loss) 1,115,713 1,288,622 343,048
------------------------------------------------
Unrealized appreciation (depreciation) of investments:
Beginning of Year 6,743,875 9,470,255 5,819,408
End of Period (6,084,192) 3,539,076 (1,513,653)
------------------------------------------------
Net unrealized appreciation (depreciation) during the period (12,828,067) (5,931,179) (7,333,061)
------------------------------------------------
Net realized and unrealized gain (loss) on investments (11,712,354) (4,642,557) (6,990,013)
------------------------------------------------
Net increase (decrease) in net assets derived from operations $(10,716,883) $ 526,937 $(3,897,588)
================================================
</TABLE>
See accompanying notes.
<PAGE> 59
<TABLE>
<CAPTION>
BALANCED CAPITAL MONEY INTERNATIONAL PACIFIC RIM
ASSETS GROWTH BOND MARKET STOCK EMERGING MARKETS EQUITY INDEX
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$5,710,136 $1,051,960 $ 1,104,187 $ 996 $ 0 $ 510,505
2,085,633 2,262,300 39,835,582 3,753,821 3,106,274 2,056,820
1,673,670 2,007,479 39,835,582 3,167,304 5,374,282 1,652,981
- ---------------------------------------------------------------------------------------------
411,963 254,821 0 586,517 (2,268,008) 403,839
- ---------------------------------------------------------------------------------------------
6,626,044 1,199,605 0 131,809 (2,120,318) 488,049
3,335,704 1,303,288 0 (901,127) (906,279) 238,039
- ---------------------------------------------------------------------------------------------
(3,290,340) 103,683 0 (1,032,936) 1,214,039 (250,010)
- ---------------------------------------------------------------------------------------------
(2,878,377) 358,504 0 (446,419) (1,053,969) 153,829
- ---------------------------------------------------------------------------------------------
$2,831,759 $1,410,464 $ 1,104,187 $ (445,423) $(1,053,969) $ 664,334
=============================================================================================
</TABLE>
<PAGE> 60
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF OPERATIONS (continued)
FOR THE PERIOD ENDING SEPTEMBER 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
INTERNATIONAL VALUE GROWTH
SMALL CAP EQUITY EQUITY AND INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------------------------------------------------
<S> <C> <C> <C> <C>
Net Investment Income: Dividend Income $ 5,687 $ 3,871,537 $ 976,745 $ 1,500,080
Realized gain (loss) on investments:
Realized gain (loss) from security transactions:
Proceeds from sales 2,664,968 1,260,896 803,194 2,771,795
Cost of securities sold 2,492,630 1,375,239 620,125 1,984,821
-------------------------------------------------------
Net realized gain (loss) 172,338 (114,343) 183,069 786,974
-------------------------------------------------------
Unrealized appreciation (depreciation)
of investments:
Beginning of Year (39,080) 737,427 1,914,865 2,511,120
End of Period (307,010) (4,947,173) 402,128 1,194,224
-------------------------------------------------------
Net unrealized depreciation during the period (267,930) (5,684,600) (1,512,737) (1,316,896)
-------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (95,592) (5,798,943) (1,329,668) (529,922)
-------------------------------------------------------
Net increase (decrease) in net assets
derived from operations $ (89,905) $(1,927,406) $ (352,923) $ 970,158
=======================================================
</TABLE>
See accompanying notes.
<PAGE> 61
<TABLE>
<CAPTION>
U.S. GOVERNMENT CONSERVATIVE MODERATE AGGRESSIVE
SECURITIES ASSET ALLOCATION ASSET ALLOCATION ASSET ALLOCATION BLUE CHIP
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$109,401 $ 72,830 $ 247,923 $ 312,103 $ 98,459
607,490 97,299 105,776 107,938 795,228
586,991 92,941 98,020 92,058 689,610
- ---------------------------------------------------------------------------------
20,499 4,358 7,756 15,880 105,618
- ---------------------------------------------------------------------------------
67,077 17,540 101,169 164,721 239,380
110,267 (22,668) (119,659) (136,343) (141,928)
- ---------------------------------------------------------------------------------
43,190 (40,208) (220,828) (301,064) (381,308)
- ---------------------------------------------------------------------------------
63,689 (35,850) (213,072) (285,184) (275,690)
- ---------------------------------------------------------------------------------
$173,090 $ 36,980 $ 34,851 $ 26,919 $(177,231)
=================================================================================
</TABLE>
<PAGE> 62
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF OPERATIONS (continued)
FOR THE PERIOD ENDING SEPTEMBER 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
PILGRAM
SCIENCE AND BAXTER SMALL/MID WORLDWIDE
TECHNOLOGY GROWTH CAP GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net Investment Income: Dividend Income $ 0 $ 0 $ 0 $ 0
Realized and unrealized gain (loss) from
security transactions:
Proceeds from sales 6,431,454 252,753 239,514 764,660
Cost of securities sold 6,713,913 251,680 208,984 741,225
--------------------------------------------------------
Net realized gain (loss) (282,459) 1,073 30,530 23,435
--------------------------------------------------------
Unrealized appreciation (depreciation)
of investments:
Beginning of Year (62,464) (18,510) (4,182) (4,391)
End of Period (75,469) (251,412) (270,130) (107,072)
--------------------------------------------------------
Net unrealized depreciation
during the period (13,005) (232,902) (265,948) (102,681)
--------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (295,464) (231,829) (235,418) (79,246)
--------------------------------------------------------
Net increase (decrease) in net assets
derived from operations $ (295,464) $(231,829) $(235,418) $ (79,246)
========================================================
</TABLE>
See accompanying notes.
<PAGE> 63
<TABLE>
<CAPTION>
INTERNATIONAL
GLOBAL GROWTH
EQUITY GROWTH VALUE AND INCOME HIGH YIELD
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- -------------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
$ 167,578 $ 95,683 $ 0 $ 51,082 $ 3,723
10,843,214 1,437,907 448,628 4,925,987 1,717,993
11,141,671 1,316,139 417,465 4,974,915 1,693,007
- -------------------------------------------------------------------------------------
(298,457) 121,768 31,163 (48,928) 24,986
- -------------------------------------------------------------------------------------
32,115 15,489 (20,774) (39,257) (13,453)
(127,936) (415,518) (531,315) (151,460) (109,133)
- -------------------------------------------------------------------------------------
(160,051) (431,007) (510,541) (112,203) (95,680)
- -------------------------------------------------------------------------------------
(458,508) (309,239) (479,378) (161,131) (70,694)
- -------------------------------------------------------------------------------------
$ (290,930) $ (213,556) $(479,378) $ (110,049) $ (66,971)
=====================================================================================
</TABLE>
<PAGE> 64
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDING SEPTEMBER 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
GLOBAL LIFESTYLE
STRATEGIC GOVERNMENT INVESTMENT AGGRESSIVE
BOND BOND QUALITY BOND 1000
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
<S> <C> <C> <C> <C>
Net Investment Income: Dividend Income $ 86,088 $ 27,334 $20,278 $ 159,374
Realized and unrealized gain (loss) from
security transactions:
Proceeds from sales 123,682 105,137 81,325 685,650
Cost of securities sold 122,915 108,775 76,811 667,087
-----------------------------------------------------------
Net realized gain (loss) 767 (3,638) 4,514 18,563
-----------------------------------------------------------
Unrealized appreciation (depreciation)
of investments:
Beginning of Year 10,709 3,801 6,089 (11,048)
End of Period (130,898) (6,424) 28,098 (639,389)
-----------------------------------------------------------
Net unrealized depreciation
during the period (141,607) (10,225) 22,009 (628,341)
-----------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (140,840) (13,863) 26,523 (609,778)
-----------------------------------------------------------
Net increase (decrease) in net assets
derived from operations $ (54,752) $ 13,471 $46,801 $(450,404)
===========================================================
</TABLE>
See accompanying notes
<PAGE> 65
<TABLE>
<CAPTION>
LIFESTYLE LIFESTYLE LIFESTYLE LIFESTYLE
GROWTH BALANCED MODERATE CONSERVATIVE SMALL COMPANY
820 640 460 280 VALUE TRUST
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 486,333 $ 141,906 $ 13,726 $ 227 $ 0 $ 26,083,271
268,294 300,793 20,147 811 750 101,002,275
273,413 289,879 19,800 801 886 98,054,278
- ------------------------------------------------------------------------------------------------------
(5,119) 10,914 347 10 (136) 2,947,997
- ------------------------------------------------------------------------------------------------------
(24,738) 43,780 4 29 0 33,986,145
(1,630,545) (389,369) (23,901) 948 (17,769) (9,806,000)
- ------------------------------------------------------------------------------------------------------
(1,605,807) (433,149) (23,905) 919 (17,769) (43,792,145)
- ------------------------------------------------------------------------------------------------------
(1,610,926) (422,235) (23,558) 929 (17,905) (40,844,148)
- ------------------------------------------------------------------------------------------------------
$(1,124,593) $(280,329) $ (9,832) $1,156 $(17,905) $ (14,760,877)
=======================================================================================================
</TABLE>
<PAGE> 66
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDING SEPTEMBER 30, 1998 (Unaudited) and DECEMBER 31, 1997
<TABLE>
<CAPTION>
EMERGING GROWTH QUANTITATIVE EQUITY REAL ESTATE SECURITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
---------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 995,471 $ 0 $ 5,169,494 $ 0 $ 3,092,425 $ 0
Net realized gain (loss) 1,115,713 1,198,803 1,288,622 973,358 343,048 236,228
Unrealized appreciation (depreciation)
of investments during the period (12,828,067) 8,384,375 (5,931,179) 7,935,295 (7,333,061) 3,664,346
---------------------------------------------------------------------------------------
Increase (decrease) in net assets
derived from operations (10,716,883) 9,583,178 526,937 8,908,653 (3,897,588) 3,900,574
---------------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 9,896,276 16,038,468 5,425,591 7,834,132 4,881,127 5,723,061
Transfer on death 0 0 0 0 0 0
Transfer of terminations (5,064,653) (6,450,838) (2,931,952) (4,132,053) (1,568,163) (2,219,786)
Transfer of policy loans (212,806) (358,214) (252,760) (432,977) (123,142) (369,877)
Net interfund transfers (4,130,100) (6,440,946) (1,623,196) (60,101) (1,648,437) 1,279,970
---------------------------------------------------------------------------------------
488,717 2,788,470 617,683 3,209,001 1,541,385 4,413,368
---------------------------------------------------------------------------------------
Net increase in net assets (10,228,166) 12,371,648 1,144,620 12,117,654 (2,356,203) 8,313,942
NET ASSETS
Beginning of Year 66,343,106 53,971,458 40,149,248 28,031,594 25,603,002 17,289,060
---------------------------------------------------------------------------------------
End of Period $ 56,114,940 $ 66,343,106 $ 41,293,868 $ 40,149,248 $ 23,246,799 $ 25,603,002
=======================================================================================
</TABLE>
+ Reflects the period from commencement of operations May l, 1997 through
December 31, 1997
* Reflects the period from commencement of operations May 1, 1998 through
September 30, 1998
See accompanying notes.
<PAGE> 67
<TABLE>
<CAPTION>
BALANCED CAPITAL GROWTH MONEY MARKET
SUB-ACCOUNT BOND SUB-ACCOUNT SUB-ACCOUNT
- -------------------------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 5,710,136 $ 0 $ 1,051,960 $ 0 $ 1,104,187 $ 1,159,280
411,963 619,554 254,821 9,280 0 (914,698)
(3,290,340) 5,668,002 103,683 1,422,776 0 914,725
- -------------------------------------------------------------------------------------------------------
2,831,759 6,287,556 1,410,464 1,432,056 1,104,187 1,159,307
- -------------------------------------------------------------------------------------------------------
5,446,69l 8,963,510 2,689,228 4,146,312 14,984,877 33,859,872
0 (44,313) 0 0 0 0
(3,139,864) (3,729,355) (1,326,356) (1,575,696) (2,484,408) (2,797,321)
(154,533) (417,435) (50,718) (105,540) (386,324) (282,014)
(208,731) (2,581,258) (613,793) (81,587) (11,478,831) (20,937,650)
- -------------------------------------------------------------------------------------------------------
1,943,563 2,191,149 698,361 2,383,489 635,314 9,842,887
- -------------------------------------------------------------------------------------------------------
4,775,322 8,478,705 2,108,825 3,815,545 1,739,501 11,002,194
41,823,014 33,344,309 18,639,105 14,823,560 29,427,581 18,425,387
- -------------------------------------------------------------------------------------------------------
$46,598,336 $41,823,014 $20,747,930 $18,639,105 $ 31,167,082 $ 29,427,581
=======================================================================================================
</TABLE>
<PAGE> 68
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS (continued)
FOR THE PERIOD ENDING SEPTEMBER 30, 1998 (Unaudited) and DECEMBER 31, 1997
<TABLE>
<CAPTION>
International Pacific Rim
Stock Emerging Markets Equity Index
Sub-Account Sub-Account Sub-Account
-------------------------------------------------------------------------------------
Period Ended Year Ended Period Ended Year Ended Period Ended Year Ended
Sept. 30/98 Dec. 31/97 Sept. 30/98 Dec. 31/97 Sept. 30/98 Dec. 31/97
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 996 $ 209,753 $ 0 $ 12,667 $ 510,505 $ 2,468,634
Net realized gain (loss) 586,517 123,497 (2,268,008) (15,619) 403,839 453,450
Unrealized appreciation (depreciation)
of investments during the period (1,032,936) (318,754) 1,214,039 (2,188,130) (250,010) 534,946
-------------------------------------------------------------------------------------
Increase (decrease) in net assets
derived from operations (445,423) 14,496 (1,053,969) (2,191,082) 664,334 3,457,030
-------------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 3,448,360 5,795,630 1,167,229 2,059,145 9,330,215 7,852,789
Transfer on death 0 0 0 0 0 0
Transfer of terminations (878,752) (1,224,478) (353,835) (620,211) (1,459,932) (781,683)
Transfer of policy loans (63,951) (106,208) (10,111) (58,638) (462,690) (721,710)
Net interfund transfers (622,614) 1,344,064 (260,682) (630,778) 4,187,001 3,377,661
-------------------------------------------------------------------------------------
1,883,043 5,809,008 542,601 749,518 11,594,594 9,727,057
-------------------------------------------------------------------------------------
Net increase in net assets 1,437,620 5,823,504 (511,368) (1,441,564) 12,258,928 13,184,087
NET ASSETS
Beginning of Year 15,361,685 9,538,181 4,357,924 5,799,488 19,670,555 6,486,468
-------------------------------------------------------------------------------------
End of Period $16,799,305 $15,361,685 $ 3,846,556 $ 4,357,924 $31,929,483 $ 19,670,555
=====================================================================================
</TABLE>
+ Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
* Reflects the period from commencement of operations May 1, 1998 through
September 30, 1998
See accompanying notes.
<PAGE> 69
<TABLE>
<CAPTION>
INTERNATIONAL VALUE
SMALL CAP EQUITY EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ----------------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 5,687 $ 212 $ 3,871,537 $ 2,150,334 $ 976,745 $ 1,127,557
172,338 3,009 (114,343) 1,786 183,069 180,373
(267,930) (39,080) (5,684,600) 241,741 (1,512,737) 1,549,982
- ----------------------------------------------------------------------------------------------
(89,905) (35,859) (1,927,406) 2,393,861 (352,923) 2,857,912
- ----------------------------------------------------------------------------------------------
712,125 609,617 4,247,116 7,868,634 2,517,002 4,090,507
0 0 0 0 0 0
(60,136) (48,039) (1,096,156) (1,054,893) (796,462) (793,110)
(5,565) (2,873) (40,711) (45,576) (40,037) (69,774)
194,703 879,398 (146,786) 778,412 384,144 3,108,426
- ----------------------------------------------------------------------------------------------
841,127 1,438,103 2,963,463 7,546,577 2,064,647 6,336,049
- ----------------------------------------------------------------------------------------------
751,222 1,402,244 1,036,057 9,940,438 1,711,724 9,193,961
1,402,244 0 18,410,808 8,470,370 14,822,505 5,628,544
- ----------------------------------------------------------------------------------------------
$2,153,466 $1,402,244 $19,446,865 $18,410,808 $16,534,229 $14,822,505
==============================================================================================
</TABLE>
<PAGE> 70
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS (continued)
FOR THE PERIOD ENDING SEPTEMBER 30, 1998 (Unaudited) and DECEMBER 31, 1997
<TABLE>
<CAPTION>
GROWTH U.S. GOVERNMENT CONSERVATIVE
AND INCOME SECURITIES ASSET ALLOCATION
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
---------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 1,500,080 $ 556,761 $ 109,401 $ 123,037 $ 72,830 $ 42,335
Net realized gain (loss) 786,974 586,565 20,499 (1,538) 4,358 7,770
Unrealized appreciation (depreciation)
of investments during the period (1,316,896) 2,105,562 43,190 28,149 (40,208) 10,974
--------------------------------------------------------------------------------
Increase (decrease) in net assets
derived from operations 970,158 3,248,888 173,090 149,648 36,980 61,079
--------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 5,029,732 7,079,242 499,969 745,345 137,319 334,314
Transfer on death 0 0 0 0 0 0
Transfer of terminations (1,161,363) (910,308) (106,949) (221,531) (40,807) (34,376)
Transfer of policy loans (59,226) (76,204) (32,573) (50,875) 0 0
Net interfund transfers 338,503 4,479,340 141,280 (76,765) 44,137 (37,686)
--------------------------------------------------------------------------------
4,147,646 10,572,070 501,727 396,174 140,649 262,252
--------------------------------------------------------------------------------
Net increase in net assets 5,117,804 13,820,958 674,817 545,822 177,629 323,331
NET ASSETS
Beginning of Year 19,405,298 5,584,340 2,223,129 1,677,307 693,930 370,599
--------------------------------------------------------------------------------
End of Period $24,523,102 $19,405,298 $2,897,964 $2,223,129 $871,559 $693,930
================================================================================
</TABLE>
+ Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
* Reflects the period from commencement of operations May 1, 1998 through
September 30, 1998
See accompanying notes.
<PAGE> 71
<TABLE>
<CAPTION>
Moderate Aggressive Blue Chip
Asset Allocation Asset Allocation Growth
Sub-Account Sub-Account Sub-Account
- ----------------------------------------------------------------------------------------------------------
Period Ended Year Ended Period Ended Year Ended Period Ended Period Ended+
Sept. 30/98 Dec. 31/97 Sept. 30/98 Dec. 31/97 Sept. 30/98 Dec. 31/97
- ----------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
$ 247,923 $ 83,798 $ 312,103 $ 140,784 $ 98,459 $ 104,304
7,756 5,558 15,880 22,261 105,618 (6,796)
(220,828) 77,202 (301,064) 121,408 (381,308) 239,382
- ----------------------------------------------------------------------------------------------------------
34,851 166,558 26,919 284,453 (177,231) 336,890
- ----------------------------------------------------------------------------------------------------------
685,805 692,412 678,438 1,008,793 2,476,776 1,748,929
0 0 0 0 0 0
(146,639) (104,738) (198,140) (143,026) (293,935) (152,046)
(1,641) (346) (12,739) (2,986) (19,054) (5,593)
195,440 588,790 214,245 263,513 1,386,809 1,850,202
- ----------------------------------------------------------------------------------------------------------
732,965 1,176,118 681,804 1,126,294 3,550,596 3,441,492
- ----------------------------------------------------------------------------------------------------------
767,816 1,342,676 708,723 1,410,747 3,373,365 3,778,382
1,874,694 532,018 2,224,207 813,460 3,778,382 0
- ----------------------------------------------------------------------------------------------------------
$2,642,510 $1,874,694 $2,932,930 $2,224,207 $7,151,747 $3,778,382
==========================================================================================================
</TABLE>
<PAGE> 72
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS (continued)
FOR THE PERIOD ENDING SEPTEMBER 30, 1998 (Unaudited) and DECEMBER 31, 1997
<TABLE>
<CAPTION>
Science and Pilgram
Technology Baxter Growth Small/Mid Cap
Sub-Account Sub-Account Sub-Account
------------------------------------------------------------------------------------
Period Ended Period Ended+ Period Ended Period Ended+ Period Ended Period Ended+
Sept. 30/98 Dec. 31/97 Sept. 30/98 Dec. 31/97 Sept. 30/98 Dec. 31/97
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 0 $ 16,815 $ 0 $ 0 $ 0 $ 0
Net realized gain (loss) (282,459) (19,778) 1,073 1,700 30,530 8,946
Unrealized appreciation (depreciation)
of investments during the period (13,005) (62,465) (232,902) (18,510) (265,948) (4,182)
---------------------------------------------------------------------------------
Increase (decrease) in net assets
derived from operations (295,464) (65,428) (231,829) (16,810) (235,418) 4,764
---------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 786,461 361,963 406,502 141,492 1,314,087 757,544
Transfer on death 0 0 0 0 0 0
Transfer of terminations (51,200) (21,603) (38,253) (7,886) (115,684) (32,683)
Transfer of policy loans (10,155) (904) (1,303) 0 (9,939) (269)
Net interfund transfers 1,548,995 791,001 136,600 444,653 1,196,156 742,521
---------------------------------------------------------------------------------
2,274,101 1,130,457 503,546 578,259 2,384,620 1,467,113
---------------------------------------------------------------------------------
Net increase in net assets 1,978,637 1,065,029 271,717 561,449 2,149,202 1,471,877
NET ASSETS
Beginning of Year 1,065,029 0 561,449 0 1,471,877 0
---------------------------------------------------------------------------------
End of Period $3,043,666 $1,065,029 $ 833,166 $561,449 $3,621,079 $1,471,877
=================================================================================
</TABLE>
+ Reflects the period from commencement of operations May 1, 1997 through
December 3l, 1997
* Reflects the period from commencement of operations May 1, 1998 through
September 30, 1998
See accompanying notes.
