<PAGE> 1
As filed with the Securities and Exchange Commission on April 27, 2000
Registration No. 333-82449
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT
INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
Post-Effective Amendment No. 1
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
(Exact name of Registrant)
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
(Name of Depositor)
500 N. Woodward Avenue
Bloomfield Hills, Michigan 48304
(Address of Depositor's Principal Executive Offices)
James D. Gallagher Copy to:
Vice President, Secretary J. Sumner Jones, Esq.
and General Counsel Jones & Blouch L.L.P.
The Manufacturers Life Insurance Company 1025 Thomas Jefferson Street, NW
of America Washington, DC 20007
73 Tremont Street
Boston, MA 02108
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on May 1, 2000 pursuant to paragraph (b) of Rule 485
/ / 60 days after filing pursuant to paragraph (a)(1) of Rule 485
/ / on [date] pursuant to paragraph (a)(1) of Rule 485
/ / 75 days after filing pursuant to paragraph (a)(2) of Rule 485
<PAGE> 2
Separate Account Three of
The Manufacturers Life Insurance Company of America
Registration Statement on Form S-6
Cross-Reference Sheet
FORM
N-8B-2
ITEM NO. CAPTION IN PROSPECTUS
1 Cover Page; General Information About Manufacturers (Separate Account
Three)
2 Cover Page; General Information About Manufacturers (Manufacturers Life
of America)
3 *
4 Other Information (Distribution of the Policy)
5 General Information About Manufacturers (Separate Account Three)
6 General Information About Manufacturers (Separate Account Three)
7 *
8 *
9 Other Information (Litigation)
10 Death Benefits; Premium Payments; Charges and Deductions; Policy Value;
Policy Loans; Policy Surrender and Partial Withdrawals; Lapse and
Reinstatement; Other Provisions of the Policy; Other Information
11 General Information About Manufacturers (Manufacturers Investment
Trust)
12 General Information About Manufacturers (Manufacturers Investment
Trust)
13 Charges and Deductions
14 Issuing A Policy; Other Information (Responsibilities Assumed By
Manufacturers Life)
15 Issuing A Policy
16 **
17 Policy Surrender and Partial Withdrawals
18 General Information About Manufacturers
19 Other Information (Reports to Policyholders; Responsibilities Assumed
By Manufacturers Life)
20 *
21 Policy Loans
22 *
23 **
<PAGE> 3
24 Other Provisions of the Policy
25 General Information About Manufacturers (Manufacturers Life of America)
26 *
27 **
28 Other Information (Officers and Directors)
29 General Information About Manufacturers (Manufacturers Life of America)
30 *
31 *
32 *
33 *
34 *
35 **
36 *
37 *
38 Other Information (Distribution of the Policies; Responsibilities of
Manufacturers Life)
39 Other Information (Distribution of the Policies)
40 *
41 **
42 *
43 *
44 Policy Values --Determination of Policy Value; Units and Unit Values)
45 *
46 Policy Surrender and Partial Withdrawals; Other Information -- Payment
of Proceeds)
47 General Information About Manufacturers (Manufacturers Investment
Trust)
48 *
49 *
50 General Information About Manufacturers
51 Issuing a Policy; Death Benefits; Premium Payments; Charges and
Deductions; Policy Value; Policy Loans; Policy Surrender and Partial
Withdrawals; Lapse and Reinstatement; Other Policy Provisions
52 Other Information (Substitution of Portfolio Shares)
<PAGE> 4
53 **
54 *
55 *
56 *
57 *
58 *
59 Financial Statements
* Omitted since answer is negative or item is not applicable.
** Omitted.
<PAGE> 5
PART I
INFORMATION REQUIRED IN PROSPECTUS
<PAGE> 6
PROSPECTUS
SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
VENTURE SPVL
A MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
This prospectus describes Venture SPVL, a modified single premium variable life
insurance policy (the "Policy"). The Manufacturers Life Insurance Company of
America (the "Company," "Manufacturers Life of America," "we" or "us") offers
the Policy on both a single life and a survivorship basis.
Policy Value may accumulate on a fixed basis or vary with the investment
performance of the sub-accounts of Manufacturers Life of America's Separate
Account Three (the "Separate Account"). The assets of each sub-account will be
used to purchase shares of a particular investment portfolio (a "Portfolio") of
Manufacturers Investment Trust (the "Trust"). The accompanying prospectus for
the Trust and the corresponding statement of additional information describe the
investment objectives of the Portfolios in which you may invest net premiums.
Other sub-accounts and Portfolios may be added in the future.
EXCEPT FOR CERTAIN POLICIES ISSUED IN EXCHANGE FOR A POLICY WHICH IS NOT A
MODIFIED ENDOWMENT CONTRACT (A "MEC"), THE POLICY WILL BE TREATED AS A MEC FOR
FEDERAL INCOME TAX PURPOSES. AS A RESULT, ANY LOAN, PARTIAL WITHDRAWAL,
ASSIGNMENT, PLEDGE, LAPSE OR SURRENDER OF THE POLICY (OR ANY LOAN, PARTIAL
WITHDRAWAL, ASSIGNMENT OR PLEDGE OF THE POLICY WITHIN TWO YEARS BEFORE THE
POLICY BECOMES A MEC) MAY BE SUBJECT TO INCOME TAX AND A 10% PENALTY TAX.
BECAUSE OF THE SUBSTANTIAL NATURE OF THE SURRENDER CHARGES, THE POLICY IS NOT
SUITABLE FOR SHORT-TERM INVESTMENT PURPOSES. 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 (the "SEC") maintains a web site
(http://www.sec.gov) that contains material incorporated by reference and other
information regarding registrants that file electronically with the SEC.
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 SEC 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 1, 2000
SPVL.PRO5/2000
ii
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<S> <C>
POLICY SUMMARY................................................................................................... 4
General....................................................................................................... 4
Death Benefits................................................................................................ 4
Premiums...................................................................................................... 4
Policy Value.................................................................................................. 4
Policy Loans.................................................................................................. 4
Surrender and Partial Withdrawals............................................................................. 4
Lapse and Reinstatement....................................................................................... 4
Charges and Deductions........................................................................................ 6
Investment Options and Investment Advisers ................................................................... 6
Investment Management Fees and Expenses....................................................................... 6
Table of Charges and Deductions............................................................................... 6
Table of Investment Management Fees and Expenses.............................................................. 7
Table of Investment Options and Investment Subdivisers......................................................... 9
GENERAL INFORMATION ABOUT MANUFACTURERS LIFE OF AMERICA, THE SEPARATE ACCOUNT AND THE TRUST...................... 10
Manufacturers Life of America................................................................................. 10
The Separate Account ......................................................................................... 10
The Trust .................................................................................................... 10
ISSUING A POLICY................................................................................................. 14
Requirements.................................................................................................. 14
Temporary Insurance Agreement................................................................................. 15
Right to Examine the Policy................................................................................... 15
Life Insurance Qualification.................................................................................. 15
DEATH BENEFITS................................................................................................... 16
Death Benefit ................................................................................................ 16
Maturity Date................................................................................................. 17
PREMIUM PAYMENTS................................................................................................. 17
Initial Premiums.............................................................................................. 17
Subsequent Premiums........................................................................................... 18
Premium Allocation............................................................................................ 18
Maximum Premium Limitation.................................................................................... 18
CHARGES AND DEDUCTIONS........................................................................................... 18
Premium Load.................................................................................................. 18
Surrender Charges............................................................................................. 19
Monthly Charges............................................................................................... 20
Administration Charge......................................................................................... 20
Cost of Insurance Charge...................................................................................... 20
Mortality and Expense Risks Charge............................................................................ 21
Charges for Supplementary Benefits............................................................................ 21
Charges for Transfers......................................................................................... 21
Reduction in Charges.......................................................................................... 21
SPECIAL PROVISIONS FOR EXCHANGES................................................................................. 21
COMPANY TAX CONSIDERATIONS....................................................................................... 22
POLICY VALUE..................................................................................................... 22
Determination of the Policy Value............................................................................. 22
Units and Unit Values......................................................................................... 22
Transfers of Policy Value..................................................................................... 23
Telephone Transfers........................................................................................... 23
Dollar Cost Averaging......................................................................................... 23
</TABLE>
iii
<PAGE> 8
<TABLE>
<S> <C>
Asset Allocation Balancer Transfer............................................................................ 24
POLICY LOANS..................................................................................................... 24
Maximum Loanable Amount....................................................................................... 24
Effect of Policy Loan......................................................................................... 24
Interest Charged on Policy Loans.............................................................................. 24
Loan Account.................................................................................................. 24
POLICY SURRENDER AND PARTIAL WITHDRAWALS......................................................................... 26
Policy Surrender.............................................................................................. 26
Partial Withdrawals........................................................................................... 26
LAPSE AND REINSTATEMENT.......................................................................................... 26
Lapse......................................................................................................... 26
Reinstatement................................................................................................. 27
Termination................................................................................................... 27
THE GENERAL ACCOUNT.............................................................................................. 27
Fixed Account................................................................................................. 28
OTHER PROVISIONS OF THE POLICY................................................................................... 28
Assignment of Rights.......................................................................................... 28
Beneficiary................................................................................................... 28
Incontestability.............................................................................................. 28
Misstatement of Age or Sex.................................................................................... 28
Suicide Exclusion............................................................................................. 29
Supplementary Benefits........................................................................................ 29
TAX TREATMENT OF THE POLICY...................................................................................... 29
OTHER INFORMATION................................................................................................ 34
Payment of Proceeds........................................................................................... 34
Reports to Policyowners....................................................................................... 34
Distribution of the Policies.................................................................................. 34
Responsibilities of Manufacturers Life........................................................................ 35
Voting Rights................................................................................................. 35
Substitution of Portfolio Shares.............................................................................. 35
Records and Accounts.......................................................................................... 36
State Regulations............................................................................................. 36
Litigation.................................................................................................... 36
Independent Auditors.......................................................................................... 36
Further Information........................................................................................... 36
Officers and Directors........................................................................................ 37
Year 2000 Issues.............................................................................................. 39
APPENDIX A - DEFINITIONS......................................................................................... A1
APPENDIX B - SAMPLE ILLUSTRATIONS OF POLICY VALUES, CASH SURRENDER VALUES AND DEATH BENEFITS..................... B1
APPENDIX F - Audited FINANCIAL STATEMENTS........................................................................ F1
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION WHERE IT
WOULD NOT BE LAWFUL. YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS, THE PROSPECTUS OF MANUFACTURERS INVESTMENT TRUST, OR THE STATEMENT
OF ADDITIONAL INFORMATION OF MANUFACTURERS INVESTMENT TRUST. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
Examine this prospectus carefully. The Policy Summary will briefly describe the
Policy. More detailed information will be found further in the prospectus.
iv
<PAGE> 9
POLICY SUMMARY
GENERAL
This Policy may be issued either as a modified single premium variable life
insurance policy or as a modified single premium survivorship variable life
insurance policy. We have prepared the following summary as a general
description of the most important features of the Policy. It is not
comprehensive and you should refer to the more detailed information contained in
this prospectus. Unless otherwise indicated or required by the context, the
discussion throughout this prospectus assumes that the Policy has not gone into
default, there is no outstanding Policy Debt, and the death benefit is not
determined by the minimum death benefit percentage. The Policy's provisions may
vary in some states.
DEATH BENEFITS
The Policy provides a death benefit in the event of the death of the Life
Insured. The death benefit is the FACE AMOUNT OF THE POLICY at the date of death
(less any Policy Debt and outstanding Monthly Deductions due) or, if greater,
the Minimum Death Benefit (less any Policy Debt and outstanding Monthly
Deductions due).
PREMIUMS
The Policy permits the payment of a large initial premium. The initial premium
may be 80%, 90% or 100% of the Guideline Single Premium (based on Face Amount).
However, in the case of simplified underwriting, and in order to qualify for the
Lapse Protection Benefit, 100% of the Guideline Single Premium is required. The
minimum single premium is $25,000. Additional premiums will be accepted only
under certain conditions as stated under "Premium Payments - Subsequent
Premiums." Premiums will be allocated, according to your instructions and at the
Company's discretion, to one or more of our general account (the "Fixed
Account") and the sub-accounts of the Separate Account of the Company. You (the
policyowner) may change your allocation instructions at any time. You may also
transfer amounts among the accounts.
POLICY VALUE
The Policy has a Policy Value reflecting premiums paid, certain charges for
expenses and cost of insurance, and the investment performance of the accounts
to which you have allocated premiums.
POLICY LOANS
You may borrow an amount not to exceed 90% of your Policy's Net Cash Surrender
Value. Loan interest at a rate of 6.00% is due on each Policy Anniversary.
Preferred interest rates are also available in the case of loans on amounts that
represent Earnings on the Policy. We will deduct all outstanding Policy Debt
from proceeds payable at the insured's death, or upon surrender. Policy loans
may have tax consequences. See section entitled "Tax Treatment of the Policy"
for a discussion of the potential Federal income tax implications of a loan from
the Policy.
SURRENDER AND PARTIAL WITHDRAWALS
You may make a partial withdrawal of your Policy Value. A partial withdrawal
will result in a reduction in the Face Amount of the Policy . A partial
withdrawal may result in a surrender charge if made during the Surrender Charge
Period.
You may surrender your Policy for its Net Cash Surrender Value at any time while
the Life Insured is living. The Net Cash Surrender Value is equal to the Policy
Value less the sum of (a) Surrender Charges, (b) outstanding Monthly Deductions
due, and (c) Policy Debt.
See section entitled "Tax Treatment of the Policy" for a discussion of the
potential Federal income tax implications of a surrender of, or partial
withdrawal from, the Policy.
LAPSE AND REINSTATEMENT
Unless the Lapse Protection Benefit is in effect, a Policy will lapse (and
terminate without value) when its Net Cash Surrender Value is insufficient to
pay the next monthly deduction and a grace period of 61 days expires without
your having made an adequate payment. Therefore, a Policy could lapse eventually
if increases in Policy Value (prior to deduction of Policy charges) are not
sufficient to cover Policy charges. A Policy could also lapse if the Policy Debt
is greater than the Cash Surrender Value since the Lapse Protection Benefit
terminates on any date that the Policy Debt exceeds the Cash Surrender Value.
4
<PAGE> 10
A policyowner may reinstate a lapsed Policy at any time within the five year
period following lapse provided the Policy was not surrendered for its Net Cash
Surrender Value. However, in the case of a Survivorship Policy, the Policy may
not be reinstated if any of the Life Insured have died since the Policy lapsed.
We will require evidence of insurability along with a certain amount of premium
as described under "Reinstatement."
See section entitled "Tax Treatment of the Policy" for a discussion of the
potential Federal income tax implications of a lapse and reinstatement of the
Policy.
TAXATION OF POLICY BENEFITS
Characterization of a Policy as a MEC.
Section 7702A of the Internal Revenue Code (the "Code") establishes a class of
life insurance contracts designated as Modified Endowment Contracts ("MECs"),
which applies to Policies entered into or materially changed after June 20,
1988. In general, a Policy will be a MEC if the accumulated premiums paid at any
time during the first seven Policy Years exceed the sum of the net level
premiums which would have been paid on or before such time if the Policy paid up
future benefits after the payment of seven level annual premiums (the "seven-pay
test"). The determination of whether a Policy will be a MEC after a material
change generally depends upon the relationship of the death benefit and the
Policy Value at the time of such change and the additional premiums paid in the
seven years following the material change. In general, this Policy will
constitute a MEC unless:
(1) it was received in exchange for another life insurance policy which was not
a MEC,
(2) no premium payments (other than the exchanged policy) are paid into the
Policy during the first seven Policy years, and
(3) the death benefit on the new Policy is not less than the death benefit on
the exchanged policy.
If the death benefit on the new policy is less than the death benefit on the
exchanged policy, the new policy may become a MEC if (1) the exchanged policy
was, at the time of the exchange, subject to the MEC rules, (2) premiums
payments had been made to the old policy after it had become subject to the MEC
rules, and (3) the exchanged policy was in a seven-pay test period at the time
of exchange or, in the case of a Survivorship Policy, the Policy was issued (or
deemed issued) after September 13, 1989.
In addition, even if the Policy initially is not a MEC, it may in certain
circumstances become a MEC. These circumstances would include a later increase
in benefits, any other material change of the Policy (within the meaning of the
tax law), and a withdrawal or reduction in the death benefit during the first
seven Policy years.
Tax Treatment of Withdrawals, Loans, Assignments and Pledges under
MECs. If the Policy is a MEC, withdrawals from the Policy will be treated first
as withdrawals of income and then as a recovery of premium payments. Thus,
withdrawals will be includible in income to the extent the Policy value exceeds
the investment in the Policy. The amount of any loan (including unpaid interest
thereon) under the Policy will be treated as a withdrawal from the Policy for
tax purposes. In addition, if you assign or pledge any portion of the value of a
Policy (or agrees to assign or pledge any portion), such portion will be treated
as a withdrawal from the Policy for tax purposes. Your investment in the Policy
is increased by the amount includible in income with respect to such assignment,
pledge, or loan, though it is not affected by any other aspect of the
assignment, pledge, or loan (including its release or repayment). Before
assigning, pledging, or requesting a loan under a Policy which is a MEC, you
should consult a qualified tax advisor.
MEC Penalty Tax. Generally, withdrawals (or the amount of any deemed
withdrawals) from a MEC are subject to a penalty tax equal to 10% of the portion
of the withdrawal that is includible in income, unless the withdrawals are made
(1) after you attain age 59 1/2, (2) because you have become disabled (as
defined in the tax law), or (3) as substantially equal periodic payments over
your life (or the joint lives or life expectancies of you and your beneficiary,
as defined in the tax law).
For further information regarding the tax treatment of Policies that
are MECs, see "Tax Treatment of the Policy - Tax Treatment of Policy Benefits."
5
<PAGE> 11
CHARGES AND DEDUCTIONS
We assess certain charges and deductions in connection with the Policy. These
include:
- charges assessed monthly for mortality and expense risks, cost of
insurance and administration expenses,
- charges deducted from premiums paid, and
- charges assessed on surrender, lapse or withdrawal of Net Cash
Surrender Value.
These charges are summarized in the Table of Charges and Deductions. Unless you
otherwise specify and we allow, the monthly deduction will be allocated among
the Investment Accounts and the Fixed Account in the same proportion as the
Policy Value in each bears to the Net Policy Value immediately prior to the
deduction. However, the mortality and expense risk charge will only be allocated
among the Investment Accounts.
In addition, there are charges deducted from each Portfolio of the Trust. These
charges are summarized in the Table of Investment Management Fees and Expenses.
INVESTMENT OPTIONS AND INVESTMENT ADVISERS
You may allocate Net Premiums to the Fixed Account or to one or more of the
sub-accounts of our Separate Account Three. Each of the sub-accounts invests in
the shares of one of the Portfolios of the Trust.
The Trust receives investment advisory services from Manufacturers Securities
Services, LLC ("MSS"). MSS is a registered investment adviser under the
Investment Advisers Act of 1940.
The Trust also employs subadvisers. The Table of Investment Options and
Investment Subadvisers shows the subadvisers that provide investment subadvisory
services to the indicated Portfolios.
Allocating net premiums only to one or a small number of the investment options
(other than the Lifestyle Trusts) should not be considered a balanced investment
strategy. In particular, allocating net premiums to a small number of investment
options that concentrate their investments in a particular business or market
sector will increase the risk that the value of your Policy will be more
volatile since these investment options may react similarly to business or
market specific events. Examples of business or market sectors where this risk
historically has been and may continue to be particularly high include: (a)
technology related businesses, including internet related businesses, (b) small
cap securities and (c) foreign securities. The Company does not provide advice
regarding appropriate investment allocations, please discuss this matter with
your financial adviser.
INVESTMENT MANAGEMENT FEES AND EXPENSES
The Separate Account purchases shares of the Portfolios at net asset
value. The net asset value of those shares reflects investment
management fees and certain expenses of the Portfolios. The fees and
expenses for each Portfolio for the Trust's last fiscal year are shown
in the Table of Investment Management Fees and Expenses below. These
fees and expenses are described in detail in the accompanying Trust
prospectus to which reference should be made.
TABLE OF CHARGES AND DEDUCTIONS
Surrender Charge
The total amount of the surrender charge is determined by multiplying the amount
withdrawn or surrendered in excess of the free withdrawal amount by the
applicable surrender charge percentage shown in the following table.
<TABLE>
<CAPTION>
Policy Year Surrender Charge
<S> <C>
1 10.00%
2 9.00%
3 8.00%
4 7.00%
5 6.00%
</TABLE>
6
<PAGE> 12
<TABLE>
<S> <C>
6 5.00%
7 4.00%
8 3.00%
9 1.50%
10+ 0.00%
</TABLE>
If necessary, the Company will reduce the surrender charge
deducted upon a partial withdrawal or a surrender of the Policy
so that the sum of all premium loads, the administration charges
and surrender charge deducted (including the surrender charge to
be deducted upon such partial withdrawal or surrender) does not
exceed 10% of aggregate payments made during the first Policy
Year.
Monthly Deductions: - A premium load of 0.030% of Policy Value is
deducted monthly (equivalent to 0.360%
annually) for the first 10 Policy Years. If
additional premium payments are made, the
0.030% premium load for a particular premium
payment is deducted from the Policy Value
corresponding to the premium payment for 10
Policy Years following the premium payment.
Approximately, 13% of the premium load is
expected to cover acquisition and sales
expenses, 20% federal taxes and 67% state
taxes.
- An administration charge of $7.50 plus 0.010%
monthly (equivalent to 0.12% annually).
- The cost of insurance charge.
- Any additional charges for supplementary
benefits, if applicable.
- A mortality and expense risks charge. This
charge is calculated as a percentage of the
value of the Investment Accounts and is
assessed against the Investment Accounts. The
charge varies by Policy Year as follows:
<TABLE>
<CAPTION>
Guaranteed Monthly Mortality Guaranteed Annual Mortality
Policy Years and Expense Risks Charge and Expense Risks Charge
- --------------------------------------------------------------------------------
<S> <C> <C>
1-10 0.075% 0.900%
10+ 0.025% 0.30%
</TABLE>
All of the above charges, except the
mortality and expense risks charge, are
deducted from the Net Policy Value.
Loan Charges: A fixed loan interest rate of 6.00% annually.
Interest credited to amounts in the Loan
Account is guaranteed not to be less than
4.00% at all times. The maximum loan amount
is 90% of the Net Cash Surrender Value.
Transfer Charge: A charge of $25 per transfer for each
transfer in excess of 12 in a Policy Year.
TABLE OF INVESTMENT MANAGEMENT FEES AND EXPENSES
TRUST ANNUAL EXPENSES
(as a percentage of Trust average net assets for the fiscal year ended December
31, 1999)
<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% 0.260% 1.110%
Internet Technologies........... 1.150% 0.136%A 1.286%
Science & Technology............ 1.100% 0.060% 1.160%
International Small Cap......... 1.100% 0.270% 1.370%
</TABLE>
7
<PAGE> 13
<TABLE>
<S> <C> <C> <C>
Aggressive Growth............... 1.000%F 0.130% 1.130%
Emerging Small Company.......... 1.050% 0.070% 1.120%
Small Company Blend............. 1.050% 0.250%A 1.300%E
Dynamic Growth.................. 1.000%F 0.132%A 1.132%
Mid Cap Stock................... 0.925% 0.100%A 1.025%E
All Cap Growth H................ 0.950%F 0.070% 1.020%
Overseas........................ 0.950% 0.260% 1.210%
International Stock............. 1.050% 0.200% 1.250%
International Value............. 1.000% 0.230%A 1.230%E
Mid Cap Blend................... 0.850%F 0.060% 0.910%
Small Company Value............. 1.050% 0.170% 1.220%
Global Equity................... 0.900% 0.160% 1.060%
Growth.......................... 0.850% 0.050% 0.900%
Large Cap Growth................ 0.875%F 0.100% 0.975%
Quantitative Equity............. 0.700% 0.060% 0.760%
Blue Chip Growth................ 0.875%F 0.050% 0.925%
Real Estate Securities.......... 0.700% 0.070% 0.770%
Value........................... 0.800% 0.070% 0.870%
Tactical Allocation............. 0.900% 0.127%A 1.027%
Growth & Income................. 0.750% 0.050% 0.800%
U.S. Large Cap Value............ 0.875% 0.070%A 0.945%E
Equity-Income................... 0.875%F 0.060% 0.935%
Income & Value.................. 0.800%F 0.080% 0.880%
Balanced........................ 0.800% 0.070% 0.870%
High Yield...................... 0.775% 0.065% 0.840%
Strategic Bond.................. 0.775% 0.095% 0.870%
Global Bond..................... 0.800% 0.180% 0.980%
Total Return.................... 0.775% 0.060%A 0.835%E
Investment Quality Bond......... 0.650% 0.120% 0.770%
Diversified Bond................ 0.750% 0.090% 0.840%
U.S. Government Securities...... 0.650% 0.070% 0.720%
Money Market.................... 0.500% 0.050% 0.550%
Small Cap Index................. 0.525% 0.075%AG 0.600%
International Index............. 0.550% 0.050%AG 0.600%
Mid Cap Index................... 0.525% 0.075%AG 0.600%
Total Stock Market Index........ 0.525% 0.075%AG 0.600%
500 Index....................... 0.525% 0.039%AG 0.564%
Lifestyle Aggressive 1000D...... 0.075% 1.060%B 1.135%C
Lifestyle Growth 820D........... 0.057% 1.008%B 1.065%C
Lifestyle Balanced 640D......... 0.057% 0.928%B 0.985%C
Lifestyle Moderate 460D......... 0.066% 0.869%B 0.935%C
Lifestyle Conservative 280D..... 0.075% 0.780%B 0.855%C
</TABLE>
- -----------------
A Based on estimates to be made during the current fiscal year.
B Reflects expenses of the Underlying Portfolios.
C The investment adviser to the Trust, Manufacturers Securities Services,
LLC ("MSS" or the "Adviser") has voluntarily agreed to pay certain
expenses of each Lifestyle Trust (excluding the expenses of the
Underlying Portfolios) as follows:
8
<PAGE> 14
If total expenses of a Lifestyle Trust (absent reimbursement) exceed 0.075% the
Adviser will reduce the advisory fee or reimburse expenses of that
Lifestyle Trust by an amount such that total expenses of the Lifestyle Trust,
equal 0.075%. If the total expenses of a Lifestyle Trust (absent reimbursement)
are equal to or less than 0.075%, then no expenses will be reimbursement by the
Adviser. (For purposes of the expense reimbursement total expenses of a
Lifestyle Trust includes the advisory fee but excludes (a) the expenses of the
Underlying Portfolios, (b) taxes, (c) portfolio brokerage, (d) interest, (e)
litigation and (f) indemnification expenses and other extraordinary expenses
not incurred in the ordinary course of the Trust's business.)
This voluntary expense reimbursement may be terminated at any time. If such
expense reimbursement was not in effect, Total Trust Annual Expenses would be
higher (based on current advisory fees and the Other Expenses of the Lifestyle
Trusts for the fiscal year ended December 31, 1999) as noted in the chart
below:
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL TRUST
TRUST PORTFOLIO FEES EXPENSES ANNUAL EXPENSES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Lifestyle Aggressive 1000...... 0.075% 1.090% 1.165%
Lifestyle Growth 820 .......... 0.057% 1.030% 1.087%
Lifestyle Balanced 640 ........ 0.057% 0.940% 0.997%
Lifestyle Moderate 460 ........ 0.066% 0.900% 0.966%
Lifestyle Conservative 280..... 0.075% 0.810% 0.885%
</TABLE>
D Each Lifestyle Trust will invest in shares of the Underlying Portfolios.
Therefore, each Lifestyle Trust will bear its pro rata share of the fees
and expenses incurred by the Underlying Portfolios in which it invests,
and the investment return of each Lifestyle Trust will be net of the
Underlying Portfolio expenses. Each Lifestyle Portfolio must bear its own
expenses. However, the Adviser is currently paying certain of these
expenses as described in footnote (C) above.
E Annualized - For the period May 1, 1999 (commencement of operations) to
December 31, 1999.
F Management Fees changed effective May 1, 1999. Fees shown are the current
management fees.
