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PROSPECTUS
SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
VENTURE VUL
A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
This prospectus describes Venture VUL, a flexible premium variable universal
life insurance policy (the "Policy") offered by The Manufacturers Life Insurance
Company of America (the "Company," "Manufacturers Life Of America," "we" or
"us").
The Policy is designed to provide lifetime insurance protection together with
flexibility as to
- the timing and amount of premium payments,
- the investments underlying the Policy Value, and
- the amount of insurance coverage.
This flexibility allows you, the policyowner, to pay premiums and adjust
insurance coverage in light of your current financial circumstances and
insurance needs.
Policy Value may be accumulated on a fixed basis or vary with the investment
performance of the sub-accounts of Manufacturers Life of America's Separate
Account Three (the "Separate Account"). 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.
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 MAY 10, 1999
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TABLE OF CONTENTS
COVER PAGE
TABLE OF CONTENTS
DEFINITIONS
POLICY SUMMARY
General.....................................................................3
Death Benefits..............................................................3
Premiums....................................................................3
Policy Value................................................................3
Policy Loans................................................................3
Surrender and Partial Withdrawals...........................................3
Lapse and Reinstatement.....................................................4
Charges and Deductions......................................................4
Investment Options and Investment Advisers .................................4
Investment Management Fees and Expenses.....................................4
Table of Charges and Deductions.............................................5
Table of Investment Management Fees and Expenses............................6
Table of Investment Options and Investment Advisers.........................8
GENERAL INFORMATION ABOUT MANUFACTURERS
Manufacturers Life of America...............................................9
Separate Account Three......................................................9
Manufacturers Investment Trust.............................................10
Investment Objectives of the Portfolios....................................10
ISSUING A POLICY
Requirements...............................................................13
Temporary Insurance Agreement..............................................14
Right to Examine the Policy................................................15
DEATH BENEFITS
Life Insurance Qualification...............................................15
Death Benefit Options......................................................16
Changing the Face Amount...................................................17
PREMIUM PAYMENTS
Initial Premiums...........................................................17
Subsequent Premiums........................................................18
Maximum Premium Limitation.................................................18
Premium Allocation.........................................................18
CHARGES AND DEDUCTIONS
Premium Charge.............................................................18
Surrender Charges..........................................................18
Mortality and Expense Risk Charge..........................................23
Charges for Transfers......................................................23
Reduction in Charges.......................................................23
SPECIAL PROVISIONS FOR EXCHANGES
COMPANY TAX CONSIDERATIONS
POLICY VALUE
Determination of the Policy Value..........................................24
Units and Unit Values......................................................24
Transfers of Policy Value..................................................25
POLICY LOANS
Effect of Policy Loan......................................................26
Interest Charged on Policy Loans...........................................26
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Loan Account...............................................................27
POLICY SURRENDER AND PARTIAL WITHDRAWALS
Policy Surrender...........................................................27
Partial Withdrawals........................................................28
LAPSE AND REINSTATEMENT
Lapse......................................................................28
No Lapse Guarantee.........................................................28
No-Lapse Guarantee Cumulative Premium Test.................................29
Reinstatement..............................................................29
THE GENERAL ACCOUNT
Fixed Account..............................................................30
OTHER PROVISIONS OF THE POLICY
Policyowner Rights.........................................................30
Beneficiary................................................................31
Incontestability...........................................................31
Misstatement of Age or Sex.................................................31
Suicide Exclusion..........................................................31
Supplementary Benefits.....................................................31
TAX TREATMENT OF THE POLICY
Life Insurance Qualification...............................................32
Tax Treatment of Policy Benefits...........................................33
Alternate Minimum Tax......................................................37
Income Tax Reporting.......................................................37
OTHER INFORMATION
Payment of Proceeds........................................................37
Reports to Policyowners....................................................37
Distribution of the Policies...............................................38
Responsibilities of Manufacturers Life.....................................38
Voting Rights..............................................................38
Substitution of Portfolio Shares...........................................39
Records and Accounts.......................................................39
State Regulations..........................................................39
Litigation.................................................................39
Independent Auditors.......................................................39
Further Information........................................................40
Officers and Directors.....................................................40
Impact of Year 2000........................................................43
Illustrations..............................................................44
Financial Statements......................................................F-1
Appendix A - Sample Illustrations of Policy Values, Cash Surrender
values and Death Benefits...............................................A-1
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.
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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 birthday nearest to the
Policy Date. If no specific age is mentioned, age means the life insured's age
on the Policy Anniversary nearest to the birthday.
Attained Age
is the Age plus the number of whole years that have elapsed since the Policy
Date.
Business Day
is any day that the New York Stock Exchange is open for business. A Business Day
ends at the close of regularly scheduled trading of the New York Stock Exchange
(currently 4:00 p.m. Eastern Time) on that day.
Cash Surrender Value
is the Policy Value less the Surrender Charge and any outstanding Monthly
Deductions due.
Effective Date
is the date the underwriters approve issuance of the policy. If the policy is
approved without the initial premium, the Effective Date will be the date the
Company receives at least the minimum initial premium at our Service Office. In
either case, the Company will take the first Monthly Deduction on the Effective
Date.
Gross Withdrawal
is the amount of partial Net Cash Surrender Value the policyowner requests plus
any Surrender Charge applicable to the withdrawal.
Fixed Account
is that part of the Policy Value which reflects the value the policyowner has in
the general account of the Company.
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 whose life is insured under this policy.
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.
Monthly No-Lapse Guarantee Premium
is one twelfth of the No-Lapse Guarantee Premium.
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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.
No-Lapse Guarantee
When the Policy is in the No-Lapse Guarantee Period, as long as the No-Lapse
Guarantee Cumulative Premium Test is met, the Policy will not lapse, even when
the Net Cash Surrender Value falls to or below zero.
No-Lapse Guarantee Period
is the period, set at issue, during which the No-Lapse Guarantee is provided.
The No-Lapse Guarantee period is fixed at the lesser of ten years or the life
insured's age 95, depending upon applicable state law requirements.
No-Lapse Guarantee Premium
is the annual premium used to determine the Monthly No-Lapse Guarantee Premium.
It is set at issue and is recalculated, prospectively, whenever any of the
following changes occur under the Policy:
- - the face amount of insurance changes.
- - a Supplementary Benefit is added, changed or terminated.
- - the risk classification of the life insured changes.
- - a temporary Additional Rating is added (due to a face amount increase), or
terminated.
- - the Death Benefit Option changes.
No-Lapse Guarantee Cumulative Premium
- - is the minimum amount due to satisfy the No-Lapse Guarantee Cumulative Premium
Test. This amount equals the sum, from issue to the date of the test, of the
Monthly No-Lapse Guarantee Premiums.
No-Lapse Guarantee Cumulative Premium Test
is a test that, if satisfied, during the No Lapse Guarantee Period will keep the
policy in force when the Net Cash Surrender Value is less than zero. The test is
satisfied if the sum of all premiums paid, less any gross partial withdrawals
and less any Policy Debt, is greater than or equal to the sum of the monthly
No-Lapse Guarantee Premiums due since the Policy Date.
Policy Date
is the date coverage takes effect under the Policy, provided the Company
receives the minimum initial premium at its Service Office, and is the date from
which charges for the first monthly deduction are calculated, and the date from
which Policy Years, Policy Months, and Policy Anniversaries are determined.
Policy Debt
as of any date equals (a) plus (b) plus (c) minus (d), where:
(a) is the total amount of loans borrowed as of such date;
(b) is the total amount of any unpaid loan interest charges which have been
borrowed against the policy on a Policy Anniversary;
(c) is any interest charges accrued from the last Policy Anniversary to the
current date; and
(d) is the total amount of loan repayments as of such date.
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Policy Value
is the sum of the values in the Loan Account, the Fixed Account, and the
Investment Accounts.
Service Office Address
is 200 Bloor Street East, Toronto, Ontario, Canada M4W 1E5.
Surrender Charge Period
is the period following the Policy Date or following any increase in Face Amount
during which the Company will assess surrender charges. Surrender charges will
apply during this period if the policy terminates due to default, if the
policyowner surrenders the policy or makes a partial withdrawal.
Written Request
is the policyowner's request to the Company which must be in a form satisfactory
to the Company, signed and dated by the policyowner, and received at the Service
Office.
POLICY SUMMARY
GENERAL
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
There are two death benefit options. Under Option 1 the death benefit is the
FACE AMOUNT OF THE POLICY at the date of death or, if greater, the Minimum Death
Benefit. Under Option 2 the death benefit is the FACE AMOUNT PLUS THE POLICY
VALUE OF THE POLICY at the date of death or, if greater, the Minimum Death
Benefit. You may change the death benefit option and increase or decrease the
Face Amount.
PREMIUMS
You may pay premiums at any time and in any amount, subject to certain
limitations as described under "Premium Payments Subsequent Premiums." Net
Premiums will be allocated, according to your instructions and at the Company's
discretion, to one or more of our general account and the sub-accounts of
Manufacturers Life of America's Separate Account Three. You 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 5.25% during the first ten Policy Years and 4%
thereafter is due on each Policy Anniversary. We will deduct all outstanding
Policy Debt from proceeds payable at the insured's death, or upon surrender.
SURRENDER AND PARTIAL WITHDRAWALS
You may make a partial withdrawal of your Policy Value. A partial withdrawal may
result in a reduction in the Face Amount of the Policy and an assessment of a
portion of the surrender charges to which the Policy is subject.
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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 Surrender Charges and outstanding Monthly Deductions due minus the
Policy Debt.
LAPSE AND REINSTATEMENT
Unless the No-Lapse Guarantee Cumulative Premium Test has been met, 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.
The Policies, therefore, differ in two important respects from conventional life
insurance policies. First, the failure to make planned premium payments will not
itself cause a Policy to lapse. Second, a Policy can lapse even if planned
premiums have been paid.
A 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. We will require evidence of insurability along with a certain
amount of premium as described under "Reinstatement."
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, administration expenses,
charges deducted from premiums paid, and
charges assessed on surrender or lapse.
These charges are summarized in the Table of Charges and Deductions. We may
allow you to request that the sum of all charges assessed monthly for mortality
and expense risks, cost of insurance and administration expenses be deducted
from the Fixed Account or one or more of the sub-accounts of the Separate
Account.
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.
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TABLE OF CHARGES AND DEDUCTIONS
Premium Charge 6.6% of each premium paid during the first 10 Policy
Years and 3.6% thereafter.
Surrender Charges A Surrender Charge is applicable for 10 Policy Years from
the Policy Date or an increase in Face Amount. The
Surrender Charge is determined by the following formula:
Surrender Charge = (Surrender Charge Rate)x(Face Amount
Associated with the Surrender Charge/1000)x(Grading
Percentage)
The Grading Percentage is based on the Policy Year in which
the transaction causing the assessment of the charge occurs
and is set forth in the table under "Surrender Charges."
The Surrender Charge Rate is calculated as follows:
Surrender Charge Rate = (Rate per $1000 of Face Amount) +
(80%) x(Surrender Charge Premium)
The Rate per $1000 of Face Amount is based on the age at
which the transaction causing the assessment of the charge
occurs and is set forth in a table under "Surrender
Charges."
The Surrender Charge Premium is the lesser of:
(a) the premiums paid during the first Policy Year (or
premiums attributable to a Face Amount increase) per
$1000 of Face Amount, and,
(b) the Surrender Charge Premium Limit specified in the
Policy per $1000 Face Amount.
The premiums attributable to a Face Amount increase will
equal a portion of each payment made within one year of the
increase plus a portion of the Policy Value at the time of
the increase.
A portion of this charge will be assessed on a partial
withdrawal.
Monthly Deductions An administration charge of $30 per Policy Month will be
deducted in the first Policy Year. In subsequent years, the
administration charge will be $15 per Policy Month.
The cost of insurance charge.
Any additional charges for supplementary benefits, if
applicable.
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A mortality and expense risk charge. This charge varies by
Policy Year as follows:
Guaranteed Monthly Guaranteed Annual
Policy Years Mortality and Expense Mortality and
Risk Charge Expense Risk Charge
1-10 0.0627% 0.75%
11+ 0.0209% 0.25%
All of the above charges are deducted from the Net Policy
Value.
Loan Charges A fixed loan interest rate of 5.25% during the first 10
Policy Years and 4% thereafter. Interest credited to
amounts in the Loan Account is guaranteed not to be less
than 4% 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%
Mid Cap Blend....................... 0.850%+ 0.050% 0.900%
Small Company Value................. 1.050% 0.180% 1.230%
Global Equity....................... 0.900% 0.110% 1.010%
Growth.............................. 0.850% 0.050% 0.900%
Large Cap Growth.................... 0.875%+ 0.130% 1.005%
Quantitative Equity................. 0.700% 0.060% 0.760%
Blue Chip Growth.................... 0.875%+ 0.045% 0.920%
Real Estate Securities.............. 0.700% 0.060% 0.760%
Value............................... 0.800% 0.050% 0.850%
Equity Index........................ 0.250% 0.150%** 0.400%**
Growth & Income..................... 0.750% 0.040% 0.790%
U.S. Large Cap Value................ 0.875% 0.100%* 0.975%
Equity-Income....................... 0.875%+ 0.050% 0.925%
</TABLE>
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<TABLE>
<CAPTION>
OTHER EXPENSES
MANAGEMENT (AFTER EXPENSE TOTAL TRUST
TRUST PORTFOLIO FEES REIMBURSEMENT)*** ANNUAL EXPENSES
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income & Value...................... 0.800%+ 0.090% 0.890%
Balanced............................ 0.800% 0.070% 0.870%
High Yield.......................... 0.775% 0.065% 0.840%
Strategic Bond...................... 0.775% 0.075% 0.850%
Global Bond......................... 0.800% 0.110% 0.910%
Total Return........................ 0.775% 0.100%* 0.875%
Investment Quality Bond............. 0.650% 0.070% 0.720%
Diversified Bond.................... 0.750% 0.140% 0.890%
U.S. Government Securities.......... 0.650% 0.070% 0.720%
Money Market........................ 0.500% 0.120% 0.620%
Lifestyle Aggressive 1000#.......... 0% 1.110%*** 1.110%
Lifestyle Growth 820#............... 0% 1.000%*** 1.000%
Lifestyle Balanced 640#............. 0% 0.920%*** 0.920%
Lifestyle Moderate 460#............. 0% 0.830%*** 0.830%
Lifestyle Conservative 280#......... 0% 0.720%*** 0.720%
</TABLE>
+ Management Fees for these portfolios changed effective May 1, 1999. Prior to
May 1, 1999, management fees were as follows:
Aggressive Growth Trust 1.050%
Mid Cap Growth Trust 1.000%
Mid Cap Blend Trust 0.750%
Large Cap Growth Trust 0.750%
Blue Chip Growth Trust 0.925%
Equity-Income Trust 0.800%
Income & Value Trust 0.750%
* Based on estimates of payments to be made during the current fiscal year.
** Under the Advisory Agreement, MSS has agreed o reduce its advisory fee or
reimburse the Equity Index Trust if the total of all expenses (excluding
advisory fees, taxes, portfolio brokerage commissions, interest, litigation and
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Trust's business) exceed an annual rate of 0.15% of the
average annual net assets of the Equity Index Trust. The expense limitation will
continue in effect from year to year unless otherwise terminated at any year end
by MSS on 30 days' notice to the Trust. If this expense reimbursement had not
been in effect, Total Trust Annual Expenses would have been 0.55%, and Other
Expenses would have been 0.30%, of the average annual net assets of the Equity
Index Trust.
*** Reflects expenses of the Underlying Portfolios. Manufacturers Securities
Services, LLC ("MSS") has voluntarily agreed to pay the expenses of each
Lifestyle Trust (excluding the expenses of the Underlying Portfolios). This
voluntary expense reimbursement may be terminated at any time. If such expense
reimbursement was not in effect, Total Trust Annual Expenses would be 0.02%
higher, except for the Lifestyle Conservative 280 Trust, which would be 0.03%
higher (based on expenses of the Lifestyle Trusts for the fiscal year ended
December 31, 1998) as noted in the chart below:
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<TABLE>
<CAPTION>
MANAGEMENT OTHER EXPENSES TOTAL TRUST
TRUST PORTFOLIO FEES ANNUAL EXPENSES
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lifestyle Aggressive 1000........... 0% 1.130% 1.130%
Lifestyle Growth 820................ 0% 1.020% 1.020%
Lifestyle Balanced 640.............. 0% 0.940% 0.940%
Lifestyle Moderate 460.............. 0% 0.850% 0.850%
Lifestyle Conservative 280.......... 0% 0.750% 0.750%
</TABLE>
# Each Lifestyle Trust will bear its own pro rata share of the fees and expenses
incurred by the Underlying Portfolios in which it invests, and the investment
return of each Lifestyle Trust will be net of the Underlying Portfolio expenses.
Each Lifestyle Portfolio must also bear its own expenses. However, MSS is
currently paying those expenses as described in footnote (***) above.
TABLE OF INVESTMENT OPTIONS AND INVESTMENT ADVISERS
SUBADVISER PORTFOLIO
A I M Capital Management, Inc. Mid Cap Growth Trust
Aggressive Growth Trust
AXA Rosenberg Investment Management 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
Equity Index 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
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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
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.
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 Manufacturers Life, a mutual
life insurance company based in Toronto, Canada. Manufacturers Life and its
subsidiaries, together, constitute one of the largest life insurance companies
in North America and rank among the 60 largest life insurers in the world as
measured by assets. However, neither Manufacturers Life of America nor
Manufacturers Life guarantees the investment performance of the Separate
Account.
On January 20, 1998, the Board of Directors of Manufacturers Life announced that
it had asked the management of Manufacturers Life to prepare a plan for
conversion of Manufacturers Life from a mutual life insurance company to an
investor owned, publicly traded stock company. Any demutualization plan for
Manufacturers Life is subject to the approval of the Manulife Board of Directors
and policyowners as well as regulatory approval.
RATINGS
Manufacturers Life and Manufacturers Life of America have received the following
ratings from independent rating agencies:
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)
These ratings, which are current as of the date of this prospectus and are
subject to change, are assigned to The Manufacturers Life Insurance Company of
America as a measure of the Company's ability to honor the death benefit but not
specifically to its products, the performance (return) of these products, the
value of any investment in these products upon withdrawal or to individual
securities held in any portfolio.
SEPARATE ACCOUNT THREE
Manufacturers Life of America established its Separate Account Three on August
22, 1986 as a separate account under Pennsylvania Law. Since December 9, 1992,
it has been operated under Michigan Law. The Separate Account holds assets
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that are segregated from all of Manufacturers Life of America's other assets.
The Separate Account is currently used only to support variable life insurance
policies.
ASSETS OF THE SEPARATE ACCOUNT
Manufacturers Life of America is the legal owner of the assets in the Separate
Account. The income, gains, and losses of the Separate Account, whether or not
realized, are, in accordance with applicable contracts, credited to or charged
against the Account without regard to the other income, gains, or losses of
Manufacturers Life of America. Manufacturers Life of America will at all times
maintain assets in the Separate Account with a total market value at least equal
to the reserves and other liabilities relating to variable benefits under all
policies participating in the Separate Account. These assets may not be charged
with liabilities which arise from any other business Manufacturers Life of
America conducts. However, all obligations under the variable life insurance
policies are general corporate obligations of Manufacturers Life of America.
REGISTRATION
The Separate Account is registered with the Securities and Exchange Commission
("S.E.C.") under the Investment Company Act of 1940 ("1940 Act") as a unit
investment trust. A unit investment trust is a type of investment company which
invests its assets in specified securities, such as the shares of one or more
investment companies, rather than in a portfolio of unspecified securities.
Registration under the 1940 Act does not involve any supervision by the S.E.C.
of the management or investment policies or practices of the Separate Account.
For state law purposes the Separate Account is treated as a part or division of
Manufacturers Life of America.
MANUFACTURERS INVESTMENT TRUST
Each sub-account of the Separate Account will purchase shares only of a
particular Portfolio. The Trust is registered under the 1940 Act as an open-end
management investment company. The Separate Account will purchase and redeem
shares of the Portfolios at net asset value. Shares will be redeemed to the
extent necessary for Manufacturers Life of America to provide benefits under the
Policies, to transfer assets from one sub-account to another or to the general
account as requested by policyowners, and for other purposes not inconsistent
with the Policies. Any dividend or capital gain distribution received from a
Portfolio with respect to the Policies will be reinvested immediately at net
asset value in shares of that Portfolio and retained as assets of the
corresponding sub-account.
The Trust shares are issued to fund benefits under both variable annuity
contracts and variable life insurance policies issued by the Company or life
insurance companies affiliated with the Company. Manufacturers Life of America
may also purchase shares through its general account for certain limited
purposes including initial portfolio seed money. For a description of the
procedures for handling potential conflicts of interest arising from the funding
of such benefits see the accompanying Trust prospectus.
INVESTMENT OBJECTIVES OF THE PORTFOLIOS
The investment objectives and certain policies of the Portfolios currently
available to policyowners through corresponding sub-accounts are set forth
below. There is, of course, no assurance that these objectives will be met. A
full description of the Trust, its investment objectives, policies and
restrictions, the risks associated therewith, its expenses, and other aspects of
its operation is contained in the accompanying Trust prospectus, which should be
read together with this prospectus.
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.
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<PAGE> 14
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 portfolios invests will have market cap values of less than $1.5
billion at the time of purchase.
The SMALL COMPANY BLEND TRUST seeks long-term growth of capital and income by
investing the portfolio's assets, under normal market conditions, primarily in
equity and equity-related securities of companies with market capitalization
between $50 million and $1 billion.
The MID CAP GROWTH TRUST (formerly, the Small/Mid Cap Trust) seeks long-term
capital appreciation by investing the portfolio's assets principally in common
stocks, with emphasis on medium-sized and smaller emerging growth companies.
The MID CAP STOCK TRUST seeks long-term growth of capital by investing primarily
in equity securities of companies with market capitalizations that approximately
match the range of capitalization of the Wilshire Mid Cap 750 Index.
The OVERSEAS TRUST (formerly, the International Growth & Income Trust) seeks
growth of capital by investing, under normal market conditions, at least 65% of
the portfolios' assets in foreign securities (including American Depositary
Receipts (ADRs) and European Depositary Receipts (EDRs). The portfolios expects
to invest primarily in equity securities.
The INTERNATIONAL STOCK TRUST seeks long-term growth of capital by investing
primarily in common stocks of established, non-U.S. companies.
The INTERNATIONAL VALUE TRUST seeks long-term growth of capital by investing,
under normal market conditions, primarily in equity securities of companies
located outside the U.S., including in emerging markets.
The MID CAP BLEND TRUST (formerly, the Equity Trust) seeks growth of capital by
investing primarily in common stocks of United States issuers and securities
convertible into or carrying the right to buy common stocks.
The SMALL COMPANY VALUE TRUST seeks long term growth of capital by investing in
equity securities of smaller companies which are traded principally in the
markets of the United States.
The GLOBAL EQUITY TRUST seeks long-term capital appreciation by investing
primarily in equity securities throughout the world, including U.S. issuers and
emerging markets.
The GROWTH TRUST seeks long-term growth of capital by investing primarily in
large capitalization growth securities (market capitalizations of approximately
$1 billion or greater).
The LARGE CAP GROWTH TRUST (formerly, the Aggressive Asset Allocation Trust)
seeks long-term growth of capital by investing, under normal market conditions,
at least 65% of the portfolio's assets in equity securities of companies with
large market capitalizations.
The QUANTITATIVE EQUITY TRUST seeks to achieve intermediate and long-term growth
through capital appreciation and current income by investing in common stocks
and other equity securities of well established companies with promising
prospects for providing an above average rate of return.
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<PAGE> 15
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 EQUITY INDEX TRUST seeks to achieve investment results which approximate the
aggregate total return of publicly traded common stocks which are included in
the Standard & Poor's 500 Composite Stock Price.
The GROWTH & INCOME TRUST seeks long-term growth of capital and income,
consistent with prudent investment risk, by investing primarily in a diversified
portfolio of common stocks of United States issuers which the subadviser
believes are of high quality.
The U.S. LARGE CAP 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.
The STRATEGIC BOND TRUST seeks a high level of total return consistent with
preservation of capital by giving its subadviser broad discretion to deploy the
portfolio's assets among certain segments of the fixed-income market as the
subadviser believes will best contribute to achievement of the portfolio's
investment objective.
The GLOBAL BOND TRUST (formerly, the Global Government Bond Trust) seeks to
realize maximum total return, consistent with preservation of capital and
prudent investment management by investing the portfolio's asset primarily in
fixed income securities denominated in major foreign currencies, baskets of
foreign currencies (such as the ECU), and the U.S. dollar.
