-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EWyjSPgNpcV//h0C8FZkNTCoE7ne5smQYvGr6oUx0FvlY4UgbYGi6MKcpRZWY/E1 CnK/lNTx2euuKx7y+8hJPA== 0000950135-99-004479.txt : 19990923 0000950135-99-004479.hdr.sgml : 19990923 ACCESSION NUMBER: 0000950135-99-004479 CONFORMED SUBMISSION TYPE: S-6/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19990922 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEPARATE ACCOUNT THREE OF THE MANUFACT LIFE INS CO OF AM CENTRAL INDEX KEY: 0000801019 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-6/A SEC ACT: SEC FILE NUMBER: 333-82449 FILM NUMBER: 99715060 BUSINESS ADDRESS: STREET 1: 200 BLOOR STREET EAST ST 11 STREET 2: TORONTO M4W 1E5 CITY: ONTARIO CANADA STATE: A6 BUSINESS PHONE: 4169266302 MAIL ADDRESS: STREET 1: P O BOX 600 CITY: BUFFALO STATE: NY ZIP: 14201-0600 S-6/A 1 MANULIFE FINANCIAL 1 As filed with the Securities and Exchange Commission on September 22, 1999 Registration No. 333-82449 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-6 FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 Pre-Effective Amendment No. 1 SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA (Exact name of Registrant) THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA (Name of Depositor) 500 N. Woodward Avenue Bloomfield Hills, Michigan 48304 (Address of Depositor's Principal Executive Offices) James D. Gallagher Copy to: Vice President, Secretary J. Sumner Jones, Esq. and General Counsel Jones & Blouch L.L.P. The Manufacturers Life Insurance 1025 Thomas Jefferson Street, NW Company of America Washington, DC 20007 73 Tremont Street Boston, MA 02108 (Name and Address of Agent for Service) Title of Securities Being Registered: Variable Life Insurance Contracts Approximate date of commencement of proposed public offering: As soon after the effective date of this Registration Statement as is practicable. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that the Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. 2 Separate Account Three of The Manufacturers Life Insurance Company of America Registration Statement on Form S-6 Cross-Reference Sheet FORM N-8B-2 ITEM NO. CAPTION IN PROSPECTUS 1 Cover Page; General Information About Manufacturers (Separate Account Three) 2 Cover Page; General Information About Manufacturers (Manufacturers Life of America) 3 * 4 Other Information (Distribution of the Policy) 5 General Information About Manufacturers (Separate Account Three) 6 General Information About Manufacturers (Separate Account Three) 7 * 8 * 9 Other Information (Litigation) 10 Death Benefits; Premium Payments; Charges and Deductions; Policy Value; Policy Loans; Policy Surrender and Partial Withdrawals; Lapse and Reinstatement; Other Provisions of the Policy; Other Information 11 General Information About Manufacturers (Manufacturers Investment Trust) 12 General Information About Manufacturers (Manufacturers Investment Trust) 13 Charges and Deductions 14 Issuing A Policy; Other Information (Responsibilities Assumed By Manufacturers Life) 15 Issuing A Policy 16 ** 17 Policy Surrender and Partial Withdrawals 18 General Information About Manufacturers 19 Other Information (Reports to Policyholders; Responsibilities Assumed By Manufacturers Life) 20 * 21 Policy Loans 22 * 23 ** 3 24 Other Provisions of the Policy 25 General Information About Manufacturers (Manufacturers Life of America) 26 * 27 ** 28 Other Information (Officers and Directors) 29 General Information About Manufacturers (Manufacturers Life of America) 30 * 31 * 32 * 33 * 34 * 35 ** 36 * 37 * 38 Other Information (Distribution of the Policies; Responsibilities of Manufacturers Life) 39 Other Information (Distribution of the Policies) 40 * 41 ** 42 * 43 * 44 Policy Values --Determination of Policy Value; Units and Unit Values) 45 * 46 Policy Surrender and Partial Withdrawals; Other Information -- Payment of Proceeds) 47 General Information About Manufacturers (Manufacturers Investment Trust) 48 * 49 * 50 General Information About Manufacturers 51 Issuing a Policy; Death Benefits; Premium Payments; Charges and Deductions; Policy Value; Policy Loans; Policy Surrender and Partial Withdrawals; Lapse and Reinstatement; Other Policy Provisions 52 Other Information (Substitution of Portfolio Shares) 4 53 ** 54 * 55 * 56 * 57 * 58 * 59 Financial Statements * Omitted since answer is negative or item is not applicable. **Omitted. 5 PART I INFORMATION REQUIRED IN PROSPECTUS 6 PROSPECTUS SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA VENTURE PLUS SPVL A MODIFIED SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY This prospectus describes Venture Plus SPVL, a modified single premium variable life insurance policy (the "Policy"). The Manufacturers Life Insurance Company of America (the "Company," "Manufacturers Life of America," "we" or "us") offers the Policy on both a single life and a survivorship basis. Policy Value may accumulate on a fixed basis or vary with the investment performance of the sub-accounts of Manufacturers Life of America's Separate Account Three (the "Separate Account"). The assets of each sub-account will be used to purchase shares of a particular investment portfolio (a "Portfolio") of Manufacturers Investment Trust (the "Trust"). The accompanying prospectus for the Trust and the corresponding statement of additional information, describe the investment objectives of the Portfolios in which you may invest net premiums. Other sub-accounts and Portfolios may be added in the future. EXCEPT FOR CERTAIN POLICIES ISSUED IN EXCHANGE FOR A POLICY WHICH IS NOT A MODIFIED ENDOWMENT CONTRACT (A "MEC"), THE POLICY WILL BE TREATED AS A MEC FOR FEDERAL INCOME TAX PURPOSES. AS A RESULT, ANY LOAN, PARTIAL WITHDRAWAL, ASSIGNMENT, PLEDGE, LAPSE OR SURRENDER OF THE POLICY (OR ANY LOAN, PARTIAL WITHDRAWAL, ASSIGNMENT OR PLEDGE OF THE POLICY WITHIN TWO YEARS BEFORE THE POLICY BECOMES A MEC) MAY BE SUBJECT TO INCOME TAX AND A 10% PENALTY TAX. PROSPECTIVE PURCHASERS SHOULD NOTE THAT IT MAY NOT BE ADVISABLE TO PURCHASE A POLICY AS A REPLACEMENT FOR EXISTING INSURANCE. The Securities and Exchange Commission maintains a web site (http://www.sec.gov) that contains material incorporated by reference and other information regarding registrants that file electronically with the Commission. Please read this prospectus carefully and keep it for future reference. It is valid only when accompanied by a current prospectus for the Trust. THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The Manufacturers Life Insurance Company of America 500 North Woodward Avenue Bloomfield Hills, Michigan 48304 THE DATE OF THIS PROSPECTUS IS ____, 1999 ii 7 TABLE OF CONTENTS DEFINITIONS...................................................... POLICY SUMMARY................................................... General....................................................... Death Benefits................................................ Premiums...................................................... Policy Value.................................................. Policy Loans.................................................. Surrender and Partial Withdrawals............................. Lapse and Reinstatement....................................... Charges and Deductions........................................ Investment Options and Investment Advisers ................... Investment Management Fees and Expenses....................... Table of Charges and Deductions............................... Table of Investment Management Fees and Expenses.............. Table of Investment Options and Investment Advisers........... GENERAL INFORMATION ABOUT MANUFACTURERS.......................... Manufacturers Life of America................................. Separate Account Three........................................ Manufacturers Investment Trust................................ ISSUING A POLICY................................................. Requirements.................................................. Temporary Insurance Agreement................................. Right to Examine the Policy................................... Life Insurance Qualification.................................. DEATH BENEFITS................................................... Death Benefit ................................................ Maturity Date................................................. PREMIUM PAYMENTS................................................. Initial Premiums.............................................. Subsequent Premiums........................................... Maximum Premium Limitation.................................... Premium Allocation............................................ CHARGES AND DEDUCTIONS........................................... Premium Charge................................................ Withdrawal Transaction Fee.................................... Surrender Charges............................................. Monthly Charges............................................... Administration Charge......................................... Cost of Insurance Charge...................................... Mortality and Expense Risks Charge............................ Distribution Charge........................................... Charges for Supplementary Benefits............................ Charges for Transfers......................................... Reduction in Charges.......................................... SPECIAL PROVISIONS FOR EXCHANGES................................. COMPANY TAX CONSIDERATIONS....................................... POLICY VALUE..................................................... Determination of the Policy Value............................. Units and Unit Values......................................... Transfers of Policy Value..................................... Telephone Transfers........................................... Dollar Cost Averaging......................................... iii 8 Asset Allocation Balancer Transfer............................ POLICY LOANS..................................................... Maximum Loanable Amount....................................... Effect of Policy Loan......................................... Interest Charged on Policy Loans.............................. Loan Account.................................................. POLICY SURRENDER AND PARTIAL WITHDRAWALS......................... Policy Surrender.............................................. Partial Withdrawals........................................... LAPSE AND REINSTATEMENT.......................................... Lapse......................................................... Reinstatement................................................. Termination................................................... THE GENERAL ACCOUNT.............................................. Fixed Account................................................. OTHER PROVISIONS OF THE POLICY................................... Assignment of Rights.......................................... Beneficiary................................................... Incontestability.............................................. Misstatement of Age or Sex.................................... Suicide Exclusion............................................. Supplementary Benefits........................................ TAX TREATMENT OF THE POLICY...................................... Life Insurance Qualification.................................. Tax Treatment of Policy Benefits.............................. Alternate Minimum Tax......................................... Income Tax Reporting.......................................... OTHER INFORMATION................................................ Payment of Proceeds........................................... Reports to Policyowners....................................... Distribution of the Policies.................................. Responsibilities of Manufacturers Life........................ Voting Rights................................................. Substitution of Portfolio Shares.............................. Records and Accounts.......................................... State Regulations............................................. Litigation.................................................... Independent Auditors.......................................... Further Information........................................... Officers and Directors........................................ Impact of Year 2000........................................... Illustrations................................................. Appendix A - Definitions Appendix B - Sample Illustrations of Policy Values, Cash Surrender values and Death Benefits Financial Statements THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION WHERE IT WOULD NOT BE LAWFUL. YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS, THE PROSPECTUS OF MANUFACTURERS INVESTMENT TRUST, OR THE STATEMENT OF ADDITIONAL INFORMATION OF MANUFACTURERS INVESTMENT TRUST. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. Examine this prospectus carefully. The Policy Summary will briefly describe the Policy. More detailed information will be found further in the prospectus. 9 POLICY SUMMARY GENERAL This Policy may be issued either as a modified single premium variable life insurance policy or as a modified single premium survivorship variable life insurance policy. We have prepared the following summary as a general description of the most important features of the Policy. It is not comprehensive and you should refer to the more detailed information contained in this prospectus. Unless otherwise indicated or required by the context, the discussion throughout this prospectus assumes that the Policy has not gone into default, there is no outstanding Policy Debt, and the death benefit is not determined by the minimum death benefit percentage. The Policy's provisions may vary in some states. DEATH BENEFITS The Policy provides a death benefit in the event of the death of the Life Insured. The death benefit is the FACE AMOUNT OF THE POLICY at the date of death (less any Policy Debt and outstanding Monthly Deductions due) or, if greater, the Minimum Death Benefit (less any Policy Debt and outstanding Monthly Deductions due). PREMIUMS The Policy permits the payment of a large initial premium. The initial premium may be 80%, 90% or 100% of the Guideline Single Premium (based on Face Amount). However, in the case of simplified underwriting, and in order to qualify for the Lapse Protection Benefit, 100% of the Guideline Single Premium is required. The minimum single premium is $25,000. Additional premiums will be accepted only under certain conditions as stated under "Premium Payments - Subsequent Premiums." Premiums will be allocated, according to your instructions and at the Company's discretion, to one or more of our general account (the "Fixed Account") and the sub-accounts of the Separate Account of the Company. You may change your allocation instructions at any time. You may also transfer amounts among the accounts. POLICY VALUE The Policy has a Policy Value reflecting premiums paid, certain charges for expenses and cost of insurance, and the investment performance of the accounts to which you have allocated premiums. POLICY LOANS You may borrow an amount not to exceed 90% of your Policy's Net Cash Surrender Value. Loan interest at a rate of 6.00% is due on each Policy Anniversary. Preferred interest rates are also available in the case of loans on amounts that represent Earnings on the Policy. We will deduct all outstanding Policy Debt from proceeds payable at the insured's death, or upon surrender. Policy loans may have tax consequences. See section entitled "Tax Treatment of the Policy" for a discussion of the potential Federal income tax implications of a loan from the Policy. SURRENDER AND PARTIAL WITHDRAWALS You may make a partial withdrawal of your Policy Value. A partial withdrawal will result in a reduction in the Face Amount of the Policy . A partial withdrawal may result in a surrender charge if made during the Surrender Charge Period. You may surrender your Policy for its Net Cash Surrender Value at any time while the Life Insured is living. The Net Cash Surrender Value is equal to the Policy Value less the sum of (a) Surrender Charges, (b) outstanding Monthly Deductions due, and (c) Policy Debt. See section entitled "Tax Treatment of the Policy" for a discussion of the potential Federal income tax implications of a surrender of, or partial withdrawal from, the Policy. LAPSE AND REINSTATEMENT Unless the Lapse Protection Benefit is in effect, a Policy will lapse (and terminate without value) when its Net Cash Surrender Value is insufficient to pay the next monthly deduction and a grace period of 61 days expires without your having made an adequate payment. Therefore, a Policy could lapse eventually if increases in Policy Value (prior to deduction of Policy charges) are not sufficient to cover Policy charges. A Policy could also lapse if the Policy Debt is greater than the Cash Surrender Value since the Lapse Protection Benefit terminates on any date that the Policy Debt exceeds the Cash Surrender Value. 