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P R O S P E C T U S E S F O R
V E N T U R E(R)
SURVIVORSHIP
V U L
A Flexible Premium
Survivorship Variable Life Insurance Policy
Issued by
The Manufacturers Life Insurance Company of America
And for
Manufacturers Investment Trust
Printed March 1999
[LOGO]
MANULIFE FINANCIAL
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PROSPECTUS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
SEPARATE ACCOUNT THREE
VENTURE SURVIVORSHIP VUL
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
This prospectus describes Survivorship VUL, a flexible premium survivorship
variable universal life insurance policy (the "Policy") offered by The
Manufacturers Life Insurance Company of America (the "Company" or "Manufacturers
Life Of America"), a stock life insurance company that is an indirect
wholly-owned subsidiary of The Manufacturers Life Insurance Company
("Manufacturers Life").
The Policy is designed to provide lifetime insurance protection together with
flexibility as to the timing and amount of premium payments, the investments
underlying the Policy Value, and the amount of insurance coverage. This
flexibility allows the policyowner to pay premiums and adjust insurance coverage
in light of his or her current financial circumstances and insurance needs.
The Policy provides for:
(1) a Net Cash Surrender Value that can be obtained by surrendering the Policy;
(2) policy loans and partial withdrawals; and
(3) an insurance benefit payable at the death of the last-to-die of the Lives
Insured.
Unless the No-Lapse Guarantee is in effect, the Policy will remain in force so
long as the Net Cash Surrender Value is sufficient to cover charges assessed
against the Policy. If the No-Lapse Guarantee is in effect, the Policy will
remain in force as long as the No-Lapse Guarantee Cumulative Premium Test has
been met.
Policy Value may be accumulated on a fixed basis or vary with the investment
performance of the sub-accounts of Manufacturer Life of America's Separate
Account Three (the "Separate Account") to which the policyowner allocates net
premiums. The assets of each sub-account will be used to purchase shares of a
particular investment portfolio (a "Portfolio") of Manufacturers Investment
Trust (the "Trust"). The accompanying prospectus for the Trust, and the
corresponding statement of additional information, describe the investment
objectives of the Portfolios. The Portfolios available for allocation of Net
Premiums are shown in the Policy Summary under "Investment Options and
Investment Advisers." Other sub-accounts and Portfolios may be added in the
future.
BECAUSE OF THE SUBSTANTIAL NATURE OF THE SURRENDER CHARGES, THE POLICY IS NOT
SUITABLE FOR SHORT-TERM INVESTMENT PURPOSES. ALSO, PROSPECTIVE PURCHASERS SHOULD
NOTE THAT IT MAY NOT BE ADVISABLE TO PURCHASE A POLICY AS A REPLACEMENT FOR
EXISTING INSURANCE.
The Securities and Exchange Commission maintains a web site (http://www.sec.gov)
that contains material incorporated by reference and other information regarding
registrants that file electronically with the Commission.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT IS
VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE TRUST.
THESE POLICIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC. NEITHER THE SEC
NOR ANY STATE HAS DETERMINED WHETHER THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Manufacturers Life Insurance Company of America
500 North Woodward Avenue
Bloomfield Hills, Michigan 48304
The date of this Prospectus is March 8, 1999.
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ii
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Cover Page.................................................. i
Table of Contents........................................... iii
Definitions................................................. 1
Policy Summary.............................................. 4
General................................................... 4
Death Benefits............................................ 4
Premiums.................................................. 4
Policy Value.............................................. 4
Policy Loans.............................................. 4
Surrender and Partial Withdrawals......................... 4
Lapse and Reinstatement................................... 4
Charges and Deductions.................................... 5
Investment Options and Investment Advisers................ 5
Table of Charges and Deductions........................... 6
Table of Investment Management Fees and Expenses.......... 8
Table of Investment Options and Investment Advisers....... 10
General Information about Manufacturers..................... 11
Manufacturers Life of America............................. 11
Separate Account Three.................................... 11
Manufacturers Investment Trust............................ 12
Investment Objectives of the Portfolios................... 12
Issuing A Policy............................................ 17
Requirements.............................................. 17
Temporary Insurance Agreement............................. 18
Right to Examine the Policy............................... 18
Death Benefits.............................................. 18
Life Insurance Qualification.............................. 18
Death Benefit Options..................................... 19
Changing the Face Amount.................................. 20
Premium Payments............................................ 21
Initial Premiums.......................................... 21
Subsequent Premiums....................................... 21
Maximum Premium Limitation................................ 21
Premium Allocation........................................ 21
Charges and Deductions...................................... 22
Amount Deducted from Premium.............................. 22
Surrender Charges......................................... 22
Monthly Charges........................................... 25
Charges for Transfers..................................... 27
Reduction in Charges...................................... 27
Special Provisions for Exchanges............................ 27
Company Tax Considerations.................................. 27
Policy Value................................................ 28
Determination of the Policy Value......................... 28
Units and Unit Values..................................... 28
Transfers of Policy Value................................. 29
Policy Loans................................................ 30
Effect of Policy Loan..................................... 30
Interest Charged on Policy Loans.......................... 30
Loan Account.............................................. 31
</TABLE>
iii
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<TABLE>
<S> <C>
Policy Surrender and Partial Withdrawals.................... 31
Policy Surrender.......................................... 31
Partial Withdrawals....................................... 31
Lapse and Reinstatement..................................... 32
Lapse..................................................... 32
No-Lapse Guarantee........................................ 32
No-Lapse Guarantee Cumulative Premium Test................ 33
Reinstatement............................................. 33
The General Account......................................... 33
Fixed Account............................................. 34
Other Provisions of the Policy............................ 34
Policyowner Rights........................................ 34
Beneficiary............................................... 35
Incontestability.......................................... 35
Misstatement of Age or Sex................................ 35
Suicide Exclusion......................................... 35
Supplementary Benefits.................................... 35
Tax Treatment of the Policy................................. 35
Life Insurance Qualification.............................. 36
Tax Treatment of Policy Benefits.......................... 37
Alternate Minimum Tax..................................... 41
Income Tax Reporting...................................... 41
Other Information........................................... 41
Payment of Proceeds....................................... 41
Reports to Policyowners................................... 42
Distribution of the Policies.............................. 42
Responsibilities of Manufacturers Life.................... 42
Voting Rights............................................. 43
Substitution of Portfolio Shares.......................... 43
Records and Accounts...................................... 43
State Regulations......................................... 44
Litigation................................................ 44
Independent Auditors...................................... 44
Further Information....................................... 44
Officers and Directors.................................... 45
Impact of Year 2000....................................... 47
Financial Statements...................................... F-1
Appendix A -- Sample Illustrations of Policy Values, Cash
Surrender Values and Death Benefits.................... A-1
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, THE PROSPECTUS OF MANUFACTURERS INVESTMENT TRUST, OR THE
STATEMENT OF ADDITIONAL INFORMATION OF MANUFACTURERS INVESTMENT TRUST.
Examine this prospectus carefully. The Policy Summary will briefly describe the
Policy. More detailed information will be found further in the prospectus.
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DEFINITIONS
Additional Rating
is an increase to the Cost of Insurance Rate for any of the Lives Insured who do
not meet, at a minimum, the Company's underwriting requirements for the standard
Risk Classification.
Age
on any date is each of the Lives Insured's age on their birthday closest to the
policy date.
Attained Age
is the Age plus the number of whole years that have elapsed since the Policy
Date.
Business Day
is any day that the New York Stock Exchange is open for trading. The net asset
value of the underlying shares of a Sub-Account will be determined as of the end
of each Business Day. The Company will deem each Business Day to end at the
close of regularly scheduled trading of the New York Stock Exchange (currently
4:00 p.m. Eastern Time) on that day.
Cash Surrender Value
is the Policy Value less the Surrender Charge and any outstanding Monthly
Deductions due.
Effective Date
is the date the underwriters approve issuance of the policy. If the policy is
approved without the initial premium, the Effective Date will be the date the
Company receives at least the minimum initial premium at our Service Office. In
either case, the Company will take the first Monthly Deduction on the Effective
Date.
Fixed Account
is that part of the Policy Value which reflects the value the policyowner has in
the general account of the Company.
Gross Withdrawal
is the amount of partial Net Cash Surrender Value the policyowner requests plus
any Surrender Charge applicable to the withdrawal.
Investment Account
is that part of the Policy Value which reflects the value the policyowner has in
one of the sub-accounts of the Separate Account.
Issue Date
is the date the Company issued the Policy. The Issue Date is also the date from
which the Suicide and Validity provisions of the Policy are measured.
Life Insured
is the last-to-die of the Lives Insured.
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Lives Insured
are the persons whose lives are insured under this policy. References to the
youngest of the Lives Insured means the youngest person insured under this
policy when it is first issued.
Loan Account
is that part of the Policy Value which reflects the value transferred from the
Fixed Account or the Investment Accounts as collateral for a policy loan.
Net Cash Surrender Value
is the Cash Surrender Value less the Policy Debt.
Net Policy Value
is the Policy Value less the value in the Loan Account.
Net Premium
is the gross premium paid less any amounts deducted from the premium. It is the
amount of premium allocated to the Fixed Account and/or Investment Accounts.
No-Lapse Guarantee
When the Policy is in the No-Lapse Guarantee Period, as long as the No-Lapse
Guarantee Cumulative Premium Test is met, the Policy will not lapse, even when
the Net Cash Surrender Value falls to or below zero.
No-Lapse Guarantee Period
is set at issue and is fixed at ten years.
No-Lapse Guarantee Premium
is set at issue and is recalculated whenever there is a policy change.
No-Lapse Guarantee Cumulative Premium
is the minimum amount due to satisfy the No-Lapse Guarantee Cumulative Premium
Test. This amount will change if any of the following changes occur under the
Policy:
- - the face amount of insurance changes.
- - a Supplementary Benefit is added, changed or terminated.
- - the risk classification of any of the Lives Insured changes because of a
change in smoking status.
- - a temporary Additional Rating is added (due to a face amount increase), or
terminated.
- - the Death Benefit Option Changes.
No-Lapse Guarantee Cumulative Premium Test
is a test that is satisfied if the sum of all premiums paid, less any gross
partial withdrawals and less any Policy Debt, is greater than or equal to the
sum of the monthly No-Lapse Guarantee Premiums due since the Policy Date.
Policy Date
is the date coverage takes effect under the Policy, provided the Company
receives the minimum initial premium at its Service Office, and is the date from
which charges for the first monthly deduction are calculated, and the date from
which Policy Years, Policy Months, and Policy Anniversaries are determined.
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Policy Debt
as of any date equals (a) plus (b) plus (c) minus (d), where:
(a) is the total amount of loans borrowed as of such date;
(b) is the total amount of any unpaid loan interest charges which have been
borrowed against the policy on a Policy Anniversary;
(c) is any interest charges accrued from the last Policy Anniversary to the
current date; and
(d) is the total amount of loan repayments as of such date.
Policy Value
is the sum of the values in the Loan Account, the Fixed Account, and the
Investment Accounts.
Service Office Address
is 200 Bloor Street East, Toronto, Ontario, Canada M4W 1E5.
Surrender Charge Period
is the period following the Issue Date or following any increase in Face Amount
during which the Company will assess surrender charges. Surrender charges will
apply during this period if the policy terminates due to default, if the
policyowner surrenders the policy or makes a partial withdrawal.
Written Request
is the policyowner's request to the Company which must be in a form satisfactory
to the Company, signed and dated by the policyowner, and received at the Service
Office.
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POLICY SUMMARY
GENERAL
The Policy is a flexible premium survivorship variable universal life insurance
policy. The following summary is intended to provide a general description of
the most important features of the Policy. It is not comprehensive and is
qualified in its entirety by the more detailed information contained in this
prospectus. Unless otherwise indicated or required by the context, the
discussion throughout this prospectus assumes that the Policy has not gone into
default, there is no outstanding Policy Debt, and the death benefit is not
determined by the minimum death benefit percentage. The Policy's provisions may
vary in some states.
DEATH BENEFITS
The Policy provides a death benefit in the event of the death of the last-to-die
of the Lives Insured. There are two death benefit options. Under Option 1 the
death benefit is the Face Amount of the Policy at the date of death or, if
greater, the Minimum Death Benefit. Under Option 2 the death benefit is the Face
Amount plus the Policy Value of the Policy at the date of death or, if greater,
the Minimum Death Benefit. The policyowner may change the death benefit option
and increase or decrease the Face Amount.
PREMIUMS
Premium payments may be made at any time and in any amount, subject to certain
limitations as described under "Premium Payments -- Subsequent Premiums." Net
Premiums will be allocated, according to the policyowner's instructions, to one
or more of the general account and the sub-accounts of Manufacturers Life of
America's Separate Account Three. Allocation instructions may be changed at any
time and transfers among the accounts may be made.
POLICY VALUE
The Policy has a Policy Value reflecting premiums paid, certain charges for
expenses and cost of insurance, and the investment performance of the accounts
to which the policyowner has allocated premiums. The policyowner may obtain a
portion of the Policy Value by taking a policy loan or a partial withdrawal, or
by full surrender of the Policy.
POLICY LOANS
The policyowner may borrow against the Cash Surrender Value of the Policy. Loan
interest at a rate of 5.25% is due and payable in arrears on each Policy
Anniversary. All outstanding Policy Debt will be deducted from proceeds payable
at the insured's death, or upon surrender.
SURRENDER AND PARTIAL WITHDRAWALS
The policyowner may make a partial withdrawal of the Policy Value. A partial
withdrawal may result in a reduction in the Face Amount of the Policy and an
assessment of a portion of the surrender charges to which the Policy is subject.
A Policy may be surrendered for its Net Cash Surrender Value at any time while
the Life Insured is living. The Net Cash Surrender Value is equal to the Policy
Value less Surrender Charges and outstanding Monthly Deductions due minus the
Policy Debt.
LAPSE AND REINSTATEMENT
Unless the No-Lapse Guarantee is in effect, a Policy will lapse (and terminate
without value) when the Net Cash Surrender Value is insufficient to pay the next
monthly deduction and a grace period of 61 days expires without an adequate
payment being made by the policyowner. If the No-Lapse
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Guarantee is in effect, the Policy will lapse if the No-Lapse Guarantee
Cumulative Premium Test (see definition) has not been met.
The Policies, therefore, differ in two important respects from conventional life
insurance policies. First, the failure to make planned premium payments will not
itself cause a Policy to lapse. Second, a Policy can lapse even if planned
premiums have been paid.
A lapsed Policy may be reinstated by the policyowner at any time within the five
year period following lapse provided none of the Lives Insured dies after the
policy termination and the Policy was not surrendered for its Net Cash Surrender
Value. Evidence of insurability is required, along with a certain amount of
premium as described under "Reinstatement."
CHARGES AND DEDUCTIONS
The Company assesses certain charges and deductions in connection with the
Policy. These include: (i) charges assessed monthly for mortality and expense
risks, cost of insurance, administration expenses, (ii) amounts deducted from
premiums paid (iii) and charges assessed on surrender or lapse. These charges
are summarized in the Table of Charges and Deductions.
In addition, there are charges deducted from each Portfolio of the Trust. These
charges are summarized in the Table of Investment Management Fees and Expenses.
INVESTMENT OPTIONS AND INVESTMENT ADVISERS
Net Premiums may be allocated to the general account or to one or more of the
sub-accounts of Manufacturers Life of America's Separate Account Three. Each of
the sub-accounts invests in the shares of one of the Portfolios of the Trust.
The Trust receives investment advisory services from Manufacturers Securities
Services, LLC ("MSS"). MSS is a registered investment adviser under the
Investment Advisers Act of 1940. The Trust also employs subadvisers. The Table
of Investment Options and Investment Advisers shows the subadvisers that provide
investment subadvisory services to the indicated Portfolios.
INVESTMENT MANAGEMENT FEES AND EXPENSES
The Separate Account purchases shares of the Portfolios at net asset value. The
net asset value of those shares reflects investment management fees and certain
expenses. The fees and expenses for each Portfolio for the Trust's last fiscal
year are shown in the Table of Investment Management Fees and Expenses. These
fees and expenses are described in detail in the accompanying Trust prospectus
to which reference should be made.
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TABLE OF CHARGES AND DEDUCTIONS
Amount Deducted from
Premium 7.50% of each premium paid.
Surrender Charges A Surrender Charge is applicable during the first 15
Policy Years. The Surrender Charge is determined by
the following formula:
Surrender Charge = (Surrender Charge Rate) X (Grading
Percentage)
The Grading Percentage is based on the issue age of
the youngest insured and the policy year in which the
transaction causing the assessment of the charge
occurs and is set forth in the table under "Surrender
Charges."
The Surrender Charge Rate is calculated as follows:
Surrender Charge Rate = (Factor) X (Surrender Face
Amount / 1000) + (82.5%) X (Surrender Charge Premium)
The Surrender Charge Premium is the lesser of:
(a) the premiums paid during the first policy year;
(b) the premium amount used to measure the maximum
Surrender Charge under the Policy;
(c) the net level annual premium required to provide
level insurance to attained age 100 of the younger
insured based on guaranteed monthly mortality
charges and an interest rate of 4%; and
(d) $60 per $1000 of Face Amount.
A portion of this charge may be assessed on a partial
withdrawal, as set forth under "Charges and
Deductions -- Surrender Charges on a Partial
Withdrawal."
Monthly Deductions An administration charge of $30 plus $0.08 per $1,000
of current face amount per policy month will be
deducted in the first policy year. In subsequent
years, the administration charge will not exceed $15
plus $0.02 per $1,000 of current Face Amount per
policy month.
The cost of insurance charge.
Any additional charges for supplementary benefits.
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A mortality and expense risks charge. This charge
varies by Policy Year as follows:
<TABLE>
<CAPTION>
CURRENT AND
GUARANTEED EQUIVALENT
MONTHLY ANNUAL
MORTALITY MORTALITY AND
AND EXPENSE EXPENSE
POLICY YEARS RISKS CHARGE RISK CHARGE
-------------------------------------------------------------------
<S> <C> <C>
1-20................................ 0.063% 0.75%
21+................................. 0.033% 0.40%
</TABLE>
All of the above charges are deducted from the Net
Policy Value.
Loan Charges A fixed loan interest rate of 5.25%.
Interest credited to amounts in the Loan Account will
be equal to the 5.25% rate charged to the loan less
the current and maximum loan spread of 1.25%.
Transfer Charge A charge of $25 per transfer for each transfer in
excess of 12 in a Policy Year.
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TABLE OF INVESTMENT MANAGEMENT FEES AND EXPENSES
ANNUAL EXPENSES OF EACH PORTFOLIO
(as a percentage of a Portfolio's average net assets)
<TABLE>
<CAPTION>
OTHER EXPENSES
MANAGEMENT (AFTER EXPENSE TOTAL TRUST
PORTFOLIO FEES REIMBURSEMENT)*** ANNUAL EXPENSES
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aggressive Growth
Pacific Rim Emerging Markets...... 0.850% 0.570% 1.420%
Science & Technology.............. 1.100% 0.160% 1.260%
International Small Cap........... 1.100% 0.210% 1.310%
Emerging Small Company............ 1.050% 0.060% 1.110%
Pilgrim Baxter Growth............. 1.050% 0.130% 1.180%
Small/Mid Cap..................... 1.000% 0.050% 1.050%
International Stock............... 1.050% 0.330% 1.380%
Growth
Worldwide Growth.................. 1.000% 0.320% 1.320%
Global Equity..................... 0.900% 0.110% 1.010%
Small Company Value............... 1.050% 0.100%* 1.150%
Equity............................ 0.750% 0.050% 0.800%
Growth............................ 0.850% 0.100% 0.950%
Quantitative Equity............... 0.700% 0.070% 0.770%***
Blue Chip Growth.................. 0.925% 0.050% 0.975%
Equity Index...................... 0.250% 0.15% **** 0.40% ****
Real Estate Securities............ 0.700% 0.070% 0.770%***
Growth and Income
Value............................. 0.800% 0.160% 0.960%
International Growth and Income... 0.950% 0.170% 1.120%
Growth and Income................. 0.750% 0.040% 0.790%
Equity-Income..................... 0.800% 0.050% 0.850%
Balanced
Balanced.......................... 0.800% 0.080% 0.880%
Aggressive Asset Allocation....... 0.750% 0.150% 0.900%
Moderate Asset Allocation......... 0.750% 0.100% 0.850%
Conservative Asset Allocation..... 0.750% 0.140% 0.890%
Bond
High Yield........................ 0.775% 0.110% 0.885%
Strategic Bond.................... 0.775% 0.100% 0.875%
Global Government Bond............ 0.800% 0.130% 0.930%
Capital Growth Bond............... 0.650% 0.080% 0.730%***
Investment Quality Bond........... 0.650% 0.090% 0.740%
U.S. Government Securities........ 0.650% 0.070% 0.720%
Money Market
Money Market...................... 0.500% 0.040% 0.540%
</TABLE>
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<TABLE>
<CAPTION>
OTHER EXPENSES
MANAGEMENT (AFTER EXPENSE TOTAL TRUST
PORTFOLIO FEES REIMBURSEMENT)*** ANNUAL EXPENSES
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lifestyle
Lifestyle Aggressive 1000+........ 0% 1.116%** 1.116%
Lifestyle Growth 820+............. 0% 1.048%** 1.048%
Lifestyle Balanced 640+........... 0% 0.944%** 0.944%
Lifestyle Moderate 460+........... 0% 0.850%** 0.850%
Lifestyle Conservative 280+....... 0% 0.708%** 0.708%
</TABLE>
+ Each Lifestyle Trust will invest in shares of the Underlying Portfolios.
Therefore, each Lifestyle Trust will bear its pro rata share of the fees and
expenses incurred by the Underlying Portfolios and the investment return of each
Lifestyle Trust will be net of the Underlying Portfolio expenses. Each Lifestyle
Portfolio must also bear its own expenses. However, the Adviser is currently
paying these expenses as described in footnote ** below.
* Based on estimates of payments to be made during the current fiscal year.
** Reflects expenses of the other portfolios of the Trust in which the Lifestyle
Trust invests ("Underlying Portfolios"). MSS has voluntarily agreed to pay the
expenses of each Lifestyle Trust (excluding the expenses of the Underlying
Portfolios). This voluntary expense reimbursement may be terminated at any time.
If such expense reimbursement was not in effect, Total Trust Annual Expenses
would be .04% higher (based on expenses of the Lifestyle Trusts for the fiscal
year ended December 31, 1997) as noted in the chart below:
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL TRUST
TRUST PORTFOLIO FEES EXPENSES ANNUAL EXPENSES
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lifestyle Aggressive 1000...................... 0% 1.156% 1.156%
Lifestyle Growth 820........................... 0% 1.088% 1.088%
Lifestyle Balanced 640......................... 0% 0.984% 0.984%
Lifestyle Moderate 460......................... 0% 0.890% 0.890%
Lifestyle Conservative 280..................... 0% 0.748% 0.748%
</TABLE>
*** During the one year period ended December 31, 1997, MSS voluntarily waived
fees payable to it and/or reimbursed expenses to the extent necessary to prevent
"Total Trust Annual Expenses" for the Quantitative Equity, Real Estate and
Capital Growth Bond Trusts from exceeding .50% of the Trust's average net
assets. This voluntary fee waiver was terminated effective January 1, 1998.
Expenses shown in the table for these three Trusts do not reflect the fee
waiver.
**** Under the Advisory Agreement, MSS has agreed to reduce its advisory fee or
reimburse the Equity Index Trust if the total of all expenses (excluding
advisory fees, taxes, portfolio brokerage commissions, interest, litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Trust's business) exceed an annual rate of 0.15% of the
average annual net assets of the Equity Index Trust. The expense limitation will
continue in effect from year to year unless otherwise terminated at any year end
by MSS on 30 days' notice to the Trust. If this expense reimbursement had not
been in effect, Total Trust Annual Expenses would have been 0.57%, and Other
Expenses would have been 0.32%, of the average annual net assets of the Equity
Index Trust.
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TABLE OF INVESTMENT OPTIONS AND INVESTMENT ADVISERS
<TABLE>
<CAPTION>
PORTFOLIO SUBADVISER
- ------------------------------------------------------------------------------------------------
<S> <C>
Aggressive Growth
Pacific Rim Emerging Market Trust Manufacturers Adviser Corporation*
Science and Technology Trust T. Rowe Price Associates, Inc.
International Small Cap Trust Founders Asset Management, LLC
Emerging Small Company Trust Warburg Pincus Asset Management, Inc.
Pilgrim Baxter Growth Trust Pilgrim, Baxter & Associates, Ltd.
Small/Mid Cap Trust Fred Alger Management, Inc.
International Stock Trust Rowe Price-Fleming International, Inc.
Growth
Worldwide Growth Trust Founders Asset Management, LLC
Global Equity Trust Morgan Stanley Dean Witter
Investment Management Inc.
Small Company Value Trust AXA Rosenberg Investment Management LLC
Equity Trust Fidelity Management Trust Company
Growth Trust Founders Asset Management, LLC
Quantitative Equity Trust Manufacturers Adviser Corporation*
Equity Index Trust Manufacturers Adviser Corporation*
Blue Chip Growth Trust T. Rowe Price Associates, Inc.
Real Estate Securities Trust Manufacturers Adviser Corporation*
Growth and Income
Value Trust Miller Anderson & Sherrerd, LLP
International Growth and Income Trust J.P. Morgan Investment Management, Inc.
Growth and Income Trust Wellington Management Company, LLP
Equity Income Trust T. Rowe Price Associates, Inc.
Balanced
Balanced Trust Founders Asset Management, LLC
Aggressive Asset Allocation Trust Fidelity Management Trust Company
Moderate Asset Allocation Trust Fidelity Management Trust Company
Conservative Asset Allocation Trust Fidelity Management Trust Company
Bond
High Yield Trust Miller Anderson & Sherrerd, LLP
Strategic Bond Trust Salomon Brothers Asset Management, Inc.
Global Government Bond Trust Oechsle International Advisors, LLC
Capital Growth Bond Trust Manufacturers Adviser Corporation*
Investment Quality Bond Trust Wellington Management Company, LLP
U.S. Government Securities Trust Salomon Brothers Asset Management, Inc.
Money Market
Money Market Trust Manufacturers Adviser Corporation*
Lifestyle
Lifestyle Aggressive Growth 1000 Trust Manufacturers Adviser Corporation*
Lifestyle Growth 820 Trust Manufacturers Adviser Corporation*
Lifestyle Balanced 640 Trust Manufacturers Adviser Corporation*
Lifestyle Moderate 460 Trust Manufacturers Adviser Corporation*
Lifestyle Conservative 280 Trust Manufacturers Adviser Corporation*
</TABLE>
* Manufacturers Adviser Corporation is an indirect wholly-owned subsidiary of
Manufacturers Life.
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GENERAL INFORMATION ABOUT MANUFACTURERS
MANUFACTURERS LIFE OF AMERICA
Manufacturers Life of America, a wholly-owned subsidiary of The Manufacturers
Life Insurance Company (U.S.A.) ("Manufacturers USA") is a stock life insurance
company organized under the laws of Pennsylvania on April 11, 1977 and
redomesticated under the laws of Michigan on December 9, 1992. It is a licensed
life insurance company in the District of Columbia and all states of the United
States except New York. The ultimate parent of Manufacturers Life of America and
Manufacturers USA is Manufacturers Life, a mutual life insurance company based
in Toronto, Canada. Manufacturers Life and its subsidiaries, together,
constitute one of the largest life insurance companies in North America and rank
among the 60 largest life insurers in the world as measured by assets. However,
neither Manufacturers Life of America nor Manufacturers Life guarantees the
investment performance of the Separate Account.
On January 20, 1998, the Board of Directors of Manufacturers Life announced that
it had asked the management of Manufacturers Life to prepare a plan for
conversion of Manufacturers Life from a mutual life insurance company to an
investor owned, publicly traded stock company. Any demutualization plan for
Manufacturers Life is subject to the approval of the Manulife Board of Directors
and policyowners as well as regulatory approval.
RATINGS
Manufacturers Life and Manufacturers Life of America have received the following
ratings from independent rating agencies:
<TABLE>
<S> <C>
Standard and Poor's Insurance Ratings Service: AA+ (for financial strength)
A.M. Best Company: A++ (for financial strength)
Duff & Phelps Credit Rating Co.: AAA (for claims paying ability)
Moody's Investors Service, Inc.: Aa2 (for financial strength)
</TABLE>
These ratings, which are current as of the date of this prospectus and are
subject to change, are assigned to The Manufacturers Life Insurance Company of
America as a measure of the Company's ability to honor the death benefit and
life annuitization guarantees but not specifically to its products, the
performance (return) of these products, the value of any investment in these
products upon withdrawal or to individual securities held in any portfolio.
SEPARATE ACCOUNT THREE
Manufacturers Life of America established its Separate Account Three on August
22, 1986 as a separate account under Pennsylvania Law. Since December 9, 1992,
it has been operated under Michigan Law. The Separate Account holds assets that
are segregated from all of Manufacturers Life of America's other assets. The
Separate Account is currently used only to support variable life insurance
policies.
ASSETS OF THE SEPARATE ACCOUNT
Manufacturers Life of America is the legal owner of the assets in the Separate
Account. The income, gains, and losses of the Separate Account, whether or not
realized, are, in accordance with applicable contracts, credited to or charged
against the Account without regard to the other income, gains, or losses of
Manufacturers Life of America. Manufacturers Life of America will at all times
maintain assets in the Separate Account with a total market value at least equal
to the reserves and other liabilities relating to variable benefits under all
policies participating in the Separate Account. These assets may not be charged
with liabilities which arise from any other business Manufacturers Life of
America conducts. However, all obligations under the variable life insurance
policies are general corporate obligations of Manufacturers Life of America.
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<PAGE> 17
REGISTRATION
The Separate Account is registered with the Securities and Exchange Commission
("S.E.C.") under the Investment Company Act of 1940 ("1940 Act") as a unit
investment trust. A unit investment trust is a type of investment company which
invests its assets in specified securities, such as the shares of one or more
investment companies, rather than in a portfolio of unspecified securities.
Registration under the 1940 Act does not involve any supervision by the S.E.C.
of the management or investment policies or practices of the Separate Account.
For state law purposes the Separate Account is treated as a part or division of
Manufacturers Life of America.
MANUFACTURERS INVESTMENT TRUST
Each sub-account of the Separate Account will purchase shares only of a
particular Portfolio. The Trust is registered under the 1940 Act as an open-end
management investment company. The Separate Account will purchase and redeem
shares of the Portfolios at net asset value. Shares will be redeemed to the
extent necessary for Manufacturers Life of America to provide benefits under the
Policies, to transfer assets from one sub-account to another or to the general
account as requested by policyowners, and for other purposes not inconsistent
with the Policies. Any dividend or capital gain distribution received from a
Portfolio with respect to the Policies will be reinvested immediately at net
asset value in shares of that Portfolio and retained as assets of the
corresponding sub-account.
The Trust shares are issued to fund benefits under both variable annuity
contracts and variable life insurance policies issued by the Company or life
insurance companies affiliated with the Company. Manufacturers Life of America
may also purchase shares through its general account for certain limited
purposes including initial portfolio seed money. For a description of the
procedures for handling potential conflicts of interest arising from the funding
of such benefits see the accompanying Trust prospectus.
INVESTMENT OBJECTIVES OF THE PORTFOLIOS
The investment objectives and certain policies of the Portfolios currently
available to policyowners through corresponding sub-accounts are set forth
below. There is, of course, no assurance that these objectives will be met. A
full description of the Trust, its investment objectives, policies and
restrictions, the risks associated therewith, its expenses, and other aspects of
its operation is contained in the accompanying Trust prospectus, which should be
read together with this prospectus.
AGGRESSIVE GROWTH PORTFOLIOS
Pacific Rim Emerging Markets Trust
The investment objective of the Pacific Rim Emerging Markets Trust is to achieve
long-term growth of capital. Manufacturers Adviser Corporation ("MAC") manages
the Pacific Rim Emerging Markets Trust and seeks to achieve this investment
objective by investing in a diversified portfolio that is comprised primarily of
common stocks and equity-related securities of corporations domiciled in
countries of the Pacific Rim region.
Science & Technology Trust
The investment objective of the Science and Technology Trust is long-term growth
of capital. Current income is incidental to the portfolio's objective. T. Rowe
Price Associates, Inc. ("T. Rowe Price") manages the Science & Technology Trust.
International Small Cap Trust
The investment objective of the International Small Cap Trust is to seek
long-term capital appreciation. Founders Asset Management, LLC ("Founders")
manages the International Small Cap Trust and will pursue this objective by
investing primarily in securities issued by foreign companies which have total
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<PAGE> 18
market capitalizations or annual revenues of $1 billion or less. These
securities may represent companies in both established and emerging economies
throughout the world.
Emerging Small Company Trust
The investment objective of the Emerging Small Company Trust is maximum capital
appreciation. Warburg Pincus Asset Management, Inc. manages the Emerging Small
Company Trust and will pursue this objective by investing primarily in a
portfolio of equity securities of domestic companies. The Emerging Small Company
Trust ordinarily will invest at least 65% of its total assets in common stocks
or warrants of emerging small companies that represent attractive opportunities
for maximum capital appreciation.
Pilgrim Baxter Growth Trust
The investment objective of the Pilgrim Baxter Growth Trust is capital
appreciation. Pilgrim, Baxter & Associates, Ltd. ("PBHG") manages the Pilgrim
Baxter Growth Trust and seeks to achieve its objective by investing in companies
believed by PBHG to have an outlook for strong earnings growth and potential for
significant capital appreciation.
Small/Mid Cap Trust
The investment objective of the Small/Mid Cap Trust is to seek long-term capital
appreciation. Fred Alger Management, Inc. manages the Small/Mid Cap Trust and
will pursue this objective by investing at least 65% of the portfolio's total
assets (except during temporary defensive periods) in small/mid cap equity
securities.
International Stock Trust
The investment objective of the International Stock Trust is to achieve
long-term growth of capital. Rowe Price-Fleming International, Inc. manages the
International Stock Trust and seeks to obtain this objective by investing
primarily in common stocks of established, non-U.S. companies.
GROWTH PORTFOLIOS
Worldwide Growth Trust
The investment objective of the Worldwide Growth Trust is long-term growth of
capital. Founders manages the Worldwide Growth Trust and seeks to attain this
objective by normally investing at least 65% of its total assets in equity
securities of growth companies in a variety of markets throughout the world.
Global Equity Trust
The investment objective of the Global Equity Trust is long-term capital
appreciation. Morgan Stanley Dean Witter Investment Management Inc. manages the
Global Equity Trust and intends to pursue this objective by investing primarily
in equity securities throughout the world, including U.S. issuers.
Small Company Value Trust
The investment objective of the Small Company Value Trust is to seek long-term
growth of capital. AXA Rosenberg Investment Management LLC manages the Small
Company Value Trust and intends to pursue this objective by investing in equity
securities of smaller companies which are traded principally in the markets of
the United States.
Equity Trust
The principal investment objective of the Equity Trust is growth of capital.
Current income is a secondary consideration although growth of income may
accompany growth of capital. Fidelity Management Trust Company ("FMTC") manages
the Equity Trust and seeks to attain the foregoing objective by investing
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<PAGE> 19
primarily in common stocks of United States issuers or securities convertible
into or which carry the right to buy common stocks.