The TOTAL RETURN TRUST seeks to realize maximum total return, consistent with
preservation of capital and prudent investment management by investing, under
normal market conditions, at least 65% of the portfolio's assets in a
diversified portfolio of fixed income securities of varying maturities. The
average portfolio duration will normally vary within a three- to six- year time
frame based on PIMCO's forecast for interest rates.
The INVESTMENT QUALITY BOND TRUST seeks a high level of current income
consistent with the maintenance of principal and liquidity, by investing
primarily in a diversified portfolio of investment grade corporate bonds and
U.S.
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<PAGE> 16
Government bonds with intermediate to longer term maturities. The portfolio may
also invest up to 20% of its assets in non-investment grade fixed income
securities.
The DIVERSIFIED BOND TRUST (formerly, the Conservative Asset Allocation Trust)
seeks high total return as is consistent with the conservation of capital by
investing at least 75% of the portfolio's assets in fixed-income securities.
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.
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 0 through 90.
Each Policy has a Policy Date, an Effective Date and an Issue Date (See
"Definitions" above).
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
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<PAGE> 17
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.
MINIMUM INITIAL FACE AMOUNT
Manufacturers Life of America will generally issue a Policy only if it has a
Face Amount of at least $100,000.
BACKDATING A POLICY
Under limited circumstances, the Company may backdate a Policy, upon request, by
assigning a Policy Date earlier than the date the application is signed.
However, in no event will a Policy be backdated earlier than the earliest date
allowed by state law, which is generally three months to one year prior to the
date of application for the Policy. Monthly deductions will be made for the
period the Policy Date is backdated. Regardless of whether or not a policy is
backdated, Net Premiums received prior to the Effective Date of a Policy will be
credited with interest from the date of receipt at the rate of return then being
earned on amounts allocated to the Money Market portfolio.
As of the Effective Date, the premiums paid plus interest credited, net of the
premium charge, will be allocated among the Investment Accounts and/or Fixed
Account in accordance with the policy owner'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.
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<PAGE> 18
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 Manufacturers Life of America agent who sold it or to the Service Office.
Immediately on such delivery or mailing, the Policy shall be deemed void from
the beginning. Within seven days after receipt of the returned Policy at its
Service Office, the Company will refund 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 which results in new
surrender charges, he or she will have the same rights as described above to
cancel the increase. If canceled, the Policy Value and the surrender charges
will be recalculated to the amounts they would have been had the increase not
taken place. A policyowner may request a refund of all or any portion of
premiums paid during the 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 satisfy either one of two tests to qualify as a life insurance
contract for purposes of Section 7702 of the Internal Revenue Code of 1986, as
amended. At the time of application, the policyowner must choose either the Cash
Value Accumulation Test or the Guideline Premium Test. The test cannot be
changed once the Policy is issued.
CASH VALUE ACCUMULATION TEST
Under the Cash Value Accumulation Test ("CVAT"), the Policy Value must be less
than the Net Single Premium necessary to fund future Policy benefits, assuming
guaranteed charges and 4% net interest. To ensure that a Policy meets the CVAT,
the Company will generally increase the death benefit, temporarily, to the
required minimum amount. However, the Company reserves the right to require
evidence of insurability should a premium payment cause the death benefit to
increase by more than the premium payment amount. Any excess premiums will be
refunded.
GUIDELINE PREMIUM TEST
The Guideline Premium Test restricts the maximum premiums that may be paid into
a life insurance policy for a given death benefit. The policy's death benefit
must also be at least equal to the Minimum Death Benefit (described below).
Changes to the Policy may affect the maximum amount of premiums, such as:
- - A change in the policy's Face Amount.
- - A change in the death benefit option.
- - Partial Withdrawals.
- - Addition or deletion of supplementary benefits.
Any of the above changes could cause the total premiums paid to exceed the new
maximum limit. In this situation, the Company may refund any excess premiums
paid. In addition, these changes could reduce the future premium limitations.
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<PAGE> 19
The Guideline Premium Test requires a life insurance policy to meet minimum
ratios of life insurance coverage to policy value. This is achieved by ensuring
that the death benefit is at all times at least equal to the Minimum Death
Benefit. The Minimum Death Benefit on any date is defined as the Policy Value on
that date times the applicable Minimum Death Benefit Percentage for the Attained
Age of the life insured. The Minimum Death Benefit Percentages for this test
appear in the Policy.
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. The amount payable will be the death
benefit under the selected death benefit option, plus any amounts payable under
any supplementary benefits added to the Policy, less the Policy Debt and less
any outstanding monthly deductions due. The insurance benefit will be paid in
one lump sum unless another form of settlement option is agreed to by the
beneficiary and the Company. If the insurance benefit is paid in one sum, the
Company will pay interest from the date of death to the date of payment. If the
life insured should die after the Company's receipt of a request for surrender,
no insurance benefit will be payable, and the Company will pay only the Net Cash
Surrender Value.
DEATH BENEFIT OPTIONS
There are two death benefit options, described below.
DEATH BENEFIT OPTION 1
Under Option 1 the death benefit is the Face Amount of the Policy at the date of
death or, if greater, the Minimum Death Benefit.
DEATH BENEFIT OPTION 2
Under Option 2 the death benefit is the Face Amount plus the Policy Value of the
Policy at the date of death or, if greater, the Minimum Death Benefit.
CHANGING THE DEATH BENEFIT OPTION
The death benefit option may be changed once each Policy Year after the first
Policy Year. The change will occur on the first day of the next Policy Month
after a written request for a change is received at the Service Office. The
Company reserves the right to limit a request for a change if the change would
cause the Policy to fail to qualify as life insurance for tax purposes. The
Company will not allow a change in death benefit option if it would cause the
Face Amount to decrease below $100,000.
A change in the death benefit option will result in a change in the Policy's
Face Amount, in order to avoid any change in the amount of the death benefit, as
follows:
CHANGE FROM OPTION 1 TO OPTION 2
The new Face Amount will be equal to the Face Amount prior to the change minus
the Policy Value as of the date of the change.
CHANGE FROM OPTION 2 TO OPTION 1
The new Face Amount will be equal to the Face Amount prior to the change plus
the Policy Value as of the date of the change.
No new Surrender Charges will apply to an increase in Face Amount solely due to
a change in the death benefit option.
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<PAGE> 20
CHANGING THE FACE AMOUNT
Subject to the limitations stated in this Prospectus, a policyowner may, upon
written request, increase or decrease the Face Amount of the Policy. The Company
reserves the right to limit a change in Face Amount so as to prevent the Policy
from failing to qualify as life insurance for tax purposes.
INCREASE IN FACE AMOUNT
Increases in Face Amount may be made once each Policy Year after the first
Policy Year. Any increase in Face Amount must be at least $50,000. An increase
will become effective at the beginning of the policy month following the date
Manufacturers Life of America approves the requested increase. Increases in Face
Amount are subject to satisfactory evidence of insurability. The Company
reserves the right to refuse a requested increase if the life insured's Attained
Age at the effective date of the increase would be greater than the maximum
issue age for new Policies at that time.
NEW SURRENDER CHARGES FOR AN INCREASE
An increase in face amount will usually result in the Policy being subject to
new surrender charges. The new surrender charges will be computed as if a new
Policy were being purchased for the increase in face amount. The premiums
attributable to the new Face Amount will not exceed the surrender charge premium
limit associated with that increase. There will be no new surrender charges
associated with restoration of a prior decrease in Face Amount. As with the
purchase of a Policy, a policyowner will have a free look right with respect to
any increase resulting in new surrender charges.
An additional premium may be required for a face amount increase, and a new
No-Lapse Guarantee Premium will be determined, if the No-Lapse Guarantee is in
effect at the time of the face amount increase.
INCREASE WITH PRIOR DECREASES
If, at the time of the increase, there have been prior decreases in Face Amount,
these prior decreases will be restored first. The insurance coverage eliminated
by the decrease of the oldest Face Amount will be deemed to be restored first.
CHANGING BOTH THE FACE AMOUNT AND THE DEATH BENEFIT OPTION
If a policyowner requests to change both the Face Amount and the Death Benefit
Option in the same month, the Death Benefit Option change shall be deemed to
occur first.
DECREASE IN FACE AMOUNT
Decreases in Face Amount may be made once each Policy Year after the first
Policy Year. Any decrease in Face Amount must be at least $50,000. A written
request from a policyowner for a decrease in the Face Amount will be effective
at the beginning of the Policy Month following the date Manufacturers Life of
America approves the requested decrease. If there have been previous increases
in Face Amount, the decrease will be applied to the most recent increase first
and thereafter to the next most recent increases successively. Under no
circumstances should the sum of all decreases cause the policy to fall below the
minimum Face Amount of $100,000.
PREMIUM PAYMENTS
INITIAL PREMIUMS
No premiums will be accepted prior to receipt of a completed application by the
Company. All premiums received prior to the Effective Date of the Policy will be
held in the general account and credited with interest from the date of receipt
at the rate of return then being earned on amounts allocated to the Money Market
Trust.
The minimum initial premium is one-twelfth of the No-Lapse Guarantee Premium.
On the later of the Effective Date or the date 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.
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<PAGE> 21
SUBSEQUENT PREMIUMS
After the payment of the initial premium, premiums may be paid at any time and
in any amount until the life insured's Attained Age 100, subject to the
limitations on premium amount described below.
A Policy will be issued with a planned premium, which is based on the amount of
premium the policyowner wishes to pay. Manufacturers Life of America will send
notices to the policyowner setting forth the planned premium at the payment
interval selected by the policyowner. However, the policyowner is under no
obligation to make the indicated payment.
The Company may refuse any premium payment that would cause the Policy to fail
to qualify as life insurance under the Internal Revenue Code. The Company also
reserves the right to request evidence of insurability if a premium payment
would result in an increase in the Death Benefit that is greater than the
increase in Policy Value.
Payment of premiums will not guarantee that the Policy will stay in force.
Conversely, failure to pay premiums will not necessarily cause the Policy to
lapse.
All Net Premiums received on or after the Effective Date will be allocated among
Investment Accounts or the Fixed Account as of the Business Day the premiums
were received at the Service Office. Monthly deductions are due on the Policy
Date and at the beginning of each Policy Month thereafter. However, if due prior
to the Effective Date, they will be taken on the Effective Date instead of the
dates they were due.
MAXIMUM PREMIUM LIMITATION
If the Policy is issued under the Guideline Premium Test, in no event may the
total of all premiums paid exceed the then current maximum premium limitations
established by federal income tax law for a Policy to qualify as life insurance.
If, at any time, a premium is paid which would result in total premiums
exceeding the above maximum premium limitation, the Company will only accept
that portion of the premium which will make the total premiums equal to the
maximum. Any part of the premium in excess of that amount will be returned and
no further premiums will be accepted until allowed by the then current maximum
premium limitation.
PREMIUM ALLOCATION
Premiums may be allocated to the Fixed Account for accumulation at a rate of
interest equal to at least 4% or to one or more of the Investment Accounts for
investment in the Portfolio shares held by the corresponding sub-account of the
Separate Account. Allocations among the Investment Accounts and the Fixed
Account are made as a percentage of the premium. The percentage allocation to
any account may be any number between zero and 100, provided the total
allocation equals 100. A policyowner may change the way in which premiums are
allocated at any time without charge. The change will take effect on the date a
written request for change satisfactory to the Company is received at the
Service Office.
CHARGES AND DEDUCTIONS
PREMIUM CHARGE
During the first 10 Policy Years, Manufacturers Life of America deducts a
premium charge from each premium payment, equal to 6.6% of the premium.
Thereafter the premium charge is equal to 3.6% of the premium. The premium
charge is designed to cover a portion of the Company's acquisition and sales
expenses and premium taxes. Premium taxes vary from state to state, ranging from
0% to 3.5%.
SURRENDER CHARGES
The Company will deduct a Surrender Charge if during the first 10 years
following the Policy Date, or the effective date of a Face Amount increase:
- - the Policy is surrendered for its Net Cash Surrender Value,
- - a partial withdrawal is made, or
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<PAGE> 22
- - the Policy lapses.
The surrender charge, together with a portion of the premium charge, 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 the following formula (the calculation is
also described in words below):
Surrender Charge = (Surrender Charge Rate)x (Face Amount associated with the
Surrender Charge / 1000)x(Grading Percentage)
Definitions of the Formula Factors Above
Face Amount of the Policy Associated with the Surrender Charge
The Face Amount associated with the Surrender Charge equals the Face Amount for
which the Surrender Charge is being applied. The Face Amount may be increased or
decreased as described under "Changing the Face Amount" above.
Surrender Charge Rate (the calculation is also described in words below)
Surrender Charge Rate = (X) + (80%)x(Surrender Charge Premium)
Where "X" is equal to:
<TABLE>
<CAPTION>
Table for Rate per $1,000 of Face:
Age Rate per $1,000 of Face Age Rate per $1,000 of Face
<S> <C> <C> <C>
0 $2.00 18 $4.25
1 2.13 19 4.38
2 2.25 20 4.50
3 2.38 21 5.00
4 2.50 22 5.50
5 2.63 23 6.00
6 2.75 24 6.50
7 2.88 25 7.00
8 3.00 26 7.20
9 3.13 27 7.40
10 3.25 28 7.60
11 3.38 29 7.80
12 3.50 30 8.00
13 3.63 31 8.04
14 3.75 32 8.08
15 3.88 33 8.12
16 4.00 34 8.16
17 4.13 35 and over 8.20
</TABLE>
The Surrender Charge Premium is the lesser of:
a. the premiums paid during the first Policy Year per $1,000 of Face
Amount at issue or following a Face Amount increase, and
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<PAGE> 23
b. the Surrender Charge Premium Limit specified in the Policy per
$1,000 of Face Amount.
Grading Percentage
The grading percentages during the Surrender Charge Period and set forth in the
table below apply to the initial Face Amount and to all subsequent Face Amount
increases.
The grading percentage is based on the Policy Year in which the transaction
causing the assessment of the charge occurs as set forth in the table below:
<TABLE>
<CAPTION>
Surrender Surrender Charge
Charge Period Grading Percentage
<S> <C>
1 100%
2 90%
3 80%
4 70%
5 60%
6 50%
7 40%
8 30%
9 20%
10 10%
11 0%
</TABLE>
Within a Policy Year, grading percentages will be interpolated on a monthly
basis. For example, if the policyowner surrenders the Policy during the fourth
month of Policy Year 4, the grading percentage will be 67.5%.
Formulas Described in Words
Surrender Charge
The Surrender Charge is determined by multiplying the Surrender Charge Rate by
the Face Amount associated with the Surrender Charge divided by 1000. The amount
obtained is then multiplied by the Grading Percentage, a percent which starts at
100% and grades down each policy year to zero over a period not to exceed 10
years.
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<PAGE> 24
Surrender Charge Rate
The Surrender Charge Rate is equal to the sum of (a) plus (b) where (a) equals X
(see Table above) and (b) equals 80% times the Surrender Charge Premium.
Illustration of Maximum Surrender Charge Calculation
Assumptions
- - 45 year old male (standard risks and nonsmoker status)
- - Policy issued 7 years ago
- - $7,785 in premiums has been paid on the Policy in equal annual
installments over the 7 year period
- - Surrender Charge Premium for the Policy is $15.26
- - Face Amount of the Policy at issue is $500,000 and no increases have
occurred
- - Policy is surrendered during the first month of the seventh policy year.
Maximum Surrender Charge
The maximum Surrender Charge to be assessed would be $4,082 determined as
follows:
First, the Surrender Charge Rate is determined by applying the Surrender Charge
Rate formula as set forth below.
Surrender Charge Rate = (8.20) + (80%) x (Surrender Charge Premium)
$20.41 = (8.20) + (80%) x (15.26)
The Surrender Charge Rate is equal to $20.41
Second, the Surrender Charge Rate is entered into the Surrender Charge formula
and the Surrender Charge is determined as set forth below.
Surrender Charge = (Surrender Charge Rate)x (Face Amount of the Policy
associated with the Surrender Charge / 1000)x(Grading Percentage)
$4,082 = (20.41) x ($500,000 /1000) x (40%)
The maximum Surrender Charge is equal to $4,082.
Depending upon the Face Amount of the Policy, the age of the insured at issue,
premiums paid under the Policy and the performance of the underlying investment
options, the Policy may have no Cash Surrender Value and therefore, the
policyowner may receive no surrender proceeds upon surrendering the Policy.
SURRENDER CHARGES ON A PARTIAL WITHDRAWAL
A partial withdrawal will result in the assessment of a portion of the Surrender
Charges to which the Policy is subject. The portion of the Surrender Charges
assessed will be based on the ratio of the amount of the withdrawal to the Net
Cash Surrender Value of the Policy as at the date of the withdrawal. The
Surrender Charges will be deducted from the Policy Value at the time of the
partial withdrawal on a pro-rata basis from each of the Investment Accounts and
the Fixed Account. If the amount in the accounts is not sufficient to pay the
Surrender Charges assessed, then the amount of the withdrawal will be reduced.
Whenever a portion of the surrender charges is deducted as a result of a partial
withdrawal, the Policy's remaining surrender charges will be reduced in the same
proportion that the surrender charge deducted bears to the total surrender
charge immediately before the partial withdrawal.
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<PAGE> 25
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 Policy Anniversary when the life insured reaches Attained Age 100,
unless certain riders are in effect in which case such charges may continue. If
there is a Policy Debt under the Policy, loan interest and principal will
continue to be payable at the beginning of each Policy Month. Monthly deductions
due prior to the Effective Date will be taken on the Effective Date instead of
the dates they were due. The charges consist of:
- - a monthly administration charge;
- - a monthly charge for the cost of insurance;
- - a monthly mortality and expense risk charge;
- - a monthly charge, if applicable, for any supplementary benefits added to
the Policy.
Unless otherwise allowed by the Company and specified by the policyowner, the
Monthly Deduction will be allocated among the Investment Accounts and the Fixed
Account in the same proportion as the Policy value in each bears to the Net
Policy Value.
ADMINISTRATION CHARGE
This charge will be equal to $30 per Policy Month in the first Policy Year. For
all subsequent Policy Years, the administration charge will be $15 per Policy
Month. The charge is designed to cover certain administrative expenses
associated with the Policy, including maintaining policy records, collecting
premiums and processing death claims, surrender and withdrawal requests and
various changes permitted under the Policy.
COST OF INSURANCE CHARGE
The monthly charge for the cost of insurance is determined by multiplying the
applicable cost of insurance rate times the net amount at risk at the beginning
of each Policy Month. The cost of insurance rate and the net amount at risk are
determined separately for the initial Face Amount and for each increase in Face
Amount. In determining the net amount at risk, if there have been increases in
the Face Amount, the Policy Value shall first be considered a part of the
initial Face Amount. If the Policy Value exceeds the initial Face Amount, it
shall then be considered a part of the additional increases in Face Amount
resulting from the increases, in the order the increases occurred.
For Death Benefit Option 1, the net amount at risk is equal to the greater of
zero, or the result of (a) minus (b) where:
(a) is the death benefit as of the first day of the Policy Month, divided by
1.0032737; and
(b) is the Policy Value as of the first day of the Policy Month after the
deduction of monthly cost of insurance.
For Death Benefit Option 2, the net amount at risk is equal to the Face Amount
of insurance.
The rates for the cost of insurance are based upon the issue age, duration of
coverage, sex, and Risk Classification of the life insured.
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.
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<PAGE> 26
CHARGES FOR SUPPLEMENTARY BENEFITS
If the Policy includes Supplementary Benefits, a charge may apply to such
Supplementary Benefit.
MORTALITY AND EXPENSE RISK CHARGE
A monthly charge is assessed against the Policy Value equal to a percentage of
the Policy Value. This charge is to compensate the Company for the mortality and
expense risks it assumes under the Policy. The mortality risk assumed is that
life insured may live for a shorter period of time than the Company estimated.
The expense risk assumed is that expenses incurred in issuing and administering
the Policy will be greater than the Company estimated. The Company will realize
a gain from this charge to the extent it is not needed to provide benefits and
pay expenses under the Policy.
The charge varies by Policy Year as follows:
<TABLE>
<CAPTION>
Guaranteed Monthly Mortality and Equivalent Annual
Policy Year Expense Risk Charge Mortality and Expense
Risk Charge
<S> <C> <C>
1-10 0.0627% 0.75%
11 0.0209% 0.25%
</TABLE>
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. Manufacturers
Life of America 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 Manufacturers Life of
America believes to be relevant to the expected reduction of its expenses. Some
of these reductions may be guaranteed and others may be subject to withdrawal or
modification, on a uniform case basis. Reductions in charges will not be
unfairly discriminatory to any policyowners. Manufacturers Life of America may
modify from time to time, on a uniform basis, both the amounts of reductions and
the criteria for qualification.
SPECIAL PROVISIONS FOR EXCHANGES
The Company will permit owners of certain fixed life insurance policies issued
either by the Company or Manufacturers Life Insurance Company (U.S.A.) to
exchange their policies for the Policies described in this prospectus (and
likewise, owners of policies described in this Prospectus may also exchange
their Policies for certain fixed policies issued either by the Company or by
Manufacturers Life Insurance Company (U.S.A)). Policyowners considering an
exchange should consult their tax advisers as to the tax consequences of an
exchange.
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<PAGE> 27
COMPANY TAX CONSIDERATIONS
At the present time, the Company makes no charge to the Separate Account for any
federal, state, or local taxes that the Company incurs that may be attributable
to such Account or to the Policies. The Company, however, reserves the right in
the future to make a charge for any such tax or other economic burden resulting
from the application of the tax laws that it determines to be properly
attributable to the Separate Account or to the Policies.
POLICY VALUE
DETERMINATION OF THE POLICY VALUE
A Policy has a Policy Value, a portion of which is available to the policyowner
by making a policy loan or partial withdrawal, or upon surrender of the Policy.
The Policy Value may also affect the amount of the death benefit. The Policy
Value at any time is equal to the sum of the values in the Investment Accounts,
the Fixed Account, and the Loan Account.
INVESTMENT ACCOUNTS
An Investment Account is established under each Policy for each sub-account of
the Separate Account to which net premiums or transfer amounts have been
allocated. Each Investment Account under a Policy measures the interest of the
Policy in the corresponding sub-account. The value of the Investment Account
established for a particular sub-account is equal to the number of units of that
sub-account credited to the Policy times the value of such units.
FIXED ACCOUNT
Amounts in the Fixed Account do not vary with the investment performance of any
sub-account. Instead, these amounts are credited with interest at a rate
determined by Manufacturers Life of America. For a detailed description of the
Fixed Account, see "The General Account - Fixed Account".
LOAN ACCOUNT
Amounts borrowed from the Policy are transferred to the Loan Account. Amounts in
the Loan Account do not vary with the investment performance of any sub-account.
Instead, these amounts are credited with interest at a rate which is equal to
the amount charged on the outstanding Policy Debt less the Loan Spread. For a
detailed description of the Loan Account, see "Policy Loans - Loan Account".
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 trading of the New York
Stock Exchange (currently 4:00 p.m. Eastern Time) 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.
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<PAGE> 28
UNIT VALUES
The value of a unit of each sub-account was initially fixed at $10.00. For each
subsequent Business Day the unit value for that sub-account is determined by
multiplying the unit value for the immediately preceding Business Day by the net
investment factor for the that sub-account on such subsequent Business Day.
The net investment factor for a sub-account on any Business Day is equal to (a)
divided by (b) where:
(a) is the net asset value of the underlying Portfolio shares held by that
sub-account as of the end of such Business Day before any policy
transactions are made on that day; and
(b) is the net asset value of the underlying Portfolio shares held by that
sub-account as of the end of the immediately preceding Business Day after
all policy transactions were made for that day;
The value of a unit may increase, decrease, or remain the same, depending on the
investment performance of a sub-account from one Business Day to the next.
TRANSFERS OF POLICY VALUE
At any time, a policyowner may transfer Policy Value from one sub-account to
another or to the Fixed Account. Transfer requests must be in writing in a
format satisfactory to the Company, or by telephone if a currently valid
telephone transfer authorization form is on file.
The Company reserves the right to impose limitations on transfers, including the
maximum amount that may be transferred. In addition, transfer privileges are
subject to any restrictions that may be imposed by the Trust.
While the Policy is in force, the policyowner may transfer the Policy Value from
any of the Investment Accounts to the Fixed Account without incurring transfer
charges:
(a) within eighteen months after the Issue Date; or
(b) within 60 days of the effective date of a material change in the
investment objectives of any of the sub-accounts or within 60 days of the
date of notification of such change, whichever is later.