<PAGE> 73
<TABLE>
<CAPTION>
Worldwide
Growth Global Equity Growth
Sub-Account Sub-Account Sub-Account
- ------------------------------------------------------------------------------------------------------------
Period Ended Period Ended+ Period Ended Period Ended+ Period Ended Period Ended+
Sept. 30/98 Dec. 31/97 Sept. 30/98 Dec. 31/97 Sept. 30/98 Dec. 31/97
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0 $ 2,704 $ 167,578 $ 0 $ 95,683 $ 0
23,435 1,782 (298,457) 373 121,768 1,107
(102,681) (4,391) (160,051) 32,115 (431,007) 15,489
- -------------------------------------------------------------------------------------------------------------
(79,246) 95 (290,930) 32,488 (213,556) 16,596
- -------------------------------------------------------------------------------------------------------------
338,511 143,932 1,402,718 697,468 1,579,798 470,000
0 0 0 0 0 0
(27,876) (4,603) (78,268) (22,616) (80,483) (29,691)
(764) (1,290) (1,015) (283) (39,978) (2,329)
248,582 177,277 866,401 761,527 1,082,975 794,709
- -------------------------------------------------------------------------------------------------------------
558,453 315,316 2,189,836 1,436,096 2,542,312 1,232,689
- -------------------------------------------------------------------------------------------------------------
479,207 315,411 1,898,906 1,468,584 2,328,756 1,249,285
315,411 0 1,468,584 0 1,249,285 0
- -------------------------------------------------------------------------------------------------------------
$ 794,618 $ 315,411 $ 3,367,490 $ 1,468,584 $ 3,578,041 $ 1,249,285
=============================================================================================================
</TABLE>
<PAGE> 74
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS (continued)
FOR THE PERIOD ENDING SEPTEMBER 30, 1998 (Unaudited) and DECEMBER 31, 1997
<TABLE>
<CAPTION>
International Growth
Value and Income
Sub-Account Sub-Account
--------------------------- ---------------------------
Period Ended Period Ended+ Period Ended Period Ended+
Sept. 30/98 Dec. 31/97 Sept. 30/98 Dec. 31/97
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 0 $ 33,133 $ 51,082 $ 0
Net realized gain (loss) 31,153 2,781 (48,928) 187
Unrealized appreciation
(depreciation) of
investments during
the period (510,541) (20,774) (112,203) (39,257)
---------- ---------- --------- --------
Increase (decrease) in net
assets derived from
operations (479,378) 15,140 (110,049) (39,070)
---------- ---------- --------- --------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 1,231,207 346,369 352,485 744,217
Transfer on death 0 0 0 0
Transfer of terminations (72,292) (21,998) (29,298) (9,912)
Transfer of policy loans (3,052) (1,030) (2,253) 0
Net interfund transfers 1,144,585 742,495 10,584 90,093
---------- ---------- ---------- --------
2,300,448 1,065,836 331,518 824,398
---------- ---------- ---------- --------
Net increase in net assets 1,821,070 1,080,976 221,469 785,328
NET ASSETS
Beginning of Year 1,080,976 0 785,328 0
---------- ---------- ---------- --------
End of Period $2,902,046 $1,080,976 $1,006,797 $785,328
========== ========== ========== ========
</TABLE>
+ Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
* Reflects the period from commencement of operations May 1, 1998 through
September 30, 1998
See accompanying notes.
<PAGE> 75
<TABLE>
<CAPTION>
GLOBAL GOVERNMENT
HIGH YIELD STRATEGIC BOND BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- -----------------------------------------------------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED+ PERIOD ENDED PERIOD ENDED+ PERIOD ENDED PERIOD ENDED+
SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 3,723 $ 39,931 $ 86,088 $ 0 $ 27,334 $ 0
24,986 7,882 767 703 (3,638) 75
(95,680) (13,453) (141,607) 10,709 (10,225) 3,801
- -----------------------------------------------------------------------------------------------------------------
(66,971) 34,360 (54,752) 11,412 13,471 3,876
- -----------------------------------------------------------------------------------------------------------------
670,174 276,881 774,249 273,501 119,223 58,746
0 0 0 0 0 0
(70,745) (31,310) (68,667) (11,295) (11,543) (2,335)
(1,894) (6,696) (3,504) (504) (680) 0
392,224 797,757 1,076,003 380,876 6,103 161,473
- -----------------------------------------------------------------------------------------------------------------
989,759 1,036,632 1,778,081 642,578 113,103 217,884
- -----------------------------------------------------------------------------------------------------------------
922,788 1,070,992 1,723,329 653,990 126,574 221,760
1,070,992 0 653,990 0 221,760 0
- -----------------------------------------------------------------------------------------------------------------
$ 1,993,780 $ 1,070,992 $ 2,377,319 $653,990 $348,334 $221,760
=================================================================================================================
</TABLE>
<PAGE> 76
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS (continued)
FOR THE PERIOD ENDING SEPTEMBER 30, 1998 (Unaudited) and DECEMBER 31, 1997
<TABLE>
<CAPTION>
INVESTMENT LIFESTYLE AGGRESSIVE LIFESTYLE GROWTH
QUALITY BOND 1000 820
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED+ PERIOD ENDED PERIOD ENDED+ PERIOD ENDED PERIOD ENDED+
SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income
(loss) $ 20,278 $ 0 $ 159,374 $ 4,916 $ 486,333 $ 36,584
Net realized gain (loss) 4,514 136 18,563 841 (5,119) 3,060
Unrealized appreciation
(depreciation) of
investments during
the period 22,009 6,089 (628,341) (11,049) (1,605,807) (24,740)
-----------------------------------------------------------------------------------------------------
Increase (decrease) in net
assets derived from
operations 46,801 6,225 (450,404) (5,292) (1,124,593) 14,904
-----------------------------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 334,764 75,411 1,037,516 421,769 5,019,370 2,011,046
Transfer on death 0 0 0 0 0 0
Transfer of terminations (24,637) (3,321) (186,375) (47,502) (549,930) (85,509)
Transfer of policy loans (6,474) 0 (8,662) (3,766) (112,015) (826)
Net interfund transfers 443,332 182,692 285,822 2,063,763 3,781,111 3,319,383
-----------------------------------------------------------------------------------------------------
746,985 254,782 1,128,301 2,434,264 8,138,536 5,244,094
-----------------------------------------------------------------------------------------------------
Net increase in net assets 793,786 261,007 677,897 2,428,972 7,013,943 5,258,998
NET ASSETS
Beginning of Year 261,007 0 2,428,972 0 5,258,998 0
-----------------------------------------------------------------------------------------------------
End of Period $1,054,793 $ 261,007 $ 3,106,869 $ 2,428,972 $ 12,272,941 $ 5,258,998
=====================================================================================================
</TABLE>
+ Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
* Reflects the period from commencement of operations May 1, 1998 through
September 30, 1998
See accompanying notes.
<PAGE> 77
<TABLE>
<CAPTION>
LIFESTYLE BALANCED LIFESTYLE MODERATE LIFESTYLE CONSERVATIVE
640 460 280
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED+ PERIOD ENDED PERIOD ENDED+ PERIOD ENDED PERIOD ENDED+
SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 141,906 $ 16,038 $ 13,726 $ 842 $ 227 $ 9
10,914 4,837 347 (6) 10 1
(433,149) 43,781 (23,905) 3 919 29
- -----------------------------------------------------------------------------------------------------------------------------------
(280,329) 64,656 (9,832) 839 1,156 39
- -----------------------------------------------------------------------------------------------------------------------------------
1,562,302 568,684 260,605 92,570 29,838 150
0 0 0 0 0 0
(293,106) (122,871) (18,080) (2,513) (1,441) (224)
(8,918) 0 0 0 0 0
1,266,948 1,613,028 199,989 11,484 125,904 1,376
- -----------------------------------------------------------------------------------------------------------------------------------
2,527,226 2,058,841 442,514 101,541 154,301 1,302
- -----------------------------------------------------------------------------------------------------------------------------------
2,246,897 2,123,497 432,682 102,380 155,457 1,341
2,123,497 0 102,380 0 1,341 0
- -----------------------------------------------------------------------------------------------------------------------------------
$4,370,394 $2,123,497 $535,062 $102,380 $156,798 $1,341
===================================================================================================================================
</TABLE>
<PAGE> 78
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS (continued)
FOR THE PERIOD ENDING SEPTEMBER 30, 1998 (Unaudited) and DECEMBER 31, 1997
<TABLE>
SMALL COMPANY
VALUE TRUST TOTAL
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED* PERIOD ENDED YEAR ENDED
SEPT. 30/98 SEPT. 30/98 DEC. 31/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 0 $ 26,083,271 $ 8,330,428
Net realized gain (loss) (136) 2,947,997 3,497,468
Unrealized appreciation (depreciation) of investments
during the period (17,769) (43,792,145) 30,266,096
-------------------------------------------------------------------------
Increase (decrease) in net assets derived from operations (17,905) (14,760,877) 42,093,992
-------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 15,004 91,488,690 123,892,455
Transfer on death 0 0 (44,313)
Transfer of terminations (2,818) (24,829,198) (27,451,360)
Transfer of policy loans 0 (2,139,187) (3,124,737)
Net interfund transfers 109,111 274,517 179,113
-------------------------------------------------------------------------
121,297 64,794,822 93,451,158
-------------------------------------------------------------------------
Net increase in net assets 103,392 50,033,945 135,545,150
NET ASSETS
Beginning of Year 0 346,331,293 210,786,143
-------------------------------------------------------------------------
End of Period $ 103,392 $ 396,365,238 $ 346,331,293
=========================================================================
</TABLE>
+ Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
* Reflects the period from commencement of operations May 1, 1998 through
September 30, 1998
See accompanying notes.
<PAGE> 79
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements
September 30, 1998 (Unaudited)
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, registered under the
Investment Company Act of 1940 as an open-end management investment company.
The Small Company Value Trust was added to the Separate Account on May 1, 1998
as an investment option for variable universal life policy holders of
Manufacturers Life of America.
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.
<PAGE> 80
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements
1. ORGANIZATION (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 The Manufacturers Life of America's general
account to cover the contingency that the guaranteed minimum death benefit might
exceed the death benefit which would have been payable in the absence of such
guarantee.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Separate Account in preparation of its financial statements:
a. Valuation of Investments - Investments are made among the thirty-six
investment portfolios 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.
<PAGE> 81
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
d. Federal Income Taxes - Manufacturers Life of America, the Separate
Account's sponsor, is taxed as a "life insurance company" under the
Internal Revenue Code. Under these provisions of the Code, the operations
of the Separate Account form part of the sponsor's total operations and are
not taxed separately.
The current year's operations of the Separate Account are not expected to
affect the sponsor's tax liabilities and, accordingly, no charges were made
against the Separate Account for federal, state and local taxes. However,
in the future, should the sponsor incur significant tax liabilities related
to Separate Account operations, it intends to make a charge or establish a
provision within the Separate Account for such taxes.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. PREMIUM DEDUCTIONS
Manufacturers Life of America deducts certain charges for state, local, and
federal taxes from the gross premium before placing the remaining net premiums
in the sub-accounts.
4. PURCHASES AND SALES OF MANUFACTURERS INVESTMENT TRUST SHARES
Purchases and sales of the shares of common stock of Manufacturers Investment
Trust for the period ended September 30, 1998 were $191,880,374 and $101,002,275
respectively, and for the year ended December 31, 1997 were $152,223,137 and
$49,351,462 respectively.
5. RELATED PARTY TRANSACTIONS
ManEquity, Inc., a registered broker-dealer and indirect wholly-owned subsidiary
of Manulife Financial, acts as the principal underwriter of the Policies
pursuant to a Distribution Agreement with Manufacturers Life of America.
Registered representatives of either ManEquity, Inc. or other broker-dealers
having distribution agreements with ManEquity, Inc. who are also authorized as
variable life insurance agents under applicable state insurance laws, sell the
Policies. Registered representatives are compensated on a commission basis.
Manufacturers Life of America has a formal service agreement with its affiliate,
Manulife Financial 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.
<PAGE> 82
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> 83
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> 84
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> 85
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
$59,599,231)........................................... $ 66,343,106 1,538,945 $43.11
Quantitative Equity Trust, 1,784,411 shares (cost
$30,678,993)........................................... 40,149,248 1,168,380 34.36
Real Estate Securities Trust, 1,275,685 shares (cost
$19,783,593)........................................... 25,603,002 649,627 39.41
Balanced Trust, 2,163,632 shares (cost $35,196,971)...... 41,823,014 1,593,352 26.25
Capital Growth Bond Trust, 1,572,920 shares (cost
$17,439,500)........................................... 18,639,105 880,058 21.18
Money Market Trust, 2,942,758 shares (cost $29,427,581).. 29,427,581 1,689,057 17.42
International Stock Trust, 1,339,292 shares (cost
$15,229,874)........................................... 15,361,685 1,263,839 12.15
Pacific Rim Emerging Markets Trust, 608,649 shares (cost
$6,478,241)............................................ 4,357,924 571,156 7.63
Equity Index Trust, 1,576,166 shares (cost $19,182,507).. 19,670,555 1,282,564 15.34
Equity Trust, 856,317 shares (cost $17,673,381).......... 18,410,808 1,358,092 13.56
Value Equity Trust, 859,774 shares (cost $12,907,640).... 14,822,505 1,005,924 14.74
Growth and Income Trust, 812,277 shares (cost
$16,894,178)........................................... 19,405,298 1,243,803 15.60
U.S. Government Securities Trust, 164,676 shares (cost
$2,156,052)............................................ 2,223,129 200,133 11.11
Conservative Asset Allocation Trust, 58,907 shares (cost
$676,390).............................................. 693,930 59,185 11.72
Moderate Asset Allocation Trust, 144,764 shares (cost
$1,773,525)............................................ 1,874,694 151,176 12.40
Aggressive Asset Allocation Trust, 154,889 shares (cost
$2,059,486)............................................ 2,224,207 170,944 13.01
International Small Cap Trust, 102,354 shares (cost
$1,441,324)............................................ 1,402,244 110,896 12.64
Blue Chip Growth Trust, 251,892 shares (cost
$3,539,000)............................................ 3,778,382 235,467 16.05
Science & Technology Trust, 78,196 shares (cost
$1,127,494)............................................ 1,065,029 75,729 14.06
Pilgram Baxter Growth Trust, 44,916 shares (cost
$579,959).............................................. 561,449 38,627 14.54
Small/Mid Cap Trust, 95,514 shares (cost $1,467,059)..... 1,471,877 96,429 15.26
Worldwide Growth Trust, 22,465 shares (cost $319,802).... 315,411 23,039 13.69
Global Equity Trust, 75,778 shares (cost $1,436,469)..... 1,468,584 100,693 14.58
Growth Trust, 72,591 shares (cost $1,233,796)............ 1,249,285 83,448 14.97
Value Trust, 73,039 shares (cost $1,101,750)............. 1,080,976 74,764 14.46
International Growth and Income Trust, 71,329 shares
(cost $824,585)........................................ 785,328 62,885 12.49
High Yield Trust, 78,982 shares (cost $1,084,445)........ 1,070,992 77,316 13.85
Strategic Bond Trust, 52,826 shares (cost $643,281)...... 653,990 48,010 13.62
Global Government Bond Trust, 15,761 shares (cost
$217,959).............................................. 221,760 16,782 13.21
Investment Quality Bond Trust, 21,517 shares (cost
$254,918).............................................. 261,007 19,211 13.59
Lifestyle Aggressive 1000 Trust, 180,325 shares (cost
$2,440,021) ........................................... 2,428,972 169,592 14.32
Lifestyle Growth 820 Trust, 381,917 shares (cost
$5,283,738)............................................ 5,258,998 369,541 14.23
Lifestyle Balanced 640 Trust, 156,600 shares (cost
$2,079,716)............................................ 2,123,497 150,592 14.10
Lifestyle Moderate 460 Trust, 7,669 shares (cost
$102,377).............................................. 102,380 7,392 13.85
Lifestyle Conservative 280 Trust, 103 shares (cost
$1,312)................................................ 1,341 98 13.68
------------
Net assets................................................. $346,331,293
============
</TABLE>
See accompanying notes.
F-4
<PAGE> 86
(This page intentionally left blank)
F-5
<PAGE> 87
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> 88
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>
$ -- $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> 89
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> 90
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 VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- -------------------------------------- ----------------------------- ----------------------------- ----------- -------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED *PERIOD 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 DEC. 31/97 DEC. 31/96
- ------------- ------------- ---------- ------------- ------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 8,790
$ 12,667 $239,201 $ 19,281 $2,468,634 $449,782 $2,150,334 $ 26,181 $1,127,557 --------
----------- -------- -------- ---------- -------- ---------- -------- ---------- 438,548
1,556,257 443,740 335,955 1,982,591 231,179 1,891,337 54,581 1,288,325 417,223
1,571,876 374,390 329,373 1,529,141 214,759 1,889,551 56,756 1,107,952 --------
----------- -------- -------- ---------- -------- ---------- -------- ---------- 21,325
(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 -- 364,883 364,883
(2,120,317) 67,813 88,856 488,048 (46,898) 737,427 495,686 1,914,865 --------
----------- -------- -------- ---------- -------- ---------- -------- ---------- 364,883
(2,188,130) (21,043) 97,489 534,946 (46,898) 241,741 495,686 1,549,982 --------
----------- -------- -------- ---------- -------- ---------- -------- ---------- 386,208
(2,203,749) 48,307 104,071 988,396 (30,478) 243,527 493,511 1,730,355 --------
----------- -------- -------- ---------- -------- ---------- -------- ---------- $394,998
$(2,191,082) $287,508 $123,352 $3,457,030 $419,304 $2,393,861 $519,692 $2,857,912 ========
=========== ======== ======== ========== ======== ========== ======== ==========
</TABLE>
F-9
<PAGE> 91
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> 92
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> 93
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> 94
<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>
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> 95
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
------------ ------------ ------------ ------------ ------------
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> 96
(This page intentionally left blank)
F-15
<PAGE> 97
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> 98
<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>
$ -- $ 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> 99
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> 100
<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>
$ 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> 101
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> 102
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>
$ 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> 103
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> 104
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> 105
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> 106
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. ORGANIZATION
The accompanying unaudited financial statements of Separate Account Three of The
Manufacturers Life Insurance Company of America have been prepared in accordance
with generally accepted accounting principles ("GAAP"), except that they do not
contain complete notes. However, in the opinion of management, these statements
include all normal recurring adjustments necessary for a fair presentation of
the results. These financial statements should be read in conjunction with the
audited financial statements and the related notes for the year ended December
31, 1997. Operating results for the nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the full year
ending December 31, 1998.
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.
MANULIFE SERIES FUND, INC. MANUFACTURERS INVESTMENT TRUST
SUB-ACCOUNTS SUB-ACCOUNTS
-------------------------- ------------------------------
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
All references hereinafter to Manufacturers Investment Trust would have been to
Manulife Series Fund, Inc. prior to December 31, 1996.
F-25
<PAGE> 107
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> 108
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
$28,281,133, respectively. Related Party Transactions
5. RELATED PARTY TRANSACTIONS
ManEquity, Inc., a registered broker-dealer and indirect wholly-owned subsidiary
of Manulife Financial, acts as the principal underwriter of the Policies
pursuant to a Distribution Agreement with Manufacturers Life of America.