G MSS has voluntarily agreed to pay expenses of each Index Trust (excluding
the advisory fee) that exceed the following amounts: 0.050% in the case
of the International Index Trust and 500 Index Trust and 0.075% in the
case of the Small Cap Index Trust, the Mid Cap Index Trust and Total
Stock Market Index Trust. If such expense reimbursement were not in
effect, it is estimated that "Other Expenses" and "Total Trust Annual
Expenses" would be 0.022% higher for the International Index Trust,
0.014% higher for the Small Cap Index Trust, 0.060% higher for the Mid
Cap Index Trust and 0.005% higher for the Total Stock Market Index Trust.
It is estimated that the expense reimbursement will not be effective
during the year end December 31, 2000 for the 500 Index Trust. The
expense reimbursement may be terminated at any time by MSS.
H Formerly, the Mid Cap Growth Trust.
TABLE OF INVESTMENT OPTIONS AND INVESTMENT SUBADVISERS
The Trust currently has nineteen subadvisers who manage all of the portfolios,
one of which subadvisers is Manufacturers Adviser Corporation ("MAC"). Both MSS
and MAC are affiliates of Manufacturers Life of America.
<TABLE>
<CAPTION>
SUBADVISER PORTFOLIO
<S> <C>
A I M Capital Management, Inc. Aggressive Growth Trust
All Cap Growth Trust(B)
AXA Rosenberg Investment Management LLC Small Company Value Trust
Capital Guardian Trust Company Small Company Blend Trust
U.S. Large Cap Value Trust
Income & Value Trust
Diversified Bond Trust
Fidelity Management Trust Company Mid Cap Blend Trust
Large Cap Growth Trust
Overseas Trust
Founders Asset Management LLC International Small Cap Trust
Balanced Trust
Franklin Advisers, Inc. Emerging Small Company Trust
Janus Capital Corporation Dynamic Growth Trust
Manufacturers Adviser Corporation Pacific Rim Emerging Markets Trust
Quantitative Equity Trust
Real Estate Securities Trust
</TABLE>
9
<PAGE> 15
<TABLE>
<S> <C>
Money Market Trust
Index Trusts
Lifestyle Trusts(A)
Miller Anderson & Sherrerd, LLP Value Trust
High Yield Trust
Mitchell Hutchins Asset Management Inc. Tactical Allocation Trust
Morgan Stanley Asset Management Inc. Global Equity Trust
Munder Capital Management Internet Technologies Trust
Pacific Investment Management Company Global Bond Trust
Total Return Trust
Rowe Price-Fleming International, Inc. International Stock Trust
Salomon Brothers Asset Management Inc U.S. Government Securities Trust
Strategic Bond Trust
State Street Global Advisors Growth Trust
Lifestyle TrustsA
T. Rowe Price Associates, Inc. Science & Technology Trust
Blue Chip Growth Trust
Equity-Income Trust
Templeton Investment Counsel, Inc. International Value Trust
Wellington Management Company, LLP Growth & Income Trust
Investment Quality Bond Trust
Mid Cap Stock Trust
</TABLE>
(A) State Street Global Advisors provides subadvisory consulting services to
Manufacturers Adviser Corporation regarding management of the Lifestyle
Trusts.
(B) Formerly, the Mid Cap Growth 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.
10
<PAGE> 16
GENERAL INFORMATION ABOUT MANUFACTURERS LIFE OF AMERICA, THE SEPARATE ACCOUNT
AND THE TRUST
MANUFACTURERS LIFE OF AMERICA
We are 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. We are a licensed life insurance company in the District of Columbia and
all states of the United States except New York. Our ultimate parent is
Manulife Financial Corporation ("MFC") a publicly traded company, based in
Toronto, Canada. MFC is the holding company of The Manufacturers Life Insurance
Company ("Manufacturers Life") and its subsidiaries, collectively known as
Manulife Financial. Manufacturers Life is one of the largest life insurance
companies in North America and ranks among the 60 largest life insurers in the
world as measured by assets. However, neither Manufacturers Life nor any of its
affiliated companies guarantees the investment performance of the Separate
Account.
RATINGS
Manufacturers Life and the Company have received the following ratings from
independent rating agencies:
<TABLE>
<S> <C>
Standard and Poor's Insurance Ratings Service: AA+ (for financial strength)
A.M. Best Company: A++ (for financial strength)
Duff & Phelps Credit Rating Co.: AAA (for claims paying ability)
Moody's Investors Service, Inc.: Aa2 (for financial strength)
</TABLE>
These ratings, which are current as of the date of this prospectus and are
subject to change, are assigned to the Company as a measure of the Company's
ability to honor the death benefit and lapse protection 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.
THE SEPARATE ACCOUNT
Manufacturers Life of America established its Separate Account Three (the
"Separate Account") on August 22, 1986 as a separate account under Pennsylvania
Law. Since December 9, 1992, it has been operated under Michigan Law. The
Separate Account holds assets that are segregated from all of the Company's
other assets. The Separate Account is currently used only to support variable
life insurance policies.
ASSETS OF THE SEPARATE ACCOUNT
The Company is the legal owner of the assets in the Separate Account. The
income, gains, and losses of the Separate Account, whether or not realized, are,
in accordance with applicable contracts, credited to or charged against the
Account without regard to the other income, gains, or losses of the Company. The
Company will at all times maintain assets in the Separate Account with a total
market value at least equal to the reserves and other liabilities relating to
variable benefits under all policies participating in the Separate Account.
These assets may not be charged with liabilities which arise from any other
business the Company conducts. However, all obligations under the variable life
insurance policies are general corporate obligations of the Company.
REGISTRATION
The Separate Account is registered with the SEC under the Investment Company Act
of 1940, as amended (the "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 SEC. of the management or
investment policies or practices of the Separate Account. For state law purposes
the Separate Account is treated as a part or division of the Company.
MANUFACTURERS INVESTMENT TRUST
Each sub-account of the Separate Account will purchase shares only of a
particular Portfolio. The Trust is registered under the 1940 Act as an open-end
management investment company. The Separate Account will purchase and redeem
shares of the Portfolios at net asset value. Shares will be redeemed to the
extent necessary for the Company to provide benefits under the Policies, to
transfer assets from one sub-account to another or to the general account as
requested by policyowners, and for other purposes not inconsistent with the
Policies. Any dividend or capital gain distribution received from a Portfolio
with
11
<PAGE> 17
respect to the Policies will be reinvested immediately at net asset value in
shares of that Portfolio and retained as assets of the corresponding
sub-account.
The Trust shares are issued to fund benefits under both variable annuity
policies and variable life insurance policies issued by the Company or life
insurance companies affiliated with the Company. The Company may also purchase
shares through its general account for certain limited purposes including
initial portfolio seed money. For a description of the procedures for handling
potential conflicts of interest arising from the funding of such benefits see
the accompanying Trust prospectus.
INVESTMENT OBJECTIVES OF THE PORTFOLIOS
The investment objectives and certain policies of the Portfolios currently
available to policyowners through corresponding sub-accounts are set forth
below. There is, of course, no assurance that these objectives will be met. A
full description of the Trust, its investment objectives, policies and
restrictions, the risks associated therewith, its expenses, and other aspects of
its operation is contained in the accompanying Trust prospectus, which should be
read together with this prospectus.
ELIGIBLE PORTFOLIOS
The Portfolios of the 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 INTERNET TECHNOLOGIES TRUST seeks long-term capital appreciation by
investing the portfolio's assets primarily in companies engaged in
Internet-related business (such businesses also include Intranet-related
businesses).
The SCIENCE & TECHNOLOGY TRUST seeks long-term growth of capital. By investing
at least 65% of the portfolio's total assets in common stocks of companies
expected to benefit from the development, advancement, and use of science &
technology. Current income is incidental to the portfolio's objective.
The INTERNATIONAL SMALL CAP TRUST seeks capital appreciation by investing
primarily in securities issued by foreign companies which have total market
capitalization or annual revenues of $1 billion or less. These securities may
represent companies in both established and emerging economies throughout the
world.
The AGGRESSIVE GROWTH TRUST 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 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 companies with market capitalizations that
approximately match the range of capitalization of the Russell 2000 Index
("small cap stocks") 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 capitalizations
that approximately match the range of capitalization of the Russell 2000 Index
at the time of purchase.
The DYNAMIC GROWTH TRUST seeks long-term growth of capital by investing the
portfolio's assets primarily in equity securities selected for their growth
potential. Normally at least 50% of its equity assets are invested in
medium-sized companies.
The MID CAP STOCK TRUST seeks long-term growth of capital by investing primarily
in equity securities with significant capital appreciation potential, with
emphasis on medium-sized companies.
The ALL CAP GROWTH TRUST (formerly, Mid Cap Growth Trust) seeks long-term
capital appreciation by investing the portfolio's assets, under normal market
conditions, principally in common stocks of companies that are
12
<PAGE> 18
likely to benefit from new or innovative products, services or processes, as
well as those that have experienced above-average, long-term growth in earnings
and have excellent prospects for future growth.
The OVERSEAS TRUST seeks growth of capital by investing, under normal market
conditions, at least 65% of the portfolio's assets in foreign securities
(including American Depositary Receipts (ADRs) and European Depositary Receipts
(EDRs)). The portfolio expects to invest primarily in equity securities.
The INTERNATIONAL STOCK TRUST seeks long-term growth of capital by investing
primarily in common stocks of established, non-U.S. companies.
The INTERNATIONAL VALUE TRUST seeks long-term growth of capital by investing,
under normal market conditions, primarily in equity securities of companies
located outside the U.S., including emerging markets.
The MID CAP BLEND TRUST seeks growth of capital by investing primarily in common
stocks of U.S. 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,
under normal circumstances, at least 65% of the portfolio's assets in common
stocks of companies with total market capitalization that approximately match
the range of capitalization of the Russell 2000 Index and 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 seeks long-term growth of capital by investing, under
normal market conditions, at least 65% of the portfolio's assets in equity
securities of companies with large market capitalizations.
The QUANTITATIVE EQUITY TRUST seeks to achieve intermediate and long-term growth
through capital appreciation and current income by investing in common stocks
and other equity securities of well established companies with promising
prospects for providing an above average rate of return.
The BLUE CHIP GROWTH TRUST seeks to achieve long-term growth of capital (current
income is a secondary objective) by investing at least 65% of the portfolio's
total assets in the common stocks of large and medium sized blue chip
companies. 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 TACTICAL ALLOCATION TRUST seeks total return, consisting of long-term
capital appreciation and current income, by allocating the portfolio's assets
between (i) a stock portion that is designed to track the performance of the S&P
500 Composite Stock Price Index, and (ii) a fixed income portion that consists
of either five-year U.S. Treasury notes or U.S. Treasury bills with remaining
maturities of 30 days.
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 U.S. issuers which the subadviser believes are of
high quality.
13
<PAGE> 19
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 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 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 the subadviser's forecast for interest rates.
The INVESTMENT QUALITY BOND TRUST seeks a high level of current income
consistent with the maintenance of principal and liquidity, by investing
primarily in a diversified portfolio of investment grade corporate bonds and
U.S. Government bonds with intermediate to longer term maturities. The portfolio
may also invest up to 20% of its assets in non-investment grade fixed income
securities.
The DIVERSIFIED BOND TRUST seeks high total return consistent with the
conservation of capital by investing at least 75% of the portfolio's assets in
fixed income securities.
The U.S. GOVERNMENT SECURITIES TRUST seeks a high level of current income
consistent with preservation of capital and maintenance of liquidity, by
investing in debt obligations and mortgage-backed securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
derivative securities such as collateralized mortgage obligations backed by such
securities.
The MONEY MARKET TRUST seeks maximum current income consistent with preservation
of principal and liquidity by investing in high quality money market instruments
with maturities of 397 days or less issued primarily by U. S.
entities.
The SMALL CAP INDEX TRUST seeks to approximate the aggregate total return of a
small cap U.S. domestic equity market index by attempting to track the
performance of the Russell 2000 Index.*
The INTERNATIONAL INDEX TRUST seeks to approximate the aggregate total return of
a foreign equity market index by attempting to track the performance of the
Morgan Stanley European Australian Far East Free Index (the "MSCI EAFE Index").*
The MID CAP INDEX TRUST seeks to approximate the aggregate total return of a mid
cap U.S. domestic equity market index by attempting to track the performance of
the S&P Mid Cap 400 Index.*
14
<PAGE> 20
The TOTAL STOCK MARKET INDEX seeks to approximate the aggregate total return of
a broad U.S. domestic equity market index by attempting to track the performance
of the Wilshire 5000 Equity Index.*
The 500 INDEX TRUST seeks to approximate the aggregate total return of a broad
U.S. domestic equity market index by attempting to track the performance of the
S&P 500 Composite Stock Price Index.*
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 current
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.
*"Standard & Poor's(R)," "S&P 500(R)," "Standard and Poor's 500(R)" and
"Standard and Poor's 400(R)" are trademarks of The McGraw-Hill Companies, Inc.
"Russell 2000(R)" is a trademark of Frank Russell Company. "Wilshire 5000(R)" is
a trademark of Wilshire Associates. "Morgan Stanley European Australian Far East
Free" and "EAFE(R)" are trademarks of Morgan Stanley & Co. Incorporated. None of
the Index Trusts are sponsored, endorsed, managed, advised, sold or promoted by
any of these companies, and none of these companies make any representation
regarding the advisability of investing in the Trust.
ISSUING A POLICY
REQUIREMENTS
To purchase a Policy, an applicant must submit a completed application. A Policy
will not be issued until the underwriting process has been completed to the
Company's satisfaction.
Policies may be issued on a basis which does not distinguish between the
insured's sex, with prior approval from the Company. A Policy will generally be
issued only on the lives of insureds from ages 20 through 90.
Under current underwriting rules, which are subject to change, proposed insureds
are eligible for simplified underwriting without a medical examination if (a)
their application responses and initial payment meet simplified underwriting
standards and (b) the initial premium is 100% of the Guideline Single Premium.
Customary underwriting standards will apply to all other proposed insureds. The
maximum initial premium currently permitted on a simplified underwriting basis
varies with the issue age of the insured according to the following table.
Simplified underwriting is not available for additional premium payments.
15
<PAGE> 21
<TABLE>
<CAPTION>
AGE* SIMPLIFIED UNDERWRITING MAXIMUM
INITIAL PAYMENT
<S> <C>
20-29 $30,000
30-39 $60,000
40-49 $100,000
50-74 $150,000
75-90 $100,000
</TABLE>
* In the case of a Survivorship Policy, the youngest of the Life Insured.
Each Policy has a Policy Date, an Effective Date and an Issue Date (See
"Definitions" in Appendix A).
The Policy Date is the date from which the first monthly deductions are
calculated and from which Policy Years, Policy Months and Policy Anniversaries
are determined. The Effective Date is the date the Company becomes obligated
under the Policy and when the first monthly deductions are deducted from the
Policy Value. The Issue Date is the date from which Suicide and Incontestability
are measured.
If an application accepted by the Company is not accompanied by a check for the
initial premium and no request to backdate the Policy has been made:
(i) the Policy Date and the Effective Date will be the date the Company
receives the check at it's service office, and
(ii) the Issue Date will be the date the Company issues the Policy.
The initial premium must be received within 60 days after the Issue Date, and
the policyowner must be in good health on the date the initial premium is
received. 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
The Company will generally issue a Policy only if it has a Face Amount that
corresponds to an initial premium of at least $25,000.
BACKDATING A POLICY
Under limited circumstances, the Company may backdate a Policy, upon request, by
assigning a Policy Date earlier than the date the application is signed.
However, in no event will a Policy be backdated earlier than the earliest date
allowed by state law, which is generally three months to one year prior to the
date of application for the Policy. Monthly deductions will be made for the
period the Policy Date is backdated.
As of the Effective Date, the premiums paid plus interest credited, net of the
premium charge (if any), will be allocated among the Investment Accounts and/or
Fixed Account in accordance with the policyowner's instructions unless such
amount is first allocated to the Money Market portfolio for the duration of the
Right to Examine period.
TEMPORARY INSURANCE AGREEMENT
In accordance with the Company's underwriting practices, temporary insurance
coverage may be provided under the terms of a Temporary Insurance Agreement.
Generally, temporary life insurance may not exceed $1,000,000 and may not be in
effect for more than 90 days. This temporary insurance coverage will be issued
on a conditional receipt basis, which means that any benefits under such
temporary coverage will only be paid if the Life Insured meets the Company's
usual and customary underwriting standards for the coverage applied for.
The acceptance of an application is subject to the Company's underwriting rules,
and the Company reserves the right to request additional information or to
reject an application for any reason.
Persons failing to meet standard underwriting classification may be eligible for
a Policy with an additional risk rating assigned to it.
16
<PAGE> 22
RIGHT TO EXAMINE THE POLICY
A Policy may be returned for a refund within 10 days after you received it. Some
states provide a longer period of time to exercise this right. The Policy will
indicate if a longer time period applies. The Policy can be mailed or delivered
to the Company's agent who sold it or to the Service Office. Immediately on such
delivery or mailing, the Policy shall be deemed void from the beginning. Within
seven days after receipt of the returned Policy at its Service Office, the
Company will refund to the policyholder an amount equal to either:
(1) the amount of all premiums paid or
(2)
(a) the difference between payments made and amounts allocated to the
Separate Account and the Fixed Account; plus
(b) the value of the amount allocated to the Separate Account and the
Fixed Account as of the date the returned Policy is received by
the Company; minus
(c) any partial withdrawals made and policy loans taken.
Whether the amount described in (1) or (2) is refunded depends on the
requirements of the applicable state.
If a policyowner requests an increase in face amount, he or she will have the
same rights as described above to cancel the increase. If canceled, the Policy
Value and the surrender charges will be recalculated to the amounts they would
have been had the increase not taken place. A policyowner may request a refund
of all or any portion of premiums paid during the right to examine period, and
the Policy Value and the surrender charges will be recalculated to the amounts
they would have been had the premiums not been paid.
The Company reserves the right to delay the refund of any premium paid by check
until the check has cleared.
LIFE INSURANCE QUALIFICATION
A Policy must qualify as a life insurance policy for purposes of Section 7702 of
the Code by satisfying the Guideline Premium Test.
GUIDELINE PREMIUM TEST
The Guideline Premium Test restricts the maximum premiums that may be paid into
a life insurance policy for a given death benefit. The policy's death benefit
must also be at least equal to the Minimum Death Benefit (described below).
Changes to the Policy may affect the maximum amount of premiums, such as:
- Change in Risk Classification
- Partial Withdrawals
- Addition or deletion of supplementary benefits
Any of the above changes could cause the total premiums paid to exceed the new
maximum limit. In this situation, the Company may refund any excess premiums
paid. In addition, these changes could reduce the future premium limitations.
The Guideline Premium Test requires a life insurance policy to meet minimum
ratios of life insurance coverage to policy value. This is achieved by ensuring
that the death benefit is at all times at least equal to the Minimum Death
Benefit (as described below under "Death Benefit").
DEATH BENEFITS
If the Policy is in force at the time of the death of the Life Insured, the
Company will pay an insurance benefit on receiving due proof of death. For a
Survivorship Policy, due proof of death must be provided for each of the Life
Insured although the insurance benefit is payable on the death of the last to
die of the Life Insured. If the Life Insured should die after the Company's
receipt of a request for surrender, no insurance benefit will be payable, and
the Company will pay only the Net Cash Surrender Value.
The amount payable will be the death benefit, plus any amounts payable under any
supplementary benefits added to the Policy, less the Policy Debt and less any
outstanding monthly deductions due. The insurance benefit will be paid in one
lump
17
<PAGE> 23
sum unless another form of settlement option is agreed to by the beneficiary and
the Company. If the insurance benefit is paid in one sum, the Company will pay
interest from the date of death to the date of payment.
DEATH BENEFIT
The death benefit is the Face Amount of the Policy at the date of death (less
any Policy Debt and outstanding Monthly Deductions due) or, if greater, the
Minimum Death Benefit (less any Policy Debt and outstanding Monthly Deductions
due). However, if the Maturity Advantage Option is elected and the policyowner
elects not to transfer his Investment Account Value to the Fixed Account on the
Maturity Date, then the Death Benefit will be equal to the Policy Value at the
date of the Life Insured's death.
MINIMUM DEATH BENEFIT
The Minimum Death Benefit on any date is defined as the Policy Value on that
date times the applicable Minimum Death Benefit Percentage for the Attained Age
of the Life Insured in the case of a Single Life Policy (or the youngest of the
Life Insured in the case of a Survivorship Policy). The Minimum Death Benefit
Percentages are set forth in the Policy.
Therefore, the death benefit will always be at least equal to the Face Amount of
the Policy. However, if there is a sufficient increase in Policy Value such that
the Policy Value times the applicable Minimum Death Benefit Percentage is
greater than the Face Amount, the death benefit will be greater than the Face
Amount.
LAPSE PROTECTION BENEFIT
The Lapse Protection Benefit protects the Policy from going into default. As
long as this benefit is in force and any outstanding Policy Debt is less than
the Cash Surrender Value, the Policy will not go into default.
The Lapse Protection Benefit applies to a Policy only if the initial premium
paid is 100% of the Guideline Single Premium for the Face Amount of the Policy.
As a result, if you pay less than 100% of the Guideline Single Premium, then you
may be required to pay additional premiums in the future in order to prevent
your Policy from lapsing.
Except as noted below, the Lapse Protection Benefit terminates on the Maturity
Date of the Policy unless the Maturity Advantage Option has been elected and the
policyowner's existing Investment Account Value is transferred to the Fixed
Account on the Maturity Date.
In the State of Florida, the Lapse Protection Benefit is in effect for the
following time periods which vary depending on the Age of the Life Insured at
issuance of the Policy.
<TABLE>
<CAPTION>
Age of Life Insured Lapse Protection Period
At Issuance of the Policy (In Years)
<S> <C>
20-50 20
51-55 19
56-60 18
61-65 16
66-70 13
71-75 10
76 and above 0
</TABLE>
In the case of a Survivorship Policy, the Lapse Protection Period will be
determined based on the older Life Insured's age at issuance of the Policy.
MATURITY DATE
Provided that the Policy is in force and the Life Insured is alive (or the last
to die of the Life Insured in the case of a Survivorship Policy), the Company
will pay the policyowner the Policy Value (less any outstanding Policy Debt)
calculated as of the Maturity Date.
MATURITY ADVANTAGE OPTION
If the Life Insured is alive (or in the case of a Survivorship Policy, the last
to die of the Life Insured is alive) on the Maturity
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<PAGE> 24
Date, the policyowner may elect to continue the Policy. The policyowner's
written election to continue the Policy must be received at the Service Office
prior to the Maturity Date. If this election is made, the Policy will continue
in force subject to the following:
(a) unless the policyowner elects otherwise, any existing Investment Account
Value will be transferred to the Fixed Account (If the Policyowner elects
not to transfer the Investment Account Value, the death benefit will be
equal to the Policy Value at the date of the Life Insured's death);
(b) no additional premium payments will be accepted although loan repayments
will be accepted;
(c) no additional charges or deductions (as described under "Charges and
Deductions") will be assessed;
(d) interest on any Policy Debt will continue to accrue;
(e) the death benefit described above will be payable to the beneficiary upon
receipt of due proof of death of the Life Insured.
The death benefit payable after the Maturity Date if the Maturity Advantage
Option is elected is the greater of the Face Amount or the Minimum Death Benefit
(as described above) less any Policy Debt due at the date of death.
If the Policy is continued after the Maturity Date, the Policy will go into
default after the Maturity Date if the Policy Debt equals or exceeds the Policy
Value. The Company will notify the policyowner of the default and will allow a
61 day grace period (from the date the Policy goes into default) in which the
policyowner may make a payment of the loan interest which would then bring the
Policy out of default. If the required payment is not received by the end of the
grace period, the Policy will terminate with no value.
PREMIUM PAYMENTS
INITIAL PREMIUMS
The Policy permits the payment of a large initial premium and, subject to the
restrictions described below, additional premiums. The minimum initial premium
is $25,000. The policyowner may choose an initial premium that is 80%, 90% or
100% of the Guideline Single Premium (based on Face Amount selected by the
policyowner). In the case of simplified underwriting, the initial premium must
be 100% of the Guideline Single Premium for the Face Amount of the Policy.
The Lapse Protection Benefit applies to a Policy only if the initial premium
paid is 100% of the Guideline Single Premium for the Face Amount of the Policy.
As a result, if you pay less than 100% of the Guideline Single Premium, then you
may be required to pay additional premiums in the future in order to prevent you
Policy from lapsing. Therefore, prospective policyowners should discuss with
their financial adviser the appropriate percentage of Guideline Single Premium
for a given Face Amount.
No premiums will be accepted prior to receipt of a completed application by the
Company. All premiums received prior to the Effective Date of the Policy will be
held in the general account and credited with interest from the date of receipt
at the rate of return then being earned on amounts allocated to the Money Market
Trust.
SUBSEQUENT PREMIUMS
After payment of the initial premium, additional premiums may be made subject to
the following conditions:
(a) while there is an outstanding Policy Debt, any additional premium payment
will be applied first to repay the loan;
(b) Face Amount increases are not permitted in connection with additional
premiums (Therefore, the total of all premiums paid for a Policy may not
exceed 100% of the Guideline Single Premium for the Face Amount of the
Policy);
(c) the Company may refuse or refund any premium payment (or any portion of
such premium payment) that would cause the Policy to fail to qualify as
life insurance under Section 7702 of the Code, and
(d) additional premiums may require evidence of insurability on the Life
Insured satisfactory to the Company unless the additional premium is
applied to repay a loan.
The Company will add additional premiums to Policy Value as of the Business Day
it receives the additional premium at its Service Office unless evidence of
insurability is required in which case the additional premium will be added to
Policy Value as of the Business Day the Company's underwriters approve the
additional premium.
19
<PAGE> 25
PREMIUM ALLOCATION
On the later of the Effective Date or the Business Day a premium is received,
the Net Premiums paid plus interest credited will be allocated among the
Investment Accounts or the Fixed Account in accordance with the policyowner's
instructions.
Premiums may be allocated to the Fixed Account for accumulation at a rate of
interest equal to at least 4% or to one or more of the Investment Accounts for
investment in the Portfolio shares held by the corresponding sub-account of the
Separate Account. Allocations among the Investment Accounts and the Fixed
Account are made as a percentage of the premium. The percentage allocation to
any account may be any number between zero and 100, provided the total
allocation equals 100. A policyowner may change the way in which premiums are
allocated at any time without charge. The change will take effect on the date a
written request for change satisfactory to the Company is received at the
Service Office. A policyowner may also change premium allocation by telephone if
he or she has a currently valid authorization form on file with the Company.
MAXIMUM PREMIUM LIMITATION
The Policy is issued under the Guideline Premium Test which requires that in no
event may the total of all premiums paid exceed the then current maximum premium
limitations established by federal income tax law for a Policy to qualify as
life insurance.
If, at any time, a premium is paid which would result in total premiums
exceeding the above maximum premium limitation, the Company will only accept
that portion of the premium which will make the total premiums equal to the
maximum. Any part of the premium in excess of that amount will be returned and
no further premiums will be accepted until allowed by the then current maximum
premium limitation.
CHARGES AND DEDUCTIONS
PREMIUM LOAD
A Premium Load of 0.030% of Policy Value is deducted monthly (equivalent to
0.360% annually) for the 10 Policy Years. If additional premium payments are
made, the 0.030% premium load for a particular premium payment is deducted from
the amount of Policy Value corresponding to the premium payment for 10 Policy
Years following the premium payment. For example, if:
- - the initial premium payment is $100,000,
- - an additional premium payment of $50,000 is made in Policy Year 7, and
- - the Policy Value at the time the additional premium payment is made is
$200,000 (including the additional premium payment),
then 0.030% will be deducted from 75% of Net Policy Value in Policy Years 7
through 10 and an additional 0.030% will be deducted from 25% of Net Policy
Value in Policy Years 7 through 16.
Unless otherwise allowed by the Company and specified by the policyowner, the
premium load will be allocated among the Investment Accounts and the Fixed
Account in the Policy in the same proportion as the Policy Value in each bears
to the Net Policy Value.
The premium load is designed to cover a portion of the Company's acquisition and
sales expenses and federal and premium taxes.
SURRENDER CHARGES
During the Surrender Charge Period, the Company will deduct a Surrender Charge
if:
- the Policy is surrendered for its Net Cash Surrender Value,
- a partial withdrawal is made (above the Free Withdrawal Amount),
or
- the Policy terminates due to default.
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<PAGE> 26
The surrender charge, together with a portion of the premium load, is designed
to compensate the Company for some of the expenses it incurs in selling and
distributing the Policies, including agents' commissions, advertising, agent
training and the printing of prospectuses and sales literature.