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, Manufacturers Life of America will not be liable for following
instructions communicated by telephone that the Company reasonably believes to
be genuine. The Company will employ reasonable
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<PAGE> 29
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 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, the Company will move amounts among
the Investment Accounts as necessary to maintain the policyowner's chosen
allocation. A change to the policyowner premium allocation instructions will
automatically result in a change in Asset Allocation Balancer instructions so
that the two are identical unless the policyowner either instructs Manufacturers
of America otherwise or has elected the Dollar Cost Averaging program.
Currently, there is no charge for this program; however, the Company reserves
the right to institute a charge on 90 days' written notice to the policyowner.
The Company reserves the right to cease to offer this program as of 90 days
after written notice is sent to the policyowner.
POLICY LOANS
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, see "Tax
Treatment of Policy Benefits - Interest on Policy Loans After Ten Years" and
"Tax Treatment of Policy Benefits - Policy Loan Interest."
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 Policy's failing to satisfy the No-Lapse Guarantee
Cumulative Premium Test since the Policy Debt is subtracted from the sum of the
premiums paid in determining whether this test is satisfied. Finally, a policy
loan will affect the amount payable on the death of the life insured, since the
death benefit is reduced by the Policy Debt at the date of death in arriving at
the insurance benefit.
INTEREST CHARGED ON POLICY LOANS
Interest on the Policy Debt will accrue daily and be payable annually on the
Policy Anniversary. During the first 10 Policy Years, the rate of interest
charged will be an effective annual rate of 5.25%. Thereafter, the rate of
interest charged will be an effective annual rate of 4%, subject to the
Company's reservation of the right to increase the rate as described under the
heading "Tax Treatment of the Policy - Interest on Policy Loans After Year 10."
If the interest due on a Policy Anniversary is not paid by the policyowner, the
interest will be borrowed against the Policy.
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<PAGE> 30
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 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
Interest will be credited to amounts in the Loan Account at an effective annual
rate of at least 4.00%. The actual rate credited is equal to the rate of
interest charged on the policy loan less than the Loan Interest Credited
Differential, which is currently 1.25% during the first ten policy years and 0%
thereafter, and is guaranteed not to exceed 1.25%. (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.) The tax
consequences associated with a loan interest credited differential of 0% are
unclear. A tax advisor should be consulted before effecting a loan to evaluate
the tax consequences that may arise in such a situation. The Company may change
the Current Loan Interest Credited Differential as of 90 days after sending you
written notice of such change.
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.
Amounts paid to the Company not specifically designated in writing as loan
repayments will be treated as premiums. Where permitted by applicable state law,
when a portion of the Loan Account amount is allocated to the Fixed Account, the
Company may require that any amounts paid to it 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. If there have been any prior Face
Amount increases, the Surrender Charge will be the sum of the Surrender Charge
for the Initial Face Amount plus the Surrender Charge for each increase. The Net
Cash
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<PAGE> 31
Surrender Value will be determined as of the end of the Business Day on which
Manufacturers Life of America receives the Policy and a written request for
surrender at its Service Office. After a Policy is surrendered, the insurance
coverage and all other benefits under the Policy will terminate.
PARTIAL WITHDRAWALS
A policyowner may make a partial withdrawal of the Net Cash Surrender Value once
each Policy Month after the first Policy Anniversary. The policyowner may
specify the portion of the withdrawal to be taken from each Investment Account
and the Fixed Account. In the absence of instructions, the withdrawal will be
allocated among such accounts in the same proportion as the Policy Value in each
account bears to the Net Policy Value. For information on Surrender Charges on a
Partial Withdrawal see "Charges and Deductions - Surrender Charges."
Withdrawals will be limited if they would otherwise cause the Face Amount to
fall below $100,000.
REDUCTION IN FACE AMOUNT DUE TO A PARTIAL WITHDRAWAL
If Death Benefit Option 1 is in effect when a partial withdrawal is made, the
Face Amount of the Policy will be reduced by the amount of the withdrawal plus
any applicable Surrender Charges.
If the death benefit is based upon the Policy Value times the minimum death
benefit percentage set forth under "Death Benefit Minimum Death Benefit," the
Face Amount will be reduced only to the extent that the amount of the withdrawal
plus the portion of the Surrender Charge assessed exceeds the difference between
the death benefit and the Face Amount. When the Face Amount of a Policy is based
on one or more increases subsequent to issuance of the Policy, a reduction
resulting from a partial withdrawal will be applied in the same manner as a
requested decrease in Face Amount, i.e., against the Face Amount provided by the
most recent increase, then against the next most recent increases successively
and finally against the initial Face Amount.
Partial withdrawals do not affect the Face Amount of a Policy if Death Benefit
Option 2 is in effect.
LAPSE AND REINSTATEMENT
LAPSE
Unless the No-Lapse Guarantee is in effect, a Policy will go into default if at
the beginning of any Policy Month the Policy's Net Cash Surrender Value would be
zero or below after deducting the monthly deduction then due. Therefore, a
Policy could lapse eventually if increases in Policy Value (prior to deduction
of Policy charges) are not sufficient to cover Policy charges. A lapse could
have adverse tax consequences as described under "Tax Treatment of the Policy -
Tax Treatment of Policy Benefits Surrender or Lapse." The Company will notify
the policyowner of the default and will allow a 61 day grace period in which the
policyowner may make a premium payment sufficient to bring the Policy out of
default. The required payment will be equal to the amount necessary to bring the
Net Cash Surrender Value to zero, if it was less than zero on the date of
default, plus the monthly deductions due at the date of default and payable at
the beginning of each of the two Policy Months thereafter, plus any applicable
premium charge. If the required payment is not received by the end of the grace
period, the Policy will terminate with no value.
NO-LAPSE GUARANTEE
In those states where it is permitted, as long as the No-Lapse Guarantee
Cumulative Premium Test is satisfied during the No-Lapse Guarantee Period, as
described below, the Company will guarantee that the Policy will not go into
default, even if adverse investment experience or other factors should cause the
Policy's Net Cash Surrender Value to fall to zero or below during such period.
The Monthly No-Lapse Guarantee Premium is one-twelfth of the No-Lapse Guarantee
Premium.
The No-Lapse Guarantee Premium is set at issue and reflects any Additional
Rating and Supplementary Benefits, if applicable. It is subject to change if (i)
the face amount of the Policy is changed, (ii) there is a Death Benefit Option
change, (iii) there is a decrease in the Face Amount of insurance due to a
partial withdrawal, or (iv) there is any change in the
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<PAGE> 32
supplementary benefits added to the Policy or in the risk classification of the
life insured.
Depending upon applicable state law requirements, the No-Lapse Guarantee Period
is fixed at the lesser of ten years or the life insured's age 95.
While the No-Lapse Guarantee is in effect, the Company will determine at the
beginning of the Policy Month that your policy would otherwise be in default,
whether the No-Lapse Guarantee Cumulative Premium Test, described below, has
been met. If the test has not been satisfied, the Company will notify the
policyowner of that fact and allow a 61-day grace period in which the
policyowner may make a premium payment sufficient to keep the policy from going
into default. This required payment, as described in the notification to the
policyowner, will be equal to the lesser of:
(a) the outstanding premium requirement to satisfy the No-Lapse Guarantee
Cumulative Premium Test at the date of default, plus the Monthly No-Lapse
Guarantee Premium due for the next two Policy Months, or
(b) the amount necessary to bring the Net Cash Surrender Value to zero plus
the monthly deductions due, plus the next two monthly deductions plus the
applicable premium charge.
If the required payment is not received by the end of the grace period, the
No-Lapse Guarantee and the Policy will terminate.
NO-LAPSE GUARANTEE CUMULATIVE PREMIUM TEST
The No-Lapse Guarantee Cumulative Premium Test is satisfied if, as of the
beginning of the Policy Month that your policy would otherwise be in default,
the sum of all premiums paid to date less any gross withdrawals taken on or
before the date of the test and less any policy debt is equal to or exceeds the
sum of the Monthly No-Lapse Guarantee Premiums due from the Policy Date to the
date of the test.
DEATH DURING GRACE PERIOD
If the life insured should die during the grace period, the Policy Value used in
the calculation of the death benefit will be the Policy Value as of the date of
default and the insurance benefit will be reduced by any outstanding Monthly
Deductions due at the time of death.
REINSTATEMENT
A policyowner can reinstate a Policy which has terminated after going into
default at any time within 21 days following the date of termination without
furnishing evidence of insurability, subject to the following conditions:
(a) The life insured's risk classification is standard or preferred, and
(b) The life insured's Attained Age is less than 46.
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) Evidence of the life insured's insurability, satisfactory to the Company
is provided to the Company;
(b) A premium equal to the amount that was required to bring the Policy out of
default immediately prior to termination, plus the amount needed to keep
the Policy in force to the next scheduled date for payment of the Planned
Premium must be paid to the Company.
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.
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<PAGE> 33
THE GENERAL ACCOUNT
The general account of Manufacturers Life of America consists of all assets
owned by the Company other than those in the Separate Account and other separate
accounts of the Company. Subject to applicable law, Manufacturers Life of
America has sole discretion over the investment of the assets of the general
account.
By virtue of exclusionary provisions, interests in the general account of
Manufacturers Life of America have not been registered under the Securities Act
of 1933 and the general account has not been registered as an investment company
under the Investment Company Act of 1940. Accordingly, neither the general
account nor any interests therein are subject to the provisions of these acts,
and as a result the staff of the S.E.C. has not reviewed the disclosures in this
prospectus relating to the general account. Disclosures regarding the general
account may, however, be subject to certain generally applicable provisions of
the federal securities laws relating to the accuracy and completeness of
statements made in a prospectus.
FIXED ACCOUNT
A policyowner may elect to allocate net premiums to the Fixed Account or to
transfer all or a portion of the Policy Value to the Fixed Account from the
Investment Accounts. Manufacturers Life of America will hold the reserves
required for any portion of the Policy Value allocated to the Fixed Account in
its general account. Transfers from the Fixed Account to the Investment Accounts
are subject to restrictions.
POLICY VALUE IN THE FIXED ACCOUNT
The Policy Value in the Fixed Account is equal to:
(a) the portion of the net premiums allocated to it; plus
(b) any amounts transferred to it; plus
(c) interest credited to it; less
(d) any charges deducted from it; less
(e) any partial withdrawals from it; less
(f) any amounts transferred from it.
INTEREST ON THE FIXED ACCOUNT
An allocation of Policy Value to the Fixed Account does not entitle the
policyowner to share in the investment experience of the general account.
Instead, Manufacturers Life of America guarantees that the Policy Value in the
Fixed Account will accrue interest daily at an effective annual rate of at least
4%, without regard to the actual investment experience of the general account.
Consequently, if a policyowner pays the planned premiums, allocates all net
premiums only to the general account and makes no transfers, partial
withdrawals, or policy loans, the minimum amount and duration of the death
benefit of the Policy will be determinable and guaranteed.
OTHER PROVISIONS OF THE POLICY
POLICYOWNER RIGHTS
Unless otherwise restricted by a separate agreement, the policyowner may, until
the life insured's death:
- - Vary the premiums paid under the Policy.
- - Change the death benefit option.
- - Change the premium allocation for future premiums.
- - Transfer amounts between sub-accounts.
- - Take loans and/or partial withdrawals.
- - Surrender the contract.
- - Transfer ownership to a new owner.
- - Name a contingent owner that will automatically become owner if the
policyowner dies before the insured.
- - Change or revoke a contingent owner.
- - Change or revoke a beneficiary.
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ASSIGNMENT OF RIGHTS
Manufacturers Life of America will not be bound by an assignment until it
receives a copy of the assignment at its Service Office. Manufacturers Life of
America assumes no responsibility for the validity or effects of any assignment.
BENEFICIARY
One or more beneficiaries of the Policy may be appointed by the policyowner by
naming them in the application. Beneficiaries may be appointed in three classes
- - primary, secondary, and final. Beneficiaries may also be revocable or
irrevocable. Unless an irrevocable designation has been elected, the beneficiary
may be changed by the policyowner during the 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. If
the life insured dies and there is no surviving beneficiary, the policyowner, or
the policyowner's estate if the policyowner is the life insured, will be the
beneficiary. If a beneficiary dies before the seventh day after the death of the
life insured, the Company will pay the insurance benefit as if the beneficiary
had died before the life insured.
INCONTESTABILITY
Manufacturers Life of America will not contest the validity of a Policy after it
has been in force during any 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. 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, Manufacturers Life of America will change the Face Amount so that the
death benefit will be that which the most recent monthly charge for the cost of
insurance would have purchased for the correct age and sex.
SUICIDE EXCLUSION
If 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.
If the life insured dies by suicide within two years after the effective date of
an increase in Face Amount, the Company will credit the amount of any Monthly
Deductions taken for the increase and reduce the Face Amount to what it was
prior to the increase. If the last death is by suicide, the Death Benefit for
that increase will be limited to the Monthly Deductions taken for the increase.
The Company reserves the right to obtain evidence of the manner and cause of
death of the life insured.
SUPPLEMENTARY BENEFITS
Subject to certain requirements, one or more supplementary benefits may be added
to a Policy, including those providing a death benefit guarantee, term insurance
for an additional insured, providing accidental death coverage, waiving monthly
deductions upon disability, accelerating benefits in the event of a terminal
illness, and, in the case of corporate-owned policies, permitting a change of
the life insured. 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
The following summary provides a general description of the federal income tax
considerations associated with the Policy and does not purport to be complete or
to cover all situations. This discussion is not intended as tax advice. Counsel
or other competent tax advisers should be consulted for more complete
information. This discussion is based upon the Company's understanding of the
present federal income tax laws as they are currently interpreted by the
Internal Revenue Service (the
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"Service"). No representation is made as to the likelihood of continuation of
the present federal income tax laws nor of the current interpretations by the
Service. MANUFACTURERS LIFE OF AMERICA DOES NOT MAKE ANY GUARANTEE REGARDING THE
TAX STATUS OF ANY POLICY OR ANY TRANSACTION REGARDING THE POLICIES.
The Policies may be used in various arrangements, including non-qualified
deferred compensation or salary continuation plans, split dollar insurance
plans, executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if the use of such
Policies in any such arrangement, the value of which depends in part on the tax
consequences, is contemplated, a qualified tax adviser should be consulted for
advice on the tax attributes of the particular arrangement.
LIFE INSURANCE QUALIFICATION
There are several requirements that must be met for a Policy to be considered a
Life Insurance Contract under the Internal Revenue Code, and thereby to enjoy
the tax benefits of such a contract:
- - The Policy must satisfy the definition of life insurance under Section
7702 of the Internal Revenue Code of 1986 (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.
The Cash Value Accumulation Test requires a minimum death benefit for a given
Policy Value. The Guideline Premium Test also requires a minimum death benefit,
but in addition limits the total premiums that can be paid into a Policy for a
given amount of death benefit.
With respect to a Policy which is issued on the basis of a standard rate class,
the Company believes (largely in reliance on IRS Notice 88-128 and the proposed
mortality charge regulations under Section 7702, issued on July 5, 1991) that
such a Policy should meet the Section 7702 definition of a life insurance
contract.
With respect to a Policy that is issued on a substandard basis (i.e., a rate
class involving higher-than-standard mortality risk), there is less guidance, in
particular as to how mortality and other expense requirements of Section 7702
are to be applied in determining whether such a Policy meets the Section 7702
definition of a life insurance contract. Thus it is not clear whether or not
such a Policy would satisfy Section 7702, particularly if the policyowner pays
the full amount of premiums permitted under the Policy.
The Secretary of the Treasury (the "Treasury") is authorized to prescribe
regulations implementing Section 7702. However, while proposed regulations and
other interim guidance have been issued, final regulations have not been adopted
and guidance as to how Section 7702 is to be applied is limited. If a Policy
were determined not to be a life insurance contract for purposes of Section
7702, such a Policy would not provide the tax advantages normally provided by a
life insurance policy.
If it is subsequently determined that a Policy does not satisfy Section 7702,
the Company may take whatever steps are appropriate and reasonable to attempt to
cause such a Policy to comply with Section 7702. For these reasons, the Company
reserves the right to restrict Policy transactions as necessary to attempt to
qualify it as a life insurance contract under Section 7702.
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DIVERSIFICATION
Section 817(h) of the Code requires that the investments of the Separate Account
be "adequately diversified" in accordance with Treasury regulations in order for
the Policy to qualify as a life insurance contract under Section 7702 of the
Code (discussed above). The Separate Account, through the Trust, intends to
comply with the diversification requirements prescribed in Treas. Reg. Sec.
1.817-5, which affect how the Trust's assets are to be invested. The Company
believes that the Separate Account will thus meet the diversification
requirement, and the Company will monitor continued compliance with the
requirement.
STATE LAW
State regulations require that the policyowner have appropriate insurable
interest in the life insured. Failure to establish an insurable interest may
result in the Policy not qualifying as a life insurance contract for federal tax
purposes.
INVESTOR CONTROL
In certain circumstances, owners of variable life insurance Policies may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their policies. In those circumstances, income
and gains from the separate account assets would be includible in the variable
policyowner's gross income. The IRS has stated in published rulings that a
variable policyowner will be considered the owner of separate account assets if
the policyowner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. The Treasury Department
has also announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the policyowner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyowners may direct their
investments to particular sub-accounts without being treated as owners of the
underlying assets". As of the date of this prospectus, no such guidance has been
issued.
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that policyowners were not owners of separate account assets. For example, the
policyowner has additional flexibility in allocating premium payments and Policy
Values. These differences could result in an owner being treated as the owner of
a pro-rata portion of the assets of the Separate Account. In addition, the
Company does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has stated it expects to
issue. The Company therefore reserves the right to modify the Policy as
necessary to attempt to prevent an owner from being considered the owner of a
pro rata share of the assets of the Separate Account.
TAX TREATMENT OF POLICY BENEFITS
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes. The Company believes that
the proceeds and cash value increases of a Policy should be treated in a manner
consistent with a fixed-benefit life insurance policy for federal income tax
purposes.
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's death benefit option, a Policy loan, partial withdrawal, surrender,
change in ownership, the addition of an accelerated death benefit rider, or an
assignment of the Policy may have federal income tax consequences. In addition,
federal, state and local transfer, and other tax consequences of ownership or
receipt of Policy proceeds depend on the circumstances of each policyowner or
beneficiary.
DEATH BENEFIT
The death benefit under the Policy should be excludable from the gross income of
the beneficiary under Section 101(a)(1) of the Code.
CASH VALUES
Generally, the policyowner will not be deemed to be in constructive receipt of
the Policy Value until there is a distribution. This includes additions
attributable to interest, dividends, appreciation or gains realized on transfers
among sub-accounts.
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INVESTMENT IN THE POLICY
Investment in the Policy means:
- - the aggregate amount of any premiums or other consideration paid for a
Policy; minus
- - the aggregate amount, other than loan amounts, received under the Policy
which has been excluded from the gross income of the policyowner (except
that the amount of any loan from, or secured by, a Policy that is a MEC,
to the extent such amount has been excluded from gross income, will be
disregarded); plus
- - the amount of any loan from, or secured by a Policy that is a MEC to the
extent that such amount has been included in the gross income of the
policyowner.
The repayment of a policy loan, or the payment of interest on a loan, does not
affect the Investment in the Policy.
INTEREST ON POLICY LOANS AFTER YEAR 10
If the Company determines, in its 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 credit 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 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.
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.
SURRENDER OR LAPSE
Upon a complete surrender or lapse of a Policy or when benefits are paid at a
Policy's maturity date, if the amount received plus the amount of Policy Debt
exceeds the total investment in the Policy, the excess will generally be treated
as ordinary income subject to tax.
If, at the time of lapse, a Policy has a loan, the loan is extinguished and the
amount of the loan is a deemed payment to the policyholder. If the amount of
this deemed payment exceeds the investment in the contract, the excess is
taxable income and is subject to Internal Revenue Service reporting
requirements.
DISTRIBUTIONS
The tax consequences of distributions from, and loans taken from or secured by,
a Policy depend on whether the Policy is classified as a "Modified Endowment
Contract" or "MEC".
DISTRIBUTIONS FROM NON-MEC'S
A distribution from a non-MEC is generally treated as a tax-free recovery by the
policyowner of the Investment in the Policy to the extent of such Investment in
the Policy, and as a distribution of taxable income only to the extent the
distribution exceeds the Investment in the Policy. Loans from, or secured by, a
non-MEC are not treated as distributions. Instead, such loans are treated as
indebtedness of the policyowner.
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Force Outs
An exception to this general rule occurs in the case of a decrease in the
Policy's death benefit or any other change that reduces benefits under the
Policy in the first 15 years after the Policy is issued and that results in a
cash distribution to the policyowner in order for the Policy to continue to
comply with the Section 7702 definitional limits. Such a cash distribution will
be taxed in whole or in part as ordinary income (to the extent of any gain in
the Policy) under rules prescribed in Section 7702. Changes include partial
withdrawals and death benefit option changes.
DISTRIBUTIONS FROM MEC'S
Policies classified as MEC's will be subject to the following tax rules:
- - First, all partial withdrawals from such a Policy are treated as ordinary
income subject to tax up to the amount equal to the excess (if any) of the
Policy Value immediately before the distribution over the Investment in
the Policy at such time.
- - Second, loans taken from or secured by such a Policy are treated as
partial withdrawals from the Policy and taxed accordingly. Past-due loan
interest that is added to the loan amount is treated as a loan.
- - Third, a 10% additional income tax is imposed on the portion of any
distribution (including distributions on surrender) from, or loan taken
from or secured by, such a policy that is included in income except where
the distribution or loan:
- is made on or after the policyowner attains age 59 1/2;
- is attributable to the policyowner becoming disabled; or
- is part of a series of substantially equal periodic payments for the
life (or life expectancy) of the policyowner or the joint lives (or
joint life expectancies) of the policyowner and the policyowner's
beneficiary.
These exceptions are not likely to apply in situations where the Policy is not
owned by an individual.
Definition of Modified Endowment Contracts
Section 7702A establishes a class of life insurance contracts designated as
"Modified Endowment Contracts," which applies to Policies entered into or
materially changed after June 20, 1988.
In general, a Policy will be a Modified Endowment Contract if the accumulated
premiums paid at any time during the first seven Policy Years exceed the
"seven-pay premium limit". The seven-pay premium limit on any date is equal to
the sum of the net level premiums that would have been paid on or before such
date if the policy provided for paid-up future benefits after the payment of
seven level annual premiums (the "seven-pay premium").
The rules relating to whether a Policy will be treated as a MEC are extremely
complex and cannot be adequately described in the limited confines of this
summary. Therefore, a current or prospective policyowner should consult with a
competent adviser to determine whether a transaction will cause the Policy to be
treated as a MEC.
Material Changes
A policy that is not a MEC may become a MEC if it is "materially changed". If
there is a material change to the policy, the seven year testing period for MEC
status is restarted. The material change rules for determining whether a Policy
is a MEC are complex. In general, however, the determination of whether a Policy
will be a MEC after a material change generally depends upon the relationship
among the death benefit of the Policy at the time of such change, the Policy
Value at the time of the change, and the additional premiums paid into the
Policy during the seven years starting with the date on which the material
change occurs.
Reductions in Face Amount
If there is a reduction in benefits during any Policy Year, the seven-pay
premium limit is recalculated as if the policy had been originally issued at the
reduced benefit level. Failure to comply would result in classification as a MEC
regardless of any efforts by the Company to provide a payment schedule that will
not violate the seven pay test.
Exchanges
A life insurance contract received in exchange for a MEC will also be treated as
a MEC.
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Processing of Premiums
If a premium is received which would cause the Policy to become a MEC within 23
days of the next Policy Anniversary, the Company will not apply the portion of
the premium which would cause MEC status ("excess premium") to the Policy when
received. The excess premium will be placed in a suspense account until the next
anniversary date, at which point the excess premium, along with interest, earned
on the excess premium at a rate of 3.5% from the date the premium was received,
will be applied to the Policy. The policyowner will be advised of this action
and will be offered the opportunity to have the premium credited as of the
original date received or to have the premium returned. If the policyowner does
not respond, the premium and interest will be applied to the Policy as of the
first day of the next anniversary.
If a premium is received which would cause the Policy to become a MEC more than
23 days prior to the next Policy Anniversary, the Company will refund any excess
premium to the policyowner. The portion of the premium which is not excess will
be applied as of the date received. The policyowner will be advised of this
action and will be offered the opportunity to return the premium and have it
credited to the account as of the original date received.
