<PAGE> 1
PROSPECTUS
SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
VENTURE PLUS SPVL
A MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
This prospectus describes Venture Plus SPVL, a modified single premium variable
life insurance policy (the "Policy"). The Manufacturers Life Insurance Company
of America (the "Company," "Manufacturers Life of America," "we" or "us") offers
the Policy on both a single life and a survivorship basis.
Policy Value may accumulate on a fixed basis or vary with the investment
performance of the sub-accounts of Manufacturers Life of America's Separate
Account Three (the "Separate Account"). 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 in which you may invest net
premiums. Other sub-accounts and Portfolios may be added in the future.
EXCEPT FOR CERTAIN POLICIES ISSUED IN EXCHANGE FOR A POLICY WHICH IS NOT A
MODIFIED ENDOWMENT CONTRACT (A "MEC"), THE POLICY WILL BE TREATED AS A MEC FOR
FEDERAL INCOME TAX PURPOSES. AS A RESULT, ANY LOAN, PARTIAL WITHDRAWAL,
ASSIGNMENT, PLEDGE, LAPSE OR SURRENDER OF THE POLICY (OR ANY LOAN, PARTIAL
WITHDRAWAL, ASSIGNMENT OR PLEDGE OF THE POLICY WITHIN TWO YEARS BEFORE THE
POLICY BECOMES A MEC) MAY BE SUBJECT TO INCOME TAX AND A 10% PENALTY TAX.
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.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Manufacturers Life Insurance Company of America
500 North Woodward Avenue
Bloomfield Hills, Michigan 48304
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 24, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
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.........................................................................................6
Investment Options and Investment Advisers ....................................................................6
Investment Management Fees and Expenses........................................................................6
Table of Charges and Deductions................................................................................6
Table of Investment Management Fees and Expenses...............................................................7
Table of Investment Options and Investment Advisers............................................................9
GENERAL INFORMATION ABOUT MANUFACTURERS..........................................................................10
Manufacturers Life of America.................................................................................10
Separate Account Three........................................................................................10
Manufacturers Investment Trust................................................................................10
ISSUING A POLICY.................................................................................................14
Requirements..................................................................................................14
Temporary Insurance Agreement.................................................................................15
Right to Examine the Policy...................................................................................15
Life Insurance Qualification..................................................................................15
DEATH BENEFITS...................................................................................................16
Death Benefit ................................................................................................16
Maturity Date.................................................................................................17
PREMIUM PAYMENTS.................................................................................................17
Initial Premiums..............................................................................................17
Subsequent Premiums...........................................................................................18
Premium Allocation............................................................................................18
Maximum Premium Limitation....................................................................................18
CHARGES AND DEDUCTIONS...........................................................................................18
Premium Load..................................................................................................18
Surrender Charges.............................................................................................19
Monthly Charges...............................................................................................20
Administration Charge.........................................................................................20
Cost of Insurance Charge......................................................................................20
Mortality and Expense Risks Charge............................................................................21
Charges for Supplementary Benefits............................................................................21
Charges for Transfers.........................................................................................21
Reduction in Charges..........................................................................................21
SPECIAL PROVISIONS FOR EXCHANGES.................................................................................21
COMPANY TAX CONSIDERATIONS.......................................................................................22
POLICY VALUE.....................................................................................................22
Determination of the Policy Value.............................................................................22
Units and Unit Values.........................................................................................22
Transfers of Policy Value.....................................................................................23
Telephone Transfers...........................................................................................23
Dollar Cost Averaging.........................................................................................23
</TABLE>
ii
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
Asset Allocation Balancer Transfer............................................................................24
POLICY LOANS.....................................................................................................24
Maximum Loanable Amount.......................................................................................24
Effect of Policy Loan.........................................................................................24
Interest Charged on Policy Loans..............................................................................24
Loan Account..................................................................................................24
POLICY SURRENDER AND PARTIAL WITHDRAWALS.........................................................................26
Policy Surrender..............................................................................................26
Partial Withdrawals...........................................................................................26
LAPSE AND REINSTATEMENT..........................................................................................26
Lapse.........................................................................................................26
Reinstatement.................................................................................................27
Termination...................................................................................................27
THE GENERAL ACCOUNT..............................................................................................27
Fixed Account.................................................................................................28
OTHER PROVISIONS OF THE POLICY...................................................................................28
Assignment of Rights..........................................................................................28
Beneficiary...................................................................................................28
Incontestability..............................................................................................28
Misstatement of Age or Sex....................................................................................28
Suicide Exclusion.............................................................................................29
Supplementary Benefits........................................................................................29
TAX TREATMENT OF THE POLICY......................................................................................29
OTHER INFORMATION................................................................................................34
Payment of Proceeds...........................................................................................34
Reports to Policyowners.......................................................................................34
Distribution of the Policies..................................................................................34
Responsibilities of Manufacturers Life........................................................................35
Voting Rights.................................................................................................35
Substitution of Portfolio Shares..............................................................................35
Records and Accounts..........................................................................................36
State Regulations.............................................................................................36
Litigation....................................................................................................36
Independent Auditors..........................................................................................36
Further Information...........................................................................................36
Officers and Directors........................................................................................37
Impact of Year 2000...........................................................................................39
APPENDIX A - DEFINITIONS.........................................................................................A1
APPENDIX B - SAMPLE ILLUSTRATIONS OF POLICY VALUES, CASH SURRENDER VALUES AND DEATH BENEFITS.....................B1
FINANCIAL STATEMENTS.............................................................................................F1
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION WHERE IT
WOULD NOT BE LAWFUL. YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS, THE PROSPECTUS OF MANUFACTURERS INVESTMENT TRUST, OR THE STATEMENT
OF ADDITIONAL INFORMATION OF MANUFACTURERS INVESTMENT TRUST. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
Examine this prospectus carefully. The Policy Summary will briefly describe the
Policy. More detailed information will be found further in the prospectus.
iii
<PAGE> 4
POLICY SUMMARY
GENERAL
This Policy may be issued either as a modified single premium variable life
insurance policy or as a modified single premium survivorship variable life
insurance policy. We have prepared the following summary as a general
description of the most important features of the Policy. It is not
comprehensive and you should refer to 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 Life
Insured. The death benefit is the FACE AMOUNT OF THE POLICY at the date of death
(less any Policy Debt and outstanding Monthly Deductions due) or, if greater,
the Minimum Death Benefit (less any Policy Debt and outstanding Monthly
Deductions due).
PREMIUMS
The Policy permits the payment of a large initial premium. The initial premium
may be 80%, 90% or 100% of the Guideline Single Premium (based on Face Amount).
However, in the case of simplified underwriting, and in order to qualify for the
Lapse Protection Benefit, 100% of the Guideline Single Premium is required. The
minimum single premium is $25,000. Additional premiums will be accepted only
under certain conditions as stated under "Premium Payments - Subsequent
Premiums." Premiums will be allocated, according to your instructions and at the
Company's discretion, to one or more of our general account (the "Fixed
Account") and the sub-accounts of the Separate Account of the Company. You (the
policyowner) may change your allocation instructions at any time. You may also
transfer amounts among the accounts.
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 you have allocated premiums.
POLICY LOANS
You may borrow an amount not to exceed 90% of your Policy's Net Cash Surrender
Value. Loan interest at a rate of 6.00% is due on each Policy Anniversary.
Preferred interest rates are also available in the case of loans on amounts that
represent Earnings on the Policy. We will deduct all outstanding Policy Debt
from proceeds payable at the insured's death, or upon surrender. Policy loans
may have tax consequences. See section entitled "Tax Treatment of the Policy"
for a discussion of the potential Federal income tax implications of a loan from
the Policy.
SURRENDER AND PARTIAL WITHDRAWALS
You may make a partial withdrawal of your Policy Value. A partial withdrawal
will result in a reduction in the Face Amount of the Policy . A partial
withdrawal may result in a surrender charge if made during the Surrender Charge
Period.
You may surrender your Policy for its Net Cash Surrender Value at any time while
the Life Insured is living. The Net Cash Surrender Value is equal to the Policy
Value less the sum of (a) Surrender Charges, (b) outstanding Monthly Deductions
due, and (c) Policy Debt.
See section entitled "Tax Treatment of the Policy" for a discussion of the
potential Federal income tax implications of a surrender of, or partial
withdrawal from, the Policy.
LAPSE AND REINSTATEMENT
Unless the Lapse Protection Benefit is in effect, a Policy will lapse (and
terminate without value) when its Net Cash Surrender Value is insufficient to
pay the next monthly deduction and a grace period of 61 days expires without
your having made an adequate payment. 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 Policy could also lapse if the Policy Debt
is greater than the Cash Surrender Value since the Lapse Protection Benefit
terminates on any date that the Policy Debt exceeds the Cash Surrender Value.
4
<PAGE> 5
A policyowner may reinstate a lapsed Policy at any time within the five year
period following lapse provided the Policy was not surrendered for its Net Cash
Surrender Value. However, in the case of a Survivorship Policy, the Policy may
not be reinstated if any of the Life Insured have died since the Policy lapsed.
We will require evidence of insurability along with a certain amount of premium
as described under "Reinstatement."
See section entitled "Tax Treatment of the Policy" for a discussion of the
potential Federal income tax implications of a lapse and reinstatement of the
Policy.
TAXATION OF POLICY BENEFITS
Characterization of a Policy as a MEC.
Section 7702A of the Internal Revenue Code (the "Code") establishes a class of
life insurance contracts designated as Modified Endowment Contracts ("MECs"),
which applies to Policies entered into or materially changed after June 20,
1988. In general, a Policy will be a MEC if the accumulated premiums paid at any
time during the first seven Policy Years exceed the sum of the net level
premiums which would have been paid on or before such time if the Policy paid up
future benefits after the payment of seven level annual premiums (the "seven-pay
test"). The determination of whether a Policy will be a MEC after a material
change generally depends upon the relationship of the death benefit and the
Policy Value at the time of such change and the additional premiums paid in the
seven years following the material change. In general, this Policy will
constitute a MEC unless:
(1) it was received in exchange for another life insurance policy which was not
a MEC,
(2) no premium payments (other than the exchanged policy) are paid into the
Policy during the first seven Policy years, and
(3) the death benefit on the new Policy is not less than the death benefit on
the exchanged policy.
If the death benefit on the new policy is less than the death benefit on the
exchanged policy, the new policy may become a MEC if (1) the exchanged policy
was, at the time of the exchange, subject to the MEC rules, (2) premiums
payments had been made to the old policy after it had become subject to the MEC
rules, and (3) the exchanged policy was in a seven-pay test period at the time
of exchange or, in the case of a Survivorship Policy, the Policy was issued (or
deemed issued) after September 13, 1989.
In addition, even if the Policy initially is not a MEC, it may in certain
circumstances become a MEC. These circumstances would include a later increase
in benefits, any other material change of the Policy (within the meaning of the
tax law), and a withdrawal or reduction in the death benefit during the first
seven Policy years.
Tax Treatment of Withdrawals, Loans, Assignments and Pledges under MECs. If
the Policy is a MEC, withdrawals from the Policy will be treated first as
withdrawals of income and then as a recovery of premium payments. Thus,
withdrawals will be includible in income to the extent the Policy value exceeds
the investment in the Policy. The amount of any loan (including unpaid interest
thereon) under the Policy will be treated as a withdrawal from the Policy for
tax purposes. In addition, if you assign or pledge any portion of the value of a
Policy (or agrees to assign or pledge any portion), such portion will be treated
as a withdrawal from the Policy for tax purposes. Your investment in the Policy
is increased by the amount includible in income with respect to such assignment,
pledge, or loan, though it is not affected by any other aspect of the
assignment, pledge, or loan (including its release or repayment). Before
assigning, pledging, or requesting a loan under a Policy which is a MEC, you
should consult a qualified tax advisor.
MEC Penalty Tax. Generally, withdrawals (or the amount of any deemed
withdrawals) from a MEC are subject to a penalty tax equal to 10% of the portion
of the withdrawal that is includible in income, unless the withdrawals are made
(1) after you attain age 59 1/2, (2) because you have become disabled (as
defined in the tax law), or (3) as substantially equal periodic payments over
your life or life (or the joint lives or life expectancies of you and your
beneficiary, as defined in the tax law).
For further information regarding the tax treatment of Policies that
are MECs, see "Tax Treatment of the Policy - Tax Treatment of Policy Benefits."
5
<PAGE> 6
CHARGES AND DEDUCTIONS
We assess certain charges and deductions in connection with the Policy. These
include:
- charges assessed monthly for mortality and expense risks, cost of
insurance and administration expenses,
- charges deducted from premiums paid, and
- charges assessed on surrender, lapse or withdrawal of Net Cash
Surrender Value.
These charges are summarized in the Table of Charges and Deductions. Unless you
otherwise specify and we allow, 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 immediately prior to the
deduction. However, the mortality and expense risk charge will only be allocated
among the Investment Accounts.
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
You may allocate Net Premiums to the Fixed Account or to one or more of the
sub-accounts of our 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 of the Portfolios. The fees and expenses for each Portfolio for the
Trust's last fiscal year are shown in the Table of Investment Management Fees
and Expenses below. These fees and expenses are described in detail in the
accompanying Trust prospectus to which reference should be made.
TABLE OF CHARGES AND DEDUCTIONS
Surrender Charge
The total amount of the surrender charge is determined by multiplying the amount
withdrawn or surrendered in excess of the free withdrawal amount by the
applicable surrender charge percentage shown in the following table.
Policy Year Surrender Charge
1 10.00%
2 9.00%
3 8.00%
4 7.00%
5 6.00%
6 5.00%
7 4.00%
8 3.00%
9 1.50%
10+ 0%
6
<PAGE> 7
If necessary, the Company will reduce the surrender charge deducted upon a
partial withdrawal or a surrender of the Policy so that the sum of all premium
loads, the administration charges and surrender charge deducted (including the
surrender charge to be deducted upon such partial withdrawal or surrender) does
not exceed 10% of aggregate payments made during the first Policy Year.
Monthly Deductions: - A premium load of 0.030% of Policy Value is
deducted monthly (equivalent to 0.360% annually)
for the first 10 Policy Years. If additional
premium payments are made, the 0.030% premium load
for a particular premium payment is deducted from
the Policy Value corresponding to the premium
payment for 10 Policy Years following the premium
payment. Approximately, 13% of the premium load is
expected to cover acquisition and sales expenses,
20% federal taxes and 67% state taxes.
- An administration charge of $7.50 plus 0.010%
monthly (equivalent to 0.12% annually).
- The cost of insurance charge.
- Any additional charges for supplementary benefits,
if applicable.
- A mortality and expense risks charge. This charge
is calculated as a percentage of the value of the
Investment Accounts and is assessed against the
Investment Accounts. The charge varies by Policy
Year as follows:
<TABLE>
<CAPTION>
Guaranteed Monthly Mortality Guaranteed Annual Mortality
Policy Years and Expense Risks Charge and Expense Risks Charge
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1-10 0.075% 0.900%
10+ 0.025% 0.30%
</TABLE>
All of the above charges, except the mortality and
expense risks charge, are deducted from the Net Policy
Value.
Loan Charges: A fixed loan interest rate of 6.00% annually.
Interest credited to amounts in the Loan Account is
guaranteed not to be less than 4.00% at all times. The
maximum loan amount is 90% of the Net Cash Surrender
Value.
Transfer Charge: A charge of $25 per transfer for each transfer in
excess of 12 in a Policy Year.
TABLE OF INVESTMENT MANAGEMENT FEES AND EXPENSES
TRUST ANNUAL EXPENSES
(as a percentage of Trust average net assets)
<TABLE>
<CAPTION>
OTHER EXPENSES
MANAGEMENT (AFTER EXPENSE TOTAL TRUST
TRUST PORTFOLIO FEES REIMBURSEMENT)** ANNUAL EXPENSES
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pacific Rim Emerging Markets................ 0.850% 0.360% 1.210%
Science & Technology........................ 1.100% 0.110% 1.210%
International Small Cap..................... 1.100% 0.150% 1.250%
Aggressive Growth+.......................... 1.000%+ 0.090% 1.090%
Emerging Small Company...................... 1.050% 0.050% 1.100%
Small Company Blend*........................ 1.050% 0.150%* 1.200%
Mid Cap Growth+............................. 0.950%+ 0.040% 0.990%
Mid Cap Stock*.............................. 0.925% 0.000%* 0.925%
Overseas.................................... 0.950% 0.210% 1.160%
International Stock......................... 1.050% 0.200% 1.250%
International Value*........................ 1.000% 0.300%* 1.300%
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
OTHER EXPENSES
MANAGEMENT (AFTER EXPENSE TOTAL TRUST
TRUST PORTFOLIO FEES REIMBURSEMENT)** ANNUAL EXPENSES
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mid Cap Blend+.............................. 0.850%+ 0.050% 0.900%
Small Company Value......................... 1.050% 0.180% 1.230%
Global Equity............................... 0.900% 0.110% 1.010%
Growth...................................... 0.850% 0.050% 0.900%
Large Cap Growth+........................... 0.875%+ 0.130% 1.005%
Quantitative Equity......................... 0.700% 0.060% 0.760%
Blue Chip Growth+........................... 0.875%+ 0.045% 0.920%
Real Estate Securities...................... 0.700% 0.060% 0.760%
Value....................................... 0.800% 0.050% 0.850%
Growth & Income............................. 0.750% 0.040% 0.790%
U.S. Large Cap Value*....................... 0.875% 0.100%* 0.975%
Equity-Income+.............................. 0.875%+ 0.050% 0.925%
Income & Value+............................. 0.800%+ 0.090% 0.890%
Balanced.................................... 0.800% 0.070% 0.870%
High Yield.................................. 0.775% 0.065% 0.840%
Strategic Bond.............................. 0.775% 0.075% 0.850%
Global Bond................................. 0.800% 0.110% 0.910%
Total Return*............................... 0.775% 0.100%* 0.875%
Investment Quality Bond..................... 0.650% 0.070% 0.720%
Diversified Bond............................ 0.750% 0.140% 0.890%
U.S. Government Securities.................. 0.650% 0.070% 0.720%
Money Market................................ 0.500% 0.120% 0.620%
Lifestyle Aggressive 1000#**................ 0% 1.110%** 1.110%
Lifestyle Growth 820#**..................... 0% 1.000%** 1.000%
Lifestyle Balanced 640#**................... 0% 0.920%** 0.920%
Lifestyle Moderate 460#**................... 0% 0.830%** 0.830%
Lifestyle Conservative 280#**............... 0% 0.720%** 0.720%
</TABLE>
+Management Fees for the portfolios listed below changed effective May 1, 1999.
Prior to May 1, 1999, management fees were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Aggressive Growth Trust 1.050% Blue Chip Growth Trust 0.925%
Mid Cap Growth Trust 1.000% Equity-Income Trust 0.800%
Mid Cap Blend Trust 0.750% Income & Value Trust 0.750%
Large Cap Growth Trust 0.750%
</TABLE>
*Based on estimates of payments to be made during the current fiscal year.
**Reflects expenses of the 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 0.02% higher, except for the Lifestyle Conservative 280 Trust,
which would be 0.03% higher (based on expenses of the Lifestyle Trusts for the
fiscal year ended December 31, 1998) as noted in the chart below:
<TABLE>
<CAPTION>
MANAGEMENT TOTAL TRUST
TRUST PORTFOLIO FEES OTHER EXPENSES ANNUAL EXPENSES
- --------------------------------------------- ------------------------- ---------------------------- -------------------------
<S> <C> <C> <C>
Lifestyle Aggressive 1000................... 0% 1.130% 1.130%
Lifestyle Growth 820........................ 0% 1.020% 1.020%
Lifestyle Balanced 640...................... 0% 0.940% 0.940%
Lifestyle Moderate 460...................... 0% 0.850% 0.850%
Lifestyle Conservative 280.................. 0% 0.750% 0.750%
</TABLE>
# Each Lifestyle Trust will bear its own pro rata share of the fees and expenses
incurred by the Underlying Portfolios in which it invests, and the investment
return of each Lifestyle Trust will be net of the Underlying Portfolio expenses.
Each Lifestyle
8
<PAGE> 9
Portfolio must also bear its own expenses. However, MSS is currently paying
those expenses as described in footnote (**) above.
TABLE OF INVESTMENT OPTIONS AND INVESTMENT ADVISERS
<TABLE>
<CAPTION>
SUBADVISER PORTFOLIO
<S> <C>
A I M Capital Management, Inc. Mid Cap Growth Trust
Aggressive Growth Trust
AXA Rosenberg Investment Management LLC Small Company Value Trust
Capital Guardian Trust Company Small Company Blend Trust
U.S. Large Cap Value Trust
Income & Value Trust
Diversified Bond Trust
Fidelity Management Trust Company Mid Cap Blend Trust
Large Cap Growth Trust
Overseas Trust
Founders Asset Management LLC International Small Cap Trust
Balanced Trust
Franklin Advisers, Inc. Emerging Small Company Trust
Manufacturers Adviser Corporation Pacific Rim Emerging Markets Trust
Quantitative Equity Trust
Real Estate Securities Trust
Money Market Trust
Lifestyle Trusts
Miller Anderson & Sherrerd, LLP Value Trust
High Yield Trust
Morgan Stanley Asset Management Inc. Global Equity Trust
Pacific Investment Management Company Global Bond Trust
Total Return Trust
Rowe Price-Fleming International, Inc. International Stock Trust
Salomon Brothers Asset Management Inc U.S. Government Securities Trust
Strategic Bond Trust
State Street Global Advisors Growth Trust
T. Rowe Price Associates, Inc. Science & Technology Trust
Blue Chip Growth Trust
Equity-Income Trust
Templeton Investment Counsel, Inc. International Value Trust
Wellington Management Company, LLP Growth & Income Trust
Investment Quality Bond Trust
Mid Cap Stock Trust
</TABLE>
Each of the Trust's Subadvisers, except Capital Guardian Trust Company, Fidelity
Management Trust Company and State Street Global Advisors, is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended.
9
<PAGE> 10
GENERAL INFORMATION ABOUT MANUFACTURERS
MANUFACTURERS LIFE OF AMERICA
Manufacturers Life of America 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 is Manulife Financial
Corporation ("MFC"), a stock life insurance holding company based in Toronto,
Canada. MFC owns 100% of the shares of The Manufacturers Life Insurance Company
("Manufacturers Life") a stock life insurance company based in Toronto, Canada.
Manufacturers Life, and it's subsidiaries, including Manufacturers Life of
America, 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,
Manufacturers Life, nor MFC guarantees the investment performance of the
Separate Account.
RATINGS
Manufacturers Life and the Company have received the following ratings from
independent rating agencies:
<TABLE>
<CAPTION>
<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 Company as a measure of the Company's
ability to honor the death benefit 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
The Company established its Separate Account Three (the "Separate Account") 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 the Company's other assets. The Separate Account
is currently used only to support variable life insurance policies.
ASSETS OF THE SEPARATE ACCOUNT
The Company 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 the Company. The
Company 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 the Company conducts. However, all obligations under the variable life
insurance policies are general corporate obligations of the Company.
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
the Company.
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 the Company 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
10
<PAGE> 11
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
policies and variable life insurance policies issued by the Company or life
insurance companies affiliated with the Company. The Company 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.
ELIGIBLE PORTFOLIOS
The Portfolios of Manufacturers Investment Trust available under the Policies
are as follows:
The PACIFIC RIM EMERGING MARKETS TRUST seeks long-term growth of capital by
investing in a diversified portfolio that is comprised primarily of common
stocks and equity-related securities of corporations domiciled in countries in
the Pacific Rim region.
The SCIENCE & TECHNOLOGY TRUST seeks long-term growth of capital. Current income
is incidental to the portfolio's objective.
The INTERNATIONAL SMALL CAP TRUST seeks capital appreciation by investing
primarily in securities issued by foreign companies which have total market
capitalization or annual revenues of $1 billion or less. These securities may
represent companies in both established and emerging economies throughout the
world.
The AGGRESSIVE GROWTH TRUST (formerly, the Pilgrim Baxter Growth Trust) seeks
long-term capital appreciation by investing the portfolio's asset principally in
common stocks, convertible bonds, convertible preferred stocks and warrants of
companies which in the opinion of the subadviser are expected to achieve
earnings growth over time at a rate in excess of 15% per year. Many of these
companies are in the small and medium-sized category.
The EMERGING SMALL COMPANY TRUST (formerly, the Emerging Growth Trust) seeks
long-term growth of capital by investing, under normal market conditions, at
least 65% of the portfolio's total assets in common stock equity securities of
small capitalization ("small cap") growth companies. In general, companies in
which the portfolio invests will have market cap values of less than $1.5
billion at the time of purchase.
The SMALL COMPANY BLEND TRUST seeks long-term growth of capital and income by
investing the portfolio's assets, under normal market conditions, primarily in
equity and equity-related securities of companies with market capitalization
between $50 million and $1 billion.
The MID CAP GROWTH TRUST (formerly, the Small/Mid Cap Trust) seeks long-term
capital appreciation by investing the portfolio's assets principally in common
stocks, with emphasis on medium-sized and smaller emerging growth companies.
The MID CAP STOCK TRUST seeks long-term growth of capital by investing primarily
in equity securities of companies with market capitalizations that approximately
match the range of capitalization of the Wilshire Mid Cap 750 Index.
The OVERSEAS TRUST (formerly, the International Growth & Income Trust) seeks
growth of capital by investing, under normal market conditions, at least 65% of
the portfolio's assets in foreign securities (including American Depositary
Receipts (ADRs) and European Depositary Receipts (EDRs). The portfolio expects
to invest primarily in equity securities.
The INTERNATIONAL STOCK TRUST seeks long-term growth of capital by investing
primarily in common stocks of established, non-U.S. companies.
The INTERNATIONAL VALUE TRUST seeks long-term growth of capital by investing,
under normal market conditions, primarily in equity securities of companies
located outside the U.S., including emerging markets.
11
<PAGE> 12
The MID CAP BLEND TRUST (formerly, the Equity Trust) seeks growth of capital by
investing primarily in common stocks of United States issuers and securities
convertible into or carrying the right to buy common stocks.
The SMALL COMPANY VALUE TRUST seeks long term growth of capital by investing in
equity securities of smaller companies which are traded principally in the
markets of the United States.
The GLOBAL EQUITY TRUST seeks long-term capital appreciation by investing
primarily in equity securities throughout the world, including U.S. issuers and
emerging markets.
The GROWTH TRUST seeks long-term growth of capital by investing primarily in
large capitalization growth securities (market capitalization of approximately
$1 billion or greater).
The LARGE CAP GROWTH TRUST (formerly, the Aggressive Asset Allocation Trust)
seeks long-term growth of capital by investing, under normal market conditions,
at least 65% of the portfolio's assets in equity securities of companies with
large market capitalizations.
The QUANTITATIVE EQUITY TRUST seeks to achieve intermediate and long-term growth
through capital appreciation and current income by investing in common stocks
and other equity securities of well established companies with promising
prospects for providing an above average rate of return.
The BLUE CHIP GROWTH TRUST seeks to achieve long-term growth of capital (current
income is a secondary objective) and many of the stocks in the portfolio are
expected to pay dividends.
The REAL ESTATE SECURITIES TRUST seeks to achieve a combination of long-term
capital appreciation and satisfactory current income by investing in real estate
related equity and debt securities.
The VALUE TRUST seeks to realize an above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in common and preferred stocks, convertible securities, rights and
warrants to purchase common stocks, ADRs and other equity securities of
companies with equity capitalizations usually greater than $300 million.
The GROWTH & INCOME TRUST seeks long-term growth of capital and income,
consistent with prudent investment risk, by investing primarily in a diversified
portfolio of common stocks of United States issuers which the subadviser
believes are of high quality.
The U.S. LARGE CAP VALUE TRUST seeks long-term growth of capital and income by
investing the portfolio's assets, under normal market conditions, primarily in
equity and equity-related securities of companies with market capitalization
greater than $500 million.
The EQUITY-INCOME TRUST seeks to provide substantial dividend income and also
long-term capital appreciation by investing primarily in dividend-paying common
stocks, particularly of established companies with favorable prospects for both
increasing dividends and capital appreciation.
The INCOME & VALUE TRUST (formerly, the Moderate Asset Allocation Trust) seeks
the balanced accomplishment of (a) conservation of principal and (b) long-term
growth of capital and income by investing the portfolio's assets in both equity
and fixed-income securities. The subadviser has full discretion to determine the
allocation between equity and fixed-income securities.
The BALANCED TRUST seeks current income and capital appreciation by investing in
a balanced portfolio of common stocks, U.S. and foreign government obligations
and a variety of corporate fixed-income securities.
The HIGH YIELD TRUST seeks to realize an above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in high yield debt securities, including corporate bonds and
other fixed-income securities.
12
<PAGE> 13
The STRATEGIC BOND TRUST seeks a high level of total return consistent with
preservation of capital by giving its subadviser broad discretion to deploy the
portfolio's assets among certain segments of the fixed-income market as the
subadviser believes will best contribute to achievement of the portfolio's
investment objective.
The GLOBAL BOND TRUST (formerly, the Global Government Bond Trust) seeks to
realize maximum total return, consistent with preservation of capital and
prudent investment management by investing the portfolio's asset primarily in
fixed income securities denominated in major foreign currencies, baskets of
foreign currencies (such as the ECU), and the U.S. dollar.
The TOTAL RETURN TRUST seeks to realize maximum total return, consistent with
preservation of capital and prudent investment management by investing, under
normal market conditions, at least 65% of the portfolio's assets in a
diversified portfolio of fixed income securities of varying maturities. The
average portfolio duration will normally vary within a three- to six-year time
frame based on Pacific Investment Management Company's forecast for interest
rates.
The INVESTMENT QUALITY BOND TRUST seeks a high level of current income
consistent with the maintenance of principal and liquidity, by investing
primarily in a diversified portfolio of investment grade corporate bonds and
U.S. Government bonds with intermediate to longer term maturities. The portfolio
may also invest up to 20% of its assets in non-investment grade fixed income
securities.
The DIVERSIFIED BOND TRUST (formerly, the Conservative Asset Allocation Trust)
seeks high total return consistent with the conservation of capital by investing
at least 75% of the portfolio's assets in fixed-income securities.
The U.S. GOVERNMENT SECURITIES TRUST seeks a high level of current income
consistent with preservation of capital and maintenance of liquidity, by
investing in debt obligations and mortgage-backed securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
derivative securities such as collateralized mortgage obligations backed by such
securities.
The MONEY MARKET TRUST seeks maximum current income consistent with preservation
of principal and liquidity by investing in high quality money market instruments
with maturities of 397 days or less issued primarily by United States entities.
The LIFESTYLE AGGRESSIVE 1000 TRUST seeks to provide long-term growth of capital
(current income is not a consideration) by investing 100% of the Lifestyle
Trust's assets in other portfolios of the Trust ("Underlying Portfolios") which
invest primarily in equity securities.
The LIFESTYLE GROWTH 820 TRUST seeks to provide long-term growth of capital with
consideration also given to current income by investing approximately 20% of the
Lifestyle Trust's assets in Underlying Portfolios which invest primarily in
fixed income securities and approximately 80% of its assets in Underlying
Portfolios which invest primarily in equity securities.
The LIFESTYLE BALANCED 640 TRUST seeks to provide a balance between a high level
of current income and growth of capital with a greater emphasis given to capital
growth by investing approximately 40% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 60% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The LIFESTYLE MODERATE 460 TRUST seeks to provide a balance between a high level
of current income and growth of capital with a greater emphasis given to high
income by investing approximately 60% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 40% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The LIFESTYLE CONSERVATIVE 280 TRUST seeks to provide a high level of current
income with some consideration also given to growth of capital by investing
approximately 80% of the Lifestyle Trust's assets in Underlying Portfolios which
invest primarily in fixed income securities and approximately 20% of its assets
in Underlying Portfolios which invest primarily in equity securities.
13
<PAGE> 14
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, with prior approval from the Company. A Policy will generally be
issued only on the lives of insureds from ages 20 through 90.
Under current underwriting rules, which are subject to change, proposed insureds
are eligible for simplified underwriting without a medical examination if (a)
their application responses and initial payment meet simplified underwriting
standards and (b) the initial premium is 100% of the Guideline Single Premium.
Customary underwriting standards will apply to all other proposed insured. The
maximum initial premium currently permitted on a simplified underwriting basis
varies with the issue age of the insured according to the following table.
Simplified underwriting is not available for additional premium payments.
AGE* SIMPLIFIED UNDERWRITING MAXIMUM
INITIAL PAYMENT
20-29 $30,000
30-39 $60,000
40-49 $100,000
50-74 $150,000
75-90 $100,000
*In the case of a Survivorship Policy, the youngest of the Life Insured.
Each Policy has a Policy Date, an Effective Date and an Issue Date (See
"Definitions" in Appendix A).
The Policy Date is the date from which the first monthly deductions are
calculated and from which Policy Years, Policy Months and Policy Anniversaries
are determined. The Effective Date is the date the Company becomes obligated
under the Policy and when the first monthly deductions are deducted from the
Policy Value. The Issue Date is the date from which Suicide and Incontestability
are measured.
If an application is accompanied by a check for the initial premium and the
application is accepted:
(i) the Policy Date will be the date the application and check were received at
the Service Office (unless a special Policy Date is requested (See
"Backdating a Policy" below));
(ii) the Effective Date will be the date the Company's underwriters approve
issuance of the Policy; and
(iii) the Issue Date will be the date the Company issues the Policy.
If an application accepted by the Company is not accompanied by a check for the
initial premium:
(i) the Policy Date will be the date the Company issues the Policy (unless a
special Policy Date is requested (See "Backdating a Policy" below);
(ii) the Effective Date will be the date the Service Office receives the initial
premium; and
(iii) the Issue Date will be the date the Company issues the Policy.
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.
14
<PAGE> 15
MINIMUM INITIAL FACE AMOUNT
The Company will generally issue a Policy only if it has a Face Amount that
corresponds to an initial premium of at least $25,000.
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.
