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VERSION 1
Prospectus containing 10 year No Lapse Guarantee
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PROSPECTUS
SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
VENTURE SURVIVORSHIP VUL
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
This prospectus describes Survivorship VUL, a flexible premium survivorship
variable universal life insurance policy (the "Policy") offered by The
Manufacturers Life Insurance Company of America (the "Company" or "Manufacturers
Life Of America," "we" or "us"), a stock life insurance company that is an
indirect wholly-owned subsidiary of The Manufacturers Life Insurance Company
("Manufacturers Life").
The Policy is designed to provide lifetime insurance protection together with
flexibility as to the timing and amount of premium payments, the investments
underlying the Policy Value, and the amount of insurance coverage. This
flexibility allows the policyowner to pay premiums and adjust insurance coverage
in light of his or her current financial circumstances and insurance needs.
The Policy provides for:
(1) a Net Cash Surrender Value that can be obtained by surrendering the Policy;
(2) policy loans and partial withdrawals; and
(3) an insurance benefit payable at the death of the last-to-die of the Lives
Insured.
Unless the No-Lapse Guarantee is in effect, the Policy will remain in force so
long as the Net Cash Surrender Value is sufficient to cover charges assessed
against the Policy. If the No-Lapse Guarantee is in effect, the Policy will
remain in force as long as the No-Lapse Guarantee Cumulative Premium Test has
been met.
Policy Value may be accumulated on a fixed basis or vary with the investment
performance of the sub-accounts of Manufacturers Life of America's Separate
Account Three (the "Separate Account") to which the policyowner allocates net
premiums. The assets of each sub-account will be used to purchase shares of a
particular investment portfolio (a "Portfolio") of Manufacturers Investment
Trust (the "Trust"). The accompanying prospectus for the Trust, and the
corresponding statement of additional information, describe the investment
objectives of the Portfolios. The Portfolios available for allocation of Net
Premiums are shown in the Policy Summary under "Investment Options and
Investment Advisers." Other sub-accounts and Portfolios may be added in the
future.
BECAUSE OF THE SUBSTANTIAL NATURE OF THE SURRENDER CHARGES, THE POLICY IS NOT
SUITABLE FOR SHORT-TERM INVESTMENT PURPOSES. ALSO, PROSPECTIVE PURCHASERS SHOULD
NOTE THAT IT MAY NOT BE ADVISABLE TO PURCHASE A POLICY AS A REPLACEMENT FOR
EXISTING INSURANCE.
The Securities and Exchange Commission (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 Commission.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT IS
VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE TRUST.
THE 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
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TABLE OF CONTENTS
<TABLE>
<S> <C>
DEFINITIONS.................................................................................................................. 4
POLICY SUMMARY
General.................................................................................................................... 6
Death Benefits............................................................................................................. 6
Premiums................................................................................................................... 6
Policy Value............................................................................................................... 6
Policy Loans............................................................................................................... 6
Surrender and Partial Withdrawals.......................................................................................... 6
Lapse and Reinstatement.................................................................................................... 6
Charges and Deductions..................................................................................................... 7
Investment Options and Investment Subadvisers.............................................................................. 7
Investment Management Fees and Expenses.................................................................................... 7
Table of Charges and Deductions............................................................................................ 8
Table of Investment Management Fees and Expenses........................................................................... 8
Table of Investment Options and Investment Advisers........................................................................ 10
GENERAL INFORMATION ABOUT MANUFACTURERS LIFE OF AMERICA, THE SEPARATE ACCOUNT, AND THE TRUST
Manufacturers Life of America.............................................................................................. 11
The Separate Account....................................................................................................... 12
The Trust.................................................................................................................. 12
Investment Objectives of the Portfolios.................................................................................... 12
ISSUING A POLICY
Requirements............................................................................................................... 16
Temporary Insurance Agreement.............................................................................................. 16
Right to Examine the Policy................................................................................................ 16
DEATH BENEFITS............................................................................................................... 17
Life Insurance Qualification............................................................................................... 17
Death Benefit Options...................................................................................................... 18
Changing the Face Amount................................................................................................... 18
PREMIUM PAYMENTS
Initial Premiums........................................................................................................... 19
Subsequent Premiums........................................................................................................ 19
Maximum Premium Limitation................................................................................................. 19
Premium Allocation......................................................................................................... 19
CHARGES AND DEDUCTIONS
Amount Deducted from Premium............................................................................................... 20
Surrender Charges.......................................................................................................... 20
Monthly Charges............................................................................................................ 23
</TABLE>
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<TABLE>
<S> <C>
Charges for Transfers...................................................................................................... 24
Reduction in Charges....................................................................................................... 24
SPECIAL PROVISIONS FOR EXCHANGES............................................................................................. 24
COMPANY TAX CONSIDERATIONS................................................................................................... 24
POLICY VALUE
Determination of the Policy Value.......................................................................................... 25
Units and Unit Values...................................................................................................... 25
Transfers of Policy Value.................................................................................................. 26
POLICY LOANS................................................................................................................. 27
Effect of Policy Loan...................................................................................................... 27
Interest Charged on Policy Loans........................................................................................... 27
Loan Account............................................................................................................... 27
POLICY SURRENDER AND PARTIAL WITHDRAWALS
Policy Surrender........................................................................................................... 27
Partial Withdrawals........................................................................................................ 28
LAPSE AND REINSTATEMENT
Lapse...................................................................................................................... 28
No-Lapse Guarantee......................................................................................................... 28
No-Lapse Guarantee Cumulative Premium Test................................................................................. 29
Reinstatement.............................................................................................................. 29
THE GENERAL ACCOUNT.......................................................................................................... 29
Fixed Account.............................................................................................................. 29
OTHER PROVISIONS OF THE POLICY
Policyowner Rights......................................................................................................... 30
Beneficiary................................................................................................................ 30
Incontestability........................................................................................................... 31
Misstatement of Age or Sex................................................................................................. 31
Suicide Exclusion.......................................................................................................... 31
Supplementary Benefits..................................................................................................... 31
TAX TREATMENT OF THE POLICY.................................................................................................. 31
Life Insurance Qualification............................................................................................... 31
Tax Treatment of Policy Benefits........................................................................................... 33
Alternate Minimum Tax...................................................................................................... 36
Income Tax Reporting....................................................................................................... 36
OTHER INFORMATION
Payment of Proceeds........................................................................................................ 36
Reports to Policyowners.................................................................................................... 36
Distribution of the Policies............................................................................................... 37
Responsibilities of Manufacturers Life..................................................................................... 37
</TABLE>
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<TABLE>
<S> <C>
Voting Rights.............................................................................................................. 38
Substitution of Portfolio Shares........................................................................................... 38
Records and Accounts....................................................................................................... 38
State Regulations.......................................................................................................... 38
Litigation................................................................................................................. 38
Independent Auditors....................................................................................................... 39
Further Information........................................................................................................ 39
Officers and Directors..................................................................................................... 39
Year 2000 Issues........................................................................................................... 41
Illustrations.............................................................................................................. 41
APPENDIX A - SAMPLE ILLUSTRATIONS OF POLICY VALUES, CASH SURRENDER VALUES AND DEATH BENEFITS................................. A-1
APPENDIX B - AUDITED FINANCIAL STATEMENTS.................................................................................... B-1
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, THE PROSPECTUS OF MANUFACTURERS INVESTMENT TRUST, OR THE
STATEMENT OF ADDITIONAL INFORMATION OF MANUFACTURERS INVESTMENT TRUST.
Examine this prospectus carefully. The Policy Summary will briefly describe the
Policy. More detailed information will be found further in the prospectus.
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DEFINITIONS
Additional Rating
is an increase to the Cost of Insurance Rate for any of the Lives Insured who do
not meet, at a minimum, the Company's underwriting requirements for the standard
Risk Classification.
Age
on any date is each of the Lives Insured's age on their birthday closest to the
policy date.
Attained Age
is the Age plus the number of whole years that have elapsed since the Policy
Date.
Business Day
is any day that the New York Stock Exchange is open for trading. The net asset
value of the underlying shares of a Sub-Account will be determined as of the end
of each Business Day. The Company will deem each Business Day to end at the
close of regularly scheduled trading of the New York Stock Exchange (currently
4:00 p.m. Eastern Time) on that day.
Cash Surrender Value
is the Policy Value less the Surrender Charge and any outstanding Monthly
Deductions due.
Effective Date
is the date the underwriters approve issuance of the policy. If the policy is
approved without the initial premium, the Effective Date will be the date the
Company receives at least the minimum initial premium at our Service Office. In
either case, the Company will take the first Monthly Deduction on the Effective
Date.
Fixed Account
is that part of the Policy Value which reflects the value the policyowner has in
the general account of the Company.
Gross Withdrawal
is the amount of partial Net Cash Surrender Value the policyowner requests plus
any Surrender Charge applicable to the withdrawal.
Investment Account
is that part of the Policy Value which reflects the value the policyowner has in
one of the sub-accounts of the Separate Account.
Issue Date
is the date the Company issued the Policy. The Issue Date is also the date from
which the Suicide and Validity provisions of the Policy are measured.
Life Insured
is the last-to-die of the Lives Insured.
Lives Insured
are the persons whose lives are insured under this policy. References to the
youngest of the Lives Insured means the youngest person insured under this
policy when it is first issued.
Loan Account
is that part of the Policy Value which reflects the value transferred from the
Fixed Account or the Investment Accounts as collateral for a policy loan.
Net Cash Surrender Value
is the Cash Surrender Value less the Policy Debt.
Net Policy Value
is the Policy Value less the value in the Loan Account.
Net Premium
is the gross premium paid less any amounts deducted from the premium. It is the
amount of premium allocated to the Fixed Account and/or Investment Accounts.
No-Lapse Guarantee
When the Policy is in the No-Lapse Guarantee Period, as long as the No-Lapse
Guarantee Cumulative Premium Test is met, the Policy will not lapse, even when
the Net Cash Surrender Value falls to or below zero.
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No-Lapse Guarantee Period
is the period, set at issue, during which the No-Lapse Guarantee is provided.
The No-Lapse Guarantee period is fixed at the lesser of (a) ten years or (b) the
number of years remaining until the life insured's age is 95, depending upon
applicable state law requirements Certain states may have a shorter guarantee
period. The No Lapse Guarantee Period for a particular Policy is stated in the
Policy.
No-Lapse Guarantee Premium
is set at issue and is recalculated whenever there is a policy change.
No-Lapse Guarantee Cumulative Premium
is the minimum amount due to satisfy the No-Lapse Guarantee Cumulative Premium
Test. This amount will change if any of the following changes occur under the
Policy:
- the face amount of insurance changes.
- a Supplementary Benefit is added, changed or terminated.
- the risk classification of any of the Lives Insured changes because
of a change in smoking status.
- a temporary Additional Rating is added
(due to a face amount increase), or terminated.
- the Death Benefit Option Changes.
No-Lapse Guarantee Cumulative Premium Test
is a test that is satisfied if the sum of all premiums paid, less any gross
partial withdrawals and less any Policy Debt, is greater than or equal to the
sum of the monthly No-Lapse Guarantee Premiums due since the Policy Date.
Policy Date
is the date coverage takes effect under the Policy, provided the Company
receives the minimum initial premium at its Service Office, and is the date from
which charges for the first monthly deduction are calculated, and the date from
which Policy Years, Policy Months, and Policy Anniversaries are determined.
Policy Debt
as of any date equals (a) plus (b) plus (c) minus (d), where:
(a) is the total amount of loans borrowed as of such date;
(b) is the total amount of any unpaid loan interest charges which
have been borrowed against the policy on a Policy Anniversary;
(c) is any interest charges accrued from the last Policy
Anniversary to the current date; and
(d) is the total amount of loan repayments as of such
date.
Policy Value
is the sum of the values in the Loan Account, the Fixed Account, and the
Investment Accounts.
Service Office Address
is 200 Bloor Street East, Toronto, Ontario, Canada M4W 1E5.
Surrender Charge Period
is the period following the Issue Date or following any increase in Face Amount
during which the Company will assess surrender charges. Surrender charges will
apply during this period if the policy terminates due to default, if the
policyowner surrenders the policy or makes a partial withdrawal.
Written Request
is the policyowner's request to the Company which must be in a form satisfactory
to the Company, signed and dated by the policyowner, and received at the Service
Office.
POLICY SUMMARY
GENERAL
The Policy is a flexible premium survivorship variable universal life insurance
policy. The following summary is intended to provide a general description of
the most important features of the Policy. It is not comprehensive and is
qualified in its entirety by the more detailed information contained in this
prospectus. Unless otherwise indicated or required by the context, the
discussion throughout this prospectus assumes that the Policy has not gone into
default, there is no outstanding Policy Debt, and the death benefit is not
determined by the minimum death benefit percentage. The Policy's provisions may
vary in some states.
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DEATH BENEFITS
The Policy provides a death benefit in the event of the death of the last-to-die
of the Lives Insured. There are two death benefit options. Under Option 1 the
death benefit is the Face Amount of the Policy at the date of death or, if
greater, the Minimum Death Benefit. Under Option 2 the death benefit is the Face
Amount plus the Policy Value of the Policy at the date of death or, if greater,
the Minimum Death Benefit. The policyowner may change the death benefit option
and increase or decrease the Face Amount.
PREMIUMS
Premium payments may be made at any time and in any amount, subject to certain
limitations as described under "Premium Payments -- Subsequent Premiums." Net
Premiums will be allocated, according to the policyowner's instructions, to one
or more of the general account and the sub-accounts of Manufacturers Life of
America's Separate Account Three. Allocation instructions may be changed at any
time and transfers among the accounts may be made.
POLICY VALUE
The Policy has a Policy Value reflecting premiums paid, certain charges for
expenses and cost of insurance, and the investment performance of the accounts
to which the policyowner has allocated premiums. The policyowner may obtain a
portion of the Policy Value by taking a policy loan or a partial withdrawal, or
by full surrender of the Policy.
POLICY LOANS
The policyowner may borrow against the Cash Surrender Value of the Policy. Loan
interest at a rate of 5.25% is due and payable in arrears on each Policy
Anniversary. All outstanding Policy Debt will be deducted from proceeds payable
at the insured's death, or upon surrender.
SURRENDER AND PARTIAL WITHDRAWALS
The policyowner may make a partial withdrawal of the Policy Value. A partial
withdrawal may result in a reduction in the Face Amount of the Policy and an
assessment of a portion of the surrender charges to which the Policy is subject.
A Policy may be surrendered for its Net Cash Surrender Value at any time while
the Life Insured is living. The Net Cash Surrender Value is equal to the Policy
Value less Surrender Charges and outstanding Monthly Deductions due minus the
Policy Debt.
LAPSE AND REINSTATEMENT
Unless the No-Lapse Guarantee is in effect, a Policy will lapse (and terminate
without value) when the Net Cash Surrender Value is insufficient to pay the next
monthly deduction and a grace period of 61 days expires without an adequate
payment being made by the policyowner. If the No-Lapse Guarantee is in effect,
the Policy will lapse if the No-Lapse Guarantee Cumulative Premium Test (see
definition) has not been met.
The Policies, therefore, differ in two important respects from conventional life
insurance policies. First, the failure to make planned premium payments will not
itself cause a Policy to lapse. Second, a Policy can lapse even if planned
premiums have been paid.
A lapsed Policy may be reinstated by the policyowner at any time within the five
year period following lapse provided none of the Lives Insured dies after the
policy termination and the Policy was not surrendered for its Net Cash Surrender
Value. Evidence of insurability is required, along with a certain amount of
premium as described under "Reinstatement."
CHARGES AND DEDUCTIONS
The Company assesses certain charges and deductions in connection with the
Policy. These include: (i) charges assessed monthly for mortality and expense
risks, cost of insurance, administration expenses, (ii) amounts deducted from
premiums paid (iii) and charges assessed on surrender or lapse. These charges
are summarized in the Table of Charges and Deductions.
In addition, there are charges deducted from each Portfolio of the Trust. These
charges are summarized in the Table of Investment Management Fees and Expenses.
INVESTMENT OPTIONS AND INVESTMENT ADVISERS
Net Premiums may be allocated to the general account or to one or more of the
sub-accounts of Manufacturers Life of America's
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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. The fees and expenses for each Portfolio for the Trust's last fiscal
year are shown in the Table of Investment Management Fees and Expenses. These
fees and expenses are described in detail in the accompanying Trust prospectus
to which reference should be made.
TABLE OF CHARGES AND DEDUCTIONS
Amount Deducted from Premium 7.50% of each premium paid.
Surrender Charges A Surrender Charge is applicable
during the first 15 Policy Years. The
Surrender Charge is determined by the
following formula:
Surrender Charge = (Surrender Charge
Rate) x (Grading Percentage)
The Grading Percentage is based on the
issue age of the youngest insured and
the policy year in which the transaction
causing the assessment of the charge
occurs and is set forth in the table
under "Surrender Charges."
The Surrender Charge Rate is calculated
as follows:
Surrender Charge Rate = (Factor) x
(Surrender Face Amount / 1000) +
(82.5%) x (Surrender Charge Premium)
The Surrender Charge Premium is the
lesser of:
(a) the premiums paid during the first
policy year;
(b) the premium amount used to measure
the maximum Surrender Charge under
the Policy;
(c) the net level annual premium
required to provide level insurance
to attained age 100 of the younger
insured based on guaranteed monthly
mortality charges and an interest
rate of 4%; and
(d) $60 per $1000 of Face Amount.
A portion of this charge may be assessed
on a partial withdrawal, as set forth
under "Charges and Deductions --
Surrender Charges on a Partial
Withdrawal."
Monthly Deductions An administration charge of
$30 plus $0.08 per $1,000 of current
face amount per policy month will be
deducted in the first policy year. In
subsequent years, the administration
charge will not exceed $15 plus $0.02
per $1,000 of current Face Amount per
policy month.
The cost of insurance charge.
Any additional charges for supplementary
benefits.
A mortality and expense risks charge.
This charge varies by Policy Year as
follows:
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<TABLE>
<CAPTION>
CURRENT AND
GUARANTEED EQUIVALENT
MONTHLY ANNUAL
MORTALITY MORTALITY AND
AND EXPENSE EXPENSE
POLICY YEARS RISKS CHARGE RISK CHARGE
- ---------------------------------------------------------------------------------------
<S> <C> <C>
1-20.......................................................... 0.063% 0.75%
21+........................................................... 0.033% 0.40%
</TABLE>
All of the above charges are deducted
from the Net Policy Value.
Loan Charges A fixed loan interest rate of 5.25%.
Interest credited to amounts in the Loan
Account will be equal to the 5.25% rate
charged to the loan less the current and
maximum loan spread of 1.25%.
Transfer Charge A charge of $25 per transfer for each
transfer in excess of 12 in a Policy
Year.
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
FEES REIMBURSEMENT) ANNUAL EXPENSES
TRUST PORTFOLIO
- -----------------------------------------------------------------------------------------------------------
<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%
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%
</TABLE>
<TABLE>
<CAPTION>
OTHER EXPENSES
MANAGEMENT (AFTER EXPENSE TOTAL TRUST
FEES REIMBURSEMENT) ANNUAL EXPENSES
TRUST PORTFOLIO
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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%
Equity Index(I)..................... 0.250% 0.150%(I) 0.400%(I)
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%
</TABLE>
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<TABLE>
<S> <C> <C> <C>
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 1000(D)........ 0.075% 1.060%(B) 1.135%(C)
Lifestyle Growth 820(D)............. 0.057% 1.008%(B) 1.065%(C)
Lifestyle Balanced 640(D)........... 0.057% 0.928%(B) 0.985%(C)
Lifestyle Moderate 460(D)........... 0.066% 0.869%(B) 0.935%(C)
Lifestyle Conservative 280(D)....... 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:
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 the Lifestyle Trust (absent
reimbursement) are equal to or less than 0.075%, then no expenses will be
reimbursed 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%
</TABLE>
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL TRUST
TRUST PORTFOLIO FEES EXPENSES ANNUAL EXPENSES
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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.
(I) The Equity Index Trust is available only for Policies issued for
applications dated prior to May 1, 2000. Under the Advisory Agreement, MSS
has agreed to reduce its advisory fee or reimburse the Equity Index Trust
if the total of all expenses (excluding advisory fees, taxes, portfolio
brokerage commissions, interest, litigation and indemnification expenses
and other extraordinary expenses not incurred in the ordinary course of the
Trust's business) exceeds an annual rate of 0.15% of the average annual net
assets of the Equity Index Trust. The expense limitation may be terminated
at any time by MSS. If this expense reimbursement had not been in effect,
Total Trust Annual Expenses would have been 0.55%, and Other Expenses would
have been 0.30%, of the average annual net assets of the Equity Index
Trust.
9
<PAGE> 12
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(C)
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
Equity Index Trust (B)
Real Estate Securities Trust
Money Market Trust
Index Trusts
Lifestyle Trusts(A)
</TABLE>
<TABLE>
<CAPTION>
SUBADVISER PORTFOLIO
---------- ---------
<S> <C>
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 Trusts(A)
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>
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<PAGE> 13
(A) State Street Global Advisors provides subadvisory consulting services to
Manufacturers Adviser Corporation regarding management of the Lifestyle
Trusts.
(B) The Equity Index Trust is available only for policies issued for
applications dated prior to May 1, 2000.
(C) Formerly, the Mid Cap Growth Trust
GENERAL INFORMATION ABOUT MANUFACTURERS LIFE OF AMERICA, THE SEPARATE ACCOUNT,
AND THE TRUST
MANUFACTURERS LIFE OF AMERICA
The Manufacturers Life Insurance Company of America ("Manufacturers Life of
America") is a stock life insurance company organized under the laws of
Pennsylvania on April 11, 1977 and redomesticated under the laws of Michigan on
December 9, 1992. It is a licensed life insurance company in the District of
Columbia and all states of the United States except New York. Its ultimate
parent entity 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. The Manufacturers Life
Insurance Company 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 it's affiliated companies
guarantees the investment performance of the Separate Account.
RATINGS
Manufacturers Life and Manufacturers Life of America have received the following
ratings from independent rating agencies:
<TABLE>
<S> <C>
Standard and Poor's Insurance Ratings Service: AA+ (for financial strength)
A.M. Best Company: A++ (for financial strength)
Duff & Phelps Credit Rating Co.: AAA (for claims paying ability)
Moody's Investors Service, Inc.: Aa2 (for financial strength)
</TABLE>
These ratings, which are current as of the date of this prospectus and are
subject to change, are assigned to Manufacturers Life of America as a measure of
the Company's ability to honor the death benefit and life annuitization
guarantees but not specifically to its products, the performance (return) of
these products, the value of any investment in these products upon withdrawal or
to individual securities held in any portfolio.
THE SEPARATE ACCOUNT
Manufacturers Life of America established its Separate Account Three on August
22, 1986 as a separate account under Pennsylvania Law. Since December 9, 1992,
it has been operated under Michigan Law. The Separate Account holds assets that
are segregated from all of Manufacturers Life of America's other assets. The
Separate Account is currently used only to support variable life insurance
policies.
ASSETS OF THE SEPARATE ACCOUNT
Manufacturers Life of America is the legal owner of the assets in the Separate
Account. The income, gains, and losses of the Separate Account, whether or not
realized, are, in accordance with applicable contracts, credited to or charged
against the Account without regard to the other income, gains, or losses of
Manufacturers Life of America. Manufacturers Life of America will at all times
maintain assets in the Separate Account with a total market value at least equal
to the reserves and other liabilities relating to variable benefits under all
policies participating in the Separate Account. These assets may not be charged
with liabilities which arise from any other business Manufacturers Life of
America conducts. However, all obligations under the variable life insurance
policies are general corporate obligations of Manufacturers Life of America.
REGISTRATION
The Separate Account is registered with the Securities and Exchange Commission
("S.E.C.") under the Investment Company Act of 1940 ("1940 Act") as a unit
investment trust. A unit investment trust is a type of investment company which
invests its assets in specified securities, such as the shares of one or more
investment companies, rather than in a portfolio of unspecified securities.
Registration under the 1940 Act does not involve any supervision by the S.E.C.
of the management or investment policies or practices of the Separate Account.
For state law purposes the Separate Account is treated as a part or division of
Manufacturers Life of America.
THE TRUST
Each sub-account of the Separate Account will purchase shares only of a
particular Portfolio. The Trust is registered under the 1940
11
<PAGE> 14
Act as an open-end management investment company. The Separate Account will
purchase and redeem shares of the Portfolios at net asset value. Shares will be
redeemed to the extent necessary for Manufacturers Life of America to provide
benefits under the Policies, to transfer assets from one sub-account to another
or to the general account as requested by policyowners, and for other purposes
not inconsistent with the Policies. Any dividend or capital gain distribution
received from a Portfolio with respect to the Policies will be reinvested
immediately at net asset value in shares of that Portfolio and retained as
assets of the corresponding sub-account.
The Trust shares are issued to fund benefits under both variable annuity
contracts and variable life insurance policies issued by the Company or life
insurance companies affiliated with the Company. Manufacturers Life of America
may also purchase shares through its general account for certain limited
purposes including initial portfolio seed money. For a description of the
procedures for handling potential conflicts of interest arising from the funding
of such benefits see the accompanying Trust prospectus.
INVESTMENT OBJECTIVES OF THE PORTFOLIOS
The investment objectives and certain policies of the Portfolios currently
available to policyowners through corresponding sub-accounts are set forth
below. There is, of course, no assurance that these objectives will be met. A
full description of the Trust, its investment objectives, policies and
restrictions, the risks associated therewith, its expenses, and other aspects of
its operation is contained in the accompanying Trust prospectus, which should be
read together with this prospectus.
ELIGIBLE PORTFOLIOS
The Portfolios of 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 &
tecnology. 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 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.
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<PAGE> 15
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 commong 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 EQUITY INDEX TRUST seeks to achieve investment results which approximate the
aggregate total return of publicly traded common stocks which are included in
the Standard & Poor's 500 Composite Stock Price Index. (The Equity Index Trust
is available only for policies issued for applications dated prior to May 1,
2000).
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.
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.
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<PAGE> 16
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.*
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.
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<PAGE> 17
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 and/or smoking status, with prior approval from the Company. A
Policy will generally be issued only on the lives of insureds from ages 0
through 90.
Each Policy is issued with a Policy Date, an Effective Date and an Issue Date
(see Definitions). The Issue Date is the date from which the Suicide and
Validity provisions of the Policy are determined and is the expected date of
actual delivery of the Policy to the policyowner. The Effective Date is the date
on which the first monthly deductions are taken, and is the date on which the
underwriters approve the Policy issuance. The Policy Date is the date coverage
takes effect under the Policy, provided the Company receives the minimum initial
premium at its Service Office, is the date from which charges for the first
monthly deduction are calculated, and is the date from which Policy Years,
Policy Months and Policy Anniversaries are determined.
If an application 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
Manufacturers Life of America will generally issue a Policy only if it has a
Face Amount of at least $250,000.
BACKDATING A POLICY
Under limited circumstances, the Company may backdate a Policy, upon request, by
assigning a Policy Date earlier than the date the application is signed.
However, in no event will a Policy be backdated earlier than the earliest date
allowed by state law, which is generally three months to one year prior to the
date of application for the Policy. Monthly deductions will be made for the
period the Policy Date is backdated. Regardless of whether or not a policy is
backdated, Net Premiums received prior to the Effective Date of a Policy will be
credited with interest from the date of receipt at the rate of return then being
earned on amounts allocated to the Money Market portfolio.
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<PAGE> 18
TEMPORARY INSURANCE AGREEMENT
In accordance with the Company's underwriting practices, temporary insurance
coverage may be provided under the terms of a Temporary Insurance Agreement.
Generally, temporary life insurance may not exceed $5,000,000 and may not be in
effect for more than 90 days. This temporary insurance coverage will be issued
on a conditional receipt basis, which means that any benefits under such
temporary coverage will only be paid if the Lives Insured meet the Company's
usual and customary underwriting standards for the coverage applied for.
The acceptance of an application is subject to the Company's underwriting rules,
and the Company reserves the right to request additional information or to
reject an application for any reason.
Persons failing to meet standard underwriting classification may be eligible for
a Policy with an additional rating assigned to it.
RIGHT TO EXAMINE THE POLICY
A Policy may be returned for a refund within 10 days after it is received. Some
states provide a longer period of time to exercise this right. The Policy will
indicate if a longer time period applies. The Policy can be mailed or delivered
to the Manufacturers Life of America agent who sold it or to the Service Office.
Immediately on such delivery or mailing, the Policy shall be deemed void from
the beginning. Within seven days after receipt of the returned Policy at its
Service Office, the Company will refund in full the payment made.
If a policyowner requests an increase in face amount which results in new
surrender charges, he or she will have the same rights as described above to
cancel the increase. If canceled, the Policy Value and the surrender charges
will be recalculated to the amounts they would have been had the increase not
taken place. A policyowner may request a refund of all or any portion of
premiums paid during the free look period, and the Policy Value and the
surrender charges will be recalculated to the amounts they would have been had
the premiums not been paid.
The Company reserves the right to delay the refund of any premium paid by check
until the check has cleared.