4 10 A policyowner may reinstate a lapsed Policy at any time within the five year period following lapse provided the Policy was not surrendered for its Net Cash Surrender Value. However, in the case of a Survivorship Policy, the Policy may not be reinstated if any of the Life Insured have died since the Policy lapsed. We will require evidence of insurability along with a certain amount of premium as described under "Reinstatement." See section entitled "Tax Treatment of the Policy" for a discussion of the potential Federal income tax implications of a lapse and reinstatement of the Policy. TAXATION OF POLICY BENEFITS Characterization of a Policy as a MEC. Section 7702A of the Internal Revenue Code (the "Code") establishes a class of life insurance contracts designated as Modified Endowment Contracts ("MECs"), which applies to Policies entered into or materially changed after June 20, 1988. In general, a Policy will be a MEC if the accumulated premiums paid at any time during the first seven Policy Years exceed the sum of the net level premiums which would have been paid on or before such time if the Policy paid up future benefits after the payment of seven level annual premiums (the "seven-pay test"). The determination of whether a Policy will be a MEC after a material change generally depends upon the relationship of the death benefit and the Policy Value at the time of such change and the additional premiums paid in the seven years following the material change. In general, this Policy will constitute a MEC unless: (1) it was received in exchange for another life insurance policy which was not a MEC, (2) no premium payments (other than the exchanged policy) are paid into the Policy during the first seven Policy years, and (3) the death benefit on the new Policy is not less than the death benefit on the exchanged policy. If the death benefit on the new policy is less than the death benefit on the exchanged policy, the new policy may become a MEC if (1) the exchanged policy was, at the time of the exchange, subject to the MEC rules, (2) premiums payments had been made to the old policy after it had become subject to the MEC rules, and (3) the exchanged policy was in a seven-pay test period at the time of exchange or, in the case of a Survivorship Policy, the Policy was issued (or deemed issued) after September 13, 1989. In addition, even if the Policy initially is not a MEC, it may in certain circumstances become a MEC. These circumstances would include a later increase in benefits, any other material change of the Policy (within the meaning of the tax law), and a withdrawal or reduction in the death benefit during the first seven Policy years. Tax Treatment of Withdrawals, Loans, Assignments and Pledges under MECs. If the Policy is a MEC, withdrawals from the Policy will be treated first as withdrawals of income and then as a recovery of premium payments. Thus, withdrawals will be includible in income to the extent the Policy value exceeds the investment in the Policy. The amount of any loan (including unpaid interest thereon) under the Policy will be treated as a withdrawal from the Policy for tax purposes. In addition, if the policyowner assigns or pledges any portion of the value of a Policy (or agrees to assign or pledge any portion), such portion will be treated as a withdrawal from the Policy for tax purposes. The policyowner's investment in the Policy is increased by the amount includible in income with respect to such assignment, pledge, or loan, though it is not affected by any other aspect of the assignment, pledge, or loan (including its release or repayment). Before assigning, pledging, or requesting a loan under a Policy which is a MEC, an policyowner should consult a qualified tax advisor. MEC Penalty Tax. Generally, withdrawals (or the amount of any deemed withdrawals) from a MEC are subject to a penalty tax equal to 10% of the portion of the withdrawal that is includible in income, unless the withdrawals are made (1) after the policyowner attains age 59 1/2, (2) because the policyowner has become disabled (as defined in the tax law), or (3) as substantially equal periodic payments over the life or life expectancy of the policyowner (or the joint lives or life expectancies of the policyowner and his or her beneficiary, as defined in the tax law). For further information regarding the tax treatment of Policies that are MECs, see "Tax Treatment of the Policy - Tax Treatment of Policy Benefits." CHARGES AND DEDUCTIONS We assess certain charges and deductions in connection with the Policy. These include: - -- charges assessed monthly for mortality and expense risks, cost of insurance and administration expenses, - -- charges deducted from premiums paid, and - -- charges assessed on surrender, lapse or withdrawal of Net Cash Surrender Value. These charges are summarized in the Table of Charges and Deductions. Unless you otherwise specify and we allow, the monthly deduction will be allocated among the Investment Accounts and the Fixed Account in the same proportion as the Policy Value in each bears to the Net Policy Value immediately prior to the deduction. However, the mortality and expense risk charge will only be allocated among the Investment Accounts. In addition, there are charges deducted from each Portfolio of the Trust. These charges are summarized in the Table of Investment Management Fees and Expenses. INVESTMENT OPTIONS AND INVESTMENT ADVISERS You may allocate Net Premiums to the Fixed Account or to one or more of the sub-accounts of our Separate Account Three. Each of the sub-accounts invests in the shares of one of the Portfolios of the Trust. The Trust receives investment advisory services from Manufacturers Securities Services, LLC ("MSS"). MSS is a registered investment adviser under the Investment Advisers Act of 1940. The Trust also employs subadvisers. The Table of Investment Options and Investment Advisers shows the subadvisers that provide investment subadvisory services to the indicated Portfolios. INVESTMENT MANAGEMENT FEES AND EXPENSES The Separate Account purchases shares of the Portfolios at net asset value. The net asset value of those shares reflects investment management fees and certain expenses of the Portfolios. The fees and expenses for each Portfolio for the Trust's last fiscal year are shown in the Table of Investment Management Fees and Expenses below. These fees and expenses are described in detail in the accompanying Trust prospectus to which reference should be made. TABLE OF CHARGES AND DEDUCTIONS Surrender Charge The total amount of the surrender charge is determined by multiplying the amount withdrawn or surrendered in excess of the free withdrawal amount by the applicable surrender charge percentage shown in the following table. 5 11 Policy Year Surrender Charge 1 10.00% 2 9.00% 3 8.00% 4 7.00% 5 6.00% 6 5.00% 7 4.00% 8 3.00% 9 1.50% 10+ 0% 6 12 If necessary, the Company will reduce the surrender charge deducted upon a partial withdrawal or a surrender of the Policy so that the sum of all premium loads, the administration charges and surrender charge deducted (including the surrender charge to be deducted upon such partial withdrawal or surrender) does not exceed 10% of aggregate payments made during the first Policy Year. Monthly Deductions: -- A premium load of 0.030% of Policy Value is deducted monthly (equivalent to 0.360% annually) for the first 10 Policy Years. If additional premium payments are made, the 0.030% premium load for a particular premium payment is deducted from the Policy Value corresponding to the premium payment for 10 Policy Years following the premium payment. Approximately, 13% of the premium load is expected to cover acquisition and sales expenses, 20% federal taxes and 67% taxes. -- An administration charge of $7.50 plus 0.010% monthly (equivalent to 0.12% annually). -- The cost of insurance charge. -- Any additional charges for supplementary benefits, if applicable. -- A mortality and expense risks charge. This charge is calculated as a percentage of the value of the Investment Accounts and is assessed against the Investment Accounts. The charge varies by Policy Year as follows:
Guaranteed Monthly Mortality Guaranteed Annual Mortality Policy Years and Expense Risks Charge and Expense Risks Charge ----------------------------- ------------------------------ ------------------------------ 1-10 0.075% 0.900% 10+ 0.025% 0.30%