As of the Effective Date, the premiums paid plus interest credited, net of the
premium charge (if any), will be allocated among the Investment Accounts and/or
Fixed Account in accordance with the policyowner's instructions unless such
amount is first allocated to the Money Market portfolio for the duration of the
Right to Examine period.
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 $1,000,000 and may not be in
effect for more than 90 days. This temporary insurance coverage will be issued
on a conditional receipt basis, which means that any benefits under such
temporary coverage will only be paid if the Life Insured meets the Company's
usual and customary underwriting standards for the coverage applied for.
The acceptance of an application is subject to the Company's underwriting rules,
and the Company reserves the right to request additional information or to
reject an application for any reason.
Persons failing to meet standard underwriting classification may be eligible for
a Policy with an additional risk rating assigned to it.
RIGHT TO EXAMINE THE POLICY
A Policy may be returned for a refund within 10 days after you received it. 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 Company's agent who sold it or to the Service Office. Immediately on such
delivery or mailing, the Policy shall be deemed void from the beginning. Within
seven days after receipt of the returned Policy at its Service Office, the
Company will refund to the policyholder an amount equal to either:
(1) the amount of all premiums paid or
(2)
(a) the difference between payments made and amounts allocated to the
Separate Account and the Fixed Account; plus
(b) the value of the amount allocated to the Separate Account and the
Fixed Account as of the date the returned Policy is received by the
Company; minus
(c) any partial withdrawals made and policy loans taken.
Whether the amount described in (1) or (2) is refunded depends on the
requirements of the applicable state.
If a policyowner requests an increase in face amount, 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 right to examine 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.
LIFE INSURANCE QUALIFICATION
A Policy must qualify as a life insurance policy for purposes of Section 7702 of
the Code by satisfying the Guideline Premium Test.
15
<PAGE> 16
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:
- Change in Risk Classification
- 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 may refund any excess premiums
paid. In addition, these changes could reduce the future premium limitations.
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 (as described below under "Death Benefit").
DEATH BENEFITS
If the Policy is in force at the time of the death of the Life Insured, the
Company will pay an insurance benefit on receiving due proof of death. For a
Survivorship Policy, due proof of death must be provided for each of the Life
Insured although the insurance benefit is payable on the death of the last to
die of the Life Insured. 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.
The amount payable will be the death benefit, 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.
DEATH BENEFIT
The death benefit is the Face Amount of the Policy at the date of death (less
any Policy Debt and outstanding Monthly Deductions due) or, if greater, the
Minimum Death Benefit (less any Policy Debt and outstanding Monthly Deductions
due). However, if the Maturity Advantage Option is elected and the policyowner
elects not to transfer his Investment Account Value to the Fixed Account on the
Maturity Date, then the Death Benefit will be equal to the Policy Value at the
date of the Life Insured's death.
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 Life Insured in the case of a Single Life Policy (or the youngest of the
Life Insured in the case of a Survivorship Policy). The Minimum Death Benefit
Percentages are set forth in the Policy.
Therefore, the death benefit will always be at least equal to the Face Amount of
the Policy. However, if there is a sufficient increase in Policy Value such that
the Policy Value times the applicable Minimum Death Benefit Percentage is
greater than the Face Amount, the death benefit will be greater than the Face
Amount.
LAPSE PROTECTION BENEFIT
The Lapse Protection Benefit protects the Policy from going into default. As
long as this benefit is in force and any outstanding Policy Debt is less than
the Cash Surrender Value, the Policy will not go into default.
The Lapse Protection Benefit applies to a Policy only if the initial premium
paid is 100% of the Guideline Single Premium for the Face Amount of the Policy.
As a result, if you pay less than 100% of the Guideline Single Premium, then you
may be required to pay additional premiums in the future in order to prevent
your Policy from lapsing.
16
<PAGE> 17
Except as noted below, the Lapse Protection Benefit terminates on the Maturity
Date of the Policy unless the Maturity Advantage Option has been elected and the
policyowner's existing Investment Account Value is transferred to the Fixed
Account on the Maturity Date.
In the State of Florida, the Lapse Protection Benefit is in effect for the
following time periods which vary depending on the Age of the Life Insured at
issuance of the Policy.
AGE OF LIFE INSURED LAPSE PROTECTION PERIOD
AT ISSUANCE OF THE POLICY (IN YEARS)
20-50 20
51-55 19
56-60 18
61-65 16
66-70 13
71-75 10
76 and above 0
In the case of a Survivorship Policy, the Lapse Protection Period will be
determined based on the older Life Insured's age at issuance of the Policy.
MATURITY DATE
Provided that the Policy is in force and the Life Insured is alive (or the last
to die of the Life Insured in the case of a Survivorship Policy), the Company
will pay the policyowner the Policy Value (less any outstanding Policy Debt)
calculated as of the Maturity Date.
MATURITY ADVANTAGE OPTION
If the Life Insured is alive (or in the case of a Survivorship Policy, the last
to die of the Life Insured is alive) on the Maturity Date, the policyowner may
elect to continue the Policy. The Policyowner's written election to continue the
Policy must be received at the Service Office prior to the Maturity Date. If
this election is made, the Policy will continue in force subject to the
following:
(a) unless the policyowner elects otherwise, any existing Investment Account
Value will be transferred to the Fixed Account (If the Policyowner elects
not to transfer the Investment Account Value, the death benefit will be
equal to the Policy Value at the date of the Life Insured's death);
(b) no additional premium payments will be accepted although loan repayments
will be accepted;
(c) no additional charges or deductions (as described under "Charges and
Deductions") will be assessed;
(d) interest on any Policy Debt will continue to accrue;
(e) the death benefit described above will be payable to the beneficiary upon
receipt of due proof of death of the Life Insured.
The death benefit payable after the Maturity Date if the Maturity Advantage
Option is elected is the greater of the Face Amount or the Minimum Death Benefit
(as described above) less any Policy Debt due at the date of death.
If the Policy is continued after the Maturity Date, the Policy will go into
default after the Maturity Date if the Policy Debt equals or exceeds the Policy
Value. The Company will notify the policyowner of the default and will allow a
61 day grace period (from the date the Policy goes into default) in which the
policyowner may make a payment of the loan interest which would then bring the
Policy out of default. If the required payment is not received by the end of the
grace period, the Policy will terminate with no value.
PREMIUM PAYMENTS
INITIAL PREMIUMS
The Policy permits the payment of a large initial premium and, subject to the
restrictions described below, additional premiums. The minimum initial premium
is $25,000. The policyowner may choose an initial premium that is 80%, 90% or
100% of the Guideline Single Premium (based on Face Amount selected by the
policyowner). In the case of simplified underwriting, the initial premium must
be 100% of the Guideline Single Premium for the Face Amount of the Policy.
The Lapse Protection Benefit applies to a Policy only if the initial premium
paid is 100% of the Guideline Single Premum for the Face Amount of the Policy.
As a result, if you pay less than 100% of the Guideline Single Premium, then you
may be required to pay additional premiums in the future in order to prevent you
Policy from lapsing. Therefore, prospective policyowners should discuss with
their financial adviser the appropriate percentage of Guideline Single Premium
for a given Face Amount.
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.
SUBSEQUENT PREMIUMS
After payment of the initial premium, additional premiums may be made subject to
the following conditions:
(a) while there is an outstanding Policy Debt, any additional premium payment
will be applied first to repay the loan;
(b) Face Amount increases are not permitted in connection with additional
premiums (Therefore, the total of all premiums paid for a Policy may not
exceed 100% of the Guideline Single Premium for the Face Amount of the
Policy);
17
<PAGE> 18
(c) the Company may refuse or refund any premium payment (or any portion of
such premium payment) that would cause the Policy to fail to qualify as
life insurance under Section 7702 of the Code, and
(d) additional premiums may require evidence of insurability on the Life
Insured satisfactory to the Company unless the additional premium is
applied to repay a loan.
The Company will add additional premiums to Policy Value as of the Business Day
it receives the additional premium at its Service Office unless evidence of
insurability is required in which case the additional premium will be added to
Policy Value as of the Business Day the Company's underwriters approve the
additional premium.
PREMIUM ALLOCATION
On the later of the Effective Date or the Business Day a premium is received,
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.
Premiums may be allocated to the Fixed Account for accumulation at a rate of
interest equal to at least 4% or to one or more of the Investment Accounts for
investment in the Portfolio shares held by the corresponding sub-account of the
Separate Account. Allocations among the Investment Accounts and the Fixed
Account are made as a percentage of the premium. The percentage allocation to
any account may be any number between zero and 100, provided the total
allocation equals 100. A policyowner may change the way in which premiums are
allocated at any time without charge. The change will take effect on the date a
written request for change satisfactory to the Company is received at the
Service Office. A policyowner may also change premium allocation by telephone if
he or she has a currently valid authorization form on file with the Company.
MAXIMUM PREMIUM LIMITATION
The Policy is issued under the Guideline Premium Test which requires that 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.
CHARGES AND DEDUCTIONS
PREMIUM LOAD
A Premium Load of 0.030% of Policy Value is deducted monthly (equivalent to
0.360% annually) for the 10 Policy Years. If additional premium payments are
made, the 0.030% premium load for a particular premium payment is deducted from
the amount of Policy Value corresponding to the premium payment for 10 Policy
Years following the premium payment. For example, if:
- - the initial premium payment is $100,000,
- - an additional premium payment of $50,000 is made in Policy Year 7, and
- - the Policy Value at the time the additional premium payment is made is
$200,000 (including the additional premium payment),
then 0.030% will be deducted from 75% of Net Policy Value in Policy Years 7
through 10 and an additional 0.030% will be deducted from 25% of Net Policy
Value in Policy Years 7 through 16.
Unless otherwise allowed by the Company and specified by the policyowner, the
premium load will be allocated among the Investment Accounts and the Fixed
Account in the Policy in the same proportion as the Policy Value in each bears
to the Net Policy Value.
The premium load is designed to cover a portion of the Company's acquisition and
sales expenses and federal and premium taxes.
18
<PAGE> 19
SURRENDER CHARGES
During the Surrender Charge Period, the Company will deduct a Surrender Charge
if:
- the Policy is surrendered for its Net Cash Surrender Value,
- a partial withdrawal is made (above the Free Withdrawal Amount), or
- the Policy terminates due to default.
The surrender charge, together with a portion of the premium load, is designed
to compensate the Company for some of the expenses it incurs in selling and
distributing the Policies, including agents' commissions, advertising, agent
training and the printing of prospectuses and sales literature.
SURRENDER CHARGE CALCULATION
The Surrender Charge is determined by multiplying the amount withdrawn or
surrendered in excess of the Free Withdrawal Amount by the applicable total
Surrender Charge percentage shown in the table below.
Policy Year Surrender Charge
1 10.00%
2 9.00%
3 8.00%
4 7.00%
5 6.00%
6 5.00%
7 4.00%
8 3.00%
9 1.50%
10+ 0%
If necessary, we will reduce the surrender charge deducted upon a partial
withdrawal or a surrender of the Policy so that the sum of all premium loads,
the administration charges and surrender charge deducted (including the
surrender charge to be deducted upon such partial withdrawal or surrender) does
not exceed 10% of aggregate payments made during the first Policy Year.
We will allocate the deduction of the Surrender Charge for a withdrawal to the
Fixed Account and the Investment Accounts in the same proportion that the
withdrawal from each account bears to the total withdrawal. If the withdrawal
plus the Surrender Charge allocated to a particular account are greater than the
value of that account, we will reduce the portion of the withdrawal allocated to
that account. We will reduce the allocated portion so that the withdrawal plus
the charge allocated to the account equals the value of the account. If the
amount in all accounts is not sufficient to pay the Surrender Charge, we will
reduce the amount of the withdrawal.
SURRENDER CHARGES ON A PARTIAL WITHDRAWAL
FREE WITHDRAWAL AMOUNT
A portion of the Net Cash Surrender Value may be withdrawn without being subject
to a Surrender Charge (the "Free Withdrawal Amount"). The Free Withdrawal Amount
is the greater of 10% of the total premiums or 100% of Earnings. In determining
what, if any, portion of a partial withdrawal is in excess of the Free
Withdrawal 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 Maturity Date. On and after the Maturity Date, 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
19
<PAGE> 20
deductions due prior to the Effective Date will be taken on the Effective Date
instead of the dates they were due. These charges consist of:
- - a Premium Load, if applicable;
- - an administration charge;
- - a charge for the cost of insurance;
- - a mortality and expense risks charge;
- - if applicable, a charge for any supplementary benefits added to the Policy.
Unless otherwise allowed by the Company and specified by the policyowner, the
Monthly Deduction will be allocated among the Investment Accounts and the Fixed
Account in the Policy in the same proportion as the Policy Value in each bears
to the Net Policy Value immediately prior to the deduction. However, the
mortality and expense risk charge will only be allocated among the Investment
Accounts.
ADMINISTRATION CHARGE
This charge will be equal to $7.50 per Policy Month plus 0.010% of Net Policy
Value deducted monthly (equivalent to .12% annually). 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 net amount at risk is equal to (a) minus (b) where:
(a) is the death benefit as of the first day of the Policy Month, divided
by 1.0032737; and
(b) is the Policy Value as of the first day of the Policy Month.
The rates for the cost of insurance are based upon the issue age, duration of
coverage, sex, and Risk Classification of the Life Insured. For a Survivorship
Policy, the rates are determined for each of the Life Insured on the basis
described above and then are blended to produce a single cost of insurance rate.
Cost of insurance rates will generally increase with the age of the Life
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 life 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 Life 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 Smoker Distinct Mortality
tables.
MORTALITY AND EXPENSE RISKS CHARGE
A monthly charge equal to a percentage of the value of the Investment Accounts
is assessed against the Investment Accounts. This charge is to compensate the
Company for the mortality and expense risks it assumes under the Policy. The
mortality risks assumed are that the Life Insured may live for a shorter period
of time than the Company estimated. The expense risks assumed are that expenses
incurred in issuing and administering the Policy will be greater than the
Company estimated. The Company will realize a gain from this charge to the
extent it is not needed to provide benefits and pay expenses under the Policy.
The charge varies by Policy Year as follows:
20
<PAGE> 21
<TABLE>
<CAPTION>
GUARANTEED MONTHLY MORTALITY EQUIVALENT ANNUAL
AND MORTALITY AND EXPENSE
POLICY YEAR EXPENSE RISKS CHARGE RISKS CHARGE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1-10 0.075% 0.900%
10+ 0.025% 0.300%
</TABLE>
CHARGES FOR SUPPLEMENTARY BENEFITS
If the Policy includes Supplementary Benefits, a charge may apply to such
Supplementary Benefit.
CHARGES FOR TRANSFERS
A charge of $25 will be imposed on each transfer in excess of twelve in a Policy
Year. The 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.
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 and immediate family members of the foregoing. The Company
reserves the right to reduce any of the Policy's 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 the Company 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. The Company may modify from time to time, on a uniform basis, both
the amounts of reductions and the criteria for qualification.
SPECIAL PROVISIONS FOR EXCHANGES
The Company will permit policyowners of certain fixed life insurance policies
issued either by the Company or Manufacturers USA to exchange their policies for
the Policies described in this prospectus (and likewise, policyowners of
policies described in this Prospectus may also exchange their Policies for
certain fixed policies issued either by the Company or by Manufacturers USA).
Policyowners considering an exchange should consult their tax advisors as to the
tax consequences of an exchange.
COMPANY TAX CONSIDERATIONS
At the present time, the Company makes no charge to the Separate Account for any
federal, state, or local taxes that the Company incurs that may be attributable
to such Account or to the Policies. The Company, however, reserves the right in
the future to make a charge for any such tax or other economic burden resulting
from the application of the tax laws that it determines to be properly
attributable to the Separate Account or to the Policies.
POLICY VALUE
DETERMINATION OF THE POLICY VALUE
A Policy has a Policy Value, a portion of which is available to the policyowner
by making a policy loan or partial withdrawal, or upon surrender of the Policy.
The Policy Value may also affect the amount of the death benefit. The Policy
Value at any time is equal to the sum of the values in the Investment Accounts,
the Fixed Account, and the Loan Account.
INVESTMENT ACCOUNTS
An Investment Account is established under each Policy for each sub-account of
the Separate Account to which net premiums or transfer amounts have been
allocated. Each Investment Account under a Policy measures the interest of the
Policy in the corresponding sub-account. The value of the Investment Account
established for a particular sub-account is equal to the number of units of that
sub-account credited to the Policy times the value of such units.
21
<PAGE> 22
FIXED ACCOUNT
Amounts in the Fixed Account do not vary with the investment performance of any
sub-account. Instead, these amounts are credited with interest at a rate
determined by the Company. 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
4%. 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.
A Business Day is any day that the New York Stock Exchange is open for business.
A Business Day ends at the close of regularly scheduled day-time trading of the
New York Stock Exchange on that day.
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 sub-account on such subsequent Business Day.
The net investment factor for a sub-account on any Business Day is equal to (a)
divided by (b) where:
(a) is the net asset value of the underlying Portfolio shares held by that
sub-account as of the end of such Business Day before any policy
transactions are made on that day; and
(b) is the net asset value of the underlying Portfolio shares held by that
sub-account as of the end of the immediately preceding Business Day
after all policy transactions were made for that day;
The value of a unit may increase, decrease, or remain the same, depending on the
investment performance of a sub-account from one Business Day to the next.
TRANSFERS OF POLICY VALUE
At any time, a policyowner may transfer Policy Value from one sub-account to
another or to the Fixed Account. (Transfers involving the Fixed Account are
subject to certain limitations as noted below under "Transfers Involving 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. The Company also reserves the right to
modify or terminate the transfer privilege at any time in accordance with
applicable law. Transfers may also be delayed when any of the events described
under items (i) through (iv) in "Payment of Proceeds" occur. Transfer privileges
are also subject to any restrictions that may be imposed by the Trust. In
addition, the Company
22
<PAGE> 23
reserves the right to defer the transfer privilege at any time that the Company
is unable to purchase or redeem shares of 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.
Such transfers will not count against the twelve transfers that may be made free
of charge in any Policy Year.
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, the Company 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 ("DCA") program.
Under the DCA program, the policyowner will designate an amount which will be
transferred monthly from one Investment Account into any other Investment
Account(s) or the Fixed Account. Currently, no charge will be made for this
program, although the Company reserves the right to institute a charge on 90
days' written notice to the policyholder. If insufficient funds exist to effect
a DCA 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 (or the last Policy Anniversary), 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 the Company 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.
23
<PAGE> 24
POLICY LOANS
While this Policy is in force and has an available loan value, a policyowner may
borrow against the Policy Value of the Policy. The Policy serves as the only
security for the loan. Policy loans may have tax consequences.
MAXIMUM LOANABLE AMOUNT
The Maximum Loanable Amount is 90% of the Policy's Net Cash Surrender Value.
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 termination of the Lapse Protection Benefit since this
benefit terminates if Policy Debt exceeds the Cash Surrender Value. Finally, a
policy loan will affect the amount payable on the death of the Life Insured,
since the death benefit is reduced by the Policy Debt at the date of death in
arriving at the insurance benefit.
If the Policy is a MEC, then a loan will be treated as a withdrawal for tax
purposes and may be taxable. See sections entitled "Tax Treatment of the Policy
- - Policies Which Are MECs," and "Tax Treatment of the Policy Policies Which Are
Not MECs."
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 6.00%. If the interest due on a Policy Anniversary is not paid by the
policyowner, the interest will be borrowed against the Policy.
Interest on the Policy Debt will continue to accrue daily if there is an
outstanding loan when monthly deductions and premium payments cease when the
Life Insured (youngest of the Life Insured in the case of a Survivorship Policy)
reaches age 100. The Policy will go into default at any time the Policy Debt
exceeds the Cash Surrender Value. At least 61 days prior to termination, the
Company will send the policyowner a notice of the pending termination. Payment
of interest on the Policy Debt during the 61 day grace period will bring the
policy out of default.
LOAN ACCOUNT
When a loan is made, an amount equal to the loan principal, plus interest to the
next Policy Anniversary, will be deducted from the Investment Accounts or the
Fixed Account and transferred to the Loan Account. Amounts transferred into the
Loan Account cover the loan principal plus loan interest due to the next Policy
Anniversary. 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
Nonpreferred Loans
Interest will be credited to amounts in the Loan Account at an effective annual
rate of 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 2.00%. (The Loan Interest Credited Differential is the difference
between the rate of interest charged on a policy loan and the rate of interest
credited to amounts in the Loan Account.)
24
<PAGE> 25
Preferred Loans:
Preferred interest rates are available in the case of loans of amounts that
represent Earnings on the Policy ("Preferred Loans").
Interest will be credited to amounts in the Loan Account at an effective annual
rate of 6.00%. 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 0.00%.
The Company may change the Current Loan Interest Credited Differential as of 90
days after sending you written notice of such change.
For a Policy that is not a MEC, the tax consequences associated with a loan
interest credited differential of 0% are unclear. A tax adviser should be
consulted before effecting a loan to evaluate the tax consequences that may
arise in such a situation. If we determine, in our sole discretion, that there
is a substantial risk that a loan will be treated as a taxable distribution
under Federal tax law as a result of the differential between the credited
interest rate and the loan interest rate, the Company retains the right to
increase the loan interest rate to an amount that would result in the
transaction being treated as a loan under Federal tax law. If this amount is not
prescribed by any IRS ruling or regulation or any court decision, the amount of
increase will be that which the Company considers to be most likely to result in
the transaction being treated as a loan under Federal tax law. In no event will
the loan interest rate exceed the rate charged in the first ten Policy Years.
If the Policy is a MEC then, regardless of the loan interest credited
differential, a loan will be treated as a withdrawal for tax purposes and may be
taxable. See sections entitled "Tax Treatment of the Policy - Policies Which Are
MECs," and "Tax Treatment of the Policy - Policies Which Are Not MECs."
LOAN ACCOUNT ADJUSTMENTS
On the first day of each Policy Anniversary the difference between the Loan
Account and the Policy Debt is transferred to the Loan Account from the
Investment Accounts or the Fixed Account. Amounts transferred to the Loan
Account will be taken from the Investment Accounts and the Fixed Account in the
same proportion as the value in each Investment Account and the Fixed Account
bears to the Net Policy Value.
LOAN REPAYMENTS
Policy Debt may be repaid in whole or in part at any time prior to the death of
the Life 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.
Where permitted by applicable state law, any additional premium payment will be
applied to outstanding loan balances.
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. The Net Cash Surrender Value will
be determined as of the end of the Business Day on which the Company receives
the Policy and a written request for surrender at its Service Office. After a
Policy is surrendered, the insurance coverage and all other benefits under the
Policy will terminate. See section entitled "Tax Treatment of the Policy" for a
discussion of the potential Federal income tax implications of a surrender of
the Policy.
PARTIAL WITHDRAWALS
A policyowner may make a partial withdrawal of the Net Cash Surrender Value
after the first Policy Anniversary. The minimum partial withdrawal amount is
$500. 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
25
<PAGE> 26
Surrender Charges on a Partial Withdrawal see "Charges and Deductions -
Surrender Charges." See section entitled "Tax Treatment of the Policy" for a
discussion of the potential Federal income tax implications of a partial
withdrawal from the Policy.
If the withdrawal would cause the Policy Value to fall below $25,000, we will
treat the withdrawal request as a full surrender of the Policy.
REDUCTION IN FACE AMOUNT DUE TO A PARTIAL WITHDRAWAL
A partial withdrawal will cause a reduction in Face Amount. The Face Amount will
be reduced by an amount equal to (a) multiplied by (b) where:
(a) is the Face Amount prior to the withdrawal; and
(b) is the Policy Value after the withdrawal, divided by the Policy Value prior
to the withdrawal.
If the reduction in the Face Amount would require the return of premiums in
order for the policy to qualify as life insurance under Section 7702 of the
Code, or any other equivalent section of the Code, then we will return premiums,
with interest, in the year of reduction, or in any subsequent year that the
return of premiums is required. If necessary, we will also limit the amount of
the withdrawal so that the Face Amount does not fall below the Face Amount
associated with the minimum initial premium of $25,000 and the percent of
Guideline Single Premium selected. The decrease in Face Amount will be effective
as of the date of the withdrawal.
LAPSE AND REINSTATEMENT
LAPSE
Unless the Lapse Protection Benefit 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
Policy could also lapse if the Policy Debt is greater than the Cash Surrender
Value since the Lapse Protection Benefit terminates on any date that the Policy
Debt exceeds the Cash Surrender Value. The Company will notify the policyowner
of the default and will allow a 61 day grace period (from the date the Policy
goes into default) 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 sum of (a) the monthly
deductions due at the date of default and (b) the amount equal to the monthly
deductions due to the later of the next Policy Anniversary or for at least three
Policy Months. If the required payment is not received by the end of the grace
period, the Policy will terminate with no value. See section entitled "Tax
Treatment of the Policy - Lapse or Surrender" for a discussion of the potential
Federal income tax implications of a lapse of the Policy.
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.
MATURITY ADVANTAGE OPTION
If the Policy is extended after the Maturity Date by electing the Maturity
Advantage Option, the Policy will go into default after the Maturity Date if the
Policy Debt equals or exceeds the Policy Value.
The Company will notify the policyowner of the default and will allow a 61 day
grace period (from the date the Policy goes into default) in which the
policyowner may make a payment of the loan interest which would then bring the
Policy out of default. If the required payment is not received by the end of the
grace period, the Policy will terminate with no value.
REINSTATEMENT
A policyowner can, by making a written request, 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) In the case of a Survivorship Policy, the Policy may not be reinstated if
any of the Life Insured have died since the Policy lapsed;
26
<PAGE> 27
(b) Evidence of the Life Insured's insurability, satisfactory to the Company is
provided to the Company; and
(c) A premium equal to the amount that was required to bring the Policy out of
default immediately prior to termination, plus an amount equal to the
Monthly Deductions due until the next Policy Anniversary or for at least
three Policy Months is paid.
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. See section entitled "Tax Treatment of the Policy Lapse
or Surrender" for a discussion of the potential Federal income tax implications
of a lapse and subsequent reinstatement of the Policy.
TERMINATION
The Policy will terminate on the earliest to occur of the following events:
(a) the end of the grace period for which the policyowner has not paid the
amount necessary to bring the Policy out of default,
(b) surrender of the Policy for its Net Cash Surrender Value;
(c) the Maturity Date unless the policyowner has elected the Maturity Advantage
option;
(d) the death of the Life Insured.
THE GENERAL ACCOUNT
The general account of the Company 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, the Company has sole discretion over the
investment of the assets of the general account.
By virtue of exclusionary provisions, interests in the general account of the
Company have not been registered under the Securities Act of 1933 and the
general account has not been registered as an investment company under the
Investment Company Act of 1940. Accordingly, neither the general account nor any
interests therein are subject to the provisions of these acts, and as a result
the staff of the S.E.C. has not reviewed the disclosures in this prospectus
relating to the general account. Disclosures regarding the general account may,
however, be subject to certain generally applicable provisions of the federal
securities laws relating to the accuracy and completeness of statements made in
a prospectus.
FIXED ACCOUNT
A policyowner may elect to allocate net premiums to the Fixed Account or to
transfer all or a portion of the Policy Value to the Fixed Account from the
Investment Accounts. The Company 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, the Company 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
27
<PAGE> 28
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
ASSIGNMENT OF RIGHTS
The Company will not be bound by an assignment until it receives a copy of the
assignment at its Service Office. The Company assumes no responsibility for the
validity or effects of any assignment.
BENEFICIARY
One or more beneficiaries of the Policy may be appointed by the policyowner by
naming them in the application. Beneficiaries may be appointed in three classes
- - primary, secondary, and final. Beneficiaries may also be revocable or
irrevocable. Unless an irrevocable designation has been elected, the beneficiary
may be changed by the policyowner during the Life Insured's 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 but
will not apply to any payments made or actions taken by the Company prior to
receiving such written notice. 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
The Company will not contest the validity of a Policy after it has been in force
during the Life Insured's lifetime for two years from the Issue Date. It will
not contest the validity of an increase in Face Amount, after such increase or
addition has been in force during the lifetime of the Life Insured for two years
from the date of such increase. If a Policy has been reinstated and been in
force during the lifetime of the Life 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 the Life Insured in the Policy are
incorrect, the Company 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 the Life Insured dies by suicide within two years after the Issue Date (or
within the maximum period permitted by the state in which the Policy was
delivered, if less than two years), 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.
The Company reserves the right to obtain evidence of the manner and cause of
death of the Life Insured.
SUPPLEMENTARY BENEFITS
Subject to certain requirements, one or more supplementary benefits may be added
to a Policy, including those providing a lapse protection benefit and an
acceleration of benefits in the event of a terminal illness. More detailed
information concerning these supplementary benefits may be obtained from an
authorized agent of the Company. The cost, if any, for supplementary benefits
will be deducted as part of the monthly deduction.
TAX TREATMENT OF THE POLICY
INTRODUCTION
The following discussion of the Federal income tax treatment of the Policy
is not exhaustive, does not purport to cover all situations, and is not intended
as tax advice. The Federal income tax treatment of the Policy is unclear in
certain circumstances, and a qualified tax advisor should always be consulted
with regard to the application of law to individual circumstances. This
discussion is based on the Code, Treasury Department regulations, and
interpretations existing on the date
28
<PAGE> 29
of this Prospectus. These authorities, however, are subject to change by
Congress, the Treasury Department, and judicial decisions.
This discussion does not address state or local tax consequences associated
with the purchase of the Policy. In addition, THE COMPANY MAKES NO GUARANTEE
REGARDING ANY TAX TREATMENT -- FEDERAL, STATE OR LOCAL -- OF ANY POLICY OR OF
ANY TRANSACTION INVOLVING A POLICY.
THE COMPANY'S TAX STATUS
The Company is taxed as a life insurance company under the Code. Since the
operations of the Separate Account are a part of, and are taxed with, the
operations of the Company, the Separate Account is not separately taxed as a
"regulated investment company" under the Code. Under existing Federal income tax
laws, investment income and capital gains of the Separate Account are not taxed
to the extent they are applied under a Policy. The Company does not anticipate
that it will incur any Federal income tax liability attributable to such income
and gains of the Separate Account, and therefore the Company does not intend to
make any provision for such taxes. If the Company is taxed on investment income
or capital gains of the Separate Account, then the Company may impose a charge
against the Separate Account to make provision for such taxes. The Company's
Federal tax liability is increased, however, in respect of the Policies because
of the Federal tax law's treatment of deferred acquisition costs (for which the
Company imposes a Federal tax charge) (see "CHARGES AND DEDUCTIONS").
TAXATION OF LIFE INSURANCE POLICIES IN GENERAL
Tax Status of the Policy
There are several requirements that must be met for a Policy to be considered a
Life Insurance Contract under the Code, and thereby to enjoy the tax benefits of
such a contract:
- - The Policy must satisfy the definition of life insurance under Section 7702
of the Code.
- - The investments of the Separate Account must be "adequately diversified" in
accordance with Section 817(h) of the Code and Treasury Regulations.
- - The Policy must be a valid life insurance contract under applicable state
law.
- - 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.
Only the Guideline Premium Test is permitted under the Policy. 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.
29
<PAGE> 30
If it is subsequently determined that a Policy does not satisfy Section 7702,
the Company may take whatever steps are appropriate and reasonable to attempt to
cause such a Policy to comply with Section 7702. For these reasons, the Company
reserves the right to restrict Policy transactions as necessary to attempt to
qualify it as a life insurance contract under Section 7702.
DIVERSIFICATION
Section 817(h) of the Code requires that the investments of the Separate Account
be "adequately diversified" in accordance with Treasury regulations in order for
the Policy to qualify as a life insurance contract under Section 7702 of the
Code (discussed above). The Separate Account, through the Trust, intends to
comply with the diversification requirements prescribed in Treas. Reg. Sec.
1.817-5, which affect how the Trust's assets are to be invested. The Company
believes that the Separate Account will thus meet the diversification
requirement, and the Company will monitor continued compliance with the
requirement.
STATE LAW
State regulations require that the policyowner have appropriate insurable
interest in the life insured. Failure to establish an insurable interest may
result in the Policy not qualifying as a life insurance contract for federal tax
purposes.
INVESTOR CONTROL
In certain circumstances, owners of variable life insurance Policies may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their policies. In those circumstances, income
and gains from the separate account assets would be includible in the variable
policyowner's gross income. The IRS has stated in published rulings that a
variable policyowner will be 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.
The remainder of this discussion assumes that the Policy will be treated as
a life insurance Policy for Federal tax purposes.
Tax Treatment of Life Insurance Death Benefit Proceeds
In general, the amount of the death benefit payable from a Policy by reason
of the death of the insured is excludable from gross income under Section 101 of
the Code. Certain transfers of the Policy for valuable consideration, however,
may result in a portion of the death benefit being taxable.
If the death benefit is not received in a lump sum and is, instead, applied
under one of the settlement options, payments generally will be prorated between
amounts attributable to the death benefit which will be excludable from the
beneficiary's income and amounts attributable to interest (accruing after the
insured's death) which will be includible in the beneficiary's income.
Tax Deferral During Accumulation Period
Under existing provisions of the Code, except as described below, any
increase in a policyowner's Policy value is generally not taxable to the
policyowner unless amounts are received (or are deemed to be received) from the
Policy prior to the insured's death.
30
<PAGE> 31
Lapse or Surrender
Upon a lapse or surrender of the Policy, the amount received will be
includible in the policyowner's income to the extent the amount received exceeds
the "investment in the Policy." If there is any debt at the time of a lapse or
surrender, such debt will be treated as an amount received by the policyowner.
The "investment in the Policy" generally is the aggregate amount of premium
payments and other consideration paid for the Policy, less the aggregate amount
received under the Policy previously to the extent such amounts received were
excludable from gross income. A subsequent reinstatement will not change this
tax treatment of a surrendered or lapsed Policy.
POLICIES WHICH ARE MECS
Characterization of a Policy as a MEC.