DEATH BENEFITS
If the Policy is in force at the time of the death of the last-to-die of the
Lives Insured, the Company will pay an insurance benefit. The amount payable
will be the death benefit under the selected death benefit option, plus any
amounts payable under any supplementary benefits added to the Policy, less the
Policy Debt and less any outstanding monthly deductions due. The insurance
benefit will be paid in one lump sum unless another form of settlement option is
agreed to by the beneficiary and the Company. If the insurance benefit is paid
in one sum, the Company will pay interest from the date of death to the date of
payment. If the Life Insured should die after the Company's receipt of a request
for surrender, no insurance benefit will be payable, and the Company will pay
only the Net Cash Surrender Value.
LIFE INSURANCE QUALIFICATION
This product uses the Guideline Premium Test to qualify as a life insurance
contract for purposes of Section 7702 of the Internal Revenue Code of 1986, as
amended.
GUIDELINE PREMIUM TEST
The Guideline Premium Test restricts the maximum premiums that may be paid into
a life insurance policy for a given death benefit. The policy's death benefit
must also be at least equal to the Minimum Death Benefit (described below).
Changes to the Policy may affect the maximum amount of premiums, such as:
- - A change in the policy's Face Amount.
- - A change in the death benefit option.
- - Partial Withdrawals.
- - Addition or deletion of supplementary benefits.
Any of the above changes could cause the total premiums paid to exceed the new
maximum limit. In this situation, the Company will require the policyowner to
take a partial withdrawal. In addition, these changes could reduce the future
premium limitations.
MINIMUM DEATH BENEFIT
The Guideline Premium Test requires a life insurance policy to meet minimum
ratios of life insurance coverage to policy value. This is achieved by ensuring
that the death benefit is at all times at least equal to the Minimum Death
Benefit. The Minimum Death Benefit on any date is defined as the Policy Value on
that date times the applicable Minimum Death Benefit Percentage for the Attained
Age of the youngest of the Lives Insured would have reached if living. The
Minimum Death Benefit Percentages are shown in the Table of Minimum Death
Benefit Percentages.
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<PAGE> 19
TABLE OF MINIMUM DEATH BENEFIT PERCENTAGES
<TABLE>
<CAPTION>
ATTAINED AGE APPLICABLE PERCENTAGE
---------------------------------------------------------------------------------
<S> <C>
40 and under.............................................. 250%
45........................................................ 215%
50........................................................ 185%
55........................................................ 150%
60........................................................ 130%
65........................................................ 120%
70........................................................ 115%
75........................................................ 105%
90........................................................ 105%
95 and above.............................................. 100%
</TABLE>
To determine the Applicable Percentage in the above table, use the Attained Age
of the youngest of the Lives Insured, or the Attained Age such person would have
reached if living. For ages not shown, the Applicable Percentage can be found by
reducing the values proportionately
DEATH BENEFIT OPTIONS
There are two death benefit options, described below.
DEATH BENEFIT OPTION 1
Under Option 1 the death benefit is the Face Amount of the Policy at the date of
death or, if greater, the Minimum Death Benefit.
DEATH BENEFIT OPTION 2
Under Option 2 the death benefit is the Face Amount plus the Policy Value of the
Policy at the date of death or, if greater, the Minimum Death Benefit.
CHANGING THE DEATH BENEFIT OPTION
The death benefit option may be changed on the first day of any policy month
once each Policy Year after the first Policy Year. The change will occur on the
first day of the next Policy Month after a written request for a change is
received at the Service Office. The Company reserves the right to limit a
request for a change if the change would cause the Policy to fail to qualify as
life insurance for tax purposes.
A change in the death benefit option will result in a change in the Policy's
Face Amount, in order to avoid any change in the amount of the death benefit, as
follows:
CHANGE FROM OPTION 1 TO OPTION 2
The new Face Amount will be equal to the Face Amount prior to the change minus
the Policy Value as of the date of the change. The Policy will not be assessed a
Surrender Charge for a reduction in Face Amount solely due to a change in the
death benefit option.
CHANGE FROM OPTION 2 TO OPTION 1
The new Face Amount will be equal to the Face Amount prior to the change plus
the Policy Value as of the date of the change. No new Surrender Charges will
apply to an increase in Face Amount solely due to a change in the death benefit
option.
CHANGING THE FACE AMOUNT
Subject to the limitations stated in this Prospectus, a policyowner may, upon
written request, increase or decrease the Face Amount of the Policy. The Company
reserves the right to limit a change in Face Amount so as to prevent the Policy
from failing to qualify as life insurance for tax purposes.
INCREASE IN FACE AMOUNT
Increases in Face Amount may be made once each Policy Year after the first
Policy Year. Any increase in Face Amount must be at least $50,000. An increase
will become effective at the beginning of the policy month following the date
Manufacturers Life of America approves the requested increase. Increases in Face
Amount are subject to satisfactory evidence of insurability. The Company
reserves the right to refuse a requested increase if any of the Lives Insureds'
Attained Ages at the effective date of the increase would be greater than the
maximum issue age for new Policies at that time.
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<PAGE> 20
NEW SURRENDER CHARGES FOR AN INCREASE
An increase in face amount will usually result in the Policy being subject to
new surrender charges. There will be no new surrender charges associated with
restoration of a prior decrease in Face Amount. As with the purchase of a
Policy, a policyowner will have free look right with respect to any increase
resulting in new surrender charges.
An additional premium may be required for a face amount increase, and a new
No-Lapse Guarantee Premium will be determined, if the No-Lapse Guarantee is in
effect at the time of the face amount increase.
INCREASE WITH PRIOR DECREASES
If, at the time of the increase, there have been prior decreases in Face Amount,
these prior decreases will be restored first. The insurance coverage eliminated
by the decrease of the oldest face amount will be deemed to be restored first.
DECREASE IN FACE AMOUNT
Decreases in Face Amount may be made once each Policy Year after the first
Policy Year. Any decrease in Face Amount must be at least $50,000. A written
request from a policy owner for a decrease in the Face Amount will be effective
at the beginning of the Policy Month following the date Manufacturers Life of
America approves the requested decrease. If there have been previous increases
in Face Amount, the decrease will be applied to the most recent increase first
and thereafter to the next most recent increases successively.
PREMIUM PAYMENTS
INITIAL PREMIUMS
No premiums will be accepted prior to receipt of a completed application by the
Company. All premiums received prior to the Effective Date of the Policy will be
held in the general account and credited with interest from the date of receipt
at the rate of return then being earned on amounts allocated to the Money Market
Trust.
The minimum initial premium is one-twelfth of the No-Lapse Guarantee Premium.
On the Effective Date, the Net Premiums paid plus interest credited will be
allocated among the Investment Accounts or the Fixed Account in accordance with
the policyowner's instructions.
SUBSEQUENT PREMIUMS
After the payment of the initial premium, premiums may be paid at any time and
in any amount until the youngest of the Lives Insured has reached Attained Age
100, or the date such person would have reached Attained Age 100, if living,
subject to the limitations on premium amount described below.
A Policy will be issued with a planned premium, which is based on the amount of
premium the policyowner wishes to pay. Manufacturers Life of America will send
notices to the policyowner setting forth the planned premium at the payment
interval selected by the policyowner. However, the policyowner is under no
obligation to make the indicated payment.
The Company may refuse any premium payment that would cause the Policy to fail
to qualify as life insurance under the Internal Revenue Code. The Company also
reserves the right to request evidence of insurability if a premium payment
would result in an increase in the Death Benefit that is greater than the
increase in Policy Value.
Payment of premiums will not guarantee that the Policy will stay in force.
Conversely, failure to pay premiums will not necessarily cause the Policy to
lapse.
All Net Premiums received on or after the Effective Date will be allocated among
Investment Accounts or the Fixed Account as of the Business Day the premiums
were received at the Service Office. Monthly deductions are due on the Policy
Date and at the beginning of each Policy Month thereafter. However, if due prior
to the Effective Date, they will be taken on the Effective Date instead of the
dates they were due.
MAXIMUM PREMIUM LIMITATION
In no event may the total of all premiums paid exceed the then current maximum
premium limitations established by federal income tax law for a Policy to
qualify as life insurance.
If, at any time, a premium is paid which would result in total premiums
exceeding the above maximum premium limitation, the Company will only accept
that portion of the premium which will make the total premiums equal to the
maximum. Any part of the premium in excess of that amount will be returned and
no further premiums will be accepted until allowed by the then current
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<PAGE> 21
maximum premium limitation.
PREMIUM ALLOCATION
Premiums may be allocated to either the Fixed Account for accumulation at a rate
of interest equal to at least 4% or to one or more of the Investment Accounts
for investment in the Portfolio shares held by the corresponding sub-account of
the Separate Account. Allocations among the Investment Accounts and the Fixed
Account are made as a percentage of the premium. The percentage allocation to
any account may be any number between zero and 100, provided the total
allocation equals 100. A policyowner may change the way in which premiums are
allocated at any time without charge. The change will take effect on the date a
written request for change satisfactory to the Company is received at the
Service Office.
CHARGES AND DEDUCTIONS
AMOUNT DEDUCTED FROM PREMIUM
Manufacturers Life of America deducts an amount from each premium payment, equal
to 7.50% of the premium.
SURRENDER CHARGES
The Company will deduct a Surrender Charge if during the first 15 years
following the Policy Date, or the effective date of a Face Amount increase:
- - the Policy is surrendered for its Net Cash Surrender Value,
- - a partial withdrawal is made in excess of the Withdrawal Tier Amount (see
below for a description of this amount), or
- - the Policy lapses.
SURRENDER CHARGE CALCULATION
The Surrender Charge for the initial Face Amount or for the amount of any
increase in Face Amount is determined by the following formula (the calculation
is also described in words below):
Surrender Charge = (Surrender Charge Rate) x (Grading Percentage)
Surrender Charge Rate (the calculation is also described in words below)
Surrender Charge Rate = (Factor) x (Surrender Face Amount / 1000) + (82.5%) x
(Surrender Charge Premium)
DEFINITIONS OF THE FORMULA FACTORS ABOVE
Surrender Face Amount
If the Face Amount at the time of surrender is equal to or less than the initial
Face Amount, then the Surrender Face Amount is equal to the Face Amount at the
time of surrender. However, if the Face Amount has increased, then the surrender
charge is calculated separately on (a) the initial Face Amount and (b) on the
amount of Face Amount above the initial Face Amount. In the case of (a), the
Surrender Face Amount is equal to the initial Face Amount and in the case of (b)
the Surrender Face Amount is equal to the Face Amount above the initial Face
Amount.
The Factor is set forth in the following chart:
<TABLE>
<CAPTION>
ISSUE AGE FACTOR
- --------------------------------------------------------------------------------
<S> <C>
38 or younger......................................................... 3.75
39.................................................................... 4.25
40.................................................................... 4.75
41.................................................................... 5.25
42.................................................................... 5.75
43.................................................................... 6.25
44.................................................................... 6.75
45.................................................................... 7.25
46.................................................................... 7.75
47.................................................................... 8.25
48 or older........................................................... 8.50
</TABLE>
The Surrender Charge Premium is the lesser of:
(a) the premiums paid during the first policy year;
(b) the premium amount used to measure the maximum Surrender Charge under the
Policy;
(c) the net level annual premium ("Net Level Premium") required to provide level
insurance to attained age 100 of the younger
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<PAGE> 22
insured based on guaranteed maximum mortality charges and an interest rate
of 4%; and
(d) $60 per $1000 of Face Amount.
Grading Percentage
The grading percentage is based on the issue age of the youngest insured and the
Policy Year in which the transaction causing the assessment of the charge occurs
as set forth in the table below:
<TABLE>
<CAPTION>
SURRENDER CHARGE GRADING PERCENTAGE
----------------------------------------------------------
ISSUE AGES OF YOUNGER INSURED 0-75 76 77 78 79 80+
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Policy Year 1............................................... 93% 92% 92% 91% 90% 90%
Policy Year 2............................................... 86% 85% 84% 83% 81% 80%
Policy Year 3............................................... 80% 78% 76% 75% 72% 70%
Policy Year 4............................................... 73% 71% 69% 66% 63% 60%
Policy Year 5............................................... 66% 64% 61% 58% 54% 50%
Policy Year 6............................................... 60% 57% 53% 50% 45% 40%
Policy Year 7............................................... 53% 50% 46% 41% 36% 30%
Policy Year 8............................................... 46% 42% 38% 33% 27% 20%
Policy Year 9............................................... 40% 35% 30% 25% 18% 10%
Policy Year 10.............................................. 33% 28% 23% 16% 9% 0%
Policy Year 11.............................................. 26% 21% 15% 8% 0%
Policy Year 12.............................................. 20% 14% 7% 0%
Policy Year 13.............................................. 13% 7% 0%
Policy Year 14.............................................. 6% 0%
Policy Year 15.............................................. 0%
</TABLE>
Formulas Described in Words
Surrender Charge
The Surrender Charge is determined by multiplying the Surrender Charge Rate by
the Grading Percentage, a percent which starts at 100% and grades down each
policy year to zero over a period not to exceed 15 years.
Surrender Charge Rate
The Surrender Charge Rate is equal to the sum of (a) plus (b) where (a) equals
the Factor multiplied by the Surrender Face Amount divided by 1000 and (b)
equals 82.5% times the Surrender Charge Premium.
Illustration of Surrender Charge Calculation
Assumptions
- - 50 year old male and 40 year old female (standard risks and nonsmoker status)
- - Policy issued 7 years ago
- - $904 in premiums have been paid on the Policy in equal annual installments
over the 7 year period
- - the premium amount used to measure the maximum Surrender Charge under the
Policy is $2,188
- - Net Level Premium for the Policy is $2,541
- - Face Amount of the Policy is $250,000
- - Policy is surrendered during the last month of the seventh policy year
Surrender Charge
The Surrender Charge to be assessed would be $1,025, determined as follows:
First, the Surrender Charge Rate is determined by applying the Surrender Charge
Rate formula as set forth below.
Surrender Charge Rate = (Factor) x (Surrender Face Amount / 1000) + (82.5%) x
(Surrender Charge Premium)
1933.30 = (4.75) x ($250,000 / 1000) + (82.5%) x (904)
The Surrender Charge Rate is equal to 1933.30.
Second, the Surrender Charge Rate is entered into the Surrender Charge formula
and the Surrender Charge is determined as set forth below.
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<PAGE> 23
Surrender Charge = (Surrender Charge Rate) x (Grading Percentage)
$1,025 = (1933.30) x (53%)
The Surrender Charge is equal to $1,025.
The following calculation illustrates the maximum Surrender Charge that would be
payable on a Policy under the assumptions set forth below.
Illustration of Maximum Surrender Charge Calculation
Assumptions
- - 50 year old male and 40 year old female (standard risks and nonsmoker status)
- - Policy issued 7 years ago
- - $2,188 in premiums have been paid on the Policy in equal annual installments
over the 7 year period
- - the premium amount used to measure the maximum Surrender Charge under the
Policy is $2,188
- - Net Level Premium for the Policy is $2,541
- - Face Amount of the Policy is $250,000
- - Policy is surrendered during the last month of the seventh policy year
Maximum Surrender Charge
The maximum Surrender Charge to be assessed would be $1,586, determined as
follows:
First, the Surrender Charge Rate is determined by applying the Surrender Charge
Rate formula as set forth below.
Surrender Charge Rate = (Factor) x (Surrender Face Amount / 1000) + (82.5%) x
(Surrender Charge Premium)
2,992.60 = (4.75) x ($250,000 / 1000) + (82.5%) x (2,188)
The Surrender Charge Rate is equal to 2,992.60.
Second, the Surrender Charge Rate is entered into the Surrender Charge formula
and the Surrender Charge is determined as set forth below.
Surrender Charge = (Surrender Charge Rate) x (Grading Percentage)
$1,586 = (2992.60) x (53%)
The maximum Surrender Charge payable on the Policy is equal to $1,586.
Depending upon the Face Amount of the Policy, the age of the youngest insured at
issue, premiums paid under the Policy and the performance of the underlying
investment options, the Policy may have no Cash Surrender Value and therefore,
the policyowner may receive no surrender proceeds upon surrendering the Policy.
Manufacturers Life of America may reduce the surrender charge as described above
on policies where the anticipated annual premium is $100,000 or greater and the
Policy is issued as part of an employer sponsored split dollar or keyman
arrangement; 80% of the Surrender Charge will be waived during the first year of
the Policy, 60% during the second year and 40% during the third year. The full
Surrender Charge will be imposed if the surrender takes place in a fourth or
subsequent Policy Year.
SURRENDER CHARGES ON A PARTIAL WITHDRAWAL
A partial withdrawal will result in the assessment of a portion of the Surrender
Charges to which the Policy is subject. The portion of the Surrender Charges
assessed will be based on the ratio of the amount of the withdrawal which
exceeds the Withdrawal Tier Amount to the Net Cash Surrender Value of the Policy
as at the date of the withdrawal. The Surrender Charges will be deducted from
the Policy Value at the time of the partial withdrawal on a pro-rata basis from
each of the Investment Accounts and the Fixed Account. If the amount in the
accounts is not sufficient to pay the Surrender Charges assessed, then the
amount of the withdrawal will be reduced.
Whenever a portion of the surrender charges is deducted as a result of a partial
withdrawal, the Policy's remaining surrender charges will be reduced in the same
proportion that the surrender charge deducted bears to the total surrender
charge immediately before the partial withdrawal.
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<PAGE> 24
WITHDRAWAL TIER AMOUNT
The Withdrawal Tier Amount is equal to 10% of the Net Cash Surrender Value as at
the last Policy Anniversary. In determining what, if any, portion of a partial
withdrawal is in excess of the Withdrawal Tier Amount, all previous partial
withdrawals that have occurred in the current Policy Year are included.
MONTHLY CHARGES
On the Policy Date and at the beginning of each Policy Month, a deduction is due
from the Net Policy Value to cover certain charges in connection with the Policy
until the youngest of the Lives Insured reaches Attained Age 100, or the date
such person would have reached Attained Age 100, if living. If there is a Policy
Debt under the Policy, loan interest and principal will continue to be payable
at the beginning of each Policy Month. Monthly deductions due prior to the
Effective Date will be taken on the Effective Date instead of the dates they
were due. The charges consist of:
(i) a monthly administration charge;
(ii) a monthly charge for the cost of insurance;
(iii) a monthly mortality and expense risk charge;
(iv) a monthly charge for any supplementary benefits added to the Policy.
Unless otherwise allowed by the Company and specified by the policyowner, the
Monthly Deduction will be allocated among the Investment Accounts and the Fixed
Account in the same proportion as the Policy value in each bears to the Net
Policy Value.
ADMINISTRATION CHARGE
This charge will be equal to $30 plus $0.08 per $1,000 of current face amount
per Policy Month in the first Policy Year. For all subsequent Policy Years, the
administration charge will not exceed $15 plus $0.02 per $1,000 of current face
amount per Policy Month. The charge is designed to cover certain administrative
expenses associated with the Policy, including maintaining policy records,
collecting premiums and processing death claims, surrender and withdrawal
requests and various changes permitted under the Policy.
COST OF INSURANCE CHARGE
The monthly charge for the cost of insurance is determined by multiplying the
applicable cost of insurance rate times the net amount at risk at the beginning
of each Policy Month. The cost of insurance rate and the net amount at risk are
determined separately for the initial Face Amount and for each increase in Face
Amount. In determining the net amount at risk, if there have been increases in
the Face Amount, the Policy Value shall first be considered a part of the
initial Face Amount. If the Policy Value exceeds the initial Face Amount, it
shall then be considered a part of the additional increases in Face Amount
resulting from the increases, in the order the increases occurred.
The net amount at risk is equal to the greater of zero, or the result of (a)
minus (b) where:
(a) is the death benefit as of the first day of the Policy Month, divided by
1.0032737; and
(b) is the Policy Value as of the first day of the Policy Month prior to
deduction of monthly cost of insurance.
The rates for the cost of insurance are blended and based upon the Attained Age,
sex, and Risk Classification of the Lives Insured.
Cost of insurance rates will generally increase with the age of each of the
Lives Insured. The first year cost of insurance rate is guaranteed.
The cost of insurance rates reflect the Company's expectations as to future
mortality experience. The rates may be re-determined from time to time on a
basis which does not unfairly discriminate within the class of Lives Insured. In
no event will the cost of insurance rates exceed the guaranteed rates set forth
in the Policy except to the extent that an extra charge is imposed because of an
additional rating applicable to the Lives Insured. After the first Policy Year,
the cost of insurance will generally increase on each Policy Anniversary. The
guaranteed rates are based on the 1980 Commissioners Standard Ordinary
Smoker/Non-Smoker Mortality Tables.
CHARGES FOR SUPPLEMENTARY BENEFITS
If the Policy includes Supplementary Benefits, a charge will be made applicable
to such Supplementary Benefit.
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<PAGE> 25
MORTALITY AND EXPENSE RISK CHARGE
A monthly charge is assessed against the Policy Value equal to a percentage of
the Policy Value. This charge is to compensate the Company for the mortality and
expense risks it assumes under the Policy. The mortality risk assumed is that
Lives Insured may live for a shorter period of time than the Company estimated.
The expense risk assumed is that expenses incurred in issuing and administering
the Policy will be greater than the Company estimated. The Company will realize
a gain from this charge to the extent it is not needed to provide benefits and
pay expenses under the Policy.
The charge varies by Policy Year as follows:
<TABLE>
<CAPTION>
CURRENT AND
GUARANTEED
MONTHLY MORTALITY EQUIVALENT ANNUAL
AND EXPENSE MORTALITY AND
POLICY YEAR RISKS CHARGE RISKS CHARGE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
1-20...................................................... 0.063% 0.75%
21+....................................................... 0.033% 0.40%
</TABLE>
CHARGES FOR TRANSFERS
A charge of $25 will be imposed on each transfer in excess of twelve in a Policy
Year, other than transfers made pursuant to the Dollar Cost Averaging or Asset
Allocation Balancer programs.
REDUCTION IN CHARGES
The Policy is available for purchase by corporations and other groups or
sponsoring organizations. Group or sponsored arrangements may include reduction
or elimination of withdrawal charges and deductions for employees, officers,
directors, agents, immediate family members of the foregoing, and employees or
agents of Manufacturers Life and its subsidiaries. Manufacturers Life of America
reserves the right to reduce any of the Policy's loads or charges on certain
cases where it is expected that the amount or nature of such cases will result
in savings of sales, underwriting, administrative, commissions or other costs.
Eligibility for these reductions and the amount of reductions will be determined
by a number of factors, including the number of lives to be insured, the total
premiums expected to be paid, total assets under management for the policyowner,
the nature of the relationship among the insured individuals, the purpose for
which the policies are being purchased, expected persistency of the individual
policies, and any other circumstances which Manufacturers Life of America
believes to be relevant to the expected reduction of its expenses.
Some of these reductions may be guaranteed and others may be subject to
withdrawal or modification, on a uniform case basis. Reductions in charges will
not be unfairly discriminatory to any policyowners. Manufacturers Life of
America may modify from time to time, on a uniform basis, both the amounts of
reductions and the criteria for qualification.
In addition, groups and persons purchasing under a sponsored arrangement may
apply for simplified underwriting. If simplified underwriting is granted, the
cost of insurance charge may increase as a result of higher anticipated
mortality experience.
SPECIAL PROVISIONS FOR EXCHANGES
The Company will permit owners of certain fixed life insurance policies issued
either by the Company or Manufacturers Life Insurance Company (U.S.A.) to
exchange their policies for the Policies described in this prospectus (and
likewise, owners of policies described in this Prospectus may also exchange
their Policies for certain fixed policies issued either by the Company or by
Manufacturers Life Insurance Company (U.S.A)). Policyowners considering an
exchange should consult their tax advisers as to the tax consequences of an
exchange.
COMPANY TAX CONSIDERATIONS
At the present time, the Company makes no charge to the Separate Account for any
federal, state, or local taxes that the Company incurs that may be attributable
to such Account or to the Policies. The Company, however, reserves the right in
the future to make a charge for any such tax or other economic burden resulting
from the application of the tax laws that it determines to be properly
attributable to the Separate Account or to the Policies.
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.
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<PAGE> 26
INVESTMENT ACCOUNTS
An Investment Account is established under each Policy for each sub-account of
the Separate Account to which net premiums or transfer amounts have been
allocated. Each Investment Account under a Policy measures the interest of the
Policy in the corresponding sub-account. The value of the Investment Account
established for a particular sub-account is equal to the number of units of that
sub-account credited to the Policy times the value of such units.
FIXED ACCOUNT
Amounts in the Fixed Account do not vary with the investment performance of any
sub-account. Instead, these amounts are credited with interest at a rate
determined by Manufacturers Life of America. For a detailed description of the
Fixed Account, see "The General Account -- Fixed Account".
LOAN ACCOUNT
Amounts borrowed from the Policy are transferred to the Loan Account. Amounts in
the Loan Account do not vary with the investment performance of any sub-account.
Instead, these amounts are credited with interest at a rate which is equal to
the amount charged on the outstanding Policy Debt less the Loan Spread. For a
detailed description of the Loan Account, see "Policy Loans -- Loan Account".
UNITS AND UNIT VALUES
CREDITING AND CANCELING UNITS
Units of a particular sub-account are credited to a Policy when net premiums are
allocated to that sub-account or amounts are transferred to that sub-account.
Units of a sub-account are canceled whenever amounts are deducted, transferred
or withdrawn from the sub-account. The number of units credited or canceled for
a specific transaction is based on the dollar amount of the transaction divided
by the value of the unit on the Business Day on which the transaction occurs.
The number of units credited with respect to a premium payment will be based on
the applicable unit values for the Business Day on which the premium is received
at the Service Office, except for any premiums received before the Effective
Date. For premiums received before the Effective Date, the values will be
determined on the Effective Date.
Units are valued at the end of each Business Day. When an order involving the
crediting or canceling of units is received after the end of a Business Day, or
on a day which is not a Business Day, the order will be processed on the basis
of unit values determined on the next Business Day. Similarly, any determination
of Policy Value, Investment Account value or death benefit to be made on a day
which is not a Business Day will be made on the next Business Day.
UNIT VALUES
The value of a unit of each sub-account was initially fixed at $10.00. For each
subsequent Business Day the unit value for that sub-account is determined by
multiplying the unit value for the immediately preceding Business Day by the net
investment factor for the that sub-account on such subsequent Business Day.
The net investment factor for a sub-account on any Business Day is equal to (a)
divided by (b) where:
(a) is the net asset value of the underlying Portfolio shares held by that
sub-account as of the end of such Business Day before any policy
transactions are made on that day; and
(b) is the net asset value of the underlying Portfolio shares held by that
sub-account as of the end of the immediately preceding Business Day after
all policy transactions were made for that day;
The value of a unit may increase, decrease, or remain the same, depending on the
investment performance of a sub-account from one Business Day to the next.
TRANSFERS OF POLICY VALUE
At any time, a policyowner may transfer Policy Value from one sub-account to
another or to the Fixed Account. Transfer requests must be in writing in a
format satisfactory to the Company, or by telephone if a currently valid
telephone transfer authorization form is on file.
The Company reserves the right to impose limitations on transfers, including the
maximum amount that may be transferred. In addition, transfer privileges are
subject to any restrictions that may be imposed by the Trust.
While the Policy is in force, the policyowner may transfer the Policy Value from
any of the Investment Accounts to the Fixed Account without incurring transfer
charges:
24
<PAGE> 27
(a) within eighteen months after the Issue Date; or
(b) within 60 days of the effective date of a material change in the investment
objectives of any of the sub-accounts or within 60 days of the date of
notification of such change, whichever is later.
TRANSFER CHARGES
A policyowner may make up to twelve transfers each Policy Year free of charge.
Additional transfers in each Policy Year may be made at a cost of $25 per
transfer. This charge will be deducted from the Investment Account or the Fixed
Account to which the transfer is being made. All transfer requests received by
the Company on the same Business Day are treated as a single transfer request.
Transfers under the Dollar Cost Averaging and Asset Allocation Balancer programs
do not count against the number of free transfers permitted per Policy Year.
TRANSFERS INVOLVING FIXED ACCOUNT
The maximum amount that may be transferred from the Fixed Account in any one
Policy Year is the greater of $500 or 15% of the Fixed Account Value at the
previous Policy Anniversary. Any transfer which involves a transfer out of the
Fixed Account may not involve a transfer to the Investment Account for the Money
Market Trust.
TELEPHONE TRANSFERS
Although failure to follow reasonable procedures may result in the Company being
liable for any losses resulting from unauthorized or fraudulent telephone
transfers, Manufacturers Life of America will not be liable for following
instructions communicated by telephone that the Company reasonably believes to
be genuine. The Company will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Such procedures shall
consist of confirming that a valid telephone authorization form is on file, tape
recording of all telephone transactions and providing written confirmation
thereof.
DOLLAR COST AVERAGING
The Company will offer policyowners a Dollar Cost Averaging program. Under the
Dollar Cost Averaging program the policyowner will designate an amount which
will be transferred at predetermined intervals from one Investment Account into
any other Investment Account(s) or the Fixed Account. Currently, no charge will
be made for this program. If insufficient funds exist to effect a Dollar Cost
Averaging transfer, the transfer will not be effected and the policyowner will
be so notified.