SURRENDER CHARGE CALCULATION
The Surrender Charge is determined by multiplying the amount withdrawn or
surrendered in excess of the Free Withdrawal Amount by the applicable total
Surrender Charge percentage shown in the table below.
<TABLE>
<CAPTION>
Policy Year Surrender Charge
<S> <C>
10 10.00%
11 9.00%
12 8.00%
13 7.00%
14 6.00%
15 5.00%
16 4.00%
17 3.00%
18 1.50%
10+ 0.00%
</TABLE>
If necessary, we will reduce the surrender charge deducted upon a partial
withdrawal or a surrender of the Policy so that the sum of all premium
loads, the administration charges and surrender charge deducted
(including the surrender charge to be deducted upon such partial
withdrawal or surrender) does not exceed 10% of aggregate payments made
during the first Policy Year.
We will allocate the deduction of the Surrender Charge for a withdrawal
to the Fixed Account and the Investment Accounts in the same proportion
that the withdrawal from each account bears to the total withdrawal. If
the withdrawal plus the Surrender Charge allocated to a particular
account are greater than the value of that account, we will reduce the
portion of the withdrawal allocated to that account. We will reduce the
allocated portion so that the withdrawal plus the charge allocated to the
account equals the value of the account. If the amount in all accounts is
not sufficient to pay the Surrender Charge, we will reduce the amount of
the withdrawal.
SURRENDER CHARGES ON A PARTIAL WITHDRAWAL
FREE WITHDRAWAL AMOUNT
A portion of the Net Cash Surrender Value may be withdrawn without being subject
to a Surrender Charge (the "Free Withdrawal Amount"). The Free Withdrawal Amount
is the greater of 10% of the total premiums or 100% of Earnings. In determining
what, if any, portion of a partial withdrawal is in excess of the Free
Withdrawal Amount, all previous partial withdrawals that have occurred in the
current Policy Year are included.
MONTHLY CHARGES
On the Policy Date and at the beginning of each Policy Month, a deduction is due
from the Net Policy Value to cover certain charges in connection with the Policy
until the Maturity Date. On and after the Maturity Date, if there is a Policy
Debt under the Policy, loan interest and principal will continue to be payable
at the beginning of each Policy Month. Monthly deductions due prior to the
Effective Date will be taken on the Effective Date instead of the dates they
were due. These charges consist of:
- a Premium Load, if applicable;
- an administration charge;
- a charge for the cost of insurance;
- a mortality and expense risks charge;
- if applicable, a charge for any supplementary benefits added to
the Policy.
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<PAGE> 27
Unless otherwise allowed by the Company and specified by the policyowner, the
Monthly Deduction will be allocated among the Investment Accounts and the Fixed
Account in the Policy in the same proportion as the Policy Value in each bears
to the Net Policy Value immediately prior to the deduction. However, the
mortality and expense risk charge will only be allocated among the Investment
Accounts.
ADMINISTRATION CHARGE
This charge will be equal to $7.50 per Policy Month plus 0.010% of Net Policy
Value deducted monthly (equivalent to .12% annually). The charge is designed to
cover certain administrative expenses associated with the Policy, including
maintaining policy records, collecting premiums and processing death claims,
surrender and withdrawal requests and various changes permitted under the
Policy.
COST OF INSURANCE CHARGE
The monthly charge for the cost of insurance is determined by multiplying the
applicable cost of insurance rate times the net amount at risk at the beginning
of each Policy Month.
The net amount at risk is equal to (a) minus (b) where:
(a) is the death benefit as of the first day of the Policy Month,
divided by 1.0032737; and
(b) is the Policy Value as of the first day of the Policy Month.
The rates for the cost of insurance are based upon the issue age, duration of
coverage, sex, and Risk Classification of the Life Insured. For a Survivorship
Policy, the rates are determined for each of the Life Insured on the basis
described above and then are blended to produce a single cost of insurance rate.
Cost of insurance rates will generally increase with the age of the Life
Insured. The first year cost of insurance rate is guaranteed.
The cost of insurance rates reflect the Company's expectations as to future
mortality experience. The rates may be re-determined from time to time on a
basis which does not unfairly discriminate within the class of life insured. In
no event will the cost of insurance rates exceed the guaranteed rates set forth
in the Policy except to the extent that an extra charge is imposed because of an
additional rating applicable to the Life Insured. After the first Policy Year,
the cost of insurance will generally increase on each Policy Anniversary. The
guaranteed rates are based on the 1980 Commissioners Smoker Distinct Mortality
tables.
MORTALITY AND EXPENSE RISKS CHARGE
A monthly charge equal to a percentage of the value of the Investment Accounts
is assessed against the Investment Accounts. This charge is to compensate the
Company for the mortality and expense risks it assumes under the Policy. The
mortality risks assumed are that the Life Insured may live for a shorter period
of time than the Company estimated. The expense risks assumed are that expenses
incurred in issuing and administering the Policy will be greater than the
Company estimated. The Company will realize a gain from this charge to the
extent it is not needed to provide benefits and pay expenses under the Policy.
The charge varies by Policy Year as follows:
<TABLE>
<CAPTION>
GUARANTEED MONTHLY MORTALITY EQUIVALENT ANNUAL
AND MORTALITY AND EXPENSE
POLICY YEAR EXPENSE RISKS CHARGE RISKS CHARGE
- --------------------------------------------------------------------------------
<S> <C> <C>
1-10 0.075% 0.900%
10+ 0.025% 0.300%
</TABLE>
CHARGES FOR SUPPLEMENTARY BENEFITS
If the Policy includes Supplementary Benefits, a charge may apply to such
Supplementary Benefit.
22
<PAGE> 28
CHARGES FOR TRANSFERS
A charge of $25 will be imposed on each transfer in excess of twelve in a Policy
Year. The charge will be deducted from the Investment Account or the Fixed
Account to which the transfer is being made. All transfer requests received by
the Company on the same Business Day are treated as a single transfer request.
REDUCTION IN CHARGES
The Policy is available for purchase by corporations and other groups or
sponsoring organizations. Group or sponsored arrangements may include reduction
or elimination of withdrawal charges and deductions for employees, officers,
directors, agents and immediate family members of the foregoing. The Company
reserves the right to reduce any of the Policy's charges on certain cases where
it is expected that the amount or nature of such cases will result in savings of
sales, underwriting, administrative, commissions or other costs. Eligibility for
these reductions and the amount of reductions will be determined by a number of
factors, including the number of lives to be insured, the total premiums
expected to be paid, total assets under management for the policyowner, the
nature of the relationship among the insured individuals, the purpose for which
the policies are being purchased, expected persistency of the individual
policies, and any other circumstances which the Company believes to be relevant
to the expected reduction of its expenses. Some of these reductions may be
guaranteed and others may be subject to withdrawal or modification, on a uniform
case basis. Reductions in charges will not be unfairly discriminatory to any
policyowners. The Company may modify from time to time, on a uniform basis, both
the amounts of reductions and the criteria for qualification.
SPECIAL PROVISIONS FOR EXCHANGES
The Company will permit policyowners of certain fixed life insurance policies
issued either by the Company or The Manufacturers Life Insurance Company (USA)
("Manufacturers USA") to exchange their policies for the Policies described in
this prospectus (and likewise, policyowners of policies described in this
Prospectus may also exchange their Policies for certain fixed policies issued
either by the Company or by Manufacturers USA). Policyowners considering an
exchange should consult their tax advisors as to the tax consequences of an
exchange.
COMPANY TAX CONSIDERATIONS
At the present time, the Company makes no charge to the Separate Account for any
federal, state, or local taxes that the Company incurs that may be attributable
to such Account or to the Policies. The Company, however, reserves the right in
the future to make a charge for any such tax or other economic burden resulting
from the application of the tax laws that it determines to be properly
attributable to the Separate Account or to the Policies.
POLICY VALUE
DETERMINATION OF THE POLICY VALUE
A Policy has a Policy Value, a portion of which is available to the policyowner
by making a policy loan or partial withdrawal, or upon surrender of the Policy.
The Policy Value may also affect the amount of the death benefit. The Policy
Value at any time is equal to the sum of the values in the Investment Accounts,
the Fixed Account, and the Loan Account.
INVESTMENT ACCOUNTS
An Investment Account is established under each Policy for each sub-account of
the Separate Account to which net premiums or transfer amounts have been
allocated. Each Investment Account under a Policy measures the interest of the
Policy in the corresponding sub-account. The value of the Investment Account
established for a particular sub-account is equal to the number of units of that
sub-account credited to the Policy times the value of such units.
FIXED ACCOUNT
Amounts in the Fixed Account do not vary with the investment performance of any
sub-account. Instead, these amounts are credited with interest at a rate
determined by the Company. For a detailed description of the Fixed Account, see
"The General Account - Fixed Account".
LOAN ACCOUNT
Amounts borrowed from the Policy are transferred to the Loan Account. Amounts in
the Loan Account do not vary with the investment performance of any sub-account.
Instead, these amounts are credited with interest at a rate which is equal to
4%. For a detailed description of the Loan Account, see "Policy Loans - Loan
Account".
23
<PAGE> 29
UNITS AND UNIT VALUES
CREDITING AND CANCELING UNITS
Units of a particular sub-account are credited to a Policy when net premiums are
allocated to that sub-account or amounts are transferred to that sub-account.
Units of a sub-account are canceled whenever amounts are deducted, transferred
or withdrawn from the sub-account. The number of units credited or canceled for
a specific transaction is based on the dollar amount of the transaction divided
by the value of the unit on the Business Day on which the transaction occurs.
The number of units credited with respect to a premium payment will be based on
the applicable unit values for the Business Day on which the premium is received
at the Service Office, except for any premiums received before the Effective
Date. For premiums received before the Effective Date, the values will be
determined on the Effective Date.
A Business Day is any day that the New York Stock Exchange is open for business.
A Business Day ends at the close of regularly scheduled day-time trading of the
New York Stock Exchange on that day.
Units are valued at the end of each Business Day. When an order involving the
crediting or canceling of units is received after the end of a Business Day, or
on a day which is not a Business Day, the order will be processed on the basis
of unit values determined on the next Business Day. Similarly, any determination
of Policy Value, Investment Account value or death benefit to be made on a day
which is not a Business Day will be made on the next Business Day.
UNIT VALUES
The value of a unit of each sub-account was initially fixed at $10.00. For each
subsequent Business Day the unit value for that sub-account is determined by
multiplying the unit value for the immediately preceding Business Day by the net
investment factor for the sub-account on such subsequent Business Day.
The net investment factor for a sub-account on any Business Day is equal to (a)
divided by (b) where:
(a) is the net asset value of the underlying Portfolio shares held by
that sub-account as of the end of such Business Day before any
policy transactions are made on that day; and
(b) is the net asset value of the underlying Portfolio shares held by
that sub-account as of the end of the immediately preceding
Business Day after all policy transactions were made for that day;
The value of a unit may increase, decrease, or remain the same, depending on the
investment performance of a sub-account from one Business Day to the next.
TRANSFERS OF POLICY VALUE
At any time, a policyowner may transfer Policy Value from one sub-account to
another or to the Fixed Account. (Transfers involving the Fixed Account are
subject to certain limitations as noted below under "Transfers Involving Fixed
Account.") Transfer requests must be in writing in a format satisfactory to the
Company, or by telephone if a currently valid telephone transfer authorization
form is on file.
The Company reserves the right to impose limitations on transfers, including the
maximum amount that may be transferred. The Company also reserves the right to
modify or terminate the transfer privilege at any time in accordance with
applicable law. Transfers may also be delayed when any of the events described
under items (i) through (iv) in "Payment of Proceeds" occurs. Transfer
privileges are also subject to any restrictions that may be imposed by the
Trust. In addition, the Company reserves the right to defer the transfer
privilege at any time that the Company is unable to purchase or redeem shares of
the Trust.
While the Policy is in force, the policyowner may transfer the Policy Value from
any of the Investment Accounts to the Fixed Account without incurring transfer
charges:
(a) within eighteen months after the Issue Date; or
(b) within 60 days of the effective date of a material change in the
investment objectives of any of the sub-accounts or within 60 days
of the date of notification of such change, whichever is later.
Such transfers will not count against the twelve transfers that may be made free
of charge in any Policy Year.
24
<PAGE> 30
TRANSFER CHARGES
A policyowner may make up to twelve transfers each Policy Year free of charge.
Additional transfers in each Policy Year may be made at a cost of $25 per
transfer. This charge will be deducted from the Investment Account or the Fixed
Account to which the transfer is being made. All transfer requests received by
the Company on the same Business Day are treated as a single transfer request.
Transfers under the Dollar Cost Averaging and Asset Allocation Balancer programs
do not count against the number of free transfers permitted per Policy Year.
TRANSFERS INVOLVING FIXED ACCOUNT
The maximum amount that may be transferred from the Fixed Account in any one
Policy Year is the greater of $500 or 15% of the Fixed Account Value at the
previous Policy Anniversary. Any transfer which involves a transfer out of the
Fixed Account may not involve a transfer to the Investment Account for the Money
Market Trust.
TELEPHONE TRANSFERS
Although failure to follow reasonable procedures may result in the Company being
liable for any losses resulting from unauthorized or fraudulent telephone
transfers, the Company will not be liable for following instructions
communicated by telephone that the Company reasonably believes to be genuine.
The Company will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Such procedures shall consist of
confirming that a valid telephone authorization form is on file, tape recording
of all telephone transactions and providing written confirmation thereof.
DOLLAR COST AVERAGING
The Company will offer policyowners a Dollar Cost Averaging ("DCA") program.
Under the DCA program, the policyowner will designate an amount which will be
transferred monthly from one Investment Account into any other Investment
Account(s) or the Fixed Account. Currently, no charge will be made for this
program, although the Company reserves the right to institute a charge on 90
days' written notice to the policyholder. If insufficient funds exist to effect
a DCA transfer, the transfer will not be effected and the policyowner will be so
notified.
The Company reserves the right to cease to offer this program as of 90 days
after written notice is sent to the policyowner.
ASSET ALLOCATION BALANCER TRANSFERS
Under the Asset Allocation Balancer program the policyowner will designate an
allocation of Policy Value among Investment Accounts. At six-month intervals
beginning six months after the Policy Date (or the last Policy Anniversary), the
Company will move amounts among the Investment Accounts as necessary to maintain
the policyowner's chosen allocation. A change to the policyowner premium
allocation instructions will automatically result in a change in Asset
Allocation Balancer instructions so that the two are identical unless the
policyowner either instructs the Company otherwise or has elected the Dollar
Cost Averaging program. Currently, there is no charge for this program; however,
the Company reserves the right to institute a charge on 90 days' written notice
to the policyowner.
The Company reserves the right to cease to offer this program as of 90 days
after written notice is sent to the policyowner.
POLICY LOANS
While this Policy is in force and has an available loan value, a policyowner may
borrow against the Policy Value of the Policy. The Policy serves as the only
security for the loan. Policy loans may have tax consequences.
MAXIMUM LOANABLE AMOUNT
The Maximum Loanable Amount is 90% of the Policy's Net Cash Surrender Value.
EFFECT OF POLICY LOAN
A policy loan will have an effect on future Policy Values, since that portion of
the Policy Value in the Loan Account will increase in value at the crediting
interest rate rather than varying with the performance of the underlying
Portfolios or increasing in value at the rate of interest credited for amounts
allocated to the Fixed Account. A policy loan may cause a Policy to be more
susceptible to going into default since a policy loan will be reflected in the
Net Cash Surrender Value. See "Lapse and Reinstatement." In addition, a policy
loan may result in a termination of the Lapse Protection Benefit since this
25
<PAGE> 31
benefit terminates if Policy Debt exceeds the Cash Surrender Value. Finally, a
policy loan will affect the amount payable on the death of the Life Insured,
since the death benefit is reduced by the Policy Debt at the date of death in
arriving at the insurance benefit.
If the Policy is a MEC, then a loan will be treated as a withdrawal for tax
purposes and may be taxable. See sections entitled "Tax Treatment of the Policy
- - Policies Which Are MECs," and "Tax Treatment of the Policy Policies Which Are
Not MECs."
INTEREST CHARGED ON POLICY LOANS
Interest on the Policy Debt will accrue daily and be payable annually on the
Policy Anniversary. The rate of interest charged will be an effective annual
rate of 6.00%. If the interest due on a Policy Anniversary is not paid by the
policyowner, the interest will be borrowed against the Policy.
Interest on the Policy Debt will continue to accrue daily if there is an
outstanding loan when monthly deductions and premium payments cease when the
Life Insured (youngest of the Life Insured in the case of a Survivorship Policy)
reaches age 100. The Policy will go into default at any time the Policy Debt
exceeds the Cash Surrender Value. At least 61 days prior to termination, the
Company will send the policyowner a notice of the pending termination. Payment
of interest on the Policy Debt during the 61 day grace period will bring the
policy out of default.
LOAN ACCOUNT
When a loan is made, an amount equal to the loan principal, plus interest to the
next Policy Anniversary, will be deducted from the Investment Accounts or the
Fixed Account and transferred to the Loan Account. Amounts transferred into the
Loan Account cover the loan principal plus loan interest due to the next Policy
Anniversary. The policyowner may designate how the amount to be transferred to
the Loan Account is allocated among the accounts from which the transfer is to
be made. In the absence of instructions, the amount to be transferred will be
allocated to each account in the same proportion as the value in each Investment
Account and the Fixed Account bears to the Net Policy Value. A transfer from an
Investment Account will result in the cancellation of units of the underlying
sub-account equal in value to the amount transferred from the Investment
Account. However, since the Loan Account is part of the Policy Value, transfers
made in connection with a loan will not change the Policy Value.
INTEREST CREDITED TO THE LOAN ACCOUNT
Nonpreferred Loans
Interest will be credited to amounts in the Loan Account at an effective annual
rate of 4.00%. The actual rate credited is equal to the rate of interest charged
on the policy loan less the Loan Interest Credited Differential, which is
currently 2.00%. (The Loan Interest Credited Differential is the difference
between the rate of interest charged on a policy loan and the rate of interest
credited to amounts in the Loan Account.)
Preferred Loans:
Preferred interest rates are available in the case of loans of amounts that
represent Earnings on the Policy ("Preferred Loans").
Interest will be credited to amounts in the Loan Account at an effective annual
rate of 6.00%. The actual rate credited is equal to the rate of interest charged
on the policy loan less the Loan Interest Credited Differential, which is
currently 0.00%.
The Company may change the Current Loan Interest Credited Differential as of 90
days after sending you written notice of such change.
For a Policy that is not a MEC, the tax consequences associated with a loan
interest credited differential of 0% are unclear. A tax adviser should be
consulted before effecting a loan to evaluate the tax consequences that may
arise in such a situation. If we determine, in our sole discretion, that there
is a substantial risk that a loan will be treated as a taxable distribution
under Federal tax law as a result of the differential between the credited
interest rate and the loan interest rate, the Company retains the right to
increase the loan interest rate to an amount that would result in the
transaction being treated as a loan under Federal tax law. If this amount is not
prescribed by any IRS ruling or regulation or any court decision, the amount of
26
<PAGE> 32
increase will be that which the Company considers to be most likely to result in
the transaction being treated as a loan under Federal tax law. In no event will
the loan interest rate exceed the rate charged in the first ten Policy Years.
If the Policy is a MEC then, regardless of the loan interest credited
differential, a loan will be treated as a withdrawal for tax purposes and may be
taxable. See sections entitled "Tax Treatment of the Policy - Policies Which Are
MECs," and "Tax Treatment of the Policy - Policies Which Are Not MECs."
LOAN ACCOUNT ADJUSTMENTS
On the first day of each Policy Anniversary the difference between the Loan
Account and the Policy Debt is transferred to the Loan Account from the
Investment Accounts or the Fixed Account. Amounts transferred to the Loan
Account will be taken from the Investment Accounts and the Fixed Account in the
same proportion as the value in each Investment Account and the Fixed Account
bears to the Net Policy Value.
LOAN REPAYMENTS
Policy Debt may be repaid in whole or in part at any time prior to the death of
the Life Insured, provided that the Policy is in force. When a repayment is
made, the amount is credited to the Loan Account and transferred to the Fixed
Account or the Investment Accounts. Loan repayments will be allocated first to
the Fixed Account until the associated Loan Sub-Account is reduced to zero and
then to each Investment Account in the same proportion as the value in the
corresponding Loan Sub-Account bears to the value of the Loan Account.
Where permitted by applicable state law, any additional premium payment will be
applied to outstanding loan balances.
POLICY SURRENDER AND PARTIAL WITHDRAWALS
POLICY SURRENDER
A Policy may be surrendered for its Net Cash Surrender Value at any time while
the Life Insured is living. The Net Cash Surrender Value is equal to the Policy
Value less any surrender charges and outstanding monthly deductions due (the
"Cash Surrender Value") minus the Policy Debt. The Net Cash Surrender Value will
be determined as of the end of the Business Day on which the Company receives
the Policy and a written request for surrender at its Service Office. After a
Policy is surrendered, the insurance coverage and all other benefits under the
Policy will terminate. See section entitled "Tax Treatment of the Policy" for a
discussion of the potential Federal income tax implications of a surrender of
the Policy.
PARTIAL WITHDRAWALS
A policyowner may make a partial withdrawal of the Net Cash Surrender Value
after the first Policy Anniversary. The minimum partial withdrawal amount is
$500. The policyowner may specify the portion of the withdrawal to be taken from
each Investment Account and the Fixed Account. In the absence of instructions,
the withdrawal will be allocated among such accounts in the same proportion as
the Policy Value in each account bears to the Net Policy Value. For information
on Surrender Charges on a Partial Withdrawal see "Charges and Deductions -
Surrender Charges." See section entitled "Tax Treatment of the Policy" for a
discussion of the potential Federal income tax implications of a partial
withdrawal from the Policy.
If the withdrawal would cause the Policy Value to fall below $25,000, we will
treat the withdrawal request as a full surrender of the Policy.
REDUCTION IN FACE AMOUNT DUE TO A PARTIAL WITHDRAWAL
A partial withdrawal will cause a reduction in Face Amount. The Face Amount will
be reduced by an amount equal to (a) multiplied by (b) where:
(a) is the Face Amount prior to the withdrawal; and
(b) is the Policy Value after the withdrawal, divided by the Policy
Value prior to the withdrawal.
If the reduction in the Face Amount would require the return of premiums in
order for the policy to qualify as life insurance under Section 7702 of the
Code, or any other equivalent section of the Code, then we will return premiums,
with interest, in the year of reduction, or in any subsequent year that the
return of premiums is required. If necessary, we will also limit the amount of
the withdrawal so that the Face Amount does not fall below the Face Amount
associated with the minimum initial premium of $25,000 and the percent of
Guideline Single Premium selected. The decrease in Face Amount will be effective
as of the date of the withdrawal.
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LAPSE AND REINSTATEMENT
LAPSE
Unless the Lapse Protection Benefit is in effect, a Policy will go into default
if at the beginning of any Policy Month the Policy's Net Cash Surrender Value
would be zero or below after deducting the monthly deduction then due.
Therefore, a Policy could lapse eventually if increases in Policy Value (prior
to deduction of Policy charges) are not sufficient to cover Policy charges. A
Policy could also lapse if the Policy Debt is greater than the Cash Surrender
Value since the Lapse Protection Benefit terminates on any date that the Policy
Debt exceeds the Cash Surrender Value. The Company will notify the policyowner
of the default and will allow a 61 day grace period (from the date the Policy
goes into default) in which the policyowner may make a premium payment
sufficient to bring the Policy out of default. The required payment will be
equal to the amount necessary to bring the Net Cash Surrender Value to zero, if
it was less than zero on the date of default, plus the sum of (a) the monthly
deductions due at the date of default and (b) the amount equal to the monthly
deductions due to the later of the next Policy Anniversary or for at least three
Policy Months. If the required payment is not received by the end of the grace
period, the Policy will terminate with no value. See section entitled "Tax
Treatment of the Policy - Lapse or Surrender" for a discussion of the potential
Federal income tax implications of a lapse of the Policy.
DEATH DURING GRACE PERIOD
If the Life Insured should die during the grace period, the Policy Value used in
the calculation of the death benefit will be the Policy Value as of the date of
default and the insurance benefit will be reduced by any outstanding Monthly
Deductions due at the time of death.
MATURITY ADVANTAGE OPTION
If the Policy is extended after the Maturity Date by electing the Maturity
Advantage Option, the Policy will go into default after the Maturity Date if the
Policy Debt equals or exceeds the Policy Value.
The Company will notify the policyowner of the default and will allow a 61 day
grace period (from the date the Policy goes into default) in which the
policyowner may make a payment of the loan interest which would then bring the
Policy out of default. If the required payment is not received by the end of the
grace period, the Policy will terminate with no value.
REINSTATEMENT
A policyowner can, by making a written request, reinstate a Policy which has
terminated after going into default at any time within the five-year period
following the date of termination subject to the following conditions:
(a) In the case of a Survivorship Policy, the Policy may not be reinstated if
any of the Life Insured have died since the Policy lapsed;
(b) Evidence of the Life Insured's insurability, satisfactory to the Company is
provided to the Company; and
(c) A premium equal to the amount that was required to bring the Policy out of
default immediately prior to termination, plus an amount equal to the
Monthly Deductions due until the next Policy Anniversary or for at least
three Policy Months is paid.
If the reinstatement is approved, the date of reinstatement will be the later of
the date the Company approves the policyowner's request or the date the required
payment is received at the Company's Service Office. In addition, any surrender
charges will be reinstated to the amount they were at the date of default. The
Policy Value on the date of reinstatement, prior to the crediting of any Net
Premium paid on the reinstatement, will be equal to the Policy Value on the date
the Policy terminated. See section entitled "Tax Treatment of the Policy-Lapse
or Surrender" for a discussion of the potential Federal income tax implications
of a lapse and subsequent reinstatement of the Policy.
TERMINATION
The Policy will terminate on the earliest to occur of the following events:
(a) the end of the grace period for which the policyowner has not paid the
amount necessary to bring the Policy out of default,
(b) surrender of the Policy for its Net Cash Surrender Value;
(c) the Maturity Date unless the policyowner has elected the Maturity Advantage
option;
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(d) the death of the Life Insured.
THE GENERAL ACCOUNT
The general account of the Company consists of all assets owned by the Company
other than those in the Separate Account and other separate accounts of the
Company. Subject to applicable law, the Company has sole discretion over the
investment of the assets of the general account.
By virtue of exclusionary provisions, interests in the general account of the
Company have not been registered under the Securities Act of 1933 and the
general account has not been registered as an investment company under the
Investment Company Act of 1940. Accordingly, neither the general account nor any
interests therein are subject to the provisions of these acts, and as a result
the staff of the SEC. has not reviewed the disclosures in this prospectus
relating to the general account. Disclosures regarding the general account may,
however, be subject to certain generally applicable provisions of the federal
securities laws relating to the accuracy and completeness of statements made in
a prospectus.
FIXED ACCOUNT
A policyowner may elect to allocate net premiums to the Fixed Account or to
transfer all or a portion of the Policy Value to the Fixed Account from the
Investment Accounts. The Company will hold the reserves required for any portion
of the Policy Value allocated to the Fixed Account in its general account.
Transfers from the Fixed Account to the Investment Accounts are subject to
restrictions.
POLICY VALUE IN THE FIXED ACCOUNT
The Policy Value in the Fixed Account is equal to:
(a) the portion of the net premiums allocated to it; plus
(b) any amounts transferred to it; plus
(c) interest credited to it; less
(d) any charges deducted from it; less
(e) any partial withdrawals from it; less
(f) any amounts transferred from it.
INTEREST ON THE FIXED ACCOUNT
An allocation of Policy Value to the Fixed Account does not entitle the
policyowner to share in the investment experience of the general account.
Instead, the Company guarantees that the Policy Value in the Fixed Account will
accrue interest daily at an effective annual rate of at least 4%, without regard
to the actual investment experience of the general account. Consequently, if a
policyowner pays the planned premiums, allocates all net premiums only to the
general account and makes no transfers, partial withdrawals, or policy loans,
the minimum amount and duration of the death benefit of the Policy will be
determinable and guaranteed.
OTHER PROVISIONS OF THE POLICY
ASSIGNMENT OF RIGHTS
The Company will not be bound by an assignment until it receives a copy of the
assignment at its Service Office. The Company assumes no responsibility for the
validity or effects of any assignment.
