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PROSPECTUS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
SEPARATE ACCOUNT THREE
VENTURE VUL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
This prospectus describes the flexible premium variable life insurance policy
(the "Policy") issued by The Manufacturers Life Insurance Company of America
("Manufacturers Life of America" or the "Company"). The Policies are designed to
provide lifetime insurance protection together with flexibility as to
- the timing and amount of premium payments,
- the investments underlying the Policy Value and
- the amount of insurance coverage.
This flexibility allows you, the policyowner, to pay premiums and adjust
insurance coverage in light of your current financial circumstances and
insurance needs.
Policy Value may be accumulated on a fixed basis or vary with the investment
performance of the sub-accounts of Manufacturers Life of America's Separate
Account Three (the "Separate Account").
We use the assets of each sub-account to purchase shares of a particular
investment portfolio ("Portfolio") of Manufacturers Investment Trust. The
accompanying prospectus for Manufacturers Investment Trust and the corresponding
statement of additional information describe the investment objectives of the
Portfolios in which you may invest net premiums. The Portfolios available to you
are set forth under the subheading "Eligible Portfolios." Other sub-accounts and
Portfolios may be added in the future.
You should ask a Manulife Financial representative if changing, or adding to,
existing insurance coverage would be advantageous. You should note that it may
not be advisable to purchase a Policy as a replacement for existing insurance.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT IS
VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS FOR MANUFACTURERS INVESTMENT
TRUST.
The Securities and Exchange Commission maintains a Web site (http://www.sec.gov)
that contains material incorporated by reference and other information regarding
registrants that file electronically with the Commission.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Manufacturers Life Insurance Service Office:
Company of America 200 Bloor Street East
500 N. Woodward Avenue Toronto, Ontario, Canada M4W 1E5
Bloomfield Hills, Michigan 48304 TELEPHONE: 1-800-827-4546
(1-800-VARILIN[E])
THE DATE OF THIS PROSPECTUS IS MAY 1, 1999.
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PROSPECTUS CONTENTS
PAGE
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INTRODUCTION TO POLICIES .....................................................1
GENERAL INFORMATION ABOUT MANUFACTURERS
LIFE OF AMERICA SEPARATE ACCOUNT THREE
AND MANUFACTURERS INVESTMENT TRUST..........................................7
Manufacturers Life of America And Manufacturers Life.....................7
Manufacturers Life of America's Separate Account Three...................7
Manufacturers Investment Trust...........................................8
DETAILED INFORMATION ABOUT THE POLICIES......................................11
PREMIUM PROVISIONS...........................................................11
Policy Issue And Initial Premium........................................11
Premium Allocation......................................................12
Premium Limitations.....................................................12
Short-Term Cancellation Right And "Free Look" Provisions................12
PROVISIONS FOR AVOIDING LAPSE................................................13
No Lapse Guarantee......................................................13
Death Benefit Guarantee.................................................14
INSURANCE BENEFIT............................................................15
The Insurance Benefit...................................................15
Death Benefit Options...................................................15
Death Benefit Option Changes............................................16
Face Amount Changes.....................................................17
POLICY VALUES................................................................18
Policy Value............................................................18
Transfers Of Policy Value...............................................18
Policy Loans............................................................19
Partial Withdrawals And Surrenders......................................22
Charges and Deductions..................................................22
Deductions From Premiums................................................23
Surrender Charges.......................................................23
Monthly Deductions......................................................30
Administration Charge...................................................30
Cost Of Insurance Charge................................................30
Mortality And Expense Risks Charge......................................31
Other Charges...........................................................31
Special Provisions For Group Or Sponsored Arrangements..................33
Special Provisions For Exchanges........................................34
The General Account.....................................................34
OTHER GENERAL POLICY PROVISIONS..............................................34
Policy Default..........................................................34
Policy Reinstatement....................................................34
Miscellaneous Policy Provisions.........................................35
OTHER PROVISIONS.............................................................36
Supplementary Benefits..................................................36
Payment Of Proceeds.....................................................36
Reports To Policyowners.................................................36
MISCELLANEOUS MATTERS........................................................36
Portfolio Share Substitution............................................36
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Federal Income Tax Considerations.......................................37
Tax Status Of The Policy................................................37
Tax Treatment Of Policy Benefits.............................................38
The Company's Taxes.....................................................40
Distribution Of The Policy..............................................40
Responsibilities Assumed By Manufacturers Life..........................41
Voting Rights...........................................................41
Directors And Officers Of Manufacturers Life of America.................42
Year 2000 Issues........................................................44
State Regulations.......................................................45
Pending Litigation......................................................45
Additional Information..................................................45
Independent Auditors....................................................45
Financial Statements........................................................F-1
Appendices..................................................................A-1
A. Sample Illustrations Of Policy Values, Cash Surrender
Values And Death Benefits..............................................A-1
B. Definitions............................................................B-1
C. Deferred Sales Charge Tables...........................................C-1
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION WHERE THE
OFFERING WOULD NOT BE LAWFUL. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED
IN THIS PROSPECTUS OR IN THE PROSPECTUS OR STATEMENT OF ADDITIONAL INFORMATION
OF MANUFACTURERS INVESTMENT TRUST. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH INFORMATION THAT IS DIFFERENT.
You are urged to examine this prospectus carefully. The INTRODUCTION TO POLICIES
will briefly describe the Flexible Premium Variable Life Insurance Policy. More
detailed information will be found within.
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INTRODUCTION TO POLICIES
The following summary is intended to provide a general description of the most
important features of the Policy. It is not a complete description. You should
read all of this prospectus in order to fully understand the provisions of the
Policy.
GENERAL
The Policy provides a death benefit in the event of the death of the life
insured to the person you name as the beneficiary.
You may pay premiums at any time and in any amount, subject to certain
limitations.
You may instruct us as to how your premiums, net of certain deductions, will be
allocated. You may choose among the general account and the sub-accounts of
Manufacturers Life of America's Separate Account Three. The premiums you
allocate to the sub-accounts of Separate Account Three are invested in shares of
a particular Portfolio of Manufacturers Investment Trust. You may change your
instructions as to how premiums should be allocated at any time. You may also
transfer amounts among the sub-accounts subject to certain restrictions (see
"Transfers of Policy Value").
The Portfolios currently available to you are set forth beginning on the inside
front cover of this prospectus. In the future we may make available other
sub-accounts and Portfolios.
The Policy has a Policy Value reflecting premiums you have paid, the investment
performance of the accounts to which you have allocated premiums, and certain
charges for expenses and cost of insurance. You may obtain a portion of the
Policy Value by taking a policy loan or a partial withdrawal, or by full
surrender of the Policy.
DEATH BENEFIT
DEATH BENEFIT OPTIONS. You choose one of two death benefit options:
- a death benefit equal to the face amount of the Policy, or
- a death benefit equal to the face amount of the Policy plus the Policy
Value.
Under either option, the death benefit may have to be increased to satisfy the
so-called "corridor percentage test" under the definition of life insurance in
the Internal Revenue Code. See DETAILED INFORMATION ABOUT THE POLICIES:
INSURANCE BENEFIT -- "The Insurance Benefit" and "Death Benefit Options."
YOU MAY CHANGE THE DEATH BENEFIT OPTION. You may change the death benefit option
after the Policy has been in force for two years. See Detailed Information About
The Policies; Insurance Benefit -- "Death Benefit Option Changes."
YOU MAY INCREASE THE FACE AMOUNT. After the Policy has been in force for two
years, you may increase the face amount of the Policy once per policy year. You
may have to furnish satisfactory evidence of your insurability. Usually a Policy
will have new surrender charges after an increase. See DETAILED INFORMATION
ABOUT THE POLICIES; INSURANCE BENEFIT -- "Face Amount Changes."
YOU MAY DECREASE THE FACE AMOUNT. After the Policy has been in force for two
years, you may decrease the face amount once per policy year, except during the
two-year period following any increase in face amount. A decrease in face amount
may result in the deduction of surrender charges. At any time during the
two-year period following an increase, you may choose to cancel the increase.
See DETAILED INFORMATION ABOUT THE POLICIES; INSURANCE BENEFIT -- "Face Amount
Changes."
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PREMIUM PAYMENTS ARE FLEXIBLE
You may pay premiums at any time and in any amount, subject to certain
limitations. See DETAILED INFORMATION ABOUT THE POLICIES; PREMIUM PROVISIONS --
"Policy Issue" and "Premium Limitations."
You must pay at least the Initial Premium to put the Policy in force. See
DETAILED INFORMATION ABOUT THE POLICIES; PREMIUM PROVISIONS -- "Policy
Limitations" and "Death Benefit Guarantee."
After the Initial Premium is paid there is no minimum premium required. However,
by complying with certain tests reflecting the amount of premiums paid, you can
ensure that the Policy will not go into default for the first three policy
years. For Policies with a face amount of at least $250,000, the protection
against default extends beyond the three year period. See DETAILED INFORMATION
ABOUT THE POLICIES; PREMIUM PROVISIONS -- "Death Benefit Guarantee."
The Policy is subject to maximum premium limitations to ensure that it qualifies
as life insurance under rules defined in the Internal Revenue Code. See DETAILED
INFORMATION ABOUT THE POLICIES; PREMIUM PROVISIONS -- "Premium Limitations."
THE POLICY VALUE
The Policy has a Policy Value which reflects the following:
- the premium payments you have made;
- the investment performance of the sub-accounts to which you have
allocated net premiums;
- the interest we have credited to amounts allocated to our general
account;
- any partial withdrawals you have made;
- and charges we have deducted under the Policy.
The Policy Value is the sum of the values in the Investment Accounts, the Fixed
Account and the Loan Account.
INVESTMENT ACCOUNT. We establish an Investment Account under the Policy for each
sub-account of the Separate Account to which you have allocated net premiums or
have transferred amounts. An Investment Account measures the interest of the
Policy in the corresponding sub-account.
The value of each Investment Account under the Policy varies each Business Day
and reflects the investment performance of the Portfolio shares held in the
corresponding sub-account. See DETAILED INFORMATION ABOUT THE POLICIES; Policy
Values -- "Policy Value."
FIXED ACCOUNT. The Fixed Account consists of that portion of the Policy Value
based on net premiums allocated to, and amounts transferred to, the general
account of the Company. We credit interest on amounts in the Fixed Account at an
effective annual rate guaranteed to be at least 4%. See DETAILED INFORMATION
ABOUT THE POLICIES and The General Account.
LOAN ACCOUNT. When you make a policy loan, we will establish a Loan Account
under the Policy. We will transfer an amount from the Investment Accounts and
the Fixed Account to the Loan Account.
We will credit interest to amounts in the Loan Account at an effective annual
rate of at least 4%. The actual rate credited on loan amounts will be the rate
charged on loan amounts less an interest rate differential, currently 1.75%. For
Select Loan
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Amounts the interest rate differential is currently 0%. This is subject to
change in certain circumstances. See DETAILED INFORMATION ABOUT THE POLICIES;
Policy Values -- "Policy Loans."
TRANSFERS ARE PERMITTED. You may transfer amounts among the sub-accounts of
Separate Account Three and our general account, subject to certain restrictions.
We permit twelve transfers per policy year at no cost to you. Transfers in
excess of that will cost $25 per transfer. If you request more than one transfer
at the same time, we will treat your requests as a single request.
Certain restrictions may apply to transfer requests. See DETAILED INFORMATION
ABOUT THE POLICIES; Policy Values -- "Policy Value."
USING THE POLICY VALUE
BORROWING AGAINST THE POLICY VALUE. You may borrow against the Policy Value. The
minimum loan amount is $500.
Loan interest will be charged on a fixed basis at an effective annual rate of
5.75%. See DETAILED INFORMATION ABOUT THE POLICIES; Policy Values -- "Policy
Loans."
YOU MAY MAKE A PARTIAL WITHDRAWAL OF THE POLICY VALUE. After a Policy has been
in force for two years, you may make a partial withdrawal of the Policy Value.
The minimum amount you may withdraw is $500. You may specify that the withdrawal
is to be made from a specific Investment Account or the Fixed Account.
A partial withdrawal may result in a reduction in the face amount of the Policy.
It may also result in the assessment of a portion of the surrender charges to
which the Policy is subject. See DETAILED INFORMATION ABOUT THE POLICIES; Policy
Values -- "Partial Withdrawals and Surrenders" and Charges and Deductions --
"Surrender Charges."
THE POLICY MAY BE SURRENDERED FOR ITS NET CASH SURRENDER VALUE. The Net Cash
Surrender Value is equal to the Policy Value less surrender charges, outstanding
monthly deductions due and the value of the Loan Account. Surrender of a Policy
during the Surrender Charge Period will usually result in assessment of
surrender charges. See Detailed Information About the Policies; Policy Values --
"Partial Withdrawals and Surrenders" and Charges and Deductions -- "Surrender
Charges."
CHARGES AND DEDUCTIONS
1) DEDUCTIONS FROM PREMIUMS.
- we reserve the right to make a charge for state, local and federal
taxes in an amount not to exceed 3.60% (in Oregon no state premium tax
is deducted).
2) SURRENDER CHARGES. We usually deduct a deferred underwriting charge and a
deferred sales charge if, during the Surrender Charge Period:
- you surrender the Policy for its Net Cash Surrender Value,
- you make a partial withdrawal in excess of the Withdrawal Tier Amount,
- you decrease the face amount of the Policy, or
- the Policy lapses.
The deferred underwriting charge is $6 for each $1,000 of face amount of life
insurance coverage initially or added by increase.
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In effect, the charge applies only to the first $500,000 of face amount
initially purchased or the first $500,000 of each subsequent increase in face
amount. Thus, the charge made in connection with any one underwriting will not
exceed $3,000.
The full amount of the deferred underwriting charge will be in effect for five
years following Policy issue. Beginning in the sixth year these charges grade
downward over a maximum ten-year period. See DETAILED INFORMATION ABOUT THE
POLICIES; Charges And Deductions -- "Surrender Charges."
The maximum deferred sales charge is 50% of premiums paid up to a maximum number
of Target Premiums that varies (from -0.180 to 3.031) according to the issue age
of the life insured, the face amount at issue and the amount of any increase.
Subject to compliance with the sales charge limitation provisions described
below, the maximum deferred sales charge will be in effect for at least the
first two years of the Surrender Charge Period. After that, the portion of the
deferred sales charge that remains in effect will grade down at a rate that also
varies according to the issue age of the life insured, until at the end of the
Surrender Charge Period there is no deferred sales charge. See DETAILED
INFORMATION ABOUT THE POLICIES -- "Charges And Deductions" -- Surrender Charges.
Because of the sales charge limitation described below, the deferred sales
charge assessable under the Policy may increase at the beginning of the third
policy year.
If you increase the face amount, the surrender charges applicable to the
increase will be those rates that would apply if a Policy were issued to the
life insured at his or her then attained age and based on the amount of the
increase.
LIMITATIONS OF SALES CHARGES. If the Policy is surrendered at any time during
the first two years following issuance or following an increase in face amount
or if you cancel the increase during the two-year period following the increase,
then we may forego deducting the maximum deferred sales charge applicable to the
Policy or the increase. See DETAILED INFORMATION ABOUT THE POLICIES; Charges and
Deductions -- "Surrender Charges." If you surrender the Policy after that
two-year period, the full amount of the applicable sales charge will apply.
3) MONTHLY DEDUCTIONS. At the beginning of each policy month we deduct from the
Policy Value:
- an administration charge of $35 per month until the first policy
anniversary; thereafter $10 per month (the right is reserved to
increase the administration charge by an additional amount of up to
$.01 per $1,000 of face amount per
- a charge for the cost of insurance,
- a charge for mortality and expense risks of .90% per annum through the
later of the tenth policy anniversary and your attained age 60 and,
thereafter,.45% per annum (This charge is assessed against the value
of your investment accounts.), and
- charge(s) for any supplementary benefit(s) added to the Policy.
At the Company's discretion, the policy owner may request that the sum of all
charges assessed monthly be deducted from the Fixed Account or one of the
sub-accounts of the Separate Account.
The cost of insurance charge varies based on the net amount at risk under the
Policy and the applicable cost of insurance rate. Cost of insurance rates vary
according to issue age, the duration of the coverage, sex (unless unisex rates
are required by law), any additional risk ratings indicated in the policy, and
risk class of the life insured. The maximum cost of insurance rate we charge
will not exceed the 1980 Commissioners Standard Ordinary Smoker/Nonsmoker
Mortality Tables. However, any additional ratings as indicated in the Policy
will be added to the cost of insurance rate. See DETAILED INFORMATION ABOUT THE
POLICIES; Charges and Deductions --"Monthly Deductions."
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If the Policy is still in force when the life insured attains age 100, we will
not take any further monthly deductions from the Policy Value.
4) OTHER CHARGES. Charges will be imposed on certain transfers of Policy Values,
including a $25 charge for each transfer in excess of twelve per policy year and
a $5 charge for each Dollar Cost Averaging transfer if Policy Value does not
exceed $15,000. See Policy Values -- "Transfers Of Policy Value."
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 Trust (excluding the Lifestyle Trusts) pays investment management
fees that range from 0.25% to 1.10% of the assets of the Portfolios. In
addition, the Portfolios' other expenses range from between 0.04% and 0.36% of
the assets of the Portfolios (excluding the Lifestyle Trusts). Because each
Lifestyle Trust invests in shares of other Portfolios, each bears its pro rata
shares of the fees and expenses incurred by the other Portfolios.
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.
We reserve the right to charge or establish a provision for any federal, state
or local taxes that may be attributable to the Separate Account or our
operations with respect to the Policies. This charge or provision for taxes
would be in addition to the deductions for state, local and federal taxes
currently being made.
SUPPLEMENTARY BENEFITS
You may choose to add certain supplementary benefits to the Policy. These
supplementary benefits include
- an accidental death benefit,
- life insurance for additional insured persons,
- acceleration of benefits in the event of terminal illness,
- a disability benefit to waive the cost of monthly deductions, and
- an option to ensure a guaranteed Policy Value.
The cost of any supplementary benefits will be deducted from the Policy Value
monthly. See DETAILED INFORMATION ABOUT THE POLICIES; Other Provisions --
"Supplementary Benefits."
DEFAULT
Unless the Death Benefit Guarantee is in effect, the Policy will go into default
if the Net Cash Surrender Value at the beginning of any policy month would go
below zero after deducting the monthly charges then due. The Policy will not go
into default if the policy qualifies for the Death Benefit Guarantee. We will
send a notice to you if the Policy goes into default. It will allow a grace
period in which you may make a premium payment sufficient to bring the Policy
out of default. If you do not pay the required premium during the grace period,
the Policy will terminate. See DETAILED INFORMATION ABOUT THE POLICIES; Premium
Provisions -- "Policy Default."
DEATH BENEFIT GUARANTEE
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A death benefit guarantee is available under Policies issued and maintained with
a minimum face amount of $250,000. As long as the Cumulative Premium Test or,
where applicable, the Fund Value Test is satisfied, we guarantee that the Policy
will not go into default
- prior to the life insured's attaining age 100 if Death Benefit Option
1 is maintained throughout the life of the Policy and
- prior to the life insured's attaining age 85 if Death Benefit Option 2
is selected at any time, regardless of the investment performance of
the Funds underlying the Policy Value.
Under Policies with face amounts of less than $250,000 there is no Death Benefit
Guarantee after the third policy anniversary. The Death Benefit Guarantee is not
available under Policies issued in the state of New Jersey. See DETAILED
INFORMATION ABOUT THE POLICIES; Premium Provisions -- "Death Benefit Guarantee."
REINSTATEMENT
If your Policy is terminated, you may have it reinstated within either the
21-day or five-year period following the date of termination, providing certain
conditions are met. See DETAILED INFORMATION ABOUT THE POLICIES; Premium
Provisions -- "Policy Reinstatement."
FREE LOOK
You may return a Policy for a refund of premium within the later of:
- 10 days after you receive the Policy,
- 45 days after you sign the application for the Policy, or
- 10 days after we mail or deliver a notice of this right of withdrawal.
If you request an increase in face amount which results in new surrender
charges, the "free look" provision will also apply to the increase. See DETAILED
INFORMATION ABOUT THE POLICIES; PREMIUM PROVISIONS -- "Short-Term Cancellation
Right and 'Free Look' Provisions."
FEDERAL TAX MATTERS
We believe that a Policy issued on a standard risk class basis should meet the
definition of a life insurance contract as set forth in Section 7702 of the
Internal Revenue Code of 1986. With respect to a Policy issued on a substandard
basis, there is less guidance available to determine if such a Policy would
satisfy the Section 7702 definition of a life insurance contract, particularly
if the policyowner pays the full amount of premiums permitted under such a
Policy. If your Policy qualifies as a life insurance contract for Federal income
tax purposes, you should not be deemed to be in constructive receipt of Policy
Value under a Policy until there is a distribution from the Policy. Moreover,
death benefits payable under a Policy should be completely excludable from the
gross income of the beneficiary. As a result, the beneficiary generally should
not be taxed on these proceeds. See MISCELLANEOUS MATTERS -- FEDERAL INCOME TAX
CONSIDERATIONS -- (TAX STATUS OF THE POLICY).
Under certain circumstances, a Policy may be treated as a "Modified Endowment
Contract." If the Policy is a Modified Endowment Contract, then all pre-death
distributions, including Policy loans, will be treated first as a distribution
of taxable income and then as a return of investment in the Policy. In addition,
prior to age 59 1/2 any such distributions generally will be subject to a 10%
penalty tax. See MISCELLANEOUS MATTERS -- FEDERAL INCOME TAX CONSIDERATIONS --
(TAX TREATMENT OF POLICY BENEFITS).
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If the Policy is not a Modified Endowment Contract, distributions generally will
be treated first as a return of investment in the Policy and then a disbursement
of taxable income. Moreover, loans will not be treated as distributions. Select
Loans may, however, be treated as taxable distributions. If you are considering
the use of systematic policy loans as one element of a comprehensive retirement
income plan, you should consult your personal tax adviser regarding the
potential tax consequences if such loans were to so reduce Policy Value that the
Policy would lapse, absent additional payments. The premium payment necessary to
avert lapse would increase with the age of the insured. Finally, neither
distributions nor loans under a Policy that is not a Modified Endowment Contract
are subject to the 10% penalty tax. See MISCELLANEOUS MATTERS -- FEDERAL INCOME
TAX CONSIDERATIONS -- (DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED
ENDOWMENT CONTRACTS).
The United States Congress has in the past considered, and in the future may
consider legislation that, if enacted, could change the tax treatment of life
insurance policies. In addition, the Treasury Department may amend existing
regulations, or adopt new interpretations of existing laws, state tax laws or,
if the policyowner is not a United States resident, foreign tax laws, which may
affect the tax consequences to him or her, the lives insured or the beneficiary.
These laws may change from time to time without notice and, as a result, the tax
consequences may be altered. There is no way of predicting whether, when or in
what form any such change would be adopted. Any such change could have a
retroactive effect regardless of the date of enactment. We suggest that you
consult a tax adviser.
ESTATE AND GENERATION-SKIPPING TAX
The proceeds of this life insurance policy may be taxable under Estate and
Generation-Skipping Tax provisions of the Internal Revenue Code. You should
consult your tax adviser regarding these taxes.
GENERAL INFORMATION ABOUT MANUFACTURERS LIFE OF AMERICA, SEPARATE ACCOUNT THREE,
AND MANUFACTURERS INVESTMENT TRUST
MANUFACTURERS LIFE OF AMERICA AND MANUFACTURERS LIFE
We are a stock life insurance company governed by the laws of Michigan. We are
licensed to do business as a life insurance company in the District of Columbia
and all states of the United States except New York. We are an indirect
wholly-owned subsidiary of The Manufacturers Life Insurance Company
("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.
We and Manufacturers Life have received the following ratings from independent
rating agencies: Standard and Poor's Insurance Rating Service -- AA+ (for
financial strength), A.M. Best Company -- A++ (for financial strength), Duff &
Phelps Credit Rating Co. -- AAA (for claims paying ability), and Moody's
Investors Service, Inc. - Aa2 (for financial strength). Neither we nor
Manufacturers Life guarantees the investment performance of the Separate
Account.
MANUFACTURER'S LIFE OF AMERICA SEPARATE ACCOUNT THREE
We established Separate Account Three on August 22, 1986. The Separate Account
holds assets that are segregated from all of our other assets. The Separate
Account is currently used only to support variable life insurance policies.
We are 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 our other income, gains or losses.
We 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 we
conduct. However, our obligations under the policies are part of our general
corporate obligations.
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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
We invest the assets of each sub-account of the Separate Account in shares of a
particular Portfolio of Manufacturers Investment Trust. The Trust is registered
under the 1940 Act as an open-end management investment company. It receives
investment advisory services from Manufacturers Securities Services, LLC.
Manufacturers Securities Services, LLC is a registered investment adviser under
the Investment Advisers Act of 1940. It too is an indirect wholly-owned
subsidiary of Manufacturers Life.
Manufacturers Investment Trust employs sub-advisers to perform the securities
selection process. The sub-adviser for each Portfolio is identified in the
description of the eligible Portfolios set forth commencing on the inside front
cover of this prospectus.
The Separate Account purchases and redeems shares of Manufacturers Investment
Trust at net asset value. Any dividend or capital gain distribution received
from a Portfolio will be reinvested immediately at net asset value in shares of
that Portfolio and retained as assets of the corresponding sub-account.
The list of Portfolios in which you may invest under the Policy and the
investment objectives and certain policies of those Portfolios is set forth
below. A full description of Manufacturers Investment Trust, its investment
objectives, policies and restrictions, the risks associated therewith, its
expenses, and other aspects of its operation is contained in the accompanying
Manufacturers Investment Trust prospectus, which should be read together with
this prospectus.
We use shares of Manufacturers Investment Trust to support benefits under both
variable annuity contracts and variable life insurance policies that we or life
insurance companies affiliated with us issue. We also purchase shares through
our general account for certain limited purposes including providing initial
portfolio seed money. For a description of the procedures for handling potential
conflicts of interest arising from the funding of benefits under both types of
policies, you should review the accompanying Manufacturers Investment Trust
prospectus.
ELIGIBLE PORTFOLIOS
The Portfolios of Manufacturers Investment Trust available under the Policies
are as follows:
The PACIFIC RIM EMERGING MARKETS TRUST seeks long-term growth of capital by
investing in a diversified portfolio that is comprised primarily of common
stocks and equity-related securities of corporations domiciled in countries in
the Pacific Rim region.
The SCIENCE & TECHNOLOGY TRUST seeks long-term growth of capital. Current income
is incidental to the portfolio's objective.
The INTERNATIONAL SMALL CAP TRUST seeks capital appreciation by investing
primarily in securities issued by foreign companies which have total market
capitalization or annual revenues of $1 billion or less. These securities may
represent companies in both established and emerging economies throughout the
world.
The AGGRESSIVE GROWTH TRUST (formerly, the Pilgrim Baxter Growth Trust) seeks
long-term capital appreciation by investing the portfolio's asset principally in
common stocks, convertible bonds, convertible preferred stocks and warrants of
companies which in the opinion of the subadviser are expected to achieve
earnings growth over time at a rate in excess of 15% per year. Many of these
companies are in the small and medium-sized category.
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<PAGE> 12
The EMERGING SMALL COMPANY TRUST (formerly, the Emerging Growth Trust) seeks
long-term growth of capital by investing, under normal market conditions, at
least 65% of the portfolio's total assets in common stock equity securities of
small capitalization ("small cap") growth companies. In general, companies in
which the portfolios invests will have market cap values of less than $1.5
billion at the time of purchase.
The SMALL COMPANY BLEND TRUST seeks long-term growth of capital and income by
investing the portfolio's assets, under normal market conditions, primarily in
equity and equity-related securities of companies with market capitalization
between $50 million and $1 billion.
The MID CAP GROWTH TRUST (formerly, the Small/Mid Cap Trust) seeks long-term
capital appreciation by investing the portfolio's assets principally in common
stocks, with emphasis on medium-sized and smaller emerging growth companies.
The MID CAP STOCK TRUST seeks long-term growth of capital by investing primarily
in equity securities of companies with market capitalizations that approximately
match the range of capitalization of the Wilshire Mid Cap 750 Index.
The OVERSEAS TRUST (formerly, the International Growth & Income Trust) seeks
growth of capital by investing, under normal market conditions, at least 65% of
the portfolios' assets in foreign securities (including American Depositary
Receipts (ADRs) and European Depositary Receipts (EDRs). The portfolios expects
to invest primarily in equity securities.
The INTERNATIONAL STOCK TRUST seeks long-term growth of capital by investing
primarily in common stocks of established, non-U.S. companies.
The INTERNATIONAL VALUE TRUST seeks long-term growth of capital by investing,
under normal market conditions, primarily in equity securities of companies
located outside the U.S., including in emerging markets.
The MID CAP BLEND TRUST (formerly, the Equity Trust) seeks growth of capital by
investing primarily in common stocks of United States issuers and securities
convertible into or carrying the right to buy common stocks.
The SMALL COMPANY VALUE TRUST seeks long term growth of capital by investing in
equity securities of smaller companies which are traded principally in the
markets of the United States.
The GLOBAL EQUITY TRUST seeks long-term capital appreciation by investing
primarily in equity securities throughout the world, including U.S. issuers and
emerging markets.
The GROWTH TRUST seeks long-term growth of capital by investing primarily in
large capitalization growth securities (market capitalizations of approximately
$1 billion or greater).
The LARGE CAP GROWTH TRUST (formerly, the Aggressive Asset Allocation Trust)
seeks long-term growth of capital by investing, under normal market conditions,
at least 65% of the portfolio's assets in equity securities of companies with
large market capitalizations.
The QUANTITATIVE EQUITY TRUST seeks 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.
The BLUE CHIP GROWTH TRUST seeks to achieve long-term growth of capital (current
income is a secondary objective) and many of the stocks in the portfolio are
expected to pay dividends.
The REAL ESTATE SECURITIES TRUST seeks to achieve a combination of long-term
capital appreciation and satisfactory current income by investing in real estate
related equity and debt securities.
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<PAGE> 13
The VALUE TRUST seeks to realize an above-average total return over a market
cycle of three to five years, consistent with reasonable risk, 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.
The EQUITY INDEX TRUST seeks to achieve investment results which approximate the
aggregate total return of publicly traded common stocks which are included in
the Standard & Poor's 500 Composite Stock Price.
The GROWTH & INCOME TRUST seeks long-term growth of capital and income,
consistent with prudent investment risk, by investing primarily in a diversified
portfolio of common stocks of United States issuers which the subadviser
believes are of high quality.
The U.S. LARGE CAP TRUST seeks long-term growth of capital and income by
investing the portfolio's assets, under normal market conditions, primarily in
equity and equity-related securities of companies with market capitalization
greater than $500 million.
The EQUITY-INCOME TRUST seeks to provide substantial dividend income and also
long-term capital appreciation by investing primarily in dividend-paying common
stocks, particularly of established companies with favorable prospects for both
increasing dividends and capital appreciation.
The INCOME & VALUE TRUST (formerly, the Moderate Asset Allocation Trust) seeks
the balanced accomplishment of (a) conservation of principal and (b) long-term
growth of capital and income by investing the portfolio's assets in both equity
and fixed-income securities. The subadviser has full discretion to determine the
allocation between equity and fixed-income securities.
The BALANCED TRUST seeks current income and capital appreciation by investing in
a balanced portfolio of common stocks, U.S. and foreign government obligations
and a variety of corporate fixed-income securities.
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, by
investing primarily in high yield debt securities, including corporate bonds and
other fixed-income securities.
The STRATEGIC BOND TRUST seeks a high level of total return consistent with
preservation of capital by giving its subadviser broad discretion to deploy the
portfolio's assets among certain segments of the fixed-income market as the
subadviser believes will best contribute to achievement of the portfolio's
investment objective.
The GLOBAL BOND TRUST (formerly, the Global Government Bond Trust) seeks to
realize maximum total return, consistent with preservation of capital and
prudent investment management by investing the portfolio's asset primarily in
fixed income securities denominated in major foreign currencies, baskets of
foreign currencies (such as the ECU), and the U.S. dollar.
The TOTAL RETURN TRUST seeks to realize maximum total return, consistent with
preservation of capital and prudent investment management by investing, under
normal market conditions, at least 65% of the portfolio's assets in a
diversified portfolio of fixed income securities of varying maturities. The
average portfolio duration will normally vary within a three- to six- year time
frame based on PIMCO's forecast for interest rates.
The INVESTMENT QUALITY BOND TRUST seeks a high level of current income
consistent with the maintenance of principal and liquidity, by investing
primarily in a diversified portfolio of investment grade corporate bonds and
U.S. Government bonds with intermediate to longer term maturities. The portfolio
may also invest up to 20% of its assets in non-investment grade fixed income
securities.
The DIVERSIFIED BOND TRUST (formerly, the Conservative Asset Allocation Trust)
seeks high total return as is consistent with the conservation of capital by
investing at least 75% of the portfolio's assets in fixed-income securities.
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<PAGE> 14
The U.S. GOVERNMENT SECURITIES TRUST seeks a high level of current income
consistent with preservation of capital and maintenance of liquidity, by
investing 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.
The MONEY MARKET TRUST seeks maximum current income consistent with preservation
of principal and liquidity by investing in high quality money market instruments
with maturities of 397 days or less issued primarily by United States entities.
The LIFESTYLE AGGRESSIVE 1000 TRUST seeks to provide long-term growth of capital
(current income is not a consideration) by investing 100% of the Lifestyle
Trust's assets in other portfolios of the Trust ("Underlying Portfolios") which
invest primarily in equity securities.
The LIFESTYLE GROWTH 820 TRUST seeks to provide long-term growth of capital with
consideration also given to current income by investing approximately 20% of the
Lifestyle Trust's assets in Underlying Portfolios which invest primarily in
fixed income securities and approximately 80% of its assets in Underlying
Portfolios which invest primarily in equity securities.
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 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.
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 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.
The LIFESTYLE CONSERVATIVE 280 TRUST seeks to provide a high level of current
income with some consideration also given to growth of capital 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.
DETAILED INFORMATION ABOUT THE POLICIES
Unless otherwise indicated or required by the context, the discussion throughout
this prospectus assumes that the Policy has not gone into default, there is no
outstanding Policy Debt, and the death benefit is not determined by the corridor
percentage test (see "Death Benefit Options").
PREMIUM PROVISIONS
POLICY ISSUE AND INITIAL PREMIUM
To purchase a Policy, you must submit a completed application. We will issue a
Policy only if it has a face amount of at least $50,000 ($100,000 for preferred
risk policies). Generally, we issue a Policy only to persons between ages 0 and
90. In certain circumstances we may in our sole discretion issue a Policy to
persons above age 90. Before issuing a Policy, we will require evidence of
insurability satisfactory to us. A life insured will have a risk class of
preferred/non-smoker, preferred/smoker, standard/non-smoker or standard/smoker
as determined by our underwriting rules. We may issue Policies to persons who
fail to meet standard underwriting requirements by assigning an additional
rating. We will accept an application if it meets our insurance underwriting
rules. Each Policy has a policy date from which policy years, policy months and
policy anniversaries are all determined. Each Policy also has an effective date
which is the date we become obligated under the Policy and when the first
monthly deductions are taken.
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<PAGE> 15
If an application is accompanied by a check for at least the Initial Premium and
we accept the application, the policy date will be the date we receive the
application and check at our Service Office. The effective date will be the date
our underwriters approve issuance of the Policy. If an application is
accompanied by a check for at least the Initial Premium, the life insured may be
covered under the terms of a conditional insurance agreement until the effective
date.
If an application that we accept is not accompanied by a check for at least the
Initial Premium, we will issue the Policy with a policy date which is seven days
after issuance of the Policy (the "issue date") and with an effective date which
is the date our Service Office receives at least the Initial Premium. In certain
situations a different policy date may be used. We must receive the Initial
Premium within 60 days after the policy date; however, we may require the
Initial Premium within 30 days on Policies issued with Additional Ratings. If
the Initial Premium is not paid or if the application is rejected, we will
cancel the Policy and return any premiums paid to the applicant.
Under certain circumstances we may issue a Policy with a backdated policy date.