The Company reserves the right to cease to offer this program as of 90 days
after written notice is sent to the policyowner.
ASSET ALLOCATION BALANCER TRANSFERS
Under the Asset Allocation Balancer program the policyowner will designate an
allocation of Policy Value among Investment Accounts. At six-month intervals
beginning six months after the Policy Date, the Company will move amounts among
the Investment Accounts as necessary to maintain the policyowner's chosen
allocation. A change to the policyowner premium allocation instructions will
automatically result in a change in Asset Allocation Balancer instructions so
that the two are identical unless the policyowner either instructs Manufacturers
of America otherwise or has elected the Dollar Cost Averaging program.
Currently, there is no charge for this program; however, the Company reserves
the right to institute a charge on 90 days' written notice to the policyowner.
The Company reserves the right to cease to offer this program as of 90 days
after written notice is sent to the policyowner.
POLICY LOANS
At any time while this Policy is in force, a policyowner may borrow against the
Policy Value of the Policy. The amount of any loan cannot exceed 90% of the
Policy's Net Cash Surrender Value. The Policy serves as the only security for
the loan. Policy loans may have tax consequences, see "Tax Treatment of Policy
Benefits -- Policy Loan Interest."
LOAN VALUE
The Loan Value is equal to the Policy's Net Cash Surrender Value less the
monthly deductions due to the next Policy Anniversary.
EFFECT OF POLICY LOAN
A policy loan will have an effect on future Policy Values, since that portion of
the Policy Value in the Loan Account will increase in value at the crediting
interest rate rather than varying with the performance of the underlying
Portfolios or increasing in value at the rate of interest credited for amounts
allocated to the Fixed Account. A policy loan may cause a Policy to be more
susceptible to going into default since a policy loan will be reflected in the
Net Cash Surrender Value. See "Lapse and Reinstatement." In addition, a policy
loan may result in a Policy's failing to satisfy the No-Lapse Guarantee
Cumulative Premium Test since the Policy Debt is subtracted from the sum of the
premiums paid in determining whether this test is satisfied. Finally, a policy
loan will affect the amount payable
25
<PAGE> 28
on the death of the last-to-die of the Lives Insured, since the death benefit is
reduced by the Policy Debt at the date of death in arriving at the insurance
benefit.
INTEREST CHARGED ON POLICY LOANS
Interest on the Policy Debt will accrue daily and be payable annually on the
Policy Anniversary. The rate of interest charged will be an effective annual
rate of 5.25%. If the interest due on a Policy Anniversary is not paid by the
policyowner, the interest will be borrowed against the Policy.
The Policy will go into default at any time the Policy Debt exceeds the Policy
Value. At least 61 days prior to termination, the Company will send the
policyowner a notice of the pending termination. Payment of interest on the
Policy Debt during the 61 day grace period will bring the policy out of default.
LOAN ACCOUNT
When a loan is made, an amount equal to the loan, discounted by 4%, will be
deducted from the Investment Accounts or the Fixed Account and transferred to
the Loan Account. The policyowner may designate how the amount to be transferred
to the Loan Account is allocated among the accounts from which the transfer is
to be made. In the absence of instructions, the amount to be transferred will be
allocated to each account in the same proportion as the value in each Investment
Account and the Fixed Account bears to the Net Policy Value. A transfer from an
Investment Account will result in the cancellation of units of the underlying
sub-account equal in value to the amount transferred from the Investment
Account. However, since the Loan Account is part of the Policy Value, transfers
made in connection with a loan will not change the Policy Value.
INTEREST CREDITED TO THE LOAN ACCOUNT
Interest will be credited to amounts in the Loan Account at an effective annual
rate of at least 4.00%. The actual rate credited is equal to the rate of
interest charged on the policy loan less the Loan Interest Credited
Differential, which is currently 1.25% and is guaranteed not to exceed this
amount.
LOAN REPAYMENTS
Policy Debt may be repaid in whole or in part at any time prior to the death of
the last-to-die of the Lives Insured, provided that the Policy is in force. When
a repayment is made, the amount is credited to the Loan Account and transferred
to the Fixed Account or the Investment Accounts. Loan repayments will be
allocated first to the Fixed Account until the associated Loan sub-account is
reduced to zero and then to each Investment Account in the same proportion as
the value in the corresponding Loan Sub-Account bears to the value of the Loan
Account.
Amounts paid to the Company not specifically designated in writing as loan
repayments will be treated as premiums.
POLICY SURRENDER AND PARTIAL WITHDRAWALS
POLICY SURRENDER
A Policy may be surrendered for its Net Cash Surrender Value at any time while
the Life Insured is living. The Net Cash Surrender Value is equal to the Policy
Value less any surrender charges and outstanding monthly deductions due (the
"Cash Surrender Value") minus the Policy Debt. If there have been any prior Face
Amount increases, the Surrender Charge will be the sum of the Surrender Charge
for the Initial Face Amount plus the Surrender Charge for each increase. The Net
Cash Surrender Value will be determined as of the end of the Business Day on
which Manufacturers Life of America receives the Policy and a written request
for surrender at its Service Office. After a Policy is surrendered, the
insurance coverage and all other benefits under the Policy will terminate.
PARTIAL WITHDRAWALS
A policyowner may make a partial withdrawal of the Net Cash Surrender Value once
each Policy Month after the first Policy Anniversary. The policyowner may
specify the portion of the withdrawal to be taken from each Investment Account
and the Fixed Account. In the absence of instructions, the withdrawal will be
allocated among such accounts in the same proportion as the Policy Value in each
account bears to the Net Policy Value. For information on Surrender Charges on a
Partial Withdrawal see "Charges and Deductions -- Surrender Charges."
REDUCTION IN FACE AMOUNT DUE TO A PARTIAL WITHDRAWAL
If Death Benefit Option 1 is in effect when a partial withdrawal is made, the
Face Amount of the Policy will be reduced by the amount of the withdrawal plus
any applicable Surrender Charges.
If the death benefit is based upon the Policy Value times the minimum death
benefit percentage set forth under "Death Benefit Minimum Death Benefit," the
Face Amount will be reduced only to the extent that the amount of the withdrawal
plus the portion of the Surrender Charge assessed exceeds the difference between
the death benefit and the Face Amount. When the Face Amount of a
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Policy is based on one or more increases subsequent to issuance of the Policy, a
reduction resulting from a partial withdrawal will be applied in the same manner
as a requested decrease in Face Amount, i.e., against the Face Amount provided
by the most recent increase, then against the next most recent increases
successively and finally against the initial Face Amount.
LAPSE AND REINSTATEMENT
LAPSE
Unless the No-Lapse Guarantee is in effect, a Policy will go into default if at
the beginning of any Policy Month the Policy's Net Cash Surrender Value would be
zero or below after deducting the monthly deduction then due. Therefore, a
Policy could lapse eventually if increases in Policy Value (prior to deduction
of Policy charges) are not sufficient to cover Policy charges. A lapse could
have adverse tax consequences as described under "Tax Treatment of the Policy --
Tax Treatment of Policy Benefits -- Surrender or Lapse." Manufacturers Life of
America will notify the policyowner of the default and will allow a 61 day grace
period in which the policyowner may make a premium payment sufficient to bring
the Policy out of default. The required payment will be equal to the amount
necessary to bring the Net Cash Surrender Value to zero, if it was less than
zero on the date of default, plus the monthly deductions due at the date of
default and payable at the beginning of each of the two Policy Months
thereafter, plus any applicable premium load. If the required payment is not
received by the end of the grace period, the Policy will terminate with no
value.
NO-LAPSE GUARANTEE
In those states where it is permitted, as long as the No-Lapse Guarantee
Cumulative Premium Test is satisfied during the No-Lapse Guarantee Period, as
described below, the Company will guarantee that the Policy will not go into
default, even if adverse investment experience or other factors should cause the
Policy's Net Cash Surrender Value to be insufficient to meet the monthly
deductions due at the beginning of a Policy Month.
The Monthly No-Lapse Guarantee Premium is one-twelfth of the No-Lapse Guarantee
Premium.
The No-Lapse Guarantee Premium is set at issue and reflects any Additional
Rating and Supplementary Benefits, if applicable. It is subject to change if the
face amount of the Policy is changed, if there is a Death Benefit Option change,
or if there is any change in the supplementary benefits added to the Policy or
in the risk classification of any Lives Insured because of a change in smoking
status.
The No-Lapse Guarantee Period is described under "Definitions".
While the No-Lapse Guarantee is in effect, the Company will determine at the
beginning of the Policy Month that the Policy would otherwise be in default,
whether the No-Lapse Guarantee Cumulative Premium Test, described below, has
been met. If it has not been satisfied, the Company will notify the policyowner
of that fact and allow a 61-day grace period in which the policyowner may make a
premium payment sufficient to keep the policy from going into default. This
required payment, as described in the notification to the policyowner, will be
equal to the lesser of:
(a) the outstanding premium requirement to satisfy the No-Lapse Guarantee
Cumulative Premium Test at the date of default, plus the Monthly No-Lapse
Guarantee Premium due for the next two Policy Months, or
(b) the amount necessary to bring the Net Cash Surrender Value to zero plus the
monthly deductions due, plus the next two monthly deductions plus the
applicable premium load.
If the required payment is not received by the end of the grace period, the
No-Lapse Guarantee and the Policy will terminate.
NO-LAPSE GUARANTEE CUMULATIVE PREMIUM TEST
The No-Lapse Guarantee Cumulative Premium Test is satisfied if, as of the
beginning of the Policy Month that the Policy would otherwise be in default, the
sum of all premiums paid to date less any gross withdrawals and less any policy
debt, is at least equal to the sum of the Monthly No-Lapse Guarantee Premiums
due from the Policy Date to the date of the test.
DEATH DURING GRACE PERIOD
If the Life Insured should die during the grace period, the Policy Value used in
the calculation of the death benefit will be the Policy Value as of the date of
default and the insurance benefit will be reduced by any outstanding Monthly
Deductions due at the time of death.
REINSTATEMENT
A policyowner can reinstate a Policy which has terminated after going into
default at any time within 21 days following the date of termination without
furnishing evidence of insurability, subject to the following conditions:
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(a) All Lives Insured's risk classifications are standard or preferred, and
(b) All Lives Insured's Attained Ages are less than 46.
A policyowner can reinstate a Policy which has terminated after going into
default at any time within the five-year period following the date of
termination subject to the following conditions:
(a) Evidence of all Lives Insured's insurability, or on the survivor(s) who were
insured at the end of the grace period, satisfactory to the Company is
provided to the Company;
(b) A premium equal to the amount that was required to bring the Policy out of
default immediately prior to termination, plus the next two monthly
deductions;
(c) The Policy cannot be reinstated if any of the Lives Insured die after the
Policy has terminated.
If the reinstatement is approved, the date of reinstatement will be the later of
the date the Company approves the policyowner's request or the date the required
payment is received at the Company's Service Office. In addition, any surrender
charges will be reinstated to the amount they were at the date of default. The
Policy Value on the date of reinstatement, prior to the crediting of any Net
Premium paid on the reinstatement, will be equal to the Policy Value on the date
the Policy terminated.
THE GENERAL ACCOUNT
The general account of Manufacturers Life of America consists of all assets
owned by the Company other than those in the Separate Account and other separate
accounts of the Company. Subject to applicable law, Manufacturers Life of
America has sole discretion over the investment of the assets of the general
account.
By virtue of exclusionary provisions, interests in the general account of
Manufacturers Life of America have not been registered under the Securities Act
of 1933 and the general account has not been registered as an investment company
under the Investment Company Act of 1940. Accordingly, neither the general
account nor any interests therein are subject to the provisions of these acts,
and as a result the staff of the S.E.C. has not reviewed the disclosures in this
prospectus relating to the general account. Disclosures regarding the general
account may, however, be subject to certain generally applicable provisions of
the federal securities laws relating to the accuracy and completeness of
statements made in a prospectus.
FIXED ACCOUNT
A policyowner may elect to allocate net premiums to the Fixed Account or to
transfer all or a portion of the Policy Value to the Fixed Account from the
Investment Accounts. Manufacturers Life of America will hold the reserves
required for any portion of the Policy Value allocated to the Fixed Account in
its general account. Transfers from the Fixed Account to the Investment Accounts
are subject to restrictions.
POLICY VALUE IN THE FIXED ACCOUNT
The Policy Value in the Fixed Account is equal to:
(a) the portion of the net premiums allocated to it; plus
(b) any amounts transferred to it; plus
(c) interest credited to it; less
(d) any charges deducted from it; less
(e) any partial withdrawals from it; less
(f) any amounts transferred from it.
INTEREST ON THE FIXED ACCOUNT
An allocation of Policy Value to the Fixed Account does not entitle the
policyowner to share in the investment experience of the general account.
Instead, Manufacturers Life of America guarantees that the Policy Value in the
Fixed Account will accrue interest daily at an effective annual rate of at least
4%, without regard to the actual investment experience of the general account.
Consequently, if a policyowner pays the planned premiums, allocates all net
premiums only to the general account and makes no transfers, partial
withdrawals, or policy loans, the minimum amount and duration of the death
benefit of the Policy will be determinable and guaranteed.
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OTHER PROVISIONS OF THE POLICY
POLICYOWNER RIGHTS
Unless otherwise restricted by a separate agreement, the policyowner may:
- - Vary the premiums paid under the Policy.
- - Change the death benefit option.
- - Change the premium allocation for future premiums.
- - Transfer amounts between sub-accounts.
- - Take loans and/or partial withdrawals.
- - Surrender the contract.
- - Transfer ownership to a new owner.
- - Name a contingent owner that will automatically become owner if the
policyowner dies before the insured.
- - Change or revoke a contingent owner.
- - Change or revoke a beneficiary.
ASSIGNMENT OF RIGHTS
Manufacturers Life of America will not be bound by an assignment until it
receives a copy of the assignment at its Service Office. Manufacturers Life of
America assumes no responsibility for the validity or effects of any assignment.
BENEFICIARY
One or more beneficiaries of the Policy may be appointed by the policyowner by
naming them in the application. Beneficiaries may be appointed in three classes
- -- primary, secondary, and final. Beneficiaries may also be revocable or
irrevocable. Unless an irrevocable designation has been elected, the beneficiary
may be changed by the policyowner during the Lives Insured lifetime by giving
written notice to Manufacturers Life of America in a form satisfactory to the
Company. The change will take effect as of the date such notice is signed. If
the Life Insured dies and there is no surviving beneficiary, the policyowner, or
the policyowner's estate if the policyowner is the Life Insured, will be the
beneficiary. If a beneficiary dies before the seventh day after the death of the
Life Insured, the Company will pay the insurance benefit as if the beneficiary
had died before the Life Insured.
INCONTESTABILITY
Manufacturers Life of America will not contest the validity of a Policy after it
has been in force during any Lives Insured's lifetime for two years from the
Issue Date. It will not contest the validity of an increase in Face Amount,
after such increase or addition has been in force during the lifetime of the
Lives Insured for two years. If a Policy has been reinstated and been in force
during the lifetime of the Lives Insured for less than two years from the
reinstatement date, the Company can contest any misrepresentation of a fact
material to the reinstatement.
MISSTATEMENT OF AGE OR SEX
If the stated age or sex or both of any of the Lives Insured in the Policy are
incorrect, Manufacturers Life of America will change the Face Amount so that the
death benefit will be that which the most recent monthly charge for the cost of
insurance would have purchased for the correct age and sex.
SUICIDE EXCLUSION
If any of the Lives Insured dies by suicide within two years after the Issue
Date, the Policy will terminate and the Company will pay only the premiums paid
less any partial Net Cash Surrender Value withdrawal and less any Policy Debt.
If any of the Lives Insured dies by suicide within two years after the effective
date of an applied for increase in Face Amount, the Company will credit the
amount of any Monthly Deductions taken for the increase and reduce the Face
Amount to what it was prior to the increase. If the last death is by suicide,
the Death Benefit for that increase will be limited to the Monthly Deductions
taken for the increase.
The Company reserves the right to obtain evidence of the manner and cause of
death of the Lives Insured.
SUPPLEMENTARY BENEFITS
Subject to certain requirements, one or more supplementary benefits may be added
to a Policy, including the Estate Preservation Rider which provides additional
term insurance at no extra charge during the first four Policy Years to protect
against application of the "three year contemplation of death" rule and an
option to split the Policy into two individual policies upon divorce, or certain
federal tax law changes without evidence of insurability (the "Policy Split
Option"). More detailed information concerning these supplementary benefits may
be obtained from an authorized agent of the Company. The cost of any
supplementary benefits will be
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deducted as part of the monthly deduction.
TAX TREATMENT OF THE POLICY
The following summary provides a general description of the federal income tax
considerations associated with the Policy and does not purport to be complete or
to cover all situations. This discussion is not intended as tax advice. Counsel
or other competent tax advisers should be consulted for more complete
information. This discussion is based upon the Company's understanding of the
present federal income tax laws as they are currently interpreted by the
Internal Revenue Service (the "Service"). No representation is made as to the
likelihood of continuation of the present federal income tax laws nor of the
current interpretations by the Service. MANUFACTURERS LIFE OF AMERICA DOES NOT
MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF ANY POLICY OR ANY TRANSACTION
REGARDING THE POLICIES.
The Policies may be used in various arrangements, including non-qualified
deferred compensation or salary continuation plans, split dollar insurance
plans, executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if the use of such
Policies in any such arrangement, the value of which depends in part on the tax
consequences, is contemplated, a qualified tax adviser should be consulted for
advice on the tax attributes of the particular arrangement.
LIFE INSURANCE QUALIFICATION
There are several requirements that must be met for a Policy to be considered a
Life Insurance Contract under the Internal Revenue Code, and thereby to enjoy
the tax benefits of such a contract:
1. The Policy must satisfy the definition of life insurance under Section 7702
of the Internal Revenue Code of 1986 (the "Code").
2. The investments of the Separate Account must be "adequately diversified" in
accordance with Section 817(h) of the Code and Treasury Regulations.
3. The Policy must be a valid life insurance contract under applicable state
law.
4. The Policyowner must not possess "incidents of ownership" in the assets of
the Separate Account.
These four items are discussed in detail below.
DEFINITION OF LIFE INSURANCE
Section 7702 of the Code sets forth a definition of a life insurance contract
for federal tax purposes. For a Policy to be a life insurance contract, it must
satisfy either the Cash Value Accumulation Test or the Guideline Premium and
Cash Value Corridor Test. The Cash Value Accumulation Test requires a minimum
death benefit for a given Policy Value. The Guideline Premium Test also requires
a minimum death benefit, but in addition limits the total premiums that can be
paid into a Policy for a given amount of death benefit.
With respect to a Policy which is issued on the basis of a standard rate class,
the Company believes (largely in reliance on IRS Notice 88-128 and the proposed
mortality charge regulations under Section 7702, issued on July 5, 1991) that
such a Policy should meet the Section 7702 definition of a life insurance
contract.
With respect to a Policy that is issued on a substandard basis (i.e., a rate
class involving higher-than-standard mortality risk), there is less guidance, in
particular as to how mortality and other expense requirements of Section 7702
are to be applied in determining whether such a Policy meets the Section 7702
definition of a life insurance contract. Thus it is not clear whether or not
such a Policy would satisfy Section 7702, particularly if the policyowner pays
the full amount of premiums permitted under the Policy.
The Secretary of the Treasury (the "Treasury") is authorized to prescribe
regulations implementing Section 7702. However, while proposed regulations and
other interim guidance have been issued, final regulations have not been adopted
and guidance as to how Section 7702 is to be applied is limited. If a Policy
were determined not to be a life insurance contract for purposes of Section
7702, such a Policy would not provide the tax advantages normally provided by a
life insurance policy.
If it is subsequently determined that a Policy does not satisfy Section 7702,
the Company may take whatever steps are appropriate and reasonable to attempt to
cause such a Policy to comply with Section 7702. For these reasons, the Company
reserves the right to restrict Policy transactions as necessary to attempt to
qualify it as a life insurance contract under Section 7702.
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
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diversification requirement, and the Company will monitor continued compliance
with the requirement.
STATE LAW
A policy must qualify as a valid life insurance contract under applicable state
law. State regulations require that the policyowner have appropriate insurable
interest in the Life Insured. Failure to establish an insurable interest may
result in the Policy not qualifying as a life insurance contract for federal tax
purposes.
INVESTOR CONTROL
In certain circumstances, owners of variable life insurance Policies may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their Policies. In those circumstances, income
and gains from the separate account assets would be includible in the variable
policyowner's gross income. The IRS has stated in published rulings that a
variable policyowner will be considered the owner of separate account assets if
the policyowner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. The Treasury Department
has also announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the policyowner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyowners may direct their
investments to particular sub-accounts without being treated as owners of the
underlying assets". As of the date of this prospectus, no such guidance has been
issued.
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that policyowners were not owners of separate account assets. For example, the
policyowner has additional flexibility in allocating premium payments and Policy
Values. These differences could result in an owner being treated as the owner of
a pro-rata portion of the assets of the Separate Account. In addition, the
Company does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has stated it expects to
issue. The Company therefore reserves the right to modify the Policy as
necessary to attempt to prevent an owner from being considered the owner of a
pro rata share of the assets of the Separate Account.
TAX TREATMENT OF POLICY BENEFITS
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes.
The Company believes that the proceeds and cash value increases of a Policy
should be treated in a manner consistent with a fixed-benefit life insurance
policy for federal income tax purposes. Depending on the circumstances, the
exchange of a Policy, a change in the Policy's death benefit option, a Policy
loan, partial withdrawal, surrender, change in ownership, the addition of an
accelerated death benefit rider, or an assignment of the Policy may have federal
income tax consequences. In addition, federal, state and local transfer, and
other tax consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each policyowner or beneficiary.
DEATH BENEFIT
The death benefit under the Policy should be excludible from the gross income of
the beneficiary under Section 101(a)(1) of the Code.
CASH VALUES
Generally, the policyowner will not be deemed to be in constructive receipt of
the Policy Value, including increments thereof, until there is a distribution.
This includes additions attributable to interest, dividends, appreciation or
gains realized on transfers among sub-accounts.
INVESTMENT IN THE POLICY
Investment in the Policy means:
- - the aggregate amount of any premiums or other consideration paid for a Policy;
minus
- - the aggregate amount, other than loan amounts, received under the Policy
which has been excluded from the gross income of the policyowner (except that
the amount of any loan from, or secured by, a Policy that is a MEC, to the
extent such amount has been excluded from gross income, will be disregarded);
plus
- - the amount of any loan from, or secured by a Policy that is a MEC to the
extent that such amount has been included in the gross income of the
policyowner.
The repayment of a policy loan, or the payment of interest on a loan, does not
affect the Investment in the Policy.
SURRENDER OR LAPSE
Upon a complete surrender or lapse of a Policy, if the amount received plus the
amount of Policy Debt exceeds the total investment in
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the Policy, the excess will generally be treated as ordinary income subject to
tax.
If, at the time of lapse or surrender, a Policy has a loan, the loan is
extinguished and the amount of the loan is a deemed payment to the policyholder.
If the amount of this deemed payment exceeds the investment in the contract, the
excess is taxable income and is subject to Internal Revenue Service reporting
requirements."
DISTRIBUTIONS
The tax consequences of distributions from, and loans taken from or secured by,
a Policy depend on whether the Policy is classified as a "Modified Endowment
Contract" or "MEC".
DISTRIBUTIONS FROM NON-MEC'S
A distribution from a non-MEC is generally treated as a tax-free recovery by the
policyowner of the Investment in the Policy to the extent of such Investment in
the Policy, and as a distribution of taxable income only to the extent the
distribution exceeds the Investment in the Policy. Loans from, or secured by, a
non-MEC are not treated as distributions. Instead, such loans are treated as
indebtedness of the policyowner.
Force Outs
An exception to this general rule occurs in the case of a decrease in the
Policy's death benefit or any other change that reduces benefits under the
Policy in the first 15 years after the Policy is issued and that results in a
cash distribution to the policyowner in order for the Policy to continue to
comply with the Section 7702 definitional limits. Such a cash distribution will
be taxed in whole or in part as ordinary income (to the extent of any gain in
the Policy) under rules prescribed in Section 7702. Changes include partial
withdrawals and death benefit option changes.
DISTRIBUTIONS FROM MEC'S
Policies classified as MEC's will be subject to the following tax rules:
- - First, all partial withdrawals from such a Policy are treated as ordinary
income subject to tax up to the amount equal to the excess (if any) of the
Policy Value immediately before the distribution over the Investment in the
Policy at such time.
- - Second, loans taken from or secured by such a Policy are treated as partial
withdrawals from the Policy and taxed accordingly. Past-due loan interest
that is added to the loan amount is treated as a loan.
- - Third, a 10% additional income tax is imposed on the portion of any
distribution (including distributions on surrender) from, or loan taken
from or secured by, such a policy that is included in income except where
the distribution or loan:
- is made on or after the policyowner attains age 59-1/2;
- is attributable to the policyowner becoming disabled; or
- is part of a series of substantially equal periodic payments for
the life (or life expectancy) of the policyowner or the joint
lives (or joint life expectancies) of the policyowner and the
policyowner's beneficiary.
These exceptions are not likely to apply in situations where the Policy is
not owned by an individual.
Definition of Modified Endowment Contracts
Section 7702A establishes a class of life insurance contracts designated as
"Modified Endowment Contracts," which applies to Policies entered into or
materially changed after June 20, 1988.
In general, a Policy will be a Modified Endowment Contract if the accumulated
premiums paid at any time during the first seven Policy Years exceed the
"seven-pay premium limit". The seven-pay premium limit on any date is equal to
the sum of the net level premiums that would have been paid on or before such
date if the policy provided for paid-up future benefits after the payment of
seven level annual premiums (the "seven-pay premium").
The rules relating to whether a Policy will be treated as a MEC are extremely
complex and cannot be adequately described in the limited confines of this
summary. Therefore, a current or prospective policyowner should consult with a
competent adviser to determine whether a transaction will cause the Policy to be
treated as a MEC.
Material Changes
A policy that is not a MEC may become a MEC if it is "materially changed". If
there is a material change to the policy, the seven year testing period for MEC
status is restarted. The material change rules for determining whether a Policy
is a MEC are complex. In general, however, the determination of whether a Policy
will be a MEC after a material change generally depends upon the relationship
among the death benefit of the Policy at the time of such change, the Policy
Value at the time of the change, and the additional premiums paid into the
Policy during the seven years starting with the date on which the material
change occurs.
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Reductions in Face Amount
If there is a reduction in benefits during any Policy Year, the seven-pay
premium limit is recalculated as if the policy had been originally issued at the
reduced benefit level. Failure to comply would result in classification as a MEC
regardless of any efforts by the Company to provide a payment schedule that will
not violate the seven pay test.
Exchanges
A life insurance contract received in exchange for a MEC will also be treated as
a MEC.
Processing of Premiums
If a premium is received which would cause the Policy to become a MEC within 23
days of the next Policy Anniversary, the Company will not apply the portion of
the premium which would cause MEC status ("excess premium") to the Policy when
received. The excess premium will be placed in a suspense account until the next
anniversary date, at which point the excess premium, along with interest, earned
on the excess premium at a rate of 3.5% from the date the premium was received,
will be applied to the Policy. The policyowner will be advised of this action
and will be offered the opportunity to have the premium credited as of the
original date received or to have the premium returned. If the policyowner does
not respond, the premium and interest will be applied to the Policy as of the
first day of the next anniversary.
If a premium is received which would cause the Policy to become a MEC more than
23 days prior to the next Policy Anniversary, the Company will refund any excess
premium to the policyowner. The portion of the premium which is not excess will
be applied as of the date received. The policyowner will be advised of this
action and will be offered the opportunity to return the premium and have it
credited to the account as of the original date received.
If in connection with the application or issue of the Policy, the policyowner
acknowledges that the policy is or will become a MEC, excess premiums that would
cause MEC status will be credited to the account as of the original date
received.
Multiple Policies
All MEC's that are issued by a Company (or its affiliates) to the same
policyowner during any calendar year are treated as one MEC for purposes of
determining the amount includible in gross income under Section 72(e) of the
Code.
Policy Split Options
This option permits a Policy to be split into two other individual Policies upon
the occurrence of a divorce of the lives insured or certain changes in federal
estate tax law. The purchase and exercise of the policy split option could have
adverse tax consequences. For example, it is not clear whether a policy split
will be treated as a nontaxable exchange under Sections 1031 through 1043 of the
Code. If a policy split is not treated as a nontaxable exchange, a split could
result in the recognition of taxable income in an amount up to any gain in the
Policy at the time of the split. It is also not clear whether the cost of the
policy split option, which is deducted monthly from Policy Value, will be
treated as a taxable distribution. Before purchasing the policy split option or
exercising rights provided by the policy split option, please consult with a
competent tax adviser regarding the possible consequences.
POLICY LOAN INTEREST
Generally, personal interest paid on any loan under a Policy which is owned by
an individual is not deductible. For policies purchased on or after January 1,
1996, interest on any loan under a Policy owned by a taxpayer and covering the
life of any individual who is an officer or employee of or is financially
interested in the business carried on by the taxpayer will not be tax deductible
unless the employee is a key person within the meaning of Section 264 of the
Code. A deduction will not be permitted for interest on a loan under a Policy
held on the life of a key person to the extent the aggregate of such loans with
respect to contracts covering the key person exceed $50,000. The number of
employees who can qualify as key persons depends in part on the size of the
employer but cannot exceed 20 individuals.