BENEFICIARY
One or more beneficiaries of the Policy may be appointed by the policyowner by
naming them in the application. Beneficiaries may be appointed in three classes
- - primary, secondary, and final. Beneficiaries may also be revocable or
irrevocable. Unless an irrevocable designation has been elected, the beneficiary
may be changed by the policyowner during the Life Insured's lifetime by giving
written notice to the Company in a form satisfactory to us. The change will take
effect as of the date such notice is signed but will not apply to any payments
made or actions taken by the Company prior to receiving such written notice. If
the Life Insured dies and there is no surviving beneficiary, the policyowner, or
the policyowner's estate if the policyowner is the Life Insured, will be the
beneficiary. If a beneficiary dies before the seventh day after the death of the
Life Insured, the Company will pay the insurance benefit as if the beneficiary
had died before the Life Insured.
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INCONTESTABILITY
The Company will not contest the validity of a Policy after it has been in force
during the Life Insured's lifetime for two years from the Issue Date. It will
not contest the validity of an increase in Face Amount, after such increase or
addition has been in force during the lifetime of the Life Insured for two years
from the date of such increase. If a Policy has been reinstated and been in
force during the lifetime of the Life Insured for less than two years from the
reinstatement date, the Company can contest any misrepresentation of a fact
material to the reinstatement.
MISSTATEMENT OF AGE OR SEX
If the stated age or sex, or both, of the Life Insured in the Policy are
incorrect, the Company will change the Face Amount so that the death benefit
will be that which the most recent monthly charge for the cost of insurance
would have purchased for the correct age and sex.
SUICIDE EXCLUSION
If the Life Insured dies by suicide within two years after the Issue Date (or
within the maximum period permitted by the state in which the Policy was
delivered, if less than two years), the Policy will terminate and the Company
will pay only the premiums paid less any partial Net Cash Surrender Value
withdrawal and less any Policy Debt.
The Company reserves the right to obtain evidence of the manner and cause of
death of the Life Insured.
SUPPLEMENTARY BENEFITS
Subject to certain requirements, one or more supplementary benefits may be added
to a Policy, including those providing a lapse protection benefit and an
acceleration of benefits in the event of a terminal illness. More detailed
information concerning these supplementary benefits may be obtained from an
authorized agent of the Company. The cost, if any, for supplementary benefits
will be deducted as part of the monthly deduction.
TAX TREATMENT OF THE POLICY
INTRODUCTION
The following discussion of the federal income tax treatment of the Policy is
not exhaustive, does not purport to cover all situations, and is not intended as
tax advice. The federal income tax treatment of the Policy is unclear in certain
circumstances, and a qualified tax advisor should always be consulted with
regard to the application of law to individual circumstances. This discussion is
based on the Code, Treasury Department regulations, and interpretations existing
on the date of this Prospectus. These authorities, however, are subject to
change by Congress, the Treasury Department, and judicial decisions.
This discussion does not address state or local tax consequences associated with
the purchase of the Policy. In addition, THE COMPANY MAKES NO GUARANTEE
REGARDING ANY TAX TREATMENT -- FEDERAL, STATE OR LOCAL -- OF ANY POLICY OR OF
ANY TRANSACTION INVOLVING A POLICY.
THE COMPANY'S TAX STATUS
The Company is taxed as a life insurance company under the Code. Since the
operations of the Separate Account are a part of, and are taxed with, the
operations of the Company, the Separate Account is not separately taxed as a
"regulated investment company" under the Code. Under existing federal income tax
laws, investment income and capital gains of the Separate Account are not taxed
to the extent they are applied under a Policy. The Company does not anticipate
that it will incur any federal income tax liability attributable to such income
and gains of the Separate Account, and therefore the Company does not intend to
make any provision for such taxes. If the Company is taxed on investment income
or capital gains of the Separate Account, then the Company may impose a charge
against the Separate Account to make provision for such taxes. The Company's
federal tax liability is increased, however, in respect of the Policies because
of the Federal tax law's treatment of deferred acquisition costs (for which the
Company imposes a Federal tax charge) (see "CHARGES AND DEDUCTIONS").
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TAXATION OF LIFE INSURANCE POLICIES IN GENERAL
Tax Status of the Policy
There are several requirements that must be met for a Policy to be considered a
Life Insurance Contract under the Code, and thereby to enjoy the tax benefits of
such a contract:
- - The Policy must satisfy the definition of life insurance under Section 7702
of the Code.
- - The investments of the Separate Account must be "adequately diversified" in
accordance with Section 817(h) of the Code and Treasury Regulations.
- - The Policy must be a valid life insurance contract under applicable state
law.
- - The Policyowner must not possess "incidents of ownership" in the assets of
the Separate Account.
These four items are discussed in detail below.
DEFINITION OF LIFE INSURANCE
Section 7702 of the Code sets forth a definition of a life insurance contract
for federal tax purposes. For a Policy to be a life insurance contract, it must
satisfy either the Cash Value Accumulation Test or the Guideline Premium Test.
Only the Guideline Premium Test is permitted under the Policy. The Guideline
Premium Test also requires a minimum death benefit, but in addition limits the
total premiums that can be paid into a Policy for a given amount of death
benefit.
With respect to a Policy which is issued on the basis of a standard rate class,
the Company believes (largely in reliance on IRS Notice 88-128 and the proposed
mortality charge regulations under Section 7702, issued on July 5, 1991) that
such a Policy should meet the Section 7702 definition of a life insurance
contract.
With respect to a Policy that is issued on a substandard basis (i.e., a rate
class involving higher-than-standard mortality risk), there is less guidance, in
particular as to how mortality and other expense requirements of Section 7702
are to be applied in determining whether such a Policy meets the Section 7702
definition of a life insurance contract. Thus it is not clear whether or not
such a Policy would satisfy Section 7702, particularly if the policyowner pays
the full amount of premiums permitted under the Policy.
The Secretary of the Treasury (the "Treasury") is authorized to prescribe
regulations implementing Section 7702. However, while proposed regulations and
other interim guidance have been issued, final regulations have not been adopted
and guidance as to how Section 7702 is to be applied is limited. If a Policy
were determined not to be a life insurance contract for purposes of Section
7702, such a Policy would not provide the tax advantages normally provided by a
life insurance policy.
If it is subsequently determined that a Policy does not satisfy Section 7702,
the Company may take whatever steps are appropriate and reasonable to attempt to
cause such a Policy to comply with Section 7702. For these reasons, the Company
reserves the right to restrict Policy transactions as necessary to attempt to
qualify it as a life insurance contract under Section 7702.
DIVERSIFICATION
Section 817(h) of the Code requires that the investments of the Separate Account
be "adequately diversified" in accordance with Treasury regulations in order for
the Policy to qualify as a life insurance contract under Section 7702 of the
Code (discussed above). The Separate Account, through the Trust, intends to
comply with the diversification requirements prescribed in Treas. Reg. Sec.
1.817-5, which affect how the Trust's assets are to be invested. The Company
believes that the Separate Account will thus meet the diversification
requirement, and the Company will monitor continued compliance with the
requirement.
STATE LAW
State regulations require that the policyowner have appropriate insurable
interest in the life insured. Failure to establish an insurable interest may
result in the Policy not qualifying as a life insurance contract for federal tax
purposes.
INVESTOR CONTROL
In certain circumstances, owners of variable life insurance Policies may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their policies. In those circumstances, income
and gains from the separate account assets would be includible in the variable
policyowner's gross income. The IRS has stated in published
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<PAGE> 37
rulings that a variable policyowner will be considered the owner of separate
account assets if the policyowner possesses incidents of ownership in those
assets, such as the ability to exercise investment control over the assets. The
Treasury Department has also announced, in connection with the issuance of
regulations concerning diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor (i.e., the
policyowner), rather than the insurance company, to be treated as the owner of
the assets in the account." This announcement also stated that guidance would be
issued by way of regulations or rulings on the "extent to which policyowners may
direct their investments to particular sub-accounts without being treated as
owners of the underlying assets". As of the date of this prospectus, no such
guidance has been issued.
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that policyowners were not owners of separate account assets. For example, the
policyowner has additional flexibility in allocating premium payments and Policy
Values. These differences could result in an owner being treated as the owner of
a pro-rata portion of the assets of the Separate Account. In addition, the
Company does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has stated it expects to
issue. The Company therefore reserves the right to modify the Policy as
necessary to attempt to prevent an owner from being considered the owner of a
pro rata share of the assets of the Separate Account.
The remainder of this discussion assumes that the Policy will be treated as a
life insurance Policy for Federal tax purposes.
Tax Treatment of Life Insurance Death Benefit Proceeds
In general, the amount of the death benefit payable from a Policy by reason of
the death of the insured is excludable from gross income under Section 101 of
the Code. Certain transfers of the Policy for valuable consideration, however,
may result in a portion of the death benefit being taxable.
If the death benefit is not received in a lump sum and is, instead, applied
under one of the settlement options, payments generally will be prorated between
amounts attributable to the death benefit which will be excludable from the
beneficiary's income and amounts attributable to interest (accruing after the
insured's death) which will be includible in the beneficiary's income.
Tax Deferral During Accumulation Period
Under existing provisions of the Code, except as described below, any increase
in a policyowner's Policy value is generally not taxable to the policyowner
unless amounts are received (or are deemed to be received) from the Policy prior
to the insured's death.
Lapse or Surrender
Upon a lapse or surrender of the Policy, the amount received will be includible
in the policyowner's income to the extent the amount received exceeds the
"investment in the Policy." If there is any debt at the time of a lapse or
surrender, such debt will be treated as an amount received by the policyowner.
The "investment in the Policy" generally is the aggregate amount of premium
payments and other consideration paid for the Policy, less the aggregate amount
received under the Policy previously to the extent such amounts received were
excludable from gross income. A subsequent reinstatement will not change this
tax treatment of a surrendered or lapsed Policy.
Policies Which Are MECs
Characterization of a Policy as a MEC.
Section 7702A establishes a class of life insurance contracts designated as
Modified Endowment Contracts ("MECs"), which applies to Policies entered into or
materially changed after June 20, 1988. In general, a Policy will be a MEC if
the accumulated premiums paid at any time during the first seven Policy Years
exceed the sum of the net level premiums which would have been paid on or before
such time if the Policy paid up future benefits after the payment of seven level
annual premiums (the "seven-pay test"). The determination of whether a Policy
will be a MEC after a material change generally depends upon the relationship of
the death benefit and the Policy Value at the time of such change and the
additional premiums paid in the seven years following the material change. In
general, this Policy will constitute a MEC unless:
(4) it was received in exchange for another life insurance policy which was not
a MEC,
(5) no premium payments (other than the exchanged policy) are paid into the
Policy during the first seven Policy years, and
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(6) the death benefit on the new Policy is not less than the death benefit on
the exchanged policy.
If the death benefit on the new policy is less than the death benefit on the
exchanged policy, the new policy may become a MEC if (1) the exchanged policy
was, at the time of the exchange, subject to the MEC rules, (2) premiums
payments had been made to the old policy after it had become subject to the MEC
rules, and (3) the exchanged policy was in a seven-pay test period at the time
of exchange or, in the case of a Survivorship Policy, the Policy was issued (or
deemed issued) after September 13, 1989.
In addition, even if the Policy initially is not a MEC, it may in certain
circumstances become a MEC. These circumstances would include a later increase
in benefits, any other material change of the Policy (within the meaning of the
tax law), and a withdrawal or reduction in the death benefit during the first
seven Policy years.
Tax Treatment of Withdrawals, Loans, Assignments and Pledges under MECs
If the Policy is a MEC, withdrawals from the Policy will be treated first as
withdrawals of income and then as a recovery of premium payments. Thus,
withdrawals will be includible in income to the extent the Policy value exceeds
the investment in the Policy. The amount of any loan (including unpaid interest
thereon) under the Policy will be treated as a withdrawal from the Policy for
tax purposes. In addition, if the policyowner assigns or pledges any portion of
the value of a Policy (or agrees to assign or pledge any portion), such portion
will be treated as a withdrawal from the Policy for tax purposes. The
policyowner's investment in the Policy is increased by the amount includible in
income with respect to such assignment, pledge, or loan, though it is not
affected by any other aspect of the assignment, pledge, or loan (including its
release or repayment). Before assigning, pledging, or requesting a loan under a
Policy which is a MEC, a policyowner should consult a qualified tax advisor.
Penalty Tax.
Generally, withdrawals (or the amount of any deemed withdrawals) from a MEC are
subject to a penalty tax equal to 10% of the portion of the withdrawal that is
includible in income, unless the withdrawals are made (1) after the policyowner
attains age 59-1/2, (2) because the policyowner has become disabled (as defined
in the tax law), or (3) as substantially equal periodic payments over the life
or life expectancy of the policyowner (or the joint lives or life expectancies
of the policyowner and his or her beneficiary, as defined in the tax law).
Aggregation of Policies.
All life insurance Policies which are MECs and which are purchased by the same
person from the Company or any of its affiliates within the same calendar year
will be aggregated and treated as one Policy for purposes of determining the
amount of a withdrawal (including a deemed withdrawal) that is includible in
income. The effects of such aggregation are not clear; however, it could affect
the amount of a withdrawal (or a deemed withdrawal) that is taxable and the
amount which might be subject to the 10% penalty tax described above.
Policies Which Are Not MECs
Tax Treatment of Withdrawals Generally.
If the Policy is not a MEC (described above), the amount of any withdrawal from
the Policy will be treated first as a non-taxable recovery of premium payments
and then as income from the Policy. Thus, a withdrawal from a Policy that is not
a MEC will not be includible in income except to the extent it exceeds the
investment in the Policy immediately before the withdrawal.
Certain Distributions Required by the Tax Law in the First 15 Policy Years.
As indicated under "Payments," Section 7702 places limitations on the amount of
premium payments that may be made and the Policy values that can accumulate
relative to the death benefit. Where cash distributions are required under
Section 7702 in connection with a reduction in benefits during the first 15
years after the Policy is issued (or if withdrawals are made in anticipation of
a reduction in benefits, within the meaning of the tax law, during this period),
some or all of such amounts may be includible in income. A reduction in benefits
may result upon a decrease in the face amount, if withdrawals are made, and in
certain other instances.
Tax Treatment of Loans.
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If a Policy is not a MEC, a loan received under the Policy generally will be
treated as indebtedness of the policyowner. As a result, no part of any loan
under such a Policy will constitute income to the policyowner so long as the
Policy remains in force. Nevertheless, in those situations where the interest
rate credited to the loan account equals the interest rate charged for the loan,
it is possible that some or all of the loan proceeds may be includible in
income. If a policy lapses (or if all Policy value is withdrawn) when a loan is
outstanding, the amount of the loan outstanding will be treated as withdrawal
proceeds for purposes of determining whether any amounts are includible in the
policyowner's income.
Survivorship Policies
Although the Company believes that the Policy, when issued as a Survivor Policy,
complies with Section 7702 of the Code, the manner in which Section 7702 should
be applied to Survivor Policies is not directly addressed by Section 7702. In
the absence of final regulations or other guidance issued under Section 7702
regarding this form of Policy, there is necessarily some uncertainty whether a
Survivor Policy will meet the Section 7702 definition of a life insurance
Policy. Prospective policyowners considering purchase of the Policy as a
Survivor Policy should consult a qualified tax advisor.
Where the policyowner of the Policy is the last surviving insured, the death
proceeds will generally be includible in the policyowner's estate on his or her
death for purposes of the Federal estate tax. If the policyowner dies and was
not the last surviving insured, the fair market value of the Policy would be
included in the policyowner's estate. In general, no part of the Policy value
would be includible in the last surviving insured's estate if he or she neither
retained incidents of policyownership at death nor had given up policyownership
within three years before death.
Treatment of Maturity Benefits and Extension of Maturity Date
At the maturity date, the surrender value will be paid to the policyowner, and
this amount will be includible in income to the extent the amount received
exceeds the investment in the Policy. If the policyowner elects to extend the
maturity date past the year in which the insured attains age 100 (which must be
done prior to the original maturity date), the Company believes the Policy will
continue to qualify as a life insurance policy for Federal tax purposes.
However, there is some uncertainty regarding this treatment, and it is possible
that the policyowner would be viewed as constructively receiving the cash value
in the year the insured attains age 100. If this were the case, an amount equal
to the excess of the cash value over the investment in the Policy would be
includible in the policyowner's income at that time.
Actions to Ensure Compliance with the Tax Law
The Company believes that the maximum amount of premium payments it has
determined for the Policies will comply with the Federal tax definition of life
insurance. The Company will monitor the amount of premium payments, and, if the
premium payments during a Policy year exceed those permitted by the tax law, the
Company will refund the excess premiums within 60 days of the end of the Policy
year and will pay interest and other earnings (which will be includible in
income subject to tax) as required by law on the amount refunded. The Company
also reserves the right to increase the death benefit (which may result in
larger charges under a Policy) or to take any other action deemed necessary to
ensure the compliance of the Policy with the Federal tax definition of life
insurance.
Other Considerations
Changing the policyowner, exchanging the Policy, and other changes under the
Policy may have tax consequences (in addition to those discussed herein)
depending on the circumstances of such change.
Federal estate tax, state and local estate and inheritance tax, and other tax
consequences of policyownership or receipt of Policy proceeds depend on the
circumstances of each policyowner or beneficiary. Federal estate tax is
integrated with Federal gift tax under a unified rate schedule. In general,
estates valued at less than the "applicable exclusion amount" will not incur a
Federal estate tax liability. The applicable exclusion amount for decedents
dying in 1999 is $625,000 and increases annually until it reaches $1,000,000 for
decedents dying in 2006 and after. In addition, an unlimited marital deduction
may be available for Federal estate and gift tax purposes.
If the policyowner (whether or not he or she is an insured) transfers
policyownership of the Policy to someone two or more generations younger, the
transfer may be subject to the generation-skipping tax, the amount subject to
tax being the value of the Policy. The generation-skipping tax provisions
generally apply to transfers which would be subject to the gift or estate tax
rules. Individuals are generally allowed an aggregate generation-skipping tax
exemption of $1 million. For generation skipping transfers of decedents dying
after 1998, this exemption is indexed for inflation.
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Because the Federal estate tax, gift tax, and generation skipping tax rules are
complex, prospective Policyowners should consult a qualified tax advisor before
using this Policy for estate planning purposes.
DISALLOWANCE OF INTEREST DEDUCTIONS
The Policy generally will be characterized as a single premium life insurance
Policy under Section 264 of the Code and, as a result, interest paid on any
loans under the Policy will not be tax deductible, irrespective of whether the
policyowner is an individual or a non-natural entity, such as a corporation or a
trust. In addition, in the case of Policies issued to a non-natural taxpayer, or
held for the benefit of such an entity, a portion of the taxpayer's otherwise
deductible interest expenses may not be deductible as a result of
policyownership of a Policy even if no loans are taken under the Policy. An
exception to the latter rule is provided for certain life insurance Policies
which cover the life of an individual who is a 20-percent policyowner, or an
officer, director, or employee of, a trade or business. Entities that are
considering purchasing the policy, or entities that will be beneficiaries under
a Policy, should consult a tax advisor.
FEDERAL INCOME TAX WITHHOLDING
The Company will withhold and remit to the federal government a part of the
taxable portion of withdrawals made under a Policy unless the policyowner
notifies the Company in writing at or before the time of the withdrawal that he
or she elects not to have any amounts withheld. Regardless of whether the
policyowner requests that no taxes be withheld or whether the Company withholds
a sufficient amount of taxes, the policyowner will be responsible for the
payment of any taxes and early distribution penalties that may be due on the
amounts received. The policyowner may also be required to pay penalties under
the estimated tax rules, if the policyowner's withholding and estimated tax
payments are insufficient to satisfy the policyowner's total tax liability.
OTHER INFORMATION
PAYMENT OF PROCEEDS
As long as the Policy is in force, the Company will ordinarily pay any policy
loans, surrenders, partial withdrawals or insurance benefit within seven days
after receipt at its Service Office of all the documents required for such a
payment. The Company may delay for up to six months the payment from the Fixed
Account of any policy loans, surrenders, partial withdrawals, or insurance
benefit. In the case of any such payments from any Investment Account, the
Company may delay payment during any period during which:
(i) the New York Stock Exchange is closed for trading (except for normal
weekend and holiday closings),
(ii) trading on the New York Stock Exchange is restricted,
(iii) an emergency exists as a result of which disposal of securities held in
the Separate Account is not reasonably practicable or it is not reasonably
practicable to determine the value of the Separate Account's net assets or
(iv) the SEC, by order, so permits for the protection of security holders;
provided that applicable rules and regulations of the SEC shall govern as
to whether the conditions described in (ii) and (iii) exist.
REPORTS TO POLICYOWNERS
Within 30 days after each Policy Anniversary, the Company will send the
policyowner a statement showing, among other things:
- the amount of death benefit;
- the Policy Value and its allocation among the Investment Accounts,
the Fixed Account and the Loan Account;
- the value of the units in each Investment Account to which the
Policy Value is allocated;
- the Policy Debt and any loan interest charged since the last report;
- the premiums paid and other Policy transactions made during the
period since the last report; and
- any other information required by law.
Each policyowner will also be sent an annual and a semi-annual report for the
Trust which will include a list of the securities held in each Portfolio as
required by the 1940 Act.
35
<PAGE> 41
DISTRIBUTION OF THE POLICIES
ManEquity, Inc., an indirect wholly-owned subsidiary of MFC, will act as the
principal underwriter of, and continuously offer, the Policies pursuant to a
Distribution Agreement with the Company. ManEquity, Inc. is registered as a
broker-dealer under the Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealers, Inc. ("NASD"). ManEquity, Inc. is
located at 200 Bloor Street East, Toronto, Ontario, Canada, M4W 1E5 and which
was incorporated under the laws of Colorado on May 4, 1970. The directors of
ManEquity, Inc. are: Roy Bubbs, Gary Buchanan, Robert Cook, Douglas Myers and
Joseph Scott. The officers of ManEquity, Inc. are: (i) Douglas Myers -
President, (ii) Gary Buchanan - Vice President, Compliance, (iii) Thomas Reive -
Treasurer, (iv) Brian Buckley - Secretary and General Counsel.
ManEquity has entered into a non-exclusive promotional agent agreement with
Manulife Wood Logan Associates, Inc. ("Manulife Wood Logan"). Manulife Wood
Logan is a broker-dealer registered under the 1934 Act and a member of the NASD.
Manulife Wood Logan is a wholly owned subsidiary of a holding company that is
78.4% owned by Manufacturers U.S.A. and 21.6% owned by MRL Holding, LLC. Sales
of the Policies will be made by registered representatives of broker-dealers
authorized by ManEquity to sell the Policies. Those registered representatives
will also be the Company's licensed insurance agents. Under the promotional
agent agreement, Manulife Wood Logan will recruit and provide sales training and
licensing assistance to those registered representatives. In addition, Manulife
Wood Logan will prepare sales and promotional materials for the Company's
approval. ManEquity will pay distribution compensation to selling broker-dealers
in varying amounts which under normal circumstances are not expected to exceed
the amounts set forth below. ManEquity may from time to time pay additional
compensation pursuant to promotional contests. Additionally, in some
circumstances, ManEquity will provide reimbursement of certain sales and
marketing expenses. ManEquity will pay the promotional agent for providing
marketing support for the distribution of the Policies. The Policies will be
sold in all states of the United States except New York.
A registered representative will receive commissions not to exceed either (a) 7%
of premiums in the first year or (b) 5.75% of premiums in the first year and
.25% of Net Policy Value annually beginning 19 months after issuance of the
Policy. Representatives who meet certain productivity standards with regard to
the sale of the Policies and certain other policies issued by the Company or
Manufacturers Life will be eligible for additional compensation.
RESPONSIBILITIES OF MANUFACTURERS LIFE
Manufacturers Life and The Manufacturers Life Insurance Company (U.S.A.),
("Manufacturers USA"), have entered into an agreement with ManEquity, Inc.
pursuant to which Manufacturers Life or Manufacturers USA, on behalf of
ManEquity, Inc. will pay the sales commissions in respect of the Policies and
certain other policies issued by the Company, prepare and maintain all books and
records required to be prepared and maintained by ManEquity, Inc. with respect
to the Policies and such other policies, and send all confirmations required to
be sent by ManEquity, Inc. with respect to the Policies and such other policies.
ManEquity, Inc. will promptly reimburse Manufacturers Life or Manufacturers USA
for all sales commissions paid by Manufacturers Life or Manufacturers USA and
will pay Manufacturers Life or Manufacturers USA for its other services under
the agreement in such amounts and at such times as agreed to by the parties.
Manufacturers Life and Manufacturers USA have also entered into a Service
Agreement with the Company pursuant to which Manufacturers Life and
Manufacturers USA will provide to the Company all issue, administrative, general
services and recordkeeping functions on behalf of the Company with respect to
all of its insurance policies including the Policies.
Finally, the Company may, from time to time in its sole discretion, enter into
one or more reinsurance agreements with other life insurance companies under
which policies issued by it may be reinsured, such that its total amount at risk
under a policy would be limited for the life of the insured.
VOTING RIGHTS
As stated previously, all of the assets held in the sub-accounts of the Separate
Account will be invested in shares of a particular Portfolio of the Trust. The
Company is the legal owner of those shares and as such has the right to vote
upon certain matters that are required by the 1940 Act to be approved or
ratified by the shareholders of a mutual fund and to vote upon any other matters
that may be voted upon at a shareholders' meeting. However, the Company will
vote shares held in the sub-accounts in accordance with instructions received
from policyowners having an interest in such sub-accounts. Shares held in each
sub-account for which no timely instructions from policyowners are received,
including shares not attributable to the Policies, will be voted by the Company
in the same proportion as those shares in that sub-account for which
instructions
36
<PAGE> 42
are received. Should the applicable federal securities laws or regulations
change so as to permit the Company to vote shares held in the Separate Account
in its own right, it may elect to do so.
The number of shares in each sub-account for which instructions may be given by
a policyowner is determined by dividing the portion of the Policy Value derived
from participation in that sub-account, if any, by the value of one share of the
corresponding Portfolio. The number will be determined as of a date chosen by
the Company, but not more than 90 days before the shareholders' meeting.
Fractional votes are counted. Voting instructions will be solicited in writing
at least 14 days prior to the meeting.
The Company may, if required by state officials, disregard voting instructions
if such instructions would require shares to be voted so as to cause a change in
the sub-classification or investment policies of one or more of the Portfolios,
or to approve or disapprove an investment management policy. In addition, the
Company itself may disregard voting instructions that would require changes in
the investment policies or investment adviser, provided that the Company
reasonably disapproves such changes in accordance with applicable federal
regulations. If the Company does disregard voting instructions, it will advise
policyowners of that action and its reasons for such action in the next
communication to policyowners.
SUBSTITUTION OF PORTFOLIO SHARES
Although we believe it to be unlikely, it is possible that in the judgment of
the management of the Company, one or more of the Portfolios may become
unsuitable for investment by the Separate Account because of a change in
investment policy or a change in the applicable laws or regulation, because the
shares are no longer available for investment, or for some other reason. In that
event, the Company may seek to substitute the shares of another Portfolio or of
an entirely different mutual fund. Before this can be done, the approval of the
SEC and one or more state insurance departments may be required.
The Company also reserves the right (i) to combine other separate accounts with
the Separate Account, (ii) to create new separate accounts, (iii) to establish
additional sub-accounts within the Separate Account to invest in additional
portfolios of the Trust or another management investment company, (iv) to
eliminate existing sub-accounts and to stop accepting new allocations and
transfers into the corresponding portfolio, (v) to combine sub-accounts or to
transfer assets in one sub-account to another sub-account or (vi) to transfer
assets from the Separate Account to another separate account and from another
separate account to the Separate Account. The Company also reserves the right to
operate the Separate Account as a management investment company or other form
permitted by law, and to de-register the Separate Account under the 1940 Act.
Any such change would be made only if permissible under applicable federal and
state law.
RECORDS AND ACCOUNTS
The Service Office will perform administrative functions, such as decreases,
increases, surrenders and partial withdrawals, and fund transfers on behalf of
the Company.
All records and accounts relating to the Separate Account and the Portfolios
will be maintained by the Company. All financial transactions will be handled by
the Company. All reports required to be made and information required to be
given will be provided by the Company.
STATE REGULATIONS
The Company is subject to the regulation and supervision by the Michigan
Department of Insurance, which periodically examines its financial condition and
operations. It is also subject to the insurance laws and regulations of all
jurisdictions in which it is authorized to do business. The Policies have been
filed with insurance officials, and meet all standards set by law, in each
jurisdiction where they are sold.