A Policy will not be backdated more than six months (twelve months where allowed
by state regulation) before the date of the application for the Policy. Monthly
deductions will be made for the period the policy date is backdated.
We will credit interest on all premiums received prior to the effective date of
a Policy 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, we will
allocate the premiums paid plus interest credited, net of deductions for
federal, state and local taxes, among the Investment Accounts or the Fixed
Account in accordance with the your instructions.
We will allocate all premiums received on or after the effective date of the
Policy among the Investment Accounts or the Fixed Account as of the date the
premiums were received at our Service Office. Monthly deductions are due on the
policy date and at the beginning of each policy month thereafter. However, if
due prior to the effective date, they will be taken on the effective date
instead of the dates they were due.
PREMIUM ALLOCATION
You may allocate your premium payments, net of deductions, to either the Fixed
Account or to one or more of the Investment Accounts. Amounts allocated to the
Fixed Account will accumulate at an annual rate of interest equal to at least
4%. Amounts allocated to the Investment Accounts will be invested in shares of
the Portfolios held by the corresponding sub-accounts of the Separate Account.
Your allocation must be made as a percentage of the Net Premium. The percentage
may be any whole number between zero and 100, provided the total percentage
equals 100. You may change the way in which your Net Premiums are allocated at
any time without charge. The change will take effect on the date a written or
telephonic request for change, in a format satisfactory to us, is received at
our Service Office.
PREMIUM LIMITATIONS
After you pay the Initial Premium, you may pay additional premiums at any time
and in any amount during the lifetime of the life insured subject to certain
limitations. After the Initial Premium, all premiums must be paid to our Service
Office. Unlike traditional insurance, premiums are not payable at specified
intervals or in specified amounts. Your Policy will be issued with a Planned
Premium which is based on the amount of premium you wish to pay. It is
recommended that the Planned Premium be such that the Cumulative Premium Test
(see Insurance Benefits -- "Death Benefit Guarantee") will be satisfied.
We will send notices to you setting forth the Planned Premium at the payment
interval you select, unless you are making payments pursuant to a pre-authorized
payment plan. However, you are under no obligation to make the indicated
payment.
We will not accept any premium payment which is less than $50, unless the
premium is payable pursuant to a pre-authorized payment plan. In that case we
will accept a payment of as little as $10. We may change these minimums on 90
days' written notice. The Policies also limit the sum of the premiums that may
be paid at any time in order to preserve the qualification of the Policies as
life insurance for federal tax purposes. These limitations are set forth in each
Policy. We
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<PAGE> 16
reserve the right to refuse or refund any premium payments that may cause a
Policy to fail to qualify as life insurance under applicable tax law.
SHORT TERM CANCELLATION RIGHT AND "FREE LOOK" PROVISIONS
You may return a Policy for a refund of the premium
- within 10 days after it is received,
- within 45 days after the application for the Policy is signed, or
- within 10 days after we mail or deliver a notice of right of
withdrawal,
whichever is latest. The Policy can be mailed or delivered to our agent who sold
it or to our Service Office. Immediately on such delivery or mailing, the Policy
is deemed void from the beginning. Within seven days after receipt of the
returned Policy at our Service Office, we will refund any premium paid. We
reserve the right to delay the refund of any premium paid by check until the
check has cleared.
If you request an increase in face amount which results in new surrender
charges, you 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. You 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.
PROVISIONS FOR AVOIDING LAPSE
NO LAPSE GUARANTEE
In those states where it is permitted, you may elect the No Lapse Guarantee on
Policies issued with a face amount of at least $250,000 (calculated as described
below). (In Illinois this benefit is known as Minimum Premium Guarantee.) If
elected, as long as the No Lapse Guarantee Cumulative Premium Test (see below)
is satisfied during the first five policy years, we guarantee that the Policy
will not go into default (see OTHER GENERAL PROVISIONS -- "Policy Default"). Our
guarantee applies even if a combination of Policy loans, adverse investment
experience and other factors causes the Policy's Net Cash Surrender Value to be
insufficient to meet the monthly deductions due at the beginning of a policy
month. For purposes of determining the face amount at issue for the No Lapse
Guarantee, the face amount includes any amounts purchased under the
supplementary insurance option.
The No Lapse Guarantee terminates at the end of the fifth policy year.
The No Lapse Guarantee is not offered to life insureds with an issue age
exceeding 85.
While the No Lapse Guarantee is in effect, we will determine at the beginning of
each policy month whether the No Lapse Guarantee Cumulative Premium Test,
described below, has been satisfied. If it has not been satisfied, we will
notify you of that fact and allow a 61-day grace period in which you may make a
premium payment sufficient to keep the No Lapse Guarantee in effect. This
required payment, as described in the notification to you, will be equal to the
outstanding premium required to meet the No Lapse Guarantee Cumulative Premium
Test as of the date the No Lapse Guarantee was not satisfied plus the Monthly No
Lapse Guarantee Premium due for the next two policy months.
If the required payment is not received by the end of the grace period, the No
Lapse Guarantee will terminate. Thereafter, the Policy may go into default if
the Policy's Net Cash Surrender Value is insufficient to meet the monthly
deductions due at the beginning of a policy month. A death benefit option change
will also terminate the No Lapse Guarantee if it is in effect at the time of the
change as will a decrease in face amount below $250,000. The No Lapse Guarantee
cannot be reinstated
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after it has been terminated. See OTHER GENERAL POLICY PROVISIONS --"Policy
Default," and INSURANCE BENEFIT -- "Death Benefit Option Changes."
NO LAPSE GUARANTEE CUMULATIVE PREMIUM TEST. The No Lapse Guarantee Cumulative
Premium Test is satisfied if, as of the beginning of the policy month, the sum
of all premiums paid to date less any partial withdrawals and less any Policy
Debt is at least equal to the sum of the Monthly No Lapse Guarantee Premiums due
since the policy date.
The Monthly No Lapse Guarantee Premium is one-twelfth of the No Lapse Guarantee
Premium. The No Lapse Guarantee Premium is set forth in the Policy. It is
subject to change if you change the face amount of the Policy (see INSURANCE
BENEFIT -- "Face Amount Changes"), or if there is any change in the
supplementary benefits added to the Policy or in the risk class of any life
insured.
DEATH BENEFIT GUARANTEE
POLICIES WITH FACE AMOUNTS OF AT LEAST $250,000. If permitted by state law and
if you elect, we will guarantee that a Policy issued and maintained with a
minimum face amount of $250,000 will not go into default if the Cumulative
Premium Test (see below) is satisfied. (See OTHER GENERAL POLICY PROVISIONS --
"Policy Default".) Our guarantee applies even if a combination of policy loans,
adverse investment experience or other factors causes the Policy's Net Cash
Surrender Value to be insufficient to meet the monthly deductions due at the
beginning of a policy month.
If after the tenth policy anniversary the Cumulative Premium Test is not
satisfied but the Fund Value Test (see below) is satisfied, we will keep the
Death Benefit Guarantee in effect.
This Death Benefit Guarantee, which is not available in the state of New Jersey,
will expire at the end of a policy year specified in the Policy. Currently, the
specified policy year is
(i) the year in which the life insured reaches attained age 100 if
Death Benefit Option 1 is maintained throughout the life of the
Policy and
(ii) the year in which the life insured reaches attained age 85 if
Death Benefit Option 2 is selected at any time.
While the guarantee is in effect, we will determine at the beginning of each
policy month whether the Cumulative Premium Test or the Fund Value Test has been
satisfied. If neither has been satisfied, we will notify you of that fact and
allow a 61-day grace period in which you may make a premium payment sufficient
to keep the Death Benefit Guarantee in effect. The required payment will be
equal to the outstanding premium required to meet the Cumulative Premium Test at
the date neither test was satisfied, plus the Monthly Death Benefit Guarantee
Premium due for the next two policy months. If the required payment is not
received by the end of the grace period, the Death Benefit Guarantee will
terminate. Once the Death Benefit Guarantee is terminated, it cannot be
reinstated.
POLICIES WITH FACE AMOUNTS UNDER $250,000. If permitted by state law and you
elect, we will guarantee that a Policy with a face amount less than $250,000 at
issue or after face amount decrease will not go into default during the first
three policy years if the Cumulative Premium Test is satisfied. Our guarantee
applies even if a combination of policy loans, adverse investment experience or
other factors should causes the Policy's Net Cash Surrender Value to be
insufficient to meet the monthly deductions due at the beginning of a policy
month. After the third policy anniversary, the Death Benefit Guarantee
terminates.
CUMULATIVE PREMIUM TEST. The Cumulative Premium Test is satisfied if at the
beginning of each policy month the sum of all premiums paid to date less any
partial withdrawals and any Policy Debt is at least equal to the sum of the
Monthly Death Benefit Guarantee Premiums due since the policy date. The Death
Benefit Guarantee Premium will increase when the insured attains age 70. The
Death Benefit Guarantee Premiums for ages 0-69 and age 70 and above are set
forth in the Policy. They are subject to change if you change the face amount of
the Policy or the death benefit option (see -- "Death
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<PAGE> 18
Benefit Option Changes" and "Face Amount Changes") or if there is any change in
the supplementary benefits added to the Policy or in the risk class of the life
insured.
FUND VALUE TEST. The Fund Value Test is applicable after the tenth anniversary
of the Policy. The Fund Value Test is satisfied if at the beginning of each
policy month the Net Policy Value is greater than or equal to the Gross Single
Premium.
INSURANCE BENEFIT
THE INSURANCE BENEFIT
If the Policy is in force at the time of the life insured's death, we will pay
an insurance benefit based on the death benefit option that you select upon
receipt of due proof of death. The amount payable will be the death benefit
under the selected option, plus any amounts payable under any supplementary
benefits added to the Policy, less the value of the Loan Account at the date of
death. The insurance benefit will be paid in one sum unless we and the
beneficiary agree upon another form of settlement. If the insurance benefit is
paid in one sum, we will pay interest from the date of death to the date of
payment. If the life insured should die after our receipt of a request for
surrender, no insurance benefit will be payable, and we will pay only the Net
Cash Surrender Value.
DEATH BENEFIT OPTIONS
You may select one of two death benefit options -- Option 1 and Option 2.
Under Option 1 the death benefit is
- the face amount of the Policy at the date of death or, if greater,
- the Policy Value at the date of death multiplied by the applicable
percentage in the table set forth below.
Under Option 2 the death benefit is
- the face amount of the Policy plus the Policy Value at the date of
death or, if greater,
- the Policy Value at the date of death multiplied by the applicable
percentage in the following table:
<TABLE>
<CAPTION>
Age Corridor Age Corridor Age Corridor
Percentage Percentage Percentage
- --- ---------- --- ---------- --- ----------
<S> <C> <C> <C> <C> <C>
40&below 250% 54 157 68 117
41 243 55 150 69 116
42 236 56 146 70 115
43 229 57 142 71 113
44 222 58 138 72 111
45 215 59 134 73 109
46 209 60 130 74 107
47 203 61 128 75-90 105
48 197 62 126 91 104
49 191 63 124 92 103
50 185 64 122 93 102
51 178 65 120 94 101
52 171 66 119 95&above 100
53 164 67 118
</TABLE>
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<PAGE> 19
Regardless of which death benefit option is in effect, the relationship of
Policy Value to death benefit will change whenever we use the "corridor
percentages" to determine the amount of the death benefit. This will occur
whenever multiplying the Policy Value by the applicable percentage set forth in
the above table results in a greater death benefit than would otherwise apply
under the selected option.
For example, assume the life insured under a Policy with a face amount of
$100,000 has an attained age of 40. If Option 1 is in effect, the corridor
percentage will produce a greater death benefit whenever the Policy Value
exceeds $40,000 (250% X $40,000 = $100,000). If the Policy Value is less than
$40,000, an incremental change in Policy Value, up or down, will have no effect
on the death benefit. If the Policy Value is greater than $40,000, an
incremental change in Policy Value will result in a change in the death benefit
by a factor of 2.5. Thus, if the Policy Value were to increase to $40,010, the
death benefit would be increased to $100,025 (250% X $40,010 = $100,025).
If Option 2 were in effect in the above example, the corridor percentage would
produce a greater death benefit whenever the Policy Value exceeded $66,667 (250%
X 66,667 = 166,667). At that point the death benefit produced by multiplying the
Policy Value by 250% would result in a greater amount than adding the Policy
Value to the face amount of the Policy. If the Policy Value is less than
$66,667, an incremental change in Policy Value will have a dollar-for-dollar
effect on the death benefit. If the Policy Value is greater than $66,667, an
incremental change in Policy Value will result in a change in the death benefit
by a factor of 2.5 in the same manner as would be the case under Option 1 when
the corridor percentage determined the death benefit.
DEATH BENEFIT OPTION CHANGES
Your initial selection of the death benefit option is made in the application.
After the Policy has been in force for two years, you may change the death
benefit option. The change will be effective as of any subsequent policy month
following a request. Your written request for a change must be received by us at
least 30 days prior to the beginning of a policy month in order to become
effective on that date. We reserve the right to limit a request for change if
the change would cause the Policy to fail to qualify as life insurance for tax
purposes.
A change in death benefit option will result in a change in the Policy's face
amount. The change in face amount is required in order to avoid any change in
the amount of the death benefit.
<TABLE>
<S> <C>
CHANGE TO OPTION 2 If the change in death benefit is FROM OPTION 1 TO OPTION 2, the new
face amount will be equal to the face amount prior to the change minus
NEW FACE AMOUNT= the Policy Value on the effective date of the change. A change to
OLD FACE AMOUNT Option 2 will not be allowed if it would cause the face amount of the
MINUS Policy to go below the minimum face amount of $50,000 ($100,000 for
POLICY VALUE preferred risk policies). A change to Option 2 will shorten the death
benefit guarantee period to the year in which the life insured reaches
attained age 85.
CHANGE TO OPTION 1 If the change in death benefit is FROM OPTION 2 TO OPTION 1, the new
face amount will be equal to the face amount prior to the change plus
NEW FACE AMOUNT= the Policy Value on the effective date of the change. The
OLD FACE AMOUNT increase in face amount resulting from a change to Option 1 will
PLUS not affect the amount of surrender charges to which a policy may be
POLICY VALUE subject. The Company has the right to require satisfactory evidence
of insurability before permitting a change from Option 2 to Option 1.
The Company does not currently require evidence of insurability when
making this change.
</TABLE>
If you wish to have level insurance coverage, you should generally select Option
1. Under Option 1, increases in Policy Value usually will reduce the net amount
of risk under a Policy which will reduce cost of insurance charges. This means
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<PAGE> 20
that favorable investment performance should result in a faster increase in
Policy Value than would occur under an identical Policy with Option 2 in effect.
However, the larger Policy Value which may result under Option 1 will not affect
the amount of the death benefit unless the corridor percentages are used to
determine the death benefit.
If you want to have the Policy Value reflected in the death benefit so that any
increases in Policy Value will increase the death benefit, you should generally
select Option 2. Under Option 2, the net amount at risk will remain level unless
the corridor percentages are used to determine death benefit, in which case
increases in Policy Value will increase the net amount at risk.
FACE AMOUNT CHANGES
Subject to certain limitations, you may increase or decrease the face amount of
your Policy. A change in face amount may affect the Death Benefit Guarantee
Premium, the monthly deductions and surrender charges (see "Charges And
Deductions").
MINIMUM CHANGES. Currently, each increase or decrease in face amount (other than
a decrease resulting from a partial withdrawal) must be at least $50,000
($100,000 for increases in preferred risk policies and $10,000 for increases
under Policies purchased under group or sponsored arrangements). We reserve the
right to increase or decrease the minimum face amount change on 90 days' written
notice to you. We also reserve the right to limit a change in face amount to the
extent necessary to prevent the Policy from failing to qualify as life insurance
for tax purposes.
INCREASES. After the Policy has been in force for two years, you may increase
the face amount of your Policy once per policy year. Increases are subject to
satisfactory evidence of insurability. An increase will become effective at the
beginning of the next policy month following the date we approve the requested
increase. We reserve the right to refuse your request for an increase if the
life insured's age at the effective date of the increase would be greater than
the maximum issue age for new Policies at that time.
An increase in face amount will usually subject the Policy to new surrender
charges. The new surrender charges will be computed as if a new Policy were
being purchased for the increase in face amount. For purposes of determining the
new deferred sales charge, a portion of the Policy Value at the time of the
increase, and a portion of the premiums paid on or subsequent to the increase,
will be deemed to be premiums attributable to the increase. See CHARGES AND
DEDUCTIONS -- "Surrender Charges."
Any increase in face amount to a level less than the highest face amount
previously in effect will have no effect on the surrender charges to which the
Policy is subject, since surrender charges, if applicable, will have been
assessed in connection with the prior decrease in face amount. The insurance
coverage eliminated by the decrease of the oldest face amount will be deemed to
be restored first. As with the purchase of a Policy, you will have free look and
sales charge limitation rights with respect to any increase resulting in new
surrender charges.
No additional premium is required for a face amount increase. However, you may
need to pay an additional premium to keep the Policy from going into default.
This is because new surrender charges resulting from an increase would
automatically reduce the Net Cash Surrender Value of the Policy. Moreover, a new
Death Benefit Guarantee Premium will be determined.
DECREASES. After the Policy has been in force for two years, you may decrease
the face amount of your Policy once per policy year. No decrease is allowed
during the two-year period following an increase in face amount. However, during
that two-year period, you may choose to cancel the increase in face amount and
have the deferred sales charge for the increase reduced by applicable
limitations on sales charges attributable to the increase. A decrease in face
amount will become effective at the beginning of the next policy month following
the receipt of a properly executed request. A decrease will not be allowed if it
would cause the face amount to go below the minimum face amount of $50,000
($100,000 for preferred risk policies).
17
<PAGE> 21
Usually, we will deduct surrender charges from the Policy Value whenever a
decrease in face amount is made during the Surrender Charge Period. See CHARGES
AND DEDUCTIONS -- "Surrender Charges." For purposes of determining surrender and
cost of insurance charges, a decrease will reduce face amount in the following
order: (a) the face amount provided by the most recent increase, then (b) the
face amounts provided by the next most recent increases successively, and
finally (c) the initial face amount.
POLICY VALUES
POLICY VALUE
A Policy has a Policy Value. You may access a portion of the Policy Value by
making a policy loan or partial withdrawal or by surrendering the Policy. See
"Policy Loans" and "Partial Withdrawals And Surrenders" below. The Policy Value
may also affect the amount of the death benefit. See INSURANCE BENEFIT -- "Death
Benefit Options." The Policy Value at any time is equal to the sum of the values
in the Investment Accounts, the Fixed Account and the Loan Account. The
following discussion relates only to the Investment Accounts. Policy loans are
discussed under "Policy Loans" and the Fixed Account is discussed under "The
General Account." The portion of the Policy Value based on the Investment
Accounts is not guaranteed and will vary each Business Day with the investment
performance of the underlying Portfolio.
We establish an Investment Account under the Policy for each sub-account of the
Separate Account to which you allocate net premiums or transfer amounts. Each
Investment Account measures the interest of the Policy in the corresponding
sub-account. The value of the Investment Account 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.
We credit sub-account units to a Policy whenever you allocate net premiums or
transfer amounts to that sub-account. Sub-account units 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 at the end of the
Business Day on which the transaction occurs. The number of units credited with
respect to a premium payment is based on the applicable unit values at the end
of the Business Day on which the premium is received at our Service Office or
other office or entity so designated by us.
Units are valued at the end of each Business Day. A Business Day is deemed to
end at the time of the determination of the net asset value of the underlying
Portfolio shares. 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 at the
end of the next Business Day. Similarly, any determination of Policy Value,
Investment Account value or death benefit to be made on a day which is not a
Business Day will be made at the end of the next Business Day.
The value of a unit of each sub-account was initially fixed at $10. For each
subsequent Business Day the unit value is determined by multiplying the unit
value for the preceding Business Day by the "net investment factor" for the
particular sub-account for that subsequent Business Day. The net investment
factor for a sub-account for any Business Day is equal to (a) divided by (b),
where:
(a) is the net asset value of the underlying Portfolio shares held by
that sub-account at the end of such Business Day before any
policy transactions are made on that day;
(b) is the net asset value of the underlying Portfolio shares held by
that sub-account at the end of the immediately preceding Business
Day after all policy transactions have been made for that day.
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.
TRANSFERS OF POLICY VALUE
18
<PAGE> 22
You may change the extent to which your Policy Value is based upon any specific
sub-account of the Separate Account or the Company's general account. You make
those changes by transferring amounts from one or more Investment Accounts or
the Company's general account to other Investment Accounts or the Company's
general account. You are permitted to make twelve transfers each policy year
free of charge. If you make additional transfers in a policy year, we will
charge you $25 per transfer. We will assess this charge against the Investment
Account or Fixed Account from which the amount is being transferred. For this
purpose all transfer requests we receive from you on the same Business Day will
be treated as a single transfer request.
The most that you may transfer 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.
Your request for transfer must be in a format satisfactory to us. It must be in
writing unless you have a currently valid telephone transfer authorization form
on file with us. Generally, we will not be liable for following telephone
instructions that we reasonably believe to be genuine. We will employ reasonable
procedures to confirm that telephone instructions are genuine. Those procedures
shall consist of confirming that a valid telephone authorization form is on
file, tape recording all telephone transactions and providing written
confirmation of the instructions. We may be liable for any losses resulting from
unauthorized or fraudulent telephone transfers if we fail to follow reasonable
procedures.
You may effectively convert your Policy to a fixed benefit policy by
transferring the Policy Value in all of the Investment Accounts to the Fixed
Account and by changing your allocation of net premiums entirely to the Fixed
Account. As long as the entire Policy Value is allocated to the Fixed Account,
the Policy Value, other values based thereon and the death benefit will be
determinable and guaranteed. The Investment Account values to be transferred to
the Fixed Account will be determined as of the Business Day on which we receive
the request for conversion. No change in the issue age, risk class of the life
insured or face amount will result from a conversion. You may transfer any or
all of the Policy Value to the Fixed Account at any time, even if a prior
transfer has been made during the policy month.
DOLLAR COST AVERAGING. We offer a Dollar Cost Averaging program. Under this
program amounts will be automatically transferred at predetermined intervals
from one Investment Account to any other Investment Account(s) or the Fixed
Account.
Under the Dollar Cost Averaging program you designate an amount to be
transferred at predetermined intervals from one Investment Account into any
other Investment Account(s) or the Fixed Account. Each transfer under the Dollar
Cost Averaging program must be of a minimum amount set by us. We may change this
minimum at any time in our discretion. Currently, no charge will be made for
this program if the Policy Value exceeds $15,000 on the date of transfer.
Otherwise, there will be a charge of $5 for each transfer. We will deduct the
charge from the value of the Investment Account out of which the transfer is
made. If there are insufficient funds to effect a Dollar Cost Averaging
transfer, including the charge, if applicable, we will not effect the transfer
and will notify you of that fact. We reserve the right to cease to offer this
program on 90 days' written notice.
ASSET ALLOCATION BALANCER TRANSFERS. We also offer policyowners the ability to
have amounts automatically transferred among stipulated Investment Accounts to
maintain an allocated percentage in each stipulated Investment Account.
Under the Asset Allocation Balancer program you designate an allocation of
Policy Value among Investment Accounts. At six month intervals, beginning six
months after the policy date, we will move amounts among the Investment Accounts
as necessary to maintain your chosen allocation. A change to your premium
allocation instructions will automatically result in a change in Asset
Allocation Balancer instructions so that the two are identical unless either you
instruct us differently or a Dollar Cost Averaging request is in effect.
Currently, we make no charge for this program; however, we reserves the right to
institute a charge on 90 days' written notice.
We reserve the right to cease to offer this program on 90 days' written notice.
19
<PAGE> 23
POLICY LOANS
While the Policy is in force, you may borrow against your Policy Value. The
Policy serves as the only security for the loan. The minimum amount of any loan
is $500. The maximum loan amount is the amount which would cause the Modified
Policy Debt to equal the loan value of the Policy on the date of the loan. The
loan value is the Policy's Cash Surrender Value less the monthly deductions due
to the next policy anniversary. The Modified Policy Debt as of any date is the
Policy Debt (the aggregate amount of policy loans, including borrowed interest,
less any loan repayments) plus the amount of interest to be charged to the next
policy anniversary, all discounted from the next policy anniversary to such date
at an annual rate of 4%. We transfer an amount equal to the Modified Policy Debt
to the Loan Account to ensure that a sufficient amount will be available to pay
interest on the Policy Debt at the next policy anniversary.
For example, assume a Policy with a loan value of $5,000, no outstanding policy
loans and a loan interest rate of 5.75%. The maximum amount that can be borrowed
is an amount that will cause the Modified Policy Debt to equal $5,000. If the
loan is made on a policy anniversary, the maximum loan will be $4,917. This
amount at 5.75% interest will equal $5,200 one year later; $5,200 discounted to
the date of the loan at 4% (the Modified Policy Debt) equals $5,000. Because the
minimum rate of interest credited to the Loan Account is 4%, $5,000 must be
transferred to the Loan Account to ensure that $5,200 will be available at the
next policy anniversary to cover the interest accrued on the Policy Debt.
When a loan is made, we will deduct from the Investment Accounts or the Fixed
Account, and transfer to the Loan Account, an amount which will result in the
Loan Account value being equal to the Modified Policy Debt. You 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,
we will allocate the amount to be transferred 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.
A policy loan may result in a Policy's failing to satisfy the Cumulative Premium
Test, since the Policy Debt is subtracted from the sum of the premiums paid in
determining whether the Cumulative Premium Test is satisfied. As a result, the
death benefit guarantee may terminate. See Insurance Benefit -- "Death Benefit
Guarantee" and Other General Policy Provisions -- "Policy Default."
Moreover, if the death benefit guarantee is not in force, a policy loan may
cause a Policy to be more susceptible to going into default, since a policy loan
will be reflected in the Net Cash Surrender Value. See Other General Policy
Provisions -- "Policy Default."
A policy loan will also affect future Policy Values, since that portion of the
Policy Value in the Loan Account will increase in value at the crediting
interest rate rather than varying with the performance of the underlying
Portfolios selected by the policyowner or increasing in value at the rate of
interest credited for amounts allocated to the Fixed Account.
Policy loans may have tax consequences. If you are considering the use of
systematic policy loans as one element of a comprehensive retirement income
plan, you should consult your personal tax adviser regarding the potential tax
consequences if such loans were to so reduce Policy Value that the Policy would
lapse, absent additional payments. The premium payment necessary to avert lapse
would increase with the age of the insured. See Miscellaneous Matters - Federal
Income Tax Considerations (Tax Treatment of Policy Benefits). Finally, a policy
loan will affect the amount payable on the death of the life insured, since the
death benefit is reduced by the value of the Loan Account at the date of death
in arriving at the insurance benefit.
INTEREST CHARGES ON POLICY LOANS. Interest on the Policy Debt will accrue daily
and be payable annually on the policy anniversary. We will fix the rate of
interest charged at an effective annual rate of 5.75%. If the interest due on a
policy anniversary is not paid by the policyowner, the interest will be borrowed
against the Policy.
20
<PAGE> 24
INTEREST CREDITED ON THE LOAN ACCOUNT. We will credit interest to any amount in
the Loan Account at an effective annual rate of at least 4%. The actual rate
credited is:
- On amounts in excess of the Policy's Select Loan Amount, the rate of
interest charged on the policy loan less an interest rate
differential, currently 1.75%.
- On amounts up to the Policy's Select Loan Amount, the rate of interest
charged on policy loan less an interest rate differential, currently
0%.
The tax consequences associated with a loan interest credited differential of 0%
are unclear. A tax adviser should be consulted before effecting a loan to
evaluate the tax consequences that may arise in such a situation. If we
determine, in our sole discretion, that there is a substantial risk that a loan
will be treated as a taxable distribution under Federal tax law as a result of
the differential between the credited interest rate and the loan interest rate,
the Company retains the right to increase the the loan interest rate to an
amount that would result in the transaction being treated as a loan under
Federal tax law. If this amount is not prescribed by any IRS ruling or
regulation or any court decision, the amount of increase will be that which the
Company considers to be most likely to result in the transaction being treated
as a loan under Federal tax law.
Prior to the later of the tenth policy anniversary and the anniversary following
attained age 55, the amount available as a Select Loan is zero; after the later
of the tenth policy anniversary and the policy anniversary following attained
age 55, the amount available annually as a Select Loan is equal to 12% of the
Policy's Net Cash Surrender Value at the previous policy anniversary. The amount
available as a Select Loan applies to existing and new loans. If, at the time
your are considering a Select Loan, interest due currently on your outstanding
loans equals or exceeds the Select Loan Amount, the Select Loan feature can not
be used to withdraw additional cash from Policy Value. The total of all loans,
including the Select Loan Amount, cannot exceed the maximum loan amount as
described above.
To illustrate the amount available as a Select Loan, assume that a Policy has an
issue age of 47 and a Net Cash Surrender Value on the eleventh policy
anniversary of $10,000. The Select Loan Amount available during the twelfth
policy year is $1,200 (12% X $10,000). Assume that at the beginning of the
twelfth policy year, a loan of $1,500 is taken. $1,200 of that amount is
considered the Select Loan Amount, $300 an ordinary policy loan.
At the end of the twelfth policy year, assume that the Net Cash Surrender Value
is $9,000. The Select Loan Amount available during the thirteenth policy year is
$1,080 (12% X $9,000). If not already repaid, the $300 from the prior year's
loan that was not considered a Select Loan is immediately converted to a Select
Loan, leaving $780 of the Select Loan Amount available for the thirteenth policy
year (provided that the sum of all outstanding loans does not exceed the
Policy's maximum loan amount). The amount of any unpaid interest on the Select
Loan and the ordinary policy loan from the twelfth policy year also would be
borrowed as a Select Loan up to the maximum Select Loan Amount and thereby
reduce by that amount the $780 available for borrowing as a Select Loan during
the remainder of the thirteenth policy year.
LOAN ACCOUNT ADJUSTMENTS. Whenever a loan is first taken out, and at specified
events thereafter, we adjust the value of the Loan Account. We take the
difference between (i) the Loan Account before any adjustment and (ii) the
Modified Policy Debt at the time of adjustment and transfer that amount between
the Loan Account and the Investment Accounts or the Fixed Account. The amount
transferred to or from the Loan Account will be such that the value of the Loan
Account after the adjustment will be equal to the Modified Policy Debt.
The specified events which cause an adjustment to the Loan Account are (i) a
policy anniversary, (ii) a partial or full loan repayment, (iii) a new loan or
(iv) an amount is needed to meet a monthly deduction. A loan repayment may be
implicit in that policy debt is effectively repaid upon termination (i.e., upon
death of the life insured, surrender or lapse of the policy). In each of these
instances, the Loan Account will be adjusted so that any excess of the Loan
Account over the Modified Policy Debt after the repayment will be included in
the termination proceeds.
Except as noted below under "Loan Repayments," we will allocate amounts
transferred from the Loan Account to the Investment Accounts and the Fixed
Account in the same proportion as the value in the corresponding "loan
sub-account"
21
<PAGE> 25
bears to the value of the Loan Account. 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.
LOAN ACCOUNT ILLUSTRATION.(Dollar amounts in this illustration have been rounded
to the nearest dollar.) The operation of the Loan Account may be illustrated as
follows: assume a Policy with a loan value of $5,000, a loan interest rate of
5.75%, and a maximum loan amount on a policy anniversary of $4,917. For purposes
of the illustration, assume that the Select Loan Amount is zero. If a loan in
the maximum amount of $4,917 is made, an amount equal to the Modified Policy
Debt, $5,000, is transferred to the Loan Account. At the next policy anniversary
the value of the Loan Account will have increased to $5,200 ($5,000 X 1.04)
reflecting interest credited at an effective annual rate of 4.0%. At that time
the loan will have accrued interest charges of $283 ($4,917 X .0575), bringing
the Policy Debt to $5,200.
If the accrued interest charges are paid on the policy anniversary, the Policy
Debt will continue to be $4,917, and the Modified Policy Debt, reflecting
interest for the next policy year and discounting the Policy Debt and such
interest at 4%, will be $5,000. An amount will be transferred from the Loan
Account to the Fixed Account or the Investment Accounts so that the Loan Account
value will equal the Modified Policy Debt. Since the Loan Account value was
$5,200, a transfer of $200 will be required ($5,200 -- $5,000).
If, however, the accrued interest charges of $283 are borrowed, an amount will
be transferred from the Investment Accounts and the Fixed Account so that the
Loan Account value will equal the Modified Policy Debt recomputed at the policy
anniversary. The new Modified Policy Debt is the Policy Debt, $5,200, plus loan
interest to be charged to the next policy anniversary, $299 ($5,200 X .0575),
discounted at 4%, which results in a figure of $5,288. Since the value of the
Loan Account was $5,200, a transfer of $88 will be required. This amount is
equivalent to the 1.75% interest rate differential on the $5,000 transferred to
the Loan Account on the previous policy anniversary.
LOAN REPAYMENTS. You may repay Policy Debt in whole or in part at any time prior
to the death of the life insured provided the Policy is in force. When a
repayment is made, we will credit the repayment amount to the Loan Account and
transfer an amount to the Fixed Account or the Investment Accounts so that the
Loan Account at that time will equal the Modified Policy Debt. We will allocate
loan repayments first to the Fixed Account until the associated loan sub-account
is reduced to zero. We will then allocate loan repayments to each Investment
Account in the same proportion as the value in the corresponding loan
sub-account bears to the value of the Loan Account. Amounts paid to us not
specifically designated in writing as loan repayments will be treated as
premiums.
PARTIAL WITHDRAWALS AND SURRENDERS
Partial Withdrawals. After a Policy has been in force for two policy years, you
may make a partial withdrawal of the Net Cash Surrender Value. The minimum
amount that may be withdrawn is $500. You should specify the portion of the
withdrawal to be taken from each Investment Account and the Fixed Account. In
the absence of instructions we will allocate the withdrawal among such accounts
in the same proportion as the Policy Value in each account bears to the Net
Policy Value. No more than one partial withdrawal may be made in any one policy
month.
If you make a partial withdrawal during the Surrender Charge Period, we will
usually assess a portion of the surrender charges to which the Policy is subject
(see Charges And Deductions -- "Surrender Charges") if the amount withdrawn is
in excess of the Withdrawal Tier Amount. The Withdrawal Tier Amount is 10% of
the Net Cash Surrender
Value determined as of the previous policy anniversary. The portion of a partial
withdrawal that is considered to be in excess of the Withdrawal Tier Amount
includes all previous partial withdrawals that have occurred in the current
policy year. If the Option 1 death benefit is in effect under a Policy from
which a partial withdrawal is made, the face amount of the Policy will be
reduced. See CHARGES AND DEDUCTIONS -- SURRENDER CHARGES (CHARGES ON PARTIAL
WITHDRAWALS).
Full Surrenders. You may surrender your Policy for its Net Cash Surrender Value
at any time while the life insured is living. The Net Cash Surrender Value is
the Policy Value less any surrender charges and outstanding monthly deductions
22
<PAGE> 26
due (the "Cash Surrender Value") minus the value of the Loan Account. The Net
Cash Surrender Value will be determined at the end of the Business Day on which
we receive the Policy and a written request for surrender at our Service Office.
After a Policy is surrendered, the insurance coverage and all other benefits
under the Policy will terminate. Surrender of a Policy during the Surrender
Charge Period will usually result in our assessment of surrender charges. See
Charges And Deductions -- "Surrender Charges."
CHARGES AND DEDUCTIONS
The charges we make under the Policy are assessed as (i) deductions from
premiums, (ii) surrender charges upon surrender, partial withdrawals, decreases
in face amount or lapse, (iii) monthly deductions, and (iv) other charges. These
charges are described below.
DEDUCTIONS FROM PREMIUMS
We currently make no deduction from premium payments for state and local taxes.
The maximum amount we may deduct for such taxes in the future is 2.35% (except
for Oregon where no premium tax is deducted). We currently make no deduction
from premium payments for federal taxes. The maximum amount we may deduct for
such taxes in the future is 1.25%.