Registered representatives of either ManEquity, Inc. or other broker-dealers
having distribution agreements with ManEquity, Inc. who are also authorized as
variable life insurance agents under applicable state insurance laws, sell the
Policies. Registered representatives are compensated on a commission basis.
Manufacturers Life of America has a formal service agreement with its
affiliates, Manulife Financial and The Manufacturers Life Insurance Company
(U.S.A.), which can be terminated by either party upon two months notice. Under
this Agreement, Manufacturers Life of America pays for legal, actuarial,
investment and certain other administrative services.
F-27
<PAGE> 109
The Manufacturers Life Insurance Company of America
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
As at As at
September 30 December 31
ASSETS ($ thousands) 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Investments: (Unaudited)
<S> <C> <C>
Securities available-for-sale, at fair value:
Fixed maturity (amortized cost: 1998 $49,413; 1997 $66,565) $ 54,255 $ 67,893
Equity (cost: 1998 $20,013: 1997 $20,153) 17,886 19,460
Policy loans 18,341 14,673
Cash and short-term investments 21,559 22,012
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $ 112,041 $ 124,038
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred acquisition costs 155,300 130,355
Income taxes recoverable 4,225 5,679
Other assets 7,508 9,495
Separate account assets 929,356 897,044
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,208,430 $ 1,166,611
===================================================================================================================================
LIABILITIES, CAPITAL AND SURPLUS ($ thousands) 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
Liabilities:
Policyholder liabilities and accruals $ 99,494 $ 94,477
Notes payable 8,500 41,500
Due to affiliates 14,008 13,943
Deferred income taxes 2,334 1,174
Other liabilities 15,873 11,704
Separate account liabilities 929,356 897,044
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 1,069,565 $ 1,059,842
===================================================================================================================================
Capital and Surplus:
Common shares $ 4,502 $ 4,502
Preferred shares 10,500 10,500
Contributed surplus 132,887 98,569
Retained earnings (deficit) (4,677) (1,910)
Foreign currency translation adjustment (5,986) (5,272)
Net unrealized gain on securities
available-for-sale 1,639 380
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL AND SURPLUS $ 138,865 $ 106,769
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES, CAPITAL AND SURPLUS $ 1,208,430 $ 1,166,611
===================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 110
The Manufacturers Life Insurance Company of America
Consolidated Statements of Income (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
($ thousands) 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE:
Premiums $ 2,109 $ 2,376 $ 6,267 $ 6,018
Fee income 13,581 10,114 39,592 32,519
Net investment income 1,578 (387) 4,197 6,301
Realized investment gains (losses) - 117 (8) (88)
Other 156 43 260 186
- ------------------------------------------------------------------------------------------------------
TOTAL REVENUE $17,424 $12,263 $50,308 $44,936
- ------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES:
Policyholder benefits and claims $ 3,879 $ 5,357 $11,461 $ 7,050
Operating costs and expenses 10,320 9,457 29,793 25,521
Commissions 599 609 1,895 2,955
Amortization of deferred acquisition costs 3,641 2,980 8,127 10,214
Interest expense 381 - 2,265 2,156
Policyholder dividends 180 49 974 1,202
- ------------------------------------------------------------------------------------------------------
TOTAL BENEFITS AND EXPENSES $19,000 $18,362 $54,515 $49,178
- ------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES (1,576) (6,099) (4,207) (4,242)
- ------------------------------------------------------------------------------------------------------
INCOME TAX BENEFIT (EXPENSE) 472 2,036 1,440 976
- ------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $(1,104) $(4,063) $(2,767) $(3,266)
- ------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 111
The Manufacturers Life Insurance Company of America
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
($ thousands) 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net loss $ (2,767) $ (3,266)
Adjustments to reconcile net income to net cash used in operating activities:
Additions (decreases) to policy liabilities 3,598 (2,213)
Deferred acquisition costs (33,818) (20,267)
Amortization of deferred acquisition costs 8,127 10,214
Realized losses on investments 8 88
Additions (decreases) to deferred income taxes 620 (2,577)
Other 9,206 3,533
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities $ (15,026) $ (14,488)
- ----------------------------------------------------------------------------------------------------------------------------
Investing Activities:
Fixed maturity securities sold $ 23,363 $ 67,003
Fixed maturity securities purchased (6,654) (46,244)
Equities sold 7,032 6,671
Equities purchased (6,919) (6,752)
Policy loans advanced, net (3,668) (3,696)
Guaranteed annuity contracts -- 171,691
- ----------------------------------------------------------------------------------------------------------------------------
Cash provided by investing activities $ 13,154 $188,673
- ----------------------------------------------------------------------------------------------------------------------------
Financing Activities:
Receipts from variable life and annuity policies
credited to policyholder account balances $ 6,071 $ 5,735
Withdrawals of policyholder account balances on
variable life and annuity policies (4,652) (2,891)
Repayment of bonds payable -- (158,760)
- ----------------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities $ 1,419 $(155,916)
- ----------------------------------------------------------------------------------------------------------------------------
Cash and Short-Term Investments:
Increase (decrease) during the period $ (453) $ 18,269
Balance, beginning of year 22,012 17,493
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, END OF PERIOD $ 21,559 $ 35,762
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 112
The Manufacturers Life Insurance Company of America
Notes to Consolidated Financial Statements
September 30, 1998
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited 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"), except that they do not contain complete
notes. However, in the opinion of management, these statements include all
normal recurring adjustments necessary for a fair presentation of the
results. These financial statements should be read in conjunction with the
financial statements and the related notes included in ManAmerica's annual
report on Form 10-K for the year ended December 31, 1997. Operating results
for the nine months ended September 30, 1998 are not necessarily indicative
of the results that may be expected for the full year ending December 31,
1998.
2. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards (SFAS) 130,
"Reporting Comprehensive Income". SFAS 130 establishes standards for
reporting and displaying comprehensive income and its components in a full
set of general-purpose annual financial statements. Comprehensive income
includes all changes in capital and surplus during a period except those
resulting from investments by, and distributions to shareholders. The
adoption of SFAS 130 resulted in revised and additional disclosures but had
no effect on the financial position, results of operations, or liquidity of
the Company.
Total comprehensive income for the three months and nine months ended
September 30, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
COMPREHENSIVE INCOME: 1998 1997 1998 1997
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $(1,104) $(4,063) $(2,767) $(3,266)
Other comprehensive income, net of tax:
Unrealized holding gains (losses)
on available-for-sale securities 269 (396) 1,259 672
Foreign currency translation 75 -- (714) --
- -----------------------------------------------------------------------------------
Other comprehensive income (loss) $ 344 $ (396) $ 545 $ 672
- -----------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ (760) $(4,459) $(2,222) $(2,594)
- -----------------------------------------------------------------------------------
</TABLE>
Other comprehensive income is reported net of taxes of $185 and $(213) for
the three months and $293 and $362 for the nine months ended September 30,
1998 and 1997, respectively.
6
<PAGE> 113
3. CAPITAL CONTRIBUTION
On June 30, 1998 an outstanding promissory note issued by the Company on
December 5, 1997 to ManUSA in the amount of $34.3 million ($33 million
principal plus $1.3 million accrued interest) was converted to capital and
reported as contributed surplus.
4. COMPARATIVE FIGURES
Certain amounts in the 1997 financial statements have been reclassified to
conform to the 1998 financial statement presentation.
7
<PAGE> 114
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> 115
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> 116
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 $1,062,603
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE> 117
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------
1997 1996 1995
--------- --------- ---------
($ 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> 118
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 -- $110,520
------- ------- ------- ------ ------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE> 119
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
--------------------------------
1997 1996 1995
--------- --------- --------
($ 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> 120
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> 121
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> 122
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> 123
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> 124
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> 125
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)
<CAPTION>
<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> 126
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
$33,000 plus interest at 6.95% issued on December 5, 1997 payable to ManUSA
which matures on February 1, 2007.
F-40
<PAGE> 127
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. CAPITAL AND SURPLUS
The Company has two classes of capital stock, as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31:
-------------------------
1997 1996
----------- -----------
($ 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> 128
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 amount 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 .873% per annum. The gross
annual rates of return of 0%, 6% and 12% correspond to approximate net annual
rates of return of -0.869%, 5.079% and 11.027%.
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 March 1, 1999. 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
52
<PAGE> 129
had been offered during that period of time, with all charges assumed to be
those applicable to the Policies.
53
<PAGE> 130
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 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
End of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 7,875 $ 5,976 $ 0 $500,000 $ 6,359 $ 0 $500,000 $ 6,741 $ 0 $ 500,000
2 16,144 12,355 3,955 500,000 13,505 5,104 500,000 14,700 6,300 500,000
3 24,826 18,616 10,802 500,000 20,943 13,129 500,000 23,456 15,642 500,000
4 33,942 24,769 17,639 500,000 28,693 21,562 500,000 33,096 25,966 500,000
5 43,514 30,811 24,365 500,000 36,763 30,316 500,000 43,708 37,261 500,000
6 53,565 36,739 30,878 500,000 45,163 39,303 500,000 55,385 49,524 500,000
7 64,118 42,549 37,372 500,000 53,901 48,724 500,000 68,230 63,053 500,000
8 75,199 48,235 43,741 500,000 62,985 58,492 500,000 82,358 77,865 500,000
9 86,834 53,794 49,887 500,000 72,426 68,518 500,000 97,895 93,988 500,000
10 99,051 59,217 55,994 500,000 82,227 79,004 500,000 114,977 111,753 500,000
15 169,931 83,883 83,883 500,000 136,798 136,798 500,000 229,422 229,422 500,000
20 260,394 102,661 102,661 500,000 200,734 200,734 500,000 414,080 414,080 500,000
25 375,851 113,324 113,324 500,000 279,059 279,059 500,000 727,350 727,350 778,264
30 523,206 106,598 106,598 500,000 372,802 372,802 500,000 1,243,242 1,243,242 1,305,404
</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.
<PAGE> 131
(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.
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.
56
<PAGE> 132
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 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
End of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 7,875 $ 5,976 $ 0 $500,000 $ 6,359 $ 0 $500,000 $ 6,741 $ 0 $ 500,000
2 16,144 12,355 3,955 500,000 13,505 5,104 500,000 14,700 6,300 500,000
3 24,826 18,586 10,772 500,000 20,911 13,097 500,000 23,424 15,609 500,000
4 33,942 24,662 17,531 500,000 28,580 21,450 500,000 32,979 25,849 500,000
5 43,514 30,574 24,127 500,000 36,511 30,065 500,000 43,442 36,995 500,000
6 53,565 36,312 30,451 500,000 44,704 38,844 500,000 54,893 49,033 500,000
7 64,118 41,865 36,688 500,000 53,157 47,980 500,000 67,422 62,245 500,000
8 75,199 47,219 42,726 500,000 61,864 57,371 500,000 81,125 76,632 500,000
9 86,834 52,359 48,452 500,000 70,823 66,916 500,000 96,113 92,206 500,000
10 99,051 57,267 54,043 500,000 80,026 76,802 500,000 112,503 109,280 500,000
15 169,931 77,284 77,284 500,000 129,103 129,103 500,000 220,604 220,604 500,000
20 260,394 84,882 84,882 500,000 180,237 180,237 500,000 392,490 392,490 500,000
25 375,851 69,265 69,265 500,000 231,263 231,263 500,000 686,877 686,877 734,958
30 523,206 0 0 0 267,526 267,526 500,000 1,168,410 1,168,410 1,226,831
</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.
57
<PAGE> 133
(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.
(4) 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.
58
<PAGE> 134
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 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
End of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 8,610 $ 6,613 $ 0 $506,613 $ 7,034 $ 0 $507,034 $ 7,454 $ 0 $ 507,454
2 17,651 13,617 5,217 513,617 14,882 6,482 514,882 16,198 7,798 516,198
3 27,143 20,493 12,678 520,493 23,052 15,238 523,052 25,816 18,002 525,816
4 37,110 27,248 20,118 527,248 31,563 24,432 531,563 36,406 29,275 536,406
5 47,576 33,882 27,435 533,882 40,425 33,978 540,425 48,060 41,613 548,060
6 58,564 40,388 34,528 540,388 49,647 43,786 549,647 60,881 55,021 560,881
7 70,103 46,764 41,587 546,764 59,237 54,061 559,237 74,982 69,805 574,982
8 82,218 53,002 48,509 553,002 69,204 64,710 569,204 90,482 85,989 590,482
9 94,939 59,098 55,191 559,098 79,555 75,647 579,555 107,518 103,611 607,518
10 108,296 65,041 61,818 565,041 90,292 87,069 590,292 126,232 123,008 626,232
15 185,791 91,910 91,910 591,910 149,707 149,707 649,707 250,845 250,845 750,845
20 284,698 111,594 111,594 611,594 217,224 217,224 717,224 446,724 446,724 946,724
25 410,930 120,433 120,433 620,433 292,625 292,625 792,625 763,574 763,574 1,263,574
30 572,038 106,922 106,922 606,922 362,355 362,355 862,355 1,259,085 1,259,085 1,759,085
</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.
59
<PAGE> 135
(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.
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.
60
<PAGE> 136
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 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
End of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $ 8,610 $ 6,613 $ 0 $506,613 $ 7,034 $ 0 $507,034 $ 7,454 $ 0 $ 507,454
2 17,651 13,617 5,217 513,617 14,882 6,482 514,882 16,198 7,798 516,198
3 27,143 20,461 12,646 520,461 23,019 15,205 523,019 25,783 17,968 525,783
4 37,110 27,135 20,005 527,135 31,444 24,314 531,444 36,281 29,151 536,281
5 47,576 33,630 27,183 533,630 40,156 33,710 540,156 47,774 41,327 547,774
6 58,564 39,932 34,072 539,932 49,152 43,291 549,152 60,344 54,483 560,344
7 70,103 46,027 40,850 546,027 58,424 53,247 558,424 74,083 68,906 574,083
8 82,218 51,898 47,405 551,898 67,963 63,470 567,963 89,088 84,595 589,088
9 94,939 57,525 53,618 557,525 77,758 73,851 577,758 105,464 101,557 605,464
10 108,296 62,884 59,660 562,884 87,790 84,567 587,790 123,321 120,097 623,321
15 185,791 84,326 84,326 584,326 140,266 140,266 640,266 238,905 238,905 738,905
20 284,698 90,697 90,697 590,697 189,733 189,733 689,733 409,289 409,289 909,289
25 410,930 69,509 69,509 569,509 222,397 222,397 722,397 660,985 660,985 1,160,985
30 572,038 0 0 0 196,053 196,053 696,053 1,000,252 1,000,252 1,500,252
</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.
61
<PAGE> 137
(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.
(4) 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.
62
<PAGE> 138
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 60 pages;
Representation of Insurer Pursuant to Section 26 of the Investment Company Act
of 1940
The signatures;
Written consents of the following persons:
A. James D. Gallagher, Esq., Secretary and General Counsel of The
Manufacturers Life Insurance Company of America
B. Brian Koop, Assistant Vice President and Pricing Actuary of The
Manufacturers Life Insurance Company of America
C. Ernst & Young LLP
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, file number 333-66303 filed October 29,
1998.
A(3)(a)(i) Distribution Agreement between The Manufacturers Life Insurance
Company of America and ManEquity, Inc. dated December 23, 1986.
Incorporated by reference to Exhibit A(3)(a)(i) to the
registration statement on Form S-6, file number 333-66303 filed
October 29, 1998.
A(3)(a)(ii) Amendment to Distribution Agreement between The Manufacturers Life
Insurance Company of America and ManEquity, Inc. dated May 30,
1992. Incorporated by reference to Exhibit A(3)(a)(i) to the
registration statement on Form S-6, file number 333-66303 filed
October 29, 1998.
A(3)(a)(iii) Amendment to Distribution Agreement between The Manufacturers Life
Insurance Company of America and ManEquity, Inc. dated February
23, 1994. Incorporated by reference to Exhibit A(3)(a)(iii) to the
registration statement on Form S-6, file number 333-66303 filed
October 29, 1998.
A(3)(b)(i) Specimen Agreement between ManEquity, Inc. and registered
representatives. Incorporated by reference to Exhibit A(3)(b)(i)
to pre-effective amendment no. 1 to the registration statement on
Form S-6, file number 333-51293 filed August 28, 1998.
<PAGE> 139
A(3)(b)(ii) Specimen agreement between The Manufacturers Life Insurance
Company of America and registered representatives. Incorporated by
reference to Exhibit A(3)(b)(ii) to pre-effective amendment no. 1
to the registration statement on Form S-6, file number 333-51293
filed August 28, 1998.
A(3)(b)(iii) Specimen Agreement between ManEquity, Inc. and dealers.
Incorporated by reference to Exhibit A(3)(b)(iii) to pre-effective
amendment no. 1 to the registration statement on Form S-6, file
number 333-51293 filed August 28, 1998.
A(3)(b)(iv) Specimen agreement between The Manufacturers Life Insurance
Company of America and dealers. Incorporated by reference to
Exhibit A(3)(b)(iv) to pre-effective amendment no. 1 to the
registration statement on Form S-6, file number 333-51293 filed
August 28, 1998.
A(5)(a) Specimen Flexible Premium Variable Life Insurance Policy - Filed
herewith.
A(6)(a) Restated Articles of Redomestication of The Manufacturers Life
Insurance Company of America. Incorporated by reference to Exhibit
A(6)(a) to post-effective amendment no. 20 to the registration
statement on Form S-6, file number 33-13774, filed April 26, 1996.
A(6)(b) By-Laws of The Manufacturers Life Insurance Company of America.
Incorporated by reference to Exhibit A(6)(b) to post-effective
amendment no. 20 to the registration statement on Form S-6, file
number 33-13774, filed April 26, 1996.
A(8)(a)(i) Service Agreement between The Manufacturers Life Insurance Company
and The Manufacturers Life Insurance Company of America dated June
1, 1988. Incorporated by reference to Exhibit A(8)(a)(i) to
pre-effective amendment no. 1 to the registration statement on
Form S-6, file number 333-51293 filed August 28, 1998.
A(8)(a)(ii) Amendment to Service Agreement between The Manufacturers Life
Insurance Company and The Manufacturers Life Insurance Company of
America dated December 31, 1992. Incorporated by reference to
Exhibit A(8)(a)(ii) to pre-effective amendment no. 1 to the
registration statement on Form S-6, file number 333-51293 filed
August 28, 1998.
A(8)(a)(iii) Amendment to Service Agreement between The Manufacturers Life
Insurance Company and The Manufacturers Life Insurance Company of
America dated May 31, 1993. Incorporated by reference to Exhibit
A(8)(a)(iii) to pre-effective amendment no. 1 to the registration
statement on Form S-6, file number 333-51293 filed August 28,
1998.
A(8)(a)(iv) Amendment to Service Agreement between The Manufacturers Life
Insurance Company and The Manufacturers Life Insurance Company of
America dated June 30, 1993. Incorporated by reference to Exhibit
A(8)(a)(iv) to pre-effective amendment no. 1 to the registration
statement on Form S-6, file number 333-51293 filed August 28,
1998.
A(8)(a)(v) Amendment to Service Agreement between The Manufacturers Life
Insurance Company and The Manufacturers Life Insurance Company of
America dated December 31, 1996. Incorporated by reference to
Exhibit A(8)(a)(v) to pre-effective amendment no. 1 to the
registration statement on Form S-6, file number 333-51293 filed
August 28, 1998.
<PAGE> 140
A(8)(a)(vi) Amendment to Service Agreement between The Manufacturers Life
Insurance Company and The Manufacturers Life Insurance Company of
America dated May 31, 1998. Incorporated by reference to Exhibit
A(8)(a)(vi) to pre-effective amendment no. 1 to the registration
statement on Form S-6, file number 333-51293 filed August 28,
1998.
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, file number 333-66303
filed October 29, 1998.
A(8)(c)(i) Service Agreement between The Manufacturers Life Insurance Company
and ManEquity, Inc. dated January 2, 1991. Incorporated by
reference to Exhibit A(8)(c)(i) to pre-effective amendment no. 1
to the registration statement on Form S-6, file number 333-51293
filed August 28, 1998.
A(8)(c)(ii) Amendment to Service Agreement between The Manufacturers Life
Insurance Company and ManEquity, Inc. dated March 1, 1994.
Incorporated by reference to Exhibit A(8)(c)(ii) to pre-effective
amendment no. 1 to the registration statement on Form S-6, file
number 333-51293 filed August 28, 1998.