Growth Trust
The investment objective of the Growth Trust is to seek long-term growth of
capital. Founders manages the Growth Trust and will pursue this objective by
investing, under normal market conditions, at least 65% of its total assets in
common stocks of well-established, high-quality growth companies that Founders
believes have the potential to increase earnings faster than the rest of the
market.
Quantitative Equity Trust
The investment objective of the Quantitative Equity Trust (formerly the "Common
Stock Fund") is to achieve intermediate and long-term growth through capital
appreciation and current income by investing in common stocks and other equity
securities of well established companies with promising prospects for providing
an above-average rate of return. MAC manages the Quantitative Equity Trust.
Equity Index Trust
The investment objective of the Equity Index Trust is to achieve investment
results which approximate the total return of publicly traded common stocks in
the aggregate, as represented by the Standard & Poor's 500 Composite Stock Price
Index. MAC manages the Equity Index Trust.
Blue Chip Growth Trust
The primary investment objective of the Blue Chip Growth Trust is to provide
long-term growth of capital. Current income is a secondary objective, and many
of the stocks in the Portfolio are expected to pay dividends. T. Rowe Price
manages the Blue Chip Growth Trust.
Real Estate Securities Trust
The investment objective of the Real Estate Securities Trust is to achieve a
combination of long-term capital appreciation and satisfactory current income by
investing in real estate related equity and debt securities. MAC manages the
Real Estate Securities Trust.
GROWTH & INCOME PORTFOLIOS
Value Trust
The investment objective of the Value Trust is to realize an above-average total
return over a market cycle of three to five years, consistent with reasonable
risk. Miller Anderson & Sherrerd, LLP ("MAS") manages the Value Trust and seeks
to attain this objective by investing primarily in common and preferred stocks,
convertible securities, rights and warrants to purchase common stocks, ADRs and
other equity securities of companies with equity capitalizations usually greater
than $300 million.
International Growth and Income Trust
The investment objective of the International Growth and Income Trust is to seek
long-term growth of capital and income. The portfolio is designed for investors
with a long-term investment horizon who want to take advantage of investment
opportunities outside the United States. J.P. Morgan Investment Management Inc.
manages the International Growth and Income Trust.
Growth and Income Trust
The investment objective of the Growth and Income Trust is to provide long-term
growth of capital and income consistent with prudent investment risk. Wellington
Management Company, LLP ("Wellington Management") manages the Growth and Income
Trust and seeks to achieve the Trust's objective by investing primarily in a
diversified portfolio of common stocks of U.S. issuers which Wellington
Management believes are of high quality.
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<PAGE> 20
Equity-Income Trust
The investment objective of the Equity-Income Trust (prior to December 31, 1996,
the "Value Equity Trust") is to provide substantial dividend income and also
long-term capital appreciation. T. Rowe Price manages the Equity-Income Trust
and seeks to attain this objective by investing primarily in dividend-paying
common stocks, particularly of established companies with favorable prospects
for both increasing dividends and capital appreciation.
BALANCED PORTFOLIOS
Balanced Trust
The investment objective of the Balanced Trust is current income and capital
appreciation. Founders is the manager of the Balanced Trust and seeks to attain
this objective by investing in a balanced portfolio of common stocks, U.S. and
foreign government obligations and a variety of corporate fixed-income
securities.
Automatic Asset Allocation Trusts (Aggressive, Moderate, and Conservative)
The investment objective of each of the Automatic Asset Allocation Trusts is to
realize the highest potential total return consistent with a specified level of
risk tolerance -- conservative, moderate, or aggressive. The amount of each
Portfolio's assets invested in each category of securities -- debt, equity, and
money market -- is dependent upon the judgment of FMTC as to what percentages of
each Portfolio's assets in each category will contribute to the limitation of
risk and the achievement of its investment objective.
BOND PORTFOLIOS
High Yield Trust
The investment objective of High Yield Trust is to realize an above-average
total return over a market cycle of three to five years, consistent with
reasonable risk. MAS manages the High Yield Trust and seeks to attain this
objective by investing primarily in high yield debt securities, including
corporate bonds and other fixed-income securities.
Strategic Bond Trust
The investment objective of the Strategic Bond Trust is to seek a high level of
total return consistent with preservation of capital. The Strategic Bond Trust
seeks to achieve its objective by giving its Subadviser, Salomon Brothers Asset
Management Inc ("SBAM") broad discretion to deploy the Strategic Bond Trust's
assets among certain segments of the fixed-income market as SBAM believes will
best contribute to the achievement of the portfolio's objective.
Global Government Bond Trust
The investment objective of the Global Government Bond Trust is to seek a high
level of total return by placing primary emphasis on high current income and the
preservation of capital. Oechsle International Advisors, LLC manages the Global
Government Bond Trust and intends to pursue this objective by investing
primarily in a selected global portfolio of high-quality, fixed-income
securities of foreign and U.S. governmental entities and supranational issuers.
Capital Growth Bond Trust
The investment objective of the Capital Growth Bond Trust is to achieve growth
of capital by investing in medium-grade or better debt securities, with income
as a secondary consideration. MAC manages the Capital Growth Bond Trust. The
Capital Growth Bond Trust differs from most "bond" funds in that its primary
objective is capital appreciation, not income.
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<PAGE> 21
Investment Quality Bond Trust
The investment objective of the Investment Quality Bond Trust is to provide a
high level of current income consistent with the maintenance of principal and
liquidity. Wellington Management manages the Investment Quality Bond Trust and
seeks to achieve the Trust's objective by investing primarily in a diversified
portfolio of investment grade corporate bonds and U.S. Government bonds with
intermediate to longer term maturities.
U.S. Government Securities Trust
The investment objective of the U.S. Government Securities Trust is to obtain a
high level of current income consistent with preservation of capital and
maintenance of liquidity. SBAM manages the U.S. Government Securities Trust and
seeks to attain its objective by investing a substantial portion of its assets
in debt obligations and mortgage-backed securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities and derivative securities
such as collateralized mortgage obligations backed by such securities.
MONEY MARKET PORTFOLIO
Money Market Trust
The investment objective of the Money Market Trust is to obtain maximum current
income consistent with preservation of principal and liquidity. MAC manages the
Money Market Trust and seeks to achieve this objective by investing in high
quality, U.S. dollar denominated money market instruments.
LIFESTYLE PORTFOLIOS
Lifestyle Aggressive 1000 Trust
The investment objective of the Lifestyle Aggressive 1000 Trust is to provide
long-term growth of capital. Current income is not a consideration. MAC manages
the Lifestyle Aggressive 1000 Trust and seeks to achieve this objective by
investing approximately 100% of the Lifestyle Trust's assets in Underlying
Portfolios which invest primarily in equity securities.
Lifestyle Growth 820 Trust
The investment objective of the Lifestyle Growth 820 Trust is to provide
long-term growth of capital with consideration also given to current income. MAC
manages the Lifestyle Growth 820 Trust and seeks to achieve this objective by
investing approximately 20% of the Lifestyle Trust's assets in Underlying
Portfolios which invest primarily in fixed-income securities and approximately
80% of the assets in Underlying Portfolios which invest primarily in equity
securities.
Lifestyle Balanced 640 Trust
The investment objective of the Lifestyle Balanced 640 Trust is to provide a
balance between high level of current income and growth of capital with a
greater emphasis given to capital growth. MAC manages the Lifestyle Balanced 640
Trust and seeks to achieve this objective by investing approximately 40% of the
Lifestyle Trust's assets in Underlying Portfolios which invest primarily in
fixed-income securities and approximately 60% of its assets in Underlying
Portfolios which invest primarily in equity securities.
Lifestyle Moderate 460 Trust
The investment objective of the Lifestyle Moderate 460 Trust is to provide a
balance between high level of current income and growth of capital with a
greater emphasis given to high income. MAC manages the Lifestyle Moderate 460
Trust and seeks to achieve this objective by investing approximately 60% of the
Lifestyle Trust's assets in Underlying Portfolios which invest primarily in
fixed-income securities and approximately 40% of its assets in Underlying
Portfolios which invest primarily in equity securities.
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Lifestyle Conservative 280 Trust
The investment objective of the Lifestyle Conservative 280 Trust is to provide a
high level of current income with some consideration also given to growth of
capital. MAC manages the Lifestyle Conservative 280 Trust and seeks to achieve
this objective by investing approximately 80% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed-income securities and
approximately 20% of its assets in Underlying Portfolios which invest primarily
in equity securities.
ISSUING A POLICY
REQUIREMENTS
To purchase a Policy, an applicant must submit a completed application. A Policy
will not be issued until the underwriting process has been completed to the
Company's satisfaction.
Policies may be issued on a basis which does not distinguish between the
insured's sex and/or smoking status, with prior approval from the Company. A
Policy will generally be issued only on the lives of insureds from ages 0
through 90.
Each Policy is issued with a Policy Date, an Effective Date and an Issue Date
(see Definitions). The Issue Date is the date from which the Suicide and
Validity provisions of the Policy are determined and is the expected date of
actual delivery of the Policy to the policyowner. The Effective Date is the date
on which the first monthly deductions are taken, and is the date on which the
underwriters approve the Policy issuance. The Policy Date is the date coverage
takes effect under the Policy, provided the Company receives the minimum initial
premium at its Service Office, is the date from which charges for the first
monthly deduction are calculated, and is the date from which Policy Years,
Policy Months and Policy Anniversaries are determined.
If an application is accompanied by a check for the initial premium and the
application is accepted:
(i) the Policy Date will be the date the application and check were received at
the Service Office (unless a special Policy Date is requested (See
"Backdating a Policy" below));
(ii) the Effective Date will be the date the Company's underwriters approve
issuance of the Policy; and
(iii) the Issue Date will be the date the Company issues the Policy.
If an application accepted by the Company is not accompanied by a check for the
initial premium:
(i) the Policy Date will be the date the Company issues the Policy (unless a
special Policy Date is requested (See "Backdating a Policy" below);
(ii) the Effective Date will be the date the Service Office receives the
initial premium; and
(iii) the Issue Date will be the date the Company issues the Policy.
The initial premium must be received within 60 days after the Policy Date. If
the premium is not paid or if the application is rejected, the Policy will be
canceled and any partial premiums paid will be returned to the applicant.
MINIMUM INITIAL FACE AMOUNT
Manufacturers Life of America will generally issue a Policy only if it has a
Face Amount of at least $250,000.
BACKDATING A POLICY
Under limited circumstances, the Company may backdate a Policy, upon request, by
assigning a Policy Date earlier than the date the application is signed.
However, in no event will a Policy be backdated earlier than the earliest date
allowed by state law, which is generally three months to one year prior to the
date of application for the Policy. Monthly deductions will be made for the
period the Policy Date is backdated. Regardless of whether or not a policy is
backdated, Net Premiums received prior to the
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Effective Date of a Policy will be credited with interest from the date of
receipt at the rate of return then being earned on amounts allocated to the
Money Market portfolio.
TEMPORARY INSURANCE AGREEMENT
In accordance with the Company's underwriting practices, temporary insurance
coverage may be provided under the terms of a Temporary Insurance Agreement.
Generally, temporary life insurance may not exceed $5,000,000 and may not be in
effect for more than 90 days. This temporary insurance coverage will be issued
on a conditional receipt basis, which means that any benefits under such
temporary coverage will only be paid if the Lives Insured meet the Company's
usual and customary underwriting standards for the coverage applied for.
The acceptance of an application is subject to the Company's underwriting rules,
and the Company reserves the right to request additional information or to
reject an application for any reason.
Persons failing to meet standard underwriting classification may be eligible for
a Policy with an additional rating assigned to it.
RIGHT TO EXAMINE THE POLICY
A Policy may be returned for a refund within 10 days after it is received. Some
states provide a longer period of time to exercise this right. The Policy will
indicate if a longer time period applies. The Policy can be mailed or delivered
to the Manufacturers Life of America agent who sold it or to the Service Office.
Immediately on such delivery or mailing, the Policy shall be deemed void from
the beginning. Within seven days after receipt of the returned Policy at its
Service Office, the Company will refund in full the payment made.
If a policyowner requests an increase in face amount which results in new
surrender charges, he or she will have the same rights as described above to
cancel the increase. If canceled, the Policy Value and the surrender charges
will be recalculated to the amounts they would have been had the increase not
taken place. A policyowner may request a refund of all or any portion of
premiums paid during the free look period, and the Policy Value and the
surrender charges will be recalculated to the amounts they would have been had
the premiums not been paid.
The Company reserves the right to delay the refund of any premium paid by check
until the check has cleared.
DEATH BENEFITS
If the Policy is in force at the time of the death of the last-to-die of the
Lives Insured, the Company will pay an insurance benefit. The amount payable
will be the death benefit under the selected death benefit option, plus any
amounts payable under any supplementary benefits added to the Policy, less the
Policy Debt and less any outstanding monthly deductions due. The insurance
benefit will be paid in one lump sum unless another form of settlement option is
agreed to by the beneficiary and the Company. If the insurance benefit is paid
in one sum, the Company will pay interest from the date of death to the date of
payment. If the Life Insured should die after the Company's receipt of a request
for surrender, no insurance benefit will be payable, and the Company will pay
only the Net Cash Surrender Value.
LIFE INSURANCE QUALIFICATION
This product uses the Guideline Premium Test to qualify as a life insurance
contract for purposes of Section 7702 of the Internal Revenue Code of 1986, as
amended.
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GUIDELINE PREMIUM TEST
The Guideline Premium Test restricts the maximum premiums that may be paid into
a life insurance policy for a given death benefit. The policy's death benefit
must also be at least equal to the Minimum Death Benefit (described below).
Changes to the Policy may affect the maximum amount of premiums, such as:
- - A change in the policy's Face Amount.
- - A change in the death benefit option.
- - Partial Withdrawals.
- - Addition or deletion of supplementary benefits.
Any of the above changes could cause the total premiums paid to exceed the new
maximum limit. In this situation, the Company will require the policyowner to
take a partial withdrawal. In addition, these changes could reduce the future
premium limitations.
MINIMUM DEATH BENEFIT
The Guideline Premium Test requires a life insurance policy to meet minimum
ratios of life insurance coverage to policy value. This is achieved by ensuring
that the death benefit is at all times at least equal to the Minimum Death
Benefit. The Minimum Death Benefit on any date is defined as the Policy Value on
that date times the applicable Minimum Death Benefit Percentage for the Attained
Age of the youngest of the Lives Insured would have reached if living. The
Minimum Death Benefit Percentages are shown in the Table of Minimum Death
Benefit Percentages.
TABLE OF MINIMUM DEATH BENEFIT PERCENTAGES
<TABLE>
<CAPTION>
ATTAINED AGE APPLICABLE PERCENTAGE
- -----------------------------------------------------------------------
<S> <C>
40 and under.................................... 250%
45.............................................. 215%
50.............................................. 185%
55.............................................. 150%
60.............................................. 130%
65.............................................. 120%
70.............................................. 115%
75.............................................. 105%
90.............................................. 105%
95 and above.................................... 100%
</TABLE>
To determine the Applicable Percentage in the above table, use the Attained Age
of the youngest of the Lives Insured, or the Attained Age such person would have
reached if living. For ages not shown, the Applicable Percentage can be found by
reducing the values proportionately
DEATH BENEFIT OPTIONS
There are two death benefit options, described below.
DEATH BENEFIT OPTION 1
Under Option 1 the death benefit is the Face Amount of the Policy at the date of
death or, if greater, the Minimum Death Benefit.
DEATH BENEFIT OPTION 2
Under Option 2 the death benefit is the Face Amount plus the Policy Value of the
Policy at the date of death or, if greater, the Minimum Death Benefit.
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CHANGING THE DEATH BENEFIT OPTION
The death benefit option may be changed on the first day of any policy month
once each Policy Year after the first Policy Year. The change will occur on the
first day of the next Policy Month after a written request for a change is
received at the Service Office. The Company reserves the right to limit a
request for a change if the change would cause the Policy to fail to qualify as
life insurance for tax purposes.
A change in the death benefit option will result in a change in the Policy's
Face Amount, in order to avoid any change in the amount of the death benefit, as
follows:
CHANGE FROM OPTION 1 TO OPTION 2
The new Face Amount will be equal to the Face Amount prior to the change minus
the Policy Value as of the date of the change. The Policy will not be assessed a
Surrender Charge for a reduction in Face Amount solely due to a change in the
death benefit option.
CHANGE FROM OPTION 2 TO OPTION 1
The new Face Amount will be equal to the Face Amount prior to the change plus
the Policy Value as of the date of the change. No new Surrender Charges will
apply to an increase in Face Amount solely due to a change in the death benefit
option.
CHANGING THE FACE AMOUNT
Subject to the limitations stated in this Prospectus, a policyowner may, upon
written request, increase or decrease the Face Amount of the Policy. The Company
reserves the right to limit a change in Face Amount so as to prevent the Policy
from failing to qualify as life insurance for tax purposes.
INCREASE IN FACE AMOUNT
Increases in Face Amount may be made once each Policy Year after the first
Policy Year. Any increase in Face Amount must be at least $50,000. An increase
will become effective at the beginning of the policy month following the date
Manufacturers Life of America approves the requested increase. Increases in Face
Amount are subject to satisfactory evidence of insurability. The Company
reserves the right to refuse a requested increase if any of the Lives Insureds'
Attained Ages at the effective date of the increase would be greater than the
maximum issue age for new Policies at that time.
NEW SURRENDER CHARGES FOR AN INCREASE
An increase in face amount will usually result in the Policy being subject to
new surrender charges. There will be no new surrender charges associated with
restoration of a prior decrease in Face Amount. As with the purchase of a
Policy, a policyowner will have free look right with respect to any increase
resulting in new surrender charges.
An additional premium may be required for a face amount increase, and a new
No-Lapse Guarantee Premium will be determined, if the No-Lapse Guarantee is in
effect at the time of the face amount increase.
INCREASE WITH PRIOR DECREASES
If, at the time of the increase, there have been prior decreases in Face Amount,
these prior decreases will be restored first. The insurance coverage eliminated
by the decrease of the oldest face amount will be deemed to be restored first.
DECREASE IN FACE AMOUNT
Decreases in Face Amount may be made once each Policy Year after the first
Policy Year. Any decrease in Face Amount must be at least $50,000. A written
request from a policy owner for a decrease in the Face Amount will be effective
at the beginning of the Policy Month following the date Manufacturers Life
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<PAGE> 26
of America approves the requested decrease. If there have been previous
increases in Face Amount, the decrease will be applied to the most recent
increase first and thereafter to the next most recent increases successively.
PREMIUM PAYMENTS
INITIAL PREMIUMS
No premiums will be accepted prior to receipt of a completed application by the
Company. All premiums received prior to the Effective Date of the Policy will be
held in the general account and credited with interest from the date of receipt
at the rate of return then being earned on amounts allocated to the Money Market
Trust.
The minimum initial premium is one-twelfth of the No-Lapse Guarantee Premium.
On the Effective Date, the Net Premiums paid plus interest credited will be
allocated among the Investment Accounts or the Fixed Account in accordance with
the policyowner's instructions.
SUBSEQUENT PREMIUMS
After the payment of the initial premium, premiums may be paid at any time and
in any amount until the youngest of the Lives Insured has reached Attained Age
100, or the date such person would have reached Attained Age 100, if living,
subject to the limitations on premium amount described below.
A Policy will be issued with a planned premium, which is based on the amount of
premium the policyowner wishes to pay. Manufacturers Life of America will send
notices to the policyowner setting forth the planned premium at the payment
interval selected by the policyowner. However, the policyowner is under no
obligation to make the indicated payment.
The Company may refuse any premium payment that would cause the Policy to fail
to qualify as life insurance under the Internal Revenue Code. The Company also
reserves the right to request evidence of insurability if a premium payment
would result in an increase in the Death Benefit that is greater than the
increase in Policy Value.
Payment of premiums will not guarantee that the Policy will stay in force.
Conversely, failure to pay premiums will not necessarily cause the Policy to
lapse.
All Net Premiums received on or after the Effective Date will be allocated among
Investment Accounts or the Fixed Account as of the Business Day the premiums
were received at the Service Office. Monthly deductions are due on the Policy
Date and at the beginning of each Policy Month thereafter. However, if due prior
to the Effective Date, they will be taken on the Effective Date instead of the
dates they were due.
MAXIMUM PREMIUM LIMITATION
In no event may the total of all premiums paid exceed the then current maximum
premium limitations established by federal income tax law for a Policy to
qualify as life insurance.
If, at any time, a premium is paid which would result in total premiums
exceeding the above maximum premium limitation, the Company will only accept
that portion of the premium which will make the total premiums equal to the
maximum. Any part of the premium in excess of that amount will be returned and
no further premiums will be accepted until allowed by the then current maximum
premium limitation.
PREMIUM ALLOCATION
Premiums may be allocated to either the Fixed Account for accumulation at a rate
of interest equal to at least 4% or to one or more of the Investment Accounts
for investment in the Portfolio shares held by the corresponding sub-account of
the Separate Account. Allocations among the Investment Accounts and the Fixed
Account are made as a percentage of the premium. The percentage allocation to
any account
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<PAGE> 27
may be any number between zero and 100, provided the total allocation equals
100. A policyowner may change the way in which premiums are allocated at any
time without charge. The change will take effect on the date a written request
for change satisfactory to the Company is received at the Service Office.
CHARGES AND DEDUCTIONS
AMOUNT DEDUCTED FROM PREMIUM
Manufacturers Life of America deducts an amount from each premium payment, equal
to 7.50% of the premium.
SURRENDER CHARGES
The Company will deduct a Surrender Charge if during the first 15 years
following the Policy Date, or the effective date of a Face Amount increase:
- - the Policy is surrendered for its Net Cash Surrender Value,
- - a partial withdrawal is made in excess of the Withdrawal Tier Amount (see
below for a description of this amount), or
- - the Policy lapses.
SURRENDER CHARGE CALCULATION
The Surrender Charge for the initial Face Amount or for the amount of any
increase in Face Amount is determined by the following formula (the calculation
is also described in words below):
Surrender Charge = (Surrender Charge Rate) X (Grading Percentage)
Surrender Charge Rate (the calculation is also described in words below)
Surrender Charge Rate = (Factor) X (Surrender Face
Amount / 1000) + (82.5%) X (Surrender Charge Premium)
DEFINITIONS OF THE FORMULA FACTORS ABOVE
Surrender Face Amount
If the Face Amount at the time of surrender is equal to or less than the initial
Face Amount, then the Surrender Face Amount is equal to the Face Amount at the
time of surrender. However, if the Face Amount has increased, then the surrender
charge is calculated separately on (a) the initial Face Amount and (b) on the
amount of Face Amount above the initial Face Amount. In the case of (a), the
Surrender Face Amount is equal to the initial Face Amount and in the case of (b)
the Surrender Face Amount is equal to the Face Amount above the initial Face
Amount.
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<PAGE> 28
The Factor is set forth in the following chart:
<TABLE>
<CAPTION>
ISSUE AGE FACTOR
- ------------------------------------------------------------------
<S> <C>
38 or younger............................................. 3.75
39........................................................ 4.25
40........................................................ 4.75
41........................................................ 5.25
42........................................................ 5.75
43........................................................ 6.25
44........................................................ 6.75
45........................................................ 7.25
46........................................................ 7.75
47........................................................ 8.25
48 or older............................................... 8.50
</TABLE>
The Surrender Charge Premium is the lesser of:
(a) the premiums paid during the first policy year;
(b) the premium amount used to measure the maximum Surrender Charge under the
Policy;
(c) the net level annual premium ("Net Level Premium") required to provide level
insurance to attained age 100 of the younger insured based on guaranteed
maximum mortality charges and an interest rate of 4%; and
(d) $60 per $1000 of Face Amount.
Grading Percentage
The grading percentage is based on the issue age of the youngest insured and the
Policy Year in which the transaction causing the assessment of the charge occurs
as set forth in the table below:
<TABLE>
<CAPTION>
SURRENDER CHARGE GRADING PERCENTAGE
--------------------------------------------
ISSUE AGES OF YOUNGER INSURED 0-75 76 77 78 79 80+
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Policy Year 1.............................. 93% 92% 92% 91% 90% 90%
Policy Year 2.............................. 86% 85% 84% 83% 81% 80%
Policy Year 3.............................. 80% 78% 76% 75% 72% 70%
Policy Year 4.............................. 73% 71% 69% 66% 63% 60%
Policy Year 5.............................. 66% 64% 61% 58% 54% 50%
Policy Year 6.............................. 60% 57% 53% 50% 45% 40%
Policy Year 7.............................. 53% 50% 46% 41% 36% 30%
Policy Year 8.............................. 46% 42% 38% 33% 27% 20%
Policy Year 9.............................. 40% 35% 30% 25% 18% 10%
Policy Year 10............................. 33% 28% 23% 16% 9% 0%
Policy Year 11............................. 26% 21% 15% 8% 0%
Policy Year 12............................. 20% 14% 7% 0%
Policy Year 13............................. 13% 7% 0%
Policy Year 14............................. 6% 0%
Policy Year 15............................. 0%
</TABLE>
Formulas Described in Words
Surrender Charge
The Surrender Charge is determined by multiplying the Surrender Charge Rate by
the Grading Percentage, a percent which starts at 100% and grades down each
policy year to zero over a period not to exceed 15 years.
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<PAGE> 29
Surrender Charge Rate
The Surrender Charge Rate is equal to the sum of (a) plus (b) where (a) equals
the Factor multiplied by the Surrender Face Amount divided by 1000 and (b)
equals 82.5% times the Surrender Charge Premium.
Illustration of Surrender Charge Calculation
Assumptions
- - 50 year old male and 40 year old female (standard risks and nonsmoker status)
- - Policy issued 7 years ago
- - $904 in premiums have been paid on the Policy in equal annual installments
over the 7 year period
- - the premium amount used to measure the maximum Surrender Charge under the
Policy is $2,188
- - Net Level Premium for the Policy is $2,541
- - Face Amount of the Policy is $250,000
- - Policy is surrendered during the last month of the seventh policy year
Surrender Charge
The Surrender Charge to be assessed would be $1,025, determined as follows:
First, the Surrender Charge Rate is determined by applying the Surrender Charge
Rate formula as set forth below.
Surrender Charge Rate = (Factor) X (Surrender Face
Amount / 1000) + (82.5%) X (Surrender Charge Premium)
1933.30 = (4.75) X ($250,000 / 1000) + (82.5%) X (904)
The Surrender Charge Rate is equal to 1933.30.
Second, the Surrender Charge Rate is entered into the Surrender Charge formula
and the Surrender Charge is determined as set forth below.
Surrender Charge = (Surrender Charge Rate) X (Grading Percentage)
$1,025 = (1933.30) X (53%)
The Surrender Charge is equal to $1,025.
The following calculation illustrates the maximum Surrender Charge that would be
payable on a Policy under the assumptions set forth below.
Illustration of Maximum Surrender Charge Calculation
Assumptions
- - 50 year old male and 40 year old female (standard risks and nonsmoker status)
- - Policy issued 7 years ago
- - $2,188 in premiums have been paid on the Policy in equal annual installments
over the 7 year period
- - the premium amount used to measure the maximum Surrender Charge under the
Policy is $2,188
- - Net Level Premium for the Policy is $2,541
- - Face Amount of the Policy is $250,000
- - Policy is surrendered during the last month of the seventh policy year
Maximum Surrender Charge
The maximum Surrender Charge to be assessed would be $1,586, determined as
follows:
First, the Surrender Charge Rate is determined by applying the Surrender Charge
Rate formula as set forth below.
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<PAGE> 30
Surrender Charge Rate = (Factor) X (Surrender Face
Amount / 1000) + (82.5%) X (Surrender Charge Premium)
2,992.60 = (4.75) X ($250,000 / 1000) + (82.5%) X (2,188)
The Surrender Charge Rate is equal to 2,992.60.
Second, the Surrender Charge Rate is entered into the Surrender Charge formula
and the Surrender Charge is determined as set forth below.
Surrender Charge = (Surrender Charge Rate) X (Grading Percentage)
$1,586 = (2992.60) X (53%)
The maximum Surrender Charge payable on the Policy is equal to $1,586.
Depending upon the Face Amount of the Policy, the age of the youngest insured at
issue, premiums paid under the Policy and the performance of the underlying
investment options, the Policy may have no Cash Surrender Value and therefore,
the policyowner may receive no surrender proceeds upon surrendering the Policy.
Manufacturers Life of America may reduce the surrender charge as described above
on policies where the anticipated annual premium is $100,000 or greater and the
Policy is issued as part of an employer sponsored split dollar or keyman
arrangement; 80% of the Surrender Charge will be waived during the first year of
the Policy, 60% during the second year and 40% during the third year. The full
Surrender Charge will be imposed if the surrender takes place in a fourth or
subsequent Policy Year.
SURRENDER CHARGES ON A PARTIAL WITHDRAWAL
A partial withdrawal will result in the assessment of a portion of the Surrender
Charges to which the Policy is subject. The portion of the Surrender Charges
assessed will be based on the ratio of the amount of the withdrawal which
exceeds the Withdrawal Tier Amount to the Net Cash Surrender Value of the Policy
as at the date of the withdrawal. The Surrender Charges will be deducted from
the Policy Value at the time of the partial withdrawal on a pro-rata basis from
each of the Investment Accounts and the Fixed Account. If the amount in the
accounts is not sufficient to pay the Surrender Charges assessed, then the
amount of the withdrawal will be reduced.
Whenever a portion of the surrender charges is deducted as a result of a partial
withdrawal, the Policy's remaining surrender charges will be reduced in the same
proportion that the surrender charge deducted bears to the total surrender
charge immediately before the partial withdrawal.
WITHDRAWAL TIER AMOUNT
The Withdrawal Tier Amount is equal to 10% of the Net Cash Surrender Value as at
the last Policy Anniversary. In determining what, if any, portion of a partial
withdrawal is in excess of the Withdrawal Tier Amount, all previous partial
withdrawals that have occurred in the current Policy Year are included.
MONTHLY CHARGES
On the Policy Date and at the beginning of each Policy Month, a deduction is due
from the Net Policy Value to cover certain charges in connection with the Policy
until the youngest of the Lives Insured reaches Attained Age 100, or the date
such person would have reached Attained Age 100, if living. If there is a Policy
Debt under the Policy, loan interest and principal will continue to be payable
at the beginning of each Policy Month. Monthly deductions due prior to the
Effective Date will be taken on the Effective Date instead of the dates they
were due. The charges consist of:
(i) a monthly administration charge;
(ii) a monthly charge for the cost of insurance;
(iii) a monthly mortality and expense risk charge;
(iv) a monthly charge for any supplementary benefits added to the Policy.
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<PAGE> 31
Unless otherwise allowed by the Company and specified by the policyowner, the
Monthly Deduction will be allocated among the Investment Accounts and the Fixed
Account in the same proportion as the Policy value in each bears to the Net
Policy Value.
ADMINISTRATION CHARGE
This charge will be equal to $30 plus $0.08 per $1,000 of current face amount
per Policy Month in the first Policy Year. For all subsequent Policy Years, the
administration charge will not exceed $15 plus $0.02 per $1,000 of current face
amount per Policy Month. The charge is designed to cover certain administrative
expenses associated with the Policy, including maintaining policy records,
collecting premiums and processing death claims, surrender and withdrawal
requests and various changes permitted under the Policy.
COST OF INSURANCE CHARGE
The monthly charge for the cost of insurance is determined by multiplying the
applicable cost of insurance rate times the net amount at risk at the beginning
of each Policy Month. The cost of insurance rate and the net amount at risk are
determined separately for the initial Face Amount and for each increase in Face
Amount. In determining the net amount at risk, if there have been increases in
the Face Amount, the Policy Value shall first be considered a part of the
initial Face Amount. If the Policy Value exceeds the initial Face Amount, it
shall then be considered a part of the additional increases in Face Amount
resulting from the increases, in the order the increases occurred.
The net amount at risk is equal to the greater of zero, or the result of (a)
minus (b) where:
(a) is the death benefit as of the first day of the Policy Month, divided by
1.0032737; and
(b) is the Policy Value as of the first day of the Policy Month prior to
deduction of monthly cost of insurance.
The rates for the cost of insurance are blended and based upon the Attained Age,
sex, and Risk Classification of the Lives Insured.
Cost of insurance rates will generally increase with the age of each of the
Lives Insured. The first year cost of insurance rate is guaranteed.
The cost of insurance rates reflect the Company's expectations as to future
mortality experience. The rates may be re-determined from time to time on a
basis which does not unfairly discriminate within the class of Lives Insured. In
no event will the cost of insurance rates exceed the guaranteed rates set forth
in the Policy except to the extent that an extra charge is imposed because of an
additional rating applicable to the Lives Insured. After the first Policy Year,
the cost of insurance will generally increase on each Policy Anniversary. The
guaranteed rates are based on the 1980 Commissioners Standard Ordinary
Smoker/Non-Smoker Mortality Tables.
CHARGES FOR SUPPLEMENTARY BENEFITS
If the Policy includes Supplementary Benefits, a charge will be made applicable
to such Supplementary Benefit.
MORTALITY AND EXPENSE RISK CHARGE
A monthly charge is assessed against the Policy Value equal to a percentage of
the Policy Value. This charge is to compensate the Company for the mortality and
expense risks it assumes under the Policy. The mortality risk assumed is that
Lives Insured may live for a shorter period of time than the Company estimated.
The expense risk assumed is that expenses incurred in issuing and administering
the Policy will be greater than the Company estimated. The Company will realize
a gain from this charge to the extent it is not needed to provide benefits and
pay expenses under the Policy.
26
<PAGE> 32
The charge varies by Policy Year as follows:
<TABLE>
<CAPTION>
CURRENT AND
GUARANTEED
MONTHLY MORTALITY EQUIVALENT ANNUAL
AND EXPENSE MORTALITY AND
POLICY YEAR RISKS CHARGE RISKS CHARGE
- -------------------------------------------------------------------------------
<S> <C> <C>
1-20.............................. 0.063% 0.75%
21+............................... 0.033% 0.40%
</TABLE>
CHARGES FOR TRANSFERS
A charge of $25 will be imposed on each transfer in excess of twelve in a Policy
Year, other than transfers made pursuant to the Dollar Cost Averaging or Asset
Allocation Balancer programs.
REDUCTION IN CHARGES
The Policy is available for purchase by corporations and other groups or
sponsoring organizations. Group or sponsored arrangements may include reduction
or elimination of withdrawal charges and deductions for employees, officers,
directors, agents, immediate family members of the foregoing, and employees or
agents of Manufacturers Life and its subsidiaries. Manufacturers Life of America
reserves the right to reduce any of the Policy's loads or charges on certain
cases where it is expected that the amount or nature of such cases will result
in savings of sales, underwriting, administrative, commissions or other costs.
Eligibility for these reductions and the amount of reductions will be determined
by a number of factors, including the number of lives to be insured, the total
premiums expected to be paid, total assets under management for the policyowner,
the nature of the relationship among the insured individuals, the purpose for
which the policies are being purchased, expected persistency of the individual
policies, and any other circumstances which Manufacturers Life of America
believes to be relevant to the expected reduction of its expenses.
Some of these reductions may be guaranteed and others may be subject to
withdrawal or modification, on a uniform case basis. Reductions in charges will
not be unfairly discriminatory to any policyowners. Manufacturers Life of
America may modify from time to time, on a uniform basis, both the amounts of
reductions and the criteria for qualification.
In addition, groups and persons purchasing under a sponsored arrangement may
apply for simplified underwriting. If simplified underwriting is granted, the
cost of insurance charge may increase as a result of higher anticipated
mortality experience.