All of the above charges, except the mortality and expense risks charge, are deducted from the Net Policy Value. Loan Charges: A fixed loan interest rate of 6.00% annually. Interest credited to amounts in the Loan Account is guaranteed not to be less than 4.00% at all times. The maximum loan amount is 90% of the Net Cash Surrender Value. Transfer Charge: A charge of $25 per transfer for each transfer in excess of 12 in a Policy Year. TABLE OF INVESTMENT MANAGEMENT FEES AND EXPENSES TRUST ANNUAL EXPENSES (as a percentage of Trust average net assets)
OTHER EXPENSES MANAGEMENT (AFTER EXPENSE TOTAL TRUST TRUST PORTFOLIO FEES REIMBURSEMENT)** ANNUAL EXPENSES - ----------------------------------------------------------------------------------------------------- Pacific Rim Emerging Markets................ 0.850% 0.360% 1.210% Science & Technology........................ 1.100% 0.110% 1.210% International Small Cap..................... 1.100% 0.150% 1.250% Aggressive Growth+.......................... 1.000%+ 0.090% 1.090% Emerging Small Company...................... 1.050% 0.050% 1.100% Small Company Blend*........................ 1.050% 0.150%* 1.200% Mid Cap Growth.............................. 0.950%+ 0.040% 0.990% Mid Cap Stock*.............................. 0.925% 0.000%* 0.925% Overseas.................................... 0.950% 0.210% 1.160% International Stock......................... 1.050% 0.200% 1.250% International Value*........................ 1.000% 0.300%* 1.300% Mid Cap Blend+.............................. 0.850%+ 0.050% 0.900% Small Company Value......................... 1.050% 0.180% 1.230% Global Equity............................... 0.900% 0.110% 1.010% Growth...................................... 0.850% 0.050% 0.900% Large Cap Growth+........................... 0.875%+ 0.130% 1.005% Quantitative Equity......................... 0.700% 0.060% 0.760% Blue Chip Growth+........................... 0.875%+ 0.045% 0.920% Real Estate Securities...................... 0.700% 0.060% 0.760% Value....................................... 0.800% 0.050% 0.850% Growth & Income............................. 0.750% 0.040% 0.790%
7 13
OTHER EXPENSES MANAGEMENT (AFTER EXPENSE TOTAL TRUST TRUST PORTFOLIO FEES REIMBURSEMENT)** ANNUAL EXPENSES - ------------------------------------------------------------------------------------------------------ U.S. Large Cap Value*....................... 0.875% 0.100%* 0.975% Equity-Income+.............................. 0.875%+ 0.050% 0.925% Income & Value+............................. 0.800%+ 0.090% 0.890% Balanced.................................... 0.800% 0.070% 0.870% High Yield.................................. 0.775% 0.065% 0.840% Strategic Bond.............................. 0.775% 0.075% 0.850% Global Bond................................. 0.800% 0.110% 0.910% Total Return*............................... 0.775% 0.100%* 0.875% Investment Quality Bond..................... 0.650% 0.070% 0.720% Diversified Bond............................ 0.750% 0.140% 0.890% U.S. Government Securities.................. 0.650% 0.070% 0.720% Money Market................................ 0.500% 0.120% 0.620% Lifestyle Aggressive 1000#**................ 0% 1.110%** 1.110% Lifestyle Growth 820#**..................... 0% 1.000%** 1.000% Lifestyle Balanced 640#**................... 0% 0.920%** 0.920% Lifestyle Moderate 460#**................... 0% 0.830%** 0.830% Lifestyle Conservative 280#**............... 0% 0.720%** 0.720%
+Management Fees for the portfolios listed below changed effective May 1, 1999. Prior to May 1, 1999, management fees were as follows: Aggressive Growth Trust 1.050% Blue Chip Growth Trust 0.925% Mid Cap Growth Trust 1.000% Equity-Income Trust 0.800% Mid Cap Blend Trust 0.750% Income & Value Trust 0.750% Large Cap Growth Trust 0.750% *Based on estimates of payments to be made during the current fiscal year. **Reflects expenses of the Underlying Portfolios. MSS has voluntarily agreed to pay the expenses of each Lifestyle Trust (excluding the expenses of the Underlying Portfolios). This voluntary expense reimbursement may be terminated at any time. If such expense reimbursement was not in effect, Total Trust Annual Expenses would be 0.02% higher, except for the Lifestyle Conservative 280 Trust, which would be 0.03% higher (based on expenses of the Lifestyle Trusts for the fiscal year ended December 31, 1998) as noted in the chart below:
MANAGEMENT TOTAL TRUST TRUST PORTFOLIO FEES OTHER EXPENSES ANNUAL EXPENSES - --------------------------------------------------------------------------------------------- Lifestyle Aggressive 1000................... 0% 1.130% 1.130% Lifestyle Growth 820........................ 0% 1.020% 1.020% Lifestyle Balanced 640...................... 0% 0.940% 0.940% Lifestyle Moderate 460...................... 0% 0.850% 0.850% Lifestyle Conservative 280.................. 0% 0.750% 0.750%
# Each Lifestyle Trust will bear its own pro rata share of the fees and expenses incurred by the Underlying Portfolios in which it invests, and the investment return of each Lifestyle Trust will be net of the Underlying Portfolio expenses. Each Lifestyle Portfolio must also bear its own expenses. However, MSS is currently paying those expenses as described in footnote (**) above. 8 14 TABLE OF INVESTMENT OPTIONS AND INVESTMENT ADVISERS SUBADVISER PORTFOLIO A I M Capital Management, Inc. Mid Cap Growth Trust Aggressive Growth Trust AXA Rosenberg Investment Management LLC Small Company Value Trust Capital Guardian Trust Company Small Company Blend Trust U.S. Large Cap Value Trust Income & Value Trust Diversified Bond Trust Fidelity Management Trust Company Mid Cap Blend Trust Large Cap Growth Trust Overseas Trust Founders Asset Management LLC International Small Cap Trust Balanced Trust Franklin Advisers, Inc. Emerging Small Company Trust Manufacturers Adviser Corporation Pacific Rim Emerging Markets Trust Quantitative Equity Trust Real Estate Securities Trust Money Market Trust Lifestyle Trusts Miller Anderson & Sherrerd, LLP Value Trust High Yield Trust Morgan Stanley Asset Management Inc. Global Equity Trust Pacific Investment Management Company Global Bond Trust Total Return Trust Rowe Price-Fleming International, Inc. International Stock Trust Salomon Brothers Asset Management Inc U.S. Government Securities Trust Strategic Bond Trust State Street Global Advisors Growth Trust T. Rowe Price Associates, Inc. Science & Technology Trust Blue Chip Growth Trust Equity-Income Trust Templeton Investment Counsel, Inc. International Value Trust Wellington Management Company, LLP Growth & Income Trust Investment Quality Bond Trust Mid Cap Stock Trust Each of the Trust's Subadvisers, except Capital Guardian Trust Company, Fidelity Management Trust Company and State Street Global Advisors, is registered as an investment adviser under the Investment Advisers Act of 1940, as amended. 9 15 GENERAL INFORMATION ABOUT MANUFACTURERS MANUFACTURERS LIFE OF AMERICA Manufacturers Life of America is a stock life insurance company organized under the laws of Pennsylvania on April 11, 1977 and redomesticated under the laws of Michigan on December 9, 1992. It is a licensed life insurance company in the District of Columbia and all states of the United States except New York. The ultimate parent of Manufacturers Life of America is The Manufacturers Life Insurance Company ("Manufacturers Life"), a [stock] life insurance company based in Toronto, Canada. Manufacturers Life and its subsidiaries, together, constitute one of the largest life insurance companies in North America and rank among the 60 largest life insurers in the world as measured by assets. However, neither Manufacturers Life of America nor Manufacturers Life guarantees the investment performance of the Separate Account. RATINGS Manufacturers Life and the Company have received the following ratings from independent rating agencies: Standard and Poor's Insurance Ratings Service: AA+ (for financial strength) A.M. Best Company: A++ (for financial strength) Duff & Phelps Credit Rating Co.: AAA (for claims paying ability) Moody's Investors Service, Inc.: Aa2 (for financial strength) These ratings, which are current as of the date of this prospectus and are subject to change, are assigned to the Company as a measure of the Company's ability to honor the death benefit but not specifically to its products, the performance (return) of these products, the value of any investment in these products upon withdrawal or to individual securities held in any portfolio. SEPARATE ACCOUNT THREE The Company established its Separate Account Three (the "Separate Account") on August 22, 1986 as a separate account under Pennsylvania Law. Since December 9, 1992, it has been operated under Michigan Law. The Separate Account holds assets that are segregated from all of the Company's other assets. The Separate Account is currently used only to support variable life insurance policies. ASSETS OF THE SEPARATE ACCOUNT The Company is the legal owner of the assets in the Separate Account. The income, gains, and losses of the Separate Account, whether or not realized, are, in accordance with applicable contracts, credited to or charged against the Account without regard to the other income, gains, or losses of the Company. The Company will at all times maintain assets in the Separate Account with a total market value at least equal to the reserves and other liabilities relating to variable benefits under all policies participating in the Separate Account. These assets may not be charged with liabilities which arise from any other business the Company conducts. However, all obligations under the variable life insurance policies are general corporate obligations of the Company. REGISTRATION The Separate Account is registered with the Securities and Exchange Commission ("S.E.C.") under the Investment Company Act of 1940 ("1940 Act") as a unit investment trust. A unit investment trust is a type of investment company which invests its assets in specified securities, such as the shares of one or more investment companies, rather than in a portfolio of unspecified securities. Registration under the 1940 Act does not involve any supervision by the S.E.C. of the management or investment policies or practices of the Separate Account. For state law purposes the Separate Account is treated as a part or division of the Company. MANUFACTURERS INVESTMENT TRUST Each sub-account of the Separate Account will purchase shares only of a particular Portfolio. The Trust is registered under the 1940 Act as an open-end management investment company. The Separate Account will purchase and redeem shares of the Portfolios at net asset value. Shares will be redeemed to the extent necessary for the Company to provide benefits under the Policies, to transfer assets from one sub-account to another or to the general account as requested by policyowners, and for other purposes not inconsistent with the Policies. Any dividend or capital gain distribution received from a Portfolio with 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. 10 16 The Trust shares are issued to fund benefits under both variable annuity policies and variable life insurance policies issued by the Company or life insurance companies affiliated with the Company. The Company may also purchase shares through its general account for certain limited purposes including initial portfolio seed money. For a description of the procedures for handling potential conflicts of interest arising from the funding of such benefits see the accompanying Trust prospectus. INVESTMENT OBJECTIVES OF THE PORTFOLIOS The investment objectives and certain policies of the Portfolios currently available to policyowners through corresponding sub-accounts are set forth below. There is, of course, no assurance that these objectives will be met. A full description of the Trust, its investment objectives, policies and restrictions, the risks associated therewith, its expenses, and other aspects of its operation is contained in the accompanying Trust prospectus, which should be read together with this prospectus. ELIGIBLE PORTFOLIOS The Portfolios of Manufacturers Investment Trust available under the Policies are as follows: The PACIFIC RIM EMERGING MARKETS TRUST seeks long-term growth of capital by investing in a diversified portfolio that is comprised primarily of common stocks and equity-related securities of corporations domiciled in countries in the Pacific Rim region. The SCIENCE & TECHNOLOGY TRUST seeks long-term growth of capital. Current income is incidental to the portfolio's objective. The INTERNATIONAL SMALL CAP TRUST seeks capital appreciation by investing primarily in securities issued by foreign companies which have total market capitalization or annual revenues of $1 billion or less. These securities may represent companies in both established and emerging economies throughout the world. The AGGRESSIVE GROWTH TRUST (formerly, the Pilgrim Baxter Growth Trust) seeks long-term capital appreciation by investing the portfolio's asset principally in common stocks, convertible bonds, convertible preferred stocks and warrants of companies which in the opinion of the subadviser are expected to achieve earnings growth over time at a rate in excess of 15% per year. Many of these companies are in the small and medium-sized category. The EMERGING SMALL COMPANY TRUST (formerly, the Emerging Growth Trust) seeks long-term growth of capital by investing, under normal market conditions, at least 65% of the portfolio's total assets in common stock equity securities of small capitalization ("small cap") growth companies. In general, companies in which the portfolio invests will have market cap values of less than $1.5 billion at the time of purchase. The SMALL COMPANY BLEND TRUST seeks long-term growth of capital and income by investing the portfolio's assets, under normal market conditions, primarily in equity and equity-related securities of companies with market capitalization between $50 million and $1 billion. The MID CAP GROWTH TRUST (formerly, the Small/Mid Cap Trust) seeks long-term capital appreciation by investing the portfolio's assets principally in common stocks, with emphasis on medium-sized and smaller emerging growth companies. The MID CAP STOCK TRUST seeks long-term growth of capital by investing primarily in equity securities of companies with market capitalizations that approximately match the range of capitalization of the Wilshire Mid Cap 750 Index. The OVERSEAS TRUST (formerly, the International Growth & Income Trust) seeks growth of capital by investing, under normal market conditions, at least 65% of the portfolio's assets in foreign securities (including American Depositary Receipts (ADRs) and European Depositary Receipts (EDRs). The portfolio expects to invest primarily in equity securities. The INTERNATIONAL STOCK TRUST seeks long-term growth of capital by investing primarily in common stocks of established, non-U.S. companies. The INTERNATIONAL VALUE TRUST seeks long-term growth of capital by investing, under normal market conditions, primarily in equity securities of companies located outside the U.S., including emerging markets. The MID CAP BLEND TRUST (formerly, the Equity Trust) seeks growth of capital by investing primarily in common stocks of United States issuers and securities convertible into or carrying the right to buy common stocks. 11 17 The SMALL COMPANY VALUE TRUST seeks long term growth of capital by investing in equity securities of smaller companies which are traded principally in the markets of the United States. The GLOBAL EQUITY TRUST seeks long-term capital appreciation by investing primarily in equity securities throughout the world, including U.S. issuers and emerging markets. The GROWTH TRUST seeks long-term growth of capital by investing primarily in large capitalization growth securities (market capitalization of approximately $1 billion or greater). The LARGE CAP GROWTH TRUST (formerly, the Aggressive Asset Allocation Trust) seeks long-term growth of capital by investing, under normal market conditions, at least 65% of the portfolio's assets in equity securities of companies with large market capitalizations. The QUANTITATIVE EQUITY TRUST seeks to achieve intermediate and long-term growth through capital appreciation and current income by investing in common stocks and other equity securities of well established companies with promising prospects for providing an above average rate of return. The BLUE CHIP GROWTH TRUST seeks to achieve long-term growth of capital (current income is a secondary objective) and many of the stocks in the portfolio are expected to pay dividends. The REAL ESTATE SECURITIES TRUST seeks to achieve a combination of long-term capital appreciation and satisfactory current income by investing in real estate related equity and debt securities. The