A(10)(a) 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, file number 33-77256, filed April 26, 1996.
A(10)(b) 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, file number 33-77256, filed December 23, 1996.
2. Consents of the following:
A. Opinion and consent of James D. Gallagher, Esq., Secretary and General
Counsel of The Manufacturers Life Insurance Company of America - Filed
Herewith
B. Opinion and consent of Brian Koop, Assistant Vice-President and
Pricing Actuary of The Manufacturers Life Insurance Company of America
- Filed Herewith
C. Consent of Ernst & Young LLP- Filed Herewith
3. No financial statements are omitted from the prospectus pursuant to
instruction 1(b) or (c) of Part I.
4. Not applicable.
6. Memorandum Regarding Issuance, Face Amount Increase, Redemption and
Transfer Procedures for the Policies. Filed Herewith
7. Power of Attorney. Incorporated by reference to Exhibit 12 to post
effective amendment no. 10 to the registration statement on Form S-6, file
number 33-52310, filed February 28, 1997.
<PAGE> 141
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant and the Depositor have caused this amendment to their Registration
Statement to be signed on their behalf in the City of Toronto, Province of
Ontario, Canada, on this 3rd day of February, 1999.
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
<PAGE> 142
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
amended Registration Statement has been signed by the following persons in the
capacities indicated on this 3rd day of February, 1999.
Signature Title
*
- ------------------------ Chairman and Director
JOHN D. RICHARDSON
*
- ------------------------ President and Director
DONALD A. GULOIEN (Principal Executive Officer)
*
- ------------------------ Director
SANDRA M. COTTER
/s/ JAMES D. GALLAGHER Director
- ------------------------
JAMES D. GALLAGHER
*
- ------------------------ Director
BRUCE GORDON
*
- ------------------------ Director
JOSEPH J. PIETROSKI
*
- ------------------------ Director
THEODORE KILKUSKIE, JR.
*
- ------------------------ Vice President, Finance
DOUGLAS H. MYERS (Principal Financial and
Accounting Officer)
*/s/ JAMES D. GALLAGHER
- ------------------------
JAMES D. GALLAGHER
Pursuant to Power of Attorney
<PAGE> 143
EXHIBIT INDEX
Item No. Description
A(5)(a) Specimen Flexible Premium Variable Life Insurance Policy
2.A. Opinion and Consent of James D. Gallagher, Secretary and
General Counsel
2.B. Opinion and Consent of Brian Koop, Assistant Vice President
and Pricing Actuary
2.C. Consent of Ernst & Young LLP
6. Memorandum Regarding Issuance, Face Amount Increase,
Redemption and Transfer Procedures for the Policies
<PAGE> 1
LIVES INSURED JOHN M. DOE
MARY C. DOE
POLICY NUMBER 12 345 678
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY.
PAYABLE ON DEATH OF THE LAST-TO-DIE OF THE LIVES INSURED.
ADJUSTABLE DEATH BENEFIT.
FLEXIBLE PREMIUMS PAYABLE UNTIL THE EARLIER OF LAST DEATH, OR THE POLICY
ANNIVERSARY WHEN THE YOUNGEST OF THE LIVES INSURED REACHES ATTAINED AGE 100 OR
WOULD HAVE REACHED ATTAINED AGE 100 IF LIVING.
CASH SURRENDER VALUES AND BENEFITS FOR A PORTION OF THE POLICY VALUES
ALLOCATED TO AN INVESTMENT ACCOUNT REFLECT THE INVESTMENT EXPERIENCE OF THE
UNDERLYING SUB-ACCOUNTS. INVESTMENT OPTIONS ARE DESCRIBED IN THE "POLICY VALUE
COMPOSITION" AND THE "INVESTMENT OPTIONS" PROVISIONS. NON-PARTICIPATING (NOT
ELIGIBLE FOR DIVIDENDS).
In this policy "you" and "your" refer to the owner(s) of the policy. "We", "us"
and "our" "refer" to The Manufacturers Life Insurance Company of America.
If all of the Lives Insured die while the policy is in force, on the last death
we will pay the Insurance Benefit to the beneficiary, subject to the provisions
of the policy. The Lives Insured and the beneficiary are named in the Policy
Information section of this policy and in the application for this policy, a
copy of which is attached to this policy. The death benefit is described in the
"Insurance Benefit" provision.
The Insurance Benefit is payable following the death of the last-to-die of the
Lives Insured. However, you must give us proof of each death as soon as it
occurs. Proof of death for all the Lives Insured is important for us to
accurately determine benefits under the policy.
YOUR NET PREMIUMS ARE ADDED TO YOUR POLICY VALUE. YOU MAY ALLOCATE THEM TO ONE
OR MORE OF THE INVESTMENT ACCOUNTS AND TO THE FIXED ACCOUNT.
THE PORTION OF YOUR POLICY VALUE THAT IS IN AN INVESTMENT ACCOUNT WILL VARY FROM
DAY TO DAY. THE AMOUNT IS NOT GUARANTEED; IT MAY INCREASE OR DECREASE, DEPENDING
ON THE INVESTMENT EXPERIENCE OF THE UNDERLYING SUB-ACCOUNTS FOR THE INVESTMENT
ACCOUNTS THAT YOU HAVE CHOSEN.
THE PORTION OF YOUR POLICY VALUE THAT IS IN THE FIXED ACCOUNT WILL ACCUMULATE,
AFTER DEDUCTIONS, AT RATES OF INTEREST WE DETERMINE. SUCH RATES WILL NOT BE LESS
THAN AN EFFECTIVE ANNUAL RATE OF 4%.
THE AMOUNT OF THE INSURANCE BENEFIT, OR THE DURATION OF THE INSURANCE COVERAGE,
OR BOTH, MAY BE VARIABLE OR FIXED UNDER SPECIFIED CONDITIONS AND MAY INCREASE OR
DECREASE AS DESCRIBED IN THE "INSURANCE BENEFIT" PROVISION.
READ YOUR POLICY CAREFULLY. IT IS A CONTRACT BETWEEN YOU AND US.
RIGHT TO RETURN POLICY. WITHIN TEN DAYS AFTER YOU RECEIVE YOUR POLICY, YOU CAN
RETURN THE POLICY FOR CANCELLATION BY DELIVERING OR MAILING IT TO US OR THE
AGENT WHO SOLD IT. IMMEDIATELY ON DELIVERY OR MAILING, THE POLICY WILL BE VOID
FROM THE BEGINNING. WE WILL REFUND IN FULL THE PAYMENT MADE.
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
A STOCK COMPANY
/s/ Donald A. Guloien /s/ James D. Gallagher [Manulife
- --------------------------------- ------------------------- Financial
President Secretary Logo]
<PAGE> 2
TABLE OF CONTENTS
PAGE
Policy Information................................................. 3
Table Of Guaranteed Maximum Cost Of Insurance Rates................ 4
Definitions........................................................ 5
Payment Of Premiums................................................ 6
No-Lapse Guarantee................................................. 7
Policy Termination................................................. 7
Reinstatement...................................................... 8
Insurance Benefit.................................................. 8
Policy Value....................................................... 10
Policy Value Composition........................................... 11
Separate Account And Sub-Accounts.................................. 12
Investment Options................................................. 13
Policy Loan Conditions............................................. 15
Changing The Death Benefit Option Or The Face Amount............... 16
Surrender And Withdrawals.......................................... 17
Right To Postpone Payment Of Benefits.............................. 19
Right To Cancel Increases.......................................... 19
Suicide............................................................ 19
Beneficiary........................................................ 20
Ownership And Assignment........................................... 20
Protection Against Creditors....................................... 21
Currency And Place Of Payment...................................... 21
Contract........................................................... 21
Validity........................................................... 21
Non-Participating.................................................. 21
Age And Sex........................................................ 21
How Values Are Computed............................................ 22
Annual Statement................................................... 22
Tax Considerations................................................. 22
Any endorsements, any supplementary benefits, and a copy
of the application, follow page 22.
Page 2
<PAGE> 3
POLICY INFORMATION
LIVES INSURED NO. 1 - JOHN M. DOE AGE AT POLICY DATE: 35
NO. 2 - MARY C. DOE AGE AT POLICY DATE: 35
POLICY NUMBER 12 345 678 POLICY DATE: JAN 1, 1998
ISSUE DATE: FEB 1, 1998
OWNER JOHN M. DOE AND MARY C. DOE, JOINTLY IF LIVING,
OTHERWISE THE SURVIVOR
BENEFICIARY AS DESIGNATED IN THE APPLICATION OR SUBSEQUENTLY CHANGED
PREMIUM MODE ANNUALLY
BEGINNING ON
MON DAY YEAR PLANNED PREMIUM
JAN 01 1998 $800.00
THIS POLICY PROVIDES LIFE INSURANCE COVERAGE FOR THE LIFETIME OF THE LIVES
INSURED IF SUFFICIENT PREMIUMS ARE PAID. PREMIUM PAYMENTS IN ADDITION TO THE
PLANNED PREMIUM SHOWN MAY NEED TO BE MADE TO KEEP THIS POLICY AND COVERAGE IN
FORCE.
CHANGES IN THE CURRENT COST OF INSURANCE RATES; THE AMOUNT, TIMING AND FREQUENCY
OF THE PLANNED PREMIUM; THE INTEREST RATE BEING CREDITED TO THE FIXED ACCOUNT;
THE INVESTMENT EXPERIENCE OF THE SUB-ACCOUNTS; CHANGES TO THE DEATH BENEFIT
OPTION; CHANGES IN THE FACE AMOUNT; LOAN ACTIVITY; AND PARTIAL WITHDRAWALS OR
MONTHLY DEDUCTIONS FOR ANY SUPPLEMENTARY BENEFITS THAT APPLY AND ARE ATTACHED TO
THIS POLICY WILL AFFECT THE PERIOD OF COVERAGE. ALSO REFER TO THE POLICY
TERMINATION PROVISION OF YOUR POLICY.
PLAN DETAILS, RISK CLASSIFICATION AND ADDITIONAL RATING ARE SHOWN ON THE NEXT
PAGE.
Page 3.0A
<PAGE> 4
POLICY INFORMATION (CONTINUED) - POLICY 12 345 678
LIVES INSURED NO. 1 - JOHN M. DOE
NO. 2 - MARY C. DOE
POLICY NUMBER 12 345 678
PLAN FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE
PAYABLE ON DEATH OF THE LAST-TO-DIE OF THE LIVES INSURED
NON-PARTICIPATING
FACE AMOUNT $250,000.00
DEATH BENEFIT OPTION 1
SEX NO. 1 - MALE
NO. 2 - FEMALE
RISK
CLASSIFICATION NO. 1 - NON-SMOKER,STANDARD CLASS
NO. 2 - NON-SMOKER,STANDARD CLASS
ADDITIONAL
RATING NO. 1 - NOT APPLICABLE
NO. 2 - NOT APPLICABLE
Page 3.0B
<PAGE> 5
POLICY INFORMATION (CONTINUED) - POLICY 12 345 678
TABLE OF CHARGES
PREMIUM LOAD:
7.5% OF EACH PREMIUM PAID IN EACH POLICY YEAR.
MONTHLY ADMINISTRATION CHARGE:
FOR THE FIRST POLICY YEAR THE CHARGE IS $30.00 PLUS $0.08 FOR EACH
$1,000 OF CURRENT FACE AMOUNT. THE CURRENT FACE AMOUNT IN ANY POLICY
MONTH IS THE FACE AMOUNT OF INSURANCE INITIALLY PURCHASED, PLUS OR MINUS
ADJUSTMENTS FOR INCREASES AND DECREASES. FOR ALL SUBSEQUENT POLICY
YEARS, A CHARGE NOT TO EXCEED $15.00 PLUS $0.02 FOR EACH $1,000 OF
CURRENT FACE AMOUNT WILL APPLY.
MORTALITY AND EXPENSE RISKS CHARGE:
0.063% IS DEDUCTED MONTHLY FROM EACH INVESTMENT ACCOUNT VALUE FOR 20
YEARS AND THEN REDUCES TO 0.033% THEREAFTER. THIS REDUCTION IN THE
CHARGE IS GUARANTEED.
MONTHLY COST OF INSURANCE CHARGE:
SEE THE MONTHLY DEDUCTIONS SECTION OF THE POLICY VALUE PROVISION FOR
DETAILS. THE COST OF ANY SUPPLEMENTARY BENEFIT IS DESCRIBED IN THE
SUPPLEMENTARY BENEFIT PAGE ATTACHED TO THIS POLICY.
Page 3.1A
<PAGE> 6
POLICY INFORMATION (CONTINUED) - POLICY 12 345 678
TABLE OF CHARGES (CONTINUED)
SURRENDER CHARGE:
A SURRENDER CHARGE WILL BE DEDUCTED FROM YOUR POLICY VALUE UNDER CERTAIN
CONDITIONS AND WILL REDUCE OVER TIME ACCORDING TO THE GRADING PERCENTAGES SHOWN
IN THE TABLE BELOW. SEE THE POLICY VALUE, CHANGING THE DEATH BENEFIT OPTION OR
FACE AMOUNT, SURRENDER AND WITHDRAWALS PROVISIONS FOR DETAILS.
THE SURRENDER CHARGE IS DETERMINED AS FOLLOWS:
FOR THE INITIAL FACE AMOUNT:
(I) 3.75 MULTIPLIED BY EACH $1,000 OF FACE AMOUNT; PLUS
(II) 82.5% OF THE SUM OF PREMIUMS PAID IN THE FIRST POLICY YEAR, UP TO THE
SURRENDER CHARGE PREMIUM LIMIT SHOWN ON PAGE 3.2.
FOR AN INCREASE IN FACE AMOUNT, THE SURRENDER CHARGE WILL BE NO GREATER THAN:
(I) THE FACTOR APPLICABLE TO THE YOUNGEST OF THE LIVES INSURED'S ATTAINED
AGE AT THE DATE OF THE INCREASE AS DETERMINED FROM THE TABLE ON PAGE
3.1C, MULTIPLIED BY EACH $1,000 OF FACE AMOUNT INCREASE; PLUS
(II) THE SURRENDER CHARGE PREMIUM LIMIT FOR THE INCREASE.
TABLE OF GRADING PERCENTAGES DURING THE SURRENDER CHARGE PERIOD
(APPLIES TO THE INITIAL FACE AMOUNT AND SEPARATELY TO EACH
SUBSEQUENT FACE AMOUNT INCREASE)
<TABLE>
<CAPTION>
SURRENDER AGE AND GRADING PERCENTAGE**
CHARGE PERIOD* 0-75 76 77 78 79 80+
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 93% 92% 92% 91% 90% 90%
2 86% 85% 84% 83% 81% 80%
3 80% 78% 76% 75% 72% 70%
4 73% 71% 69% 66% 63% 60%
5 66% 64% 61% 58% 54% 50%
6 60% 57% 53% 50% 45% 40%
7 53% 50% 46% 41% 36% 30%
8 46% 42% 38% 33% 27% 20%
9 40% 35% 30% 25% 18% 10%
10 33% 28% 23% 16% 9% 0%
11 26% 21% 15% 8% 0%
12 20% 14% 7% 0%
13 13% 7% 0%
14 6% 0%
15 0%
</TABLE>
* PERIODS SHOWN ARE AFTER END OF POLICY YEAR.
** AGE FOR THE INITIAL FACE AMOUNT REFERS TO THE ISSUE AGE OF THE YOUNGEST
OF THE LIVES INSURED UNDER THIS POLICY AT ISSUE; OR FOR A SUBSEQUENT
FACE AMOUNT INCREASE, AGE REFERS TO THE ATTAINED AGE OF THE YOUNGEST OF
THE LIVES INSURED AT THE TIME OF THE INCREASE.
PAGE 3.1B
<PAGE> 7
POLICY INFORMATION (CONTINUED) - POLICY 12 345 678
TABLE OF CHARGES (CONTINUED)
TABLE OF GUARANTEED SURRENDER CHARGE FACTORS PER $1,000 OF FACE AMOUNT
INCREASE
<TABLE>
<CAPTION>
YOUNGEST OF THE LIVES
INSURED'S ATTAINED AGE FACTOR
---------------------- ------
<S> <C>
38 AND UNDER 3.75
39 4.25
40 4.75
41 5.25
42 5.75
43 6.25
44 6.75
45 7.25
46 7.75
47 8.25
48 AND OLDER 8.50
----
</TABLE>
PAGE 3.1C
<PAGE> 8
POLICY INFORMATION (CONTINUED) - POLICY 12 345 678
TABLE OF VALUES
REFER TO YOUR POLICY PROVISIONS FOR DETAILS ON THE TERMS AND VALUES SHOWN IN
THIS TABLE.
<TABLE>
<S> <C>
SURRENDER CHARGE PREMIUM LIMIT $ 964.00
NO-LAPSE GUARANTEE PREMIUM $ 750.00
NO-LAPSE GUARANTEE PERIOD FIRST 10 POLICY
YEARS
MINIMUM FACE AMOUNT $ 250,000.00
MINIMUM FACE AMOUNT INCREASE OR DECREASE $ 50,000.00
TRANSFER FEE $ 25.00
(FOR TRANSFERS IN EXCESS OF 12 IN A POLICY YEAR)
ASSET ALLOCATION BALANCER CHARGE
CURRENT $ 0.00
MAXIMUM $ 15.00
DOLLAR COST AVERAGING CHARGE
CURRENT $ 0.00
MAXIMUM $ 5.00
FIXED ACCOUNT MAXIMUM TRANSFER PERCENTAGE 15%
FIXED ACCOUNT MAXIMUM TRANSFER AMOUNT $ 500.00
FIXED ACCOUNT RATE 4%
WITHDRAWAL TIER AMOUNT PERCENTAGE 10%
ANNUAL LOAN INTEREST CHARGED RATE 5.25%
MAXIMUM LOAN INTEREST CREDITED DIFFERENTIAL 1.25%
DEATH BENEFIT DISCOUNT FACTOR 1.0032737
FIRST YEAR GUARANTEED MONTHLY COST OF INSURANCE
RATE PER THOUSAND 0.000207
</TABLE>
PAGE 3.2
<PAGE> 9
POLICY INFORMATION (CONTINUED) - POLICY 12 345 678
LIST OF INVESTMENT FUNDS
THE SEPARATE ACCOUNT IS AUTHORIZED TO INVEST IN SHARES OF MANUFACTURERS
INVESTMENT TRUST OR ANOTHER INVESTMENT COMPANY. EACH SUB-ACCOUNT OF THE SEPARATE
ACCOUNT PURCHASES SHARES IN THE FUNDS LISTED BELOW. WE WILL INFORM YOU OF ANY
CHANGES IN THE AVAILABLE FUNDS.
YOU MAY ALLOCATE NET PREMIUMS TO ANY OF THE FUNDS. YOUR INITIAL INVESTMENT
ALLOCATION IS SHOWN IN THE APPLICATION FOR THE POLICY.
SEE THE FOLLOWING PROVISIONS FOR DETAILS: POLICY VALUE, POLICY VALUE
COMPOSITION, SEPARATE ACCOUNT AND SUB-ACCOUNTS, AND INVESTMENT OPTIONS.
MANUFACTURERS INVESTMENT TRUST PORTFOLIOS AND INVESTMENT OBJECTIVES
(1) THE PACIFIC RIM EMERGING MARKETS TRUST SEEKS TO PROVIDE LONG-TERM GROWTH
OF CAPITAL.
(2) THE SCIENCE AND TECHNOLOGY TRUST SEEKS TO PROVIDE LONG-TERM GROWTH OF
CAPITAL. CURRENT INCOME IS INCIDENTAL TO THE PORTFOLIO'S OBJECTIVE.
(3) THE INTERNATIONAL SMALL CAP TRUST SEEKS TO PROVIDE LONG-TERM CAPITAL
APPRECIATION.
(4) THE EMERGING SMALL COMPANY TRUST SEEKS TO PROVIDE MAXIMUM CAPITAL
APPRECIATION.
(5) THE PILGRIM BAXTER GROWTH TRUST SEEKS TO PROVIDE CAPITAL APPRECIATION.
(6) THE SMALL/MID CAP TRUST SEEKS TO PROVIDE LONG-TERM CAPITAL APPRECIATION.
(7) THE INTERNATIONAL STOCK TRUST SEEKS TO PROVIDE LONG-TERM GROWTH OF
CAPITAL.
(8) THE WORLDWIDE GROWTH TRUST SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
(9) THE GLOBAL EQUITY TRUST SEEKS TO PROVIDE LONG-TERM CAPITAL APPRECIATION.