SPECIAL PROVISIONS FOR EXCHANGES
The Company will permit owners of certain fixed life insurance policies issued
either by the Company or Manufacturers Life Insurance Company (U.S.A.) to
exchange their policies for the Policies described in this prospectus (and
likewise, owners of policies described in this Prospectus may also exchange
their Policies for certain fixed policies issued either by the Company or by
Manufacturers Life Insurance Company (U.S.A)). Policyowners considering an
exchange should consult their tax advisers as to the tax consequences of an
exchange.
COMPANY TAX CONSIDERATIONS
At the present time, the Company makes no charge to the Separate Account for any
federal, state, or local taxes that the Company incurs that may be attributable
to such Account or to the Policies. The Company, however, reserves the right in
the future to make a charge for any such tax or other economic burden resulting
from the application of the tax laws that it determines to be properly
attributable to the Separate Account or to the Policies.
27
<PAGE> 33
POLICY VALUE
DETERMINATION OF THE POLICY VALUE
A Policy has a Policy Value, a portion of which is available to the policyowner
by making a policy loan or partial withdrawal, or upon surrender of the Policy.
The Policy Value may also affect the amount of the death benefit. The Policy
Value at any time is equal to the sum of the values in the Investment Accounts,
the Fixed Account, and the Loan Account.
INVESTMENT ACCOUNTS
An Investment Account is established under each Policy for each sub-account of
the Separate Account to which net premiums or transfer amounts have been
allocated. Each Investment Account under a Policy measures the interest of the
Policy in the corresponding sub-account. The value of the Investment Account
established for a particular sub-account is equal to the number of units of that
sub-account credited to the Policy times the value of such units.
FIXED ACCOUNT
Amounts in the Fixed Account do not vary with the investment performance of any
sub-account. Instead, these amounts are credited with interest at a rate
determined by Manufacturers Life of America. For a detailed description of the
Fixed Account, see "The General Account -- Fixed Account".
LOAN ACCOUNT
Amounts borrowed from the Policy are transferred to the Loan Account. Amounts in
the Loan Account do not vary with the investment performance of any sub-account.
Instead, these amounts are credited with interest at a rate which is equal to
the amount charged on the outstanding Policy Debt less the Loan Spread. For a
detailed description of the Loan Account, see "Policy Loans -- Loan Account".
UNITS AND UNIT VALUES
CREDITING AND CANCELING UNITS
Units of a particular sub-account are credited to a Policy when net premiums are
allocated to that sub-account or amounts are transferred to that sub-account.
Units of a sub-account are canceled whenever amounts are deducted, transferred
or withdrawn from the sub-account. The number of units credited or canceled for
a specific transaction is based on the dollar amount of the transaction divided
by the value of the unit on the Business Day on which the transaction occurs.
The number of units credited with respect to a premium payment will be based on
the applicable unit values for the Business Day on which the premium is received
at the Service Office, except for any premiums received before the Effective
Date. For premiums received before the Effective Date, the values will be
determined on the Effective Date.
Units are valued at the end of each Business Day. When an order involving the
crediting or canceling of units is received after the end of a Business Day, or
on a day which is not a Business Day, the order will be processed on the basis
of unit values determined on the next Business Day. Similarly, any determination
of Policy Value, Investment Account value or death benefit to be made on a day
which is not a Business Day will be made on the next Business Day.
UNIT VALUES
The value of a unit of each sub-account was initially fixed at $10.00. For each
subsequent Business Day the unit value for that sub-account is determined by
multiplying the unit value for the immediately preceding Business Day by the net
investment factor for the that sub-account on such subsequent Business Day.
28
<PAGE> 34
The net investment factor for a sub-account on any Business Day is equal to (a)
divided by (b) where:
(a) is the net asset value of the underlying Portfolio shares held by that
sub-account as of the end of such Business Day before any policy
transactions are made on that day; and
(b) is the net asset value of the underlying Portfolio shares held by that
sub-account as of the end of the immediately preceding Business Day after
all policy transactions were made for that day;
The value of a unit may increase, decrease, or remain the same, depending on the
investment performance of a sub-account from one Business Day to the next.
TRANSFERS OF POLICY VALUE
At any time, a policyowner may transfer Policy Value from one sub-account to
another or to the Fixed Account. Transfer requests must be in writing in a
format satisfactory to the Company, or by telephone if a currently valid
telephone transfer authorization form is on file.
The Company reserves the right to impose limitations on transfers, including the
maximum amount that may be transferred. In addition, transfer privileges are
subject to any restrictions that may be imposed by the Trust.
While the Policy is in force, the policyowner may transfer the Policy Value from
any of the Investment Accounts to the Fixed Account without incurring transfer
charges:
(a) within eighteen months after the Issue Date; or
(b) within 60 days of the effective date of a material change in the investment
objectives of any of the sub-accounts or within 60 days of the date of
notification of such change, whichever is later.
TRANSFER CHARGES
A policyowner may make up to twelve transfers each Policy Year free of charge.
Additional transfers in each Policy Year may be made at a cost of $25 per
transfer. This charge will be deducted from the Investment Account or the Fixed
Account to which the transfer is being made. All transfer requests received by
the Company on the same Business Day are treated as a single transfer request.
Transfers under the Dollar Cost Averaging and Asset Allocation Balancer programs
do not count against the number of free transfers permitted per Policy Year.
TRANSFERS INVOLVING FIXED ACCOUNT
The maximum amount that may be transferred from the Fixed Account in any one
Policy Year is the greater of $500 or 15% of the Fixed Account Value at the
previous Policy Anniversary. Any transfer which involves a transfer out of the
Fixed Account may not involve a transfer to the Investment Account for the Money
Market Trust.
TELEPHONE TRANSFERS
Although failure to follow reasonable procedures may result in the Company being
liable for any losses resulting from unauthorized or fraudulent telephone
transfers, Manufacturers Life of America will not be liable for following
instructions communicated by telephone that the Company reasonably believes to
be genuine. The Company will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Such procedures shall
consist of confirming that a valid telephone authorization form is on file, tape
recording of all telephone transactions and providing written confirmation
thereof.
DOLLAR COST AVERAGING
The Company will offer policyowners a Dollar Cost Averaging program. Under the
Dollar Cost Averaging program the policyowner will designate an amount which
will be transferred at predetermined intervals
29
<PAGE> 35
from one Investment Account into any other Investment Account(s) or the Fixed
Account. Currently, no charge will be made for this program. If insufficient
funds exist to effect a Dollar Cost Averaging transfer, the transfer will not be
effected and the policyowner will be so notified.
The Company reserves the right to cease to offer this program as of 90 days
after written notice is sent to the policyowner.
ASSET ALLOCATION BALANCER TRANSFERS
Under the Asset Allocation Balancer program the policyowner will designate an
allocation of Policy Value among Investment Accounts. At six-month intervals
beginning six months after the Policy Date, the Company will move amounts among
the Investment Accounts as necessary to maintain the policyowner's chosen
allocation. A change to the policyowner premium allocation instructions will
automatically result in a change in Asset Allocation Balancer instructions so
that the two are identical unless the policyowner either instructs Manufacturers
of America otherwise or has elected the Dollar Cost Averaging program.
Currently, there is no charge for this program; however, the Company reserves
the right to institute a charge on 90 days' written notice to the policyowner.
The Company reserves the right to cease to offer this program as of 90 days
after written notice is sent to the policyowner.
POLICY LOANS
At any time while this Policy is in force, a policyowner may borrow against the
Policy Value of the Policy. The amount of any loan cannot exceed 90% of the
Policy's Net Cash Surrender Value. The Policy serves as the only security for
the loan. Policy loans may have tax consequences, see "Tax Treatment of Policy
Benefits -- Policy Loan Interest."
LOAN VALUE
The Loan Value is equal to the Policy's Net Cash Surrender Value less the
monthly deductions due to the next Policy Anniversary.
EFFECT OF POLICY LOAN
A policy loan will have an effect on future Policy Values, since that portion of
the Policy Value in the Loan Account will increase in value at the crediting
interest rate rather than varying with the performance of the underlying
Portfolios or increasing in value at the rate of interest credited for amounts
allocated to the Fixed Account. A policy loan may cause a Policy to be more
susceptible to going into default since a policy loan will be reflected in the
Net Cash Surrender Value. See "Lapse and Reinstatement." In addition, a policy
loan may result in a Policy's failing to satisfy the No-Lapse Guarantee
Cumulative Premium Test since the Policy Debt is subtracted from the sum of the
premiums paid in determining whether this test is satisfied. Finally, a policy
loan will affect the amount payable on the death of the last-to-die of the Lives
Insured, since the death benefit is reduced by the Policy Debt at the date of
death in arriving at the insurance benefit.
INTEREST CHARGED ON POLICY LOANS
Interest on the Policy Debt will accrue daily and be payable annually on the
Policy Anniversary. The rate of interest charged will be an effective annual
rate of 5.25%. If the interest due on a Policy Anniversary is not paid by the
policyowner, the interest will be borrowed against the Policy.
The Policy will go into default at any time the Policy Debt exceeds the Policy
Value. At least 61 days prior to termination, the Company will send the
policyowner a notice of the pending termination. Payment of interest on the
Policy Debt during the 61 day grace period will bring the policy out of default.
30
<PAGE> 36
LOAN ACCOUNT
When a loan is made, an amount equal to the loan, discounted by 4%, will be
deducted from the Investment Accounts or the Fixed Account and transferred to
the Loan Account. The policyowner may designate how the amount to be transferred
to the Loan Account is allocated among the accounts from which the transfer is
to be made. In the absence of instructions, the amount to be transferred will be
allocated to each account in the same proportion as the value in each Investment
Account and the Fixed Account bears to the Net Policy Value. A transfer from an
Investment Account will result in the cancellation of units of the underlying
sub-account equal in value to the amount transferred from the Investment
Account. However, since the Loan Account is part of the Policy Value, transfers
made in connection with a loan will not change the Policy Value.
INTEREST CREDITED TO THE LOAN ACCOUNT
Interest will be credited to amounts in the Loan Account at an effective annual
rate of at least 4.00%. The actual rate credited is equal to the rate of
interest charged on the policy loan less the Loan Interest Credited
Differential, which is currently 1.25% and is guaranteed not to exceed this
amount.
LOAN REPAYMENTS
Policy Debt may be repaid in whole or in part at any time prior to the death of
the last-to-die of the Lives Insured, provided that the Policy is in force. When
a repayment is made, the amount is credited to the Loan Account and transferred
to the Fixed Account or the Investment Accounts. Loan repayments will be
allocated first to the Fixed Account until the associated Loan sub-account is
reduced to zero and then to each Investment Account in the same proportion as
the value in the corresponding Loan Sub-Account bears to the value of the Loan
Account.
Amounts paid to the Company not specifically designated in writing as loan
repayments will be treated as premiums.
POLICY SURRENDER AND PARTIAL WITHDRAWALS
POLICY SURRENDER
A Policy may be surrendered for its Net Cash Surrender Value at any time while
the Life Insured is living. The Net Cash Surrender Value is equal to the Policy
Value less any surrender charges and outstanding monthly deductions due (the
"Cash Surrender Value") minus the Policy Debt. If there have been any prior Face
Amount increases, the Surrender Charge will be the sum of the Surrender Charge
for the Initial Face Amount plus the Surrender Charge for each increase. The Net
Cash Surrender Value will be determined as of the end of the Business Day on
which Manufacturers Life of America receives the Policy and a written request
for surrender at its Service Office. After a Policy is surrendered, the
insurance coverage and all other benefits under the Policy will terminate.
PARTIAL WITHDRAWALS
A policyowner may make a partial withdrawal of the Net Cash Surrender Value once
each Policy Month after the first Policy Anniversary. The policyowner may
specify the portion of the withdrawal to be taken from each Investment Account
and the Fixed Account. In the absence of instructions, the withdrawal will be
allocated among such accounts in the same proportion as the Policy Value in each
account bears to the Net Policy Value. For information on Surrender Charges on a
Partial Withdrawal see "Charges and Deductions -- Surrender Charges."
REDUCTION IN FACE AMOUNT DUE TO A PARTIAL WITHDRAWAL
If Death Benefit Option 1 is in effect when a partial withdrawal is made, the
Face Amount of the Policy will be reduced by the amount of the withdrawal plus
any applicable Surrender Charges.
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<PAGE> 37
If the death benefit is based upon the Policy Value times the minimum death
benefit percentage set forth under "Death Benefit Minimum Death Benefit," the
Face Amount will be reduced only to the extent that the amount of the withdrawal
plus the portion of the Surrender Charge assessed exceeds the difference between
the death benefit and the Face Amount. When the Face Amount of a Policy is based
on one or more increases subsequent to issuance of the Policy, a reduction
resulting from a partial withdrawal will be applied in the same manner as a
requested decrease in Face Amount, i.e., against the Face Amount provided by the
most recent increase, then against the next most recent increases successively
and finally against the initial Face Amount.
LAPSE AND REINSTATEMENT
LAPSE
Unless the No-Lapse Guarantee is in effect, a Policy will go into default if at
the beginning of any Policy Month the Policy's Net Cash Surrender Value would be
zero or below after deducting the monthly deduction then due. Therefore, a
Policy could lapse eventually if increases in Policy Value (prior to deduction
of Policy charges) are not sufficient to cover Policy charges. A lapse could
have adverse tax consequences as described under "Tax Treatment of the
Policy -- Tax Treatment of Policy Benefits -- Surrender or Lapse." Manufacturers
Life of America will notify the policyowner of the default and will allow a 61
day grace period in which the policyowner may make a premium payment sufficient
to bring the Policy out of default. The required payment will be equal to the
amount necessary to bring the Net Cash Surrender Value to zero, if it was less
than zero on the date of default, plus the monthly deductions due at the date of
default and payable at the beginning of each of the two Policy Months
thereafter, plus any applicable premium load. If the required payment is not
received by the end of the grace period, the Policy will terminate with no
value.
NO-LAPSE GUARANTEE
In those states where it is permitted, as long as the No-Lapse Guarantee
Cumulative Premium Test is satisfied during the No-Lapse Guarantee Period, as
described below, the Company will guarantee that the Policy will not go into
default, even if adverse investment experience or other factors should cause the
Policy's Net Cash Surrender Value to be insufficient to meet the monthly
deductions due at the beginning of a Policy Month.
The Monthly No-Lapse Guarantee Premium is one-twelfth of the No-Lapse Guarantee
Premium.
The No-Lapse Guarantee Premium is set at issue and reflects any Additional
Rating and Supplementary Benefits, if applicable. It is subject to change if the
face amount of the Policy is changed, if there is a Death Benefit Option change,
or if there is any change in the supplementary benefits added to the Policy or
in the risk classification of any Lives Insured because of a change in smoking
status.
The No-Lapse Guarantee Period is fixed at ten years.
While the No-Lapse Guarantee is in effect, the Company will determine at the
beginning of the Policy Month that the Policy would otherwise be in default,
whether the No-Lapse Guarantee Cumulative Premium Test, described below, has
been met. If it has not been satisfied, the Company will notify the policyowner
of that fact and allow a 61-day grace period in which the policyowner may make a
premium payment sufficient to keep the policy from going into default. This
required payment, as described in the notification to the policyowner, will be
equal to the lesser of:
(a) the outstanding premium requirement to satisfy the No-Lapse Guarantee
Cumulative Premium Test at the date of default, plus the Monthly No-Lapse
Guarantee Premium due for the next two Policy Months, or
(b) the amount necessary to bring the Net Cash Surrender Value to zero plus the
monthly deductions due, plus the next two monthly deductions plus the
applicable premium load.
If the required payment is not received by the end of the grace period, the
No-Lapse Guarantee and the Policy will terminate.
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NO-LAPSE GUARANTEE CUMULATIVE PREMIUM TEST
The No-Lapse Guarantee Cumulative Premium Test is satisfied if, as of the
beginning of the Policy Month that the Policy would otherwise be in default, the
sum of all premiums paid to date less any gross withdrawals and less any policy
debt, is at least equal to the sum of the Monthly No-Lapse Guarantee Premiums
due from the Policy Date to the date of the test.
DEATH DURING GRACE PERIOD
If the Life Insured should die during the grace period, the Policy Value used in
the calculation of the death benefit will be the Policy Value as of the date of
default and the insurance benefit will be reduced by any outstanding Monthly
Deductions due at the time of death.
REINSTATEMENT
A policyowner can reinstate a Policy which has terminated after going into
default at any time within 21 days following the date of termination without
furnishing evidence of insurability, subject to the following conditions:
(a) All Lives Insured's risk classifications are standard or preferred, and
(b) All Lives Insured's Attained Ages are less than 46.
A policyowner can reinstate a Policy which has terminated after going into
default at any time within the five-year period following the date of
termination subject to the following conditions:
(a) Evidence of all Lives Insured's insurability, or on the survivor(s) who were
insured at the end of the grace period, satisfactory to the Company is
provided to the Company;
(b) A premium equal to the amount that was required to bring the Policy out of
default immediately prior to termination, plus the next two monthly
deductions;
(c) The Policy cannot be reinstated if any of the Lives Insured die after the
Policy has terminated.
If the reinstatement is approved, the date of reinstatement will be the later of
the date the Company approves the policyowner's request or the date the required
payment is received at the Company's Service Office. In addition, any surrender
charges will be reinstated to the amount they were at the date of default. The
Policy Value on the date of reinstatement, prior to the crediting of any Net
Premium paid on the reinstatement, will be equal to the Policy Value on the date
the Policy terminated.
THE GENERAL ACCOUNT
The general account of Manufacturers Life of America consists of all assets
owned by the Company other than those in the Separate Account and other separate
accounts of the Company. Subject to applicable law, Manufacturers Life of
America has sole discretion over the investment of the assets of the general
account.
By virtue of exclusionary provisions, interests in the general account of
Manufacturers Life of America have not been registered under the Securities Act
of 1933 and the general account has not been registered as an investment company
under the Investment Company Act of 1940. Accordingly, neither the general
account nor any interests therein are subject to the provisions of these acts,
and as a result the staff of the S.E.C. has not reviewed the disclosures in this
prospectus relating to the general account. Disclosures regarding the general
account may, however, be subject to certain generally applicable provisions of
the federal securities laws relating to the accuracy and completeness of
statements made in a prospectus.
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FIXED ACCOUNT
A policyowner may elect to allocate net premiums to the Fixed Account or to
transfer all or a portion of the Policy Value to the Fixed Account from the
Investment Accounts. Manufacturers Life of America will hold the reserves
required for any portion of the Policy Value allocated to the Fixed Account in
its general account. Transfers from the Fixed Account to the Investment Accounts
are subject to restrictions.
POLICY VALUE IN THE FIXED ACCOUNT
The Policy Value in the Fixed Account is equal to:
(a) the portion of the net premiums allocated to it; plus
(b) any amounts transferred to it; plus
(c) interest credited to it; less
(d) any charges deducted from it; less
(e) any partial withdrawals from it; less
(f) any amounts transferred from it.
INTEREST ON THE FIXED ACCOUNT
An allocation of Policy Value to the Fixed Account does not entitle the
policyowner to share in the investment experience of the general account.
Instead, Manufacturers Life of America guarantees that the Policy Value in the
Fixed Account will accrue interest daily at an effective annual rate of at least
4%, without regard to the actual investment experience of the general account.
Consequently, if a policyowner pays the planned premiums, allocates all net
premiums only to the general account and makes no transfers, partial
withdrawals, or policy loans, the minimum amount and duration of the death
benefit of the Policy will be determinable and guaranteed.
OTHER PROVISIONS OF THE POLICY
POLICYOWNER RIGHTS
Unless otherwise restricted by a separate agreement, the policyowner may:
- - Vary the premiums paid under the Policy.
- - Change the death benefit option.
- - Change the premium allocation for future premiums.
- - Transfer amounts between sub-accounts.
- - Take loans and/or partial withdrawals.
- - Surrender the contract.
- - Transfer ownership to a new owner.
- - Name a contingent owner that will automatically become owner if the
policyowner dies before the insured.
- - Change or revoke a contingent owner.
- - Change or revoke a beneficiary.
ASSIGNMENT OF RIGHTS
Manufacturers Life of America will not be bound by an assignment until it
receives a copy of the assignment at its Service Office. Manufacturers Life of
America assumes no responsibility for the validity or effects of any assignment.
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BENEFICIARY
One or more beneficiaries of the Policy may be appointed by the policyowner by
naming them in the application. Beneficiaries may be appointed in three classes
- -- primary, secondary, and final. Beneficiaries may also be revocable or
irrevocable. Unless an irrevocable designation has been elected, the beneficiary
may be changed by the policyowner during the Lives Insured lifetime by giving
written notice to Manufacturers Life of America in a form satisfactory to the
Company. The change will take effect as of the date such notice is signed. If
the Life Insured dies and there is no surviving beneficiary, the policyowner, or
the policyowner's estate if the policyowner is the Life Insured, will be the
beneficiary. If a beneficiary dies before the seventh day after the death of the
Life Insured, the Company will pay the insurance benefit as if the beneficiary
had died before the Life Insured.
INCONTESTABILITY
Manufacturers Life of America will not contest the validity of a Policy after it
has been in force during any Lives Insured's lifetime for two years from the
Issue Date. It will not contest the validity of an increase in Face Amount,
after such increase or addition has been in force during the lifetime of the
Lives Insured for two years. If a Policy has been reinstated and been in force
during the lifetime of the Lives Insured for less than two years from the
reinstatement date, the Company can contest any misrepresentation of a fact
material to the reinstatement.
MISSTATEMENT OF AGE OR SEX
If the stated age or sex or both of any of the Lives Insured in the Policy are
incorrect, Manufacturers Life of America will change the Face Amount so that the
death benefit will be that which the most recent monthly charge for the cost of
insurance would have purchased for the correct age and sex.
SUICIDE EXCLUSION
If any of the Lives Insured dies by suicide within two years after the Issue
Date, the Policy will terminate and the Company will pay only the premiums paid
less any partial Net Cash Surrender Value withdrawal and less any Policy Debt.
If any of the Lives Insured dies by suicide within two years after the effective
date of an applied for increase in Face Amount, the Company will credit the
amount of any Monthly Deductions taken for the increase and reduce the Face
Amount to what it was prior to the increase. If the last death is by suicide,
the Death Benefit for that increase will be limited to the Monthly Deductions
taken for the increase.
The Company reserves the right to obtain evidence of the manner and cause of
death of the Lives Insured.
SUPPLEMENTARY BENEFITS
Subject to certain requirements, one or more supplementary benefits may be added
to a Policy, including the Estate Preservation Rider which provides additional
term insurance at no extra charge during the first four Policy Years to protect
against application of the "three year contemplation of death" rule and an
option to split the Policy into two individual policies upon divorce, or certain
federal tax law changes without evidence of insurability (the "Policy Split
Option"). More detailed information concerning these supplementary benefits may
be obtained from an authorized agent of the Company. The cost of any
supplementary benefits will be deducted as part of the monthly deduction.
TAX TREATMENT OF THE POLICY
The following summary provides a general description of the federal income tax
considerations associated with the Policy and does not purport to be complete or
to cover all situations. This discussion is not intended as tax advice. Counsel
or other competent tax advisers should be consulted for more complete
information. This discussion is based upon the Company's understanding of the
present
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federal income tax laws as they are currently interpreted by the Internal
Revenue Service (the "Service"). No representation is made as to the likelihood
of continuation of the present federal income tax laws nor of the current
interpretations by the Service. MANUFACTURERS LIFE OF AMERICA DOES NOT MAKE ANY
GUARANTEE REGARDING THE TAX STATUS OF ANY POLICY OR ANY TRANSACTION REGARDING
THE POLICIES.
The Policies may be used in various arrangements, including non-qualified
deferred compensation or salary continuation plans, split dollar insurance
plans, executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if the use of such
Policies in any such arrangement, the value of which depends in part on the tax
consequences, is contemplated, a qualified tax adviser should be consulted for
advice on the tax attributes of the particular arrangement.
LIFE INSURANCE QUALIFICATION
There are several requirements that must be met for a Policy to be considered a
Life Insurance Contract under the Internal Revenue Code, and thereby to enjoy
the tax benefits of such a contract:
1. The Policy must satisfy the definition of life insurance under Section 7702
of the Internal Revenue Code of 1986 (the "Code").
2. The investments of the Separate Account must be "adequately diversified" in
accordance with Section 817(h) of the Code and Treasury Regulations.
3. The Policy must be a valid life insurance contract under applicable state
law.
4. The Policyowner must not possess "incidents of ownership" in the assets of
the Separate Account.
These four items are discussed in detail below.
DEFINITION OF LIFE INSURANCE
Section 7702 of the Code sets forth a definition of a life insurance contract
for federal tax purposes. For a Policy to be a life insurance contract, it must
satisfy either the cash value accumulation test or the guideline premium test.
The cash value accumulation test requires a minimum death benefit for a given
Policy Value. The guideline premium test also requires a minimum death benefit,
but in addition limits the total premiums that can be paid into a Policy for a
given amount of death benefit.
With respect to a Policy which is issued on the basis of a standard rate class,
the Company believes (largely in reliance on IRS Notice 88-128 and the proposed
mortality charge regulations under Section 7702, issued on July 5, 1991) that
such a Policy should meet the Section 7702 definition of a life insurance
contract.
With respect to a Policy that is issued on a substandard basis (i.e., a rate
class involving higher-than-standard mortality risk), there is less guidance, in
particular as to how mortality and other expense requirements of Section 7702
are to be applied in determining whether such a Policy meets the Section 7702
definition of a life insurance contract. Thus it is not clear whether or not
such a Policy would satisfy Section 7702, particularly if the policyowner pays
the full amount of premiums permitted under the Policy.
The Secretary of the Treasury (the "Treasury") is authorized to prescribe
regulations implementing Section 7702. However, while proposed regulations and
other interim guidance have been issued, final regulations have not been adopted
and guidance as to how Section 7702 is to be applied is limited. If a Policy
were determined not to be a life insurance contract for purposes of Section
7702, such a Policy would not provide the tax advantages normally provided by a
life insurance policy.
If it is subsequently determined that a Policy does not satisfy Section 7702,
the Company may take whatever steps are appropriate and reasonable to attempt to
cause such a Policy to comply with Section 7702. For these reasons, the Company
reserves the right to restrict Policy transactions as necessary to attempt to
qualify it as a life insurance contract under Section 7702.
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DIVERSIFICATION
Section 817(h) of the Code requires that the investments of the Separate Account
be "adequately diversified" in accordance with Treasury regulations in order for
the Policy to qualify as a life insurance contract under Section 7702 of the
Code (discussed above). The Separate Account, through the Trust, intends to
comply with the diversification requirements prescribed in Treas. Reg. Sec.
1.817-5, which affect how the Trust's assets are to be invested. The Company
believes that the Separate Account will thus meet the diversification
requirement, and the Company will monitor continued compliance with the
requirement.
STATE LAW
State regulations require that the policyowner have appropriate insurable
interest in the Life Insured. Failure to establish an insurable interest may
result in the Policy not qualifying as a life insurance contract for federal tax
purposes.
INVESTOR CONTROL
In certain circumstances, owners of variable life insurance Policies may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their policies. In those circumstances, income
and gains from the separate account assets would be includible in the variable
policyowner's gross income. The IRS has stated in published rulings that a
variable policyowner will be considered the owner of separate account assets if
the policyowner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. The Treasury Department
has also announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the policyowner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyowners may direct their
investments to particular sub-accounts without being treated as owners of the
underlying assets". As of the date of this prospectus, no such guidance has been
issued.
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that policyowners were not owners of separate account assets. For example, the
policyowner has additional flexibility in allocating premium payments and Policy
Values. These differences could result in an owner being treated as the owner of
a pro-rata portion of the assets of the Separate Account. In addition, the
Company does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has stated it expects to
issue. The Company therefore reserves the right to modify the Policy as
necessary to attempt to prevent an owner from being considered the owner of a
pro rata share of the assets of the Separate Account.
TAX TREATMENT OF POLICY BENEFITS
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes. The Company believes that
the proceeds and cash value increases of a Policy should be treated in a manner
consistent with a fixed-benefit life insurance policy for federal income tax
purposes.
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's death benefit option, a Policy loan, partial withdrawal, surrender,
change in ownership, the addition of an accelerated death benefit rider, or an
assignment of the Policy may have federal income tax consequences. In addition,
federal, state and local transfer, and other tax consequences of ownership or
receipt of Policy proceeds depend on the circumstances of each policyowner or
beneficiary.
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DEATH BENEFIT
The death benefit under the Policy should be excludible from the gross income of
the beneficiary under Section 101(a)(1) of the Code.
CASH VALUES
Generally, the policyowner will not be deemed to be in constructive receipt of
the Policy Value until there is a distribution. This includes additions
attributable to interest, dividends, appreciation or gains realized on transfers
among sub-accounts.
INVESTMENT IN THE POLICY
Investment in the Policy means:
(a) the aggregate amount of any premiums or other consideration paid for a
Policy; minus
(b) the aggregate amount, other than loan amounts, received under the Policy
which has been excluded from the gross income of the policyowner (except
that the amount of any loan from, or secured by, a Policy that is a MEC, to
the extent such amount has been excluded from gross income, will be
disregarded); plus
(c) the amount of any loan from, or secured by a Policy that is a MEC to the
extent that such amount has been included in the gross income of the
policyowner.
The repayment of a policy loan, or the payment of interest on a loan, does not
affect the Investment in the Policy.
SURRENDER OR LAPSE
Upon a complete surrender or lapse of a Policy, if the amount received plus the
amount of Policy Debt exceeds the total investment in the Policy, the excess
will generally be treated as ordinary income subject to tax.
If, at the time of lapse, a Policy has a loan, the loan is extinguished and the
amount of the loan is a deemed payment to the policyholder. If the amount of
this deemed payment exceeds the investment in the contract, the excess is
taxable income and is subject to Internal Revenue Service reporting
requirements."
DISTRIBUTIONS
The tax consequences of distributions from, and loans taken from or secured by,
a Policy depend on whether the Policy is classified as a "Modified Endowment
Contract" or "MEC".
DISTRIBUTIONS FROM NON-MEC'S
A distribution from a non-MEC is generally treated as a tax-free recovery by the
policyowner of the Investment in the Policy to the extent of such Investment in
the Policy, and as a distribution of taxable income only to the extent the
distribution exceeds the Investment in the Policy. Loans from, or secured by, a
non-MEC are not treated as distributions. Instead, such loans are treated as
indebtedness of the policyowner.
Force Outs
An exception to this general rule occurs in the case of a decrease in the
Policy's death benefit or any other change that reduces benefits under the
Policy in the first 15 years after the Policy is issued and that results in a
cash distribution to the policyowner in order for the Policy to continue to
comply with the Section 7702 definitional limits. Such a cash distribution will
be taxed in whole or in part as ordinary
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income (to the extent of any gain in the Policy) under rules prescribed in
Section 7702. Changes include partial withdrawals and death benefit option
changes.
DISTRIBUTIONS FROM MEC'S
Policies classified as MEC's will be subject to the following tax rules:
(a) First, all partial withdrawals from such a Policy are treated as ordinary
income subject to tax up to the amount equal to the excess (if any) of the
Policy Value immediately before the distribution over the Investment in the
Policy at such time.
(b) Second, loans taken from or secured by such a Policy are treated as partial
withdrawals from the Policy and taxed accordingly. Past-due loan interest
that is added to the loan amount is treated as a loan.
(c) Third, a 10% additional income tax is imposed on the portion of any
distribution (including distributions on surrender) from, or loan taken from
or secured by, such a policy that is included in income except where the
distribution or loan:
(i) is made on or after the policyowner attains age 59 1/2;
(ii) is attributable to the policyowner becoming disabled; or
(iii) is part of a series of substantially equal periodic payments for the
life (or life expectancy) of the policyowner or the joint lives (or
joint life expectancies) of the policyowner and the policyowner's
beneficiary.
These exceptions are not likely to apply in situations where the Policy is not
owned by an individual.
Definition of Modified Endowment Contracts
Section 7702A establishes a class of life insurance contracts designated as
"Modified Endowment Contracts," which applies to Policies entered into or
materially changed after June 20, 1988.
In general, a Policy will be a Modified Endowment Contract if the accumulated
premiums paid at any time during the first seven Policy Years exceed the
"seven-pay premium limit". The seven-pay premium limit on any date is equal to
the sum of the net level premiums that would have been paid on or before such
date if the policy provided for paid-up future benefits after the payment of
seven level annual premiums (the "seven-pay premium").
The rules relating to whether a Policy will be treated as a MEC are extremely
complex and cannot be adequately described in the limited confines of this
summary. Therefore, a current or prospective policyowner should consult with a
competent adviser to determine whether a transaction will cause the Policy to be
treated as a MEC.
Material Changes
A policy that is not a MEC may become a MEC if it is "materially changed". If
there is a material change to the policy, the seven year testing period for MEC
status is restarted. The material change rules for determining whether a Policy
is a MEC are complex. In general, however, the determination of whether a Policy
will be a MEC after a material change generally depends upon the relationship
among the death benefit of the Policy at the time of such change, the Policy
Value at the time of the change, and the additional premiums paid into the
Policy during the seven years starting with the date on which the material
change occurs.
Reductions in Face Amount
If there is a reduction in benefits during any Policy Year, the seven-pay
premium limit is recalculated as if the policy had been originally issued at the
reduced benefit level. Failure to comply would result in classification as a MEC
regardless of any efforts by the Company to provide a payment schedule that will
not violate the seven pay test.
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Exchanges
A life insurance contract received in exchange for a MEC will also be treated as
a MEC.
Processing of Premiums
If a premium is received which would cause the Policy to become a MEC within 23
days of the next Policy Anniversary, the Company will not apply the portion of
the premium which would cause MEC status ("excess premium") to the Policy when
received. The excess premium will be placed in a suspense account until the next
anniversary date, at which point the excess premium, along with interest, earned
on the excess premium at a rate of 3.5% from the date the premium was received,
will be applied to the Policy. The policyowner will be advised of this action
and will be offered the opportunity to have the premium credited as of the
original date received or to have the premium returned. If the policyowner does
not respond, the premium and interest will be applied to the Policy as of the
first day of the next anniversary.
If a premium is received which would cause the Policy to become a MEC more than
23 days prior to the next Policy Anniversary, the Company will refund any excess
premium to the policyowner. The portion of the premium which is not excess will
be applied as of the date received. The policyowner will be advised of this
action and will be offered the opportunity to return the premium and have it
credited to the account as of the original date received.
Multiple Policies
All MEC's that are issued by a Company (or its affiliates) to the same
policyowner during any calendar year are treated as one MEC for purposes of
determining the amount includible in gross income under Section 72(e) of the
Code.
POLICY LOAN INTEREST
Generally, personal interest paid on any loan under a Policy which is owned by
an individual is not deductible. For policies purchased on or after January 1,
1996, interest on any loan under a Policy owned by a taxpayer and covering the
life of any individual who is an officer or employee of or is financially
interested in the business carried on by the taxpayer will not be tax deductible
unless the employee is a key person within the meaning of Section 264 of the
Code. A deduction will not be permitted for interest on a loan under a Policy
held on the life of a key person to the extent the aggregate of such loans with
respect to contracts covering the key person exceed $50,000. The number of
employees who can qualify as key persons depends in part on the size of the
employer but cannot exceed 20 individuals.