Section 7702A establishes a class of life insurance contracts designated as
Modified Endowment Contracts ("MECs"), which applies to Policies entered into or
materially changed after June 20, 1988. In general, a Policy will be a MEC if
the accumulated premiums paid at any time during the first seven Policy Years
exceed the sum of the net level premiums which would have been paid on or before
such time if the Policy paid up future benefits after the payment of seven level
annual premiums (the "seven-pay test"). The determination of whether a Policy
will be a MEC after a material change generally depends upon the relationship of
the death benefit and the Policy Value at the time of such change and the
additional premiums paid in the seven years following the material change. In
general, this Policy will constitute a MEC unless:
(4) it was received in exchange for another life insurance policy which was not
a MEC,
(5) no premium payments (other than the exchanged policy) are paid into the
Policy during the first seven Policy years, and
(6) the death benefit on the new Policy is not less than the death benefit on
the exchanged policy.
If the death benefit on the new policy is less than the death benefit on the
exchanged policy, the new policy may become a MEC if (1) the exchanged policy
was, at the time of the exchange, subject to the MEC rules, (2) premiums
payments had been made to the old policy after it had become subject to the MEC
rules, and (3) the exchanged policy was in a seven-pay test period at the time
of exchange or, in the case of a Survivorship Policy, the Policy was issued (or
deemed issued) after September 13, 1989.
In addition, even if the Policy initially is not a MEC, it may in certain
circumstances become a MEC. These circumstances would include a later increase
in benefits, any other material change of the Policy (within the meaning of the
tax law), and a withdrawal or reduction in the death benefit during the first
seven Policy years.
Tax Treatment of Withdrawals, Loans, Assignments and Pledges under MECs. If
the Policy is a MEC, withdrawals from the Policy will be treated first as
withdrawals of income and then as a recovery of premium payments. Thus,
withdrawals will be includible in income to the extent the Policy value exceeds
the investment in the Policy. The amount of any loan (including unpaid interest
thereon) under the Policy will be treated as a withdrawal from the Policy for
tax purposes. In addition, if the policyowner assigns or pledges any portion of
the value of a Policy (or agrees to assign or pledge any portion), such portion
will be treated as a withdrawal from the Policy for tax purposes. The
policyowner's investment in the Policy is increased by the amount includible in
income with respect to such assignment, pledge, or loan, though it is not
affected by any other aspect of the assignment, pledge, or loan (including its
release or repayment). Before assigning, pledging, or requesting a loan under a
Policy which is a MEC, a policyowner should consult a qualified tax advisor.
Penalty Tax. Generally, withdrawals (or the amount of any deemed
withdrawals) from a MEC are subject to a penalty tax equal to 10% of the portion
of the withdrawal that is includible in income, unless the withdrawals are made
(1) after the policyowner attains age 59 1/2, (2) because the policyowner has
become disabled (as defined in the tax law), or (3) as substantially equal
periodic payments over the life or life expectancy of the policyowner (or the
joint lives or life expectancies of the policyowner and his or her beneficiary,
as defined in the tax law).
Aggregation of Policies. All life insurance Policies which are MECs and
which are purchased by the same person from the Company or any of its affiliates
within the same calendar year will be aggregated and treated as one Policy for
purposes of determining the amount of a withdrawal (including a deemed
withdrawal) that is includible in income. The effects of such aggregation are
not clear; however, it could affect the amount of a withdrawal (or a deemed
withdrawal) that is taxable and the amount which might be subject to the 10%
penalty tax described above.
31
<PAGE> 32
POLICIES WHICH ARE NOT MECS
Tax Treatment of Withdrawals Generally. If the Policy is not a MEC
(described above), the amount of any withdrawal from the Policy will be treated
first as a non-taxable recovery of premium payments and then as income from the
Policy. Thus, a withdrawal from a Policy that is not a MEC will not be
includible in income except to the extent it exceeds the investment in the
Policy immediately before the withdrawal.
Certain Distributions Required by the Tax Law in the First 15 Policy Years.
As indicated under "Payments," Section 7702 places limitations on the amount of
premium payments that may be made and the Policy values that can accumulate
relative to the death benefit. Where cash distributions are required under
Section 7702 in connection with a reduction in benefits during the first 15
years after the Policy is issued (or if withdrawals are made in anticipation of
a reduction in benefits, within the meaning of the tax law, during this period),
some or all of such amounts may be includible in income. A reduction in benefits
may result upon a decrease in the face amount, if withdrawals are made, and in
certain other instances.
Tax Treatment of Loans. If a Policy is not a MEC, a loan received under the
Policy generally will be treated as indebtedness of the policyowner. As a
result, no part of any loan under such a Policy will constitute income to the
policyowner so long as the Policy remains in force. Nevertheless, in those
situations where the interest rate credited to the loan account equals the
interest rate charged for the loan, it is possible that some or all of the loan
proceeds may be includible in income. If a policy lapses (or if all Policy value
is withdrawn) when a loan is outstanding, the amount of the loan outstanding
will be treated as withdrawal proceeds for purposes of determining whether any
amounts are includible in the policyowner's income.
Survivorship Policies
Although the Company believes that the Policy, when issued as a Survivor
Policy, complies with Section 7702 of the Code, the manner in which Section 7702
should be applied to Survivor Policies is not directly addressed by Section
7702. In the absence of final regulations or other guidance issued under Section
7702 regarding this form of Policy, there is necessarily some uncertainty
whether a Survivor Policy will meet the Section 7702 definition of a life
insurance Policy. Prospective policyowners considering purchase of the Policy as
a Survivor Policy should consult a qualified tax advisor.
Where the policyowner of the Policy is the last surviving insured, the
death proceeds will generally be includible in the policyowner's estate on his
or her death for purposes of the Federal estate tax. If the policyowner dies and
was not the last surviving insured, the fair market value of the Policy would be
included in the policyowner's estate. In general, no part of the Policy value
would be includible in the last surviving insured's estate if he or she neither
retained incidents of policyownership at death nor had given up policyownership
within three years before death.
Treatment of Maturity Benefits and Extension of Maturity Date
At the maturity date, the surrender value will be paid to the policyowner,
and this amount will be includible in income to the extent the amount received
exceeds the investment in the Policy. If the policyowner elects to extend the
maturity date past the year in which the insured attains age 100 (which must be
done prior to the original maturity date), the Company believes the Policy will
continue to qualify as a life insurance policy for Federal tax purposes.
However, there is some uncertainty regarding this treatment, and it is possible
that the policyowner would be viewed as constructively receiving the cash value
in the year the insured attains age 100. If this were the case, an amount equal
to the excess of the cash value over the investment in the Policy would be
includible in the policyowner's income at that time.
Actions to Ensure Compliance with the Tax Law
The Company believes that the maximum amount of premium payments it has
determined for the Policies will comply with the Federal tax definition of life
insurance. The Company will monitor the amount of premium payments, and, if the
premium payments during a Policy year exceed those permitted by the tax law, the
Company will refund the excess premiums within 60 days of the end of the Policy
year and will pay interest and other earnings (which will be includible in
income subject to tax) as required by law on the amount refunded. The Company
also reserves the right to increase the death benefit (which may result in
larger charges under a Policy) or to take any other action deemed necessary to
ensure the compliance of the Policy with the Federal tax definition of life
insurance.
32
<PAGE> 33
Other Considerations
Changing the policyowner, exchanging the Policy, and other changes under
the Policy may have tax consequences (in addition to those discussed herein)
depending on the circumstances of such change.
Federal estate tax, state and local estate and inheritance tax, and other
tax consequences of policyownership or receipt of Policy proceeds depend on the
circumstances of each policyowner or beneficiary. Federal estate tax is
integrated with Federal gift tax under a unified rate schedule. In general,
estates valued at less than the "applicable exclusion amount" will not incur a
Federal estate tax liability. The applicable exclusion amount for decedents
dying in 1999 is $625,000 and increases annually until it reaches $1,000,000 for
decedents dying in 2006 and after. In addition, an unlimited marital deduction
may be available for Federal estate and gift tax purposes.
If the policyowner (whether or not he or she is an insured) transfers
policyownership of the Policy to someone two or more generations younger, the
transfer may be subject to the generation-skipping tax, the amount subject to
tax being the value of the Policy. The generation-skipping tax provisions
generally apply to transfers which would be subject to the gift or estate tax
rules. Individuals are generally allowed an aggregate generation-skipping tax
exemption of $1 million. For generation skipping transfers of decedents dying
after 1998, this exemption is indexed for inflation.
Because the Federal estate tax, gift tax, and generation skipping tax rules
are complex, prospective Policyowners should consult a qualified tax advisor
before using this Policy for estate planning purposes.
DISALLOWANCE OF INTEREST DEDUCTIONS
The Policy generally will be characterized as a single premium life
insurance Policy under Section 264 of the Code and, as a result, interest paid
on any loans under the Policy will not be tax deductible, irrespective of
whether the policyowner is an individual or a non-natural entity, such as a
corporation or a trust. In addition, in the case of Policies issued to a
non-natural taxpayer, or held for the benefit of such an entity, a portion of
the taxpayer's otherwise deductible interest expenses may not be deductible as a
result of policyownership of a Policy even if no loans are taken under the
Policy. An exception to the latter rule is provided for certain life insurance
Policies which cover the life of an individual who is a 20-percent policyowner,
or an officer, director, or employee of, a trade or business. Entities that are
considering purchasing the policy, or entities that will be beneficiaries under
a Policy, should consult a tax advisor.
FEDERAL INCOME TAX WITHHOLDING
The Company will withhold and remit to the Federal government a part of
the taxable portion of withdrawals made under a Policy unless the policyowner
notifies the Company in writing at or before the time of the withdrawal that he
or she elects not to have any amounts withheld. Regardless of whether the
policyowner requests that no taxes be withheld or whether the Company withholds
a sufficient amount of taxes, the policyowner will be responsible for the
payment of any taxes and early distribution penalties that may be due on the
amounts received. The policyowner may also be required to pay penalties under
the estimated tax rules, if the policyowner's withholding and estimated tax
payments are insufficient to satisfy the policyowner's total tax liability.
OTHER INFORMATION
PAYMENT OF PROCEEDS
As long as the Policy is in force, the Company will ordinarily pay any policy
loans, surrenders, partial withdrawals or insurance benefit within seven days
after receipt at its Service Office of all the documents required for such a
payment. The Company may delay 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.
33
<PAGE> 34
REPORTS TO POLICYOWNERS
Within 30 days after each Policy Anniversary, the Company 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 the Company. 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 1E5 and was
organized under the laws of Colorado on May 4, 1970. The directors of ManEquity,
Inc. are: Roy Bubbs, Gary Buchanan, Robert Cook, Douglas Myers and Joseph Scott.
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.
ManEquity has entered into a non-exclusive promotional agent agreement with
Manulife Wood Logan Associates, Inc. ("Manulife Wood Logan"). Wood Logan is a
broker-dealer registered under the 1934 Act and a member of the NASD. Manulife
Wood Logan is a wholly owned subsidiary of a holding company that is 78.4% owned
by The Manufacturers Life Insurance Company (U.S.A.) and 21.6% owned by MRL
Holding, LLC. Sales of the Policies will be made by registered representatives
of broker-dealers authorized by ManEquity to sell the Policies. Those registered
representatives will also be the Company's licensed insurance agents. Under the
promotional agent agreement, Manulife Wood Logan will recruit and provide sales
training and licensing assistance to those registered representatives. In
addition, Manulife Wood Logan will prepare sales and promotional materials for
the Company's approval. ManEquity will pay distribution compensation to selling
broker-dealers in varying amounts which under normal circumstances are not
expected to exceed the amounts set forth below. ManEquity may from time to time
pay additional compensation pursuant to promotional contests. Additionally, in
some circumstances, ManEquity will provide reimbursement of certain sales and
marketing expenses. ManEquity will pay the promotional agent for providing
marketing support for the distribution of the Policies. The Policies will be
sold in all states of the United States except New York.
A registered representative will receive commissions not to exceed either (a) 7%
of premiums in the first year or (b) 5.75% of premiums in the first year and
.25% of Net Policy Value annually beginning 19 months after issuance of the
Policy. Representatives who meet certain productivity standards with regard to
the sale of the Policies and certain other policies issued by the Company 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 the Company, 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 the Company pursuant to which Manufacturers Life and
Manufacturers USA will provide to the Company all issue, administrative, general
services and recordkeeping functions on behalf of the Company with respect to
all of its insurance policies including the Policies.
34
<PAGE> 35
Finally, the Company may, from time to time in its sole discretion, enter into
one or more reinsurance agreements with other life insurance companies under
which policies issued by it may be reinsured, such that its total amount at risk
under a policy would be limited for the life of an insured.
VOTING RIGHTS
As stated previously, all of the assets held in the sub-accounts of the Separate
Account will be invested in shares of a particular Portfolio of the Trust. The
Company 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, the Company 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 the Company
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 the Company 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
the Company, 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.
The Company 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 policy. In addition, the
Company itself may disregard voting instructions that would require changes in
the investment policies or investment adviser, provided that the Company
reasonably disapproves such changes in accordance with applicable federal
regulations. If the Company 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 the Company, 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, the Company 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.
The Company also reserves the right (i) to combine other separate accounts with
the Separate Account, (ii) to create new separate accounts, (iii) to establish
additional sub-accounts within the Separate Account to invest in additional
portfolios of the Trust or another management investment company, (iv) to
eliminate existing sub-accounts and to stop accepting new allocations and
transfers into the corresponding portfolio, (v) to combine sub-accounts or to
transfer assets in one sub-account to another sub-account or (vi) to transfer
assets from the Separate Account to another separate account and from another
separate account to the Separate Account. The Company also reserves the right to
operate the Separate Account as a management investment company or other form
permitted by law, and to de-register the Separate Account under the 1940 Act.
Any such change would be made only if permissible under applicable federal and
state law.
RECORDS AND ACCOUNTS
The Service Office will perform administrative functions, such as decreases,
increases, surrenders and partial withdrawals, and fund transfers on behalf of
the Company.
All records and accounts relating to the Separate Account and the Portfolios
will be maintained by the Company. All financial transactions will be handled by
the Company. All reports required to be made and information required to be
given will be provided by the Company.
35
<PAGE> 36
STATE REGULATIONS
The Company 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.
The Company 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 consolidated 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, 1998 and 1997, and for each of the
three years in the period ended December 31, 1998, appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given on the authority of such firm
as experts in accounting and auditing.
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 S.E.C.'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 the Company's Home Office, the
address and telephone number of which are on the first page of the prospectus.
OFFICERS AND DIRECTORS
The directors and executive officers of the Company, together with their
principal occupations during the past five years, are as follows:
<TABLE>
<CAPTION>
POSITION WITH MANUFACTURERS LIFE
NAME (AGE) OF AMERICA PRINCIPAL OCCUPATION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sandra M. Cotter (36)* Director (since December 1992) Attorney, Dykema, Gossett, PLLC, 1989 to present.
James D. Gallagher (45)** Director (since May 1996), Vice President, Secretary and General Counsel, The
Secretary and General Counsel Manufacturers Life Insurance Company (USA), January 1997 to
present; Secretary and General Counsel, Manufacturers Adviser
Corporation, January 1997 to present; Vice President, Legal
Services - U.S. Operations, The Manufacturers Life Insurance
Company, January 1996 to present; Vice President, Secretary
and General Counsel, The Manufacturers Life Insurance Company
of North America, 1994 to present; Vice President and
Associate General Counsel, The Prudential Insurance Company of
America, 1991 to 1994.
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
POSITION WITH MANUFACTURERS LIFE
NAME (AGE) OF AMERICA PRINCIPAL OCCUPATION
<S> <C> <C>
Donald A. Guloien (41)*** Director (since August 1990) and Executive Vice President, Business Development, The
President Manufacturers Life Insurance Company, January 1999 to present;
Senior Vice President, Business Development, The Manufacturers
Life Insurance Company, 1994 to December 1998; Vice President,
U.S. Individual Business, The Manufacturers Life Insurance
Company, 1990 to 1994.
Theodore Kilkuskie (43)** Director (since May 1996) Senior Vice President, U.S. Annuities, The Manufacturers Life
Insurance Company, January 1999 to present; President, The
Manufacturers Life Insurance Company of North America, January
1999 to present; Senior Vice President, U.S. Individual
Insurance, The Manufacturers Life Insurance February 1998 to
December 1998; Vice President, U.S. Individual Insurance, The
Manufacturers Life Insurance Company, June 1995 to February
1998; Executive Vice President, Mutual Fund Sales & Marketing,
State Street Research & Management, March 1994 to June 1995.
James O'Malley (52)*** Director (since November 1998) Senior Vice President, U.S. Pensions, The Manufacturers Life
Insurance Company, January 1999 to present; Vice President,
Systems New Business Pensions, The Manufacturers Life
Insurance Company, 1984 to December 1998.
Joseph J. Pietroski (60)*** Director (since July 1992) Senior Vice President, General Counsel and Corporate
Secretary, The Manufacturers Life Insurance Company, 1988 to
present.
John D. Richardson (61)*** Chairman and Director (since Senior Executive Vice President, The Manufacturers Life
January 1995) Insurance Company, January 1999 to present; Executive Vice
President, U.S. Operations, The Manufacturers Life Insurance
Company, November 1997 to December 1998; Senior Vice President
and General Manager, U.S. Operations, The Manufacturers Life
Insurance Company, January 1995 to October 1997; Senior Vice
President and General Manager, Canadian Operations, The
Manufacturers Life Insurance Company, June 1992 to December
1994.
Victor Apps (51)*** Vice President, Asia Executive Vice President, Asia Operations, The Manufacturers
Life Insurance Company, November 1997 to present; Senior Vice
President and General Manager, Greater China Division, The
Manufacturers Life Insurance Company, 1995 to 1997; Vice
President and General Manager, Greater China Division, The
Manufacturers Life Insurance Company, 1993 to 1995;
International Vice President, Asia Pacific Division, The
Manufacturers Life Insurance Company, 1988 to 1993.
</TABLE>
37
<PAGE> 38
<TABLE>
<CAPTION>
POSITION WITH MANUFACTURERS LIFE
NAME (AGE) OF AMERICA PRINCIPAL OCCUPATION
<S> <C> <C>
Felix Chee (52)*** Vice President, Investments Executive Vice President, The Manufacturers Life Insurance
Company, November 1997 to present; Chief Investment Officer,
The Manufacturers Life Insurance Company, June 1997 to
present; Senior Vice President and Treasurer, The
Manufacturers Life Insurance Company, August 1994 to May 1997;
Vice President and Treasurer, The Manufacturers Life Insurance
Company, October 1993 to July 1994.
Robert A. Cook (44)** Vice President, Marketing Senior Vice President, US Individual Insurance, The
Manufacturers Life Insurance Company, January 1999 to present;
Vice President, Product Management, The Manufacturers Life
Insurance Company, 1996 to December 1998; Sales and Marketing
Director, U.K. Division, The Manufacturers Life Insurance
Company, 1994 to-1995.
Douglas H. Myers (44)*** Vice President, Finance and President, ManEquity, Inc., April 1994 to present; Assistant
Compliance, Controller Vice President and Controller, U.S. Operations, The
Manufacturers Life Insurance Company, 1988 to present.
John G. Vrysen (44)** Vice President and Appointed Chief Financial Officer and Treasurer, Manulife-Wood Logan
Actuary Holding Co., Inc., January 1996 to present; Vice President and
Chief Financial Officer, U.S. Operations, The Manufacturers
Life Insurance Company, January 1996 to present; Vice
President and Chief Actuary, The Manufacturers Life Insurance
Company of New York, March 1992 to present; Vice President and
Chief Actuary, The Manufacturers Life Insurance Company of
North America, January 1986 to present.
Jean Wong (35)*** Vice President and Treasurer Vice President, Product Management, US Insurance, The
Manufacturers Life Insurance Company, March 1999 to present;
Vice President and Chief Accountant, US Division, The
Manufacturers Life Insurance Company, May 1998 to February
1999; Chief Accountant, US Division, The Manufacturers Life
Insurance Company, July 1996 to May 1998; Director, Finance
and Administration, Star Data Systems Inc., December 1995 to
July 1996; Vice President and Chief Financial Officer,
Primerica Financial Services, June 1993 to December 1995.
</TABLE>
*Principal business address is Dykema Gossett, 800 Michigan National Tower,
Lansing, Michigan 48933.
**Principal business address is Manulife Financial, 73 Tremont Street, Boston,
MA 02108.
***Principal business address is Manulife Financial, 200 Bloor Street, Toronto,
Ontario Canada M4W 1E5.
38
<PAGE> 39
IMPACT OF YEAR 2000
The Company makes extensive use of information systems in the operations of its
various businesses, including for the exchange of financial data and other
information with customers, suppliers and other counterparties. The Company also
uses software and information systems provided by third parties in its
accounting, business and investment systems.
The Year 2000 risk, as it is commonly known, is the result of computer programs
being written using two digits, rather than four, to define the applicable year.
Any of the Company's computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in systems' failures or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send premium billing notices, make claims payments or engage in
other normal business activities.
The systems used by the Company have been assessed as part of a comprehensive
written plan conducted by The Manufacturers Life Insurance Company (collectively
with its subsidiaries "Manulife Financial") to ensure that the computer systems
and processes of Manulife Financial, including the Company's, will continue to
perform through the end of this century and in the next.
In 1996, in order to make Manulife Financial's systems Year 2000 compliant, a
Project was instituted to modify or replace both Manulife Financial's
information technology systems ("IT systems") and embedded technology systems
("Non-IT systems"). The phases of this Project include (i) an inventory and
assessment of all systems to determine which are critical, (ii) planning and
designing the required modifications and replacements, (iii) making these
modifications and replacements, (iv) testing modified replaced systems, (v)
redeploying modified or replaced systems and (vi) final management review and
certification.
As at June 30, 1999, management believes that the certification phase has been
completed for all the Company's critical IT and Non-IT systems. Management
believes that the Company's non-critical systems were Year 2000 compliant by the
end of the first quarter 1999.
In addition to efforts directed at the Company's own systems, Manulife Financial
consulted vendors, customers, borrowers and other third parties with which the
Company deals in an effort to ensure that no material aspect of the Company's
operations will be hindered by Year 2000 problems of these third parties. This
process included sending questionnaires to third parties regarding the state of
their Year 2000 readiness and, where possible or where appropriate, conducting
further due diligence activities. Where appropriate, risk management steps are
being followed as a result of the third-party assessment.
39
<PAGE> 40
APPENDIX A
DEFINITIONS
Additional Rating
is an increase to the Cost of Insurance Rate for insureds who do not meet, at a
minimum, the Company's underwriting requirements for the standard Risk
Classification.
Age
on any date is the Life Insured's age on his or her nearest birthday. If no
specific date is mentioned, Age means the Life Insured's age on the Policy
Anniversary nearest to the birthday.
Attained Age
on any date is the Age at issue plus the number of whole years that have elapsed
since the Policy Date. In the case of a Survivorship Policy, Attained Age is
based on the youngest Life Insured at issue of the Policy.
Business Day
is any day that the New York Stock Exchange is open for business. A Business Day
ends at the close of regularly scheduled day-time trading of the New York Stock
Exchange on that day.
Cash Surrender Value
is the Policy Value less the sum of (a) the Surrender Charge and (b) any
outstanding Monthly Deductions due.
The Company (or "we," "us" or "our")
refers to The Manufacturers Life Insurance Company of America.
Earnings
is an amount calculated in relation to a loan and free withdrawals. The amount
is calculated as of the date the Company receives the request for the loan or
the free withdrawal and is equal to the Policy Value less the sum of (a) the
value of any Policy Debt and (b) total premiums paid.
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.
Guideline Single Premium
is the maximum premium that can be paid under the Guideline Premium Test
(described under "Life Insurance Qualification") which will still allow the
Policy to qualify as life insurance for tax purposes under Section 7702 of the
Code.
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 person or persons whose life (or lives) is (are) covered by the Policy.
In the case of a Survivorship Policy, all provisions of the Policy which are
based on the death of the Life Insured will be based on the death of the last
survivor of the persons so named and reference to the youngest of the Life
Insured means the youngest person insured under the Policy when it is first
issued.
A-1
<PAGE> 41
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.
Maturity Date
is the date shown in the Policy. In the case of a Single Life Policy, it is the
Policy Anniversary nearest Attained Age 100 of the Life Insured. In the case of
a Survivorship Policy, it is the Policy Anniversary nearest Attained Age 100 of
the youngest of the Life Insured at issue. The Maturity Date may be extended
pursuant to the Maturity Advantage Option described under "Maturity Date."
Net Cash Surrender Value
is the Cash Surrender Value less the Policy Debt.
Net Policy Value
is the Policy Value less the value in the Loan Account.
Net Premium
is the gross premium paid less the Premium Charge. It is the amount of premium
allocated to the Fixed Account and/or Investment Accounts.
Policy Date
is the date coverage takes effect under the Policy, provided the underwriting
process has been completed to the Company's satisfaction and the Company has
received the minimum initial premium at its Service Office, and is the date from
which charges for the first monthly deduction are calculated, and the date from
which Policy Years, Policy Months, and Policy Anniversaries are determined.
Policy Debt
as of any date equals (a) plus (b) plus (c) minus (d), where:
(a) is the total amount of loans borrowed as of such date;
(b) is the total amount of any unpaid loan interest charges which have
been borrowed against the policy on a Policy Anniversary;
(c) is any interest charges accrued from the last Policy Anniversary to
the current date; and
(d) is the total amount of loan repayments as of such date.
Policy Value
is the sum of the values in the Loan Account, the Fixed Account, and the
Investment Accounts.
Single Life Policy
is a modified single premium variable life insurance policy offered on a single
life basis under the Policy described in this Prospectus.
Separate Account
refers to Separate Account Three of the Company.
Service Office Address
is 200 Bloor Street East, Toronto, Ontario, Canada M4W 1E5.
Surrender Charge Period
is the period following the Issue Date 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.
Survivorship Policy
is a modified single premium survivorship variable life insurance policy offered
on a survivorship basis under the Policy described in this Prospectus.
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.
A-2
<PAGE> 42
APPENDIX B
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 are based on initial premiums of
$25,000 and $100,000. A male age 55 and a female age 55 are illustrated for the
single life Policy. A male age 55 and female age 50 are illustrated for the last
survivorship Policy.
The tables include both Policy Values and Cash Surrender Values as well as Death
Benefits. The Policy Value is the sum of the values in the Investment Accounts,
as the tables assume no values in the Fixed Account or Loan Account. The Cash
Surrender Value is the Policy Value less any applicable surrender charges. The
tables illustrate how Policy Values and Cash Surrender Values, which reflect all
applicable charges and deductions, and Death Benefits of the Policy on an
insured of given age would vary over time if the return on the assets of the
Portfolios was a uniform, gross, after-tax, annual rate of 0%, 6% or 12%. The
Policy Values, Death Benefits and Cash Surrender Values would be different from
those shown if the returns averaged 0%, 6% or 12%, but fluctuated over and under
those averages throughout the years. The charges reflected in the tables include
those for deductions from premiums, surrender charges, and monthly deductions.
The amounts shown for the Policy Value, Death Benefit and Cash Surrender Value
as of each Policy Year reflect the fact that the net investment return on the
assets held in the sub-accounts is lower than the gross, after-tax return. This
is because the expenses and fees borne by Manufacturers Investment Trust are
deducted from the gross return. The illustrations reflect a simple average of
those Portfolios' current expenses, which is approximately 0.960% per annum. The
gross annual rates of return of 0%, 6% and 12% correspond to approximate net
annual rates of return of -0.955%, 4.987% and 10.930%. The expense of the
Portfolios may fluctuate from year to year but are assumed to remain constant
for purposes of these tables. The illustrations reflect the expense
reimbursement in effect for the Lifestyle Trusts. In the absence of such expense
reimbursement, the average of the Portfolio's current expenses would have been
0.963% 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 -0.958%, 4.984%
and 10.927%. The expense reimbursement for the Lifestyle Trusts is expected to
remain in effect during the fiscal year ended December 31, 1999 and the fiscal
year ended December 31, 2000. Were the expense reimbursement and expense
limitation to terminate, the average of the Portfolios' current expenses would
be higher and the approximate net annual rates of return would be lower.
The tables assume that no premiums have been allocated to the Fixed Account,
that planned premiums are paid on the Policy Anniversary and that no transfers,
partial withdrawals, Policy loans, changes in death benefit options or changes
in face amount have been made. The tables reflect the fact that no charges for
federal, state or local taxes are currently made against the Separate Account.
If such a charge is made in the future, it would take a higher gross rate of
return to produce after-tax returns of 0%, 6% and 12% than it does now.
There are two tables shown for each Policy, 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 Smoker Distinct
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 life insured's issue age, sex
(unless unisex rates are required by law, or are requested) and risk classes and
any additional ratings, face amount and planned premium requested.
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 Portfolio 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
B-1
<PAGE> 43
graphs, charts, tables and examples.
The Policies have been offered to the public only since approximately October,
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.