(10) THE SMALL COMPANY VALUE TRUST SEEKS TO PROVIDE LONG-TERM GROWTH OF
CAPITAL.
(11) THE EQUITY TRUST SEEKS TO PROVIDE GROWTH OF CAPITAL. CURRENT INCOME IS A
SECONDARY CONSIDERATION ALTHOUGH GROWTH OF INCOME MAY ACCOMPANY GROWTH OF
CAPITAL.
PAGE 3.3A
<PAGE> 10
POLICY INFORMATION (CONTINUED) - POLICY 12 345 678
LIST OF INVESTMENT FUNDS
(12) THE GROWTH TRUST SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL.
(13) THE QUANTITATIVE EQUITY TRUST SEEKS TO ACHIEVE INTERMEDIATE AND LONG-TERM
GROWTH THROUGH CAPITAL APPRECIATION AND CURRENT INCOME.
(14) THE EQUITY INDEX TRUST SEEKS 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.
(15) THE BLUE CHIP GROWTH TRUST SEEKS 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.
(16) THE REAL ESTATE SECURITIES TRUST SEEKS TO ACHIEVE A COMBINATION OF
LONG-TERM CAPITAL APPRECIATION AND SATISFACTORY CURRENT INCOME.
(17) THE VALUE TRUST SEEKS TO PROVIDE AN ABOVE-AVERAGE TOTAL RETURN OVER A
MARKET CYCLE OF THREE TO FIVE YEARS, CONSISTENT WITH REASONABLE RISK.
(18) THE INTERNATIONAL GROWTH AND INCOME TRUST SEEKS TO PROVIDE LONG-TERM
GROWTH OF CAPITAL AND INCOME.
(19) THE GROWTH AND INCOME TRUST SEEKS TO PROVIDE LONG-TERM GROWTH OF CAPITAL
AND INCOME CONSISTENT WITH PRUDENT INVESTMENT RISK.
(20) THE EQUITY-INCOME TRUST SEEKS TO PROVIDE SUBSTANTIAL DIVIDEND INCOME AND
ALSO LONG-TERM CAPITAL APPRECIATION.
(21) THE BALANCED TRUST SEEKS TO PROVIDE CURRENT INCOME AND CAPITAL
APPRECIATION.
(22-24) THE AUTOMATIC ASSET ALLOCATION TRUSTS (AGGRESSIVE, MODERATE AND
CONSERVATIVE) SEEK TO OBTAIN THE HIGHEST POTENTIAL TOTAL RETURN
CONSISTENT WITH A SPECIFIED LEVEL OF RISK TOLERANCE -- AGGRESSIVE,
MODERATE AND CONSERVATIVE.
(25) THE HIGH YIELD TRUST SEEKS TO REALIZE AN ABOVE-AVERAGE TOTAL RETURN OVER
A MARKET CYCLE OF THREE TO FIVE YEARS, CONSISTENT WITH REASONABLE RISK.
PAGE 3.3B
<PAGE> 11
POLICY INFORMATION (CONTINUED) - POLICY 12 345 678
LIST OF INVESTMENT FUNDS
(26) THE STRATEGIC BOND TRUST SEEKS TO PROVIDE A HIGH LEVEL OF TOTAL RETURN
CONSISTENT WITH PRESERVATION OF CAPITAL.
(27) THE GLOBAL GOVERNMENT BOND TRUST SEEKS TO PROVIDE A HIGH LEVEL OF TOTAL
RETURN BY PLACING PRIMARY EMPHASIS ON HIGH CURRENT INCOME AND THE
PRESERVATION OF CAPITAL.
(28) THE CAPITAL GROWTH BOND TRUST SEEKS TO ACHIEVE GROWTH OF CAPITAL BY
INVESTING IN MEDIUM-GRADE OR BETTER DEBT SECURITIES, WITH INCOME AS A
SECONDARY CONSIDERATION.
(29) THE INVESTMENT QUALITY BOND TRUST SEEKS TO PROVIDE A HIGH LEVEL OF
CURRENT INCOME CONSISTENT WITH THE MAINTENANCE OF PRINCIPAL AND
LIQUIDITY.
(30) THE U.S. GOVERNMENT SECURITIES TRUST SEEKS TO OBTAIN A HIGH LEVEL OF
CURRENT INCOME CONSISTENT WITH PRESERVATION OF CAPITAL AND MAINTENANCE OF
LIQUIDITY.
(31) THE MONEY MARKET TRUST SEEKS TO OBTAIN MAXIMUM CURRENT INCOME CONSISTENT
WITH PRESERVATION OF PRINCIPAL AND LIQUIDITY.
(32) THE LIFESTYLE AGGRESSIVE 1000 TRUST SEEKS TO PROVIDE LONG-TERM GROWTH OF
CAPITAL. CURRENT INCOME IS NOT A CONSIDERATION.
(33) THE LIFESTYLE GROWTH 820 TRUST SEEKS TO PROVIDE LONG-TERM GROWTH OF
CAPITAL WITH CONSIDERATION ALSO GIVEN TO CURRENT INCOME.
(34) THE LIFESTYLE BALANCED 640 TRUST SEEKS TO PROVIDE A BALANCE BETWEEN A
HIGH LEVEL OF CURRENT INCOME AND GROWTH OF CAPITAL WITH A GREATER
EMPHASIS GIVEN TO CAPITAL GROWTH.
(35) THE LIFESTYLE MODERATE 460 TRUST SEEKS TO PROVIDE A BALANCE BETWEEN A
HIGH LEVEL OF CURRENT INCOME AND GROWTH OF CAPITAL WITH A GREATER
EMPHASIS GIVEN TO HIGH INCOME.
(36) THE LIFESTYLE CONSERVATIVE 280 TRUST SEEKS TO PROVIDE A HIGH LEVEL OF
CURRENT INCOME WITH SOME CONSIDERATION ALSO GIVEN TO GROWTH OF CAPITAL.
PAGE 3.3C
<PAGE> 12
TABLE OF GUARANTEED MAXIMUM COST OF INSURANCE RATES
GUARANTEED MAXIMUM MONTHLY RATES PER $1,000
OF NET AMOUNT AT RISK
FOR THE LIVES INSURED UNDER THIS POLICY
<TABLE>
<CAPTION>
DURATION MONTHLY DURATION MONTHLY DURATION MONTHLY
(POLICY RATE (POLICY RATE (POLICY RATE
YEARS) YEARS) YEARS)
<S> <C> <C> <C> <C> <C>
1 0.000207 23 0.103964 45 3.953521
2 0.000665 24 0.122184 46 4.558705
3 0.001212 25 0.143495 47 5.253161
4 0.001864 26 0.168742 48 6.055917
5 0.002654 27 0.198793 49 6.980966
6 0.003598 28 0.235576 50 8.015102
7 0.004763 29 0.281020 51 9.149825
8 0.006128 30 0.336457 52 10.364422
9 0.007748 31 0.401980 53 11.654835
10 0.009612 32 0.478377 54 13.000300
11 0.011830 33 0.565716 55 14.412617
12 0.014426 34 0.664435 56 15.891977
13 0.017472 35 0.777709 57 17.459834
14 0.021034 36 0.911511 58 19.156860
15 0.025213 37 1.080715 59 21.054761
16 0.030130 38 1.268137 60 23.368153
17 0.036011 39 1.507613 61 26.517002
18 0.043094 40 1.795237 62 31.354662
19 0.051658 41 2.130491 63 39.595173
20 0.061825 42 2.513928 64 54.652603
21 0.073840 43 2.944356 65 83.333333
22 0.087887 44 3.421111
</TABLE>
THE ABOVE RATES HAVE BEEN INCREASED FOR ANY ADDITIONAL RATING SHOWN IN THE
POLICY INFORMATION SECTION.
Page 4
<PAGE> 13
DEFINITIONS
THE FOLLOWING TERMS HAVE SPECIFIC MEANINGS IN YOUR POLICY. PLEASE REFER TO THESE
DEFINITIONS AS YOU READ YOUR POLICY.
ADDITIONAL RATING is an increase in the Cost of Insurance Rate for any of the
Lives Insured who do not meet, at a minimum, our underwriting requirements for
the standard Risk Classification.
AGE means each of the Lives Insured's age on their birthday closer to the Policy
Date.
ATTAINED AGE on any date means the Age plus the number of whole years that have
elapsed since the Policy Date.
BUSINESS DAY is 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 will be determined as of the end of each Business Day. We will deem
each Business Day to end at the close of regularly scheduled trading of the New
York Stock Exchange (currently 4:00 p.m. Eastern Time) on that day.
CASH SURRENDER VALUE equals the Policy Value less the Surrender Charge and any
outstanding Monthly Deductions due.
FIXED ACCOUNT is that part of the Policy Value which reflects the value you have
in our general account.
GROSS WITHDRAWAL is the amount of partial Net Cash Surrender Value you request
plus any Surrender Charge applicable to the withdrawal.
INVESTMENT ACCOUNT is that part of the Policy Value that reflects the value you
have in one of the Sub-Accounts.
ISSUE DATE is the date shown in the Policy Information section from which the
Suicide and Validity provisions are applied.
LIFE INSURED is the last-to-die of the Lives Insured.
LIVES INSURED are the persons whose lives are insured under this policy as set
out in the Policy Information section. References to the youngest of the Lives
Insured means the youngest person insured under this policy when it is first
issued.
LOAN ACCOUNT is that part of the Policy Value which reflects the value
transferred from the Fixed Account or the Investment Accounts as collateral for
a policy loan.
NET CASH SURRENDER VALUE is the Cash Surrender Value less the Policy Debt.
NET POLICY VALUE is the Policy Value less the value in the Loan Account.
NET PREMIUM is the gross premium paid less the Premium Load. It is the amount of
premium allocated to the Fixed Account and/or Investment Accounts.
POLICY DATE is the date shown in the Policy Information section from which
charges for the first Monthly Deduction are calculated. The Policy Date is used
to determine POLICY YEARS, POLICY MONTHS AND POLICY ANNIVERSARIES.
(continued)
Page 5
<PAGE> 14
DEFINITIONS (continued)
POLICY DEBT as of any date equals (a) plus (b) plus (c) minus (d), where:
(a) is the total amount of loans borrowed as of such date;
(b) is the total amount of any unpaid loan interest charges which have been
borrowed against the policy on a Policy Anniversary;
(c) is any interest charges accrued from the last Policy Anniversary to the
current date; and
(d) is the total amount of loan repayments as of such date.
POLICY VALUE is the sum of the values in the Loan Account, the Fixed Account and
the Investment Accounts.
SEPARATE ACCOUNT refers to Separate Account Three of The Manufacturers Life
Insurance Company of America.
SERVICE OFFICE is the office that we designate to service this policy as shown
on the back cover of your policy.
SUB-ACCOUNT refers to one of the sub-accounts of the Separate Account.
SURRENDER CHARGE PERIOD is the period following the Issue Date of the policy or
following any increase in Face Amount during which we will assess surrender
charges. Surrender charges will apply during this period if you surrender the
policy, make a partial withdrawal, or if it terminates due to default.
SURRENDER CHARGE PREMIUM LIMIT is used to determine the Surrender Charge. The
Surrender Charge Premium Limit for the initial Face Amount is shown in the Table
of Values in the Policy Information section. You will be advised of the
Surrender Charge Premium Limit for any increase in Face Amount.
WITHDRAWAL TIER AMOUNT as of any date is the Net Cash Surrender Value at the
previous Policy Anniversary, multiplied by the Withdrawal Tier Amount Percentage
shown in the Table of Values in the Policy Information Section.
WRITTEN REQUEST is your request to us which must be in a form satisfactory to
us, signed and dated by you, and filed at our Service Office.
PAYMENT OF PREMIUMS
No insurance will take effect under this policy before we approve the
application and receive the initial premium. The minimum initial premium is
one-twelfth of the No-Lapse Guarantee Premium shown in the Table of Values in
the Policy Information section.
Subsequent premiums can be paid at any time at our Service Office, and in any
amount subject to the limits described below. On request, we will give you a
receipt signed by one of our officers.
You may pay premiums until the youngest of the Lives Insured reaches Attained
Age 100 or would have reached Attained Age 100 if living. At that time, Monthly
Deductions will cease and no further premiums may be paid. If there is a Policy
Debt under the policy, loan interest will continue to accrue daily as specified
under the Policy Loan Conditions provision.
LIMITS. Each premium payment after the first is subject to the following
limitations under Section 7702 of the Internal Revenue Code of 1986, or any
other equivalent section of the Code:
(a) we have the right to refuse or refund any premium payments that would
cause this policy to fail to qualify as life insurance under the Internal
Revenue Code; and
(b) we reserve the right to request that you provide us with satisfactory
evidence of insurability if a premium payment would result in an increase
in the Death Benefit that is greater than the increase in Policy Value.
Page 6
<PAGE> 15
NO-LAPSE GUARANTEE
Your policy includes a No-Lapse Guarantee. The guarantee period applicable to
this policy is shown in the Table of Values in the Policy Information section.
During your No-Lapse Guarantee Period, if the Net Cash Surrender Value falls to
zero or below, your policy will not go into default provided it satisfies the
cumulative premium test.
CUMULATIVE PREMIUM TEST. The test will be performed at the beginning of any
Policy Month that your policy would otherwise be in default in the absence of
the No-Lapse Guarantee. Your policy will satisfy the test if the sum of the
premiums paid, less any Policy Debt, and less any Gross Withdrawals taken on or
before the date of the test, is equal to or greater than the sum of the monthly
No-Lapse Guarantee Premiums due from the Policy Date to the date of the test.
The No-Lapse Guarantee Premium is shown as an annualized amount in the Table of
Values in the Policy Information section.
This amount will change if any of the following changes occur under your policy:
(a) you add, terminate or change a Supplementary Benefit;
(b) you change the Death Benefit Option under your policy;
(c) there is a decrease in the Face Amount of insurance due to a partial
withdrawal;
(d) you change the Face Amount of insurance; or
(e) there is a change in the Risk Classification of any of the Lives Insured.
We will inform you of any change to the No-Lapse Guarantee Premium resulting
from any such change. The revised premium will be effective from the date of the
change. For the purpose of performing the cumulative premium test, we will use
the No-Lapse Guarantee Premium in effect as of the Policy Date up to the date of
the change, including any revised premium in effect as of the date of a prior
change.
POLICY TERMINATION
DEFAULT. Unless the policy has met the No-Lapse Guarantee requirements, it will
go into default if, at the beginning of any Policy Month, the Net Cash Surrender
Value would go to zero or below after we take the Monthly Deduction that is due
for that month.
GRACE PERIOD. We will allow 61 days from the date that the policy goes into
default, for you to pay the amount that is required to bring the policy out of
default. At least 30 days prior to the termination of coverage, we will send a
notice to your last known address, specifying the amount you must pay to bring
the policy out of default. If we have notice of a policy assignment on file at
our Service Office, we will also mail a copy of the notice of the amount due to
the assignee on record.
The amount required to bring the policy out of default is equal to (a) plus (b)
plus (c) where:
(a) is the amount necessary to bring the Net Cash Surrender Value to zero, if
it is less than zero, at the date of default; and
(b) is the Monthly Deduction due on the date of default, plus the next two
Monthly Deductions; and
(c) is the applicable Premium Load.
(continued)
Page 7
<PAGE> 16
POLICY TERMINATION (continued)
If the policy is in the No-Lapse Guarantee Period, then the following amount, if
less than the amount stated above, will bring the policy out of default. This
amount is equal to (a) plus (b), where:
(a) is the amount, if any, necessary to satisfy the No-Lapse Guarantee
cumulative premium test at the date of default; and
(b) is the No-Lapse Guarantee Premium for the next two Policy Months.
If the amount necessary to bring the policy out of default has not been paid by
the end of the grace period, the policy will terminate.
TERMINATION DATE. This policy terminates on the earliest of the following
events:
(a) the end of the grace period for which you have not paid the amount
necessary to bring the policy out of default;
(b) surrender of the policy for its Net Cash Surrender Value; or
(c) the death of the Life Insured.
REINSTATEMENT
You can ask us to reinstate your policy only if it terminates at the end of a
grace period in which you did not make a required payment. The policy cannot be
reinstated if any of the Lives Insured die after the policy has terminated. You
can reinstate the policy if you:
(a) make a Written Request for reinstatement within 5 years after the date
your policy terminates;
(b) provide us with evidence of insurability satisfactory to us on the Lives
Insured or on the survivor(s) who were insured at the end of the Grace
Period; and
(c) pay a premium equal to the amount that was required to bring the policy
out of default immediately prior to termination, plus the amount needed
to keep the policy in force to the next scheduled date for payment of the
Planned Premium.
If we approve your request,
(a) the reinstatement date will be the later of the date we approve your
request or the date we receive the required payment at our Service
Office; and
(b) any Surrender Charges will be reinstated to the amount they were at the
date of default.
The Policy Value on the date of reinstatement, prior to the crediting of any Net
Premium paid on the reinstatement, will be equal to the Policy Value on the date
the policy terminated. If the policy is in a Surrender Charge Period when it
terminates, upon reinstatement the period will be the same as at the date of
default.
INSURANCE BENEFIT
The Insurance Benefit is payable when the Life Insured dies, but you must
provide us with proof when any of the Lives Insured die.
If the Life Insured dies while the policy is in force, we will pay the Insurance
Benefit to the beneficiary on receiving due proof of death of the last-to-die of
the Lives Insured, subject to the Age and Sex, Suicide and Validity provisions.
If the Life Insured dies after we receive a request from you to surrender the
policy, there will be no Insurance Benefit. We will pay the amount payable under
the Surrender And Withdrawals provision instead.
(continued)
Page 8
<PAGE> 17
INSURANCE BENEFIT (continued)
INSURANCE BENEFIT. The Insurance Benefit payable is:
(a) the Death Benefit as described below; plus
(b) any amounts payable under any Supplementary Benefits that form part of
the policy; less
(c) the value of the Policy Debt as of the date of death.
If the Life Insured dies during a grace period, the Insurance Benefit described
above will be modified as follows:
(a) the Insurance Benefit will be reduced by any outstanding Monthly
Deductions due; and
(b) the Policy Value used in the calculation of the Death Benefit will be the
Policy Value as of the default date.
DEATH BENEFIT. The Death Benefit will depend on whether Death Benefit Option 1
or 2 is in effect on the date of death.
Under Option 1, the Death Benefit is the Face Amount of the policy at the date
of the Life Insured's death.
Under Option 2, the Death Benefit is the Face Amount of the policy, plus the
Policy Value at the date of the Life Insured's death.
MINIMUM DEATH BENEFIT. To ensure that the policy continues to qualify as life
insurance under the Internal Revenue Code, the Death Benefit will never be less
than the Minimum Death Benefit. The Minimum Death Benefit is equal to the Policy
Value at the date of death, multiplied by the Minimum Death Benefit Percentage
for the Attained Age of the youngest of the Lives Insured, or the Attained Age
such person would have reached if living. The Minimum Death Benefit Percentages
are shown in the Table of Minimum Death Benefit Percentages shown below.
TABLE OF MINIMUM DEATH BENEFIT PERCENTAGES
ATTAINED AGE APPLICABLE PERCENTAGE
40 and under 250%
45 215%
50 185%
55 150%
60 130%
65 120%
70 115%
75 105%
90 105%
95 and above 100%
To determine the Applicable Percentage, we will use the Attained Age of the
youngest of the Lives Insured, or the Attained Age such person would have
reached if living.
For ages not shown, the Applicable Percentage can be found by reducing the above
Applicable Percentages proportionately.
SIMULTANEOUS DEATH. If the Lives Insured die simultaneously or in circumstances
rendering it uncertain who is the Life Insured, the oldest of the Lives Insured
will be deemed to have been the Life Insured. No payment will be made on the
death of the other Lives Insured.
PAYMENT OF INSURANCE BENEFIT. We will pay the Insurance Benefit in one lump sum
with interest calculated from the date of the Life Insured's death to the date
of payment. The rate will be at the rate prescribed by the state. If the state
does not specify the interest rate, we will use the rate for insurance benefits
left on deposit with us.
Page 9
<PAGE> 18
POLICY VALUE
INITIAL NET PREMIUM. We will allocate your initial Net Premium plus any earned
interest on the later of the date our underwriters approve issuance of the
policy or the date we receive the initial premium at our Service Office.
Interest will be credited as of the date we received the initial premium payment
at the rate of return then being earned on allocations to the Money Market
Trust. This initial allocation will become your Policy Value to which subsequent
Net Premiums will be allocated.