The Company is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business for the purposes of determining solvency and
compliance with local insurance laws and regulations.
LITIGATION
No litigation is pending that would have a material effect upon the Separate
Account or the Trust.
37
<PAGE> 43
INDEPENDENT AUDITORS
The consolidated financial statements of The Manufacturers Life Insurance
Company of America and Separate Account Three of The Manufacturers Life
Insurance Company of America at December 31, 1999 and 1998, and for each of the
two years in the period ended December 31, 1999, appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein, and
are included in reliance upon such reports given on the authority of such firm
as experts in accounting and auditing.
FURTHER INFORMATION
A registration statement under the Securities Act of 1933 has been filed with
the SEC. 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 SEC also maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC which is
located at http://www.sec.gov.
For further information you may also contact the Company's Home Office, the
address and telephone number of which are on the first page of the prospectus.
OFFICERS AND DIRECTORS
The directors and executive officers of the Company, together with their
principal occupations during the past five years, are as follows:
<TABLE>
<CAPTION>
POSITION WITH MANUFACTURERS
NAME (AGE) LIFE OF AMERICA PRINCIPAL OCCUPATION
- --------------------------- ------------------------------ ----------------------------------------------------------
<S> <C> <C>
Sandra M. Cotter (37)* Director (since December 1992) Attorney, Dykema, Gossett, PLLC, 1989 to present.
James D. Gallagher (45)** Director (since May 1996), President, The Manufacturers Life Insurance Company of New
Secretary and General Counsel York, August 1999 to Present; Vice President, Secretary and
General Counsel, The Manufacturers Life
Insurance Company (USA), January 1997 to
present; Secretary and General Counsel,
Manufacturers Adviser Corporation,
January 1997 to present; Vice President,
Legal Services - U.S. Operations, The
Manufacturers Life Insurance Company,
January 1996 to present; Vice President,
Secretary and General Counsel, The
Manufacturers Life Insurance Company of
North America, 1994 to present.
Donald A. Guloien (42)*** Director (since August 1990) Executive Vice President, Business Development, The
and President Manufacturers Life Insurance Company, January 1999 to
present; Senior Vice President, Business Development, The
Manufacturers Life Insurance Company, 1994 to December 1998.
</TABLE>
38
<PAGE> 44
<TABLE>
<S> <C> <C>
James O'Malley (54)*** 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 (61)*** Director (since July 1992) Senior Vice President, and Corporate Secretary, The
Manufacturers Life Insurance Company, 1999 to present;
Senior Vice President General Counsel and Corporate
Secretary, The Manufacturers Life Insurance Company, 1988
to 1999.
John D. Richardson (62)*** Director (since January 1995) Senior Executive Vice President, The Manufacturers Life
and Chairman Insurance Company, January 1999 to present; Executive Vice
President, U.S. Operations, The Manufacturers Life
Insurance Company, November 1997 to December 1998;
Senior Vice President and General Manager, U.S.
Operations, The Manufacturers Life Insurance Company,
January 1995 to October 1997.
Victor Apps (52)*** 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.
Felix Chee (53)*** Vice President, Investments Executive Vice President & Chief Investment Officer, 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.
Robert A. Cook (45)** Vice President, Marketing Senior Vice President, US Individual Insurance, The
Manufacturers Life Insurance Company, January 1999 to
present; Vice President, Product Management, The
Manufacturers Life Insurance Company, January 1996 to
December 1998; Sales and Marketing Director, U.K.
Division, The Manufacturers Life Insurance Company, 1994
to-1995.
Douglas H. Myers (45)*** Vice President, Finance and President, ManEquity, Inc., April 1994 to present;
Compliance, Controller Assistant Vice President and Controller, U.S.
Operations, The Manufacturers Life Insurance Company,
1988 to present.
John G. Vrysen (44)** Vice President and Appointed Chief Financial Officer and Treasurer, Manulife-Wood
Actuary Logan Holding Co., Inc., January 1996 to present; Vice
</TABLE>
39
<PAGE> 45
<TABLE>
<S> <C> <C>
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.
Denis Turner (44) Vice President and Treasurer Vice President and Treasurer, The Manufacturers Life
Insurance Company of America, May 1999 to present; Vice
President & Chief Accountant, U.S. Division, The
Manufacturers Life Insurance Company, May 1999 to
present; Assistant Vice President, Financial Operations,
Reinsurance Division, The Manufacturers Life Insurance
Company, February 1998 to April 1999; Assistant Vice
President & Controller, Reinsurance Division, The
Manufacturers Life Insurance Company, November 1995, to
January 1998, Assistant Vice President, Corporate
Controllers, The Manufacturers Life Insurance Company,
January 1989 to October 1995.
</TABLE>
*Principal business address is Dykema Gossett, 800 Michigan National Tower,
Lansing, Michigan 48933.
**Principal business address is Manulife Financial, 73 Tremont Street, Boston,
MA 02108.
***Principal business address is Manulife Financial, 200 Bloor Street, Toronto,
Ontario Canada M4W 1E5.
YEAR 2000 ISSUES
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. Although the change in date has occurred, it is not possible to conclude
that all aspects of the Year 2000 Issue that may affect us, including those
related to customers, suppliers, or other third parties, have been fully
resolved.
40
<PAGE> 46
APPENDIX A
DEFINITIONS
Additional Rating
is an increase to the Cost of Insurance Rate for insureds who do not meet, at a
minimum, the Company's underwriting requirements for the standard Risk
Classification.
Age
on any date is the Life Insured's age on his or her nearest birthday. If no
specific date is mentioned, Age means the Life Insured's age on the Policy
Anniversary nearest to the birthday.
Attained Age
on any date is the Age at issue plus the number of whole years that have elapsed
since the Policy Date. In the case of a Survivorship Policy, Attained Age is
based on the youngest Life Insured at issue of the Policy.
Business Day
is any day that the New York Stock Exchange is open for business. A Business Day
ends at the close of regularly scheduled day-time trading of the New York Stock
Exchange on that day.
Cash Surrender Value
is the Policy Value less the sum of (a) the Surrender Charge and (b) any
outstanding Monthly Deductions due.
The Company (or "we," "us" or "our")
refers to The Manufacturers Life Insurance Company of America.
Earnings
is an amount calculated in relation to a loan and free withdrawals. The amount
is calculated as of the date the Company receives the request for the loan or
the free withdrawal and is equal to the Policy Value less the sum of (a) the
value of any Policy Debt and (b) total premiums paid.
Effective Date
is the date the underwriters approve issuance of the Policy. If the Policy is
approved without the initial premium, the Effective Date will be the date the
Company receives at least the minimum initial premium at our Service Office. In
either case, the Company will take the first Monthly Deduction on the Effective
Date.
Fixed Account
is that part of the Policy Value which reflects the value the policyowner has in
the general account of the Company.
Guideline Single Premium
is the maximum premium that can be paid under the Guideline Premium Test
(described under "Life Insurance Qualification") which will still allow the
Policy to qualify as life insurance for tax purposes under Section 7702 of the
Code.
Investment Account
is that part of the Policy Value which reflects the value the policyowner has in
one of the sub-accounts of the Separate Account.
Issue Date
is the date the Company issued the Policy. The Issue Date is also the date from
which the Suicide and Validity provisions of the Policy are measured.
Life Insured
is the person or persons whose life (or lives) is (are) covered by the Policy.
In the case of a Survivorship Policy, all provisions of the Policy which are
based on the death of the Life Insured will be based on the death of the last
survivor of the persons so named and reference to the youngest of the Life
Insured means the youngest person insured under the Policy when it is first
issued.
1
<PAGE> 47
Loan Account
is that part of the Policy Value which reflects the value transferred from the
Fixed Account or the Investment Accounts as collateral for a policy loan.
Maturity Date
is the date shown in the Policy. In the case of a Single Life Policy, it is the
Policy Anniversary nearest Attained Age 100 of the Life Insured. In the case of
a Survivorship Policy, it is the Anniversary nearest Attained Age 100 of the
youngest of the Life Insured at issue. The Maturity Date may be extended
pursuant to the Maturity Advantage Option described under "Maturity Date."
Net Cash Surrender Value
is the Cash Surrender Value less the Policy Debt.
Net Policy Value
is the Policy Value less the value in the Loan Account.
Net Premium
is the gross premium paid less the Premium Charge. It is the amount of premium
allocated to the Fixed Account and/or Investment Accounts.
Policy Date
is the date coverage takes effect under the Policy, provided the underwriting
process has been completed to the Company's satisfaction and the Company has
received the minimum initial premium at its Service Office, and is the date from
which charges for the first monthly deduction are calculated, and the date from
which Policy Years, Policy Months, and Policy Anniversaries are determined.
Policy Debt
as of any date equals (a) plus (b) plus (c) minus (d), where:
(a) is the total amount of loans borrowed as of such date;
(b) is the total amount of any unpaid loan interest charges which have
been borrowed against the policy on a Policy Anniversary;
(c) is any interest charges accrued from the last Policy Anniversary to
the current date; and
(d) is the total amount of loan repayments as of such date.
Policy Value
is the sum of the values in the Loan Account, the Fixed Account, and the
Investment Accounts.
Single Life Policy
is a modified single premium variable life insurance policy offered on a single
life basis under the Policy described in this Prospectus.
Separate Account
refers to Separate Account Three of the Company.
Service Office Address
is 200 Bloor Street East, Toronto, Ontario, Canada M4W 1E5.
Surrender Charge Period
is the period following the Issue Date during which the Company will assess
surrender charges. Surrender charges will apply during this period if the Policy
terminates due to default, if the policyowner surrenders the Policy or makes a
partial withdrawal.
Survivorship Policy
is a modified single premium survivorship variable life insurance policy offered
on a survivorship basis under the Policy described in this Prospectus.
Written Request
is the policyowner's request to the Company which must be in a form satisfactory
to the Company, signed and dated by the policyowner, and received at the Service
Office.
2
<PAGE> 48
APPENDIX B
1
<PAGE> 49
APPENDIX B
SAMPLE ILLUSTRATIONS OF POLICY VALUES, CASH SURRENDER VALUES AND DEATH BENEFITS
The following tables have been prepared to help show how values under the Policy
change with investment performance. The tables are based on initial premiums of
$25,000 and $100,000. A male age 55 and a female age 55 are illustrated for the
single life Policy. A male age 55 and female age 50 are illustrated for the last
survivorship Policy.
The tables include both Policy Values and Cash Surrender Values as well as Death
Benefits. The Policy Value is the sum of the values in the Investment Accounts,
as the tables assume no values in the Fixed Account or Loan Account. The Cash
Surrender Value is the Policy Value less any applicable surrender charges. The
tables illustrate how Policy Values and Cash Surrender Values, which reflect all
applicable charges and deductions, and Death Benefits of the Policy on an
insured of given age would vary over time if the return on the assets of the
Portfolios was a uniform, gross, after-tax, annual rate of 0%, 6% or 12%. The
Policy Values, Death Benefits and Cash Surrender Values would be different from
those shown if the returns averaged 0%, 6% or 12%, but fluctuated over and under
those averages throughout the years. The charges reflected in the tables include
those for deductions from premiums, surrender charges, and monthly deductions.
The amounts shown for the Policy Value, Death Benefit and Cash Surrender Value
as of each Policy Year reflect the fact that the net investment return on the
assets held in the sub-accounts is lower than the gross, after-tax return. This
is because the expenses and fees borne by Manufacturers Investment Trust are
deducted from the gross return. The illustrations reflect a simple average of
those Portfolios' current expenses, which is approximately 0.945% per annum.
The gross annual rates of return of 0%, 6% and 12% correspond to approximate
net annual rates of return of -0.941%, 5.003% and 10.947%. The expense of the
Portfolios may fluctuate from year to year but are assumed to remain constant
for purposes of these tables. The illustrations reflect the current expense
reimbursements in effect for the Lifestyle Trusts and the Index Trusts. In the
absence of such expense reimbursements, the average of the Portfolio's current
expenses would have been 0.950% 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 -0.946%, 4.998% and 10.941%. The expense reimbursements for the
Lifestyle Trusts and the Index Trusts are expected to remain in effect during
the fiscal year ended December 31, 2000. Were the expense reimbursements 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 both a single life and survivorship Policy, one
based on current cost of insurance charges assessed by the Company and the other
based on the maximum cost of insurance charges based on the 1980 Commissioners
Smoker Distinct Mortality Tables. Current cost of insurance charges are not
guaranteed and may be changed. Upon request, Manufacturers Life of America will
furnish a comparable illustration based on the proposed life insured's issue
age, sex (unless unisex rates are required by law, or are requested) and risk
classes and any additional ratings, face amount and planned premium requested.
From time to time, in advertisements or sales literature for the Policies that
quote performance data of one or more of the Portfolios, the Company may include
Cash Surrender Values and Death Benefit figures computed using the same
methodology as that used in the following illustrations, but with the average
annual total return of the Portfolio for which performance data is shown in the
advertisement replacing the
B-1
<PAGE> 50
hypothetical rates of return shown in the following tables. This information may
be shown in the form of graphs, charts, tables and examples.
The Policies have been offered to the public only since approximately September,
1999. However, total return data may be advertised for as long a period of time
as the underlying Portfolio has been in existence. The results for any period
prior to the Policies' being offered would be calculated as if the Policies had
been offered during that period of time, with all charges assumed to be those
applicable to the Policies.
B-1
<PAGE> 51
ILLUSTRATIONS FOR SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
B-1
<PAGE> 52
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55
$25,000 PLANNED SINGLE PREMIUM
$73,724 FACE AMOUNT
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 24,231 22,257 73,724 25,692 23,585 73,724 27,153 24,913 73,724
2 27,563 23,438 21,746 73,724 26,370 24,441 73,724 29,475 27,454 73,724
3 28,941 22,621 21,195 73,724 27,036 25,298 73,724 31,987 30,216 73,724
4 30,388 21,766 20,594 73,724 27,680 26,159 73,724 34,702 33,181 73,724
5 31,907 20,870 19,936 73,724 28,298 27,027 73,724 37,643 36,372 73,724
6 33,502 19,943 19,231 73,724 28,901 27,880 73,724 40,849 39,828 73,724
7 35,178 18,977 18,469 73,724 29,485 28,714 73,724 44,348 43,608 73,724
8 36,936 17,970 17,718 73,724 30,047 29,641 73,724 48,177 47,771 73,724
9 38,783 16,914 16,896 73,724 30,585 30,554 73,724 52,377 52,345 73,724
10 40,722 15,794 15,794 73,724 31,087 31,087 73,724 56,990 56,990 73,724
15 51,973 9,651 9,651 73,724 34,773 34,773 73,724 91,868 91,868 106,567
20 66,332 1,276 1,276 73,724 38,371 38,371 73,724 148,843 148,843 159,262
25 84,659 0 (3) 0 (3) 73,724 40,891 40,891 73,724 242,292 242,292 254,406
30 108,049 0 (3) 0 (3) 73,724 39,592 39,592 73,724 392,314 392,314 411,930
35 137,900 0 (3) 0 (3) 73,724 27,488 27,488 73,724 629,404 629,404 660,874
40 176,000 0 (3) 0 (3) 73,724 0 (3) 0 (3) 73,724 1,013,332 1,013,332 1,023,465
45 224,625 0 (3) 0 (3) 73,724 0 (3) 0 (3) 73,724 1,667,453 1,667,453 1,667,453
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) no policy loan has been
made, (b) no partial withdrawal of the Cash Surrender Value has been made,
and (c) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
<PAGE> 53
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55
$25,000 PLANNED SINGLE PREMIUM
$73,724 FACE AMOUNT
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 24,231 22,257 73,724 25,692 23,585 73,724 27,153 24,913 73,724
2 27,563 23,160 21,490 73,724 26,095 24,188 73,724 29,205 27,184 73,724
3 28,941 22,061 20,675 73,724 26,476 24,777 73,724 31,430 29,659 73,724
4 30,388 20,929 19,808 73,724 26,828 25,348 73,724 33,848 32,327 73,724
5 31,907 19,756 18,879 73,724 27,147 25,894 73,724 36,479 35,208 73,724
6 33,502 18,533 17,879 73,724 27,426 26,408 73,724 39,346 38,325 73,724
7 35,178 17,252 16,797 73,724 27,656 26,885 73,724 42,479 41,714 73,724
8 36,936 15,898 15,680 73,724 27,829 27,422 73,724 45,908 45,502 73,724
9 38,783 14,456 14,441 73,724 27,930 27,899 73,724 49,673 49,642 73,724
10 40,722 12,909 12,909 73,724 27,948 27,948 73,724 53,819 53,819 73,724
15 51,973 3,358 3,358 73,724 27,835 27,835 73,724 85,745 85,745 99,464
20 66,332 0 (3) 0 (3) 73,724 22,771 22,771 73,724 137,369 137,369 146,985
25 84,659 0 (3) 0 (3) 73,724 4,421 4,421 73,724 221,513 221,513 232,589
30 108,049 0 (3) 0 (3) 73,724 0 (3) 0 (3) 73,724 353,837 353,837 371,529
35 137,900 0 (3) 0 (3) 73,724 0 (3) 0 (3) 73,724 556,677 556,677 584,511
40 176,000 0 (3) 0 (3) 73,724 0 (3) 0 (3) 73,724 883,010 883,010 891,840
45 224,625 0 (3) 0 (3) 73,724 0 (3) 0 (3) 73,724 1,452,931 1,452,931 1,452,931
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) no policy loan has been
made, (b) no partial withdrawal of the Cash Surrender Value has been made,
and (c) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
<PAGE> 54
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55
$100,000 PLANNED SINGLE PREMIUM
$305,427 FACE AMOUNT
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 97,168 89,250 305,427 103,019 94,570 305,427 108,870 99,890 305,427
2 110,250 94,229 87,420 305,427 105,988 98,229 305,427 118,436 110,353 305,427
3 115,763 91,177 85,427 305,427 108,907 101,901 305,427 128,778 121,695 305,427
4 121,551 87,965 83,222 305,427 111,737 105,653 305,427 139,953 133,870 305,427
5 127,628 84,569 80,779 305,427 114,463 109,379 305,427 152,053 146,969 305,427
6 134,010 81,040 78,139 305,427 117,133 113,050 305,427 165,236 161,153 305,427
7 140,710 77,345 75,269 305,427 119,727 116,644 305,427 179,621 176,538 305,427
8 147,746 73,469 72,438 305,427 122,238 120,613 305,427 195,356 193,731 305,427
9 155,133 69,390 69,316 305,427 124,655 124,530 305,427 212,607 212,482 305,427
10 162,889 65,040 65,040 305,427 126,929 126,929 305,427 231,551 231,551 305,427
15 207,893 41,014 41,014 305,427 143,199 143,199 305,427 374,931 374,931 434,920
20 265,330 7,813 7,813 305,427 159,456 159,456 305,427 609,249 609,249 651,897
25 338,635 0 (3) 0 (3) 305,427 171,893 171,893 305,427 993,562 993,562 1,043,240
30 432,194 0 (3) 0 (3) 305,427 170,116 170,116 305,427 1,610,559 1,610,559 1,691,086
35 551,602 0 (3) 0 (3) 305,427 128,530 128,530 305,427 2,585,671 2,585,671 2,714,955
40 703,999 0 (3) 0 (3) 305,427 0 (3) 0 (3) 305,427 4,164,702 4,164,702 4,206,349
45 898,501 0 (3) 0 (3) 305,427 0 (3) 0 (3) 305,427 6,854,905 6,854,905 6,854,905
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) no policy loan has been
made, (b) no partial withdrawal of the Cash Surrender Value has been made,
and (c) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
<PAGE> 55
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55
$100,000 PLANNED SINGLE PREMIUM
$305,427 FACE AMOUNT
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 97,168 89,250 305,427 103,019 94,570 305,427 108,870 99,890 305,427
2 110,250 93,059 86,345 305,427 104,830 97,164 305,427 117,295 109,211 305,427
3 115,763 88,827 83,243 305,427 106,546 99,707 305,427 126,426 119,343 305,427
4 121,551 84,451 79,922 305,427 108,151 102,180 305,427 136,342 130,259 305,427
5 127,628 79,899 76,346 305,427 109,620 104,556 305,427 147,125 142,042 305,427
6 134,010 75,136 72,476 305,427 110,926 106,842 305,427 158,872 154,789 305,427
7 140,710 70,123 68,270 305,427 112,037 108,953 305,427 171,697 168,614 305,427
8 147,746 64,807 63,917 305,427 112,910 111,285 305,427 185,729 184,104 305,427
9 155,133 59,124 59,062 305,427 113,496 113,371 305,427 201,120 200,995 305,427
10 162,889 53,001 53,001 305,427 113,737 113,737 305,427 218,058 218,058 305,427
15 207,893 14,870 14,870 305,427 114,112 114,112 305,427 348,821 348,821 404,633
20 265,330 0 (3) 0 (3) 305,427 94,265 94,265 305,427 560,612 560,612 599,855
25 338,635 0 (3) 0 (3) 305,427 20,146 20,146 305,427 905,795 905,795 951,085
30 432,194 0 (3) 0 (3) 305,427 0 (3) 0 (3) 305,427 1,448,664 1,448,664 1,521,097
35 551,602 0 (3) 0 (3) 305,427 0 (3) 0 (3) 305,427 2,280,888 2,280,888 2,394,932
40 703,999 0 (3) 0 (3) 305,427 0 (3) 0 (3) 305,427 3,619,764 3,619,764 3,655,962
45 898,501 0 (3) 0 (3) 305,427 0 (3) 0 (3) 305,427 5,957,887 5,957,887 5,957,887
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) no policy loan has been
made, (b) no partial withdrawal of the Cash Surrender Value has been made,
and (c) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
<PAGE> 56
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE NON-SMOKER ISSUE AGE 55
$25,000 PLANNED SINGLE PREMIUM
$86,857 FACE AMOUNT
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 24,245 22,270 86,857 25,706 23,598 86,857 27,167 24,926 86,857
2 27,563 23,467 21,772 86,857 26,399 24,467 86,857 29,503 27,482 86,857
3 28,941 22,662 21,234 86,857 27,076 25,335 86,857 32,023 30,253 86,857
4 30,388 21,825 20,649 86,857 27,733 26,212 86,857 34,746 33,226 86,857
5 31,907 20,942 20,004 86,857 28,358 27,087 86,857 37,686 36,415 86,857
6 33,502 20,026 19,310 86,857 28,964 27,943 86,857 40,879 39,858 86,857
7 35,178 19,075 18,563 86,857 29,549 28,778 86,857 44,355 43,616 86,857
8 36,936 18,086 17,833 86,857 30,113 29,706 86,857 48,149 47,743 86,857
9 38,783 17,079 17,061 86,857 30,671 30,639 86,857 52,308 52,277 86,857
10 40,722 16,043 16,043 86,857 31,217 31,217 86,857 56,872 56,872 86,857
15 51,973 11,231 11,231 86,857 35,722 35,722 86,857 91,911 91,911 106,617
20 66,332 5,505 5,505 86,857 40,893 40,893 86,857 149,731 149,731 160,213
25 84,659 0 (3) 0 (3) 86,857 45,734 45,734 86,857 244,635 244,635 256,866
30 108,049 0 (3) 0 (3) 86,857 47,938 47,938 86,857 398,127 398,127 418,033
35 137,900 0 (3) 0 (3) 86,857 43,406 43,406 86,857 643,206 643,206 675,366
40 176,000 0 (3) 0 (3) 86,857 20,285 20,285 86,857 1,041,257 1,041,257 1,051,669
45 224,625 0 (3) 0 (3) 86,857 0 (3) 0 (3) 86,857 1,713,421 1,713,421 1,713,421
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) no policy loan has been
made, (b) no partial withdrawal of the Cash Surrender Value has been made,
and (c) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
<PAGE> 57
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE NON-SMOKER ISSUE AGE 55
$25,000 PLANNED SINGLE PREMIUM
$86,857 FACE AMOUNT
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 24,245 22,270 86,857 25,706 23,598 86,857 27,167 24,926 86,857
2 27,563 23,189 21,517 86,857 26,122 24,212 86,857 29,227 27,206 86,857
3 28,941 22,121 20,732 86,857 26,527 24,825 86,857 31,469 29,698 86,857
4 30,388 21,043 19,915 86,857 26,922 25,436 86,857 33,915 32,394 86,857
5 31,907 19,950 19,063 86,857 27,306 26,045 86,857 36,585 35,314 86,857
6 33,502 18,837 18,170 86,857 27,673 26,653 86,857 39,503 38,482 86,857
7 35,178 17,696 17,227 86,857 28,018 27,247 86,857 42,691 41,928 86,857
8 36,936 16,514 16,287 86,857 28,329 27,923 86,857 46,175 45,769 86,857
9 38,783 15,276 15,260 86,857 28,592 28,561 86,857 49,983 49,952 86,857
10 40,722 13,965 13,965 86,857 28,796 28,796 86,857 54,152 54,152 86,857
15 51,973 6,520 6,520 86,857 30,269 30,269 86,857 86,433 86,433 100,263
20 66,332 0 (3) 0 (3) 86,857 28,953 28,953 86,857 139,716 139,716 149,496
25 84,659 0 (3) 0 (3) 86,857 19,364 19,364 86,857 226,690 226,690 238,024
30 108,049 0 (3) 0 (3) 86,857 0 (3) 0 (3) 86,857 364,926 364,926 383,172
35 137,900 0 (3) 0 (3) 86,857 0 (3) 0 (3) 86,857 578,958 578,958 607,906
40 176,000 0 (3) 0 (3) 86,857 0 (3) 0 (3) 86,857 921,938 921,938 931,157
45 224,625 0 (3) 0 (3) 86,857 0 (3) 0 (3) 86,857 1,517,010 1,517,010 1,517,010
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) no policy loan has been
made, (b) no partial withdrawal of the Cash Surrender Value has been made,
and (c) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
<PAGE> 58
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE NON-SMOKER ISSUE AGE 55
$100,000 PLANNED SINGLE PREMIUM
$360,771 FACE AMOUNT
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 97,228 89,305 360,771 103,080 94,625 360,771 108,931 99,945 360,771
2 110,250 94,350 87,532 360,771 106,108 98,339 360,771 118,553 110,470 360,771
3 115,763 91,352 85,590 360,771 109,074 102,056 360,771 128,935 121,851 360,771
4 121,551 88,209 83,451 360,771 111,959 105,876 360,771 140,144 134,060 360,771
5 127,628 84,868 81,062 360,771 114,716 109,632 360,771 152,236 147,153 360,771
6 134,010 81,381 78,466 360,771 117,395 113,311 360,771 165,368 161,285 360,771
7 140,710 77,743 75,654 360,771 119,994 116,911 360,771 179,661 176,578 360,771
8 147,746 73,944 72,905 360,771 122,510 120,885 360,771 195,252 193,627 360,771
9 155,133 70,060 69,985 360,771 125,007 124,882 360,771 212,345 212,220 360,771
10 162,889 66,052 66,052 360,771 127,461 127,461 360,771 231,093 231,093 360,771
15 207,893 47,484 47,484 360,771 147,128 147,128 360,771 374,994 374,994 434,993
20 265,330 25,110 25,110 360,771 169,843 169,843 360,771 612,696 612,696 655,585
25 338,635 0 (3) 0 (3) 360,771 191,638 191,638 360,771 1,002,844 1,002,844 1,052,986
30 432,194 0 (3) 0 (3) 360,771 203,466 203,466 360,771 1,633,868 1,633,868 1,715,561
35 551,602 0 (3) 0 (3) 360,771 190,027 190,027 360,771 2,641,443 2,641,443 2,773,515
40 703,999 0 (3) 0 (3) 360,771 107,997 107,997 360,771 4,277,921 4,277,921 4,320,700
45 898,501 0 (3) 0 (3) 360,771 0 (3) 0 (3) 360,771 7,041,274 7,041,274 7,041,274
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) no policy loan has been
made, (b) no partial withdrawal of the Cash Surrender Value has been made,
and (c) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
<PAGE> 59
SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY
FEMALE NON-SMOKER ISSUE AGE 55
$100,000 PLANNED SINGLE PREMIUM
$360,771 FACE AMOUNT
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums(2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 97,228 89,305 360,771 103,080 94,625 360,771 108,931 99,945 360,771
2 110,250 93,182 86,458 360,771 104,940 97,266 360,771 117,391 109,308 360,771
3 115,763 89,079 83,477 360,771 106,760 99,906 360,771 126,594 119,511 360,771
4 121,551 84,923 80,365 360,771 108,545 102,550 360,771 136,630 130,547 360,771
5 127,628 80,703 77,109 360,771 110,286 105,203 360,771 147,586 142,502 360,771
6 134,010 76,393 73,682 360,771 111,964 107,880 360,771 159,550 155,466 360,771
7 140,710 71,963 70,052 360,771 113,551 110,468 360,771 172,619 169,536 360,771
8 147,746 67,358 66,425 360,771 115,004 113,379 360,771 186,896 185,271 360,771
9 155,133 62,511 62,445 360,771 116,265 116,140 360,771 202,494 202,369 360,771
10 162,889 57,360 57,360 360,771 117,280 117,280 360,771 219,558 219,558 360,771
15 207,893 27,861 27,861 360,771 124,240 124,240 360,771 351,608 351,608 407,865
20 265,330 0 (3) 0 (3) 360,771 119,854 119,854 360,771 570,144 570,144 610,054
25 338,635 0 (3) 0 (3) 360,771 81,620 81,620 360,771 926,853 926,853 973,196
30 432,194 0 (3) 0 (3) 360,771 0 (3) 0 (3) 360,771 1,493,838 1,493,838 1,568,530
35 551,602 0 (3) 0 (3) 360,771 0 (3) 0 (3) 360,771 2,371,764 2,371,764 2,490,352
40 703,999 0 (3) 0 (3) 360,771 0 (3) 0 (3) 360,771 3,778,604 3,778,604 3,816,390
45 898,501 0 (3) 0 (3) 360,771 0 (3) 0 (3) 360,771 6,219,351 6,219,351 6,219,351