B-2
<PAGE> 44
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55
$25,000 PLANNED SINGLE PREMIUM
$73,724 FACE AMOUNT
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 24,227 22,254 73,724 25,688 23,582 73,724 27,148 24,910 73,724
2 27,563 23,431 21,739 73,724 26,362 24,434 73,724 29,466 27,445 73,724
3 28,941 22,610 21,186 73,724 27,024 25,287 73,724 31,972 30,201 73,724
4 30,388 21,753 20,582 73,724 27,663 26,142 73,724 34,680 33,160 73,724
5 31,907 20,854 19,921 73,724 28,276 27,005 73,724 37,614 36,343 73,724
6 33,502 19,924 19,212 73,724 28,874 27,853 73,724 40,811 39,790 73,724
7 35,178 18,956 18,448 73,724 29,452 28,681 73,724 44,299 43,558 73,724
8 36,936 17,945 17,694 73,724 30,008 29,602 73,724 48,116 47,710 73,724
9 38,783 16,888 16,870 73,724 30,540 30,508 73,724 52,301 52,270 73,724
10 40,722 15,765 15,765 73,724 31,035 31,035 73,724 56,898 56,898 73,724
11 42,758 14,688 14,688 73,724 31,778 31,778 73,724 62,557 62,557 75,068
12 44,896 13,547 13,547 73,724 32,518 32,518 73,724 68,820 68,820 81,895
13 47,141 12,325 12,325 73,724 33,248 33,248 73,724 75,712 75,712 89,340
14 49,498 11,016 11,016 73,724 33,966 33,966 73,724 83,297 83,297 97,458
15 51,973 9,613 9,613 73,724 34,673 34,673 73,724 91,648 91,648 106,311
16 54,572 8,117 8,117 73,724 35,373 35,373 73,724 100,843 100,843 115,969
17 57,300 6,529 6,529 73,724 36,069 36,069 73,724 110,996 110,996 125,426
18 60,165 4,850 4,850 73,724 36,769 36,769 73,724 122,218 122,218 135,661
19 63,174 3,083 3,083 73,724 37,477 37,477 73,724 134,630 134,630 146,747
20 66,332 1,232 1,232 73,724 38,200 38,200 73,724 148,372 148,372 158,758
25 84,659 0 (3) 0 (3) 73,724 40,599 40,599 73,724 241,343 241,343 253,410
30 108,049 0 (3) 0 (3) 73,724 39,059 39,059 73,724 390,482 390,482 410,007
35 137,900 0 (3) 0 (3) 73,724 26,353 26,353 73,724 625,993 625,993 657,293
40 176,000 0 (3) 0 (3) 73,724 0 (3) 0 (3) 73,724 1,007,082 1,007,082 1,017,152
45 224,625 0 (3) 0 (3) 73,724 0 (3) 0 (3) 73,724 1,655,923 1,655,923 1,655,923
</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) no policy loan
has been made, (b) no partial withdrawal of the Cash Surrender Value
has been made, and (c) no premiums have been allocated to the Fixed
Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
B-3
<PAGE> 45
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55
$25,000 PLANNED SINGLE PREMIUM
$73,724 FACE AMOUNT
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 24,227 22,254 73,724 25,688 23,582 73,724 27,148 24,910 73,724
2 27,563 23,153 21,483 73,724 26,088 24,181 73,724 29,195 27,175 73,724
3 28,941 22,051 20,666 73,724 26,463 24,766 73,724 31,415 29,644 73,724
4 30,388 20,916 19,795 73,724 26,811 25,332 73,724 33,826 32,306 73,724
5 31,907 19,740 18,863 73,724 27,125 25,874 73,724 36,449 35,178 73,724
6 33,502 18,514 17,860 73,724 27,399 26,382 73,724 39,308 38,287 73,724
7 35,178 17,230 16,776 73,724 27,624 26,853 73,724 42,430 41,664 73,724
8 36,936 15,874 15,657 73,724 27,790 27,384 73,724 45,847 45,441 73,724
9 38,783 14,430 14,416 73,724 27,885 27,854 73,724 49,597 49,566 73,724
10 40,722 12,882 12,882 73,724 27,896 27,896 73,724 53,726 53,726 73,724
11 42,758 11,327 11,327 73,724 28,085 28,085 73,724 58,862 58,862 73,724
12 44,896 9,617 9,617 73,724 28,180 28,180 73,724 64,612 64,612 76,888
13 47,141 7,730 7,730 73,724 28,165 28,165 73,724 70,947 70,947 83,718
14 49,498 5,642 5,642 73,724 28,024 28,024 73,724 77,898 77,898 91,141
15 51,973 3,322 3,322 73,724 27,736 27,736 73,724 85,525 85,525 99,209
16 54,572 727 727 73,724 27,269 27,269 73,724 93,891 93,891 107,975
17 57,300 0 (3) 0 (3) 73,724 26,554 26,554 73,724 103,099 103,099 116,502
18 60,165 0 (3) 0 (3) 73,724 25,596 25,596 73,724 113,262 113,262 125,721
19 63,174 0 (3) 0 (3) 73,724 24,301 24,301 73,724 124,488 124,488 135,692
20 66,332 0 (3) 0 (3) 73,724 22,592 22,592 73,724 136,912 136,912 146,496
25 84,659 0 (3) 0 (3) 73,724 4,084 4,084 73,724 220,609 220,609 231,639
30 108,049 0 (3) 0 (3) 73,724 0 (3) 0 (3) 73,724 352,126 352,126 369,732
35 137,900 0 (3) 0 (3) 73,724 0 (3) 0 (3) 73,724 553,566 553,566 581,245
40 176,000 0 (3) 0 (3) 73,724 0 (3) 0 (3) 73,724 877,414 877,414 886,188
45 224,625 0 (3) 0 (3) 73,724 0 (3) 0 (3) 73,724 1,442,637 1,442,637 1,442,637
</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) no policy loan
has been made, (b) no partial withdrawal of the Cash Surrender Value
has been made, and (c) no premiums have been allocated to the Fixed
Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
B-4
<PAGE> 46
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55
$100,000 PLANNED SINGLE PREMIUM
$305,427 FACE AMOUNT
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 97,153 89,237 305,427 103,003 94,556 305,427 108,854 99,875 305,427
2 110,250 94,200 87,394 305,427 105,956 98,199 305,427 118,400 110,317 305,427
3 115,763 91,135 85,388 305,427 108,857 101,855 305,427 128,720 121,636 305,427
4 121,551 87,910 83,171 305,427 111,668 105,585 305,427 139,867 133,784 305,427
5 127,628 84,503 80,716 305,427 114,374 109,290 305,427 151,936 146,852 305,427
6 134,010 80,963 78,065 305,427 117,023 112,939 305,427 165,082 160,999 305,427
7 140,710 77,257 75,183 305,427 119,594 116,511 305,427 179,425 176,341 305,427
8 147,746 73,371 72,342 305,427 122,081 120,456 305,427 195,109 193,484 305,427
9 155,133 69,283 69,209 305,427 124,471 124,346 305,427 212,302 212,177 305,427
10 162,889 64,924 64,924 305,427 126,717 126,717 305,427 231,179 231,179 305,427
11 171,034 60,745 60,745 305,427 129,975 129,975 305,427 254,387 254,387 305,427
12 179,586 56,299 56,299 305,427 133,233 133,233 305,427 280,143 280,143 333,371
13 188,565 51,519 51,519 305,427 136,456 136,456 305,427 308,491 308,491 364,019
14 197,993 46,383 46,383 305,427 139,645 139,645 305,427 339,691 339,691 397,439
15 207,893 40,856 40,856 305,427 142,795 142,795 305,427 374,035 374,035 433,881
16 218,287 34,950 34,950 305,427 145,930 145,930 305,427 411,856 411,856 473,635
17 229,202 28,663 28,663 305,427 149,069 149,069 305,427 453,617 453,617 512,587
18 240,662 22,006 22,006 305,427 152,235 152,235 305,427 499,769 499,769 554,743
19 252,695 14,989 14,989 305,427 155,455 155,455 305,427 550,819 550,819 600,392
20 265,330 7,629 7,629 305,427 158,757 158,757 305,427 607,336 607,336 649,850
25 338,635 0 (3) 0 (3) 305,427 170,700 170,700 305,427 989,698 989,698 1,039,183
30 432,194 0 (3) 0 (3) 305,427 167,930 167,930 305,427 1,603,090 1,603,090 1,683,244
35 551,602 0 (3) 0 (3) 305,427 123,865 123,865 305,427 2,571,749 2,571,749 2,700,337
40 703,999 0 (3) 0 (3) 305,427 0 (3) 0 (3) 305,427 4,139,169 4,139,169 4,180,561
45 898,501 0 (3) 0 (3) 305,427 0 (3) 0 (3) 305,427 6,807,770 6,807,770 6,807,770
</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) no policy loan
has been made, (b) no partial withdrawal of the Cash Surrender Value
has been made, and (c) no premiums have been allocated to the Fixed
Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
B-5
<PAGE> 47
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55
$100,000 PLANNED SINGLE PREMIUM
$305,427 FACE AMOUNT
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 97,153 89,237 305,427 103,003 94,556 305,427 108,854 99,875 305,427
2 110,250 93,030 86,319 305,427 104,798 97,135 305,427 117,259 109,175 305,427
3 115,763 88,785 83,204 305,427 106,496 99,661 305,427 126,367 119,284 305,427
4 121,551 84,397 79,871 305,427 108,083 102,116 305,427 136,257 130,173 305,427
5 127,628 79,833 76,283 305,427 109,532 104,472 305,427 147,009 141,925 305,427
6 134,010 75,060 72,403 305,427 110,816 106,733 305,427 158,719 154,635 305,427
7 140,710 70,037 68,186 305,427 111,904 108,821 305,427 171,501 168,417 305,427
8 147,746 64,711 63,822 305,427 112,754 111,129 305,427 185,482 183,857 305,427
9 155,133 59,019 58,958 305,427 113,314 113,189 305,427 200,815 200,690 305,427
10 162,889 52,889 52,889 305,427 113,527 113,527 305,427 217,685 217,685 305,427
11 171,034 46,728 46,728 305,427 114,464 114,464 305,427 238,636 238,636 305,427
12 179,586 39,926 39,926 305,427 115,018 115,018 305,427 262,126 262,126 311,930
13 188,565 32,394 32,394 305,427 115,125 115,125 305,427 288,119 288,119 339,980
14 197,993 24,035 24,035 305,427 114,719 114,719 305,427 316,638 316,638 370,467
15 207,893 14,723 14,723 305,427 113,710 113,710 305,427 347,929 347,929 403,598
16 218,287 4,276 4,276 305,427 111,971 111,971 305,427 382,255 382,255 439,594
17 229,202 0 (3) 0 (3) 305,427 109,220 109,220 305,427 420,035 420,035 474,639
18 240,662 0 (3) 0 (3) 305,427 105,475 105,475 305,427 461,731 461,731 512,521
19 252,695 0 (3) 0 (3) 305,427 100,354 100,354 305,427 507,785 507,785 553,485
20 265,330 0 (3) 0 (3) 305,427 93,540 93,540 305,427 558,757 558,757 597,870
25 338,635 0 (3) 0 (3) 305,427 18,779 18,779 305,427 902,119 902,119 947,225
30 432,194 0 (3) 0 (3) 305,427 0 (3) 0 (3) 305,427 1,441,701 1,441,701 1,513,786
35 551,602 0 (3) 0 (3) 305,427 0 (3) 0 (3) 305,427 2,268,221 2,268,221 2,381,632
40 703,999 0 (3) 0 (3) 305,427 0 (3) 0 (3) 305,427 3,596,961 3,596,961 3,632,930
45 898,501 0 (3) 0 (3) 305,427 0 (3) 0 (3) 305,427 5,915,912 5,915,912 5,915,912
</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) no policy loan
has been made, (b) no partial withdrawal of the Cash Surrender Value
has been made, and (c) no premiums have been allocated to the Fixed
Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
B-6
<PAGE> 48
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE NON-SMOKER ISSUE AGE 55
$25,000 PLANNED SINGLE PREMIUM
$86,857 FACE AMOUNT
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- --------------------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 24,242 22,267 86,857 25,702 23,595 86,857 27,163 24,923 86,857
2 27,563 23,460 21,766 86,857 26,391 24,460 86,857 29,494 27,473 86,857
3 28,941 22,652 21,225 86,857 27,064 25,324 86,857 32,009 30,238 86,857
4 30,388 21,812 20,637 86,857 27,716 26,195 86,857 34,725 33,204 86,857
5 31,907 20,926 19,989 86,857 28,336 27,065 86,857 37,656 36,386 86,857
6 33,502 20,007 19,292 86,857 28,936 27,915 86,857 40,840 39,820 86,857
7 35,178 19,053 18,543 86,857 29,516 28,745 86,857 44,307 43,566 86,857
8 36,936 18,062 17,809 86,857 30,074 29,668 86,857 48,088 47,682 86,857
9 38,783 17,053 17,034 86,857 30,626 30,594 86,857 52,233 52,202 86,857
10 40,722 16,015 16,015 86,857 31,165 31,165 86,857 56,781 56,781 86,857
11 42,758 15,115 15,115 86,857 32,017 32,017 86,857 62,386 62,386 86,857
12 44,896 14,188 14,188 86,857 32,890 32,890 86,857 68,619 68,619 86,857
13 47,141 13,234 13,234 86,857 33,787 33,787 86,857 75,557 75,557 89,157
14 49,498 12,223 12,223 86,857 34,689 34,689 86,857 83,226 83,226 97,374
15 51,973 11,193 11,193 86,857 35,626 35,626 86,857 91,688 91,688 106,358
16 54,572 10,131 10,131 86,857 36,590 36,590 86,857 101,024 101,024 116,177
17 57,300 9,027 9,027 86,857 37,579 37,579 86,857 111,335 111,335 125,809
18 60,165 7,881 7,881 86,857 38,597 38,597 86,857 122,729 122,729 136,229
19 63,174 6,692 6,692 86,857 39,646 39,646 86,857 135,325 135,325 147,504
20 66,332 5,462 5,462 86,857 40,732 40,732 86,857 149,254 149,254 159,702
25 84,659 0 (3) 0 (3) 86,857 45,472 45,472 86,857 243,671 243,671 255,854
30 108,049 0 (3) 0 (3) 86,857 47,495 47,495 86,857 396,258 396,258 416,071
35 137,900 0 (3) 0 (3) 86,857 42,567 42,567 86,857 639,704 639,704 671,689
40 176,000 0 (3) 0 (3) 86,857 18,390 18,390 86,857 1,034,808 1,034,808 1,045,156
45 224,625 0 (3) 0 (3) 86,857 0 (3) 0 (3) 86,857 1,701,530 1,701,530 1,701,530
</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) no policy loan
has been made, (b) no partial withdrawal of the Cash Surrender Value
has been made, and (c) no premiums have been allocated to the Fixed
Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
B-7
<PAGE> 49
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE NON-SMOKER ISSUE AGE 55
$25,000 PLANNED SINGLE PREMIUM
$86,857 FACE AMOUNT
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------------- ----------------------------- ---------------------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 24,242 22,267 86,857 25,702 23,595 86,857 27,163 24,923 86,857
2 27,563 23,182 21,510 86,857 26,114 24,205 86,857 29,218 27,197 86,857
3 28,941 22,111 20,722 86,857 26,514 24,813 86,857 31,455 29,684 86,857
4 30,388 21,029 19,902 86,857 26,905 25,420 86,857 33,893 32,373 86,857
5 31,907 19,933 19,047 86,857 27,284 26,024 86,857 36,556 35,285 86,857
6 33,502 18,818 18,152 86,857 27,646 26,625 86,857 39,465 38,444 86,857
7 35,178 17,675 17,207 86,857 27,985 27,214 86,857 42,642 41,879 86,857
8 36,936 16,491 16,263 86,857 28,290 27,884 86,857 46,114 45,708 86,857
9 38,783 15,250 15,234 86,857 28,548 28,517 86,857 49,909 49,877 86,857
10 40,722 13,938 13,938 86,857 28,745 28,745 86,857 54,061 54,061 86,857
11 42,758 12,671 12,671 86,857 29,158 29,158 86,857 59,190 59,190 86,857
12 44,896 11,299 11,299 86,857 29,512 29,512 86,857 64,895 64,895 86,857
13 47,141 9,815 9,815 86,857 29,803 29,803 86,857 71,263 71,263 86,857
14 49,498 8,215 8,215 86,857 30,027 30,027 86,857 78,372 78,372 91,695
15 51,973 6,485 6,485 86,857 30,174 30,174 86,857 86,211 86,211 100,004
16 54,572 4,599 4,599 86,857 30,227 30,227 86,857 94,836 94,836 109,061
17 57,300 2,521 2,521 86,857 30,157 30,157 86,857 104,348 104,348 117,913
18 60,165 196 196 86,857 29,927 29,927 86,857 114,845 114,845 127,477
19 63,174 0 (3) 0 (3) 86,857 29,489 29,489 86,857 126,435 126,435 137,814
20 66,332 0 (3) 0 (3) 86,857 28,789 28,789 86,857 139,250 139,250 148,997
25 84,659 0 (3) 0 (3) 86,857 19,081 19,081 86,857 225,762 225,762 237,050
30 108,049 0 (3) 0 (3) 86,857 0 (3) 0 (3) 86,857 363,157 363,157 381,315
35 137,900 0 (3) 0 (3) 86,857 0 (3) 0 (3) 86,857 575,717 575,717 604,503
40 176,000 0 (3) 0 (3) 86,857 0 (3) 0 (3) 86,857 916,086 916,086 925,247
45 224,625 0 (3) 0 (3) 86,857 0 (3) 0 (3) 86,857 1,506,249 1,506,249 1,506,249
</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) no policy loan
has been made, (b) no partial withdrawal of the Cash Surrender Value
has been made, and (c) no premiums have been allocated to the Fixed
Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
B-8
<PAGE> 50
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE NON-SMOKER ISSUE AGE 55
$100,000 PLANNED SINGLE PREMIUM
$360,771 FACE AMOUNT
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- --------------------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 97,214 89,292 360,771 103,064 94,611 360,771 108,915 99,930 360,771
2 110,250 94,322 87,506 360,771 106,076 98,310 360,771 118,518 110,434 360,771
3 115,763 91,310 85,551 360,771 109,024 102,010 360,771 128,876 121,793 360,771
4 121,551 88,155 83,400 360,771 111,891 105,807 360,771 140,058 133,975 360,771
5 127,628 84,802 80,999 360,771 114,627 109,544 360,771 152,119 147,036 360,771
6 134,010 81,304 78,392 360,771 117,285 113,202 360,771 165,214 161,131 360,771
7 140,710 77,655 75,569 360,771 119,862 116,778 360,771 179,465 176,382 360,771
8 147,746 73,847 72,809 360,771 122,353 120,728 360,771 195,007 193,382 360,771
9 155,133 69,953 69,878 360,771 124,825 124,700 360,771 212,042 211,917 360,771
10 162,889 65,937 65,937 360,771 127,251 127,251 360,771 230,724 230,724 360,771
11 171,034 62,487 62,487 360,771 130,964 130,964 360,771 253,723 253,723 360,771
12 179,586 58,919 58,919 360,771 134,771 134,771 360,771 279,297 279,297 360,771
13 188,565 55,242 55,242 360,771 138,690 138,690 360,771 307,768 307,768 363,166
14 197,993 51,325 51,325 360,771 142,636 142,636 360,771 339,299 339,299 396,979
15 207,893 47,329 47,329 360,771 146,736 146,736 360,771 374,090 374,090 433,944
16 218,287 43,196 43,196 360,771 150,963 150,963 360,771 412,471 412,471 474,342
17 229,202 38,892 38,892 360,771 155,308 155,308 360,771 454,865 454,865 513,997
18 240,662 34,413 34,413 360,771 159,782 159,782 360,771 501,708 501,708 556,896
19 252,695 29,756 29,756 360,771 164,402 164,402 360,771 553,491 553,491 603,305
20 265,330 24,929 24,929 360,771 169,187 169,187 360,771 610,759 610,759 653,513
25 338,635 0 (3) 0 (3) 360,771 190,569 190,569 360,771 998,923 998,923 1,048,869
30 432,194 0 (3) 0 (3) 360,771 201,651 201,651 360,771 1,626,257 1,626,257 1,707,570
35 551,602 0 (3) 0 (3) 360,771 186,580 186,580 360,771 2,627,165 2,627,165 2,758,523
40 703,999 0 (3) 0 (3) 360,771 100,194 100,194 360,771 4,251,604 4,251,604 4,294,121
45 898,501 0 (3) 0 (3) 360,771 0 (3) 0 (3) 360,771 6,992,710 6,992,710 6,992,710
</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) no policy loan
has been made, (b) no partial withdrawal of the Cash Surrender Value
has been made, and (c) no premiums have been allocated to the Fixed
Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
B-9
<PAGE> 51
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE NON-SMOKER ISSUE AGE 55
$100,000 PLANNED SINGLE PREMIUM
$360,771 FACE AMOUNT
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- ---------------------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 97,214 89,292 360,771 103,064 94,611 360,771 108,915 99,930 360,771
2 110,250 93,153 86,431 360,771 104,908 97,236 360,771 117,355 109,272 360,771
3 115,763 89,037 83,439 360,771 106,710 99,860 360,771 126,536 119,452 360,771
4 121,551 84,869 80,315 360,771 108,476 102,486 360,771 136,545 130,461 360,771
5 127,628 80,637 77,047 360,771 110,198 105,115 360,771 147,469 142,386 360,771
6 134,010 76,317 73,609 360,771 111,855 107,771 360,771 159,397 155,314 360,771
7 140,710 71,877 69,969 360,771 113,420 110,336 360,771 172,425 169,342 360,771
8 147,746 67,262 66,332 360,771 114,849 113,224 360,771 186,653 185,028 360,771
9 155,133 62,407 62,342 360,771 116,085 115,960 360,771 202,194 202,069 360,771
10 162,889 57,249 57,249 360,771 117,074 117,074 360,771 219,193 219,193 360,771
11 171,034 52,271 52,271 360,771 118,945 118,945 360,771 240,157 240,157 360,771
12 179,586 46,854 46,854 360,771 120,576 120,576 360,771 263,465 263,465 360,771
13 188,565 40,976 40,976 360,771 121,951 121,951 360,771 289,471 289,471 360,771
14 197,993 34,614 34,614 360,771 123,057 123,057 360,771 318,552 318,552 372,705
15 207,893 27,716 27,716 360,771 123,854 123,854 360,771 350,703 350,703 406,816
16 218,287 20,175 20,175 360,771 124,266 124,266 360,771 386,081 386,081 443,993
17 229,202 11,839 11,839 360,771 124,182 124,182 360,771 425,098 425,098 480,361
18 240,662 2,483 2,483 360,771 123,443 123,443 360,771 468,151 468,151 519,647
19 252,695 0 (3) 0 (3) 360,771 121,852 121,852 360,771 515,691 515,691 562,103
20 265,330 0 (3) 0 (3) 360,771 119,192 119,192 360,771 568,249 568,249 608,027
25 338,635 0 (3) 0 (3) 360,771 80,468 80,468 360,771 923,079 923,079 969,233
30 432,194 0 (3) 0 (3) 360,771 0 (3) 0 (3) 360,771 1,486,637 1,486,637 1,560,969
35 551,602 0 (3) 0 (3) 360,771 0 (3) 0 (3) 360,771 2,358,558 2,358,558 2,476,486
40 703,999 0 (3) 0 (3) 360,771 0 (3) 0 (3) 360,771 3,754,746 3,754,746 3,792,294
45 898,501 0 (3) 0 (3) 360,771 0 (3) 0 (3) 360,771 6,175,447 6,175,447 6,175,447
</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) no policy loan
has been made, (b) no partial withdrawal of the Cash Surrender Value
has been made, and (c) no premiums have been allocated to the Fixed
Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
B-10
<PAGE> 52
SINGLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 AND
FEMALE NON-SMOKER ISSUE AGE 50
$25,000 PLANNED SINGLE PREMIUM
$136,940 FACE AMOUNT
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ---------------------------- --------------------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 24,329 22,346 136,940 25,792 23,676 136,940 27,254 25,005 136,940
2 27,563 23,665 21,954 136,940 26,603 24,654 136,940 29,711 27,690 136,940
3 28,941 23,006 21,553 136,940 27,432 25,666 136,940 32,390 30,619 136,940
4 30,388 22,357 21,149 136,940 28,286 26,765 136,940 35,317 33,796 136,940
5 31,907 21,719 20,742 136,940 29,166 27,896 136,940 38,515 37,244 136,940
6 33,502 21,088 20,329 136,940 30,072 29,051 136,940 42,009 40,988 136,940
7 35,178 20,462 19,909 136,940 31,001 30,230 136,940 45,826 45,105 136,940
8 36,936 19,840 19,558 136,940 31,953 31,547 136,940 49,994 49,592 136,940
9 38,783 19,219 19,198 136,940 32,928 32,897 136,940 54,548 54,516 136,940
10 40,722 18,596 18,596 136,940 33,923 33,923 136,940 59,521 59,521 136,940
11 42,758 18,139 18,139 136,940 35,273 35,273 136,940 65,579 65,579 136,940
12 44,896 17,665 17,665 136,940 36,665 36,665 136,940 72,264 72,264 136,940
13 47,141 17,170 17,170 136,940 38,100 38,100 136,940 79,643 79,643 136,940
14 49,498 16,646 16,646 136,940 39,572 39,572 136,940 87,788 87,788 136,940
15 51,973 16,093 16,093 136,940 41,085 41,085 136,940 96,787 96,787 136,940
16 54,572 15,505 15,505 136,940 42,636 42,636 136,940 106,734 106,734 136,940
17 57,300 14,878 14,878 136,940 44,224 44,224 136,940 117,737 117,737 140,108
18 60,165 14,208 14,208 136,940 45,851 45,851 136,940 129,891 129,891 153,272
19 63,174 13,490 13,490 136,940 47,515 47,515 136,940 143,303 143,303 167,664
20 66,332 12,720 12,720 136,940 49,218 49,218 136,940 158,102 158,102 183,399
25 84,659 7,361 7,361 136,940 57,928 57,928 136,940 258,575 258,575 276,676
30 108,049 0 (3) 0 (3) 136,940 65,514 65,514 136,940 423,100 423,100 444,255
35 137,900 0 (3) 0 (3) 136,940 67,464 67,464 136,940 689,111 689,111 723,566
40 176,000 0 (3) 0 (3) 136,940 53,739 53,739 136,940 1,112,589 1,112,589 1,168,219
45 224,625 0 (3) 0 (3) 136,940 0 (3) 0 (3) 136,940 1,798,715 1,798,715 1,816,702
50 286,685 0 (3) 0 (3) 136,940 0 (3) 0 (3) 136,940 2,958,049 2,958,049 2,958,049
</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) no policy loan
has been made, (b) no partial withdrawal of the Cash Surrender Value
has been made, and (c) no premiums have been allocated to the Fixed
Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
B-11
<PAGE> 53
SINGLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 AND
FEMALE NON-SMOKER ISSUE AGE 50
$25,000 PLANNED SINGLE PREMIUM
$136,940 FACE AMOUNT
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------------- --------------------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 24,329 22,346 136,940 25,792 23,676 136,940 27,254 25,005 136,940
2 27,563 23,665 21,954 136,940 26,603 24,654 136,940 29,711 27,690 136,940
3 28,941 23,006 21,553 136,940 27,432 25,666 136,940 32,390 30,619 136,940
4 30,388 22,348 21,141 136,940 28,277 26,757 136,940 35,308 33,787 136,940
5 31,907 21,689 20,714 136,940 29,137 27,866 136,940 38,486 37,215 136,940
6 33,502 21,025 20,269 136,940 30,009 28,988 136,940 41,947 40,927 136,940
7 35,178 20,352 19,801 136,940 30,889 30,118 136,940 45,716 44,994 136,940
8 36,936 19,664 19,385 136,940 31,773 31,367 136,940 49,819 49,415 136,940
9 38,783 18,956 18,935 136,940 32,658 32,627 136,940 54,286 54,254 136,940
10 40,722 18,222 18,222 136,940 33,538 33,538 136,940 59,150 59,150 136,940
11 42,758 17,623 17,623 136,940 34,740 34,740 136,940 65,071 65,071 136,940
12 44,896 16,972 16,972 136,940 35,946 35,946 136,940 71,589 71,589 136,940
13 47,141 16,254 16,254 136,940 37,147 37,147 136,940 78,769 78,769 136,940
14 49,498 15,454 15,454 136,940 38,332 38,332 136,940 86,684 86,684 136,940
15 51,973 14,553 14,553 136,940 39,485 39,485 136,940 95,419 95,419 136,940
16 54,572 13,529 13,529 136,940 40,590 40,590 136,940 105,075 105,075 136,940
17 57,300 12,350 12,350 136,940 41,622 41,622 136,940 115,768 115,768 137,764
18 60,165 11,002 11,002 136,940 42,571 42,571 136,940 127,586 127,586 150,552
19 63,174 9,447 9,447 136,940 43,409 43,409 136,940 140,593 140,593 164,494
20 66,332 7,647 7,647 136,940 44,107 44,107 136,940 154,903 154,903 179,687
25 84,659 0 (3) 0 (3) 136,940 43,940 43,940 136,940 251,467 251,467 269,070
30 108,049 0 (3) 0 (3) 136,940 29,650 29,650 136,940 408,399 408,399 428,819
35 137,900 0 (3) 0 (3) 136,940 0 (3) 0 (3) 136,940 656,703 656,703 689,538
40 176,000 0 (3) 0 (3) 136,940 0 (3) 0 (3) 136,940 1,039,462 1,039,462 1,091,435
45 224,625 0 (3) 0 (3) 136,940 0 (3) 0 (3) 136,940 1,651,209 1,651,209 1,667,721
50 286,685 0 (3) 0 (3) 136,940 0 (3) 0 (3) 136,940 2,715,423 2,715,423 2,715,423
</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) no policy loan
has been made, (b) no partial withdrawal of the Cash Surrender Value
has been made, and (c) no premiums have been allocated to the Fixed
Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
B-12
<PAGE> 54
SINGLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 AND
FEMALE NON-SMOKER ISSUE AGE 50
$100,000 PLANNED SINGLE PREMIUM
$571,810 FACE AMOUNT
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------------- -----------------------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 97,582 89,627 571,810 103,441 94,953 571,810 109,299 100,279 571,810
2 110,250 95,185 88,299 571,810 106,967 99,129 571,810 119,436 111,353 571,810
3 115,763 92,798 86,933 571,810 110,574 103,491 571,810 130,484 123,401 571,810
4 121,551 90,448 85,554 571,810 114,293 108,209 571,810 142,556 136,473 571,810
5 127,628 88,129 84,158 571,810 118,122 113,039 571,810 155,748 150,664 571,810
6 134,010 85,836 82,739 571,810 122,062 117,979 571,810 170,159 166,076 571,810
7 140,710 83,558 81,290 571,810 126,108 123,025 571,810 185,900 182,817 571,810
8 147,746 81,285 80,126 571,810 130,255 128,630 571,810 203,091 201,466 571,810
9 155,133 79,010 78,924 571,810 134,503 134,378 571,810 221,869 221,744 571,810
10 162,889 76,718 76,718 571,810 138,843 138,843 571,810 242,376 242,376 571,810
11 171,034 75,105 75,105 571,810 144,641 144,641 571,810 267,324 267,324 571,810
12 179,586 73,417 73,417 571,810 150,625 150,625 571,810 294,850 294,850 571,810
13 188,565 71,639 71,639 571,810 156,792 156,792 571,810 325,229 325,229 571,810
14 197,993 69,737 69,737 571,810 163,125 163,125 571,810 358,763 358,763 571,810
15 207,893 67,709 67,709 571,810 169,633 169,633 571,810 395,807 395,807 571,810
16 218,287 65,532 65,532 571,810 176,310 176,310 571,810 436,752 436,752 571,810
17 229,202 63,190 63,190 571,810 183,154 183,154 571,810 482,041 482,041 573,628
18 240,662 60,663 60,663 571,810 190,166 190,166 571,810 532,094 532,094 627,871
19 252,695 57,935 57,935 571,810 197,345 197,345 571,810 587,328 587,328 687,174
20 265,330 54,989 54,989 571,810 204,695 204,695 571,810 648,279 648,279 752,003
25 338,635 33,953 33,953 571,810 242,462 242,462 571,810 1,062,069 1,062,069 1,136,414
30 432,194 0 (3) 0 (3) 571,810 276,020 276,020 571,810 1,739,650 1,739,650 1,826,633
35 551,602 0 (3) 0 (3) 571,810 287,169 287,169 571,810 2,835,213 2,835,213 2,976,974
40 703,999 0 (3) 0 (3) 571,810 236,194 236,194 571,810 4,579,339 4,579,339 4,808,306
45 898,501 0 (3) 0 (3) 571,810 8,516 8,516 571,810 7,405,194 7,405,194 7,479,246
50 1,146,740 0 (3) 0 (3) 571,810 0 (3) 0 (3) 571,810 12,179,924 12,179,924 12,179,924
</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) no policy loan
has been made, (b) no partial withdrawal of the Cash Surrender Value
has been made, and (c) no premiums have been allocated to the Fixed
Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
B-13
<PAGE> 55
SINGLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 AND
FEMALE NON-SMOKER ISSUE AGE 50
$100,000 PLANNED SINGLE PREMIUM
$571,810 FACE AMOUNT
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ------------------------------- ----------------------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 97,582 89,627 571,810 103,441 94,953 571,810 109,299 100,279 571,810
2 110,250 95,185 88,299 571,810 106,967 99,129 571,810 119,436 111,353 571,810
3 115,763 92,798 86,933 571,810 110,574 103,491 571,810 130,484 123,401 571,810
4 121,551 90,409 85,518 571,810 114,255 108,171 571,810 142,520 136,436 571,810
5 127,628 88,007 84,041 571,810 118,000 112,917 571,810 155,628 150,544 571,810
6 134,010 85,573 82,487 571,810 121,798 117,715 571,810 169,900 165,816 571,810
7 140,710 83,093 80,839 571,810 125,637 122,553 571,810 185,436 182,353 571,810
8 147,746 80,544 79,398 571,810 129,499 127,874 571,810 202,349 200,724 571,810
9 155,133 77,906 77,821 571,810 133,369 133,244 571,810 220,759 220,634 571,810
10 162,889 75,150 75,150 571,810 137,222 137,222 571,810 240,801 240,801 571,810
11 171,034 72,947 72,947 571,810 142,399 142,399 571,810 265,166 265,166 571,810
12 179,586 70,517 70,517 571,810 147,601 147,601 571,810 291,983 291,983 571,810
13 188,565 67,807 67,807 571,810 152,789 152,789 571,810 321,514 321,514 571,810
14 197,993 64,752 64,752 571,810 157,912 157,912 571,810 354,059 354,059 571,810
15 207,893 61,272 61,272 571,810 162,912 162,912 571,810 389,965 389,965 571,810
16 218,287 57,278 57,278 571,810 167,718 167,718 571,810 429,642 429,642 571,810
17 229,202 52,634 52,634 571,810 172,228 172,228 571,810 473,568 473,568 571,810
18 240,662 47,286 47,286 571,810 176,400 176,400 571,810 522,190 522,190 616,184
19 252,695 41,074 41,074 571,810 180,116 180,116 571,810 575,717 575,717 673,589
20 265,330 33,842 33,842 571,810 183,257 183,257 571,810 634,608 634,608 736,145
25 338,635 0 (3) 0 (3) 571,810 183,915 183,915 571,810 1,032,020 1,032,020 1,104,261
30 432,194 0 (3) 0 (3) 571,810 126,328 126,328 571,810 1,677,872 1,677,872 1,761,766
35 551,602 0 (3) 0 (3) 571,810 0 (3) 0 (3) 571,810 2,699,807 2,699,807 2,834,797
40 703,999 0 (3) 0 (3) 571,810 0 (3) 0 (3) 571,810 4,275,169 4,275,169 4,488,928
45 898,501 0 (3) 0 (3) 571,810 0 (3) 0 (3) 571,810 6,792,999 6,792,999 6,860,929
50 1,146,740 0 (3) 0 (3) 571,810 0 (3) 0 (3) 571,810 11,172,950 11,172,950 11,172,950
</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) no policy loan
has been made, (b) no partial withdrawal of the Cash Surrender Value
has been made, and (c) no premiums have been allocated to the Fixed
Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF
PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE
HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED
A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE
MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING
THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS
FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH
SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE
SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A
PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL
POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF
RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
B-14
<PAGE> 56
CONSOLIDATED FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
WITH REPORT OF INDEPENDENT AUDITORS
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors..................................................
Audited Consolidated Financial Statements.......................................
Consolidated Balance Sheets................................................
Consolidated Statements of Income..........................................
Consolidated Statements of Changes in Capital And Surplus..................
Consolidated Statements of Cash Flows......................................
Notes to Consolidated Financial Statements......................................