SUBSEQUENT NET PREMIUMS. As of the Business Day we receive your subsequent
premium payments at our Service Office, we will add your Net Premium to your
Policy Value. We will do this before we take any deductions due as of that
Business Day.
MONTHLY DEDUCTIONS. At the beginning of each Policy Month, a deduction is taken
from your policy to cover Monthly Administration Charges and the cost to provide
the insurance coverage.
The first Monthly Deduction is taken on the later of the date our underwriters
approve issuance of the policy or the date we receive at least the initial
premium at our Service Office.
Monthly Deductions are due until the Policy Anniversary on which the youngest of
the Lives Insured reaches or would have reached Attained Age 100 if living. If
the policy is in force on that date, it will remain in force without further
premium payments or Monthly Deductions, subject to the Policy Loan Conditions
provision.
The Monthly Deduction for any Policy Month is the sum of the following amounts
determined as of the beginning of that month:
(a) the Monthly Administration Charge shown in the Table Of Charges in the
Policy Information section;
(b) the Mortality and Expense Risks Charge shown in the Table Of Charges in
the Policy Information section;
(c) the monthly cost of any Supplementary Benefits you have added to your
policy; and
(d) the monthly Cost of Insurance for the Lives Insured.
Unless you have requested otherwise, we will take Monthly Deductions from the
Fixed Account and the Investment Accounts in the same proportion that the Policy
Value in each of these accounts bears to the Net Policy Value immediately prior
to the deduction.
The Cost of Insurance for a specific Policy Month is determined as the rate for
the Cost of Insurance for that month, as described below, multiplied by the net
amount at risk.
For Death Benefit Option 1, the net amount at risk is equal to (a) minus (b),
where:
(a) is the Death Benefit as of the first day of the Policy Month, divided by
the Death Benefit Discount Factor shown in the Table of Values in the
Policy Information section; and
(b) is the Policy Value as of the first day of the Policy Month after the
deduction of the monthly Cost of Insurance for the Lives Insured.
For Death Benefit Option 2, the net amount at risk is equal to the Face Amount
of insurance.
(continued)
Page 10
<PAGE> 19
POLICY VALUE (continued)
The rates for the Cost of Insurance, as of the Policy Date and subsequently for
each Face Amount increase, are blended and based on the Lives Insured's Age,
Sex, Risk Classification and duration that the coverage has been in force. The
Cost of Insurance Rate shown in the Table of Values in the Policy Information
section is payable for the first Policy Year. After the first Policy Year, the
Cost of Insurance will generally increase on each Policy Anniversary. The Cost
of Insurance calculation will reflect any Additional Rating shown in the Policy
Information section.
We will re-determine Cost of Insurance rates from time to time on a basis that
does not discriminate unfairly within any class of lives insured. The Cost of
Insurance rates will never exceed those shown in the Table of Guaranteed Maximum
Cost of Insurance Rates on Page 4.
OTHER DEDUCTIONS. We will deduct a Surrender Charge if during the Surrender
Charge Period shown in the Policy Information section:
(a) you surrender the policy for its Net Cash Surrender Value;
(b) you make one or more partial withdrawals in a Policy Year totaling more
than the Withdrawal Tier Amount; or
(c) you do not pay an amount due at the end of a grace period, and the policy
terminates.
See the Surrender And Withdrawals provision for details.
POLICY VALUE COMPOSITION
Your Policy Value at any time is equal to the sum of the values you have in the
Loan Account, the Fixed Account and the Investment Accounts.
LOAN ACCOUNT VALUE. The amount you have in the Loan Account at any time equals:
(a) amounts transferred to it for loans or borrowed loan interest; plus
(b) interest credited to it; less
(c) amounts transferred from it for loan repayment.
For the details of the Loan Account see the Policy Loan Conditions provision.
FIXED ACCOUNT VALUE. The amount you have in the Fixed Account at any time
equals:
(a) Net Premiums allocated to it; plus
(b) amounts transferred to it; plus
(c) interest credited to it; less
(d) amounts deducted from it; less
(e) amounts transferred from it; less
(f) amounts withdrawn from it.
Interest will be credited to amounts in the Fixed Account at an effective annual
rate of no less than the Fixed Account Rate shown in the Table of Values in the
Policy Information Section. The actual interest rate used will be set by us from
time to time. For all transactions, interest is calculated from the date of the
transaction.
INVESTMENT ACCOUNT VALUE. The amount you have in an Investment Account at any
time equals the number of units in that Investment Account, multiplied by the
unit value of the corresponding Sub-Account at that time.
(continued)
Page 11
<PAGE> 20
POLICY VALUE COMPOSITION (continued)
The number of units in an Investment Account at any time equals (a) minus (b),
where:
(a) is the number of units credited to the Investment Account because of:
(1) Net Premiums allocated to it; and
(2) amounts transferred to it; and
(b) is the number of units canceled from the Investment Account because of:
(1) amounts deducted from it;
(2) amounts transferred from it; and
(3) amounts withdrawn from it.
The number of units credited or canceled for a given transaction is equal to the
dollar amount of the transaction, divided by the unit value as of the Business
Day of the transaction. See the Unit Value Calculation section of the Separate
Account And Sub-Accounts provision for details on how unit values are
determined.
SEPARATE ACCOUNT AND SUB-ACCOUNTS
The Separate Account is authorized to invest in the shares of Manufacturers
Investment Trust, or another management investment company. Each Sub-Account of
the Separate Account purchases shares of a corresponding Fund of Manufacturers
Investment Trust or another management investment company. The Funds are listed
in the Policy Information section.
FUND SUBSTITUTION. A Fund might, in our judgment, become unsuitable for
investment by a Sub-Account. This might happen because of a change of investment
policy; or a change in the applicable laws or regulations; or because the shares
are no longer available for investment; or for some other reason.
If a Fund becomes unsuitable for investment, we have the right to substitute
another Fund or another management investment company. Before doing this, we
would first seek, where required, approval from the Securities and Exchange
Commission and the Insurance Commissioner of the state in which this policy is
delivered.
To the extent permitted by applicable federal and state law, we also have the
right, without your approval, to:
(a) create new separate accounts;
(b) combine any two or more separate accounts including the Separate Account;
(c) make available additional Sub-Accounts investing in additional Funds of
Manufacturers Investment Trust, or another investment company;
(d) eliminate existing Sub-Accounts and stop accepting new allocations and
transfers into the corresponding Fund;
(e) operate the Separate Account as a management investment company under the
Investment Company Act of 1940 or in any other form permitted by law;
(f) de-register the Separate Account under the Investment Company Act of
1940;
(g) transfer assets between the Separate Account and other separate accounts;
and
(h) combine Sub-Accounts or to transfer assets in one Sub-Account to another
Sub-Account.
(continued)
Page 12
<PAGE> 21
SEPARATE ACCOUNT AND SUB-ACCOUNTS (continued)
The investment objectives of a Sub-Account within the Separate Account will not
be changed materially without first filing the change with the Insurance
Commissioner of our state of domicile. We will inform you of any changes deemed
to be material.
UNIT VALUE CALCULATION. We will determine the unit values for each Sub-Account
as of the end of each Business Day. When we need to determine a Policy Value or
an amount after the end of a Business Day, or on a day that is not a Business
Day, we will do so as of the next Business Day.
The value of a unit of each Sub-Account was initially fixed at $10 for the first
Business Day that an amount was allocated, or transferred to the particular
Sub-Account. For any subsequent Business Day, the unit value for that
Sub-Account is obtained by multiplying the unit value for the immediately
preceding Business Day by the net investment factor for the particular
Sub-Account on such subsequent Business Day.
NET INVESTMENT FACTOR. The net investment factor for a Sub-Account on any
Business Day is equal to (a) divided by (b), where:
(a) is the net asset value of the underlying Fund shares held by that
Sub-Account as of the end of such Business Day before any policy
transactions are made on that day; and
(b) is the net asset value of the underlying Fund shares held by that
Sub-Account as of the end of the immediately preceding Business Day after
all policy transactions were made for that day.
We reserve the right to adjust the above formula for any taxes determined by us
to be attributable to the operations of the Sub-Account.
SEPARATE ACCOUNT ASSETS. The assets held in each Sub-Account are used to support
the Policy Values of Single Premium and Flexible Premium Variable Life Insurance
policies. The Separate Account will be used to fund only variable life insurance
benefits.
Income, gains and losses of the Separate Account are credited to, or charged
against, the applicable Sub-Accounts without regard to our other income, gains
and losses.
The assets of the Separate Account are our property. The part of the assets that
is equal to the Investment Account values in respect of all Single Premium and
Flexible Premium Variable Life Insurance policies will not be charged with
liabilities from any other business we conduct. We can transfer to our general
account, Separate Account assets in excess of the liabilities of the Separate
Account arising under the Single Premium and Flexible Premium Variable Life
Insurance policies supported by the Separate Account.
INVESTMENT OPTIONS
ALLOCATIONS. You may allocate Net Premiums to the Fixed Account or any of the
Investment Accounts. Unless you change the initial premium allocation specified
in your application for this policy, it will continue to apply to subsequent
premium payments.
Allocation percentages must be zero or a whole number not greater than 100. The
sum of the allocation percentages must equal 100. You may change the allocation
percentages by Written Request to our Service Office. The change will take
effect as of the date we receive your request at our Service Office. You may
also change your allocation percentages by telephone if a currently valid
authorization form is on file with us.
TRANSFERS. By Written Request you may transfer portions of your Policy Value
among the Investment Accounts and the Fixed Account. We will also permit
telephone transfers if a currently valid authorization form is on file with us.
(continued)
Page 13
<PAGE> 22
INVESTMENT OPTIONS (continued)
Transfers are subject to the following restrictions:
(a) you can make as many transfers in a Policy Year as you want. There is no
charge for the first twelve transfers in any Policy Year. If you make
more than twelve transfers in any Policy Year, the Transfer Fee shown in
the Table of Values in the Policy Information section will apply to each
subsequent transfer in that Policy Year. We will consider all transfer
requests received on the same Business Day as one transfer;
(b) you may transfer the Policy Value from any of the Investment Accounts to
the Fixed Account without incurring the transfer charges in (a) above,
provided such transfers occur within:
(1) eighteen months after the Issue Date, as shown in the Policy
Information section of this policy; or
(2) the later of (i) or (ii) below:
(i) 60 days from the effective date of a material change in the
investment objectives of any of the Sub-Accounts; or
(ii) 60 days from the notification date of any such change.
(c) the maximum amount that you can transfer out of the Fixed Account in any
one Policy Year is limited to the greater of:
(1) the Fixed Account Maximum Transfer Percentage shown in the Table
of Values in the Policy Information section, multiplied by the
value in the Fixed Account at the previous Policy Anniversary; or
(2) the Fixed Account Maximum Transfer Amount shown in the Table of
Values in the Policy Information section.
(d) any transfer out of the Fixed Account may not involve a transfer to the
Investment Account for the Money Market Trust; and
(e) transfer privileges are subject to any restrictions that may be imposed
by the Trust.
ASSET ALLOCATION BALANCER TRANSFERS. If you elect this option, we will
automatically transfer amounts among your specified Investment Accounts in order
to maintain your designated percentage in each account. We will effect the
transfers six months after the Policy Date and each six month interval
thereafter.
The current and maximum Asset Allocation Balancer Charge for transfers under
this option are shown in the Table of Values in the Policy Information section
of this policy. We will provide you with 90 days written notice of any change in
the current amount.
When you change your premium allocation instructions, your Asset Allocation
Balancer will change so the two are identical. This change will automatically
occur unless you instruct us otherwise, or a Dollar Cost Averaging request is in
effect.
We reserve the right to cease to offer this option as of 90 days after we send
you written notice.
DOLLAR COST AVERAGING. If you elect this option, we will automatically transfer
amounts each month from one Investment Account to one or more of the other
Investment Accounts or the Fixed Account. You must select the amount to be
transferred and the accounts.
If the value in the Investment Account from which the transfer is being made is
insufficient to cover the transfer amount, we will not effect the transfer and
we will notify you.
(continued)
Page 14
<PAGE> 23
INVESTMENT OPTIONS (continued)
The current and maximum Dollar Cost Averaging Charge for transfers under this
option are shown in the Table of Values in the Policy Information section of
this policy. We will provide you with 90 days written notice of any change in
the current amount.
We reserve the right to cease to offer this option as of 90 days after we send
you written notice.
POLICY LOAN CONDITIONS
At any time while this policy is in force and has an available loan value, you
can get a loan by Written Request. We may require a loan agreement from you as
the policy is the only security for the loan.
AVAILABLE LOAN VALUE. The available loan value on any date is 90% of the Net
Cash Surrender Value.
LOAN ACCOUNT. When you take out a loan, or when loan interest charges are
borrowed, we will do a transfer from the Fixed Account and/or one or more of the
Investment Accounts into the Loan Account. Amounts we transfer into the Loan
Account cover the loan principal plus loan interest due to the next Policy
Anniversary.
A Loan Sub-Account exists for each Investment Account and for the Fixed 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.
You may tell us how much of the amount to be transferred to the Loan Account you
wish to allocate to your value in the Fixed Account and each of the Investment
Accounts. If you do not tell us, we will allocate the amounts to be transferred
in the same proportion that your value in the Fixed Account and the Investment
Accounts bears to the Net Policy Value.
When an amount to be transferred is allocated to an Investment Account, we will
redeem units of that Investment Account sufficient in value to cover the
allocated amount. These transfers do not count as a transfer for the purposes of
the Transfers section of the Investment Options provision.
Interest is credited to the Loan Account and interest is also charged on the
Policy Debt, as described under the Loan Interest Charged and the Loan Interest
Credited sections of this provision.
LOAN INTEREST CHARGED. Interest will accrue daily on loans. In the event that
you do not pay the Loan Interest Charged in any Policy Year, it will be borrowed
against the policy and added to the Policy Debt in arrears at the Policy
Anniversary. We will allocate the amount borrowed for interest payment in the
same proportion that your value in the Fixed Account and the Investment Accounts
bears to the Net Policy Value as of the Policy Anniversary.
Loan interest will continue to be charged if there is an outstanding loan when
Monthly Deductions and premium payments cease at the youngest of the Lives
Insured's Attained Age 100. The policy will go into default at any time the
Policy Debt exceeds the Policy Value. At least 61 days prior to termination, we
will send a notice to your last known address. If you had filed a notice of
assignment with us, we will also send a copy of the notice to the last known
address of the assignee on record. Payment of the loan interest during the
61-day grace period will bring the policy out of default.
The rate of interest charged is fixed at the effective Annual Loan Interest
Charged Rate shown in the Table of Values in the Policy Information section.
LOAN INTEREST CREDITED. Interest will accrue daily to amounts in the Loan
Account. The effective annual Loan Interest Credited Rate is the difference
between the Loan Interest Charged Rate and the Loan Interest Credited
Differential.
(continued)
Page 15
<PAGE> 24
POLICY LOAN CONDITIONS (continued)
The Maximum Loan Interest Credited Differential is shown in the Table of Values
in the Policy Information section.
In no event will the Loan Interest Credited rate be less than the Fixed Account
Rate shown in the Table of Values in the Policy Information section.
LOAN REPAYMENT. You may repay the Policy Debt in whole or in part at any time
prior to the death of the Life Insured, and while the policy is in force.
When you repay a loan, we credit the amount to the Loan Account, and make a
transfer to the Fixed Account and/or the Investment Accounts.
We will allocate loan repayments as follows:
(a) first to the Fixed Account, until the associated Loan Sub-Account is
reduced to zero;
(b) then to each Investment Account in the same proportion that the value in
the corresponding Loan Sub-Account bears to the value of the Loan
Account.
While a loan exists, we will treat the amounts you pay as premiums, unless you
request in writing that they be treated as loan repayments. However, when a
portion of the Loan Account amount is allocated to the Fixed Account, where
permitted by state law, we reserve the right to require that amounts you pay be
treated as loan repayments.
CHANGING THE DEATH BENEFIT OPTION OR THE FACE AMOUNT
You may change your Death Benefit Option or your Face Amount of insurance by
Written Request. Such changes are subject to the general conditions of this
provision and the conditions described in the section for each type of change.
The following general conditions apply to changes in Death Benefit Option or
Face Amount of insurance:
(a) changes may be made once in each Policy Year after the first Policy
Anniversary;
(b) changes will take effect as of the beginning of the next Policy Month
following the date we approve the request; and
(c) we reserve the right to limit any changes that would cause this policy to
fail to qualify as life insurance under the Internal Revenue Code.
A Death Benefit Option Change, or a Face Amount Change will cause a change in
the No-Lapse Guarantee Premium. For increases in Face Amount the Surrender
Charge Premium Limit will also change. An additional Surrender Charge Premium
Limit will be associated only with the new Face Amount if it has been added
after restoring prior decreases.
We will inform you of the new premium amounts at the time of the change.
CHANGE FROM DEATH BENEFIT OPTION 1 TO DEATH BENEFIT OPTION 2.
The Face Amount of insurance after the change from Option 1 to Option 2 will be
(a) minus (b), where:
(a) is the Face Amount of insurance immediately before the change; and
(b) is the Policy Value as of the effective date of the change.
We will not allow the change in Death Benefit Option if it would cause the Face
Amount to decrease below the Minimum Face Amount shown in the Table of Values in
the Policy Information section.
(continued)
Page 16
<PAGE> 25
CHANGING THE DEATH BENEFIT OPTION OR THE FACE AMOUNT (continued)
CHANGE FROM DEATH BENEFIT OPTION 2 TO DEATH BENEFIT OPTION 1.
The Face Amount of insurance after the change from Option 2 to Option 1 will be
(a) plus (b), where:
(a) is the Face Amount of insurance immediately before the change; and
(b) is the Policy Value as of the effective date of the change.
We will not increase the Surrender Charge because of the increase in the Face
Amount of insurance resulting from this change.
DECREASE IN FACE AMOUNT. The Minimum Face Amount Decrease is shown in the Table
of Values in the Policy Information section. We may change this amount as of 90
days after we send you written notice of the change. We will not allow a
decrease if it would cause the Face Amount to go below the Minimum Face Amount
shown in the Table Of Values in the Policy Information section.
When you request a decrease in the Face Amount of insurance, we will reduce the
Face Amount in the following order:
(a) the amounts of insurance provided by any increases you may have requested
to the policy Face Amount, starting with the most recent increase until
all such increases are reduced; then
(b) the initial Face Amount of the policy.
INCREASE IN FACE AMOUNT. The Lives Insured shown in the Policy Information
Section must all be alive when you request an increase in the Face Amount of
insurance. You must provide us with evidence of insurability on the Lives
Insured that is satisfactory to us. The Minimum Face Amount Increase is shown in
the Policy Information section. We may change this amount as of 90 days after we
send you written notice of the change.
We reserve the right to refuse a Face Amount increase if the Attained Age of any
of the Lives Insured at the date the increase would be effective is greater than
the maximum issue age for new policies at that time.
The Face Amount of insurance will increase in the following order:
(a) we will restore the Face Amount reduced by the most recent decrease
first; followed by
(b) the next most recent decrease until all decreases are restored; then
(c) we will add the new Face Amount of insurance.
There will be no new Surrender Charge associated with the restoration of prior
decreases under (a) or (b) above. However, there will be a new Surrender Charge
associated with the new Face Amount under (c). We will inform you of any new
Surrender Charges at the time of the increase.
You will not necessarily have to pay additional premium with an increase in Face
Amount, but the new Surrender Charge may require an additional premium payment
to prevent the policy from going into default.
For Surrender Charge purposes, the premiums attributable to the new Face Amount
will not exceed the Surrender Charge Premium Limit associated with that
increase.
SURRENDER AND WITHDRAWALS
SURRENDER OF THE POLICY. You may surrender this policy for its Net Cash
Surrender Value at any time prior to the death of the Life Insured. We will
determine the Net Cash Surrender Value as of the end of the Business Day on
which we receive the policy and your Written Request for surrender at our
Service Office. After we receive your surrender request, no insurance will be in
force.
(continued)
Page 17
<PAGE> 26
SURRENDER AND WITHDRAWALS (continued)
If you surrender your policy during the Surrender Charge Period, we will deduct
a Surrender Charge from your Policy Value in calculating the Net Cash Surrender
Value. If you have increased the Face Amount of insurance, the Surrender Charge
will be the sum of the Surrender Charge for the initial Face Amount plus the
Surrender Charge for each increase as shown in the Policy Update page amending
the policy. No additional Surrender Charge will be imposed on any portion of an
increase in Face Amount that restores a prior decrease.