Furthermore, if a non-natural person owns a Policy, or is the direct or indirect
beneficiary under a Policy, section 264(f) of the Code disallows a pro-rata
portion of the taxpayer's interest expense allocable to unborrowed Policy cash
values attributable to insurance held on the lives of individuals who are not
20% (or more) owners of the taxpayer-entity, officers, employees, or former
employees of the taxpayer.
The portion of the interest expense that is allocable to unborrowed Policy cash
values is an amount that bears the same ratio to that interest expense as the
taxpayer's average unborrowed Policy cash values under such life insurance
policies bear to the average adjusted bases for all assets of the taxpayer.
If the taxpayer is not the Policyowner, but is the direct or indirect
beneficiary under the Policy, then the amount of unborrowed cash value of the
Policy taken into account in computing the portion of the taxpayer's interest
expense allocable to unborrowed Policy cash values cannot exceed the benefit to
which the taxpayer is directly or indirectly entitled under the Policy.
POLICY EXCHANGES
A policyowner generally will not recognize gain upon the exchange of a Policy
for another life insurance policy issued by the Company or another insurance
company, except to the extent that the policyowner receives cash in the exchange
or is relieved of Policy indebtedness as a result of the exchange. In no
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<PAGE> 46
event will the gain recognized exceed the amount by which the Policy Value
(including any unpaid loans) exceeds the policyowner's Investment in the Policy.
OTHER TRANSACTIONS
A transfer of the Policy, a change in the owner, a change in the beneficiary,
and certain other changes to the Policy, as well as particular uses of the
Policy (including use in a so called "split-dollar" arrangement) may have tax
consequences depending upon the particular circumstances and should not be
undertaken prior to consulting with a qualified tax adviser. For instance, if
the owner transfers the Policy or designates a new owner in return for valuable
consideration (or, in some cases, if the transferor is relieved of a liability
as a result of the transfer), then the Death Benefit payable upon the death of
the Insured may in certain circumstances be includible in taxable income to the
extent that the Death Benefit exceeds the prior consideration paid for the
transfer and any premiums or other amounts subsequently paid by the transferee.
Further, in such a case, if the consideration received exceeds the transferor's
Investment in the Policy, the difference will be taxed to the transferor as
ordinary income.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the individual
circumstances of each policyowner and beneficiary.
ALTERNATE MINIMUM TAX
Corporate owners may be subject to Alternate Minimum Tax on the annual increases
in Cash Surrender Values and on the Death Benefit proceeds.
INCOME TAX REPORTING
In certain employer-sponsored life insurance arrangements, including equity
split dollar arrangements, participants may be required to report for income tax
purposes, one or more of the following:
(a) the value each year of the life insurance protection provided;
(b) an amount equal to any employer-paid premiums; or
(c) some or all of the amount by which the current value exceeds the employer's
interest in the Policy.
Participants should consult with their tax adviser to determine the tax
consequences of these arrangements.
OTHER INFORMATION
PAYMENT OF PROCEEDS
As long as the Policy is in force, Manufacturers Life of America will ordinarily
pay any policy loans, surrenders, partial withdrawals or insurance benefit
within seven days after receipt at its Service Office of all the documents
required for such a payment. The Company may delay for up to six months the
payment from the Fixed Account of any policy loans, surrenders, partial
withdrawals, or insurance benefit. In the case of any such payments from any
Investment Account, the Company may delay payment during any period during which
(i) the New York Stock Exchange is closed for trading (except for normal weekend
and holiday closings), (ii) trading on the New York Stock Exchange is
restricted, (iii) an emergency exists as a result of which disposal of
securities held in the Separate Account is not reasonably practicable or it is
not reasonably practicable to determine the value of the Separate Account's net
assets or (iv) the SEC, by order, so permits for the protection of security
holders; provided that applicable rules and regulations of the SEC shall govern
as to whether the conditions described in (ii) and (iii) exist.
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REPORTS TO POLICYOWNERS
Within 30 days after each Policy Anniversary, Manufacturers Life of America will
send the policyowner a statement showing, among other things:
- - the amount of death benefit;
- - the Policy Value and its allocation among the Investment Accounts, the Fixed
Account and the Loan Account;
- - the value of the units in each Investment Account to which the Policy Value is
allocated;
- - the Policy Debt and any loan interest charged since the last report;
- - the premiums paid and other Policy transactions made during the period since
the last report; and
- - any other information required by law.
Each policyowner will also be sent an annual and a semi-annual report for the
Trust which will include a list of the securities held in each Portfolio as
required by the 1940 Act.
DISTRIBUTION OF THE POLICIES
ManEquity, Inc., an indirect wholly-owned subsidiary of Manufacturers Life, will
act as the principal underwriter of, and continuously offer, the Policies
pursuant to a Distribution Agreement with Manufacturers Life of America.
ManEquity, Inc. is registered as a broker-dealer under the Securities Exchange
Act of 1934 and is a member of the National Association of Securities Dealers.
ManEquity, Inc. is located at 200 Bloor Street East, Toronto, Ontario, Canada,
M4W 1ES and was organized under the laws of Colorado on May 4, 1970. The
directors of ManEquity, Inc. are: John Richardson, Roy Bubbs, Bruce Gordon, Gary
Buchanan and Douglas Myers. The officers of ManEquity, Inc. are: (i) Douglas
Myers -- President, (ii) Gary Buchanan -- Vice President, Compliance, (iii)
Thomas Reives -- Treasurer, (iv) Brian Buckley -- Secretary and General Counsel.
The Policies will be sold by registered representatives of either ManEquity or
other broker-dealers having distribution agreements with ManEquity who are also
authorized by state insurance departments to do so.
A registered representative will receive commissions not to exceed 105% of
premiums in the first year, 2% of all premiums paid in the second year and
after, and after the second anniversary 0.15% of the Policy Value per year.
Representatives who meet certain productivity standards with regard to the sale
of the Policies and certain other policies issued by Manufacturers Life of
America or Manufacturers Life will be eligible for additional compensation.
RESPONSIBILITIES OF MANUFACTURERS LIFE
Manufacturers Life and Manufacturers USA have entered into an agreement with
ManEquity, Inc. pursuant to which Manufacturers Life or Manufacturers USA, on
behalf of ManEquity, Inc. will pay the sales commissions in respect of the
Policies and certain other policies issued by Manufacturers Life of America,
prepare and maintain all books and records required to be prepared and
maintained by ManEquity, Inc. with respect to the policies and such other
policies, and send all confirmations required to be sent by ManEquity, Inc. with
respect to the Policies and such other policies. ManEquity, Inc. will promptly
reimburse Manufacturers Life or Manufacturers USA for all sales commissions paid
by Manufacturers Life or Manufacturers USA and will pay Manufacturers Life or
Manufacturers USA for its other services under the agreement in such amounts and
at such times as agreed to by the parties.
Manufacturers Life and Manufacturers USA have also entered into a Service
Agreement with Manufacturers Life of America pursuant to which Manufacturers
Life and Manufacturers USA will provide to Manufacturers Life of America all
issue, administrative, general services and recordkeeping functions on behalf of
Manufacturers Life of America with respect to all of its insurance policies
including the Policies.
Finally, Manufacturers Life of America may, from time to time in its sole
discretion, enter into one or more reinsurance agreements with other life
insurance companies under which policies issued by it may be reinsured, such
that its total amount at risk under a policy would be limited for the life of an
insured.
42
<PAGE> 48
VOTING RIGHTS
As stated previously, all of the assets held in the sub-accounts of the Separate
Account will be invested in shares of a particular Portfolio of the Trust.
Manufacturers Life of America is the legal owner of those shares and as such has
the right to vote upon certain matters that are required by the 1940 Act to be
approved or ratified by the shareholders of a mutual fund and to vote upon any
other matters that may be voted upon at a shareholders' meeting. However,
Manufacturers Life of America will vote shares held in the sub-accounts in
accordance with instructions received from policyowners having an interest in
such sub-accounts. Shares held in each sub-account for which no timely
instructions from policyowners are received, including shares not attributable
to the Policies, will be voted by Manufacturers Life of America in the same
proportion as those shares in that sub-account for which instructions are
received. Should the applicable federal securities laws or regulations change so
as to permit Manufacturers Life of America to vote shares held in the Separate
Account in its own right, it may elect to do so.
The number of shares in each sub-account for which instructions may be given by
a policyowner is determined by dividing the portion of the Policy Value derived
from participation in that sub-account, if any, by the value of one share of the
corresponding Portfolio. The number will be determined as of a date chosen by
Manufacturers Life of America, but not more than 90 days before the
shareholders' meeting. Fractional votes are counted. Voting instructions will be
solicited in writing at least 14 days prior to the meeting.
Manufacturers Life of America may, if required by state officials, disregard
voting instructions if such instructions would require shares to be voted so as
to cause a change in the sub-classification or investment policies of one or
more of the Portfolios, or to approve or disapprove an investment management
contract. In addition, the Company itself may disregard voting instructions that
would require changes in the investment policies or investment adviser, provided
that Manufacturers Life of America reasonably disapproves such changes in
accordance with applicable federal regulations. If Manufacturers Life of America
does disregard voting instructions, it will advise policyowners of that action
and its reasons for such action in the next communication to policyowners.
SUBSTITUTION OF PORTFOLIO SHARES
It is possible that in the judgment of the management of Manufacturers Life of
America, one or more of the Portfolios may become unsuitable for investment by
the Separate Account because of a change in investment policy or a change in the
applicable laws or regulation, because the shares are no longer available for
investment, or for some other reason. In that event, Manufacturers Life of
America may seek to substitute the shares of another Portfolio or of an entirely
different mutual fund. Before this can be done, the approval of the S.E.C. and
one or more state insurance departments may be required.
Manufacturers Life of America also reserves the right (i) to combine other
separate accounts with the Separate Account, (ii) to create new separate
accounts, (iii) to establish additional sub-accounts within the Separate Account
to invest in additional portfolios of the Trust or another management investment
company, (iv) to eliminate existing sub-accounts and to stop accepting new
allocations and transfers into the corresponding portfolio, (v) to combine
sub-accounts or to transfer assets in one sub-account to another sub-account or
(vi) to transfer assets from the Separate Account to another separate account
and from another separate account to the Separate Account. The Company also
reserves the right to operate the Separate Account as a management investment
company or other form permitted by law, and to de-register the Separate Account
under the 1940 Act. Any such change would be made only if permissible under
applicable federal and state law.
RECORDS AND ACCOUNTS
The Service Office will perform administrative functions, such as decreases,
increases, surrenders and partial withdrawals, and fund transfers on behalf of
the Company.
43
<PAGE> 49
All records and accounts relating to the Separate Account and the Portfolios
will be maintained by the Company. All financial transactions will be handled by
the Company. All reports required to be made and information required to be
given will be provided by the Company.
STATE REGULATIONS
Manufacturers Life of America is subject to the regulation and supervision by
the Michigan Department of Insurance, which periodically examines its financial
condition and operations. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business. The
Policies have been filed with insurance officials, and meet all standards set by
law, in each jurisdiction where they are sold.
Manufacturers Life of America is required to submit annual statements of its
operations, including financial statements, to the insurance departments of the
various jurisdictions in which it does business for the purposes of determining
solvency and compliance with local insurance laws and regulations.
LITIGATION
No litigation is pending that would have a material effect upon the Separate
Account or the Trust.
INDEPENDENT AUDITORS
The financial statements of The Manufacturers Life Insurance Company of America
and Separate Account Three of The Manufacturers Life Insurance Company of
America at December 31, 1997 appearing in this prospectus and for the year then
ended appearing in this prospectus have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon also appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of such firm as experts in auditing and accounting.
FURTHER INFORMATION
A registration statement under the Securities Act of 1933 has been filed with
the S.E.C. relating to the offering described in this prospectus. This
prospectus does not include all the information set forth in the registration
statement. The omitted information may be obtained from the SEC's principal
office in Washington D.C. upon payment of the prescribed fee. The Commission
also maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission which is located at http://www.sec.gov.
For further information you may also contact Manufacturers Life of America's
Home Office, the address and telephone number of which are on the first page of
the prospectus.
44
<PAGE> 50
OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
POSITION WITH MANUFACTURERS
NAME LIFE OF AMERICA PRINCIPAL OCCUPATION
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sandra M. Cotter (35) Director (since December 1992) Attorney 1989 - present, Dykema
Gosset
James D. Gallagher (43) Director, Secretary and General Vice President, Secretary and General
Counsel (since May 1996) Counsel -- January 1997 - present,
ManUSA; Vice President, Legal
Services U.S. Operations -- January
1996 - present, The Manufacturers
Life Insurance Company; Vice
President, Secretary and General
Counsel -- 1994 - present, The
Manufacturers Life Insurance Company
of North America; Vice President and
Associate General Counsel -- 1991 -
1994, The Prudential Insurance
Company of America
Bruce Gordon (54) Director (since May 1996) Vice President, U.S. Operations --
Pensions -- 1990 - present, The
Manufacturers Life Insurance Company
Donald A. Guloien (41) Director and President (since August Executive Vice President, Business
1990) Development -- 1999 - present, The
Manufacturers Life Insurance Company;
Senior Vice President, Business
Development -- 1994 - 1998, The
Manufacturers Life Insurance Company;
Vice President, U.S. Individual
Business -- 1990 - 1994, The
Manufacturers Life Insurance Company
Theodore Kilkuskie, Jr. (42) Director Senior Vice President, Annuities --
1999 - present, The Manufacturers
Life Insurance Company; President,
The Manufacturers Life Insurance
Company of North America -- 1999 -
present; Vice President, U.S.
Individual Insurance -- January 1997
-1999, ManUSA; Senior Vice President,
U.S. Individual Insurance -- February
1998 - December 1998; Vice President,
U.S. Individual Insurance -- June
1995 - 1998, The Manufacturers Life
Insurance Company; Executive Vice
President, Mutual Funds -- January
1995 - May 1995, State Street
Research, Vice President, Mutual
Funds -- 1987 - 1994, Metropolitan
Life Insurance Company
Joseph J. Pietroski (59) Director (since July 1992) Senior Vice President, General
Counsel and Corporate Secretary --
1988 - present, The Manufacturers
Life Insurance Company
</TABLE>
45
<PAGE> 51
<TABLE>
<CAPTION>
POSITION WITH MANUFACTURERS
NAME LIFE OF AMERICA PRINCIPAL OCCUPATION
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
John D. Richardson (60) Chairman and Director (since January Senior Executive Vice President, U.S.
1995) Individual Insurance -- 1999 -
present, The Manufacturers Life
Insurance Company; Executive Vice
President and General Manager, U.S.
Operations -- 1995 - 1998, The
Manufacturers Life Insurance Company;
Senior Vice President and General
Manager, Canadian Operations 1992 -
1994.
John R. Ostler (45) Vice President and Treasurer Financial Vice President -- 1992 -
present, The Manufacturers Life
Insurance Company
Douglas H. Myers (43) Vice President, Finance and Assistant Vice President and
Compliance Controller Controller, U.S. Operations -- 1988 -
present, The Manufacturers Life
Insurance Company
Victor Apps (49) Senior Vice President, Asia Senior Vice President and General
Manager, Greater China Division --
1995 - present, The Manufacturers
Life Insurance Company; Vice
President and General Manager,
Greater China Division -- 1993 -
1995, The Manufacturers Life
Insurance Company
Robert A. Cook (43) Vice President, Marketing Senior Vice President, U.S.
Individual Insurance -- 1999 -
present; The Manufacturers Life
Insurance Company; Vice President,
Product Management -- 1996 - 1998,
The Manufacturers Life Insurance
Company; Sales and Marketing
Director, U.S. Division -- 1994 -
1995, The Manufacturers Life
Insurance Company
Felix Chee (51) Vice President, Investments Executive Vice President -- 1997 to
present, The Manufacturers Life
Insurance Company; Chief Investment
Officer -- 1997 to present, The
Manufacturers Life Insurance Company;
Senior Vice President and
Treasurer -- 1993 - 1994, The
Manufacturers Life Insurance Company
</TABLE>
46
<PAGE> 52
<TABLE>
<CAPTION>
POSITION WITH MANUFACTURERS
NAME LIFE OF AMERICA PRINCIPAL OCCUPATION
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Hugh C. McHaffie (39) Vice President Vice President, U.S. Annuities and
Product Development -- 1996 to
present, The Manufacturers Life
Insurance Company; Vice President
U.S. Annuities and Development --
1994 to present, The Manufacturers
Life Insurance Company of North
America; Product Development
Executive -- 1990 to 1994, The
Manufacturers Life Insurance Company
of North America
John G. Vrysen (42) Vice President, Appointed Actuary Vice President and Chief Financial
Officer, U.S. Operations -- 1996 to
present, The Manufacturers Life
Insurance Company; Vice President and
Chief Actuary -- 1996 to present, The
Manufacturers Life Insurance Company
of North America; Vice President and
Chief Actuary -- 1992 to present, The
Manufacturers Life Insurance Company
of New York.
</TABLE>
IMPACT OF YEAR 2000
Preparing computer systems to deal with the Year 2000 risk has become a major
issue for businesses throughout the world. Within the group of companies made up
of Manufacturers Life and its subsidiaries ("Manulife Financial"), a group-wide
program has been underway since 1996 to make all critical systems compliant by
the end of 1998 and other systems compliant by the end of 1999. Included in this
program are all systems applicable to and shared by the Company with Manulife
Financial. Based on a detailed assessment, Manulife Financial determined that a
portion of its software needs to be modified or replaced so that its computer
systems will function properly into the Year 2000 and beyond. Like most
companies, the Year 2000 issue represents a significant challenge for Manulife
Financial and extensive resources have been dedicated to modifying existing
software and to converting to new software. However, there can be no assurances
that Manulife Financial's systems, nor those of other companies on which
Manulife Financial relies, will be fully converted on a timely basis and
therefore that all adverse effects on the Company due to the Year 2000 risk will
be avoided. Manulife Financial is presently consulting with vendors, customers,
subsidiaries, third-parties and other businesses with which it deals to ensure
that no material aspect of its, or the Company's, operations will be hindered by
the Year 2000 risk.
The costs of the project and the date on which Manulife Financial plans to
complete the modifications are based on management's best estimates and are
subject to some uncertainty. Manulife Financial is using both internal and
external resources to reprogram, or replace, and test the software for Year 2000
modifications. The total cost of this program to Manulife Financial is estimated
to be $64 million, comprised of $55 million for specifically budgeted programs
and $9 million for general contingencies. Manufacturers Life has incurred $15
million as at December 31, 1997 of which the Company will receive an allocation
due to its shared systems. The costs allocated are not expected to have a
material effect on the net operating income of the Company.
ILLUSTRATIONS
The tables set forth in Appendix A illustrate the way in which a Policy's Death
Benefit, Policy Value, and Cash Surrender Value could vary over an extended
period of time.
47
<PAGE> 53
(This page intentionally left blank)
48
<PAGE> 54
Financial Statements
Separate Account Three of
The Manufacturers Life Insurance
Company of America
Nine months ended September 30, 1998
(with December 31, 1997 comparative)
F-1
<PAGE> 55
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
NET ASSET UNITS NAV PER
VALUE OUTSTANDING UNIT
------------ ----------- -------
<S> <C> <C> <C>
Assets
Investment in Manufacturers Investment Trust at Market Value
Emerging Growth Trust, 2,814,190 shares (cost
$62,199,132)............................................ $ 56,114,940 1,553,858 $36.11
Quantitative Equity Trust, 2,043,239 shares (cost
$37,754,793)............................................ 41,293,868 1,186,859 34.79
Real Estate Securities Trust, 1,550,820 shares
(cost $24,760,452)...................................... 23,246,799 695,559 33.42
Balanced Trust, 2,570,234 shares (cost $43,262,632)....... 46,598,336 1,662,740 28.03
Capital Growth Bond Trust, 1,724,682 shares
(cost $19,444,642)...................................... 20,747,930 912,034 22.75
Money Market Trust, 3,116,708 shares (cost $31,167,082)... 31,167,082 1,722,076 18.10
International Stock Trust, 1,493,272 shares (cost
$17,700,432)............................................ 16,799,305 1,409,063 11.92
Pacific Rim Emerging Markets Trust, 700,648 shares (cost
$4,752,835)............................................. 3,846,556 657,493 5.85
Equity Index Trust, 2,458,005 shares (cost $31,691,444)... 31,929,483 1,962,877 16.27
International Small Cap Trust, 159,871 shares
(cost $2,460,476)....................................... 2,153,466 172,707 12.47
Equity Trust, 1,193,059 shares (cost $24,394,038)......... 19,446,865 1,566,997 12.41
Value Equity Trust, 1,034,036 shares (cost $16,132,102)... 16,534,229 1,142,469 14.47
Growth and Income Trust, 1,036,479 shares (cost
$23,328,878)............................................ 24,523,102 1,492,812 16.43
U.S. Government Securities Trust, 210,148 shares (cost
$2,787,678)............................................. 2,897,946 243,229 11.91
Conservative Asset Allocation Trust, 77,541 shares (cost
$894,227)............................................... 871,559 70,686 12.33
Moderate Asset Allocation Trust, 220,209 shares (cost
$2,762,168)............................................. 2,642,510 205,821 12.84
Aggressive Asset Allocation Trust, 223,376 shares (cost
$3,069,273)............................................. 2,932,930 219,925 13.34
Blue Chip Growth Trust, 471,751 shares (cost
$7,293,675)............................................. 7,151,747 432,883 16.52
Science & Technology Trust, 229,364 shares (cost
$3,119,136)............................................. 3,043,666 222,128 13.70
Pilgram Baxter Growth Trust, 84,500 shares (cost
$1,084,579)............................................. 833,166 72,670 11.47
Small/Mid Cap Trust, 233,467 shares (cost $3,891,209)..... 3,621,079 235,702 15.36
Worldwide Growth Trust, 58,774 shares (cost $901,690)..... 794,618 60,272 13.18
Global Equity Trust, 192,979 shares (cost $3,495,426)..... 3,367,490 240,222 14.02
Growth Trust, 207,543 shares (cost $3,993,559)............ 3,578,041 229,279 15.61
Value Trust, 225,665 shares (cost $3,433,360)............. 2,902,046 231,002 12.56
International Growth & Income Trust, 107,220 shares (cost
$1,158,257)............................................. 1,006,797 90,035 11.18
High Yield Trust, 151,273 shares (cost $2,102,914)........ 1,993,780 147,706 13.50
Strategic Bond Trust, 207,084 shares (cost $2,508,217).... 2,377,319 175,866 13.52
Global Government Bond Trust, 26,034 shares (cost
$354,758)............................................... 348,334 25,137 13.86
Investment Quality Bond Trust, 84,927 shares
(cost $1,026,697)....................................... 1,054,793 71,633 14.72
Lifestyle Aggressive 1000 Trust, 272,055 shares
(cost $3,746,259)....................................... 3,106,869 243,114 12.78
Lifestyle Growth 820 Trust, 1,005,155 shares
(cost $13,903,487)...................................... 12,272,941 924,886 13.27
Lifestyle Balanced 640 Trust, 355,895 shares (cost
$4,759,763)............................................. 4,370,394 324,779 13.46
Lifestyle Moderate 460 Trust, 41,286 shares (cost
$558,963)............................................... 535,062 38,137 14.03
Lifestyle Conservative 280 Trust, 12,145 shares (cost
$155,849)............................................... 156,798 10,903 14.38
Small Company Value Trust, 10,166 shares (cost
$121,161)............................................... 103,392 13,551 7.63
------------
Total....................................................... $396,365,238
============
</TABLE>
F-2
<PAGE> 56
(This page intentionally left blank)
F-3
<PAGE> 57
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF OPERATIONS
For the Period Ending September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
EMERGING QUANTITATIVE REAL ESTATE
GROWTH EQUITY SECURITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ -----------
<S> <C> <C> <C>
Net investment income:
Dividend income........................................... $ 995,471 $ 5,169,494 $ 3,092,425
Realized gain (loss) on investments:
Realized gain (loss) from security transactions:
Proceeds from sales.................................... 4,702,159 3,320,056 2,016,347
Cost of securities sold................................ 3,586,446 2,031,434 1,673,299
------------ ----------- -----------
Net realized gain (loss).................................. 1,115,713 1,288,622 343,048
------------ ----------- -----------
Unrealized appreciation (depreciation) of investments:
Beginning of year...................................... 6,743,875 9,470,255 5,819,408
End of period.......................................... (6,084,192) 3,539,076 (1,513,653)
------------ ----------- -----------
Net unrealized appreciation (depreciation) during the
period................................................. (12,828,067) (5,931,179) (7,333,061)
------------ ----------- -----------
Net realized and unrealized gain (loss) on investments...... (11,712,354) (4,642,557) (6,990,013)
------------ ----------- -----------
Net increase (decrease) in net assets derived from
operations................................................ $(10,716,883) $ 526,937 $(3,897,588)
============ =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 58
<TABLE>
<CAPTION>
BALANCED CAPITAL MONEY INTERNATIONAL PACIFIC RIM EQUITY
ASSETS GROWTH BOND MARKET STOCK EMERGING MARKETS INDEX
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ------------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 5,710,136 $1,051,960 $ 1,104,187 $ 996 $ 0 $ 510,505
2,085,633 2,262,300 39,835,582 3,753,821 3,106,274 2,056,820
1,673,670 2,007,479 39,835,582 3,167,304 5,374,282 1,652,981
----------- ---------- ----------- ----------- ----------- ----------
411,963 254,821 0 586,517 (2,268,008) 403,839
----------- ---------- ----------- ----------- ----------- ----------
6,626,044 1,199,605 0 131,809 (2,120,318) 488,049
3,335,704 1,303,288 0 (901,127) (906,279) 238,039
----------- ---------- ----------- ----------- ----------- ----------
(3,290,340) 103,683 0 (1,032,936) 1,214,039 (250,010)
----------- ---------- ----------- ----------- ----------- ----------
(2,878,377) 358,504 0 (446,419) (1,053,969) 153,829
----------- ---------- ----------- ----------- ----------- ----------
$ 2,831,759 $1,410,464 $ 1,104,187 $ (445,423) $(1,053,969) $ 664,334
=========== ========== =========== =========== =========== ==========
</TABLE>
F-5
<PAGE> 59
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF OPERATIONS (CONTINUED)
For the Period Ending September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
INTERNATIONAL VALUE
SMALL CAP EQUITY EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------- ----------- -----------
<S> <C> <C> <C>
Net investment income:
Dividend income........................................... $ 5,687 $ 3,871,537 $ 976,745
Realized gain (loss) on investments:
Realized gain (loss) from security transactions:
Proceeds from sales.................................... 2,664,968 1,260,896 803,194
Cost of securities sold................................ 2,492,630 1,375,239 620,125
---------- ----------- -----------
Net realized gain (loss).................................. 172,338 (114,343) 183,069
---------- ----------- -----------
Unrealized appreciation (depreciation) of investments:
Beginning of year...................................... (39,080) 737,427 1,914,865
End of period.......................................... (307,010) (4,947,173) 402,128
---------- ----------- -----------
Net unrealized depreciation during the period............. (267,930) (5,684,600) (1,512,737)
---------- ----------- -----------
Net realized and unrealized gain (loss) on investments...... (95,592) (5,798,943) (1,329,668)
---------- ----------- -----------
Net increase (decrease) in net assets derived from
operations................................................ $ (89,905) $(1,927,406) $ (352,923)
========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 60
<TABLE>
<CAPTION>
GROWTH U.S. GOVERNMENT CONSERVATIVE MODERATE AGGRESSIVE
AND INCOME SECURITIES ASSET ALLOCATION ASSET ALLOCATION ASSET ALLOCATION BLUE CHIP
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- --------------- ---------------- ---------------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 1,500,080 $109,401 $ 72,830 $ 247,923 $ 312,103 $ 98,459
2,771,795 607,490 97,299 105,776 107,938 795,228
1,984,821 586,991 92,941 98,020 92,058 689,610
----------- -------- -------- --------- --------- ---------
786,974 20,499 4,358 7,756 15,880 105,618
----------- -------- -------- --------- --------- ---------
2,511,120 67,077 17,540 101,169 164,721 239,380
1,194,224 110,267 (22,668) (119,659) (136,343) (141,928)
----------- -------- -------- --------- --------- ---------
(1,316,896) 43,190 (40,208) (220,828) (301,064) (381,308)
----------- -------- -------- --------- --------- ---------
(529,922) 63,689 (35,850) (213,072) (285,184) (275,690)
----------- -------- -------- --------- --------- ---------
$ 970,158 $173,090 $ 36,980 $ 34,851 $ 26,919 $(177,231)
=========== ======== ======== ========= ========= =========
</TABLE>
F-7
<PAGE> 61
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF OPERATIONS (CONTINUED)
For the Period Ending September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
SCIENCE AND PILGRAM BAXTER SMALL/
TECHNOLOGY GROWTH MIDCAP
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- -------------- -----------
<S> <C> <C> <C>
Net investment income:
Dividend income........................................... $ 0 $ 0 $ 0
Realized gain (loss) on investments:
Realized gain (loss) from security transactions:
Proceeds from sales.................................... 6,431,454 252,753 239,514
Cost of securities sold................................ 6,713,913 251,680 208,984
---------- --------- ---------
Net realized gain (loss).................................. (282,459) 1,073 30,530
---------- --------- ---------
Unrealized appreciation (depreciation) of investments:
Beginning of year...................................... (62,464) (18,510) (4,182)
End of period.......................................... (75,469) (251,412) (270,130)
---------- --------- ---------
Net unrealized depreciation during the period............... (13,005) (232,902) (265,948)
---------- --------- ---------
Net realized and unrealized gain (loss) on investments...... (295,464) (231,829) (235,418)
---------- --------- ---------
Net increase (decrease) in net assets derived from
operations................................................ $ (295,464) $(231,829) $(235,418)
========== ========= =========
</TABLE>
See accompanying notes.
F-8
<PAGE> 62
<TABLE>
<CAPTION>
WORLDWIDE GLOBAL INTERNATIONAL GROWTH
GROWTH EQUITY GROWTH VALUE AND INCOME HIGH YIELD
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- ----------- ----------- ----------- -------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 0 $ 167,578 $ 95,683 $ 0 $ 51,082 $ 3,723
764,660 10,843,214 1,437,907 448,628 4,925,987 1,717,993
741,225 11,141,671 1,316,139 417,465 4,974,915 1,693,007
--------- ----------- ---------- --------- ---------- ----------
23,435 (298,457) 121,768 31,163 (48,928) 24,986
--------- ----------- ---------- --------- ---------- ----------
(4,391) 32,115 15,489 (20,774) (39,257) (13,453)
(107,072) (127,936) (415,518) (531,315) (151,460) (109,133)
--------- ----------- ---------- --------- ---------- ----------
(102,681) (160,051) (431,007) (510,541) (112,203) (95,680)
--------- ----------- ---------- --------- ---------- ----------
(79,246) (458,508) (309,239) (479,378) (161,131) (70,694)
--------- ----------- ---------- --------- ---------- ----------
$ (79,246) $ (290,930) $ (213,556) $(479,378) $ (110,049) $ (66,971)
========= =========== ========== ========= ========== ==========
</TABLE>
F-9
<PAGE> 63
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF OPERATIONS (CONTINUED)
For the Period Ending September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
STRATEGIC GLOBAL INVESTMENT LIFESTYLE
BOND GOVERNMENT BOND QUALITY BOND AGGRESSIVE 1000
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Net investment income:
Dividend income.................................. $ 86,088 $ 27,334 $20,278 $ 159,374
Realized gain (loss) on investments:
Realized gain (loss) from security transactions:
Proceeds from sales........................... 123,682 105,137 81,325 685,650
Cost of securities sold....................... 122,915 108,775 76,811 667,087
--------- -------- ------- ---------
Net realized gain (loss)......................... 767 (3,638) 4,514 18,563
--------- -------- ------- ---------
Unrealized appreciation (depreciation) of
investments:
Beginning of year............................. 10,709 3,801 6,089 (11,048)
End of period................................. (130,898) (6,424) 28,098 (639,389)
--------- -------- ------- ---------
Net unrealized depreciation during the period.... (141,607) (10,225) 22,009 (628,341)
--------- -------- ------- ---------
Net realized and unrealized gain (loss) on
investments...................................... (140,840) (13,863) 26,523 (609,778)
--------- -------- ------- ---------
Net increase (decrease) in net assets derived from
operations....................................... $ (54,752) $ 13,471 $46,801 $(450,404)
========= ======== ======= =========
</TABLE>
See accompanying notes.
F-10
<PAGE> 64
<TABLE>
<CAPTION>
LIFESTYLE LIFESTYLE LIFESTYLE LIFESTYLE SMALL COMPANY
GROWTH 820 BALANCED 640 MODERATE 460 CONSERVATIVE 280 VALUE TRUST
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
----------- ------------ ------------ ---------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ 486,333 $ 141,906 $ 13,726 $ 227 $ 0 $ 26,083,271
268,294 300,793 20,147 811 750 101,002,275
273,413 289,879 19,800 801 886 98,054,278
----------- --------- -------- ------ -------- ------------
(5,119) 10,914 347 10 (136) 2,947,997
----------- --------- -------- ------ -------- ------------
(24,738) 43,780 4 29 0 33,986,145
(1,630,545) (389,369) (23,901) 948 (17,769) (9,806,000)
----------- --------- -------- ------ -------- ------------
(1,605,807) (433,149) (23,905) 919 (17,769) (43,792,145)
----------- --------- -------- ------ -------- ------------
(1,610,926) (422,235) (23,558) 929 (17,905) (40,844,148)
----------- --------- -------- ------ -------- ------------
(1,124,593)
$ $(280,329) $ (9,832) $1,156 $(17,905) $(14,760,877)
=========== ========= ======== ====== ======== ============
</TABLE>
F-11
<PAGE> 65
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS
For the Period Ending September 30, 1998 (Unaudited) and December 31, 1997
<TABLE>
<CAPTION>
EMERGING GROWTH QUANTITATIVE EQUITY
SUB-ACCOUNT SUB-ACCOUNT
-------------------------- --------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)......................... $ 995,471 $ 0 $ 5,169,494 $ 0
Net realized gain (loss)............................. 1,115,713 1,198,803 1,288,622 973,358
Unrealized appreciation (depreciation) of investments
during the period.................................. (12,828,067) 8,384,375 (5,931,179) 7,935,295
------------ ----------- ----------- -----------
Increase (decrease) in net assets derived from
operations......................................... (10,716,883) 9,583,178 526,937 8,908,653
------------ ----------- ----------- -----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums........................... 9,896,276 16,038,468 5,425,591 7,834,132
Transfer on death.................................. 0 0 0 0
Transfer of terminations........................... (5,064,653) (6,450,838) (2,931,952) (4,132,053)
Transfer of policy loans........................... (212,806) (358,214) (252,760) (432,977)
Net interfund transfers............................ (4,130,100) (6,440,946) (1,623,196) (60,101)
------------ ----------- ----------- -----------
488,717 2,788,470 617,683 3,209,001
------------ ----------- ----------- -----------
Net increase in net assets........................... (10,228,166) 12,371,648 1,144,620 12,117,654
NET ASSETS
Beginning of year.................................... 66,343,106 53,971,458 40,149,248 28,031,594
------------ ----------- ----------- -----------
End of period........................................ $ 56,114,940 $66,343,106 $41,293,868 $40,149,248
============ =========== =========== ===========
</TABLE>
+ Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
* Reflects the period from commencement of operations May 1, 1998 through
September 30, 1998
See accompanying notes.