Multiple Policies
All MEC's that are issued by a Company (or its affiliates) to the same
policyowner during any calendar year are treated as one MEC for purposes of
determining the amount includible in gross income under Section 72(e) of the
Code.
POLICY LOAN INTEREST
Generally, personal interest paid on any loan under a Policy which is owned by
an individual is not deductible. For policies purchased on or after January 1,
1996, interest on any loan under a Policy owned by a taxpayer and covering the
life of any individual who is an officer or employee of or is financially
interested in the business carried on by the taxpayer will not be tax deductible
unless the employee is a key person within the meaning of Section 264 of the
Code. A deduction will not be permitted for interest on a loan under a Policy
held on the life of a key person to the extent the aggregate of such loans with
respect to contracts covering the key person exceed $50,000. The number of
employees who can qualify as key persons depends in part on the size of the
employer but cannot exceed 20 individuals.
Furthermore, if a non-natural person owns a Policy, or is the direct or indirect
beneficiary under a Policy, section 264(f) of the Code disallows a pro-rata
portion of the taxpayer's interest expense allocable to unborrowed Policy cash
values attributable to insurance held on the lives of individuals who are not
20% (or more) owners of the taxpayer-entity, officers, employees, or former
employees of the taxpayer.
The portion of the interest expense that is allocable to unborrowed Policy cash
values is an amount that bears the same ratio to that interest expense as the
taxpayer's average unborrowed Policy cash values under such life insurance
policies bear to the average adjusted bases for all assets of the taxpayer.
If the taxpayer is not the Policyowner, but is the direct or indirect
beneficiary under the Policy, then the amount of unborrowed cash value of the
Policy taken into account in computing the portion of the taxpayer's interest
expense allocable to unborrowed Policy cash values cannot exceed the benefit to
which the taxpayer is directly or indirectly entitled under the Policy.
POLICY EXCHANGES
A policyowner generally will not recognize gain upon the exchange of a Policy
for another life insurance policy issued by the Company or another insurance
company, except to the extent that the policyowner receives cash in the exchange
or is relieved of Policy indebtedness as a result of the exchange. In no event
will the gain recognized exceed the amount by which the Policy Value (including
any unpaid loans) exceeds the policyowner's Investment in the Policy.
OTHER TRANSACTIONS
A transfer of the Policy, a change in the owner, a change in the beneficiary,
and certain other changes to the Policy, as well as particular uses of the
Policy (including use in a so called "split-dollar" arrangement) may have tax
consequences depending upon the particular circumstances and should not be
undertaken prior to consulting with a qualified tax adviser. For instance, if
the owner transfers the Policy or designates a new owner in return for valuable
consideration (or, in some
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cases, if the transferor is relieved of a liability as a result of the
transfer), then the Death Benefit payable upon the death of the Insured may in
certain circumstances be includible in taxable income to the extent that the
Death Benefit exceeds the prior consideration paid for the transfer and any
premiums or other amounts subsequently paid by the transferee. Further, in such
a case, if the consideration received exceeds the transferor's Investment in the
Policy, the difference will be taxed to the transferor as ordinary income.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the individual
circumstances of each policyowner and beneficiary.
ALTERNATE MINIMUM TAX
Corporate owners may be subject to Alternate Minimum Tax on the annual increases
in Cash Surrender Values and on the Death Benefit proceeds.
INCOME TAX REPORTING
In certain employer-sponsored life insurance arrangements, including equity
split dollar arrangements, participants may be required to report for income tax
purposes, one or more of the following:
- - the value each year of the life insurance protection provided;
- - an amount equal to any employer-paid premiums; or
- - some or all of the amount by which the current value exceeds the
employer's interest in the Policy.
Participants should consult with their tax adviser to determine the tax
consequences of these arrangements.
OTHER INFORMATION
PAYMENT OF PROCEEDS
As long as the Policy is in force, Manufacturers Life of America will ordinarily
pay any policy loans, surrenders, partial withdrawals or insurance benefit
within seven days after receipt at its Service Office of all the documents
required for such a payment. The Company may delay for up to six months the
payment from the Fixed Account of any policy loans, surrenders, partial
withdrawals, or insurance benefit. In the case of any such payments from any
Investment Account the Company may delay payment during any period during which
(i) the New York Stock Exchange is closed for trading (except for normal weekend
and holiday closings), (ii) trading on the New York Stock Exchange is
restricted, (iii) an emergency exists as a result of which disposal of
securities held in the Separate Account is not reasonably practicable or it is
not reasonably practicable to determine the value of the Separate Account's net
assets or (iv) the SEC, by order, so permits for the protection of security
holders; provided that applicable rules and regulations of the SEC shall govern
as to whether the conditions described in (2) and (3) exist.
REPORTS TO POLICYOWNERS
Within 30 days after each Policy Anniversary, Manufacturers Life of America will
send the policyowner a statement showing, among other things:
- - the amount of death benefit;
- - the Policy Value and its allocation among the Investment Accounts, the
Fixed Account and the Loan Account;
- - the value of the units in each Investment Account to which the Policy
Value is allocated;
- - the Policy Debt and any loan interest charged since the last report;
- - the premiums paid and other Policy transactions made during the period
since the last report; and
- - any other information required by law.
Each policyowner will also be sent an annual and a semi-annual report for the
Trust which will include a list of the securities held in each Portfolio as
required by the 1940 Act.
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DISTRIBUTION OF THE POLICIES
ManEquity, Inc., an indirect wholly-owned subsidiary of Manufacturers Life, will
act as the principal underwriter of, and continuously offer, the Policies
pursuant to a Distribution Agreement with Manufacturers Life of America.
ManEquity, Inc. is registered as a broker-dealer under the Securities Exchange
Act of 1934 and is a member of the National Association of Securities Dealers.
ManEquity, Inc. is located at 200 Bloor Street East, Toronto, Ontario, Canada,
M4W 1E5 and was organized under the laws of Colorado on May 4, 1970. The
directors of ManEquity, Inc. are: John Richardson, Roy Bubbs, Bruce Gordon, Gary
Buchanan and Douglas Myers. The officers of ManEquity, Inc. are: (i) Douglas
Myers - President, (ii) Gary Buchanan - Vice President, Compliance, (iii) Thomas
Reives - Treasurer, (iv) Brian Buckley - Secretary and General Counsel. The
Policies will be sold by registered representatives of either ManEquity or other
broker-dealers having distribution agreements with ManEquity who are also
authorized by state insurance departments to do so. The Policies will be sold in
all states of the United States except New York.
A registered representative will receive commissions not to exceed 105% of
premiums in the first year, 2% of all premiums paid in the second year and
after, and after the second anniversary 0.15% of the Net Policy Value per year.
Representatives who meet certain productivity standards with regard to the sale
of the Policies and certain other policies issued by Manufacturers Life of
America or Manufacturers Life will be eligible for additional compensation.
RESPONSIBILITIES OF MANUFACTURERS LIFE
Manufacturers Life and Manufacturers USA have entered into an agreement with
ManEquity, Inc. pursuant to which Manufacturers Life or Manufacturers USA, on
behalf of ManEquity, Inc. will pay the sales commissions in respect of the
Policies and certain other policies issued by Manufacturers Life of America,
prepare and maintain all books and records required to be prepared and
maintained by ManEquity, Inc. with respect to the Policies and such other
policies, and send all confirmations required to be sent by ManEquity, Inc. with
respect to the Policies and such other policies. ManEquity, Inc. will promptly
reimburse Manufacturers Life or Manufacturers USA for all sales commissions paid
by Manufacturers Life or Manufacturers USA and will pay Manufacturers Life or
Manufacturers USA for its other services under the agreement in such amounts and
at such times as agreed to by the parties.
Manufacturers Life and Manufacturers USA have also entered into a Service
Agreement with Manufacturers Life of America pursuant to which Manufacturers
Life and Manufacturers USA will provide to Manufacturers Life of America all
issue, administrative, general services and recordkeeping functions on behalf of
Manufacturers Life of America with respect to all of its insurance policies
including the Policies.
Finally, Manufacturers Life of America may, from time to time in its sole
discretion, enter into one or more reinsurance agreements with other life
insurance companies under which policies issued by it may be reinsured, such
that its total amount at risk under a policy would be limited for the life of an
insured.
VOTING RIGHTS
As stated previously, all of the assets held in the sub-accounts of the Separate
Account will be invested in shares of a particular Portfolio of the Trust.
Manufacturers Life of America is the legal owner of those shares and as such has
the right to vote upon certain matters that are required by the 1940 Act to be
approved or ratified by the shareholders of a mutual fund and to vote upon any
other matters that may be voted upon at a shareholders' meeting. However,
Manufacturers Life of America will vote shares held in the sub-accounts in
accordance with instructions received from policyowners having an interest in
such sub-accounts. Shares held in each sub-account for which no timely
instructions from policyowners are received, including shares not attributable
to the Policies, will be voted by Manufacturers Life of America in the same
proportion as those shares in that sub-account for which instructions are
received. Should the applicable federal securities laws or regulations change so
as to permit Manufacturers Life of America to vote shares held in the Separate
Account in its own right, it may elect to do so.
The number of shares in each sub-account for which instructions may be given by
a policyowner is determined by dividing the portion of the Policy Value derived
from participation in that sub-account, if any, by the value of one share of the
corresponding Portfolio. The number will be determined as of a date chosen by
Manufacturers Life of America, but not
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<PAGE> 42
more than 90 days before the shareholders' meeting. Fractional votes are
counted. Voting instructions will be solicited in writing at least 14 days prior
to the meeting.
Manufacturers Life of America may, if required by state officials, disregard
voting instructions if such instructions would require shares to be voted so as
to cause a change in the sub-classification or investment policies of one or
more of the Portfolios, or to approve or disapprove an investment management
contract. In addition, the Company itself may disregard voting instructions that
would require changes in the investment policies or investment adviser, provided
that Manufacturers Life of America reasonably disapproves such changes in
accordance with applicable federal regulations. If Manufacturers Life of America
does disregard voting instructions, it will advise policyowners of that action
and its reasons for such action in the next communication to policyowners.
SUBSTITUTION OF PORTFOLIO SHARES
It is possible that in the judgment of the management of Manufacturers Life of
America, one or more of the Portfolios may become unsuitable for investment by
the Separate Account because of a change in investment policy or a change in the
applicable laws or regulation, because the shares are no longer available for
investment, or for some other reason. In that event, Manufacturers Life of
America may seek to substitute the shares of another Portfolio or of an entirely
different mutual fund. Before this can be done, the approval of the S.E.C. and
one or more state insurance departments may be required.
Manufacturers Life of America also reserves the right (i) to combine other
separate accounts with the Separate Account, (ii) to create new separate
accounts, (iii) to establish additional sub-accounts within the Separate Account
to invest in additional portfolios of the Trust or another management investment
company, (iv) to eliminate existing sub-accounts and to stop accepting new
allocations and transfers into the corresponding portfolio, (v) to combine
sub-accounts or to transfer assets in one sub-account to another sub-account or
(vi) to transfer assets from the Separate Account to another separate account
and from another separate account to the Separate Account. The Company also
reserves the right to operate the Separate Account as a management investment
company or other form permitted by law, and to de-register the Separate Account
under the 1940 Act. Any such change would be made only if permissible under
applicable federal and state law.
RECORDS AND ACCOUNTS
The Service Office will perform administrative functions, such as decreases,
increases, surrenders and partial withdrawals, and fund transfers on behalf of
the Company.
All records and accounts relating to the Separate Account and the Portfolios
will be maintained by the Company. All financial transactions will be handled by
the Company. All reports required to be made and information required to be
given will be provided by the Company.
STATE REGULATIONS
Manufacturers Life of America is subject to the regulation and supervision by
the Michigan Department of Insurance, which periodically examines its financial
condition and operations. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business. The
Policies have been filed with insurance officials, and meet all standards set by
law, in each jurisdiction where they are sold.
Manufacturers Life of America is required to submit annual statements of its
operations, including financial statements, to the insurance departments of the
various jurisdictions in which it does business for the purposes of determining
solvency and compliance with local insurance laws and regulations.
LITIGATION
No litigation is pending that would have a material effect upon the Separate
Account or the Trust.
INDEPENDENT AUDITORS
The consolidated financial statements of Manufacturers Life Insurance Company of
America and Separate Account Three of The Manufacturers Life Insurance Company
of America at December 31, 1998 and 1997, and for each of the three years in the
period ended December 31, 1998, appearing in this Prospectus and Registration
Statement have been audited by Ernst &
39
<PAGE> 43
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 SEC's principal
office in Washington D.C. upon payment of the prescribed fee. The Commission
also maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission which is located at http://www.sec.gov.
For further information you may also contact Manufacturers Life of America's
Home Office, the address and telephone number of which are on the first page of
the prospectus.
OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
Position with
Manufacturers Life
Name of America Principal Occupation
<S> <C> <C>
Sandra M. Cotter (36) Director Attorney, Dykema Gosset, PLLC, 1989 to present.
(since December 1992)
James D. Gallagher (44) Director (since May 1996), Vice President, Secretary and General Counsel,
Secretary and The Manufacturers Life Insurance Company (USA),
General Counsel January 1997 to present; Secretary and General
Counsel, Manufacturers Adviser Corporation,
January 1997 to present; Vice President, Legal
Services - U.S. Operations, The Manufacturers
Life Insurance Company, January 1996 to present;
Vice President, Secretary and General Counsel,
The Manufacturers Life Insurance Company of
North America, 1994 to present; Vice President
and Associate General Counsel, The Prudential
Insurance Company of America, 1991 to 1994.
Donald A. Guloien (41) Director (since August 1990) Executive Vice President, Business Development,
and President The 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, Jr. (43) Director (since May 1996) Senior Vice President, U.S. Annuities, The
Manufacturers Life Insurance Company, January
1999 to present; President, The Manufacturers
Life Insurance Company of North America,
January 1999 to present; Senior Vice President,
U.S. Individual Insurance, The
</TABLE>
40
<PAGE> 44
<TABLE>
<S> <C> <C>
Manufacturers Life Insurance Company, August 1998
to December 1998; Vice President, U.S. Individual
Insurance, The Manufacturers Life Insurance
Company, June 1995 to February 1998; Executive
Vice President, Mutual Fund Sales & Marketing,
State Street Research, March 1994 to June 1995.
James O'Malley (52) Director (since November 1998) Senior Vice President, U.S. Pensions, The
Manufacturers Life Insurance Company, January
1999 to present; Vice President, Systems New
Business Pensions, The Manufacturers Life
Insurance Company, 1984 to December 1998.
Joseph J. Pietroski (60) Director (since July 1992) Senior Vice President, General Counsel and
Corporate Secretary, The Manufacturers Life
Insurance Company, 1988 to present.
John D. Richardson (61) Chairman and Director Senior Executive Vice President, The
(since January 1995) Manufacturers Life Insurance Company; January
1999 to present; Executive Vice President, U.S.
Operations, The Manufacturers Life Insurance
Company, November 1995 to December 1998;
Senior Vice President and General Manager,
U.S. Operations, The Manufacturers Life
Insurance Company, January 1995 to October
1997; Senior Vice President and General
Manager, Canadian Operations, The
Manufacturers Life Insurance Company,
June 1992 to December 1994.
Victor Apps (51) Vice President, Asia Executive Vice President, Asia Operations, The
Manufacturers Life Insurance Company, November
1997 to present; Senior Vice President and
General Manager, Greater China Division, The
Manufacturers Life Insurance Company, 1995 to
1997; Vice President and General Manager,
Greater China Division, The Manufacturers Life
Insurance Company, 1993 to 1995; International
Vice President, Asia Pacific Division, The
Manufacturers Life Insurance Company, 1988 to
1993.
</TABLE>
41
<PAGE> 45
<TABLE>
<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, U.S. Individual
Insurance, The Manufacturers Life Insurance
Company, January 1999 to present; Vice
President, Product Management, The
Manufacturers Life Insurance Company, 1996 to
December 1998; Sales and Marketing Director,
The Manufacturers Life Insurance Company, 1994
to 1995.
Hugh C. McHaffie (40) Vice President Vice President, Product Development, U.S.
Annuities, The Manufacturers Life Insurance
Company, January 1996 to present; Vice
President U.S. Annuities, The Manufacturers
Life Insurance Company of North America,
September 1996 to present; Vice President,
Product Actuary, The Manufacturers Life
Insurance Company of North America, August 1994
to September 1996; Product Development
Executive, The Manufacturers Life Insurance
Company of North America, August 1990 to August
1994.
Douglas H. Myers (44) Vice President, Finance and President, ManEquity, Inc., April 1994 to
Compliance, Controller present; Assistant Vice President and
Controller, U.S. Operations, The Manufacturers
Life Insurance Company, 1988 to present.
John G. Vrysen (43) Vice President, Appointed Chief Financial Officer and Treasurer,
Actuary Manulife-Wood Logan Holding Co., Inc., January
1996 to present; Vice President and Chief
Financial Officer, U.S. Operations, The
Manufacturers Life Insurance Company,
January 1996 to present; Vice President
and Chief Actuary, The Manufacturers
Life Insurance Company of New York,
March 1992 to present; Vice President
and Chief Actuary, The Manufacturers
Life Insurance Company of North
America, January 1986 to present.
Jean Wong (35) Vice President and Treasurer Vice President and Chief Accountant, U.S.
Division, The Manufacturers Life Insurance
Company, May 1998 to present; Chief Accountant,
U.S. Division, The Manufacturers
</TABLE>
42
<PAGE> 46
<TABLE>
<S> <C> <C>
Life Insurance Company, July 1996 to May 1998;
Director, Finance and Administration, Star Data
Systems Inc., December 1995 to July 1996; Vice
President and Chief Financial Officer,
Primerica Financial Services, June 1993 to
December 1995.
</TABLE>
IMPACT OF YEAR 2000
The Company makes extensive use of information systems in the operations of its
various businesses, including for the exchange of financial data and other
information with customers, suppliers and other counterparties. The Company also
uses software and information systems provided by third parties in its
accounting, business and investment systems.
The Year 2000 risk, as it is commonly known, is the result of computer programs
being written 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 computer systems
and processes of Manulife Financial and its subsidiaries and affiliates,
including the Company, will continue to perform through the end of this century
and in the next.
In 1996, in order to make Manulife Financial's systems Year 2000 compliant, a
program was instituted to modify or replace both Manulife Financial's
information technology systems ("IT systems") and embedded technology systems
"Non-IT systems"). The phases of this program include (i) an inventory and
assessment of all systems to determine which are critical, (ii) planning and
designing the required modifications and replacements, (iii) making these
modifications and replacements, (iv) testing modified or replaced systems, (v)
redeploying modified or replaced systems and (vi) final management review and
certification. For most IT and Non-IT systems identified as critical,
certification has been completed for the Company. Of those systems classified as
critical, management believes that over 99% were Year 2000 compliant at the end
of 1998. Management continues to focus attention on the remaining 1% of critical
systems. Those that affect the Company are expected to be compliant by the end
of the second quarter in 1999. The Company's non-critical systems were Year 2000
compliant by the end of the first quarter 1999.
In addition to efforts directed at Manulife Financial's own systems, Manulife
Financial is presently consulting vendors, customers, and other third parties
with which it deals in an effort to ensure that no material aspect of Manulife
Financial's operations will be hindered by Year 2000 problems of these third
parties. This process includes providing third parties with questionnaires
regarding the state of their Year 2000 readiness and, where possible or where
appropriate, conducting further due diligence activities.
Manulife Financial recognizes the importance of preparing for the change to the
Year 2000 and, in January 1999, commenced preparation of contingency plans, in
the event that Manulife Financial's year 2000 program has not fully resolved its
Year 2000 issues. The Year 2000 Project Management Office for Manulife
Financial's U.S. Division is coordinating the preparation of the Year 2000
contingency plan on behalf of U.S. Division affiliates and subsidiaries.
Contingency planning is targeted for completion by mid-1999.
Management currently believes that, with modifications to existing software and
conversions to new software, the Year 2000 risk will not pose significant
operations problems for Manulife Financial's computer systems. As part of the
Year 2000 program, critical systems were "time-shift" tested in the year 2000
and beyond to confirm that they will continue to function properly before,
during and after the change to the Year 2000. However, there can be no assurance
that Manulife Financial's Year 2000 program, including consulting third parties
and its contingency planning, will avoid any material adverse effect on Manulife
Financial's operations, customer relations or financial condition. Manulife
Financial estimates the total cost of its
43
<PAGE> 47
Year 2000 program will be approximately $US59.9 million*, of which $US49.5
million* has been incurred through December 31, 1998; however, there can be no
assurance that the actual cost incurred will not be materially higher than such
estimate. Manulife Financial's Year 2000 costs were $US3.9 million* for the
first three months of 1999 and $US7.1 million* for the first three months of
1998. Most costs will be expensed as incurred; however, those costs attributed
to the purchase of new software and hardware will generally be capitalized. The
total cost of the Year 2000 program is not expected to have a material effect on
Manulife Financial's net operating income.
* All dollar values converted from Canadian dollars using the exchange rate of
1.512 in effect March 31, 1999.
ILLUSTRATIONS
The tables set forth in Appendix A illustrate the way in which a Policy's Death
Benefit, Policy Value, and Cash Surrender Value could vary over an extended
period of time.
44
<PAGE> 48
Separate Account Three of
The Manufacturers Life Insurance Company of America
Financial Statements
Three years ended December 31, 1998
CONTENTS
Report of Independent Auditors..................................................
Audited Financial Statements
Statement of Assets and Liabilities.............................................
Statements of Operations........................................................
Statements of Changes in Net Assets.............................................
Notes to Financial Statements...................................................
F-1
<PAGE> 49
Report of Independent Auditors
To the Board of Directors
The Manufacturers Life Insurance
Company of America
We have audited the accompanying statement of assets and liabilities of Separate
Account Three of The Manufacturers Life Insurance Company of America as of
December 31, 1998 and the related statements of operations and changes in net
assets for each of the periods presented therein. These financial statements are
the responsibility of The Manufacturers Life Insurance Company of America's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1998, by correspondence with
the custodian. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Separate Account Three of The
Manufacturers Life Insurance Company of America at December 31, 1998, and the
results of its operations and the changes in its net assets for each of the
periods presented therein, in conformity with generally accepted accounting
principles.