PARTIAL NET CASH SURRENDER VALUE WITHDRAWAL. You may request a partial Net Cash
Surrender Value withdrawal once each Policy Month after the first Policy
Anniversary. You may make this request provided there is a Net Cash Surrender
Value for the policy. The partial Net Cash Surrender Value withdrawal will be
done as of the end of the Business Day on which we receive your Written Request.
You may specify the accounts from which we should make the partial Net Cash
Surrender Value withdrawal. If we do not receive such instructions, we will make
the withdrawal in the same proportion that the value in the Fixed Account and
the Investment Accounts bears to the Net Policy Value.
If the sum of partial Net Cash Surrender Value withdrawals in any Policy Year
during the Surrender Charge Period is greater than the Withdrawal Tier Amount
for that year, we will deduct a pro-rata Surrender Charge from the Policy Value.
The portion of a partial Net Cash Surrender Value withdrawal that is considered
above the Withdrawal Tier Amount includes all previous partial Net Cash
Surrender Value withdrawals that have occurred in the current Policy Year.
The pro-rata charges deducted will equal the sum of the pro-rata Surrender
Charge for the initial Face Amount and any previous increase in Face Amount.
This amount is (a) divided by (b), multiplied by (c), where:
(a) is the amount of the partial Net Cash Surrender Value withdrawal in
excess of the Withdrawal Tier Amount;
(b) is the Net Cash Surrender Value prior to the withdrawal, in excess of the
Withdrawal Tier Amount; and
(c) is the current total Surrender Charge prior to the withdrawal.
We will allocate the deduction of the pro-rata charges for the withdrawal to the
Fixed Account and the Investment Accounts in the same proportion that the
withdrawal from each account bears to the total withdrawal.
If the withdrawal plus the pro-rata Surrender Charge allocated to a particular
account are greater than the value of that account, we will reduce the portion
of the withdrawal allocated to that account. We will reduce the allocated
portion so that the withdrawal plus the pro-rata charges allocated to the
account equal the value of the account.
If Death Benefit Option 1 is in effect at the time of the withdrawal, the Face
Amount will be reduced by:
(a) the amount of the withdrawal plus the pro-rata Surrender Charge, if at
the time of the withdrawal the Death Benefit equals the Face Amount;
otherwise
(b) the amount, if any, by which the withdrawal plus the pro-rata Surrender
Charge exceeds the difference between the Death Benefit and the Face
Amount.
(continued)
Page 18
<PAGE> 27
SURRENDER AND WITHDRAWALS (continued)
If there has been a prior increase in Face Amount, then the Face Amount will be
decreased in the same order as if you had requested the decrease. See the
Decrease in Face Amount section of the Changing The Death Benefit Option Or The
Face Amount provision. Withdrawals will be limited if they would otherwise cause
the Face Amount to fall below the Minimum Face Amount shown in the Table of
Values in the Policy Information section.
Each time we deduct the pro-rata Surrender Charge for a partial withdrawal, we
will reduce the remaining Surrender Charge in the same proportion that the
Surrender Charge deducted bears to the total Surrender Charge immediately before
the partial withdrawal.
Partial Net Cash Surrender Value withdrawals do not affect the Face Amount of
your policy if Death Benefit Option 2 is in effect.
RIGHT TO POSTPONE PAYMENT OF BENEFITS
We reserve the right to postpone the payment of Net Cash Surrender Values,
partial Net Cash Surrender Value withdrawals, policy loans and the portion of
the Insurance Benefit that depends on Investment Account values, for any period
during which:
(a) the New York Stock Exchange (Exchange) is closed for trading (other than
customary week-end and holiday closings), or trading on the Exchange is
otherwise restricted;
(b) an emergency exists as defined by the Securities and Exchange Commission
(SEC), or the SEC requires that trading be restricted; or
(c) the SEC permits a delay for the protection of policyholders.
We also reserve the right to postpone payments for up to six months if such
payments are based on values that do not depend on the investment performance of
the Sub-Accounts.
In addition, we may deny transfers under the circumstances stated in (a), (b)
and (c) above, and in the Transfers section of the Investment Options provision.
RIGHT TO CANCEL INCREASES
If you request an increase in Face Amount which results in a new Surrender
Charge, you have the same rights to cancel the increase as described on the
front cover of this policy, under the Right to Return Policy. If canceled, the
Policy Value and the Surrender Charge will be recalculated to the amounts they
would have been, had the increase not taken place. You may request a refund for
all or a portion of premiums paid during this period. Upon payment of the
refund, we will recalculate the Policy Value and the Surrender Charge to the
amounts they would have been, had the premiums not been paid.
SUICIDE
If within two years after the Issue Date any of the Lives Insured die by
suicide, while sane or insane, the policy will terminate and our liability will
be limited to:
(a) the premiums paid; less
(b) any partial Net Cash Surrender Value withdrawals; and less
(c) the Policy Debt.
If any of the Lives Insured die by suicide, while sane or insane, within two
years after the effective date of an increase in Face Amount, we will credit the
amount of any Monthly Deductions taken for the increase and reduce the Face
Amount to what it was prior to the increase. If the last death is by suicide,
the Death Benefit for that increase will be limited to the Monthly Deductions
taken for the increase.
We reserve the right under this provision to obtain evidence of the manner and
cause of death of the Lives Insured.
Page 19
<PAGE> 28
BENEFICIARY
The following four sections will apply unless there is a beneficiary appointment
in force that provides otherwise.
BENEFICIARY CLASSIFICATION. You can appoint beneficiaries for the Insurance
Benefit in three classes: primary, secondary and final. Beneficiaries in the
same class will share equally in the Insurance Benefit payable to them.
PAYMENT TO BENEFICIARIES. We will pay the Insurance Benefit:
(a) to any primary beneficiaries who are alive when the Life Insured dies; or
(b) if no primary beneficiary is then alive, to any secondary beneficiaries
who are then alive; or
(c) if no primary or secondary beneficiary is then alive, to any final
beneficiaries who are then alive.
CHANGE OF BENEFICIARY. Until the Life Insured's death you can change the
beneficiary by Written Request unless you make an irrevocable designation. We
are not responsible if the change does not achieve your purpose. The change will
take effect as of the date you signed such request. It will not apply to any
payments we made or any action we may have taken before we received your Written
Request.
DEATH OF BENEFICIARY. If no beneficiary is alive when the Life Insured dies, the
Insurance Benefit will be payable to you; or to your estate if you are the Life
Insured. Unless otherwise provided, if a beneficiary dies before the seventh day
after the death of the Life Insured, we will pay the Insurance Benefit as if the
beneficiary had died before the Life Insured.
OWNERSHIP AND ASSIGNMENT
Until the Life Insured's death, without the consent of any beneficiary, except
an irrevocable beneficiary, you as owner can:
(a) receive any amount payable under your policy;
(b) exercise all rights and privileges granted by the policy; and
(c) assign the policy.
An assignment does not bind us until we receive it in writing at our Service
Office. We are not responsible for its validity or its effects. It should be
filed with us in duplicate. We will return a copy.
CHANGE OF OWNER. Until the Life Insured's death, the owner can change the
ownership of the policy by Written Request. The change will take effect as of
the date you signed the Written Request. It will not apply to any payments we
made or any action we may have taken before we received your Written Request.
TRUSTEE OWNER. Should the owner be a trustee, payment to the trustee(s) of any
amount to which the trustee(s) is (are) entitled under the policy, either by
death or otherwise, will fully discharge us from all liability under the policy
to the extent of the amount so paid.
JOINT OWNERSHIP. Two or more owners will own the policy as joint tenants with
right of survivorship, unless otherwise requested on the application or in any
subsequent assignment of the policy. On death of any of the owners, the deceased
owner's interest in the policy passes to the surviving owner(s).
Any rights and privileges that may be exercised by the owner, may be exercised
only with the consent of all joint owners.
(continued)
Page 20
<PAGE> 29
OWNERSHIP AND ASSIGNMENT (continued)
SUCCESSOR OWNER. Upon the owner's death during the lifetime of the Lives
Insured, a named successor owner will, if then living, have all the owner's
rights and interest in the policy. Until the Life Insured's death, the owner,
without the consent of any revocable beneficiary or any successor owner, can
cancel or change the designation of successor owner. This may be done from time
to time by agreement in writing with us.
PROTECTION AGAINST CREDITORS
If permitted by state law, all payments shall be exempt from the debts and
contracts of the owners and beneficiaries, and from seizure by court order.
CURRENCY AND PLACE OF PAYMENT
All payments to or by us will be in U.S. currency. We will make payments from
our Service Office. We may require proof that the person claiming any payment is
entitled to it.
CONTRACT
The policy, application, supplementary benefits, and any endorsements form your
whole contract. A copy of the application is attached to the policy and deemed a
part of it. We will not be bound by any statement that is not in the application
or the policy.
Only our President or one of our Vice-Presidents can agree to amend or modify
the policy or waive any of its provisions. Any change must be in writing.
Statements made by any of the Lives Insured are representations, not warranties,
unless fraud is involved. We will not use any statement by you or any of the
Lives Insured to deny a claim, unless it is written in the application or any
supplement to the application.
VALIDITY
We have the right to contest the validity of this policy based on material
misstatements made in the initial application or an application for policy
change that requires evidence of insurability. However, we cannot contest the
validity of your policy after it has been in force during the lifetime of the
Lives Insured for two years from the Issue Date.
We cannot contest the validity of an applied for 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 Lives Insured for two years from the date of
such increase or addition.
We can contest after two years if the policy has been reinstated and has been in
force during the lifetime of the Lives Insured for less than two years from the
reinstatement date. If this is the case, we can only contest the validity in
respect of any fact material to the reinstatement that was misrepresented.
NON-PARTICIPATING
Your policy is non-participating. It does not earn dividends.
AGE AND SEX
If the Age or Sex of any of the Lives Insured was misstated in the application,
we will change the Face Amount of insurance. The new Face Amount will be
determined so that the Death Benefit will be that which the most recent Cost of
Insurance deduction would have purchased for the correct Age and Sex.
Page 21
<PAGE> 30
HOW VALUES ARE COMPUTED
We provide Cash Surrender Values that are at least equal to those required by
law. A detailed statement of the method of computing the values of this policy
has been filed with the insurance department of the state in which this policy
is delivered.
We use the Commissioners 1980 Standard Ordinary Smoker/Non-Smoker Mortality
Table in computing reserves, and in determining Maximum Cost of Insurance Rates.
Values relating to amounts in the Fixed Account are computed at the Fixed
Account Rate shown in the Table of Values in the Policy Information section.
ANNUAL STATEMENT
Within 30 days after each Policy Anniversary, we will send you a report showing:
(a) the Death Benefit;
(b) the Policy Value;
(c) the current allocation of money in the Fixed Account, the Loan Account
and each of the Investment Accounts;
(d) the value of the units in each chosen Investment Account;
(e) any Loan Account balance and loan interest charged since the last report;
(f) the premiums paid and policy transactions for the year; and
(g) any further information required by law.
TAX CONSIDERATIONS
It is the intent that this policy be considered as life insurance for tax
purposes, to comply with Section 7702 of the Internal Revenue Code of 1986, or
any other equivalent section of the code. We reserve the right to limit the
amount of premiums paid for this policy, or to make any other reasonable
adjustments to the terms or conditions of this policy if it becomes necessary to
allow it to qualify as life insurance.
This provision should not be construed to guarantee that the policy will be
treated as life insurance or that the tax treatment of life insurance will never
be changed by the future actions of any tax authority.
Page 22
<PAGE> 31
The Manufacturers Life Insurance Company of America
A Stock Company
Service Office: 200 Bloor Street East, Toronto, Canada, M4W 1E5
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY.
PAYABLE ON DEATH OF THE LAST-TO-DIE OF THE LIVES INSURED.
ADJUSTABLE DEATH BENEFIT.
FLEXIBLE PREMIUMS PAYABLE UNTIL THE EARLIER OF LAST DEATH, OR THE POLICY
ANNIVERSARY WHEN THE YOUNGEST OF THE LIVES INSURED REACHES ATTAINED AGE 100 OR
WOULD HAVE REACHED ATTAINED AGE 100 IF LIVING.
CASH SURRENDER VALUES AND BENEFITS FOR A PORTION OF THE POLICY VALUES ALLOCATED
TO AN INVESTMENT ACCOUNT REFLECT THE INVESTMENT EXPERIENCE OF THE UNDERLYING
SUB-ACCOUNTS. INVESTMENT OPTIONS ARE DESCRIBED IN THE "POLICY VALUE COMPOSITION"
AND THE "INVESTMENT OPTIONS" PROVISIONS. NON-PARTICIPATING (NOT ELIGIBLE FOR
DIVIDENDS).
IMPORTANT NOTICE
To claim a benefit or request a change in your policy,
contact our nearest representative or write to our Service
Office at the address above.
Please tell us promptly of any change in your address.
WE STRONGLY URGE THAT, BEFORE YOU TAKE ANY ACTION TO
REPLACE THIS OR ANY OTHER POLICY, YOU ASK THE ADVICE OF THE
COMPANY THAT ISSUED THE POLICY.
[COMPANY LOGO]
MANULIFE FINANCIAL
Manulife Financial and the black design are registered service marks of The
Manufacturers Life Insurance Company and are used by it and its subsidiaries.
<PAGE> 1
The Manufacturers Life Insurance Company of America
200 Bloor Street East
Toronto, Ontario, Canada M4W 1E5
February 3, 1999
To whom it may concern,
This opinion is written in reference to the flexible premium survivorship
variable universal life insurance policy (the "Policy") that will be offered and
sold by The Manufacturers Life Insurance Company of America (the "Company") with
respect to the variable portion of which a Registration Statement on Form S-6
(the "Registration Statement") is being filed under the Securities Act of 1933,
as amended (the "Act").
As Counsel to the Company, I have examined such records and documents and
reviewed such question of law as I deemed necessary for purposes of this
opinion.
1. The Company has been duly incorporated under the laws of the state of
Michigan and is a validly existing corporation.
2. Separate Account Three of The Manufacturers Life Insurance Company of America
(the "Variable Life Account") is a separate account of the Company and is duly
created and validly existing pursuant to The Insurance Code of 1956.
3. The portion of the assets to be held in the Variable Life Account equal to
the reserves and other liabilities under the Policy is not chargeable with
liabilities arising out of any other business the Company may conduct.
4. The Policy, when issued in accordance with the prospectus contained in the
effective Registration Statement and upon compliance with applicable local law,
will be legal and binding obligations of the Company.
I consent to the filing of this opinion with the Securities and Exchange
Commission as an exhibit to the Registration Statement on Form S-6.
Very truly yours,
/s/ JAMES D. GALLAGHER
James D. Gallagher
Secretary and General Counsel
<PAGE> 1
January 11, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Actuarial Opinion on Illustrations in Registration Statement
Dear Sirs:
This opinion is furnished in connection with the registration statement under
the Securities Act of 1933, as amended, of a flexible premium survivorship
variable universal life insurance policy (the "Policy") that will be offered and
sold by The Manufacturers Life Insurance Company of America.
The hypothetical illustrations of death benefits, Policy values and surrender
values used in this registration statement are consistent with the provisions of
the Policy and the Company's administrative procedures. The rate structure of
the Policy has not been designed so as to make the relationship between premiums
and benefits, as shown in the illustrations, appear disproportionately more
favorable to a prospective purchaser of the Policy for the age and risk class
illustrated than for any other prospective purchaser. The particular
illustrations shown are for a commonly used risk class and for premium amounts
and ages appropriate to the markets in which the Policy is sold.
I hereby consent to the use of this opinion as an exhibit to the Securities Act
Registration Statement on Form S-6.
Sincerely,
/s/ BRIAN KOOP
Brian Koop, FSA, MAAA
Actuary
<PAGE> 1
CONSENT OF ERNST & YOUNG LLP
Exhibit 99.C1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
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
Pre-Effective Amendment No. 1 to the Registration Statement No. 333-66303 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
February 5, 1999
<PAGE> 1
EXHIBIT A.(11)
THE MANUFACTURERS INSURANCE COMPANY OF AMERICA
DESCRIPTION OF PURCHASE, TRANSFER AND REDEMPTION PROCEDURES
Survivorship Variable Universal Life Insurance Policies
(1933 File Act No. 333-66303)
This document sets forth, as required by Rule 6e-3(T)(b)(12)(iii), the
administrative procedures that will be followed by The Manufacturers Insurance
Company of America (the "Company") and any office the Company designates for the
receipt of payments and processing of policyowner requests (the "Service
Office") in connection with the issuance of its flexible premium survivorship
variable universal life insurance policies described in this registration
statement (1933 Act file no. 333-66303) (the "Policy"), the transfer of assets
held thereunder, and the redemption by policyowners of their interests in the
Policy.
I. ISSUING A POLICY
A. Premiums
This Policy is a flexible premium survivorship variable universal life
insurance policy. The Policy permits the policyowner to pay flexible
premiums. After payment of the initial premium, premiums may be paid at
any time and in any amount during the lifetime of the insured. A Policy
will be issued with a planned premium, which is based on the amount of
premium the policyowner wished to pay. In no event may the total of all
premiums paid exceed the then-current maximum premium limitations
established by federal income tax law for a Policy to qualify as life
insurance. If, at any time, a premium is paid which would result in
total premiums exceeding the above maximum premium limitation, the
Company will only accept that portion of the premium which will make
the total premiums equal to the maximum. Any part of the premium in
excess of that amount will be returned and no further premiums will be
accepted until allowed by the then-current maximum premium limitation.
The Company also reserves the right to request evidence of insurability
of a premium payment would result in an increase in the death benefit
that is greater than the increase in Policy Value.
B. Underwriting
The acceptance of an application is subject to the Company's
underwriting rules, and the Company reserves the right to request
additional information or to reject an application for any reason. The
Company will require satisfactory evidence of insurability. This may
include medical exams and other information. Persons failing to meet
standard underwriting classification may be eligible for a Policy with
an additional rating assigned to it.
<PAGE> 2
C. Application
To purchase a Policy, an applicant must submit a completed application.
A Policy will not be issued until the underwriting process has been
completed to the Company's satisfaction.
Policies may be issued on a basis which does not distinguish between
the insured's sex and/or smoking status, with prior approval from the
Company. Generally, a Policy will only be issued on the lives of
insureds from ages 0 through 90.
Each Policy is issued with a Policy Date, an Effective Date and an
Issue Date.
The Policy Date is the date from which the first monthly deductions are
calculated and from which Policy Years, Policy Months and Policy
Anniversaries are determined.
The Effective Date is the date the Company becomes obligated under the
Policy and when the first monthly deductions are deducted from the
Policy Value. The Effective Date is the date the underwriters approve
issuance of the Policy. If the Policy is approved without the initial
premium, the Effective date will be the date the Company receives at
least the minimum initial premium at its Service Office.
The Issue Date is the date the Company issued the Policy. It is the
date from which the suicide and incontestability provisions are
measured.
If an application is accompanied by a check for the initial premium and
the application is accepted:
(i) the Policy Date will be the date the application and check were
received at the Service Office (unless a special Policy Date is
requested (See "Backdating a Policy" below);
(ii) the Effective Date will be the date the Company's underwriters
approve issuance of the Policy; and
(iii) the Issue Date will be the date the Company issues the Policy.
If an application accepted by the Company is not accompanied by a check
for the initial premium:
(i) the Policy Date will be the date the Company issues the Policy
(unless a special Policy Date is requested (See "Backdating a Policy"
below);
(ii) the Effective Date will be the date the Service Office receives
the initial premium; and
(iii) the Issue Date will be the date the Company issues the Policy.
2
<PAGE> 3
The initial premium must be received within 60 days after the Policy
Date. If the premium is not paid or if the application is rejected, the
Policy will be canceled and any partial premiums paid will be returned
to the applicant.
D. Minimum Initial Face Amount
The Company will generally issue a Policy only if it has a Face Amount
of at least $250,000.
E. Backdating a Policy
Under limited circumstances, the Company may backdate a Policy, upon
request, by assigning a Policy Date earlier than the date the
application is signed. However, in no event will a Policy be backdated
earlier than the earliest date allowed by state law, which is generally
three months to one year prior to the date of application for the
Policy. Monthly deductions will be made for the period the Policy Date
is backdated. Regardless of whether or not a policy is backdated, Net
Premiums (premium paid less premium load) received prior to the
Effective Date of a Policy will be credited with interest from the date
of receipt at the rate of return then being earned on amounts allocated
to the Money Market portfolio. As of the Effective Date, the premiums
paid plus interest credited, net of the premium load, will be allocated
among the Investment Accounts (as described below under ("Policy Value
- Investment Accounts") and/or Fixed Account in accordance with the
policyowner's instructions.