F-12
<PAGE> 66
<TABLE>
<CAPTION>
REAL ESTATE SECURITIES BALANCED CAPITAL GROWTH BOND MONEY MARKET
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------------------- -------------------------- -------------------------- ----------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97
------------ ------------ ------------ ----------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 3,092,425 $ 0 $ 5,710,136 $ 0 $ 1,051,960 $ 0 $ 1,104,187 $ 1,159,280
343,048 236,228 411,963 619,554 254,821 9,280 0 (914,698)
(7,333,061) 3,664,346 (3,290,340) 5,668,002 103,683 1,422,776 0 914,725
----------- ----------- ----------- ----------- ----------- ----------- ------------ ------------
(3,897,588) 3,900,574 2,831,759 6,287,556 1,410,464 1,432,056 1,104,187 1,159,307
----------- ----------- ----------- ----------- ----------- ----------- ------------ ------------
4,881,127 5,723,061 5,446,691 8,963,510 2,689,228 4,146,312 14,984,877 33,859,872
0 0 0 (44,313) 0 0 0 0
(1,568,163) (2,219,786) (3,139,864) (3,729,355) (1,326,356) (1,575,696) (2,484,408) (2,797,321)
(123,142) (369,877) (154,533) (417,435) (50,718) (105,540) (386,324) (282,014)
(1,648,437) 1,279,970 (208,731) (2,581,258) (613,793) (81,587) (11,478,831) (20,937,650)
----------- ----------- ----------- ----------- ----------- ----------- ------------ ------------
1,541,385 4,413,368 1,943,563 2,191,149 698,361 2,383,489 635,314 9,842,887
----------- ----------- ----------- ----------- ----------- ----------- ------------ ------------
(2,356,203) 8,313,942 4,775,322 8,478,705 2,108,825 3,815,545 1,739,501 11,002,194
25,603,002 17,289,060 41,823,014 33,344,309 18,639,105 14,823,560 29,427,581 18,425,387
----------- ----------- ----------- ----------- ----------- ----------- ------------ ------------
$23,246,799 $25,603,002 $46,598,336 $41,823,014 $20,747,930 $18,639,105 $ 31,167,082 $ 29,427,581
=========== =========== =========== =========== =========== =========== ============ ============
</TABLE>
F-13
<PAGE> 67
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
For the Period Ending September 30, 1998 (Unaudited) and December 31, 1997
<TABLE>
<CAPTION>
PACIFIC RIM
INTERNATIONAL STOCK EMERGING MARKETS
SUB-ACCOUNT SUB-ACCOUNT
-------------------------- --------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............................... $ 996 $ 209,753 $ 0 $ 12,667
Net realized gain (loss)................................... 586,517 123,497 (2,268,008) (15,619)
Unrealized appreciation (depreciation) of investments
during the period........................................ (1,032,936) (318,754) 1,214,039 (2,188,130)
----------- ----------- ----------- -----------
Increase (decrease) in net assets derived from
operations............................................... (445,423) 14,496 (1,053,969) (2,191,082)
----------- ----------- ----------- -----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums................................. 3,448,360 5,795,630 1,167,229 2,059,145
Transfer on death........................................ 0 0 0 0
Transfer of terminations................................. (878,752) (1,224,478) (353,835) (620,211)
Transfer of policy loans................................. (63,951) (106,208) (10,111) (58,638)
Net interfund transfers.................................. (622,614) 1,344,064 (260,682) (630,778)
----------- ----------- ----------- -----------
1,883,043 5,809,008 542,601 749,518
----------- ----------- ----------- -----------
Net increase in net assets................................. 1,437,620 5,823,504 (511,368) (1,441,564)
NET ASSETS
Beginning of Year.......................................... 15,361,685 9,538,181 4,357,924 5,799,488
----------- ----------- ----------- -----------
End of Period.............................................. $16,799,305 $15,361,685 $ 3,846,556 $ 4,357,924
=========== =========== =========== ===========
</TABLE>
+ Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
* Reflects the period from commencement of operations May 1, 1998 through
September 30, 1998
See accompanying notes.
F-14
<PAGE> 68
<TABLE>
<CAPTION>
EQUITY INDEX INTERNATIONAL SMALL CAP EQUITY VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------------------- ------------------------- -------------------------- --------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97
------------ ----------- ------------ ---------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 510,505 $ 2,468,634 $ 5,687 $ 212 $ 3,871,537 $ 2,150,334 $ 976,745 $ 1,127,557
403,839 453,450 172,338 3,009 (114,343) 1,786 183,069 180,373
(250,010) 534,946 (267,930) (39,080) (5,684,600) 241,741 (1,512,737) 1,549,982
----------- ----------- ---------- ---------- ----------- ----------- ----------- -----------
664,334 3,457,030 (89,905) (35,859) (1,927,406) 2,393,861 (352,923) 2,857,912
----------- ----------- ---------- ---------- ----------- ----------- ----------- -----------
9,330,215 7,852,789 712,125 609,617 4,247,116 7,868,634 2,517,002 4,090,507
0 0 0 0 0 0 0 0
(1,459,932) (781,683) (60,136) (48,039) (1,096,156) (1,054,893) (796,462) (793,110)
(462,690) (721,710) (5,565) (2,873) (40,711) (45,576) (40,037) (69,774)
4,187,001 3,377,661 194,703 879,398 (146,786) 778,412 384,144 3,108,426
----------- ----------- ---------- ---------- ----------- ----------- ----------- -----------
11,594,594 9,727,057 841,127 1,438,103 2,963,463 7,546,577 2,064,647 6,336,049
----------- ----------- ---------- ---------- ----------- ----------- ----------- -----------
12,258,928 13,184,087 751,222 1,402,244 1,036,057 9,940,438 1,711,724 9,193,961
19,670,555 6,486,468 1,402,244 0 18,410,808 8,470,370 14,822,505 5,628,544
----------- ----------- ---------- ---------- ----------- ----------- ----------- -----------
$31,929,483 $19,670,555 $2,153,466 $1,402,244 $19,446,865 $18,410,808 $16,534,229 $14,822,505
=========== =========== ========== ========== =========== =========== =========== ===========
</TABLE>
F-15
<PAGE> 69
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
For the Period Ending September 30, 1998 (Unaudited) and December 31, 1997
<TABLE>
<CAPTION>
U.S. GOVERNMENT
GROWTH AND INCOME SECURITIES
SUB-ACCOUNT SUB-ACCOUNT
-------------------------- -------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97
------------ ----------- ------------ ----------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............................ $ 1,500,080 $ 556,761 $ 109,401 $ 123,037
Net realized gain (loss)................................ 786,974 586,565 20,499 (1,538)
Unrealized appreciation (depreciation) of investments
during the period..................................... (1,316,896) 2,105,562 43,190 28,149
----------- ----------- ---------- ----------
Increase (decrease) in net assets derived from
operations............................................ 970,158 3,248,888 173,090 149,648
----------- ----------- ---------- ----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums.............................. 5,029,732 7,079,242 499,969 745,345
Transfer on death..................................... 0 0 0 0
Transfer of terminations.............................. (1,161,363) (910,308) (106,949) (221,531)
Transfer of policy loans.............................. (59,226) (76,204) (32,573) (50,875)
Net interfund transfers............................... 338,503 4,479,340 141,280 (76,765)
----------- ----------- ---------- ----------
4,147,646 10,572,070 501,727 396,174
----------- ----------- ---------- ----------
Net increase in net assets.............................. 5,117,804 13,820,958 674,817 545,822
NET ASSETS
Beginning of Year....................................... 19,405,298 5,584,340 2,223,129 1,677,307
----------- ----------- ---------- ----------
End of Period........................................... $24,523,102 $19,405,298 $2,897,964 $2,223,129
=========== =========== ========== ==========
</TABLE>
+ Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
* Reflects the period from commencement of operations May 1, 1998 through
September 30, 1998
See accompanying notes.
F-16
<PAGE> 70
<TABLE>
<CAPTION>
CONSERVATIVE MODERATE AGGRESSIVE BLUE CHIP
ASSET ALLOCATION ASSET ALLOCATION ASSET ALLOCATION GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------------------- ------------------------- ------------------------- ----------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED+
SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97
------------ ------------ ------------ ---------- ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 72,830 $ 42,335 $ 247,923 $ 83,798 $ 312,103 $ 140,784 $ 98,459 $ 104,304
4,358 7,770 7,756 5,558 15,880 22,261 105,618 (6,796)
(40,208) 10,974 (220,828) 77,202 (301,064) 121,408 (381,308) 239,382
-------- -------- ---------- ---------- ---------- ---------- ---------- ----------
36,980 61,079 34,851 166,558 26,919 284,453 (177,231) 336,890
-------- -------- ---------- ---------- ---------- ---------- ---------- ----------
137,319 334,314 685,805 692,412 678,438 1,008,793 2,476,776 1,748,929
0 0 0 0 0 0 0 0
(40,807) (34,376) (146,639) (104,738) (198,140) (143,026) (293,935) (152,046)
0 0 (1,641) (346) (12,739) (2,986) (19,054) (5,593)
44,137 (37,686) 195,440 588,790 214,245 263,513 1,386,809 1,850,202
-------- -------- ---------- ---------- ---------- ---------- ---------- ----------
140,649 262,252 732,965 1,176,118 681,804 1,126,294 3,550,596 3,441,492
-------- -------- ---------- ---------- ---------- ---------- ---------- ----------
177,629 323,331 767,816 1,342,676 708,723 1,410,747 3,373,365 3,778,382
693,930 370,599 1,874,694 532,018 2,224,207 813,460 3,778,382 0
-------- -------- ---------- ---------- ---------- ---------- ---------- ----------
$871,559 $693,930 $2,642,510 $1,874,694 $2,932,930 $2,224,207 $7,151,747 $3,778,382
======== ======== ========== ========== ========== ========== ========== ==========
</TABLE>
F-17
<PAGE> 71
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
For the Period Ending September 30, 1998 (Unaudited) and December 31, 1997
<TABLE>
<CAPTION>
SCIENCE AND PILGRAM
TECHNOLOGY BAXTER GROWTH
SUB-ACCOUNT SUB-ACCOUNT
---------------------------- ----------------------------
PERIOD ENDED PERIOD ENDED+ PERIOD ENDED PERIOD ENDED+
SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).............................. $ 0 $ 16,815 $ 0 $ 0
Net realized gain (loss).................................. (282,459) (19,778) 1,073 1,700
Unrealized appreciation (depreciation) of investments
during the period....................................... (13,005) (62,465) (232,902) (18,510)
---------- ---------- --------- --------
Increase (decrease) in net assets derived from
operations.............................................. (295,464) (65,428) (231,829) (16,810)
---------- ---------- --------- --------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums................................ 786,461 361,963 406,502 141,492
Transfer on death....................................... 0 0 0 0
Transfer of terminations................................ (51,200) (21,603) (38,253) (7,886)
Transfer of policy loans................................ (10,155) (904) (1,303) 0
Net interfund transfers................................. 1,548,995 791,001 136,600 444,653
---------- ---------- --------- --------
2,274,101 1,130,457 503,546 578,259
---------- ---------- --------- --------
Net increase in net assets................................ 1,978,637 1,065,029 271,717 561,449
NET ASSETS
Beginning of Year......................................... 1,065,029 0 561,449 0
---------- ---------- --------- --------
End of Period............................................. $3,043,666 $1,065,029 $ 833,166 $561,449
========== ========== ========= ========
</TABLE>
+ Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
* Reflects the period from commencement of operations May 1, 1998 through
September 30, 1998
See accompanying notes.
F-18
<PAGE> 72
<TABLE>
<CAPTION>
WORLDWIDE
SMALL/ MID CAP GROWTH GLOBAL EQUITY GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
---------------------------- ---------------------------- ---------------------------- -----------------------------
PERIOD ENDED PERIOD ENDED+ PERIOD ENDED PERIOD ENDED+ PERIOD ENDED PERIOD ENDED+ PERIOD ENDED PERIOD ENDED+
SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97
------------ ------------- ------------ ------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 $ 0 $ 0 $ 2,704 $ 167,578 $ 0 $ 95,683 $ 0
30,530 8,946 23,435 1,782 (298,457) 373 121,768 1,107
(265,948) (4,182) (102,681) (4,391) (160,051) 32,115 (431,007) 15,489
----------- ----------- --------- -------- ---------- ---------- ---------- ----------
(235,418) 4,764 (79,246) 95 (290,930) 32,488 (213,556) 16,596
----------- ----------- --------- -------- ---------- ---------- ---------- ----------
1,314,087 757,544 338,511 143,932 1,402,718 697,468 1,579,798 470,000
0 0 0 0 0 0 0 0
(115,684) (32,683) (27,876) (4,603) (78,268) (22,616) (80,483) (29,691)
(9,939) (269) (764) (1,290) (1,015) (283) (39,978) (2,329)
1,196,156 742,521 248,582 177,277 866,401 761,527 1,082,975 794,709
----------- ----------- --------- -------- ---------- ---------- ---------- ----------
2,384,620 1,467,113 558,453 315,316 2,189,836 1,436,096 2,542,312 1,232,689
----------- ----------- --------- -------- ---------- ---------- ---------- ----------
2,149,202 1,471,877 479,207 315,411 1,898,906 1,468,584 2,328,756 1,249,285
1,471,877 0 315,411 0 1,468,584 0 1,249,285 0
----------- ----------- --------- -------- ---------- ---------- ---------- ----------
$ 3,621,079 $ 1,471,877 $ 794,618 $315,411 $3,367,490 $1,468,584 $3,578,041 $1,249,285
=========== =========== ========= ======== ========== ========== ========== ==========
</TABLE>
F-19
<PAGE> 73
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
For the Period Ending September 30, 1998 (Unaudited) and December 31, 1997
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH
VALUE AND INCOME
SUB-ACCOUNT SUB-ACCOUNT
------------------------------- -------------------------------
PERIOD ENDED PERIOD ENDED+ PERIOD ENDED PERIOD ENDED+
SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).................. $ 0 $ 33,133 $ 51,082 $ 0
Net realized gain (loss)...................... 31,153 2,781 (48,928) 187
Unrealized appreciation (depreciation) of
investments during the period............... (510,541) (20,774) (112,203) (39,257)
----------- ---------- ---------- --------
Increase (decrease) in net assets derived from
operations.................................. (479,378) 15,140 (110,049) (39,070)
----------- ---------- ---------- --------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums.................... 1,231,207 346,369 352,485 744,217
Transfer on death........................... 0 0 0 0
Transfer of terminations.................... (72,292) (21,998) (29,298) (9,912)
Transfer of policy loans.................... (3,052) (1,030) (2,253) 0
Net interfund transfers..................... 1,144,585 742,495 10,584 90,093
----------- ---------- ---------- --------
2,300,448 1,065,836 331,518 824,398
----------- ---------- ---------- --------
Net increase in net assets.................... 1,821,070 1,080,976 221,469 785,328
NET ASSETS
Beginning of year............................. 1,080,976 0 785,328 0
----------- ---------- ---------- --------
End of period................................. $ 2,902,046 $1,080,976 $1,006,797 $785,328
=========== ========== ========== ========
</TABLE>
+ Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
* Reflects the period from commencement of operations May 1, 1998 through
September 30, 1998
See accompanying notes.
F-20
<PAGE> 74
<TABLE>
<CAPTION>
GLOBAL GOVERNMENT
HIGH YIELD STRATEGIC BOND BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------------------- ------------------------------- --------------------------------
PERIOD ENDED PERIOD ENDED+ PERIOD ENDED PERIOD ENDED+ PERIOD ENDED PERIOD ENDED+
SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97
------------ ------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 3,723 $ 39,931 $ 86,088 $ 0 $ 27,334 $ 0
24,986 7,882 767 703 (3,638) 75
(95,680) (13,453) (141,607) 10,709 (10,225) 3,801
---------- ---------- ---------- -------- -------- --------
(66,971) 34,360 (54,752) 11,412 13,471 3,876
---------- ---------- ---------- -------- -------- --------
670,174 276,881 774,249 273,501 119,223 58,746
0 0 0 0 0 0
(70,745) (31,310) (68,667) (11,295) (11,543) (2,335)
(1,894) (6,696) (3,504) (504) (680) 0
392,224 797,757 1,076,003 380,876 6,103 161,473
---------- ---------- ---------- -------- -------- --------
989,759 1,036,632 1,778,081 642,578 113,103 217,884
---------- ---------- ---------- -------- -------- --------
922,788 1,070,992 1,723,329 653,990 126,574 221,760
1,070,992 0 653,990 0 221,760 0
---------- ---------- ---------- -------- -------- --------
$1,993,780 $1,070,992 $2,377,319 $653,990 $348,334 $221,760
========== ========== ========== ======== ======== ========
</TABLE>
F-21
<PAGE> 75
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
For the Period Ending September 30, 1998 (Unaudited) and December 31, 1997
<TABLE>
<CAPTION>
INVESTMENT LIFESTYLE AGGRESSIVE
QUALITY BOND 1000
SUB-ACCOUNT SUB-ACCOUNT
---------------------------- ----------------------------
PERIOD ENDED PERIOD ENDED+ PERIOD ENDED PERIOD ENDED+
SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)............................ $ 20,278 $ 0 $ 159,374 $ 4,916
Net realized gain (loss)................................ 4,514 136 18,563 841
Unrealized appreciation (depreciation) of investments
during the period..................................... 22,009 6,089 (628,341) (11,049)
---------- -------- ---------- ----------
Increase (decrease) in net assets derived from
operations............................................ 46,801 6,225 (450,404) (5,292)
---------- -------- ---------- ----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums.............................. 334,764 75,411 1,037,516 421,769
Transfer on death..................................... 0 0 0 0
Transfer of terminations.............................. (24,637) (3,321) (186,375) (47,502)
Transfer of policy loans.............................. (6,474) 0 (8,662) (3,766)
Net interfund transfers............................... 443,332 182,692 285,822 2,063,763
---------- -------- ---------- ----------
746,985 254,782 1,128,301 2,434,264
---------- -------- ---------- ----------
Net increase in net assets.............................. 793,786 261,007 677,897 2,428,972
NET ASSETS
Beginning of year....................................... 261,007 0 2,428,972 0
---------- -------- ---------- ----------
End of period........................................... $1,054,793 $261,007 $3,106,869 $2,428,972
========== ======== ========== ==========
</TABLE>
+ Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
* Reflects the period from commencement of operations May 1, 1998 through
September 30, 1998
See accompanying notes.
F-22
<PAGE> 76
<TABLE>
<CAPTION>
LIFESTYLE GROWTH LIFESTYLE BALANCED LIFESTYLE MODERATE LIFESTYLE CONSERVATIVE
820 640 460 280
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
---------------------------- ---------------------------- ---------------------------- ----------------------------
PERIOD ENDED PERIOD ENDED+ PERIOD ENDED PERIOD ENDED+ PERIOD ENDED PERIOD ENDED+ PERIOD ENDED PERIOD ENDED+
SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97 SEPT. 30/98 DEC. 31/97
------------ ------------- ------------ ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 486,333 $ 36,584 $ 141,906 $ 16,038 $ 13,726 $ 842 $ 227 $ 9
(5,119) 3,060 10,914 4,837 347 (6) 10 1
(1,605,807) (24,740) (433,149) 43,781 (23,905) 3 919 29
----------- ---------- ---------- ---------- -------- -------- -------- ------
(1,124,593) 14,904 (280,329) 64,656 (9,832) 839 1,156 39
----------- ---------- ---------- ---------- -------- -------- -------- ------
5,019,370 2,011,046 1,562,302 568,684 260,605 92,570 29,838 150
0 0 0 0 0 0 0 0
(549,930) (85,509) (293,106) (122,871) (18,080) (2,513) (1,441) (224)
(112,015) (826) (8,918) 0 0 0 0 0
3,781,111 3,319,383 1,266,948 1,613,028 199,989 11,484 125,904 1,376
----------- ---------- ---------- ---------- -------- -------- -------- ------
8,138,536 5,244,094 2,527,226 2,058,841 442,514 101,541 154,301 1,302
----------- ---------- ---------- ---------- -------- -------- -------- ------
7,013,943 5,258,998 2,246,897 2,123,497 432,682 102,380 155,457 1,341
5,258,998 0 2,123,497 0 102,380 0 1,341 0
----------- ---------- ---------- ---------- -------- -------- -------- ------
$12,272,941 $5,258,998 $4,370,394 $2,123,497 $535,062 $102,380 $156,798 $1,341
=========== ========== ========== ========== ======== ======== ======== ======
</TABLE>
F-23
<PAGE> 77
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
For the Period Ending September 30, 1998 (Unaudited) and December 31, 1997
<TABLE>
<CAPTION>
SMALL
COMPANY
VALUE TRUST
SUB-ACCOUNT TOTAL
------------- ----------------------------
PERIOD ENDED* PERIOD ENDED YEAR ENDED
SEPT. 30/98 SEPT. 30/98 DEC. 31/97
------------- ------------ ------------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................................ $ 0 $ 26,083,271 $ 8,330,428
Net realized gain (loss).................................... (136) 2,947,997 3,497,468
Unrealized appreciation (depreciation) of investments during
the period................................................ (17,769) (43,792,145) 30,266,096
-------- ------------ ------------
Increase (decrease) in net assets derived from operations... (17,905) (14,760,877) 42,093,992
-------- ------------ ------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums.................................. 15,004 91,488,690 123,892,455
Transfer on death......................................... 0 0 (44,313)
Transfer of terminations.................................. (2,818) (24,829,198) (27,451,360)
Transfer of policy loans.................................. 0 (2,139,187) (3,124,737)
Net interfund transfers................................... 109,111 274,517 179,113
-------- ------------ ------------
121,297 64,794,822 93,451,158
-------- ------------ ------------
Net increase in net assets.................................. 103,392 50,033,945 135,545,150
NET ASSETS
Beginning of year........................................... 0 346,331,293 210,786,143
-------- ------------ ------------
End of period............................................... $103,392 $396,365,238 $346,331,293
======== ============ ============
</TABLE>
+ Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
* Reflects the period from commencement of operations May 1, 1998 through
September 30, 1998
See accompanying notes.
F-24
<PAGE> 78
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
September 30, 1998 (Unaudited)
1. ORGANIZATION
The accompanying unaudited financial statements of Separate Account Three of The
Manufacturers Life Insurance Company of America have been prepared in accordance
with generally accepted accounting principles ("GAAP"), except that they do not
contain complete notes. However, in the opinion of management, these statements
include all normal recurring adjustments necessary for a fair presentation of
the results. These financial statements should be read in conjunction with the
audited financial statements and the related notes for the year ended December
31, 1997. Operating results for the nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the full year
ending December 31, 1998.
Separate Account Three of The Manufacturers Life Insurance Company of America
(the "Separate Account") is a unit investment trust registered under the
Investment Company Act of 1940, as amended. The Separate Account is comprised of
investment sub-accounts available for allocation of net premiums under single
premium variable life and variable universal life insurance policies (the
"Policies") issued by The Manufacturers Life Insurance Company of America
("Manufacturers Life of America"). The Separate Account was established by
Manufacturers Life of America, a life insurance company organized in 1983 under
Michigan law. Manufacturers Life of America is an indirect, wholly-owned
subsidiary of The Manufacturers Life Insurance Company ("Manulife Financial"), a
Canadian mutual life insurance company. On January 1, 1996, Manulife Financial
merged with North American Life Assurance Company and, as a result, acquired
control of the NASL Series Trust which, effective October 31, 1997, was renamed
Manufacturers Investment Trust. Each investment sub-account invests solely in
shares of a particular Manufacturers Investment Trust, registered under the
Investment Company Act of 1940 as an open-end management investment company.
The Small Company Value Trust was added to the Separate Account on May 1, 1998
as an investment option for variable universal life policy holders of
Manufacturers Life of America.
The International Small Cap and Blue Chip Growth Trusts were added to the
Separate Account on January 1, 1997 as investment options for variable universal
life policy holders of Manufacturers Life of America. The Science & Technology,
Pilgram Baxter Growth, Small/Mid Cap, Worldwide Growth, Global Equity, Growth,
Value, International Growth and Income, High Yield, Strategic Bond, Global
Government Bond, Investment Quality Bond, Lifestyle Aggressive 1000, Lifestyle
Growth 820, Lifestyle Balanced 640, Lifestyle Moderate 460, and Lifestyle
Conservative 280 Trusts were added to the Separate Account on May 1, 1997 as
investment options for variable universal life policy holders of Manufacturers
Life of America.
The Equity Index Fund, Equity, Value Equity, Growth and Income, U.S. Government
Securities, Conservative Asset Allocation, Moderate Asset Allocation, and
Aggressive Asset Allocation Trusts were added to the Separate Account on
February 14, 1996 as investment options for variable universal life policy
holders of Manufacturers Life of America.
Manufacturers Life of America is the legal owner of the Separate Account.
Manufacturers Life of America is required to maintain assets in the Separate
Account with a total market value at least equal to the reserves and other
liabilities relating to the variable benefits under all policies participating
in the Separate Account. These assets may not be charged with liabilities which
arise from any other business Manufacturers Life of America conducts. However,
all obligations under the variable policies are general corporate obligations of
Manufacturers Life of America.
Additional assets are held in The Manufacturers Life of America's general
account to cover the contingency that the guaranteed minimum death benefit might
exceed the death benefit which would have been payable in the absence of such
guarantee.
F-25
<PAGE> 79
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Separate Account in preparation of its financial statements:
a. Valuation of Investments -- Investments are made among the thirty-six
investment portfolios of Manufacturers Investment Trust and are valued at
the reported net asset values of these Trusts. Transactions are recorded on
the trade date. Net investment income and net realized gains on investments
in Manufacturers Investment Trust are reinvested.
b. Realized gains and losses on the sale of investments are computed on the
first-in, first-out basis.
c. Dividend income is recorded on the ex-dividend date.
d. Federal Income Taxes -- Manufacturers Life of America, the Separate
Account's sponsor, is taxed as a "life insurance company" under the
Internal Revenue Code. Under these provisions of the Code, the operations
of the Separate Account form part of the sponsor's total operations and are
not taxed separately.
The current year's operations of the Separate Account are not expected to
affect the sponsor's tax liabilities and, accordingly, no charges were made
against the Separate Account for federal, state and local taxes. However,
in the future, should the sponsor incur significant tax liabilities related
to Separate Account operations, it intends to make a charge or establish a
provision within the Separate Account for such taxes.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. PREMIUM DEDUCTIONS
Manufacturers Life of America deducts certain charges for state, local, and
federal taxes from the gross premium before placing the remaining net premiums
in the sub-accounts.
4. PURCHASES AND SALES OF MANUFACTURERS INVESTMENT TRUST SHARES
Purchases and sales of the shares of common stock of Manufacturers Investment
Trust for the period ended September 30, 1998 were $191,880,374 and $101,002,275
respectively, and for the year ended December 31, 1997 were $152,223,137 and
$49,351,462 respectively.
5. RELATED PARTY TRANSACTIONS
ManEquity, Inc., a registered broker-dealer and indirect wholly-owned subsidiary
of Manulife Financial, acts as the principal underwriter of the Policies
pursuant to a Distribution Agreement with Manufacturers Life of America.
Registered representatives of either ManEquity, Inc. or other broker-dealers
having distribution agreements with ManEquity, Inc. who are also authorized as
variable life insurance agents under applicable state insurance laws, sell the
Policies. Registered representatives are compensated on a commission basis.
Manufacturers Life of America has a formal service agreement with its affiliate,
Manulife Financial and The Manufacturers Life Insurance Company (U.S.A.), which
can be terminated by either party upon two months' notice. Under this Agreement,
Manufacturers Life of America pays for legal, actuarial, investment and certain
other administrative services.
F-26
<PAGE> 80
Financial Statements
Separate Account Three of
The Manufacturers Life Insurance
Company of America
Three years ended December 31, 1997
with Report of Independent Auditors
F-1
<PAGE> 81
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
FINANCIAL STATEMENTS
Three years ended December 31, 1997
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-3
Audited Financial Statements
Statement of Assets and Liabilities......................... F-4
Statements of Operations.................................... F-6
Statements of Changes in Net Assets......................... F-16
Notes to Financial Statements............................... F-25
</TABLE>
F-2
<PAGE> 82
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
We have audited the accompanying statement of assets and liabilities of Separate
Account Three of The Manufacturers Life Insurance Company of America as of
December 31, 1997 and the related statements of operations and changes in net
assets for each of the three years in the period then ended. These financial
statements are the responsibility of The Manufacturers Life Insurance Company of
America's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1997, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Separate Account Three of The
Manufacturers Life Insurance Company of America at December 31, 1997 and the
results of its operations and the changes in its net assets for each of the
three years in the period then ended, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 30, 1998
F-3
<PAGE> 83
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
SUB-ACCOUNT
NET ASSET UNITS NET ASSET
VALUE OUTSTANDING VALUE PER UNIT
------------ ----------- --------------
<S> <C> <C> <C>
Assets
Investment in NASL Series Trust -- at market value:
Emerging Growth Trust, 2,749,403 shares
(cost $59,599,231).................................. $ 66,343,106 1,538,945 $43.11
Quantitative Equity Trust, 1,784,411 shares (cost
$30,678,993)........................................ 40,149,248 1,168,380 34.36
Real Estate Securities Trust, 1,275,685 shares
(cost $19,783,593).................................. 25,603,002 649,627 39.41
Balanced Trust, 2,163,632 shares (cost $35,196,971)... 41,823,014 1,593,352 26.25
Capital Growth Bond Trust, 1,572,920 shares
(cost $17,439,500).................................. 18,639,105 880,058 21.18
Money Market Trust, 2,942,758 shares (cost
$29,427,581)........................................ 29,427,581 1,689,057 17.42
International Stock Trust, 1,339,292 shares (cost
$15,229,874)........................................ 15,361,685 1,263,839 12.15
Pacific Rim Emerging Markets Trust, 608,649 shares
(cost $6,478,241)................................... 4,357,924 571,156 7.63
Equity Index Trust, 1,576,166 shares (cost
$19,182,507)........................................ 19,670,555 1,282,564 15.34
Equity Trust, 856,317 shares (cost $17,673,381)....... 18,410,808 1,358,092 13.56
Value Equity Trust, 859,774 shares (cost
$12,907,640)........................................ 14,822,505 1,005,924 14.74
Growth and Income Trust, 812,277 shares
(cost $16,894,178).................................. 19,405,298 1,243,803 15.60
U.S. Government Securities Trust, 164,676 shares
(cost $2,156,052)................................... 2,223,129 200,133 11.11
Conservative Asset Allocation Trust, 58,907 shares
(cost $676,390)..................................... 693,930 59,185 11.72
Moderate Asset Allocation Trust, 144,764 shares
(cost $1,773,525)................................... 1,874,694 151,176 12.40
Aggressive Asset Allocation Trust, 154,889 shares
(cost $2,059,486)................................... 2,224,207 170,944 13.01
International Small Cap Trust, 102,354 shares
(cost $1,441,324)................................... 1,402,244 110,896 12.64
Blue Chip Growth Trust, 251,892 shares (cost
$3,539,000)......................................... 3,778,382 235,467 16.05
Science & Technology Trust, 78,196 shares
(cost $1,127,494)................................... 1,065,029 75,729 14.06
Pilgram Baxter Growth Trust, 44,916 shares (cost
$579,959)........................................... 561,449 38,627 14.54
Small/Mid Cap Trust, 95,514 shares (cost
$1,467,059)......................................... 1,471,877 96,429 15.26
Worldwide Growth Trust, 22,465 shares (cost
$319,802)........................................... 315,411 23,039 13.69
Global Equity Trust, 75,778 shares (cost
$1,436,469)......................................... 1,468,584 100,693 14.58
Growth Trust, 72,591 shares (cost $1,233,796)......... 1,249,285 83,448 14.97
Value Trust, 73,039 shares (cost $1,101,750).......... 1,080,976 74,764 14.46
International Growth and Income Trust, 71,329 shares
(cost $824,585)..................................... 785,328 62,885 12.49
High Yield Trust, 78,982 shares (cost $1,084,445)..... 1,070,992 77,316 13.85
Strategic Bond Trust, 52,826 shares (cost $643,281)... 653,990 48,010 13.62
Global Government Bond Trust, 15,761 shares (cost
$217,959)........................................... 221,760 16,782 13.21
Investment Quality Bond Trust, 21,517 shares (cost
$254,918)........................................... 261,007 19,211 13.59
Lifestyle Aggressive 1000 Trust, 180,325 shares
(cost $2,440,021)................................... 2,428,972 169,592 14.32
Lifestyle Growth 820 Trust, 381,917 shares
(cost $5,283,738)................................... 5,258,998 369,541 14.23
Lifestyle Balanced 640 Trust, 156,600 shares (cost
$2,079,716)......................................... 2,123,497 150,592 14.10
Lifestyle Moderate 460 Trust, 7,669 shares (cost
$102,377)........................................... 102,380 7,392 13.85
Lifestyle Conservative 280 Trust, 103 shares (cost
$1,312)............................................. 1,341 98 13.68
------------
Net assets.............................................. $346,331,293
============
</TABLE>
See accompanying notes.
F-4
<PAGE> 84
(This page intentionally left blank)
F-5
<PAGE> 85
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
EMERGING GROWTH QUANTITATIVE EQUITY
SUB-ACCOUNT SUB-ACCOUNT
-------------------------------------- ------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net investment income:
Dividend income................................. $ -- $ 7,702,014 $ 721,489 $ -- $4,240,752 $ --
----------- ----------- ---------- ---------- ---------- ----------
Realized and unrealized gain (loss) on
investments:
Realized gain (loss) from security transactions:
Proceeds from sales........................... 7,107,331 4,088,127 1,274,886 3,096,117 1,222,403 798,694
Cost of securities sold....................... 5,908,528 3,518,688 1,068,731 2,122,759 976,262 804,887
----------- ----------- ---------- ---------- ---------- ----------
Net realized gain (loss)........................ 1,198,803 569,439 206,155 973,358 246,141 (6,193)
----------- ----------- ---------- ---------- ---------- ----------
Unrealized appreciation (depreciation) of
investments:
Beginning of year............................. (1,640,500) 4,794,911 78,088 1,534,960 2,295,941 (438,289)
End of year................................... 6,743,875 (1,640,500) 4,794,911 9,470,255 1,534,960 2,295,941
----------- ----------- ---------- ---------- ---------- ----------
Net unrealized appreciation (depreciation)
during the year............................... 8,384,375 (6,435,411) 4,716,823 7,935,295 (760,981) 2,734,230
----------- ----------- ---------- ---------- ---------- ----------
Net realized and unrealized gain (loss) on
investments..................................... 9,583,178 (5,865,972) 4,922,978 8,908,653 (514,840) 2,728,037
----------- ----------- ---------- ---------- ---------- ----------
Net increase (decrease) in net assets derived from
operations...................................... $ 9,583,178 $ 1,836,042 $5,644,467 $8,908,653 $3,725,912 $2,728,037
=========== =========== ========== ========== ========== ==========
</TABLE>
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
See accompanying notes.