</TABLE>
F-1
<PAGE> 57
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
The Manufacturers Life Insurance Company of America
We have audited the accompanying consolidated balance sheets of The
Manufacturers Life Insurance Company of America as of December 31, 1998 and
1997, and the related consolidated statements of income, changes in capital and
surplus and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Manufacturers
Life Insurance Company of America at December 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
Philadelphia, Pennsylvania
March 15, 1999
Ernst & Young LLP
F-2
<PAGE> 58
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As at December 31 ($ thousands)
ASSETS 1998 1997
<S> <C> <C>
INVESTMENTS:
Securities available-for-sale, at fair value: (note 3)
Fixed maturity (amortized cost: 1998 $45,248; 1997 $66,565) $ 49,254 $ 67,893
Equity (cost: 1998 $ 19,219; 1997 $20,153) 20,524 19,460
Short-term investments 459 2,130
Policy loans 19,320 14,673
TOTAL INVESTMENTS $ 89,557 $ 104,156
Cash and cash equivalents $ 23,789 $ 19,882
Deferred acquisition costs (note 5) 163,506 130,355
Income taxes recoverable 2,665 5,679
Other assets 9,062 9,495
Separate account assets 1,075,231 897,044
- ----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,363,810 $1,166,611
==========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES, CAPITAL AND SURPLUS 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES:
Policyholder liabilities and accruals $ 60,830 $ 94,477
Notes payable (note 7) - 41,500
Due to affiliates 5,133 13,943
Deferred income taxes (note 6) 763 1,174
Other liabilities 18,656 11,704
Separate account liabilities 1,075,231 897,044
TOTAL LIABILITIES $1,160,613 $1,059,842
==========================================================================================================
CAPITAL AND SURPLUS:
Common shares (note 8) $ 4,502 $ 4,502
Preferred shares (note 8) 10,500 10,500
Contributed surplus 193,096 98,569
Retained earnings (deficit) (2,664) (1,910)
Accumulated other comprehensive income (loss) (2,237) (4,892)
TOTAL CAPITAL AND SURPLUS $ 203,197 $ 106,769
TOTAL LIABILITIES, CAPITAL AND SURPLUS $1,363,810 $1,166,611
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 59
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
Consolidated Statements of Income
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE:
Premiums $ 9,290 $ 8,607 $ 12,898
Consideration paid on reinsurance terminated (note 10) (40,975) -- --
Fee income 54,547 38,682 40,434
Net investment income (note 3) 6,128 8,275 19,651
Realized investment gains (losses) (206) 118 (119)
Other 1,082 544 668
- -------------------------------------------------------------------------------------------------------------
TOTAL REVENUE $ 29,866 $ 56,226 $ 73,532
- -------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES:
Policyholder benefits and claims $ 16,541 $ 6,733 $ 14,473
Reduction of reserves on reinsurance terminated (note 10) (40,975) -- --
Operating costs and expenses 41,676 41,742 34,581
Commissions 2,561 2,838 10,431
Amortization of deferred acquisition costs (note 5) 9,266 4,860 13,240
Interest expense 1,722 2,750 12,251
Policyholder dividends 221 1,416 872
- -------------------------------------------------------------------------------------------------------------
TOTAL BENEFITS AND EXPENSES 31,012 60,339 85,848
- -------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (1,146) (4,113) (12,316)
- -------------------------------------------------------------------------------------------------------------
INCOME TAX BENEFIT (NOTE 6) 392 477 3,909
- -------------------------------------------------------------------------------------------------------------
NET LOSS $ (754) $ (3,636) $ (8,407)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 60
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED OTHER TOTAL
FOR THE YEARS ENDED DECEMBER 31 CAPITAL CONTRIBUTED EARNINGS COMPREHENSIVE CAPITAL AND
($ thousands) STOCK SURPLUS (DEFICIT) INCOME (LOSS) SURPLUS
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 15,002 $ 83,569 $ 10,133 $ 1,816 $ 110,520
Issuance of shares -- 15,000 -- -- 15,000
Comprehensive income (loss) (note 2) -- -- (8,407) (483) (8,890)
------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 $ 15,002 $ 98,569 $ 1,726 $ 1,333 $ 116,630
Comprehensive income (loss) (note 2) -- -- (3,636) (6,225) (9,861)
------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 $ 15,002 $ 98,569 $ (1,910) $ (4,892) $ 106,769
Capital contribution (note 8) -- 94,527 -- -- 94,527
Comprehensive income (loss) (note 2) -- -- (754) 2,655 1,901
------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $ 15,002 $ 193,096 $ (2,664) $ (2,237) $ 203,197
========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 61
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Loss $ (754) $ (3,636) $ (8,407)
Adjustments to reconcile net loss to net cash used in operating activities:
Additions (deductions) to policy liabilities and accruals (36,217) (2,147) 3,287
Deferred acquisition costs (43,065) (33,544) (36,024)
Amortization of deferred acquisition costs 9,266 4,860 13,240
Realized (gains) losses on investments 206 (118) 119
Decreases (increases) to deferred income taxes (1,796) 2,730 777
Other 3,067 7,144 6,540
- -----------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities $ (69,293) $ (24,711) $ (20,468)
- -----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Fixed maturity securities sold $ 27,852 $ 73,772 $ 120,234
Fixed maturity securities purchased (6,429) (89,763) (108,401)
Equity securities sold 8,555 10,586 25,505
Equity securities purchased (8,082) (11,289) (22,203)
Mortgage loans repaid -- 514 6,669
Net change in short-term investments 1,671 4,558 (2,992)
Net policy loans advanced (4,647) (4,851) (2,867)
Guaranteed annuity contracts -- 171,691 (16,356)
- -----------------------------------------------------------------------------------------------------------------------
Cash provided by investing activities $ 18,920 $ 155,218 $ 2,581
- -----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Receipts from variable life and annuity policies
credited to policyholder account balances $ 7,981 $ 7,582 $ 5,493
Withdrawals of policyholder account balances on
variable life and annuity policies (5,410) (3,252) (2,994)
Bonds payable repaid -- (158,760) --
Issuance of shares -- -- 15,000
Issuance of promissory note -- 33,000 --
Capital Contribution 51,709 -- --
- -----------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities $ 54,280 $(121,430) $ 17,499
- -----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during the year 3,907 9,077 (3,380)
Balance, beginning of year 19,882 10,805 14,185
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, END OF YEAR $ 23,789 $ 19,882 $ 10,805
=======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 62
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(IN THOUSANDS OF DOLLARS)
1. ORGANIZATION
The Manufacturers Life Insurance Company of America (the "Company") is
a wholly-owned subsidiary of The Manufacturers Life Insurance Company
(U.S.A.) ("ManUSA"), which is in turn an indirectly wholly-owned
subsidiary of The Manufacturers Life Insurance Company ("Manulife
Financial"), a Canadian-based mutual life insurance company. The
Company markets variable annuity and variable life products in the
United States and traditional insurance products in Taiwan.
On December 31, 1996, ManUSA transferred to the Company all of the
common and preferred shares of Manulife Holding Corporation ("Holdco"),
an investment holding company. The Company then transferred all the
common and preferred shares of Manufacturers Adviser Corporation
("MAC") to Holdco for two shares of $1 common stock of Holdco. Holdco
has primarily three wholly-owned subsidiaries, ManEquity Inc., a
registered broker/dealer, MAC, an investment fund management company,
and Manulife Capital Corporation ("MCC"), an investment holding
company.
In October 1997, the Manufacturers Life Mortgage Securities Corporation
("MLMSC"), a subsidiary of Holdco, was absorbed into Holdco subsequent
to the maturity and repayment of the mortgage-backed US dollar bonds.
All assets and liabilities of MLMSC were transferred to Holdco at their
respective book values.
These transfers have been accounted for using the pooling-of-interests
method of accounting. Under this method, the assets, liabilities,
capital and surplus, revenues and expenses of each separate entity are
combined retroactively at their historical carrying values to form the
financial statements of the Company for all periods presented to give
effect to the reorganization as if the structure in place at December
31, 1996 had been in place as of the earliest period presented in these
consolidated financial statements. The accounts of all subsidiary
companies are therefore combined and all significant intercompany
balances and transactions are eliminated on combination. In addition,
the capital and surplus of the Company has been restated retroactively
to reflect the capital structure in place at December 31, 1996.
F-7
<PAGE> 63
The revenues and net income reported by the separate entities and the
combined amounts presented in the accompanying consolidated financial
statements are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
($ thousands) 1996
-------------------------------------------
<S> <C>
Revenue:
ManAmerica $ 54,404
Holdco 15,543
MAC 3,585
-------------------------------------------
TOTAL REVENUE $ 73,532
-------------------------------------------
Net Income (loss):
ManAmerica $ (8,676)
Holdco (670)
MAC 939
-------------------------------------------
TOTAL NET LOSS $ (8,407)
===========================================
</TABLE>
2. SIGNIFICANT ACCOUNTING POLICIES
a) BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company have
been prepared in conformity with generally accepted accounting
principles ("GAAP").
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes.
Actual results could differ from reported results using those
estimates.
Certain reclassifications have been made to 1997 and 1996 financial
information to conform to the 1998 presentation.
b) RECENT ACCOUNTING STANDARDS
i) During 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income". SFAS No.
130 establishes standards for reporting and displaying comprehensive
income and its components in a full set of general-purpose annual
financial statements. Comprehensive income includes all changes in
shareholder's equity during a period except those resulting from
investments by and distributions to shareholders. The adoption of SFAS
No. 130 resulted in revised and additional disclosures but had no
effect on the financial position, results of operations, or liquidity
of the Company.
F-8
<PAGE> 64
Total comprehensive income was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME (LOSS) $ (754) $(3,636) $(8,407)
---------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized holding gains (losses) arising during the period 2,435 (1,030) (560)
Foreign currency translation 86 (5,272) --
Reclassification adjustment for realized gains (losses)
included in net income (134) 77 (77)
---------------------------------------------------------------------------------------------------
Other comprehensive income (loss) 2,655 (6,225) (483)
---------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ 1,901 $(9,861) $(8,890)
===================================================================================================
</TABLE>
Other comprehensive income (loss) is reported net of tax expense
(benefit) of $1,430, $(513), and $260 for 1998, 1997, and 1996,
respectively.
Accumulated other comprehensive income is comprised of the following:
<TABLE>
<CAPTION>
AS AT DECEMBER 31
($ thousands) 1998 1997
----------------------------------------------------------------------
<S> <C> <C>
UNREALIZED GAINS (LOSSES):
Beginning balance $ 380 $ 1,333
Current period change 2,569 (953)
----------------------------------------------------------------------
Ending balance $ 2,949 $ 380
----------------------------------------------------------------------
FOREIGN CURRENCY:
Beginning balance $(5,272) $ --
Current period change 86 (5,272)
----------------------------------------------------------------------
Ending balance $(5,186) $(5,272)
----------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) $(2,237) $(4,892)
======================================================================
</TABLE>
ii) During 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 131
establishes standards for the disclosure of information about the
Company's operating segments, including disclosures about products and
services, geographic areas, and major customers. The adoption of SFAS
No. 131 did not affect results of operations or financial position, nor
did it affect the manner in which the Company defines its operating
segments. The Company reports two business segments: Traditional Life
Insurance sold in Taiwan and Variable Life and Annuities sold in the
U.S. Refer to Note 12 for additional segment information.
c) INVESTMENTS
The Company classifies all of its fixed maturity and equity securities
as available-for-sale and records these securities at fair value.
Realized gains and losses on sales of securities classified as
available-for-sale are recognized in net income using the specific
identification method. Changes in the fair value of securities
available-for-sale are reflected directly in accumulated other
comprehensive income after adjustments for deferred taxes and deferred
acquisition costs. Discounts and premiums on investments are amortized
using the effective interest method.
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-9
<PAGE> 65
d) CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with
an original maturity date of three months or less to be cash
equivalents. Cash equivalents are stated at cost plus accrued interest,
which approximates fair value.
e) DEFERRED ACQUISITION COSTS (DAC)
Commissions and other expenses which vary with and are primarily
related to the production of new business are deferred to the extent
recoverable and included as an asset. DAC associated with variable
annuity and variable life insurance contracts is charged to expense in
relation to the estimated gross profits of those contracts. The
amortization is adjusted retrospectively when estimates of current or
future gross profits are revised. DAC associated with traditional life
insurance policies is charged to expense over the premium paying period
of the related policies. DAC is adjusted for the impact on estimated
future gross profits assuming the unrealized gains or losses on
securities had been realized at year-end. The impact of any such
adjustments is included in net unrealized gains (losses) in accumulated
other comprehensive income. DAC is reviewed annually to determine
recoverability from future income and, if not recoverable, it is
immediately expensed.
f) POLICYHOLDER LIABILITIES
For variable annuity and variable life contracts, reserves equal the
policyholder account value. Account values are increased for deposits
received and interest credited and are reduced by withdrawals,
mortality charges and administrative expenses charged to the
policyholders. Policy charges which compensate the Company for future
services are deferred and recognized in income over the period earned,
using the same assumptions used to amortize DAC.
Policyholder liabilities for traditional life insurance policies sold
in Taiwan are computed using the net level premium method and are based
upon estimates as to future mortality, persistency, maintenance expense
and interest rate yields that were established in the year of issue.
g) SEPARATE ACCOUNTS
Separate account assets and liabilities represent funds that are
separately administered, principally for variable annuity and variable
life contracts, and for which the contract holder, rather than the
Company, bears the investment risk Separate account assets are recorded
at market value. Operations of the separate accounts are not included
in the accompanying financial statements.
h) REVENUE RECOGNITION
Fee income from variable annuity and variable life insurance policies
consists of policy charges for the cost of insurance, expenses and
surrender charges that have been assessed against the policy account
balances. Policy charges that are designed to compensate the company
for future services are deferred and recognized in income over the
period benefited, using the same assumptions used to amortize DAC.
Premiums on long-duration life insurance contracts are recognized as
revenue when due. Investment income is recorded when due.
F-10
<PAGE> 66
i) EXPENSES
Expenses for variable annuity and variable life insurance policies
include interest credited to policy account balances and benefit claims
incurred during the period in excess of policy account balances.
j) REINSURANCE
The Company is routinely involved in reinsurance transactions in order
to minimize exposure to large risks. Life reinsurance is accomplished
through various plans including yearly renewable term, co-insurance and
modified co-insurance. Reinsurance premiums, policy charges for cost of
insurance and claims are accounted for on a basis consistent with that
used in accounting for the original policies issued and the terms of
the reinsurance contracts. Premiums, fees and claims are reported net
of reinsured amounts. Amounts paid with respect to ceded reinsurance
contracts are reported as reinsurance receivables in other assets.
k) FOREIGN EXCHANGE
The Company's Taiwanese branch balance sheet and statement of income
are translated at the current exchange and average exchange rates for
the year respectively. The resultant translation adjustments are
included in accumulated other comprehensive income.
l) INCOME TAX
Income taxes have been provided for in accordance with SFAS No. 109
"Accounting for Income Taxes." The Company joins ManUSA, Manulife
Reinsurance Corporation ("MRC") and Manulife Reinsurance Limited
("MRL") in filing a U.S. consolidated income tax return as a life
insurance group under provisions of the Internal Revenue Code. In
accordance with an income tax sharing agreement, the Company's income
tax provision (or benefit) is computed as if the Company filed a
separate income tax return. Tax benefits from operating losses are
provided at the U.S. statutory rate plus any tax credits attributable
to the Company, provided the consolidated group utilizes such benefits
currently. Deferred income taxes result from temporary differences
between the tax basis of assets and liabilities and their recorded
amounts for financial reporting purposes. Income taxes recoverable
represents amounts due from ManUSA in connection with the consolidated
return.
F-11
<PAGE> 67
3. INVESTMENTS AND INVESTMENT INCOME
a) FIXED MATURITY AND EQUITY SECURITIES
At December 31, 1998, all fixed maturity and equity securities have
been classified as available-for-sale and reported at fair value. The
amortized cost and fair value is summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED COST UNREALIZED GAINS UNREALIZED LOSSES FAIR VALUE
AS AT DECEMBER 31,
($ thousands) 1998 1997 1998 1997 1998 1997 1998 1997
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FIXED MATURITY SECURITIES:
U.S. government $27,349 $51,694 $ 2,578 $ 937 $ -- $ (135) $29,927 $52,496
Foreign governments 9,353 6,922 709 203 -- (14) 10,062 7,111
Corporate 8,546 7,949 719 415 -- (78) 9,265 8,286
-------------------------------------------------------------------------------------------------------------------------
Total fixed maturity securities $45,248 $66,565 $ 4,006 $ 1,555 $ -- $ (227) $49,254 $67,893
Equity securities $19,219 $20,153 $ 3,217 $ 1,496 $(1,912) $(2,189) $20,524 $19,460
=========================================================================================================================
</TABLE>
Proceeds from sales of fixed maturity securities during 1998 were
$27,852 (1997 $73,772; 1996 $120,234). Gross gains of $362 and gross
losses of $107 were realized on those sales (1997 $955 and $837; 1996
$1,858 and $1,837 respectively).
Proceeds from sale of equity securities during 1998 were $8,555 (1997
$10,586; 1996 $25,505). Gross gains of $16 and gross losses of $477
were realized on those sales (1997 $NIL and $NIL; 1996 $NIL and $140
respectively).
The contractual maturities of fixed maturity securities at December 31,
1998 are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties. Corporate
requirements and investment strategies may result in the sale of
investments before maturity.
<TABLE>
<CAPTION>
($ thousands) AMORTIZED COST FAIR VALUE
-----------------------------------------------------------------------
<S> <C> <C>
Fixed maturity securities
One year or less $ 1,174 $ 1,179
Greater than 1; up to 5 years 7,792 8,081
Greater than 5; up to 10 years 24,422 26,395
Due after 10 years 11,860 13,599
-----------------------------------------------------------------------
TOTAL FIXED MATURITY SECURITIES $45,248 $49,254
=======================================================================
</TABLE>
F-12
<PAGE> 68
b) INVESTMENT INCOME
Income by type of investment was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities $ 4,675 $ 4,545 $ 4,447
Equity securities 227 331 671
Guaranteed annuity contracts -- 2,796 13,196
Other investments 1,485 772 1,697
-----------------------------------------------------------------------
Gross investment income 6,387 8,444 20,011
-----------------------------------------------------------------------
Investment expenses 259 169 360
-----------------------------------------------------------------------
NET INVESTMENT INCOME $ 6,128 $ 8,275 $19,651
=======================================================================
</TABLE>
4. GUARANTEED ANNUITY CONTRACTS AND BONDS PAYABLE
The Company's wholly-owned subsidiary, Manufacturers Life Mortgage
Securities Corporation, has historically invested amounts received as
repayments of mortgage loans in annuities issued by ManUSA. These
annuities were collateral for the 8 1/4 % mortgage-backed bonds
payable. On March 1, 1997 the annuities matured and the proceeds were
used to repay the bonds payable.
In October 1997, MLMSC was absorbed into Manulife Holding Corporation.
5. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, $ 130,355 $ 102,610 $ 78,829
Capitalization 43,065 33,544 36,024
Accretion of interest 11,417 9,357 6,344
Amortization (20,683) (14,217) (19,583)
Effect of net unrealized gains (losses)
on securities available for sale (784) 1,268 996
Currency 136 (2,207) --
-----------------------------------------------------------------------------------
BALANCE AT DECEMBER 31 $ 163,506 $ 130,355 $ 102,610
===================================================================================
</TABLE>
6. INCOME TAXES
Components of income tax expense (benefit) were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C>
Current expense (benefit) $ 1,404 $(3,207) $(4,686)
Deferred expense (benefit) (1,796) 2,730 777
-----------------------------------------------------------------------
TOTAL EXPENSE (BENEFIT) $ (392) $ (477) $(3,909)
=======================================================================
</TABLE>
F-13
<PAGE> 69
The Company's deferred income tax liability, which results from tax
effecting the differences between financial statement values and tax
values of assets and liabilities at each balance sheet date, relates to
the following:
<TABLE>
<CAPTION>
AS AT DECEMBER 31
($ thousands) 1998 1997
------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Differences in computing policy reserves $ 38,888 $ 34,291
Policyholder dividends payable -- 240
Investments 708 793
Other deferred tax assets 333 --
------------------------------------------------------------------------
Deferred tax assets $ 39,929 $ 35,324
------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Deferred acquisition costs $ 38,778 $ 30,682
Investments 1,859 166
Policyholder dividends payable 55 --
Other deferred tax liabilities -- 5,650
------------------------------------------------------------------------
Deferred tax liabilities $ 40,692 $ 36,498
------------------------------------------------------------------------
NET DEFERRED TAX LIABILITIES $ (763) $ (1,174)
========================================================================
</TABLE>
At December 31, 1998, the consolidated group has utilized all available
operating loss carryforwards and net capital loss carryforwards. The
losses of the Company, MRC and ManUSA may be used to offset the
ordinary and capital gain income of MRL. However, losses of MRL may not
be used to offset the income of the other members of the consolidated
group.
7. NOTES PAYABLE
a) On June 15, 1998, the outstanding promissory note in the
amount of $33,000 plus interest at 6.95% issued on December 5,
1997 payable to ManUSA was discharged and the amount due of
$34,318 ($33,000 plus interest of $1,318) was recorded as a
capital contribution.
b) On December 31, 1998, the surplus debenture in the amount of
$8,500 plus interest at 6.7% issued on December 31, 1995 to
ManUSA was discharged and the amount due of $8,500 was
recorded as a capital contribution.
8. CAPITAL AND SURPLUS
The Company has two classes of capital stock, as follows:
<TABLE>
<CAPTION>
AS AT DECEMBER 31:
($ thousands, except per share amounts) 1998 1997
----------------------------------------------------------------------
<S> <C> <C>
AUTHORIZED:
5,000,000 Common shares, Par value $1
5,000,000 Preferred shares, Par value $100
ISSUED AND OUTSTANDING:
4,501,861 Common shares $ 4,502 $ 4,502
105,000 Preferred shares 10,500 10,500
----------------------------------------------------------------------
TOTAL $15,002 $15,002
======================================================================
</TABLE>
F-14
<PAGE> 70
During 1996, the Company issued two common shares to its Parent Company
in return for a capital contribution of $15,000.
In 1998, the outstanding promissory note payable referred to in note
7(a) above, totaling $34,318, was discharged and recorded as a capital
contribution.
On December 31, 1998, the Company issued one common share to ManUSA in
exchange for a capital contribution of $60,209. Included in this
capital contribution was the discharge of the surplus debenture in the
amount of $8,500 referred to in note 7(b) above.
The Company is subject to statutory limitations on the payment of
dividends to its Parent. Under Michigan Insurance Law, the payment of
dividends to shareholders is restricted to the surplus earnings of the
Company, unless prior approval is obtained from the Michigan Insurance
Bureau.
The aggregate statutory capital and surplus of the Company at December
31, 1998 was $121,799 (1997 $56,598). The aggregate statutory net loss
of the Company for the year ended 1998 was $23,491 (1997 $2,550; 1996
$5,961). State regulatory authorities prescribe statutory accounting
practices that differ in certain respects from generally accepted
accounting principles followed by stock life insurance companies. The
significant differences relate to investments, deferred acquisition
costs, deferred income taxes, non-admitted asset balances and reserve
calculation assumptions.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and the estimated fair values of certain of the
Company's financial instruments at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
ESTIMATED
($ thousands) CARRYING VALUE FAIR VALUE
----------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Fixed maturity and equity securities $69,778 $69,778
Short-term investments 459 459
Policy loans 19,320 19,320
Cash and cash equivalents 23,789 23,789
----------------------------------------------------------------------------
</TABLE>
The following methods and assumptions were used to estimate the fair
values of the above financial instruments:
FIXED MATURITY AND EQUITY SECURITIES: Fair values of fixed maturity and
equity securities were based on quoted market prices, where available.
Fair values were estimated using values obtained from independent
pricing services.
SHORT-TERM INVESTMENTS AND CASH AND CASH EQUIVALENTS: Carrying values
approximate fair values.
POLICY LOANS: Carrying values approximate fair values.
F-15
<PAGE> 71
10. RELATED PARTY TRANSACTIONS
The Company has formal service agreements with Manulife Financial and
ManUSA which can be terminated by any party upon two months' notice.
Under the agreements, the Company will pay direct operating expenses
incurred each year by Manulife Financial and ManUSA on its behalf.
Services provided under the agreement include legal, actuarial,
investment, data processing and certain other administrative services.
Costs incurred under these agreements were $34,070, $32,733 and $29,384
in 1998, 1997 and 1996 respectively. In addition, there were $12,817,
$11,249 and $6,934 of agents bonuses allocated to the Company during
1998, 1997 and 1996, respectively, which are included in deferred
acquisition costs.
The Company has several reinsurance agreements with affiliated
companies which may be terminated upon the specified notice by either
party. These agreements are summarized as follows:
(a) On December 31, 1998, the coinsurance treaties under which the
Company had assumed two blocks of insurance from ManUSA were
terminated. The Company's risk under these treaties was limited to
$100,000 of initial face amount per claim plus a pro-rata share of
any increase in face amount. Upon the termination of the treaties,
the Company paid consideration in the amount of approximately
$41.0 million to ManUSA and policyholder reserves totaling $41.0
million were recaptured by ManUSA. No gain or loss resulted from
the termination of these treaties.
(b) The Company cedes the risk in excess of $25,000 per life to MRC
under the terms of an automatic reinsurance agreement
(c) The Company cedes a substantial portion of its risk on its
Flexible Premium Variable Life policies to MRC under the terms of
a stop loss reinsurance agreement.
Selected amounts relating to the above treaties reflected in the
financial statements are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C>
Life and annuity premiums assumed $ 48 $ 509 $ 724
Life and annuity premiums ceded 76 69 99
Policy reserves assumed -- 40,975 44,497
Policy reserves ceded 145 130 304
-----------------------------------------------------------------------
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts to affiliates
were $NIL, $3,972 and $NIL during 1998, 1997 and 1996 respectively.
The Company and Manulife Financial have entered into an agreement
whereby Manulife Financial provides a claims paying guarantee to the
Company's U.S. policyholders. This claims paying guarantee does not
apply to the Company's separate account contract holders
F-16
<PAGE> 72
11. REINSURANCE
In the normal course of business, the Company assumes and cedes
reinsurance as a party to several reinsurance treaties with major
unrelated insurance companies. The Company remains liable for amounts
ceded in the event that reinsurers do not meet their obligations.
The effects of reinsurance on premiums were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C>
Direct premiums $ 9,723 $ 8,607 $12,949
Reinsurance ceded 405 440 676
-----------------------------------------------------------------------
TOTAL PREMIUMS $ 9,318 $ 8,167 $12,273
=======================================================================
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts with unrelated
insurance companies were $1,362, $909 and $357 during 1998, 1997 and
1996 respectively.
12. SEGMENT DISCLOSURES
The Company reports two business segments: Traditional Life Insurance
sold in Taiwan and Variable Life and Annuities sold in the U.S. The
Company's reportable segments have been determined based on geography,
differences in product features, and distribution; the segments are
also consistent with the Company's management structure. Segmented
information for the Company is as follows:
<TABLE>
<CAPTION>
AS AT DECEMBER 31,
($ thousands) TAIWAN U.S. TOTAL
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998
Premiums and fee income $ 9,243 $ 54,594 $ 63,837
Interest expense -- 1,722 1,722
Income taxes (benefit) (1,219) 827 (392)
Net income (loss) (2,265) 1,511 (754)
Total assets excluding separate account assets $ 30,268 $ 258,311 $ 288,579
------------------------------------------------------------------------------------------
1997
Premiums and fee income $ 8,099 $ 39,190 $ 47,289
Interest expense -- 2,750 2,750
Income taxes (benefit) (1,526) 1,049 (477)
Net income (loss) (2,835) (801) (3,636)
Total assets excluding separate account assets $ 25,401 $ 244,166 $ 269,567
------------------------------------------------------------------------------------------
1996
Premiums and fee income $ 12,200 $ 41,132 $ 53,332
Interest expense -- 12,251 12,251
Income taxes (benefit) (6,125) 2,216 (3,909)
Net income (loss) (17,500) 9,093 (8,407)
Total assets excluding separate account assets $ 15,268 $ 379,241 $ 394,509
------------------------------------------------------------------------------------------
</TABLE>
The accounting policies for each segment above are the same as those
described in the summary of significant accounting policies. The
Company has no intersegment revenues and no significant major
customers.
F-17
<PAGE> 73
13. 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.
14. UNCERTAINTY DUE TO THE YEAR 2000 RISK (UNAUDITED)
The Year 2000 risk is the result of computer programs being written
using two digits, rather than four, to define the applicable year. Any
of the Company's computer programs that have date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year
2000. The effects of the Year 2000 risk may be experienced before, on,
or after January 1, 2000 and, if not addressed, could result in systems
failures or miscalculations causing disruptions of normal business
operations. It is not possible to be certain that the Company's Year
2000 program will fully resolve all aspects of the Year 2000 risk,
including those related to third parties.
F-18
<PAGE> 74
Separate Account Three of
The Manufacturers Life Insurance Company of America
Financial Statements
Three years ended December 31, 1998
CONTENTS
Report of Independent Auditors......................................
Audited Financial Statements
Statement of Assets and Liabilities.................................
Statements of Operations............................................
Statements of Changes in Net Assets.................................
Notes to Financial Statements.......................................
F-19
<PAGE> 75
Report of Independent Auditors
To the Board of Directors
The Manufacturers Life Insurance
Company of America
We have audited the accompanying statement of assets and liabilities of Separate
Account Three of The Manufacturers Life Insurance Company of America as of
December 31, 1998 and the related statements of operations and changes in net
assets for each of the periods presented therein. These financial statements are
the responsibility of The Manufacturers Life Insurance Company of America's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1998, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Separate Account Three of The
Manufacturers Life Insurance Company of America at December 31, 1998, and the
results of its operations and the changes in its net assets for each of the
periods presented therein, in conformity with generally accepted accounting
principles.
Philadelphia, Pennsylvania
February 4, 1999
Ernst & Young LLP
F-20
<PAGE> 76
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Sub-Account Net Asset
Net Asset Units Value Per
Value Outstanding Unit
----------------------------------------
<S> <C> <C> <C>
Investment in Manufacturers Investment Trust--at market value:
Emerging Growth Trust, 2,802,542 shares (cost $62,104,620) $ 66,756,555 $ 1,547,427 $ 43.14
Quantitative Equity Trust, 2,069,537 shares (cost $38,807,860) 52,193,727 1,202,134 43.42
Real Estate Securities Trust, 1,536,662 shares (cost $24,594,352) 22,696,503 689,209 32.93
Balanced Trust, 2,589,172 shares (cost $43,897,491) 50,229,936 1,674,992 29.99
Capital Growth Bond Trust, 1,757,260 shares (cost $19,935,560) 21,245,278 929,261 22.86
Money Market Trust, 3,170,806 shares (cost $31,708,063) 31,708,063 1,731,857 18.31
International Stock Trust, 1,585,335 shares (cost $18,934,357) 20,577,642 1,473,246 13.97
Pacific Rim Emerging Markets Trust, 822,886 shares (cost $5,198,434) 5,620,314 772,206 7.28
Equity Index Trust, 2,839,061 shares (cost $37,536,543) 43,806,714 2,221,635 19.72
Equity Trust, 1,257,356 shares (cost $25,523,708) 24,493,286 1,651,448 14.83
Value Equity Trust, 1,044,760 shares (cost $16,442,598) 18,575,830 1,154,317 16.09
Growth and Income Trust, 1,165,238 shares (cost $26,765,264) 33,127,715 1,678,270 19.74
U.S. Government Securities Trust, 239,148 shares (cost $3,198,130) 3,305,023 276,793 11.94
Conservative Asset Allocation Trust, 80,313 shares (cost $925,126) 950,102 73,213 12.98
Moderate Asset Allocation Trust, 234,294 shares (cost $2,942,382) 3,125,486 218,986 14.27
Aggressive Asset Allocation Trust, 237,596 shares (cost $3,281,821) 3,625,719 233,924 15.50
International Small Cap Trust, 176,272 shares (cost $2,492,390) 2,693,435 190,424 14.14
Blue Chip Growth Trust, 566,488 shares (cost $8,957,998) 10,717,944 519,809 20.62
Science & Technology Trust, 252,885 shares (cost $3,476,302) 4,936,311 244,906 20.16
Pilgram Baxter Growth Trust, 122,992 shares (cost $1,528,419) 1,603,809 105,774 15.16
Small/Mid Cap Trust, 296,586 shares (cost $5,033,231) 5,863,507 299,424 19.58
Worldwide Growth Trust, 71,291 shares (cost $1,065,955) 1,080,064 72,735 14.85
Global Equity Trust, 208,185 shares (cost $3,996,239) 4,242,810 259,150 16.37
Growth Trust, 329,119 shares (cost $6,264,920) 6,746,944 363,585 18.56
Value Trust, 253,715 shares (cost $3,817,475) 3,567,228 251,058 14.21
International Growth and Income Trust, 124,135 shares (cost $1,357,908 1,405,214 104,239 13.48
High Yield Trust, 162,690 shares (cost $2,211,281) 2,101,957 147,641 14.24
Strategic Bond Trust, 247,629 shares (cost $2,962,146) 2,902,215 210,298 13.80
Global Government Bond Trust, 46,669 shares (cost $634,469) 640,768 45,061 14.22
Investment Quality Bond Trust, 114,782 shares (cost $1,396,240) 1,430,181 96,815 14.77
Lifestyle Aggressive 1000 Trust, 288,431 shares (cost $3,929,209) 3,862,092 257,160 15.02
Lifestyle Growth 820 Trust, 1,150,754 shares (cost $15,767,114) 15,857,396 1,049,185 15.11
Lifestyle Balanced 640 Trust, 422,244 shares (cost $5,614,581) 5,696,069 382,101 14.91
Lifestyle Moderate 460 Trust, 48,767 shares (cost $658,448) 678,344 44,619 15.20
Lifestyle Conservative 280 Trust, 7,984 shares (cost $102,293) 108,017 7,151 15.11
Small Company Value Trust, 32,243 shares (cost $355,941) 366,605 42,981 8.53
------------
Net assets $478,538,803
============
</TABLE>
See accompanying notes.