SURRENDER CHARGES
We will assess surrender charges upon surrender, a partial withdrawal of Policy
Value in excess of the Withdrawal Tier Amount, a requested decrease in face
amount, or lapse. We usually assess these charges if any of the above
transactions occurs within the Surrender Charge Period (see Table 1 below)
unless the charges have been previously deducted. There are two surrender
charges -- a deferred underwriting charge and a deferred sales charge.
DEFERRED UNDERWRITING CHARGE. The deferred underwriting charge is $6 for each
$1,000 of face amount of life insurance coverage initially purchased or added by
increase, multiplied by the percentages shown in Table 1 below. In effect, the
charge applies only to the first $500,000 of face amount initially purchased or
the first $500,000 of each subsequent increase in face amount. Thus, the charge
made in connection with any one underwriting will not exceed $3,000. The amount
of the charge remains level for five years. Following the fifth year after
issuance of the Policy or a face amount increase, the charge applicable to the
initial face amount or increase will decrease each month by varying rates
depending upon the life insured's issue age until the charge has decreased to
zero. The applicable percentage of the deferred underwriting charges to which
the Policy is subject is illustrated by the following table:
TABLE 1: DEFERRED UNDERWRITING CHARGES
<TABLE>
<CAPTION>
Transaction Occurs after
Monthly Deduction Taken Percent of Deferred Underwriting Charges by Issue Age*
For Last Month Preceding ------------------------------------------------------
End of Month* Age
- ------------------------- ------------------------------------------------------
Month 0-50 51 52 53 54 55+
- ------------------------- ---- -- -- -- -- ---
<S> <C> <C> <C> <C> <C> <C>
12 100% 100% 100% 100% 100% 100%
24 100% 100% 100% 100% 100% 100%
36 100% 100% 100% 100% 100% 100%
48 100% 100% 100% 100% 100% 100%
60 100% 100% 100% 100% 100% 100%
72 90% 88.89% 87.50% 85.71% 83.33% 80.00%
84 80% 77.78% 75.00% 71.43% 66.67% 60.00%
</TABLE>
23
<PAGE> 27
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
96 70% 66.67% 62.50% 57.14% 50.00% 40.00%
108 60% 55.56% 50.00% 42.86% 33.33% 20.00%
120 50% 44.44% 37.50% 28.57% 16.67% 0%
132 40% 33.33% 25.00% 14.28% 0%
144 30% 22.22% 12.50% 0%
156 20% 11.11% 0%
168 10% 0%
180 0%
</TABLE>
* Months not shown may be calculated by interpolation.
We designed the deferred underwriting charge to cover the administrative
expenses associated with underwriting and policy issue, including the costs of
processing applications, conducting medical examinations, determining the life
insured's risk class and establishing policy records.
DEFERRED SALES CHARGE. The maximum deferred sales charge is 50% of premiums paid
up to a maximum number of Target Premiums that varies (from -0.180 to 3.031)
according to the issue age of the life insured, the face amount at issue and the
amount of any increase. This charge compensates us for some of the expenses of
selling and distributing the Policies, including agents' commissions,
advertising, agent training and the printing of prospectuses and sales
literature.
The deferred sales charge deducted in any policy year is not specifically
related to sales expenses incurred in that year. Instead, we expect that the
major portion of the sales expenses attributable to a Policy will be incurred
during the first policy year, although the deferred sales charge might be
deducted up to fifteen years later. We anticipate that the aggregate amounts we
receive under the Policies for sales charges will be insufficient to cover our
aggregate sales expenses. To the extent that our sales expenses exceed our sales
charges, we will pay the excess from our other assets or surplus, including
amounts derived from the mortality and expense risks charge described below. If
you surrender the Policy for its Net Cash Surrender Value during the first two
policy years, or during the first two policy years following a face amount
increase, we may forego deducting a portion of the deferred sales charge. Where
that sales charge limitation is applicable, the deferred sales charge assessable
under the Policy will increase at the beginning of the third policy year to the
level that would have applied absent the limitation. See Surrender Charges
(Sales Charge Limitation) below.
We specify the Target Premium for the initial face amount in the Policy. We will
compute a Target Premium for each increase in face amount above the highest face
amount of coverage previously in effect, and we will advise you of each new
Target Premium.
Target Premiums depend upon the face amount of insurance provided at issue or by
an increase and the issue age and sex (unless unisex rates are required by law)
of the life insured. The maximum number of Target Premiums subject to the
deferred sales charge varies, based on the issue age of the life insured, the
face amount at issue and the amount of any increase, according to the following
tables:
24
<PAGE> 28
TABLE 2: NUMBER OF TARGET PREMIUMS SUBJECT TO DEFERRED SALES CHARGE FOR POLICIES
ISSUED PRIOR TO JULY 10, 1995
(APPLICABLE TO THE INITIAL FACE AMOUNT AND INCREASES)
<TABLE>
<CAPTION>
$250,000 UNDER $250,000 UNDER $250,000 UNDER
AGE OR MORE $250,000 AGE OR MORE $250,000 AGE OR MORE $250,000
--- -------- -------- --- -------- -------- --- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
*0 -0.031 -0.039 30 1.319 1.648 60 2.356 2.945
*1 -0.144 -0.180 31 1.366 1.707 61 2.375 2.968
*2 -0.081 -0.102 32 1.415 1.768 62 2.399 2.998
*3 -0.020 -0.025 33 1.459 1.823 63 2.425 3.031
4 0.037 0.046 34 1.503 1.878 64 2.380 2.975
5 0.096 0.120 35 1.542 1.927 65 2.269 2.836
6 0.166 0.207 36 1.590 1.987 66 2.124 2.655
7 0.221 0.276 37 1.633 2.041 67 2.006 2.507
8 0.281 0.351 38 1.672 2.090 68 1.888 2.360
9 0.340 0.425 39 1.718 2.147 69 1.787 2.233
10 0.391 0.488 40 1.756 2.195 70 1.691 2.113
11 0.453 0.566 41 1.790 2.237 71 1.592 1.990
12 0.514 0.642 42 1.832 2.290 72 1.494 1.867
13 0.560 0.700 43 1.869 2.336 73 1.396 1.745
14 0.614 0.767 44 1.904 2.380 74 1.317 1.646
15 0.560 0.700 45 1.937 2.421 75 1.241 1.551
16 0.606 0.757 46 1.969 2.461 76 1.162 1.452
17 0.658 0.822 47 2.000 2.500 77 1.084 1.355
18 0.718 0.897 48 2.032 2.540 78 1.010 1.262
19 0.767 0.958 49 2.062 2.577 79 0.946 1.182
20 0.817 1.021 50 2.093 2.616 80 0.887 1.108
21 0.870 1.087 51 2.123 2.653 81 0.831 1.038
22 0.924 1.155 52 2.154 2.692 82 0.779 0.973
23 0.973 1.216 53 2.182 2.727 83 0.733 0.916
24 1.026 1.282 54 2.211 2.763 84 0.688 0.860
25 1.075 1.343 55 2.234 2.792 85 0.646 0.807
26 1.125 1.406 56 2.259 2.823 86 0.606 0.757
27 1.177 1.471 57 2.284 2.855 87 0.567 0.708
28 1.228 1.535 58 2.307 2.883 88 0.530 0.662
29 1.274 1.592 59 2.333 2.916 89 0.493 0.616
90 0.484 0.605
</TABLE>
* A negative number of Target Premiums produces a negative deferred sales
charge. When combined with the deferred underwriting charge, a negative deferred
sales charge reduces the total surrender charge.
25
<PAGE> 29
TABLE 3: NUMBER OF TARGET PREMIUMS SUBJECT TO DEFERRED SALES CHARGE FOR POLICIES
ISSUED ON OR AFTER JULY 10, 1995
(APPLICABLE TO THE INITIAL FACE AMOUNT AND INCREASES)
<TABLE>
<CAPTION>
$250,000 UNDER $250,000 UNDER $250,000 UNDER
AGE OR MORE $250,000 AGE OR MORE $250,000 AGE OR MORE $250,000
- --- -------- -------- --- -------- -------- --- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
*0 -0.031 -0.039 30 1.319 1.648 60 2.356 2.945
*1 -0.144 -0.180 31 1.366 1.707 61 2.375 2.968
*2 -0.081 -0.102 32 1.415 1.768 62 2.399 2.998
*3 -0.020 -0.025 33 1.459 1.823 63 2.425 3.031
4 0.037 0.046 34 1.503 1.878 64 2.367 2.959
5 0.096 0.120 35 1.542 1.927 65 2.259 2.824
6 0.166 0.207 36 1.590 1.987 66 2.113 2.641
7 0.221 0.276 37 1.633 2.041 67 1.992 2.490
8 0.281 0.351 38 1.672 2.090 68 1.875 2.344
9 0.340 0.425 39 1.718 2.147 69 1.777 2.222
10 0.391 0.488 40 1.756 2.195 70 1.679 2.099
11 0.453 0.566 41 1.790 2.237 71 1.583 1.979
12 0.514 0.642 42 1.832 2.290 72 1.486 1.857
13 0.560 0.700 43 1.869 2.336 73 1.392 1.740
14 0.614 0.767 44 1.904 2.380 74 1.315 1.644
15 0.560 0.700 45 1.937 2.421 75 1.238 1.547
16 0.606 0.757 46 1.969 2.461 76 1.161 1.451
17 0.658 0.822 47 2.000 2.500 77 1.083 1.354
18 0.718 0.897 48 2.032 2.540 78 1.007 1.259
19 0.767 0.958 49 2.062 2.577 79 0.945 1.182
20 0.817 1.021 50 2.093 2.616 80 0.885 1.106
21 0.870 1.087 51 2.123 2.653 81 0.829 1.037
22 0.924 1.155 52 2.154 2.692 82 0.779 0.973
23 0.973 1.216 53 2.182 2.727 83 0.732 0.915
24 1.026 1.282 54 2.211 2.763 84 0.687 0.859
25 1.075 1.343 55 2.234 2.792 85 0.644 0.806
26 1.125 1.406 56 2.259 2.823 86 0.604 0.755
27 1.177 1.471 57 2.284 2.855 87 0.566 0.708
28 1.228 1.535 58 2.307 2.883 88 0.529 0.661
29 1.274 1.592 59 2.333 2.916 89 0.493 0.616
90 0.484 0.605
</TABLE>
* A negative number of Target Premiums produces a negative deferred sales
charge. When combined with the deferred underwriting charge, a negative deferred
sales charge reduces the total surrender charge.
Except for surrenders to which the sales charge limitation provisions described
below apply, the maximum deferred sales charge will be in effect for at least
the first two years of the Surrender Charge Period. After that, the portion of
the deferred sales charge that remains in effect will grade down at a rate that
also varies according to the issue age of the life insured until, at the end of
the Surrender Charge Period, there is no deferred sales charge. The tables we
use to reduce the applicable deferred sales charge during the Surrender Charge
Period are set forth in Appendix C to this Prospectus. The applicable table will
be set forth in each Policy, and we will inform you of the table to be used in
connection with sales charges on increases in face amount.
26
<PAGE> 30
In order to determine the deferred sales charge applicable to a face amount
increase, we will treat a portion of the Policy Value on the date of increase as
a premium attributable to the increase. In addition, a portion of each premium
paid on or subsequent to the increase will be attributed to the increase. In
each case, the portion attributable to the increase will be the ratio of the
"guideline annual premium" for the increase to the sum of the guideline annual
premiums for the initial face amount and all increases including the requested
increase.
A "guideline annual premium" is a hypothetical amount that we use to measure the
maximum amount of the deferred sales charge that may be imposed upon surrender,
partial withdrawal, a decrease in face amount or lapse during the first two
years after issuance or after an increase in face amount.
The following example illustrates how deferred underwriting and deferred sales
charges are calculated using data from Tables 1, 2 and 3 above and from the
tables in Appendix C.
Assume a 36-year-old male (standard risk), whose Policy was issued prior to July
10, 1995, at age 30, and who has paid $9,000 in premiums under a Policy with a
Target
Premium of $1,500 and a face amount of $100,000, surrenders his Policy during
the last month of the sixth policy year.
A deferred underwriting charge of $540 will be assessed. The maximum deferred
underwriting charge of $600 ($6 per $1,000 of face amount X 100) will be
multiplied by the 90% listed in Table 1 as applicable to surrenders during the
last month of the sixth policy year [90% X ($6 X 100) = $540].
A deferred sales charge of $1,192.74 will also be assessed. According to Table
2, the maximum number of Target Premiums subject to the deferred sales charge
for a person who was 30 years old when his or her Policy with a face amount less
than $250,000 was issued would be 1.648. Thus $2,472 (1.648 X $1,500) will be
the maximum amount of premiums subject to the 50% sales charge, producing a
maximum sales charge of $1,236 (50% X $2,472 = $1,236). Because the surrender
occurs during the last month of the sixth policy year, only 96.50% (from the
table in Appendix C for issue age 30) of the maximum sales charge remains
applicable [96.50% X (.50 X 1.648 X $1,500) = $1,192.74].
SALES CHARGE LIMITATION. If you surrender your Policy or decrease its face
amount at any time during the first two years after issuance or after an
increase in face amount, we will forego taking that part of the deferred sales
charge with respect to "premiums" paid for the initial face amount or such
increase (including the portion of Policy Value treated as premiums for the
increase, as described above), whichever is applicable, which exceeds the sum of
(i) 30% of the premiums paid up to the lesser of one guideline
annual premium or the maximum amount of premiums subject to the
deferred sales charge
plus
(ii) 10% of the premiums paid in excess of one guideline annual
premium, up to the lesser of two guideline annual premiums or
the maximum amount of premiums subject to the deferred sales
charge,
plus
(iii) 9% of the premiums paid in excess of two guideline annual
premiums up to the maximum amount of premiums subject to the
deferred sales charge.
The operation of the sales charge limitation for Policies issued prior to July
10, 1995 is illustrated by the following example. A 67-year-old male non-smoker
purchased a Policy with a face amount in excess of $250,000 when he was age 65.
He has paid $30,000 in premiums under the Policy and it has a guideline annual
premium (GAP) of $15,997 and a Target Premium (TP) of $11,835. He surrenders his
policy during the second policy year. In the absence of the sales charge
limitation, the maximum deferred sales charge would be 50% of the lesser of
premiums paid ($30,000) or the maximum amount of premiums subject to the
deferred sales charge (TP X Maximum Number of TP's = $11,835 X 2.269 = $26,854),
27
<PAGE> 31
which results in 50% of $26,854 (the "Maximum Chargeable Amount" or "MCA") or
$13,427 as the maximum deferred sales charge. However, under the formula
described above, the maximum sales charge allowable will be $5,885. This is
calculated as the sum of:
(i) 30% of one GAP, or $4,799 [.30 X $15,997 = $4,799], because
one GAP ($15,997) is less than premiums paid ($30,000) and
less than the MCA ($26,854);
plus
(ii) 10% of the MCA in excess of one GAP, or $1,086 (.10 X $10,857
= $1,086) because the MCA in excess of one GAP ($26,854 -
$15,997 = $10,857) is less than premiums paid in excess of one
GAP ($30,000 - $15,997 = $14,003) and less than the amount of
a second GAP ($15,997);
plus
(iii) $0, because no premiums in excess of two GAPs were paid and
would not have been chargeable in any event, as the MCA was
less than two GAPs.
Thus, (i) $4,799 plus (ii) $1,086 plus (iii) $0 equals $5,885, the maximum sales
charge allowable.
If the Policy in the foregoing example were issued on or after July 10, 1995,
the maximum sales charge allowable would be $5,873, because the maximum amount
of Target Premiums subject to the deferred sales charge would be 2.259 (from
Table 3) instead of 2.269 (from Table 2).
Since a deferred sales charge is deducted when a Policy terminates for failure
to make the required payment following the Policy's going into default, the
sales charge limitation will apply if the termination occurs during the two-year
period following issuance or any increase in face amount. If the Policy
terminates during the two years after a face amount increase, the sales charge
limitation will relate only to the sales charges applicable to the increase.
CHARGES ON PARTIAL WITHDRAWALS. Whenever a portion of the surrender charges is
deducted as a result of a partial withdrawal of Policy Value in excess of the
Withdrawal Tier Amount, we will reduce the Policy's remaining surrender charges
by the amount of the charges taken. The surrender charges not assessed as a
result of the 10% free withdrawal provision remain in effect under the Policy
and may be assessed upon surrender or lapse, other partial withdrawals, or a
requested decrease in face amount. The portion of the surrender charges assessed
will be based on the ratio of (i) to (ii), where
(i) is the amount of the withdrawal in excess of the Withdrawal Tier
Amount, and
(ii) is the Net Cash Surrender Value of the Policy less the Withdrawal
Tier Amount immediately prior to the withdrawal.
We will deduct the surrender charges from each Investment Account and the Fixed
Account in the same proportion as the amount of the withdrawal taken from such
account bears to the total amount of the withdrawal. If the amount in the
account is insufficient to pay the portion of the surrender charges allocated to
that account, then the portion of the withdrawal allocated to that account will
be reduced so that the withdrawal plus the portion of the surrender charges
allocated to that account equal the value of that account.
Units equal to the amount of the partial withdrawal taken, and surrender charges
deducted, from each Investment Account will be canceled based on the value of
such units determined at the end of the Business Day on which we receive a
written request for withdrawal at our Service Office.
If the Option 1 death benefit is in effect under a Policy from which a partial
withdrawal is made, we will reduce the face amount of the Policy. If the death
benefit is equal to the face amount at the time of withdrawal, the face amount
will be
28
<PAGE> 32
reduced by the amount of the withdrawal plus the portion of the surrender
charges assessed. If the death benefit is based upon the Policy Value times the
applicable percentage set forth under Insurance Benefit -- "Death Benefit
Options" above, the face amount will be reduced only to the extent that the
amount of the withdrawal plus the portion of the surrender charges assessed
exceeds the difference between the death benefit and the face amount.
Reductions in face amount resulting from partial withdrawals will not incur any
surrender charges above the surrender charges applicable to the withdrawal. When
the face amount of a Policy is based on one or more increases subsequent to
issuance of the Policy, a reduction resulting from a partial withdrawal will be
applied in the same manner as a requested decrease in face amount, i.e., against
the face amount provided by the most recent increase, then against the next most
recent increases successively and finally against the initial face amount.
CHARGES ON DECREASES IN FACE AMOUNT. As with partial withdrawals, we will deduct
a portion of a Policy's surrender charges upon a decrease, or a cancellation of
an increase, in face amount which you request. Since surrender charges are
determined separately for the initial face amount and each face amount increase,
and since a decrease in face amount will have a different impact on each level
of insurance coverage, we will determine separately the portion of the surrender
charges to be deducted with respect to each level of insurance coverage. That
portion will be the same as the ratio of the amount of the reduction in such
coverage to the amount of such coverage prior to the reduction.
As noted under Insurance Benefit -- "Face Amount Changes," we apply decreases to
the most recent increase first and thereafter to the next most recent increases
successively. We will deduct the charges from the Policy Value, and we will
allocate the amount so deducted among the Investment Accounts and the Fixed
Account in the same proportion as the Policy Value in each bears to the Net
Policy Value. Whenever a portion of the surrender charges is deducted as a
result of a decrease in face amount, the Policy's remaining surrender charges
will be reduced by the amount of the charges taken.
CHARGES REMAINING AFTER FACE AMOUNT DECREASES OR PARTIAL WITHDRAWALS. Each time
a pro-rata deferred underwriting charge or a pro-rata deferred sales charge for
a face amount decrease or for a partial withdrawal is deducted, the remaining
deferred underwriting charge and deferred sales charge will be reduced
proportionately.
We will calculate the remaining deferred underwriting charge using Table 1
above. The actual remaining charge will be the result of (a) divided by (b),
multiplied by (c), where
(a) is the grading percentage applicable to the life insured's issue
age and Policy duration;
(b) is the grading percentage applicable to the life insured's issued
age at the time of the last face amount decrease or partial
withdrawal;
and
(c) is the remaining deferred sales charge prior to the last face
amount decrease or partial withdrawal less the deferred
underwriting charge deducted for that face amount decrease or
partial withdrawal.
We will calculate the remaining deferred sales charge using Table 2 above and
Appendix C. The actual remaining charge will be the result of (a) divided by
(b), multiplied by (c), where:
(a) is the grading percentage applicable to the Policy duration;
(b) is the grading percentage at the time of the last face amount
decrease or partial withdrawal;
and
(c) is the remaining deferred sales charge prior to the last face
amount decrease or partial withdrawal less the deferred sales
charge deducted for that face amount decrease or partial
withdrawal.
29
<PAGE> 33
Until the sum of premiums paid equals or exceeds the number of Target Premiums
subject to deferred sales charge multiplied by the Target Premium, subsequent
premium payments will increase the remaining referred sales charge.
MONTHLY DEDUCTIONS
Each month we make a deduction from Policy Value consisting of an administration
charge, a charge for the cost of insurance, a charge for mortality and expense
risks, and charge(s) for any supplementary benefit(s) (see Other Provisions --
"Supplementary Benefits"). We allocate the monthly deduction among the
Investment Accounts and (other than the mortality and expense risks charge) the
Fixed Account in the same proportion as the Policy Value in each bears to the
Net Policy Value. Monthly deductions due prior to the effective date will be
taken on the effective date instead of the dates they were due. If the Policy is
still in force when the life insured attains age 100, no further monthly
deductions will be taken from the Policy Value.
ADMINISTRATION CHARGE
The monthly administration charge is $35 until the first anniversary and,
thereafter, $10 (the right is reserved to increase the administration charge by
an additional amount of up to $.01 per $1,000 of face amount per month). The
charge is designed to cover certain administrative expenses associated with the
Policy, including maintaining policy records, collecting premiums and processing
death claims, surrender and withdrawal requests and various charges permitted
under a Policy.
COST OF INSURANCE CHARGE
The monthly charge for the cost of insurance is determined by multiplying the
applicable cost of insurance rate times the net amount at risk at the beginning
of each policy month. The cost of insurance rate is based on
- the life insured's issue age,
- the duration of the coverage,
- sex (unless unisex rates are required by law),
- risk class, and,
- in the case of certain Policies issued in group or sponsored
arrangements providing for reduction in cost of insurance charges (see
"Special Provisions For Group Or Sponsored Arrangements"), the face
amount of the Policy.
See Miscellaneous Matters -- "Legal Considerations." We determine the rate
separately for the initial face amount and for each increase in face amount.
Cost of insurance rates will generally increase with the life insured's age. Any
additional ratings as indicated in the Policy will be added to the cost of
insurance rate.
We use cost of insurance rates that reflect our expectations as to future
mortality experience as based on current experience. We may change the rates
from time to time on a basis which does not unfairly discriminate within the
class of life insureds. In no event will the cost of insurance rate exceed the
guaranteed rate set forth in the Policy except to the extent that an extra rate
is imposed because of an additional rating applicable to the life insured or if
simplified underwriting is granted in a group or sponsored arrangement (see
"Special Provisions For Group Or Sponsored Arrangements"). The guaranteed rates
are based on the 1980 Commissioners Standard Ordinary Smoker/Nonsmoker Mortality
Tables.
If requested by the applicant, we may offer the Policy with provisions based on
actuarial tables that do not differentiate on the basis of sex to such
prospective purchasers in states where the unisex version of the Policy has been
approved.
The State of Montana currently prohibits the issuance of policies with
assumptions that distinguish between men and women in determining premiums and
policy benefits for policies issued on the life of any of its residents.
The net amount at risk to which the cost of insurance rate is applied is the
difference between the death benefit, divided by 1.0032737 (a factor which
reduces the net amount at risk for cost of insurance charge purposes by taking
into account assumed monthly earnings at an annual rate of 4%), and the Policy
Value. Because different cost of insurance rates may
30
<PAGE> 34
apply to different levels of insurance coverage, we will calculate the net
amount at risk separately for each level of insurance coverage. When the Option
1 death benefit is in effect, for purposes of determining the net amount at risk
applicable to each level of insurance coverage, the Policy Value is attributed
first to the initial face amount and then, if the Policy Value is greater than
the initial face amount, to each increase in face amount in the order made.
Because the calculation of the net amount at risk is different under the death
benefit options when more than one level of insurance coverage is in effect, a
change in the death benefit option may result in a different net amount at risk
for each level of insurance coverage than would have occurred had the death
benefit option not been changed. Since the cost of insurance is calculated
separately for each level of insurance coverage, any change in the net amount at
risk for a level of insurance coverage resulting from a change in the death
benefit option may affect the amount of the charge for the cost of insurance.
Partial withdrawals and decreases in face amount will also affect the manner in
which the net amount at risk for each level of insurance coverage is calculated.
MORTALITY AND EXPENSE RISK CHARGE
We make a monthly charge against your Policy Value for the mortality and expense
risks we assume under the Policies. We make this charge at the beginning of each
policy month at an annual rate of
- .90% through the later of the tenth anniversary of the Policy and your
attained age of 60
- and, thereafter, .45%.
We assess the charge against the value of your Investment Accounts by canceling
units in the same proportion as the value of each Investment Account bears to
the total value of your Investment Accounts. The mortality risk assumed is that
lives insured may live for a shorter period of time than we estimated. The
expense risk assumed is that expenses incurred in issuing and administering the
Policies will be greater than we estimated. We estimate that virtually all of
the mortality and expense risks charge currently relates to expense risks. We
will realize a gain from this charge to the extent it is not needed to provide
benefits and pay expenses under the Policies.
OTHER CHARGES
Currently, we make no charge against the Separate Account for federal, state or
local taxes that may be attributable to the Separate Account or to our
operations with respect to the Policies. However, if we incur any such taxes, we
may make a charge therefor.
We impose charges on certain transfers of Policy Values, including a $25 charge
for each transfer in excess of twelve in a policy year and a $5 charge for each
Dollar Cost Averaging transfer when Policy Value does not exceed $15,000. See
Policy Values -- "Transfers Of Policy Value."
The Separate Account purchases shares of Portfolios at net asset value. The net
asset value of those shares reflects the investment management fees and expenses
of the Portfolios, which are set forth below. More detailed information
concerning these fees and expenses is set forth under the caption "Management of
The Trust" in the prospectus for the Trust that accompanies this prospectus.
TRUST ANNUAL EXPENSES
(as a percentage of Trust average net assets)
<TABLE>
<CAPTION>
OTHER EXPENSES
MANAGEMENT (AFTER EXPENSE TOTAL TRUST
TRUST PORTFOLIO FEES REIMBURSEMENT)*** ANNUAL EXPENSES
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pacific Rim Emerging Markets........ 0.850% 0.360% 1.210%
Science & Technology................ 1.100% 0.110% 1.210%
International Small Cap............. 1.100% 0.150% 1.250%
Aggressive Growth................... 1.000%+ 0.090% 1.090%
</TABLE>
31
<PAGE> 35
<TABLE>
<S> <C> <C> <C>
Emerging Small Company.............. 1.050% 0.050% 1.100%
Small Company Blend................. 1.050% 0.150%* 1.200%
Mid Cap Growth...................... 0.950%+ 0.040% 0.990%
Mid Cap Stock....................... 0.925% 0.000%* 0.925%
</TABLE>
<TABLE>
<CAPTION>
OTHER EXPENSES
MANAGEMENT (AFTER EXPENSE TOTAL TRUST
TRUST PORTFOLIO FEES REIMBURSEMENT)*** ANNUAL EXPENSES
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Overseas............................ 0.950% 0.210% 1.160%
International Stock................. 1.050% 0.200% 1.250%
International Value................. 1.000% 0.300%* 1.300%
Mid Cap Blend....................... 0.850%+ 0.050% 0.900%
Small Company Value................. 1.050% 0.180% 1.230%
Global Equity....................... 0.900% 0.110% 1.010%
Growth.............................. 0.850% 0.050% 0.900%
Large Cap Growth.................... 0.875%+ 0.130% 1.005%
Quantitative Equity................. 0.700% 0.060% 0.760%
Blue Chip Growth.................... 0.875%+ 0.045% 0.920%
Real Estate Securities.............. 0.700% 0.060% 0.760%
Value............................... 0.800% 0.050% 0.850%
Equity Index........................ 0.250% 0.150%** 0.400%**
Growth & Income..................... 0.750% 0.040% 0.790%
U.S. Large Cap Value................ 0.875% 0.100%* 0.975%
Equity-Income....................... 0.875%+ 0.050% 0.925%
Income & Value...................... 0.800% 0.090% 0.890%
Balanced............................ 0.800% 0.070% 0.870%
High Yield.......................... 0.775% 0.065% 0.840%
Strategic Bond...................... 0.775% 0.075% 0.850%
Global Bond......................... 0.800% 0.110% 0.910%
Total Return........................ 0.775% 0.100%* 0.875%
Investment Quality Bond............. 0.650% 0.070% 0.720%
Diversified Bond.................... 0.750% 0.140% 0.890%
U.S. Government Securities.......... 0.650% 0.070% 0.720%
Money Market........................ 0.500% 0.120% 0.620%
Lifestyle Aggressive 1000#.......... 0% 1.110%*** 1.110%
Lifestyle Growth 820#............... 0% 1.000%*** 1.000%
Lifestyle Balanced 640#............. 0% 0.920%*** 0.920%
Lifestyle Moderate 460#............. 0% 0.830%*** 0.830%
Lifestyle Conservative 280#......... 0% 0.720%*** 0.720%
</TABLE>
+Management Fees for these portfolios changed effective May 1, 1999. Prior to
May 1, 1999, management fees were as follows:
Aggressive Growth Trust 1.050%
Mid Cap Growth Trust 1.000%
Mid Cap Blend Trust 0.750%
Large Cap Growth Trust 0.750%
Blue Chip Growth Trust 0.925%
Equity Income Trust 0.800%
Income & Value Trust 0.750%
*Based on estimates of payments to be made during the current fiscal year.
** Under the Advisory Agreement, MSS has agreed o 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
32
<PAGE> 36
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 Trust. If this expense reimbursement had not
been in effect, Total Trust Annual Trust. If this expense reimbursement had not
been in effect, Total Trust Annual Expenses would have been 0.55%, and Other
Expenses would have been 0.30%, of the average annual net assets of the Equity
Index Trust.
*** Reflects expenses of the Underlying Portfolios. Manufacturers Securities
Services, LLC ("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 0.02%
higher, except for the Lifestyle Conservative 280 Trust, which would be 0.03%
higher (based on expenses of the Lifestyle Trusts for the fiscal year ended
December 31, 1998) 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% 1.130% 1.130%
Lifestyle Growth 820................ 0% 1.020% 1.020%
Lifestyle Balanced 640.............. 0% 0.940% 0.940%
Lifestyle Moderate 460.............. 0% 0.850% 0.850%
Lifestyle Conservative 280.......... 0% 0.750% 0.750%
</TABLE>
# Each Lifestyle Trust will bear its own pro rata share of the fees and expenses
incurred by the Underlying Portfolios in which it invests, 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, MSS is
currently paying those expenses as described in footnote (***) above.
SPECIAL PROVISIONS FOR GROUP OR SPONSORED ARRANGEMENTS
Where permitted by state insurance laws, Policies may be purchased under group
or sponsored arrangements, as well as on an individual basis. A "group
arrangement" includes a program under which a trustee, employer or similar
entity purchases Policies covering a group of individuals on a group basis. In
California all participants of group arrangements will be individually
underwritten. A "sponsored arrangement" includes a program under which an
employer permits group solicitation of its employees or an association permits
group solicitation of its members for the purchase of Policies on an individual
basis.
We may reduce the charges and deductions described above for Policies issued in
connection with group or sponsored arrangements. Such arrangements may include
sales without withdrawal charges and deductions to our employees, officers,
directors, agents, immediate family members of the foregoing, and employees of
our agents and of our subsidiaries. We will reduce the above charges and
deductions in accordance with our rules in effect as of the date an application
for a Policy is approved. To qualify for such a reduction, a group or sponsored
arrangement must satisfy certain criteria as to, for example, size of the group,
expected number of participants and anticipated premium payments from the group.
Generally, the sales contacts and effort, administrative costs and mortality
cost per Policy vary based on such factors as the size of the group or sponsored
arrangements, the purposes for which Policies are purchased and certain
characteristics of its members. The amount of reduction and the criteria for
qualification will reflect the reduced sales effort and administrative costs
resulting from, and the different mortality experience expected as a result of,
sales to qualifying groups and sponsored arrangements.
We may modify from time to time, on a uniform basis, both the amounts of
reductions and the criteria for qualification. Reductions in these charges will
not be unfairly discriminatory against any person, including the affected
policyowners and all other policyowners funded by the Separate Account.
33
<PAGE> 37
In addition, groups and persons purchasing under a sponsored arrangement may
apply for simplified underwriting. If simplified underwriting is granted, the
cost of insurance charge may increase as a result of higher anticipated
mortality experience. In addition, groups or persons purchasing under a
sponsored arrangement may request increases or decreases in face amount at any
time after issue and decreases in face amount at any time after an increase in
face amount.
SPECIAL PROVISIONS FOR EXCHANGES
We will permit owners of certain life insurance policies issued either by us or
Manufacturers Life to exchange their policies for the Policies described in this
prospectus. Charges under the policies being exchanged or the Policies issued in
exchange therefor may be reduced or eliminated. Owners of certain policies may
be entitled to convert their policies to the Policies described in this
prospectus. If they elect to convert, they may receive a credit upon conversion
in an amount up to their first-year premium. Policy loans made under policies
being exchanged may, in some circumstances, be carried over to the new Policies
without repayment at the time of exchange. Policyowners considering an exchange
should consult their tax advisers as to the tax consequences of an exchange.
THE GENERAL ACCOUNT
By virtue of exclusionary provisions, interests in our general account have not
been registered under the Securities Act of 1933 and our general account has not
been registered as an investment company under the Investment Company Act of
1940. Accordingly, neither our general account nor any interests therein are
subject to the provisions of these acts, and as a result the staff of the
Securities and Exchange Commission has not reviewed the disclosures in this
prospectus relating to the general account. Disclosures regarding the general
account may, however, be subject to certain generally applicable provisions of
the federal securities laws relating to the accuracy and completeness of
statements made in a prospectus.
Our general account consists of all assets owned by us other than those in our
separate accounts. Subject to applicable law, we have sole discretion over the
investment of the assets of our general account.
You may elect to allocate net premiums to the Fixed Account or to transfer all
or a portion of your Policy Value to the Fixed Account from the Investment
Accounts. Transfers from the Fixed Account to the Investment Accounts are
subject to restrictions. See Policy Values -- "Transfers Of Policy Value" and
"Policy Value." We will hold the reserves required for any portion of the Policy
Value allocated to the Fixed Account in our general account. However, your
allocation of Policy Value to the Fixed Account does not entitle you to share in
the investment experience of our general account. Instead, we guarantee that
your 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 our general account. We may, at our sole discretion, credit a
higher rate of interest, although we are not obligated to do so. You assume the
risk that interest credited may not exceed the guaranteed minimum rate of 4% per
year.
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OTHER GENERAL POLICY PROVISIONS
POLICY DEFAULT
Unless the Death Benefit Guarantee is in effect, your Policy will go into
default if the Policy's Net Cash Surrender Value at the beginning of any policy
month would go below zero after deducting the monthly deductions then due. We
will notify you of the default and will allow a 61-day grace period in which you
may make a premium payment sufficient to bring the Policy out of default. The
payment you must make will be equal to the amount necessary to bring the Net
Cash Surrender Value to zero, if it was less than zero at the date of default,
plus the monthly deductions due at the date of default and at the beginning of
each of the two policy months thereafter, based on the Policy Value at the date
of default. If we do not receive the required payment by the end of the grace
period, we will terminate the Policy and pay to you the Net Cash Surrender Value
(subject to any applicable limitation on surrender charges; see Charges And
Deductions -- "Surrender Charges") as of the date of default less the monthly
deductions then due. If the life insured should die during the grace period
following a Policy's going into default, the Policy Value used in the
calculation of the death benefit will be the Policy Value as of the date of
default, and the insurance benefit payable will be reduced by any outstanding
monthly deductions due at the time of death.
POLICY REINSTATEMENT
You can reinstate a Policy which has terminated after going into default at any
time within 21 days following the date of termination without furnishing
evidence of insurability, subject to the following conditions:
(a) The life insured's risk class is standard or preferred; and
(b) The life insured's attained age is less than 46.