Furthermore, if a non-natural person owns a Policy, or is the direct or indirect
beneficiary under a Policy, section 264(f) of the Code disallows a pro-rata
portion of the taxpayer's interest expense allocable to unborrowed Policy cash
values attributable to insurance held on the lives of individuals who are not
20% (or more) owners of the taxpayer-entity, officers, employees, or former
employees of the taxpayer.
The portion of the interest expense that is allocable to unborrowed Policy cash
values is an amount that bears the same ratio to that interest expense as the
taxpayer's average unborrowed Policy cash values under such life insurance
policies bear to the average adjusted bases for all assets of the taxpayer.
If the taxpayer is not the Policyowner, but is the direct or indirect
beneficiary under the Policy, then the amount of unborrowed cash value of the
Policy taken into account in computing the portion of the taxpayer's interest
expense allocable to unborrowed Policy cash
33
<PAGE> 36
values cannot exceed the benefit to which the taxpayer is directly or indirectly
entitled under the Policy.
INTEREST ON POLICY LOANS AFTER YEAR 10
Interest credited to amounts in the Loan Account at an effective annual rate of
at least 4.00%. The actual rate credited is equal to the rate of interest
charged on the policy loan less than the Loan Interest Credited Differential,
which is currently 1.25% during the first ten policy years and 0% thereafter,
and is guaranteed not to exceed 1.25%. The tax consequences associated with a
loan interest credited differential of 0% are unclear. A tax adviser should be
consulted before effecting a loan to evaluate the tax consequences that may
arise in such a situation. If we determine, in our sole discretion, that there
is a substantial risk that a loan will be treated as a taxable distribution
under Federal tax law as a result of the differential between the credited
interest rate and the loan interest rate, the Company retains the right to
increase the loan interest rate to an amount that would result in the
transaction being treated as a loan under Federal tax law. If this amount is not
prescribed by any IRS ruling or regulation or any court decision, the amount of
increase will be that which the Company considers to be most likely to result in
the transaction being treated as a loan under Federal tax law.
POLICY EXCHANGES
A policyowner generally will not recognize gain upon the exchange of a Policy
for another life insurance policy issued by the Company or another insurance
company, except to the extent that the policyowner receives cash in the exchange
or is relieved of Policy indebtedness as a result of the exchange. The reciept
of cash or forgiveness of indebtedness is treated as "boot" which is taxable up
to the amount of the gain in the policy. In no event will the gain recognized
exceed the amount by which the Policy Value (including any unpaid loans) exceeds
the policyowner's Investment in the Policy.
OTHER TRANSACTIONS
A transfer of the Policy, a change in the owner, a change in the beneficiary,
and certain other changes to the Policy, as well as particular uses of the
Policy (including use in a so called "split-dollar" arrangement) may have tax
consequences depending upon the particular circumstances and should not be
undertaken prior to consulting with a qualified tax adviser. For instance, if
the owner transfers the Policy or designates a new owner in return for valuable
consideration (or, in some cases, if the transferor is relieved of a liability
as a result of the transfer), then the Death Benefit payable upon the death of
the Insured may in certain circumstances be includible in taxable income to the
extent that the Death Benefit exceeds the prior consideration paid for the
transfer and any premiums or other amounts subsequently paid by the transferee.
Further, in such a case, if the consideration received exceeds the transferor's
Investment in the Policy, the difference will be taxed to the transferor as
ordinary income.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the individual
circumstances of each policyowner and beneficiary.
ALTERNATE MINIMUM TAX
Corporate owners may be subject to Alternate Minimum Tax on the annual increases
in Cash Surrender Values and on the Death Benefit proceeds.
INCOME TAX REPORTING
In certain employer-sponsored life insurance arrangements, including equity
split dollar arrangements, participants may be required to report for income tax
purposes, one or more of the following:
(a) the value each year of the life insurance protection provided;
(b) an amount equal to any employer-paid premiums; or
(c) some or all of the amount by which the current value exceeds the employer's
interest in the Policy.
Participants should consult with their tax adviser to determine the tax
consequences of these arrangements.
OTHER INFORMATION
PAYMENT OF PROCEEDS
As long as the Policy is in force, Manufacturers Life of America will ordinarily
pay any policy loans, surrenders, partial withdrawals or insurance benefit
within seven days after receipt at its Service Office of all the documents
required for such a payment. The Company may delay for up to six months the
payment from the Fixed Account of any policy loans, surrenders, partial
withdrawals, or insurance benefit. In the case of any such payments from any
Investment Account, the Company may delay payment during any period during which
(i) the New York Stock Exchange is closed for trading (except for normal weekend
and holiday closings), (ii) trading on the New York Stock Exchange is
restricted, (iii) an emergency exists as a result of which disposal of
securities held in the Separate Account is not reasonably practicable or it is
not reasonably practicable to determine the value of the Separate Account's net
34
<PAGE> 37
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, Manufacturers Life of America will
send the policyowner a statement showing, among other things:
35
<PAGE> 38
- - the amount of death benefit;
- - the Policy Value and its allocation among the Investment Accounts, the Fixed
Account and the Loan Account;
- - the value of the units in each Investment Account to which the Policy Value is
allocated;
- - the Policy Debt and any loan interest charged since the last report;
- - the premiums paid and other Policy transactions made during the period since
the last report; and
- - any other information required by law.
Each policyowner will also be sent an annual and a semi-annual report for the
Trust which will include a list of the securities held in each Portfolio as
required by the 1940 Act.
DISTRIBUTION OF THE POLICIES
ManEquity, Inc., an indirect wholly-owned subsidiary of Manufacturers Life, will
act as the principal underwriter of, and continuously offer, the Policies
pursuant to a Distribution Agreement with Manufacturers Life of America.
ManEquity, Inc. is registered as a broker-dealer under the Securities Exchange
Act of 1934 and is a member of the National Association of Securities Dealers.
ManEquity, Inc. is located at 200 Bloor Street East, Toronto, Ontario, Canada,
M4W 1E5 and was organized under the laws of Colorado on May 4, 1970. The
directors of ManEquity, Inc. are: Roy Bubbs, Joe Scott, Robert Cook Bruce
Gordon, Gary Buchanan and Douglas Myers. The officers of ManEquity, Inc. are:
(i) Douglas Myers - President, (ii) Gary Buchanan - Vice President, Compliance,
(iii) Thomas Reives - Treasurer, and (iv) Brian Buckley - Secretary and General
Counsel. The Policies will be sold by registered representatives of either
ManEquity or other broker-dealers having distribution agreements with ManEquity
who are also authorized by state insurance departments to do so. The Policies
will be sold in all states of the United States except New York.
A registered representative will receive commissions not to exceed 105% of
premiums in the first year, 2% of all premiums paid in the second year and
after, and after the second anniversary 0.15% of the Policy Value per year.
Representatives who meet certain productivity standards with regard to the sale
of the Policies and certain other policies issued by Manufacturers Life of
America or Manufacturers Life will be eligible for additional compensation.
RESPONSIBILITIES OF MANUFACTURERS LIFE
Manufacturers Life and 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 Manufacturers Life of America, prepare and
maintain all books and records required to be prepared and maintained by
ManEquity, Inc. with respect to the policies and such other policies, and send
all confirmations required to be sent by ManEquity, Inc. with respect to the
Policies and such other policies. ManEquity, Inc. will promptly reimburse
Manufacturers Life or Manufacturers USA for all sales commissions paid by
Manufacturers Life or Manufacturers USA and will pay Manufacturers Life or
Manufacturers USA for its other services under the agreement in such amounts and
at such times as agreed to by the parties.
Manufacturers Life and Manufacturers USA have also entered into a Service
Agreement with Manufacturers Life of America pursuant to which Manufacturers
Life and Manufacturers USA will provide to Manufacturers Life of America all
issue, administrative, general services and recordkeeping functions on behalf of
Manufacturers Life of America with respect to all of its insurance policies
including the Policies.
Finally, Manufacturers Life of America may, from time to time in its sole
discretion, enter into one or more reinsurance agreements with other life
insurance companies under which policies issued by it may be reinsured, such
that its total amount at risk under a policy would be limited for the life of an
insured.
VOTING RIGHTS
As stated previously, all of the assets held in the sub-accounts of the Separate
Account will be invested in shares of a particular Portfolio of the Trust.
Manufacturers Life of America is the legal owner of those shares and as such has
the right to vote upon certain matters that are required by the 1940 Act to be
approved or ratified by the shareholders of a mutual fund and to vote upon any
other matters that may be voted upon at a shareholders' meeting. However,
Manufacturers Life of America will vote shares held in the sub-accounts in
accordance with instructions received from policyowners having an interest in
such sub-accounts. Shares held in each sub-account for which no timely
instructions from policyowners are received, including shares not attributable
to the Policies, will be voted by Manufacturers Life of America in the same
proportion as those shares in that sub-account for which instructions are
received. Should the applicable federal securities laws or regulations change so
as to permit Manufacturers Life of America to vote shares held in the Separate
Account in its own right, it may elect to do so.
36
<PAGE> 39
The number of shares in each sub-account for which instructions may be given by
a policyowner is determined by dividing the portion of the Policy Value derived
from participation in that sub-account, if any, by the value of one share of the
corresponding Portfolio. The number will be determined as of a date chosen by
Manufacturers Life of America, but not more than 90 days before the
shareholders' meeting. Fractional votes are counted. Voting instructions will be
solicited in writing at least 14 days prior to the meeting.
Manufacturers Life of America may, if required by state officials, disregard
voting instructions if such instructions would require shares to be voted so as
to cause a change in the sub-classification or investment policies of one or
more of the Portfolios, or to approve or disapprove an investment management
contract. In addition, the Company itself may disregard voting instructions that
would require changes in the investment policies or investment adviser, provided
that Manufacturers Life of America reasonably disapproves such changes in
accordance with applicable federal regulations. If Manufacturers Life of America
does disregard voting instructions, it will advise policyowners of that action
and its reasons for such action in the next communication to policyowners.
SUBSTITUTION OF PORTFOLIO SHARES
It is possible that in the judgment of the management of Manufacturers Life of
America, one or more of the Portfolios may become unsuitable for investment by
the Separate Account because of a change in investment policy or a change in the
applicable laws or regulation, because the shares are no longer available for
investment, or for some other reason. In that event, Manufacturers Life of
America may seek to substitute the shares of another Portfolio or of an entirely
different mutual fund. Before this can be done, the approval of the S.E.C. and
one or more state insurance departments may be required.
Manufacturers Life of America also reserves the right (i) to combine other
separate accounts with the Separate Account, (ii) to create new separate
accounts, (iii) to establish additional sub-accounts within the Separate Account
to invest in additional portfolios of the Trust or another management investment
company, (iv) to eliminate existing sub-accounts and to stop accepting new
allocations and transfers into the corresponding portfolio, (v) to combine
sub-accounts or to transfer assets in one sub-account to another sub-account or
(vi) to transfer assets from the Separate Account to another separate account
and from another separate account to the Separate Account. The Company also
reserves the right to operate the Separate Account as a management investment
company or other form permitted by law, and to de-register the Separate Account
under the 1940 Act. Any such change would be made only if permissible under
applicable federal and state law.
RECORDS AND ACCOUNTS
The Service Office will perform administrative functions, such as decreases,
increases, surrenders and partial withdrawals, and fund transfers on behalf of
the Company.
All records and accounts relating to the Separate Account and the Portfolios
will be maintained by the Company. All financial transactions will be handled by
the Company. All reports required to be made and information required to be
given will be provided by the Company.
STATE REGULATIONS
Manufacturers Life of America is subject to the regulation and supervision by
the Michigan Department of Insurance, which periodically examines its financial
condition and operations. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business. The
Policies have been filed with insurance officials, and meet all standards set by
law, in each jurisdiction where they are sold.
Manufacturers Life of America is required to submit annual statements of its
operations, including financial statements, to the insurance departments of the
various jurisdictions in which it does business for the purposes of determining
solvency and compliance with local insurance laws and regulations.
LITIGATION
No litigation is pending that would have a material effect upon the Separate
Account or the Trust.
INDEPENDENT AUDITORS
The consolidated financial statements of Manufacturers Life Insurance Company of
America and Separate Account Three of The Manufacturers Life Insurance Company
of America at December 31, 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 S.E.C. relating to the offering described in this
37
<PAGE> 40
prospectus. This prospectus does not include all the information set forth in
the registration statement. The omitted information may be obtained from the
SEC's principal office in Washington D.C. upon payment of the prescribed fee.
The Commission also maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission which is located at http://www.sec.gov.
For further information you may also contact Manufacturers Life of America's
Home Office, the address and telephone number of which are on the first page of
the prospectus.
OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
POSITION WITH
MANUFACTURERS LIFE
NAME OF AMERICA PRINCIPAL OCCUPATION
- ---- ---------- --------------------
<S> <C> <C>
Sandra M. Cotter (37)* Director Attorney, Dykema Gossett, PLLC, 1989 to present.
(since December 1992)
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.
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
</TABLE>
38
<PAGE> 41
<TABLE>
<CAPTION>
Position with
Manufacturers Life
Name of America Principal Occupation
<S> <C> <C>
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, U.S. 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, The Manufacturers Life Insurance Company,
1994 to 1995.
Douglas H. Myers (45)*** Vice President, Finance and President, ManEquity, Inc., April 1994 to present; Assistant
Compliance, Controller Vice President and Controller, U.S. Operations, The
Manufacturers Life Insurance Company, 1988 to present.
John G. Vrysen (44)** Vice President, Appointed Chief Financial Officer and Treasurer, Manulife-Wood Logan
Actuary Holding Co., Inc., January 1996 to present; Vice President and
Chief Financial Officer, U.S. Operations, The Manufacturers
Life Insurance Company, January 1996 to present; Vice
President and Chief Actuary, The Manufacturers Life Insurance
Company of New York, March 1992 to present; Vice President and
Chief Actuary, The Manufacturers Life Insurance Company of
North America, January 1986 to present.
Denis Turner (44)*** Vice President and Treasurer Vice President and Treasuer, 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.
39
<PAGE> 42
ILLUSTRATIONS
The tables set forth in Appendix A illustrate the way in which a Policy's Death
Benefit, Policy Value, and Cash Surrender Value could vary over an extended
period of time.
40
<PAGE> 43
APPENDIX A - SAMPLE ILLUSTRATIONS OF POLICY VALUES, CASH SURRENDER VALUES AND
DEATH BENEFITS
The following tables have been prepared to help show how values under the Policy
change with investment performance. The tables include both Policy Values and
Cash Surrender Values as well as Death Benefits. The Policy Value is the sum of
the values in the Investment Accounts, as the tables assume no values in the
Fixed Account or Loan Account. The Cash Surrender Value is the Policy Value less
any applicable surrender charges. The tables illustrate how Policy Values and
Cash Surrender Values, which reflect all applicable charges and deductions, and
Death Benefits of the Policy on an insured of given age would vary over time if
the return on the assets of the Portfolios was a uniform, gross, after-tax,
annual rate of 0%, 6% or 12%. The Policy Values, Death Benefits and Cash
Surrender Values would be different from those shown if the returns averaged 0%,
6% or 12%, but fluctuated over and under those averages throughout the years.
The charges reflected in the tables include those for deductions from premiums,
surrender charges, and monthly deductions.
The amounts shown for the Policy Value, Death Benefit and Cash Surrender Value
as of each Policy Year reflect the fact that the net investment return on the
assets held in the sub-accounts is lower than the gross, after-tax return. This
is because the expenses and fees borne by Manufacturers Investment Trust are
deducted from the gross return. The illustrations reflect an average of those
Portfolios' current expenses (excluding those of the Equity Index Trust), 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 illustrations reflect the current expense reimbursements in
effect for the Lifestyle Trusts and the Index Trusts. In the absence of such
expense reimbursement, 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 is 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 each combination of age and death benefit option
for a Policy issued to a male non-smoker:
- - one based on current cost of insurance charges assessed by the Company and
reflecting a 10 year no lapse guarantee
- - one based on the maximum cost of insurance charges based on the 1980
Commissioners Smoker Distinct Mortality Tables and reflecting a 10 year no
lapse guarantee.
Current cost of insurance charges are not guaranteed and may be changed. Upon
request, Manufacturers Life of America will furnish a comparable illustration
based on the proposed life insured's issue age, sex (unless unisex rates are
required by law, or are requested) and risk classes, any additional ratings and
the death benefit option, face amount and planned premium requested.
Illustrations for smokers would show less favorable results than the
illustrations shown below.
From time to time, in advertisements or sales literature for the Policies that
quote performance data of one or more of the Portfolios, the Company may include
Cash Surrender Values and Death Benefit figures computed using the same
methodology as that used in the following illustrations, but with the average
annual total return of the Portfolio for which performance data is shown in the
advertisement replacing the hypothetical rates of return shown in the following
tables. This information may be shown in the form of graphs, charts, tables and
examples.
The Policies have been offered to the public only since approximately May 1,
1999. However, total return data may be advertised for as long a period of time
as the underlying Portfolio has been in existence. The results for any period
prior to the Policies' being offered would be calculated as if the Policies had
been offered during that period of time, with all charges assumed to be those
applicable to the Policies.
A-1
<PAGE> 44
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$7,500 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
GROSS INVESTMENT Gross Investment Return Gross Investment Return
RETURN ----------------------- ------------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) (2) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 7,875 5,972 0 500,000 6,354 0 500,000 6,736 0 500,000
2 16,144 12,341 3,941 500,000 13,490 5,089 500,000 14,684 6,284 500,000
3 24,826 18,590 10,775 500,000 20,912 13,098 500,000 23,421 15,607 500,000
4 33,942 24,725 17,595 500,000 28,640 21,509 500,000 33,034 25,903 500,000
5 43,514 30,746 24,299 500,000 36,682 30,235 500,000 43,608 37,161 500,000
6 53,565 36,648 30,787 500,000 45,045 39,185 500,000 55,234 49,373 500,000
7 64,118 42,428 37,251 500,000 53,740 48,563 500,000 68,015 62,838 500,000
8 75,199 48,081 43,588 500,000 62,771 58,278 500,000 82,062 77,568 500,000
9 86,834 53,604 49,697 500,000 72,150 68,243 500,000 97,498 93,591 500,000
10 99,051 58,988 55,764 500,000 81,881 78,657 500,000 114,456 111,233 500,000
15 169,931 83,410 83,410 500,000 135,923 135,923 500,000 227,802 227,802 500,000
20 260,394 101,880 101,880 500,000 198,954 198,954 500,000 409,966 409,966 500,000
25 375,851 112,163 112,163 500,000 275,748 275,748 500,000 718,025 718,025 768,287
30 523,206 104,998 104,998 500,000 366,912 366,912 500,000 1,223,531 1,223,531 1,284,707
35 711,272 63,177 63,177 500,000 484,199 484,199 508,408 2,044,642 2,044,642 2,146,874
40 951,298 0 (4) 0 (4) 0 (4) 633,851 633,851 665,544 3,360,243 3,360,243 3,528,255
45 1,257,639 817,646 817,646 825,822 5,489,798 5,489,798 5,544,696
50 1,648,615 1,061,317 1,061,317 1,061,317 9,092,892 9,092,892 9,092,892
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b)
no policy loan has been made, (c) no partial withdrawal of the Cash
Surrender Value has been made and (d) no premiums have been allocated
to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 10 Policy Years.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
A-2
<PAGE> 45
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$7,500 ANNUAL PLANNED PREMIUM
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
GROSS INVESTMENT Gross Investment Return Gross Investment Return
RETURN ----------------------- ------------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) (2) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 7,875 5,972 0 500,000 6,354 0 500,000 6,736 0 500,000
2 16,144 12,341 3,941 500,000 13,490 5,089 500,000 14,684 6,284 500,000
3 24,826 18,559 10,745 500,000 20,881 13,066 500,000 23,389 15,574 500,000
4 33,942 24,617 17,487 500,000 28,527 21,397 500,000 32,917 25,786 500,000
5 43,514 30,508 24,061 500,000 36,430 29,983 500,000 43,342 36,895 500,000
6 53,565 36,221 30,360 500,000 44,587 38,726 500,000 54,743 48,882 500,000
7 64,118 41,745 36,568 500,000 52,996 47,819 500,000 67,207 62,030 500,000
8 75,199 47,067 42,573 500,000 61,652 57,159 500,000 80,830 76,337 500,000
9 86,834 52,171 48,264 500,000 70,550 66,643 500,000 95,718 91,811 500,000
10 99,051 57,040 53,817 500,000 79,683 76,459 500,000 111,986 108,763 500,000
15 169,931 76,823 76,823 500,000 128,243 128,243 500,000 218,998 218,998 500,000
20 260,394 84,136 84,136 500,000 178,487 178,487 500,000 388,366 388,366 500,000
25 375,851 68,184 68,184 500,000 227,938 227,938 500,000 677,631 677,631 725,065
30 523,206 0 (4) 0 (4) 0 (4) 261,145 261,145 500,000 1,149,204 1,149,204 1,206,664
35 711,272 251,142 251,142 500,000 1,897,800 1,897,800 1,992,690
40 951,298 94,337 94,337 500,000 3,055,624 3,055,624 3,208,405
45 1,257,639 0 (4) 0 (4) 0 (4) 4,909,575 4,909,575 4,958,671
50 1,648,615 8,136,644 8,136,644 8,136,644
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b)
no policy loan has been made, (c) no partial withdrawal of the Cash
Surrender Value has been made and (d) no premiums have been allocated
to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 10 Policy Years.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
A-3
<PAGE> 46
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$8,200 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
GROSS INVESTMENT Gross Investment Return Gross Investment Return
RETURN ----------------------- ------------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) (2) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 8,610 6,608 0 506,608 7,028 0 507,028 7,449 0 507,449
2 17,651 13,602 5,202 513,602 14,866 6,466 514,866 16,180 7,780 516,180
3 27,143 20,463 12,649 520,463 23,018 15,204 523,018 25,778 17,964 525,778
4 37,110 27,200 20,069 527,200 31,505 24,374 531,505 36,337 29,206 536,337
5 47,576 33,809 27,362 533,809 40,335 33,888 540,335 47,949 41,503 547,949
6 58,564 40,288 34,427 540,288 49,517 43,657 549,517 60,716 54,855 560,716
7 70,103 46,632 41,455 546,632 59,060 53,883 559,060 74,745 69,568 574,745
8 82,218 52,834 48,340 552,834 68,969 64,475 568,969 90,156 85,663 590,156
9 94,939 58,890 54,983 558,890 79,252 75,345 579,252 107,082 103,175 607,082
10 108,296 64,789 61,566 564,789 89,912 86,689 589,912 125,660 122,437 625,660
15 185,791 91,393 91,393 591,393 148,752 148,752 648,752 249,075 249,075 749,075
20 284,698 110,752 110,752 610,752 215,309 215,309 715,309 442,299 442,299 942,299
25 410,930 119,224 119,224 619,224 289,190 289,190 789,190 753,555 753,555 1,253,555
30 572,038 105,376 105,376 605,376 356,722 356,722 856,722 1,238,017 1,238,017 1,738,017
35 777,658 52,194 52,194 552,194 395,153 395,153 895,153 1,983,718 1,983,718 2,483,718
40 1,040,086 0 (4) 0 (4) 0 (4) 356,476 356,476 856,476 3,113,420 3,113,420 3,613,420
45 1,375,018 148,397 148,397 648,397 4,792,229 4,792,229 5,292,229
50 1,802,486 0 (4) 0 (4) 0 (4) 7,276,919 7,276,919 7,776,919
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b)
no policy loan has been made, (c) no partial withdrawal of the Cash
Surrender Value has been made and (d) no premiums have been allocated
to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 10 Policy Years.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
A-4
<PAGE> 47
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$8,200 ANNUAL PLANNED PREMIUM
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
GROSS INVESTMENT Gross Investment Return Gross Investment Return
RETURN ----------------------- ------------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) (2) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 8,610 6,608 0 506,608 7,028 0 507,028 7,449 0 507,449
2 17,651 13,602 5,202 513,602 14,866 6,466 514,866 16,180 7,780 516,180
3 27,143 20,431 12,617 520,431 22,985 15,171 522,985 25,744 17,930 525,744
4 37,110 27,087 19,956 527,087 31,386 24,256 531,386 36,213 29,082 536,213
5 47,576 33,558 27,111 533,558 40,067 33,620 540,067 47,664 41,217 547,664
6 58,564 39,832 33,972 539,832 49,023 43,162 549,023 60,179 54,318 560,179
7 70,103 45,896 40,719 545,896 58,247 53,070 558,247 73,848 68,671 573,848
8 82,218 51,731 47,238 551,731 67,730 63,237 567,730 88,765 84,272 588,765
9 94,939 57,319 53,412 557,319 77,459 73,552 577,459 105,032 101,125 605,032
10 108,296 62,636 59,412 562,636 87,415 84,192 587,415 122,756 119,532 622,756
15 185,791 83,828 83,828 583,828 139,339 139,339 639,339 237,175 237,175 737,175
20 284,698 89,919 89,919 589,919 187,919 187,919 687,919 405,028 405,028 905,028
25 410,930 68,480 68,480 568,480 219,273 219,273 719,273 651,532 651,532 1,151,532
30 572,038 0 (4) 0 (4) 0 (4) 191,257 191,257 691,257 980,882 980,882 1,480,882
35 777,658 39,765 39,765 539,765 1,390,103 1,390,103 1,890,103
40 1,040,086 0 (4) 0 (4) 0 (4) 1,858,324 1,858,324 2,358,324
45 1,375,018 2,329,265 2,329,265 2,829,265
50 1,802,486 2,158,992 2,158,992 2,658,992
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b)
no policy loan has been made, (c) no partial withdrawal of the Cash
Surrender Value has been made and (d) no premiums have been allocated
to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 10 Policy Years.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
A-5
<PAGE> 48
AUDITED CONSOLIDATED
FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
Years ended December 31, 1999, 1998 and 1997
<PAGE> 49
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> 50
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> 51
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> 52
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> 53
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> 54
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> 55
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> 56
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> 57
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> 58
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> 59
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 $73,081
-----------------------------------------------------------------------
</TABLE>
10
<PAGE> 60
3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED)
b) INVESTMENT INCOME
Income by type of investment was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ 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) $(2,237)
----------------------------------------------------------------------
</TABLE>
11
<PAGE> 61
5. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ 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> 62
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 $(2,550)). State regulatory authorities prescribe
statutory accounting practices that differ in certain respects from
accounting principles generally accepted in the United States followed
by stock life insurance companies. The significant differences relate
to investments, deferred acquisition costs, deferred income taxes,
non-admitted asset balances and reserve calculation assumptions.
13
<PAGE> 63
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and the estimated fair values of certain of the
Company's financial instruments at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
($ 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> 64
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 $3,972 during 1999, 1998 and 1997 respectively.
The Company and MLI have entered into an agreement whereby MLI provides
a claims paying guarantee to the Company's U.S. policyholders. This
claims paying guarantee does not apply to the Company's separate
account contract holders
10. REINSURANCE
In the normal course of business, the Company cedes reinsurance as a
party to several reinsurance treaties with major unrelated insurance
companies. The Company remains liable for amounts ceded in the event
that reinsurers do not meet their obligations.
15
<PAGE> 65
10. REINSURANCE (CONTINUED)
The effects of reinsurance on premiums were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ 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> 66
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> 67
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> 68
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> 69
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> 70
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> 71
<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> 72
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> 73
<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> 74
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> 75
<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> 76
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> 77
<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> 78
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> 79
<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> 80
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> 81
<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> 82
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> 83
<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> 84
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> 85
<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> 86
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> 87
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> 88
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> 89
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> 90
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> 91
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> 92
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> 93
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> 94
VERSION 2
Prospectus containing 20 year No Lapse Guarantee
<PAGE> 95
PROSPECTUS
SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
VENTURE SURVIVORSHIP VUL
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
This prospectus describes Survivorship VUL, a flexible premium survivorship
variable universal life insurance policy (the "Policy") offered by The
Manufacturers Life Insurance Company of America (the "Company" or "Manufacturers
Life Of America," "we" or "us"), a stock life insurance company that is an
indirect wholly-owned subsidiary of The Manufacturers Life Insurance Company
("Manufacturers Life").
The Policy is designed to provide lifetime insurance protection together with
flexibility as to the timing and amount of premium payments, the investments
underlying the Policy Value, and the amount of insurance coverage. This
flexibility allows the policyowner to pay premiums and adjust insurance coverage
in light of his or her current financial circumstances and insurance needs.
The Policy provides for:
(1) a Net Cash Surrender Value that can be obtained by surrendering the Policy;
(2) policy loans and partial withdrawals; and
(3) an insurance benefit payable at the death of the last-to-die of the Lives
Insured.
Unless the No-Lapse Guarantee is in effect, the Policy will remain in force so
long as the Net Cash Surrender Value is sufficient to cover charges assessed
against the Policy. If the No-Lapse Guarantee is in effect, the Policy will
remain in force as long as the No-Lapse Guarantee Cumulative Premium Test has
been met.