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) no policy loan has been
made, (b) no partial withdrawal of the Cash Surrender Value has been made,
and (c) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
<PAGE> 60
--COMPARISON OF FOOTERS--
-FOOTER 1-
B-1
A
B-1
<PAGE> 61
SINGLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 AND
FEMALE NON-SMOKER ISSUE AGE 50
$25,000 PLANNED SINGLE PREMIUM
$136,940 FACE AMOUNT
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 24,333 22,350 136,940 25,795 23,679 136,940 27,258 25,009 136,940
2 27,563 23,672 21,961 136,940 26,610 24,662 136,940 29,720 27,699 136,940
3 28,941 23,016 21,563 136,940 27,444 25,677 136,940 32,404 30,634 136,940
4 30,388 22,371 21,162 136,940 28,303 26,783 136,940 35,338 33,817 136,940
5 31,907 21,735 20,757 136,940 29,188 27,918 136,940 38,544 37,273 136,940
6 33,502 21,107 20,347 136,940 30,099 29,078 136,940 42,047 41,027 136,940
7 35,178 20,484 19,930 136,940 31,034 30,263 136,940 45,874 45,154 136,940
8 36,936 19,865 19,582 136,940 31,992 31,586 136,940 50,055 49,654 136,940
9 38,783 19,246 19,225 136,940 32,973 32,942 136,940 54,623 54,591 136,940
10 40,722 18,625 18,625 136,940 33,975 33,975 136,940 59,612 59,612 136,940
15 51,973 16,133 16,133 136,940 41,182 41,182 136,940 97,011 97,011 136,940
20 66,332 12,768 12,768 136,940 49,379 49,379 136,940 158,591 158,591 183,966
25 84,659 7,415 7,415 136,940 58,182 58,182 136,940 259,571 259,571 277,741
30 108,049 0 (3) 0 (3) 136,940 65,911 65,911 136,940 425,050 425,050 446,303
35 137,900 0 (3) 0 (3) 136,940 68,121 68,121 136,940 692,809 692,809 727,450
40 176,000 0 (3) 0 (3) 136,940 54,985 54,985 136,940 1,119,403 1,119,403 1,175,373
45 224,625 0 (3) 0 (3) 136,940 0 (3) 0 (3) 136,940 1,811,092 1,811,092 1,829,203
50 286,685 0 (3) 0 (3) 136,940 0 (3) 0 (3) 136,940 2,980,641 2,980,641 2,980,641
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) no policy loan has been
made, (b) no partial withdrawal of the Cash Surrender Value has been made,
and (c) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
<PAGE> 62
SINGLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 AND
FEMALE NON-SMOKER ISSUE AGE 50
$25,000 PLANNED SINGLE PREMIUM
$136,940 FACE AMOUNT
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 26,250 24,333 22,350 136,940 25,795 23,679 136,940 27,258 25,009 136,940
2 27,563 23,672 21,961 136,940 26,610 24,662 136,940 29,720 27,699 136,940
3 28,941 23,016 21,563 136,940 27,444 25,677 136,940 32,404 30,634 136,940
4 30,388 22,362 21,154 136,940 28,294 26,774 136,940 35,329 33,808 136,940
5 31,907 21,706 20,730 136,940 29,159 27,889 136,940 38,515 37,245 136,940
6 33,502 21,045 20,287 136,940 30,036 29,015 136,940 41,986 40,965 136,940
7 35,178 20,374 19,822 136,940 30,922 30,151 136,940 45,765 45,044 136,940
8 36,936 19,688 19,409 136,940 31,812 31,406 136,940 49,880 49,477 136,940
9 38,783 18,983 18,962 136,940 32,704 32,672 136,940 54,361 54,329 136,940
10 40,722 18,251 18,251 136,940 33,590 33,590 136,940 59,241 59,241 136,940
15 51,973 14,592 14,592 136,940 39,582 39,582 136,940 95,645 95,645 136,940
20 66,332 7,695 7,695 136,940 44,270 44,270 136,940 155,393 155,393 180,256
25 84,659 0 (3) 0 (3) 136,940 44,206 44,206 136,940 252,455 252,455 270,127
30 108,049 0 (3) 0 (3) 136,940 30,105 30,105 136,940 410,313 410,313 430,829
35 137,900 0 (3) 0 (3) 136,940 0 (3) 0 (3) 136,940 660,279 660,279 693,293
40 176,000 0 (3) 0 (3) 136,940 0 (3) 0 (3) 136,940 1,045,909 1,045,909 1,098,205
45 224,625 0 (3) 0 (3) 136,940 0 (3) 0 (3) 136,940 1,662,701 1,662,701 1,679,328
50 286,685 0 (3) 0 (3) 136,940 0 (3) 0 (3) 136,940 2,736,376 2,736,376 2,736,376
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) no policy loan has been
made, (b) no partial withdrawal of the Cash Surrender Value has been made,
and (c) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
<PAGE> 63
SINGLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 AND
FEMALE NON-SMOKER ISSUE AGE 50
$100,000 PLANNED SINGLE PREMIUM
$571,810 FACE AMOUNT
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 97,597 89,640 571,810 103,456 94,967 571,810 109,315 100,294 571,810
2 110,250 95,214 88,325 571,810 106,999 99,158 571,810 119,472 111,389 571,810
3 115,763 92,840 86,972 571,810 110,624 103,541 571,810 130,543 123,459 571,810
4 121,551 90,502 85,605 571,810 114,361 108,278 571,810 142,642 136,559 571,810
5 127,628 88,196 84,221 571,810 118,211 113,128 571,810 155,865 150,782 571,810
6 134,010 85,914 82,814 571,810 122,172 118,089 571,810 170,313 166,230 571,810
7 140,710 83,646 81,376 571,810 126,241 123,158 571,810 186,097 183,013 571,810
8 147,746 81,383 80,224 571,810 130,413 128,788 571,810 203,337 201,712 571,810
9 155,133 79,118 79,032 571,810 134,687 134,562 571,810 222,171 222,046 571,810
10 162,889 76,836 76,836 571,810 139,054 139,054 571,810 242,743 242,743 571,810
15 207,893 67,872 67,872 571,810 170,028 170,028 571,810 396,715 396,715 571,810
20 265,330 55,189 55,189 571,810 205,355 205,355 571,810 650,266 650,266 754,308
25 338,635 34,180 34,180 571,810 243,506 243,506 571,810 1,066,125 1,066,125 1,140,754
30 432,194 0 (3) 0 (3) 571,810 277,656 277,656 571,810 1,747,606 1,747,606 1,834,987
35 551,602 0 (3) 0 (3) 571,810 289,883 289,883 571,810 2,850,320 2,850,320 2,992,836
40 703,999 0 (3) 0 (3) 571,810 241,353 241,353 571,810 4,607,195 4,607,195 4,837,555
45 898,501 0 (3) 0 (3) 571,810 20,462 20,462 571,810 7,455,830 7,455,830 7,530,389
50 1,146,740 0 (3) 0 (3) 571,810 0 (3) 0 (3) 571,810 12,272,413 12,272,413 12,272,413
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) no policy loan has been
made, (b) no partial withdrawal of the Cash Surrender Value has been made,
and (c) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
<PAGE> 64
SINGLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 AND
FEMALE NON-SMOKER ISSUE AGE 50
$100,000 PLANNED SINGLE PREMIUM
$571,810 FACE AMOUNT
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) Value Value Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 105,000 97,597 89,640 571,810 103,456 94,967 571,810 109,315 100,294 571,810
2 110,250 95,214 88,325 571,810 106,999 99,158 571,810 119,472 111,389 571,810
3 115,763 92,840 86,972 571,810 110,624 103,541 571,810 130,543 123,459 571,810
4 121,551 90,464 85,569 571,810 114,324 108,240 571,810 142,605 136,522 571,810
5 127,628 88,073 84,104 571,810 118,089 113,006 571,810 155,745 150,662 571,810
6 134,010 85,651 82,562 571,810 121,909 117,825 571,810 170,054 165,970 571,810
7 140,710 83,181 80,925 571,810 125,770 122,687 571,810 185,633 182,550 571,810
8 147,746 80,643 79,495 571,810 129,657 128,032 571,810 202,594 200,969 571,810
9 155,133 78,014 77,929 571,810 133,553 133,428 571,810 221,061 220,936 571,810
10 162,889 75,267 75,267 571,810 137,433 137,433 571,810 241,169 241,169 571,810
15 207,893 61,434 61,434 571,810 163,307 163,307 571,810 390,879 390,879 571,810
20 265,330 34,037 34,037 571,810 183,924 183,924 571,810 636,606 636,606 738,463
25 338,635 0 (3) 0 (3) 571,810 185,006 185,006 571,810 1,036,048 1,036,048 1,108,571
30 432,194 0 (3) 0 (3) 571,810 128,195 128,195 571,810 1,685,687 1,685,687 1,769,971
35 551,602 0 (3) 0 (3) 571,810 0 (3) 0 (3) 571,810 2,714,419 2,714,419 2,850,140
40 703,999 0 (3) 0 (3) 571,810 0 (3) 0 (3) 571,810 4,301,535 4,301,535 4,516,611
45 898,501 0 (3) 0 (3) 571,810 0 (3) 0 (3) 571,810 6,840,023 6,840,023 6,908,423
50 1,146,740 0 (3) 0 (3) 571,810 0 (3) 0 (3) 571,810 11,258,735 11,258,735 11,258,735
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) no policy loan has been
made, (b) no partial withdrawal of the Cash Surrender Value has been made,
and (c) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) In the absence of additional premium payments, the Policy will lapse,
unless the Lapse Protection Benefit is in effect.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
<PAGE> 65
AUDITED CONSOLIDATED
FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
Years ended December 31, 1999, 1998 and 1997
<PAGE> 66
The Manufacturers Life Insurance Company of America
Audited Consolidated
Financial Statements
Years ended December 31, 1999, 1998 and 1997
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors .......................................... 1
Audited Consolidated Financial Statements
Consolidated Balance Sheets ............................................. 2
Consolidated Statements of Income ....................................... 3
Consolidated Statements of Changes in Shareholder's Equity .............. 4
Consolidated Statements of Cash Flows ................................... 5
Notes to Consolidated Financial Statements .............................. 6
</TABLE>
<PAGE> 67
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, 1999 and
1998, 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, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young, LLP
Philadelphia, Pennsylvania
March 3, 2000
1
<PAGE> 68
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As at December 31 ($ thousands)
ASSETS 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENTS:
Securities available-for-sale, at fair value: (note 3)
Fixed-maturity (amortized cost: 1999 $73,780; 1998 $45,248) $ 73,081 $ 49,254
Equity (cost: 1999 $0; 1998 $19,219) -- 20,524
Short-term investments 6,942 459
Policy loans 26,174 19,320
- ---------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $ 106,197 $ 89,557
- ---------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 17,383 $ 23,789
Deferred acquisition costs (note 5) 201,642 163,506
Due from affiliates 2,851 --
Income taxes recoverable -- 2,665
Deferred income taxes (note 6) 1,596 --
Other assets 11,318 9,062
Separate account assets 1,399,527 1,075,231
- ---------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,740,514 $ 1,363,810
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES, CAPITAL AND SURPLUS 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES:
Policyholder liabilities and accruals $ 75,688 $ 60,830
Due to affiliates -- 5,133
Deferred income taxes (note 6) -- 763
Income taxes payable 11,122 --
Other liabilities 29,006 18,656
Separate account liabilities 1,399,527 1,075,231
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 1,515,343 $ 1,160,613
===================================================================================================
CAPITAL AND SURPLUS:
Common shares (note 7) $ 4,502 $ 4,502
Preferred shares (note 7) 10,500 10,500
Contributed surplus 195,596 193,096
Retained earnings (deficit) 19,256 (2,664)
Accumulated other comprehensive loss (note 4) (4,683) (2,237)
- ---------------------------------------------------------------------------------------------------
TOTAL CAPITAL AND SURPLUS $ 225,171 $ 203,197
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES, CAPITAL AND SURPLUS $ 1,740,514 $ 1,363,810
===================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 69
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE:
Premiums $ 10,185 $ 9,290 $ 8,607
Consideration paid on reinsurance terminated (note 9) -- (40,975) --
Fee income 77,899 55,322 38,682
Net investment income (note 3) 6,784 6,128 8,275
Realized investment gains (losses) 1,051 (206) 118
Other 152 307 544
- --------------------------------------------------------------------------------------------------------------
TOTAL REVENUE $ 96,071 $ 29,866 $ 56,226
- --------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES:
Policyholder benefits and claims $ 14,820 $ 16,541 $ 6,733
Reduction of reserves on reinsurance terminated (note 9) -- (40,975) --
Operating costs and expenses 41,617 41,676 41,742
Commissions 2,189 2,561 2,838
Amortization of deferred acquisition costs (note 5) 2,718 9,266 4,860
Interest expense 50 1,722 2,750
Policyholder dividends 171 221 1,416
- --------------------------------------------------------------------------------------------------------------
TOTAL BENEFITS AND EXPENSES 61,565 31,012 60,339
- --------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 34,506 (1,146) (4,113)
- --------------------------------------------------------------------------------------------------------------
INCOME TAX (EXPENSE) BENEFIT (NOTE 6) (12,586) 392 477
- --------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 21,920 $ (754) $ (3,636)
==============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 70
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
<TABLE>
<CAPTION>
ACCUMULATED
COMMON AND RETAINED OTHER TOTAL
FOR THE YEARS ENDED DECEMBER 31 PREFERRED CONTRIBUTED EARNINGS COMPREHENSIVE CAPITAL AND
($ thousands) SHARES SURPLUS (DEFICIT) INCOME (LOSS) SURPLUS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $ 15,002 $ 98,569 $ 1,726 $ 1,333 $ 116,630
Comprehensive loss (note 4) -- -- (3,636) (6,225) (9,861)
- -----------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 $ 15,002 $ 98,569 $ (1,910) $ (4,892) $ 106,769
Capital contribution (note 7) -- 94,527 -- -- 94,527
Comprehensive income (loss) (note 4) -- -- (754) 2,655 1,901
- -----------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $ 15,002 $ 193,096 $ (2,664) $ (2,237) $ 203,197
Capital contribution (note 7) -- 2,500 -- -- 2,500
Comprehensive income (loss) (note 4) -- -- 21,920 (2,446) 19,474
- -----------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $ 15,002 $ 195,596 $ 16,655 $ (4,683) $ 225,171
=================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 71
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income (Loss) $ 21,920 $ (754) $ (3,636)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Additions (deductions) to policy liabilities and accruals 6,563 (36,217) (2,147)
Deferred acquisition costs (39,540) (43,065) (33,544)
Amortization of deferred acquisition costs 2,718 9,266 4,860
Realized (gains) losses on investments (1,051) 206 (118)
(Increases) decreases to deferred income taxes (1,592) (1,796) 2,730
Income taxes 13,787 3,014 4,870
Other 2,866 53 2,788
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities $ 6,671 $ (69,293) $ (24,197)
- ---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Fixed-maturity securities sold, matured or repaid $ 1,193 $ 27,852 $ 73,772
Fixed-maturity securities purchased (29,498) (6,429) (89,763)
Equity securities sold 20,284 8,555 10,586
Equity securities purchased (14) (8,082) (11,289)
Net change in short-term investments (6,483) 1,671 4,558
Net policy loans advanced (6,854) (4,647) (4,851)
Guaranteed annuity contracts -- -- 171,691
- ---------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities $ (21,372) $ 18,920 $ 154,704
- ---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Receipts from variable universal life and annuity policies
credited to policyholder account balances $ 11,526 $ 7,981 $ 7,582
Withdrawals of policyholder account balances on
variable universal life and annuity policies (3,231) (5,410) (3,252)
Bonds payable repaid -- -- (158,760)
Issuance of promissory note -- -- 33,000
Capital contribution -- 51,709 --
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities $ 8,295 $ 54,280 $(121,430)
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS:
(Decrease) increase during the year (6,406) 3,907 9,077
Balance, beginning of year 23,789 19,882 10,805
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE, END OF YEAR $ 17,383 $ 23,789 $ 19,882
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 72
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
(IN THOUSANDS OF DOLLARS)
1. ORGANIZATION
The Manufacturers Life Insurance Company of America (hereafter referred
to as "ManAmerica" or the "Company") is a direct wholly-owned U.S.
subsidiary of The Manufacturers Life Insurance Company (U.S.A.)
("ManUSA"), which is an indirect wholly-owned subsidiary of The
Manufacturers Life Insurance Company ("MLI"), which in turn is a
wholly-owned subsidiary of Manulife Financial Corporation, a publicly
traded company. Manulife Financial Corporation and its subsidiaries are
known collectively as "Manulife Financial."
The Company issues and sells variable universal life insurance products
in the United States. The Company also has a branch operation in Taiwan
to develop and market traditional life insurance products for the
Taiwanese market.
The Company owns 100% of Manulife Holding Corporation ("Holdco"), an
investment holding company. Holdco has primarily three wholly-owned
subsidiaries, ManEquity Inc., a registered broker/dealer, Manufacturers
Advisor Corporation ("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, and all of
the assets and liabilities of MLMSC were transferred to Holdco at their
respective book values. MLMSC had 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 outstanding as at December 31, 1996. On March 1, 1997 the
annuities matured and the proceeds were used to repay the bonds
payable.
2. SIGNIFICANT ACCOUNTING POLICIES
a) BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company have
been prepared in conformity with accounting principles generally
accepted ("GAAP") in the United States and include the accounts and
operations, after intercompany eliminations, of the Company and its
wholly-owned subsidiary, Holdco.
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 1998 and 1997 financial
information to conform to the 1999 presentation.
6
<PAGE> 73
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
b) RECENT ACCOUNTING STANDARDS
i)In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133). SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging
activities. Contracts that contain embedded derivatives, such as
certain insurance contracts, are also addressed by the Statement. SFAS
No. 133 requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and
measure those instruments at fair value. In July 1999, the FASB issued
Statement 137, which delayed the effective date of SFAS No. 133 to
fiscal years beginning after June 15, 2000. The Company is evaluating
the accounting implications of SFAS No. 133 and has not determined its
impact on the Company's results of operations or its financial
condition.
ii)In December 1997, the American Institute of Certified Public
Accountant's Accounting Standards Executive Committee (AcSEC) issued
Statement of Position (SOP) 97-3, "Accounting by Insurance and Other
Enterprises for Insurance-Related Assessments." SOP 97-3 provides
guidance on the recognition and measurement of liabilities for various
assessments related to insurance activities, including those by state
guaranty funds. The Company adopted SOP 97-3 during 1999. Prior to the
adoption of SOP 97-3, the Company expensed and recognized liabilities
for such assessments on a "pay-as-you-go" basis. The effect of adopting
SOP 97-3 did not have a material impact on the results of operations
and financial condition of the Company for the year ended December 31,
1999.
iii)In March 1998, AcSEC issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1
requires the capitalization of certain costs incurred in connection
with developing or obtaining internal-use software. The Company adopted
SOP 98-1 during 1999. Prior to the adoption of SOP 98-1, the Company
expensed internal-use software-related costs as incurred. The effect of
adopting SOP 98-1 did not have a material impact on the results of
operations and financial condition of the Company for the year ended
December 31, 1999.
c) INVESTMENTS
The Company classifies all of its fixed maturity and equity securities
as available-for-sale and records these securities at fair value.
Realized gains and losses on sales of securities classified as
available-for-sale are recognized in net income using the specific
identification method. Changes in the fair value of securities
available-for-sale are reflected directly in accumulated other
comprehensive income after adjustments for deferred taxes and deferred
acquisition costs. Discounts and premiums on investments are amortized
using the effective interest method.
Policy loans are reported at aggregate unpaid balances, which
approximate fair value.
Short-term investments include investments with maturities of less than
one year at the date of acquisition.
7
<PAGE> 74
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 universal 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 universal 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.
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
universal life contracts, and for which the contract holder, rather
than the Company, bears the investment risk. Separate account assets
are recorded at market value. Operations of the separate accounts are
not included in the accompanying financial statements.
h) REVENUE RECOGNITION
Fee income from variable annuity and variable universal 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.
8
<PAGE> 75
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
i) EXPENSES
Expenses for variable annuity and variable universal 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, coinsurance and
modified coinsurance. 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.
9
<PAGE> 76
3. INVESTMENTS AND INVESTMENT INCOME
a) FIXED-MATURITY AND EQUITY SECURITIES
At December 31, 1999 and 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 UNREALIZED FAIR VALUE
AS AT DECEMBER 31, GAINS LOSSES
($ thousands) 1999 1998 1999 1998 1999 1998 1999 1998
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FIXED-MATURITY SECURITIES:
U.S. government $50,714 $27,349 $ -- $ 2,578 $ (936) $ -- $49,778 $29,927
Foreign governments 13,218 9,353 385 709 -- -- 13,603 10,062
Corporate 9,848 8,546 39 719 (187) -- 9,700 9,265
-------------------------------------------------------------------------------------------------------------------
Total fixed-maturity securities $73,780 $45,248 $ 424 $ 4,006 $(1,123) $ -- $73,081 $49,254
===================================================================================================================
Equity securities $ -- $19,219 $ -- $ 3,217 $ -- $(1,912) $ -- $20,524
===================================================================================================================
</TABLE>
There were no sales of fixed-maturity securities during 1999. Proceeds
from sales of fixed-maturity securities were $26,105 and $70,914 for
1998 and 1997, respectively. Gross realized gains and gross realized
losses on those sales were $362 and $107 for 1998 and, $955 and $837
for 1997, respectively.
Proceeds from sales of equity securities during 1999 were $20,284 (1998
$8,555; 1997 $10,586). Gross gains of $1,051 and gross losses of $0
were realized on those sales (1998 $16 and $477; 1997 $0 and $0,
respectively).
The contractual maturities of fixed maturity securities at December 31,
1999 are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without prepayment penalties. Corporate
requirements and investment strategies may result in the sale of
investments before maturity.
<TABLE>
<CAPTION>
($ thousands) AMORTIZED COST FAIR VALUE
-----------------------------------------------------------------------
<S> <C> <C>
Fixed maturity securities
One year or less $ 1,743 $ 1,772
Greater than 1; up to 5 years 27,321 27,185
Greater than 5; up to 10 years 29,468 28,549
Due after 10 years 15,248 15,575
-----------------------------------------------------------------------
TOTAL FIXED MATURITY SECURITIES $73,780 $73,081
-----------------------------------------------------------------------
</TABLE>
10
<PAGE> 77
3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED)
b) INVESTMENT INCOME
Income by type of investment was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
---------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturity securities $ 3,686 $ 4,078 $ 4,545
Equity securities - 227 331
Guaranteed annuity contracts - - 2,796
Other investments 3,371 2,082 772
---------------------------------------------------------------------
Gross investment income 7,057 6,387 8,444
---------------------------------------------------------------------
Investment expenses 273 259 169
---------------------------------------------------------------------
NET INVESTMENT INCOME $ 6,784 $ 6,128 $ 8,275
=====================================================================
</TABLE>
4. COMPREHENSIVE INCOME
Total comprehensive income was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME (LOSS) $19,319 $ (754) $(3,636)
-------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized holding gains (losses) arising during the period (3,965) 2,435 (1,030)
Reclassification adjustment for realized gains and losses included in
net income (loss) 683 134 77
Foreign currency translation 836 86 (5,272)
-------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) (2,446) 2,655 (6,225)
-------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $19,474 $ 1,901 $(9,861)
-------------------------------------------------------------------------------------------------------
</TABLE>
Other comprehensive income (loss) is reported net of taxes recoverable
(payable) of $1,767, ($1,430), and $513 for 1999, 1998, and 1997,
respectively.
Accumulated other comprehensive income is comprised of the following:
<TABLE>
<CAPTION>
AS AT DECEMBER 31
($ thousands) 1999 1998
----------------------------------------------------------------------
<S> <C> <C>
UNREALIZED GAINS (LOSSES):
Beginning balance $ 2,949 $ 380
Current period change (3,282) 2,569
----------------------------------------------------------------------
Ending balance $ (333) $ 2,949
----------------------------------------------------------------------
FOREIGN CURRENCY:
Beginning balance $(5,186) $(5,272)
Current period change 836 86
----------------------------------------------------------------------
Ending balance $(4,350) $(5,186)
----------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE LOSS $(4,683) $(2,237)
----------------------------------------------------------------------
</TABLE>
11
<PAGE> 78
5. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, $163,506 $130,355 $102,610
Capitalization 39,540 43,065 33,544
Accretion of interest 14,407 11,417 9,357
Amortization (17,125) (20,683) (14,217)
Effect of net unrealized gains (losses)
on securities available for sale 1,039 (784) 1,268
Foreign currency 275 136 (2,207)
-----------------------------------------------------------------------------------
BALANCE AT DECEMBER 31 $201,642 $163,506 $130,355
===================================================================================
</TABLE>
6. INCOME TAXES
Components of income tax (expense) benefit were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Current (expense) benefit $(13,178) $(1,404) $ 3,207
Deferred (expense) benefit 592 1,796 (2,730)
-----------------------------------------------------------------------------------
TOTAL (EXPENSE) BENEFIT $(12,586) $ 392 $ 477
===================================================================================
</TABLE>
Income before federal income taxes differs from taxable income
principally due to tax-exempt investment income, dividends-received tax
deductions, policy acquisition costs, and differences in reserves for
policy and contract liabilities for tax and financial reporting
purposes.
The Company's deferred income tax asset (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) 1999 1998
-----------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Differences in computing policy reserves $ 47,884 $ 38,888
Investments 246 708
Other deferred tax assets 2,768 333
-----------------------------------------------------------------------------------
Deferred tax assets $ 50,898 $ 39,929
-----------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Deferred acquisition costs $ 49,103 $ 38,778
Investments 136 1,859
Policyholder dividends payable 63 55
-----------------------------------------------------------------------------------
Deferred tax liabilities $ 49,382 $ 40,692
-----------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS (LIABILITIES) $ 1,596 $ (763)
===================================================================================
</TABLE>
12
<PAGE> 79
6. INCOME TAXES (CONTINUED)
At December 31, 1999, 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. CAPITAL AND SURPLUS
The Company has two classes of capital stock, as follows:
<TABLE>
<CAPTION>
AS AT DECEMBER 31:
($ thousands, except per share amounts) 1999 1998
----------------------------------------------------------------------------
<S> <C> <C>
AUTHORIZED:
5,000,000 Common shares, Par value $1
5,000,000 Preferred shares, Par value $100
ISSUED AND OUTSTANDING:
4,501,861 Common shares $ 4,502 $ 4,502
105,000 Preferred shares 10,500 10,500
----------------------------------------------------------------------------
TOTAL $15,002 $15,002
----------------------------------------------------------------------------
</TABLE>
On January 29, 1999 and in exchange for one common share, ManUSA
contributed $1,722 which represented a receivable from a subsidiary to
the Company. On April 15, 1999, ManUSA contributed an additional amount
receivable of $778 from a subsidiary to the Company, which was recorded
as a capital contribution.