Philadelphia, Pennsylvania
February 4, 1999
F-2
<PAGE> 50
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>
ASSETS
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-3
<PAGE> 51
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Operations
<TABLE>
<CAPTION>
EMERGING GROWTH QUANTITATIVE EQUITY
SUB-ACCOUNT SUB-ACCOUNT
-----------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income:
Dividend income $ 995,471 $ -- $ 7,702,014 $ 5,169,494 $ -- $4,240,752
-----------------------------------------------------------------------------
Realized and unrealized gain (loss) on investments:
Realized gain (loss) from security
transactions:
Proceeds from sales 6,100,016 7,107,331 4,088,127 4,267,545 3,096,117 1,222,403
Cost of securities sold 4,854,772 5,908,528 3,518,688 2,650,426 2,122,759 976,262
-----------------------------------------------------------------------------
Net realized gain (loss) 1,245,244 1,198,803 569,439 1,617,119 973,358 246,141
-----------------------------------------------------------------------------
Unrealized appreciation (depreciation) of
investments:
Beginning of year 6,743,875 (1,640,500) 4,794,911 9,470,255 1,534,960 2,295,941
End of year 4,651,935 6,743,875 (1,640,500) 13,385,867 9,470,255 1,534,960
-----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during
the year (2,091,940) 8,384,375 (6,435,411) 3,915,612 7,935,295 (760,981)
-----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments (846,696) 9,583,178 (5,865,972) 5,532,731 8,908,653 (514,840)
-----------------------------------------------------------------------------
Net increase (decrease) in net assets derived from
operations $ 148,775 $ 9,583,178 $ 1,836,042 $10,702,225 $8,908,653 $3,725,912
=============================================================================
</TABLE>
* Reflects the period from commencement of operations February 14, 1996
through December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-4
<PAGE> 52
<TABLE>
<CAPTION>
REAL ESTATE SECURITIES BALANCED CAPITAL GROWTH BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 3,092,425 $ -- $ 2,776,056 $ 5,710,136 $ -- $ 4,478,042 $ 1,051,960 $ -- $ 864,430
- -------------------------------------------------------------------------------------------------------------------------------
2,650,837 1,134,797 660,261 3,244,479 4,291,414 1,836,560 3,019,340 1,876,127 1,292,420
2,269,138 898,569 631,891 2,557,957 3,671,860 1,674,031 2,667,419 1,866,847 1,363,232
- -------------------------------------------------------------------------------------------------------------------------------
381,699 236,228 28,370 686,522 619,554 162,529 351,921 9,280 (70,812)
- -------------------------------------------------------------------------------------------------------------------------------
5,819,408 2,155,063 748,034 6,626,044 958,041 2,693,376 1,199,605 (223,171) 153,798
(1,897,849) 5,819,409 2,155,063 6,332,445 6,626,043 958,041 1,309,718 1,199,605 (223,171)
- -------------------------------------------------------------------------------------------------------------------------------
(7,717,257) 3,664,346 1,407,029 (293,599) 5,668,002 (1,735,335) 110,113 1,422,776 (376,969)
- -------------------------------------------------------------------------------------------------------------------------------
(7,335,558) 3,900,574 1,435,399 392,923 6,287,556 (1,572,806) 462,034 1,432,056 (447,781)
- -------------------------------------------------------------------------------------------------------------------------------
$(4,243,133) $ 3,900,574 $ 4,211,455 $ 6,103,059 $ 6,287,556 $ 2,905,236 $ 1,513,994 $ 1,432,056 $ 416,649
===============================================================================================================================
</TABLE>
F-5
<PAGE> 53
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Operations (continued)
<TABLE>
<CAPTION>
MONEY MARKET INTERNATIONAL STOCK
SUB-ACCOUNT SUB-ACCOUNT
-----------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income:
Dividend income $ 1,481,440 $ 1,159,280 $ 1,505,315 $ 313,529 $ 209,753 $248,736
------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investments:
Realized and unrealized gain (loss) from security
transactions:
Proceeds from sales 55,917,389 18,425,413 17,344,859 4,550,901 780,310 289,302
Cost of securities sold 55,917,389 19,340,111 16,936,049 3,876,157 656,813 250,445
------------------------------------------------------------------------------
Net realized gain (loss) -- (914,698) 408,810 674,744 123,497 38,857
------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of
investments:
Beginning of year -- (914,724) 233,720 131,809 450,565 99,777
End of year -- 1 (914,724) 1,643,285 131,811 450,565
------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) during
the year -- 914,725 (1,148,444) 1,511,476 (318,754) 350,788
------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments -- 27 (739,634) 2,186,220 (195,257) 389,645
------------------------------------------------------------------------------
Net increase (decrease) in net assets derived from
operations $ 1,481,440 $ 1,159,307 $ 765,681 $2,499,749 $ 14,496 $638,381
==============================================================================
</TABLE>
* Reflects the period from commencement of operations February 14, 1996
through December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-6
<PAGE> 54
<TABLE>
<CAPTION>
PACIFIC RIM EMERGING MARKETS
SUB-ACCOUNT EQUITY INDEX SUB-ACCOUNT EQUITY SUB-ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED*
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 12,667 $ 239,201 $1,392,501 $ 2,468,634 $ 449,782 $ 3,871,537 $2,150,334 $ 26,181
- ---------------------------------------------------------------------------------------------------------------------------
4,347,338 1,556,257 443,740 2,890,323 1,982,591 231,179 1,483,382 1,891,337 54,581
6,967,881 1,571,876 374,390 2,287,244 1,529,141 214,759 1,636,220 1,889,551 56,756
- ---------------------------------------------------------------------------------------------------------------------------
(2,620,543) (15,619) 69,350 603,079 453,450 16,420 (152,838) 1,786 (2,175)
- ---------------------------------------------------------------------------------------------------------------------------
(2,120,318) 67,813 88,856 488,049 (46,898) -- 737,427 495,686 --
421,880 (2,120,317) 67,813 6,270,171 488,048 (46,898) (1,030,422) 737,427 495,686
- ---------------------------------------------------------------------------------------------------------------------------
2,542,198 (2,188,130) (21,043) 5,782,122 534,946 (46,898) (1,767,849) 241,741 495,686
- ---------------------------------------------------------------------------------------------------------------------------
(78,345) (2,203,749) 48,307 6,385,201 988,396 (30,478) (1,920,687) 243,527 493,511
- ---------------------------------------------------------------------------------------------------------------------------
$ (78,345) $(2,191,082) $ 287,508 $7,777,702 $ 3,457,030 $ 419,304 $ 1,950,850 $2,393,861 $ 519,692
===========================================================================================================================
</TABLE>
F-7
<PAGE> 55
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Operations (continued)
<TABLE>
<CAPTION>
VALUE EQUITY SUB-ACCOUNT GROWTH AND INCOME SUB-ACCOUNT
------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED*
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income:
Dividend income $ 976,745 $1,127,557 $ 8,790 $1,500,080 $ 556,761 $ 1,952
------------------------------------------------------------------------------
Realized and unrealized gain (loss) on investments:
Realized and unrealized gain (loss) from
security transactions:
Proceeds from sales 1,391,651 1,288,325 438,548 2,830,806 3,054,342 82,474
Cost of securities sold 1,104,171 1,107,952 417,223 2,030,090 2,467,777 77,312
------------------------------------------------------------------------------
Net realized gain (loss) 287,480 180,373 21,325 800,716 586,565 5,162
------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of
investments:
Beginning of year 1,914,865 364,883 -- 2,511,120 405,558 --
End of year 2,133,232 1,914,865 364,883 6,362,451 2,511,120 405,558
------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
during the year 218,367 1,549,982 364,883 3,851,331 2,105,562 405,558
------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments 505,847 1,730,355 386,208 4,652,047 2,692,127 410,720
------------------------------------------------------------------------------
Net increase (decrease) in net assets derived
from operations $1,482,592 $2,857,912 $394,998 $6,152,127 $3,248,888 $412,672
==============================================================================
</TABLE>
* Reflects the period from commencement of operations February 14, 1996
through December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-8
<PAGE> 56
<TABLE>
<CAPTION>
U.S. GOVERNMENT SECURITIES CONSERVATIVE ASSET ALLOCATION MODERATE ASSET ALLOCATION
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- -----------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED*
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 109,401 $ 123,037 $ 26,995 $ 72,830 $ 42,335 $ 8,660 $ 247,923 $ 83,798 $ 2,105
- -----------------------------------------------------------------------------------------------------------------
986,654 750,917 141,134 207,048 236,418 30,301 147,097 71,531 45,521
954,836 752,455 149,988 202,366 228,648 31,365 136,136 65,973 45,706
- -----------------------------------------------------------------------------------------------------------------
31,818 (1,538) (8,854) 4,682 7,770 (1,064) 10,961 5,558 (185)
- -----------------------------------------------------------------------------------------------------------------
67,077 38,928 -- 17,540 6,566 -- 101,169 23,967 --
106,893 67,077 38,928 24,976 17,540 6,566 183,104 101,169 23,967
- -----------------------------------------------------------------------------------------------------------------
39,816 28,149 38,928 7,436 10,974 6,566 81,935 77,202 23,967
- -----------------------------------------------------------------------------------------------------------------
71,634 26,611 30,074 12,118 18,744 5,502 92,896 82,760 23,782
- -----------------------------------------------------------------------------------------------------------------
$ 181,035 $ 149,648 $ 57,069 $ 84,948 $ 61,079 $ 14,162 $ 340,819 $ 166,558 $ 25,887
=================================================================================================================
</TABLE>
F-9
<PAGE> 57
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Operations (continued)
<TABLE>
<CAPTION>
AGGRESSIVE ASSET ALLOCATION INTERNATIONAL SMALL CAP
SUB-ACCOUNT SUB-ACCOUNT
---------------------------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net investment income:
Dividend income $ 312,103 $ 140,784 $ 11,072 $ 5,687 $ 212
---------------------------------------------------------------------
Realized and unrealized gain (loss) on investments:
Realized and unrealized gain (loss) from security
transactions: 210,791 226,753 79,723 3,812,286 206,034
Proceeds from sales 181,226 204,492 82,946 3,842,577 203,025
---------------------------------------------------------------------
Cost of securities sold 29,565 22,261 (3,223) (30,291) 3,009
---------------------------------------------------------------------
Net realized gain (loss)
Unrealized appreciation (depreciation) of
investments:
Beginning of year 164,721 43,313 -- (39,080) --
End of year 343,898 164,721 43,313 201,045 (39,080)
---------------------------------------------------------------------
Net unrealized appreciation (depreciation) during
the year 179,177 121,408 43,313 240,125 (39,080)
---------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments 208,742 143,669 40,090 209,834 (36,071)
---------------------------------------------------------------------
Net increase (decrease) in net assets derived from
operations $ 520,845 $ 284,453 $ 51,162 $ 215,521 $ (35,859)
=====================================================================
</TABLE>
* Reflects the period from commencement of operations February 14, 1996
through December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-10
<PAGE> 58
<TABLE>
<CAPTION>
BLUE CHIP GROWTH SCIENCE & TECHNOLOGY PILGRAM BAXTER GROWTH SMALL/MID
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT CAP SUB-ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 98,459 $ 104,304 $ -- $ 16,815 $ -- $ -- $ $ --
- ---------------------------------------------------------------------------------------------------------------------
933,491 121,709 7,343,188 457,533 341,421 37,770 341,669 52,379
796,180 128,505 7,715,056 477,311 359,211 36,070 302,630 43,433
- ---------------------------------------------------------------------------------------------------------------------
137,311 (6,796) (371,868) (19,778) (17,790) 1,700 39,039 8,946
- ---------------------------------------------------------------------------------------------------------------------
239,380 -- (62,464) -- (18,510) -- (4,182) --
1,759,946 239,382 1,460,009 (62,465) 75,390 (18,510) 830,276 (4,182)
- ---------------------------------------------------------------------------------------------------------------------
1,520,566 239,382 1,522,473 (62,465) 93,900 (18,510) 834,458 (4,182)
- ---------------------------------------------------------------------------------------------------------------------
1,657,877 232,586 1,150,605 (82,243) 76,110 (16,810) 873,497 4,764
- ---------------------------------------------------------------------------------------------------------------------
$ 1,756,336 $ 336,890 $ 1,150,605 $ (65,428) $ 76,110 $ (16,810) $ 873,497 $ 4,764
=====================================================================================================================
<CAPTION>
WORLDWIDE GROWTH
SUB-ACCOUNT
- ----------------------------
YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97
- ----------------------------
<S> <C>
$ 5,574 $ 2,704
- ----------------------------
884,820 40,572
870,108 38,790
- ----------------------------
14,712 1,782
- ----------------------------
(4,391) --
14,109 (4,391)
- ----------------------------
18,500 (4,391)
- ----------------------------
33,212 (2,609)
- ----------------------------
$ 38,786 $ 95
============================
</TABLE>
F-11
<PAGE> 59
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Operations (continued)
<TABLE>
<CAPTION>
GLOBAL VALUE
EQUITY SUB-ACCOUNT GROWTH SUB-ACCOUNT SUB-ACCOUNT
-----------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income:
Dividend income $ 167,578 $ -- $ 95,683 $ -- $ 117,791 $ 33,133
-----------------------------------------------------------------------------------
Realized and unrealized gain (loss) on
investments:
Realized and unrealized gain (loss) from
security transactions:
Proceeds from sales 14,996,508 6,150 1,586,113 9,760 539,843 28,449
Cost of securities sold 15,031,676 5,777 1,462,588 8,653 517,327 25,668
-----------------------------------------------------------------------------------
Net realized gain (loss) (35,168) 373 123,525 1,107 22,516 2,781
-----------------------------------------------------------------------------------
Unrealized appreciation (depreciation) of
investments:
Beginning of year 32,115 -- 15,489 -- (20,774) --
End of year 246,571 32,115 482,024 15,489 (250,247) (20,774)
-----------------------------------------------------------------------------------
Net unrealized appreciation
(depreciation) during the year 214,456 32,115 466,535 15,489 (229,473) (20,774)
-----------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments 179,288 32,488 590,060 16,596 (206,957) (17,993)
-----------------------------------------------------------------------------------
Net increase (decrease) in net assets derived
from operations $ 346,866 $ 32,488 $ 685,743 $ 16,596 $ (89,166) $ 15,140
===================================================================================
</TABLE>
* Reflects the period from commencement of operations February 14, 1996
through December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-12
<PAGE> 60
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH AND GLOBAL
INCOME HIGH YIELD STRATEGIC BOND GOVERNMENT BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 51,082 $ -- $ 151,912 $ 39,931 $ 86,088 $ -- $ 27,334 $ --
- ----------------------------------------------------------------------------------------------------------------------
7,091,488 18,809 2,330,540 347,712 556,779 18,384 370,605 3,662
7,095,830 18,622 2,338,454 339,830 574,721 17,681 378,835 3,587
- ----------------------------------------------------------------------------------------------------------------------
(4,342) 187 (7,914) 7,882 (17,942) 703 (8,230) 75
- ----------------------------------------------------------------------------------------------------------------------
(39,257) -- (13,453) -- 10,709 -- 3,801 --
47,306 (39,257) (109,324) (13,453) (59,931) 10,709 6,299 3,801
- ----------------------------------------------------------------------------------------------------------------------
86,563 (39,257) (95,871) (13,453) (70,640) 10,709 2,498 3,801
- ----------------------------------------------------------------------------------------------------------------------
82,221 (39,070) (103,785) (5,571) (88,582) 11,412 (5,732) 3,876
- ----------------------------------------------------------------------------------------------------------------------
$ 133,303 $ (39,070) $ 48,127 $ 34,360 $ (2,494) $ 11,412 $ 21,602 $ 3,876
======================================================================================================================
<CAPTION>
INVESTMENT
QUALITY BOND
SUB-ACCOUNT
- ---------------------------
YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97
- ---------------------------
<S> <C>
$ 20,278 $ --
- ---------------------------
134,493 4,700
127,939 4,564
- ---------------------------
6,554 136
- ---------------------------
6,089 --
33,941 6,089
- ---------------------------
27,852 6,089
- ---------------------------
34,406 6,225
- ---------------------------
$ 54,684 $ 6,225
===========================
</TABLE>
F-13
<PAGE> 61
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Operations (continued)
<TABLE>
<CAPTION>
LIFESTYLE LIFESTYLE
AGGRESSIVE 1000 LIFESTYLE BALANCED 640
SUB-ACCOUNT GROWTH 820 SUB-ACCOUNT SUB-ACCOUNT
-------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net investment income: $ 168,006 $ 4,916 $ 629,682 $ 36,584 $ 189,230 $ 16,038
-------------------------------------------------------------------------------------
Dividend income
Realized and unrealized gain (loss) on
investments:
Realized and unrealized gain (loss) from
security transactions: 787,348 18,722 634,837 53,801 896,183 152,797
Proceeds from sales 797,310 17,881 654,079 50,741 898,112 147,960
-------------------------------------------------------------------------------------
Cost of securities sold (9,962) 841 (19,242) 3,060 (1,929) 4,837
-------------------------------------------------------------------------------------
Net realized gain (loss)
Unrealized appreciation (depreciation) of
investments: (11,048) -- (24,738) -- 43,780 --
Beginning of year (67,117) (11,049) 90,282 (24,740) 81,488 43,781
-------------------------------------------------------------------------------------
End of year
Net unrealized appreciation (depreciation)
during the year (56,069) (11,049) 115,020 (24,740) 37,708 43,781
-------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments (66,031) (10,208) 95,778 (21,680) 35,779 48,618
-------------------------------------------------------------------------------------
Net increase (decrease) in net assets derived
from operations $ 101,975 $ (5,292) $ 725,460 $ 14,904 $ 225,009 $ 64,656
=====================================================================================
</TABLE>
* Reflects the period from commencement of operations February 14, 1996
through December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-14
<PAGE> 62
<TABLE>
<CAPTION>
LIFESTYLE LIFESTYLE SMALL COMPANY
MODERATE 460 CONSERVATIVE 280 VALUE TRUST
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** PERIOD ENDED*** YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/98 DEC. 31/97 DEC. 31/96
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 20,025 $ 842 $ 552 $ 9 $ -- $ 28,132,536 $ 8,330,428 $ 22,590,083
- -----------------------------------------------------------------------------------------------------------------------------
195,747 2,366 64,048 173 20,186 138,107,190 49,351,462 28,281,133
204,400 2,372 62,423 172 23,678 134,346,562 45,853,994 26,801,043
- -----------------------------------------------------------------------------------------------------------------------------
(8,653) (6) 1,625 1 (3,492) 3,760,628 3,497,468 1,480,090
- -----------------------------------------------------------------------------------------------------------------------------
4 -- 29 -- -- 33,986,145 3,720,050 11,108,413
19,896 3 5,724 29 10,664 45,119,935 33,986,146 3,720,050
- -----------------------------------------------------------------------------------------------------------------------------
19,892 3 5,695 29 10,664 11,133,790 30,266,096 (7,388,363)
- -----------------------------------------------------------------------------------------------------------------------------
11,239 (3) 7,320 30 7,172 14,894,418 33,763,564 (5,908,273)
- -----------------------------------------------------------------------------------------------------------------------------
$ 31,264 $ 839 $ 7,872 $ 39 $ 7,172 $ 43,026,954 $42,093,992 $ 16,681,810
============================================================================================================================
</TABLE>
F-15
<PAGE> 63
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
EMERGING GROWTH QUANTITATIVE EQUITY
SUB-ACCOUNT SUB-ACCOUNT
--------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 995,471 $ -- $ 7,702,014 $ 5,169,494 $ -- $ 4,240,752
Net realized gain (loss) 1,245,244 1,198,803 569,439 1,617,119 973,358 246,141
Net unrealized appreciation
(depreciation) of investments
during the period (2,091,940) 8,384,375 (6,435,411) 3,915,612 7,935,295 (760,981)
--------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
derived from operations 148,775 9,583,178 1,836,042 10,702,225 8,908,653 3,725,912
--------------------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 12,733,443 16,038,468 22,504,630 7,242,095 7,834,132 9,633,477
Transfer on death -- -- -- -- -- --
Transfer on terminations (6,445,689) (6,450,838) (4,593,540) (3,997,775) (4,132,053) (2,214,864)
Transfer on policy loans (218,046) (358,214) (610,713) (273,706) (432,977) (113,064)
Net interfund transfers (5,805,034) (6,440,946) (11,484) (1,628,360) (60,101) 1,337,385
--------------------------------------------------------------------------------------------
264,674 2,788,470 17,288,893 1,342,254 3,209,001 8,642,934
--------------------------------------------------------------------------------------------
Net increase (decrease) in net assets 413,449 12,371,648 19,124,935 12,044,479 12,117,654 12,368,846
NET ASSETS
Beginning of year 66,343,106 53,971,458 34,846,523 40,149,248 28,031,594 15,662,748
--------------------------------------------------------------------------------------------
End of year $ 66,756,555 $ 66,343,106 $ 53,971,458 $ 52,193,727 $ 40,149,248 $ 28,031,594
============================================================================================
</TABLE>
* Reflects the period from commencement of operations February 14, 1996
through December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-16
<PAGE> 64
<TABLE>
<CAPTION>
CAPITAL GROWTH
REAL ESTATE SECURITIES BALANCED BOND
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- --------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 3,092,425 $ -- $ 2,776,056 $ 5,710,136 $ -- $ 4,478,042 $ 1,051,960 $ -- $ 864,430
381,699 236,228 28,370 686,522 619,554 162,529 351,921 9,280 (70,812)
(7,717,257) 3,664,346 1,407,029 (293,599) 5,668,002 (1,735,335) 110,113 1,422,776 (376,969)
- --------------------------------------------------------------------------------------------------------------------------------
(4,243,133) 3,900,574 4,211,455 6,103,059 6,287,556 2,905,236 1,513,994 1,432,056 416,649
- --------------------------------------------------------------------------------------------------------------------------------
5,859,264 5,723,061 4,465,307 7,177,808 8,963,510 10,619,657 3,364,775 4,146,312 4,480,626
-- -- -- -- (44,313) -- -- -- --
(2,117,340) (2,219,786) (1,347,117) (4,188,769) (3,729,355) (2,563,981) (1,655,470) (1,575,696) (1,205,581)
(77,402) (369,877) (65,858) (150,786) (417,435) (355,780) (32,638) (105,540) (27,779)
(2,327,888) 1,279,970 467,823 (534,390) (2,581,258) (394,561) (584,488) (81,587) 685,493
- --------------------------------------------------------------------------------------------------------------------------------
1,336,634 4,413,368 3,520,155 2,303,863 2,191,149 7,305,335 1,092,179 2,383,489 3,932,759
- --------------------------------------------------------------------------------------------------------------------------------
(2,906,499) 8,313,942 7,731,610 8,406,922 8,478,705 10,210,571 2,606,173 3,815,545 4,349,408
25,603,002 17,289,060 9,557,450 41,823,014 33,344,309 23,133,738 18,639,105 14,823,560 10,474,152
- --------------------------------------------------------------------------------------------------------------------------------
$22,696,503 $25,603,002 $17,289,060 $50,229,936 $41,823,014 $33,344,309 $21,245,278 $18,639,105 $14,823,560
================================================================================================================================
</TABLE>
F-17
<PAGE> 65
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-18
<PAGE> 66
<TABLE>
<CAPTION>
PACIFIC RIM EMERGING MARKETS SUB-ACCOUNT EQUITY INDEX SUB-ACCOUNT EQUITY SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED*
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 12,667 $ 239,201 $ 1,392,501 $ 2,468,634 $ 449,782 $ 3,871,537 $ 2,150,334 $ 26,181
(2,620,543) (15,619) 69,350 603,079 453,450 16,420 (152,838) 1,786 (2,175)
2,542,198 (2,188,130) (21,043) 5,782,122 534,946 (46,898) (1,767,849) 241,741 495,686
- ------------------------------------------------------------------------------------------------------------------------------------
(78,345) (2,191,082) 287,508 7,777,702 3,457,030 419,304 1,950,850 2,393,861 519,692
- ------------------------------------------------------------------------------------------------------------------------------------
1,563,148 2,059,145 2,541,885 12,850,700 7,852,789 5,327,031 5,682,311 7,868,634 4,931,946
-- -- -- -- -- -- -- -- --
(436,588) (620,211) (354,050) (2,024,088) (781,683) (136,828) (1,536,387) (1,054,893) (260,549)
(15,173) (58,638) (25,816) (475,140) (721,710) -- (34,034) (45,576) (65,890)
229,348 (630,778) 1,682,204 6,006,985 3,377,661 876,961 19,738 778,412 3,345,171
- ------------------------------------------------------------------------------------------------------------------------------------
1,340,735 749,518 3,844,223 16,358,457 9,727,057 6,067,164 4,131,628 7,546,577 7,950,678
- ------------------------------------------------------------------------------------------------------------------------------------
1,262,390 (1,441,564) 4,131,731 24,136,159 13,184,087 6,486,468 6,082,478 9,940,438 8,470,370
4,357,924 5,799,488 1,667,757 19,670,555 6,486,468 -- 18,410,808 8,470,370 --
- ------------------------------------------------------------------------------------------------------------------------------------
$ 5,620,314 $ 4,357,924 $ 5,799,488 $43,806,714 $ 19,670,555 $ 6,486,468 $ 24,493,286 $ 18,410,808 $ 8,470,370
====================================================================================================================================
</TABLE>
F-19
<PAGE> 67
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-20
<PAGE> 68
<TABLE>
<CAPTION>
U.S. GOVERNMENT CONSERVATIVE ASSET MODERATE ASSET
SECURITIES ALLOCATION ALLOCATION
SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED*
DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 109,401 $ 123,037 $ 26,995 $ 72,830 $ 42,335 $ 8,660 $ 247,923 $ 83,798 $ 2,105
31,818 (1,538) (8,854) 4,682 7,770 (1,064) 10,961 5,558 (185)
39,816 28,149 38,928 7,436 10,974 6,566 81,935 77,202 23,967
- ----------------------------------------------------------------------------------------------------------------------------------
181,035 149,648 57,069 84,948 61,079 14,162 340,819 166,558 25,887
- ----------------------------------------------------------------------------------------------------------------------------------
664,545 745,345 757,201 176,976 334,314 143,807 895,345 692,412 348,167
-- -- -- -- -- -- -- -- --
(154,411) (221,531) (35,748) (52,005) (34,376) (33,413) (208,435) (104,738) (25,611)
(32,573) (50,875) (30,576) -- -- -- (7,332) (346) --
423,298 (76,765) 929,361 46,253 (37,686) 246,043 230,395 588,790 183,575
- ----------------------------------------------------------------------------------------------------------------------------------
900,859 396,174 1,620,238 171,224 262,252 356,437 909,973 1,176,118 506,131
- ----------------------------------------------------------------------------------------------------------------------------------
1,081,894 545,822 1,677,307 256,172 323,331 370,599 1,250,792 1,342,676 532,018
2,223,129 1,677,307 -- 693,930 370,599 -- 1,874,694 532,018 --
- ----------------------------------------------------------------------------------------------------------------------------------
$ 3,305,023 $ 2,223,129 $ 1,677,307 $ 950,102 $ 693,930 $ 370,599 $3,125,486 $ 1,874,694 $ 532,018
==================================================================================================================================
</TABLE>
F-21
<PAGE> 69
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-22
<PAGE> 70
<TABLE>
<CAPTION>
SCIENCE &TECHNOLOGY PILGRAM BAXTER GROWTH WORLDWIDE GROWTH
SUB-ACCOUNT SUB-ACCOUNT SMALL/MID CAP SUB-ACCOUNT SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 16,815 $ -- $ -- $ -- $ -- $ 5,574 $ 2,704
(371,868) (19,778) (17,790) 1,700 39,039 8,946 14,712 1,782
1,522,473 (62,465) 93,900 (18,510) 834,458 (4,182) 18,500 (4,391)
- ------------------------------------------------------------------------------------------------------------------------------
1,150,605 (65,428) 76,110 (16,810) 873,497 4,764 38,786 95
- ------------------------------------------------------------------------------------------------------------------------------
1,150,664 361,963 515,555 141,492 1,769,196 757,544 396,653 143,932
-- -- -- -- -- -- -- --
(90,696) (21,603) (58,953) (7,886) (173,727) (32,683) (41,648) (4,603)
(13,553) (904) (11,158) -- (9,934) (269) (6,172) (1,290)
1,674,262 791,001 520,806 444,653 1,932,598 742,521 377,034 177,277
- ------------------------------------------------------------------------------------------------------------------------------
2,720,677 1,130,457 966,250 578,259 3,518,133 1,467,113 725,867 315,316
- ------------------------------------------------------------------------------------------------------------------------------
3,871,282 1,065,029 1,042,360 561,449 4,391,630 1,471,877 764,653 315,411
1,065,029 -- 561,449 -- 1,471,877 -- 315,411 --
- ------------------------------------------------------------------------------------------------------------------------------
$ 4,936,311 $ 1,065,029 $ 1,603,809 $ 561,449 $ 5,863,507 $ 1,471,877 $ 1,080,064 $ 315,411
==============================================================================================================================
</TABLE>
F-23
<PAGE> 71
Separate Account Three of
The Manufacturers Life Insurance Company of America
Statements of Changes in Net Assets (continued)
<TABLE>
<CAPTION>
GLOBAL EQUITY SUB-ACCOUNT GROWTH SUB-ACCOUNT VALUE SUB-ACCOUNT
---------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income $ 167,578 $ -- $ 95,683 $ -- $ 117,791 $ 33,133
Net realized gain (loss) (35,168) 373 123,525 1,107 22,516 2,781
Net unrealized appreciation
(depreciation) of investments
during the period 214,456 32,115 466,535 15,489 (229,473) (20,774)
---------------------------------------------------------------------------------------
Net increase (decrease) in net assets
derived from operations 346,866 32,488 685,743 16,596 (89,166) 15,140
---------------------------------------------------------------------------------------
FROM CAPITAL TRANSACTIONS
Additions (deductions) from:
Transfer of net premiums 1,830,508 697,468 3,294,658 470,000 1,600,753 346,369
Transfer on death -- -- -- -- -- --
Transfer on terminations (146,797) (22,616) (107,258) (29,691) (117,194) (21,998)
Transfer on policy loans (6,447) (283) (38,221) (2,329) (12,965) (1,030)
Net interfund transfers 750,096 761,527 1,662,737 794,709 1,104,824 742,495
---------------------------------------------------------------------------------------
2,427,360 1,436,096 4,811,916 1,232,689 2,575,418 1,065,836
---------------------------------------------------------------------------------------
Net increase (decrease) in net 2,774,226 1,468,584 5,497,659 1,249,285 2,486,252 1,080,976
assets
NET ASSETS
Beginning of year 1,468,584 -- 1,249,285 -- 1,080,976 --
---------------------------------------------------------------------------------------
End of year $ 4,242,810 $ 1,468,584 $ 6,746,944 $ 1,249,285 $ 3,567,228 $ 1,089,976
=======================================================================================
</TABLE>
* Reflects the period from commencement of operations February 14, 1996
through December 31, 1996
** Reflects the period from commencement of operations May 1, 1997 through
December 31, 1997
*** Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998
See accompanying notes.