Policy Value may be accumulated on a fixed basis or vary with the investment
performance of the sub-accounts of Manufacturers Life of America's Separate
Account Three (the "Separate Account") to which the policyowner allocates net
premiums. The assets of each sub-account will be used to purchase shares of a
particular investment portfolio (a "Portfolio") of Manufacturers Investment
Trust (the "Trust"). The accompanying prospectus for the Trust, and the
corresponding statement of additional information, describe the investment
objectives of the Portfolios. The Portfolios available for allocation of Net
Premiums are shown in the Policy Summary under "Investment Options and
Investment Advisers." Other sub-accounts and Portfolios may be added in the
future.
BECAUSE OF THE SUBSTANTIAL NATURE OF THE SURRENDER CHARGES, THE POLICY IS NOT
SUITABLE FOR SHORT-TERM INVESTMENT PURPOSES. ALSO, PROSPECTIVE PURCHASERS SHOULD
NOTE THAT IT MAY NOT BE ADVISABLE TO PURCHASE A POLICY AS A REPLACEMENT FOR
EXISTING INSURANCE.
The Securities and Exchange Commission (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 Commission.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT IS
VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE TRUST.
THE 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
<PAGE> 96
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
DEFINITIONS...................................................................................... 4
POLICY SUMMARY
General........................................................................................ 6
Death Benefits................................................................................. 6
Premiums....................................................................................... 6
Policy Value................................................................................... 6
Policy Loans................................................................................... 6
Surrender and Partial Withdrawals.............................................................. 6
Lapse and Reinstatement........................................................................ 6
Charges and Deductions......................................................................... 7
Investment Options and Investment Subadvisers.................................................. 7
Investment Management Fees and Expenses........................................................ 7
Table of Charges and Deductions................................................................ 7
Table of Investment Management Fees and Expenses............................................... 8
Table of Investment Options and Investment Advisers............................................ 10
GENERAL INFORMATION ABOUT MANUFACTURERS LIFE OF AMERICA, THE SEPARATE ACCOUNT, AND THE TRUST
Manufacturers Life of America.................................................................. 11
The Separate Account........................................................................... 12
The Trust...................................................................................... 12
Investment Objectives of the Portfolios........................................................ 12
ISSUING A POLICY
Requirements................................................................................... 16
Temporary Insurance Agreement.................................................................. 16
Right to Examine the Policy.................................................................... 16
DEATH BENEFITS................................................................................... 17
Life Insurance Qualification................................................................... 17
Death Benefit Options.......................................................................... 18
Changing the Face Amount....................................................................... 18
PREMIUM PAYMENTS
Initial Premiums............................................................................... 19
Subsequent Premiums............................................................................ 19
Maximum Premium Limitation..................................................................... 19
Premium Allocation............................................................................. 19
CHARGES AND DEDUCTIONS
Amount Deducted from Premium................................................................... 20
Surrender Charges.............................................................................. 20
Monthly Charges................................................................................ 23
</TABLE>
<PAGE> 97
<TABLE>
<S> <C>
Charges for Transfers.......................................................................... 24
Reduction in Charges........................................................................... 24
SPECIAL PROVISIONS FOR EXCHANGES................................................................. 24
COMPANY TAX CONSIDERATIONS....................................................................... 24
POLICY VALUE
Determination of the Policy Value.............................................................. 25
Units and Unit Values.......................................................................... 25
Transfers of Policy Value...................................................................... 26
POLICY LOANS..................................................................................... 27
Effect of Policy Loan.......................................................................... 27
Interest Charged on Policy Loans............................................................... 27
Loan Account................................................................................... 27
POLICY SURRENDER AND PARTIAL WITHDRAWALS
Policy Surrender............................................................................... 27
Partial Withdrawals............................................................................ 28
LAPSE AND REINSTATEMENT
Lapse.......................................................................................... 28
No-Lapse Guarantee............................................................................. 28
No-Lapse Guarantee Cumulative Premium Test..................................................... 29
Reinstatement.................................................................................. 29
THE GENERAL ACCOUNT.............................................................................. 29
Fixed Account.................................................................................. 30
OTHER PROVISIONS OF THE POLICY
Policyowner Rights............................................................................. 30
Beneficiary.................................................................................... 30
Incontestability............................................................................... 31
Misstatement of Age or Sex..................................................................... 31
Suicide Exclusion.............................................................................. 31
Supplementary Benefits......................................................................... 31
TAX TREATMENT OF THE POLICY...................................................................... 31
Life Insurance Qualification................................................................... 31
Tax Treatment of Policy Benefits............................................................... 33
Alternate Minimum Tax.......................................................................... 36
Income Tax Reporting........................................................................... 36
OTHER INFORMATION
Payment of Proceeds............................................................................ 36
Reports to Policyowners........................................................................ 37
Distribution of the Policies................................................................... 37
Responsibilities of Manufacturers Life......................................................... 37
</TABLE>
<PAGE> 98
<TABLE>
<S> <C>
Voting Rights.................................................................................. 37
Substitution of Portfolio Shares............................................................... 38
Records and Accounts........................................................................... 38
State Regulations.............................................................................. 38
Litigation..................................................................................... 38
Independent Auditors........................................................................... 39
Further Information............................................................................ 39
Officers and Directors......................................................................... 39
Year 2000 Issues............................................................................... 41
Optional Term Rider............................................................................ 41
Illustrations.................................................................................. 41
APPENDIX A - SAMPLE ILLUSTRATIONS OF POLICY VALUES, CASH SURRENDER VALUES AND DEATH BENEFITS..... A-1
APPENDIX B - AUDITED FINANCIAL STATEMENTS........................................................ B-1
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, THE PROSPECTUS OF MANUFACTURERS INVESTMENT TRUST, OR THE
STATEMENT OF ADDITIONAL INFORMATION OF MANUFACTURERS INVESTMENT TRUST.
Examine this prospectus carefully. The Policy Summary will briefly describe the
Policy. More detailed information will be found further in the prospectus.
[SVUL99(20).PRO5/2000]
<PAGE> 99
DEFINITIONS
Additional Rating
is an increase to the Cost of Insurance Rate for any of the Lives Insured who do
not meet, at a minimum, the Company's underwriting requirements for the standard
Risk Classification.
Age
on any date is each of the Lives Insured's age on their birthday closest to the
policy date.
Attained Age
is the Age plus the number of whole years that have elapsed since the Policy
Date.
Business Day
is any day that the New York Stock Exchange is open for trading. The net asset
value of the underlying shares of a Sub-Account will be determined as of the end
of each Business Day. The Company will deem each Business Day to end at the
close of regularly scheduled trading of the New York Stock Exchange (currently
4:00 p.m. Eastern Time) on that day.
Cash Surrender Value
is the Policy Value less the Surrender Charge and any outstanding Monthly
Deductions due.
Effective Date
is the date the underwriters approve issuance of the policy. If the policy is
approved without the initial premium, the Effective Date will be the date the
Company receives at least the minimum initial premium at our Service Office. In
either case, the Company will take the first Monthly Deduction on the Effective
Date.
Fixed Account
is that part of the Policy Value which reflects the value the policyowner has in
the general account of the Company.
Gross Withdrawal
is the amount of partial Net Cash Surrender Value the policyowner requests plus
any Surrender Charge applicable to the withdrawal.
Investment Account
is that part of the Policy Value which reflects the value the policyowner has in
one of the sub-accounts of the Separate Account.
Issue Date
is the date the Company issued the Policy. The Issue Date is also the date from
which the Suicide and Validity provisions of the Policy are measured.
Life Insured
is the last-to-die of the Lives Insured.
Lives Insured
are the persons whose lives are insured under this policy. References to the
youngest of the Lives Insured means the youngest person insured under this
policy when it is first issued.
Loan Account
is that part of the Policy Value which reflects the value transferred from the
Fixed Account or the Investment Accounts as collateral for a policy loan.
Net Cash Surrender Value
is the Cash Surrender Value less the Policy Debt.
Net Policy Value
is the Policy Value less the value in the Loan Account.
Net Premium
is the gross premium paid less any amounts deducted from the premium. It is the
amount of premium allocated to the Fixed Account and/or Investment Accounts.
No-Lapse Guarantee
When the Policy is in the No-Lapse Guarantee Period, as long as the No-Lapse
Guarantee Cumulative Premium Test is met, the Policy will not lapse, even when
the Net Cash Surrender Value falls to or below zero.
6
<PAGE> 100
No-Lapse Guarantee Period
is the period, set at issue, during which the No-Lapse Guarantee is provided.
The No-Lapse Guarantee period is fixed at the lesser of (a) twenty years or (b)
the number of years remaining until the life insured's age is 95, depending upon
applicable state law requirements Certain states may have a shorter guarantee
period. The No Lapse Guarantee Period for a particular Policy is stated in the
Policy.
No-Lapse Guarantee Premium
is set at issue and is recalculated whenever there is a policy change.
No-Lapse Guarantee Cumulative Premium
is the minimum amount due to satisfy the No-Lapse Guarantee Cumulative Premium
Test. This amount will change if any of the following changes occur under the
Policy:
- - the face amount of insurance changes.
- - a Supplementary Benefit is added, changed or terminated.
- - the risk classification of any of the Lives Insured changes because of a
change in smoking status.
- - a temporary Additional Rating is added (due to a face amount increase), or
terminated.
- - the Death Benefit Option Changes.
No-Lapse Guarantee Cumulative Premium Test
is a test that is satisfied if the sum of all premiums paid, less any gross
partial withdrawals and less any Policy Debt, is greater than or equal to the
sum of the monthly No-Lapse Guarantee Premiums due since the Policy Date.
Policy Date
is the date coverage takes effect under the Policy, provided the Company
receives the minimum initial premium at its Service Office, and is the date from
which charges for the first monthly deduction are calculated, and the date from
which Policy Years, Policy Months, and Policy Anniversaries are determined.
Policy Debt
as of any date equals (a) plus (b) plus (c) minus (d), where:
(a) is the total amount of loans borrowed as of such date;
(b) is the total amount of any unpaid loan interest charges which have been
borrowed against the policy on a Policy Anniversary;
(c) is any interest charges accrued from the last Policy Anniversary to the
current date; and
(d) is the total amount of loan repayments as of such date.
Policy Value
is the sum of the values in the Loan Account, the Fixed Account, and the
Investment Accounts.
Service Office Address
is 200 Bloor Street East, Toronto, Ontario, Canada M4W 1E5.
Surrender Charge Period
is the period following the Issue Date or following any increase in Face Amount
during which the Company will assess surrender charges. Surrender charges will
apply during this period if the policy terminates due to default, if the
policyowner surrenders the policy or makes a partial withdrawal.
Written Request
is the policyowner's request to the Company which must be in a form satisfactory
to the Company, signed and dated by the policyowner, and received at the Service
Office.
POLICY SUMMARY
GENERAL
The Policy is a flexible premium survivorship variable universal life insurance
policy. The following summary is intended to provide a general description of
the most important features of the Policy. It is not comprehensive and is
qualified in its entirety by the more detailed information contained in this
prospectus. Unless otherwise indicated or required by the context, the
discussion throughout this prospectus assumes that the Policy has not gone into
default, there is no outstanding Policy Debt, and the death benefit is not
determined by the minimum death benefit percentage. The Policy's provisions may
vary in some states.
7
<PAGE> 101
DEATH BENEFITS
The Policy provides a death benefit in the event of the death of the last-to-die
of the Lives Insured. There are two death benefit options. Under Option 1 the
death benefit is the Face Amount of the Policy at the date of death or, if
greater, the Minimum Death Benefit. Under Option 2 the death benefit is the Face
Amount plus the Policy Value of the Policy at the date of death or, if greater,
the Minimum Death Benefit. The policyowner may change the death benefit option
and increase or decrease the Face Amount.
OPTIONAL TERM RIDER
The Policy may be issued with an optional term insurance rider (the "Term
Rider"). The benefit of the term rider is that the cost of insurance rates will
always be less than or equal to the cost of insurance rates on the Policy.
HOWEVER, UNLIKE THE DEATH BENEFIT UNDER THE POLICY, THE DEATH BENEFIT UNDER THE
TERM RIDER IS NOT PROTECTED BY THE NO-LAPSE GUARANTEE AFTER THE SECOND POLICY
YEAR AND TERMINATES AT AGE 100.
PREMIUMS
Premium payments may be made at any time and in any amount, subject to certain
limitations as described under "Premium Payments -- Subsequent Premiums." Net
Premiums will be allocated, according to the policyowner's instructions, to one
or more of the general account and the sub-accounts of Manufacturers Life of
America's Separate Account Three. Allocation instructions may be changed at any
time and transfers among the accounts may be made.
POLICY VALUE
The Policy has a Policy Value reflecting premiums paid, certain charges for
expenses and cost of insurance, and the investment performance of the accounts
to which the policyowner has allocated premiums. The policyowner may obtain a
portion of the Policy Value by taking a policy loan or a partial withdrawal, or
by full surrender of the Policy.
POLICY LOANS
The policyowner may borrow against the Cash Surrender Value of the Policy. Loan
interest at a rate of 5.25% is due and payable in arrears on each Policy
Anniversary. All outstanding Policy Debt will be deducted from proceeds payable
at the insured's death, or upon surrender.
SURRENDER AND PARTIAL WITHDRAWALS
The policyowner may make a partial withdrawal of the Policy Value. A partial
withdrawal may result in a reduction in the Face Amount of the Policy and an
assessment of a portion of the surrender charges to which the Policy is subject.
A Policy may be surrendered for its Net Cash Surrender Value at any time while
the Life Insured is living. The Net Cash Surrender Value is equal to the Policy
Value less Surrender Charges and outstanding Monthly Deductions due minus the
Policy Debt.
LAPSE AND REINSTATEMENT
Unless the No-Lapse Guarantee is in effect, a Policy will lapse (and terminate
without value) when the Net Cash Surrender Value is insufficient to pay the next
monthly deduction and a grace period of 61 days expires without an adequate
payment being made by the policyowner. If the No-Lapse Guarantee is in effect,
the Policy will lapse if the No-Lapse Guarantee Cumulative Premium Test (see
definition) has not been met.
The Policies, therefore, differ in two important respects from conventional life
insurance policies. First, the failure to make planned premium payments will not
itself cause a Policy to lapse. Second, a Policy can lapse even if planned
premiums have been paid.
A lapsed Policy may be reinstated by the policyowner at any time within the five
year period following lapse provided none of the Lives Insured dies after the
policy termination and the Policy was not surrendered for its Net Cash Surrender
Value. Evidence of insurability is required, along with a certain amount of
premium as described under "Reinstatement."
CHARGES AND DEDUCTIONS
The Company assesses certain charges and deductions in connection with the
Policy. These include: (i) charges assessed monthly for mortality and expense
risks, cost of insurance, administration expenses, (ii) amounts deducted from
premiums paid (iii) and charges assessed on surrender or lapse. These charges
are summarized in the Table of Charges and Deductions.
In addition, there are charges deducted from each Portfolio of the Trust. These
charges are summarized in the Table of Investment Management Fees and Expenses.
INVESTMENT OPTIONS AND INVESTMENT ADVISERS
Net Premiums may be allocated to the general account or to one or more of the
sub-accounts of Manufacturers Life of America's
8
<PAGE> 102
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. The fees and expenses for each Portfolio for the Trust's last fiscal
year are shown in the Table of Investment Management Fees and Expenses. These
fees and expenses are described in detail in the accompanying Trust prospectus
to which reference should be made.
TABLE OF CHARGES AND DEDUCTIONS
<TABLE>
<S> <C>
Amount Deducted from Premium 7.50% of each premium paid.
Surrender Charges A Surrender Charge is applicable during the first 15 Policy Years. The
Surrender Charge is determined by the following formula:
Surrender Charge = (Surrender Charge Rate) x (Grading Percentage)
The Grading Percentage is based on the issue age of the youngest insured and
the policy year in which the transaction causing the assessment of the charge
occurs and is set forth in the table under "Surrender Charges."
The Surrender Charge Rate is calculated as follows:
Surrender Charge Rate = (Factor) x (Surrender Face Amount / 1000) + (82.5%)
x (Surrender Charge Premium)
The Surrender Charge Premium is the lesser of:
(a) the premiums paid during the first policy year;
(b) the premium amount used to measure the maximum Surrender Charge under
the Policy;
(c) the net level annual premium required to provide level insurance
to attained age 100 of the younger insured based on guaranteed monthly
mortality charges and an interest rate of 4%; and
(d) $60 per $1000 of Face Amount.
A portion of this charge may be assessed on a partial withdrawal, as set forth
under "Charges and Deductions -- Surrender Charges on a Partial Withdrawal."
Monthly Deductions An administration charge of $30 plus $0.08 per $1,000 of current
face amount per policy month will be deducted in the first policy year. In
subsequent years, the administration charge will not exceed $15 plus $0.02
per $1,000 of current Face Amount per policy month.
The cost of insurance charge.
Any additional charges for supplementary benefits.
A mortality and expense risks charge. This charge varies by Policy Year as
follows:
</TABLE>
9
<PAGE> 103
<TABLE>
<CAPTION>
CURRENT AND
GUARANTEED EQUIVALENT
MONTHLY ANNUAL
MORTALITY MORTALITY AND
AND EXPENSE EXPENSE
POLICY YEARS RISKS CHARGE RISK CHARGE
------------ ------------ -----------
<S> <C>
1-20.............................................. 0.063% 0.75%
21+............................................... 0.033% 0.40%
</TABLE>
<TABLE>
<S> <C>
All of the above charges are deducted the Net Policy Value.
Loan Charges A fixed loan interest rate of 5.25%.
Interest credited to amounts in the Loan Account will be equal to the 5.25% rate
charged to the loan less the current and maximum loan spread of 1.25%.
Transfer Charge A charge of $25 per transfer for each transfer in excess of 12 in a
Policy Year.
</TABLE>
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
FEES REIMBURSEMENT) ANNUAL EXPENSES
TRUST PORTFOLIO
- -----------------------------------------------------------------------------------------------------------
<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%
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%
</TABLE>
<TABLE>
<CAPTION>
OTHER EXPENSES
MANAGEMENT (AFTER EXPENSE TOTAL TRUST
FEES REIMBURSEMENT) ANNUAL EXPENSES
TRUST PORTFOLIO
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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%
Equity Index(I)..................... 0.250% 0.150%(I) 0.400%(I)
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%
</TABLE>
10
<PAGE> 104
<TABLE>
<S> <C> <C> <C>
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%(A)(G) 0.600%
International Index................. 0.550% 0.050%(A)(G) 0.600%
Mid Cap Index....................... 0.525% 0.075%(A)(G) 0.600%
Total Stock Market Index............ 0.525% 0.075%(A)(G) 0.600%
500 Index........................... 0.525% 0.039%(A)(G) 0.564%
Lifestyle Aggressive 1000(D)........ 0.075% 1.060%(B) 1.135%(C)
Lifestyle Growth 820(D)............. 0.057% 1.008%(B) 1.065%(C)
Lifestyle Balanced 640(D)........... 0.057% 0.928%(B) 0.985%(C)
Lifestyle Moderate 460(D)........... 0.066% 0.869%(B) 0.935%(C)
Lifestyle Conservative 280(D)....... 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:
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 the Lifestyle Trust (absent
reimbursement) are equal to or less than 0.075%, then no expenses will be
reimbursed 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%
</TABLE>
<TABLE>
<CAPTION>
[MANAGEMENT OTHER TOTAL TRUST
TRUST PORTFOLIO FEES EXPENSES ANNUAL EXPENSES]
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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.
(I) The Equity Index Trust is available only for Policies issued for
applications dated prior to May 1, 2000. Under the Advisory Agreement, MSS
has agreed to reduce its advisory fee or reimburse the Equity Index Trust
if the total of all expenses (excluding advisory fees, taxes, portfolio
brokerage commissions, interest, litigation and indemnification expenses
and other extraordinary expenses not incurred in the ordinary course of the
Trust's business) exceeds an annual rate of 0.15% of the average annual net
assets of the Equity Index Trust. The expense limitation may be terminated
at any time by MSS. If this expense reimbursement had not been in effect,
Total Trust Annual Expenses would have been 0.55%, and Other Expenses would
have been 0.30%, of the average annual net assets of the Equity Index
Trust.
11
<PAGE> 105
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 C
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
Equity Index Trust B
Real Estate Securities Trust
Money Market Trust
Index Trusts
Lifestyle TrustsA
</TABLE>
<TABLE>
<CAPTION>
[SUBADVISER PORTFOLIO]
<S> <C>
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 Trusts(A)
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>
12
<PAGE> 106
(A) State Street Global Advisors provides subadvisory consulting services to
Manufacturers Adviser Corporation regarding management of the Lifestyle
Trusts.
(B) The Equity Index Trust is available only for policies issued for
applications dated prior to May 1, 2000.
(C) Formerly, the Mid Cap Growth Trust
GENERAL INFORMATION ABOUT MANUFACTURERS LIFE OF AMERICA, THE SEPARATE ACCOUNT,
AND THE TRUST
The Manufacturers Life Insurance Company of America ("Manufacturers Life of
America") is a stock life insurance company organized under the laws of
Pennsylvania on April 11, 1977 and redomesticated under the laws of Michigan on
December 9, 1992. It is a licensed life insurance company in the District of
Columbia and all states of the United States except New York. Its ultimate
parent entity 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. The Manufacturers Life
Insurance Company 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 it's affiliated companies
guarantees the investment performance of the Separate Account.
RATINGS
Manufacturers Life and Manufacturers Life of America have received the following
ratings from independent rating agencies:
<TABLE>
<S> <C>
Standard and Poor's Insurance Ratings Service: AA+ (for financial strength)
A.M. Best Company: A++ (for financial strength)
Duff & Phelps Credit Rating Co.: AAA (for claims paying ability)
Moody's Investors Service, Inc.: Aa2 (for financial strength)
</TABLE>
These ratings, which are current as of the date of this prospectus and are
subject to change, are assigned to Manufacturers Life of America as a measure of
the Company's ability to honor the death benefit and life annuitization
guarantees but not specifically to its products, the performance (return) of
these products, the value of any investment in these products upon withdrawal or
to individual securities held in any portfolio.
THE SEPARATE ACCOUNT
Manufacturers Life of America established its Separate Account Three on August
22, 1986 as a separate account under Pennsylvania Law. Since December 9, 1992,
it has been operated under Michigan Law. The Separate Account holds assets that
are segregated from all of Manufacturers Life of America's other assets. The
Separate Account is currently used only to support variable life insurance
policies.
ASSETS OF THE SEPARATE ACCOUNT
Manufacturers Life of America is the legal owner of the assets in the Separate
Account. The income, gains, and losses of the Separate Account, whether or not
realized, are, in accordance with applicable contracts, credited to or charged
against the Account without regard to the other income, gains, or losses of
Manufacturers Life of America. Manufacturers Life of America will at all times
maintain assets in the Separate Account with a total market value at least equal
to the reserves and other liabilities relating to variable benefits under all
policies participating in the Separate Account. These assets may not be charged
with liabilities which arise from any other business Manufacturers Life of
America conducts. However, all obligations under the variable life insurance
policies are general corporate obligations of Manufacturers Life of America.
13
<PAGE> 107
REGISTRATION
The Separate Account is registered with the Securities and Exchange Commission
("S.E.C.") under the Investment Company Act of 1940 ("1940 Act") as a unit
investment trust. A unit investment trust is a type of investment company which
invests its assets in specified securities, such as the shares of one or more
investment companies, rather than in a portfolio of unspecified securities.
Registration under the 1940 Act does not involve any supervision by the S.E.C.
of the management or investment policies or practices of the Separate Account.
For state law purposes the Separate Account is treated as a part or division of
Manufacturers Life of America.
THE TRUST
Each sub-account of the Separate Account will purchase shares only of a
particular Portfolio. The Trust is registered under the 1940 Act as an open-end
management investment company. The Separate Account will purchase and redeem
shares of the Portfolios at net asset value. Shares will be redeemed to the
extent necessary for Manufacturers Life of America to provide benefits under the
Policies, to transfer assets from one sub-account to another or to the general
account as requested by policyowners, and for other purposes not inconsistent
with the Policies. Any dividend or capital gain distribution received from a
Portfolio with respect to the Policies will be reinvested immediately at net
asset value in shares of that Portfolio and retained as assets of the
corresponding sub-account.
The Trust shares are issued to fund benefits under both variable annuity
contracts and variable life insurance policies issued by the Company or life
insurance companies affiliated with the Company. Manufacturers Life of America
may also purchase shares through its general account for certain limited
purposes including initial portfolio seed money. For a description of the
procedures for handling potential conflicts of interest arising from the funding
of such benefits see the accompanying Trust prospectus.
INVESTMENT OBJECTIVES OF THE PORTFOLIOS
The investment objectives and certain policies of the Portfolios currently
available to policyowners through corresponding sub-accounts are set forth
below. There is, of course, no assurance that these objectives will be met. A
full description of the Trust, its investment objectives, policies and
restrictions, the risks associated therewith, its expenses, and other aspects of
its operation is contained in the accompanying Trust prospectus, which should be
read together with this prospectus.
ELIGIBLE PORTFOLIOS
The Portfolios of 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.
14
<PAGE> 108
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 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 EQUITY INDEX TRUST seeks to achieve investment results which approximate the
aggregate total return of publicly traded common stocks which are included in
the Standard & Poor's 500 Composite Stock Price Index. (The Equity Index Trust
is available only for policies issued for applications dated prior to May 1,
2000).
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.
15
<PAGE> 109
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.*
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.*
16
<PAGE> 110
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 and/or smoking status, with prior approval from the Company. A
Policy will generally be issued only on the lives of insureds from ages 0
through 90.
Each Policy is issued with a Policy Date, an Effective Date and an Issue Date
(see Definitions). The Issue Date is the date from which the Suicide and
Validity provisions of the Policy are determined and is the expected date of
actual delivery of the Policy to the policyowner. The Effective Date is the date
on which the first monthly deductions are taken, and is the date on which the
underwriters approve the Policy issuance. The Policy Date is the date coverage
takes effect under the Policy, provided the Company receives the minimum initial
premium at its Service Office, is the date from which charges for the first
monthly deduction are calculated, and is the date from which Policy Years,
Policy Months and Policy Anniversaries are determined.
If an application 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
Manufacturers Life of America will generally issue a Policy only if it has a
Face Amount of at least $250,000.
BACKDATING A POLICY
Under limited circumstances, the Company may backdate a Policy, upon request, by
assigning a Policy Date earlier than the date the
17
<PAGE> 111
application is signed. However, in no event will a Policy be backdated earlier
than the earliest date allowed by state law, which is generally three months to
one year prior to the date of application for the Policy. Monthly deductions
will be made for the period the Policy Date is backdated. Regardless of whether
or not a policy is backdated, Net Premiums received prior to the Effective Date
of a Policy will be credited with interest from the date of receipt at the rate
of return then being earned on amounts allocated to the Money Market portfolio.
TEMPORARY INSURANCE AGREEMENT
In accordance with the Company's underwriting practices, temporary insurance
coverage may be provided under the terms of a Temporary Insurance Agreement.
Generally, temporary life insurance may not exceed $5,000,000 and may not be in
effect for more than 90 days. This temporary insurance coverage will be issued
on a conditional receipt basis, which means that any benefits under such
temporary coverage will only be paid if the Lives Insured meet the Company's
usual and customary underwriting standards for the coverage applied for.
The acceptance of an application is subject to the Company's underwriting rules,
and the Company reserves the right to request additional information or to
reject an application for any reason.
Persons failing to meet standard underwriting classification may be eligible for
a Policy with an additional rating assigned to it.
RIGHT TO EXAMINE THE POLICY
A Policy may be returned for a refund within 10 days after it is received. Some
states provide a longer period of time to exercise this right. The Policy will
indicate if a longer time period applies. The Policy can be mailed or delivered
to the Manufacturers Life of America agent who sold it or to the Service Office.
Immediately on such delivery or mailing, the Policy shall be deemed void from
the beginning. Within seven days after receipt of the returned Policy at its
Service Office, the Company will refund in full the payment made.
If a policyowner requests an increase in face amount which results in new
surrender charges, he or she will have the same rights as described above to
cancel the increase. If canceled, the Policy Value and the surrender charges
will be recalculated to the amounts they would have been had the increase not
taken place. A policyowner may request a refund of all or any portion of
premiums paid during the free look period, and the Policy Value and the
surrender charges will be recalculated to the amounts they would have been had
the premiums not been paid.
The Company reserves the right to delay the refund of any premium paid by check
until the check has cleared.
DEATH BENEFITS
If the Policy is in force at the time of the death of the last-to-die of the
Lives Insured, the Company will pay an insurance benefit. The amount payable
will be the death benefit under the selected death benefit option, plus any
amounts payable under any supplementary benefits added to the Policy, less the
Policy Debt and less any outstanding monthly deductions due. The insurance
benefit will be paid in one lump sum unless another form of settlement option is
agreed to by the beneficiary and the Company. If the insurance benefit is paid
in one sum, the Company will pay interest from the date of death to the date of
payment. If the Life Insured should die after the Company's receipt of a request
for surrender, no insurance benefit will be payable, and the Company will pay
only the Net Cash Surrender Value.