You 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) You must not have surrendered the Policy for its Net Cash
Surrender Value;
(b) You furnish to us satisfactory evidence of the life insured's
insurability;
(c) You pay us a premium equal to the payment required during the
61-day grace period following default to keep the Policy in
force; and
(d) You repay to us an amount equal to any amounts paid by us in
connection with the termination of the Policy.
If we approve the reinstatement, the date of reinstatement will be the later of
the date of your written request or the date we receive the required payment at
our Service Office.
MISCELLANEOUS POLICY PROVISIONS
BENEFICIARY. You may appoint one or more beneficiaries of the Policy by naming
them in the application. Beneficiaries may be appointed in three classes --
primary, secondary and final. Thereafter you may change the beneficiary during
the life insured's lifetime by giving written notice to us in a form
satisfactory to us unless an irrevocable designation has been elected. If the
life insured dies and there is no surviving beneficiary, you, or your estate if
you are the life insured, will be the beneficiary. 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.
INCONTESTABILITY. We will not contest the validity of a Policy after it has been
in force during the life insured's lifetime for two years from the issue date.
We will not contest the validity of an increase in face amount or the addition
of a
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<PAGE> 39
supplementary benefit after such increase or addition has been in force during
the life insured's lifetime for two years. If a Policy has been reinstated and
been in force for less than two years from the reinstatement date, we can
contest any misrepresentation of a fact material to the reinstatement.
MISSTATEMENT OF AGE OR SEX. If the life insured's stated age or sex or both in
the Policy are incorrect, we will change the face amount of insurance so that
the death benefit will be that which the most recent monthly charge for the cost
of insurance would have bought for the correct age and sex (unless unisex rates
are required by law).
SUICIDE EXCLUSION. If the life insured, whether sane or insane, dies by suicide
within two years from the issue date, we will pay only the premiums paid less
any partial withdrawals of the Net Cash Surrender Value and any amount in the
Loan Account. If the life insured should die by suicide within two years after a
face amount increase, the death benefit for the increase will be limited to the
monthly deduction for the increase.
ASSIGNMENT. We will not be bound by an assignment until we receive a copy of it
at our Service Office. We assume no responsibility for the validity or effects
of any assignment.
OTHER PROVISIONS
SUPPLEMENTARY BENEFITS
Subject to certain requirements, you may add one or more supplementary benefits
to a Policy, including those providing term insurance for additional insureds,
providing accidental death coverage, waiving monthly deductions upon disability,
guaranteeing the Policy Value, accelerating benefits in the event of terminal
illness, and, in the case of corporate-owned Policies, permitting a change of
the life insured. You may obtain more detailed information concerning
supplementary benefits from one of our authorized agents. We will deduct the
cost of any supplementary benefits as part of the monthly deduction. See Charges
And Deductions -- "Monthly Deductions."
PAYMENT OF PROCEEDS
As long as the Policy is in force, we will ordinarily pay any policy loans,
partial withdrawals, Net Cash Surrender Value or any insurance benefit within
seven days after receipt at our Service Office of all the documents required for
such a payment.
We may delay the payment of any policy loans, partial withdrawals, Net Cash
Surrender Value or the portion of any insurance benefit that depends on the
Fixed Account value for up to six months; otherwise we may delay payment for any
period during which (i) the New York Stock Exchange is closed for trading
(except for normal holiday closings) or trading on the Exchange is otherwise
restricted; or (ii) an emergency exists as defined by the S.E.C. or the S.E.C.
requires that trading be restricted; or (iii) the S.E.C. permits a delay for the
protection of policyowners. Also, we may deny transfers in the circumstances
stated in clauses (i), (ii) and (iii) above and in the circumstances previously
set forth. See Policy Values -- "Transfers Of Policy Value."
REPORTS TO POLICYOWNERS
Within 30 days after each policy anniversary, we will send you a statement
showing, among other things, the amount of the 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, any Loan Account balance and any interest charged since the
last statement, the premiums paid and policy transactions made during the period
since the last statement and any other information required by law.
Within 10 days after any transaction involving purchase, sale, or transfer of
units of Investment Accounts, we will send a confirmation statement.
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<PAGE> 40
You will also be sent an annual and a semi-annual report for Manufacturers
Investment Trust which will include a list of the securities held in each
Portfolio as required by the 1940 Act.
MISCELLANEOUS MATTERS
PORTFOLIO SHARE SUBSTITUTION
Although we believe it to be highly unlikely, it is possible that in the
judgment of our management, one or more of the Portfolios may become unsuitable
for investment by the Separate Account because of a change in investment policy
or a change in the applicable laws or regulations, because the shares are no
longer available for investment, or for some other reason. In that event, we 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.
We also reserve the right to combine other separate accounts with the Separate
Account, to establish additional sub-accounts within the Separate Account, to
operate the Separate Account as a management investment company or other form
permitted by law, to transfer assets from this Separate Account to another
separate account and from another separate account to this Separate Account, and
to de-register the Separate Account under the 1940 Act. We would make the change
only if permissible under applicable federal and state law.
We will not materially change the investment objectives of the Separate Account
without first filing the change with the Insurance Commissioner of the State of
Michigan. You will be advised of any change at the time it is made.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary provides a general description of the federal income tax
considerations associated with the Policy and does not purport to be complete or
to cover all situations. This discussion is not intended as tax advice. You
should consult counsel or other competent tax advisers for more complete
information. This discussion is based upon our understanding of the present
federal income tax laws as they are currently interpreted by the Internal
Revenue Service (the "Service"). We make no representation as to the likelihood
of continuation of the present federal income tax laws or of the current
interpretations by the Service. WE DO NOT MAKE ANY GUARANTEE REGARDING THE TAX
STATUS OF ANY POLICY OR ANY TRANSACTION REGARDING THE POLICIES.
The Policies may be used in various arrangements, including non-qualified
deferred compensation or salary continuance plans, split dollar insurance plans,
executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if the use of such
Policies in any such arrangement, the value of which depends in part on its tax
consequences, is contemplated, you should consult a qualified tax adviser for
advice on the tax attributes of the particular arrangement.
TAX STATUS OF THE POLICY
Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code"), sets
forth a definition of a life insurance contract for federal tax purposes. The
Secretary of Treasury (the "Treasury") is authorized to prescribe regulations
implementing Section 7702. However, while proposed regulations and other interim
guidance have been issued, final regulations have not been adopted and guidance
as to how Section 7702 is to be applied is limited. If a Policy were determined
not to be a life insurance contract for purposes of Section 7702, such Policy
would not provide the tax advantages normally provided by a life insurance
policy.
With respect to a Policy issued on the basis of a standard rate class, we
believe (largely in reliance on IRS Notice 88-128 and the proposed mortality
charge regulations under Section 7702, issued on July 5, 1991) that such a
Policy should meet the Section 7702 definition of a life insurance contract.
With respect to a Policy that is issued on a substandard basis (i.e., a premium
class involving higher-than-standard mortality risk), there is less guidance, in
particular as to how mortality and other expense requirements of Section 7702
are
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<PAGE> 41
to be applied in determining whether such a Policy meets the Section 7702
definition of a life insurance contract. Thus, it is not clear whether or not
such a Policy would satisfy Section 7702, particularly if the policyowner pays
the full amount of premiums permitted under the Policy.
If it is subsequently determined that a Policy does not satisfy Section 7702, we
may take whatever steps are appropriate and reasonable to attempt to cause such
a Policy to comply with Section 7702. For these reasons, we reserve the right to
restrict Policy transactions as necessary to attempt to qualify it as a life
insurance contract under Section 7702. Section 817(h) of the Code requires that
the investments of the Separate Account be "adequately diversified" in
accordance with Treasury regulations in order for the Policy to qualify as a
life insurance contract under Section 7702 of the Code (discussed above). The
Separate Account, through Manufacturers Investment Trust, intends to comply with
the diversification requirements prescribed in Treas. Reg. Sec. 1.817-5, which
affect how Manufacturers Investment Trust's assets are to be invested. We
believe that the Separate Account will thus meet the diversification
requirement, and we will monitor continued compliance with the requirement.
In certain circumstances, owners of variable life insurance Policies may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their Policies. In those circumstances, income
and gains from the separate account assets would be includible in the variable
policyowner's gross income. The IRS has stated in published rulings that a
variable policyowner will be considered the owner of separate account assets if
the policyowner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. The Treasury Department
has also announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the policyowner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyowners may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets."
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that policyowners were not owners of separate account assets.
For example, the Policy has many more Portfolios to which policyowners may
allocate premium payments and Policy Values than were available in the policies
described in the rulings. These differences could result in an owner being
treated as the owner of a pro rata portion of the assets of the Separate
Account. In addition, we do 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. We therefore reserve the right to modify the Policy as
necessary to attempt to prevent an owner from being considered the owner of a
pro rata share of the assets of the Separate Account.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. We believe that the proceeds and cash value increases of a Policy
should be treated in a manner consistent with a fixed-benefit life insurance
policy for federal income tax purposes. Thus, the death benefit under the Policy
should be excludable from the gross income of the beneficiary under Section
101(a)(1) of the Code.
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's [Generally, you will not be deemed to be in constructive receipt of
your Policy Value until there is a distribution.] death benefit option, a Policy
loan, a partial withdrawal, a surrender, a change in ownership, a change of
insured, the addition of an accelerated death benefit rider, or an assignment of
the Policy may have federal income tax consequences. In addition, federal, state
and local transfer, and other tax consequences of ownership or receipt of Policy
proceeds depend on the circumstances of each policyowner or beneficiary.
Generally, the policyowner will not be deemed to be in constructive receipt of
the Policy Value, including increments thereof, until there is a distribution.
The tax consequences of distributions from, and loans taken from or secured by,
a Policy depend on whether the Policy is classified as a "Modified Endowment
Contract." Upon a complete surrender or lapse of a Policy or when benefits are
paid at a Policy's maturity date, if the amount received plus the amount of
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<PAGE> 42
indebtedness exceeds the total investment in the Policy, the excess will
generally be treated as ordinary income subject to tax, regardless of whether
the Policy is or is not a Modified Endowment Contract.
MODIFIED ENDOWMENT CONTRACTS. Section 7702A establishes a class of life
insurance contracts designated as "Modified Endowment Contracts," which applies
to Policies entered into or materially changed after June 20, 1988.
Because of the Policy's flexibility, classification as a Modified Endowment
Contract will depend on the individual circumstances of each Policy. In general,
a Policy will be a Modified Endowment Contract if the accumulated premiums paid
at any time during the first seven policy years exceed the sum of the net level
premiums which would have been paid on or before such time if the Policy
provided for paid-up future benefits after the payment of seven level annual
premiums. The determination of whether a Policy will be a Modified Endowment
Contract after a material change generally depends upon the relationship of the
death benefit and Policy Value at the time of such change and the additional
premiums paid in the seven years following the material change. If a premium is
received which would cause the Policy to become a Modified Endowment Contract
(MEC) within 23 days of the next policy anniversary, we 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 your Policy to become a MEC more than
23 days prior to the next policy anniversary, we will refund any excess premium
to you. The portion of the premium which is not excess will be applied as of the
date received. We will advise you of this action and will offer to return the
premium and have it credited to the account as of the original date received.
If, in connection with the application or issue of the Policy, you acknowledge
that your Policy is or will become a MEC, we will credit excess premiums that
would cause MEC status as of the date received.
Further, if a transaction occurs which reduces the face amount of your Policy
during the first seven years, we will retest the Policy, retroactive to the date
of purchase, to determine compliance with the seven-pay test based on the lower
face amount. As well, if a reduction of the face amount occurs within seven
years of a material change, we will retest the Policy for compliance retroactive
to the date of the material change. Failure to comply would result in
classification as a Modified Endowment Contract regardless of any efforts by us
to provide a payment schedule that will not violate the seven-pay test.
The rules relating to whether a Policy will be treated as a Modified Endowment
Contract are extremely complex and cannot be adequately described in the limited
confines of this summary. Therefore, you should consult with a competent adviser
to determine whether a transaction will cause the Policy to be treated as a
Modified Endowment Contract.
DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS. Policies
classified as Modified Endowment Contracts will be subject to the following tax
rules: First, all partial withdrawals from such a Policy are treated as ordinary
income subject to tax up to the amount equal to the excess (if any) of the
Policy Value immediately before the distribution over the investment in the
Policy (described below) at such time. Second, loans taken from or secured by
such a Policy are treated as partial withdrawals from the Policy and taxed
accordingly. Past-due loan interest that is added to the loan amount is treated
as a loan. Third, a 10% additional income tax is imposed on the portion of any
distribution (including distributions upon surrender) from, or loans taken from
or secured by, such a Policy that is included in income except where the
distribution or loan is made on or after the policyowner attains age 59 1/2, is
attributable to the policyowner's becoming disabled, or is part of a series of
substantially equal periodic payments for the life (or life expectancy) of the
policyowner or the joint lives (or joint life expectancies) of the policyowner
and the policyowner's beneficiary.
DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS. A
distribution from a Policy that is not a Modified Endowment Contract is
generally treated as a tax-free recovery by the policyowner of the investment in
the Policy (described below) to the extent of such investment in the Policy, and
as a distribution of taxable income only to the extent
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the distribution exceeds the investment in the Policy. An exception to this
general rule occurs in the case of a decrease in the Policy's death benefit or
any other change that reduces benefits under the Policy in the first 15 years
after the Policy is issued and that results in a cash distribution to the
policyowner in order for the Policy to continue complying with the Section 7702
definitional limits. Such a cash distribution will be taxed in whole or in part
as ordinary income (to the extent of any gain in the Policy) under rules
prescribed in Section 7702.
Loans from, or secured by, a Policy that is not a Modified Endowment Contract
are not treated as distributions. Instead, such loans are treated as
indebtedness of the policyowner. Select Loans may, however, be treated as a
distribution.
Finally, neither distributions (including distributions upon surrender) nor
loans from, or secured by, a Policy that is not a Modified Endowment Contract
are subject to the 10% additional tax.
POLICY LOAN INTEREST. Generally, personal interest paid on any loan under a
Policy which is owned by an individual is not deductible. In addition, except
for the transition rules described in the paragraph below, interest on any loan
under a Policy owned by a taxpayer and covering the life of any individual who
is an officer or employee of or is financially interested in the business
carried on by the taxpayer will not be tax deductible unless the employee is a
key person within the meaning of Section 264 of the Code. A deduction will not
be permitted for interest on a loan under a policy held on the life of a key
person to the extent the aggregate of such loans with respect to contracts
covering the key person exceeds $50,000. The number of employees who can qualify
as key persons depends in part on the size of the employer but cannot exceed 20
individuals.
For policies issued after June 20, 1986 and prior to January 1, 1994 a
transition rule permits all or a portion of the interest paid on policy debt
incurred before January 1, 1996 to be deducted. For policies issued in 1994 or
1995 the transition rule applies to indebtedness incurred before January 1,
1997. To be deducted the interest must be paid or accrued prior to January 1,
1999, and must meet other rules contained in Section 264 of the Code and section
501 of the Health Insurance Portability and Accountability Act of 1996.
Furthermore, if a non-natural person owns a policy, or is the direct or indirect
beneficiary under a policy, Section 264(f) of the Code disallows a pro-rata
portion of the taxpayer's interest expense allocable to unborrowed policy cash
values attributable to insurance held on the lives of individuals who are not
20% (or more) owners of the taxpayer-entity, officers, employees, or former
employees of the taxpayer.
The portion of the interest expense that is allocable to unborrowed policy cash
values is an amount that bears the same ratio to that interest expense as the
taxpayer's average unborrowed policy cash values under such life insurance
policies bears to the average adjusted bases for all assets of the taxpayer.
If the taxpayer is not the owner, but is the direct or indirect beneficiary
under the contract, then the amount of unborrowed cash value of the policy taken
into account in computing the portion of the taxpayer's interest expense
allocable to unborrowed policy cash values cannot exceed the benefit to which
the taxpayer is directly or indirectly entitled under the policy.
INVESTMENT IN THE POLICY. Investment in the Policy means (i) the aggregate
amount of any premiums or other consideration paid for a Policy, minus (ii) the
aggregate amount received under the Policy which has been excluded from gross
income of the policyowner (except that the amount of any loan from, or secured
by, a Policy that is a Modified Endowment Contract, to the extent such amount
has been excluded from gross income, will be disregarded), plus (iii) the amount
of any loan from, or secured by, a Policy that is a Modified Endowment Contract
to the extent that such amount has been included in the gross income of the
policyowner.
MULTIPLE POLICIES. All Modified Endowment Contracts that are issued by us (or
our affiliates) to the same policyowner during any calendar year are treated as
one Modified Endowment Contract for purposes of determining the amount
includible in the gross income under Section 72(e) of the Code.
THE COMPANY'S TAXES
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As a result of the Omnibus Budget Reconciliation Act of 1990, insurance
companies are generally required to capitalize and amortize certain policy
acquisition expenses over a 10-year period rather than currently deducting such
expenses. This treatment applies to the deferred acquisition expenses of a
Policy and results in a significantly higher corporate income tax liability for
the Company. We reserve the right to make a charge to premiums to compensate us
for the anticipated higher corporate income taxes.
At the present time, we make no charge to the Separate Account for any federal,
state or local taxes that we incur that may be attributable to the Account or to
the Policies. We, 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 we determine to be properly attributable to the Separate Account or to
the Policies.
DISTRIBUTION OF THE POLICY
ManEquity, Inc., one of our indirect wholly-owned subsidiaries, acts as the
principal underwriter of, and continuously offers, the Policies pursuant to a
Distribution Agreement with us. ManEquity, Inc. is registered as a broker-dealer
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers. The Policies will be sold by registered
representatives of either ManEquity, Inc. or other broker-dealers having
distribution agreements with ManEquity, Inc. who are also authorized by state
insurance departments to do so. Compensation is comprised of first-year
commissions and bonus not to exceed 105% of premiums paid up to the Target
Premium, commissions not to exceed 2% of premiums in excess thereof and, after
the third anniversary, 0.15% of the Policy Value per annum. If certain standards
with regard to the sale of the Policies and certain other policies issued by us
or Manufacturers Life (USA) are met, additional compensation will be available.
RESPONSIBILITIES ASSUMED BY MANUFACTURERS LIFE
Manufacturers Life and Manufacturers USA have entered into an agreement with
ManEquity, Inc. pursuant to which Manufacturers Life or Manufacturers USA, on
behalf of ManEquity, Inc., will pay the sales commissions in respect of the
Policies and certain other policies issued by us, 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 them and will pay them for
their other services under the agreement in such amounts and at such times as
agreed to by the parties.
Manufacturers Life and Manufacturers USA have also entered into a Service
Agreement with us pursuant to which Manufacturers Life or Manufacturers USA will
provide to us all issue, administrative, general services and recordkeeping
functions on our behalf with respect to all of our 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 above, we will invest all of the assets held in the sub-accounts of
the Separate Account in shares of a particular Portfolio of Manufacturers
Investment Trust. We are the legal owner of those shares and as such have the
right to vote upon matters that are required by the 1940 Act to be approved or
ratified by the shareholders of a mutual and to vote upon any other matters that
may be voted upon at a shareholders' meeting. However, we will vote shares held
in the sub-accounts in accordance with instructions received from policyowners
having an interest in such sub-accounts.
We will vote shares held in each sub-account for which no timely instructions
from policyowners are received, including shares not attributable to Policies,
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 us to vote shares held in the Separate
Account in our own right, we may elect to do so.
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The number of shares in each sub-account for which instructions may be given by
a policyowner is determined by dividing the portion of the Policy Value derived
from participation in that sub-account, if any, by the value of one share of the
corresponding Portfolio of Manufacturers Investment Trust. We will determine the
number as of a date chosen by us, but not more than 90 days before the
shareholders' meeting. Fractional votes are counted. Voting instructions will be
solicited in writing at least 14 days prior to the shareholders' meeting.
We may, if required by state insurance officials, disregard voting instructions
if such instructions would require shares to be voted so as to cause a change in
the sub-classification or investment policies of one or more of the Portfolios,
or to approve or disapprove an investment management contract. In addition, we
may disregard voting instructions that would require changes in the investment
policies or investment adviser, provided that we reasonably disapprove such
changes in accordance with applicable federal regulations. If we disregard
voting instructions, we will advise you of that action and our reasons for such
action in the next communication to policyowners.
DIRECTORS AND OFFICERS OF MANUFACTURERS LIFE OF AMERICA
<TABLE>
<CAPTION>
Position with
Manufacturers Life
Name of America Principal Occupation
<S> <C> <C>
Sandra M. Cotter (36) Director Attorney, Dykema Gosset, PLLC, 1989 to present.
(since December 1992)
James D. Gallagher (44) Director (since May 1996), Vice President, Secretary and General Counsel,
Secretary and The Manufacturers Life Insurance Company (USA),
General Counsel January 1997 to present; Secretary and General
Counsel, Manufacturers Adviser Corporation,
January 1997 to present; Vice President, Legal
Services - U.S. Operations, The Manufacturers
Life Insurance Company, January 1996 to
present; Vice President, Secretary and General
Counsel, The Manufacturers Life Insurance
Company of North America , 1994 to present;
Vice President and Associate General Counsel,
The Prudential Insurance Company of America,
1991 to 1994.
Theodore Kilkuskie, Jr. (43) Director (since May 1996) Senior Vice President, U.S. Annuities, The
Manufacturers Life Insurance Company, January
1999 to present; President, The Manufacturers
Life Insurance Company of North America,
January 1999 to present; Senior Vice President,
U.S. Individual Insurance, The Manufacturers
Life Insurance Company, August 1998 to December
1998; Vice President, U.S. Individual
Insurance, The Manufacturers Life Insurance
Company, June 1995 to February 1998; Executive
Vice President, Mutual Fund Sales & Marketing,
State Street Research, March 1994 to June 1995.
</TABLE>
42
<PAGE> 46
<TABLE>
<S> <C> <C>
James O'Malley (52) Director (since November 1998) Senior Vice President, U.S. Pensions, The
Manufacturers Life Insurance Company, January
1999 to present; Vice President, Systems New
Business Pensions, The Manufacturers Life
Insurance Company, 1984 to December 1998.
Joseph J. Pietroski (60) Director (since July 1992) Senior Vice President, General Counsel and
Corporate Secretary, The Manufacturers Life
Insurance Company, 1988 to present.
John D. Richardson (61) Chairman and Director Senior Executive Vice President, The
(since January 1995) Manufacturers Life Insurance Company; January
1999 to present; Executive Vice President, U.S.
Operations, The Manufacturers Life Insurance
Company, November 1995 to December 1998; Senior
Vice President and General Manager, U.S.
Operations, The Manufacturers Life Insurance
Company, January 1995 to October 1997; Senior
Vice President and General Manager, Canadian
Operations, The Manufacturers Life Insurance
Company, June 1992 to December 1994.
Victor Apps (51) Vice President, Asia Executive Vice President, Asia Operations, The
Manufacturers Life Insurance Company, November
1997 to present; Senior Vice President and
General Manager, Greater China Division, The
Manufacturers Life Insurance Company, 1995 to
1997; Vice President and General Manager,
Greater China Division, The Manufacturers Life
Insurance Company, 1993 to 1995; International
Vice President, Asia Pacific Division, The
Manufacturers Life Insurance Company, 1988 to
1993.
Felix Chee (52) Vice President, Investments Executive Vice President ,The Manufacturers
Life Insurance Company; November 1997 to
present, Chief Investment Officer, The
Manufacturers Life Insurance Company, June 1997
to present, Senior Vice President and
Treasurer, The Manufacturers Life Insurance
Company, August 1994 to May 1997; Vice
President and Treasurer, The Manufacturers Life
Insurance Company, October 1993 to July 1994.
Robert A. Cook (44) Vice President, Marketing Senior Vice President, U.S. Individual
Insurance, The Manufacturers Life Insurance
Company, January 1999 to present; Vice
President, Product Management, The
Manufacturers Life Insurance Company, 1996 to
December 1998; Sales and Marketing Director,
The Manufacturers Life Insurance Company, 1994
to 1995.
Hugh C. McHaffie (40) Vice President Vice President, Product Development, U.S.
Annuities, The Manufacturers Life Insurance
Company, January 1996 to present; Vice
</TABLE>
43
<PAGE> 47
<TABLE>
<S> <C> <C>
President U.S. Annuities, The Manufacturers
Life Insurance Company of North America,
September 1996 to present; Vice President,
Product Actuary, The Manufacturers Life
Insurance Company of North America, August 1994
to September 1996; Product Development
Executive, The Manufacturers Life Insurance
Company of North America, August 1990 to August
1994.
Douglas H. Myers (44) Vice President, Finance and President, ManEquity, Inc., April 1994 to
Compliance, Controller present; Assistant Vice President and
Controller, U.S. Operations, The Manufacturers
Life Insurance Company, 1988 to present.
John G. Vrysen (43) Vice President, Appointed Chief Financial Officer and Treasurer,
Actuary Manulife-Wood Logan Holding Co., Inc., January
1996 to present; Vice President and Chief
Financial Officer, U.S. Operations, The
Manufacturers Life Insurance Company, January
1996 to present; Vice President and Chief
Actuary, The Manufacturers Life Insurance
Company of New York, March 1992 to present;
Vice President and Chief Actuary, The
Manufacturers Life Insurance Company of North
America, January 1986 to present.
Jean Wong (35) Vice President and Treasurer Vice President and Chief Accountant, U.S.
Division, The Manufacturers Life Insurance
Company, May 1998 to present; Chief Accountant,
U.S. Division, The Manufacturers Life Insurance
Company, July 1996 to May 1998; Director,
Finance and Administration, Star Data Systems
Inc., December 1995 to July 1996; Vice
President and Chief Financial Officer,
Primerica Financial Services, June 1993 to
December 1995.
</TABLE>
IMPACT OF YEAR 2000
The Company makes extensive use of information systems in the operations of its
various businesses, including for the exchange of financial data and other
information with customers, suppliers and other counterparties. The Company also
uses software and information systems provided by third parties in its
accounting, business and investment systems.
The Year 2000 risk, as it is commonly known, is the result of computer programs
being written suing two digits, rather than four, to define the applicable year.
Any of the Company's computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the Year 2000. This
could result in systems failures or miscalculations causing disruptions of
operations, including among other things, a temporary inability to process
transactions, send premium billing notices, make claims payments or engage in
other normal business activities.
The systems used by the company have been assessed as part of a comprehensive
written plan conducted by The Manufacturers Life Insurance Company (collectively
with its subsidiaries, "Manulife Financial"), to ensure that computer systems
and processes of Manulife Financial and its subsidiaries and affiliates,
including the Company, will continue to perform through the end of this century
and in the next.
44
<PAGE> 48
In 1996, in order to make Manulife Financial's systems Year 2000 compliant, a
program was instituted to modify or replace both Manulife Financial's
information technology systems ("IT systems") and embedded technology systems
"Non-IT systems"). The phases of this program include (I) an inventory and
assessment of all systems to determine which are critical, (ii) planning and
designing the required modifications and replacements, (iii) making these
modifications and replacements, (iv) testing modified or replaced systems, (v)
redeploying modified or replaced systems and (vi) final management review and
certification. For most IT and Non-IT systems identified as critical,
certification has been completed for the company. Of those systems classified as
critical, management believes that over 99% were Year 2000 compliant at the end
of 1998. Management continues to focus attention on the remaining 1% of critical
systems. Those that affect the Company are expected to be compliant by the end
of the first quarter in 1999. Management believes that the Company's
non-critical systems will be Year 2000 compliant by the end of the first quarter
1999.
In addition to efforts directed at Manulife Financial's own systems, Manulife
Financial is presently consulting vendors, customers, and other third parties
with which it deals in an effort to ensure that no material aspect of Manulife
Financial's operations will be hindered by Year 2000 problems of these third
parties. This process includes providing third parties with questionnaires
regarding the state of their Year 2000 readiness and, where possible or where
appropriate, conducting further due diligence activities.
Manulife Financial recognizes the importance of preparing for the change to the
Year 2000 and, in January 1999, commenced preparation of contingency plans, in
the event that Manulife Financial's year 2000 program has not fully resolved its
Year 2000 issues. The Year 2000 Project Management Office for Manulife
Financial's U.S. division is coordinating the preparation of the Year 2000
contingency plan on behalf of U.S. Division affiliates and subsidiaries.
Contingency planning is targeted for completion by mid-1999.
Management currently believes that, with modifications to existing software and
conversions to new software, the Year 2000 risk will not pose significant
operations problems for Manulife Financial's computer systems. As part of the
Year 2000 program, critical systems were "time-shift" tested in the year 2000
and beyond to confirm that they will continue to function properly before,
during and after the change to the Year 2000. However, there can be no assurance
that Manulife Financial's Year 2000 program, including consulting third parties
and its contingency planning, will avoid any material adverse effect on Manulife
Financial's operations, customer relations or financial condition. Manulife
Financial estimates the total cost of its Year 2000 program will be
approximately $59 million, of which $49.5 million has been incurred through
December 31, 1998; however, there can be no assurance that the actual cost
incurred will not be materially higher than such estimate. Most costs will be
expensed as incurred; however, those costs attributed to the purchase of new
software and hardware will generally be capitalized. The total cost of the Year
2000 program is not expected to have a material effect on Manulife Financial's
net operating income.
STATE REGULATIONS
We are subject to regulation and supervision by the Michigan Department of
Insurance, which periodically examines our financial condition and operations.
We are also subject to the insurance laws and regulations of all jurisdictions
in which we are 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.
We are required to submit annual statements of our operations, including
financial statements, to the insurance departments of the various jurisdictions
in which we do business for the purposes of determining solvency and compliance
with local insurance laws and regulations.
PENDING LITIGATION
No litigation is pending that would have a material effect upon the Separate
Account or Manufacturers Investment Trust.
ADDITIONAL INFORMATION
45
<PAGE> 49
We have filed a registration statement under the Securities Act of 1933 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.
You may obtain the omitted information from the S.E.C.'s principal office in
Washington, D.C. upon payment of the prescribed fee.
For further information you may also contact Manufacturers Life of America's
Service Office, the address and telephone number of which are on the cover page
of this prospectus.
INDEPENDENT AUDITORS
The consolidated financial statements of Manufacturers Life Insurance Company of
America and Separate Account Three of The Manufacturers Life Insurance Company
of America at December 31, 1998 and 1997, and for each of the three years in the
period ended December 31, 1998, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon appearing elsewhere herein, and are included in
reliance upon such reports given on the authority of such firm as experts in
accounting and auditing.
FINANCIAL STATEMENTS
The financial statements of Manufacturers Life of America included herein should
be distinguished from the financial statements of Separate Account Three and
should be considered only as bearing upon the ability of Manufacturers Life of
America to meet its obligations under the Policies.
46
<PAGE> 50
Separate Account Three of
The Manufacturers Life Insurance Company of America
Financial Statements
Three years ended December 31, 1998
CONTENTS
Report of Independent Auditors .............................................
Audited Financial Statements ...............................................
Statement of Assets and Liabilities ........................................
Statements of Operations ...................................................
Statements of Changes in Net Assets ........................................
Notes to Financial Statements ..............................................
F-1
<PAGE> 51
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, 1998 and the related statements of operations and changes in net
assets for each of the periods presented therein. 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, 1998, 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, 1998, and the
results of its operations and the changes in its net assets for each of the
periods presented therein, in conformity with generally accepted accounting
principles.
Philadelphia, Pennsylvania
February 4, 1999
F-2
<PAGE> 52
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statement of Assets and Liabilities
December 31, 1998
<TABLE>
<CAPTION>
SUB-ACCOUNT NET ASSET
NET ASSET UNITS VALUE PER
VALUE OUTSTANDING UNIT
--------------------------------------------------
ASSETS
Investment in Manufacturers Investment Trust--at market value:
<S> <C> <C> <C>
Emerging Growth Trust, 2,802,542 shares (cost $62,104,620) $ 66,756,555 $ 1,547,427 $ 43.14
Quantitative Equity Trust, 2,069,537 shares (cost $38,807,860) 52,193,727 1,202,134 43.42
Real Estate Securities Trust, 1,536,662 shares (cost $24,594,352) 22,696,503 689,209 32.93
Balanced Trust, 2,589,172 shares (cost $43,897,491) 50,229,936 1,674,992 29.99
Capital Growth Bond Trust, 1,757,260 shares (cost $19,935,560) 21,245,278 929,261 22.86
Money Market Trust, 3,170,806 shares (cost $31,708,063) 31,708,063 1,731,857 18.31
International Stock Trust, 1,585,335 shares (cost $18,934,357) 20,577,642 1,473,246 13.97
Pacific Rim Emerging Markets Trust, 822,886 shares (cost $5,198,434) 5,620,314 772,206 7.28
Equity Index Trust, 2,839,061 shares (cost $37,536,543) 43,806,714 2,221,635 19.72
Equity Trust, 1,257,356 shares (cost $25,523,708) 24,493,286 1,651,448 14.83
Value Equity Trust, 1,044,760 shares (cost $16,442,598) 18,575,830 1,154,317 16.09
Growth and Income Trust, 1,165,238 shares (cost $26,765,264) 33,127,715 1,678,270 19.74
U.S. Government Securities Trust, 239,148 shares (cost $3,198,130) 3,305,023 276,793 11.94
Conservative Asset Allocation Trust, 80,313 shares (cost $925,126) 950,102 73,213 12.98
Moderate Asset Allocation Trust, 234,294 shares (cost $2,942,382) 3,125,486 218,986 14.27
Aggressive Asset Allocation Trust, 237,596 shares (cost $3,281,821) 3,625,719 233,924 15.50
International Small Cap Trust, 176,272 shares (cost $2,492,390) 2,693,435 190,424 14.14
Blue Chip Growth Trust, 566,488 shares (cost $8,957,998) 10,717,944 519,809 20.62
Science & Technology Trust, 252,885 shares (cost $3,476,302) 4,936,311 244,906 20.16
Pilgram Baxter Growth Trust, 122,992 shares (cost $1,528,419) 1,603,809 105,774 15.16
Small/Mid Cap Trust, 296,586 shares (cost $5,033,231) 5,863,507 299,424 19.58
Worldwide Growth Trust, 71,291 shares (cost $1,065,955) 1,080,064 72,735 14.85
Global Equity Trust, 208,185 shares (cost $3,996,239) 4,242,810 259,150 16.37
Growth Trust, 329,119 shares (cost $6,264,920) 6,746,944 363,585 18.56
Value Trust, 253,715 shares (cost $3,817,475) 3,567,228 251,058 14.21
International Growth and Income Trust, 124,135 shares (cost 1,405,214 104,239 13.48
$1,357,908)
High Yield Trust, 162,690 shares (cost $2,211,281) 2,101,957 147,641 14.24
Strategic Bond Trust, 247,629 shares (cost $2,962,146) 2,902,215 210,298 13.80
Global Government Bond Trust, 46,669 shares (cost $634,469) 640,768 45,061 14.22
Investment Quality Bond Trust, 114,782 shares (cost $1,396,240) 1,430,181 96,815 14.77
Lifestyle Aggressive 1000 Trust, 288,431 shares (cost $3,929,209) 3,862,092 257,160 15.02
Lifestyle Growth 820 Trust, 1,150,754 shares (cost $15,767,114) 15,857,396 1,049,185 15.11
Lifestyle Balanced 640 Trust, 422,244 shares (cost $5,614,581) 5,696,069 382,101 14.91
Lifestyle Moderate 460 Trust, 48,767 shares (cost $658,448) 678,344 44,619 15.20
Lifestyle Conservative 280 Trust, 7,984 shares (cost $102,293) 108,017 7,151 15.11
Small Company Value Trust, 32,243 shares (cost $355,941) 366,605 42,981 8.53
-------------
Net assets $ 478,538,803
=============
</TABLE>
See accompanying notes.