VALUE TRUST seeks to realize an above-average total return over a market cycle of three to five years, consistent with reasonable risk, by investing primarily in common and preferred stocks, convertible securities, rights and warrants to purchase common stocks, ADRs and other equity securities of companies with equity capitalizations usually greater than $300 million. The GROWTH & INCOME TRUST seeks long-term growth of capital and income, consistent with prudent investment risk, by investing primarily in a diversified portfolio of common stocks of United States issuers which the subadviser believes are of high quality. The U.S. LARGE CAP VALUE TRUST seeks long-term growth of capital and income by investing the portfolio's assets, under normal market conditions, primarily in equity and equity-related securities of companies with market capitalization greater than $500 million. The EQUITY-INCOME TRUST seeks to provide substantial dividend income and also long-term capital appreciation by investing primarily in dividend-paying common stocks, particularly of established companies with favorable prospects for both increasing dividends and capital appreciation. The INCOME & VALUE TRUST (formerly, the Moderate Asset Allocation Trust) seeks the balanced accomplishment of (a) conservation of principal and (b) long-term growth of capital and income by investing the portfolio's assets in both equity and fixed-income securities. The subadviser has full discretion to determine the allocation between equity and fixed-income securities. The BALANCED TRUST seeks current income and capital appreciation by investing in a balanced portfolio of common stocks, U.S. and foreign government obligations and a variety of corporate fixed-income securities. The HIGH YIELD TRUST seeks to realize an above-average total return over a market cycle of three to five years, consistent with reasonable risk, by investing primarily in high yield debt securities, including corporate bonds and other fixed-income securities. 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. 12 18 The GLOBAL BOND TRUST (formerly, the Global Government Bond Trust) seeks to realize maximum total return, consistent with preservation of capital and prudent investment management by investing the portfolio's asset primarily in fixed income securities denominated in major foreign currencies, baskets of foreign currencies (such as the ECU), and the U.S. dollar. The TOTAL RETURN TRUST seeks to realize maximum total return, consistent with preservation of capital and prudent investment management by investing, under normal market conditions, at least 65% of the portfolio's assets in a diversified portfolio of fixed income securities of varying maturities. The average portfolio duration will normally vary within a three- to six-year time frame based on Pacific Investment Management Company's forecast for interest rates. The INVESTMENT QUALITY BOND TRUST seeks a high level of current income consistent with the maintenance of principal and liquidity, by investing primarily in a diversified portfolio of investment grade corporate bonds and U.S. Government bonds with intermediate to longer term maturities. The portfolio may also invest up to 20% of its assets in non-investment grade fixed income securities. The DIVERSIFIED BOND TRUST (formerly, the Conservative Asset Allocation Trust) seeks high total return consistent with the conservation of capital by investing at least 75% of the portfolio's assets in fixed-income securities. The U.S. GOVERNMENT SECURITIES TRUST seeks a high level of current income consistent with preservation of capital and maintenance of liquidity, by investing in debt obligations and mortgage-backed securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities and derivative securities such as collateralized mortgage obligations backed by such securities. The MONEY MARKET TRUST seeks maximum current income consistent with preservation of principal and liquidity by investing in high quality money market instruments with maturities of 397 days or less issued primarily by United States entities. The LIFESTYLE AGGRESSIVE 1000 TRUST seeks to provide long-term growth of capital (current income is not a consideration) by investing 100% of the Lifestyle Trust's assets in other portfolios of the Trust ("Underlying Portfolios") which invest primarily in equity securities. The LIFESTYLE GROWTH 820 TRUST seeks to provide long-term growth of capital with consideration also given to current income by investing approximately 20% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 80% of its assets in Underlying Portfolios which invest primarily in equity securities. The LIFESTYLE BALANCED 640 TRUST seeks to provide a balance between a high level of current income and growth of capital with a greater emphasis given to capital growth by investing approximately 40% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 60% of its assets in Underlying Portfolios which invest primarily in equity securities. The LIFESTYLE MODERATE 460 TRUST seeks to provide a balance between a high level of current income and growth of capital with a greater emphasis given to high income by investing approximately 60% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 40% of its assets in Underlying Portfolios which invest primarily in equity securities. The LIFESTYLE CONSERVATIVE 280 TRUST seeks to provide a high level of current income with some consideration also given to growth of capital by investing approximately 80% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 20% of its assets in Underlying Portfolios which invest primarily in equity securities. ISSUING A POLICY REQUIREMENTS To purchase a Policy, an applicant must submit a completed application. A Policy will not be issued until the underwriting process has been completed to the Company's satisfaction. Policies may be issued on a basis which does not distinguish between the insured's sex, with prior approval from the Company. A Policy will generally be issued only on the lives of insureds from ages 20 through 90. 13 19 Under current underwriting rules, which are subject to change, proposed insureds are eligible for simplified underwriting without a medical examination if (a) their application responses and initial payment meet simplified underwriting standards and (b) the initial premium is 100% of the Guideline Single Premium. Customary underwriting standards will apply to all other proposed insured. The maximum initial premium currently permitted on a simplified underwriting basis varies with the issue age of the insured according to the following table. Simplified underwriting is not available for additional premium payments. AGE* SIMPLIFIED UNDERWRITING MAXIMUM INITIAL PAYMENT 20-29 $30,000 30-39 $60,000 40-49 $100,000 50-74 $150,000 75-90 $100,000 *In the case of a Survivorship Policy, the youngest of the Life Insured. Each Policy has a Policy Date, an Effective Date and an Issue Date (See "Definitions" in Appendix A). The Policy Date is the date from which the first monthly deductions are calculated and from which Policy Years, Policy Months and Policy Anniversaries are determined. The Effective Date is the date the Company becomes obligated under the Policy and when the first monthly deductions are deducted from the Policy Value. The Issue Date is the date from which Suicide and Incontestability are measured. If an application is accompanied by a check for the initial premium and the application is accepted: (i) the Policy Date will be the date the application and check were received at the Service Office (unless a special Policy Date is requested (See "Backdating a Policy" below)); (ii) the Effective Date will be the date the Company's underwriters approve issuance of the Policy; and (iii) the Issue Date will be the date the Company issues the Policy. If an application accepted by the Company is not accompanied by a check for the initial premium: (i) the Policy Date will be the date the Company issues the Policy (unless a special Policy Date is requested (See "Backdating a Policy" below); (ii) the Effective Date will be the date the Service Office receives the initial premium; and (iii) the Issue Date will be the date the Company issues the Policy. The initial premium must be received within 60 days after the Policy Date. If the premium is not paid or if the application is rejected, the Policy will be canceled and any partial premiums paid will be returned to the applicant. MINIMUM INITIAL FACE AMOUNT The Company will generally issue a Policy only if it has a Face Amount that corresponds to an initial premium of at least $25,000. BACKDATING A POLICY Under limited circumstances, the Company may backdate a Policy, upon request, by assigning a Policy Date earlier than the date the application is signed. However, in no event will a Policy be backdated earlier than the earliest date allowed by state law, which is generally three months to one year prior to the date of application for the Policy. Monthly deductions will be made for the period the Policy Date is backdated. 