F-21
<PAGE> 77
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
EMERGING GROWTH
SUB-ACCOUNT
------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/96
------------------------------------------
<S> <C> <C> <C>
Net investment income:
Dividend income $ 995,471 $ -- $ 7,702,014
-----------------------------------------
Realized and unrealized gain (loss) on
investments:
Realized gain (loss) from security
transactions:
Proceeds from sales 6,100,016 7,107,331 4,088,127
Cost of securities sold 4,854,772 5,908,528 3,518,688
-----------------------------------------
Net realized gain (loss) 1,245,244 1,198,803 569,439
-----------------------------------------
Unrealized appreciation (depreciation) of
investments:
Beginning of year 6,743,875 (1,640,500) 4,794,911
End of year 4,651,935 6,743,875 (1,640,500)
-----------------------------------------
Net unrealized appreciation (depreciation) during
the year (2,091,940) 8,384,375 (6,435,411)
-----------------------------------------
Net realized and unrealized gain (loss) on
investments (846,696) 9,583,178 (5,865,972)
-----------------------------------------
Net increase (decrease) in net assets derived from
operations $ 148,775 $ 9,583,178 $ 1,836,042
=========================================
</TABLE>
<TABLE>
<CAPTION>
QUANTITATIVE EQUITY
SUB-ACCOUNT
------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/96
------------------------------------------
<S> <C> <C> <C>
Net investment income:
Dividend income $ 5,169,494 $ -- $ 4,240,752
------------------------------------------
Realized and unrealized gain (loss) on
investments:
Realized gain (loss) from security
transactions:
Proceeds from sales 4,267,545 3,096,117 1,222,403
Cost of securities sold 2,650,426 2,122,759 976,262
------------------------------------------
Net realized gain (loss) 1,617,119 973,358 246,141
------------------------------------------
Unrealized appreciation (depreciation) of
investments:
Beginning of year 9,470,255 1,534,960 2,295,941
End of year 13,385,867 9,470,255 1,534,960
------------------------------------------
Net unrealized appreciation (depreciation) during
the year 3,915,612 7,935,295 (760,981)
------------------------------------------
Net realized and unrealized gain (loss) on
investments 5,532,731 8,908,653 (514,840)
------------------------------------------
Net increase (decrease) in net assets derived from
operations $10,702,225 $ 8,908,653 $ 3,725,912
==========================================
</TABLE>
* Reflects the period from commencement of operations February 14, 1996
through December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-22
<PAGE> 78
<TABLE>
<CAPTION>
REAL ESTATE SECURITIES BALANCED CAPITAL GROWTH BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR/ENDED YEAR/ENDED YEAR/ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/98 DEC 31/97 DEC.31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 3,092,425 $ -- $ 2,776,056 $ 5,710,136 $ -- $ 4,478,042 $ 1,051,960 $ -- $ 864,430
- -------------------------------------------------------------------------------------------------------------------------------
2,650,837 1,134,797 660,261 3,244,479 4,291,414 1,836,560 3,019,340 1,876,127 1,292,420
2,269,138 898,569 631,891 2,557,957 3,671,860 1,674,031 2,667,419 1,866,847 1,363,232
- -------------------------------------------------------------------------------------------------------------------------------
381,699 236,228 28,370 686,522 619,554 162,529 351,921 9,280 (70,812)
- -------------------------------------------------------------------------------------------------------------------------------
5,819,408 2,155,063 748,034 6,626,044 958,041 2,693,376 1,199,605 (223,171) 153,798
(1,897,849) 5,819,409 2,155,063 6,332,445 6,626,043 958,041 1,309,718 1,199,605 (223,171)
- -------------------------------------------------------------------------------------------------------------------------------
(7,717,257) 3,664,346 1,407,029 (293,599) 5,668,002 (1,735,335) 110,113 1,422,776 (376,969)
- -------------------------------------------------------------------------------------------------------------------------------
(7,335,558) 3,900,574 1,435,399 392,923 6,287,556 (1,572,806) 462,034 1,432,056 (447,781)
- -------------------------------------------------------------------------------------------------------------------------------
$(4,243,133) $ 3,900,574 $ 4,211,455 $ 6,103,059 $ 6,287,556 $ 2,905,236 $ 1,513,994 $ 1,432,056 $ 416,649
===============================================================================================================================
</TABLE>
F-23
<PAGE> 79
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
MONEY MARKET
SUB-ACCOUNT
----------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/96
----------------------------------------------
<S> <C> <C> <C>
Net investment income:
Dividend income $ 1,481,440 $ 1,159,280 $ 1,505,315
-----------------------------------------
Realized and unrealized gain (loss) on investments:
Realized and unrealized gain (loss) from security
transactions:
Proceeds from sales 55,917,389 18,425,413 17,344,859
Cost of securities sold 55,917,389 19,340,111 16,936,049
-----------------------------------------
Net realized gain (loss) -- (914,698) 408,810
-----------------------------------------
Unrealized appreciation (depreciation) of investments:
Beginning of year -- (914,724) 233,720
End of year -- 1 (914,724)
-----------------------------------------
Net unrealized appreciation (depreciation) during
the year -- 914,725 (1,148,444)
-----------------------------------------
Net realized and unrealized gain (loss) on
investments -- 27 (739,634)
-----------------------------------------
Net increase (decrease) in net assets derived from
operations $ 1,481,440 $ 1,159,307 $ 765,681
===========================================
</TABLE>
<TABLE>
<CAPTION>
INTERNATIONAL STOCK
SUB-ACCOUNT
---------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/96
---------------------------------------------
<S> <C> <C> <C>
Net investment income:
Dividend income $ 313,529 $ 209,753 $ 248,736
-------------------------------------------
Realized and unrealized gain (loss) on investments:
Realized and unrealized gain (loss) from security
transactions:
Proceeds from sales 4,550,901 780,310 289,302
Cost of securities sold 3,876,157 656,813 250,445
-------------------------------------------
Net realized gain (loss) 674,744 123,497 38,857
-------------------------------------------
Unrealized appreciation (depreciation) of investment
Beginning of year 131,809 450,565 99,777
End of year 1,643,285 131,811 450,565
-------------------------------------------
Net unrealized appreciation (depreciation) during
the year 1,511,476 (318,754) 350,788
-------------------------------------------
Net realized and unrealized gain (loss) on
investments 2,186,220 (195,257) 389,645
-------------------------------------------
Net increase (decrease) in net assets derived from
operations $ 2,499,749 $ 14,496 $ 638,381
===========================================
</TABLE>
* Reflects the period from commencement of operations February 14, 1996
through December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-24
<PAGE> 80
<TABLE>
<CAPTION>
PACIFIC RIM EMERGING MARKETS
SUB-ACCOUNT EQUITY INDEX SUB-ACCOUNT EQUITY SUB-ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED*
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 12,667 $ 239,201 $ 1,392,501 $ 2,468,634 $ 449,782 $ 3,871,537 $ 2,150,334 $ 26,181
- ---------------------------------------------------------------------------------------------------------------------------------
4,347,338 1,556,257 443,740 2,890,323 1,982,591 231,179 1,483,382 1,891,337 54,581
6,967,881 1,571,876 374,390 2,287,244 1,529,141 214,759 1,636,220 1,889,551 56,756
- ---------------------------------------------------------------------------------------------------------------------------------
(2,620,543) (15,619) 69,350 603,079 453,450 16,420 (152,838) 1,786 (2,175)
- ---------------------------------------------------------------------------------------------------------------------------------
(2,120,318) 67,813 88,856 488,049 (46,898) -- 737,427 495,686 --
421,880 (2,120,317) 67,813 6,270,171 488,048 (46,898) (1,030,422) 737,427 495,686
- ---------------------------------------------------------------------------------------------------------------------------------
2,542,198 (2,188,130) (21,043) 5,782,122 534,946 (46,898) (1,767,849) 241,741 495,686
- ---------------------------------------------------------------------------------------------------------------------------------
(78,345) (2,203,749) 48,307 6,385,201 988,396 (30,478) (1,920,687) 243,527 493,511
- ---------------------------------------------------------------------------------------------------------------------------------
$ (78,345) $(2,191,082) $ 287,508 $ 7,777,702 $ 3,457,030 $ 419,304 $ 1,950,850 $ 2,393,861 $ 519,692
=================================================================================================================================
</TABLE>
F-25
<PAGE> 81
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
VALUE EQUITY SUB-ACCOUNT
--------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED*
DEC. 31/98 DEC. 31/97 DEC. 31/96
--------------------------------------
<S> <C> <C> <C>
Net investment income:
Dividend income $ 976,745 $1,127,557 $ 8,790
------------------------------------
Realized and unrealized gain (loss) on investments:
Realized and unrealized gain (loss) from
security transactions:
Proceeds from sales 1,391,651 1,288,325 438,548
Cost of securities sold 1,104,171 1,107,952 417,223
------------------------------------
Net realized gain (loss) 287,480 180,373 21,325
------------------------------------
Unrealized appreciation (depreciation) of investments:
Beginning of year 1,914,865 364,883 --
End of year 2,133,232 1,914,865 364,883
------------------------------------
Net unrealized appreciation (depreciation)
during the year 218,367 1,549,982 364,883
------------------------------------
Net realized and unrealized gain (loss) on
investments 505,847 1,730,355 386,208
------------------------------------
Net increase (decrease) in net assets derived
from operations $1,482,592 $2,857,912 $ 394,998
====================================
</TABLE>
<TABLE>
<CAPTION>
GROWTH AND INCOME SUB-ACCOUNT
--------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED*
DEC. 31/98 DEC. 31/97 DEC. 31/96
--------------------------------------
<S> <C> <C> <C>
Net investment income:
Dividend income $1,500,080 $ 556,761 $ 1,952
------------------------------------
Realized and unrealized gain (loss) on investments:
Realized and unrealized gain (loss) from
security transactions:
Proceeds from sales 2,830,806 3,054,342 82,474
Cost of securities sold 2,030,090 2,467,777 77,312
------------------------------------
Net realized gain (loss) 800,716 586,565 5,162
------------------------------------
Unrealized appreciation (depreciation) of investments:
Beginning of year 2,511,120 405,558 --
End of year 6,362,451 2,511,120 405,558
------------------------------------
Net unrealized appreciation (depreciation)
during the year 3,851,331 2,105,562 405,558
------------------------------------
Net realized and unrealized gain (loss) on
investments 4,652,047 2,692,127 410,720
------------------------------------
Net increase (decrease) in net assets derived
from operations $6,152,127 $3,248,888 $ 412,672
====================================
</TABLE>
* Reflects the period from commencement of operations February 14, 1996
through December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-26
<PAGE> 82
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES CONSERVATIVE ASSET ALLOCATION MODERATE ASSET ALLOCATION
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED*
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 109,401 $ 123,037 $ 26,995 $ 72,830 $ 42,335 $ 8,660 $ 247,923 $ 83,798 $ 2,105
- ------------------------------------------------------------------------------------------------------------------
986,654 750,917 141,134 207,048 236,418 30,301 147,097 71,531 45,521
954,836 752,455 149,988 202,366 228,648 31,365 136,136 65,973 45,706
- ------------------------------------------------------------------------------------------------------------------
31,818 (1,538) (8,854) 4,682 7,770 (1,064) 10,961 5,558 (185)
- ------------------------------------------------------------------------------------------------------------------
67,077 38,928 -- 17,540 6,566 -- 101,169 23,967 --
106,893 67,077 38,928 24,976 17,540 6,566 183,104 101,169 23,967
- ------------------------------------------------------------------------------------------------------------------
39,816 28,149 38,928 7,436 10,974 6,566 81,935 77,202 23,967
- ------------------------------------------------------------------------------------------------------------------
71,634 26,611 30,074 12,118 18,744 5,502 92,896 82,760 23,782
- ------------------------------------------------------------------------------------------------------------------
$ 181,035 $ 149,648 $ 57,069 $ 84,948 $ 61,079 $14,162 $ 340,819 $ 166,558 $ 25,887
===================================================================================================================
</TABLE>
F-27
<PAGE> 83
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
AGGRESSIVE ASSET ALLOCATION INTERNATIONAL SMALL CAP
SUB-ACCOUNT SUB-ACCOUNT
-----------------------------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net investment income:
Dividend income $ 312,103 $ 140,784 $ 11,072 $ 5,687 $ 212
---------------------------------------------------------------------
Realized and unrealized gain (loss) on investments:
Realized and unrealized gain (loss) from security
transactions: 210,791 226,753 79,723 3,812,286 206,034
Proceeds from sales 181,226 204,492 82,946 3,842,577 203,025
---------------------------------------------------------------------
Cost of securities sold 29,565 22,261 (3,223) (30,291) 3,009
---------------------------------------------------------------------
Net realized gain (loss)
Unrealized appreciation (depreciation) of investments:
Beginning of year 164,721 43,313 -- (39,080) --
End of year 343,898 164,721 43,313 201,045 (39,080)
---------------------------------------------------------------------
Net unrealized appreciation (depreciation) during
the year 179,177 121,408 43,313 240,125 (39,080)
---------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments 208,742 143,669 40,090 209,834 (36,071)
---------------------------------------------------------------------
Net increase (decrease) in net assets derived from
operations $ 520,845 $ 284,453 $ 51,162 $ 215,521 $ (35,859)
=====================================================================
</TABLE>
* Reflects the period from commencement of operations February 14, 1996
through December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-28
<PAGE> 84
<TABLE>
<CAPTION>
BLUE CHIP GROWTH SCIENCE & TECHNOLOGY SUB- PILGRAM BAXTER SMALL/MID
SUB-ACCOUNT ACCOUNT SUB-ACCOUNT CAP SUB-ACCOUNT
- --------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
<S> <C> <C> <C> <C> <C> <C> <C>
$ 98,459 $ 104,304 $ -- $ 16,815 $ -- $ -- $ $ --
- ----------------------------------------------------------------------------------------------------------------
933,491 121,709 7,343,188 457,533 341,421 37,770 341,669 52,379
796,180 128,505 7,715,056 477,311 359,211 36,070 302,630 43,433
- ----------------------------------------------------------------------------------------------------------------
137,311 (6,796) (371,868) (19,778) (17,790) 1,700 39,039 8,946
- ----------------------------------------------------------------------------------------------------------------
239,380 -- (62,464) -- (18,510) -- (4,182) --
1,759,946 239,382 1,460,009 (62,465) 75,390 (18,510) 830,276 (4,182)
- ----------------------------------------------------------------------------------------------------------------
1,520,566 239,382 1,522,473 (62,465) 93,900 (18,510) 834,458 (4,182)
- ----------------------------------------------------------------------------------------------------------------
1,657,877 232,586 1,150,605 (82,243) 76,110 (16,810) 873,497 4,764
- ----------------------------------------------------------------------------------------------------------------
$1,756,336 $ 336,890 $ 1,150,605 $ (65,428) $ 76,110 $(16,810) $ 873,497 $ 4,764
================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
WORLDWIDE GROWTH
CAP SUB-ACCOUNT
- ---------------------------
YEAR ENDED PERIOD ENDED*
DEC. 31/98 DEC. 31/97
<S> <C>
5,574 $ 2,704
- -----------------------
884,820 40,572
870,108 38,790
- -----------------------
14,712 1,782
- -----------------------
(4,391) --
14,109 (4,391)
- -----------------------
18,500 (4,391)
- -----------------------
33,212 (2,609)
- -----------------------
38,786 $ 95
=======================
</TABLE>
F-29
<PAGE> 85
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
GLOBAL VALUE
EQUITY SUB-ACCOUNT GROWTH SUB-ACCOUNT SUB-ACCOUNT
------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net investment income:
Dividend income $ 167,578 $ -- $ 95,683 $ -- $ 117,791 $ 33,133
-----------------------------------------------------------------------------------
Realized and unrealized gain (loss) on
investments:
Realized and unrealized gain (loss) from
security transactions:
Proceeds from sales 14,996,508 6,150 1,586,113 9,760 539,843 28,449
Cost of securities sold 15,031,676 5,777 1,462,588 8,653 517,327 25,668
-----------------------------------------------------------------------------------
Net realized gain (loss) (35,168) 373 123,525 1,107 22,516 2,781
-----------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of
investments:
Beginning of year 32,115 -- 15,489 -- (20,774) --
End of year 246,571 32,115 482,024 15,489 (250,247) (20,774)
-----------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) during the year 214,456 32,115 466,535 15,489 (229,473) (20,774)
-----------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments 179,288 32,488 590,060 16,596 (206,957) (17,993)
-----------------------------------------------------------------------------------
Net increase (decrease) in net assets
derived
from operations $ 346,866 $ 32,488 $ 685,743 $ 16,596 $ (89,166) $ 15,140
===================================================================================
</TABLE>
* Reflects the period from commencement of operations February 14, 1996
through December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-30
<PAGE> 86
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH AND INCOME Global
SUB-ACCOUNT High Yield Strategic Bond Government Bond
Sub-Account Sub-Account Sub-Account
- ----------------------------- ----------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED***
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 51,082 $ -- $ 151,912 $ 39,931 $ 86,088 $ -- $ 27,334 $ --
- ------------------------------------------------------------------------------------------------------------------------
7,091,488 18,809 2,330,540 347,712 556,779 18,384 370,605 3,662
7,095,830 18,622 2,338,454 339,830 574,721 17,681 378,835 3,587
- ------------------------------------------------------------------------------------------------------------------------
(4,342) 187 (7,914) 7,882 (17,942) 703 (8,230) 75
- ------------------------------------------------------------------------------------------------------------------------
(39,257) -- (13,453) -- 10,709 -- 3,801 --
47,306 (39,257) (109,324) (13,453) (59,931) 10,709 6,299 3,801
- ------------------------------------------------------------------------------------------------------------------------
86,563 (39,257) (95,871) (13,453) (70,640) 10,709 2,498 3,801
- ------------------------------------------------------------------------------------------------------------------------
82,221 (39,070) (103,785) (5,571) (88,582) 11,412 (5,732) 3,876
- ------------------------------------------------------------------------------------------------------------------------
$ 133,303 $ (39,070) $ 48,127 $ 34,360 $ (2,494) $ 11,412 $ 21,602 $ 3,876
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT
QUALITY BOND
SUB-ACCOUNT
- ---------------------------
YEAR ENDED PERIOD ENDED*
DEC. 31/98 DEC. 31/97
- ---------------------------
20,278 $ --
- ---------------------------
<S> <C>
134,493 4,700
127,939 4,564
- ---------------------------
6,554 136
- ---------------------------
6,089 --
33,941 6,089
- ---------------------------
27,852 6,089
- ---------------------------
34,406 6,225
- ---------------------------
54,684 $ 6,225
===========================
</TABLE>
F-31
<PAGE> 87
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
LIFESTYLE
AGGRESSIVE 1000 LIFESTYLE
SUB-ACCOUNT GROWTH 820 SUB-ACCOUNT
---------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
----------------------------------------------------
<S> <C> <C> <C> <C>
Net investment income: $ 168,006 $ 4,916 $ 629,682 $ 36,584
----------------------------------------------------
Dividend income
Realized and unrealized gain (loss) on
investments:
Realized and unrealized gain (loss) from
security transactions: 787,348 18,722 634,837 53,801
Proceeds from sales 797,310 17,881 654,079 50,741
----------------------------------------------------
Cost of securities sold (9,962) 841 (19,242) 3,060
----------------------------------------------------
Net realized gain (loss)
Unrealized appreciation (depreciation) of
investments: (11,048) -- (24,738) --
Beginning of year (67,117) (11,049) 90,282 (24,740)
----------------------------------------------------
End of year
Net unrealized appreciation (depreciation
during the year (56,069) (11,049) 115,020 (24,740)
----------------------------------------------------
Net realized and unrealized gain (loss) on
investments (66,031) (10,208) 95,778 (21,680)
----------------------------------------------------
Net increase (decrease) in net assets derived
from operations $ 101,975 $ (5,292) $ 725,460 $ 14,904
===================================================
</TABLE>
<TABLE>
<CAPTION>
LIFESTYLE
BALANCED 640
SUB-ACCOUNT
-------------------------------
YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97
-------------------------------
<S> <C> <C>
Net investment income: $ 189,230 $ 16,038
-----------------------
Dividend income
Realized and unrealized gain (loss) on
investments:
Realized and unrealized gain (loss) from
security transactions: 896,183 152,797
Proceeds from sales 898,112 147,960
-----------------------
Cost of securities sold (1,929) 4,837
-----------------------
Net realized gain (loss)
Unrealized appreciation (depreciation) of
investments: 43,780 --
Beginning of year 81,488 43,781
-----------------------
End of year
Net unrealized appreciation (depreciation
during the year 37,708 43,781
-----------------------
Net realized and unrealized gain (loss) on
investments 35,779 48,618
-----------------------
Net increase (decrease) in net assets derived
from operations $ 225,009 $ 64,656
======================
</TABLE>
* Reflects the period from commencement of operations February 14, 1996
through December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-32
<PAGE> 88
<TABLE>
<CAPTION>
LIFESTYLE LIFESTYLE SMALL COMPANY
MODERATE 460 CONSERVATIVE 280 VALUE TRUST
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** PERIOD ENDED*** YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/98 DEC. 31/97 DEC. 31/96
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 20,025 $ 842 $ 552 $ 9 $ -- $ 28,132,536 $ 8,330,428 $ 22,590,083
- -------------------------------------------------------------------------------------------------------------------------------
195,747 2,366 64,048 173 20,186 138,107,190 49,351,462 28,281,133
204,400 2,372 62,423 172 23,678 134,346,562 45,853,994 26,801,043
- -------------------------------------------------------------------------------------------------------------------------------
(8,653) (6) 1,625 1 (3,492) 3,760,628 3,497,468 1,480,090
- -------------------------------------------------------------------------------------------------------------------------------
4 -- 29 -- -- 33,986,145 3,720,050 11,108,413
19,896 3 5,724 29 10,664 45,119,935 33,986,146 3,720,050
- -------------------------------------------------------------------------------------------------------------------------------
19,892 3 5,695 29 10,664 11,133,790 30,266,096 (7,388,363)
- -------------------------------------------------------------------------------------------------------------------------------
11,239 (3) 7,320 30 7,172 14,894,418 33,763,564 (5,908,273)
- -------------------------------------------------------------------------------------------------------------------------------
$ 31,264 $ 839 $ 7,872 $ 39 $ 7,172 $ 43,026,954 $42,093,992 $ 16,681,810
===============================================================================================================================
</TABLE>
F-33
<PAGE> 89
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
EMERGING GROWTH
SUB-ACCOUNT
--------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/96
--------------------------------------------------
FROM OPERATIONS
<S> <C> <C> <C>
Net investment income $ 995,471 $ -- $ 7,702,014
Net realized gain (loss) 1,245,244 1,198,803 569,439
Net unrealized appreciation
(depreciation) of investments
during the period (2,091,940) 8,384,375 (6,435,411)
--------------------------------------------------
Net increase (decrease) in net assets
derived from operations 148,775 9,583,178 1,836,042
--------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 12,733,443 16,038,468 22,504,630
Transfer on death -- -- --
Transfer on terminations (6,445,689) (6,450,838) (4,593,540)
Transfer on policy loans (218,046) (358,214) (610,713)
Net interfund transfers (5,805,034) (6,440,946) (11,484)
--------------------------------------------------
264,674 2,788,470 17,288,893
--------------------------------------------------
Net increase (decrease) in net assets 413,449 12,371,648 19,124,935
NET ASSETS
Beginning of year 66,343,106 53,971,458 34,846,523
---------------------------------------------------
End of year $ 66,756,555 $ 66,343,106 $ 53,971,458
===================================================
</TABLE>
<TABLE>
<CAPTION>
QUANTITATIVE EQUITY
SUB-ACCOUNT
--------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/96
--------------------------------------------
FROM OPERATIONS
<S> <C> <C> <C>
Net investment income $ 5,169,494 $ -- $ 4,240,752
Net realized gain (loss) 1,617,119 973,358 246,141
Net unrealized appreciation
(depreciation) of investments
during the period 3,915,612 7,935,295 (760,981)
----------- ------------ ------------
Net increase (decrease) in net assets
derived from operations 10,702,225 8,908,653 3,725,912
----------- ------------ ------------
FROM CAPITAL TRANSACTIONS Additions (deductions)
from: 7,242,095 7,834,132 9,633,477
Transfer of net premiums -- -- --
Transfer on death (3,997,775) (4,132,053) (2,214,864)
Transfer on terminations (273,706) (432,977) (113,064)
Transfer on policy loans (1,628,360) (60,101) 1,337,385
Net interfund transfers ----------- ------------ ------------
1,342,254 3,209,001 8,642,934
----------- ------------ ------------
Net increase (decrease) in net assets
NET ASSETS 12,044,479 12,117,654 12,368,846
Beginning of year 40,149,248 28,031,594 15,662,748
------------------------- ------------
End of year $ 52,193,727 $ 40,149,248 $ 28,031,594
========================= ============
</TABLE>
* Reflects the period from commencement of operations February 14, 1996
through December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-34
<PAGE> 90
<TABLE>
<CAPTION>
REAL ESTATE SECURITIES BALANCED
SUB-ACCOUNT SUB-ACCOUNT
- --------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 3,092,425 $ -- $ 2,776,056 $ 5,710,136 $ -- $ 4,478,042 $ 1,051,960
381,699 236,228 28,370 686,522 619,554 162,529 351,921
(7,717,257) 3,664,346 1,407,029 (293,599) 5,668,002 (1,735,335) 110,113
- --------------------------------------------------------------------------------------------------------------------
(4,243,133) 3,900,574 4,211,455 6,103,059 6,287,556 2,905,236 1,513,994
- --------------------------------------------------------------------------------------------------------------------
5,859,264 5,723,061 4,465,307 7,177,808 8,963,510 10,619,657 3,364,775
-- -- -- -- (44,313) -- --
(2,117,340) (2,219,786) (1,347,117) (4,188,769) (3,729,355) (2,563,981) (1,655,470)
(77,402) (369,877) (65,858) (150,786) (417,435) (355,780) (32,638)
(2,327,888) 1,279,970 467,823 (534,390) (2,581,258) (394,561) (584,488)
- --------------------------------------------------------------------------------------------------------------------
1,336,634 4,413,368 3,520,155 2,303,863 2,191,149 7,305,335 1,092,179
- --------------------------------------------------------------------------------------------------------------------
(2,906,499) 8,313,942 7,731,610 8,406,922 8,478,705 10,210,571 2,606,173
25,603,002 17,289,060 9,557,450 41,823,014 33,344,309 23,133,738 18,639,105
- --------------------------------------------------------------------------------------------------------------------
$ 22,696,503 $ 25,603,002 $ 17,289,060 $ 50,229,936 $ 41,823,014 $ 33,344,309 $ 21,245,278
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
CAPITAL GROWTH
BOND
SUB-ACCOUNT
- --------------------------------
YEAR ENDED YEAR ENDED
DEC. 31/97 DEC. 31/96
- --------------------------------
<S> <C>
$ -- $ 864,430
9,280 (70,812)
1,422,776 (376,969)
- --------------------------------
1,432,056 416,649
- --------------------------------
4,146,312 4,480,626
-- --
(1,575,696) (1,205,581)
(105,540) (27,779)
(81,587) 685,493
- --------------------------------
2,383,489 3,932,759
- --------------------------------
3,815,545 4,349,408
14,823,560 10,474,152
- --------------------------------
$ 18,639,105 $ 14,823,560
================================
</TABLE>
F-35
<PAGE> 91
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
MONEY MARKET INTERNATIONAL STOCK
SUB-ACCOUNT SUB-ACCOUNT
-------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 1,481,440 $ 1,159,280 $ 1,505,315 $ 313,529 $ 209,753 $ 248,736
Net realized gain (loss) -- (914,698) 408,810 674,744 123,497 38,857
Net unrealized appreciation
(depreciation) of investments
during the period -- 914,725 (1,148,444) 1,511,476 (318,754) 350,788
-------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets derived from operations 1,481,440 1,159,307 765,681 2,499,749 14,496 638,381
-------------------------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 22,297,227 33,859,872 23,926,029 4,538,425 5,795,630 4,320,339
Transfer on death -- -- -- -- -- --
Transfer on terminations (3,358,411) (2,797,321) (2,399,186) (1,187,826) (1,224,478) (555,702)
Transfer on policy loans (384,658) (282,014) (34,484) (59,954) (106,208) (31,389)
Net interfund transfers (17,755,116) (20,937,650) (16,858,040) (574,437) 1,344,064 2,632,184
-------------------------------------------------------------------------------------------------
799,042 9,842,887 4,634,319 2,716,208 5,809,008 6,365,432
-------------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets 2,280,482 11,002,194 5,400,000 5,215,957 5,823,504 7,003,813
NET ASSETS
Beginning of year 29,427,581 18,425,387 13,025,387 15,361,685 9,538,181 2,534,368
-------------------------------------------------------------------------------------------------
End of year $ 31,708,063 $ 29,427,581 $ 18,425,387 $ 20,577,642 $ 15,361,685 $ 9,538,181
=================================================================================================
</TABLE>
* Reflects the period from commencement of operations February 14, 1996
through December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-36
<PAGE> 92
<TABLE>
<CAPTION>
PACIFIC RIM EMERGING MARKETS SUB-
ACCOUNT EQUITY INDEX SUB-ACCOUNT EQUITY SUB-ACCOUNT
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED*
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 12,667 $ 239,201 $ 1,392,501 $ 2,468,634 $ 449,782 $ 3,871,537 $ 2,150,334 $ 26,181
(2,620,543) (15,619) 69,350 603,079 453,450 16,420 (152,838) 1,786 (2,175)
2,542,198 (2,188,130) (21,043) 5,782,122 534,946 (46,898) (1,767,849) 241,741 495,686
- --------------------------------------------------------------------------------------------------------------------------------
(78,345) (2,191,082) 287,508 7,777,702 3,457,030 419,304 1,950,850 2,393,861 519,692
- --------------------------------------------------------------------------------------------------------------------------------
1,563,148 2,059,145 2,541,885 12,850,700 7,852,789 5,327,031 5,682,311 7,868,634 4,931,946
(436,588) (620,211) (354,050) (2,024,088) (781,683) (136,828) (1,536,387) (1,054,893) (260,549)
(15,173) (58,638) (25,816) (475,140) (721,710) -- (34,034) (45,576) (65,890)
229,348 (630,778) 1,682,204 6,006,985 3,377,661 876,961 19,738 778,412 3,345,171
- --------------------------------------------------------------------------------------------------------------------------------
1,340,735 749,518 3,844,223 16,358,457 9,727,057 6,067,164 4,131,628 7,546,577 7,950,678
- --------------------------------------------------------------------------------------------------------------------------------
1,262,390 (1,441,564) 4,131,731 24,136,159 13,184,087 6,486,468 6,082,478 9,940,438 8,470,370
4,357,924 5,799,488 1,667,757 19,670,555 6,486,468 -- 18,410,808 8,470,370 --
- --------------------------------------------------------------------------------------------------------------------------------
$ 5,620,314 $ 4,357,924 $5,799,488 $43,806,714 $19,670,555 $6,486,468 $24,493,286 $18,410,808 $8,470,370
================================================================================================================================
</TABLE>
F-37
<PAGE> 93
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
VALUE EQUITY GROWTH AND INCOME
SUB-ACCOUNT SUB-ACCOUNT
--------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED*
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 976,745 $ 1,127,557 $ 8,790 $ 1,500,080 $ 556,761 $ 1,952
Net realized gain (loss) 287,480 180,373 21,325 800,716 586,565 5,162
Net unrealized appreciation
(depreciation) of
investments during the
period 218,367 1,549,982 364,883 3,851,331 2,105,562 405,558
--------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets derived
from operations 1,482,592 2,857,912 394,998 6,152,127 3,248,888 412,672
--------------------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 3,243,426 4,090,507 3,266,118 6,862,398 7,079,242 2,527,210
Transfer on death -- -- -- -- -- --
Transfer on terminations (1,437,923) (793,110) (147,201) (1,576,405) (910,308) (98,012)
Transfer on policy loans (98,668) (69,774) (36,263) (46,701) (76,204) (13,676)
Net interfund transfers 563,898 3,108,426 2,150,892 2,330,998 4,479,340 2,756,146
--------------------------------------------------------------------------------------------
2,270,733 6,336,049 5,233,546 7,570,290 10,572,070 5,171,668
--------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets 3,753,325 9,193,961 5,628,544 13,722,417 13,820,958 5,584,340
NET ASSETS
Beginning of year 14,822,505 5,628,544 -- 19,405,298 5,584,340 --
--------------------------------------------------------------------------------------------
End of year $ 18,575,830 $ 14,822,505 $ 5,628,544 $ 33,127,715 $ 19,405,298 $ 5,584,340
============================================================================================
</TABLE>
* Reflects the period from commencement of operations February 14, 1996
through December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-38
<PAGE> 94
<TABLE>
<CAPTION>
U.S. GOVERNMENT CONSERVATIVE ASSET MODERATE ASSET
SECURITIES ALLOCATION ALLOCATION
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED*
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 109,401 $ 123,037 $ 26,995 $ 72,830 $ 42,335 $ 8,660 $ 247,923 $ 83,798 $ 2,105
31,818 (1,538) (8,854) 4,682 7,770 (1,064) 10,961 5,558 (185)
39,816 28,149 38,928 7,436 10,974 6,566 81,935 77,202 23,967
- ---------------------------------------------------------------------------------------------------------------------------
181,035 149,648 57,069 84,948 61,079 14,162 340,819 166,558 25,887
- ---------------------------------------------------------------------------------------------------------------------------
664,545 745,345 757,201 176,976 334,314 143,807 895,345 692,412 348,167
(154,411) (221,531) (35,748) (52,005) (34,376) (33,413) (208,435) (104,738) (25,611)
(32,573) (50,875) (30,576) -- -- -- (7,332) (346) --
423,298 (76,765) 929,361 46,253 (37,686) 246,043 230,395 588,790 183,575
- ---------------------------------------------------------------------------------------------------------------------------
900,859 396,174 1,620,238 171,224 262,252 356,437 909,973 1,176,118 506,131
- ---------------------------------------------------------------------------------------------------------------------------
1,081,894 545,822 1,677,307 256,172 323,331 370,599 1,250,792 1,342,676 532,018
2,223,129 1,677,307 -- 693,930 370,599 -- 1,874,694 532,018 --
- ---------------------------------------------------------------------------------------------------------------------------
$ 3,305,023 $ 2,223,129 $ 1,677,307 $ 950,102 $ 693,930 $ 370,599 $ 3,125,486 $ 1,874,694 $ 532,018
===========================================================================================================================
</TABLE>
F-39
<PAGE> 95
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
AGGRESSIVE ASSET ALLOCATION INTERNATIONAL SMALL CAP BLUE CHIP GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
---------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 312,103 $ 140,784 $ 11,072 $ 5,687 $ 212 $ 98,459 $ 104,304
Net realized gain (loss) 29,565 22,261 (3,223) (30,291) 3,009 137,311 (6,796)
Net unrealized appreciation
(depreciation) of
investments during
the period 179,177 121,408 43,313 240,125 (39,080) 1,520,566 239,382
---------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets derived
from operations 520,845 284,453 51,162 215,521 (35,859) 1,756,336 336,890
---------------------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 953,535 1,008,793 387,073 923,655 609,617 3,950,204 1,748,929
Transfer on death -- -- -- -- -- -- --
Transfer on terminations (257,332) (143,026) (58,999) (94,819) (48,039) (422,824) (152,046)
Transfer on policy loans (9,000) (2,986) -- (11,877) (2,873) (27,578) (5,593)
Net interfund transfers 193,464 263,513 434,224 258,711 879,398 1,683,424 1,850,202
---------------------------------------------------------------------------------------------
880,667 1,126,294 762,298 1,075,670 1,438,103 5,183,226 3,441,492
---------------------------------------------------------------------------------------------
Net increase (decrease) in
net assets 1,401,512 1,410,747 813,460 1,291,191 1,402,244 6,939,562 3,778,382
NET ASSETS
Beginning of year 2,224,207 813,460 -- 1,402,244 -- 3,778,382 --
=============================================================================================
End of year $3,625,719 $2,224,207 $813,460 $2,693,435 $1,402,244 $10,717,944 $3,778,382
=============================================================================================
</TABLE>
* Reflects the period from commencement of operations February 14, 1996
through December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-40
<PAGE> 96
<TABLE>
<CAPTION>
SCIENCE & TECHNOLOGY PILGRAM BAXTER GROWTH WORLDWIDE GROWTH
SUB-ACCOUNT SUB-ACCOUNT SMALL/MID CAP SUB-ACCOUNT SUB-ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 16,815 $ -- $ -- $ -- $ -- $ 5,574 $ 2,704
(371,868) (19,778) (17,790) 1,700 39,039 8,946 14,712 1,782
1,522,473 (62,465) 93,900 (18,510) 834,458 (4,182) 18,500 (4,391)
- ----------------------------------------------------------------------------------------------------------------------------------
1,150,605 (65,428) 76,110 (16,810) 873,497 4,764 38,786 95
- ----------------------------------------------------------------------------------------------------------------------------------
1,150,664 361,963 515,555 141,492 1,769,196 757,544 396,653 143,932
- - - - - - - -
(90,696) (21,603) (58,953) (7,886) (173,727) (32,683) (41,648) (4,603)
(13,553) (904) (11,158) -- (9,934) (269) (6,172) (1,290)
1,674,262 791,001 520,806 444,653 1,932,598 742,521 377,034 177,277
- ----------------------------------------------------------------------------------------------------------------------------------
2,720,677 1,130,457 966,250 578,259 3,518,133 1,467,113 725,867 315,316
- ----------------------------------------------------------------------------------------------------------------------------------
3,871,282 1,065,029 1,042,360 561,449 4,391,630 1,471,877 764,653 315,411
1,065,029 -- 561,449 -- 1,471,877 -- 315,411 --
==================================================================================================================================
$ 4,936,311 $ 1,065,029 $ 1,603,809 $ 561,449 $ 5,863,507 $ 1,471,877 $ 1,080,064 $ 315,411
==================================================================================================================================
</TABLE>
F-41
<PAGE> 97
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
GLOBAL EQUITY SUB-ACCOUNT GROWTH SUB-ACCOUNT VALUE SUB-ACCOUNT
--------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 167,578 $ -- $ 95,683 $ -- $ 117,791 $ 33,133
Net realized gain (loss) (35,168) 373 123,525 1,107 22,516 2,781
Net unrealized appreciation
(depreciation) of investments
during the period 214,456 32,115 466,535 15,489 (229,473) (20,774)
--------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
derived from operations 346,866 32,488 685,743 16,596 (89,166) 15,140
--------------------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 1,830,508 697,468 3,294,658 470,000 1,600,753 346,369
Transfer on death -- -- -- -- -- --
Transfer on terminations (146,797) (22,616) (107,258) (29,691) (117,194) (21,998)
Transfer on policy loans (6,447) (283) (38,221) (2,329) (12,965) (1,030)
Net interfund transfers 750,096 761,527 1,662,737 794,709 1,104,824 742,495
--------------------------------------------------------------------------------------------
2,427,360 1,436,096 4,811,916 1,232,689 2,575,418 1,065,836
--------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 2,774,226 1,468,584 5,497,659 1,249,285 2,486,252 1,080,976
NET ASSETS
Beginning of year 1,468,584 -- 1,249,285 -- 1,080,976 --
--------------------------------------------------------------------------------------------
End of year $ 4,242,810 $ 1,468,584 $ 6,746,944 $ 1,249,285 $ 3,567,228 $ 1,089,976
============================================================================================
</TABLE>
* Reflects the period from commencement of operations February 14, 1996
through December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-42
<PAGE> 98
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH AND INCOME GLOBAL GOVERNMENT BOND
SUB-ACCOUNT HIGH YIELD SUB-ACCOUNT STRATEGIC BOND SUB-ACCOUNT SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 51,082 $ -- $ 151,912 $ 39,931 $ 86,088 $ -- $ 27,334 $ --
(4,342) 187 (7,914) 7,882 (17,942) 703 (8,230) 75
86,563 (39,257) (95,871) (13,453) (70,640) 10,709 2,498 3,801
- ------------------------------------------------------------------------------------------------------------------------------------
133,303 (39,070) 48,127 34,360 (2,494) 11,412 21,602 3,876
- ------------------------------------------------------------------------------------------------------------------------------------
515,640 744,217 943,552 276,881 1,272,907 273,501 143,923 58,746
-- -- -- -- -- -- -- --
(50,349) (9,912) (111,555) (31,310) (103,790) (11,295) (17,835) (2,335)
(2,253) -- (7,304) (6,696) (10,279) (504) (6,107) --
23,545 90,093 158,145 797,757 1,091,881 380,876 277,425 161,473
- ------------------------------------------------------------------------------------------------------------------------------------
486,583 824,398 982,838 1,036,632 2,250,719 642,578 397,406 217,884
- ------------------------------------------------------------------------------------------------------------------------------------
619,886 785,328 1,030,965 1,070,992 2,248,225 653,990 419,008 221,760
785,328 -- 1,070,992 -- 653,990 -- 221,760 --
- ------------------------------------------------------------------------------------------------------------------------------------
$ 1,405,214 $ 785,328 $ 2,101,957 $ 1,070,992 $ 2,902,215 $ 653,990 $ 640,768 $ 221,760
====================================================================================================================================
</TABLE>
F-43
<PAGE> 99
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
INVESTMENT QUALITY BOND SUB- LIFESTYLE AGGRESSIVE 1000 SUB- LIFESTYLE GROWTH 820 SUB-
ACCOUNT ACCOUNT ACCOUNT
---------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 20,278 $ -- $ 168,006 $ 4,916 $ 629,682 $ 36,584
Net realized gain (loss) 6,554 136 (9,962) 841 (19,242) 3,060
Net unrealized appreciation
(depreciation) of investments
during the period 27,852 6,089 (56,069) (11,049) 115,020 (24,740)
---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
derived from operations 54,684 6,225 101,975 (5,292) 725,460 14,904
---------------------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 443,446 75,411 1,299,712 421,769 7,009,770 2,011,046
Transfer on death -- -- -- -- -- --
Transfer on terminations (45,715) (3,321) (258,375) (47,502) (827,050) (85,509)
Transfer on policy loans (46,096) -- (26,714) (3,766) (176,891) (826)
Net interfund transfers 762,855 182,692 316,522 2,063,763 3,867,109 3,319,383
---------------------------------------------------------------------------------------------
1,114,490 254,782 1,331,145 2,434,264 9,872,938 5,244,094
---------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 1,169,174 261,007 1,433,120 2,428,972 10,598,398 5,258,998
NET ASSETS
Beginning of year 261,007 -- 2,428,972 -- 5,258,998 --
---------------------------------------------------------------------------------------------
End of year $ 1,430,181 $ 261,007 $ 3,862,092 $ 2,428,972 $ 15,857,396 $ 5,258,998
=============================================================================================
</TABLE>
* Reflects the period from commencement of operations February 14, 1996
through December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes
F-44
<PAGE> 100
<TABLE>
<CAPTION>
SMALL COMPANY
LIFESTYLE BALANCED 640 LIFESTYLE MODERATE 460 LIFESTYLE CONSERVATIVE 280 VALUE TRUST
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** PERIOD ENDED***
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 189,230 $ 16,038 $ 20,025 $ 842 $ 552 $ 9 $ --
(1,929) 4,837 (8,653) (6) 1,625 1 (3,492)
37,708 43,781 19,892 3 5,695 29 10,664
- -----------------------------------------------------------------------------------------------------------------------------------
225,009 64,656 31,264 839 7,872 39 7,172
- -----------------------------------------------------------------------------------------------------------------------------------
2,223,707 568,684 287,313 92,570 35,078 150 183,290
-- -- -- -- -- -- --
(520,437) (122,871) (25,583) (2,513) (3,934) (224) (6,126)
(28,495) -- -- -- -- -- --
1,672,788 1,613,028 282,970 11,484 67,660 1,376 182,269
- -----------------------------------------------------------------------------------------------------------------------------------
3,347,563 2,058,841 544,700 101,541 98,804 1,302 359,433
- -----------------------------------------------------------------------------------------------------------------------------------
3,572,572 2,123,497 575,964 102,380 106,676 1,341 366,605
2,123,497 -- 102,380 -- 1,341 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
$ 5,696,069 $ 2,123,497 $ 678,344 $ 102,380 $ 108,017 $ 1,341 $ 366,605
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
TOTAL
- -----------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/96
- -----------------------------------------------------
<S> <C> <C>
$ 28,132,536 $ 8,330,428 $ 22,590,083
3,760,628 3,497,468 1,480,090
11,133,790 30,266,096 (7,388,363)
- -----------------------------------------------------
43,026,954 42,093,992 16,681,810
- -----------------------------------------------------
125,895,605 123,892,455 100,180,503
-- (44,313) --
(33,859,519) (27,451,360) (16,030,382)
(2,357,855) (3,124,737) (1,411,288)
(497,675) 179,113 463,377
- -----------------------------------------------------
89,180,556 93,451,158 83,202,210
- -----------------------------------------------------
132,207,510 135,545,150 99,884,020
346,331,293 210,786,143 110,902,123
- -----------------------------------------------------
$ 478,538,803 $ 346,331,293 $ 210,786,143
=====================================================
</TABLE>
F-45
<PAGE> 101
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements
December 31, 1998
1. ORGANIZATION
Separate Account Three of The Manufacturers Life Insurance Company of America
(the "Separate Account") is a unit investment trust registered under the
Investment Company Act of 1940, as amended. The Separate Account is comprised of
investment sub-accounts available for allocation of net premiums under single
premium variable life and variable universal life insurance policies (the
"Policies") issued by The Manufacturers Life Insurance Company of America
("Manufacturers Life of America"). The Separate Account was established by
Manufacturers Life of America, a life insurance company organized in 1983 under
Michigan law. Manufacturers Life of America is an indirect, wholly-owned
subsidiary of The Manufacturers Life Insurance Company ("Manulife Financial"), a
Canadian mutual life insurance company. Each investment sub-account invests
solely in shares of a particular Manufacturers Investment Trust. Manufacturers
Investment Trust is registered under the Investment Company Act of 1940 as an
open-end management investment company.