F-3
<PAGE> 53
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. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income:
Dividend income $ 995,471 $ -- $ 7,702,014 $ 5,169,494 $ -- $ 4,240,752
------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) from security
transactions:
Proceeds from sales 6,100,016 7,107,331 4,088,127 4,267,545 3,096,117 1,222,403
Cost of securities sold 4,854,772 5,908,528 3,518,688 2,650,426 2,122,759 976,262
------------------------------------------------------------------------------
Net realized gain (loss) 1,245,244 1,198,803 569,439 1,617,119 973,358 246,141
------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of
investments:
Beginning of year 6,743,875 (1,640,500) 4,794,911 9,470,255 1,534,960 2,295,941
End of year 4,651,935 6,743,875 (1,640,500) 13,385,867 9,470,255 1,534,960
------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during
the year (2,091,940) 8,384,375 (6,435,411) 3,915,612 7,935,295 (760,981)
------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments (846,696) 9,583,178 (5,865,972) 5,532,731 8,908,653 (514,840)
------------------------------------------------------------------------------
Net increase (decrease) in net assets derived from
operations $ 148,775 $ 9,583,178 $ 1,836,042 $10,702,225 $ 8,908,653 $ 3,725,912
==============================================================================
</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
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-4
<PAGE> 54
<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. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 3,092,425 $ -- $ 2,776,056 $ 5,710,136 $ -- $ 4,478,042 $ 1,051,960 $ -- $ 864,430
--------------------------------------------------------------------------------------------------------------------------------
2,650,837 1,134,797 660,261 3,244,479 4,291,414 1,836,560 3,019,340 1,876,127 1,292,420
2,269,138 898,569 631,891 2,557,957 3,671,860 1,674,031 2,667,419 1,866,847 1,363,232
--------------------------------------------------------------------------------------------------------------------------------
381,699 236,228 28,370 686,522 619,554 162,529 351,921 9,280 (70,812)
--------------------------------------------------------------------------------------------------------------------------------
5,819,408 2,155,063 748,034 6,626,044 958,041 2,693,376 1,199,605 (223,171) 153,798
(1,897,849) 5,819,409 2,155,063 6,332,445 6,626,043 958,041 1,309,718 1,199,605 (223,171)
--------------------------------------------------------------------------------------------------------------------------------
(7,717,257) 3,664,346 1,407,029 (293,599) 5,668,002 (1,735,335) 110,113 1,422,776 (376,969)
--------------------------------------------------------------------------------------------------------------------------------
(7,335,558) 3,900,574 1,435,399 392,923 6,287,556 (1,572,806) 462,034 1,432,056 (447,781)
--------------------------------------------------------------------------------------------------------------------------------
$(4,243,133) $ 3,900,574 $ 4,211,455 $ 6,103,059 $ 6,287,556 $ 2,905,236 $ 1,513,994 $ 1,432,056 $ 416,649
================================================================================================================================
</TABLE>
F-5
<PAGE> 55
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Operations (continued)
<TABLE>
<CAPTION>
MONEY MARKET INTERNATIONAL STOCK
SUB-ACCOUNT SUB-ACCOUNT
-------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income:
Dividend income $ 1,481,440 $ 1,159,280 $ 1,505,315 $ 313,529 $ 209,753 $ 248,736
-------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on
investments:
Realized and unrealized gain (loss) from
security transactions:
Proceeds from sales 55,917,389 18,425,413 17,344,859 4,550,901 780,310 289,302
Cost of securities sold 55,917,389 19,340,111 16,936,049 3,876,157 656,813 250,445
-------------------------------------------------------------------------------------
Net realized gain (loss) -- (914,698) 408,810 674,744 123,497 38,857
-------------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of
investments:
Beginning of year -- (914,724) 233,720 131,809 450,565 99,777
End of year -- 1 (914,724) 1,643,285 131,811 450,565
-------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
during the year -- 914,725 (1,148,444) 1,511,476 (318,754) 350,788
-------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments -- 27 (739,634) 2,186,220 (195,257) 389,645
-------------------------------------------------------------------------------------
Net increase (decrease) in net assets
derived from operations $ 1,481,440 $ 1,159,307 $ 765,681 $ 2,499,749 $ 14,496 $ 638,381
=====================================================================================
</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
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-6
<PAGE> 56
<TABLE>
<CAPTION>
PACIFIC RIM EMERGING MARKETS
SUB-ACCOUNT EQUITY INDEX SUB-ACCOUNT EQUITY SUB-ACCOUNT
--------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED*
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ - $ 12,667 $ 239,201 $ 1,392,501 $ 2,468,634 $ 449,782 $ 3,871,537 $ 2,150,334 $ 26,181
--------------------------------------------------------------------------------------------------------------------------------
4,347,338 1,556,257 443,740 2,890,323 1,982,591 231,179 1,483,382 1,891,337 54,581
6,967,881 1,571,876 374,390 2,287,244 1,529,141 214,759 1,636,220 1,889,551 56,756
--------------------------------------------------------------------------------------------------------------------------------
(2,620,543) (15,619) 69,350 603,079 453,450 16,420 (152,838) 1,786 (2,175)
--------------------------------------------------------------------------------------------------------------------------------
(2,120,318) 67,813 88,856 488,049 (46,898) - 737,427 495,686 -
421,880 (2,120,317) 67,813 6,270,171 488,048 (46,898) (1,030,422) 737,427 495,686
--------------------------------------------------------------------------------------------------------------------------------
2,542,198 (2,188,130) (21,043) 5,782,122 534,946 (46,898) (1,767,849) 241,741 495,686
--------------------------------------------------------------------------------------------------------------------------------
(78,345) (2,203,749) 48,307 6,385,201 988,396 (30,478) (1,920,687) 243,527 493,511
--------------------------------------------------------------------------------------------------------------------------------
$ (78,345) $(2,191,082) $ 287,508 $ 7,777,702 $ 3,457,030 $ 419,304 $ 1,950,850 $ 2,393,861 $ 519,692
=================================================================================================================================
</TABLE>
F-7
<PAGE> 57
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Operations (continued)
<TABLE>
<CAPTION>
VALUE EQUITY SUB-ACCOUNT GROWTH AND INCOME SUB-ACCOUNT
-----------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED*
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income:
Dividend income $ 976,745 $ 1,127,557 $ 8,790 $ 1,500,080 $ 556,761 $ 1,952
-----------------------------------------------------------------------------------
Realized and unrealized gain (loss) on
investments:
Realized and unrealized gain (loss) from
security transactions:
Proceeds from sales 1,391,651 1,288,325 438,548 2,830,806 3,054,342 82,474
Cost of securities sold 1,104,171 1,107,952 417,223 2,030,090 2,467,777 77,312
-----------------------------------------------------------------------------------
Net realized gain (loss) 287,480 180,373 21,325 800,716 586,565 5,162
-----------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of
investments:
Beginning of year 1,914,865 364,883 - 2,511,120 405,558 -
End of year 2,133,232 1,914,865 364,883 6,362,451 2,511,120 405,558
-----------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
during the year 218,367 1,549,982 364,883 3,851,331 2,105,562 405,558
-----------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments 505,847 1,730,355 386,208 4,652,047 2,692,127 410,720
-----------------------------------------------------------------------------------
Net increase (decrease) in net assets derived
from operations $ 1,482,592 $ 2,857,912 $ 394,998 $ 6,152,127 $ 3,248,888 $ 412,672
===================================================================================
</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
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-8
<PAGE> 58
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES CONSERVATIVE ASSET ALLOCATION MODERATE ASSET ALLOCATION
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED*
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 109,401 $ 123,037 $ 26,995 $ 72,830 $ 42,335 $ 8,660 $ 247,923 $ 83,798 $ 2,105
----------------------------------------------------------------------------------------------------------------------------
986,654 750,917 141,134 207,048 236,418 30,301 147,097 71,531 45,521
954,836 752,455 149,988 202,366 228,648 31,365 136,136 65,973 45,706
----------------------------------------------------------------------------------------------------------------------------
31,818 (1,538) (8,854) 4,682 7,770 (1,064) 10,961 5,558 (185)
----------------------------------------------------------------------------------------------------------------------------
67,077 38,928 - 17,540 6,566 - 101,169 23,967 -
106,893 67,077 38,928 24,976 17,540 6,566 183,104 101,169 23,967
----------------------------------------------------------------------------------------------------------------------------
39,816 28,149 38,928 7,436 10,974 6,566 81,935 77,202 23,967
----------------------------------------------------------------------------------------------------------------------------
71,634 26,611 30,074 12,118 18,744 5,502 92,896 82,760 23,782
----------------------------------------------------------------------------------------------------------------------------
$ 181,035 $ 149,648 $ 57,069 $ 84,948 $ 61,079 $ 14,162 $ 340,819 $ 166,558 $ 25,887
============================================================================================================================
</TABLE>
F-9
<PAGE> 59
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Operations (continued)
<TABLE>
<CAPTION>
AGGRESSIVE ASSET ALLOCATION INTERNATIONAL SMALL CAP
SUB-ACCOUNT SUB-ACCOUNT
----------------------------------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net investment income:
Dividend income $ 312,103 $ 140,784 $ 11,072 $ 5,687 $ 212
----------------------------------------------------------------------------
Realized and unrealized gain (loss) on investments:
Realized and unrealized gain (loss) from security
transactions: 210,791 226,753 79,723 3,812,286 206,034
Proceeds from sales 181,226 204,492 82,946 3,842,577 203,025
----------------------------------------------------------------------------
Cost of securities sold 29,565 22,261 (3,223) (30,291) 3,009
----------------------------------------------------------------------------
Net realized gain (loss)
Unrealized appreciation (depreciation) of
investments:
Beginning of year 164,721 43,313 -- (39,080) --
End of year 343,898 164,721 43,313 201,045 (39,080)
----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during
the year 179,177 121,408 43,313 240,125 (39,080)
----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments 208,742 143,669 40,090 209,834 (36,071)
----------------------------------------------------------------------------
Net increase (decrease) in net assets derived from
operations $ 520,845 $ 284,453 $ 51,162 $ 215,521 $ (35,859)
============================================================================
</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
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-10
<PAGE> 60
<TABLE>
<CAPTION>
BLUE CHIP GROWTH SCIENCE & TECHNOLOGY PILGRAM BAXTER GROWTH SMALL/MID
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT CAP SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 98,459 $ 104,304 $ -- $ 16,815 $ -- $ -- $ -- $ --
- ------------------------------------------------------------------------------------------------------------------------------------
933,491 121,709 7,343,188 457,533 341,421 37,770 341,669 52,379
796,180 128,505 7,715,056 477,311 359,211 36,070 302,630 43,433
- ------------------------------------------------------------------------------------------------------------------------------------
137,311 (6,796) (371,868) (19,778) (17,790) 1,700 39,039 8,946
- ------------------------------------------------------------------------------------------------------------------------------------
239,380 -- (62,464) -- (18,510) -- (4,182) --
1,759,946 239,382 1,460,009 (62,465) 75,390 (18,510) 830,276 (4,182)
- ------------------------------------------------------------------------------------------------------------------------------------
1,520,566 239,382 1,522,473 (62,465) 93,900 (18,510) 834,458 (4,182)
- ------------------------------------------------------------------------------------------------------------------------------------
1,657,877 232,586 1,150,605 (82,243) 76,110 (16,810) 873,497 4,764
- ------------------------------------------------------------------------------------------------------------------------------------
$ 1,756,336 $ 336,890 $ 1,150,605 $ (65,428) $ 76,110 $ (16,810) $ 873,497 $ 4,764
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
WORLDWIDE GROWTH
SUB-ACCOUNT
- -----------------------------------
YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97
- -----------------------------------
<S> <C>
$ 5,574 $ 2,704
- -----------------------------------
884,820 40,572
870,108 38,790
- -----------------------------------
14,712 1,782
- -----------------------------------
(4,391) --
14,109 (4,391)
- -----------------------------------
18,500 (4,391)
- -----------------------------------
33,212 (2,609)
- -----------------------------------
$ 38,786 $ 95
===================================
</TABLE>
F-11
<PAGE> 61
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Operations (continued)
<TABLE>
<CAPTION>
GLOBAL VALUE
EQUITY SUB-ACCOUNT GROWTH SUB-ACCOUNT SUB-ACCOUNT
---------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income:
Dividend income $ 167,578 $ -- $ 95,683 $ -- $ 117,791 $ 33,133
---------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on
investments:
Realized and unrealized gain (loss)from
security transactions:
Proceeds from sales 14,996,508 6,150 1,586,113 9,760 539,843 28,449
Cost of securities sold 15,031,676 5,777 1,462,588 8,653 517,327 25,668
---------------------------------------------------------------------------------------
Net realized gain (loss) (35,168) 373 123,525 1,107 22,516 2,781
---------------------------------------------------------------------------------------
Unrealized appreciation
(depreciation)
of
investments:
Beginning of year 32,115 -- 15,489 -- (20,774) --
End of year 246,571 32,115 482,024 15,489 (250,247) (20,774)
---------------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) during the year 214,456 32,115 466,535 15,489 (229,473) (20,774)
---------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments 179,288 32,488 590,060 16,596 (206,957) (17,993)
---------------------------------------------------------------------------------------
Net increase (decrease) in net assets
derived
from operations $ 346,866 $32,488 $ 685,743 $16,596 $ (89,166) $ 15,140
=======================================================================================
</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
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-12
<PAGE> 62
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH AND GLOBAL
INCOME HIGH YIELD STRATEGIC BOND GOVERNMENT BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 51,082 $ -- $ 151,912 $ 39,931 $ 86,088 $ -- $ 27,334 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
7,091,488 18,809 2,330,540 347,712 556,779 18,384 370,605 3,662
7,095,830 18,622 2,338,454 339,830 574,721 17,681 378,835 3,587
- ------------------------------------------------------------------------------------------------------------------------------------
(4,342) 187 (7,914) 7,882 (17,942) 703 (8,230) 75
- ------------------------------------------------------------------------------------------------------------------------------------
(39,257) -- (13,453) -- 10,709 -- 3,801 --
47,306 (39,257) (109,324) (13,453) (59,931) 10,709 6,299 3,801
- ------------------------------------------------------------------------------------------------------------------------------------
86,563 (39,257) (95,871) (13,453) (70,640) 10,709 2,498 3,801
- ------------------------------------------------------------------------------------------------------------------------------------
82,221 (39,070) (103,785) (5,571) (88,582) 11,412 (5,732) 3,876
- ------------------------------------------------------------------------------------------------------------------------------------
$ 133,303 $(39,070) $ 48,127 $ 34,360 $ (2,494) $11,412 $ 21,602 $3,876
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT
QUALITY BOND
SUB-ACCOUNT
- -----------------------------
YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97
- -----------------------------
<S> <C>
$ 20,278 $ --
- -----------------------------
134,493 4,700
127,939 4,564
- -----------------------------
6,554 136
- -----------------------------
6,089 --
33,941 6,089
- -----------------------------
27,852 6,089
- -----------------------------
34,406 6,225
- -----------------------------
$ 54,684 $6,225
=============================
</TABLE>
F-13
<PAGE> 63
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Operations (continued)
<TABLE>
<CAPTION>
LIFESTYLE LIFESTYLE
AGGRESSIVE 1000 LIFESTYLE BALANCED 640
SUB-ACCOUNT GROWTH 820 SUB-ACCOUNT SUB-ACCOUNT
--------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income: $ 168,006 $ 4,916 $ 629,682 $ 36,584 $ 189,230 $ 16,038
Dividend income
--------------------------------------------------------------------------------------
Realized and unrealized gain (loss) on
investments:
Realized and unrealized gain (loss) from
security transactions: 787,348 18,722 634,837 53,801 896,183 152,797
Proceeds from sales 797,310 17,881 654,079 50,741 898,112 147,960
--------------------------------------------------------------------------------------
Cost of securities sold (9,962) 841 (19,242) 3,060 (1,929) 4,837
--------------------------------------------------------------------------------------
Net realized gain (loss)
Unrealized appreciation (depreciation) of
investments: (11,048) -- (24,738) -- 43,780 --
Beginning of year (67,117) (11,049) 90,282 (24,740) 81,488 43,781
End of year
--------------------------------------------------------------------------------------
Net unrealized appreciation (56,069) (11,049) 115,020 (24,740) 37,708 43,781
(depreciation)
during the year
--------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on (66,031) (10,208) 95,778 (21,680) 35,779 48,618
investments
--------------------------------------------------------------------------------------
Net increase (decrease) in net assets derived
from operations $ 101,975 $ (5,292) $ 725,460 $ 14,904 $ 225,009 $ 64,656
======================================================================================
</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
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-14
<PAGE> 64
<TABLE>
<CAPTION>
LIFESTYLE LIFESTYLE SMALL COMPANY
MODERATE 460 CONSERVATIVE 280 VALUE TRUST
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** PERIOD ENDED*** YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/98 DEC. 31/97 DEC. 31/96
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 20,025 $ 842 $ 552 $ 9 $ - $ 28,132,536 $ 8,330,428 $ 22,590,083
- -----------------------------------------------------------------------------------------------------------------------------
195,747 2,366 64,048 173 20,186 138,107,190 49,351,462 28,281,133
204,400 2,372 62,423 172 23,678 134,346,562 45,853,994 26,801,043
- -----------------------------------------------------------------------------------------------------------------------------
(8,653) (6) 1,625 1 (3,492) 3,760,628 3,497,468 1,480,090
- -----------------------------------------------------------------------------------------------------------------------------
4 - 29 - - 33,986,145 3,720,050 11,108,413
19,896 3 5,724 29 10,664 45,119,935 33,986,146 3,720,050
- -----------------------------------------------------------------------------------------------------------------------------
19,892 3 5,695 29 10,664 11,133,790 30,266,096 (7,388,363)
- -----------------------------------------------------------------------------------------------------------------------------
11,239 (3) 7,320 30 7,172 14,894,418 33,763,564 (5,908,273)
- -----------------------------------------------------------------------------------------------------------------------------
$ 31,264 $ 839 $ 7,872 $ 39 $ 7,172 $ 43,026,954 $ 42,093,992 $ 16,681,810
=============================================================================================================================
</TABLE>
F-15
<PAGE> 65
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. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 995,471 $ -- $ 7,702,014 $ 5,169,494 $ -- $ 4,240,752
Net realized gain (loss) 1,245,244 1,198,803 569,439 1,617,119 973,358 246,141
Net unrealized appreciation
(depreciation) of investments
during the period (2,091,940) 8,384,375 (6,435,411) 3,915,612 7,935,295 (760,981)
-------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets
derived from operations 148,775 9,583,178 1,836,042 10,702,225 8,908,653 3,725,912
-------------------------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 12,733,443 16,038,468 22,504,630 7,242,095 7,834,132 9,633,477
Transfer on death -- -- -- -- -- --
Transfer on terminations (6,445,689) (6,450,838) (4,593,540) (3,997,775) (4,132,053) (2,214,864)
Transfer on policy loans (218,046) (358,214) (610,713) (273,706) (432,977) (113,064)
Net interfaced transfers (5,805,034) (6,440,946) (11,484) (1,628,360) (60,101) 1,337,385
-------------------------------------------------------------------------------------------------
264,674 2,788,470 17,288,893 1,342,254 3,209,001 8,642,934
-------------------------------------------------------------------------------------------------
Net increase (decrease) in net 413,449 12,371,648 19,124,935 12,044,479 12,117,654 12,368,846
assets
NET ASSETS
Beginning of year 66,343,106 53,971,458 34,846,523 40,149,248 28,031,594 15,662,748
-------------------------------------------------------------------------------------------------
End of year $ 66,756,555 $ 66,343,106 $ 53,971,458 $ 52,193,727 $ 40,149,248 $ 28,031,594
=================================================================================================
</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
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-16
<PAGE> 66
<TABLE>
<CAPTION>
CAPITAL GROWTH
REAL ESTATE SECURITIES BALANCED 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. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 3,092,425 $ -- $ 2,776,056 $ 5,710,136 $ -- $ 4,478,042 $ 1,051,960 $ -- $ 864,430
381,699 236,228 28,370 686,522 619,554 162,529 351,921 9,280 (70,812)
(7,717,257) 3,664,346 1,407,029 (293,599) 5,668,002 (1,735,335) 110,113 1,422,776 (376,969)
- ------------------------------------------------------------------------------------------------------------------------------------
(4,243,133) 3,900,574 4,211,455 6,103,059 6,287,556 2,905,236 1,513,994 1,432,056 416,649
- ------------------------------------------------------------------------------------------------------------------------------------
5,859,264 5,723,061 4,465,307 7,177,808 8,963,510 10,619,657 3,364,775 4,146,312 4,480,626
-- -- -- -- (44,313) -- -- -- --
(2,117,340) (2,219,786) (1,347,117) (4,188,769) (3,729,355) (2,563,981) (1,655,470) (1,575,696) (1,205,581)
(77,402) (369,877) (65,858) (150,786) (417,435) (355,780) (32,638) (105,540) (27,779)
(2,327,888) 1,279,970 467,823 (534,390) (2,581,258) (394,561) (584,488) (81,587) 685,493
- ------------------------------------------------------------------------------------------------------------------------------------
1,336,634 4,413,368 3,520,155 2,303,863 2,191,149 7,305,335 1,092,179 2,383,489 3,932,759
- ------------------------------------------------------------------------------------------------------------------------------------
(2,906,499) 8,313,942 7,731,610 8,406,922 8,478,705 10,210,571 2,606,173 3,815,545 4,349,408
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
- ------------------------------------------------------------------------------------------------------------------------------------
$22,696,503 $25,603,002 $17,289,060 $50,229,936 $41,823,014 $33,344,309 $21,245,278 $18,639,105 $14,823,560
====================================================================================================================================
</TABLE>
F-17
<PAGE> 67
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. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 1,481,440 $ 1,159,280 $ 1,505,315 $ 313,529 $ 209,753 $ 248,736
Net realized gain (loss) -- (914,698) 408,810 674,744 123,497 38,857
Net unrealized appreciation
(depreciation) of investments
during the period -- 914,725 (1,148,444) 1,511,476 (318,754) 350,788
--------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets
derived from operations 1,481,440 1,159,307 765,681 2,499,749 14,496 638,381
--------------------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 22,297,227 33,859,872 23,926,029 4,538,425 5,795,630 4,320,339
Transfer on death -- -- -- -- -- --
Transfer on terminations (3,358,411) (2,797,321) (2,399,186) (1,187,826) (1,224,478) (555,702)
Transfer on policy loans (384,658) (282,014) (34,484) (59,954) (106,208) (31,389)
Net interfund transfers (17,755,116) (20,937,650) (16,858,040) (574,437) 1,344,064 2,632,184
--------------------------------------------------------------------------------------------
799,042 9,842,887 4,634,319 2,716,208 5,809,008 6,365,432
--------------------------------------------------------------------------------------------
Net increase (decrease) in net 2,280,482 11,002,194 5,400,000 5,215,957 5,823,504 7,003,813
assets
NET ASSETS
Beginning of year 29,427,581 18,425,387 13,025,387 15,361,685 9,538,181 2,534,368
--------------------------------------------------------------------------------------------
End of year $ 31,708,063 $ 29,427,581 $ 18,425,387 $ 20,577,642 $ 15,361,685 $ 9,538,181
============================================================================================
</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
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-18
<PAGE> 68
<TABLE>
<CAPTION>
PACIFIC RIM EMERGING MARKETS SUB-
ACCOUNT EQUITY INDEX SUB-ACCOUNT EQUITY SUB-ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED*
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ - $ 12,667 $ 239,201 $ 1,392,501 $ 2,468,634 $ 449,782 $ 3,871,537 $ 2,150,334 $ 26,181
(2,620,543) (15,619) 69,350 603,079 453,450 16,420 (152,838) 1,786 (2,175)
2,542,198 (2,188,130) (21,043) 5,782,122 534,946 (46,898) (1,767,849) 241,741 495,686
- ----------------------------------------------------------------------------------------------------------------------------
(78,345) (2,191,082) 287,508 7,777,702 3,457,030 419,304 1,950,850 2,393,861 519,692
- ----------------------------------------------------------------------------------------------------------------------------
1,563,148 2,059,145 2,541,885 12,850,700 7,852,789 5,327,031 5,682,311 7,868,634 4,931,946
- - - - - - - - -
(436,588) (620,211) (354,050) (2,024,088) (781,683) (136,828) (1,536,387) (1,054,893) (260,549)
(15,173) (58,638) (25,816) (475,140) (721,710) - (34,034) (45,576) (65,890)
229,348 (630,778) 1,682,204 6,006,985 3,377,661 876,961 19,738 778,412 3,345,171
- ----------------------------------------------------------------------------------------------------------------------------
1,340,735 749,518 3,844,223 16,358,457 9,727,057 6,067,164 4,131,628 7,546,577 7,950,678
- ----------------------------------------------------------------------------------------------------------------------------
1,262,390 (1,441,564) 4,131,731 24,136,159 13,184,087 6,486,468 6,082,478 9,940,438 8,470,370
4,357,924 5,799,488 1,667,757 19,670,555 6,486,468 - 18,410,808 8,470,370 -
- ----------------------------------------------------------------------------------------------------------------------------
$ 5,620,314 $ 4,357,924 $ 5,799,488 $43,806,714 $19,670,555 $ 6,486,468 $24,493,286 $18,410,808 $ 8,470,370
============================================================================================================================
</TABLE>
F-19
<PAGE> 69
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
VALUE EQUITY GROWTH AND INCOME
SUB-ACCOUNT SUB-ACCOUNT
-------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED*
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 976,745 $ 1,127,557 $ 8,790 $ 1,500,080 $ 556,761 $ 1,952
Net realized gain (loss) 287,480 180,373 21,325 800,716 586,565 5,162
Net unrealized appreciation
(depreciation) of investments
during the period 218,367 1,549,982 364,883 3,851,331 2,105,562 405,558
-------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets
derived from operations 1,482,592 2,857,912 394,998 6,152,127 3,248,888 412,672
-------------------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 3,243,426 4,090,507 3,266,118 6,862,398 7,079,242 2,527,210
Transfer on death -- -- -- -- -- --
Transfer on terminations (1,437,923) (793,110) (147,201) (1,576,405) (910,308) (98,012)
Transfer on policy loans (98,668) (69,774) (36,263) (46,701) (76,204) (13,676)
Net interfund transfers 563,898 3,108,426 2,150,892 2,330,998 4,479,340 2,756,146
-------------------------------------------------------------------------------------------
2,270,733 6,336,049 5,233,546 7,570,290 10,572,070 5,171,668
-------------------------------------------------------------------------------------------
Net increase (decrease) in net 3,753,325 9,193,961 5,628,544 13,722,417 13,820,958 5,584,340
assets
NET ASSETS
Beginning of year 14,822,505 5,628,544 -- 19,405,298 5,584,340 --
-------------------------------------------------------------------------------------------
End of year $ 18,575,830 $ 14,822,505 $ 5,628,544 $ 33,127,715 $ 19,405,298 $ 5,584,340
===========================================================================================
</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
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-20
<PAGE> 70
<TABLE>
<CAPTION>
U.S. GOVERNMENT CONSERVATIVE ASSET MODERATE ASSET
SECURITIES ALLOCATION ALLOCATION
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED*
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 109,401 $ 123,037 $ 26,995 $ 72,830 $ 42,335 $ 8,660 $ 247,923 $ 83,798 $ 2,105
31,818 (1,538) (8,854) 4,682 7,770 (1,064) 10,961 5,558 (185)
39,816 28,149 38,928 7,436 10,974 6,566 81,935 77,202 23,967
- ------------------------------------------------------------------------------------------------------------------------------------
181,035 149,648 57,069 84,948 61,079 14,162 340,819 166,558 25,887
- ------------------------------------------------------------------------------------------------------------------------------------
664,545 745,345 757,201 176,976 334,314 143,807 895,345 692,412 348,167
- - - - - - - - -
(154,411) (221,531) (35,748) (52,005) (34,376) (33,413) (208,435) (104,738) (25,611)
(32,573) (50,875) (30,576) - - - (7,332) (346) -
423,298 (76,765) 929,361 46,253 (37,686) 246,043 230,395 588,790 183,575
- ------------------------------------------------------------------------------------------------------------------------------------
900,859 396,174 1,620,238 171,224 262,252 356,437 909,973 1,176,118 506,131
- ------------------------------------------------------------------------------------------------------------------------------------
1,081,894 545,822 1,677,307 256,172 323,331 370,599 1,250,792 1,342,676 532,018
2,223,129 1,677,307 - 693,930 370,599 - 1,874,694 532,018 -
- ------------------------------------------------------------------------------------------------------------------------------------
$ 3,305,023 $ 2,223,129 $ 1,677,307 $ 950,102 $ 693,930 $ 370,599 $ 3,125,486 $ 1,874,694 $ 532,018
====================================================================================================================================
</TABLE>
F-21
<PAGE> 71
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
AGGRESSIVE ASSET ALLOCATION INTERNATIONAL SMALL CAP BLUE CHIP GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 312,103 $ 140,784 $ 11,072 $ 5,687 $ 212 $ 98,459 $ 104,304
Net realized gain (loss) 29,565 22,261 (3,223) (30,291) 3,009 137,311 (6,796)
Net unrealized appreciation
(depreciation) of investments
during the period 179,177 121,408 43,313 240,125 (39,080) 1,520,566 239,382
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets derived from operations 520,845 284,453 51,162 215,521 (35,859) 1,756,336 336,890
--------------------------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 953,535 1,008,793 387,073 923,655 609,617 3,950,204 1,748,929
Transfer on death -- -- -- -- -- -- --
Transfer on terminations (257,332) (143,026) (58,999) (94,819) (48,039) (422,824) (152,046)
Transfer on policy loans (9,000) (2,986) -- (11,877) (2,873) (27,578) (5,593)
Net interfund transfers 193,464 263,513 434,224 258,711 879,398 1,683,424 1,850,202
--------------------------------------------------------------------------------------------------
880,667 1,126,294 762,298 1,075,670 1,438,103 5,183,226 3,441,492
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net 1,401,512 1,410,747 813,460 1,291,191 1,402,244 6,939,562 3,778,382
assets
NET ASSETS
Beginning of year 2,224,207 813,460 -- 1,402,244 -- 3,778,382 --
--------------------------------------------------------------------------------------------------
End of year $ 3,625,719 $ 2,224,207 $ 813,460 $ 2,693,435 $ 1,402,244 $ 10,717,944 $ 3,778,382
====================================================================================================================================
</TABLE>
* Reflects the period from commencement of operations February 14, 1996
through December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-22
<PAGE> 72
<TABLE>
<CAPTION>
SCIENCE &TECHNOLOGY PILGRAM BAXTER GROWTH WORLDWIDE GROWTH
SUB-ACCOUNT SUB-ACCOUNT SMALL/MID CAP SUB-ACCOUNT SUB-ACCOUNT
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ - $ 16,815 $ - $ - $ - $ - $ 5,574 $ 2,704
(371,868) (19,778) (17,790) 1,700 39,039 8,946 14,712 1,782
1,522,473 (62,465) 93,900 (18,510) 834,458 (4,182) 18,500 (4,391)
- --------------------------------------------------------------------------------------------------------------------------------
1,150,605 (65,428) 76,110 (16,810) 873,497 4,764 38,786 95
- --------------------------------------------------------------------------------------------------------------------------------
1,150,664 361,963 515,555 141,492 1,769,196 757,544 396,653 143,932
- - - - - - - -
(90,696) (21,603) (58,953) (7,886) (173,727) (32,683) (41,648) (4,603)
(13,553) (904) (11,158) - (9,934) (269) (6,172) (1,290)
1,674,262 791,001 520,806 444,653 1,932,598 742,521 377,034 177,277
- --------------------------------------------------------------------------------------------------------------------------------
2,720,677 1,130,457 966,250 578,259 3,518,133 1,467,113 725,867 315,316
- --------------------------------------------------------------------------------------------------------------------------------
3,871,282 1,065,029 1,042,360 561,449 4,391,630 1,471,877 764,653 315,411
1,065,029 - 561,449 - 1,471,877 - 315,411 -
- --------------------------------------------------------------------------------------------------------------------------------
$ 4,936,311 $ 1,065,029 $ 1,603,809 $ 561,449 $ 5,863,507 $ 1,471,877 $ 1,080,064 $ 315,411
================================================================================================================================
</TABLE>
F-23
<PAGE> 73
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
GLOBAL EQUITY SUB-ACCOUNT GROWTH SUB-ACCOUNT VALUE SUB-ACCOUNT
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED**
-------------------------------------------------------------------------------------------------
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 167,578 $ - $ 95,683 $ - $ 117,791 $ 33,133
Net realized gain (loss) (35,168) 373 123,525 1,107 22,516 2,781
Net unrealized appreciation
(depreciation) of investments
during the period 214,456 32,115 466,535 15,489 (229,473) (20,774)
-------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets
derived from operations 346,866 32,488 685,743 16,596 (89,166) 15,140
-------------------------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 1,830,508 697,468 3,294,658 470,000 1,600,753 346,369
Transfer on death - - - - - -
Transfer on terminations (146,797) (22,616) (107,258) (29,691) (117,194) (21,998)
Transfer on policy loans (6,447) (283) (38,221) (2,329) (12,965) (1,030)
Net interfund transfers 750,096 761,527 1,662,737 794,709 1,104,824 742,495
-------------------------------------------------------------------------------------------------
2,427,360 1,436,096 4,811,916 1,232,689 2,575,418 1,065,836
-------------------------------------------------------------------------------------------------
Net increase (decrease) in net 2,774,226 1,468,584 5,497,659 1,249,285 2,486,252 1,080,976
assets
-------------------------------------------------------------------------------------------------
NET ASSETS
Beginning of year 1,468,584 - 1,249,285 - 1,080,976 -
-------------------------------------------------------------------------------------------------
End of year $ 4,242,810 $ 1,468,584 $ 6,746,944 $1,249,285 $3,567,228 $1,089,976
=================================================================================================
</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
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-24
<PAGE> 74
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH AND INCOME GLOBAL GOVERNMENT BOND
SUB-ACCOUNT HIGH YIELD SUB-ACCOUNT STRATEGIC BOND SUB-ACCOUNT SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 51,082 $ - $ 151,912 $ 39,931 $ 86,088 $ - $ 27,334 $ -
(4,342) 187 (7,914) 7,882 (17,942) 703 (8,230) 75
86,563 (39,257) (95,871) (13,453) (70,640) 10,709 2,498 3,801
- ------------------------------------------------------------------------------------------------------------------------------
133,303 (39,070) 48,127 34,360 (2,494) 11,412 21,602 3,876
- ------------------------------------------------------------------------------------------------------------------------------
515,640 744,217 943,552 276,881 1,272,907 273,501 143,923 58,746
- - - - - - - -
(50,349) (9,912) (111,555) (31,310) (103,790) (11,295) (17,835) (2,335)
(2,253) - (7,304) (6,696) (10,279) (504) (6,107) -
23,545 90,093 158,145 797,757 1,091,881 380,876 277,425 161,473
- ------------------------------------------------------------------------------------------------------------------------------
486,583 824,398 982,838 1,036,632 2,250,719 642,578 397,406 217,884
- ------------------------------------------------------------------------------------------------------------------------------
619,886 785,328 1,030,965 1,070,992 2,248,225 653,990 419,008 221,760
785,328 - 1,070,992 - 653,990 - 221,760 -
- ------------------------------------------------------------------------------------------------------------------------------
$1,405,214 $ 785,328 $2,101,957 $1,070,992 $2,902,215 $ 653,990 $ 640,768 $ 221,760
==============================================================================================================================
</TABLE>
F-25
<PAGE> 75
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
INVESTMENT QUALITY BOND LIFESTYLE AGGRESSIVE 1000 LIFESTYLE GROWTH 820 SUB-ACCOUNT
SUB-ACCOUNT SUB-ACCOUNT
-----------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 20,278 $ - $ 168,006 $ 4,916 $ 629,682 $ 36,584
Net realized gain (loss) 6,554 136 (9,962) 841 (19,242) 3,060
Net unrealized appreciation
(depreciation) of investments
during the period 27,852 6,089 (56,069) (11,049) 115,020 (24,740)
-----------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets
derived from operations 54,684 6,225 101,975 (5,292) 725,460 14,904
-----------------------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 443,446 75,411 1,299,712 421,769 7,009,770 2,011,046
Transfer on death - - - - - -
Transfer on terminations (45,715) (3,321) (258,375) (47,502) (827,050) (85,509)
Transfer on policy loans (46,096) - (26,714) (3,766) (176,891) (826)
Net interfund transfers 762,855 182,692 316,522 2,063,763 3,867,109 3,319,383
-----------------------------------------------------------------------------------------------
1,114,490 254,782 1,331,145 2,434,264 9,872,938 5,244,094
-----------------------------------------------------------------------------------------------
Net increase (decrease) in net 1,169,174 261,007 1,433,120 2,428,972 10,598,398 5,258,998
assets
NET ASSETS
Beginning of year 261,007 - 2,428,972 - 5,258,998 -
-----------------------------------------------------------------------------------------------
End of year $ 1,430,181 $ 261,007 $ 3,862,092 $ 2,428,972 $ 15,857,396 $ 5,258,998
================================================================================================
</TABLE>
* Reflects the period from commencement of operations February 14, 1996
through December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes
F-26
<PAGE> 76
<TABLE>
<CAPTION>
SMALL COMPANY
LIFESTYLE BALANCED 640 LIFESTYLE MODERATE 460 LIFESTYLE CONSERVATIVE 280 VALUE TRUST
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** PERIOD ENDED***
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 189,230 $ 16,038 $ 20,025 $ 842 $ 552 $ 9 $ --
(1,929) 4,837 (8,653) (6) 1,625 1 (3,492)
37,708 43,781 19,892 3 5,695 29 10,664
- ----------------------------------------------------------------------------------------------------------
225,009 64,656 31,264 839 7,872 39 7,172
- ----------------------------------------------------------------------------------------------------------
2,223,707 568,684 287,313 92,570 35,078 150 183,290
-- -- -- -- -- -- --
(520,437) (122,871) (25,583) (2,513) (3,934) (224) (6,126)
(28,495) -- -- -- -- -- --
1,672,788 1,613,028 282,970 11,484 67,660 1,376 182,269
- ----------------------------------------------------------------------------------------------------------
3,347,563 2,058,841 544,700 101,541 98,804 1,302 359,433
- ----------------------------------------------------------------------------------------------------------
3,572,572 2,123,497 575,964 102,380 106,676 1,341 366,605
2,123,497 -- 102,380 -- 1,341 -- --
- ----------------------------------------------------------------------------------------------------------
$ 5,696,069 $ 2,123,497 $ 678,344 $ 102,380 $ 108,017 $ 1,341 $ 366,605
==========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
TOTAL
-----------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/96
-----------------------------------------------
<S> <C> <C>
$ 28,132,536 $ 8,330,428 $ 22,590,083
3,760,628 3,497,468 1,480,090
11,133,790 30,266,096 (7,388,363)
- ------------------------------------------------
43,026,954 42,093,992 16,681,810
- ------------------------------------------------
125,895,605 123,892,455 100,180,503
-- (44,313) --
(33,859,519) (27,451,360) (16,030,382)
(2,357,855) (1,411,288)
(497,675) 179,113 463,377
- ------------------------------------------------
89,180,556 93,451,158 83,202,210
- ------------------------------------------------
132,207,510 135,545,150 99,884,020
346,331,293 210,786,143 110,902,123
- ------------------------------------------------
$ 478,538,803 $ 346,331,293 $ 210,786,143
================================================
</TABLE>
F-27
<PAGE> 77
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements
December 31, 1998
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. Each investment sub-account invests
solely in shares of a particular Manufacturers Investment Trust. Manufacturers
Investment Trust is registered under the Investment Company Act of 1940 as an
open-end management investment company.