F-24
<PAGE> 72
<TABLE>
<CAPTION>
INTERNATIONAL GROWTH AND GLOBAL GOVERNMENT BOND
INCOME SUB-ACCOUNT HIGH YIELD SUB-ACCOUNT STRATEGIC BOND SUB-ACCOUNT SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED**
DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 51,082 $ -- $ 151,912 $ 39,931 $ 86,088 $ -- $ 27,334 $ --
(4,342) 187 (7,914) 7,882 (17,942) 703 (8,230) 75
86,563 (39,257) (95,871) (13,453) (70,640) 10,709 2,498 3,801
- ------------------------------------------------------------------------------------------------------------------------
133,303 (39,070) 48,127 34,360 (2,494) 11,412 21,602 3,876
- ------------------------------------------------------------------------------------------------------------------------
515,640 744,217 943,552 276,881 1,272,907 273,501 143,923 58,746
- ------------------------------------------------------------------------------------------------------------------------
(50,349) (9,912) (111,555) (31,310) (103,790) (11,295) (17,835) (2,335)
(2,253) -- (7,304) (6,696) (10,279) (504) (6,107) --
23,545 90,093 158,145 797,757 1,091,881 380,876 277,425 161,473
- ------------------------------------------------------------------------------------------------------------------------
486,583 824,398 982,838 1,036,632 2,250,719 642,578 397,406 217,884
- ------------------------------------------------------------------------------------------------------------------------
619,886 785,328 1,030,965 1,070,992 2,248,225 653,990 419,008 221,760
785,328 -- 1,070,992 -- 653,990 -- 221,760 --
- ------------------------------------------------------------------------------------------------------------------------
$ 1,405,214 $ 785,328 $ 2,101,957 $ 1,070,992 $2,902,215 $ 653,990 $ 640,768 $ 221,760
========================================================================================================================
</TABLE>
F-25
<PAGE> 73
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-26
<PAGE> 74
<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-27
<PAGE> 75
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements
December 31, 1998
1. ORGANIZATION
Separate Account Three of The Manufacturers Life Insurance Company of America
(the "Separate Account") is a unit investment trust registered under the
Investment Company Act of 1940, as amended. The Separate Account is comprised of
investment sub-accounts available for allocation of net premiums under single
premium variable life and variable universal life insurance policies (the
"Policies") issued by The Manufacturers Life Insurance Company of America
("Manufacturers Life of America"). The Separate Account was established by
Manufacturers Life of America, a life insurance company organized in 1983 under
Michigan law. Manufacturers Life of America is an indirect, wholly-owned
subsidiary of The Manufacturers Life Insurance Company ("Manulife Financial"), a
Canadian mutual life insurance company. Each investment sub-account invests
solely in shares of a particular Manufacturers Investment Trust. Manufacturers
Investment Trust is registered under the Investment Company Act of 1940 as an
open-end management investment company.
The Equity Index Fund, Equity, Value Equity, Growth and Income, U.S. Government
Securities, Conservative Asset Allocation, Moderate Asset Allocation, and
Aggressive Asset Allocation Trusts were added to the Separate Account on
February 14, 1996 as investment options for variable universal life policy
holders of Manufacturers Life of America.
The International Small Cap and Blue Chip Growth Trusts was added to the
Separate Account on January 1, 1997 as investment options for variable universal
life policy holders of Manufacturers Life of America. The Science & Technology,
Pilgram Baxter Growth, Small/Mid Cap, Worldwide Growth, Global Equity, Growth,
Value, International Growth and Income, High Yield, Strategic Bond, Global
Government Bond, Investment Quality Bond, Lifestyle Aggressive 1000, Lifestyle
Growth 820, Lifestyle Balanced 640, Lifestyle Moderate 460, and Lifestyle
Conservative 280 Trusts were added to the Separate Account on May 1, 1997 as
investment options for variable universal life policy holders of Manufacturers
Life of America. The Small Company Value Trust was added to the Separate Account
on May 1, 1998.
F-28
<PAGE> 76
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
1. ORGANIZATION (CONTINUED)
Manufacturers Life of America is the legal owner of the Separate Account.
Manufacturers Life of America is required to maintain assets in the Separate
Account with a total market value at least equal to the reserves and other
liabilities relating to the variable benefits under all policies participating
in the Separate Account. These assets may not be charged with liabilities which
arise from any other business Manufacturers Life of America conducts. However,
all obligations under the variable policies are general corporate obligations of
Manufacturers Life of America.
Additional assets are held in Manufacturers Life of America's general account to
cover the contingency that the guaranteed minimum death benefit might exceed the
death benefit which would have been payable in the absence of such guarantee.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by the
Separate Account in preparation of its financial statements:
a. Valuation of Investments - Investments are made among thirty-six Trusts of
Manufacturers Investment Trust and are valued at the reported net asset
values of these Trusts. Transactions are recorded on the trade date. Net
investment income and net realized gains on investments in Manufacturers
Investment Trust are reinvested.
b. Realized gains and losses on the sale of investments are computed on the
first-in, first-out basis.
c. Dividend income is recorded on the ex-dividend date.
d. Federal Income Taxes - Manufacturers Life of America, the Separate
Account's sponsor, is taxed as a "life insurance company" under the
Internal Revenue Code. Under these provisions of the Code, the operations
of the Separate Account form part of the sponsor's total operations and are
not taxed separately.
The current year's operations of the Separate Account are not expected to affect
the sponsor's tax liabilities and, accordingly, no charges were made against the
Separate Account for federal, state and local taxes. However, in the future,
should the sponsor incur significant tax liabilities related to the Separate
Account's operations, it intends to make a charge or establish a provision
within the Separate Account for such taxes.
F-29
<PAGE> 77
Separate Account Three of
The Manufacturers Life Insurance Company of America
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. PREMIUM DEDUCTIONS
Manufacturers Life of America deducts certain charges for state, local, and
federal taxes from the gross premium before placing the remaining net premiums
in the sub-accounts.
4. PURCHASES AND SALES OF MANUFACTURERS INVESTMENT TRUST SHARES
Purchases and sales of the shares of common stock of Manufacturers Investment
Trust for the year ended December 31, 1998 were $255,373,727 and $138,107,190,
respectively, and for the year ended December 31, 1997 were $152,223,137 and
$49,351,462, respectively.
5. RELATED PARTY TRANSACTIONS
ManEquity, Inc., a registered broker-dealer and indirect wholly-owned subsidiary
of Manulife Financial, acts as the principal underwriter of the Policies
pursuant to a Distribution Agreement with Manufacturers Life of America.
Registered representatives of either ManEquity, Inc. or other broker-dealers
having distribution agreements with ManEquity, Inc. who are also authorized as
variable life insurance agents under applicable state insurance laws, sell the
Policies. Registered representatives are compensated on a commission basis.
Manufacturers Life of America has a formal service agreement with its
affiliates, Manulife Financial and The Manufacturers Life Insurance Company
(U.S.A.), which can be terminated by either party upon two months notice. Under
this Agreement, Manufacturers Life of America pays for legal, actuarial,
investment and certain other administrative services.
F-30
<PAGE> 78
CONSOLIDATED FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
WITH REPORT OF INDEPENDENT AUDITORS
CONTENTS
Report of Independent Auditors..................................................
Audited Consolidated Financial Statements.......................................
Consolidated Balance Sheets................................................
Consolidated Statements of Income..........................................
Consolidated Statements of Changes in Capital And Surplus..................
Consolidated Statements of Cash Flows......................................
Notes to Consolidated Financial Statements......................................
F-31
<PAGE> 79
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-30
<PAGE> 80
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-33
<PAGE> 81
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUE:
Premiums $ 9,290 $ 8,607 $ 12,898
Consideration paid on reinsurance terminated (note 10) (40,975) -- --
Fee income 54,547 38,682 40,434
Net investment income (note 3) 6,128 8,275 19,651
Realized investment gains (losses) (206) 118 (119)
Other 1,082 544 668
-------- -------- --------
TOTAL REVENUE $ 29,866 $ 56,226 $ 73,532
-------- -------- --------
BENEFITS AND EXPENSES:
Policyholder benefits and claims $ 16,541 $ 6,733 $ 14,473
Reduction of reserves on reinsurance terminated (note 10) (40,975) -- --
Operating costs and expenses 41,676 41,742 34,581
Commissions 2,561 2,838 10,431
Amortization of deferred acquisition costs (note 5) 9,266 4,860 13,240
Interest expense 1,722 2,750 12,251
Policyholder dividends 221 1,416 872
-------- -------- --------
TOTAL BENEFITS AND EXPENSES 31,012 60,339 85,848
-------- -------- --------
LOSS BEFORE INCOME TAXES (1,146) (4,113) (12,316)
-------- -------- --------
INCOME TAX BENEFIT (NOTE 6) 392 477 3,909
-------- -------- --------
NET LOSS $ (754) $ (3,636) $ (8,407)
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
<PAGE> 82
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED OTHER TOTAL
FOR THE YEARS ENDED DECEMBER 31 CAPITAL CONTRIBUTED EARNINGS COMPREHENSIVE CAPITAL AND
($ thousands) STOCK SURPLUS (DEFICIT) INCOME (LOSS) SURPLUS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 15,002 $ 83,569 $ 10,133 $ 1,816 $ 110,520
Issuance of shares -- 15,000 -- -- 15,000
Comprehensive income (loss) (note 2) -- -- (8,407) (483) (8,890)
--------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1996 $ 15,002 $ 98,569 $ 1,726 $ 1,333 $ 116,630
Comprehensive income (loss) (note 2) -- -- (3,636) (6,225) (9,861)
--------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1997 $ 15,002 $ 98,569 $ (1,910) $ (4,892) $ 106,769
Capital contribution (note 8) -- 94,527 -- -- 94,527
Comprehensive income (loss) (note 2) -- -- (754) 2,655 1,901
--------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1998 $ 15,002 $ 193,096 $ (2,664) $ (2,237) $ 203,197
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE> 83
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Loss $ (754) $ (3,636) $ (8,407)
Adjustments to reconcile net loss to net cash used in operating activities:
Additions (deductions) to policy liabilities and accruals (36,217) (2,147) 3,287
Deferred acquisition costs (43,065) (33,544) (36,024)
Amortization of deferred acquisition costs 9,266 4,860 13,240
Realized (gains) losses on investments 206 (118) 119
Decreases (increases) to deferred income taxes (1,796) 2,730 777
Other 3,067 7,144 6,540
--------- --------- ---------
Net cash used in operating activities $ (69,293) $ (24,711) $ (20,468)
--------- --------- ---------
INVESTING ACTIVITIES:
Fixed maturity securities sold $ 27,852 $ 73,772 $ 120,234
Fixed maturity securities purchased (6,429) (89,763) (108,401)
Equity securities sold 8,555 10,586 25,505
Equity securities purchased (8,082) (11,289) (22,203)
Mortgage loans repaid -- 514 6,669
Net change in short-term investments 1,671 4,558 (2,992)
Net policy loans advanced (4,647) (4,851) (2,867)
Guaranteed annuity contracts -- 171,691 (16,356)
--------- --------- ---------
Cash provided by investing activities $ 18,920 $ 155,218 $ 2,581
--------- --------- ---------
FINANCING ACTIVITIES:
Receipts from variable life and annuity policies
credited to policyholder account balances $ 7,981 $ 7,582 $ 5,493
Withdrawals of policyholder account balances on
variable life and annuity policies (5,410) (3,252) (2,994)
Bonds payable repaid -- (158,760) --
Issuance of shares -- -- 15,000
Issuance of promissory note -- 33,000 --
Capital Contribution 51,709 -- --
--------- --------- ---------
Cash provided by (used in) financing activities $ 54,280 $(121,430) $ 17,499
--------- --------- ---------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during the year 3,907 9,077 (3,380)
Balance, beginning of year 19,882 10,805 14,185
--------- --------- ---------
BALANCE, END OF YEAR $ 23,789 $ 19,882 $ 10,805
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-36
<PAGE> 84
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(IN THOUSANDS OF DOLLARS)
1. ORGANIZATION
The Manufacturers Life Insurance Company of America (the "Company") is
a wholly-owned subsidiary of The Manufacturers Life Insurance Company
(U.S.A.) ("ManUSA"), which is in turn an indirectly wholly-owned
subsidiary of The Manufacturers Life Insurance Company ("Manulife
Financial"), a Canadian-based mutual life insurance company. The
Company markets variable annuity and variable life products in the
United States and traditional insurance products in Taiwan.
On December 31, 1996, ManUSA transferred to the Company all of the
common and preferred shares of Manulife Holding Corporation ("Holdco"),
an investment holding company. The Company then transferred all the
common and preferred shares of Manufacturers Adviser Corporation
("MAC") to Holdco for two shares of $1 common stock of Holdco. Holdco
has primarily three wholly-owned subsidiaries, ManEquity Inc., a
registered broker/dealer, MAC, an investment fund management company,
and Manulife Capital Corporation ("MCC"), an investment holding
company.
In October 1997, the Manufacturers Life Mortgage Securities Corporation
("MLMSC"), a subsidiary of Holdco, was absorbed into Holdco subsequent
to the maturity and repayment of the mortgage-backed US dollar bonds.
All assets and liabilities of MLMSC were transferred to Holdco at their
respective book values.
These transfers have been accounted for using the pooling-of-interests
method of accounting. Under this method, the assets, liabilities,
capital and surplus, revenues and expenses of each separate entity are
combined retroactively at their historical carrying values to form the
financial statements of the Company for all periods presented to give
effect to the reorganization as if the structure in place at December
31, 1996 had been in place as of the earliest period presented in these
consolidated financial statements. The accounts of all subsidiary
companies are therefore combined and all significant intercompany
balances and transactions are eliminated on combination. In addition,
the capital and surplus of the Company has been restated retroactively
to reflect the capital structure in place at December 31, 1996.
F-37
<PAGE> 85
The revenues and net income reported by the separate entities and the
combined amounts presented in the accompanying consolidated financial
statements are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
($ thousands) 1996
--------------------------------------------
<S> <C>
Revenue:
ManAmerica $ 54,404
Holdco 15,543
MAC 3,585
--------
TOTAL REVENUE $ 73,532
--------
Net Income (loss):
ManAmerica $ (8,676)
Holdco (670)
MAC 939
--------
TOTAL NET LOSS $ (8,407)
========
</TABLE>
2. SIGNIFICANT ACCOUNTING POLICIES
a) BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company have
been prepared in conformity with generally accepted accounting
principles ("GAAP").
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes.
Actual results could differ from reported results using those
estimates.
Certain reclassifications have been made to 1997 and 1996 financial
information to conform to the 1998 presentation.
b) RECENT ACCOUNTING STANDARDS
i) During 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income". SFAS No.
130 establishes standards for reporting and displaying comprehensive
income and its components in a full set of general-purpose annual
financial statements. Comprehensive income includes all changes in
shareholder's equity during a period except those resulting from
investments by and distributions to shareholders. The adoption of SFAS
No. 130 resulted in revised and additional disclosures but had no
effect on the financial position, results of operations, or liquidity
of the Company.
F-38
<PAGE> 86
Total comprehensive income was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME (LOSS) $ (754) $(3,636) $(8,407)
------- ------- -------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized holding gains (losses) arising during the period 2,435 (1,030) (560)
Foreign currency translation 86 (5,272) --
Reclassification adjustment for realized gains (losses)
included in net income (134) 77 (77)
------- ------- -------
Other comprehensive income (loss) 2,655 (6,225) (483)
------- ------- -------
COMPREHENSIVE INCOME (LOSS) $ 1,901 $(9,861) $(8,890)
======= ======= =======
</TABLE>
Other comprehensive income (loss) is reported net of tax expense
(benefit) of $1,430, $(513), and $260 for 1998, 1997, and 1996,
respectively.
Accumulated other comprehensive income is comprised of the following:
<TABLE>
<CAPTION>
AS AT DECEMBER 31
($ thousands) 1998 1997
----------------------------------------------------------------------------
<S> <C> <C>
UNREALIZED GAINS (LOSSES):
Beginning balance $ 380 $ 1,333
Current period change 2,569 (953)
------- -------
Ending balance $ 2,949 $ 380
------- -------
FOREIGN CURRENCY:
Beginning balance $(5,272) $ --
Current period change 86 (5,272)
------- -------
Ending balance $(5,186) $(5,272)
------- -------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) $(2,237) $(4,892)
======= =======
</TABLE>
ii) During 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". SFAS
No. 131 establishes standards for the disclosure of
information about the Company's operating segments, including
disclosures about products and services, geographic areas, and
major customers. The adoption of SFAS No. 131 did not affect
results of operations or financial position, nor did it affect
the manner in which the Company defines its operating
segments. The Company reports two business segments:
Traditional Life Insurance sold in Taiwan and Variable Life
and Annuities sold in the U.S. Refer to Note 12 for additional
segment information.
c) INVESTMENTS
The Company classifies all of its fixed maturity and equity
securities as available-for-sale and records these securities
at fair value. Realized gains and losses on sales of
securities classified as available-for-sale are recognized in
net income using the specific identification method. Changes
in the fair value of securities available-for-sale are
reflected directly in accumulated other comprehensive income
after adjustments for deferred taxes and deferred acquisition
costs. Discounts and premiums on investments are amortized
using the effective interest method.
F-39
<PAGE> 87
Policy loans are reported at aggregate unpaid balances which
approximate fair value.
Short-term investments include investments with maturities of less than
one year at the date of acquisition.
d) CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with
an original maturity date of three months or less to be cash
equivalents. Cash equivalents are stated at cost plus accrued interest,
which approximates fair value.
e) DEFERRED ACQUISITION COSTS (DAC)
Commissions and other expenses which vary with and are primarily
related to the production of new business are deferred to the extent
recoverable and included as an asset. DAC associated with variable
annuity and variable life insurance contracts is charged to expense in
relation to the estimated gross profits of those contracts. The
amortization is adjusted retrospectively when estimates of current or
future gross profits are revised. DAC associated with traditional life
insurance policies is charged to expense over the premium paying period
of the related policies. DAC is adjusted for the impact on estimated
future gross profits assuming the unrealized gains or losses on
securities had been realized at year-end. The impact of any such
adjustments is included in net unrealized gains (losses) in accumulated
other comprehensive income. DAC is reviewed annually to determine
recoverability from future income and, if not recoverable, it is
immediately expensed.
f) POLICYHOLDER LIABILITIES
For variable annuity and variable life contracts, reserves equal the
policyholder account value. Account values are increased for deposits
received and interest credited and are reduced by withdrawals,
mortality charges and administrative expenses charged to the
policyholders. Policy charges which compensate the Company for future
services are deferred and recognized in income over the period earned,
using the same assumptions used to amortize DAC.
Policyholder liabilities for traditional life insurance policies sold
in Taiwan are computed using the net level premium method and are based
upon estimates as to future mortality, persistency, maintenance expense
and interest rate yields that were established in the year of issue.
g) SEPARATE ACCOUNTS
Separate account assets and liabilities represent funds that are
separately administered, principally for variable annuity and variable
life contracts, and for which the contract holder, rather than the
Company, bears the investment risk Separate account assets are recorded
at market value. Operations of the separate accounts are not included
in the accompanying financial statements.
F-40
<PAGE> 88
h) REVENUE RECOGNITION
Fee income from variable annuity and variable life insurance policies
consists of policy charges for the cost of insurance, expenses and
surrender charges that have been assessed against the policy account
balances. Policy charges that are designed to compensate the company
for future services are deferred and recognized in income over the
period benefited, using the same assumptions used to amortize DAC.