F-6
<PAGE> 86
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
REAL ESTATE SECURITIES BALANCED CAPITAL GROWTH BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------------------------ -------------------------------------- ------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
---------- ---------- ---------- ---------- ----------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $2,776,056 $ 142,066 $ -- $ 4,478,042 $ 24,806 $ -- $ 864,430 $ 726,517
---------- ---------- ---------- ---------- ----------- ----------- ---------- ---------- ----------
1,134,797 660,261 812,232 4,291,414 1,836,560 739,327 1,876,127 1,292,420 798,441
898,569 631,891 830,335 3,671,860 1,674,031 769,053 1,866,847 1,363,232 830,096
---------- ---------- ---------- ---------- ----------- ----------- ---------- ---------- ----------
236,228 28,370 (18,103) 619,554 162,529 (29,726) 9,280 (70,812) (31,655)
---------- ---------- ---------- ---------- ----------- ----------- ---------- ---------- ----------
2,155,063 748,034 (280,544) 958,041 2,693,376 (1,064,130) (223,171) 153,798 (542,982)
5,819,409 2,155,063 748,034 6,626,043 958,041 2,693,376 1,199,605 (223,171) 153,798
---------- ---------- ---------- ---------- ----------- ----------- ---------- ---------- ----------
3,664,346 1,407,029 1,028,578 5,668,002 (1,735,335) 3,757,506 1,422,776 (376,969) 696,780
---------- ---------- ---------- ---------- ----------- ----------- ---------- ---------- ----------
3,900,574 1,435,399 1,010,475 6,287,556 (1,572,806) 3,727,780 1,432,056 (447,781) 665,125
---------- ---------- ---------- ---------- ----------- ----------- ---------- ---------- ----------
$3,900,574 $4,211,455 $1,152,541 $6,287,556 $ 2,905,236 $ 3,752,586 $1,432,056 $ 416,649 $1,391,642
========== ========== ========== ========== =========== =========== ========== ========== ==========
</TABLE>
F-7
<PAGE> 87
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. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net investment income:
Dividend income................................. $ 1,159,280 $ 1,505,315 $ 468 $ 209,753 $248,736 $ 59,169
----------- ----------- ---------- --------- -------- --------
Realized and unrealized gain (loss) on
investments:
Realized and unrealized gain (loss) from
security transactions:
Proceeds from sales........................... 18,425,413 17,344,859 8,849,535 780,310 289,302 344,439
Cost of securities sold....................... 19,340,111 16,936,049 8,634,234 656,813 250,445 334,542
----------- ----------- ---------- --------- -------- --------
Net realized gain (loss)........................ (914,698) 408,810 215,301 123,497 38,857 9,897
----------- ----------- ---------- --------- -------- --------
Unrealized appreciation (depreciation) of
investments:
Beginning of year............................. (914,724) 233,720 (75,010) 450,565 99,777 (3,406)
End of year................................... 1 (914,724) 233,720 131,811 450,565 99,777
----------- ----------- ---------- --------- -------- --------
Net unrealized appreciation (depreciation)
during the year............................... 914,725 (1,148,444) 308,730 (318,754) 350,788 103,183
----------- ----------- ---------- --------- -------- --------
Net realized and unrealized gain (loss) on
investments..................................... 27 (739,634) 524,031 (195,257) 389,645 113,080
----------- ----------- ---------- --------- -------- --------
Net increase (decrease) in net assets derived from
operations...................................... $ 1,159,307 $ 765,681 $ 524,499 $ 14,496 $638,381 $172,249
=========== =========== ========== ========= ======== ========
</TABLE>
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
See accompanying notes.
F-8
<PAGE> 88
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
PACIFIC RIM
EMERGING MARKETS EQUITY INDEX EQUITY VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------------------------- -------------------------- -------------------------- --------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96
----------- ---------- ---------- ---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 12,667 $239,201 $ 19,281 $2,468,634 $449,782 $2,150,334 $ 26,181 $1,127,557 $ 8,790
----------- -------- -------- ---------- -------- ---------- -------- ---------- --------
1,556,257 443,740 335,955 1,982,591 231,179 1,891,337 54,581 1,288,325 438,548
1,571,876 374,390 329,373 1,529,141 214,759 1,889,551 56,756 1,107,952 417,223
----------- -------- -------- ---------- -------- ---------- -------- ---------- --------
(15,619) 69,350 6,582 453,450 16,420 1,786 (2,175) 180,373 21,325
----------- -------- -------- ---------- -------- ---------- -------- ---------- --------
67,813 88,856 (8,633) (46,898) -- 495,686 -- 364,883 --
(2,120,317) 67,813 88,856 488,048 (46,898) 737,427 495,686 1,914,865 364,883
----------- -------- -------- ---------- -------- ---------- -------- ---------- --------
(2,188,130) (21,043) 97,489 534,946 (46,898) 241,741 495,686 1,549,982 364,883
----------- -------- -------- ---------- -------- ---------- -------- ---------- --------
(2,203,749) 48,307 104,071 988,396 (30,478) 243,527 493,511 1,730,355 386,208
----------- -------- -------- ---------- -------- ---------- -------- ---------- --------
$(2,191,082) $287,508 $123,352 $3,457,030 $419,304 $2,393,861 $519,692 $2,857,912 $394,998
=========== ======== ======== ========== ======== ========== ======== ========== ========
</TABLE>
F-9
<PAGE> 89
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
U.S. GOVERNMENT CONSERVATIVE
GROWTH AND INCOME SECURITIES ASSET ALLOCATION
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------------------- --------------------------- ---------------------------
YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96
---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income:
Dividend income................... $ 556,761 $ 1,952 $123,037 $ 26,995 $ 42,335 $ 8,660
---------- -------- -------- -------- -------- -------
Realized and unrealized gain (loss)
on investments:
Realized and unrealized gain
(loss) from security
transactions:
Proceeds from sales............. 3,054,342 82,474 750,917 141,134 236,418 30,301
Cost of securities sold......... 2,467,777 77,312 752,455 149,988 228,648 31,365
---------- -------- -------- -------- -------- -------
Net realized gain (loss).......... 586,565 5,162 (1,538) (8,854) 7,770 (1,064)
---------- -------- -------- -------- -------- -------
Unrealized appreciation
(depreciation) of investments:
Beginning of year............... 405,558 -- 38,928 -- 6,566 --
End of year..................... 2,511,120 405,558 67,077 38,928 17,540 6,566
---------- -------- -------- -------- -------- -------
Net unrealized appreciation
(depreciation) during the
year............................ 2,105,562 405,558 28,149 38,928 10,974 6,566
---------- -------- -------- -------- -------- -------
Net realized and unrealized gain
(loss) on investments............. 2,692,127 410,720 26,611 30,074 18,744 5,502
---------- -------- -------- -------- -------- -------
Net increase (decrease) in net
assets derived from operations.... $3,248,888 $412,672 $149,648 $ 57,069 $ 61,079 $14,162
========== ======== ======== ======== ======== =======
</TABLE>
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
See accompanying notes.
F-10
<PAGE> 90
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
MODERATE AGGRESSIVE INTERNATIONAL BLUE CHIP **SCIENCE &
ASSET ALLOCATION ASSET ALLOCATION SMALL CAP GROWTH TECHNOLOGY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------------------- ------------------------------ ------------- ------------- -------------
YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED YEAR ENDED *PERIOD ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/97 DEC. 31/97
---------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 83,798 $ 2,105 $140,784 $11,072 $ 212 $104,304 $ 16,815
-------- ------- -------- ------- -------- -------- --------
71,531 45,521 226,753 79,723 206,034 121,709 457,533
65,973 45,706 204,492 82,946 203,025 128,505 477,311
-------- ------- -------- ------- -------- -------- --------
5,558 (185) 22,261 (3,223) 3,009 (6,796) (19,778)
-------- ------- -------- ------- -------- -------- --------
23,967 -- 43,313 -- -- -- --
101,169 23,967 164,721 43,313 (39,080) 239,382 (62,465)
-------- ------- -------- ------- -------- -------- --------
77,202 23,967 121,408 43,313 (39,080) 239,382 (62,465)
-------- ------- -------- ------- -------- -------- --------
82,760 23,782 143,669 40,090 (36,071) 232,586 (82,243)
-------- ------- -------- ------- -------- -------- --------
166,558
$ $25,887 $284,453 $51,162 $(35,859) $336,890 $(65,428)
======== ======= ======== ======= ======== ======== ========
<CAPTION>
**PILGRAM BAXTER
GROWTH
SUB-ACCOUNT
-----------------
*PERIOD ENDED
DEC. 31/97
-----------------
<S> <C>
$ --
--------
37,770
36,070
--------
1,700
--------
--
(18,510)
--------
(18,510)
--------
(16,810)
--------
$(16,810)
========
</TABLE>
F-11
<PAGE> 91
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
**SMALL/MID **WORLDWIDE **GLOBAL
CAP GROWTH EQUITY **GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ------------ ------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net investment income:
Dividend income.................................. $ -- $ 2,704 $ -- $ --
------- ------- ------- -------
Realized and unrealized gain (loss) on investments:
Realized and unrealized gain (loss) from security
transactions:
Proceeds from sales.......................... 52,379 40,572 6,150 9,760
Cost of securities sold...................... 43,433 38,790 5,777 8,653
------- ------- ------- -------
Net realized gain (loss)......................... 8,946 1,782 373 1,107
------- ------- ------- -------
Unrealized appreciation (depreciation) of
investments:
Beginning of year............................ -- -- -- --
End of year.................................. (4,182) (4,391) 32,115 15,489
------- ------- ------- -------
Net unrealized appreciation (depreciation) during
the year....................................... (4,182) (4,391) 32,115 15,489
------- ------- ------- -------
Net realized and unrealized gain (loss) on
investments........................................ 4,764 (2,609) 32,488 16,596
------- ------- ------- -------
Net increase (decrease) in net assets derived from
operations......................................... $ 4,764 $ 95 $32,488 $16,596
======= ======= ======= =======
</TABLE>
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
See accompanying notes.
F-12
<PAGE> 92
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
**INTERNATIONAL **GLOBAL **INVESTMENT
**VALUE GROWTH AND INCOME **HIGH YIELD **STRATEGIC BOND GOVERNMENT BOND QUALITY BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ----------------- ------------ ---------------- --------------- ------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97
------------ ----------------- ------------ ---------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ 33,133 $ -- $ 39,931 $ -- $ -- $ --
-------- -------- -------- ------- ------ ------
28,449 18,809 347,712 18,384 3,662 4,700
25,668 18,622 339,830 17,681 3,587 4,564
-------- -------- -------- ------- ------ ------
2,781 187 7,882 703 75 136
-------- -------- -------- ------- ------ ------
-- -- -- -- -- --
(20,774) (39,257) (13,453) 10,709 3,801 6,089
-------- -------- -------- ------- ------ ------
(20,774) (39,257) (13,453) 10,709 3,801 6,089
-------- -------- -------- ------- ------ ------
(17,993) (39,070) (5,571) 11,412 3,876 6,225
-------- -------- -------- ------- ------ ------
$ 15,140 $(39,070) $ 34,360 $11,412 $3,876 $6,225
======== ======== ======== ======= ====== ======
</TABLE>
F-13
<PAGE> 93
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
**LIFESTYLE **LIFESTYLE **LIFESTYLE **LIFESTYLE **LIFESTYLE
AGGRESSIVE GROWTH BALANCED MODERATE CONSERVATIVE
1000 820 640 460 280
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97
-------- -------- -------- ------ ---- -----------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Net investment income:
Dividend income.................... $ 4,916 $ 36,584 $ 16,038 $ 842 $ 9 $ 8,330,428
-------- -------- -------- ------ ---- -----------
Realized and unrealized gain (loss)
on investments:
Realized and unrealized gain (loss)
from security transactions:
Proceeds from sales.............. 18,722 53,801 152,797 2,366 173 49,351,462
Cost of securities sold.......... 17,881 50,741 147,960 2,372 172 45,853,994
-------- -------- -------- ------ ---- -----------
Net realized gain (loss)........... 841 3,060 4,837 (6) 1 3,497,468
-------- -------- -------- ------ ---- -----------
Unrealized appreciation
(depreciation) of investments:
Beginning of year................ -- -- -- -- -- 3,720,050
End of year...................... (11,049) (24,740) 43,781 3 29 33,986,146
-------- -------- -------- ------ ---- -----------
Net unrealized appreciation
(depreciation) during the year... (11,049) (24,740) 43,781 3 29 30,266,096
-------- -------- -------- ------ ---- -----------
Net realized and unrealized gain
(loss) on investments.............. (10,208) (21,680) 48,618 (3) 30 33,763,564
-------- -------- -------- ------ ---- -----------
Net increase (decrease) in net assets
derived from operations............ $ (5,292) $ 14,904 $ 64,656 $ 839 $ 39 $42,093,992
======== ======== ======== ====== ==== ===========
<CAPTION>
<S> <C> <C>
TOTAL
YEAR ENDED YEAR ENDED
DEC. 31/96 DEC. 31/95
----------- -----------
Net investment income:
Dividend income.................... $22,590,083 $ 1,693,796
----------- -----------
Realized and unrealized gain (loss)
on investments:
Realized and unrealized gain (loss)
from security transactions:
Proceeds from sales.............. 28,281,133 13,953,509
Cost of securities sold.......... 26,801,043 13,601,251
----------- -----------
Net realized gain (loss)........... 1,480,090 352,258
----------- -----------
Unrealized appreciation
(depreciation) of investments:
Beginning of year................ 11,108,413 (2,334,906)
End of year...................... 3,720,050 11,108,413
----------- -----------
Net unrealized appreciation
(depreciation) during the year... (7,388,363) 13,443,319
----------- -----------
Net realized and unrealized gain
(loss) on investments.............. (5,908,273) 13,795,577
----------- -----------
Net increase (decrease) in net assets
derived from operations............ $16,681,810 $15,489,373
=========== ===========
</TABLE>
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
See accompanying notes.
F-14
<PAGE> 94
(This page intentionally left blank)
F-15
<PAGE> 95
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
EMERGING GROWTH QUANTITATIVE EQUITY
SUB-ACCOUNT SUB-ACCOUNT
--------------------------------------- ---------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income......................... $ -- $ 7,702,014 $ 721,489 $ -- $ 4,240,752 $ --
Net realized gain (loss)...................... 1,198,803 569,439 206,155 973,358 246,141 (6,193)
Net unrealized appreciation (depreciation) of
investments during the period............... 8,384,375 (6,435,411) 4,716,823 7,935,295 (760,981) 2,734,230
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets derived
from operations............................. 9,583,178 1,836,042 5,644,467 8,908,653 3,725,912 2,728,037
----------- ----------- ----------- ----------- ----------- -----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums.................... 16,038,468 22,504,630 15,025,111 7,834,132 9,633,477 6,620,667
Transfer on death........................... -- -- (202,957) -- -- --
Transfer of terminations.................... (6,450,838) (4,593,540) (3,281,049) (4,132,053) (2,214,864) (1,485,111)
Transfer of policy loans.................... (358,214) (610,713) (390,119) (432,977) (113,064) (349,518)
Net interfund transfers..................... (6,440,946) (11,484) 3,663,152 (60,101) 1,337,385 2,202,823
----------- ----------- ----------- ----------- ----------- -----------
2,788,470 17,288,893 14,814,138 3,209,001 8,642,934 6,988,861
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets......... 12,371,648 19,124,935 20,458,605 12,117,654 12,368,846 9,716,898
NET ASSETS
Beginning of year............................. 53,971,458 34,846,523 14,387,918 28,031,594 15,662,748 5,945,850
----------- ----------- ----------- ----------- ----------- -----------
End of year................................... $66,343,106 $53,971,458 $34,846,523 $40,149,248 $28,031,594 $15,662,748
=========== =========== =========== =========== =========== ===========
</TABLE>
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
See accompanying notes.
F-16
<PAGE> 96
<TABLE>
<CAPTION>
REAL ESTATE BALANCED CAPITAL GROWTH BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------------------------------- --------------------------------------- ---------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 2,776,056 $ 142,066 $ -- $44,478,042 $ 24,806 $ -- $ 864,430 $ 726,517
236,228 28,370 (18,103) 619,554 162,529 (29,726) 9,280 (70,812) (31,655)
3,664,346 1,407,029 1,028,578 5,668,002 (1,735,335) 3,757,506 1,422,776 (376,969) 696,780
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
3,900,574 4,211,455 1,152,541 6,287,556 2,905,236 3,752,586 1,432,056 416,649 1,391,642
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
5,723,061 4,465,307 4,344,151 8,963,510 10,619,657 7,806,794 4,146,312 4,480,626 3,332,849
-- -- -- (44,313) -- -- -- -- --
(2,219,786) (1,347,117) (1,139,201) (3,729,355) (2,563,981) (1,853,986) (1,575,696) (1,205,581) (716,686)
(369,877) (65,858) (80,626) (417,435) (355,780) (304,332) (105,540) (27,779) (159,472)
1,279,970 467,823 42,920 (2,581,258) (394,561) 1,681,177 (81,587) 685,493 1,564,644
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
4,413,368 3,520,155 3,167,244 2,191,149 7,305,335 7,329,653 2,383,489 3,932,759 4,021,335
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
8,313,942 7,731,610 4,319,785 8,478,705 10,210,571 11,082,239 3,815,545 4,349,408 5,412,977
17,289,060 9,557,450 5,237,665 33,344,309 23,133,738 12,051,499 14,823,560 10,474,152 5,061,175
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$25,603,002 $17,289,060 $ 9,557,450 $41,823,014 $33,344,309 $23,133,738 $18,639,105 $14,823,560 $10,474,152
=========== =========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
F-17
<PAGE> 97
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
MONEY MARKET INTERNATIONAL STOCK
SUB-ACCOUNT SUB-ACCOUNT
------------------------------------------ -------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/95
------------ ------------ ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income................. $ 1,159,280 $ 1,505,315 $ 468 $ 209,753 $ 248,736 $ 59,169
Net realized gain (loss).............. (914,698) 408,810 215,301 123,497 38,857 9,897
Net unrealized appreciation
(depreciation) of investments during
the period.......................... 914,725 (1,148,444) 308,730 (318,754) 350,788 103,183
------------ ------------ ------------ ----------- ---------- ----------
Net increase (decrease) in net assets
derived from operations............. 1,159,307 765,681 524,499 14,496 638,381 172,249
------------ ------------ ------------ ----------- ---------- ----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums............ 33,859,872 23,926,029 17,598,898 5,795,630 4,320,339 1,353,292
Transfer on death................... -- -- -- -- -- --
Transfer of terminations............ (2,797,321) (2,399,186) (1,962,294) (1,224,478) (555,702) (180,239)
Transfer of policy loans............ (282,014) (34,484) (66,223) (106,208) (31,389) (2,743)
Net interfund transfers............. (20,937,650) (16,858,040) (10,196,735) 1,344,064 2,632,184 863,795
------------ ------------ ------------ ----------- ---------- ----------
9,842,887 4,634,319 5,373,646 5,809,008 6,365,432 2,034,105
------------ ------------ ------------ ----------- ---------- ----------
Net increase (decrease) in net
assets.............................. 11,002,194 5,400,000 5,898,145 5,823,504 7,003,813 2,206,354
NET ASSETS
Beginning of year..................... 18,425,387 13,025,387 7,127,242 9,538,181 2,534,368 328,014
------------ ------------ ------------ ----------- ---------- ----------
End of year........................... $ 29,427,581 $ 18,425,387 $ 13,025,387 $15,361,685 $9,538,181 $2,534,368
============ ============ ============ =========== ========== ==========
</TABLE>
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
See accompanying notes.
F-18
<PAGE> 98
<TABLE>
<CAPTION>
PACIFIC RIM
EMERGING MARKETS EQUITY INDEX EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------------------------------- --------------------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/95 DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96
----------- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 12,667 $ 239,201 $ 19,281 $ 2,468,634 $ 449,782 $ 2,150,334 $ 26,181
(15,619) 69,350 6,582 453,450 16,420 1,786 (2,175)
)
(2,188,130 (21,043) 97,489 534,946 (46,898) 241,741 495,686
----------- ----------- ---------- ----------- ---------- ----------- ----------
)
(2,191,082 287,508 123,352 3,457,030 419,304 2,393,861 519,692
----------- ----------- ---------- ----------- ---------- ----------- ----------
2,059,145 2,541,885 812,122 7,852,789 5,327,031 7,868,634 4,931,946
-- -- -- -- -- -- --
(620,211) (354,050) (131,282) (781,683) (136,828) (1,054,893) (260,549)
(58,638) (25,816) (3,509) (721,710) -- (45,576) (65,890)
(630,778) 1,682,204 622,581 3,377,661 876,961 778,412 3,345,171
----------- ----------- ---------- ----------- ---------- ----------- ----------
749,518 3,844,223 1,299,912 9,727,057 6,067,164 7,546,577 7,950,678
----------- ----------- ---------- ----------- ---------- ----------- ----------
(1,441,564) 4,131,731 1,423,264 13,184,087 6,486,468 9,940,438 8,470,370
5,799,488 1,667,757 244,493 6,486,468 -- 8,470,370 --
----------- ----------- ---------- ----------- ---------- ----------- ----------
$ 4,357,924 $ 5,799,488 $1,667,757 $19,670,555 $6,486,468 $18,410,808 $8,470,370
=========== =========== ========== =========== ========== =========== ==========
</TABLE>
F-19
<PAGE> 99
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
U.S. GOVERNMENT
VALUE EQUITY GROWTH AND INCOME SECURITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
--------------------------- --------------------------- --------------------------
YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96
----------- ------------- ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income.................... $ 1,127,557 $ 8,790 $ 556,761 $ 1,952 $ 123,037 $ 26,995
Net realized gain (loss)................. 180,373 21,325 586,565 5,162 (1,538) (8,854)
Net unrealized appreciation
(depreciation) of investments during
the period............................. 1,549,982 364,883 2,105,562 405,558 28,149 38,928
----------- ---------- ----------- ---------- ---------- ----------
Net increase (decrease) in net assets
derived from operations................ 2,857,912 394,998 3,248,888 412,672 149,648 57,069
----------- ---------- ----------- ---------- ---------- ----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums............... 4,090,507 3,266,118 7,079,242 2,527,210 745,345 757,201
Transfer on death...................... -- -- -- -- -- --
Transfer of terminations............... (793,110) (147,201) (910,308) (98,012) (221,531) (35,748)
Transfer of policy loans............... (69,774) (36,263) (76,204) (13,676) (50,875) (30,576)
Net interfund transfers................ 3,108,426 2,150,892 4,479,340 2,756,146 (76,765) 929,361
----------- ---------- ----------- ---------- ---------- ----------
6,336,049 5,233,546 10,572,070 5,171,668 396,174 1,620,238
----------- ---------- ----------- ---------- ---------- ----------
Net increase (decrease) in net assets.... 9,193,961 5,628,544 13,820,958 5,584,340 545,822 1,677,307
NET ASSETS
Beginning of year........................ 5,628,544 -- 5,584,340 -- 1,677,307 --
----------- ---------- ----------- ---------- ---------- ----------
End of year.............................. $14,822,505 $5,628,544 $19,405,298 $5,584,340 $2,223,129 $1,677,307
=========== ========== =========== ========== ========== ==========
</TABLE>
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
See accompanying notes.
F-20
<PAGE> 100
<TABLE>
<CAPTION>
CONSERVATIVE ASSET MODERATE ASSET AGGRESSIVE ASSET INTERNATIONAL BLUE CHIP
ALLOCATION ALLOCATION ALLOCATION SMALL CAP GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
-------------------------- -------------------------- -------------------------- ------------- -----------
YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED *PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/96 DEC. 31/97 DEC. 31/97
---------- ------------- ---------- ------------- ---------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 42,335 $ 8,660 $ 83,798 $ 2,105 $ 140,784 $ 11,072 $ 212 $ 104,304
7,770 (1,064) 5,558 (185) 22,261 (3,223) 3,009 (6,796)
10,974 6,566 77,202 23,967 121,408 43,313 (39,080) 239,382
-------- -------- ---------- ---------- ---------- -------- ---------- ----------
61,079 14,162 166,558 25,887 284,453 51,162 (35,859) 336,890
-------- -------- ---------- ---------- ---------- -------- ---------- ----------
334,314 143,807 692,412 348,167 1,008,793 387,073 609,617 1,748,929
-- -- -- -- -- -- -- --
(34,376) (33,413) (104,738) (25,611) (143,026) (58,999) (48,039) (152,046)
-- -- (346) -- (2,986) -- (2,873) (5,593)
(37,686) 246,043 588,790 183,575 263,513 434,224 879,398 1,850,202
-------- -------- ---------- ---------- ---------- -------- ---------- ----------
262,252 356,437 1,176,118 506,131 1,126,294 762,298 1,438,103 3,441,492
-------- -------- ---------- ---------- ---------- -------- ---------- ----------
323,331 370,599 1,342,676 532,018 1,410,747 813,460 1,402,244 3,778,382
370,599 -- 532,018 -- 813,460 -- -- --
-------- -------- ---------- ---------- ---------- -------- ---------- ----------
$693,930 $370,599 $1,874,694 $ 532,018 $2,224,207 $813,460 $1,402,244 $3,778,382
======== ======== ========== ========== ========== ======== ========== ==========
</TABLE>
F-21
<PAGE> 101
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
**PILGRAM
**SCIENCE & BAXTER **SMALL/MID **WORLDWIDE
TECHNOLOGY GROWTH CAP GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ------------ ------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income.................................. $ 16,815 $ -- $ -- $ 2,704
Net realized gain (loss)............................... (19,778) 1,700 8,946 1,782
Net unrealized appreciation (depreciation) of
investments during the period........................ (62,465) (18,510) (4,182) (4,391)
---------- -------- ---------- --------
Net increase (decrease) in net assets derived from
operations........................................... (65,428) (16,810) 4,764 95
---------- -------- ---------- --------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums............................... 361,963 141,492 757,544 143,932
Transfer on death...................................... -- -- -- --
Transfer of terminations............................... (21,603) (7,886) (32,683) (4,603)
Transfer of policy loans............................... (904) -- (269) (1,290)
Net interfund transfers................................ 791,001 444,653 742,521 177,277
---------- -------- ---------- --------
1,130,457 578,259 1,467,113 315,316
---------- -------- ---------- --------
Net increase (decrease) in net assets.................. 1,065,029 561,449 1,471,877 315,411
NET ASSETS
Beginning of year...................................... -- -- -- --
---------- -------- ---------- --------
End of year............................................ $1,065,029 $561,449 $1,471,877 $315,411
========== ======== ========== ========
</TABLE>
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
See accompanying notes.
F-22
<PAGE> 102
<TABLE>
<CAPTION>
**INTERNATIONAL **GLOBAL
**GLOBAL GROWTH AND **STRATEGIC GOVERNMENT **INVESTMENT
EQUITY **GROWTH **VALUE INCOME **HIGH YIELD BOND BOND QUALITY BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------ ------------ ------------ --------------- ------------ ------------ ------------ ------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97
------------ ------------ ------------ --------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ -- $ 33,133 $ -- $ 39,931 $ -- $ -- $ --
373 1,107 2,781 187 7,882 703 75 136
32,115 15,489 (20,774) (39,257) (13,453) 10,709 3,801 6,089
------------ ---------- ---------- -------- ---------- -------- -------- --------
32,488 16,596 15,140 (39,070) 34,360 11,412 3,876 6,225
------------ ---------- ---------- -------- ---------- -------- -------- --------
697,468 470,000 346,369 744,217 276,881 273,501 58,746 75,411
-- -- -- -- -- -- -- --
(22,616) (29,691) (21,998) (9,912) (31,310) (11,295) (2,335) (3,321)
(283) (2,329) (1,030) -- (6,696) (504) -- --
761,527 794,709 742,495 90,093 797,757 380,876 161,473 182,692
------------ ---------- ---------- -------- ---------- -------- -------- --------
1,436,096 1,232,689 1,065,836 824,398 1,036,632 642,578 217,884 254,782
------------ ---------- ---------- -------- ---------- -------- -------- --------
1,468,584 1,249,285 1,080,976 785,328 1,070,992 653,990 221,760 261,007
-- -- -- -- -- -- -- --
------------ ---------- ---------- -------- ---------- -------- -------- --------
$ 1,468,584 $1,249,285 $1,080,976 $785,328 $1,070,992 $653,990 $221,760 $261,007
============ ========== ========== ======== ========== ======== ======== ========
</TABLE>
F-23
<PAGE> 103
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
<TABLE>
<CAPTION>
**LIFESTYLE **LIFESTYLE **LIFESTYLE **LIFESTYLE **LIFESTYLE
AGGRESSIVE GROWTH BALANCED MODERATE CONSERVATIVE
1000 820 640 460 280
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
------------ ------------ ------------ ------------ ------------ ------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97 DEC. 31/97
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income........... $ 4,916 $ 36,584 $ 16,038 $ 842 $ 9 $ 8,330,428
Net realized gain (loss)........ 841 3,060 4,837 (6) 1 3,497,468
Net unrealized appreciation
(depreciation) of investments
during the period............. (11,049) (24,740) 43,781 3 29 30,266,096
---------- ---------- ---------- -------- ------ ------------
Net increase (decrease) in net
assets derived from
operations.................... (5,292) 14,904 64,656 839 39 42,093,992
---------- ---------- ---------- -------- ------ ------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums...... 421,769 2,011,046 568,684 92,570 150 123,892,455
Transfer on death............. -- -- -- -- -- (44,313)
Transfer of terminations...... (47,502) (85,509) (122,871) (2,513) (224) (27,451,360)
Transfer of policy loans...... (3,766) (826) -- -- -- (3,124,737)
Net interfund transfers....... 2,063,763 3,319,383 1,613,028 11,484 1,376 179,113
---------- ---------- ---------- -------- ------ ------------
2,434,264 5,244,094 2,058,841 101,541 1,302 93,451,158
---------- ---------- ---------- -------- ------ ------------
Net increase (decrease) in net
assets........................ 2,428,972 5,258,998 2,123,497 102,380 1,341 135,545,150
NET ASSETS
Beginning of year............... -- -- -- -- -- 210,786,143
---------- ---------- ---------- -------- ------ ------------
End of year..................... $2,428,972 $5,258,998 $2,123,497 $102,380 $1,341 $346,331,293
========== ========== ========== ======== ====== ============
<CAPTION>
TOTAL
---------------------------
YEAR ENDED YEAR ENDED
DEC. 31/96 DEC. 31/95
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net investment income........... $ 22,590,083 $ 1,693,796
Net realized gain (loss)........ 1,480,090 352,258
Net unrealized appreciation
(depreciation) of investments
during the period............. (7,388,363) 13,443,319
------------ ------------
Net increase (decrease) in net
assets derived from
operations.................... 16,681,810 15,489,373
------------ ------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums...... 100,180,503 56,893,884
Transfer on death............. -- (202,957)
Transfer of terminations...... (16,030,382) (10,749,848)
Transfer of policy loans...... (1,411,288) (1,356,542)
Net interfund transfers....... 463,377 444,357
------------ ------------
83,202,210 45,028,894
------------ ------------
Net increase (decrease) in net
assets........................ 99,884,020 60,518,267
NET ASSETS
Beginning of year............... 110,902,123 50,383,856
------------ ------------
End of year..................... $210,786,143 $110,902,123
============ ============
</TABLE>
* Reflects the period from commencement of operations February 14, 1996 through
December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
See accompanying notes.
F-24
<PAGE> 104
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. ORGANIZATION
Separate Account Three of The Manufacturers Life Insurance Company of America
(the "Separate Account") is a unit investment trust registered under the
Investment Company Act of 1940, as amended. The Separate Account is comprised of
investment sub-accounts available for allocation of net premiums under single
premium variable life and variable universal life insurance policies (the
"Policies") issued by The Manufacturers Life Insurance Company of America
("Manufacturers Life of America"). The Separate Account was established by
Manufacturers Life of America, a life insurance company organized in 1983 under
Michigan law. Manufacturers Life of America is an indirect, wholly-owned
subsidiary of The Manufacturers Life Insurance Company ("Manulife Financial"), a
Canadian mutual life insurance company. On January 1, 1996, Manulife Financial
merged with North American Life Assurance Company and, as a result, acquired
control of the NASL Series Trust which, effective October 31, 1997, was renamed
Manufacturers Investment Trust. Each investment sub-account invests solely in
shares of a particular Manufacturers Investment Trust or, prior to the merger, a
Manulife Series Fund. NASL Series Trust and, prior to the merger, Manulife
Series Fund are registered under the Investment Company Act of 1940 as open-end
management investment companies.
The International Small Cap and Blue Chip Growth Trusts were added to the
Separate Account on January 1, 1997 as investment options for variable universal
life policy holders of Manufacturers Life of America. The Science & Technology,
Pilgram Baxter Growth, Small/Mid Cap, Worldwide Growth, Global Equity, Growth,
Value, International Growth and Income, High Yield, Strategic Bond, Global
Government Bond, Investment Quality Bond, Lifestyle Aggressive 1000, Lifestyle
Growth 820, Lifestyle Balanced 640, Lifestyle Moderate 460, and Lifestyle
Conservative 280 Trusts were added to the Separate Account on May 1, 1997 as
investment options for variable universal life policy holders of Manufacturers
Life of America.
The Equity Index Fund, Equity, Value Equity, Growth and Income, U.S. Government
Securities, Conservative Asset Allocation, Moderate Asset Allocation, and
Aggressive Asset Allocation Trusts were added to the Separate Account on
February 14, 1996 as investment options for variable universal life policy
holders of Manufacturers Life of America.
Effective December 31, 1996, Manulife Series Fund, Inc. was merged into the
Manufacturers Investment Trust (formerly the NASL Series Trust). As a result,
the following sub-accounts of the Separate Account were renamed to correspond
with the fund names of the Manufacturers Investment Trust.
<TABLE>
<CAPTION>
MANULIFE SERIES FUND, INC. MANUFACTURERS INVESTMENT TRUST
SUB-ACCOUNTS SUB-ACCOUNTS
-------------------------- ------------------------------
<S> <C>
Emerging Growth Equity Fund Emerging Growth Trust
Common Stock Fund Quantitative Equity Trust
Real Estate Securities Trust Real Estate Securities Fund
Balanced Assets Fund Balanced Trust
Capital Growth Bond Fund Capital Growth Bond Trust
Money Market Fund Money Market Trust
International Fund International Stock Trust
Pacific Rim Emerging Markets Fund Pacific Rim Emerging Markets Trust
Equity Index Fund Equity Index Trust
</TABLE>
All references hereinafter to Manufacturers Investment Trust would have been to
Manulife Series Fund, Inc. prior to December 31, 1996.
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
F-25
<PAGE> 105
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
FINANCIAL STATEMENTS -- (CONTINUED)
which arise from any other business Manufacturers Life of America conducts.
However, all obligations under the variable policies are general corporate
obligations of Manufacturers Life of America.
Additional assets are held in Manufacturers Life of America's general account to
cover the contingency that the guaranteed minimum death benefit might exceed the
death benefit which would have been payable in the absence of such guarantee.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Separate Account in preparation of its financial statements:
a. Valuation of Investments -- Investments are made among the thirty-five
Trusts of Manufacturers Investment Trust and are valued at the reported net
asset values of these Trusts. Transactions are recorded on the trade date.
Net investment income and net realized gains on investments in
Manufacturers Investment Trust are reinvested.
b. Realized gains and losses on the sale of investments are computed on the
first-in, first-out basis.
c. Dividend income is recorded on the ex-dividend date.
d. Federal Income Taxes -- Manufacturers Life of America, the Separate
Account's sponsor, is taxed as a "life insurance company" under the
Internal Revenue Code. Under these provisions of the Code, the operations
of the Separate Account form part of the sponsor's total operations and are
not taxed separately.