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.
The International Small Cap and Blue Chip Growth Trusts was 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 Small Company Value Trust was added to the Separate Account
on May 1, 1998.
F-28
<PAGE> 78
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
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 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 thirty-six 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.
F-29
<PAGE> 79
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. PREMIUM DEDUCTIONS
Manufacturers Life of America deducts certain charges for state, local, and
federal taxes from the gross premium before placing the remaining net premiums
in the sub-accounts.
4. PURCHASES AND SALES OF MANUFACTURERS INVESTMENT TRUST SHARES
Purchases and sales of the shares of common stock of Manufacturers Investment
Trust for the year ended December 31, 1998 were $255,373,727 and $138,107,190,
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
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-30
<PAGE> 80
CONSOLIDATED FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
WITH REPORT OF INDEPENDENT AUDITORS
CONTENTS
Report of Independent Auditors..................................................
Audited Consolidated Financial Statements.......................................
Consolidated Balance Sheets................................................
Consolidated Statements of Income..........................................
Consolidated Statements of Changes in Capital And Surplus..................
Consolidated Statements of Cash Flows......................................
Notes to Consolidated Financial Statements......................................
F-31
<PAGE> 81
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, 1998 and
1997, 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, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Manufacturers
Life Insurance Company of America at December 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
Philadelphia, Pennsylvania
March 15, 1999 Ernst & Young LLP
F-32
<PAGE> 82
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As at December 31 ($ thousands)
ASSETS 1998 1997
INVESTMENTS:
<S> <C> <C>
Securities available-for-sale, at fair value: (note 3)
Fixed maturity (amortized cost: 1998 $45,248; 1997 $66,565) $ 49,254 $ 67,893
Equity (cost: 1998 $ 19,219; 1997 $20,153) 20,524 19,460
Short-term investments 459 2,130
Policy loans 19,320 14,673
TOTAL INVESTMENTS $ 89,557 $ 104,156
Cash and cash equivalents $ 23,789 $ 19,882
Deferred acquisition costs (note 5) 163,506 130,355
Income taxes recoverable 2,665 5,679
Other assets 9,062 9,495
Separate account assets 1,075,231 897,044
- ------------------------------------------------------------------------- ------------------------ -----------------------
TOTAL ASSETS $1,363,810 $1,166,611
- ------------------------------------------------------------------------- ------------------------ -----------------------
LIABILITIES, CAPITAL AND SURPLUS 1998 1997
- ------------------------------------------------------------------------ ------------------------ ------------------------
LIABILITIES:
Policyholder liabilities and accruals $ 60,830 $ 94,477
Notes payable (note 7) - 41,500
Due to affiliates 5,133 13,943
Deferred income taxes (note 6) 763 1,174
Other liabilities 18,656 11,704
Separate account liabilities 1,075,231 897,044
TOTAL LIABILITIES $1,160,613 $1,059,842
- ------------------------------------------------------------------------- ------------------------ -----------------------
CAPITAL AND SURPLUS:
Common shares (note 8) $ 4,502 $ 4,502
Preferred shares (note 8) 10,500 10,500
Contributed surplus 193,096 98,569
Retained earnings (deficit) (2,664) (1,910)
Accumulated other comprehensive income (loss) (2,237) (4,892)
TOTAL CAPITAL AND SURPLUS $ 203,197 $ 106,769
TOTAL LIABILITIES, CAPITAL AND SURPLUS $1,363,810 $1,166,611
- ------------------------------------------------------------------------- ------------------------ -----------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
<PAGE> 83
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
- --------------------------------------------------------------------------- ------------ -------------- -------------
<S> <C> <C> <C>
REVENUE:
Premiums $9,290 $8,607 $12,898
Consideration paid on reinsurance terminated (note 10) (40,975) - -
Fee income 54,547 38,682 40,434
Net investment income (note 3) 6,128 8,275 19,651
Realized investment gains (losses) (206) 118 (119)
Other 1,082 544 668
- --------------------------------------------------------------------------- ------------ -------------- -------------
TOTAL REVENUE $29,866 $56,226 $73,532
- --------------------------------------------------------------------------- ------------ -------------- -------------
BENEFITS AND EXPENSES:
Policyholder benefits and claims $16,541 $6,733 $14,473
Reduction of reserves on reinsurance terminated (note 10) (40,975) - -
Operating costs and expenses 41,676 41,742 34,581
Commissions 2,561 2,838 10,431
Amortization of deferred acquisition costs (note 5) 9,266 4,860 13,240
Interest expense 1,722 2,750 12,251
Policyholder dividends 221 1,416 872
- --------------------------------------------------------------------------- ------------ -------------- -------------
TOTAL BENEFITS AND EXPENSES 31,012 60,339 85,848
- --------------------------------------------------------------------------- ------------ -------------- -------------
LOSS BEFORE INCOME TAXES (1,146) (4,113) (12,316)
- --------------------------------------------------------------------------- ------------ -------------- -------------
INCOME TAX BENEFIT (NOTE 6) 392 477 3,909
- --------------------------------------------------------------------------- ------------ -------------- -------------
NET LOSS $ (754) $ (3,636) $ (8,407)
- --------------------------------------------------------------------------- ------------ -------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
<PAGE> 84
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED OTHER TOTAL
FOR THE YEARS ENDED DECEMBER 31 CAPITAL CONTRIBUTED EARNINGS COMPREHENSIVE CAPITAL AND
($ thousands) STOCK SURPLUS (DEFICIT) INCOME (LOSS) SURPLUS
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $15,002 $ 83,569 $10,133 $ 1,816 $ 110,520
Issuance of shares - 15,000 - - 15,000
Comprehensive income (loss) (note 2) - - (8,407) (483) (8,890)
-------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 $15,002 $ 98,569 $ 1,726 $ 1,333 $ 116,630
Comprehensive income (loss) (note 2) - - (3,636) (6,225) (9,861)
-------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 $15,002 $ 98,569 $(1,910) $ (4,892) $ 106,769
Capital contribution (note 8) - 94,527 - - 94,527
Comprehensive income (loss) (note 2) - - (754) 2,655 1,901
-------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $15,002 $193,096 $(2,664) $ (2,237) $ 203,197
-------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE> 85
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
- ---------------------------------------------------------------------------- --------------- -------------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Loss $ (754) $ (3,636) $ (8,407)
Adjustments to reconcile net loss to net cash used in operating activities:
Additions (deductions) to policy liabilities and accruals (36,217) (2,147) 3,287
Deferred acquisition costs (43,065) (33,544) (36,024)
Amortization of deferred acquisition costs 9,266 4,860 13,240
Realized (gains) losses on investments 206 (118) 119
Decreases (increases) to deferred income taxes (1,796) 2,730 777
Other 3,067 7,144 6,540
- ---------------------------------------------------------------------------- --------------- -------------- ------------
Net cash used in operating activities $ (69,293) $ (24,711) $(20,468)
- ---------------------------------------------------------------------------- --------------- -------------- ------------
INVESTING ACTIVITIES:
Fixed maturity securities sold $ 27,852 $ 73,772 $120,234
Fixed maturity securities purchased (6,429) (89,763) (108,401)
Equity securities sold 8,555 10,586 25,505
Equity securities purchased (8,082) (11,289) (22,203)
Mortgage loans repaid - 514 6,669
Net change in short-term investments 1,671 4,558 (2,992)
Net policy loans advanced (4,647) (4,851) (2,867)
Guaranteed annuity contracts - 171,691 (16,356)
- ---------------------------------------------------------------------------- --------------- -------------- ------------
Cash provided by investing activities $ 18,920 $ 155,218 $ 2,581
- ---------------------------------------------------------------------------- --------------- -------------- ------------
FINANCING ACTIVITIES:
Receipts from variable life and annuity policies
credited to policyholder account balances $ 7,981 $ 7,582 $ 5,493
Withdrawals of policyholder account balances on
variable life and annuity policies (5,410) (3,252) (2,994)
Bonds payable repaid - (158,760) -
Issuance of shares - - 15,000
Issuance of promissory note - 33,000 -
Capital Contribution 51,709 - -
- ---------------------------------------------------------------------------- --------------- -------------- ------------
Cash provided by (used in) financing activities $ 54,280 $ (121,430) $ 17,499
- ---------------------------------------------------------------------------- --------------- -------------- ------------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during the year 3,907 9,077 (3,380)
Balance, beginning of year 19,882 10,805 14,185
- ---------------------------------------------------------------------------- --------------- -------------- ------------
BALANCE, END OF YEAR $ 23,789 $ 19,882 $ 10,805
- ---------------------------------------------------------------------------- --------------- -------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-36
<PAGE> 86
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(IN THOUSANDS OF DOLLARS)
1. ORGANIZATION
The Manufacturers Life Insurance Company of America (the "Company") is
a wholly-owned subsidiary of The Manufacturers Life Insurance Company
(U.S.A.) ("ManUSA"), which is in turn an indirectly wholly-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.
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. The Company then transferred all the
common and preferred shares of Manufacturers Adviser Corporation
("MAC") to Holdco for two shares of $1 common stock of Holdco. Holdco
has primarily three wholly-owned subsidiaries, ManEquity Inc., a
registered broker/dealer, MAC, an investment fund management company,
and Manulife Capital Corporation ("MCC"), an investment holding
company.
In October 1997, the Manufacturers Life Mortgage Securities Corporation
("MLMSC"), a subsidiary of Holdco, was absorbed into Holdco subsequent
to the maturity and repayment of the mortgage-backed US dollar bonds.
All assets and liabilities of MLMSC were transferred to Holdco at their
respective book values.
These transfers have been accounted for using the pooling-of-interests
method of accounting. Under this method, the assets, liabilities,
capital and surplus, revenues and expenses of each separate entity are
combined retroactively at their historical carrying values to form the
financial statements of the Company for all periods presented to give
effect to the reorganization as if the structure in place at December
31, 1996 had been in place as of the earliest period presented in these
consolidated financial statements. The accounts of all subsidiary
companies are therefore combined and all significant intercompany
balances and transactions are eliminated on combination. In addition,
the capital and surplus of the Company has been restated retroactively
to reflect the capital structure in place at December 31, 1996.
F-37
<PAGE> 87
The revenues and net income reported by the separate entities and the
combined amounts presented in the accompanying consolidated financial
statements are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
($ thousands) 1996
--------------------------------------------------------------------
<S> <C>
Revenue:
ManAmerica $ 54,404
Holdco 15,543
MAC 3,585
--------------------------------------------------------------------
TOTAL REVENUE $ 73,532
--------------------------------------------------------------------
Net Income (loss):
ManAmerica $ (8,676)
Holdco (670)
MAC 939
--------------------------------------------------------------------
TOTAL NET LOSS $ (8,407)
--------------------------------------------------------------------
</TABLE>
2. SIGNIFICANT ACCOUNTING POLICIES
a) BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company have
been prepared in conformity with generally accepted accounting
principles ("GAAP").
The preparation of financial statements in conformity with GAAP
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.
Certain reclassifications have been made to 1997 and 1996 financial
information to conform to the 1998 presentation.
b) RECENT ACCOUNTING STANDARDS
i) During 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income". SFAS No.
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
shareholder's equity during a period except those resulting from
investments by and distributions to shareholders. The adoption of SFAS
No. 130 resulted in revised and additional disclosures but had no
effect on the financial position, results of operations, or liquidity
of the Company.
F-38
<PAGE> 88
Total comprehensive income was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME (LOSS) $ (754) $(3,636) $(8,407)
--------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized holding gains (losses) arising during the period 2,435 (1,030) (560)
Foreign currency translation 86 (5,272) --
Reclassification adjustment for realized gains (losses)
included in net income (134) 77 (77)
--------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) 2,655 (6,225) (483)
--------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ 1,901 $(9,861) $(8,890)
--------------------------------------------------------------------------------------------------------
</TABLE>
Other comprehensive income (loss) is reported net of tax expense
(benefit) of $1,430, $(513), and $260 for 1998, 1997, and 1996,
respectively.
Accumulated other comprehensive income is comprised of the following:
<TABLE>
<CAPTION>
AS AT DECEMBER 31
($ thousands) 1998 1997
-------------------------------------------------------------------------------------------------
<S> <C> <C>
UNREALIZED GAINS (LOSSES):
Beginning balance $ 380 $ 1,333
Current period change 2,569 (953)
-------------------------------------------------------------------------------------------------
Ending balance $ 2,949 $ 380
-------------------------------------------------------------------------------------------------
FOREIGN CURRENCY:
Beginning balance $(5,272) $ -
Current period change 86 (5,272)
-------------------------------------------------------------------------------------------------
Ending balance $(5,186) $(5,272)
-------------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) $(2,237) $(4,892)
-------------------------------------------------------------------------------------------------
</TABLE>
ii) During 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 131
establishes standards for the disclosure of information about the
Company's operating segments, including disclosures about products and
services, geographic areas, and major customers. The adoption of SFAS
No. 131 did not affect results of operations or financial position, nor
did it affect the manner in which the Company defines its operating
segments. The Company reports two business segments: Traditional Life
Insurance sold in Taiwan and Variable Life and Annuities sold in the
U.S. Refer to Note 12 for additional segment information.
C) 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 accumulated other
comprehensive income after adjustments for deferred taxes and deferred
acquisition costs. Discounts and premiums on investments are amortized
using the effective interest method.
F-39
<PAGE> 89
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.
d) CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with
an original maturity date of three months or less to be cash
equivalents. Cash equivalents are stated at cost plus accrued interest,
which approximates fair value.
e) 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 accumulated
other comprehensive income. DAC is reviewed annually to determine
recoverability from future income and, if not recoverable, it is
immediately expensed.
f) 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.
g) 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 assets are recorded
at market value. Operations of the separate accounts are not included
in the accompanying financial statements.
F-40
<PAGE> 90
h) 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.
i) 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.
j) 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, policy charges for cost of
insurance 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, fees and claims are reported net
of reinsured amounts. Amounts paid with respect to ceded reinsurance
contracts are reported as reinsurance receivables in other assets.
k) 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 in accumulated other comprehensive income.
l) INCOME TAX
Income taxes have been provided for in accordance with SFAS No. 109
"Accounting for Income Taxes." The Company joins ManUSA, Manulife
Reinsurance Corporation ("MRC") 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.
F-41
<PAGE> 91
3. INVESTMENTS AND INVESTMENT INCOME
a) FIXED MATURITY AND EQUITY SECURITIES
At December 31, 1998, 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
AMORTIZED COST UNREALIZED GAINS UNREALIZED LOSSES FAIR VALUE
AS AT DECEMBER 31,
($ thousands) 1998 1997 1998 1997 1998 1997 1998 1997
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FIXED MATURITY SECURITIES:
U.S. government $27,349 $51,694 $ 2,578 $ 937 $ -- $ (135) $29,927 $52,496
Foreign governments 9,353 6,922 709 203 -- (14) 10,062 7,111
Corporate 8,546 7,949 719 415 -- (78) 9,265 8,286
------------------------------------------------------------------------------------------------------------------------
Total fixed maturity $45,248 $66,565 $ 4,006 $ 1,555 $ -- $ (227) $49,254 $67,893
securities
Equity securities $19,219 $20,153 $ 3,217 $ 1,496 $(1,912) $(2,189) $20,524 $19,460
------------------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales of fixed maturity securities during 1998 were
$27,852 (1997 $73,772; 1996 $120,234). Gross gains of $362 and gross
losses of $107 were realized on those sales (1997 $955 and $837; 1996
$1,858 and $1,837 respectively).
Proceeds from sale of equity securities during 1998 were $8,555 (1997
$10,586; 1996 $25,505). Gross gains of $16 and gross losses of $477
were realized on those sales (1997 $NIL and $NIL; 1996 $NIL and $140
respectively).
The contractual maturities of fixed maturity securities at December 31,
1998 are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties. Corporate
requirements and investment strategies may result in the sale of
investments before maturity.
<TABLE>
<CAPTION>
($ thousands) AMORTIZED COST FAIR VALUE
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fixed maturity securities
One year or less $ 1,174 $1,179
Greater than 1; up to 5 years 7,792 8,081
Greater than 5; up to 10 years 24,422 26,395
Due after 10 years 11,860 13,599
------------------------------------------------------------------------------------------------------
TOTAL FIXED MATURITY SECURITIES $45,248 $49,254
------------------------------------------------------------------------------------------------------
</TABLE>
F-42
<PAGE> 92
b) INVESTMENT INCOME
Income by type of investment was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities $ 4,675 $ 4,545 $ 4,447
Equity securities 227 331 671
Guaranteed annuity contracts - 2,796 13,196
Other investments 1,485 772 1,697
---------------------------------------------------------------------------------------------------------
Gross investment income 6,387 8,444 20,011
---------------------------------------------------------------------------------------------------------
Investment expenses 259 169 360
---------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 6,128 $ 8,275 $ 19,651
---------------------------------------------------------------------------------------------------------
</TABLE>
4. 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.
5. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, $ 130,355 $ 102,610 $ 78,829
Capitalization 43,065 33,544 36,024
Accretion of interest 11,417 9,357 6,344
Amortization (20,683) (14,217) (19,583)
Effect of net unrealized gains (losses)
on securities available for sale (784) 1,268 996
Currency 136 (2,207) --
----------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31 $ 163,506 $ 130,355 $ 102,610
----------------------------------------------------------------------------------------------------------
</TABLE>
6. INCOME TAXES
Components of income tax expense (benefit) were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current expense (benefit) $ 1,404 $(3,207) $(4,686)
Deferred expense (benefit) (1,796) 2,730 777
------------------------------------------------------------------------------------------------
TOTAL EXPENSE (BENEFIT) $ (392) $ (477) $(3,909)
------------------------------------------------------------------------------------------------
</TABLE>
F-43
<PAGE> 93
The Company's deferred income tax liability, which results from tax
effecting the differences between financial statement values and tax
values of assets and liabilities at each balance sheet date, relates to
the following:
<TABLE>
<CAPTION>
AS AT DECEMBER 31
($ thousands) 1998 1997
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Differences in computing policy reserves $38,888 $34,291
Policyholder dividends payable - 240
Investments 708 793
Other deferred tax assets 333 -
-----------------------------------------------------------------------------------------------------
Deferred tax assets $39,929 $35,324
-----------------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Deferred acquisition costs $38,778 $30,682
Investments 1,859 166
Policyholder dividends payable 55 -
Other deferred tax liabilities - 5,650
-----------------------------------------------------------------------------------------------------
Deferred tax liabilities $40,692 $36,498
-----------------------------------------------------------------------------------------------------
NET DEFERRED TAX LIABILITIES $ (763) $(1,174)
-----------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1998, the consolidated group has utilized all available
operating loss carryforwards and net capital loss carryforwards. The
losses of the Company, MRC and ManUSA may be used to offset the
ordinary and capital gain income of MRL. However, losses of MRL may not
be used to offset the income of the other members of the consolidated
group.
7. NOTES PAYABLE
a) On June 15, 1998, the outstanding promissory note in the
amount of $33,000 plus interest at 6.95% issued on December 5,
1997 payable to ManUSA was discharged and the amount due of
$34,318 ($33,000 plus interest of $1,318) was recorded as a
capital contribution.
b) On December 31, 1998, the surplus debenture in the amount of
$8,500 plus interest at 6.7% issued on December 31, 1995 to
ManUSA was discharged and the amount due of $8,500 was
recorded as a capital contribution.
8. CAPITAL AND SURPLUS
The Company has two classes of capital stock, as follows:
<TABLE>
<CAPTION>
AS AT DECEMBER 31:
($ thousands, except per share amounts) 1998 1997
---------------------------------------------------------------------------------------------------
<S> <C> <C>
AUTHORIZED:
5,000,000 Common shares, Par value $1
5,000,000 Preferred shares, Par value $100
ISSUED AND OUTSTANDING:
4,501,861 Common shares $ 4,502 $4,502
</TABLE>
F-44
<PAGE> 94
<TABLE>
<CAPTION>
<S> <C> <C>
105,000 Preferred shares 10,500 10,500
---------------------------------------------------------------------------------------------------
TOTAL $15,002 $15,002
---------------------------------------------------------------------------------------------------
</TABLE>
During 1996, the Company issued two common shares to its Parent Company
in return for a capital contribution of $15,000.
In 1998, the outstanding promissory note payable referred to in note
7(a) above, totaling $34,318, was discharged and recorded as a capital
contribution.
On December 31, 1998, the Company issued one common share to ManUSA in
exchange for a capital contribution of $60,209. Included in this
capital contribution was the discharge of the surplus debenture in the
amount of $8,500 referred to in note 7(b) above.
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, 1998 was $121,799 (1997 $56,598). The aggregate statutory net loss
of the Company for the year ended 1998 was $23,491 (1997 $2,550; 1996
$5,961). State regulatory authorities prescribe statutory accounting
practices that differ in certain respects from generally accepted
accounting principles followed by stock life insurance companies. The
significant differences relate to investments, deferred acquisition
costs, deferred income taxes, non-admitted asset balances and reserve
calculation assumptions.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and the estimated fair values of certain of the
Company's financial instruments at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
ESTIMATED
($ thousands) CARRYING VALUE FAIR VALUE
------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Fixed maturity and equity securities $69,778 $69,778
Short-term investments 459 459
Policy loans 19,320 19,320
Cash and cash equivalents 23,789 23,789
------------------------------------------------------------------------------------------------
</TABLE>
The following methods and assumptions were used to estimate the fair
values of the above financial instruments:
FIXED MATURITY AND EQUITY SECURITIES: Fair values of fixed maturity and
equity securities were based on quoted market prices, where available.
Fair values were estimated using values obtained from independent
pricing services.
SHORT-TERM INVESTMENTS AND CASH AND CASH EQUIVALENTS: Carrying values
approximate fair values.
F-45
<PAGE> 95
POLICY LOANS: Carrying values approximate fair values.
10. RELATED PARTY TRANSACTIONS
The Company has formal service agreements with Manulife Financial and
ManUSA which can be terminated by any party upon two months' notice.
Under the agreements, the Company will pay direct operating expenses
incurred each year by Manulife Financial and ManUSA on its behalf.
Services provided under the agreement include legal, actuarial,
investment, data processing and certain other administrative services.
Costs incurred under these agreements were $34,070, $32,733 and $29,384
in 1998, 1997 and 1996 respectively. In addition, there were $12,817,
$11,249 and $6,934 of agents bonuses allocated to the Company during
1998, 1997 and 1996, respectively, which are included in deferred
acquisition costs.
The Company has several reinsurance agreements with affiliated
companies which may be terminated upon the specified notice by either
party. These agreements are summarized as follows:
(a) On December 31, 1998, the coinsurance treaties under which the
Company had assumed two blocks of insurance from ManUSA were
terminated. The Company's risk under these treaties was limited to
$100,000 of initial face amount per claim plus a pro-rata share of
any increase in face amount. Upon the termination of the treaties,
the Company paid consideration in the amount of approximately
$41.0 million to ManUSA and policyholder reserves totaling $41.0
million were recaptured by ManUSA. No gain or loss resulted from
the termination of these treaties.
(b) The Company cedes the risk in excess of $25,000 per life to MRC
under the terms of an automatic reinsurance agreement
(c) The Company cedes a substantial portion of its risk on its
Flexible Premium Variable Life policies to MRC under the terms of
a stop loss reinsurance agreement.
Selected amounts relating to the above treaties reflected in the
financial statements are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Life and annuity premiums assumed $ 48 $ 509 $ 724
Life and annuity premiums ceded 76 69 99
Policy reserves assumed - 40,975 44,497
Policy reserves ceded 145 130 304
---------------------------------------------------------------------------------------------------
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts to affiliates
were $NId to third parties.
F-46
<PAGE> 96
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
Fixed Account or Loan Account. The Cash Surrender Value is the Policy Value less
any applicable surrender charges. The tables illustrate how Policy Values and
Cash Surrender Values, which reflect all applicable charges and deductions, and
Death Benefits of the Policy on an insured of a given age would vary over time
if the return on the assets of the Portfolio was a uniform, gross, after-tax,
annual rate of 0%, 6% or 12%. The Policy Values, Death Benefits and Cash
Surrender Values would be different from those shown if the returns averaged 0%,
6% or 12%, but fluctuated over and under those averages throughout the years.
The charges reflected in the tables include those for: deductions from premiums
for state, local and federal taxes, deferred underwriting and sales charges, and
monthly deductions for administration, cost of insurance and mortality and
expense risks.
The amounts shown for the Policy Value, Death Benefit and Cash Surrender Value
as of each policy year reflect the fact that the net investment return on the
assets held in the sub-accounts is lower than the gross, after-tax return. This
is because the expenses and fees borne by the Portfolios are deducted from the
gross return. The illustrations reflect an average of those Portfolios' current
expenses, which is approximately 0.949% per annum. The gross annual rates of
return of 0%, 6% and 12% correspond to approximate net annual rates of return of
- -0.944%, 4.999% and 10.942%. The illustrations reflect the expense
reimbursements in effect for the Lifestyle Trusts and the expense limitation in
effect for the Equity Index Trust. In the absence of such expense reimbursements
and expense limitation, the average of the Portfolio's current expenses would
have been 0.953% per annum and the gross annual rates of return of 0%, 6% and
12% would have corresponded to approximate net annual rates of return of
- -0.949%, 4.994% and 10.938%. The expense reimbursements for the Lifestyle Trusts
and the expense limitation for the Equity Index Trust remained in effect during
the fiscal year ended December 31, 1998, and are expected to remain in effect
during the fiscal year ended December 31, 1999. Were the expense reimbursement
and expense limitation to terminate, the average of the Portfolios' current
expenses would be higher and the approximate net annual rates of return would be
lower.
The tables assume that no premiums have been allocated to the Fixed Account,
that planned premiums are paid on the policy anniversary and that no transfers,
partial withdrawals, policy loans, changes in death benefit options or changes
in face amount have been made. The tables reflect the fact that no charges for
federal, state or local taxes are currently made against the Separate Account.
If such a charge is made in the future, it would take a higher gross rate of
return to produce after-tax returns of 0%, 6% and 12% than it does now.
There are two tables shown for each combination of age and death benefit option
for male non-smokers, one based on current cost of insurance and monthly
administration charges and the other based on the maximum administration
charges, deductions from premiums and cost of insurance charges based on the
1980 Commissioners Standard Ordinary Smoker/Nonsmoker Mortality Tables. The
current waiver of deductions from premiums and current monthly administration
charges and cost of insurance charges are not guaranteed and may be changed.
Upon request, Manufacturers Life of America will furnish a comparable
illustration based on the proposed life insured's age, sex (unless unisex rates
are required by law) and risk class, any additional ratings and the death
benefit option, face amount and planned premium requested. Illustrations for
smokers would show less favorable results than the illustrations shown below.
From time to time, in advertisements or sales literature for the Policies that
quote performance data of one or more of the Portfolios, the Company may include
cash surrender values and death benefit figures computed using the same
methodology as that used in the following illustrations, but with the average
annual total return of the Portfolios for which performance data is shown in the
advertisement replacing the hypothetical rates of return shown in the following
tables. This information may be shown in the form of graphs, charts, tables and
examples.
The Policies have been offered to the public only since September 10, 1993.
However, total return data may be advertised for as long a period of time as the
underlying Portfolio has been in existence. The results for any period prior to
the Policies'
A-1
<PAGE> 97
being offered would be calculated as if the Policies had been offered during
that period of time, with all charges assumed to be those applicable to the
Policies.
A-2
<PAGE> 98
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$5,960 ANNUAL PLANNED PREMIUM*
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 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 (1) (2) Value Value Value
(3)(4) (3)(4) (3)(4)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,258 4,614 0 500,000 4,925 271 500,000 5,238 584 500,000
2 12,829 9,408 4,637 500,000 10,324 5,554 500,000 11,279 6,509 500,000
3 19,728 14,070 7,548 500,000 15,899 9,377 500,000 17,879 11,357 500,000
4 26,973 18,598 12,129 500,000 21,652 15,183 500,000 25,089 18,620 500,000
5 34,579 22,985 16,565 500,000 27,582 21,161 500,000 32,961 26,541 500,000
6 42,566 27,256 21,135 500,000 33,719 27,599 500,000 41,588 35,468 500,000
7 50,953 31,374 25,554 500,000 40,035 34,215 500,000 51,009 45,189 500,000
8 59,758 35,345 29,824 500,000 46,540 41,020 500,000 61,309 55,789 500,000
9 69,004 39,159 34,156 500,000 53,233 48,230 500,000 72,571 67,568 500,000
10 78,712 42,823 38,760 500,000 60,126 56,063 500,000 84,898 80,835 500,000
11 88,906 46,334 43,084 500,000 67,224 63,974 500,000 98,399 95,149 500,000
12 99,609 49,674 47,236 500,000 74,520 72,082 500,000 113,183 110,745 500,000
13 110,848 52,842 51,217 500,000 82,020 80,395 500,000 129,385 127,760 500,000
14 122,648 55,833 55,021 500,000 89,727 88,915 500,000 147,152 146,340 500,000
15 135,039 58,635 58,635 500,000 97,642 97,642 500,000 166,646 166,646 500,000
16 148,049 61,242 61,242 500,000 105,768 105,768 500,000 188,052 188,052 500,000
17 161,709 63,627 63,627 500,000 114,094 114,094 500,000 211,564 211,564 500,000
18 176,052 65,796 65,796 500,000 122,636 122,636 500,000 237,425 237,425 500,000
19 191,113 67,728 67,728 500,000 131,387 131,387 500,000 265,892 265,892 500,000
20 206,927 69,524 69,524 500,000 140,453 140,453 500,000 297,322 297,322 500,000
21 223,531 71,186 71,186 500,000 149,851 149,851 500,000 332,048 332,048 500,000
22 240,966 72,536 72,536 500,000 159,453 159,453 500,000 370,252 370,252 540,567
23 259,272 73,563 73,563 500,000 169,268 169,268 500,000 412,113 412,113 585,200
24 278,494 74,247 74,247 500,000 179,303 179,303 500,000 457,993 457,993 632,030
25 298,676 74,553 74,553 500,000 189,553 189,553 500,000 508,295 508,295 681,115
26 319,868 74,787 74,787 500,000 200,932 200,932 500,000 566,011 566,011 735,815
27 342,119 74,556 74,556 500,000 212,625 212,625 500,000 629,492 629,492 805,750
28 365,483 73,796 73,796 500,000 224,632 224,632 500,000 699,307 699,307 881,127
29 390,016 72,432 72,432 500,000 236,958 236,958 500,000 776,089 776,089 962,351
30 415,774 71,022 71,022 500,000 250,003 250,003 500,000 860,825 860,825 1,050,207
31 442,821 69,550 69,550 500,000 263,803 263,803 500,000 954,362 954,362 1,145,234
32 471,220 67,395 67,395 500,000 278,072 278,072 500,000 1,057,199 1,057,199 1,258,067
33 501,039 64,495 64,495 500,000 292,860 292,860 500,000 1,170,254 1,170,254 1,380,899
34 532,349 60,781 60,781 500,000 308,225 308,225 500,000 1,294,538 1,294,538 1,514,609
35 565,224 56,160 56,160 500,000 324,233 324,233 500,000 1,431,162 1,431,162 1,660,148
36 600,131 50,712 50,712 500,000 341,288 341,288 500,000 1,581,659 1,581,659 1,818,908
37 636,783 43,678 43,678 500,000 359,046 359,046 500,000 1,747,353 1,747,353 1,974,509
38 675,268 35,115 35,115 500,000 377,721 377,721 500,000 1,930,108 1,930,108 2,142,420
</TABLE>
A-3
<PAGE> 99
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
39 715,677 24,287 24,287 500,000 397,348 397,348 500,000 2,131,723 2,131,723 2,323,578
40 758,106 11,230 11,230 500,000 418,226 418,226 500,000 2,354,680 2,354,680 2,519,507
41 802,657 0 (5) 0 (5) 500,000 440,416 440,416 500,000 2,601,347 2,601,347 2,731,415
42 849,435 0 (5) 0 (5) 500,000 464,347 464,347 500,000 2,871,952 2,871,952 3,015,550
43 898,552 0 (5) 0 (5) 500,000 490,322 490,322 514,839 3,169,108 3,169,108 3,327,564
44 950,125 0 (5) 0 (5) 500,000 517,286 517,286 543,151 3,495,288 3,495,288 3,670,052
45 1,004,277 0 (5) 0 (5) 500,000 545,209 545,209 572,470 3,853,150 3,853,150 4,045,807
46 1,061,136 0 (5) 0 (5) 500,000 574,096 574,096 602,801 4,245,516 4,245,516 4,457,792
47 1,120,838 0 (5) 0 (5) 500,000 603,944 603,944 634,142 4,675,384 4,675,384 4,909,153
48 1,183,526 0 (5) 0 (5) 500,000 634,738 634,738 666,475 5,145,895 5,145,895 5,403,190
49 1,249,348 0 (5) 0 (5) 500,000 666,453 666,453 699,776 5,660,360 5,660,360 5,943,378
50 1,318,460 0 (5) 0 (5) 500,000 699,068 699,068 734,022 6,222,351 6,222,351 6,533,468
51 1,391,029 0 (5) 0 (5) 500,000 732,959 732,959 769,607 6,839,425 6,839,425 7,181,396
52 1,467,226 0 (5) 0 (5) 500,000 768,155 768,155 806,563 7,516,766 7,516,766 7,892,604
53 1,547,232 0 (5) 0 (5) 500,000 804,727 804,727 844,964 8,260,481 8,260,481 8,673,505
54 1,631,240 0 (5) 0 (5) 500,000 842,724 842,724 884,860 9,076,997 9,076,997 9,530,846
55 1,719,447 0 (5) 0 (5) 500,000 882,195 882,195 926,305 9,973,379 9,973,379 10,472,048
56 1,812,065 0 (5) 0 (5) 500,000 923,024 923,024 969,175 10,955,369 10,955,369 11,503,137
57 1,909,313 0 (5) 0 (5) 500,000 966,280 966,280 1,004,931 12,043,805 12,043,805 12,525,557
58 2,011,425 0 (5) 0 (5) 500,000 1,012,291 1,012,291 1,042,660 13,253,182 13,253,182 13,650,777
59 2,118,641 0 (5) 0 (5) 500,000 1,061,554 1,061,554 1,082,785 14,602,149 14,602,149 14,894,192
60 2,231,219 0 (5) 0 (5) 500,000 1,114,493 1,114,493 1,125,637 16,110,747 16,110,747 16,271,855
61 2,349,425 0 (5) 0 (5) 500,000 1,171,443 1,171,443 1,171,443 17,800,262 17,800,262 17,800,262
62 2,473,542 0 (5) 0 (5) 500,000 1,230,973 1,230,973 1,230,973 19,666,234 19,666,234 19,666,234
63 2,603,864 0 (5) 0 (5) 500,000 1,293,197 1,293,197 1,293,197 21,727,094 21,727,094 21,727,094
64 2,740,703 0 (5) 0 (5) 500,000 1,358,239 1,358,239 1,358,239 24,003,196 24,003,196 24,003,196
65 2,884,384 0 (5) 0 (5) 500,000 1,426,225 1,426,225 1,426,225 26,517,020 26,517,020 26,517,020
</TABLE>
* Note that the second tier Death Benefit Guarantee Premium level of $6,329 is
paid from age 70.