In 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.
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 issued on December 31, 1995 to ManUSA.
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, 1999 was $137,039 (1998 $121,799). The aggregate statutory net
income (loss) of the Company for the year ended 1999 was $5,770 (1998
$(23,491); 1997 $(2,550)). State regulatory authorities prescribe
statutory accounting practices that differ in certain respects from
accounting principles generally accepted in the United States followed
by stock life insurance companies. The significant differences relate
to investments, deferred acquisition costs, deferred income taxes,
non-admitted asset balances and reserve calculation assumptions.
13
<PAGE> 80
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and the estimated fair values of certain of the
Company's financial instruments at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
($ thousands) VALUE FAIR VALUE
---------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Fixed-maturity securities $ 73,081 $ 73,081
Short-term investments 6,942 6,942
Policy loans 26,174 26,174
Cash and cash equivalents 17,383 17,383
---------------------------------------------------------------------------
</TABLE>
The following methods and assumptions were used to estimate the fair
values of the above financial instruments:
FIXED-MATURITY SECURITIES: Fair values of fixed maturity securities
were based on quoted market prices, where available. Fair values were
estimated using values obtained from independent pricing services.
SHORT-TERM INVESTMENTS AND CASH AND CASH EQUIVALENTS: Carrying values
approximate fair values.
POLICY LOANS: Carrying values approximate fair values.
9. RELATED PARTY TRANSACTIONS
The Company has formal service agreements with MLI 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 MLI 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 $28,214, $34,070 and $32,733 in 1999, 1998 and 1997
respectively. At December 31, 1999 and 1998, the Company had a net
receivable from MLI and ManUSA for these services of $2,552 and $2,617,
respectively. In addition, there were $10,489, $12,817 and $11,249 of
agents bonuses allocated to the Company during 1999, 1998 and 1997,
respectively, which are included in deferred acquisition costs.
The Company shares office facilities and personnel with its affiliates.
Such shared costs and expenses are allocated to the Company and its
subsidiaries based on time and usage studies; such allocations would
vary depending on the assumptions underlying those studies.
The Company has several reinsurance agreements with affiliated
companies which may be terminated upon the specified notice by either
party. These agreements are summarized as follows:
(a) The Company cedes the risk in excess of $25 per life on its
variable and single premium variable life products to MRC under
the terms of an automatic reinsurance agreement. Under the same
treaty the Company cedes a substantial portion of its risk on its
flexible premium variable life and variable universal life
policies via stop loss reinsurance.
14
<PAGE> 81
9. RELATED PARTY TRANSACTIONS (CONTINUED)
(b) The Company cedes the excess of a $10 million retention limit up
to the consolidated group retention limit of $15 million on
survivorship cases via yearly-renewable-term (YRT) reinsurance.
Effective February 28, 1999, the Company recaptured the excess of
the $10 million retention limit up to the consolidated group
retention limit of $15 million on survivorship cases, effectively
retaining the full $15 million.
(c) The Company cedes the risk in excess of NTD$2,500 per life on its
Taiwan individual and group life business to MRL under the terms
of a YRT reinsurance agreement. The Company also cedes a small
portion of the Taiwan accident and health business under the same
treaty.
(d) 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 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 $41.0 million
were recaptured by ManUSA. No gain or loss resulted from the
termination of these treaties.
Selected amounts relating to the above treaties reflected in the
financial statements are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
-----------------------------------------------------------------------
<S> <C> <C> <C>
Life and annuity premiums assumed $ - $ 48 $ 509
Life and annuity premiums ceded 84 76 69
Policy reserves assumed - - 40,975
Policy reserves ceded 84 145 130
-----------------------------------------------------------------------
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts to affiliates
were $0, $0 and $3,972 during 1999, 1998 and 1997 respectively.
The Company and MLI have entered into an agreement whereby MLI provides
a claims paying guarantee to the Company's U.S. policyholders. This
claims paying guarantee does not apply to the Company's separate
account contract holders
10. REINSURANCE
In the normal course of business, the Company cedes reinsurance as a
party to several reinsurance treaties with major unrelated insurance
companies. The Company remains liable for amounts ceded in the event
that reinsurers do not meet their obligations.
15
<PAGE> 82
10. REINSURANCE (CONTINUED)
The effects of reinsurance on premiums were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ thousands) 1999 1998 1997
---------------------------------------------------------------------
<S> <C> <C> <C>
Direct premiums $10,699 $9,723 $8,607
Reinsurance ceded 430 405 440
---------------------------------------------------------------------
TOTAL PREMIUMS $10,269 $9,318 $8,167
---------------------------------------------------------------------
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts with unrelated
insurance companies were $1,707, $1,362 and $909 during 1999, 1998 and
1997 respectively.
11. 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.
16
<PAGE> 83
Audited Financial Statements
The Manufacturers Life Insurance
Company of America
Separate Account Three
Years ended December 31, 1999 and 1998
with Report of Independent Auditors
<PAGE> 84
The Manufacturers Life Insurance Company of America
Separate Account Three
Audited Financial Statements
Years ended December 31, 1999 and 1998
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors............................................. 1
Audited Financial Statements
Statement of Assets and Contract Owners' Equity............................ 2
Statements of Operations and Changes in Contract Owners' Equity............ 3
Notes to Financial Statements.............................................. 20
</TABLE>
<PAGE> 85
Report of Independent Auditors
To the Contract Owners of
The Manufacturers Life Insurance Company
of America Separate Account Three
We have audited the accompanying statement of assets and contract owners' equity
of The Manufacturers Life Insurance Company of America Separate Account Three as
of December 31, 1999, and the related statements of operations and changes in
contract owners' equity for each of the years presented therein. 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 auditing standards generally accepted
in the United States. 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 financial position of The Manufacturers Life
Insurance Company of America Separate Account Three at December 31, 1999, and
the results of its operations and the changes in its contract owners' equity for
each of the years presented therein, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young
Philadelphia, Pennsylvania
February 4, 2000
1
<PAGE> 86
The Manufacturers Life Insurance Company of America
Separate Account Three
Statement of Assets and Contract Owners' Equity
December 31, 1999
<TABLE>
<CAPTION>
ASSETS
Investments at market value:
Sub-Accounts:
<S> <C>
Emerging Small Company Trust - 2,517,667 shares (cost $56,962,368) $ 102,569,738
Quantitative Equity Trust - 2,196,609 shares (cost $45,559,122) 61,856,519
Real Estate Securities Trust - 1,477,344 shares (cost $23,848,502) 19,042,967
Balanced Trust - 2,545,029 shares (cost $44,680,885) 45,352,416
Money Market Trust - 4,560,198 shares (cost $45,601,979) 45,601,979
International Stock Trust - 1,869,719 shares (cost $24,478,165) 28,849,762
Pacific Rim Emerging Markets Trust - 966,004 shares (cost $8,342,994) 10,510,125
Equity Index Trust - 4,134,764 shares (cost $62,832,544) 74,963,275
Mid-Cap Blend Trust - 1,492,254 shares (cost $29,249,089) 32,680,369
Equity Income Trust - 1,290,059 shares (cost $21,117,300) 21,995,504
Growth and Income Trust - 1,440,865 shares (cost $36,292,994) 47,073,070
U.S. Government Securities Trust - 344,314 shares (cost $4,625,047) 4,558,716
Diversified Bond Trust - 161,123 shares (cost $1,790,492) 1,743,348
Income and Value Trust - 368,281 shares (cost $4,665,689) 4,754,507
Large Cap Growth Trust - 387,122 shares (cost $5,648,402) 6,670,104
Blue Chip Growth Trust - 1,192,225 shares (cost $21,692,475) 25,799,741
Science & Technology Trust - 731,524 shares (cost $19,630,490) 26,459,240
Aggressive Growth Trust - 141,861 shares (cost $1,984,755) 2,459,870
Mid Cap Growth Trust - 561,194 shares (cost $10,615,373) 13,968,112
Global Equity Trust - 393,659 shares (cost $7,272,197) 7,396,859
Growth Trust - 545,075 shares (cost $11,809,846) 14,651,615
Value Trust - 384,206 shares (cost $5,651,036) 5,083,047
Overseas Trust - 274,645 shares (cost $3,839,581) 4,372,356
High Yield Trust - 297,754 shares (cost $4,001,847) 3,823,158
Strategic Bond Trust - 312,508 shares (cost $3,604,143) 3,481,336
Global Bond Trust - 49,407 shares (cost $581,723) 573,117
Investment Quality Bond Trust - 1,998,001 shares (cost $23,473,710) 23,176,815
Lifestyle Aggressive 1000 Trust - 271,956 shares (cost $3,649,495) 3,954,235
Lifestyle Growth 820 Trust - 1,361,688 shares (cost $18,622,072) 20,670,423
Lifestyle Balanced 640 Trust - 578,378 shares (cost $7,644,416) 8,236,104
Lifestyle Moderate 460 Trust - 90,296 shares (cost $1,225,026) 1,275,882
Lifestyle Conservative 280 Trust - 8,760 shares (cost $117,186) 115,194
International Small Cap Trust - 196,412 shares (cost $3,969,765) 5,530,970
Small Company Value Trust - 89,699 shares (cost $1,001,311) 1,100,603
U.S. Large Cap Value Trust - 147,502 shares (cost $1,798,067) 1,893,930
Mid Cap Stock Trust - 14,777 shares (cost $178,958) 186,188
Small Company Blend Trust - 24,215 shares (cost $340,466) 381,629
International Value Trust - 35,241 shares (cost $423,664) 457,427
Total Return Trust - 38,766 shares (cost $479,173) 479,537
----------------
Total assets $ 683,749,787
================
CONTRACT OWNERS' EQUITY
Variable life contracts $ 683,749,787
================
</TABLE>
See accompanying notes.
2
<PAGE> 87
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity
<TABLE>
<CAPTION>
SUB-ACCOUNT
EMERGING SMALL COMPANY QUANTITATIVE EQUITY
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98
<S> <C> <C> <C> <C>
Income:
Net investment income during
the year $ 931,296 $ 995,471 $ 5,044,334 $ 5,169,494
Realized gain (loss) during the year 2,234,670 1,245,244 3,505,103 1,617,119
Unrealized appreciation (depreciation)
during the year 40,955,434 (2,091,940) 2,911,530 3,915,612
--------------------------------------------------------------------------------
Net increase (decrease) in assets from
operations 44,121,400 148,775 11,460,967 10,702,225
--------------------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 9,489,193 12,733,443 7,800,323 7,242,095
Transfer on termination (8,527,672) (6,445,689) (5,396,356) (3,997,775)
Transfer on policy loans (504,673) (218,046) (474,041) (273,706)
Net interfund transfers (8,765,065) (5,805,034) (3,728,101) (1,628,360)
--------------------------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions (8,308,217) 264,674 (1,798,175) 1,342,254
--------------------------------------------------------------------------------
Total increase (decrease) in assets 35,813,183 413,449 9,662,792 12,044,479
Assets beginning of year 66,756,555 66,343,106 52,193,727 40,149,248
--------------------------------------------------------------------------------
Assets end of year $ 102,569,738 $ 66,756,555 $ 61,856,519 $ 52,193,727
================================================================================
</TABLE>
See accompanying notes.
3
<PAGE> 88
<TABLE>
<CAPTION>
SUB-ACCOUNT
REAL ESTATE SECURITIES
BALANCED CAPITAL GROWTH BOND
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98
<S> <C> <C> <C> <C> <C>
$ 1,081,197 $ 3,092,425 $ 3,363,625 $ 5,710,136 $ 1,504,363 $ 1,051,960
82,415 381,699 1,479,053 686,522 (404,112) 351,921
(2,907,686) (7,717,257) (5,660,915) (293,599) (1,309,718) 110,113
-----------------------------------------------------------------------------------------------------------------------------
(1,744,074) (4,243,133) (818,237) 6,103,059 (209,467) 1,513,994
-----------------------------------------------------------------------------------------------------------------------------
3,182,121 5,859,264 5,916,660 7,177,808 1,253,415 3,364,775
(2,092,541) (2,117,340) (5,526,738) (4,188,769) (627,273) (1,655,470)
(117,862) (77,402) (340,550) (150,786) (25,224) (32,638)
(2,881,180) (2,327,888) (4,108,655) (534,390) (21,636,729) (584,488)
-----------------------------------------------------------------------------------------------------------------------------
(1,909,462) 1,336,634 (4,059,283) 2,303,863 (21,035,811) 1,092,179
-----------------------------------------------------------------------------------------------------------------------------
(3,653,536) (2,906,499) (4,877,520) 8,406,922 (21,245,278) 2,606,173
22,696,503 25,603,002 50,229,936 41,823,014 21,245,278 18,639,105
-----------------------------------------------------------------------------------------------------------------------------
$ 19,042,967 $ 22,696,503 $ 45,352,416 $ 50,229,936 $ -- $ 21,245,278
=============================================================================================================================
</TABLE>
4
<PAGE> 89
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
MONEY INTERNATIONAL
MARKET STOCK
-------------------------------- ----------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98
<S> <C> <C> <C> <C>
Income:
Net investment income during
the year $ 1,699,216 $ 1,481,440 $ 2,378,902 $ 313,529
Realized gain (loss) during the year -- -- 1,389,951 674,744
Unrealized appreciation (depreciation)
during the year -- -- 2,728,312 1,511,476
--------------------------------------------------------------------------------
Net increase (decrease) in assets
from operations 1,699,216 1,481,440 6,497,165 2,499,749
--------------------------------------------------------------------------------
Changes in principal transactions:
Transfer of net premiums 29,641,080 22,297,227 3,991,679 4,538,425
Transfer on termination (5,654,160) (3,358,411) (1,409,171) (1,187,826)
Transfer on policy loans 266,827 (384,658) (245,714) (59,954)
Net interfund transfers (12,059,047) (17,755,116) (561,839) (574,437)
--------------------------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 12,194,700 799,042 1,774,955 2,716,208
Total increase (decrease) in assets 13,893,916 2,280,482 8,272,120 5,215,957
Assets beginning of year 31,708,063 29,427,581 20,577,642 15,361,685
--------------------------------------------------------------------------------
Assets end of year $ 45,601,979 $ 31,708,063 $ 28,849,762 $ 20,577,642
================================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 90
<TABLE>
<CAPTION>
SUB-ACCOUNT
PACIFIC RIM EMERGING MARKETS EQUITY INDEX MID-CAP BLEND
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98
<S> <C> <C> <C> <C> <C>
$ 188,217 $ -- $ 1,825,519 $ 1,392,501 $ 3,059,165 $ 3,871,537
1,967,184 (2,620,543) 3,651,616 603,079 (531,319) (152,838)
1,745,251 2,542,198 5,860,560 5,782,122 4,461,702 (1,767,849)
- -----------------------------------------------------------------------------------------------------------------------------------
3,900,652 (78,345) 11,337,695 7,777,702 6,989,548 1,950,850
- -----------------------------------------------------------------------------------------------------------------------------------
1,679,389 1,563,148 18,917,139 12,850,700 5,041,183 5,682,311
(471,769) (436,588) (4,357,423) (2,024,088) (1,858,127) (1,536,387)
(33,384) (15,173) (494,140) (475,140) (108,303) (34,034)
(185,077) 229,348 5,753,290 6,006,985 (1,877,218) 19,738
- -----------------------------------------------------------------------------------------------------------------------------------
989,159 1,340,735 19,818,866 16,358,457 1,197,535 4,131,628
- -----------------------------------------------------------------------------------------------------------------------------------
4,889,811 1,262,390 31,156,561 24,136,159 8,187,083 6,082,478
5,620,314 4,357,924 43,806,714 19,670,555 24,493,286 18,410,808
- -----------------------------------------------------------------------------------------------------------------------------------
$ 10,510,125 $ 5,620,314 $ 74,963,275 $ 43,806,714 $ 32,680,369 $ 24,493,286
===================================================================================================================================
</TABLE>
6
<PAGE> 91
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
EQUITY INCOME GROWTH AND INCOME
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98
<S> <C> <C> <C> <C>
Income:
Net investment income during
the year $ 1,458,179 $ 976,745 $ 1,278,189 $ 1,500,080
Net realized gain (loss)
during the year 374,940 287,480 1,264,337 800,716
Unrealized appreciation (depreciation)
during the year (1,255,027) 218,367 4,417,624 3,851,331
--------------------------------------------------------------------------------
Net increase (decrease) in assets from
operations 578,092 1,482,592 6,960,150 6,152,127
--------------------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 3,893,423 3,243,426 7,477,562 6,862,398
Transfer on termination (1,286,389) (1,437,923) (3,261,292) (1,576,405)
Transfer on policy loans (77,443) (98,668) (176,590) (46,701)
Net interfund transfers 311,991 563,898 2,945,525 2,330,998
--------------------------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 2,841,582 2,270,733 6,985,205 7,570,290
--------------------------------------------------------------------------------
Total increase (decrease) in assets 3,419,674 3,753,325 13,945,355 13,722,417
Assets beginning of year 18,575,830 14,822,505 33,127,715 19,405,298
--------------------------------------------------------------------------------
Assets end of year $ 21,995,504 $ 18,575,830 $ 47,073,070 $ 33,127,715
================================================================================
</TABLE>
See accompanying notes.
7
<PAGE> 92
<TABLE>
<CAPTION>
SUB-ACCOUNT
U.S. GOVERNMENT SECURITIES DIVERSIFIED BOND INCOME AND VALUE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98
<S> <C> <C> <C> <C> <C>
$ 143,586 $ 109,401 $ 96,499 $ 72,830 $ 408,866 $ 247,923
21,642 31,818 (9,175) 4,682 13,556 10,961
(173,224) 39,816 (72,120) 7,436 (94,286) 81,935
------------------------------------------------------------------------------------------------------------------------
(7,996) 181,035 15,204 84,948 328,136 340,819
------------------------------------------------------------------------------------------------------------------------
933,102 664,545 561,745 176,976 1,638,769 895,345
(302,051) (154,411) (59,417) (52,005) (330,215) (208,435)
75 (32,573) (1,024) -- (9,200) (7,332)
630,563 423,298 276,738 46,253 1,531 230,395
------------------------------------------------------------------------------------------------------------------------
1,261,689 900,859 778,042 171,224 1,300,885 909,973
------------------------------------------------------------------------------------------------------------------------
1,253,693 1,081,894 793,246 256,172 1,629,021 1,250,792
3,305,023 2,223,129 950,102 693,930 3,125,486 1,874,694
------------------------------------------------------------------------------------------------------------------------
$ 4,558,716 $ 3,305,023 $ 1,743,348 $ 950,102 $ 4,754,507 $ 3,125,486
========================================================================================================================
</TABLE>
8
<PAGE> 93
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
LARGE CAP GROWTH BLUE CHIP GROWTH
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98
<S> <C> <C> <C> <C>
Income:
Net investment income during
the year $ 371,353 $ 312,103 $ 704,256 $ 98,459
Net realized gain (loss)
during the year 100,576 29,565 613,535 137,311
Unrealized appreciation (depreciation)
during the year 677,804 179,177 2,347,320 1,520,566
--------------------------------------------------------------------------------
Net increase (decrease) in assets from
operations 1,149,733 520,845 3,665,111 1,756,336
--------------------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 1,349,722 953,535 6,033,752 3,950,204
Transfer on termination (310,785) (257,332) (1,605,280) (422,824)
Transfer on policy loans (20,962) (9,000) (118,582) (27,578)
Net interfund transfers 876,677 193,464 7,106,796 1,683,424
--------------------------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 1,894,652 880,667 11,416,686 5,183,226
--------------------------------------------------------------------------------
Total increase (decrease) in assets 3,044,385 1,401,512 15,081,797 6,939,562
Assets beginning of year 3,625,719 2,224,207 10,717,944 3,778,382
--------------------------------------------------------------------------------
Assets end of year $ 6,670,104 $ 3,625,719 $ 25,799,741 $ 10,717,944
================================================================================
</TABLE>
See accompanying notes.
9
<PAGE> 94
<TABLE>
<CAPTION>
SUB-ACCOUNT
SCIENCE & TECHNOLOGY AGGRESSIVE GROWTH MID CAP GROWTH
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98
<S> <C> <C> <C> <C> <C>
$ 1,831,034 $ -- $ -- $ -- $ 893,908 $ --
2,759,418 (371,868) 201,319 (17,790) 465,497 39,039
5,368,742 1,522,473 399,725 93,900 2,522,463 834,458
----------------------------------------------------------------------------------------------------------------------------
9,959,194 1,150,605 601,044 76,110 3,881,868 873,497
----------------------------------------------------------------------------------------------------------------------------
3,767,735 1,150,664 595,127 515,555 1,888,993 1,769,196
(796,754) (90,696) (133,411) (58,953) (645,925) (173,727)
(98,286) (13,553) (156) (11,158) (17,003) (9,934)
8,691,040 1,674,262 (206,543) 520,806 2,996,672 1,932,598
----------------------------------------------------------------------------------------------------------------------------
11,563,735 2,720,677 255,017 966,250 4,222,737 3,518,133
----------------------------------------------------------------------------------------------------------------------------
21,522,929 3,871,282 856,061 1,042,360 8,104,605 4,391,630
4,936,311 1,065,029 1,603,809 561,449 5,863,507 1,471,877
----------------------------------------------------------------------------------------------------------------------------
$ 26,459,240 $ 4,936,311 $ 2,459,870 $ 1,603,809 $ 13,968,112 $ 5,863,507
============================================================================================================================
</TABLE>
10
<PAGE> 95
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
WORLDWIDE GROWTH GLOBAL EQUITY
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98
<S> <C> <C> <C> <C>
Income:
Net investment income during
the year $ 11,362 $ 5,574 $ 493,157 $ 167,578
Net realized gain (loss)
during the year 68,678 14,712 (155,359) (35,168)
Unrealized appreciation (depreciation)
during the year (14,108) 18,500 (121,909) 214,456
-----------------------------------------------------------------------------
Net increase (decrease) in assets from
operations 65,932 38,786 215,889 346,866
-----------------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 274,770 396,653 1,527,332 1,830,508
Transfer on termination (16,702) (41,648) (386,590) (146,797)
Transfer on policy loans (11,284) (6,172) (21,561) (6,447)
Net interfund transfers (1,392,780) 377,034 1,818,979 750,096
-----------------------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions (1,145,996) 725,867 2,938,160 2,427,360
-----------------------------------------------------------------------------
Total increase (decrease) in assets (1,080,064) 764,653 3,154,049 2,774,226
Assets beginning of year 1,080,064 315,411 4,242,810 1,468,584
-----------------------------------------------------------------------------
Assets end of year $ -- $ 1,080,064 $ 7,396,859 $ 4,242,810
=============================================================================
</TABLE>
See accompanying notes.
11
<PAGE> 96
<TABLE>
<CAPTION>
SUB-ACCOUNT
GROWTH VALUE OVERSEAS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98
<S> <C> <C> <C> <C> <C>
$ 447,543 $ 95,683 $ 160,502 $ 117,791 $ -- $ 51,082
530,120 123,525 (36,495) 22,516 588,825 (4,342)
2,359,746 466,535 (317,742) (229,473) 485,470 86,563
------------------------------------------------------------------------------------------------------------------------
3,337,409 685,743 (193,735) (89,166) 1,074,295 133,303
------------------------------------------------------------------------------------------------------------------------
2,817,768 3,294,658 1,586,580 1,600,753 516,783 515,640
(500,367) (107,258) (292,517) (117,194) (73,681) (50,349)
(74,903) (38,221) (4,081) (12,965) (14,262) (2,253)
2,324,764 1,662,737 419,572 1,104,824 1,464,007 23,545
------------------------------------------------------------------------------------------------------------------------
4,567,262 4,811,916 1,709,554 2,575,418 1,892,847 486,583
7,904,671 5,497,659 1,515,819 2,486,252 2,967,142 619,886
------------------------------------------------------------------------------------------------------------------------
6,746,944 1,249,285 3,567,228 1,080,976 1,405,214 785,328
------------------------------------------------------------------------------------------------------------------------
$ 14,651,615 $ 6,746,944 $ 5,083,047 $ 3,567,228 $ 4,372,356 $ 1,405,214
========================================================================================================================
</TABLE>
12
<PAGE> 97
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
HIGH YIELD STRATEGIC BOND
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98
<S> <C> <C> <C> <C>
Income:
Net investment income during
the year $ 340,814 $ 151,912 $ 204,203 $ 86,088
Net realized gain (loss)
during the year (57,295) (7,914) (74,383) (17,942)
Unrealized appreciation (depreciation)
during the year (69,365) (95,871) (62,876) (70,640)
-----------------------------------------------------------------------------
Net increase (decrease) in assets from
operations 214,154 48,127 66,944 (2,494)
-----------------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 799,494 943,552 747,221 1,272,907
Transfer on termination (179,923) (111,555) (169,596) (103,790)
Transfer on policy loans (4,294) (7,304) (15,952) (10,279)
Net interfund transfers 891,770 158,145 (49,496) 1,091,881
-----------------------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 1,507,047 982,838 512,177 2,250,719
-----------------------------------------------------------------------------
Total increase (decrease) in assets 1,721,201 1,030,965 579,121 2,248,225
Assets beginning of year 2,101,957 1,070,992 2,902,215 653,990
-----------------------------------------------------------------------------
Assets end of year $ 3,823,158 $ 2,101,957 $ 3,481,336 $ 2,902,215
=============================================================================
</TABLE>
See accompanying notes.
13
<PAGE> 98
<TABLE>
<CAPTION>
SUB-ACCOUNT
GLOBAL BOND INVESTMENT QUALITY BOND LIFESTYLE AGGRESSIVE 1000
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98
<S> <C> <C> <C> <C> <C>
$ 43,890 $ 27,334 $ 115,157 $ 20,278 $ 178,067 $ 168,006
(70,367) (8,230) (118,167) 6,554 (51,566) (9,962)
(14,905) 2,498 (330,836) 27,852 371,856 (56,069)
------------------------------------------------------------------------------------------------------------------------
(41,382) 21,602 (333,846) 54,684 498,357 101,975
------------------------------------------------------------------------------------------------------------------------
124,531 143,923 2,534,307 443,446 1,220,401 1,299,712
(33,062) (17,835) (1,228,511) (45,715) (711,359) (258,375)
(11) (6,107) (45,188) (46,096) (3,817) (26,714)
(117,727) 277,425 20,819,872 762,855 (911,439) 316,522
------------------------------------------------------------------------------------------------------------------------
(26,269) 397,406 22,080,480 1,114,490 (406,214) 1,331,145
------------------------------------------------------------------------------------------------------------------------
(67,651) 419,008 21,746,634 1,169,174 92,143 1,433,120
640,768 221,760 1,430,181 261,007 3,862,092 2,428,972
------------------------------------------------------------------------------------------------------------------------
$ 573,117 $ 640,768 $ 23,176,815 $ 1,430,181 $ 3,954,235 $ 3,862,092
========================================================================================================================
</TABLE>
14
<PAGE> 99
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
LIFESTYLE GROWTH 820 LIFESTYLE BALANCED 640
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98
<S> <C> <C> <C> <C>
Income:
Net investment income during
the year $ 962,278 $ 629,682 $ 396,729 $ 189,230
Net realized gain (loss)
during the year (74,308) (19,242) (30,994) (1,929)
Unrealized appreciation (depreciation)
during the year 1,958,069 115,020 510,201 37,708
--------------------------------------------------------------------------------
Net increase (decrease) in assets from
operations 2,846,039 725,460 875,936 225,009
--------------------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 5,461,863 7,009,770 3,129,737 2,223,707
Transfer on termination (1,622,631) (827,050) (1,094,958) (520,437)
Transfer on policy loans (279,099) (176,891) (64,221) (28,495)
Net interfund transfers (1,593,145) 3,867,109 (306,459) 1,672,788
--------------------------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 1,966,988 9,872,938 1,664,099 3,347,563
--------------------------------------------------------------------------------
Total increase (decrease) in assets 4,813,027 10,598,398 2,540,035 3,572,572
Assets beginning of year 15,857,396 5,258,998 5,696,069 2,123,497
--------------------------------------------------------------------------------
Assets end of year $ 20,670,423 $ 15,857,396 $ 8,236,104 $ 5,696,069
================================================================================
</TABLE>
15
See accompanying notes.