The current year's operations of the Separate Account are not expected to
affect the sponsor's tax liabilities and, accordingly, no charges were made
against the Separate Account for federal, state and local taxes. However,
in the future, should the sponsor incur significant tax liabilities related
to the Separate Account's operations, it intends to make a charge or
establish a provision within the Separate Account for such taxes.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. PREMIUM DEDUCTIONS
Manufacturers Life of America deducts certain charges for state, local, and
federal taxes from the gross premium before placing the remaining net premiums
in the sub-accounts.
4. PURCHASES AND SALES OF MANUFACTURERS INVESTMENT TRUST SHARES
Purchases and sales of the shares of common stock of Manufacturers Investment
Trust for the year ended December 31, 1997 were $152,223,137 and $49,351,462,
respectively, and for the year ended December 31, 1996 were $135,942,906 and
$28,281,133, respectively.
F-26
<PAGE> 106
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
FINANCIAL STATEMENTS -- (CONTINUED)
5. RELATED PARTY TRANSACTIONS
ManEquity, Inc., a registered broker-dealer and indirect wholly-owned subsidiary
of Manulife Financial, acts as the principal underwriter of the Policies
pursuant to a Distribution Agreement with Manufacturers Life of America.
Registered representatives of either ManEquity, Inc. or other broker-dealers
having distribution agreements with ManEquity, Inc. who are also authorized as
variable life insurance agents under applicable state insurance laws, sell the
Policies. Registered representatives are compensated on a commission basis.
Manufacturers Life of America has a formal service agreement with its
affiliates, Manulife Financial and The Manufacturers Life Insurance Company
(U.S.A.), which can be terminated by either party upon two months notice. Under
this Agreement, Manufacturers Life of America pays for legal, actuarial,
investment and certain other administrative services.
F-27
<PAGE> 107
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
FINANCIAL STATEMENTS -- (CONTINUED)
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
AS AT AS AT
SEPTEMBER 30 DECEMBER 31
1998 1997
------------ -----------
<S> <C> <C>
ASSETS ($ THOUSANDS)
Investments:
Securities available-for-sale, at fair value:
Fixed maturity (amortized cost: 1998 $49,413; 1997
$66,565).............................................. $ 54,255 $ 67,893
Equity (cost: 1998 $20,013; 1997 $20,153).............. 17,886 19,460
Policy loans........................................... 18,341 14,673
Cash and short-term investments........................ 21,559 22,012
---------- ----------
Total investments........................................... $ 112,041 $ 124,038
========== ==========
Deferred acquisition costs.................................. $ 155,300 $ 130,355
Income taxes recoverable.................................... 4,225 5,679
Other assets................................................ 7,508 9,495
Separate account assets..................................... 929,356 897,044
---------- ----------
Total assets................................................ $1,208,430 $1,166,611
========== ==========
LIABILITIES, CAPITAL AND SURPLUS ($ THOUSANDS)
Liabilities:
Policyholder liabilities and accruals.................. $ 99,494 $ 94,477
Notes payable.......................................... 8,500 41,500
Due to affiliates...................................... 14,008 13,943
Deferred income taxes.................................. 2,334 1,174
Other liabilities...................................... 15,873 11,704
Separate account liabilities........................... 929,356 897,044
---------- ----------
Total liabilities........................................... $1,069,565 $1,059,842
========== ==========
Capital and Surplus:
Common shares.......................................... $ 4,502 $ 4,502
Preferred shares....................................... 10,500 10,500
Contributed surplus.................................... 132,887 98,569
Retained earnings (deficit)............................ (4,677) (1,910)
Foreign currency translation adjustment................ (5,986) (5,272)
Net unrealized gain on securities available-for-sale... 1,639 380
---------- ----------
Total capital and surplus................................... $ 138,865 $ 106,769
---------- ----------
Total liabilities, capital and surplus...................... $1,208,430 $1,166,611
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE> 108
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
($ THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
Premiums............................................... $ 2,109 $ 2,376 $ 6,267 $ 6,018
Fee income............................................. 13,581 10,114 39,592 32,519
Net investment income.................................. 1,578 (387) 4,197 6,301
Realized investment gains (losses)..................... -- 117 (8) (88)
Other.................................................. 156 43 260 186
------- ------- ------- -------
Total Revenue............................................... $17,424 $12,263 $50,308 $44,936
------- ------- ------- -------
Benefits and Expenses:
Policyholder benefits and claims....................... $ 3,879 $ 5,357 $11,461 $ 7,050
Operating costs and expenses........................... 10,320 9,457 29,793 25,521
Commissions............................................ 599 609 1,895 2,955
Amortization of deferred acquisition costs............. 3,641 2,980 8,127 10,214
Interest expense....................................... 381 -- 2,265 2,156
Policyholder dividends................................. 180 49 974 1,202
------- ------- ------- -------
Total benefits and expenses................................. $19,000 $18,362 $54,515 $49,178
------- ------- ------- -------
Income (loss) before income taxes........................... (1,576) (6,099) (4,207) (4,242)
------- ------- ------- -------
Income tax benefit (expense)................................ 472 2,036 1,440 976
------- ------- ------- -------
Net income (loss)........................................... $(1,104) $(4,063) $(2,767) $(3,266)
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE> 109
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
---------------------
1998 1997
-------- ---------
($ THOUSANDS)
<S> <C> <C>
Operating Activities:
Net loss.................................................... $ (2,767) $ (3,266)
Adjustments to reconcile net income to net cash used in
operating activities:
Additions (decreases) to policy liabilities............ 3,598 (2,213)
Deferred acquisition costs............................. (33,818) (20,267)
Amortization of deferred acquisition costs............. 8,127 10,214
Realized losses on investments......................... 8 88
Additions (decreases) to deferred income taxes......... 620 (2,577)
Other.................................................. 9,206 3,533
-------- ---------
Net cash used in operating activities....................... $(15,026) $ (14,488)
-------- ---------
Investing Activities:
Fixed maturity securities sold.............................. $ 23,363 $ 67,003
Fixed maturity securities purchased......................... (6,654) (46,244)
Equities sold............................................... 7,032 6,671
Equities purchased.......................................... (6,919) (6,752)
Policy loans advanced, net.................................. (3,668) (3,696)
Guaranteed annuity contracts................................ -- 171,691
-------- ---------
Cash provided by investing activities....................... $ 13,154 $ 188,673
-------- ---------
Financing Activities:
Receipts from variable life and annuity policies credited to
policyholder account balances............................. $ 6,071 $ 5,735
Withdrawals of policyholder account balances on variable
life and annuity policies................................. (4,652) (2,891)
Repayment of bonds payable.................................. -- (158,760)
-------- ---------
Cash provided by (used in) financing activities............. $ 1,419 $(155,916)
-------- ---------
Cash and Short-Term Investments:
Increase (decrease) during the period....................... $ (453) $ 18,269
Balance, beginning of year.................................. 22,012 17,493
-------- ---------
Balance, end of period...................................... $ 21,559 $ 35,762
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE> 110
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of The
Manufacturers Life Insurance Company of America and its wholly-owned
subsidiaries have been prepared in accordance with generally accepted accounting
principles ("GAAP"), except that they do not contain complete notes. However, in
the opinion of management, these statements include all normal recurring
adjustments necessary for a fair presentation of the results. These financial
statements should be read in conjunction with the financial statements and the
related notes included in ManAmerica's annual report on Form 10-K for the year
ended December 31, 1997. Operating results for the nine months ended September
30, 1998 are not necessarily indicative of the results that may be expected for
the full year ending December 31, 1998.
2. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards (SFAS) 130,
"Reporting Comprehensive Income". SFAS 130 establishes standards for reporting
and displaying comprehensive income and its components in a full set of general-
purpose annual financial statements. Comprehensive income includes all changes
in capital and surplus during a period except those resulting from investments
by, and distributions to shareholders. The adoption of SFAS 130 resulted in
revised and additional disclosures but had no effect on the financial position,
results of operations, or liquidity of the Company.
Total comprehensive income for the three months and nine months ended September
30, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------ ------------------
COMPREHENSIVE INCOME: 1998 1997 1998 1997
- --------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss)........................................... $(1,104) $(4,063) $(2,767) $(3,266)
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on available-for-sale
securities............................................. 269 (396) 1,259 672
Foreign currency translation.............................. 75 -- (714) --
------- ------- ------- -------
Other comprehensive income (loss)........................... $ 344 $ (396) $ 545 $ 672
------- ------- ------- -------
Comprehensive Income (Loss)................................. $ (760) $(4,459) $(2,222) $(2,594)
======= ======= ======= =======
</TABLE>
Other comprehensive income is reported net of taxes of $185 and $(213) for the
three months and $293 and $362 for the nine months ended September 30, 1998 and
1997, respectively.
3. CAPITAL CONTRIBUTION
On June 30, 1998 an outstanding promissory note issued by the Company on
December 5, 1997 to ManUSA in the amount of $34.3 million ($33 million principal
plus $1.3 million accrued interest) was converted to capital and reported as
contributed surplus.
4. COMPARATIVE FIGURES
Certain amounts in the 1997 financial statements have been reclassified to
conform to the 1998 financial statement presentation.
F-31
<PAGE> 111
CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
WITH REPORT OF INDEPENDENT AUDITORS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-33
Audited Consolidated Financial Statements
Consolidated Balance Sheets................................. F-34
Consolidated Statements of Income........................... F-35
Consolidated Statements of Changes in Capital And Surplus... F-36
Consolidated Statements of Cash Flows....................... F-37
Notes to Consolidated Financial Statements.................. F-38
</TABLE>
F-32
<PAGE> 112
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
We have audited the accompanying consolidated balance sheets of The
Manufacturers Life Insurance Company of America as of December 31, 1997 and
1996, and the related consolidated statements of income, changes in capital and
surplus and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Manufacturers
Life Insurance Company of America at December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 20, 1998
F-33
<PAGE> 113
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS AT DECEMBER 31
------------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS ($ THOUSANDS)
Investments:
Securities available-for-sale, at fair value: (note 4)
Fixed maturity (amortized cost: 1997 $66,565; 1996
$50,456).............................................. $ 67,893 $ 51,708
Equity (cost: 1997 $20,153; 1996 $19,450).............. 19,460 21,572
Mortgage loans......................................... 131 645
Policy loans........................................... 14,673 9,822
Cash and short-term investments........................ 22,012 17,493
---------- ----------
Total investments........................................... $ 124,169 $ 101,240
========== ==========
Guaranteed annuity contracts (note 5)....................... $ -- $ 171,691
Deferred acquisition costs (note 6)......................... 130,355 102,610
Income taxes recoverable.................................... 5,679 10,549
Deferred income taxes (note 7).............................. -- 1,041
Other assets................................................ 9,364 7,378
Separate account assets..................................... 897,044 668,094
---------- ----------
Total assets................................................ $1,166,611 $1,062,603
========== ==========
LIABILITIES, CAPITAL AND SURPLUS ($ THOUSANDS)
Liabilities:
Policyholder liabilities and accruals.................. $ 94,477 $ 91,915
Bonds payable (note 5)................................. -- 158,760
Notes payable (note 8)................................. 41,500 8,500
Due to affiliates...................................... 13,943 11,122
Deferred income taxes (note 7)......................... 1,174 --
Other liabilities...................................... 11,704 7,582
Separate account liabilities........................... 897,044 668,094
---------- ----------
Total liabilities........................................... $1,052,842 $ 945,973
Capital and Surplus:
Common shares (note 9)................................. $ 4,502 $ 4,502
Preferred shares (note 9).............................. 10,500 10,500
Contributed surplus.................................... 98,569 98,569
Retained earnings (deficit)............................ (1,910) 1,726
Foreign currency translation adjustment................ (5,272) --
Net unrealized gains on securities available-for-sale
(note 4).............................................. 380 1,333
---------- ----------
Total capital and surplus................................... $ 106,769 $ 116,630
========== ==========
Total liabilities, capital and surplus...................... $1,166,611 $1,062,603
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
<PAGE> 114
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-------------------------------
1997 1996 1995
------- -------- --------
($ THOUSANDS)
<S> <C> <C> <C>
Revenue:
Premiums............................................... $ 5,334 $ 12,898 $ 15,293
Fee income............................................. 41,955 40,434 24,986
Net investment income (note 4)......................... 8,275 19,651 18,729
Realized investment gains (losses)..................... 118 (119) 3,084
Other.................................................. 544 668 82
------- -------- --------
Total Revenue............................................... $56,226 $ 73,532 $ 62,174
------- -------- --------
Benefits and expenses:
Policyholder benefits and claims....................... $ 6,733 $ 14,473 $ 16,905
Operating costs and expenses........................... 41,742 34,581 30,728
Commissions............................................ 2,838 10,431 5,859
Amortization of deferred acquisition costs (note 6).... 4,860 13,240 5,351
Interest expense....................................... 2,750 12,251 12,251
Policyholder dividends................................. 1,416 872 1,886
------- -------- --------
Total benefits and expenses................................. 60,339 85,848 72,980
------- -------- --------
Loss before income taxes.................................... (4,113) (12,316) (10,806)
------- -------- --------
Income tax benefit (note 7)................................. 477 3,909 3,960
------- -------- --------
Net loss.................................................... $(3,636) $ (8,407) $ (6,846)
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE> 115
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
<TABLE>
<CAPTION>
NET
UNREALIZED FOREIGN TOTAL
RETAINED GAINS (LOSSES) CURRENCY CAPITAL
CAPITAL CONTRIBUTED EARNINGS ON SECURITIES TRANSLATION AND
STOCK SURPLUS (DEFICIT) AVAILABLE-FOR-SALE ADJUSTMENT SURPLUS
------- ----------- --------- ------------------ ----------- --------
($ THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEARS ENDED DECEMBER 31
1997
Balance, January 1.................... $15,002 $98,569 $ 1,726 $ 1,333 -- $116,630
Net loss during the year......... (3,636) (3,636)
Change in unrealized gain (loss)
net of taxes (note 4).......... (953) (953)
Other............................ (5,272) (5,272)
------- ------- ------- ------- ------- --------
Balance, December 31 (Note 9)......... $15,002 $98,569 $(1,910) $ 380 $(5,272) $106,769
------- ------- ------- ------- ------- --------
1996
Balance, January 1.................... $15,002 $83,569 $10,133 $ 1,816 -- $110,520
Net loss during the year......... (8,407) (8,407)
Change in unrealized gain (loss),
net of taxes (note 4).......... (483) (483)
Issuance of shares (note 9)...... 15,000 15,000
------- ------- ------- ------- ------- --------
Balance, December 31.................. $15,002 $98,569 $ 1,726 $ 1,333 -- $116,630
------- ------- ------- ------- ------- --------
1995
Balance, January 1.................... $15,002 $70,999 $16,979 $(1,141) -- $101,839
Net loss during the year......... (6,846) (6,846)
Change in unrealized gain (loss),
net of taxes................... 0 2,957 2,957
Issuance of shares (note 9)...... 12,570 12,570
------- ------- ------- ------- ------- --------
Balance, December 31.................. $15,002 $83,569 $10,133 $ 1,816 -- $110,520
------- ------- ------- ------- ------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-36
<PAGE> 116
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
--------------------------------
1997 1996 1995
--------- --------- --------
($ THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Loss.................................................... $ (3,636) $ (8,407) $ (6,846)
Adjustments to reconcile net loss to net cash used in
operating activities:
Additions (decreases) to policy liabilities............ (2,147) 3,287 7,329
Deferred acquisition costs............................. (33,544) (36,024) (28,147)
Amortization of deferred acquisition costs............. 4,860 13,240 5,351
Realized (gains) losses on investments................. (118) 119 (3,084)
Decreases to deferred income taxes..................... 2,730 777 1,168
Other.................................................. 7,144 6,540 (5,336)
--------- --------- --------
Net cash used in operating activities....................... (24,711) (20,468) (29,565)
INVESTING ACTIVITIES:
Fixed maturity securities sold.............................. 73,772 120,234 67,507
Fixed maturity securities purchased......................... (89,763) (108,401) (76,402)
Equity securities sold...................................... 10,586 25,505 6,500
Equity securities purchased................................. (11,289) (22,203) (1,726)
Mortgage loans repaid....................................... 514 6,669 77,086
Policy loans advanced....................................... (4,851) (2,867) (2,461)
Guaranteed annuity contracts................................ 171,691 (16,356) (79,710)
--------- --------- --------
Cash provided by (used in) investing activities............. 150,660 2,581 (9,206)
FINANCING ACTIVITIES:
Receipts from variable life and annuity policies credited to
policyholder account balances............................. 7,582 5,493 9,017
Withdrawals of policyholder account balances on variable
life and annuity policies................................. (3,252) (2,994) (3,173)
Bonds payable repaid........................................ (158,760) -- --
Issuance of shares.......................................... -- 15,000 12,570
Issuance of promissory note................................. 33,000 -- --
Issuance of surplus notes................................... -- -- 8,500
--------- --------- --------
Cash provided by (used in) financing activities............. (121,430) 17,499 26,914
--------- --------- --------
CASH AND SHORT-TERM INVESTMENTS:
Increase (decrease) during the year......................... 4,519 (388) (11,857)
Balance, beginning of year.................................. 17,493 17,881 29,738
--------- --------- --------
BALANCE, END OF YEAR........................................ $ 22,012 $ 17,493 $ 17,881
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-37
<PAGE> 117
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(IN THOUSANDS OF DOLLARS)
1. ORGANIZATION
The Manufacturers Life Insurance Company of America ("ManAmerica" or the
"Company") is a wholly-owned subsidiary of The Manufacturers Life Insurance
Company (U.S.A.) ("ManUSA" or the "Parent"), which is in turn an indirectly
owned subsidiary of The Manufacturers Life Insurance Company ("Manulife
Financial"), a Canadian-based mutual life insurance company. The Company markets
variable annuity and variable life products in the United States and traditional
insurance products in Taiwan.
2. BASIS OF PRESENTATION
a) Adoption of Generally Accepted Accounting Principles
The accompanying consolidated financial statements of The Manufacturers Life
Insurance Company of America and its wholly-owned subsidiaries have been
prepared in accordance with generally accepted accounting principles ("GAAP").
Prior to 1996, the Company prepared its financial statements in conformity with
statutory accounting practices prescribed or permitted by the Insurance
Department of the State of Michigan which practices were considered GAAP for
mutual life insurance companies and their wholly-owned direct and indirect
subsidiaries. Financial Accounting Standard Board Interpretation 40,
"Applicability of Generally Accepted Accounting Principles to Mutual Life
Insurance and Other Enterprises" ("FIN 40") as amended, which is effective for
1996 annual financial statements and thereafter, no longer permits statutory
based financial statements to be described as being prepared in conformity with
GAAP. Accordingly, the Company has adopted GAAP including Statement of Financial
Accounting Standards 120 ("FAS 120"), "Accounting and Reporting by Mutual Life
Insurance Enterprises and by Insurance Enterprises for Certain Long Duration
Participating Contracts", which addresses the accounting for long-duration
insurance and reinsurance contracts, including all participating business.
Pursuant to the requirements of FIN 40 and FAS 120, the effect of the changes in
accounting have been applied retroactively and the previously issued 1995
financial statements have been restated for the change.
The adoption had the effect of increasing net income for 1995 by approximately
$6,859.
b) Recent Accounting Standards
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("FAS") No. 129 "Disclosure of Information about
Capital Structure," FAS No. 130 "Reporting Comprehensive Income," and FAS No.
131 "Disclosures about Segments of an Enterprise and Related Information." These
new accounting standards, which will be effective for the 1998 financial
statements, will result primarily in additional disclosures in the Company's
financial statements and are not expected to have a material effect on the
Company's financial position and results of operations.
c) Reorganization
On December 20, 1995, Manulife Reinsurance Corporation (U.S.A.) ("MRC")
transferred to the Company all of the common and preferred shares of
Manufacturers Adviser Corporation ("MAC"), an investment adviser registered
under the Investment Advisers Act of 1940.
On December 31, 1996, ManUSA transferred to the Company all of the common and
preferred shares of Manulife Holding Corporation ("Holdco"), an investment
holding company. Holdco has primarily two wholly-owned subsidiaries, ManEquity
Inc., a registered broker/dealer, and the Manufacturers Life Mortgage Securities
Corporation ("MLMSC"), an issuer of mortgage-backed US Dollar bonds. The Company
then transferred all the common and preferred shares of MAC to Holdco for two
shares of $1 common stock of Holdco.
These transfers have been accounted for using the pooling-of-interests method of
accounting. Under this method, the assets, liabilities, capital and surplus,
revenues and expenses of each separate entity are combined retroactively at
their historical
F-38
<PAGE> 118
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
carrying values to form the financial statements of the Company for all periods
presented to give effect to the reorganization as if the structure in place at
December 31, 1996 had been in place as of the earliest period presented in these
consolidated financial statements. The accounts of all subsidiary companies are
therefore combined and all significant inter-company balances and transactions
are eliminated on combination. In addition, the capital and surplus of the
Company has been restated retroactively to reflect the capital structure in
place at December 31, 1996.
The revenues and net income reported by the separate entities and the combined
amounts presented in the accompanying consolidated financial statements are as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31
-------------------
1996 1995
-------- --------
<S> <C> <C>
($ THOUSANDS)
<CAPTION>
<S> <C> <C>
Revenue:
ManAmerica................................................ $54,404 $45,655
Holdco.................................................... 15,543 13,828
MAC....................................................... 3,585 2,691
------- -------
Total revenue............................................... $73,532 $62,174
======= =======
Net Income (loss):
ManAmerica................................................ $(8,676) $(7,402)
Holdco.................................................... (670) (10)
MAC....................................................... 939 566
------- -------
Total net loss.............................................. $(8,407) $(6,846)
======= =======
</TABLE>
In October 1997, MLMSC was absorbed into Holdco subsequent to the maturity and
repayment of the mortgage-backed US dollar bonds. All assets and liabilities of
MLMSC were transferred to Holdco at their respective book values.
3. SIGNIFICANT ACCOUNTING POLICIES
a) Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from reported results using those estimates.
b) Investments
The Company classifies all of its fixed maturity and equity securities as
available-for-sale and records these securities at fair value. Realized gains
and losses on sales of securities classified as available-for-sale are
recognized in net income using the specific identification method. Changes in
the fair value of securities available-for-sale are reflected directly in
surplus after adjustments for deferred taxes and deferred acquisition costs.
Discounts and premiums on investments are amortized using the effective interest
method.
Mortgage loans are reported at amortized cost, net of a provision for losses.
The provision for losses is established for mortgage loans which are considered
to be impaired when the Company has determined that it is probable that all
amounts due under contractual terms will not be collected. Impaired loans are
reported at the lower of unpaid principal or fair value of the underlying
collateral.
Policy loans are reported at aggregate unpaid balances which approximate fair
value.
Short-term investments include investments with maturities of less than one year
at the date of acquisition.
F-39
<PAGE> 119
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
c) Deferred Acquisition Costs (DAC)
Commissions and other expenses which vary with and are primarily related to the
production of new business are deferred to the extent recoverable and included
as an asset. DAC associated with variable annuity and variable life insurance
contracts is charged to expense in relation to the estimated gross profits of
those contracts. The amortization is adjusted retrospectively when estimates of
current or future gross profits are revised. DAC associated with traditional
life insurance policies is charged to expense over the premium paying period of
the related policies. DAC is adjusted for the impact on estimated future gross
profits assuming the unrealized gains or losses on securities had been realized
at year-end. The impact of any such adjustments is included in net unrealized
gains (losses) in Capital and Surplus. DAC is reviewed annually to determine
recoverability from future income and, if not recoverable, it is immediately
expensed.
d) Policyholder Liabilities
For variable annuity and variable life contracts, reserves equal the
policyholder account value. Account values are increased for deposits received
and interest credited and are reduced by withdrawals, mortality charges and
administrative expenses charged to the policyholders. Policy charges which
compensate the Company for future services are deferred and recognized in income
over the period earned, using the same assumptions used to amortize DAC.
Policyholder liabilities for traditional life insurance policies sold in Taiwan
are computed using the net level premium method and are based upon estimates as
to future mortality, persistency, maintenance expense and interest rate yields
that were established in the year of issue.
e) Separate Accounts
Separate account assets and liabilities represent funds that are separately
administered, principally for variable annuity and variable life contracts, and
for which the contract holder, rather than the Company, bears the investment
risk. Separate account contract holders have no claim against the assets of the
general account of the Company. Separate account assets are recorded at market
value. Operations of the separate accounts are not included in the accompanying
financial statements.
f) Revenue Recognition
Fee income from variable annuity and variable life insurance policies consists
of policy charges for the cost of insurance, expenses and surrender charges that
have been assessed against the policy account balances. Policy charges that are
designed to compensate the company for future services are deferred and
recognized in income over the period benefited, using the same assumptions used
to amortize DAC. Premiums on long-duration life insurance contracts are
recognized as revenue when due. Investment income is recorded when due.
g) Expenses
Expenses for variable annuity and variable life insurance policies include
interest credited to policy account balances and benefit claims incurred during
the period in excess of policy account balances.
h) Reinsurance
The Company is routinely involved in reinsurance transactions in order to
minimize exposure to large risks. Life reinsurance is accomplished through
various plans including yearly renewable term, co-insurance and modified
co-insurance. Reinsurance premiums and claims are accounted for on a basis
consistent with that used in accounting for the original policies issued and the
terms of the reinsurance contracts. Premiums and claims are reported net of
reinsured amounts. Amounts paid with respect to ceded reinsurance contracts are
reported as reinsurance receivables in other assets.
F-40
<PAGE> 120
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
i) Foreign Exchange
The Company's Taiwanese branch balance sheet and statement of income are
translated at the current exchange and average exchange rates for the year
respectively. The resultant translation adjustments are included as a separate
component in capital and surplus. In prior years, there were no reported
translation adjustments as there were no significant movements in foreign
currency exchange rates.
j) Income Tax
Income taxes have been provided for in accordance with Statement of Financial
Accounting Standards 109 ("FAS109") "Accounting for Income Taxes." The Company
joins ManUSA, MRC, Capitol Bankers Life Insurance Company and Manulife
Reinsurance Limited ("MRL") in filing a U.S. consolidated income tax return as a
life insurance group under provisions of the Internal Revenue Code. In
accordance with an income tax sharing agreement, the Company's income tax
provision (or benefit) is computed as if the Company filed a separate income tax
return. Tax benefits from operating losses are provided at the U.S. statutory
rate plus any tax credits attributable to the Company, provided the consolidated
group utilizes such benefits currently. Deferred income taxes result from
temporary differences between the tax basis of assets and liabilities and their
recorded amounts for financial reporting purposes. Income taxes recoverable
represents amounts due from ManUSA in connection with the consolidated return.
4. INVESTMENTS AND INVESTMENT INCOME
a) Fixed Maturity and Equity Securities
At December 31, 1997, all fixed maturity and equity securities have been
classified as available-for-sale and reported at fair value. The amortized cost
and fair value is summarized as follows:
<TABLE>
<CAPTION>
GROSS
GROSS UNREALIZED
AMORTIZED COST UNREALIZED GAINS LOSSES FAIR VALUE
----------------- ----------------- --------------- -----------------
1997 1996 1997 1996 1997 1996 1997 1996
------- ------- ------- ------- ------- ----- ------- -------
($ THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AS AT DECEMBER 31,
Fixed maturity securities:
U.S. government........................ $51,694 $ 9,219 $ 937 $ 386 $ (135) $ (98) $52,496 $ 9,507
Foreign governments.................... 6,922 9,227 203 221 (14) (8) 7,111 9,440
Corporate.............................. 7,949 32,010 415 981 (78) (230) 8,286 32,761
------- ------- ------ ------ ------- ----- ------- -------
Total fixed maturity securities........ $66,565 $50,456 $1,555 $1,588 $ (227) $(336) $67,893 $51,708
Equity securities...................... $20,153 $19,450 $1,496 $2,134 $(2,189) $ (12) $19,460 $21,572
------- ------- ------ ------ ------- ----- ------- -------
</TABLE>
Proceeds from sales of fixed maturity securities during 1997 were $73,772 (1996
$120,234; 1995 $67,507). Gross gains of $955 and gross losses of $837 were
realized on those sales (1996 $1,858 and $1,837; 1995 $2,630 and $218
respectively).
Proceeds from sale of equity securities during 1997 were $10,586 (1996 $25,505;
1995 $6,500). Gross gains of $NIL and gross losses of $NIL were realized on
those sales (1996 $NIL and $140; 1995 $785 and $113 respectively).
F-41
<PAGE> 121
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The contractual maturities of fixed maturity securities at December 31, 1997 are
shown below. Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
prepayment penalties. Corporate requirements and investment strategies may
result in the sale of investments before maturity.
<TABLE>
<CAPTION>
AMORTIZED COST FAIR VALUE
-------------- ----------
($ THOUSANDS)
<S> <C> <C>
Fixed maturity securities
One year or less.......................................... $ 1,654 $ 1,651
Greater than 1; up to 5 years............................. 3,876 3,953
Greater than 5; up to 10 years............................ 50,353 50,655
Due after 10 years........................................ 10,682 11,634
------- -------
Total fixed maturity securities............................. $66,565 $67,893
======= =======
</TABLE>
UNREALIZED GAINS (LOSSES) ON SECURITIES AVAILABLE-FOR-SALE
Net unrealized gains (losses) on fixed maturity and equity securities included
in capital and surplus were as follows:
<TABLE>
<CAPTION>
AS AT DECEMBER 31
---------------------
1997 1996
------- -------
<S> <C> <C>
($ THOUSANDS)
<CAPTION>
<S> <C> <C>
Gross unrealized gains...................................... $ 3,051 $ 3,722
Gross unrealized losses..................................... (2,416) (348)
DAC and other fair value adjustments........................ (50) (1,321)
Deferred income taxes....................................... (205) (720)
------- -------
Net unrealized gains (losses) on securities
available-for-sale........................................ $ 380 $ 1,333
------- -------
</TABLE>
b) Investment Income
Income by type of investment was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
----------------------------------
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
($ THOUSANDS)
<CAPTION>
<S> <C> <C> <C>
Fixed maturity securities................................... $4,545 $ 4,447 $ 4,430
Mortgage loans.............................................. 67 278 3,076
Equity securities........................................... 331 671 646
Guaranteed annuity contracts................................ 2,796 13,196 9,691
Other investments........................................... 705 1,419 1,235
------ ------- -------
Gross investment income..................................... 8,444 20,011 19,078
------ ------- -------
Investment expenses......................................... 169 360 349
------ ------- -------
Net Investment Income....................................... $8,275 $19,651 $18,729
====== ======= =======
</TABLE>
5. GUARANTEED ANNUITY CONTRACTS AND BONDS PAYABLE
The Company's wholly-owned subsidiary, Manufacturers Life Mortgage Securities
Corporation, has historically invested amounts received as repayments of
mortgage loans in annuities issued by ManUSA. These annuities were collateral
for the 8 1/4% mortgage-backed bonds payable. On March 1, 1997 the annuities
matured and the proceeds were used to repay the bonds payable.
In October 1997, MLMSC was absorbed into Manulife Holding Corporation.
F-42
<PAGE> 122
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------
1997 1996 1995
--------- --------- ---------
($ THOUSANDS)
<S> <C> <C> <C>
Balance at January 1,....................................... $102,610 $ 78,829 $ 60,124
Capitalization.............................................. 33,544 36,024 28,147
Accretion of interest....................................... 9,357 6,344 4,992
Amortization................................................ (16,864) (19,159) (10,852)
Effect of net unrealized gains (losses) on securities
available for sale........................................ 1,268 996 (4,091)
Other....................................................... 440 (424) 509
-------- -------- --------
Balance at December 31...................................... $130,355 $102,610 $ 78,829
======== ======== ========
</TABLE>
7. INCOME TAXES
Components of income tax benefit were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------
1997 1996 1995
--------- --------- ---------
($ THOUSANDS)
<S> <C> <C> <C>
Current expense (benefit)................................... $(3,207) $(4,686) $(5,128)
Deferred expense (benefit).................................. 2,730 777 1,168
------- ------- -------
Total Benefit............................................... $ (477) $(3,909) $(3,960)
======= ======= =======
</TABLE>
The Company's deferred income tax liability, which results from tax effecting
the differences between financial statement values and tax values of assets and
liabilities at each balance sheet date, relates to the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31
-------------------
1997 1996
-------- --------
($ THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Differences in computing policy reserves............... $34,291 $28,508
Policyholder dividends payable......................... 240 283
Investments............................................ 793 --
------- -------
Deferred tax assets......................................... $35,324 $28,791
======= =======
Deferred tax liabilities:
Deferred acquisition costs............................. $30,682 $25,522
Investments............................................ 166 928
Other deferred tax liabilities......................... 5,650 1,300
------- -------
Deferred tax liabilities.................................... 36,498 27,750
------- -------
Net deferred tax assets (liabilities)....................... $(1,174) $ 1,041
======= =======
</TABLE>
The Company and its US insurance affiliates have available capital loss
carryforwards of $4,800 which will begin to expire in 1999 and can only be used
by Capitol Bankers Life Insurance Company.
F-43
<PAGE> 123
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. NOTES PAYABLE
a) The Company has an outstanding surplus debenture in the amount of
$8,500 plus interest at 6.7% issued on December 31, 1995 to ManUSA which
matures on December 31, 2005. Payments of principal and interest cannot be
made without prior approval of the Insurance Commissioner of the State of
Michigan and the Company's Board of Directors, and to the extent the
Company has sufficient unassigned surplus on a statutory basis available
for such payment.
b) The Company has an outstanding promissory note in the amount of
$33,000 plus interest at 6.95% issued on December 5, 1997 payable to ManUSA
which matures on February 1, 2007.
9. CAPITAL AND SURPLUS
The Company has two classes of capital stock, as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31:
-------------------------
1997 1996
----------- -----------
($ THOUSANDS)
<S> <C> <C>
Authorized:
5,000,000 Common shares, Par value $1.00
5,000,000 Preferred shares, Par value $100.00
Issued and Outstanding:
4,501,860 Common shares................................ $ 4,501,860 $ 4,501,860
105,000 Preferred shares............................... 10,500,000 10,500,000
----------- -----------
Total....................................................... $15,001,860 $15,001,860
=========== ===========
</TABLE>
During 1996, the Company issued two common shares to its Parent Company in
return for a capital contribution of $15,000.
During 1995, the Company issued one common share to its Parent Company in return
for a capital contribution of $12,570.
The Company is subject to statutory limitations on the payment of dividends to
its Parent. Under Michigan Insurance Law, the payment of dividends to
shareholders is restricted to the surplus earnings of the Company, unless prior
approval is obtained from the Michigan Insurance Bureau.
The aggregate statutory capital and surplus of the Company at December 31, 1997
was $56,598 (1996 $76,202). The aggregate statutory net loss of the Company for
the year ended 1997 was $2,550 (1996 $15,961; 1995 $13,705). State regulatory
authorities prescribe statutory accounting practices that differ in certain
respects from generally accepted accounting principles followed by stock life
insurance companies. The significant differences relate to investments, deferred
acquisition costs, deferred income taxes, non-admitted asset balances and
reserve calculation assumptions.