Premiums on long-duration life insurance contracts are recognized as
revenue when due. Investment income is recorded when due.
i) EXPENSES
Expenses for variable annuity and variable life insurance policies
include interest credited to policy account balances and benefit claims
incurred during the period in excess of policy account balances.
j) REINSURANCE
The Company is routinely involved in reinsurance transactions in order
to minimize exposure to large risks. Life reinsurance is accomplished
through various plans including yearly renewable term, co-insurance and
modified co-insurance. Reinsurance premiums, policy charges for cost of
insurance and claims are accounted for on a basis consistent with that
used in accounting for the original policies issued and the terms of
the reinsurance contracts. Premiums, fees and claims are reported net
of reinsured amounts. Amounts paid with respect to ceded reinsurance
contracts are reported as reinsurance receivables in other assets.
k) FOREIGN EXCHANGE
The Company's Taiwanese branch balance sheet and statement of income
are translated at the current exchange and average exchange rates for
the year respectively. The resultant translation adjustments are
included in accumulated other comprehensive income.
l) INCOME TAX
Income taxes have been provided for in accordance with SFAS No. 109
"Accounting for Income Taxes." The Company joins ManUSA, Manulife
Reinsurance Corporation ("MRC") and Manulife Reinsurance Limited
("MRL") in filing a U.S. consolidated income tax return as a life
insurance group under provisions of the Internal Revenue Code. In
accordance with an income tax sharing agreement, the Company's income
tax provision (or benefit) is computed as if the Company filed a
separate income tax return. Tax benefits from operating losses are
provided at the U.S. statutory rate plus any tax credits attributable
to the Company, provided the consolidated group utilizes such benefits
currently. Deferred income taxes result from temporary differences
between the tax basis of assets and liabilities and their recorded
amounts for financial reporting purposes. Income taxes recoverable
represents amounts due from ManUSA in connection with the consolidated
return.
F-41
<PAGE> 89
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 $49,254
------- -------
</TABLE>
F-42
<PAGE> 90
b) INVESTMENT INCOME
Income by type of investment was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities $ 4,675 $ 4,545 $ 4,447
Equity securities 227 331 671
Guaranteed annuity contracts -- 2,796 13,196
Other investments 1,485 772 1,697
------- ------- -------
Gross investment income 6,387 8,444 20,011
------- ------- -------
Investment expenses 259 169 360
------- ------- -------
NET INVESTMENT INCOME $ 6,128 $ 8,275 $19,651
======= ======= =======
</TABLE>
4. GUARANTEED ANNUITY CONTRACTS AND BONDS PAYABLE
The Company's wholly-owned subsidiary, Manufacturers Life Mortgage
Securities Corporation, has historically invested amounts received as
repayments of mortgage loans in annuities issued by ManUSA. These
annuities were collateral for the 8 1/4 % mortgage-backed bonds
payable. On March 1, 1997 the annuities matured and the proceeds were
used to repay the bonds payable.
In October 1997, MLMSC was absorbed into Manulife Holding Corporation.
5. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, $ 130,355 $ 102,610 $ 78,829
Capitalization 43,065 33,544 36,024
Accretion of interest 11,417 9,357 6,344
Amortization (20,683) (14,217) (19,583)
Effect of net unrealized gains (losses)
on securities available for sale (784) 1,268 996
Currency 136 (2,207) --
--------- --------- ---------
BALANCE AT DECEMBER 31 $ 163,506 $ 130,355 $ 102,610
========= ========= =========
</TABLE>
6. INCOME TAXES
Components of income tax expense (benefit) were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
------------------------------------------------------------------------
<S> <C> <C> <C>
Current expense (benefit) $ 1,404 $(3,207) $(4,686)
Deferred expense (benefit) (1,796) 2,730 777
------- ------- -------
TOTAL EXPENSE (BENEFIT) $ (392) $ (477) $(3,909)
======= ======= =======
</TABLE>
F-43
<PAGE> 91
The Company's deferred income tax liability, which results from tax
effecting the differences between financial statement values and tax
values of assets and liabilities at each balance sheet date, relates to
the following:
<TABLE>
<CAPTION>
AS AT DECEMBER 31
($ thousands) 1998 1997
-----------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Differences in computing policy reserves $ 38,888 $ 34,291
Policyholder dividends payable -- 240
Investments 708 793
Other deferred tax assets 333 --
-------- --------
Deferred tax assets $ 39,929 $ 35,324
-------- --------
DEFERRED TAX LIABILITIES:
Deferred acquisition costs $ 38,778 $ 30,682
Investments 1,859 166
Policyholder dividends payable 55 --
Other deferred tax liabilities -- 5,650
-------- --------
Deferred tax liabilities $ 40,692 $ 36,498
-------- --------
NET DEFERRED TAX LIABILITIES $ (763) $ (1,174)
======== ========
</TABLE>
At December 31, 1998, the consolidated group has utilized all available
operating loss carryforwards and net capital loss carryforwards. The
losses of the Company, MRC and ManUSA may be used to offset the
ordinary and capital gain income of MRL. However, losses of MRL may not
be used to offset the income of the other members of the consolidated
group.
7. NOTES PAYABLE
a) On June 15, 1998, the outstanding promissory note in the
amount of $33,000 plus interest at 6.95% issued on December 5,
1997 payable to ManUSA was discharged and the amount due of
$34,318 ($33,000 plus interest of $1,318) was recorded as a
capital contribution.
b) On December 31, 1998, the surplus debenture in the amount of
$8,500 plus interest at 6.7% issued on December 31, 1995 to
ManUSA was discharged and the amount due of $8,500 was
recorded as a capital contribution.
8. CAPITAL AND SURPLUS
The Company has two classes of capital stock, as follows:
<TABLE>
<CAPTION>
AS AT DECEMBER 31:
($ thousands, except per share amounts) 1998 1997
------------------------------------------------------------------------
<S> <C> <C>
AUTHORIZED:
5,000,000 Common shares, Par value $1
5,000,000 Preferred shares, Par value $100
ISSUED AND OUTSTANDING:
4,501,861 Common shares $4,502 $4,502
</TABLE>
F-44
<PAGE> 92
<TABLE>
<S> <C> <C>
105,000 Preferred shares 10,500 10,500
------- -------
TOTAL $15,002 $15,002
======= =======
</TABLE>
During 1996, the Company issued two common shares to its Parent Company
in return for a capital contribution of $15,000.
In 1998, the outstanding promissory note payable referred to in note
7(a) above, totaling $34,318, was discharged and recorded as a capital
contribution.
On December 31, 1998, the Company issued one common share to ManUSA in
exchange for a capital contribution of $60,209. Included in this
capital contribution was the discharge of the surplus debenture in the
amount of $8,500 referred to in note 7(b) above.
The Company is subject to statutory limitations on the payment of
dividends to its Parent. Under Michigan Insurance Law, the payment of
dividends to shareholders is restricted to the surplus earnings of the
Company, unless prior approval is obtained from the Michigan Insurance
Bureau.
The aggregate statutory capital and surplus of the Company at December
31, 1998 was $121,799 (1997 $56,598). The aggregate statutory net loss
of the Company for the year ended 1998 was $23,491 (1997 $2,550; 1996
$5,961). State regulatory authorities prescribe statutory accounting
practices that differ in certain respects from generally accepted
accounting principles followed by stock life insurance companies. The
significant differences relate to investments, deferred acquisition
costs, deferred income taxes, non-admitted asset balances and reserve
calculation assumptions.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and the estimated fair values of certain of the
Company's financial instruments at December 31, 1998 were as follows:
<TABLE>
<CAPTION>
ESTIMATED
($ thousands) CARRYING VALUE FAIR VALUE
---------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Fixed maturity and equity securities $69,778 $69,778
Short-term investments 459 459
Policy loans 19,320 19,320
Cash and cash equivalents 23,789 23,789
</TABLE>
The following methods and assumptions were used to estimate the fair
values of the above financial instruments:
FIXED MATURITY AND EQUITY SECURITIES: Fair values of fixed maturity and
equity securities were based on quoted market prices, where available.
Fair values were estimated using values obtained from independent
pricing services.
SHORT-TERM INVESTMENTS AND CASH AND CASH EQUIVALENTS: Carrying values
approximate fair values.
F-45
<PAGE> 93
POLICY LOANS: Carrying values approximate fair values.
10. RELATED PARTY TRANSACTIONS
The Company has formal service agreements with Manulife Financial and
ManUSA which can be terminated by any party upon two months' notice.
Under the agreements, the Company will pay direct operating expenses
incurred each year by Manulife Financial and ManUSA on its behalf.
Services provided under the agreement include legal, actuarial,
investment, data processing and certain other administrative services.
Costs incurred under these agreements were $34,070, $32,733 and $29,384
in 1998, 1997 and 1996 respectively. In addition, there were $12,817,
$11,249 and $6,934 of agents bonuses allocated to the Company during
1998, 1997 and 1996, respectively, which are included in deferred
acquisition costs.
The Company has several reinsurance agreements with affiliated
companies which may be terminated upon the specified notice by either
party. These agreements are summarized as follows:
(a) On December 31, 1998, the coinsurance treaties under which the
Company had assumed two blocks of insurance from ManUSA were
terminated. The Company's risk under these treaties was limited to
$100,000 of initial face amount per claim plus a pro-rata share of
any increase in face amount. Upon the termination of the treaties,
the Company paid consideration in the amount of approximately
$41.0 million to ManUSA and policyholder reserves totaling $41.0
million were recaptured by ManUSA. No gain or loss resulted from
the termination of these treaties.
(b) The Company cedes the risk in excess of $25,000 per life to MRC
under the terms of an automatic reinsurance agreement
(c) The Company cedes a substantial portion of its risk on its
Flexible Premium Variable Life policies to MRC under the terms of
a stop loss reinsurance agreement.
Selected amounts relating to the above treaties reflected in the
financial statements are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1998 1997 1996
----------------------------------------------------------------------------
<S> <C> <C> <C>
Life and annuity premiums assumed $ 48 $ 509 $ 724
Life and annuity premiums ceded 76 69 99
Policy reserves assumed -- 40,975 44,497
Policy reserves ceded 145 130 304
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts to affiliates
were $NIL, $3,972 and $NIL during 1998, 1997 and 1996 respectively.
F-46
<PAGE> 94
The Company and Manulife Financial have entered into an agreement
whereby Manulife Financial provides a claims paying guarantee to the
Company's U.S. policyholders. This claims paying guarantee does not
apply to the Company's separate account contract holders
11. REINSURANCE
In the normal course of business, the Company assumes and cedes
reinsurance as a party to several reinsurance treaties with major
unrelated insurance companies. The Company remains liable for amounts
ceded in the event that reinsurers do not meet their obligations.
The effects of reinsurance on premiums were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ 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
</TABLE>
F-47
<PAGE> 95
<TABLE>
<S> <C> <C> <C>
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.
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-48
<PAGE> 96
APPENDIX A
SAMPLE ILLUSTRATIONS OF POLICY VALUES, CASH SURRENDER VALUES AND DEATH BENEFITS
The following tables have been prepared to help show how values under the Policy
change with investment performance. The tables include both Policy Values and
Cash Surrender Values as well as Death Benefits. The Policy Value is the sum of
the values in the Investment Accounts, as the tables assume no values in the
Fixed Account or Loan Account. The Cash Surrender Value is the Policy Value less
any applicable surrender charges. The tables illustrate how Policy Values and
Cash Surrender Values, which reflect all applicable charges and deductions, and
Death Benefits of the Policy on an insured of 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 an average of those
Portfolios' current expenses, which is approximately 0.949% per annum. The gross
annual rates of return of 0%, 6% and 12% correspond to approximate net annual
rates of return of - 0.944%, 4.999% and 10.942%. The illustrations reflect the
expense reimbursement in effect for the Lifestyle Trust and the expense
limitation in effect for the Equity Index Trust. In the absence of such expense
reimbursement and expense limitation, the average of the Portfolio's current
expenses would have been 0.953 % per annum and the gross annual rates of return
of 0%, 6% and 12% would have corresponded to approximate net annual rates of
return of -0.949%, 4.994% and 10.938%. The expense reimbursement for the
Lifestyle Trusts and the expense limitation for the Equity Index Trust remained
in effect during the fiscal year ended December 31, 1998, and are expected to
remain in effect during the fiscal year ended December 31, 1999. Were the
expense reimbursement and expense limitation to terminate, the average of the
Portfolios' current expenses would be higher and the approximate net annual
rates of return would be lower.
The tables assume that no premiums have been allocated to the Fixed Account,
that planned premiums are paid on the Policy Anniversary and that no transfers,
partial withdrawals, Policy loans, changes in death benefit options or changes
in face amount have been made. The tables reflect the fact that no charges for
federal, state or local taxes are currently made against the Separate Account.
If such a charge is made in the future, it would take a higher gross rate of
return to produce after-tax returns of 0%, 6% and 12% than it does now.
There are two tables shown for each combination of age and death benefit option
for a Policy issued to a male non-smoker, one based on current cost of insurance
charges assessed by the Company and the other based on the maximum cost of
insurance charges based on the 1980 Commissioners Standard 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,
any additional ratings and the death benefit option, face amount and planned
premium requested. Illustrations for smokers would show less favorable results
than the illustrations shown below.
From time to time, in advertisements or sales literature for the Policies that
quote performance data of one or more of the Portfolios, the Company may include
Cash Surrender Values and Death Benefit figures computed using the same
methodology as that used in the following illustrations, but with the average
annual total return of the Portfolios for which performance data is shown in the
advertisement replacing the hypothetical rates of return shown in the following
tables. This information may be shown in the form of graphs, charts, tables and
examples.
A-1
<PAGE> 97
The Policies have been offered to the public only since approximately May 1,
1999. However, total return data may be advertised for as long a period of time
as the underlying Portfolio has been in existence. The results for any period
prior to the Policies' being offered would be calculated as if the Policies had
been offered during that period of time, with all charges assumed to be those
applicable to the Policies.
A-2
<PAGE> 98
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$2,260 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,373 944 0 500,000 1,032 0 500,000 1,121 0 500,000
2 4,865 2,028 0 500,000 2,269 0 500,000 2,522 0 500,000
3 7,481 3,037 0 500,000 3,500 0 500,000 4,005 0 500,000
4 10,228 4,001 407 500,000 4,755 1,160 500,000 5,609 2,015 500,000
5 13,112 4,951 1,948 500,000 6,064 3,061 500,000 7,379 4,376 500,000
6 16,141 5,828 3,415 500,000 7,371 4,959 500,000 9,269 6,857 500,000
7 19,321 6,627 4,805 500,000 8,669 6,848 500,000 11,286 9,465 500,000
8 22,660 7,379 6,148 500,000 9,989 8,759 500,000 13,476 12,245 500,000
9 26,166 8,121 7,480 500,000 11,368 10,728 500,000 15,891 15,251 500,000
10 29,847 8,845 8,796 500,000 12,801 12,752 500,000 18,550 18,501 500,000
11 33,713 9,584 9,584 500,000 14,350 14,350 500,000 21,575 21,575 500,000
12 37,771 10,234 10,234 500,000 15,892 15,892 500,000 24,845 24,845 500,000
13 42,033 10,786 10,786 500,000 17,416 17,416 500,000 28,377 28,377 500,000
14 46,508 11,233 11,233 500,000 18,917 18,917 500,000 32,196 32,196 500,000
15 51,206 11,584 11,584 500,000 20,399 20,399 500,000 36,340 36,340 500,000
16 56,139 11,850 11,850 500,000 21,873 21,873 500,000 40,858 40,858 500,000
17 61,319 12,044 12,044 500,000 23,353 23,353 500,000 45,806 45,806 500,000
18 66,758 12,168 12,168 500,000 24,837 24,837 500,000 51,231 51,231 500,000
19 72,469 12,243 12,243 500,000 26,351 26,351 500,000 57,210 57,210 500,000
20 78,466 12,284 12,284 500,000 27,908 27,908 500,000 63,819 63,819 500,000
21 84,762 12,115 12,115 500,000 29,336 29,336 500,000 70,962 70,962 500,000
22 91,373 11,762 11,762 500,000 30,653 30,653 500,000 78,728 78,728 500,000
23 98,315 11,214 11,214 500,000 31,844 31,844 500,000 87,181 87,181 500,000
24 105,603 10,437 10,437 500,000 32,868 32,868 500,000 96,376 96,376 500,000
25 113,256 9,409 9,409 500,000 33,693 33,693 500,000 106,385 106,385 500,000
26 121,292 8,094 8,094 500,000 34,277 34,277 500,000 117,281 117,281 500,000
27 129,730 6,447 6,447 500,000 34,561 34,561 500,000 129,141 129,141 500,000
28 138,589 4,431 4,431 500,000 34,494 34,494 500,000 142,066 142,066 500,000
29 147,892 2,014 2,014 500,000 34,028 34,028 500,000 156,178 156,178 500,000
30 157,659 0 (4) 0 (4) 0 (4) 33,095 33,095 500,000 171,605 171,605 500,000
31 167,915 31,646 31,646 500,000 188,519 188,519 500,000
32 178,684 29,593 29,593 500,000 207,094 207,094 500,000
33 189,991 26,835 26,835 500,000 227,534 227,534 500,000
34 201,864 23,265 23,265 500,000 250,085 250,085 500,000
35 214,330 18,756 18,756 500,000 275,035 275,035 500,000
36 227,420 13,158 13,158 500,000 302,724 302,724 500,000
37 241,164 6,234 6,234 500,000 333,537 333,537 500,000
38 255,595 0 (4) 0 (4) 0 (4) 367,971 367,971 500,000
39 270,747 406,629 406,629 500,000
40 286,658 450,242 450,242 500,000
41 303,364 499,533 499,533 524,509
42 320,905 554,123 554,123 581,829
</TABLE>
A-3
<PAGE> 99
<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 (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
43 339,323 614,319 614,319 645,035
44 358,662 680,669 680,669 714,702
45 378,968 753,768 753,768 791,456
46 400,290 834,262 834,262 875,975
47 422,677 922,854 922,854 968,996
48 446,184 1,020,304 1,020,304 1,071,319
49 470,866 1,127,437 1,127,437 1,183,809
50 496,783 1,245,127 1,245,127 1,307,383
51 523,995 1,374,310 1,374,310 1,443,026
52 552,568 1,516,032 1,516,032 1,591,833
53 582,569 1,671,381 1,671,381 1,754,950
54 614,071 1,841,520 1,841,520 1,933,596
55 647,147 2,027,698 2,027,698 2,129,083
56 681,877 2,231,266 2,231,266 2,342,829
57 718,344 2,457,329 2,457,329 2,555,622
58 756,634 2,709,109 2,709,109 2,790,383
59 796,839 2,990,416 2,990,416 3,050,224
60 839,054 3,305,765 3,305,765 3,338,822
61 883,380 3,660,531 3,660,531 3,660,531
62 929,922 4,053,131 4,053,131 4,053,131
63 978,791 4,487,601 4,487,601 4,487,601
64 1,030,104 4,968,405 4,968,405 4,968,405
65 1,083,982 5,500,485 5,500,485 5,500,485
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b) no
policy loan has been made, (c) no partial withdrawal of the Cash
Surrender Value has been made and (d) no premiums have been allocated to
the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force
until the end of the first 10 Policy Years. Provided the Death Benefit
Guarantee Cumulative Premium Test has been selected and continues to be
met, the Death Benefit Guarantee will keep the Policy in force on all
policies until age 100.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
A-4
<PAGE> 100
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$2,260 ANNUAL PLANNED PREMIUM
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,373 944 0 500,000 1,032 0 500,000 1,121 0 500,000
2 4,865 1,954 0 500,000 2,193 0 500,000 2,444 0 500,000
3 7,481 2,896 0 500,000 3,350 0 500,000 3,846 0 500,000
4 10,228 3,765 171 500,000 4,497 903 500,000 5,330 1,736 500,000
5 13,112 4,552 1,549 500,000 5,624 2,621 500,000 6,895 3,892 500,000
6 16,141 5,254 2,841 500,000 6,726 4,313 500,000 8,544 6,131 500,000
7 19,321 5,858 4,036 500,000 7,786 5,964 500,000 10,271 8,450 500,000
8 22,660 6,365 5,134 500,000 8,803 7,573 500,000 12,085 10,855 500,000
9 26,166 6,763 6,123 500,000 9,761 9,121 500,000 13,981 13,341 500,000
10 29,847 7,053 7,004 500,000 10,658 10,608 500,000 15,967 15,918 500,000
11 33,713 7,326 7,326 500,000 11,604 11,604 500,000 18,205 18,205 500,000
12 37,771 7,464 7,464 500,000 12,464 12,464 500,000 20,553 20,553 500,000
13 42,033 7,460 7,460 500,000 13,224 13,224 500,000 23,015 23,015 500,000
14 46,508 7,306 7,306 500,000 13,868 13,868 500,000 25,595 25,595 500,000
15 51,206 6,981 6,981 500,000 14,372 14,372 500,000 28,287 28,287 500,000
16 56,139 6,477 6,477 500,000 14,718 14,718 500,000 31,097 31,097 500,000
17 61,319 5,762 5,762 500,000 14,865 14,865 500,000 34,004 34,004 500,000
18 66,758 4,802 4,802 500,000 14,765 14,765 500,000 36,989 36,989 500,000
19 72,469 3,567 3,567 500,000 14,377 14,377 500,000 40,034 40,034 500,000
20 78,466 2,013 2,013 500,000 13,640 13,640 500,000 43,107 43,107 500,000
21 84,762 106 106 500,000 12,499 12,499 500,000 46,180 46,180 500,000
22 91,373 0 (4) 0 (4) 0 (4) 10,888 10,888 500,000 49,221 49,221 500,000
23 98,315 8,755 8,755 500,000 52,207 52,207 500,000
24 105,603 6,029 6,029 500,000 55,104 55,104 500,000
25 113,256 2,610 2,610 500,000 57,851 57,851 500,000
26 121,292 0 (4) 0 (4) 0 (4) 60,380 60,380 500,000
27 129,730 62,611 62,611 500,000
28 138,589 64,429 64,429 500,000
29 147,892 65,693 65,693 500,000
30 157,659 66,235 66,235 500,000
31 167,915 65,873 65,873 500,000
32 178,684 64,414 64,414 500,000
33 189,991 61,614 61,614 500,000
34 201,864 57,194 57,194 500,000
35 214,330 50,787 50,787 500,000
36 227,420 41,893 41,893 500,000
37 241,164 29,572 29,572 500,000
38 255,595 13,517 13,517 500,000
39 270,747 0 (4) 0 (4) 0 (4)
</TABLE>
A-5
<PAGE> 101
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b) no
policy loan has been made, (c) no partial withdrawal of the Cash
Surrender Value has been made and (d) no premiums have been allocated to
the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force
until the end of the first 10 Policy Years. Provided the Death Benefit
Guarantee Cumulative Premium Test has been selected and continues to be
met, the Death Benefit Guarantee will keep the Policy in force on all
policies until age 100.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
A-6
<PAGE> 102
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$3,070 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,224 1,685 0 501,685 1,818 0 501,818 1,951 0 501,951