F. Temporary Insurance
In accordance with the Company's underwriting practices, temporary
insurance coverage may be provided under the terms of a Temporary
Insurance Agreement. Generally, temporary life insurance may not exceed
$5,000,000 and may not be in effect for more than 90 days. This
temporary insurance coverage will be issued on a conditional receipt
basis, which means that any benefits under such temporary coverage will
only be paid if the life insured meets the Company's usual and
customary underwriting standards for the coverage applied for.
The acceptance of an application is subject to the Company's
underwriting rules, and the Company reserves the right to request
additional information or to reject an application for any reason.
Persons failing to meet standard underwriting classification may be
eligible for a Policy with an additional rating assigned to it.
G. Right to Examine the Policy
3
<PAGE> 4
A Policy may be returned for a refund within 10 days after it is
received. Some states provide a longer period of time to exercise this
right. The Policy will indicate if the policyowner has a longer time.
The Policy can be mailed or delivered to the Company's agent who sold
it or to the 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, the Company
will refund to the policyowner in full the payment made.
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 canceled, 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.
The Company reserves the right to delay the refund of any premium paid
by check until the check has cleared.
H. Premium Allocation
No premiums will be accepted prior to receipt of a completed
application by the Company. All premiums received prior to the
Effective Date of the Policy will be held in the general account of the
Company and credited with interest from the date of receipt at the rate
of return then being earned on amounts allocated to the Money Market
Trust.
On the Effective Date, the Net Premiums paid plus interest credited
will be allocated among the Investment Accounts or the Fixed Account in
accordance with the policyowner's instructions.
All Net Premiums received on or after the Effective Date will be
allocated among Investment Accounts or the Fixed Account as of the
business day the premiums were received at the Service Office. Monthly
deductions are due on the Policy Date and at the beginning of each
policy month thereafter. However, if due prior to the Effective Date,
they will be taken on the Effective Date instead of the dates they were
due.
Premiums may be allocated to either the Fixed Account for accumulation
at a rate of interest determined by the Company (the rate of interest
will be 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 Fixed Account are made as a percentage of the premium.
The percentage allocation to any account may be any number between zero
and 100, provided the total allocation equals 100. A policyowner may
change the way in which premiums are allocated at any time
4
<PAGE> 5
without charge. The change will take effect on the date a written
request for change satisfactory to the Company is received at the
Service Office.
II. DEATH BENEFIT OPTION CHANGES
The death benefit option may be changed on the first day of any Policy
month once each Policy Year after the first Policy Year. The change
will occur on the first day of the next Policy month after a written
request for a change is received at the Service Office. The Company
reserves the right to limit a request for a change if the change would
cause the Policy to fail to qualify as life insurance for tax purposes.
A change in the death benefit option will result in a change in the
Policy's Face Amount, in order to avoid any change in the amount of the
death benefit, as follows:
Change 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 date of the change. The Policy
will not be assessed a surrender charge for a reduction in Face Amount
solely due to a change in the death benefit option.
Change 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 date of the change. No new
surrender charges will apply to an increase in Face Amount solely due
to a change in the death benefit option.
III. FACE AMOUNT CHANGES
Subject to the limitations stated in the prospectus for the Policy and
stated in this memorandum, a policyowner may, upon written request,
increase or decrease the Face Amount of the Policy. The Company
reserves the right to limit a change in Face Amount so as to prevent
the Policy from failing to qualify as life insurance for tax purposes.
A. Increase in Face Amount
Increases in Face Amount are subject to satisfactory evidence of
insurability. An increase in Face Amount may be made once each Policy
Year after the first Policy Year. Any increase in Face Amount must be
at least $50,000. An increase will become effective at the beginning of
the Policy Month following the date the Company approves the requested
increase. The Company reserves the right to refuse a requested increase
if the life insured's Attained Age (life insured's age plus the number
of whole years that have elapsed since the Policy Date) at the
effective date of the increase would be greater than the maximum issue
age for new Policies at that time.
5
<PAGE> 6
B. New Surrender Charges for an Increase
An increase in Face Amount will 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.
There will be no new surrender charges associated with restoration of a
prior decrease in Face Amount. As with the purchase of a Policy, a
policyowner will have free look right with respect to any increase
resulting in new surrender charges.
An additional premium may be required for a face amount increase, and a
new No-Lapse Guarantee Premium will be determined, if the No-Lapse
Guarantee is in effect at the time of the face amount increase. (See
"Lapse and Reinstatement - No-Lapse Guarantee" below)
C. Increase with Prior Decreases
If, at the time of the increase, there have been prior decreases in
Face Amount, these prior decreases will be restored first. The
insurance coverage eliminated by the decrease of the oldest Face Amount
will be deemed to be restored first.
D. Decrease in Face Amount
Decreases in Face Amount may be made once each Policy Year after the
first Policy Year. Any decrease in Face Amount must be at least
$50,000. A written request from a policyowner for a decrease in the
Face Amount will be effective at the beginning of the Policy Month
following the date the Company approves the requested decrease. If
there have been previous increases in Face Amount, the decrease will be
applied to the most recent increase first and thereafter to the next
most recent increases successively.
IV. POLICY VALUE
A. Determination of the 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. The Policy Value may also affect the amount of
the death benefit. The Policy Value at any time is equal to the sum of
the values in the Investment Accounts, the Fixed Account, and the Loan
Account.
B. Investment Accounts
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.
6
<PAGE> 7
C. Fixed Account
Amounts in the Fixed Account do not vary with the investment
performance of any sub-account. Instead, these amounts are credited
with interest at a rate determined by the Company.
D. Loan Account
Amounts borrowed from the Policy are transferred to the Loan Account.
Amounts in the Loan Account do not vary with the investment performance
of any sub-account. Instead, these amounts are credited with interest
at a rate which is equal to the amount charged on the outstanding
Policy Debt (the aggregate amount of policy loans, including borrowed
and accrued interest, less any loan repayments) less the Loan Spread
set forth in the Policy. (See "Policy Loans - Interested Credited to
Loan Account" below)
E. Units and Unit Values
Crediting and Canceling 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 canceled whenever
amounts are deducted, transferred or withdrawn from the sub-account.
The number of units credited or canceled for a specific transaction is
based on the dollar amount of the transaction divided by the value of
the unit on the Business Day* on which the transaction occurs. The
number of units credited with respect to a premium payment will be
based on the applicable unit values for the Business Day on which the
premium is received at the Service Office, except for any premiums
received before the Effective Date. For premiums received before the
Effective Date, the values will be determined on the Effective Date.
Units are valued at the end of each Business Day. When an order
involving the crediting or canceling 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 on 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 on the next Business Day.
*Business Day is any day that the New York Stock Exchange is open for
trading, and trading is not restricted. The Company will deem each
Business day to end at the close of regularly scheduled trading of the
New York Stock Exchange (currently 4:00 p.m. Eastern Time) on that day.
Unit Values
The value of a unit of each sub-account was initially fixed at $10.00.
For each subsequent Business Day the unit value for that sub-account is
determined by multiplying the unit value for the immediately preceding
Business Day by the net investment factor for the that sub-account on
such subsequent Business Day.
7
<PAGE> 8
The net investment factor for a sub-account on any Business Day is
equal to (a) divided by (b), where:
(a) is the net asset value of the underlying Portfolio shares of
Manufacturers Investment Trust held by that sub-account as of the end
of such Business Day before any policy transaction are made on that
day; and
(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 transaction were made for that day.
The value of a unit may increase, decrease, or remain the same,
depending on the investment performance of a sub-account from one
Business Day to the next.
V. TRANSFER OF POLICY VALUE
A. General Transfers
At any time, a policyowner may transfer Policy Value (the sum of the
values in the Loan Account, the Fixed Account and the Investment
Accounts) from one sub-account to another or to the Fixed Account.
Transfer requests must be in writing in a format satisfactory to the
Company, or by telephone if a currently valid telephone transfer
authorization form is on file.
These transfer privileges are subject to the Company's consent. The
Company reserves the right to impose limitations on transfers,
including the maximum amount that may be transferred. In addition,
transfer privileges are subject to any restrictions that may be imposed
by Manufacturers Investment Trust.
While the Policy is in force, the policyowner may transfer the Policy
Value from any of the Investment Accounts to the Fixed Account without
incurring transfer charges:
(a) within eighteen months after the Issue Date; or
(b) within 60 days of the effective date of a material change in the
investment objectives of any of the sub-accounts or within 60 days
of the date of notification of such change, whichever is later.
A policyowner may make up to twelve transfers each policy year free of
charge. Additional transfers in each policy year may be made at a cost
of per transfer as set forth in the currently effective prospectus.
This charge will be deducted from the Investment Account or the Fixed
Account to which the transfer is being made. All transfer requests
received by the Company on the same Business Day are treated as a
single transfer request.
The maximum amount that may be transferred from the Fixed Account in
any one policy year is the greater of $500 or 15% of the Fixed Account
Value at the previous Policy Anniversary. Any transfer which involves a
transfer out of the
8
<PAGE> 9
Fixed Account may not involve a transfer to the Investment Account for
the Money Market Trust.
Although failure to follow reasonable procedures may result in the
Company being liable for any losses resulting from unauthorized or
fraudulent telephone transfers, Manufacturers Life of America will not
be liable for following instructions communicated by telephone that the
Company reasonably believes to be genuine. The Company will employ
reasonable procedures to confirm that instructions communicated by
telephone are genuine. Such procedures shall consist of confirming that
a valid telephone authorization form is on file, tape recording of all
telephone transactions and providing written confirmation thereof.
VI. POLICY SURRENDER AND PARTIAL WITHDRAWALS
A. Policy Surrender
A Policy may be surrendered for its Net Cash Surrender Value at any
time while the life insured is living. The Net Cash Surrender Value is
equal to the Policy Value less any surrender charges and outstanding
monthly deductions due (the "Cash Surrender Value") minus the Policy
Debt. If there have been any prior Face amount increases, the Surrender
Charge will be the sum of the Surrender Charge for the Initial Face
Amount plus the Surrender Charge for each increase. The Net Cash
Surrender Value will be determined at the end of the Business Day on
which the Company 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.
A policyowner may make a partial withdrawal of the Net Cash Surrender
Value once each Policy Month after the first Policy Anniversary. The
policyowner may specify the portion of the withdrawal to be taken from
each Investment Account and the Fixed Account. In the absence of
instructions, the withdrawal will be allocated among such accounts in
the same proportion as the Policy Value in each account bears to the
Net Policy Value (Policy Value less the value in the Loan Account).
If Death Benefit Option 1 is in effect when a partial withdrawal is
made, the Face Amount of the Policy will be reduced by the amount of
the withdrawal plus any applicable Surrender Charges, unless
satisfactory evidence of insurability is provided.
If the death benefit is based upon the Policy Value times the minimum
death benefit percentage, the Face Amount will be reduced only to the
extent that the amount of the withdrawal plus the portion of the
Surrender Charge assessed exceeds the difference between the death
benefit and the Face Amount. 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
9
<PAGE> 10
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.
As long as the Policy is in force, the Company will ordinarily pay any
policy loans, surrenders, partial withdrawals or insurance benefit
within seven days after receipt at its Service Office of all the
documents required for such a payment. The Company may delay the
payment of any policy loans, surrenders, partial withdrawals, or
insurance benefit that depends on Fixed Account values for up to six
months or in the case of any Investment Account for any period during
which (i) the New York Stock Exchange is closed for trading (except for
normal weekend and holiday closings), (ii) trading on the New York
Stock Exchange is restricted (iii) an emergency exists as a result of
which disposal of securities held in the Separate Account is not
reasonably practicable or it is not reasonably practicable to determine
the value of the Separate Account's net assets or (iv) the SEC, by
order, so permits for the protection of security holders; provided that
applicable rules and regulations of the SEC shall govern as to whether
the conditions described in (2) and (3) exist.
B. Surrender Charges
The Company will deduct a Surrender Charge if during the first 15 years
following the Policy date, or the effective date of a Face Amount
increase:
- the Policy is surrendered for its Net Cash Surrender Value,
- a partial withdrawal is made in excess of the Withdrawal Tier Amount*
- an increase in Face Amount is canceled within two years of the
increase, or
- the Policy lapses.
*The Withdrawal Tier Amount is equal to 10% of the Net Cash Surrender
Value as at the last Policy Anniversary. In determining what, if any,
portion of a partial withdrawal is in excess of the Withdrawal Tier
Amount, all previous withdrawals that have occurred in the current
Policy Year are included.
Surrender Charge Calculation
The Surrender Charge for the initial Face Amount or for the amount of any
increase in Face Amount is determined by the following formula (the calculation
is also described in words below):
Surrender Charge = (Surrender Charge Rate)x(Grading Percentage)
Surrender Charge Rate (the calculation is also described in words below)
Surrender Charge Rate = (Factor)x(Surrender Face Amount/1000)+(82.5%)x(Surrender
Charge Premium)
Definitions of the Formula Factors Above
10
<PAGE> 11
Surrender Face Amount
If the Face Amount at the time of surrender is equal to or less than the initial
Face Amount, then the Surrender Face Amount is equal to the Face Amount at the
time of surrender. However, if the Face Amount has increased, then the surrender
charge is calculated separately on (a) the initial Face Amount and (b) on the
amount of Face Amount above the initial Face Amount. In the case of (a), the
Surrender Face Amount is equal to the initial Face Amount and in the case of (b)
the Surrender Face Amount is equal to the Face Amount above the initial Face
Amount.
The Factor is set forth in the following chart:
Issue Age Factor
--------- ------
38 or younger 3.75
39 4.25
40 4.75
41 5.25
42 5.75
43 6.25
44 6.75
45 7.25
46 7.75
47 8.25
48 or older 8.50
The Surrender Charge Premium is the lesser of:
(a) the premiums paid during the first policy year,
(b) the premium amount used to measure the maximum Surrender Charge
under the Policy, as specified in the Policy, divided by 1000,
(c) the Net Level Premium specified in the Policy; and
(d) $60 per $1000 of Face Amount.
Grading Percentage
The grading percentage is based on the issue age of the youngest insured and the
Policy Year in which the transaction causing the assessment of the charge occurs
as set forth in the table below:
SURRENDER CHARGE GRADING PERCENTAGE
<TABLE>
<CAPTION>
ISSUE AGES OF YOUNGER INSURED 0-75 76 77 78 79 80+
- ------------------------------------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
AT ISSUE 100% 100% 100% 100% 100% 100%
POLICY YEAR 1 93% 92% 92% 91% 90% 90%
POLICY YEAR 2 86% 85% 84% 83% 81% 80%
POLICY YEAR 3 80% 78% 76% 75% 72% 70%
POLICY YEAR 4 73% 71% 69% 66% 63% 60%
POLICY YEAR 5 66% 64% 61% 58% 54% 50%
POLICY YEAR 6 60% 57% 53% 50% 45% 40%
POLICY YEAR 7 53% 50% 46% 41% 36% 30%
POLICY YEAR 8 46% 42% 38% 33% 27% 20%
POLICY YEAR 9 40% 35% 30% 25% 18% 10%
POLICY YEAR 10 33% 28% 23% 16% 9% 0%
POLICY YEAR 11 26% 21% 15% 8% 0%
POLICY YEAR 12 20% 14% 7% 0%
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C> <C> <C> <C>
POLICY YEAR 13 13% 7% 0%
POLICY YEAR 14 6% 0%
POLICY YEAR 15 0%
</TABLE>
Surrender Charges on a Partial Withdrawal
A partial withdrawal will result in the assessment of a portion of the
Surrender Charges to which the Policy is subject. The portion of the
Surrender Charges assessed will be based on the ratio of the amount of
the withdrawal which exceeds the Withdrawal Tier Amount to the Net Cash
Surrender Value of the Policy immediately prior to the withdrawal. The
Surrender Charges will be deducted from the Policy Value at the time of
the partial withdrawal on a pro-rata basis from each of the Investment
Accounts and the Fixed Account. If the amount in the accounts is not
sufficient to pay the Surrender Charges assessed, then the amount of
the withdrawal will be reduced.
Whenever a portion of the surrender charges are deducted as a result of
a partial withdrawal, the Policy's remaining surrender charges will be
reduced in the same proportion that the surrender charge deducted bears
to the total surrender charge immediately before the partial
withdrawal.
Withdrawal Tier Amount
The Withdrawal Tier Amount is equal to 10% of the Net Cash Surrender
Value as at the last Policy Anniversary. In determining what, if any,
portion of a partial withdrawal is in excess of the Withdrawal Tier
Amount, all previous partial withdrawals that have occurred in the
current Policy Year are included.
VII. LAPSE AND REINSTATEMENT
A. Lapse
Unless the No-Lapse Guarantee is in effect, a Policy will go into
default if at the beginning of any Policy Month the Policy's Net Cash
Surrender Value would go below zero after deducting the monthly
deduction then due. The Company 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 on
the date of default, plus the monthly deductions due at the date of
default and payable at the beginning of each of the two Policy Months
thereafter, plus any applicable premium load. If the required payment
is not received by the end of the grace period, the Policy will
terminate with no value.
Death During Grace Period
If the life insured should die during the grace period, 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 will be
reduced by any outstanding monthly deductions due at the time of death.
12
<PAGE> 13
No-Lapse Guarantee
In those states where it is permitted, as long as the No-Lapse
Guarantee Cumulative Premium Test is satisfied during the No-Lapse
Guarantee Period, as described below, the Company will guarantee that
the Policy will not go into default, even if 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 fixed at ten years.
While the No-Lapse Guarantee is in effect, the Company will determine
at the beginning of the Policy Month that the Policy would otherwise be
in default, whether the No-Lapse Guarantee Cumulative Premium Test,
described in the Policy, 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 policy from going into default. This required
payment is described in the notification to the policyowner.
If the required payment is not received by the end of the grace period,
the No-Lapse Guarantee and the Policy will terminate.
B. 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 subject to the following conditions:
(a) All Lives Insured's risk classifications 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) Evidence of all Lives Insured's insurability, or on the survivor(s)
who were insured at the end of the grace period, satisfactory to the
Company is provided to the Company;
(b) A premium equal to the amount that was required to bring the Policy
out of default immediately prior to termination, plus the next two
monthly deductions;
(c) The Policy cannot be reinstated if any of the Lives Insured die
after the Policy has terminated.
If the reinstatement is approved, the date of reinstatement will be the
later of the date the Company approves the policyowner's request or the
date the required
13
<PAGE> 14
payment is received at the Company's Service Office. In addition, any
surrender charges will be reinstated to the amount they were at the
date of default. The Policy Value on the date of reinstatement, prior
to the crediting of any Net Premium paid on the reinstatement, will be
equal to the Policy Value on the date the Policy terminated.
VIII. POLICY LOANS
At any time while this Policy is in force, a policyowner may borrow
against the Policy Value of the Policy. The Policy serves as the only
security for the loan.
A. Available Loan Value
The amount of any loan cannot exceed 90% of the Net Cash Surrender
Value.
B. 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 an
effective annual rate of 5.25%. If the interest due on a Policy
Anniversary is not paid by the policyowner, the interest will be
borrowed against the Policy.
C. Loan Account
When a loan is made, an amount equal to the loan, discounted by 4%,
will be deducted from the Investment Accounts or the Fixed Account and
transferred to the Loan Account. 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 Fixed Account bears to the Net Policy Value. A transfer from an
Investment Account will result in the cancellation of units of the
underlying sub-account equal in value to the amount transferred from
the Investment Account. However, since the Loan Account is part of the
Policy Value, transfers made in connection with a loan will not change
the Policy Value.
D. Interest Credited to the Loan Account
Interest will be credited to amounts in the Loan Account at an
effective annual rate of at least 4.00%. The actual rate credited is
equal to the rate of interest charged on the policy loan less the Loan
Spread which is currently 1.25% and is guaranteed not to exceed 1.25%.
E. Loan Repayments
Policy Debt may be repaid in whole or in part at any time prior to the
death of the last-to-die of the lives insured, provided that the Policy
is in force. When a repayment is made, the amount is credited to the
Loan Account and transferred to the Fixed Account or the Investment
Accounts. Loan repayments will be allocated first to the Fixed Account
until the associated Loan Sub-Account is reduced to zero and then to
each Investment Account in the same proportion as
14
<PAGE> 15
the value of 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.
15