LIFE INSURANCE QUALIFICATION
This product uses the Guideline Premium Test to qualify as a life insurance
contract for purposes of Section 7702 of the Internal Revenue Code of 1986, as
amended.
GUIDELINE PREMIUM TEST
The Guideline Premium Test restricts the maximum premiums that may be paid into
a life insurance policy for a given death benefit. The policy's death benefit
must also be at least equal to the Minimum Death Benefit (described below).
Changes to the Policy may affect the maximum amount of premiums, such as:
- - A change in the policy's Face Amount.
- - A change in the death benefit option.
- - Partial Withdrawals.
- - Addition or deletion of supplementary benefits.
Any of the above changes could cause the total premiums paid to exceed the new
maximum limit. In this situation, the Company will require the policyowner to
take a partial withdrawal. In addition, these changes could reduce the future
premium limitations.
18
<PAGE> 112
MINIMUM DEATH BENEFIT
The Guideline Premium Test requires a life insurance policy to meet minimum
ratios of life insurance coverage to policy value. This is achieved by ensuring
that the death benefit is at all times at least equal to the Minimum Death
Benefit. The Minimum Death Benefit on any date is defined as the Policy Value on
that date times the applicable Minimum Death Benefit Percentage for the Attained
Age of the youngest of the Lives Insured would have reached if living. The
Minimum Death Benefit Percentages are shown in the Table of Minimum Death
Benefit Percentages.
TABLE OF MINIMUM DEATH BENEFIT PERCENTAGES
<TABLE>
<CAPTION>
ATTAINED AGE APPLICABLE PERCENTAGE
---------------------------------------------------------------------------
<S> <C>
40 and under..................................... 250%
45............................................... 215%
50............................................... 185%
55............................................... 150%
60............................................... 130%
65............................................... 120%
70............................................... 115%
75............................................... 105%
90............................................... 105%
95 and above..................................... 100%
</TABLE>
To determine the Applicable Percentage in the above table, use the Attained Age
of the youngest of the Lives Insured, or the Attained Age such person would have
reached if living. For ages not shown, the Applicable Percentage can be found by
reducing the values proportionately
DEATH BENEFIT OPTIONS
There are two death benefit options, described below.
DEATH BENEFIT OPTION 1
Under Option 1 the death benefit is the Face Amount of the Policy at the date of
death or, if greater, the Minimum Death Benefit.
DEATH BENEFIT OPTION 2
Under Option 2 the death benefit is the Face Amount plus the Policy Value of the
Policy at the date of death or, if greater, the Minimum Death Benefit.
CHANGING THE DEATH BENEFIT OPTION
The death benefit option may be changed on the first day of any policy month
once each Policy Year after the first Policy Year. The change will occur on the
first day of the next Policy Month after a written request for a change is
received at the Service Office. The Company reserves the right to limit a
request for a change if the change would cause the Policy to fail to qualify as
life insurance for tax purposes.
A change in the death benefit option will result in a change in the Policy's
Face Amount, in order to avoid any change in the amount of the death benefit, as
follows:
CHANGE FROM OPTION 1 TO OPTION 2
The new Face Amount will be equal to the Face Amount prior to the change minus
the Policy Value as of the date of the change. The Policy will not be assessed a
Surrender Charge for a reduction in Face Amount solely due to a change in the
death benefit option.
CHANGE FROM OPTION 2 TO OPTION 1
The new Face Amount will be equal to the Face Amount prior to the change plus
the Policy Value as of the date of the change. No new Surrender Charges will
apply to an increase in Face Amount solely due to a change in the death benefit
option.
19
<PAGE> 113
CHANGING THE FACE AMOUNT
Subject to the limitations stated in this Prospectus, a policyowner may, upon
written request, increase or decrease the Face Amount of the Policy. The Company
reserves the right to limit a change in Face Amount so as to prevent the Policy
from failing to qualify as life insurance for tax purposes.
INCREASE IN FACE AMOUNT
Increases in Face Amount may be made once each Policy Year after the first
Policy Year. Any increase in Face Amount must be at least $50,000. An increase
will become effective at the beginning of the policy month following the date
Manufacturers Life of America approves the requested increase. Increases in Face
Amount are subject to satisfactory evidence of insurability. The Company
reserves the right to refuse a requested increase if any of the Lives Insureds'
Attained Ages at the effective date of the increase would be greater than the
maximum issue age for new Policies at that time.
NEW SURRENDER CHARGES FOR AN INCREASE
An increase in face amount will usually result in the Policy being subject to
new surrender charges. There will be no new surrender charges associated with
restoration of a prior decrease in Face Amount. As with the purchase of a
Policy, a policyowner will have free look right with respect to any increase
resulting in new surrender charges.
An additional premium may be required for a face amount increase, and a new
No-Lapse Guarantee Premium will be determined, if the No-Lapse Guarantee is in
effect at the time of the face amount increase.
INCREASE WITH PRIOR DECREASES
If, at the time of the increase, there have been prior decreases in Face Amount,
these prior decreases will be restored first. The insurance coverage eliminated
by the decrease of the oldest face amount will be deemed to be restored first.
DECREASE IN FACE AMOUNT
Decreases in Face Amount may be made once each Policy Year after the first
Policy Year. Any decrease in Face Amount must be at least $50,000. A written
request from a policy owner for a decrease in the Face Amount will be effective
at the beginning of the Policy Month following the date Manufacturers Life of
America approves the requested decrease. If there have been previous increases
in Face Amount, the decrease will be applied to the most recent increase first
and thereafter to the next most recent increases successively.
PREMIUM PAYMENTS
INITIAL PREMIUMS
No premiums will be accepted prior to receipt of a completed application by the
Company. All premiums received prior to the Effective Date of the Policy will be
held in the general account and credited with interest from the date of receipt
at the rate of return then being earned on amounts allocated to the Money Market
Trust.
The minimum initial premium is one-twelfth of the No-Lapse Guarantee Premium.
On the Effective Date, the Net Premiums paid plus interest credited will be
allocated among the Investment Accounts or the Fixed Account in accordance with
the policyowner's instructions.
SUBSEQUENT PREMIUMS
After the payment of the initial premium, premiums may be paid at any time and
in any amount until the youngest of the Lives Insured has reached Attained Age
100, or the date such person would have reached Attained Age 100, if living,
subject to the limitations on premium amount described below.
A Policy will be issued with a planned premium, which is based on the amount of
premium the policyowner wishes to pay. Manufacturers Life of America will send
notices to the policyowner setting forth the planned premium at the payment
interval selected by the policyowner. However, the policyowner is under no
obligation to make the indicated payment.
The Company may refuse any premium payment that would cause the Policy to fail
to qualify as life insurance under the Internal Revenue Code. The Company also
reserves the right to request evidence of insurability if a premium payment
would result in an increase in the Death Benefit that is greater than the
increase in Policy Value.
Payment of premiums will not guarantee that the Policy will stay in force.
Conversely, failure to pay premiums will not necessarily cause the Policy to
lapse.
20
<PAGE> 114
All Net Premiums received on or after the Effective Date will be allocated among
Investment Accounts or the Fixed Account as of the Business Day the premiums
were received at the Service Office. Monthly deductions are due on the Policy
Date and at the beginning of each Policy Month thereafter. However, if due prior
to the Effective Date, they will be taken on the Effective Date instead of the
dates they were due.
MAXIMUM PREMIUM LIMITATION
In no event may the total of all premiums paid exceed the then current maximum
premium limitations established by federal income tax law for a Policy to
qualify as life insurance.
If, at any time, a premium is paid which would result in total premiums
exceeding the above maximum premium limitation, the Company will only accept
that portion of the premium which will make the total premiums equal to the
maximum. Any part of the premium in excess of that amount will be returned and
no further premiums will be accepted until allowed by the then current maximum
premium limitation.
PREMIUM ALLOCATION
Premiums may be allocated to either the Fixed Account for accumulation at a rate
of interest equal to at least 4% or to one or more of the Investment Accounts
for investment in the Portfolio shares held by the corresponding sub-account of
the Separate Account. Allocations among the Investment Accounts and the Fixed
Account are made as a percentage of the premium. The percentage allocation to
any account may be any number between zero and 100, provided the total
allocation equals 100. A policyowner may change the way in which premiums are
allocated at any time without charge. The change will take effect on the date a
written request for change satisfactory to the Company is received at the
Service Office.
CHARGES AND DEDUCTIONS
AMOUNT DEDUCTED FROM PREMIUM
Manufacturers Life of America deducts an amount from each premium payment, equal
to 7.50% of the premium.
SURRENDER CHARGES
The Company will deduct a Surrender Charge if during the first 15 years
following the Policy Date, or the effective date of a Face Amount increase:
- - the Policy is surrendered for its Net Cash Surrender Value,
- - a partial withdrawal is made in excess of the Withdrawal Tier Amount (see
below for a description of this amount), or
- - the Policy lapses.
SURRENDER CHARGE CALCULATION
The Surrender Charge for the initial Face Amount or for the amount of any
increase in Face Amount is determined by the following formula (the calculation
is also described in words below):
Surrender Charge = (Surrender Charge Rate) x (Grading Percentage)
Surrender Charge Rate (the calculation is also described in words below)
Surrender Charge Rate = (Factor) x (Surrender Face Amount / 1000) + (82.5%) x
(Surrender Charge Premium)
DEFINITIONS OF THE FORMULA FACTORS ABOVE
Surrender Face Amount
If the Face Amount at the time of surrender is equal to or less than the initial
Face Amount, then the Surrender Face Amount is equal to the Face Amount at the
time of surrender. However, if the Face Amount has increased, then the surrender
charge is calculated separately on (a) the initial Face Amount and (b) on the
amount of Face Amount above the initial Face Amount. In the case of (a), the
Surrender Face Amount is equal to the initial Face Amount and in the case of (b)
the Surrender Face Amount is equal to the Face Amount above the initial Face
Amount.
21
<PAGE> 115
The Factor is set forth in the following chart:
<TABLE>
<CAPTION>
ISSUE AGE FACTOR
------------------------------------------------------
<S> <C>
38 or younger.......................... 3.75
39..................................... 4.25
40..................................... 4.75
41..................................... 5.25
42..................................... 5.75
43..................................... 6.25
44..................................... 6.75
45..................................... 7.25
46..................................... 7.75
47..................................... 8.25
48 or older............................ 8.50
</TABLE>
The Surrender Charge Premium is the lesser of:
(a) the premiums paid during the first policy year;
(b) the premium amount used to measure the maximum Surrender Charge under the
Policy;
(c) the net level annual premium ("Net Level Premium") required to provide level
insurance to attained age 100 of the younger insured based on guaranteed
maximum mortality charges and an interest rate of 4%; and
(d) $60 per $1000 of Face Amount.
Grading Percentage
The grading percentage is based on the issue age of the youngest insured and the
Policy Year in which the transaction causing the assessment of the charge occurs
as set forth in the table below:
<TABLE>
<CAPTION>
SURRENDER CHARGE GRADING PERCENTAGE
----------------------------------------------------
ISSUE AGES OF YOUNGER INSURED 0-75 76 77 78 79 80+
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Policy Year 1............................ 93% 92% 92% 91% 90% 90%
Policy Year 2............................ 86% 85% 84% 83% 81% 80%
Policy Year 3............................ 80% 78% 76% 75% 72% 70%
Policy Year 4............................ 73% 71% 69% 66% 63% 60%
Policy Year 5............................ 66% 64% 61% 58% 54% 50%
Policy Year 6............................ 60% 57% 53% 50% 45% 40%
Policy Year 7............................ 53% 50% 46% 41% 36% 30%
Policy Year 8............................ 46% 42% 38% 33% 27% 20%
Policy Year 9............................ 40% 35% 30% 25% 18% 10%
Policy Year 10........................... 33% 28% 23% 16% 9% 0%
Policy Year 11........................... 26% 21% 15% 8% 0%
Policy Year 12........................... 20% 14% 7% 0%
Policy Year 13........................... 13% 7% 0%
Policy Year 14........................... 6% 0%
Policy Year 15........................... 0%
</TABLE>
Formulas Described in Words
Surrender Charge
The Surrender Charge is determined by multiplying the Surrender Charge Rate by
the Grading Percentage, a percent which starts at 100% and grades down each
policy year to zero over a period not to exceed 15 years.
Surrender Charge Rate
The Surrender Charge Rate is equal to the sum of (a) plus (b) where (a) equals
the Factor multiplied by the Surrender Face Amount divided by 1000 and (b)
equals 82.5% times the Surrender Charge Premium.
Illustration of Surrender Charge Calculation
Assumptions
- - 50 year old male and 40 year old female (standard risks and nonsmoker status)
- - Policy issued 7 years ago
- - $904 in premiums have been paid on the Policy in equal annual installments
over the 7 year period
- - the premium amount used to measure the maximum Surrender Charge under the
Policy is $2,188
22
<PAGE> 116
- - Net Level Premium for the Policy is $2,541
- - Face Amount of the Policy is $250,000
- - Policy is surrendered during the last month of the seventh policy year
Surrender Charge
The Surrender Charge to be assessed would be $1,025, determined as follows:
First, the Surrender Charge Rate is determined by applying the Surrender Charge
Rate formula as set forth below.
Surrender Charge Rate = (Factor) x (Surrender Face Amount / 1000) + (82.5%) x
(Surrender Charge Premium)
1933.30 = (4.75) x ($250,000 / 1000) + (82.5%) x (904)
The Surrender Charge Rate is equal to 1933.30.
Second, the Surrender Charge Rate is entered into the Surrender Charge formula
and the Surrender Charge is determined as set forth below.
Surrender Charge = (Surrender Charge Rate) x (Grading Percentage)
$1,025 = (1933.30) x (53%)
The Surrender Charge is equal to $1,025.
The following calculation illustrates the maximum Surrender Charge that would be
payable on a Policy under the assumptions set forth below.
Illustration of Maximum Surrender Charge Calculation
Assumptions
- - 50 year old male and 40 year old female (standard risks and nonsmoker status)
- - Policy issued 7 years ago
- - $2,188 in premiums have been paid on the Policy in equal annual installments
over the 7 year period
- - the premium amount used to measure the maximum Surrender Charge under the
Policy is $2,188
- - Net Level Premium for the Policy is $2,541
- - Face Amount of the Policy is $250,000
- - Policy is surrendered during the last month of the seventh policy year
Maximum Surrender Charge
The maximum Surrender Charge to be assessed would be $1,586, determined as
follows:
First, the Surrender Charge Rate is determined by applying the Surrender Charge
Rate formula as set forth below.
Surrender Charge Rate = (Factor) x (Surrender Face Amount / 1000) + (82.5%) x
(Surrender Charge Premium)
2,992.60 = (4.75) x ($250,000 / 1000) + (82.5%) x (2,188)
The Surrender Charge Rate is equal to 2,992.60.
Second, the Surrender Charge Rate is entered into the Surrender Charge formula
and the Surrender Charge is determined as set forth below.
Surrender Charge = (Surrender Charge Rate) x (Grading Percentage)
$1,586 = (2992.60) x (53%)
The maximum Surrender Charge payable on the Policy is equal to $1,586.
Depending upon the Face Amount of the Policy, the age of the youngest insured at
issue, premiums paid under the Policy and the performance of the underlying
investment options, the Policy may have no Cash Surrender Value and therefore,
the policyowner may
23
<PAGE> 117
receive no surrender proceeds upon surrendering the Policy.
Manufacturers Life of America may reduce the surrender charge as described above
on policies where the anticipated annual premium is $100,000 or greater and the
Policy is issued as part of an employer sponsored split dollar or keyman
arrangement; 80% of the Surrender Charge will be waived during the first year of
the Policy, 60% during the second year and 40% during the third year. The full
Surrender Charge will be imposed if the surrender takes place in a fourth or
subsequent Policy Year.
SURRENDER CHARGES ON A PARTIAL WITHDRAWAL
A partial withdrawal will result in the assessment of a portion of the Surrender
Charges to which the Policy is subject. The portion of the Surrender Charges
assessed will be based on the ratio of the amount of the withdrawal which
exceeds the Withdrawal Tier Amount to the Net Cash Surrender Value of the Policy
as at the date of the withdrawal. The Surrender Charges will be deducted from
the Policy Value at the time of the partial withdrawal on a pro-rata basis from
each of the Investment Accounts and the Fixed Account. If the amount in the
accounts is not sufficient to pay the Surrender Charges assessed, then the
amount of the withdrawal will be reduced.
Whenever a portion of the surrender charges is deducted as a result of a partial
withdrawal, the Policy's remaining surrender charges will be reduced in the same
proportion that the surrender charge deducted bears to the total surrender
charge immediately before the partial withdrawal.
WITHDRAWAL TIER AMOUNT
The Withdrawal Tier Amount is equal to 10% of the Net Cash Surrender Value as at
the last Policy Anniversary. In determining what, if any, portion of a partial
withdrawal is in excess of the Withdrawal Tier Amount, all previous partial
withdrawals that have occurred in the current Policy Year are included.
MONTHLY CHARGES
On the Policy Date and at the beginning of each Policy Month, a deduction is due
from the Net Policy Value to cover certain charges in connection with the Policy
until the youngest of the Lives Insured reaches Attained Age 100, or the date
such person would have reached Attained Age 100, if living. If there is a Policy
Debt under the Policy, loan interest and principal will continue to be payable
at the beginning of each Policy Month. Monthly deductions due prior to the
Effective Date will be taken on the Effective Date instead of the dates they
were due. The charges consist of:
(i) a monthly administration charge;
(ii) a monthly charge for the cost of insurance;
(iii) a monthly mortality and expense risk charge;
(iv) a monthly charge for any supplementary benefits added to the Policy.
Unless otherwise allowed by the Company and specified by the policyowner, the
Monthly Deduction will be allocated among the Investment Accounts and the Fixed
Account in the same proportion as the Policy value in each bears to the Net
Policy Value.
ADMINISTRATION CHARGE
This charge will be equal to $30 plus $0.08 per $1,000 of current face amount
per Policy Month in the first Policy Year. For all subsequent Policy Years, the
administration charge will not exceed $15 plus $0.02 per $1,000 of current face
amount per Policy Month. The charge is designed to cover certain administrative
expenses associated with the Policy, including maintaining policy records,
collecting premiums and processing death claims, surrender and withdrawal
requests and various changes permitted under the Policy.
COST OF INSURANCE CHARGE
The monthly charge for the cost of insurance is determined by multiplying the
applicable cost of insurance rate times the net amount at risk at the beginning
of each Policy Month. The cost of insurance rate and the net amount at risk are
determined separately for the initial Face Amount and for each increase in Face
Amount. In determining the net amount at risk, if there have been increases in
the Face Amount, the Policy Value shall first be considered a part of the
initial Face Amount. If the Policy Value exceeds the initial Face Amount, it
shall then be considered a part of the additional increases in Face Amount
resulting from the increases, in the order the increases occurred.
The net amount at risk is equal to the greater of zero, or the result of (a)
minus (b) where:
(a) is the death benefit as of the first day of the Policy Month, divided by
1.0032737; and
(b) is the Policy Value as of the first day of the Policy Month prior to
deduction of monthly cost of insurance.
The rates for the cost of insurance are blended and based upon the Attained Age,
sex, and Risk Classification of the Lives Insured.
24
<PAGE> 118
Cost of insurance rates will generally increase with the age of each of the
Lives Insured. The first year cost of insurance rate is guaranteed.
The cost of insurance rates reflect the Company's expectations as to future
mortality experience. The rates may be re-determined from time to time on a
basis which does not unfairly discriminate within the class of Lives Insured. In
no event will the cost of insurance rates exceed the guaranteed rates set forth
in the Policy except to the extent that an extra charge is imposed because of an
additional rating applicable to the Lives Insured. After the first Policy Year,
the cost of insurance will generally increase on each Policy Anniversary. The
guaranteed rates are based on the 1980 Commissioners Standard Ordinary
Smoker/Non-Smoker Mortality Tables.
CHARGES FOR SUPPLEMENTARY BENEFITS
If the Policy includes Supplementary Benefits, a charge will be made applicable
to such Supplementary Benefit.
MORTALITY AND EXPENSE RISK CHARGE
A monthly charge is assessed against the Policy Value equal to a percentage of
the Policy Value. This charge is to compensate the Company for the mortality and
expense risks it assumes under the Policy. The mortality risk assumed is that
Lives Insured may live for a shorter period of time than the Company estimated.
The expense risk assumed is that expenses incurred in issuing and administering
the Policy will be greater than the Company estimated. The Company will realize
a gain from this charge to the extent it is not needed to provide benefits and
pay expenses under the Policy.
The charge varies by Policy Year as follows:
<TABLE>
<CAPTION>
CURRENT AND
GUARANTEED
MONTHLY MORTALITY EQUIVALENT ANNUAL
AND EXPENSE MORTALITY AND
POLICY YEAR RISKS CHARGE RISKS CHARGE
---------------------------------------------------------------------
<S> <C> <C>
1-20........................ 0.063% 0.75%
21+......................... 0.033% 0.40%
</TABLE>
CHARGES FOR TRANSFERS
A charge of $25 will be imposed on each transfer in excess of twelve in a Policy
Year, other than transfers made pursuant to the Dollar Cost Averaging or Asset
Allocation Balancer programs.
REDUCTION IN CHARGES
The Policy is available for purchase by corporations and other groups or
sponsoring organizations. Group or sponsored arrangements may include reduction
or elimination of withdrawal charges and deductions for employees, officers,
directors, agents, immediate family members of the foregoing, and employees or
agents of Manufacturers Life and its subsidiaries. Manufacturers Life of America
reserves the right to reduce any of the Policy's loads or charges on certain
cases where it is expected that the amount or nature of such cases will result
in savings of sales, underwriting, administrative, commissions or other costs.
Eligibility for these reductions and the amount of reductions will be determined
by a number of factors, including the number of lives to be insured, the total
premiums expected to be paid, total assets under management for the policyowner,
the nature of the relationship among the insured individuals, the purpose for
which the policies are being purchased, expected persistency of the individual
policies, and any other circumstances which Manufacturers Life of America
believes to be relevant to the expected reduction of its expenses.
Some of these reductions may be guaranteed and others may be subject to
withdrawal or modification, on a uniform case basis. Reductions in charges will
not be unfairly discriminatory to any policyowners. Manufacturers Life of
America may modify from time to time, on a uniform basis, both the amounts of
reductions and the criteria for qualification.
In addition, groups and persons purchasing under a sponsored arrangement may
apply for simplified underwriting. If simplified underwriting is granted, the
cost of insurance charge may increase as a result of higher anticipated
mortality experience.
SPECIAL PROVISIONS FOR EXCHANGES
The Company will permit owners of certain fixed life insurance policies issued
either by the Company or Manufacturers Life Insurance Company (U.S.A.) to
exchange their policies for the Policies described in this prospectus (and
likewise, owners of policies described in this Prospectus may also exchange
their Policies for certain fixed policies issued either by the Company or by
Manufacturers Life Insurance Company (U.S.A)). Policyowners considering an
exchange should consult their tax advisers as to the tax consequences of an
exchange.
COMPANY TAX CONSIDERATIONS
At the present time, the Company makes no charge to the Separate Account for any
federal, state, or local taxes that the Company incurs that may be attributable
to such Account or to the Policies. The Company, however, reserves the right in
the future to make a
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charge for any such tax or other economic burden resulting from the application
of the tax laws that it determines to be properly attributable to the Separate
Account or to the Policies.
POLICY VALUE
DETERMINATION OF THE POLICY VALUE
A Policy has a Policy Value, a portion of which is available to the policyowner
by making a policy loan or partial withdrawal, or upon surrender of the Policy.
The Policy Value may also affect the amount of the death benefit. The Policy
Value at any time is equal to the sum of the values in the Investment Accounts,
the Fixed Account, and the Loan Account.
INVESTMENT ACCOUNTS
An Investment Account is established under each Policy for each sub-account of
the Separate Account to which net premiums or transfer amounts have been
allocated. Each Investment Account under a Policy measures the interest of the
Policy in the corresponding sub-account. The value of the Investment Account
established for a particular sub-account is equal to the number of units of that
sub-account credited to the Policy times the value of such units.
FIXED ACCOUNT
Amounts in the Fixed Account do not vary with the investment performance of any
sub-account. Instead, these amounts are credited with interest at a rate
determined by Manufacturers Life of America. For a detailed description of the
Fixed Account, see "The General Account -- Fixed Account".
LOAN ACCOUNT
Amounts borrowed from the Policy are transferred to the Loan Account. Amounts in
the Loan Account do not vary with the investment performance of any sub-account.
Instead, these amounts are credited with interest at a rate which is equal to
the amount charged on the outstanding Policy Debt less the Loan Spread. For a
detailed description of the Loan Account, see "Policy Loans -- Loan Account".
UNITS AND UNIT VALUES
CREDITING AND CANCELING UNITS
Units of a particular sub-account are credited to a Policy when net premiums are
allocated to that sub-account or amounts are transferred to that sub-account.
Units of a sub-account are canceled whenever amounts are deducted, transferred
or withdrawn from the sub-account. The number of units credited or canceled for
a specific transaction is based on the dollar amount of the transaction divided
by the value of the unit on the Business Day on which the transaction occurs.
The number of units credited with respect to a premium payment will be based on
the applicable unit values for the Business Day on which the premium is received
at the Service Office, except for any premiums received before the Effective
Date. For premiums received before the Effective Date, the values will be
determined on the Effective Date.
Units are valued at the end of each Business Day. When an order involving the
crediting or canceling of units is received after the end of a Business Day, or
on a day which is not a Business Day, the order will be processed on the basis
of unit values determined on the next Business Day. Similarly, any determination
of Policy Value, Investment Account value or death benefit to be made on a day
which is not a Business Day will be made on the next Business Day.
UNIT VALUES
The value of a unit of each sub-account was initially fixed at $10.00. For each
subsequent Business Day the unit value for that sub-account is determined by
multiplying the unit value for the immediately preceding Business Day by the net
investment factor for the that sub-account on such subsequent Business Day.
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.
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TRANSFERS OF POLICY VALUE
At any time, a policyowner may transfer Policy Value from one sub-account to
another or to the Fixed Account. Transfer requests must be in writing in a
format satisfactory to the Company, or by telephone if a currently valid
telephone transfer authorization form is on file.
The Company reserves the right to impose limitations on transfers, including the
maximum amount that may be transferred. In addition, transfer privileges are
subject to any restrictions that may be imposed by the Trust.
While the Policy is in force, the policyowner may transfer the Policy Value from
any of the Investment Accounts to the Fixed Account without incurring transfer
charges:
(a) within eighteen months after the Issue Date; or
(b) within 60 days of the effective date of a material change in the investment
objectives of any of the sub-accounts or within 60 days of the date of
notification of such change, whichever is later.
TRANSFER CHARGES
A policyowner may make up to twelve transfers each Policy Year free of charge.
Additional transfers in each Policy Year may be made at a cost of $25 per
transfer. This charge will be deducted from the Investment Account or the Fixed
Account to which the transfer is being made. All transfer requests received by
the Company on the same Business Day are treated as a single transfer request.
Transfers under the Dollar Cost Averaging and Asset Allocation Balancer programs
do not count against the number of free transfers permitted per Policy Year.
TRANSFERS INVOLVING FIXED ACCOUNT
The maximum amount that may be transferred from the Fixed Account in any one
Policy Year is the greater of $500 or 15% of the Fixed Account Value at the
previous Policy Anniversary. Any transfer which involves a transfer out of the
Fixed Account may not involve a transfer to the Investment Account for the Money
Market Trust.
TELEPHONE TRANSFERS
Although failure to follow reasonable procedures may result in the Company being
liable for any losses resulting from unauthorized or fraudulent telephone
transfers, Manufacturers Life of America will not be liable for following
instructions communicated by telephone that the Company reasonably believes to
be genuine. The Company will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Such procedures shall
consist of confirming that a valid telephone authorization form is on file, tape
recording of all telephone transactions and providing written confirmation
thereof.
DOLLAR COST AVERAGING
The Company will offer policyowners a Dollar Cost Averaging program. Under the
Dollar Cost Averaging program the policyowner will designate an amount which
will be transferred at predetermined intervals from one Investment Account into
any other Investment Account(s) or the Fixed Account. Currently, no charge will
be made for this program. If insufficient funds exist to effect a Dollar Cost
Averaging transfer, the transfer will not be effected and the policyowner will
be so notified.
The Company reserves the right to cease to offer this program as of 90 days
after written notice is sent to the policyowner.
ASSET ALLOCATION BALANCER TRANSFERS
Under the Asset Allocation Balancer program the policyowner will designate an
allocation of Policy Value among Investment Accounts. At six-month intervals
beginning six months after the Policy Date, the Company will move amounts among
the Investment Accounts as necessary to maintain the policyowner's chosen
allocation. A change to the policyowner premium allocation instructions will
automatically result in a change in Asset Allocation Balancer instructions so
that the two are identical unless the policyowner either instructs Manufacturers
of America otherwise or has elected the Dollar Cost Averaging program.