The Equity Index Fund, Equity, Value Equity, Growth and Income, U.S. Government
Securities, Conservative Asset Allocation, Moderate Asset Allocation, and
Aggressive Asset Allocation Trusts were added to the Separate Account on
February 14, 1996 as investment options for variable universal life policy
holders of Manufacturers Life of America.
The International Small Cap and Blue Chip Growth Trusts was added to the
Separate Account on January 1, 1997 as investment options for variable universal
life policy holders of Manufacturers Life of America. The Science & Technology,
Pilgram Baxter Growth, Small/Mid Cap, Worldwide Growth, Global Equity, Growth,
Value, International Growth and Income, High Yield, Strategic Bond, Global
Government Bond, Investment Quality Bond, Lifestyle Aggressive 1000, Lifestyle
Growth 820, Lifestyle Balanced 640, Lifestyle Moderate 460, and Lifestyle
Conservative 280 Trusts were added to the Separate Account on May 1, 1997 as
investment options for variable universal life policy holders of Manufacturers
Life of America. The Small Company Value Trust was added to the Separate Account
on May 1, 1998.
F-46
<PAGE> 102
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
1. ORGANIZATION (CONTINUED)
Manufacturers Life of America is the legal owner of the Separate Account.
Manufacturers Life of America is required to maintain assets in the Separate
Account with a total market value at least equal to the reserves and other
liabilities relating to the variable benefits under all policies participating
in the Separate Account. These assets may not be charged with liabilities which
arise from any other business Manufacturers Life of America conducts. However,
all obligations under the variable policies are general corporate obligations of
Manufacturers Life of America.
Additional assets are held in Manufacturers Life of America's general account to
cover the contingency that the guaranteed minimum death benefit might exceed the
death benefit which would have been payable in the absence of such guarantee.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Separate Account in preparation of its financial statements:
a. Valuation of Investments - Investments are made among thirty-six Trusts of
Manufacturers Investment Trust and are valued at the reported net asset
values of these Trusts. Transactions are recorded on the trade date. Net
investment income and net realized gains on investments in Manufacturers
Investment Trust are reinvested.
b. Realized gains and losses on the sale of investments are computed on the
first-in, first-out basis.
c. Dividend income is recorded on the ex-dividend date.
d. Federal Income Taxes - Manufacturers Life of America, the Separate
Account's sponsor, is taxed as a "life insurance company" under the
Internal Revenue Code. Under these provisions of the Code, the operations
of the Separate Account form part of the sponsor's total operations and are
not taxed separately.
The current year's operations of the Separate Account are not expected to affect
the sponsor's tax liabilities and, accordingly, no charges were made against the
Separate Account for federal, state and local taxes. However, in the future,
should the sponsor incur significant tax liabilities related to the Separate
Account's operations, it intends to make a charge or establish a provision
within the Separate Account for such taxes.
F-47
<PAGE> 103
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. PREMIUM DEDUCTIONS
Manufacturers Life of America deducts certain charges for state, local, and
federal taxes from the gross premium before placing the remaining net premiums
in the sub-accounts.
4. PURCHASES AND SALES OF MANUFACTURERS INVESTMENT TRUST SHARES
Purchases and sales of the shares of common stock of Manufacturers Investment
Trust for the year ended December 31, 1998 were $255,373,727 and $138,107,190,
respectively, and for the year ended December 31, 1997 were $152,223,137 and
$49,351,462, respectively.
5. RELATED PARTY TRANSACTIONS
ManEquity, Inc., a registered broker-dealer and indirect wholly-owned subsidiary
of Manulife Financial, acts as the principal underwriter of the Policies
pursuant to a Distribution Agreement with Manufacturers Life of America.
Registered representatives of either ManEquity, Inc. or other broker-dealers
having distribution agreements with ManEquity, Inc. who are also authorized as
variable life insurance agents under applicable state insurance laws, sell the
Policies. Registered representatives are compensated on a commission basis.
Manufacturers Life of America has a formal service agreement with its
affiliates, Manulife Financial and The Manufacturers Life Insurance Company
(U.S.A.), which can be terminated by either party upon two months notice. Under
this Agreement, Manufacturers Life of America pays for legal, actuarial,
investment and certain other administrative services.
F-48
<PAGE> 104
FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
SIX MONTHS ENDED JUNE 30, 1999
(WITH DECEMBER 31, 1998 COMPARATIVE)
F-49
<PAGE> 105
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As at As at
June 30 December 31
ASSETS ($ thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
INVESTMENTS: (UNAUDITED)
<S> <C> <C>
Securities available-for-sale, at fair value:
Fixed maturity (amortized cost: 1999 $66,805; 1998 $45,248) $ 67,622 $ 49,254
Equity (cost: 1999 $ - ; 1998 $19,219) - 20,524
Short-term investments 4,628 459
Policy loans 22,897 19,320
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $ 95,147 $ 89,557
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 20,650 23,789
Deferred acquisition costs 175,971 163,506
Income taxes recoverable - 2,665
Deferred income taxes 1,009 -
Other assets 12,068 9,062
Separate account assets 1,175,391 1,075,231
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,480,236 $ 1,363,810
===================================================================================================================
LIABILITIES, CAPITAL AND SURPLUS ($ thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Policyholder liabilities and accruals $ 66,768 $ 60,830
Due to affiliates 9,061 5,133
Deferred income taxes - 763
Other liabilities 20,082 18,656
Separate account liabilities 1,175,391 1,075,231
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 1,271,302 $ 1,160,613
===================================================================================================================
CAPITAL AND SURPLUS:
Common shares $ 4,502 $ 4,502
Preferred shares 10,500 10,500
Contributed surplus 195,596 193,096
Retained earnings (deficit) 2,714 (2,664)
Accumulated other comprehensive income (loss) (4,378) (2,237)
- -------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL AND SURPLUS $ 208,934 $ 203,197
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES, CAPITAL AND SURPLUS $ 1,480,236 $ 1,363,810
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-50
<PAGE> 106
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
Consolidated Statements of Income (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
($ thousands) 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE:
Premiums $ 2,302 $ 2,208 $ 4,452 $ 4,158
Fee income 18,010 13,344 34,095 26,011
Net investment income 1,614 985 3,177 2,619
Realized investment gains (losses) - 74 1,051 (8)
Other - 47 106 104
- ----------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE $ 21,926 $ 16,658 $42,881 $32,884
- ----------------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES:
Policyholder benefits and claims $ 3,980 $ 2,406 $ 5,485 $ 7,582
Operating costs and expenses 11,540 9,117 21,461 19,473
Commissions 489 743 1,343 1,296
Amortization of deferred acquisition costs 3,144 3,158 5,676 4,486
Interest expense - 976 46 1,884
Policyholder dividends 30 138 110 794
- ----------------------------------------------------------------------------------------------------------------------
TOTAL BENEFITS AND EXPENSES $ 19,183 $ 16,538 $34,121 $35,515
- ----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 2,743 120 8,760 (2,631)
- ----------------------------------------------------------------------------------------------------------------------
INCOME TAX BENEFIT (EXPENSE) (982) (22) (3,382) 968
- ----------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 1,761 $ 98 $ 5,378 $(1,663)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-51
<PAGE> 107
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL AND SURPLUS (UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED OTHER TOTAL
CAPITAL CONTRIBUTED EARNINGS COMPREHENSIVE SHAREHOLDER'S
($ thousands) STOCK SURPLUS (DEFICIT) LOSS EQUITY
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1999 $15,002 $193,096 $(2,664) $(2,237) $ 203,197
Capital contribution (note 4) - 2,500 - - 2,500
Comprehensive income (note 3) - - 5,378 (2,141) 3,237
-------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1999 $15,002 $195,596 $ 2,714 $(4,378) $ 208,934
-------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-52
<PAGE> 108
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
($ thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 5,378 $ (1,663)
Adjustments to reconcile net income to net cash used in operating activities:
Additions to policy liabilities 1,492 304
Deferred acquisition costs (17,401) (24,055)
Amortization of deferred acquisition costs 5,676 4,486
Realized (gain) loss on investments (1,051) 8
Increases (decreases) to deferred income taxes (449) 1,110
Other 7,863 2,720
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities $ 1,508 $ (17,090)
- -------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Fixed maturity securities sold $ 1,086 $ 23,438
Fixed maturity securities purchased (22,703) (5,538)
Equity securities sold 20,284 4,922
Equity securities purchased (14) (5,177)
Net change in short-term investments (4,169) (8,145)
Net policy loans advanced (3,577) (2,305)
- -------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) investing activities $ (9,093) $ 7,195
- -------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Receipts from variable life and annuity policies
credited to policyholder account balances $ 5,934 $ 4,080
Withdrawals of policyholder account balances on
variable life and annuity policies (1,488) (2,236)
- -------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities $ 4,446 $ 1,844
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during the period $ (3,139) $ (8,051)
Balance, beginning of year 23,789 19,882
- -------------------------------------------------------------------------------------------------------------------
BALANCE, END OF PERIOD $ 20,650 $ 11,831
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-53
<PAGE> 109
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
1. ORGANIZATION
The Manufacturers Life Insurance Company of America (hereafter referred
to as "ManAmerica" or the "Company") is a direct wholly-owned U.S.
subsidiary of The Manufacturers Life Insurance Company (U.S.A.)
("ManUSA"), which in turn is a direct wholly-owned subsidiary of The
Manulife Reinsurance Corporation (U.S.A.) ("MRC"). MRC is an indirectly
wholly-owned subsidiary of The Manufacturers Life Insurance Company
("Manulife Financial"), a Canadian mutual insurance company.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
ManAmerica 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, 1998. Operating results
for the six months ended June 30, 1999 are not necessarily indicative
of the results that may be expected for the full year ending December
31, 1999.
3. COMPREHENSIVE INCOME
Total comprehensive income for the three months and six months ended
June 30, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
COMPREHENSIVE INCOME: 1999 1998 1999 1998
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET INCOME (LOSS) $ 1,761 $ 98 $ 5,378 $ (1,663)
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized holding gains (losses)
on available-for-sale securities (854) (179) (2,457) 990
Foreign currency translation 294 (742) 316 (789)
--------------------------------------------------------------------------------------------------
Other comprehensive income (loss) $ (560) $ (921) $ (2,141) $ 201
--------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ 1,201 $ (823) $ 3,237 $ (1,462)
--------------------------------------------------------------------------------------------------
</TABLE>
Other comprehensive income is reported net of taxes payable
(recoverable) of $(460) and $(96) for the three months, and $(1,323)
and $533 for the six months ended June 30, 1999 and 1998, respectively.
F-54
<PAGE> 110
Accumulated other comprehensive income is comprised of the following:
<TABLE>
<CAPTION>
AS AT JUNE 30 AS AT DECEMBER 31
($ thousands) 1999 1998
----------------------------------------- ---------------- -------------------
<S> <C> <C>
UNREALIZED GAINS (LOSSES):
Beginning balance $ 2,949 $ 380
Current period change (2,457) 2,569
----------------------------------------- ---------------- -------------------
Ending balance $ 492 $ 2,949
----------------------------------------- ---------------- -------------------
FOREIGN CURRENCY:
Beginning balance $ (5,186) $ (5,272)
Current period change 316 86
----------------------------------------- ---------------- -------------------
Ending balance $ (4,870) $ (5,186)
----------------------------------------- ---------------- -------------------
ACCUMULATED OTHER COMPREHENSIVE LOSS
$ (4,378) $ (2,237)
----------------------------------------- ---------------- -------------------
</TABLE>
4. CAPITAL CONTRIBUTION
On January 29, 1999, ManUSA contributed an amount receivable from a
subsidiary to the Company in the amount of $1,722 in exchange for one
common share. On April 15, 1999, ManUSA contributed an additional
amount receivable of $778 from a subsidiary to the Company.
5. DISPOSAL OF EQUITY SECURITIES
In January 1999, the Company disposed of shares of the Manufacturers
Investment Trust for proceeds of $18.8 million and realized a gain of
$1,051 on the sale.
6. SEGMENT DISCLOSURES
The Company reports two business segments: Traditional Life Insurance
sold in Taiwan and Variable Life Insurance sold in the U.S. The
Company's reportable segments have been determined based on geography,
differences in product features, and distribution; the segments are
also consistent with the Company's management structure.
F-55
<PAGE> 111
6. SEGMENT DISCLOSURES (CONTINUED)
Segmented information for the Company is as follows:
<TABLE>
<CAPTION>
AS AT AND FOR THE SIX MONTHS ENDED JUNE 30
($ thousands) TAIWAN U.S. TOTAL
-------------------------------------------------- ---------------- ------------ ----------
<S> <C> <C> <C>
1999
Premiums and fee income $ 4,452 $ 34,095 $ 38,547
Interest expense - 46 46
Income tax benefit (expense) 697 (4,079) (3,382)
Net income (loss) (1,294) 6,672 5,378
Total assets excluding separate account assets $ 30,510 $274,335 $ 304,845
-------------------------------------------------- ---------------- ------------ ----------
1998
Premiums and fee income $ 4,158 $ 26,011 $ 30,169
Interest expense - 1,884 1,884
Income tax benefit 551 417 968
Net loss (1,024) (639) (1,663)
Total assets excluding separate account assets $ 27,344 $261,235 $ 288,579
-------------------------------------------------- ---------------- ------------ ----------
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30
($ thousands) TAIWAN U.S. TOTAL
-------------------------------------------------- ---------------- ------------ ----------
<S> <C> <C> <C>
1999
Premiums and fee income $ 2,302 $ 18,010 $ 20,312
Interest expense - - -
Income tax benefit (expense) 246 (1,228) (982)
Net income (loss) (457) 2,218 1,761
-------------------------------------------------- ---------------- ------------ ----------
1998
Premiums and fee income $ 2,208 $ 13,490 $ 15,698
Interest expense - 976 976
Income tax benefit (expense) 271 (293) (22)
Net income (loss) (224) 332 98
-------------------------------------------------- ---------------- ------------ ----------
</TABLE>
7. COMPARATIVE FIGURES
Certain amounts in the 1998 financial statements have been reclassified
to conform to the 1999 financial statement presentation.
F-56
<PAGE> 112
FINANCIAL STATEMENTS
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
SIX MONTHS ENDED JUNE 30, 1999
(WITH DECEMBER 31, 1998 COMPARATIVE)
F-57
<PAGE> 113
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS NET ASSET UNITS NAV PER
INVESTMENT IN MANUFACTURERS INVESTMENT TRUST SHARES VALUE OUTSTANDING UNIT
AT MARKET VALUE:
<S> <C> <C> <C> <C>
Emerging Small Company Trust, 2,642,695 shares (cost $59,364,648 ) $65,855,969 1,438,146 45.79
Quantitative Equity Trust, 2,256,865 shares (cost $45,055,936 ) 57,708,032 1,196,869 48.22
Real Estate Securities Trust, 1,558,925 shares (cost $25,013,157 ) 22,354,987 663,260 33.70
Balanced Trust, 2,754,218 shares (cost $47,490,762 ) 50,429,727 1,664,153 30.30
Money Market Trust, 3,294,497 shares (cost $32,944,973 ) 32,944,973 1,761,488 18.70
International Stock Trust, 1,658,487 shares (cost $20,524,605 ) 21,958,364 1,540,807 14.25
Pacific Rim Emerging Markets Trust, 852,791 shares (cost $5,790,318 ) 7,231,667 792,271 9.13
Equity Index Trust, 3,447,098 shares (cost $49,019,613 ) 59,427,963 2,685,850 22.13
International Small Cap Trust, 191,490 shares (cost $3,000,385 ) 3,155,758 206,161 15.31
Mid-Cap Blend Trust, 1,503,718 shares (cost $29,807,089 ) 30,269,844 1,738,117 17.42
Value Equity Trust, 1,211,500 shares (cost $19,597,144 ) 22,449,094 1,241,376 18.08
Growth and Income Trust, 1,312,537 shares (cost $31,927,846 ) 40,675,524 1,827,473 22.26
U.S. Government Securities Trust, 306,698 shares (cost $4,122,053 ) 4,033,084 340,853 11.83
Diversified Bond Trust, 136,966 shares (cost $1,541,802 ) 1,472,389 113,386 12.99
Income and Value Trust, 344,917 shares (cost $4,377,101 ) 4,366,648 287,062 15.21
Large Cap Growth, 262,544 shares (cost $3,705,023 ) 3,851,513 232,955 16.53
Blue Chip Growth Trust, 993,356 shares (cost $17,292,162 ) 19,708,187 872,911 22.58
Science and Technology Trust, 448,958 shares (cost $9,984,593 ) 11,403,544 434,210 26.26
Aggressive Growth Trust, 129,755 shares (cost $1,574,347 ) 1,684,220 111,592 15.09
Mid Cap Trust, 440,853 shares (cost $7,899,798 ) 8,296,861 387,270 21.42
Global Equity Trust, 395,715 shares (cost $7,341,561 ) 7,439,447 438,111 16.98
Growth Trust, 496,583 shares (cost $10,015,710 ) 11,168,158 524,273 21.30
Value Trust, 332,302 shares (cost $4,945,179 ) 5,230,440 328,828 15.91
Overseas Trust, 189,025 shares (cost $2,244,078 ) 2,264,522 158,728 14.27
High Yield Trust, 192,627 shares (cost $2,571,677 ) 2,590,835 174,811 14.82
Strategic Bond Trust, 271,345 shares (cost $3,193,120 ) 2,963,088 214,275 13.83
Global Bond Trust, 45,358 shares (cost $594,333 ) 517,083 39,647 13.04
Investment Quality Bond Trust, 2,007,056 shares (cost $23,681,394 ) 23,221,644 1,604,773 14.47
Lifestyle Aggressive 1000 Trust, 269,087 shares (cost $3,612,009 ) 3,535,804 229,218 15.43
Lifestyle Growth 820 Trust, 1,255,999 shares (cost $17,095,766 ) 17,445,830 1,092,051 15.98
Lifestyle Balanced 640 Trust, 502,138 shares (cost $6,655,542 ) 6,688,478 431,527 15.50
Lifestyle Moderate 460 Trust, 86,140 shares (cost $1,168,125 ) 1,185,291 74,686 15.87
Lifestyle Conservative 280 Trust, 9,000 shares (cost $120,922 ) 117,629 7,629 15.42
Small Company Value Trust, 77,402 shares (cost $837,230 ) 896,314 103,104 8.69
U.S. Large Cap Value Trust, 19,753 shares (cost $243,583 ) 251,066 19,753 12.71
Mid Cap Stock Trust, 9,467 shares (cost $121,035 ) 124,772 9,467 13.18
Small Company Blend Trust, 6,165 shares (cost $77,614 ) 84,026 6,165 13.63
International Value Trust, 4,541 shares (cost $56,089 ) 56,307 4,541 12.40
Total Return Trust, 13,608 shares (cost $167,388 ) 168,327 13,608 12.37
------------
NET ASSETS $555,227,409
============
</TABLE>
F-58
<PAGE> 114
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
EMERGING QUANTITATIVE REAL ESTATE
SMALL COMPANY EQUITY SECURITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net Investment Income: Dividend Income $ 931,296 $ 5,044,334 $1,081,197
Realized and unrealized gain (loss) on investments:
Realized gain (loss) from
security transactions:
Proceeds from sales 7,014,531 3,223,628 1,862,095
Cost of securities sold 6,006,058 1,763,023 1,674,981
---------- ----------- ----------
Net realized gain (loss) 1,008,473 1,460,605 187,114
---------- ----------- ----------
Unrealized appreciation (depreciation) of investments:
Beginning of Year 4,651,935 13,385,867 (1,897,849)
End of Period 6,491,321 12,652,096 (2,658,170)
---------- ----------- ----------
Net unrealized appreciation (depreciation)
during the period 1,839,386 (733,771) (760,321)
---------- ----------- ----------
Net realized and unrealized gain (loss)
on investments 2,847,859 726,834 (573,207)
---------- ----------- ----------
Net increase (decrease) in net
assets derived from operations $3,779,155 $ 5,771,168 $ 507,990
========== =========== ==========
</TABLE>
+ Reflects the period from commencement of operation May 1, 1999 through
June 30, 1999.
See accompanying notes.
F-59
<PAGE> 115
<TABLE>
<CAPTION>
CAPITAL MONEY INTERNATIONAL PACIFIC RIM EQUITY
BALANCED GROWTH BOND MARKET STOCK EMERGING MARKETS INDEX
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ------------------- ----------------- ----------------- ----------------- ---------------------- -----------------
<C> <C> <C> <C> <C> <C>
$3,363,625 $ 1,504,363 $ 750,562 $ 5,783 $ 62,317 $ 231,456
2,589,600 21,751,844 38,776,777 4,497,336 2,623,313 5,033,945
2,035,569 22,155,955 38,776,777 3,864,630 2,292,130 3,435,102
---------- ----------- ----------- ---------- ---------- -----------
554,031 (404,111) 0 632,706 331,183 1,598,843
---------- ----------- ----------- ---------- ---------- -----------
6,332,445 1,309,718 0 1,643,285 421,880 6,270,171
2,938,965 0 0 1,433,759 1,441,349 10,408,350
---------- ----------- ----------- ---------- ---------- -----------
(3,393,480) (1,309,718) 0 (209,526) 1,019,469 4,138,179
---------- ----------- ----------- ---------- ---------- -----------
(2,839,449) (1,713,829) 0 423,180 1,350,652 5,737,022
---------- ----------- ----------- ---------- ---------- -----------
$ 524,176 ($ 209,466) $ 750,562 $ 428,963 $1,412,969 $ 5,968,478
========== =========== =========== ========== ========== ===========
</TABLE>
F-60
<PAGE> 116
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF OPERATIONS (CONTINUED)
FOR THE PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
INTERNATIONAL MID-CAP VALUE GROWTH
SMALL CAP BLEND EQUITY AND INCOME
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net Investment Income: Dividend Income $ 9,451 $3,059,165 $1,458,179 $1,278,189
Realized and unrealized gain (loss) on investments:
Realized gain (loss) from
security transactions:
Proceeds from sales 2,623,578 1,817,643 1,262,929 2,365,429
Cost of securities sold 2,377,625 1,977,119 1,004,711 1,569,269
---------- ---------- ---------- ----------
Net realized gain (loss) 245,953 (159,476) 258,218 796,160
---------- ---------- ---------- ----------
Unrealized appreciation (depreciation) of investments:
Beginning of Year 201,045 (1,030,422) 2,133,232 6,362,451
End of Period 155,373 462,755 2,851,950 8,747,678
---------- ---------- ---------- ----------
Net unrealized appreciation (depreciation)
during the period (45,672) 1,493,177 718,718 2,385,227
---------- ---------- ---------- ----------
Net realized and unrealized gain (loss)
on investments 200,281 1,333,701 976,936 3,181,387
---------- ---------- ---------- ----------
Net increase (decrease) in net
assets derived from operations $ 209,732 $4,392,866 $2,435,115 $4,459,576
========== ========== ========== ==========
</TABLE>
+ Reflects the period from commencement of operation May 1, 1999 through
June 30, 1999.
See accompanying notes.