14 20 As of the Effective Date, the premiums paid plus interest credited, net of the premium charge (if any), will be allocated among the Investment Accounts and/or Fixed Account in accordance with the policyowner's instructions unless such amount is first allocated to the Money Market portfolio for the duration of the Right to Examine period. TEMPORARY INSURANCE AGREEMENT In accordance with the Company's underwriting practices, temporary insurance coverage may be provided under the terms of a Temporary Insurance Agreement. Generally, temporary life insurance may not exceed $1,000,000 and may not be in effect for more than 90 days. This temporary insurance coverage will be issued on a conditional receipt basis, which means that any benefits under such temporary coverage will only be paid if the Life Insured meets the Company's usual and customary underwriting standards for the coverage applied for. The acceptance of an application is subject to the Company's underwriting rules, and the Company reserves the right to request additional information or to reject an application for any reason. Persons failing to meet standard underwriting classification may be eligible for a Policy with an additional risk rating assigned to it. RIGHT TO EXAMINE THE POLICY A Policy may be returned for a refund within 10 days after you received it. Some states provide a longer period of time to exercise this right. The Policy will indicate if a longer time period applies. The Policy can be mailed or delivered to the Company's agent who sold it or to the Service Office. Immediately on such delivery or mailing, the Policy shall be deemed void from the beginning. Within seven days after receipt of the returned Policy at its Service Office, the Company will refund to the policyholder an amount equal to either: (1) the amount of all premiums paid or (2) (a) the difference between payments made and amounts allocated to the Separate Account and the Fixed Account; plus (b) the value of the amount allocated to the Separate Account and the Fixed Account as of the date the returned Policy is received by the Company; minus (c) any partial withdrawals made and policy loans taken. Whether the amount described in (1) or (2) is refunded depends on the requirements of the applicable state. If a policyowner requests an increase in face amount, he or she will have the same rights as described above to cancel the increase. If canceled, the Policy Value and the surrender charges will be recalculated to the amounts they would have been had the increase not taken place. A policyowner may request a refund of all or any portion of premiums paid during the right to examine period, and the Policy Value and the surrender charges will be recalculated to the amounts they would have been had the premiums not been paid. The Company reserves the right to delay the refund of any premium paid by check until the check has cleared. LIFE INSURANCE QUALIFICATION A Policy must qualify as a life insurance policy for purposes of Section 7702 of the Code by satisfying the Guideline Premium Test. 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: o Change in Risk Classification o Partial Withdrawals o Addition or deletion of supplementary benefits Any of the above changes could cause the total premiums paid to exceed the new maximum limit. In this situation, the Company may refund any excess premiums paid. In addition, these changes could reduce the future premium limitations. 15 21 The Guideline Premium Test requires a life insurance policy to meet minimum ratios of life insurance coverage to policy value. This is achieved by ensuring that the death benefit is at all times at least equal to the Minimum Death Benefit (as described below under "Death Benefit"). DEATH BENEFITS If the Policy is in force at the time of the death of the Life Insured, the Company will pay an insurance benefit on receiving due proof of death. For a Survivorship Policy, due proof of death must be provided for each of the Life Insured although the insurance benefit is payable on the death of the last to die of the Life Insured. If the Life Insured should die after the Company's receipt of a request for surrender, no insurance benefit will be payable, and the Company will pay only the Net Cash Surrender Value. The amount payable will be the death benefit, plus any amounts payable under any supplementary benefits added to the Policy, less the Policy Debt and less any outstanding monthly deductions due. The insurance benefit will be paid in one lump sum unless another form of settlement option is agreed to by the beneficiary and the Company. If the insurance benefit is paid in one sum, the Company will pay interest from the date of death to the date of payment. DEATH BENEFIT The death benefit is the Face Amount of the Policy at the date of death (less any Policy Debt and outstanding Monthly Deductions due) or, if greater, the Minimum Death Benefit (less any Policy Debt and outstanding Monthly Deductions due). However, if the Maturity Advantage Option is elected and the policyowner elects not to transfer his Investment Account Value to the Fixed Account on the Maturity Date, then the Death Benefit will be equal to the Policy Value at the date of the Life Insured's death. MINIMUM DEATH BENEFIT The Minimum Death Benefit on any date is defined as the Policy Value on that date times the applicable Minimum Death Benefit Percentage for the Attained Age of the Life Insured in the case of a Single Life Policy (or the youngest of the Life Insured in the case of a Survivorship Policy). The Minimum Death Benefit Percentages are set forth in the Policy. Therefore, the death benefit will always be at least equal to the Face Amount of the Policy. However, if there is a sufficient increase in Policy Value such that the Policy Value times the applicable Minimum Death Benefit Percentage is greater than the Face Amount, the death benefit will be greater than the Face Amount. LAPSE PROTECTION BENEFIT The Lapse Protection Benefit protects the Policy from going into default. As long as this benefit is in force and any outstanding Policy Debt is less than the Cash Surrender Value, the Policy will not go into default. The Lapse Protection Benefit applies to a Policy only if the initial premium paid is 100% of the Guideline Single Premium for the Face Amount of the Policy. As a result, if you pay less than 100% of the Guideline Single Premium, then you may be required to pay additional premiums in the future in order to prevent your Policy from lapsing. The Lapse Protection Benefit terminates on the Maturity Date of the Policy unless the Maturity Advantage Option has been elected and the policyowner's existing Investment Account Value is transferred to the Fixed Account on the Maturity Date. MATURITY DATE Provided that the Policy is in force and the Life Insured is alive (or the last to die of the Life Insured in the case of a Survivorship Policy), the Company will pay the policyowner the Policy Value (less any outstanding Policy Debt) calculated as of the Maturity Date. MATURITY ADVANTAGE OPTION If the Life Insured is alive (or in the case of a Survivorship Policy, the last to die of the Life Insured is alive) on the Maturity Date, the policyowner may elect to continue the Policy. The Policyowner's written election to continue the Policy must be 16 22 received at the Service Office prior to the Maturity Date. If this election is made, the Policy will continue in force subject to the following: (a) unless the policyowner elects otherwise, any existing Investment Account Value will be transferred to the Fixed Account (If the Policyowner elects not to transfer the Investment Account Value, the death benefit will be equal to the Policy Value at the date of the Life Insured's death); (b) no additional premium payments will be accepted although loan repayments will be accepted; (c) no additional charges or deductions (as described