Currently, there is no charge for this program; however, the Company reserves
the right to institute a charge on 90 days' written notice to the policyowner.
The Company reserves the right to cease to offer this program as of 90 days
after written notice is sent to the policyowner.
POLICY LOANS
At any time while this Policy is in force, a policyowner may borrow against the
Policy Value of the Policy. The amount of any loan cannot exceed 90% of the
Policy's Net Cash Surrender Value. The Policy serves as the only security for
the loan. Policy loans may have tax consequences, see "Tax Treatment of Policy
Benefits -- Policy Loan Interest."
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LOAN VALUE
The Loan Value is equal to the Policy's Net Cash Surrender Value less the
monthly deductions due to the next Policy Anniversary.
EFFECT OF POLICY LOAN
A policy loan will have an effect on future Policy Values, since that portion of
the Policy Value in the Loan Account will increase in value at the crediting
interest rate rather than varying with the performance of the underlying
Portfolios or increasing in value at the rate of interest credited for amounts
allocated to the Fixed Account. A policy loan may cause a Policy to be more
susceptible to going into default since a policy loan will be reflected in the
Net Cash Surrender Value. See "Lapse and Reinstatement." In addition, a policy
loan may result in a Policy's failing to satisfy the No-Lapse Guarantee
Cumulative Premium Test since the Policy Debt is subtracted from the sum of the
premiums paid in determining whether this test is satisfied. Finally, a policy
loan will affect the amount payable on the death of the last-to-die of the Lives
Insured, since the death benefit is reduced by the Policy Debt at the date of
death in arriving at the insurance benefit.
INTEREST CHARGED ON POLICY LOANS
Interest on the Policy Debt will accrue daily and be payable annually on the
Policy Anniversary. The rate of interest charged will be an effective annual
rate of 5.25%. If the interest due on a Policy Anniversary is not paid by the
policyowner, the interest will be borrowed against the Policy.
The Policy will go into default at any time the Policy Debt exceeds the Policy
Value. At least 61 days prior to termination, the Company will send the
policyowner a notice of the pending termination. Payment of interest on the
Policy Debt during the 61 day grace period will bring the policy out of default.
LOAN ACCOUNT
When a loan is made, an amount equal to the loan, discounted by 4%, will be
deducted from the Investment Accounts or the Fixed Account and transferred to
the Loan Account. The policyowner may designate how the amount to be transferred
to the Loan Account is allocated among the accounts from which the transfer is
to be made. In the absence of instructions, the amount to be transferred will be
allocated to each account in the same proportion as the value in each Investment
Account and the Fixed Account bears to the Net Policy Value. A transfer from an
Investment Account will result in the cancellation of units of the underlying
sub-account equal in value to the amount transferred from the Investment
Account. However, since the Loan Account is part of the Policy Value, transfers
made in connection with a loan will not change the Policy Value.
INTEREST CREDITED TO THE LOAN ACCOUNT
Interest will be credited to amounts in the Loan Account at an effective annual
rate of at least 4.00%. The actual rate credited is equal to the rate of
interest charged on the policy loan less the Loan Interest Credited
Differential, which is currently 1.25% and is guaranteed not to exceed this
amount.
LOAN REPAYMENTS
Policy Debt may be repaid in whole or in part at any time prior to the death of
the last-to-die of the Lives Insured, provided that the Policy is in force. When
a repayment is made, the amount is credited to the Loan Account and transferred
to the Fixed Account or the Investment Accounts. Loan repayments will be
allocated first to the Fixed Account until the associated Loan sub-account is
reduced to zero and then to each Investment Account in the same proportion as
the value in the corresponding Loan Sub-Account bears to the value of the Loan
Account.
Amounts paid to the Company not specifically designated in writing as loan
repayments will be treated as premiums.
POLICY SURRENDER AND PARTIAL WITHDRAWALS
POLICY SURRENDER
A Policy may be surrendered for its Net Cash Surrender Value at any time while
the Life Insured is living. The Net Cash Surrender Value is equal to the Policy
Value less any surrender charges and outstanding monthly deductions due (the
"Cash Surrender Value") minus the Policy Debt. If there have been any prior Face
Amount increases, the Surrender Charge will be the sum of the Surrender Charge
for the Initial Face Amount plus the Surrender Charge for each increase. The Net
Cash Surrender Value will be determined as of the end of the Business Day on
which Manufacturers Life of America receives the Policy and a written request
for surrender at its Service Office. After a Policy is surrendered, the
insurance coverage and all other benefits under the Policy will terminate.
PARTIAL WITHDRAWALS
A policyowner may make a partial withdrawal of the Net Cash Surrender Value once
each Policy Month after the first Policy Anniversary. The policyowner may
specify the portion of the withdrawal to be taken from each Investment Account
and the Fixed
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Account. In the absence of instructions, the withdrawal will be allocated among
such accounts in the same proportion as the Policy Value in each account bears
to the Net Policy Value. For information on Surrender Charges on a Partial
Withdrawal see "Charges and Deductions -- Surrender Charges."
REDUCTION IN FACE AMOUNT DUE TO A PARTIAL WITHDRAWAL
If Death Benefit Option 1 is in effect when a partial withdrawal is made, the
Face Amount of the Policy will be reduced by the amount of the withdrawal plus
any applicable Surrender Charges.
If the death benefit is based upon the Policy Value times the minimum death
benefit percentage set forth under "Death Benefit Minimum Death Benefit," the
Face Amount will be reduced only to the extent that the amount of the withdrawal
plus the portion of the Surrender Charge assessed exceeds the difference between
the death benefit and the Face Amount. When the Face Amount of a Policy is based
on one or more increases subsequent to issuance of the Policy, a reduction
resulting from a partial withdrawal will be applied in the same manner as a
requested decrease in Face Amount, i.e., against the Face Amount provided by the
most recent increase, then against the next most recent increases successively
and finally against the initial Face Amount.
LAPSE AND REINSTATEMENT
LAPSE
Unless the No-Lapse Guarantee is in effect, a Policy will go into default if at
the beginning of any Policy Month the Policy's Net Cash Surrender Value would be
zero or below after deducting the monthly deduction then due. Therefore, a
Policy could lapse eventually if increases in Policy Value (prior to deduction
of Policy charges) are not sufficient to cover Policy charges. A lapse could
have adverse tax consequences as described under "Tax Treatment of the Policy --
Tax Treatment of Policy Benefits -- Surrender or Lapse." Manufacturers Life of
America will notify the policyowner of the default and will allow a 61 day grace
period in which the policyowner may make a premium payment sufficient to bring
the Policy out of default. The required payment will be equal to the amount
necessary to bring the Net Cash Surrender Value to zero, if it was less than
zero on the date of default, plus the monthly deductions due at the date of
default and payable at the beginning of each of the two Policy Months
thereafter, plus any applicable premium load. If the required payment is not
received by the end of the grace period, the Policy will terminate with no
value.
NO-LAPSE GUARANTEE
In those states where it is permitted, as long as the No-Lapse Guarantee
Cumulative Premium Test is satisfied during the No-Lapse Guarantee Period, as
described below, the Company will guarantee that the Policy will not go into
default, even if adverse investment experience or other factors should cause the
Policy's Net Cash Surrender Value to be insufficient to meet the monthly
deductions due at the beginning of a Policy Month.
The Monthly No-Lapse Guarantee Premium is one-twelfth of the No-Lapse Guarantee
Premium.
The No-Lapse Guarantee Premium is set at issue and reflects any Additional
Rating and Supplementary Benefits, if applicable. It is subject to change if the
face amount of the Policy is changed, if there is a Death Benefit Option change,
or if there is any change in the supplementary benefits added to the Policy or
in the risk classification of any Lives Insured because of a change in smoking
status.
The No-Lapse Guarantee Period is described under "Definitions".
While the No-Lapse Guarantee is in effect, the Company will determine at the
beginning of the Policy Month that the Policy would otherwise be in default,
whether the No-Lapse Guarantee Cumulative Premium Test, described below, has
been met. If it has not been satisfied, the Company will notify the policyowner
of that fact and allow a 61-day grace period in which the policyowner may make a
premium payment sufficient to keep the policy from going into default. This
required payment, as described in the notification to the policyowner, will be
equal to the lesser of:
(a) the outstanding premium requirement to satisfy the No-Lapse Guarantee
Cumulative Premium Test at the date of default, plus the Monthly No-Lapse
Guarantee Premium due for the next two Policy Months, or
(b) the amount necessary to bring the Net Cash Surrender Value to zero plus the
monthly deductions due, plus the next two monthly deductions plus the
applicable premium load.
If the required payment is not received by the end of the grace period, the
No-Lapse Guarantee and the Policy will terminate.
NO-LAPSE GUARANTEE CUMULATIVE PREMIUM TEST
The No-Lapse Guarantee Cumulative Premium Test is satisfied if, as of the
beginning of the Policy Month that the Policy would otherwise be in default, the
sum of all premiums paid to date less any gross withdrawals and less any policy
debt, is at least equal to the sum of the Monthly No-Lapse Guarantee Premiums
due from the Policy Date to the date of the test.
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DEATH DURING GRACE PERIOD
If the Life Insured should die during the grace period, the Policy Value used in
the calculation of the death benefit will be the Policy Value as of the date of
default and the insurance benefit will be reduced by any outstanding Monthly
Deductions due at the time of death.
REINSTATEMENT
A policyowner can reinstate a Policy which has terminated after going into
default at any time within 21 days following the date of termination without
furnishing evidence of insurability, subject to the following conditions:
(a) All Lives Insured's risk classifications are standard or preferred, and
(b) All Lives Insured's Attained Ages are less than 46.
A policyowner can reinstate a Policy which has terminated after going into
default at any time within the five-year period following the date of
termination subject to the following conditions:
(a) Evidence of all Lives Insured's insurability, or on the survivor(s) who were
insured at the end of the grace period, satisfactory to the Company is
provided to the Company;
(b) A premium equal to the amount that was required to bring the Policy out of
default immediately prior to termination, plus the next two monthly
deductions;
(c) The Policy cannot be reinstated if any of the Lives Insured die after the
Policy has terminated.
If the reinstatement is approved, the date of reinstatement will be the later of
the date the Company approves the policyowner's request or the date the required
payment is received at the Company's Service Office. In addition, any surrender
charges will be reinstated to the amount they were at the date of default. The
Policy Value on the date of reinstatement, prior to the crediting of any Net
Premium paid on the reinstatement, will be equal to the Policy Value on the date
the Policy terminated.
THE GENERAL ACCOUNT
The general account of Manufacturers Life of America consists of all assets
owned by the Company other than those in the Separate Account and other separate
accounts of the Company. Subject to applicable law, Manufacturers Life of
America has sole discretion over the investment of the assets of the general
account.
By virtue of exclusionary provisions, interests in the general account of
Manufacturers Life of America have not been registered under the Securities Act
of 1933 and the general account has not been registered as an investment company
under the Investment Company Act of 1940. Accordingly, neither the general
account nor any interests therein are subject to the provisions of these acts,
and as a result the staff of the S.E.C. has not reviewed the disclosures in this
prospectus relating to the general account. Disclosures regarding the general
account may, however, be subject to certain generally applicable provisions of
the federal securities laws relating to the accuracy and completeness of
statements made in a prospectus.
FIXED ACCOUNT
A policyowner may elect to allocate net premiums to the Fixed Account or to
transfer all or a portion of the Policy Value to the Fixed Account from the
Investment Accounts. Manufacturers Life of America will hold the reserves
required for any portion of the Policy Value allocated to the Fixed Account in
its general account. Transfers from the Fixed Account to the Investment Accounts
are subject to restrictions.
POLICY VALUE IN THE FIXED ACCOUNT
The Policy Value in the Fixed Account is equal to:
(a) the portion of the net premiums allocated to it; plus
(b) any amounts transferred to it; plus
(c) interest credited to it; less
(d) any charges deducted from it; less
(e) any partial withdrawals from it; less
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(f) any amounts transferred from it.
INTEREST ON THE FIXED ACCOUNT
An allocation of Policy Value to the Fixed Account does not entitle the
policyowner to share in the investment experience of the general account.
Instead, Manufacturers Life of America guarantees that the Policy Value in the
Fixed Account will accrue interest daily at an effective annual rate of at least
4%, without regard to the actual investment experience of the general account.
Consequently, if a policyowner pays the planned premiums, allocates all net
premiums only to the general account and makes no transfers, partial
withdrawals, or policy loans, the minimum amount and duration of the death
benefit of the Policy will be determinable and guaranteed.
OTHER PROVISIONS OF THE POLICY
POLICYOWNER RIGHTS
Unless otherwise restricted by a separate agreement, the policyowner may:
- - Vary the premiums paid under the Policy.
- - Change the death benefit option.
- - Change the premium allocation for future premiums.
- - Transfer amounts between sub-accounts.
- - Take loans and/or partial withdrawals.
- - Surrender the contract.
- - Transfer ownership to a new owner.
- - Name a contingent owner that will automatically become owner if the
policyowner dies before the insured.
- - Change or revoke a contingent owner.
- - Change or revoke a beneficiary.
ASSIGNMENT OF RIGHTS
Manufacturers Life of America will not be bound by an assignment until it
receives a copy of the assignment at its Service Office. Manufacturers Life of
America assumes no responsibility for the validity or effects of any assignment.
BENEFICIARY
One or more beneficiaries of the Policy may be appointed by the policyowner by
naming them in the application. Beneficiaries may be appointed in three classes
- -- primary, secondary, and final. Beneficiaries may also be revocable or
irrevocable. Unless an irrevocable designation has been elected, the beneficiary
may be changed by the policyowner during the Lives Insured lifetime by giving
written notice to Manufacturers Life of America in a form satisfactory to the
Company. The change will take effect as of the date such notice is signed. If
the Life Insured dies and there is no surviving beneficiary, the policyowner, or
the policyowner's estate if the policyowner is the Life Insured, will be the
beneficiary. If a beneficiary dies before the seventh day after the death of the
Life Insured, the Company will pay the insurance benefit as if the beneficiary
had died before the Life Insured.
INCONTESTABILITY
Manufacturers Life of America will not contest the validity of a Policy after it
has been in force during any Lives Insured's lifetime for two years from the
Issue Date. It will not contest the validity of an increase in Face Amount,
after such increase or addition has been in force during the lifetime of the
Lives Insured for two years. If a Policy has been reinstated and been in force
during the lifetime of the Lives Insured for less than two years from the
reinstatement date, the Company can contest any misrepresentation of a fact
material to the reinstatement.
MISSTATEMENT OF AGE OR SEX
If the stated age or sex or both of any of the Lives Insured in the Policy are
incorrect, Manufacturers Life of America will change the Face Amount so that the
death benefit will be that which the most recent monthly charge for the cost of
insurance would have purchased for the correct age and sex.
SUICIDE EXCLUSION
If any of the Lives Insured dies by suicide within two years after the Issue
Date, the Policy will terminate and the Company will pay only the premiums paid
less any partial Net Cash Surrender Value withdrawal and less any Policy Debt.
If any of the Lives Insured dies by suicide within two years after the effective
date of an applied for increase in Face Amount, the Company will credit the
amount of any Monthly Deductions taken for the increase and reduce the Face
Amount to what it was prior to the increase. If the last death is by suicide,
the Death Benefit for that increase will be limited to the Monthly Deductions
taken for the increase.
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The Company reserves the right to obtain evidence of the manner and cause of
death of the Lives Insured.
SUPPLEMENTARY BENEFITS
Subject to certain requirements, one or more supplementary benefits may be added
to a Policy, including the Estate Preservation Rider which provides additional
term insurance at no extra charge during the first four Policy Years to protect
against application of the "three year contemplation of death" rule and an
option to split the Policy into two individual policies upon divorce, or certain
federal tax law changes without evidence of insurability (the "Policy Split
Option"). More detailed information concerning these supplementary benefits may
be obtained from an authorized agent of the Company. The cost of any
supplementary benefits will be deducted as part of the monthly deduction.
TAX TREATMENT OF THE POLICY
The following summary provides a general description of the federal income tax
considerations associated with the Policy and does not purport to be complete or
to cover all situations. This discussion is not intended as tax advice. Counsel
or other competent tax advisers should be consulted for more complete
information. This discussion is based upon the Company's understanding of the
present federal income tax laws as they are currently interpreted by the
Internal Revenue Service (the "Service"). No representation is made as to the
likelihood of continuation of the present federal income tax laws nor of the
current interpretations by the Service. MANUFACTURERS LIFE OF AMERICA DOES NOT
MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF ANY POLICY OR ANY TRANSACTION
REGARDING THE POLICIES.
The Policies may be used in various arrangements, including non-qualified
deferred compensation or salary continuation plans, split dollar insurance
plans, executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if the use of such
Policies in any such arrangement, the value of which depends in part on the tax
consequences, is contemplated, a qualified tax adviser should be consulted for
advice on the tax attributes of the particular arrangement.
LIFE INSURANCE QUALIFICATION
There are several requirements that must be met for a Policy to be considered a
Life Insurance Contract under the Internal Revenue Code, and thereby to enjoy
the tax benefits of such a contract:
1. The Policy must satisfy the definition of life insurance under Section 7702
of the Internal Revenue Code of 1986 (the "Code").
2. The investments of the Separate Account must be "adequately diversified" in
accordance with Section 817(h) of the Code and Treasury Regulations.
3. The Policy must be a valid life insurance contract under applicable state
law.
4. The Policyowner must not possess "incidents of ownership" in the assets of
the Separate Account.
These four items are discussed in detail below.
DEFINITION OF LIFE INSURANCE
Section 7702 of the Code sets forth a definition of a life insurance contract
for federal tax purposes. For a Policy to be a life insurance contract, it must
satisfy either the Cash Value Accumulation Test or the Guideline Premium and
Cash Value Corridor Test. The Cash Value Accumulation Test requires a minimum
death benefit for a given Policy Value. The Guideline Premium Test also requires
a minimum death benefit, but in addition limits the total premiums that can be
paid into a Policy for a given amount of death benefit.
With respect to a Policy which is issued on the basis of a standard rate class,
the Company believes (largely in reliance on IRS Notice 88-128 and the proposed
mortality charge regulations under Section 7702, issued on July 5, 1991) that
such a Policy should meet the Section 7702 definition of a life insurance
contract.
With respect to a Policy that is issued on a substandard basis (i.e., a rate
class involving higher-than-standard mortality risk), there is less guidance, in
particular as to how mortality and other expense requirements of Section 7702
are to be applied in determining whether such a Policy meets the Section 7702
definition of a life insurance contract. Thus it is not clear whether or not
such a Policy would satisfy Section 7702, particularly if the policyowner pays
the full amount of premiums permitted under the Policy.
The Secretary of the Treasury (the "Treasury") is authorized to prescribe
regulations implementing Section 7702. However, while proposed regulations and
other interim guidance have been issued, final regulations have not been adopted
and guidance as to how Section 7702 is to be applied is limited. If a Policy
were determined not to be a life insurance contract for purposes of Section
7702, such a Policy would not provide the tax advantages normally provided by a
life insurance policy.
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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
A policy must qualify as a valid life insurance contract under applicable state
law. State regulations require that the policyowner have appropriate insurable
interest in the Life Insured. Failure to establish an insurable interest may
result in the Policy not qualifying as a life insurance contract for federal tax
purposes.
INVESTOR CONTROL
In certain circumstances, owners of variable life insurance Policies may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their Policies. In those circumstances, income
and gains from the separate account assets would be includible in the variable
policyowner's gross income. The IRS has stated in published rulings that a
variable policyowner will be considered the owner of separate account assets if
the policyowner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. The Treasury Department
has also announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the policyowner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyowners may direct their
investments to particular sub-accounts without being treated as owners of the
underlying assets". As of the date of this prospectus, no such guidance has been
issued.
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that policyowners were not owners of separate account assets. For example, the
policyowner has additional flexibility in allocating premium payments and Policy
Values. These differences could result in an owner being treated as the owner of
a pro-rata portion of the assets of the Separate Account. In addition, the
Company does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has stated it expects to
issue. The Company therefore reserves the right to modify the Policy as
necessary to attempt to prevent an owner from being considered the owner of a
pro rata share of the assets of the Separate Account.
TAX TREATMENT OF POLICY BENEFITS
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes.
The Company believes that the proceeds and cash value increases of a Policy
should be treated in a manner consistent with a fixed-benefit life insurance
policy for federal income tax purposes. Depending on the circumstances, the
exchange of a Policy, a change in the Policy's death benefit option, a Policy
loan, partial withdrawal, surrender, change in ownership, the addition of an
accelerated death benefit rider, or an assignment of the Policy may have federal
income tax consequences. In addition, federal, state and local transfer, and
other tax consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each policyowner or beneficiary.
DEATH BENEFIT
The death benefit under the Policy should be excludible from the gross income of
the beneficiary under Section 101(a)(1) of the Code.
CASH VALUES
Generally, the policyowner will not be deemed to be in constructive receipt of
the Policy Value, including increments thereof, until there is a distribution.
This includes additions attributable to interest, dividends, appreciation or
gains realized on transfers among sub-accounts.
INVESTMENT IN THE POLICY
Investment in the Policy means:
- - the aggregate amount of any premiums or other consideration paid for a
Policy; minus
- - the aggregate amount, other than loan amounts, received under the Policy
which has been excluded from the gross income of the
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<PAGE> 127
policyowner (except that the amount of any loan from, or secured by, a
Policy that is a MEC, to the extent such amount has been excluded from
gross income, will be disregarded); plus
- - the amount of any loan from, or secured by a Policy that is a MEC to the
extent that such amount has been included in the gross income of the
policyowner.
The repayment of a policy loan, or the payment of interest on a loan, does not
affect the Investment in the Policy.
SURRENDER OR LAPSE
Upon a complete surrender or lapse of a Policy, if the amount received plus the
amount of Policy Debt exceeds the total investment in the Policy, the excess
will generally be treated as ordinary income subject to tax.
If, at the time of lapse or surrender, a Policy has a loan, the loan is
extinguished and the amount of the loan is a deemed payment to the policyholder.
If the amount of this deemed payment exceeds the investment in the contract, the
excess is taxable income and is subject to Internal Revenue Service reporting
requirements."
DISTRIBUTIONS
The tax consequences of distributions from, and loans taken from or secured by,
a Policy depend on whether the Policy is classified as a "Modified Endowment
Contract" or "MEC".
DISTRIBUTIONS FROM NON-MEC'S
A distribution from a non-MEC is generally treated as a tax-free recovery by the
policyowner of the Investment in the Policy to the extent of such Investment in
the Policy, and as a distribution of taxable income only to the extent the
distribution exceeds the Investment in the Policy. Loans from, or secured by, a
non-MEC are not treated as distributions. Instead, such loans are treated as
indebtedness of the policyowner.
Force Outs
An exception to this general rule occurs in the case of a decrease in the
Policy's death benefit or any other change that reduces benefits under the
Policy in the first 15 years after the Policy is issued and that results in a
cash distribution to the policyowner in order for the Policy to continue to
comply with the Section 7702 definitional limits. Such a cash distribution will
be taxed in whole or in part as ordinary income (to the extent of any gain in
the Policy) under rules prescribed in Section 7702. Changes include partial
withdrawals and death benefit option changes.
DISTRIBUTIONS FROM MEC'S
Policies classified as MEC's will be subject to the following tax rules:
- - First, all partial withdrawals from such a Policy are treated as ordinary
income subject to tax up to the amount equal to the excess (if any) of the
Policy Value immediately before the distribution over the Investment in the
Policy at such time.
- - Second, loans taken from or secured by such a Policy are treated as partial
withdrawals from the Policy and taxed accordingly. Past-due loan interest
that is added to the loan amount is treated as a loan.
- - Third, a 10% additional income tax is imposed on the portion of any
distribution (including distributions on surrender) from, or loan taken
from or secured by, such a policy that is included in income except where
the distribution or loan:
- is made on or after the policyowner attains age 59 -1/2;
- is attributable to the policyowner becoming disabled; or
- is part of a series of substantially equal periodic payments for the
life (or life expectancy) of the policyowner or the joint lives (or
joint life expectancies) of the policyowner and the policyowner's
beneficiary.
These exceptions are not likely to apply in situations where the Policy is
not owned by an individual.
Definition of Modified Endowment Contracts
Section 7702A establishes a class of life insurance contracts designated as
"Modified Endowment Contracts," which applies to Policies entered into or
materially changed after June 20, 1988.
In general, a Policy will be a Modified Endowment Contract if the accumulated
premiums paid at any time during the first seven Policy Years exceed the
"seven-pay premium limit". The seven-pay premium limit on any date is equal to
the sum of the net level premiums that would have been paid on or before such
date if the policy provided for paid-up future benefits after the payment of
seven level annual premiums (the "seven-pay premium").
The rules relating to whether a Policy will be treated as a MEC are extremely
complex and cannot be adequately described in the limited confines of this
summary. Therefore, a current or prospective policyowner should consult with a
competent adviser to determine whether a transaction will cause the Policy to be
treated as a MEC.
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<PAGE> 128
Material Changes
A policy that is not a MEC may become a MEC if it is "materially changed". If
there is a material change to the policy, the seven year testing period for MEC
status is restarted. The material change rules for determining whether a Policy
is a MEC are complex. In general, however, the determination of whether a Policy
will be a MEC after a material change generally depends upon the relationship
among the death benefit of the Policy at the time of such change, the Policy
Value at the time of the change, and the additional premiums paid into the
Policy during the seven years starting with the date on which the material
change occurs.
Reductions in Face Amount
If there is a reduction in benefits during any Policy Year, the seven-pay
premium limit is recalculated as if the policy had been originally issued at the
reduced benefit level. Failure to comply would result in classification as a MEC
regardless of any efforts by the Company to provide a payment schedule that will
not violate the seven pay test.
Exchanges
A life insurance contract received in exchange for a MEC will also be treated as
a MEC.
Processing of Premiums
If a premium is received which would cause the Policy to become a MEC within 23
days of the next Policy Anniversary, the Company will not apply the portion of
the premium which would cause MEC status ("excess premium") to the Policy when
received. The excess premium will be placed in a suspense account until the next
anniversary date, at which point the excess premium, along with interest, earned
on the excess premium at a rate of 3.5% from the date the premium was received,
will be applied to the Policy. The policyowner will be advised of this action
and will be offered the opportunity to have the premium credited as of the
original date received or to have the premium returned. If the policyowner does
not respond, the premium and interest will be applied to the Policy as of the
first day of the next anniversary.
If a premium is received which would cause the Policy to become a MEC more than
23 days prior to the next Policy Anniversary, the Company will refund any excess
premium to the policyowner. The portion of the premium which is not excess will
be applied as of the date received. The policyowner will be advised of this
action and will be offered the opportunity to return the premium and have it
credited to the account as of the original date received.
If in connection with the application or issue of the Policy, the policyowner
acknowledges that the policy is or will become a MEC, excess premiums that would
cause MEC status will be credited to the account as of the original date
received.
Multiple Policies
All MEC's that are issued by a Company (or its affiliates) to the same
policyowner during any calendar year are treated as one MEC for purposes of
determining the amount includible in gross income under Section 72(e) of the
Code.
Policy Split Options
This option permits a Policy to be split into two other individual Policies upon
the occurrence of a divorce of the lives insured or certain changes in federal
estate tax law. The purchase and exercise of the policy split option could have
adverse tax consequences. For example, it is not clear whether a policy split
will be treated as a nontaxable exchange under Sections 1031 through 1043 of the
Code. If a policy split is not treated as a nontaxable exchange, a split could
result in the recognition of taxable income in an amount up to any gain in the
Policy at the time of the split. It is also not clear whether the cost of the
policy split option, which is deducted monthly from Policy Value, will be
treated as a taxable distribution. Before purchasing the policy split option or
exercising rights provided by the policy split option, please consult with a
competent tax adviser regarding the possible consequences.
POLICY LOAN INTEREST
Generally, personal interest paid on any loan under a Policy which is owned by
an individual is not deductible. For policies purchased on or after January 1,
1996, interest on any loan under a Policy owned by a taxpayer and covering the
life of any individual who is an officer or employee of or is financially
interested in the business carried on by the taxpayer will not be tax deductible
unless the employee is a key person within the meaning of Section 264 of the
Code. A deduction will not be permitted for interest on a loan under a Policy
held on the life of a key person to the extent the aggregate of such loans with
respect to contracts covering the key person exceed $50,000. The number of
employees who can qualify as key persons depends in part on the size of the
employer but cannot exceed 20 individuals.
Furthermore, if a non-natural person owns a Policy, or is the direct or indirect
beneficiary under a Policy, section 264(f) of the Code disallows a pro-rata
portion of the taxpayer's interest expense allocable to unborrowed Policy cash
values attributable to insurance
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<PAGE> 129
held on the lives of individuals who are not 20% (or more) owners of the
taxpayer-entity, officers, employees, or former employees of the taxpayer.
The portion of the interest expense that is allocable to unborrowed Policy cash
values is an amount that bears the same ratio to that interest expense as the
taxpayer's average unborrowed Policy cash values under such life insurance
policies bear to the average adjusted bases for all assets of the taxpayer.