F-61
<PAGE> 117
<TABLE>
<CAPTION>
U.S. GOVERNMENT DIVERSIFIED INCOME LARGE CAP BLUE CHIP
SECURITIES BOND AND VALUE GROWTH GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ----------------- ----------------- ----------------- ----------------- -----------------
<C> <C> <C> <C> <C>
$143,586 $ 96,499 $408,866 $371,353 $ 704,256
482,702 142,682 192,733 474,535 256,099
466,950 140,752 172,545 410,865 170,108
-------- -------- -------- -------- ----------
15,752 1,930 20,188 63,670 85,991
-------- -------- -------- -------- ----------
106,893 24,976 183,104 343,898 1,759,946
(88,969) (69,413) (10,453) 146,490 2,416,025
-------- -------- -------- -------- ----------
(195,862) (94,389) (193,557) (197,408) 656,079
-------- -------- -------- -------- ----------
(180,110) (92,459) (173,369) (133,738) 742,070
-------- -------- -------- -------- ----------
($ 36,524) $ 4,040 $235,497 $237,615 $1,446,326
======== ======== ======== ======== ==========
</TABLE>
F-62
<PAGE> 118
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF OPERATIONS (CONTINUED)
FOR THE PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
SCIENCE AND AGGRESSIVE WORLDWIDE
TECHNOLOGY GROWTH MID CAP GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net Investment Income: Dividend Income $ 10,181 $ 0 $ 893,908 $ 11,362
Realized and unrealized gain (loss) on investments:
Realized gain (loss) from
security transactions:
Proceeds from sales 5,047,247 677,065 1,220,851 1,873,661
Cost of securities sold 3,222,831 732,308 995,700 1,804,984
---------- -------- ---------- ----------
Net realized gain (loss) 1,824,416 (55,243) 225,151 68,677
---------- -------- ---------- ----------
Unrealized appreciation (depreciation) of investments:
Beginning of Year 1,460,009 75,390 830,276 14,109
End of Period 1,418,951 109,873 397,063 0
---------- -------- ---------- ----------
Net unrealized appreciation (depreciation)
during the period (41,058) 34,483 (433,213) (14,109)
---------- -------- ---------- ----------
Net realized and unrealized gain (loss)
on investments 1,783,358 (20,760) (208,062) 54,568
---------- -------- ---------- ----------
Net increase (decrease) in net
assets derived from operations $1,793,539 ($ 20,760) $ 685,846 $ 65,930
========== ======== ========== ==========
</TABLE>
+ Reflects the period from commencement of operation May 1, 1999 through
June 30, 1999.
See accompanying notes.
F-63
<PAGE> 119
<TABLE>
<CAPTION>
GLOBAL
EQUITY GROWTH VALUE OVERSEAS HIGH YIELD
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ----------------- ----------------- ----------------- ----------------- -----------------
<C> <C> <C> <C> <C>
$ 493,157 $ 447,543 $ 18 $ 0 $ 0
10,287,519 870,999 548,163 5,911,702 530,729
10,409,357 765,604 559,447 5,767,764 566,187
----------- ---------- -------- ---------- --------
(121,838) 105,395 (11,284) 143,938 (35,458)
----------- ---------- -------- ---------- --------
246,571 482,024 (250,247) 47,306 (109,324)
97,886 1,152,448 285,261 20,444 19,158
----------- ---------- -------- ---------- --------
(148,685) 670,424 535,508 (26,862) 128,482
----------- ---------- -------- ---------- --------
(270,523) 775,819 524,224 117,076 93,024
----------- ---------- -------- ---------- --------
$ 222,634 $1,223,362 $524,242 $ 117,076 $ 93,024
=========== ========== ======== ========== ========
</TABLE>
F-64
<PAGE> 120
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
LIFESTYLE
STRATEGIC GLOBAL INVESTMENT AGGRESSIVE
BOND BOND QUALITY BOND 1000
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net Investment Income: Dividend Income $204,203 $ 43,890 $115,157 $ 145,631
Realized and unrealized gain (loss) on investments:
Realized gain (loss) from
security transactions:
Proceeds from sales 323,235 470,149 747,776 1,116,062
Cost of securities sold 353,028 475,994 762,547 1,179,370
-------- -------- -------- ----------
Net realized gain (loss) (29,793) (5,845) (14,771) (63,308)
-------- -------- -------- ----------
Unrealized appreciation (depreciation) of investments:
Beginning of Year (59,931) 6,299 33,941 (67,117)
End of Period (230,032) (77,250) (459,750) (76,205)
-------- -------- -------- ----------
Net unrealized appreciation (depreciation)
during the period (170,101) (83,549) (493,691) (9,088)
-------- -------- -------- ----------
Net realized and unrealized gain (loss)
on investments (199,894) (89,394) (508,462) (72,396)
-------- -------- -------- ----------
Net increase (decrease) in net
assets derived from operations $ 4,309 ($ 45,504) ($393,305) $ 73,235
======== ======== ======== ==========
</TABLE>
+ Reflects the period from commencement of operation May 1, 1999 through
June 30, 1999.
See accompanying notes.
F-65
<PAGE> 121
<TABLE>
<CAPTION>
LIFESTYLE LIFESTYLE LIFESTYLE LIFESTYLE
GROWTH BALANCED MODERATE CONSERVATIVE SMALL COMPANY
820 640 460 280 VALUE
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ----------------- ----------------- ----------------- ----------------- -----------------
<C> <C> <C> <C> <C>
$ 778,105 $304,677 $41,437 $ 9,799 $ 305
2,616,795 529,555 84,912 128,582 86,622
2,697,152 539,855 85,754 126,192 93,509
---------- -------- ------- -------- -------
(80,357) (10,300) (842) 2,390 (6,887)
---------- -------- ------- -------- -------
90,282 81,488 19,896 5,724 10,664
350,064 32,936 17,166 (3,293) 59,084
---------- -------- ------- -------- -------
259,782 (48,552) (2,730) (9,017) 48,420
---------- -------- ------- -------- -------
179,425 (58,852) (3,572) (6,627) 41,533
---------- -------- ------- -------- -------
$ 957,530 $245,825 $37,865 $ 3,172 $41,838
========== ======== ======= ======== =======
</TABLE>
F-66
<PAGE> 122
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
U.S. SMALL
LARGE CAP MID CAP COMPANY INTERNATIONAL
VALUE + STOCK + BLEND + VALUE +
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net Investment Income: Dividend Income $ 0 $ 0 $ 0 $ 0
Realized and unrealized gain (loss) on investments:
Realized gain (loss) from
security transactions:
Proceeds from sales 24,068 24,938 3,572 50
Cost of securities sold 24,197 24,557 3,501 52
------- ------- ------ ----
Net realized gain (loss) (129) 381 71 (2)
------- ------- ------ ----
Unrealized appreciation (depreciation) of investments:
Beginning of Year 0 0 0 0
End of Period 7,483 3,737 6,412 218
------- ------- ------ ----
Net unrealized appreciation (depreciation)
during the period 7,483 3,737 6,412 218
------- ------- ------ ----
Net realized and unrealized gain (loss)
on investments 7,354 4,118 6,483 216
------- ------- ------ ----
Net increase (decrease) in net
assets derived from operations $ 7,354 $ 4,118 $6,483 $216
======= ======= ====== ====
</TABLE>
<TABLE>
<CAPTION>
TOTAL
RETURN +
SUB-ACCOUNT TOTAL
----------------- ---------------
<S> <C> <C>
Net Investment Income: Dividend Income $ 0 $ 24,003,850
Realized and unrealized gain (loss) on investments:
Realized gain (loss) from
security transactions:
Proceeds from sales 9,221 $130,124,872
Cost of securities sold 9,386 $121,493,445
------ ------------
Net realized gain (loss) (165) 8,631,427
------ ------------
Unrealized appreciation (depreciation) of investments
Beginning of Year 0 45,119,935
End of Period 939 50,451,699
------ ------------
Net unrealized appreciation (depreciation)
during the period 939 5,331,764
------ ------------
Net realized and unrealized gain (loss)
on investments 774 13,963,191
------ ------------
Net increase (decrease) in net
assets derived from operations $ 774 $ 37,967,041
====== ============
</TABLE>
+ Reflects the period from commencement of operation May 1, 1999 through
June 30, 1999.
See accompanying notes.
F-67
<PAGE> 123
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
EMERGING SMALL COMPANY QUANTITATIVE EQUITY REAL ESTATE SECURITIES
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------------------ ------------------------------ -----------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98
--------------- -------------- --------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 931,296 $ 995,471 $ 5,044,334 $ 5,169,494 $ 1,081,197 $ 3,092,425
Net realized gain (loss) 1,008,473 1,245,244 1,460,605 1,617,119 187,114 381,699
Net unrealized appreciation (depreciation)
of investments during the period 1,839,386 (2,091,940) (733,771) 3,915,612 (760,321) (7,717,257)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
derived from operations 3,779,155 148,775 5,771,168 10,702,225 507,990 (4,243,133)
----------- ----------- ----------- ----------- ----------- -----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 5,347,868 12,733,443 3,563,916 7,242,095 1,771,957 5,859,264
Transfer of terminations (5,268,277) (6,445,689) (2,684,387) (3,997,775) (1,193,679) (2,117,340)
Transfer of policy loans (195,967) (218,046) (157,801) (273,706) (86,952) (77,402)
Net interfund transfers (4,563,365) (5,805,034) (978,591) (1,628,360) (1,340,832) (2,327,888)
----------- ----------- ----------- ----------- ----------- -----------
(4,679,741) 264,674 (256,863) 1,342,254 (849,506) 1,336,634
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets (900,586) 413,449 5,514,305 12,044,479 (341,516) (2,906,499)
NET ASSETS
Beginning of Year 66,756,555 66,343,106 52,193,727 40,149,248 22,696,503 25,603,002
----------- ----------- ----------- ----------- ----------- -----------
End of Period $65,855,969 $66,756,555 $57,708,032 $52,193,727 $22,354,987 $22,696,503
=========== =========== =========== =========== =========== ===========
</TABLE>
* Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
+ Reflects the period from commencement of operations May 1, 1999 through
June 30, 1999
See accompanying notes.
F-68
<PAGE> 124
<TABLE>
<CAPTION>
BALANCED CAPITAL GROWTH BOND MONEY MARKET
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ------------------------------ ------------------------------ -----------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98
- --------------- -------------- --------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
$ 3,363,625 $ 5,710,136 $ 1,504,363 $ 1,051,960 $ 750,562 $ 1,481,440
554,031 686,522 (404,111) 351,921 0 0
(3,393,480) (293,599) (1,309,718) 110,113 0 0
----------- ----------- ----------- ----------- ----------- -----------
524,176 6,103,059 (209,466) 1,513,994 750,562 1,481,440
----------- ----------- ----------- ----------- ----------- -----------
3,626,148 7,177,808 1,251,376 3,364,775 13,559,352 22,297,227
(2,742,241) (4,188,769) (778,521) (1,655,470) (1,682,232) (3,358,411)
(100,412) (150,786) (22,046) (32,638) (247,553) (384,658)
(1,107,880) (534,390) (21,486,621) (584,488) (11,143,219) (17,755,116)
----------- ----------- ----------- ----------- ----------- -----------
(324,385) 2,303,863 (21,035,812) 1,092,179 486,348 799,042
----------- ----------- ----------- ----------- ----------- -----------
199,791 8,406,922 (21,245,278) 2,606,173 1,236,910 2,280,482
50,229,936 41,823,014 21,245,278 18,639,105 31,708,063 29,427,581
----------- ----------- ----------- ----------- ----------- -----------
$50,429,727 $50,229,936 $ 0 $21,245,278 $32,944,973 $31,708,063
=========== =========== =========== =========== =========== ===========
</TABLE>
F-69
<PAGE> 125
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
INTERNATIONAL PACIFIC RIM
STOCK EMERGING MARKETS EQUITY INDEX
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------------------ ------------------------------ -----------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98
--------------- -------------- --------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 5,783 $ 313,529 $ 62,317 $ 0 $ 231,456 $ 1,392,501
Net realized gain (loss) 632,706 674,744 331,183 (2,620,543) 1,598,843 603,079
Net unrealized appreciation (depreciation)
of investments during the period (209,526) 1,511,476 1,019,469 2,542,198 4,138,179 5,782,122
----------- ----------- ---------- ---------- ----------- -----------
Net increase (decrease) in net assets
derived from operations 428,963 2,499,749 1,412,969 (78,345) 5,968,478 7,777,702
----------- ----------- ---------- ---------- ----------- -----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 2,003,941 4,538,425 708,521 1,563,148 8,003,052 12,850,700
Transfer of terminations (743,908) (1,187,826) (200,534) (436,588) (2,271,577) (2,024,088)
Transfer of policy loans (90,323) (59,954) (20,755) (15,173) (111,201) (475,140)
Net interfund transfers (217,951) (574,437) (288,848) 229,348 4,032,497 6,006,985
----------- ----------- ---------- ---------- ----------- -----------
951,759 2,716,208 198,384 1,340,735 9,652,771 16,358,457
----------- ----------- ---------- ---------- ----------- -----------
Net increase (decrease) in net assets 1,380,722 5,215,957 1,611,353 1,262,390 15,621,249 24,136,159
NET ASSETS
Beginning of Year 20,577,642 15,361,685 5,620,314 4,357,924 43,806,714 19,670,555
----------- ----------- ---------- ---------- ----------- -----------
End of Period $21,958,364 $20,577,642 $7,231,667 $5,620,314 $59,427,963 $43,806,714
=========== =========== ========== ========== =========== ===========
</TABLE>
* Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
+ Reflects the period from commencement of operations May 1, 1999 through
June 30, 1999
See accompanying notes.
F-70
<PAGE> 126
<TABLE>
<CAPTION>
INTERNATIONAL
SMALL CAP MID-CAP BLEND VALUE EQUITY
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ------------------------------ ------------------------------ -----------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98
- --------------- -------------- --------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
$ 9,451 $ 5,687 $ 3,059,165 $ 3,871,537 $ 1,458,179 $ 976,745
245,953 (30,291) (159,476) (152,838) 258,218 287,480
(45,672) 240,125 1,493,177 (1,767,849) 718,718 218,367
---------- ---------- ----------- ----------- ----------- -----------
209,732 215,521 4,392,866 1,950,850 2,435,115 1,482,592
---------- ---------- ----------- ----------- ----------- -----------
388,279 923,655 2,918,003 5,682,311 1,734,858 3,243,426
(77,370) (94,819) (858,623) (1,536,387) (638,452) (1,437,923)
(8,666) (11,877) (149,465) (34,034) (119,023) (98,668)
(49,652) 258,711 (526,223) 19,738 460,766 563,898
---------- ---------- ----------- ----------- ----------- -----------
252,591 1,075,670 1,383,692 4,131,628 1,438,149 2,270,733
---------- ---------- ----------- ----------- ----------- -----------
462,323 1,291,191 5,776,558 6,082,478 3,873,264 3,753,325
2,693,435 1,402,244 24,493,286 18,410,808 18,575,830 14,822,505
---------- ---------- ----------- ----------- ----------- -----------
$3,155,758 $2,693,435 $30,269,844 $24,493,286 $22,449,094 $18,575,830
========== ========== =========== =========== =========== ===========
</TABLE>
F-71
<PAGE> 127
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
GROWTH U.S. GOVERNMENT
AND INCOME SECURITIES DIVERSIFIED BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------------------ ------------------------------ -----------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98
--------------- -------------- --------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 1,278,189 $ 1,500,080 $ 143,586 $ 109,401 $ 96,499 $ 72,830
Net realized gain (loss) 796,160 800,716 15,752 31,818 1,930 4,682
Net unrealized appreciation (depreciation)
of investments during the period 2,385,227 3,851,331 (195,862) 39,816 (94,389) 7,436
----------- ----------- ---------- ---------- ---------- --------
Net increase (decrease) in net assets
derived from operations 4,459,576 6,152,127 (36,524) 181,035 4,040 84,948
----------- ----------- ---------- ---------- ---------- --------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 3,240,275 6,862,398 487,494 664,545 469,430 176,976
Transfer of terminations (1,250,657) (1,576,405) (190,314) (154,411) (25,449) (52,005)
Transfer of policy loans (193,794) (46,701) (118) (32,573) 0 0
Net interfund transfers 1,292,409 2,330,998 467,523 423,298 74,266 46,253
----------- ----------- ---------- ---------- ---------- --------
3,088,233 7,570,290 764,585 900,859 518,247 171,224
----------- ----------- ---------- ---------- ---------- --------
Net increase (decrease) in net assets 7,547,809 13,722,417 728,061 1,081,894 522,287 256,172
NET ASSETS
Beginning of Year 33,127,715 19,405,298 3,305,023 2,223,129 950,102 693,930
----------- ----------- ---------- ---------- ---------- --------
End of Period $40,675,524 $33,127,715 $4,033,084 $3,305,023 $1,472,389 $950,102
=========== =========== ========== ========== ========== ========
</TABLE>
* Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
+ Reflects the period from commencement of operations May 1, 1999 through
June 30, 1999
See accompanying notes.
F-72
<PAGE> 128
<TABLE>
<CAPTION>
INCOME AND VALUE LARGE CAP GROWTH BLUE CHIP GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ------------------------------ ------------------------------ -----------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98
- --------------- -------------- --------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
$ 408,866 $ 247,923 $ 371,353 $ 312,103 $ 704,256 $ 98,459
20,188 10,961 63,670 29,565 85,991 137,311
(193,557) 81,935 (197,408) 179,177 656,079 1,520,566
---------- ---------- ---------- ---------- ----------- -----------
235,497 340,819 237,615 520,845 1,446,326 1,756,336
---------- ---------- ---------- ---------- ----------- -----------
997,372 895,345 485,229 953,535 2,477,226 3,950,204
(168,698) (208,435) (146,715) (257,332) (464,434) (422,824)
404 (7,332) (8,543) (9,000) (24,494) (27,578)
176,587 230,395 (341,792) 193,464 5,555,619 1,683,424
---------- ---------- ---------- ---------- ----------- -----------
1,005,665 909,973 (11,821) 880,667 7,543,917 5,183,226
---------- ---------- ---------- ---------- ----------- -----------
1,241,162 1,250,792 225,794 1,401,512 8,990,243 6,939,562
3,125,486 1,874,694 3,625,719 2,224,207 10,717,944 3,778,382
---------- ---------- ---------- ---------- ----------- -----------
$4,366,648 $3,125,486 $3,851,513 $3,625,719 $19,708,187 $10,717,944
========== ========== ========== ========== =========== ===========
</TABLE>
F-73
<PAGE> 129
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SCIENCE AND
TECHNOLOGY AGGRESSIVE GROWTH MID CAP
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------------------ ------------------------------ -----------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98
--------------- -------------- --------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 10,181 $ 0 $ 0 $ 0 $ 893,908 $ 0
Net realized gain (loss) 1,824,416 (371,868) (55,243) (17,790) 225,151 39,039
Net unrealized appreciation (depreciation)
of investments during the period (41,058) 1,522,473 34,483 93,900 (433,213) 834,458
----------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net assets
derived from operations 1,793,539 1,150,605 (20,760) 76,110 685,846 873,497
----------- ---------- ---------- ---------- ---------- ----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 1,402,337 1,150,664 406,146 515,555 754,229 1,769,196
Transfer of terminations (244,130) (90,696) (49,178) (58,953) (186,195) (173,727)
Transfer of policy loans (8,750) (13,553) 63 (11,158) (3,103) (9,934)
Net interfund transfers 3,524,237 1,674,262 (255,860) 520,806 1,182,577 1,932,598
----------- ---------- ---------- ---------- ---------- ----------
4,673,694 2,720,677 101,171 966,250 1,747,508 3,518,133
----------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net assets 6,467,233 3,871,282 80,411 1,042,360 2,433,354 4,391,630
NET ASSETS
Beginning of Year 4,936,311 1,065,029 1,603,809 561,449 5,863,507 1,471,877
----------- ---------- ---------- ---------- ---------- ----------
End of Period $11,403,544 $4,936,311 $1,684,220 $1,603,809 $8,296,861 $5,863,507
=========== ========== ========== ========== ========== ==========
</TABLE>
* Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
+ Reflects the period from commencement of operations May 1, 1999 through
June 30, 1999
See accompanying notes.
F-74
<PAGE> 130
<TABLE>
<CAPTION>
WORLDWIDE
GROWTH GLOBAL EQUITY GROWTH
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ------------------------------ ------------------------------ -----------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98
- --------------- -------------- --------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
$ 11,362 $ 5,574 $ 493,157 $ 167,578 $ 447,543 $ 95,683
68,677 14,712 (121,838) (35,168) 105,395 123,525
(14,109) 18,500 (148,685) 214,456 670,424 466,535
---------- ---------- ---------- ---------- ----------- ----------
65,930 38,786 222,634 346,866 1,223,362 685,743
---------- ---------- ---------- ---------- ----------- ----------
274,876 396,653 578,029 1,830,508 1,094,392 3,294,658
(16,806) (41,648) (155,905) (146,797) (202,861) (107,258)
(11,284) (6,172) (20,124) (6,447) (58,536) (38,221)
(1,392,780) 377,034 2,572,003 750,096 2,364,857 1,662,737
---------- ---------- ---------- ---------- ----------- ----------
(1,145,994) 725,867 2,974,003 2,427,360 3,197,852 4,811,916
---------- ---------- ---------- ---------- ----------- ----------
(1,080,064) 764,653 3,196,637 2,774,226 4,421,214 5,497,659
1,080,064 315,411 4,242,810 1,468,584 6,746,944 1,249,285
---------- ---------- ---------- ---------- ----------- ----------
$ 0 $1,080,064 $7,439,447 $4,242,810 $11,168,158 $6,746,944
========== ========== ========== ========== =========== ==========
</TABLE>
F-75
<PAGE> 131
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE OVERSEAS
SUB-ACCOUNT SUB-ACCOUNT
------------------------------ ------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 18 $ 117,791 $ 0 $ 51,082
Net realized gain (loss) (11,284) 22,516 143,938 (4,342)
Net unrealized appreciation (depreciation)
of investments during the period 535,508 (229,473) (26,862) 86,563
---------- ---------- ---------- ----------
Net increase (decrease) in net assets
derived from operations 524,242 (89,166) 117,076 133,303
---------- ---------- ---------- ----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 820,811 1,600,753 219,543 515,640
Transfer of terminations (115,892) (117,194) (20,919) (50,349)
Transfer of policy loans (3,571) (12,965) (12,488) (2,253)
Net interfund transfers 437,622 1,104,824 556,096 23,545
---------- ---------- ---------- ----------
1,138,970 2,575,418 742,232 486,583
---------- ---------- ---------- ----------
Net increase (decrease) in net assets 1,663,212 2,486,252 859,308 619,886
NET ASSETS
Beginning of Year 3,567,228 1,080,976 1,405,214 785,328
---------- ---------- ---------- ----------
End of Period $5,230,440 $3,567,228 $2,264,522 $1,405,214
========== ========== ========== ==========
</TABLE>
* Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
+ Reflects the period from commencement of operations May 1, 1999 through
June 30, 1999
See accompanying notes.
F-76
<PAGE> 132
<TABLE>
<CAPTION>
HIGH YIELD STRATEGIC BOND GLOBAL BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ------------------------------ ------------------------------ -----------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98
- --------------- -------------- --------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
$ 0 $ 151,912 $ 204,203 $ 86,088 $ 43,890 $ 27,334
(35,458) (7,914) (29,793) (17,942) (5,845) (8,230)
128,482 (95,871) (170,101) (70,640) (83,549) 2,498
---------- ---------- ---------- ---------- -------- --------
93,024 48,127 4,309 (2,494) (45,504) 21,602
---------- ---------- ---------- ---------- -------- --------
414,227 943,552 274,170 1,272,907 85,904 143,923
(77,091) (111,555) (76,533) (103,790) (13,584) (17,835)
(56) (7,304) (16,670) (10,279) 33 (6,107)
58,774 158,145 (124,403) 1,091,881 (150,534) 277,425
---------- ---------- ---------- ---------- -------- --------
395,854 982,838 56,564 2,250,719 (78,181) 397,406
---------- ---------- ---------- ---------- -------- --------
488,878 1,030,965 60,873 2,248,225 (123,685) 419,008
2,101,957 1,070,992 2,902,215 653,990 640,768 221,760
---------- ---------- ---------- ---------- -------- --------
$2,590,835 $2,101,957 $2,963,088 $2,902,215 $517,083 $640,768
========== ========== ========== ========== ======== ========
</TABLE>
F-77
<PAGE> 133
SEPARATE ACCOUNT OF THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
INVESTMENT LIFESTYLE AGGRESSIVE LIFESTYLE GROWTH
QUALITY BOND 1000 820
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------------------ ------------------------------ -----------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98
--------------- -------------- --------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 115,157 $ 20,278 $ 145,631 $ 168,006 $ 778,105 $ 629,682
Net realized gain (loss) (14,771) 6,554 (63,308) (9,962) (80,357) (19,242)
Net unrealized appreciation (depreciation)
of investments during the period (493,691) 27,852 (9,088) (56,069) 259,782 115,020
----------- ---------- ---------- ---------- ----------- -----------
Net increase (decrease) in net assets
derived from operations (393,305) 54,684 73,235 101,975 957,530 725,460
----------- ---------- ---------- ---------- ----------- -----------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 870,313 443,446 663,234 1,299,712 3,038,399 7,009,770
Transfer of terminations (451,318) (45,715) (560,615) (258,375) (715,925) (827,050)
Transfer of policy loans (10,784) (46,096) 1,755 (26,714) (277,480) (176,891)
Net interfund transfers 21,776,557 762,855 (503,897) 316,522 (1,414,090) 3,867,109
----------- ---------- ---------- ---------- ----------- -----------
22,184,768 1,114,490 (399,523) 1,331,145 630,904 9,872,938
----------- ---------- ---------- ---------- ----------- -----------
Net increase (decrease) in net assets 21,791,463 1,169,174 (326,288) 1,433,120 1,588,434 10,598,398
NET ASSETS
Beginning of Year 1,430,181 261,007 3,862,092 2,428,972 15,857,396 5,258,998
----------- ---------- ---------- ---------- ----------- -----------
End of Period $23,221,644 $1,430,181 $3,535,804 $3,862,092 $17,445,830 $15,857,396
=========== ========== ========== ========== =========== ===========
</TABLE>
* Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
+ Reflects the period from commencement of operations May 1, 1999 through
June 30, 1999
See accompanying notes.
F-78
<PAGE> 134
<TABLE>
<CAPTION>
LIFESTYLE BALANCED LIFESTYLE MODERATE LIFESTYLE CONSERVATIVE
640 460 280
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ------------------------------ ------------------------------ -----------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98
- --------------- -------------- --------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
$ 304,677 $ 189,230 $ 41,437 $ 20,025 $ 9,799 $ 552
(10,300) (1,929) (842) (8,653) 2,390 1,625
(48,552) 37,708 (2,730) 19,892 (9,017) 5,695
---------- ---------- ---------- -------- -------- --------
245,825 225,009 37,865 31,264 3,172 7,872
---------- ---------- ---------- -------- -------- --------
991,331 2,223,707 165,966 287,313 31,973 35,078
(310,657) (520,437) (53,639) (25,583) (4,668) (3,934)
(53,583) (28,495) 0 0 0 0
119,493 1,672,788 356,755 282,970 (20,865) 67,660
---------- ---------- ---------- -------- -------- --------
746,584 3,347,563 469,082 544,700 6,440 98,804
---------- ---------- ---------- -------- -------- --------
992,409 3,572,572 506,947 575,964 9,612 106,676
5,696,069 2,123,497 678,344 102,380 108,017 1,341
---------- ---------- ---------- -------- -------- --------
$6,688,478 $5,696,069 $1,185,291 $678,344 $117,629 $108,017
========== ========== ========== ======== ======== ========
</TABLE>
F-79
<PAGE> 135
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
STATEMENT OF CHANGES IN NET ASSETS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
U.S. LARGE
SMALL COMPANY VALUE CAP VALUE MID CAP STOCK
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
------------------------------ ------------------------------
PERIOD ENDED PERIOD ENDED* PERIOD ENDED+ PERIOD ENDED+
JUN. 30/99 DEC. 31/98 JUN. 30/99 JUN. 30/98
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 305 $ 0 $ 0 $ 0
Net realized gain (loss) (6,887) (3,492) (129) 381
Net unrealized appreciation (depreciation)
of investments during the period 48,420 10,664 7,483 3,737
-------- -------- -------- --------
Net increase (decrease) in net assets
derived from operations 41,838 7,172 7,354 4,118
-------- -------- -------- --------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 121,372 183,290 28,418 23,842
Transfer on death 0 0 0 0
Transfer of terminations (20,080) (6,126) (2,315) (1,501)
Transfer of policy loans 0 0 0 0
Net interfund transfers 386,579 182,269 217,609 98,313
-------- -------- -------- --------
487,871 359,433 243,712 120,654
-------- -------- -------- --------
Net increase (decrease) in net assets 529,709 366,605 251,066 124,772
NET ASSETS
Beginning of Year 366,605 0 0 0
-------- -------- -------- --------
End of Period $896,314 $366,605 $251,066 $124,772
======== ======== ======== ========
</TABLE>
* Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
+ Reflects the period from commencement of operations May 1, 1999 through
June 30, 1999
See accompanying notes.
F-80
<PAGE> 136
<TABLE>
<CAPTION>
SMALL INTERNATIONAL
COMPANY BLEND VALUE TOTAL RETURN
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
- --------------- -------------- --------------- ------------------------------
PERIOD ENDED+ PERIOD ENDED+ PERIOD ENDED+ PERIOD ENDED YEAR ENDED
JUN. 30/99 JUN. 30/98 JUN. 30/99 JUN. 30/98 JUN. 30/99
- --------------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
$ 0 $ 0 $ 0 $ 24,003,850 $ 28,132,536
71 (2) (165) 8,631,427 3,760,628
6,412 218 939 5,331,764 11,133,790
------- ------- -------- ------------ ------------
6,483 216 774 37,967,041 43,026,954
------- ------- -------- ------------ ------------
929 1,103 2,506 65,298,347 125,895,605
(555) (288) (581) (24,667,304) (33,859,519)
0 0 0 (2,011,287) (2,357,855)
77,169 55,276 165,628 101,809 (497,675)
------- ------- -------- ------------ ------------
77,543 56,091 167,553 38,721,565 89,180,556
------- ------- -------- ------------ ------------
84,026 56,307 168,327 76,688,606 132,207,510
0 0 0 478,538,803 346,331,293
------- ------- -------- ------------ ------------
$84,026 $56,307 $168,327 $555,227,409 $478,538,803
======= ======= ======== ============ ============
</TABLE>
F-81
<PAGE> 137
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements
June 30, 1999
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"). Each investment sub-account invests solely in
shares of a particular portfolio of Manufacturers Investment Trust.
Manufacturers Investment Trust is registered under the Investment Company Act of
1940 as open-end management investment companies.
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 life insurance company.
As the result of portfolio changes, effective May 1, 1999 the following
sub-accounts of the Separate Account have been replaced with a new fund as
follows:
PREVIOUS FUND
- -------------
Emerging Growth Trust
Conservative Asset Allocation Trust
Moderate Asset Allocation Trust
Aggressive Asset Allocation Trust
Pilgrim Baxter Growth Trust
Small/Mid Cap Trust
International Growth & Income Trust
Global Government Bond Trust
Equity Trust
NEW FUND
- --------
Emerging Small Company Trust
Diversified Bond Trust
Income & Value Trust
Large Cap Growth
Aggressive Growth Trust
Mid Cap Growth Trust
Overseas Trust
Global Bond Trust
Mid-Cap Blend Trust
Effective May 1, 1999 the following sub-accounts of the Separate Account were
merged with another current fund as follows:
Capital Growth Bond merged with Investment Quality Bond
Worldwide Growth merged with Global Equity
F-82
<PAGE> 138
Separate Account of Three of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
June 30, 1999
The following sub-accounts of the Separate Account were added as investment
options for variable universal life insurance policy holders of Manufacturers
Life of America:
Commencement of
Operations of the
Subaccount
U.S. Large Cap Value Trust May 1, 1999
Mid Cap Stock Trust May 1, 1999
Small Company Blend Trust May 1, 1999
International Value Trust May 1, 1999
Total Return Trust May 1, 1999
Small Company Value Trust May 1, 1998
Science & Technology Trust May 1, 1997
Pilgram Baxter Growth Trust May 1, 1997
Small/Mid Cap Trust May 1, 1997
Worldwide Growth Trust May 1, 1997
Global Equity Trust May 1, 1997
Growth Trust May 1, 1997
Value Trust May 1, 1997
International Growth and Income Trust May 1, 1997
High Yield Trust May 1, 1997
Strategic Bond Trust May 1, 1997
Global Government Bond Trust May 1, 1997
Investment Quality Bond Trust May 1, 1997
Lifestyle Aggressive 1000 Trust May 1, 1997
Lifestyle Growth 820 Trust May 1, 1997
Lifestyle Balanced 640 Trust May 1, 1997
Lifestyle Moderate 460 Trust May 1, 1997
Lifestyle Conservative 280 Trust May 1, 1997
International Small Cap Trust January 1, 1997
Blue Chip Growth Trust January 1, 1997
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
F-83
<PAGE> 139
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
June 30, 1999
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-nine
Trusts of Manufacturers Investment Trust and are valued at the reported net
asset values of these Trusts. Transactions are recorded on the trade date.
Net investment income and net realized gains on investments in
Manufacturers Investment Trust are reinvested.
b. Realized gains and losses on the sale of investments are computed on the
first-in, first-out basis.
c. Dividend income is recorded on the ex-dividend date.
d. Federal Income Taxes - Manufacturers Life of America, the Separate
Account's sponsor, is taxed as a "life insurance company" under the
Internal Revenue Code. Under these provisions of the Code, the operations
of the Separate Account form part of the sponsor's total operations and are
not taxed separately.
The current year's operations of the Separate Account are not expected to
affect the sponsor's tax liabilities and, accordingly, no charges were made
against the Separate Account for federal, state and local taxes. However,
in the future, should the sponsor incur significant tax liabilities related
to the Separate Account's operations, it intends to make a charge or
establish a provision within the Separate Account for such taxes.
F-84
<PAGE> 140
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
June 30, 1999
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 the portfolios of Manufacturers Investment
Trust for the period ended June 30, 1999 were $192,850,287 and $130,124,872
respectively, and for the year ended December 31, 1998 were $255,373,727 and
$138,107,190 respectively.
5. RELATED PARTY TRANSACTIONS
ManEquity, Inc., a registered broker-dealer and indirect wholly-owned subsidiary
of Manulife Financial, acts as the principal underwriter of the Policies
pursuant to a Distribution Agreement with Manufacturers Life of America.
Registered representatives of either ManEquity, Inc. or other broker-dealers
having distribution agreements with ManEquity, Inc. who are also authorized as
variable life insurance agents under applicable state insurance laws, sell the
Policies. Registered representatives are compensated on a commission basis.
Manufacturers Life of America has a formal service agreement with its
affiliates, Manulife Financial and The Manufacturers Life Insurance Company
(U.S.A.), which can be terminated by either party upon two months notice. Under
this Agreement, Manufacturers Life of America pays for legal, actuarial,
investment and certain other administrative services.
F-85