<PAGE> 100
<TABLE>
<CAPTION>
SUB-ACCOUNT
LIFESTYLE MODERATE 460 LIFESTYLE CONSERVATIVE 280 INTERNATIONAL SMALL CAP
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98 DEC. 31/99 DEC. 31/98
<S> <C> <C> <C> <C> <C>
$ 49,688 $ 20,025 $ 11,447 $ 552 $ 9,451 $ 5,687
(1,920) (8,653) 1,866 1,625 1,126,604 (30,291)
30,959 19,892 (7,716) 5,695 1,360,161 240,125
------------------------------------------------------------------------------------------------------------------------
78,727 31,264 5,597 7,872 2,496,216 215,521
------------------------------------------------------------------------------------------------------------------------
324,816 287,313 42,811 35,078 826,503 923,655
(80,708) (25,583) (8,329) (3,934) (206,773) (94,819)
(61,993) -- -- -- (11,684) (11,877)
336,696 282,970 (32,902) 67,660 (266,727) 258,711
------------------------------------------------------------------------------------------------------------------------
518,811 544,700 1,580 98,804 341,319 1,075,670
------------------------------------------------------------------------------------------------------------------------
597,538 575,964 7,177 106,676 2,837,535 1,291,191
678,344 102,380 108,017 1,341 2,693,435 1,402,244
------------------------------------------------------------------------------------------------------------------------
$ 1,275,882 $ 678,344 $ 115,194 $ 108,017 $ 5,530,970 $ 2,693,435
========================================================================================================================
</TABLE>
16
<PAGE> 101
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity
(continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
SMALL COMPANY U.S. LARGE
VALUE CAP VALUE
YEAR PERIOD PERIOD
ENDED ENDED* ENDED**
DEC. 31/99 DEC. 31/98 DEC. 31/99
<S> <C> <C> <C>
Income:
Net investment income during
the year $ 305 $ -- $ --
Net realized gain (loss)
during the year 7,291 (3,492) 18
Unrealized appreciation (depreciation)
during the year 88,627 10,664 95,862
---------------------------------------------------------------
Net increase (decrease) in assets
from operations 96,223 7,172 95,880
---------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 398,042 183,290 373,681
Transfer on termination (50,211) (6,126) (40,839)
Transfer on policy loans -- -- --
Net interfund transfers 289,944 182,269 1,465,208
---------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 637,775 359,433 1,798,050
---------------------------------------------------------------
Total increase (decrease) in assets 733,998 366,605 1,893,930
Assets beginning of year 366,605 -- --
---------------------------------------------------------------
Assets end of year $ 1,100,603 $ 366,605 $ 1,893,930
===============================================================
</TABLE>
* Reflects the period from commencement of operations May 1, 1998 through
December 31, 1998.
** Reflects the period from commencement of operations May 1, 1999 through
December 31, 1999.
See accompanying notes.
17
<PAGE> 102
<TABLE>
<CAPTION>
SUB-ACCOUNT
MID CAP SMALL COMPANY INTERNATIONAL
STOCK BLEND VALUE
PERIOD PERIOD PERIOD
ENDED** ENDED** ENDED**
DEC. 31/99 DEC. 31/99 DEC. 31/99
<S> <C> <C>
$ - $ 7,350 $ -
(158) 1,781 (6,853)
7,230 41,163 33,763
-------------------------------------------------------------
7,072 50,294 26,910
-------------------------------------------------------------
114,220 174,380 67,544
(9,534) (10,104) (5,873)
- - -
74,430 167,059 368,846
-------------------------------------------------------------
179,116 331,335 430,517
-------------------------------------------------------------
186,188 381,629 457,427
- - -
-------------------------------------------------------------
$ 186,188 $ 381,629 $ 457,427
=============================================================
</TABLE>
18
<PAGE> 103
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity
(continued)
<TABLE>
<CAPTION>
SUB-ACCOUNT
TOTAL RETURN TOTAL
PERIOD YEAR YEAR
ENDED** ENDED ENDED
DEC. 31/99 DEC. 31/99 DEC. 31/98
<S> <C> <C> <C>
Income:
Net investment income
during the year $ -- $ 31,693,647 $ 28,132,536
Net realized gain (loss)
during the year (252) 20,827,272 3,760,628
Unrealized appreciation (depreciation)
during the year 364 69,327,505 11,133,790
-------------------------------------------------------------------
Net increase (decrease) in net assets from
operations 112 121,848,424 43,026,954
-------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 102,093 138,216,989 125,895,605
Transfer on termination (17,463) (51,392,480) (33,859,519)
Transfer on policy loans -- (3,208,585) (2,357,855)
Net interfund transfers 394,795 (253,364) (497,675)
-------------------------------------------------------------------
Net increase (decrease) in net assets
from principal transactions 479,425 83,362,560 89,180,556
-------------------------------------------------------------------
Total increase (decrease) in net assets 479,537 205,210,984 132,207,510
Net assets beginning of year -- 478,538,803 346,331,293
-------------------------------------------------------------------
Net assets end of year $ 479,537 $ 683,749,787 $ 478,538,803
===================================================================
</TABLE>
** Reflects the period from commencement of operations May 1, 1999 through
December 31, 1999.
See accompanying notes
19
<PAGE> 104
The Manufacturers Life Insurance Company of America
Separate Account Three
Notes to Financial Statements
December 31, 1999
1. ORGANIZATION
The Manufacturers Life Insurance Company of America Separate Account Three (the
Account) is a separate account established by The Manufacturers Life Insurance
Company of America (the Company). The Account operates as a Unit Investment
Trust under the Investment Company Act of 1940, as amended and invests in thirty
nine sub-accounts of Manufacturers Investment Trust (the Trust). The Account is
a funding vehicle for allocation of net premiums under single premium variable
life and variable universal life insurance contracts (the Contracts) issued by
the Company. The Account was established by the Company, a life insurance
company organized in 1983 under Michigan law. The Company is an indirect,
wholly-owned subsidiary of The Manufacturers Life Insurance Company (Manulife
Financial), a Canadian life insurance company. Each investment sub-account
invests solely in shares of a particular portfolio of the Trust. The Trust is
registered under the Investment Company Act of 1940 as an open-end management
investment company.
The Company is required to maintain assets in the Account with a total market
value at least equal to the reserves and other liabilities relating to the
variable benefits under all contracts participating in the Account. These assets
may not be charged with liabilities which arise from any other business the
Company conducts. However, all obligations under the variable contracts are
general corporate obligations of the Company.
Additional assets are held in the Company'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.
20
<PAGE> 105
The Manufacturers Life Insurance Company of America
Separate Account Three
Notes to Financial Statements (continued)
1. ORGANIZATION (CONTINUED)
As the result of portfolio changes, effective May 1, 1999, the following
sub-accounts of the Account have been replaced with new sub-account funds as
follows:
PREVIOUS FUND
Emerging Growth Trust
Conservative Asset Allocation Trust
Moderate Asset Allocation Trust
Aggressive Asset Allocation Trust
Pilgrim Baxter Growth Trust
Small/Mid Cap Trust
International Growth & Income Trust
Global Government Bond Trust
Equity Trust
NEW FUND
Emerging Small Company Trust
Diversified Bond Trust
Income & Value Trust
Large Cap Growth Trust
Aggressive Growth Trust
Mid Cap Growth Trust
Overseas Trust
Global Bond Trust
Mid-Cap Blend Trust
Effective May 1, 1999 the following sub-accounts of the Account were merged with
existing sub-account funds as follows:
Capital Growth Bond Trust merged with Investment Quality Bond Trust
Worldwide Growth Trust merged with Global Equity Trust
The following sub-accounts of the Account were added as investment options for
variable life insurance contract holders of Manufacturers Life of America:
<TABLE>
<CAPTION>
COMMENCEMENT OF OPERATIONS
OF THE SUB-ACCOUNTS
<S> <C>
U.S. Large Cap Value Trust May 1, 1999
Mid Cap Stock Trust May 1, 1999
Small Company Blend Trust May 1, 1999
International Value Trust May 1, 1999
Total Return Trust May 1, 1999
Small Company Value Trust May 1, 1998
</TABLE>
21
<PAGE> 106
The Manufacturers Life Insurance Company of America
Separate Account Three
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES
Investments are made in the portfolios of the Trust and are valued at the
reported net asset value of such portfolios. Transactions are recorded on the
trade date. Income from dividends is recorded on the ex-dividend date. Realized
gains and losses on the sales of investments are computed on the basis of the
identified cost of the investment sold.
In addition to the Account, a contract holder may also allocate funds to the
Fixed Account, which is part of the Company's general account. Because of
exemptive and exclusionary provisions, interests in the Fixed Account have not
been registered under the Securities Act of 1933, and the Company's general
account has not been registered as an investment company under the Investment
Company Act of 1940.
The operations of the Account are included in the federal income tax return of
the Company, which is taxed as a life insurance company under the provisions of
the Internal Revenue Code (the Code). Under the current provisions of the Code,
the Company does not expect to incur federal income taxes on the earnings of the
Account to the extent the earnings are credited under the contracts. Based on
this, no charge is being made currently to the Account for federal income taxes.
The Company will review periodically the status of such decision based on
changes in the tax law. Such a charge may be made in future years for any
federal income taxes that would be attributable to the contract.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future as
more information becomes known, which could impact the amounts reported and
disclosed herein.
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.
22
<PAGE> 107
The Manufacturers Life Insurance Company of America
Separate Account Three
Notes to Financial Statements (continued)
4. PURCHASES AND SALES OF INVESTMENTS
The following table shows aggregate cost of shares purchased and proceeds from
sales of each Trust portfolio for the year ended December 31, 1999.
<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C> <C>
Emerging Small Company Trust $ 4,930,767 $ 12,307,689
Quantitative Equity Trust 11,311,432 8,065,273
Real Estate Securities Trust 2,924,123 3,752,388
Balanced Trust 6,443,053 7,138,712
Money Market Trust 93,498,772 79,604,857
Capital Growth Bond Trust 2,220,395 21,751,843
International Stock Trust 12,891,686 8,737,829
Pacific Rim Emerging Markets Trust 8,625,380 7,448,004
Equity Index Trust 33,234,821 11,590,436
Mid-Cap Blend Trust 8,272,145 4,015,446
Equity Income Trust 6,544,272 2,244,511
Growth and Income Trust 12,009,895 3,746,501
U.S. Government Securities Trust 2,543,020 1,137,745
Diversified Bond Trust 1,294,441 419,899
Income and Value Trust 2,249,904 540,152
Large Cap Growth Trust 3,041,905 775,900
Blue Chip Growth Trust 14,098,770 1,977,828
Science & Technology Trust 22,500,094 9,105,324
Aggressive Growth Trust 2,481,840 2,226,824
Mid Cap Growth Trust 8,060,295 2,943,649
Worldwide Growth Trust 739,029 1,873,661
Global Equity Trust 23,224,517 19,793,199
Growth Trust 9,230,965 4,216,159
Value Trust 2,806,328 936,272
Overseas Trust 15,131,266 13,238,418
High Yield Trust 3,483,268 1,635,407
Strategic Bond Trust 1,325,957 609,577
Global Bond Trust 893,465 875,845
Investment Quality Bond Trust 24,878,917 2,683,280
Lifestyle Aggressive 1000 Trust 1,479,616 1,707,763
Lifestyle Growth 820 Trust 7,349,779 4,420,513
Lifestyle Balanced 640 Trust 3,774,746 1,683,917
</TABLE>
23
<PAGE> 108
The Manufacturers Life Insurance Company of America
Separate Account Three
Notes to Financial Statements (continued)
4. PURCHASES AND SALES OF INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C> <C>
Lifestyle Moderate 460 Trust 799,037 230,539
Lifestyle Conservative 280 Trust 156,102 143,075
International Small Cap Trust 7,291,927 6,941,156
Small Company Value Trust 1,103,975 465,895
U.S. Large Cap Value Trust 1,891,706 93,657
Mid Cap Stock Trust 340,725 161,609
Small Company Blend Trust 416,255 77,570
International Value Trust 665,242 234,725
Total Return Trust 528,471 49,046
---------------------------------
Total $ 366,688,303 $ 251,602,093
=================================
</TABLE>
5. UNIT VALUES
A summary of the accumulation unit values at December 31, 1999 and 1998 and the
accumulation units and dollar value outstanding at December 31, 1999 for the
variable life contracts are as follows:
<TABLE>
<CAPTION>
1998 1999
UNIT UNIT
VALUE VALUE UNITS DOLLARS
<S> <C> <C> <C> <C>
Emerging Small Company Trust $ 43.14 $ 74.86 1,370,106 $102,569,738
Quantitative Equity Trust 43.42 53.10 1,164,916 61,856,519
Real Estate Securities Trust 32.93 30.30 628,550 19,042,967
Balanced Trust 29.99 29.49 1,537,754 45,352,416
Money Market Trust 18.31 19.15 2,381,133 45,601,979
International Stock Trust 13.97 18.12 1,592,351 28,849,762
Pacific Rim Emerging Markets Trust 7.28 11.85 886,638 10,510,125
Equity Index Trust 19.72 23.78 3,152,866 74,963,275
Mid-Cap Blend Trust 14.83 18.95 1,724,867 32,680,369
Equity Income Trust 16.09 16.64 1,321,869 21,995,504
Growth and Income Trust 19.74 23.46 2,006,153 47,073,070
U.S. Government Securities Trust 11.94 11.91 382,656 4,558,716
Diversified Bond Trust 12.98 13.07 133,384 1,743,348
Income and Value Trust 14.27 15.51 306,506 4,754,507
Large Cap Growth Trust 15.50 19.42 343,487 6,670,104
</TABLE>
24
<PAGE> 109
5. UNIT VALUES (CONTINUED)
<TABLE>
<CAPTION>
1998 1999
UNIT UNIT
VALUE VALUE UNITS DOLLARS
<S> <C> <C> <C> <C>
Blue Chip Growth Trust $ 20.62 $ 24.63 1,047,662 $ 25,799,741
Science & Technology Trust 20.16 40.21 658,047 26,459,240
Aggressive Growth Trust 15.16 20.16 122,003 2,459,870
Mid Cap Trust 19.58 28.33 492,982 13,968,112
Global Equity Trust 16.37 16.97 435,835 7,396,859
Growth Trust 18.56 25.46 575,470 14,651,615
Value Trust 14.21 13.81 368,022 5,083,047
Overseas Trust 13.48 18.96 230,626 4,372,356
High Yield Trust 14.24 15.37 248,649 3,823,158
Strategic Bond Trust 13.80 14.11 246,780 3,481,336
Global Bond Trust 14.22 13.27 43,185 573,117
Investment Quality Bond Trust 14.77 14.51 1,597,533 23,176,815
Lifestyle Aggressive 1000 Trust 15.02 17.21 229,734 3,954,235
Lifestyle Growth 820 Trust 15.11 17.62 1,173,282 20,670,423
Lifestyle Balanced 640 Trust 14.91 16.76 491,434 8,236,104
Lifestyle Moderate 460 Trust 15.20 16.40 77,781 1,275,882
Lifestyle Conservative 280 Trust 15.11 15.74 7,318 115,194
International Small Cap Trust 14.14 26.16 211,460 5,530,970
Small Company Value Trust 8.53 9.21 119,484 1,100,603
U.S. Large Cap Value Trust - 12.84 147,502 1,893,930
Mid Cap Stock Trust - 12.60 14,777 186,188
Small Company Blend Trust - 16.07 23,747 381,629
International Value Trust - 12.98 35,241 457,427
Total Return Trust - 12.37 38,766 479,537
----------------
Total $ 683,749,787
================
</TABLE>
6. RELATED PARTY TRANSACTIONS
ManEquity, Inc., a registered broker-dealer and indirect wholly-owned subsidiary
of Manulife Financial, acts as the principal underwriter of the Contracts
pursuant to a Distribution Agreement with the Company. 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
25
<PAGE> 110
The Manufacturers Life Insurance Company of America
Separate Account Three
Notes to Financial Statements (continued)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
insurance laws, sell the Contracts. Registered representatives are compensated
on a commission basis.
The Company 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, the
Company pays for legal, actuarial, investment and certain other administrative
services.
26
<PAGE> 111
PART II.
OTHER INFORMATION
<PAGE> 112
PART II. OTHER INFORMATION
Representation of Insurer Pursuant to Section 26 of the Investment Company Act
of 1940
The Manufacturers Life Insurance Company of America hereby represents
that the fees and charges deducted under the policies issued pursuant to this
registration statement in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed
by the Company.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet;
Cross-Reference Sheet;
The Prospectus, consisting of 40 pages;
Representation of Insurer Pursuant to Section 26 of the Investment Company Act
of 1940
The signatures;
Written consents of the following persons:
A. Ernst & Young LLP-- FILED HEREIN
B. Opinion and Consent of Actuary-- FILED HEREIN
The following exhibits are filed as part of this Registration Statement:
1. Copies of all exhibits required by paragraph A of the instructions as to
exhibits in Form N-8B-2 are set forth below under designations based on such
instructions:
A(1) Resolutions of Board of Directors of The Manufacturers Life
Insurance Company of America establishing Separate Account
Three. Incorporated by reference to Exhibit A(1) to the
registration statement on Form S-6, file number 333-66303
filed October 29, 1998 (the "SVUL Registration Statement").
A(3)(a)(i) Distribution Agreement between The Manufacturers Life
Insurance Company of America and ManEquity, Inc. dated
December 23, 1986. Incorporated by reference to Exhibit
A(3)(a)(i) to the SVUL Registration Statement.
A(3)(a)(ii) Amendment to Distribution Agreement between The Manufacturers
Life Insurance Company of America and ManEquity, Inc. dated
May 30, 1992. Incorporated by reference to Exhibit A(3)(a)(ii)
to the SVUL Registration Statement.
A(3)(a)(iii) Amendment to Distribution Agreement between The Manufacturers
Life Insurance Company of America and ManEquity, Inc. dated
February 23, 1994. Incorporated by reference to Exhibit
A(3)(a)(iii) to the SVUL Registration Statement.
A(3)(b)(i) Specimen Agreement between ManEquity, Inc. and registered
representatives. Incorporated by reference to Exhibit
A(3)(b)(i) to pre-effective amendment no. 1 to the
registration statement on Form S-6, file number 333-51293
filed August 28, 1998.
A(3)(b)(ii) Specimen agreement between The Manufacturers Life Insurance
Company of America and registered representatives.
Incorporated by reference to Exhibit A(3)(b)(ii) to
pre-effective amendment no. 1 to the registration statement on
Form S-6, file number 333-51293 filed August 28, 1998.
A(3)(b)(iii) Specimen Agreement between ManEquity, Inc. and dealers.
Incorporated by reference to Exhibit A(3)(b)(iii) to
pre-effective amendment no. 1 to the registration statement on
Form S-6, file number 333-51293 filed August 28, 1998.
<PAGE> 113
A(3)(b)(iv) Specimen agreement between The Manufacturers Life Insurance
Company of America and dealers. Incorporated by reference to
Exhibit A(3)(b)(iv) to pre-effective amendment no. 1 to the
registration statement on Form S-6, file number 333-51293
filed August 28, 1998.
A(5)(a) Specimen Flexible Premium Variable Life Insurance Policy -
Incorporated by reference to Exhibit A(5)(a) to the initial
filing for this registration statement made on July 8, 1999.
A(6)(a) Restated Articles of Redomestication of The Manufacturers Life
Insurance Company of America. Incorporated by reference to
Exhibit A(6)(a) to post-effective amendment no. 20 to the
registration statement on Form S-6, file number 33-13774,
filed April 26, 1996.
A(6)(b) By-Laws of The Manufacturers Life Insurance Company of
America. Incorporated by reference to Exhibit A(6)(b) to
post-effective amendment no. 20 to the registration statement
on Form S-6, file number 33-13774, filed April 26, 1996.
A(8)(a)(i) Service Agreement between The Manufacturers Life Insurance
Company and The Manufacturers Life Insurance Company of
America dated June 1, 1988. Incorporated by reference to
Exhibit A(8)(a)(i) to pre-effective amendment no. 1 to the
registration statement on Form S-6, file number 333-51293
filed August 28, 1998.
A(8)(a)(ii) Amendment to Service Agreement between The Manufacturers Life
Insurance Company and The Manufacturers Life Insurance Company
of America dated December 31, 1992. Incorporated by reference
to Exhibit A(8)(a)(ii) to pre-effective amendment no. 1 to the
registration statement on Form S-6, file number 333-51293
filed August 28, 1998.
A(8)(a)(iii) Amendment to Service Agreement between The Manufacturers Life
Insurance Company and The Manufacturers Life Insurance Company
of America dated May 31, 1993. Incorporated by reference to
Exhibit A(8)(a)(iii) to pre-effective amendment no. 1 to the
registration statement on Form S-6, file number 333-51293
filed August 28, 1998.
A(8)(a)(iv) Amendment to Service Agreement between The Manufacturers Life
Insurance Company and The Manufacturers Life Insurance Company
of America dated June 30, 1993. Incorporated by reference to
Exhibit A(8)(a)(iv) to pre-effective amendment no. 1 to the
registration statement on Form S-6, file number 333-51293
filed August 28, 1998.
A(8)(a)(v) Amendment to Service Agreement between The Manufacturers Life
Insurance Company and The Manufacturers Life Insurance Company
of America dated December 31, 1996. Incorporated by reference
to Exhibit A(8)(a)(v) to pre-effective amendment no. 1 to the
registration statement on Form S-6, file number 333-51293
filed August 28, 1998.
A(8)(a)(vi) Amendment to Service Agreement between The Manufacturers Life
Insurance Company and The Manufacturers Life Insurance Company
of America dated May 31, 1998. Incorporated by reference to
Exhibit A(8)(a)(vi) to pre-effective amendment no. 1 to the
registration statement on Form S-6, file number 333-51293
filed August 28, 1998.
A(8)(a)(vii) Amendment to Service Agreement between The Manufacturers Life
Insurance Company and The Manufacturers Life Insurance Company
of America dated December 31, 1998. Incorporated by reference
to Exhibit A(8)(a)(vii) to post-effective amendment No. 11 to
the registration statement on Form N-4, file number 33-57018
filed March 1, 1999.
A(8)(b) Specimen Stoploss Reinsurance Agreement between The
Manufacturers Life Insurance Company of America and The
Manufacturers Life Insurance Company. Incorporated by
reference to Exhibit A(8)(b) to the SVUL Registration
Statement.
<PAGE> 114
A(8)(c)(i) Service Agreement between The Manufacturers Life Insurance
Company and ManEquity, Inc. dated January 2, 1991.
Incorporated by reference to Exhibit A(8)(c)(i) to
pre-effective amendment no. 1 to the registration statement on
Form S-6, file number 333-51293 filed August 28, 1998.
A(8)(c)(ii) Amendment to Service Agreement between The Manufacturers Life
Insurance Company and ManEquity, Inc. dated March 1, 1994.
Incorporated by reference to Exhibit A(8)(c)(ii) to
pre-effective amendment no. 1 to the registration statement on
Form S-6, file number 333-51293, filed August 28, 1998.
A(8)(c)(iii) Form of Agreement between ManEquity, Inc. and Manulife Wood
Logan - Incorporated by reference to Exhibit A(8)(c)(iii) to
pre effective amendment no 1 to the registration statement on
Form S-6, file number 333-82449, filed September 22, 1999.
A(10)(a) Specimen Application for Flexible Premium Variable Life
Insurance Policy. Incorporated by reference to Exhibit A(10)
to post effective amendment no. 7 to the registration
statement on Form S-6, file number 33-52310, filed April 26,
1996.
A(10)(b) Specimen Application Supplement for Flexible Premium Variable
Life Insurance Policy. Incorporated by reference to Exhibit
A(10)(a) to post effective amendment no. 9 to the registration
statement on Form S-6, file number 33-52310, filed December
23, 1996.
2. Consents of the following:
A. Opinion and consent of James D. Gallagher, Esq., Secretary and
General Counsel of The Manufacturers Life Insurance Company of
America -- Incorporated by reference to Exhibit 2 (A) to
pre-effective amendment no.1 to the registration statement on Form
S-6, file number 333-82449, filed September 22, 1999
B. Opinion and consent of Brian Koop, FSA, MAAA, Actuary -- FILED
HEREIN
C. Consent of Ernst & Young LLP -- FILED HEREIN
3. No financial statements are omitted from the prospectus pursuant to
instruction 1(b) or (c) of Part I.
4. Not applicable.
6. Memorandum Regarding Issuance, Face Amount Increase, Redemption and
Transfer Procedures for the Policies. Incorporated by reference to Exhibit
6 to pre effective amendment no. 1 to the registration statement on Form
S-6, file number 333-82449, filed September 22, 1999.
7. Power of Attorney.
Incorporated by reference to Exhibit 12 to post effective amendment no.
10 to the registration statement on Form S-6, file number 33-52310,
filed February 28, 1997.
James P. O'Malley - Incorporated by reference to initial filing for
this registration statement made on July 8, 1999.
Incorporated by reference to Exhibit 7 to post effective amendment no.
1 to the registration statement on Form S-6, file number 333-69719,
filed February 25, 2000
<PAGE> 115
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant and the Depositor certify that they meet all of the requirements
for effectiveness of this amendment to the Registration Statement, pursuant to
Rule 485(b) under the Securities Act of 1933 and have duly caused this
amendment to the Registration Statement to be signed on their behalf in the City
of Toronto, Province of Ontario, Canada, on this 27th day of April, 2000.
SEPARATE ACCOUNT THREE OF
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
(Registrant)
By: THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
(Depositor)
By: /s/ Donald A. Guloien
- ------------------------------
DONALD A. GULOIEN
President
THE MANUFACTURERS LIFE
INSURANCE COMPANY OF AMERICA
By: /s/ Donald A. Guloien
- ------------------------------
DONALD A. GULOIEN
President
<PAGE> 116
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed by the following persons
in the capacities indicated on this 27th day of April, 2000.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
* Chairman and Director
- -----------------------------
JOHN D. RICHARDSON
/s/Donald A. Guloien President and Director
- ------------------------------ (Principal Executive Officer)
DONALD A. GULOIEN
* Director
- -----------------------------
SANDRA M. COTTER
/s/James D. Gallagher Director
- -----------------------------
JAMES D. GALLAGHER
* Director
- -----------------------------
JAMES O'MALLEY
* Director
- -----------------------------
JOSEPH J. PIETROSKI
* Director
- -----------------------------
THEODORE KILKUSKIE, JR.
/s/Denis Turner Vice President and Treasurer
- ----------------------------- (Principal Financial and Accounting Officer)
DENIS TURNER
*By: /s/James D. Gallagher
- ----------------------------
James D. Gallagher
Attorney-in-Fact
Pursuant to Powers
of Attorney
</TABLE>
<PAGE> 117
EXHIBIT INDEX
Item No. Description
2(B) Opinion and consent of Brian Koop, FSA, MAAA, Actuary
2(C) Consent of Ernst & Young LLP
<PAGE> 1
Exhibit 99(B)
April 27, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Actuarial Opinion on Illustrations Contained in Post-Effective Amendment
No. 1 to a Registration Statement on Form S-6 (File No. 333-82449) (the
"Amendment")
Dear Sirs:
This opinion is furnished in connection with the above-referenced Amendment
under the Securities Act of 1933, as amended, describing a modified single
premium variable life insurance policy (the "Policy") that is offered and sold
by The Manufacturers Life Insurance Company of America.
The hypothetical illustrations of death benefits, Policy values and surrender
values used in this Amendment are consistent with the provisions of the Policy
and the Company's administrative procedures. The rate structure of the Policy
has not been designed so as to make the relationship between premiums and
benefits, as shown in the illustrations, appear disproportionately more
favorable to a prospective purchaser of the Policy for the age and risk class
illustrated than for any other prospective purchaser. The particular
illustrations shown are for a commonly used risk class and for premium amounts
and ages appropriate to the markets in which the Policy is sold.
I hereby consent to the use of this opinion as an exhibit to the Amendment.
Sincerely,
/s/Brian Koop, FSA, MAAA
Brian Koop, FSA, MAAA
Actuary
<PAGE> 1
Exhibit 99.2(c)
CONSENT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our reports dated March 3, 2000 accompanying the consolidated
financial statements of The Manufacturers Life Insurance Company of America and
to the use of our reports dated February 3, 2000 with respect to the financial
statements of Separate Account 3 of The Manufacturers Life Insurance Company of
America, in Post Effective Amendment No. 1 to the Registration Statement No.
333-82449 on Form S-6 and related prospectus of Separate Account Three of The
Manufacturers Life Insurance Company of America
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
April 24, 2000