If the taxpayer is not the Policyowner, but is the direct or indirect
beneficiary under the Policy, then the amount of unborrowed cash value of the
Policy taken into account in computing the portion of the taxpayer's interest
expense allocable to unborrowed Policy cash values cannot exceed the benefit to
which the taxpayer is directly or indirectly entitled under the Policy.
INTEREST ON POLICY LOANS AFTER YEAR 10
Interest credited to amounts in the Loan Account at an effective annual rate of
at least 4.00%. The actual rate credited is equal to the rate of interest
charged on the policy loan less than the Loan Interest Credited Differential,
which is currently 1.25% during the first ten policy years and 0% thereafter,
and is guaranteed not to exceed 1.25%. The tax consequences associated with a
loan interest credited differential of 0% are unclear. A tax adviser should be
consulted before effecting a loan to evaluate the tax consequences that may
arise in such a situation. If we determine, in our sole discretion, that there
is a substantial risk that a loan will be treated as a taxable distribution
under Federal tax law as a result of the differential between the credited
interest rate and the loan interest rate, the Company retains the right to
increase the loan interest rate to an amount that would result in the
transaction being treated as a loan under Federal tax law. If this amount is not
prescribed by any IRS ruling or regulation or any court decision, the amount of
increase will be that which the Company considers to be most likely to result in
the transaction being treated as a loan under Federal tax law.
POLICY EXCHANGES
A policyowner generally will not recognize gain upon the exchange of a Policy
for another life insurance policy issued by the Company or another insurance
company, except to the extent that the policyowner receives cash in the exchange
or is relieved of Policy indebtedness as a result of the exchange. The receipt
of cash or forgiveness of indebtedness is treated as "boot" which is taxable up
to the amount of the gain in the policy. In no event will the gain recognized
exceed the amount by which the Policy Value (including any unpaid loans) exceeds
the policyowner's Investment in the Policy.
OTHER TRANSACTIONS
A transfer of the Policy, a change in the owner, a change in the beneficiary,
and certain other changes to the Policy, as well as particular uses of the
Policy (including use in a so called "split-dollar" arrangement) may have tax
consequences depending upon the particular circumstances and should not be
undertaken prior to consulting with a qualified tax adviser. For instance, if
the owner transfers the Policy or designates a new owner in return for valuable
consideration (or, in some cases, if the transferor is relieved of a liability
as a result of the transfer), then the Death Benefit payable upon the death of
the Insured may in certain circumstances be includible in taxable income to the
extent that the Death Benefit exceeds the prior consideration paid for the
transfer and any premiums or other amounts subsequently paid by the transferee.
Further, in such a case, if the consideration received exceeds the transferor's
Investment in the Policy, the difference will be taxed to the transferor as
ordinary income.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the individual
circumstances of each policyowner and beneficiary.
ALTERNATE MINIMUM TAX
Corporate owners may be subject to Alternate Minimum Tax on the annual increases
in Cash Surrender Values and on the Death Benefit proceeds.
INCOME TAX REPORTING
In certain employer-sponsored life insurance arrangements, including equity
split dollar arrangements, participants may be required to report for income tax
purposes, one or more of the following:
(a) the value each year of the life insurance protection provided;
(b) an amount equal to any employer-paid premiums; or
(c) some or all of the amount by which the current value exceeds the employer's
interest in the Policy.
Participants should consult with their tax adviser to determine the tax
consequences of these arrangements.
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<PAGE> 130
OTHER INFORMATION
PAYMENT OF PROCEEDS
As long as the Policy is in force, Manufacturers Life of America will ordinarily
pay any policy loans, surrenders, partial withdrawals or insurance benefit
within seven days after receipt at its Service Office of all the documents
required for such a payment. The Company may delay for up to six months the
payment from the Fixed Account of any policy loans, surrenders, partial
withdrawals, or insurance benefit. In the case of any such payments from any
Investment Account, the Company may delay payment during any period during which
(i) the New York Stock Exchange is closed for trading (except for normal weekend
and holiday closings), (ii) trading on the New York Stock Exchange is
restricted, (iii) an emergency exists as a result of which disposal of
securities held in the Separate Account is not reasonably practicable or it is
not reasonably practicable to determine the value of the Separate Account's net
assets or (iv) the SEC, by order, so permits for the protection of security
holders; provided that applicable rules and regulations of the SEC shall govern
as to whether the conditions described in (ii) and (iii) exist.
REPORTS TO POLICYOWNERS
Within 30 days after each Policy Anniversary, Manufacturers Life of America will
send the policyowner a statement showing, among other things:
- - the amount of death benefit;
- - the Policy Value and its allocation among the Investment Accounts, the
Fixed Account and the Loan Account;
- - the value of the units in each Investment Account to which the Policy Value
is allocated;
- - the Policy Debt and any loan interest charged since the last report;
- - the premiums paid and other Policy transactions made during the period
since the last report; and
- - any other information required by law.
Each policyowner will also be sent an annual and a semi-annual report for the
Trust which will include a list of the securities held in each Portfolio as
required by the 1940 Act.
DISTRIBUTION OF THE POLICIES
ManEquity, Inc., an indirect wholly-owned subsidiary of Manufacturers Life, will
act as the principal underwriter of, and continuously offer, the Policies
pursuant to a Distribution Agreement with Manufacturers Life of America.
ManEquity, Inc. is registered as a broker-dealer under the Securities Exchange
Act of 1934 and is a member of the National Association of Securities Dealers.
ManEquity, Inc. is located at 200 Bloor Street East, Toronto, Ontario, Canada,
M4W 1E5 and was organized under the laws of Colorado on May 4, 1970. The
directors of ManEquity, Inc. are: Roy Bubbs, Joe Scott, Robert Cook, Bruce
Gordon, Gary Buchanan and Douglas Myers. The officers of ManEquity, Inc. are:
(i) Douglas Myers - President, (ii) Gary Buchanan - Vice President, Compliance,
(iii) Thomas Reives - Treasurer, and (iv) Brian Buckley - Secretary and General
Counsel. The Policies will be sold by registered representatives of either
ManEquity or other broker-dealers having distribution agreements with ManEquity
who are also authorized by state insurance departments to do so. The Policies
will be sold in all states of the United States except New York.
A registered representative will receive commissions not to exceed 105% of
premiums in the first year, 2% of all premiums paid in the second year and
after, and after the second anniversary 0.15% of the Policy Value per year.
Representatives who meet certain productivity standards with regard to the sale
of the Policies and certain other policies issued by Manufacturers Life of
America or Manufacturers Life will be eligible for additional compensation.
RESPONSIBILITIES OF MANUFACTURERS LIFE
Manufacturers Life and 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 Manufacturers Life of America, prepare and
maintain all books and records required to be prepared and maintained by
ManEquity, Inc. with respect to the policies and such other policies, and send
all confirmations required to be sent by ManEquity, Inc. with respect to the
Policies and such other policies. ManEquity, Inc. will promptly reimburse
Manufacturers Life or Manufacturers USA for all sales commissions paid by
Manufacturers Life or Manufacturers USA and will pay Manufacturers Life or
Manufacturers USA for its other services under the agreement in such amounts and
at such times as agreed to by the parties.
Manufacturers Life and Manufacturers USA have also entered into a Service
Agreement with Manufacturers Life of America pursuant to which Manufacturers
Life and Manufacturers USA will provide to Manufacturers Life of America all
issue, administrative, general
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<PAGE> 131
services and recordkeeping functions on behalf of Manufacturers Life of America
with respect to all of its insurance policies including the Policies.
Finally, Manufacturers Life of America may, from time to time in its sole
discretion, enter into one or more reinsurance agreements with other life
insurance companies under which policies issued by it may be reinsured, such
that its total amount at risk under a policy would be limited for the life of an
insured.
VOTING RIGHTS
As stated previously, all of the assets held in the sub-accounts of the Separate
Account will be invested in shares of a particular Portfolio of the Trust.
Manufacturers Life of America is the legal owner of those shares and as such has
the right to vote upon certain matters that are required by the 1940 Act to be
approved or ratified by the shareholders of a mutual fund and to vote upon any
other matters that may be voted upon at a shareholders' meeting. However,
Manufacturers Life of America will vote shares held in the sub-accounts in
accordance with instructions received from policyowners having an interest in
such sub-accounts. Shares held in each sub-account for which no timely
instructions from policyowners are received, including shares not attributable
to the Policies, will be voted by Manufacturers Life of America in the same
proportion as those shares in that sub-account for which instructions are
received. Should the applicable federal securities laws or regulations change so
as to permit Manufacturers Life of America to vote shares held in the Separate
Account in its own right, it may elect to do so.
The number of shares in each sub-account for which instructions may be given by
a policyowner is determined by dividing the portion of the Policy Value derived
from participation in that sub-account, if any, by the value of one share of the
corresponding Portfolio. The number will be determined as of a date chosen by
Manufacturers Life of America, but not more than 90 days before the
shareholders' meeting. Fractional votes are counted. Voting instructions will be
solicited in writing at least 14 days prior to the meeting.
Manufacturers Life of America may, if required by state officials, disregard
voting instructions if such instructions would require shares to be voted so as
to cause a change in the sub-classification or investment policies of one or
more of the Portfolios, or to approve or disapprove an investment management
contract. In addition, the Company itself may disregard voting instructions that
would require changes in the investment policies or investment adviser, provided
that Manufacturers Life of America reasonably disapproves such changes in
accordance with applicable federal regulations. If Manufacturers Life of America
does disregard voting instructions, it will advise policyowners of that action
and its reasons for such action in the next communication to policyowners.
SUBSTITUTION OF PORTFOLIO SHARES
It is possible that in the judgment of the management of Manufacturers Life of
America, one or more of the Portfolios may become unsuitable for investment by
the Separate Account because of a change in investment policy or a change in the
applicable laws or regulation, because the shares are no longer available for
investment, or for some other reason. In that event, Manufacturers Life of
America may seek to substitute the shares of another Portfolio or of an entirely
different mutual fund. Before this can be done, the approval of the S.E.C. and
one or more state insurance departments may be required.
Manufacturers Life of America also reserves the right (i) to combine other
separate accounts with the Separate Account, (ii) to create new separate
accounts, (iii) to establish additional sub-accounts within the Separate Account
to invest in additional portfolios of the Trust or another management investment
company, (iv) to eliminate existing sub-accounts and to stop accepting new
allocations and transfers into the corresponding portfolio, (v) to combine
sub-accounts or to transfer assets in one sub-account to another sub-account or
(vi) to transfer assets from the Separate Account to another separate account
and from another separate account to the Separate Account. The Company also
reserves the right to operate the Separate Account as a management investment
company or other form permitted by law, and to de-register the Separate Account
under the 1940 Act. Any such change would be made only if permissible under
applicable federal and state law.
RECORDS AND ACCOUNTS
The Service Office will perform administrative functions, such as decreases,
increases, surrenders and partial withdrawals, and fund transfers on behalf of
the Company.
All records and accounts relating to the Separate Account and the Portfolios
will be maintained by the Company. All financial transactions will be handled by
the Company. All reports required to be made and information required to be
given will be provided by the Company.
STATE REGULATIONS
Manufacturers Life of America is subject to the regulation and supervision by
the Michigan Department of Insurance, which periodically examines its financial
condition and operations. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business. The
Policies have been filed with insurance officials, and meet all standards set by
law, in each jurisdiction where they are sold.
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<PAGE> 132
Manufacturers Life of America is required to submit annual statements of its
operations, including financial statements, to the insurance departments of the
various jurisdictions in which it does business for the purposes of determining
solvency and compliance with local insurance laws and regulations.
LITIGATION
No litigation is pending that would have a material effect upon the Separate
Account or the Trust.
INDEPENDENT AUDITORS
The consolidated financial statements of Manufacturers Life Insurance Company of
America and Separate Account Three of The Manufacturers Life Insurance Company
of America at December 31, 1999 and 1998, and for each of the three 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 S.E.C. relating to the offering described in this prospectus. This
prospectus does not include all the information set forth in the registration
statement. The omitted information may be obtained from the SEC's principal
office in Washington D.C. upon payment of the prescribed fee. The Commission
also maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission which is located at http://www.sec.gov.
For further information you may also contact Manufacturers Life of America's
Home Office, the address and telephone number of which are on the first page of
the prospectus.
OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
POSITION WITH
MANUFACTURERS LIFE
NAME OF AMERICA PRINCIPAL OCCUPATION
<S> <C> <C>
Sandra M. Cotter (37)* Director Attorney, Dykema Gossett, PLLC, 1989 to present.
(since December 1992)
James D. Gallagher (45)** Director (since May 1996), President, The Manufacturers Life Insurance Company of New York,
Secretary and General Counsel 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 Manufacturers
and President Life Insurance Company, January 1999 to present, Senior Vice
President, Business Development, The Manufacturers Life Insurance
Company, 1994 to December 1998.
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 Insurance
and Chairman Company; January 1999 to present; Executive Vice President, U.S.
Operations, The Manufacturers Life Insurance
</TABLE>
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<PAGE> 133
<TABLE>
<CAPTION>
POSITION WITH
MANUFACTURERS LIFE
NAME OF AMERICA PRINCIPAL OCCUPATION
<S> <C> <C>
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, U.S. 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, The Manufacturers Life Insurance Company,
1994 to 1995.
Douglas H. Myers (45)*** Vice President, Finance and President, ManEquity, Inc., April 1994 to present; Assistant Vice
Compliance, Controller President and Controller, U.S. Operations, The Manufacturers Life
Insurance Company, 1988 to present.
John G. Vrysen (44)** Vice President, Appointed Chief Financial Officer and Treasurer, Manulife-Wood Logan
Actuary Holding Co., Inc., January 1996 to present; Vice President and
Chief Financial Officer, U.S. Operations, The Manufacturers
Life Insurance Company, January 1996 to present; Vice
President and Chief Actuary, The Manufacturers Life
Insurance Company of New York, March 1992 to present; Vice
President and Chief Actuary, The Manufacturers Life
Insurance Company of North America, January 1986 to present.
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.
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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.
OPTIONAL TERM RIDER
The Policy may be issued with an optional term insurance rider (the "Term
Rider"). The benefit of the term rider is that the cost of insurance rates will
always be less than or equal to the cost of insurance rates on the Policy.
HOWEVER, UNLIKE THE DEATH BENEFIT UNDER THE POLICY, THE DEATH BENEFIT UNDER THE
TERM RIDER IS NOT PROTECTED BY THE NO LAPSE GUARANTEE AFTER THE SECOND POLICY
YEAR AND TERMINATES AT AGE 100.
ILLUSTRATIONS
The tables set forth in Appendix A illustrate the way in which a Policy's Death
Benefit, Policy Value, and Cash Surrender Value could vary over an extended
period of time.
41
<PAGE> 135
APPENDIX A - SAMPLE ILLUSTRATIONS OF POLICY VALUES, CASH SURRENDER VALUES AND
DEATH BENEFITS
The following tables have been prepared to help show how values under the Policy
change with investment performance. The tables include both Policy Values and
Cash Surrender Values as well as Death Benefits. The Policy Value is the sum of
the values in the Investment Accounts, as the tables assume no values in the
Fixed Account or Loan Account. The Cash Surrender Value is the Policy Value less
any applicable surrender charges. The tables illustrate how Policy Values and
Cash Surrender Values, which reflect all applicable charges and deductions, and
Death Benefits of the Policy on an insured of given age would vary over time if
the return on the assets of the Portfolios was a uniform, gross, after-tax,
annual rate of 0%, 6% or 12%. The Policy Values, Death Benefits and Cash
Surrender Values would be different from those shown if the returns averaged 0%,
6% or 12%, but fluctuated over and under those averages throughout the years.
The charges reflected in the tables include those for deductions from premiums,
surrender charges, and monthly deductions.
The amounts shown for the Policy Value, Death Benefit and Cash Surrender Value
as of each Policy Year reflect the fact that the net investment return on the
assets held in the sub-accounts is lower than the gross, after-tax return. This
is because the expenses and fees borne by Manufacturers Investment Trust are
deducted from the gross return. The illustrations reflect an average of those
Portfolios' current expenses (excluding those of the Equity Index Trust), 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 illustrations reflect the current expense reimbursements in
effect for the Lifestyle Trusts and the Index Trusts. In the absence of such
expense reimbursement, 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 is 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 each combination of age and death benefit option
for a Policy issued to a male non-smoker:
- - one based on current cost of insurance charges assessed by the Company and
reflecting a 20 year no lapse guarantee
- - one based on the maximum cost of insurance charges based on the 1980
Commissioners Smoker Distinct Mortality Tables and reflecting a 20 year no
lapse guarantee.
Current cost of insurance charges are not guaranteed and may be changed. Upon
request, Manufacturers Life of America will furnish a comparable illustration
based on the proposed life insured's issue age, sex (unless unisex rates are
required by law, or are requested) and risk classes, any additional ratings and
the death benefit option, face amount and planned premium requested.
Illustrations for smokers would show less favorable results than the
illustrations shown below.
From time to time, in advertisements or sales literature for the Policies that
quote performance data of one or more of the Portfolios, the Company may include
Cash Surrender Values and Death Benefit figures computed using the same
methodology as that used in the following illustrations, but with the average
annual total return of the Portfolio for which performance data is shown in the
advertisement replacing the hypothetical rates of return shown in the following
tables. This information may be shown in the form of graphs, charts, tables and
examples.
The Policies have been offered to the public only since approximately May 1,
1999. However, total return data may be advertised for as long a period of time
as the underlying Portfolio has been in existence. The results for any period
prior to the Policies' being offered would be calculated as if the Policies had
been offered during that period of time, with all charges assumed to be those
applicable to the Policies.
A-1
<PAGE> 136
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$7,500 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return
----------------------- -----------------------
GROSS INVESTMENT
RETURN
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) (2) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,972 0 500,000 6,354 0 500,000 6,736 0 500,000
7,875
2 16,144 12,341 3,719 500,000 13,490 4,867 500,000 14,684 6,061 500,000
3 24,826 18,564 10,543 500,000 20,885 12,865 500,000 23,393 15,373 500,000
4 33,942 24,656 17,337 500,000 28,567 21,248 500,000 32,958 25,639 500,000
5 43,514 30,610 23,993 500,000 36,537 29,920 500,000 43,454 36,837 500,000
6 53,565 36,430 30,414 500,000 44,809 38,793 500,000 54,978 48,962 500,000
7 64,118 42,116 36,802 500,000 53,394 48,080 500,000 67,634 62,320 500,000
8 75,199 47,673 43,061 500,000 62,309 57,697 500,000 81,541 76,929 500,000
9 86,834 53,116 49,106 500,000 71,583 67,572 500,000 96,840 92,829 500,000
10 99,051 58,457 55,148 500,000 81,239 77,930 500,000 113,683 110,375 500,000
15 169,931 82,843 82,843 500,000 135,035 135,035 500,000 226,433 226,433 500,000
20 260,394 102,294 102,294 500,000 198,686 198,686 500,000 408,191 408,191 500,000
25 375,851 115,564 115,564 500,000 277,677 277,677 500,000 715,686 715,686 765,784
30 523,206 113,577 113,577 500,000 372,227 372,227 500,000 1,220,495 1,220,495 1,281,520
35 711,272 78,715 78,715 500,000 493,085 493,085 517,739 2,041,137 2,041,137 2,143,194
40 951,298 0 (4) 0 (4) 0 (4) 645,945 645,945 678,242 3,360,628 3,360,628 3,528,659
45 1,257,639 835,248 835,248 843,600 5,508,678 5,508,678 5,563,765
50 1,648,615 1,083,345 1,083,345 1,083,345 9,124,007 9,124,007 9,124,007
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force
until the end of the first 20 Policy Years.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
A-2
<PAGE> 137
A-3
<PAGE> 138
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$7,500 ANNUAL PLANNED PREMIUM
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return
----------------------- -----------------------
GROSS INVESTMENT RETURN
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) (2) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5,972 0 500,000 6,354 0 500,000 6,736 0 500,000
7,875
2 12,341 3,719 500,000 13,490 4,867 500,000 14,684 6,061 500,000
16,144
3 18,559 10,538 500,000 20,881 12,860 500,000 23,389 15,368 500,000
24,826
4 24,617 17,298 500,000 28,527 21,208 500,000 32,917 25,598 500,000
33,942
5 30,508 23,891 500,000 36,430 29,813 500,000 43,342 36,725 500,000
43,514
6 36,221 30,206 500,000 44,587 38,571 500,000 54,743 48,727 500,000
53,565
7 41,745 36,431 500,000 52,996 47,682 500,000 67,207 61,894 500,000
64,118
8 47,067 42,455 500,000 61,652 57,040 500,000 80,830 76,218 500,000
75,199
9 52,171 48,161 500,000 70,550 66,540 500,000 95,718 91,708 500,000
86,834
10 57,040 53,731 500,000 79,683 76,374 500,000 111,986 108,678 500,000
99,051
15 169,931 76,823 76,823 500,000 128,243 128,243 500,000 218,998 218,998 500,000
20 260,394 84,136 84,136 500,000 178,487 178,487 500,000 388,366 388,366 500,000
25 375,851 68,184 68,184 500,000 227,938 227,938 500,000 677,631 677,631 725,065
30 523,206 0 (4) 0 (4) 0 (4) 261,145 261,145 500,000 1,149,204 1,149,204 1,206,664
35 711,272 251,142 251,142 500,000 1,897,800 1,897,800 1,992,690
40 951,298 94,337 94,337 500,000 3,055,624 3,055,624 3,208,405
45 1,257,639 0 (4) 0 (4) 0 (4) 4,909,575 4,909,575 4,958,671
50 1,648,615 8,136,644 8,136,644 8,136,644
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force
until the end of the first 20 Policy Years.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
A-4
<PAGE> 139
A-5
<PAGE> 140
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$8,200 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return
----------------------- -----------------------
GROSS INVESTMENT RETURN
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) (2) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,608 0 506,608 7,028 0 507,028 7,449 0 507,449
8,610
2 13,602 4,980 513,602 14,866 6,244 514,866 16,180 7,558 516,180
17,651
3 20,436 12,415 520,436 22,990 14,969 522,990 25,749 17,728 525,749
27,143
4 27,127 19,808 527,127 31,428 24,109 531,428 36,256 28,937 536,256
37,110
5 33,666 27,049 533,666 40,182 33,564 540,182 47,785 41,168 547,785
47,576
6 40,056 34,040 540,056 49,263 43,247 549,263 60,437 54,421 560,437
58,564
7 46,296 40,983 546,296 58,684 53,370 558,684 74,324 69,010 574,324
70,103
8 52,392 47,780 552,392 68,461 63,849 568,461 89,573 84,961 589,573
82,218
9 58,359 54,349 558,359 78,624 74,613 578,624 106,337 102,327 606,337
94,939
10 108,296 64,209 60,900 564,209 89,197 85,889 589,197 124,779 121,470 624,779
15 185,791 90,774 90,774 590,774 147,760 147,760 647,760 247,502 247,502 747,502
20 284,698 111,354 111,354 611,354 215,388 215,388 715,388 441,192 441,192 941,192
25 410,930 123,594 123,594 623,594 293,638 293,638 793,638 756,695 756,695 1,256,695
30 572,038 115,892 115,892 615,892 369,701 369,701 869,701 1,251,725 1,251,725 1,751,725
35 777,658 68,962 68,962 568,962 419,451 419,451 919,451 2,015,651 2,015,651 2,515,651
40 1,040,086 0 (4) 0 (4) 0 (4) 406,671 406,671 906,671 3,188,259 3,188,259 3,688,259
45 1,375,018 282,258 282,258 782,258 4,996,031 4,996,031 5,496,031
50 1,802,486 0 (4) 0 (4) 0 (4) 7,767,828 7,767,828 8,267,828
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force
until the end of the first 20 Policy Years.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
A-6
<PAGE> 141
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$8,200 ANNUAL PLANNED PREMIUM
ASSUMING MAXIMUM CHARGES
<TABLE>
<CAPTION>
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return
GROSS INVESTMENT RETURN
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) (2) Value (3) Value (3) Value (3)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 6,608 0 506,608 7,028 0 507,028 7,449 0 507,449
8,610
2 13,602 4,980 513,602 14,866 6,244 514,866 16,180 7,558 516,180
17,651
3 20,431 12,410 520,431 22,985 14,964 522,985 25,744 17,723 525,744
27,143
4 27,087 19,767 527,087 31,386 24,067 531,386 36,213 28,894 536,213
37,110
5 33,558 26,941 533,558 40,067 33,450 540,067 47,664 41,046 547,664
47,576
6 39,832 33,817 539,832 49,023 43,007 549,023 60,179 54,163 560,179
58,564
7 45,896 40,582 545,896 58,247 52,933 558,247 73,848 68,534 573,848
70,103
8 51,731 47,119 551,731 67,730 63,118 567,730 88,765 84,153 588,765
82,218
9 57,319 53,309 557,319 77,459 73,449 577,459 105,032 101,022 605,032
94,939
10 108,296 62,636 59,327 562,636 87,415 84,106 587,415 122,756 119,447 622,756
15 185,791 83,828 83,828 583,828 139,339 139,339 639,339 237,175 237,175 737,175
20 284,698 89,919 89,919 589,919 187,919 187,919 687,919 405,028 405,028 905,028
25 410,930 68,480 68,480 568,480 219,273 219,273 719,273 651,532 651,532 1,151,532
30 572,038 0 (4) 0 (4) 0 (4) 191,257 191,257 691,257 980,882 980,882 1,480,882
35 777,658 39,765 39,765 539,765 1,390,103 1,390,103 1,890,103
40 1,040,086 0 (4) 0 (4) 0 (4) 1,858,324 1,858,324 2,358,324
45 1,375,018 2,329,265 2,329,265 2,829,265
50 1,802,486 2,158,992 2,158,992 2,658,992
</TABLE>
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in force
until the end of the first 20 Policy Years.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
A-7
<PAGE> 142
AUDITED CONSOLIDATED
FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
Years ended December 31, 1999, 1998 and 1997
<PAGE> 143
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> 144
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> 145
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> 146
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> 147
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> 148
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> 149
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> 150
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> 151
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> 152
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> 153
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 $73,081
-----------------------------------------------------------------------
</TABLE>
10
<PAGE> 154
3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED)
b) INVESTMENT INCOME
Income by type of investment was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ 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) $(2,237)
----------------------------------------------------------------------
</TABLE>
11
<PAGE> 155
5. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ 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> 156
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 $(2,550)). State regulatory authorities prescribe
statutory accounting practices that differ in certain respects from
accounting principles generally accepted in the United States followed
by stock life insurance companies. The significant differences relate
to investments, deferred acquisition costs, deferred income taxes,
non-admitted asset balances and reserve calculation assumptions.
13
<PAGE> 157
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and the estimated fair values of certain of the
Company's financial instruments at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
($ 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> 158
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 $3,972 during 1999, 1998 and 1997 respectively.
The Company and MLI have entered into an agreement whereby MLI provides
a claims paying guarantee to the Company's U.S. policyholders. This
claims paying guarantee does not apply to the Company's separate
account contract holders
10. REINSURANCE
In the normal course of business, the Company cedes reinsurance as a
party to several reinsurance treaties with major unrelated insurance
companies. The Company remains liable for amounts ceded in the event
that reinsurers do not meet their obligations.
15
<PAGE> 159
10. REINSURANCE (CONTINUED)
The effects of reinsurance on premiums were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ 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> 160
AUDITED CONSOLIDATED
FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
Years ended December 31, 1999, 1998 and 1997
<PAGE> 161
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> 162
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> 163
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> 164
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> 165
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> 166
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> 167
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> 168
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> 169
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> 170
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> 171
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 $73,081
-----------------------------------------------------------------------
</TABLE>
10
<PAGE> 172
3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED)
b) INVESTMENT INCOME
Income by type of investment was as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ 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) $(2,237)
----------------------------------------------------------------------
</TABLE>
11
<PAGE> 173
5. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ 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> 174
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 $(2,550)). State regulatory authorities prescribe
statutory accounting practices that differ in certain respects from
accounting principles generally accepted in the United States followed
by stock life insurance companies. The significant differences relate
to investments, deferred acquisition costs, deferred income taxes,
non-admitted asset balances and reserve calculation assumptions.
13
<PAGE> 175
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and the estimated fair values of certain of the
Company's financial instruments at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
($ 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> 176
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 $3,972 during 1999, 1998 and 1997 respectively.
The Company and MLI have entered into an agreement whereby MLI provides
a claims paying guarantee to the Company's U.S. policyholders. This
claims paying guarantee does not apply to the Company's separate
account contract holders
10. REINSURANCE
In the normal course of business, the Company cedes reinsurance as a
party to several reinsurance treaties with major unrelated insurance
companies. The Company remains liable for amounts ceded in the event
that reinsurers do not meet their obligations.
15
<PAGE> 177
10. REINSURANCE (CONTINUED)
The effects of reinsurance on premiums were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
($ 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> 178
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> 179
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> 180
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> 181
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> 182
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> 183
<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> 184
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> 185
<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> 186
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> 187
<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> 188
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> 189
<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> 190
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> 191
<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> 192
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> 193
<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> 194
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> 195
<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> 196
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> 197
<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> 198
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> 199
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> 200
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> 201
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> 202
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> 203
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> 204
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> 205
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