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b)
no policy loan has been made, (c) no partial withdrawal of the Cash
Surrender Value has been made and (d) no premiums have been allocated
to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 5 Policy Years. Provided the
Cumulative Premium Test or the Fund Value Test has been and continues
to be met, the Death Benefit Guarantee will keep the Policy in force
on all policies for the first three years and until age 100 on
Policies issued and maintained with a minimum face amount of $250,000
and Death Benefit Option 1; to age 85 on policies issued and
maintained with a face amount of at least $250,000 and if Death
benefit Option 2 is selected at any time.
(4) Cash Surrender Value for the first two years reflects sales charge
limitations imposed by the S.E.C.
(5) In the absence of additional premium payments, the Policy will lapse,
unless the Death Benefit Guarantee is in effect.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
A-4
<PAGE> 100
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$5,960 ANNUAL PLANNED PREMIUM*
ASSUMING MAXIMUM 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 (1) (2) Value Value Value
(3)(4) (3)(4) (3)(4)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,258 4,339 0 500,000 4,636 0 500,000 4,933 279 500,000
2 12,829 8,864 4,093 500,000 9,734 4,964 500,000 10,641 5,871 500,000
3 19,728 13,261 6,739 500,000 14,995 8,473 500,000 16,873 10,351 500,000
4 26,973 17,529 11,060 500,000 20,421 13,952 500,000 23,677 17,208 500,000
5 34,579 21,660 15,240 500,000 26,011 19,590 500,000 31,104 24,683 500,000
6 42,566 25,655 19,534 500,000 31,768 25,648 500,000 39,214 33,094 500,000
7 50,953 29,501 23,681 500,000 37,687 31,867 500,000 48,065 42,245 500,000
8 59,758 33,204 27,684 500,000 43,779 38,258 500,000 57,737 52,217 500,000
9 69,004 36,752 31,749 500,000 50,037 45,034 500,000 68,304 63,300 500,000
10 78,712 40,151 36,088 500,000 56,473 52,411 500,000 79,861 75,798 500,000
11 88,906 43,384 40,134 500,000 63,080 59,830 500,000 92,499 89,249 500,000
12 99,609 46,449 44,011 500,000 69,858 67,421 500,000 106,327 103,890 500,000
13 110,848 49,339 47,713 500,000 76,812 75,187 500,000 121,469 119,844 500,000
14 122,648 52,050 51,237 500,000 83,944 83,131 500,000 138,061 137,249 500,000
15 135,039 54,569 54,569 500,000 91,249 91,249 500,000 156,252 156,252 500,000
16 148,049 56,891 56,891 500,000 98,735 98,735 500,000 176,214 176,214 500,000
17 161,709 58,991 58,991 500,000 106,384 106,384 500,000 198,126 198,126 500,000
18 176,052 60,842 60,842 500,000 114,185 114,185 500,000 222,193 222,193 500,000
19 191,113 62,424 62,424 500,000 122,129 122,129 500,000 248,652 248,652 500,000
20 206,927 63,704 63,704 500,000 130,199 130,199 500,000 277,767 277,767 500,000
21 223,531 64,656 64,656 500,000 138,385 138,385 500,000 309,849 309,849 500,000
22 240,966 65,250 65,250 500,000 146,675 146,675 500,000 345,253 345,253 504,069
23 259,272 65,470 65,470 500,000 155,072 155,072 500,000 384,192 384,192 545,552
24 278,494 65,290 65,290 500,000 163,572 163,572 500,000 426,845 426,845 589,046
25 298,676 64,661 64,661 500,000 172,154 172,154 500,000 473,585 473,585 634,604
26 319,868 63,835 63,835 500,000 181,635 181,635 500,000 527,200 527,200 685,360
27 342,119 62,448 62,448 500,000 191,256 191,256 500,000 586,126 586,126 750,241
28 365,483 60,417 60,417 500,000 200,995 200,995 500,000 650,883 650,883 820,113
29 390,016 57,645 57,645 500,000 210,826 210,826 500,000 722,048 722,048 895,339
30 415,774 54,022 54,022 500,000 220,726 220,726 500,000 800,260 800,260 976,318
31 442,821 49,441 49,441 500,000 230,681 230,681 500,000 886,244 886,244 1,063,493
32 471,220 43,802 43,802 500,000 240,697 240,697 500,000 980,593 980,593 1,166,905
33 501,039 36,984 36,984 500,000 250,774 250,774 500,000 1,084,106 1,084,106 1,279,246
34 532,349 28,852 28,852 500,000 260,923 260,923 500,000 1,197,673 1,197,673 1,401,277
35 565,224 19,231 19,231 500,000 271,148 271,148 500,000 1,322,262 1,322,262 1,533,824
36 600,131 8,220 8,220 500,000 281,816 281,816 500,000 1,459,312 1,459,312 1,678,209
37 636,783 0 (5) 0 (5) 500,000 292,557 292,557 500,000 1,610,237 1,610,237 1,819,568
38 675,268 0 (5) 0 (5) 500,000 303,340 303,340 500,000 1,776,627 1,776,627 1,972,056
</TABLE>
A-5
<PAGE> 101
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
39 715,677 0 (5) 0 (5) 500,000 314,142 314,142 500,000 1,960,345 1,960,345 2,136,776
40 758,106 0 (5) 0 (5) 500,000 324,963 324,963 500,000 2,163,608 2,163,608 2,315,061
41 802,657 0 (5) 0 (5) 500,000 335,858 335,858 500,000 2,389,096 2,389,096 2,508,551
42 849,435 0 (5) 0 (5) 500,000 346,911 346,911 500,000 2,636,578 2,636,578 2,768,407
43 898,552 0 (5) 0 (5) 500,000 358,236 358,236 500,000 2,908,064 2,908,064 3,053,467
44 950,125 0 (5) 0 (5) 500,000 369,990 369,990 500,000 3,205,738 3,205,738 3,366,025
45 1,004,277 0 (5) 0 (5) 500,000 382,348 382,348 500,000 3,531,934 3,531,934 3,708,531
46 1,061,136 0 (5) 0 (5) 500,000 395,504 395,504 500,000 3,889,113 3,889,113 4,083,569
47 1,120,838 0 (5) 0 (5) 500,000 409,713 409,713 500,000 4,279,861 4,279,861 4,493,854
48 1,183,526 0 (5) 0 (5) 500,000 425,315 425,315 500,000 4,706,860 4,706,860 4,942,203
49 1,249,348 0 (5) 0 (5) 500,000 442,803 442,803 500,000 5,172,897 5,172,897 5,431,542
50 1,318,460 0 (5) 0 (5) 500,000 462,907 462,907 500,000 5,680,934 5,680,934 5,964,981
51 1,391,029 0 (5) 0 (5) 500,000 486,185 486,185 510,495 6,234,148 6,234,148 6,545,856
52 1,467,226 0 (5) 0 (5) 500,000 510,221 510,221 535,732 6,835,955 6,835,955 7,177,753
53 1,547,232 0 (5) 0 (5) 500,000 534,767 534,767 561,505 7,489,992 7,489,992 7,864,492
54 1,631,240 0 (5) 0 (5) 500,000 559,804 559,804 587,794 8,200,205 8,200,205 8,610,216
55 1,719,447 0 (5) 0 (5) 500,000 585,304 585,304 614,569 8,970,691 8,970,691 9,419,226
56 1,812,065 0 (5) 0 (5) 500,000 611,232 611,232 641,794 9,805,661 9,805,661 10,295,944
57 1,909,313 0 (5) 0 (5) 500,000 639,043 639,043 664,605 10,734,634 10,734,634 11,164,019
58 2,011,425 0 (5) 0 (5) 500,000 669,077 669,077 689,149 11,772,759 11,772,759 12,125,942
59 2,118,641 0 (5) 0 (5) 500,000 701,740 701,740 715,775 12,938,422 12,938,422 13,197,191
60 2,231,219 0 (5) 0 (5) 500,000 737,520 737,520 744,895 14,254,096 14,254,096 14,396,637
61 2,349,425 0 (5) 0 (5) 500,000 777,104 777,104 777,104 15,749,382 15,749,382 15,749,382
62 2,473,542 0 (5) 0 (5) 500,000 818,480 818,480 818,480 17,400,840 17,400,840 17,400,840
63 2,603,864 0 (5) 0 (5) 500,000 861,729 861,729 861,729 19,224,780 19,224,780 19,224,780
64 2,740,703 0 (5) 0 (5) 500,000 906,937 906,937 906,937 21,239,218 21,239,218 21,239,218
65 2,884,384 0 (5) 0 (5) 500,000 954,191 954,191 954,191 23,464,050 23,464,050 23,464,050
</TABLE>
* Note that the second tier Death Benefit Guarantee Premium level of $6,329 is
paid from age 70.
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b)
no policy loan has been made, (c) no partial withdrawal of the Cash
Surrender Value has been made and (d) no premiums have been allocated
to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 5 Policy Years. Provided the
Cumulative Premium Test or the Fund Value Test has been and continues
to be met, the Death Benefit Guarantee will keep the Policy in force
on all policies for the first three years and until age 100 on
Policies issued and maintained with a minimum face amount of $250,000
and Death Benefit Option 1; to age 85 on policies issued and
maintained with a face amount of at least $250,000 and if Death
benefit Option 2 is selected at any time.
(4) Cash Surrender Value for the first two years reflects sales charge
limitations imposed by the S.E.C.
(5) In the absence of additional premium payments, the Policy will lapse,
unless the Death Benefit Guarantee is in effect.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
A-6
<PAGE> 102
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$7,450 ANNUAL PLANNED PREMIUM*
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 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 (1) (2) Value Value Value
(3)(4) (3)(4) (3)(4)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 7,823 6,068 931 506,068 6,467 1,329 506,467 6,866 1,729 506,866
2 16,036 12,280 7,143 512,280 13,460 8,322 513,460 14,687 9,550 514,687
3 24,660 18,325 11,803 518,325 20,681 14,159 520,681 23,230 16,708 523,230
4 33,716 24,201 17,732 524,201 28,135 21,666 528,135 32,559 26,090 532,559
5 43,224 29,897 23,477 529,897 35,818 29,397 535,818 42,741 36,321 542,741
6 53,208 35,442 29,321 535,442 43,763 37,643 543,763 53,885 47,765 553,885
7 63,691 40,796 34,976 540,796 51,939 46,119 551,939 66,044 60,223 566,044
8 74,698 45,963 40,443 545,963 60,356 54,835 560,356 79,317 73,797 579,317
9 86,255 50,935 45,932 550,935 69,010 64,006 569,010 93,804 88,800 593,804
10 98,391 55,715 51,652 555,715 77,911 73,848 577,911 109,624 105,562 609,624
11 111,133 60,301 57,051 560,301 87,063 83,813 587,063 126,905 123,655 626,905
12 124,512 64,672 62,234 564,672 96,452 94,014 596,452 145,767 143,329 645,767
13 138,560 68,827 67,202 568,827 106,081 104,456 606,081 166,360 164,735 666,360
14 153,310 72,758 71,945 572,758 115,948 115,136 615,948 188,844 188,031 688,844
15 168,798 76,450 76,450 576,450 126,045 126,045 626,045 213,388 213,388 713,388
16 185,061 79,898 79,898 579,898 136,367 136,367 636,367 240,185 240,185 740,185
17 202,136 83,069 83,069 583,069 146,888 146,888 646,888 269,421 269,421 769,421
18 220,066 85,968 85,968 585,968 157,616 157,616 657,616 301,338 301,338 801,338
19 238,891 88,571 88,571 588,571 168,529 168,529 668,529 336,172 336,172 836,172
20 258,658 90,997 90,997 590,997 179,750 179,750 679,750 374,333 374,333 874,333
21 279,414 93,247 93,247 593,247 191,292 191,292 691,292 416,151 416,151 916,151
22 301,207 95,113 95,113 595,113 202,947 202,947 702,947 461,764 461,764 961,764
23 324,090 96,583 96,583 596,583 214,702 214,702 714,702 511,530 511,530 1,011,530
24 348,117 97,635 97,635 597,635 226,531 226,531 726,531 565,831 565,831 1,065,831
25 373,345 98,229 98,229 598,229 238,387 238,387 738,387 625,067 625,067 1,125,067
26 399,835 98,778 98,778 598,778 251,359 251,359 751,359 692,800 692,800 1,192,800
27 427,649 98,772 98,772 598,772 264,355 264,355 764,355 767,025 767,025 1,267,025
28 456,854 98,144 98,144 598,144 277,296 277,296 777,296 848,340 848,340 1,348,340
29 487,519 96,817 96,817 596,817 290,093 290,093 790,093 937,396 937,396 1,437,396
30 519,718 95,455 95,455 595,455 303,415 303,415 803,415 1,035,696 1,035,696 1,535,696
31 553,526 94,042 94,042 594,042 317,266 317,266 817,266 1,144,187 1,144,187 1,644,187
32 589,025 91,858 91,858 591,858 330,929 330,929 830,929 1,263,169 1,263,169 1,763,169
33 626,299 88,855 88,855 588,855 344,334 344,334 844,334 1,393,675 1,393,675 1,893,675
34 665,436 84,980 84,980 584,980 357,403 357,403 857,403 1,536,838 1,536,838 2,036,838
35 706,531 80,161 80,161 580,161 370,034 370,034 870,034 1,693,893 1,693,893 2,193,893
36 751,234 75,574 75,574 575,574 383,447 383,447 883,447 1,867,608 1,867,608 2,367,608
37 798,172 69,376 69,376 569,376 395,740 395,740 895,740 2,057,686 2,057,686 2,557,686
</TABLE>
A-7
<PAGE> 103
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
38 847,457 61,727 61,727 561,727 407,002 407,002 907,002 2,265,981 2,265,981 2,765,981
39 899,206 51,957 51,957 551,957 416,475 416,475 916,475 2,493,662 2,493,662 2,993,662
40 953,543 40,286 40,286 540,286 424,276 424,276 924,276 2,742,956 2,742,956 3,242,956
41 1,010,597 25,138 25,138 525,138 428,673 428,673 928,673 3,014,415 3,014,415 3,514,415
42 1,070,503 6,116 6,116 506,116 429,053 429,053 929,053 3,309,881 3,309,881 3,809,881
43 1,133,405 0 (5) 0 (5) 500,000 426,594 426,594 926,594 3,633,263 3,633,263 4,133,263
44 1,199,451 0 (5) 0 (5) 500,000 421,058 421,058 921,058 3,987,362 3,987,362 4,487,362
45 1,268,801 0 (5) 0 (5) 500,000 412,127 412,127 912,127 4,375,205 4,375,205 4,875,205
46 1,341,617 0 (5) 0 (5) 500,000 399,341 399,341 899,341 4,800,000 4,800,000 5,300,000
47 1,418,074 0 (5) 0 (5) 500,000 382,135 382,135 882,135 5,265,201 5,265,201 5,765,201
48 1,498,355 0 (5) 0 (5) 500,000 359,804 359,804 859,804 5,774,511 5,774,511 6,274,511
49 1,582,649 0 (5) 0 (5) 500,000 331,571 331,571 831,571 6,331,974 6,331,974 6,831,974
50 1,671,158 0 (5) 0 (5) 500,000 296,766 296,766 796,766 6,942,203 6,942,203 7,442,203
51 1,764,092 0 (5) 0 (5) 0 (5) 260,329 260,329 760,329 7,616,110 7,616,110 8,116,110
52 1,861,673 221,900 221,900 721,900 8,360,048 8,360,048 8,860,048
53 1,964,133 181,694 181,694 681,694 9,181,647 9,181,647 9,681,647
54 2,071,717 139,545 139,545 639,545 10,088,912 10,088,912 10,593,358
55 2,184,679 95,316 95,316 595,316 11,087,320 11,087,320 11,641,686
56 2,303,289 46,995 46,995 546,995 12,181,083 12,181,083 12,790,137
57 2,427,830 0 (5) 0 (5) 0 (5) 13,393,130 13,393,130 13,928,856
58 2,558,598 14,728,518 14,728,518 15,228,518
59 2,695,905 16,200,775 16,200,775 16,700,775
60 2,840,077 17,826,319 17,826,319 18,326,319
61 2,991,457 19,619,738 19,619,738 20,119,738
62 3,150,406 21,587,538 21,587,538 22,087,538
63 3,317,303 23,738,205 23,738,205 24,238,205
64 3,492,545 26,071,385 26,071,385 26,571,385
65 3,676,548 28,567,246 28,567,246 29,067,246
</TABLE>
* Note that the second tier Death Benefit Guarantee Premium level of $8,930 is
paid from age 70.
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b)
no policy loan has been made, (c) no partial withdrawal of the Cash
Surrender Value has been made and (d) no premiums have been allocated
to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 5 Policy Years. Provided the
Cumulative Premium Test or the Fund Value Test has been and continues
to be met, the Death Benefit Guarantee will keep the Policy in force
on all policies for the first three years and until age 100 on
Policies issued and maintained with a minimum face amount of $250,000
and Death Benefit Option 1; to age 85 on policies issued and
maintained with a face amount of at least $250,000 and if Death
benefit Option 2 is selected at any time.
(4) Cash Surrender Value for the first two years reflects sales charge
limitations imposed by the S.E.C.
(5) Provided the Death Benefit Guarantee has been in effect, the Policy
will have been kept in force until the end of the policy year in which
the life insured reached attained age 85, at which time the Death
Benefit Guarantee will expire and in the absence of additional premium
payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
A-8
<PAGE> 104
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$7,450 ANNUAL PLANNED PREMIUM*
ASSUMING MAXIMUM 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 (1) (2) Value Value Value
(3)(4) (3)(4) (3)(4)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 7,823 5,740 603 505,740 6,121 984 506,121 6,503 1,366 506,503
2 16,036 11,633 6,496 511,633 12,757 7,620 512,757 13,927 8,790 513,927
3 24,660 17,364 10,842 517,364 19,606 13,084 519,606 22,032 15,510 522,032
4 33,716 22,930 16,461 522,930 26,672 20,203 526,672 30,880 24,411 530,880
5 43,224 28,326 21,905 528,326 33,953 27,533 533,953 40,535 34,115 540,535
6 53,208 33,548 27,428 533,548 41,453 35,333 541,453 51,071 44,951 551,071
7 63,691 38,586 32,765 538,586 49,166 43,345 549,166 62,561 56,741 562,561
8 74,698 43,442 37,922 543,442 57,100 51,579 557,100 75,100 69,580 575,100
9 86,255 48,106 43,103 548,106 65,248 60,245 565,248 88,776 83,772 588,776
10 98,391 52,581 48,518 552,581 73,621 69,558 573,621 103,702 99,639 603,702
11 111,133 56,850 53,600 556,850 82,206 78,956 582,206 119,981 116,731 619,981
12 124,512 60,908 58,470 560,908 91,002 88,564 591,002 137,738 135,301 637,738
13 138,560 64,748 63,123 564,748 100,006 98,381 600,006 157,110 155,484 657,110
14 153,310 68,365 67,553 568,365 109,219 108,406 609,219 178,245 177,433 678,245
15 168,798 71,743 71,743 571,743 118,626 118,626 618,626 201,300 201,300 701,300
16 185,061 74,876 74,876 574,876 128,227 128,227 628,227 226,453 226,453 726,453
17 202,136 77,735 77,735 577,735 137,994 137,994 637,994 253,878 253,878 753,878
18 220,066 80,289 80,289 580,289 147,896 147,896 647,896 283,763 283,763 783,763
19 238,891 82,515 82,515 582,515 157,910 157,910 657,910 316,322 316,322 816,322
20 258,658 84,374 84,374 584,374 167,994 167,994 667,994 351,773 351,773 851,773
21 279,414 85,839 85,839 585,839 178,115 178,115 678,115 390,367 390,367 890,367
22 301,207 86,877 86,877 586,877 188,234 188,234 688,234 432,375 432,375 932,375
23 324,090 87,471 87,471 587,471 198,325 198,325 698,325 478,111 478,111 978,111
24 348,117 87,595 87,595 587,595 208,352 208,352 708,352 527,908 527,908 1,027,908
25 373,345 87,199 87,199 587,199 218,251 218,251 718,251 582,107 582,107 1,082,107
26 399,835 86,636 86,636 586,636 228,999 228,999 728,999 643,993 643,993 1,143,993
27 427,649 85,439 85,439 585,439 239,571 239,571 739,571 711,659 711,659 1,211,659
28 456,854 83,526 83,526 583,526 249,865 249,865 749,865 785,612 785,612 1,285,612
29 487,519 80,803 80,803 580,803 259,762 259,762 759,762 866,400 866,400 1,366,400
30 519,718 77,173 77,173 577,173 269,132 269,132 769,132 954,621 954,621 1,454,621
31 553,526 72,549 72,549 572,549 277,848 277,848 777,848 1,050,945 1,050,945 1,550,945
32 589,025 66,866 66,866 566,866 285,800 285,800 785,800 1,156,134 1,156,134 1,656,134
33 626,299 60,045 60,045 560,045 292,855 292,855 792,855 1,271,015 1,271,015 1,771,015
34 665,436 52,012 52,012 552,012 298,882 298,882 798,882 1,396,504 1,396,504 1,896,504
35 706,531 42,666 42,666 542,666 303,710 303,710 803,710 1,533,584 1,533,584 2,033,584
36 751,234 33,249 33,249 533,249 308,589 308,589 808,589 1,684,847 1,684,847 2,184,847
37 798,172 22,142 22,142 522,142 311,810 311,810 811,810 1,849,971 1,849,971 2,349,971
</TABLE>
A-9
<PAGE> 105
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
38 847,457 9,086 9,086 509,086 313,006 313,006 813,006 2,030,105 2,030,105 2,530,105
39 899,206 0 (5) 0 (5) 500,000 311,763 311,763 811,763 2,226,483 2,226,483 2,726,483
40 953,543 0 (5) 0 (5) 500,000 307,666 307,666 807,666 2,440,487 2,440,487 2,940,487
41 1,010,597 0 (5) 0 (5) 500,000 300,380 300,380 800,380 2,673,747 2,673,747 3,173,747
42 1,070,503 0 (5) 0 (5) 500,000 289,568 289,568 789,568 2,928,076 2,928,076 3,428,076
43 1,133,405 0 (5) 0 (5) 500,000 274,905 274,905 774,905 3,205,504 3,205,504 3,705,504
44 1,199,451 0 (5) 0 (5) 500,000 256,091 256,091 756,091 3,508,312 3,508,312 4,008,312
45 1,268,801 0 (5) 0 (5) 500,000 232,723 232,723 732,723 3,838,930 3,838,930 4,338,930
46 1,341,617 0 (5) 0 (5) 500,000 204,236 204,236 704,236 4,199,895 4,199,895 4,699,895
47 1,418,074 0 (5) 0 (5) 500,000 169,940 169,940 669,940 4,593,902 4,593,902 5,093,902
48 1,498,355 0 (5) 0 (5) 500,000 128,984 128,984 628,984 5,023,797 5,023,797 5,523,797
49 1,582,649 0 (5) 0 (5) 500,000 80,418 80,418 580,418 5,492,660 5,492,660 5,992,660
50 1,671,158 0 (5) 0 (5) 500,000 23,362 23,362 523,362 6,004,007 6,004,007 6,504,007
51 1,764,092 0 (5) 0 (5) 0 (5) 0 (5) 0 (5) 0 (5) 6,561,871 6,561,871 7,061,871
52 1,861,673 7,170,843 7,170,843 7,670,843
53 1,964,133 7,836,053 7,836,053 8,336,053
54 2,071,717 8,563,318 8,563,318 9,063,318
55 2,184,679 9,358,962 9,358,962 9,858,962
56 2,303,289 10,229,584 10,229,584 10,741,063
57 2,427,830 11,183,178 11,183,178 11,683,178
58 2,558,598 12,227,468 12,227,468 12,727,468
59 2,695,905 13,370,889 13,370,889 13,870,889
60 2,840,077 14,621,089 14,621,089 15,121,089
61 2,991,457 15,983,806 15,983,806 16,483,806
62 3,150,406 17,460,116 17,460,116 17,960,116
63 3,317,303 19,040,273 19,040,273 19,540,273
64 3,492,545 20,691,894 20,691,894 21,191,894
65 3,676,548 22,335,999 22,335,999 22,835,999
</TABLE>
* Note that the second tier Death Benefit Guarantee Premium level of $8,930 is
paid from age 70.
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b)
no policy loan has been made, (c) no partial withdrawal of the Cash
Surrender Value has been made and (d) no premiums have been allocated
to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 5 Policy Years. Provided the
Cumulative Premium Test or the Fund Value Test has been and continues
to be met, the Death Benefit Guarantee will keep the Policy in force
on all policies for the first three years and until age 100 on
Policies issued and maintained with a minimum face amount of $250,000
and Death Benefit Option 1; to age 85 on policies issued and
maintained with a face amount of at least $250,000 and if Death
benefit Option 2 is selected at any time.
(4) Cash Surrender Value for the first two years reflects sales charge
limitations imposed by the S.E.C.
(5) Provided the Death Benefit Guarantee has been in effect, the Policy
will have been kept in force until the end of the policy year in which
the life insured reached attained age 85, at which time the Death
Benefit Guarantee will expire and in the absence of additional premium
payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
A-10
<PAGE> 106
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$15,095 ANNUAL PLANNED PREMIUM*
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 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 (1) (2) Value Value Value
(3)(4) (3)(4) (3)(4)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 15,850 10,718 3,338 500,000 11,479 4,098 500,000 12,242 4,861 500,000
2 32,492 21,325 12,807 500,000 23,520 15,002 500,000 25,810 17,293 500,000
3 49,966 31,485 15,571 500,000 35,807 19,892 500,000 40,498 24,583 500,000
4 68,314 41,479 25,894 500,000 48,636 33,051 500,000 56,720 41,135 500,000
5 87,580 51,327 36,089 500,000 62,056 46,817 500,000 74,666 59,427 500,000
6 107,809 61,007 47,267 500,000 76,072 62,332 500,000 94,503 80,763 500,000
7 129,049 70,361 60,055 500,000 90,559 80,253 500,000 116,291 105,985 500,000
8 151,351 79,323 72,452 500,000 105,481 98,610 500,000 140,197 133,327 500,000
9 174,768 87,943 84,508 500,000 120,915 117,479 500,000 166,525 163,090 500,000
10 199,356 96,221 96,221 500,000 136,896 136,896 500,000 195,573 195,573 500,000
11 225,174 104,822 104,822 500,000 154,336 154,336 500,000 228,860 228,860 500,000
12 252,282 113,340 113,340 500,000 172,734 172,734 500,000 266,037 266,037 500,000
13 280,746 121,739 121,739 500,000 192,117 192,117 500,000 307,557 307,557 500,000
14 310,633 129,648 129,648 500,000 212,248 212,248 500,000 353,782 353,782 500,000
15 342,015 137,043 137,043 500,000 233,192 233,192 500,000 405,394 405,394 500,000
16 375,572 144,218 144,218 500,000 255,453 255,453 500,000 463,607 463,607 533,148
17 410,807 150,628 150,628 500,000 278,610 278,610 500,000 527,816 527,816 596,432
18 447,805 156,173 156,173 500,000 302,755 302,755 500,000 598,611 598,611 664,458
19 486,651 160,094 160,094 500,000 327,665 327,665 500,000 676,609 676,609 737,503
20 527,441 161,054 161,054 500,000 353,017 353,017 500,000 762,479 762,479 815,853
21 570,269 158,682 158,682 500,000 379,204 379,204 500,000 857,279 857,279 900,143
22 615,239 153,412 153,412 500,000 407,040 407,040 500,000 961,338 961,338 1,009,405
23 662,458 145,966 145,966 500,000 437,384 437,384 500,000 1,075,647 1,075,647 1,129,429
24 712,038 136,073 136,073 500,000 470,865 470,865 500,000 1,201,162 1,201,162 1,261,220
25 764,096 123,350 123,350 500,000 506,594 506,594 531,924 1,338,912 1,338,912 1,405,858
26 818,758 107,228 107,228 500,000 543,622 543,622 570,803 1,489,994 1,489,994 1,564,493
27 876,152 86,931 86,931 500,000 581,953 581,953 611,051 1,655,569 1,655,569 1,738,347
28 936,416 61,388 61,388 500,000 621,582 621,582 652,661 1,836,861 1,836,861 1,928,704
29 999,694 29,189 29,189 500,000 662,489 662,489 695,614 2,035,158 2,035,158 2,136,916
30 1,066,135 0 (5) 0 (5) 500,000 704,660 704,660 739,893 2,251,851 2,251,851 2,364,443
31 1,135,899 0 (5) 0 (5) 500,000 748,481 748,481 785,905 2,489,783 2,489,783 2,614,272
32 1,209,150 0 (5) 0 (5) 500,000 793,996 793,996 833,696 2,750,957 2,750,957 2,888,505
33 1,286,064 0 (5) 0 (5) 500,000 841,292 841,292 883,357 3,037,725 3,037,725 3,189,612
34 1,366,824 0 (5) 0 (5) 500,000 890,433 890,433 934,954 3,352,566 3,352,566 3,520,195
35 1,451,622 0 (5) 0 (5) 500,000 941,483 941,483 988,557 3,698,206 3,698,206 3,883,116
36 1,540,660 0 (5) 0 (5) 500,000 994,330 994,330 1,044,047 4,076,885 4,076,885 4,280,729
37 1,634,149 0 (5) 0 (5) 500,000 1,050,146 1,050,146 1,092,152 4,496,485 4,496,485 4,676,344
</TABLE>
A-11
<PAGE> 107
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
38 1,732,314 0 (5) 0 (5) 500,000 1,109,316 1,109,316 1,142,595 4,962,559 4,962,559 5,111,435
39 1,835,386 0 (5) 0 (5) 500,000 1,172,420 1,172,420 1,195,868 5,482,241 5,482,241 5,591,886
40 1,943,612 0 (5) 0 (5) 500,000 1,239,963 1,239,963 1,252,362 6,063,215 6,063,215 6,123,848
41 2,057,249 0 (5) 0 (5) 500,000 1,312,362 1,312,362 1,312,362 6,713,658 6,713,658 6,713,658
42 2,176,568 0 (5) 0 (5) 500,000 1,388,038 1,388,038 1,388,038 7,432,035 7,432,035 7,432,035
43 2,301,853 0 (5) 0 (5) 500,000 1,467,141 1,467,141 1,467,141 8,225,440 8,225,440 8,225,440
44 2,433,403 0 (5) 0 (5) 500,000 1,549,825 1,549,825 1,549,825 9,101,712 9,101,712 9,101,712
45 2,571,529 0 (5) 0 (5) 500,000 1,636,253 1,636,253 1,636,253 10,069,503 10,069,503 10,069,503
</TABLE>
* Note that the second tier Death Benefit Guarantee Premium level of $15,673 is
paid from age 70.
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b)
no policy loan has been made, (c) no partial withdrawal of the Cash
Surrender Value has been made and (d) no premiums have been allocated
to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 5 Policy Years. Provided the
Cumulative Premium Test or the Fund Value Test has been and continues
to be met, the Death Benefit Guarantee will keep the Policy in force
on all policies for the first three years and until age 100 on
Policies issued and maintained with a minimum face amount of $250,000
and Death Benefit Option 1; to age 85 on policies issued and
maintained with a face amount of at least $250,000 and if Death
benefit Option 2 is selected at any time.
(4) Cash Surrender Value for the first two years reflects sales charge
limitations imposed by the S.E.C.