F-44
<PAGE> 124
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and the estimated fair values of certain of the Company's
financial instruments at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
-------- --------
($ THOUSANDS)
<S> <C> <C>
Assets:
Fixed maturity and equity securities................... $87,353 $87,353
Mortgage loans......................................... 131 131
Policy loans........................................... 14,673 14,673
Liabilities:
Promissory note........................................ 33,000 33,000
Surplus note........................................... 8,500 8,220
</TABLE>
The following methods and assumptions were used to estimate the fair values of
the above financial instruments:
Fixed Maturity And Equity Securities: Fair values of fixed maturity
and equity securities were based on quoted market prices, where available.
Fair values were estimated using values obtained from independent pricing
services.
Mortgage Loans: Fair value of mortgage loans was estimated using
discounted cash flows using contractual maturities and discount rates that
were based on U.S. Treasury rates for similar maturity ranges, adjusted for
risk, based on property type.
Policy Loans: Carrying values approximate fair values.
Promissory Note: Carrying value approximates fair value.
Surplus Note: Fair value was estimated using current interest rates
that were based on U.S. Treasuries for similar maturity ranges.
11. RELATED PARTY TRANSACTIONS
The Company has a formal service agreement with Manulife Financial which can be
terminated by either party upon two months' notice. Under the Agreement, the
Company will pay direct operating expenses incurred each year by Manulife
Financial on its behalf. Services provided under the agreement include legal,
actuarial, investment, data processing and certain other administrative
services. Costs incurred under this agreement were $30,873, $26,982 and $23,210
in 1997, 1996 and 1995 respectively. In addition, there were $11,249, $6,934 and
$5,052 of agents bonuses allocated to the Company during 1997, 1996 and 1995,
respectively, which are included in commissions.
The Company has several reinsurance agreements with affiliated companies which
may be terminated upon the specified notice by either party. These agreements
are summarized as follows:
(a) The Company assumes two blocks of insurance from ManUSA under coinsurance
treaties. The Company's risk is limited to $100,000 of initial face amount
per claim plus a pro-rata share of any increase in face amount.
(b) The Company cedes the risk in excess of $25,000 per life to MRC under the
terms of an automatic reinsurance agreement
(c) The Company cedes a substantial portion of its risk on its Flexible Premium
Variable Life policies to MRC under the terms of a stop loss reinsurance
agreement.
F-45
<PAGE> 125
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Selected amounts relating to the above treaties reflected in the financial
statements are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------
1997 1996 1995
--------- --------- ---------
($ THOUSANDS)
<S> <C> <C> <C>
Life and annuity premiums assumed........................... $ 509 $ 676 $ 5,959
Life and annuity premiums ceded............................. 1,157 -- --
Policy reserves assumed..................................... 40,975 44,497 47,386
Policy reserves ceded....................................... 130 304 3,838
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts to affiliates were $3,972,
$NIL and $NIL during 1997, 1996 and 1995 respectively.
The Company markets variable life insurance and variable annuity products
through Separate Accounts which use Manufacturers Investment Trust (formerly
NASL Series Trust) as its investment vehicle. The Manufacturers Investment Trust
is an entity sponsored by an affiliated company, The Manufacturers Life
Insurance of North America (formerly North American Security Life Insurance
Company).
Manulife Financial provides a claims paying guarantee to the Company's U.S.
policyholders.
12. REINSURANCE
In the normal course of business, the Company assumes and cedes reinsurance as a
party to several reinsurance treaties with major unrelated insurance companies.
The Company remains liable for amounts ceded in the event that reinsurers do not
meet their obligations.
The effects of reinsurance on premiums were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31
------------------------------
1997 1996 1995
-------- -------- --------
($ THOUSANDS)
<S> <C> <C> <C>
Direct premiums............................................. $8,572 $12,998 $9,809
Reinsurance ceded........................................... 2,590 776 475
------ ------- ------
Total Premiums.............................................. $5,982 $12,222 $9,334
====== ======= ======
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts were $909, $357 and $170
during 1997, 1996 and 1995 respectively.
13. FOREIGN OPERATIONS
The Company markets traditional life insurance products in Taiwan through its
Taiwanese Branch. The carrying amount of net assets located in Taiwan as at
December 31, 1997 and 1996 was $6,006 and $15,080 respectively.
The net income (loss) related to the Taiwan and U.S. business was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------
1997 1996 1995
--------- --------- ---------
($ THOUSANDS)
<S> <C> <C> <C>
Taiwan...................................................... $(2,835) $(17,530) $(9,332)
U.S......................................................... (801) 9,123 2,486
------- -------- -------
Total....................................................... $(3,636) $ (8,407) $(6,846)
======= ======== =======
</TABLE>
14. CONTINGENCIES
The Company is subject to various lawsuits that have arisen in the course of its
business. Contingent liabilities arising from litigation, income taxes and other
matters are not considered material in relation to the financial position of the
Company.
F-46
<PAGE> 126
APPENDIX A
SAMPLE ILLUSTRATIONS OF POLICY VALUES, CASH SURRENDER VALUES AND DEATH BENEFITS
The following tables have been prepared to help show how values under the Policy
change with investment performance. The tables include both Policy Values and
Cash Surrender Values as well as Death Benefits. The Policy Value is the sum of
the values in the Investment Accounts, as the tables assume no values in the
Guaranteed Interest Account or Loan Account. The Cash Surrender Value is the
Policy Value less any applicable surrender charges. The tables illustrate how
Policy Values and Cash Surrender Values, which reflect all applicable charges
and deductions, and Death Benefits of the Policy on lives insured of given ages
would vary over time if the return on the assets of the Portfolios was a
uniform, gross, after-tax, annual rate of 0%, 6% or 12%. The Policy Values,
Death Benefits and Cash Surrender Values would be different from those shown if
the returns averaged 0%, 6% or 12%, but fluctuated over and under those averages
throughout the years. The charges reflected in the tables include those for
deductions from premiums, surrender charges, and monthly deductions.
The amount shown for the Policy Value, Death Benefit and Cash Surrender Value as
of each Policy Year reflect the fact that the net investment return on the
assets held in the sub-accounts is lower than the gross, after-tax return. This
is because the expenses and fees borne by Manufacturers Investment Trust are
deducted from the gross return. The illustrations reflect an average of those
Portfolios' current expenses, which is approximately .873% per annum. The gross
annual rates of return of 0%, 6% and 12% correspond to approximate net annual
rates of return of -0.869%, 5.079% and 11.027%. The illustrations reflect the
expense reimbursement in effect for the LifeStyle Trusts and the expense
limitation in effect for the Equity Index Trust. In the absence of such expense
reimbursement and expense limitation, the average of the Portfolio's current
expenses would have been .877% 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 -0.873%, 5.074% and 11.022%. The expense reimbursement 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 Guaranteed
Interest Account, that planned premiums are paid on the Policy Anniversary and
that no transfers, partial withdrawals, Policy loans, changes in death benefit
options or changes in face amount have been made. The tables reflect the fact
that no charges for federal, state or local taxes are currently made against the
Separate Account. If such a charge is made in the future, it would take a higher
gross rate of return to produce after-tax returns of 0%, 6% and 12% than it does
now.
There are two tables shown for each combination of age and death benefit option
for a Policy issued to a male non-smoker and female non-smoker, one based on
current cost of insurance charges assessed by the Company and the other based on
the maximum cost of insurance charges based on the 1980 Commissioners Standard
Ordinary Smoker/Nonsmoker Mortality Tables. Current cost of insurance charges
are not guaranteed and may be changed. Upon request, Manufacturers Life of
America will furnish a comparable illustration based on the proposed lives
insured's issue ages, sex (unless unisex rates are required by law, or are
requested) and risk classes, any additional ratings and the death benefit
option, face amount and planned premium requested. Illustrations for smokers
would show less favorable results than the illustrations shown below.
From time to time, in advertisements or sales literature for the Policies that
quote performance data of one or more of the Portfolios, the Company may include
cash surrender values and death benefit figures computed using the same
methodology as that used in the following illustrations, but with the average
annual total return of the Fund for which performance data is shown in the
advertisement replacing the hypothetical rates of return shown in the following
tables. This information may be shown in the form of graphs, charts, tables and
examples.
A-1
<PAGE> 127
The Policies have been offered to the public only since March 1, 1999. However,
total return data may be advertised for as long a period of time as the
underlying Portfolio has been in existence. The results for any period prior to
the Policies' being offered would be calculated as if the Policies had been
offered during that period of time, with all charges assumed to be those
applicable to the Policies.
A-2
<PAGE> 128
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$7,500 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------------- -----------------------------------
END OF CASH CASH
POLICY ACCUMULATED POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR PREMIUMS VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 ................... 7,875 5,976 0 500,000 6,359 0 500,000
2 ................... 16,144 12,355 3,954 500,000 13,505 5,104 500,000
3 ................... 24,826 18,616 10,802 500,000 20,943 13,129 500,000
4 ................... 33,942 24,769 17,639 500,000 28,693 21,562 500,000
5 ................... 43,514 30,811 24,365 500,000 36,763 30,316 500,000
6 ................... 53,565 36,739 30,678 500,000 45,163 39,302 500,000
7 ................... 64,118 42,549 37,372 500,000 53,901 48,724 500,000
8 ................... 75,199 48,235 43,741 500,000 62,985 58,492 500,000
9 ................... 86,834 53,794 49,887 500,000 72,426 68,518 500,000
10................... 99,051 59,217 55,994 500,000 82,227 79,004 500,000
11................... 111,878 64,489 61,949 500,000 92,389 89,849 500,000
12................... 125,347 69,607 67,653 500,000 102,925 100,971 500,000
13................... 139,490 74,559 73,289 500,000 113,840 112,570 500,000
14................... 154,339 79,320 78,733 500,000 125,126 124,540 500,000
15................... 169,931 83,883 83,883 500,000 136,798 136,798 500,000
16................... 186,303 88,217 88,217 500,000 146,845 148,845 500,000
17................... 203,493 92,296 92,296 500,000 161,265 161,265 500,000
18................... 221,543 96,088 96,088 500,000 174,057 174,057 500,000
19................... 240,495 99,557 99,557 500,000 187,214 187,214 500,000
20................... 260,394 102,661 102,661 500,000 200,734 200,734 500,000
21................... 281,289 105,733 105,733 500,000 215,390 215,390 500,000
22................... 303,229 108,392 108,392 500,000 230,531 230,531 500,000
23................... 326,265 110,585 110,585 500,000 246,174 246,174 500,000
24................... 350,453 112,252 112,252 500,000 262,341 262,341 500,000
25................... 375,851 113,324 113,324 500,000 279,059 279,059 500,000
26................... 402,518 113,720 113,720 500,000 296,367 296,367 500,000
27................... 430,519 113,352 113,352 500,000 314,314 314,314 500,000
28................... 459,920 112,121 112,121 500,000 332,972 332,972 500,000
29................... 490,791 109,913 109,913 500,000 352,430 352,430 500,000
30................... 523,206 106,598 106,598 500,000 372,802 372,802 500,000
31................... 557,241 102,038 102,038 500,000 394,239 394,239 500,000
32................... 592,978 95,876 95,876 500,000 416,884 416,884 500,000
33................... 630,502 87,877 87,877 500,000 440,986 440,986 500,000
34................... 669,902 77,781 77,781 500,000 466,861 466,861 500,000
35................... 711,272 65,304 65,304 500,000 494,521 494,521 519,247
36................... 754,711 49,737 49,737 500,000 523,255 523,255 549,417
37................... 800,322 30,116 30,116 500,000 553,048 553,048 580,700
38................... 848,213 5,662 5,662 500,000 583,907 583,907 613,102
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
-----------------------------------
END OF CASH
POLICY POLICY SURRENDER DEATH
YEAR VALUE VALUE BENEFIT
- --------------------- -----------------------------------
<S> <C> <C> <C>
1 ................... 6,741 0 500,000
2 ................... 14,700 6,300 500,000
3 ................... 23,456 15,642 500,000
4 ................... 33,096 25,966 500,000
5 ................... 43,708 37,261 500,000
6 ................... 55,385 49,524 500,000
7 ................... 68,230 63,053 500,000
8 ................... 82,358 77,865 500,000
9 ................... 97,895 93,988 500,000
10................... 114,977 111,753 500,000
11................... 133,748 131,208 500,000
12................... 154,384 152,430 500,000
13................... 177,069 175,799 500,000
14................... 202,002 201,416 500,000
15................... 229,422 229,422 500,000
16................... 259,580 259,580 500,000
17................... 292,767 292,767 500,000
18................... 329,315 329,315 500,000
19................... 369,605 369,605 500,000
20................... 414,080 414,080 500,000
21................... 464,867 464,867 534,597
22................... 520,992 520,992 588,721
23................... 583,008 583,008 647,139
24................... 651,554 651,554 710,194
25................... 727,350 727,350 778,264
26................... 811,210 811,210 851,770
27................... 903,801 903,801 948,991
28................... 1,006,008 1,006,008 1,056,308
29................... 1,118,801 1,118,801 1,174,741
30................... 1,243,242 1,243,242 1,305,404
31................... 1,380,493 1,380,493 1,449,518
32................... 1,531,789 1,531,789 1,608,379
33................... 1,698,501 1,698,501 1,783,426
34................... 1,882,121 1,882,121 1,976,227
35................... 2,084,285 2,084,285 2,188,499
36................... 2,306,674 2,306,674 2,422,008
37................... 2,551,055 2,551,055 2,678,608
38................... 2,819,412 2,819,412 2,960,383
</TABLE>
A-3
<PAGE> 129
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$7,500 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES -- (CONTINUED)
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------------- -----------------------------------
END OF CASH CASH
POLICY ACCUMULATED POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR PREMIUMS VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
39................... 898,498 0 0 0 615,837 615,837 646,628
40................... 951,298 648,841 648,841 681,283
41................... 1,006,738 682,818 682,818 716,959
42................... 1,064,950 718,512 718,512 747,252
43................... 1,126,073 756,205 756,205 778,892
44................... 1,190,251 796,245 796,245 812,170
45................... 1,257,639 839,053 839,053 847,443
46................... 1,328,396 885,135 885,135 885,135
47................... 1,402,690 933,366 933,366 933,366
48................... 1,480,700 983,846 983,846 983,846
49................... 1,562,610 1,036,680 1,036,680 1,036,680
50................... 1,648,615 1,091,978 1,091,978 1,091,978
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
-----------------------------------
END OF CASH
POLICY POLICY SURRENDER DEATH
YEAR VALUE VALUE BENEFIT
- --------------------- -----------------------------------
<S> <C> <C> <C>
39................... 3,113,891 3,113,891 3,269,585
40................... 3,436,813 3,436,813 3,608,654
41................... 3,790,101 3,790,101 3,979,606
42................... 4,180,702 4,180,702 4,347,930
43................... 4,613,826 4,613,826 4,752,241
44................... 5,095,749 5,095,749 5,197,664
45................... 5,634,055 5,634,055 5,690,396
46................... 6,237,939 6,237,939 6,237,939
47................... 6,905,762 6,905,762 6,905,762
48................... 7,644,293 7,644,293 7,644,293
49................... 8,461,019 8,461,019 8,461,019
50................... 9,364,220 9,364,220 9,364,220
</TABLE>
(1) All values shown are as of the end of the Policy Year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the Policy Anniversary, (b) no Policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force
until the end of the first 10 Policy Years.
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> 130
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$7,500 ANNUAL PLANNED PREMIUM
ASSUMING GUARANTEED CHARGES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------------ -------------------------------
END OF CASH CASH
POLICY ACCUMULATED POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR PREMIUMS VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 ................... 7,875 5,976 0 500,000 6,359 0 500,000
2 ................... 16,144 12,355 3,954 500,000 13,505 5,104 500,000
3 ................... 24,826 18,586 10,771 500,000 20,911 13,097 500,000
4 ................... 33,942 24,662 17,531 500,000 28,580 21,450 500,000
5 ................... 43,514 30,574 24,127 500,000 36,511 30,065 500,000
6 ................... 53,565 36,312 30,451 500,000 44,704 38,844 500,000
7 ................... 64,118 41,865 36,688 500,000 53,157 47,980 500,000
8 ................... 75,199 47,219 42,726 500,000 61,864 57,371 500,000
9 ................... 86,834 52,359 48,452 500,000 70,823 66,916 500,000
10................... 99,051 57,267 54,043 500,000 80,026 76,802 500,000
11................... 111,878 61,919 59,379 500,000 89,460 86,920 500,000
12................... 125,347 66,288 64,334 500,000 99,110 97,157 500,000
13................... 139,490 70,337 69,068 500,000 108,956 107,686 500,000
14................... 154,339 74,021 73,435 500,000 118,965 118,379 500,000
15................... 169,931 77,284 77,284 500,000 129,103 129,103 500,000
16................... 186,303 80,067 80,067 500,000 139,331 139,331 500,000
17................... 203,493 82,276 82,276 500,000 149,585 149,585 500,000
18................... 221,543 83,884 83,884 500,000 159,861 159,861 500,000
19................... 240,495 84,766 84,786 500,000 170,096 170,096 500,000
20................... 260,394 84,852 84,882 500,000 180,237 180,237 500,000
21................... 281,289 84,370 84,370 500,000 190,925 190,925 500,000
22................... 303,229 82,778 82,778 500,000 201,466 201,466 500,000
23................... 326,265 79,903 79,903 500,000 211,772 211,772 500,000
24................... 350,453 75,498 75,498 500,000 221,743 221,743 500,000
25................... 375,851 69,265 69,265 500,000 231,263 231,263 500,000
26................... 402,518 60,845 60,845 500,000 240,208 240,208 500,000
27................... 430,519 49,821 49,821 500,000 248,450 248,450 500,000
28................... 459,920 35,700 35,700 500,000 255,654 255,854 500,000
29................... 490,791 17,888 17,888 500,000 262,272 262,272 500,000
30................... 523,206 0 0 0 267,526 267,526 500,000
31................... 557,241 271,386 271,386 500,000
32................... 592,978 273,545 273,545 500,000
33................... 630,502 273,588 273,588 500,000
34................... 669,902 270,954 270,954 500,000
35................... 711,272 264,932 264,932 500,000
36................... 754,711 254,550 254,550 500,000
37................... 800,322 238,492 236,492 500,000
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
-----------------------------------
END OF CASH
POLICY POLICY SURRENDER DEATH
YEAR VALUE VALUE BENEFIT
- --------------------- -----------------------------------
<S> <C> <C> <C>
1 ................... 6,741 0 500,000
2 ................... 14,700 6,300 500,000
3 ................... 23,424 15,809 500,000
4 ................... 32,979 25,849 500,000
5 ................... 43,442 36,995 500,000
6 ................... 54,893 49,032 500,000
7 ................... 67,422 62,245 500,000
8 ................... 81,125 76,632 500,000
9 ................... 96,113 92,206 500,000
10................... 112,503 109,280 500,000
11................... 130,427 127,887 500,000
12................... 150,029 148,075 500,000
13................... 171,469 170,199 500,000
14................... 194,926 194,340 500,000
15................... 220,604 220,604 500,000
16................... 248,743 248,743 500,000
17................... 279,612 279,612 500,000
18................... 313,577 313,577 500,000
19................... 351,037 351,037 500,000
20................... 392,490 392,490 500,000
21................... 440,135 440,135 506,155
22................... 492,980 492,980 557,067
23................... 551,293 551,293 611,935
24................... 615,688 615,688 671,100
25................... 686,877 686,877 734,958
26................... 765,694 765,694 803,979
27................... 852,480 852,480 895,104
28................... 947,981 947,981 995,380
29................... 1,053,003 1,053,003 1,105,653
30................... 1,168,410 1,168,410 1,226,831
31................... 1,295,130 1,295,130 1,359,887
32................... 1,434,148 1,434,148 1,505,855
33................... 1,586,502 1,586,502 1,665,827
34................... 1,753,287 1,753,287 1,840,951
35................... 1,935,668 1,935,668 2,032,451
36................... 2,134,872 2,134,872 2,241,615
37................... 2,352,207 2,352,207 2,469,817
</TABLE>
A-5
<PAGE> 131
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$7,500 ANNUAL PLANNED PREMIUM
ASSUMING GUARANTEED CHARGES -- (CONTINUED)
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------------ -------------------------------
END OF CASH CASH
POLICY ACCUMULATED POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR PREMIUMS VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
38................... 848,213 214,870 214,870 500,000
39................... 898,498 180,998 180,998 500,000
40................... 951,298 132,786 132,786 500,000
41................... 1,006,738 64,003 64,003 500,000
42................... 1,064,950 0 0 0
43................... 1,126,073
44................... 1,190,251
45................... 1,257,639
46................... 1,328,396
47................... 1,402,690
48................... 1,480,700
49................... 1,562,610
50................... 1,648,615
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
-----------------------------------
END OF CASH
POLICY POLICY SURRENDER DEATH
YEAR VALUE VALUE BENEFIT
- --------------------- -----------------------------------
<S> <C> <C> <C>
38................... 2,589,034 2,589,034 2,718,486
39................... 2,846,787 2,846,787 2,989,126
40................... 3,126,888 3,126,888 3,283,232
41................... 3,430,740 3,430,740 3,602,277
42................... 3,767,927 3,767,927 3,918,644
43................... 4,143,820 4,143,820 4,268,135
44................... 4,565,259 4,565,259 4,656,564
45................... 5,041,093 5,041,093 5,091,504
46................... 5,582,195 5,582,195 5,582,195
47................... 6,180,588 6,180,588 6,180,588
48................... 6,842,338 6,842,338 6,842,338
49................... 7,574,154 7,574,154 7,574,154
50................... 8,383,454 8,383,454 8,383,454
</TABLE>
(1) All values shown are as of the end of the Policy Year indicated have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the Policy Anniversary, (b) no Policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force
until the end of the first 10 Policy Years.
(4) In the absence of additional premium payments, the Policy will lapse.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
A-6
<PAGE> 132
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$8,200 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------------- -------------------------------
END OF CASH CASH
POLICY ACCUMULATED POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR PREMIUMS VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1 ................... 8,610 6,613 0 506,613 7,034 0 507,034
2 ................... 17,651 13,617 5,217 513,617 14,882 6,482 514,882
3 ................... 27,143 20,493 12,678 520,493 23,052 15,238 523,052
4 ................... 37,110 27,248 20,118 527,248 31,563 24,432 531,563
5 ................... 47,576 33,882 27,435 533,882 40,425 33,978 540,425
6 ................... 58,564 40,388 34,528 540,388 49,647 43,786 549,647
7 ................... 70,103 46,764 41,587 546,764 59,237 54,060 559,237
8 ................... 82,218 53,002 48,509 553,002 69,204 64,710 569,204
9 ................... 94,939 59,098 55,191 559,098 79,555 75,647 579,555
10................... 108,296 65,041 61,818 565,041 90,292 87,069 590,292
11................... 122,320 70,810 68,270 570,810 101,411 98,871 601,411
12................... 137,046 76,402 74,449 576,402 112,919 110,966 612,919
13................... 152,509 81,801 80,531 581,801 124,815 123,545 624,815
14................... 168,744 86,974 86,388 586,974 137,077 136,491 637,077
15................... 185,791 91,910 91,910 591,910 149,707 149,707 649,707
16................... 203,691 96,569 96,569 596,569 162,675 162,675 662,675
17................... 222,486 100,913 100,913 600,913 175,951 175,951 675,951
18................... 242,220 104,900 104,900 604,900 189,500 189,500 689,500
19................... 262,941 108,479 108,479 608,479 203,277 203,277 703,277
20................... 284,698 111,594 111,594 611,594 217,224 217,224 717,224
21................... 307,543 114,592 114,592 614,592 232,110 232,110 732,110
22................... 331,530 117,050 117,050 617,050 247,171 247,171 747,171
23................... 356,716 118,897 118,897 618,897 262,336 262,336 762,336
24................... 383,162 120,055 120,055 620,055 277,521 277,521 777,521
25................... 410,930 120,433 120,433 620,433 292,625 292,625 792,625
26................... 440,087 119,933 119,933 619,933 307,531 307,531 807,531
27................... 470,701 118,447 118,447 618,447 322,108 322,108 822,108
28................... 502,846 115,864 115,864 615,864 336,214 336,214 836,214
29................... 536,599 112,065 112,065 612,065 349,686 349,688 849,688
30................... 572,038 106,922 106,922 608,922 362,355 362,355 862,355
31................... 609,250 100,314 100,314 600,314 374,033 374,033 874,033
32................... 648,323 91,874 91,874 591,874 384,279 384,279 884,279
33................... 689,349 81,431 81,431 581,431 392,825 392,825 892,825
34................... 732,427 65,829 68,829 568,829 399,406 399,406 899,406
35................... 777,658 53,943 53,943 553,943 403,772 403,772 903,772
36................... 825,151 36,236 36,236 536,236 405,235 405,235 905,235
37................... 875,018 15,050 15,050 515,050 402,947 402,947 902,947
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
-----------------------------------
END OF CASH
POLICY POLICY SURRENDER DEATH
YEAR VALUE VALUE BENEFIT
- --------------------- -----------------------------------
<S> <C> <C> <C>
1 ................... 7,454 0 507,454
2 ................... 16,198 7,798 516,198
3 ................... 25,816 18,002 525,816
4 ................... 36,406 29,275 536,406
5 ................... 48,060 41,613 548,060
6 ................... 60,881 55,020 560,881
7 ................... 74,982 69,805 574,982
8 ................... 90,482 65,989 590,482
9 ................... 107,518 103,611 607,518
10................... 126,232 123,008 626,232
11................... 146,770 144,230 646,770
12................... 169,312 167,358 669,312
13................... 194,042 192,772 694,042
14................... 221,144 220,558 721,144
15................... 250,845 250,845 750,845
16................... 283,362 283,362 783,362
17................... 318,939 318,939 818,939
18................... 357,835 357,835 857,835
19................... 400,331 400,331 900,331
20................... 446,724 446,724 946,724
21................... 499,130 499,130 999,130
22................... 556,550 556,550 1,056,550
23................... 619,434 619,434 1,119,434
24................... 688,266 688,266 1,188,266
25................... 763,574 763,574 1,263,574
26................... 845,925 845,925 1,345,925
27................... 935,940 935,940 1,435,940
28................... 1,034,299 1,034,299 1,534,299
29................... 1,141,745 1,141,745 1,641,745
30................... 1,259,085 1,259,085 1,759,085
31................... 1,387,223 1,387,223 1,887,223
32................... 1,526,890 1,526,890 2,026,890
33................... 1,679,101 1,679,101 2,179,101
34................... 1,844,991 1,844,991 2,344,991
35................... 2,025,847 2,025,847 2,525,847
36................... 2,222,650 2,222,650 2,722,650
37................... 2,436,354 2,436,354 2,936,354
</TABLE>
A-7
<PAGE> 133
<TABLE>
<CAPTION>
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$8,200 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES -- (CONTINUED)
6%
HYPOTHETICAL
GROSS
0% HYPOTHETICAL INVESTMENT
GROSS INVESTMENT RETURN RETURN
------------------------------- -------
END OF CASH
POLICY ACCUMULATED SURRENDER POLICY DEATH POLICY
YEAR PREMIUMS VALUE VALUE BENEFIT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
38................... 927,379 0 0 0 396,426
39................... 982,358 385,210
40................... 1,040,086 368,869
41................... 1,100,700 345,392
42................... 1,164,345 314,092
43................... 1,231,173 274,152
44................... 1,301,341 224,756
45................... 1,375,018 165,077
46................... 1,452,379 94,753
47................... 1,533,608 10,390
48................... 1,618,899 0
49................... 1,708,454
50................... 1,802,486
<CAPTION>
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$8,200 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES -- (CONTINUED)
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
-----------------------------------
END OF CASH CASH
POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR VALUE BENEFIT VALUE VALUE BENEFIT
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
38................... 396,426 896,426 2,668,432 2,668,432 3,168,432
39................... 385,210 885,210 2,920,558 2,920,558 3,420,558
40................... 368,869 868,869 3,194,635 3,194,635 3,694,635
41................... 345,392 845,392 3,491,162 3,491,162 3,991,162
42................... 314,092 814,092 3,812,150 3,812,150 4,312,150
43................... 274,152 774,152 4,159,726 4,159,726 4,659,726
44................... 224,756 724,756 4,536,276 4,536,276 5,036,276
45................... 165,077 665,077 4,944,471 4,944,471 5,444,471
46................... 94,753 594,753 5,387,782 5,387,782 5,887,782
47................... 10,390 510,390 5,866,942 5,866,942 6,366,942
48................... 0 0 6,384,942 6,384,942 6,884,942
49................... 6,945,948 6,945,948 7,445,948
50................... 7,556,092 7,556,092 8,056,092
</TABLE>
(1) All values shown are as of the end of the Policy Year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the Policy Anniversary, (b) no Policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force
until the end of the first 10 Policy Years.
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> 134
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$8,200 ANNUAL PLANNED PREMIUM
ASSUMING GUARANTEED CHARGES
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------------ -------------------------------
END OF CASH CASH
POLICY ACCUMULATED POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR PREMIUMS VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1.................... 8,610 6,613 0 506,613 7,034 0 507,034
2.................... 17,651 13,617 5,217 513,617 14,882 6,482 514,882
3.................... 27,143 20,461 12,646 520,461 23,019 15,205 523,019
4.................... 37,110 27,135 20,005 527,135 31,444 24,314 531,444
5.................... 47,576 33,630 27,183 533,630 40,156 33,709 540,156
6.................... 58,564 39,932 34,072 539,932 49,152 43,291 549,152
7.................... 70,103 46,027 40,850 546,027 58,424 53,247 558,424
8.................... 82,218 51,898 47,405 551,898 67,963 63,470 567,963
9.................... 94,939 57,525 53,618 557,525 77,758 73,851 577,758
10................... 108,296 62,884 59,660 562,884 87,790 84,567 587,790
11................... 122,320 67,945 65,405 567,945 98,034 95,495 598,034
12................... 137,046 72,672 70,718 572,672 108,458 106,504 608,458
13................... 152,509 77,019 75,749 577,019 119,014 117,745 619,014
14................... 168,744 80,927 80,341 580,927 129,642 129,056 629,642
15................... 185,791 84,326 84,326 584,326 140,266 140,266 640,266
16................... 203,691 87,140 87,140 587,140 150,800 150,800 650,800
17................... 222,486 89,254 89,254 589,254 161,108 161,108 661,108
18................... 242,220 90,634 90,634 590,634 171,136 171,136 671,136
19................... 262,941 91,153 91,153 591,153 180,728 180,728 680,728
20................... 284,698 90,697 90,697 590,697 189,733 189,733 689,733
21................... 307,543 89,468 89,468 589,468 198,703 198,703 698,703
22................... 331,530 86,959 86,959 586,959 206,752 206,752 706,752
23................... 356,716 82,959 82,959 582,959 213,606 213,606 713,606
24................... 383,162 77,232 77,232 577,232 218,945 218,945 718,945
25................... 410,930 69,509 69,509 569,509 222,397 222,397 722,397
26................... 440,087 59,499 59,499 559,499 223,550 223,550 723,550
27................... 470,701 46,912 46,912 546,912 221,967 221,967 721,967
28................... 502,846 31,457 31,457 531,457 217,186 217,186 717,186
29................... 536,599 12,845 12,845 512,845 208,721 208,721 708,721
30................... 572,038 0 0 0 196,053 196,053 696,053
31................... 609,250 178,592 178,592 678,592
32................... 648,323 155,677 155,677 655,677
33................... 689,349 126,547 126,547 626,547
34................... 732,427 90,366 90,366 590,366
35................... 777,658 46,329 46,329 546,329
36................... 825,151 0 0 0
37................... 875,018
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
-----------------------------------
END OF CASH
POLICY POLICY SURRENDER DEATH
YEAR VALUE VALUE BENEFIT
- --------------------- -----------------------------------
<S> <C> <C> <C>
1.................... 7,454 0 507,454
2.................... 16,198 7,798 516,198
3.................... 25,783 17,968 525,783
4.................... 36,281 29,151 536,281
5.................... 47,774 41,327 547,774
6.................... 60,344 54,483 560,344
7.................... 74,083 68,906 574,083
8.................... 89,088 84,595 589,088
9.................... 105,464 101,557 605,464
10................... 123,321 120,097 623,321
11................... 142,772 140,232 642,772
12................... 163,937 161,984 663,937
13................... 186,936 185,667 686,936
14................... 211,886 211,300 711,886
15................... 238,905 238,905 738,905
16................... 268,114 268,114 768,114
17................... 299,602 299,602 799,602
18................... 333,555 333,555 833,555
19................... 370,075 370,075 870,075
20................... 409,289 409,289 909,289
21................... 452,955 452,955 952,955
22................... 499,865 499,865 999,865
23................... 550,124 550,124 1,050,124
24................... 603,813 603,813 1,103,813
25................... 660,985 660,985 1,160,985
26................... 721,676 721,676 1,221,676
27................... 785,917 785,917 1,285,917
28................... 853,739 853,739 1,353,739
29................... 925,177 925,177 1,425,177
30................... 1,000,252 1,000,252 1,500,252
31................... 1,078,946 1,078,946 1,578,946
32................... 1,161,191 1,161,191 1,661,191
33................... 1,246,839 1,246,839 1,746,839
34................... 1,335,688 1,335,688 1,835,688
35................... 1,427,587 1,427,587 1,927,587
36................... 1,522,370 1,522,370 2,022,370
37................... 1,619,944 1,619,944 2,119,944
</TABLE>
A-9
<PAGE> 135
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$8,200 ANNUAL PLANNED PREMIUM
ASSUMING GUARANTEED CHARGES -- (CONTINUED)
<TABLE>
<CAPTION>
0% HYPOTHETICAL 6% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------------ -------------------------------
END OF CASH CASH
POLICY ACCUMULATED POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR PREMIUMS VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
38................... 927,379
39................... 982,358
40................... 1,040,086
41................... 1,100,700
42................... 1,164,345
43................... 1,231,173
44................... 1,301,341
45................... 1,375,018
46................... 1,452,379
47................... 1,533,608
48................... 1,618,899
49................... 1,708,454
50................... 1,802,486
<CAPTION>
12% HYPOTHETICAL
GROSS INVESTMENT RETURN
-----------------------------------
END OF CASH
POLICY POLICY SURRENDER DEATH
YEAR VALUE VALUE BENEFIT
- --------------------- -----------------------------------
<S> <C> <C> <C>
38................... 1,720,160 1,720,160 2,220,160
39................... 1,822,905 1,822,905 2,322,905
40................... 1,927,812 1,927,812 2,427,812
41................... 2,034,330 2,034,330 2,534,330
42................... 2,141,511 2,141,511 2,641,511
43................... 2,247,934 2,247,934 2,747,934
44................... 2,352,120 2,352,120 2,852,120
45................... 2,453,914 2,453,914 2,953,914
46................... 2,554,675 2,554,675 3,054,675
47................... 2,635,337 2,635,337 3,135,337
48................... 2,672,276 2,672,276 3,172,276
49................... 2,617,860 2,617,860 3,117,860
50................... 2,376,423 2,376,423 2,876,423
</TABLE>
(1) All values shown are as of the end of the Policy Year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the Policy Anniversary, (b) no Policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Guaranteed Interest
Account.
(2) Assumes net interest of 5% compounded annually.
A-10
<PAGE> 136
[LOGO]
MANULIFE FINANCIAL
The Manufacturers Life Insurance Company of America
ManEquity, Inc.
Manulife Financial and the block design are registered service marks of The
Manufacturers Life Insurance Company and are used by it and its subsidiaries.
IM5101PR 03/99