2 6,608 3,497 0 503,497 3,872 0 503,872 4,265 0 504,265
3 10,162 5,219 575 505,219 5,952 1,308 505,952 6,749 2,105 506,749
4 13,894 6,882 2,894 506,882 8,089 4,100 508,089 9,453 5,464 509,453
5 17,812 8,517 5,184 508,517 10,315 6,983 510,315 12,430 9,097 512,430
6 21,926 10,065 7,388 510,065 12,575 9,897 512,575 15,645 12,968 515,645
7 26,246 11,522 9,500 511,522 14,862 12,840 514,862 19,115 17,094 519,115
8 30,782 12,918 11,553 512,918 17,208 15,842 517,208 22,899 21,533 522,899
9 35,544 14,291 13,581 514,291 19,654 18,944 519,654 27,066 26,355 527,066
10 40,545 15,635 15,581 515,635 22,196 22,142 522,196 31,647 31,592 531,647
11 45,796 17,041 17,041 517,041 24,972 24,972 524,972 36,880 36,880 536,880
12 51,309 18,347 18,347 518,347 27,794 27,794 527,794 42,583 42,583 542,583
13 57,098 19,543 19,543 519,543 30,652 30,652 530,652 48,793 48,793 548,793
14 63,176 20,623 20,623 520,623 33,540 33,540 533,540 55,558 55,558 555,558
15 69,558 21,595 21,595 521,595 36,467 36,467 536,467 62,943 62,943 562,943
16 76,260 22,472 22,472 522,472 39,447 39,447 539,447 71,027 71,027 571,027
17 83,296 23,267 23,267 523,267 42,494 42,494 542,494 79,898 79,898 579,898
18 90,685 23,982 23,982 523,982 45,612 45,612 545,612 89,639 89,639 589,639
19 98,442 24,640 24,640 524,640 48,828 48,828 548,828 100,367 100,367 600,367
20 106,588 25,255 25,255 525,255 52,160 52,160 552,160 112,202 112,202 612,202
21 115,141 25,649 25,649 525,649 55,430 55,430 555,430 125,072 125,072 625,072
22 124,122 25,848 25,848 525,848 58,657 58,657 558,657 139,112 139,112 639,112
23 133,551 25,843 25,843 525,843 61,829 61,829 561,829 154,434 154,434 654,434
24 143,452 25,600 25,600 525,600 64,906 64,906 564,906 171,138 171,138 671,138
25 153,848 25,098 25,098 525,098 67,859 67,859 567,859 189,344 189,344 689,344
26 164,764 24,305 24,305 524,305 70,644 70,644 570,644 209,176 209,176 709,176
27 176,226 23,177 23,177 523,177 73,206 73,206 573,206 230,757 230,757 730,757
28 188,261 21,682 21,682 521,682 75,497 75,497 575,497 254,234 254,234 754,234
29 200,897 19,794 19,794 519,794 77,473 77,473 577,473 279,779 279,779 779,779
30 214,166 17,472 17,472 517,472 79,070 79,070 579,070 307,562 307,562 807,562
31 228,097 14,702 14,702 514,702 80,252 80,252 580,252 337,801 337,801 837,801
32 242,726 11,430 11,430 511,430 80,938 80,938 580,938 370,697 370,697 870,697
33 258,086 7,603 7,603 507,603 81,043 81,043 581,043 406,468 406,468 906,468
34 274,213 3,167 3,167 503,167 80,478 80,478 580,478 445,359 445,359 945,359
35 291,148 0 (4) 0 (4) 0 (4) 79,144 79,144 579,144 487,633 487,633 987,633
36 308,928 76,926 76,926 576,926 533,567 533,567 1,033,567
37 327,598 73,632 73,632 573,632 583,402 583,402 1,083,402
38 347,202 69,128 69,128 569,128 637,464 637,464 1,137,464
39 367,785 63,258 63,258 563,258 696,102 696,102 1,196,102
40 389,398 55,845 55,845 555,845 759,692 759,692 1,259,692
41 412,091 46,506 46,506 546,506 828,439 828,439 1,328,439
</TABLE>
A-7
<PAGE> 103
<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 (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
42 435,920 34,975 34,975 534,975 902,716 902,716 1,402,716
43 460,939 20,936 20,936 520,936 982,891 982,891 1,482,891
44 487,209 4,054 4,054 504,054 1,069,372 1,069,372 1,569,372
45 514,793 0 (4) 0 (4) 0 (4) 1,162,592 1,162,592 1,662,592
46 543,757 1,263,022 1,263,022 1,763,022
47 574,168 1,371,159 1,371,159 1,871,159
48 606,100 1,487,592 1,487,592 1,987,592
49 639,628 1,612,947 1,612,947 2,112,947
50 674,833 1,747,781 1,747,781 2,247,781
51 711,798 1,892,690 1,892,690 2,392,690
52 750,612 2,048,641 2,048,641 2,548,641
53 791,366 2,216,437 2,216,437 2,716,437
54 834,158 2,396,956 2,396,956 2,896,956
55 879,089 2,591,246 2,591,246 3,091,246
56 926,267 2,800,542 2,800,542 3,300,542
57 975,804 3,026,853 3,026,853 3,526,853
58 1,027,818 3,271,863 3,271,863 3,771,863
59 1,082,432 3,537,433 3,537,433 4,037,433
60 1,139,777 3,825,623 3,825,623 4,325,623
61 1,199,989 4,138,724 4,138,724 4,638,724
62 1,263,212 4,479,096 4,479,096 4,979,096
63 1,329,597 4,849,534 4,849,534 5,349,534
64 1,399,300 5,253,144 5,253,144 5,753,144
65 1,472,488 5,693,361 5,693,361 6,193,361
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b) no
policy loan has been made, (c) no partial withdrawal of the Cash
Surrender Value has been made and (d) no premiums have been allocated to
the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force
until the end of the first 10 Policy Years. Provided the Death Benefit
Guarantee Cumulative Premium Test has been selected and continues to be
met, the Death Benefit Guarantee will keep the Policy in force on all
policies until age 100.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
A-8
<PAGE> 104
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$3,070 ANNUAL PLANNED PREMIUM
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
---------------------------- --------------------------- ---------------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) (2) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 3,224 1,685 0 501,685 1,818 0 501,818 1,951 0 501,951
2 6,608 3,423 0 503,423 3,796 0 503,796 4,186 0 504,186
3 10,162 5,077 433 505,077 5,801 1,158 505,801 6,589 1,945 506,589
4 13,894 6,644 2,656 506,644 7,830 3,842 507,830 9,172 5,183 509,172
5 17,812 8,115 4,783 508,115 9,873 6,540 509,873 11,942 8,609 511,942
6 21,926 9,488 6,811 509,488 11,925 9,248 511,925 14,913 12,236 514,913
7 26,246 10,748 8,726 510,748 13,971 11,950 513,971 18,091 16,069 518,091
8 30,782 11,898 10,532 511,898 16,013 14,647 516,013 21,495 20,129 521,495
9 35,544 12,925 12,214 512,925 18,033 17,322 518,033 25,132 24,422 525,132
10 40,545 13,830 13,776 513,830 20,031 19,976 520,031 29,028 28,973 529,028
11 45,796 14,767 14,767 514,767 22,198 22,198 522,198 33,459 33,459 533,459
12 51,309 15,559 15,559 515,559 24,329 24,329 524,329 38,222 38,222 538,222
13 57,098 16,197 16,197 516,197 26,413 26,413 526,413 43,339 43,339 543,339
14 63,176 16,675 16,675 516,675 28,438 28,438 528,438 48,839 48,839 548,839
15 69,558 16,973 16,973 516,973 30,379 30,379 530,379 54,740 54,740 554,740
16 76,260 17,084 17,084 517,084 32,224 32,224 532,224 61,077 61,077 561,077
17 83,296 16,977 16,977 516,977 33,930 33,930 533,930 67,857 67,857 567,857
18 90,685 16,618 16,618 516,618 35,457 35,457 535,457 75,091 75,091 575,091
19 98,442 15,980 15,980 515,980 36,765 36,765 536,765 82,797 82,797 582,797
20 106,588 15,024 15,024 515,024 37,797 37,797 537,797 90,977 90,977 590,977
21 115,141 13,718 13,718 513,718 38,505 38,505 538,505 99,645 99,645 599,645
22 124,122 12,026 12,026 512,026 38,832 38,832 538,832 108,810 108,810 608,810
23 133,551 9,928 9,928 509,928 38,736 38,736 538,736 118,499 118,499 618,499
24 143,452 7,395 7,395 507,395 38,159 38,159 538,159 128,733 128,733 628,733
25 153,848 4,372 4,372 504,372 37,018 37,018 537,018 139,504 139,504 639,504
26 164,764 805 805 500,805 35,226 35,226 535,226 150,807 150,807 650,807
27 176,226 0 (4) 0 (4) 0 (4) 32,684 32,684 532,684 162,632 162,632 662,632
28 188,261 29,264 29,264 529,264 174,937 174,937 674,937
29 200,897 24,819 24,819 524,819 187,664 187,664 687,664
30 214,166 19,187 19,187 519,187 200,742 200,742 700,742
31 228,097 12,210 12,210 512,210 214,104 214,104 714,104
32 242,726 3,742 3,742 503,742 227,694 227,694 727,694
33 258,086 0 (4) 0 (4) 0 (4) 241,438 241,438 741,438
34 274,213 255,257 255,257 755,257
35 291,148 269,032 269,032 769,032
36 308,928 282,565 282,565 782,565
37 327,598 295,285 295,285 795,285
38 347,202 307,440 307,440 807,440
39 367,785 318,319 318,319 818,319
40 389,398 327,472 327,472 827,472
41 412,091 334,503 334,503 834,503
</TABLE>
A-9
<PAGE> 105
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
42 435,920 338,987 338,987 838,987
43 460,939 340,482 340,482 840,482
44 487,209 338,538 338,538 838,538
45 514,793 332,568 332,568 832,568
46 543,757 321,772 321,772 821,772
47 574,168 305,163 305,163 805,163
48 606,100 281,515 281,515 781,515
49 639,628 249,407 249,407 749,407
50 674,833 207,384 207,384 707,384
51 711,798 153,984 153,984 653,984
52 750,612 87,725 87,725 587,725
53 791,366 7,028 7,028 507,028
54 834,158 0 (4) 0 (4) 0 (4)
</TABLE>
(1) All values shown are as of the end of the policy year
indicated, have been rounded to the nearest dollar, and assume
that (a) premiums paid after the initial premium are received
on the policy anniversary, (b) no policy loan has been made,
(c) no partial withdrawal of the Cash Surrender Value has been
made and (d) no premiums have been allocated to the Fixed
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has
been and continues to be met, the No Lapse Guarantee will keep
the Policy in force until the end of the first 10 Policy
Years. Provided the Death Benefit Guarantee Cumulative Premium
Test has been selected and continues to be met, the Death
Benefit Guarantee will keep the Policy in force on all
policies until age 100.
(4) In the absence of additional premium payments, the Policy will
lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
A-10
<PAGE> 106
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$7,940 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
---------------------------- --------------------------- -----------------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) (2) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 8,337 3,773 0 500,000 4,099 0 500,000 4,426 0 500,000
2 17,091 7,276 0 500,000 8,161 0 500,000 9,088 639 500,000
3 26,282 10,711 3,308 500,000 12,389 4,986 500,000 14,222 6,819 500,000
4 35,934 13,900 7,541 500,000 16,609 10,251 500,000 19,692 13,334 500,000
5 46,067 17,059 11,746 500,000 21,042 15,728 500,000 25,763 20,450 500,000
6 56,708 19,894 15,626 500,000 25,394 21,127 500,000 32,192 27,924 500,000
7 67,880 22,421 19,198 500,000 29,681 26,458 500,000 39,039 35,816 500,000
8 79,611 24,742 22,565 500,000 34,000 31,822 500,000 46,457 44,280 500,000
9 91,928 26,951 25,819 500,000 38,447 37,315 500,000 54,607 53,474 500,000
10 104,862 29,087 29,000 500,000 43,071 42,984 500,000 63,612 63,525 500,000
11 118,442 30,770 30,770 500,000 47,598 47,598 500,000 73,449 73,449 500,000
12 132,701 31,945 31,945 500,000 51,893 51,893 500,000 83,978 83,978 500,000
13 147,673 32,505 32,505 500,000 55,843 55,843 500,000 95,203 95,203 500,000
14 163,394 32,422 32,422 500,000 59,409 59,409 500,000 107,217 107,217 500,000
15 179,900 31,643 31,643 500,000 62,528 62,528 500,000 120,108 120,108 500,000
16 197,233 30,083 30,083 500,000 65,106 65,106 500,000 133,961 133,961 500,000
17 215,431 27,717 27,717 500,000 67,100 67,100 500,000 148,934 148,934 500,000
18 234,540 24,527 24,527 500,000 68,476 68,476 500,000 165,228 165,228 500,000
19 254,604 20,497 20,497 500,000 69,196 69,196 500,000 183,074 183,074 500,000
20 275,671 15,606 15,606 500,000 69,218 69,218 500,000 202,747 202,747 500,000
21 297,791 8,816 8,816 500,000 67,571 67,571 500,000 223,937 223,937 500,000
22 321,018 214 214 500,000 64,264 64,264 500,000 247,122 247,122 500,000
23 345,406 0 (4) 0 (4) 0 (4) 58,947 58,947 500,000 272,653 272,653 500,000
24 371,013 51,211 51,211 500,000 300,992 300,992 500,000
25 397,901 40,548 40,548 500,000 332,740 332,740 500,000
26 426,133 26,343 26,343 500,000 368,684 368,684 500,000
27 455,777 7,818 7,818 500,000 409,860 409,860 500,000
28 486,902 0 (4) 0 (4) 0 (4) 457,642 457,642 500,000
29 519,584 512,837 512,837 538,479
30 553,901 573,613 573,613 602,294
31 589,933 640,352 640,352 672,370
32 627,766 713,598 713,598 749,278
33 667,492 793,919 793,919 833,615
34 709,203 881,921 881,921 926,017
35 753,000 978,256 978,256 1,027,169
36 798,987 1,083,627 1,083,627 1,137,809
37 847,274 1,200,576 1,200,576 1,248,599
38 897,974 1,330,751 1,330,751 1,370,673
39 951,210 1,476,098 1,476,098 1,505,620
40 1,007,108 1,638,928 1,638,928 1,655,318
41 1,065,800 1,821,993 1,821,993 1,821,993
</TABLE>
A-11
<PAGE> 107
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
42 1,127,427 2,024,581 2,024,581 2,024,581
43 1,192,135 2,248,774 2,248,774 2,248,774
44 1,260,079 2,496,876 2,496,876 2,496,876
45 1,331,420 2,771,438 2,771,438 2,771,438
</TABLE>
(1) All values shown are as of the end of the policy year
indicated, have been rounded to the nearest dollar, and assume
that (a) premiums paid after the initial premium are received
on the policy anniversary, (b) no policy loan has been made,
(c) no partial withdrawal of the Cash Surrender Value has been
made and (d) no premiums have been allocated to the Fixed
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has
been and continues to be met, the No Lapse Guarantee will keep
the Policy in force until the end of the first 10 Policy
Years. Provided the Death Benefit Guarantee Cumulative Premium
Test has been selected and continues to be met, the Death
Benefit Guarantee will keep the Policy in force on all
policies until age 100.
(4) In the absence of additional premium payments, the Policy will
lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
A-12
<PAGE> 108
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$7,940 ANNUAL PLANNED PREMIUM
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
---------------------------- --------------------------- -----------------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) (2) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 8,337 3,773 0 500,000 4,099 0 500,000 4,426 0 500,000
2 17,091 6,632 0 500,000 7,497 0 500,000 8,405 0 500,000
3 26,282 9,051 1,647 500,000 10,639 3,236 500,000 12,382 4,978 500,000
4 35,934 11,001 4,643 500,000 13,483 7,125 500,000 16,329 9,971 500,000
5 46,067 12,434 7,120 500,000 15,960 10,646 500,000 20,190 14,877 500,000
6 56,708 13,295 9,027 500,000 17,994 13,726 500,000 23,903 19,635 500,000
7 67,880 13,528 10,305 500,000 19,503 16,281 500,000 27,396 24,173 500,000
8 79,611 13,048 10,870 500,000 20,373 18,195 500,000 30,563 28,385 500,000
9 91,928 11,753 10,621 500,000 20,466 19,334 500,000 33,271 32,139 500,000
10 104,862 9,532 9,445 500,000 19,627 19,540 500,000 35,368 35,281 500,000
11 118,442 6,578 6,578 500,000 18,071 18,071 500,000 37,173 37,173 500,000
12 132,701 2,478 2,478 500,000 15,280 15,280 500,000 38,103 38,103 500,000
13 147,673 0 (4) 0 (4) 0 (4) 11,055 11,055 500,000 37,953 37,953 500,000
14 163,394 5,178 5,178 500,000 36,486 36,486 500,000
15 179,900 0 (4) 0 (4) 0 (4) 33,393 33,393 500,000
16 197,233 28,237 28,237 500,000
17 215,431 20,159 20,159 500,000
18 234,540 8,971 8,971 500,000
19 254,604 0 (4) 0 (4) 0 (4)
</TABLE>
(1) All values shown are as of the end of the policy year
indicated, have been rounded to the nearest dollar, and assume
that (a) premiums paid after the initial premium are received
on the policy anniversary, (b) no policy loan has been made,
(c) no partial withdrawal of the Cash Surrender Value has been
made and (d) no premiums have been allocated to the Fixed
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has
been and continues to be met, the No Lapse Guarantee will keep
the Policy in force until the end of the first 10 Policy
Years. Provided the Death Benefit Guarantee Cumulative Premium
Test has been selected and continues to be met, the Death
Benefit Guarantee will keep the Policy in force on all
policies until age 100.
(4) In the absence of additional premium payments, the Policy will
lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for
A-13
<PAGE> 109
individual policy years. No representations can be made that these hypothetical
rates of return can be achieved for any one year or sustained over any period of
time.
A-14
<PAGE> 110
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$11,575 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
---------------------------- --------------------------- -----------------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) (2) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 12,154 7,076 0 507,076 7,599 0 507,599 8,125 0 508,125
2 24,915 13,796 2,996 513,796 15,275 4,475 515,275 16,820 6,020 516,820
3 38,315 20,366 10,903 520,366 23,236 13,773 523,236 26,356 16,892 526,356
4 52,384 26,607 18,480 526,607 31,307 23,180 531,307 36,622 28,495 536,622
5 67,157 32,742 25,951 532,742 39,718 32,926 539,718 47,927 41,136 547,927
6 82,669 38,466 33,010 538,466 48,164 42,709 548,164 60,047 54,592 560,047
7 98,956 43,796 39,677 543,796 56,661 52,541 556,661 73,077 68,957 573,077
8 116,057 48,841 46,058 548,841 65,313 62,529 565,313 87,216 84,433 587,216
9 134,014 53,700 52,253 553,700 74,225 72,778 574,225 102,677 101,230 602,677
10 152,869 58,418 58,306 558,418 83,452 83,341 583,452 119,639 119,528 619,639
11 172,666 62,826 62,826 562,826 92,981 92,981 592,981 138,449 138,449 638,449
12 193,453 66,642 66,642 566,642 102,403 102,403 602,403 158,690 158,690 658,690
13 215,279 69,752 69,752 569,752 111,590 111,590 611,590 180,388 180,388 680,388
14 238,197 72,136 72,136 572,136 120,501 120,501 620,501 203,666 203,666 703,666
15 262,260 73,748 73,748 573,748 129,068 129,068 629,068 228,637 228,637 728,637
16 287,527 74,515 74,515 574,515 137,187 137,187 637,187 255,391 255,391 755,391
17 314,057 74,429 74,429 574,429 144,820 144,820 644,820 284,102 284,102 784,102
18 341,914 73,500 73,500 573,500 151,943 151,943 651,943 314,977 314,977 814,977
19 371,163 71,739 71,739 571,739 158,532 158,532 658,532 348,246 348,246 848,246
20 401,875 69,160 69,160 569,160 164,569 164,569 664,569 384,172 384,172 884,172
21 434,123 64,746 64,746 564,746 168,965 168,965 668,965 421,945 421,945 921,945
22 467,983 58,691 58,691 558,691 171,822 171,822 671,822 461,944 461,944 961,944
23 503,536 50,807 50,807 550,807 172,851 172,851 672,851 504,186 504,186 1,004,186
24 540,866 40,906 40,906 540,906 171,751 171,751 671,751 548,688 548,688 1,048,688
25 580,063 28,789 28,789 528,789 168,188 168,188 668,188 595,452 595,452 1,095,452
26 621,220 14,248 14,248 514,248 161,807 161,807 661,807 644,472 644,472 1,144,472
27 664,435 0 (4) 0 (4) 0 (4) 152,209 152,209 652,209 695,717 695,717 1,195,717
28 709,810 139,017 139,017 639,017 749,191 749,191 1,249,191
29 757,455 121,808 121,808 621,808 804,871 804,871 1,304,871
30 807,481 100,011 100,011 600,011 862,601 862,601 1,362,601
31 860,009 73,005 73,005 573,005 922,182 922,182 1,422,182
32 915,163 40,438 40,438 540,438 983,705 983,705 1,483,705
33 973,075 1,685 1,685 501,685 1,047,004 1,047,004 1,547,004
34 1,033,883 0 (4) 0 (4) 0 (4) 1,111,881 1,111,881 1,611,881
35 1,097,730 1,178,197 1,178,197 1,678,197
36 1,164,771 1,245,870 1,245,870 1,745,870
37 1,235,163 1,315,456 1,315,456 1,815,456
38 1,309,075 1,387,026 1,387,026 1,887,026
39 1,386,682 1,460,659 1,460,659 1,960,659
40 1,468,170 1,536,442 1,536,442 2,036,442
41 1,553,733 1,614,485 1,614,485 2,114,485
</TABLE>
A-15
<PAGE> 111
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
42 1,643,573 1,694,732 1,694,732 2,194,732
43 1,737,905 1,777,303 1,777,303 2,277,303
44 1,836,954 1,862,345 1,862,345 2,362,345
45 1,940,956 1,950,021 1,950,021 2,450,021
</TABLE>
(1) All values shown are as of the end of the policy year
indicated, have been rounded to the nearest dollar, and assume
that (a) premiums paid after the initial premium are received
on the policy anniversary, (b) no policy loan has been made,
(c) no partial withdrawal of the Cash Surrender Value has been
made and (d) no premiums have been allocated to the Fixed
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has
been and continues to be met, the No Lapse Guarantee will keep
the Policy in force until the end of the first 10 Policy
Years. Provided the Death Benefit Guarantee Cumulative Premium
Test has been selected and continues to be met, the Death
Benefit Guarantee will keep the Policy in force on all
policies until age 100.
(4) In the absence of additional premium payments, the Policy will
lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
A-16
<PAGE> 112
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$11,575 ANNUAL PLANNED PREMIUM
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
---------------------------- --------------------------- -----------------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) (2) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 12,154 7,076 0 507,076 7,599 0 507,599 8,125 0 508,125
2 24,915 13,143 2,343 513,143 14,601 3,802 514,601 16,125 5,326 516,125
3 38,315 18,682 9,219 518,682 21,458 11,995 521,458 24,482 15,019 524,482
4 52,384 23,669 15,542 523,669 28,131 20,003 528,131 33,195 25,068 533,195
5 67,157 28,052 21,261 528,052 34,548 27,757 534,548 42,238 35,446 542,238
6 82,669 31,784 26,329 531,784 40,639 35,184 540,639 51,579 46,124 551,579
7 98,956 34,810 30,691 534,810 46,324 42,205 546,324 61,182 57,063 561,182
8 116,057 37,054 34,271 537,054 51,494 48,710 551,494 70,978 68,195 570,978
9 134,014 38,425 36,978 538,425 56,019 54,572 556,019 80,876 79,429 580,876
10 152,869 38,829 38,718 538,829 59,761 59,649 559,761 90,771 90,659 590,771
11 172,666 38,748 38,748 538,748 63,292 63,292 563,292 101,477 101,477 601,477
12 193,453 37,543 37,543 537,543 65,831 65,831 565,831 112,130 112,130 612,130
13 215,279 35,135 35,135 535,135 67,232 67,232 567,232 122,622 122,622 622,622
14 238,197 31,448 31,448 531,448 67,349 67,349 567,349 132,843 132,843 632,843
15 262,260 26,378 26,378 526,378 66,001 66,001 566,001 142,637 142,637 642,637
16 287,527 19,760 19,760 519,760 62,927 62,927 562,927 151,763 151,763 651,763
17 314,057 11,100 11,100 511,100 57,520 57,520 557,520 159,607 159,607 659,607
18 341,914 737 737 500,737 49,991 49,991 549,991 166,365 166,365 666,365
19 371,163 0 (4) 0 (4) 0 (4) 39,611 39,611 539,611 171,273 171,273 671,273
20 401,875 25,938 25,938 525,938 173,817 173,817 673,817
21 434,123 8,612 8,612 508,612 173,535 173,535 673,535
22 467,983 0 (4) 0 (4) 0 (4) 169,925 169,925 669,925
23 503,536 162,463 162,463 662,463
24 540,866 150,608 150,608 650,608
25 580,063 133,669 133,669 633,669
26 621,220 110,735 110,735 610,735
27 664,435 80,693 80,693 580,693
28 709,810 42,179 42,179 542,179
29 757,455 0 (4) 0 (4) 0 (4)
</TABLE>
(1) All values shown are as of the end of the policy year
indicated, have been rounded to the nearest dollar, and assume
that (a) premiums paid after the initial premium are received
on the policy anniversary, (b) no policy loan has been made,
(c) no partial withdrawal of the Cash Surrender Value has been
made and (d) no premiums have been allocated to the Fixed
Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has
been and continues to be met, the No Lapse Guarantee will keep
the Policy in force until the end of the first 10 Policy
Years. Provided the Death Benefit Guarantee Cumulative Premium
Test has been selected and continues to be met, the Death
Benefit Guarantee will keep the Policy in force on all
policies until age 100.
(4) In the absence of additional premium payments, the Policy will
lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation
A-17
<PAGE> 113
of past or future results. Actual investment returns may be more or less than
those shown and will depend on a number of factors, including the investment
allocation made by the policyowner, and the investment returns for the funds of
Manufacturers Investment trust. The policy value, cash surrender value and death
benefit for a policy would be different from those shown if actual rates of
investment return averaged the rate shown above over a period of years, but also
fluctuated above or below that average for individual policy years. No
representations can be made that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
A-18