(5) In the absence of additional premium payments, the Policy will lapse,
unless the Death Benefit Guarantee is in effect.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
A-12
<PAGE> 108
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$15,095 ANNUAL PLANNED PREMIUM*
ASSUMING MAXIMUM 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 (1) (2) Value Value Value
(3)(4) (3)(4) (3)(4)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 15,850 10,042 2,661 500,000 10,766 3,385 500,000 11,492 4,111 500,000
2 32,492 19,892 11,375 500,000 21,970 13,452 500,000 24,138 15,621 500,000
3 49,966 29,246 13,332 500,000 33,320 17,405 500,000 37,744 21,829 500,000
4 68,314 38,093 22,507 500,000 44,810 29,225 500,000 52,405 36,820 500,000
5 87,580 46,398 31,159 500,000 56,416 41,178 500,000 68,214 52,976 500,000
6 107,809 54,130 40,390 500,000 68,116 54,376 500,000 85,281 71,541 500,000
7 129,049 61,256 50,950 500,000 79,886 69,580 500,000 103,737 93,431 500,000
8 151,351 67,718 60,847 500,000 91,688 84,817 500,000 123,719 116,849 500,000
9 174,768 73,450 70,014 500,000 103,472 100,037 500,000 145,389 141,953 500,000
10 199,356 78,380 78,380 500,000 115,192 115,192 500,000 168,944 168,944 500,000
11 225,174 82,843 82,843 500,000 127,414 127,414 500,000 195,548 195,548 500,000
12 252,282 86,411 86,411 500,000 139,619 139,619 500,000 224,874 224,874 500,000
13 280,746 89,013 89,013 500,000 151,795 151,795 500,000 257,367 257,367 500,000
14 310,633 90,579 90,579 500,000 163,939 163,939 500,000 293,580 293,580 500,000
15 342,015 91,004 91,004 500,000 176,036 176,036 500,000 334,178 334,178 500,000
16 375,572 90,690 90,690 500,000 188,638 188,638 500,000 380,608 380,608 500,000
17 410,807 88,873 88,873 500,000 201,134 201,134 500,000 433,354 433,354 500,000
18 447,805 85,270 85,270 500,000 213,442 213,442 500,000 492,795 492,795 547,003
19 486,651 79,534 79,534 500,000 225,473 225,473 500,000 558,372 558,372 608,625
20 527,441 71,278 71,278 500,000 237,159 237,159 500,000 630,845 630,845 675,005
21 570,269 60,134 60,134 500,000 248,495 248,495 500,000 711,136 711,136 746,693
22 615,239 45,662 45,662 500,000 259,487 259,487 500,000 799,301 799,301 839,266
23 662,458 27,347 27,347 500,000 270,162 270,162 500,000 896,064 896,064 940,867
24 712,038 4,584 4,584 500,000 280,576 280,576 500,000 1,002,209 1,002,209 1,052,319
25 764,096 0 (5) 0 (5) 500,000 290,750 290,750 500,000 1,118,575 1,118,575 1,174,504
26 818,758 0 (5) 0 (5) 500,000 300,663 300,663 500,000 1,246,050 1,246,050 1,308,353
27 876,152 0 (5) 0 (5) 500,000 310,264 310,264 500,000 1,385,569 1,385,569 1,454,847
28 936,416 0 (5) 0 (5) 500,000 319,464 319,464 500,000 1,538,102 1,538,102 1,615,007
29 999,694 0 (5) 0 (5) 500,000 328,162 328,162 500,000 1,704,661 1,704,661 1,789,894
30 1,066,135 0 (5) 0 (5) 500,000 336,294 336,294 500,000 1,886,319 1,886,319 1,980,635
31 1,135,899 0 (5) 0 (5) 500,000 343,839 343,839 500,000 2,084,226 2,084,226 2,188,438
32 1,209,150 0 (5) 0 (5) 500,000 350,809 350,809 500,000 2,299,616 2,299,616 2,414,597
33 1,286,064 0 (5) 0 (5) 500,000 357,221 357,221 500,000 2,533,802 2,533,802 2,660,492
34 1,366,824 0 (5) 0 (5) 500,000 363,122 363,122 500,000 2,788,207 2,788,207 2,927,617
35 1,451,622 0 (5) 0 (5) 500,000 368,522 368,522 500,000 3,064,309 3,064,309 3,217,524
36 1,540,660 0 (5) 0 (5) 500,000 373,388 373,388 500,000 3,363,630 3,363,630 3,531,812
37 1,634,149 0 (5) 0 (5) 500,000 377,620 377,620 500,000 3,696,412 3,696,412 3,844,268
</TABLE>
A-13
<PAGE> 109
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
38 1,732,314 0 (5) 0 (5) 500,000 380,999 380,999 500,000 4,068,018 4,068,018 4,190,059
39 1,835,386 0 (5) 0 (5) 500,000 383,101 383,101 500,000 4,484,964 4,484,964 4,574,663
40 1,943,612 0 (5) 0 (5) 500,000 382,860 382,860 500,000 4,955,213 4,955,213 5,004,765
41 2,057,249 0 (5) 0 (5) 500,000 377,881 377,881 500,000 5,489,246 5,489,246 5,489,246
42 2,176,568 0 (5) 0 (5) 500,000 362,421 362,421 500,000 6,079,055 6,079,055 6,079,055
43 2,301,853 0 (5) 0 (5) 500,000 320,390 320,390 500,000 6,730,466 6,730,466 6,730,466
44 2,433,403 0 (5) 0 (5) 500,000 194,409 194,409 500,000 7,449,911 7,449,911 7,449,911
45 2,571,529 0 (5) 0 (5) 500,000 0 (5) 0 (5) 500,000 8,244,497 8,244,497 8,244,497
</TABLE>
* Note that the second tier Death Benefit Guarantee Premium level of $15,673 is
paid from age 70.
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b)
no policy loan has been made, (c) no partial withdrawal of the Cash
Surrender Value has been made and (d) no premiums have been allocated
to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 5 Policy Years. Provided the
Cumulative Premium Test or the Fund Value Test has been and continues
to be met, the Death Benefit Guarantee will keep the Policy in force
on all policies for the first three years and until age 100 on
Policies issued and maintained with a minimum face amount of $250,000
and Death Benefit Option 1; to age 85 on policies issued and
maintained with a face amount of at least $250,000 and if Death
benefit Option 2 is selected at any time.
(4) Cash Surrender Value for the first two years reflects sales charge
limitations imposed by the S.E.C.
(5) In the absence of additional premium payments, the Policy will lapse,
unless the Death Benefit Guarantee is in effect.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
A-14
<PAGE> 110
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$17,920 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 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 (1) (2) Value Value Value
(3)(4) (3)(4) (3)(4)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 18,816 13,395 5,019 513,395 14,316 5,940 514,316 15,239 6,863 515,239
2 38,573 26,534 15,595 526,534 29,202 18,263 529,202 31,982 21,044 531,982
3 59,317 39,071 23,156 539,071 44,318 28,403 544,318 50,007 34,092 550,007
4 81,099 51,301 35,715 551,301 59,969 44,383 559,969 69,743 54,157 569,743
5 103,970 63,247 48,009 563,247 76,193 60,954 576,193 91,379 76,140 591,379
6 127,985 74,886 61,146 574,886 92,984 79,244 592,984 115,072 101,332 615,072
7 153,200 86,033 75,727 586,033 110,169 99,863 610,169 140,827 130,521 640,827
8 179,676 96,602 89,732 596,602 127,666 120,795 627,666 168,747 161,876 668,747
9 207,476 106,646 103,211 606,646 145,531 142,095 645,531 199,091 195,656 699,091
10 236,666 116,157 116,157 616,157 163,759 163,759 663,759 232,082 232,082 732,082
11 267,315 125,932 125,932 625,932 183,420 183,420 683,420 269,430 269,430 769,430
12 299,497 135,482 135,482 635,482 203,880 203,880 703,880 310,584 310,584 810,584
13 333,287 144,757 144,757 644,757 225,119 225,119 725,119 355,885 355,885 855,885
14 368,768 153,249 153,249 653,249 246,645 246,645 746,645 405,223 405,223 905,223
15 406,022 160,912 160,912 660,912 268,410 268,410 768,410 458,955 458,955 958,955
16 445,139 167,322 167,322 667,322 289,978 289,978 789,978 517,081 517,081 1,017,081
17 486,212 172,503 172,503 672,503 311,346 311,346 811,346 580,064 580,064 1,080,064
18 529,339 176,288 176,288 676,288 332,314 332,314 832,314 648,218 648,218 1,148,218
19 574,622 177,544 177,544 677,544 351,677 351,677 851,677 720,855 720,855 1,220,855
20 622,169 174,300 174,300 674,300 367,289 367,289 867,289 796,311 796,311 1,296,311
21 672,093 166,155 166,155 666,155 378,503 378,503 878,503 874,386 874,386 1,374,386
22 724,514 154,038 154,038 654,038 386,008 386,008 886,008 956,270 956,270 1,456,270
23 779,556 139,323 139,323 639,323 390,998 390,998 890,998 1,043,764 1,043,764 1,543,764
24 837,350 121,938 121,938 621,938 393,247 393,247 893,247 1,137,338 1,137,338 1,637,338
25 898,033 101,749 101,749 601,749 392,454 392,454 892,454 1,237,445 1,237,445 1,737,445
26 961,751 78,498 78,498 578,498 388,174 388,174 888,174 1,344,452 1,344,452 1,844,452
27 1,028,654 51,847 51,847 551,847 379,859 379,859 879,859 1,458,675 1,458,675 1,958,675
28 1,098,903 21,356 21,356 521,356 366,822 366,822 866,822 1,580,349 1,580,349 2,080,349
29 1,172,664 0 (5) 0 (5) 500,000 348,305 348,305 848,305 1,709,692 1,709,692 2,209,692
30 1,250,113 0 (5) 0 (5) 500,000 323,654 323,654 823,654 1,847,086 1,847,086 2,347,086
31 1,331,435 0 (5) 0 (5) 0 (5) 297,831 297,831 797,831 1,998,773 1,998,773 2,498,773
32 1,416,823 270,497 270,497 770,497 2,165,949 2,165,949 2,665,949
33 1,506,480 241,888 241,888 741,888 2,350,548 2,350,548 2,850,548
34 1,600,620 211,862 211,862 711,862 2,554,300 2,554,300 3,054,300
35 1,699,467 180,304 180,304 680,304 2,779,156 2,779,156 3,279,156
36 1,803,256 145,228 145,228 645,228 3,025,343 3,025,343 3,525,343
37 1,912,235 104,170 104,170 604,170 3,292,714 3,292,714 3,792,714
</TABLE>
A-15
<PAGE> 111
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
38 2,026,663 56,503 56,503 556,503 3,583,115 3,583,115 4,083,115
39 2,146,812 4,153 4,153 504,153 3,901,243 3,901,243 4,401,243
40 2,272,969 0 (5) 0 (5) 0 (5) 4,252,119 4,252,119 4,752,119
41 2,405,433 4,637,739 4,637,739 5,137,739
42 2,544,521 5,050,706 5,050,706 5,550,706
43 2,690,563 5,484,149 5,484,149 5,984,149
44 2,843,907 5,920,753 5,920,753 6,420,753
45 3,004,918 6,321,954 6,321,954 6,821,954
</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 Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 5 Policy Years. Provided the
Cumulative Premium Test or the Fund Value Test has been and continues
to be met, the Death Benefit Guarantee will keep the Policy in force
on all policies for the first three years and until age 100 on
Policies issued and maintained with a minimum face amount of $250,000
and Death Benefit Option 1; to age 85 on policies issued and
maintained with a face amount of at least $250,000 and if Death
benefit Option 2 is selected at any time.
(4) Cash Surrender Value for the first two years reflects sales charge
limitations imposed by the S.E.C.
(5) Provided the Death Benefit Guarantee has been in effect, the Policy
will have been kept in force until the end of the policy year in which
the life insured reached attained age 85, at which time the Death
Benefit Guarantee will expire and in the absence of additional premium
payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
A-16
<PAGE> 112
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$17,920 ANNUAL PLANNED PREMIUM
ASSUMING MAXIMUM 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 (1) (2) Value Value Value
(3)(4) (3)(4) (3)(4)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 18,816 12,622 4,246 512,622 13,500 5,124 513,500 14,381 6,005 514,381
2 38,573 24,910 13,971 524,910 27,442 16,503 527,442 30,083 19,144 530,083
3 59,317 36,547 20,633 536,547 41,511 25,596 541,511 46,895 30,980 546,895
4 81,099 47,513 31,928 547,513 55,677 40,092 555,677 64,891 49,306 564,891
5 103,970 57,759 42,520 557,759 69,883 54,644 569,883 84,126 68,887 584,126
6 127,985 67,239 53,499 567,239 84,069 70,329 584,069 104,660 90,920 604,660
7 153,200 75,904 65,598 575,904 98,168 87,862 598,168 126,554 116,248 626,554
8 179,676 83,680 76,809 583,680 112,085 105,214 612,085 149,849 142,978 649,849
9 207,476 90,478 87,043 590,478 125,705 122,270 625,705 174,573 171,138 674,573
10 236,666 96,209 96,209 596,209 138,905 138,905 638,905 200,754 200,754 700,754
11 267,315 101,273 101,273 601,273 152,275 152,275 652,275 229,489 229,489 729,489
12 299,497 105,144 105,144 605,144 165,092 165,092 665,092 260,030 260,030 760,030
13 333,287 107,744 107,744 607,744 177,232 177,232 677,232 292,466 292,466 792,466
14 368,768 109,002 109,002 609,002 188,574 188,574 688,574 326,901 326,901 826,901
15 406,022 108,817 108,817 608,817 198,958 198,958 698,958 363,416 363,416 863,416
16 445,139 107,027 107,027 607,027 208,153 208,153 708,153 402,035 402,035 902,035
17 486,212 103,440 103,440 603,440 215,885 215,885 715,885 442,750 442,750 942,750
18 529,339 97,801 97,801 597,801 221,797 221,797 721,797 485,480 485,480 985,480
19 574,622 89,826 89,826 589,826 225,484 225,484 725,484 530,105 530,105 1,030,105
20 622,169 79,249 79,249 579,249 226,539 226,539 726,539 576,506 576,506 1,076,506
21 672,093 65,911 65,911 565,911 224,639 224,639 724,639 624,659 624,659 1,124,659
22 724,514 49,660 49,660 549,660 219,456 219,456 719,456 674,547 674,547 1,174,547
23 779,556 30,379 30,379 530,379 210,678 210,678 710,678 726,181 726,181 1,226,181
24 837,350 7,987 7,987 507,987 198,015 198,015 698,015 779,613 779,613 1,279,613
25 898,033 0 (5) 0 (5) 500,000 181,075 181,075 681,075 834,810 834,810 1,334,810
26 961,751 0 (5) 0 (5) 500,000 159,309 159,309 659,309 891,588 891,588 1,391,588
27 1,028,654 0 (5) 0 (5) 500,000 132,038 132,038 632,038 949,637 949,637 1,449,637
28 1,098,903 0 (5) 0 (5) 500,000 98,425 98,425 598,425 1,008,487 1,008,487 1,508,487
29 1,172,664 0 (5) 0 (5) 500,000 57,534 57,534 557,534 1,067,550 1,067,550 1,567,550
30 1,250,113 0 (5) 0 (5) 500,000 8,500 8,500 508,500 1,126,298 1,126,298 1,626,298
31 1,331,435 0 (5) 0 (5) 0 (5) 0 (5) 0 (5) 0 (5) 1,184,292 1,184,292 1,684,292
32 1,416,823 1,241,186 1,241,186 1,741,186
33 1,506,480 1,296,657 1,296,657 1,796,657
34 1,600,620 1,350,501 1,350,501 1,850,501
35 1,699,467 1,402,390 1,402,390 1,902,390
36 1,803,256 1,451,856 1,451,856 1,951,856
37 1,912,235 1,498,250 1,498,250 1,998,250
38 2,026,663 1,540,590 1,540,590 2,040,590
</TABLE>
A-17
<PAGE> 113
<TABLE>
<S> <C> <C> <C> <C>
39 2,146,812 1,577,416 1,577,416 2,077,416
40 2,272,969 1,605,444 1,605,444 2,105,444
41 2,405,433 1,618,342 1,618,342 2,118,342
42 2,544,521 1,603,854 1,603,854 2,103,854
43 2,690,563 1,537,510 1,537,510 2,037,510
44 2,843,907 1,370,665 1,370,665 1,870,665
45 3,004,918 1,006,378 1,006,378 1,506,378
</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 Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 5 Policy Years. Provided the
Cumulative Premium Test or the Fund Value Test has been and continues
to be met, the Death Benefit Guarantee will keep the Policy in force
on all policies for the first three years and until age 100 on
Policies issued and maintained with a minimum face amount of $250,000
and Death Benefit Option 1; to age 85 on policies issued and
maintained with a face amount of at least $250,000 and if Death
benefit Option 2 is selected at any time.
(4) Cash Surrender Value for the first two years reflects sales charge
limitations imposed by the S.E.C.
(5) Provided the Death Benefit Guarantee has been in effect, the Policy
will have been kept in force until the end of the policy year in which
the life insured reached attained age 85, at which time the Death
Benefit Guarantee will expire and in the absence of additional premium
payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
A-18
<PAGE> 114
APPENDIX B
DEFINITIONS
The following terms have the following meanings when used in this Prospectus:
ADDITIONAL RATING -- an addition to the cost of insurance rate for insureds who
do not meet at least the underwriting requirements of the standard risk class.
BUSINESS DAY -- any day that the New York Stock Exchange is open for trading.
The net asset value of the underlying shares of a sub-account of the Separate
Account will be determined at the end of each Business Day.
CASH SURRENDER VALUE -- the Policy Value less the deferred sales charge, the
deferred underwriting charge and any outstanding monthly deductions due.
CUMULATIVE PREMIUM TEST -- a test that, if satisfied in the first three policy
years and, where applicable, if satisfied in subsequent policy years, will
maintain the Death Benefit Guarantee. To satisfy the Cumulative Premium Test,
the sum of premiums paid, less withdrawals, and less policy loans, must equal or
exceed the sum of Death Benefit Guarantee Premiums since issue as at the
beginning of each policy month.
DEATH BENEFIT GUARANTEE -- Manufacturers Life of America's guarantee that the
Policy will not go into default even if a combination of policy loans, adverse
investment experience or other factors should cause the Policy's Net Cash
Surrender Value to be insufficient to meet the monthly deductions due at the
beginning of a policy month.
DEATH BENEFIT GUARANTEE PREMIUM -- a measure of premium used in determining
compliance with the Cumulative Premium Test. The Death Benefit Guarantee Premium
as an annual amount is established by the Company based on issue age, sex
(unless unisex rates are required by law), risk class, death benefit option,
supplementary benefits and additional ratings. The Death Benefit Guarantee
Premium, which is set forth in the Policy, will increase, when the policyowner
reaches attained age 70, to an amount as specified in the Policy.
EFFECTIVE DATE -- the date that Manufacturers Life of America becomes obligated
under the Policy and when the first monthly deductions are taken.
FIXED ACCOUNT -- that part of the Policy Value which reflects the value the
policyowner has in the general account of Manufacturers Life of America.
FUND VALUE TEST -- a test which, if satisfied in applicable policy years will
maintain the Death Benefit Guarantee feature. To satisfy the Fund Value Test,
the Gross Single Premium at the beginning of any applicable policy month must
not be greater than the Net Policy Value.
GROSS SINGLE PREMIUM -- the amount of premium needed to endow the Policy to the
expiration of the Death Benefit Guarantee assuming 4% interest and current
charges.
GUIDELINE ANNUAL PREMIUM -- an amount defined by S.E.C. regulation. It is used
to determine maximum sales charges that may be deducted during the first two
years following issuance of a Policy.
INITIAL PREMIUM -- at least 1/12 of the Target Premium. The Initial Premium must
be received within 60 days after the policy date.
B-1
<PAGE> 115
INVESTMENT ACCOUNT -- that part of the Policy Value which reflects the value the
policyowner has in one of the sub-accounts of the Separate Account.
ISSUE AGE -- the age on the nearest birthday, at policy date, as shown in the
Policy.
LOAN ACCOUNT -- that part of the Policy Value which reflects the value the
policyowner has transferred from the Fixed Account or the Investment Accounts as
collateral for a policy loan.
MODIFIED POLICY DEBT -- as of any date, the Policy Debt plus the amount of
interest to be charged to the next policy anniversary, all discounted from the
next policy anniversary to such date at an annual rate of 4%.
MONTHLY DEATH BENEFIT GUARANTEE PREMIUM -- 1/12 of the Death Benefit Guarantee
Premium.
MONTHLY NO LAPSE GUARANTEE PREMIUM -- 1/12 of the No Lapse Guarantee Premium.
NET CASH SURRENDER VALUE -- the Cash Surrender Value less Policy Debt.
NET POLICY VALUE -- the Policy Value less the value in the Loan Account.
NET PREMIUM -- amount of premium allocated to the Investment Accounts or Fixed
Account. It equals gross premiums less the deduction for state, local and
federal taxes.
NO LAPSE GUARANTEE -- Manufacturers Life of America guarantees that the Policy
will not go into default even if a combination of Policy loans, adverse
investment experience and other factors should cause the Policy's Net Cash
Surrender Value to be insufficient to meet the monthly deductions due at the
beginning of a policy month. In Illinois this benefit is known as the Minimum
Premium Guarantee.
NO LAPSE GUARANTEE CUMULATIVE PREMIUM TEST -- a test that, if satisfied in the
No Lapse Guarantee Period, will maintain the No Lapse Guarantee. To satisfy the
No Lapse Guarantee Cumulative Premium Test, the sum of premiums paid, less
withdrawals, and less Policy loans must equal or exceed the sum of No Lapse
Guarantee Premiums since issue as at the beginning of each policy month.
NO LAPSE GUARANTEE PERIOD -- is the first 5 policy years for life insureds with
an issue age up to and including 85. It is not offered to life insureds whose
Issue Age exceeds 85.
NO LAPSE GUARANTEE PREMIUM -- is a measure of premium used in determining
compliance with the No Lapse Guarantee Cumulative Premium Test. The No Lapse
Guarantee premium for each policyowner is set forth in the Policy.
PLANNED PREMIUM -- The premium the policyowner plans to pay periodically.
Subject to certain requirements of law, the Planned Premium may be changed at
any time.
POLICY DATE -- The date from which policy years, policy months and policy
anniversaries are determined. Monthly deductions are due on the policy date. If
a check for at least the Initial Premium accompanies the application, the policy
date is the date the application and check are received at the Service office.
If an application accepted by the Company is not accompanied by a check for the
Initial Premium, the policy will be issued with a policy date which is 7 days
after issuance of the policy.
POLICY DEBT -- as of any date, the aggregate amount of policy loans, including
borrowed interest, less any loan repayments.
POLICY VALUE -- the sum of the values in the Loan Account, the Fixed Account and
the Investment Accounts.
B-2
<PAGE> 116
SELECT LOAN -- A loan on which the differential between the interest credited
and the interest charged is currently 0%; provided, however, if at some time in
the future it is determined that the current differential could cause the loan
to be treated as a taxable distribution under any applicable ruling, regulation
or court decision, Manufacturers Life of America has the right to increase the
differential on all subsequent Select Loans either (i) to an amount that may be
presented in such ruling, regulation or court decision that would result in the
transaction being treated as a loan under federal tax law or (ii) if no amount
is prescribed, to an amount that Manufacturers Life of America feels would be
more likely to result in the transaction being treated as a loan under Federal
tax law.
SELECT LOAN AMOUNT -- the amount of any Select Loan.
SERVICE OFFICE -- the office designated to service the Policies, which is shown
on the cover page of this prospectus.
SURRENDER CHARGE PERIOD -- the period (set forth in Table 1 under the heading
"Charges and Deductions - Surrender Charges" in this prospectus) following
issuance of the Policy or any increase in face amount during which surrender
charges may be assessed if the Policy is surrendered or lapsed, the face amount
is decreased or a partial withdrawal takes place.
TARGET PREMIUM -- a premium amount used to measure the maximum deferred sales
charge under a Policy. The Target Premium for the initial face amount is set
forth in the Policy. The policyowner will be advised of the Target Premium for
any increase in face amount.
WITHDRAWAL TIER AMOUNT -- as of any date, the net Cash Surrender Value at the
previous anniversary multiplied by 10%.
B-3
<PAGE> 117
APPENDIX C
The maximum deferred sales charge is 50% of premiums received up to a specified
number of Target Premiums that varies (from -0.180 to 3.031) with the issue age
of the life insured, the face amount of the Policy and the amount of any
increase. Beginning after two policy years, that maximum deferred sales charge
decreases over time according to a pattern that varies with the issue age of the
life insured. In all cases, the deferred sales charge is eliminated entirely by
the last month of the 15th policy year. The same pattern applies to sales
charges occasioned by face amount increases, with time periods and issue age
computed using the date of the increase in face amount rather than the Policy
Date.
The following tables show the percentage of the maximum sales charge that would
be applicable in the last month of the years shown. The percentages for other
months would be derived by interpolation.
If the transaction occurs in the last month of
<TABLE>
<CAPTION>
ISSUE AGE
POLICY ---------------------------------------------------------------------------------------------------------------------
YEAR* 0 1 2 3 4 5 6 7 8
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9666 0.9500 0.9642 0.9444 0.9555 0.9811 0.9843 0.9866 0.9885
4 0.9666 0.9500 0.9285 0.9444 0.9555 0.9622 0.9687 0.9600 0.9655
5 0.9333 0.9000 0.8928 0.9166 0.9111 0.9433 0.9531 0.9466 0.9540
6 0.9333 0.9000 0.8928 0.9166 0.9111 0.9433 0.9531 0.9466 0.9540
7 0.9333 0.9000 0.8928 0.9166 0.9111 0.9433 0.9531 0.9466 0.9540
8 0.9333 0.9000 0.8928 0.9166 0.9111 0.9433 0.9531 0.9466 0.9540
9 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503
10 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803
11 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442
12 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082
13 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721
14 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
<TABLE>
<CAPTION>
ISSUE AGE
POLICY ------------------------------------------------------------------------------------------
YEAR* 9 10 11 12 13 14 15
- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9861 0.9873 0.9885 0.9895 0.9875 0.9940 0.9898
4 0.9696 0.9734 0.9765 0.9722 0.9751 0.9831 0.9796
5 0.9595 0.9646 0.9609 0.9652 0.9689 0.9719 0.9695
6 0.9595 0.9646 0.9609 0.9652 0.9689 0.9719 0.9695
7 0.9595 0.9646 0.9609 0.9652 0.9689 0.9719 0.9695
8 0.9595 0.9646 0.9609 0.9652 0.9689 0.9719 0.9695
9 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503
</TABLE>
C-1
<PAGE> 118
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
10 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803
11 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442
12 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082
13 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721
14 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
<TABLE>
<CAPTION>
ISSUE AGE
POLICY ---------------------------------------------------------------------------------------------------------------------
YEAR* 16 17 18 19 20 21 22 23 24
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9912 0.9872 0.9884 0.9842 0.9903 0.9867 0.9878 0.9887 0.9896
4 0.9788 0.9795 0.9768 0.9789 0.9806 0.9778 0.9796 0.9804 0.9792
5 0.9718 0.9681 0.9653 0.9631 0.9661 0.9646 0.9674 0.9699 0.9688
6 0.9667 0.9667 0.9653 0.9631 0.9661 0.9646 0.9674 0.9699 0.9688
7 0.9333 0.9333 0.9333 0.9333 0.9333 0.9396 0.9396 0.9396 0.9396
8 0.9000 0.9000 0.9000 0.9000 0.9000 0.9060 0.9060 0.9060 0.9060
9 0.8333 0.8333 0.8333 0.8333 0.8333 0.8389 0.8389 0.8389 0.8389
10 0.6667 0.6667 0.6667 0.6667 0.6667 0.6711 0.6711 0.6711 0.6711
11 0.5333 0.5333 0.5333 0.5333 0.5333 0.5369 0.5369 0.5369 0.5369
12 0.4000 0.4000 0.4000 0.4000 0.4000 0.4027 0.4027 0.4027 0.4027
13 0.2667 0.2667 0.2667 0.2667 0.2667 0.2685 0.2685 0.2685 0.2685
14 0.1330 0.1330 0.1330 0.1330 0.1330 0.1342 0.1342 0.1342 0.1342
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
<TABLE>
<CAPTION>
ISSUE AGE
POLICY ------------------------------------------------------------------------------------------
YEAR* 25 26 27 28 29 30 31
- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9901 0.9885 0.9889 0.9897 0.9887 0.9889 0.9885
4 0.9803 0.9793 0.9779 0.9770 0.9757 0.9772 0.9771
5 0.9679 0.9678 0.9678 0.9659 0.9644 0.9650 0.9624
6 0.9679 0.9678 0.9678 0.9659 0.9644 0.9650 0.9624
7 0.9396 0.9432 0.9469 0.9507 0.9545 0.9583 0.9622
8 0.9060 0.9122 0.9184 0.9247 0.9310 0.9375 0.9441
9 0.8389 0.8446 0.8503 0.8562 0.8621 0.8681 0.8741
10 0.6711 0.6757 0.6803 0.6849 0.6897 0.6944 0.6993
11 0.5369 0.5405 0.5442 0.5479 0.5517 0.5556 0.5594
12 0.4027 0.4054 0.4082 0.4110 0.4138 0.4167 0.4196
</TABLE>
C-2
<PAGE> 119
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
13 0.2685 0.2703 0.2721 0.2740 0.2759 0.2778 0.2797
14 0.1342 0.1351 0.1361 0.1370 0.1379 0.1389 0.1399
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
*Months not shown may be calculated by interpolation.
If the transaction occurs in the last month of
<TABLE>
<CAPTION>
ISSUE AGE
POLICY ---------------------------------------------------------------------------------------------------------------------
YEAR* 32 33 34 35 36 37 38 39 40
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9878 0.9886 0.9883 0.9888 0.9860 0.9859 0.9868 0.9858 0.9849
4 0.9741 0.9758 0.9751 0.9739 0.9733 0.9728 0.9725 0.9714 0.9706
5 0.9634 0.9630 0.9614 0.9602 0.9593 0.9577 0.9573 0.9572 0.9529
6 0.9634 0.9630 0.9614 0.9602 0.9593 0.9577 0.9573 0.9572 0.9529
7 0.9634 0.9630 0.9614 0.9602 0.9593 0.9577 0.9573 0.9572 0.9529
8 0.9507 0.9574 0.9614 0.9602 0.9593 0.9577 0.9573 0.9572 0.9529
9 0.8803 0.8865 0.8929 0.8993 0.8999 0.9006 0.9012 0.9019 0.9025
10 0.7042 0.7092 0.7143 0.7194 0.7199 0.7205 0.7210 0.7215 0.7220
11 0.5634 0.5674 0.5714 0.5755 0.5760 0.5764 0.5768 0.5772 0.5776
12 0.4225 0.4255 0.4286 0.4317 0.4320 0.4323 0.4326 0.4329 0.4332
13 0.2817 0.2837 0.2857 0.2878 0.2880 0.2882 0.2884 0.2886 0.2888
14 0.1408 0.1418 0.1429 0.1439 0.1440 0.1441 0.1442 0.1443 0.1444
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
<TABLE>
<CAPTION>
ISSUE AGE
POLICY ------------------------------------------------------------------------------------------
YEAR* 41 42 43 44 45 46 47
- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9850 0.9828 0.9839 0.9822 0.9833 0.9819 0.9808
4 0.9692 0.9680 0.9664 0.9651 0.9659 0.9639 0.9627
5 0.9526 0.9501 0.9496 0.9480 0.9473 0.9446 0.9425
6 0.9526 0.9501 0.9496 0.9480 0.9473 0.9446 0.9425
7 0.9526 0.9501 0.9496 0.9480 0.9473 0.9190 0.9176
8 0.9526 0.9501 0.9496 0.9480 0.9473 0.9117 0.9104
9 0.9032 0.9038 0.9045 0.9051 0.9058 0.9045 0.9032
10 0.7225 0.7231 0.7236 0.7241 0.7246 0.7236 0.7225
11 0.5780 0.5785 0.5789 0.5793 0.5797 0.5789 0.5780
12 0.4335 0.4338 0.4342 0.4345 0.4348 0.4342 0.4335
13 0.2890 0.2892 0.2894 0.2896 0.2899 0.2894 0.2890
14 0.1445 0.1446 0.1447 0.1448 0.1449 0.1447 0.1445
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
C-3
<PAGE> 120
<TABLE>
<CAPTION>
ISSUE AGE
POLICY ---------------------------------------------------------------------------------------------------------------------
YEAR* 48 49 50 51 52 53 54 55 56
- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9809 0.9796 0.9786 0.9795 0.9779 0.9770 0.9763 0.9761 0.9738
4 0.9619 0.9598 0.9577 0.9573 0.9563 0.9541 0.9523 0.9512 0.9477
5 0.9418 0.9385 0.9354 0.9351 0.9330 0.9300 0.9268 0.9250 0.9207
6 0.9365 0.9251 0.9137 0.9023 0.8910 0.8797 0.8684 0.8571 0.8689
7 0.9163 0.9150 0.9101 0.8567 0.8032 0.7498 0.6963 0.6429 0.6517
8 0.9091 0.9078 0.9029 0.8080 0.7132 0.6183 0.5235 0.4286 0.4345
9 0.9019 0.9006 0.8993 0.7623 0.6253 0.4883 0.3513 0.2143 0.2172
10 0.7215 0.7205 0.7194 0.5755 0.4316 0.2878 0.1439 0.0000 0.0000
11 0.5772 0.5764 0.5755 0.4316 0.2876 0.1439 0.0000 0.0000 0.0000
12 0.4329 0.4323 0.4317 0.2878 0.1439 0.0000 0.0000 0.0000 0.0000
13 0.2886 0.2882 0.2878 0.1439 0.0000 0.0000 0.0000 0.0000 0.0000
14 0.1443 0.1441 0.1439 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
<TABLE>
<CAPTION>
ISSUE AGE
POLICY ------------------------------------------------------------------------------------------
YEAR* 57 58 59 60 61 62 63
- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9731 0.9720 0.9707 0.9711 0.9700 0.9690 0.9678
4 0.9460 0.9441 0.9417 0.9410 0.9389 0.9367 0.9341
5 0.9192 0.9160 0.9128 0.9109 0.9078 0.9044 0.9006
6 0.8811 0.8939 0.9071 0.9087 0.9039 0.8986 0.8937
7 0.6608 0.6704 0.6803 0.6907 0.7015 0.7128 0.7247
8 0.4406 0.4469 0.4536 0.4605 0.4677 0.4752 0.4831
9 0.2203 0.2235 0.2268 0.2302 0.2338 0.2376 0.2416
10 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
11 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
12 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
13 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
14 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
C-4
<PAGE> 121
<TABLE>
<CAPTION>
ISSUE AGE
POLICY ------------------------------------------------------------------------------------------------------
YEAR* 64 65 66 67 68 69 70 71
- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9650 0.9638 0.9637 0.9612 0.9597 0.9573 0.9572 0.9559
4 0.9315 0.9277 0.9261 0.9224 0.9196 0.9158 0.9144 0.9129
5 0.8966 0.8916 0.8874 0.8836 0.8796 0.8745 0.8727 0.8700
6 0.8872 0.8823 0.8769 0.8719 0.8665 0.8612 0.8582 0.8554
7 0.7370 0.7500 0.7500 0.7500 0.7500 0.7500 0.7500 0.7500
8 0.4914 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000
9 0.2457 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500
10 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
11 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
12 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
13 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
14 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
<TABLE>
<CAPTION>
ISSUE AGE
POLICY -------------------------------------------------------------------------------------------------------
YEAR* 72 73 74 75 76 77 78 79
- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9555 0.9532 0.9518 0.9504 0.9491 0.9464 0.9436 0.9422
4 0.9113 0.9078 0.9050 0.9021 0.8982 0.8939 0.8885 0.8856
5 0.8676 0.8623 0.8581 0.8526 0.8472 0.8404 0.8347 0.8301
6 0.8520 0.8441 0.8387 0.8317 0.8239 0.8170 0.8099 0.8054
7 0.7500 0.7500 0.7500 0.7500 0.7500 0.7500 0.7500 0.7500
8 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000
9 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500
10 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
11 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
12 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
13 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
14 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
*Months not shown may be calculated by interpolation.
C-5
<PAGE> 122
If the transaction occurs in the last month of
<TABLE>
<CAPTION>
ISSUE AGE
POLICY ------------------------------------------------------------------------------------------------------
YEAR* 80 81 82 83 84 85 86 87
- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9405 0.9388 0.9375 0.9362 0.9360 0.9345 0.9320 0.9303
4 0.8824 0.8806 0.8777 0.8762 0.8747 0.8705 0.8663 0.8608
5 0.8267 0.8235 0.8204 0.8176 0.8145 0.8079 0.8009 0.7899
6 0.8016 0.7971 0.7940 0.7897 0.7842 0.7749 0.7627 0.7451
7 0.7500 0.7500 0.7500 0.7500 0.7500 0.7405 0.7232 0.6964
8 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000
9 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500
10 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
11 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
12 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
13 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
14 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
<TABLE>
<CAPTION>
ISSUE AGE
POLICY -------------------------------------------------------------------------------------------------------
YEAR* 88 89 90 91 92 93 94 95
- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1.0000 1.0000 1.0000 0.0000 0.0000 0.0000 0.0000 0.0000
2 1.0000 1.0000 1.0000 0.0000 0.0000 0.0000 0.0000 0.0000
3 0.9261 0.9191 0.9115 0.0000 0.0000 0.0000 0.0000 0.0000
4 0.8510 0.8357 0.8165 0.0000 0.0000 0.0000 0.0000 0.0000
5 0.7732 0.7483 0.7136 0.0000 0.0000 0.0000 0.0000 0.0000
6 0.7192 0.6822 0.6308 0.0000 0.0000 0.0000 0.0000 0.0000
7 0.6597 0.6068 0.5399 0.0000 0.0000 0.0000 0.0000 0.0000
8 0.5000 0.5000 0.4439 0.0000 0.0000 0.0000 0.0000 0.0000
9 0.2500 0.2500 0.2500 0.0000 0.0000 0.0000 0.0000 0.0000
10 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
11 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
12 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
13 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
14 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
*Months not shown may be calculated by interpolation.
C-6