under "Charges and Deductions") will be assessed; (d) interest on any Policy Debt will continue to accrue; (e) the death benefit described above will be payable to the beneficiary upon receipt of due proof of death of the Life Insured. The death benefit payable after the Maturity Date if the Maturity Advantage Option is elected is the greater of the Face Amount or the Minimum Death Benefit (as described above) less any Policy Debt due at the date of death. If the Policy is continued after the Maturity Date, the Policy will go into default after the Maturity Date if the Policy Debt equals or exceeds the Policy Value. The Company will notify the policyowner of the default and will allow a 61 day grace period (from the date the Policy goes into default) in which the policyowner may make a payment of the loan interest which would then bring the Policy out of default. If the required payment is not received by the end of the grace period, the Policy will terminate with no value. PREMIUM PAYMENTS INITIAL PREMIUMS The Policy permits the payment of a large initial premium and, subject to the restrictions described below, additional premiums. The minimum initial premium is $25,000. The policyowner may choose an initial premium that is 80%, 90% or 100% of the Guideline Single Premium (based on Face Amount selected by the policyowner). In the case of simplified underwriting, the initial premium must be 100% of the Guideline Single Premium for the Face Amount of the Policy. The Lapse Protection Benefit applies to a Policy only if the initial premium paid is 100% of the Guideline Single Premum for the Face Amount of the Policy. As a result, if you pay less than 100% of the Guideline Single Premium, then you may be required to pay additional premiums in the future in order to prevent you Policy from lapsing. Therefore, prospective policyowners should discuss with their financial adviser the appropriate percentage of Guideline Single Premium for a given Face Amount. No premiums will be accepted prior to receipt of a completed application by the Company. All premiums received prior to the Effective Date of the Policy will be held in the general account and credited with interest from the date of receipt at the rate of return then being earned on amounts allocated to the Money Market Trust. SUBSEQUENT PREMIUMS After payment of the initial premium, additional premiums may be made subject to the following conditions: (a) while there is an outstanding Policy Debt, any additional premium payment will be applied first to repay the loan; (b) Face Amount increases are not permitted in connection with additional premiums (Therefore, the total of all premiums paid for a Policy may not exceed 100% of the Guideline Single Premium for the Face Amount of the Policy); (c) the Company may refuse or refund any premium payment (or any portion of such premium payment) that would cause the Policy to fail to qualify as life insurance under Section 7702 of the Code, and (d) additional premiums may require evidence of insurability on the Life Insured satisfactory to the Company unless the additional premium is applied to repay a loan. The Company will add additional premiums to Policy Value as of the Business Day it receives the additional premium at its Service Office unless evidence of insurability is required in which case the additional premium will be added to Policy Value as of the Business Day the Company's underwriters approve the additional premium. PREMIUM ALLOCATION On the later of the Effective Date or the Business Day a premium is received, the Net Premiums paid plus interest credited will be allocated among the Investment Accounts or the Fixed Account in accordance with the policyowner's instructions. 17 23 Premiums may be allocated to the Fixed Account for accumulation at a rate of interest equal to at least 4% or to one or more of the Investment Accounts for investment in the Portfolio shares held by the corresponding sub-account of the Separate Account. Allocations among the Investment Accounts and the Fixed Account are made as a percentage of the premium. The percentage allocation to any account may be any number between zero and 100, provided the total allocation equals 100. A policyowner may change the way in which premiums are allocated at any time without charge. The change will take effect on the date a written request for change satisfactory to the Company is received at the Service Office. A policyowner may also change premium allocation by telephone if he or she has a currently valid authorization form on file with the Company. MAXIMUM PREMIUM LIMITATION The Policy is issued under the Guideline Premium Test which requires that in no event may the total of all premiums paid exceed the then current maximum premium limitations established by federal income tax law for a Policy to qualify as life insurance. If, at any time, a premium is paid which would result in total premiums exceeding the above maximum premium limitation, the Company will only accept that portion of the premium which will make the total premiums equal to the maximum. Any part of the premium in excess of that amount will be returned and no further premiums will be accepted until allowed by the then current maximum premium limitation. CHARGES AND DEDUCTIONS PREMIUM LOAD A Premium Load of 0.030% of Policy Value is deducted monthly (equivalent to 0.360% annually) for the 10 Policy Years. If additional premium payments are made, the 0.030% premium load for a particular premium payment is deducted from the amount of Policy Value corresponding to the premium payment for 10 Policy Years following the premium payment. For example, if: o the initial premium payment is $100,000, o an additional premium payment of $50,000 is made in Policy Year 7, and o the Policy Value at the time the additional premium payment is made is $200,000 (including the additional premium payment), then 0.030% will be deducted from 75% of Net Policy Value in Policy Years 7 through 10 and an additional 0.030% will be deducted from 25% of Net Policy Value in Policy Years 7 through 16. Unless otherwise allowed by the Company and specified by the policyowner, the premium load will be allocated among the Investment Accounts and the Fixed Account in the Policy in the same proportion as the Policy Value in each bears to the Net Policy Value. The premium load is designed to cover a portion of the Company's acquisition and sales expenses and federal and premium taxes. SURRENDER CHARGES During the Surrender Charge Period, the Company will deduct a Surrender Charge if: o the Policy is surrendered for its Net Cash Surrender Value, o a partial withdrawal is made (above the Free Withdrawal Amount), or o the Policy terminates due to default. The surrender charge, together with a portion of the premium load, is designed to compensate the Company for some of the expenses it incurs in selling and distributing the Policies, including agents' commissions, advertising, agent training and the printing of prospectuses and sales literature. SURRENDER CHARGE CALCULATION The Surrender Charge is determined by multiplying the amount withdrawn or surrendered in excess of the Free Withdrawal Amount by the applicable total Surrender Charge percentage shown in the table below. 18 24 Policy Year Surrender Charge 1 10.00% 2 9.00% 3 8.00% 4 7.00% 5 6.00% 6 5.00% 7 4.00% 8 3.00% 9 1.50% 10+ 0% 19 25 If necessary, we will reduce the surrender charge deducted upon a partial withdrawal or a surrender of the Policy so that the sum of all premium loads, the administration charges and surrender charge deducted (including the surrender charge to be deducted upon such partial withdrawal or surrender) does not exceed 10% of aggregate payments made during the first Policy Year. We will allocate the deduction of the Surrender Charge for a withdrawal to the Fixed Account and the Investment Accounts in the same proportion that the withdrawal from each account bears to the total withdrawal. If the withdrawal plus the Surrender Charge allocated to a particular account are greater than the value of that account, we will reduce the portion of the withdrawal allocated to that account. We will reduce the allocated portion so that the withdrawal plus the charge allocated to the account equals the value of the account. If the amount in all accounts is not sufficient to pay the Surrender Charge, we will reduce the amount of the withdrawal. SURRENDER CHARGES ON A PARTIAL WITHDRAWAL FREE WITHDRAWAL AMOUNT A portion of the Net Cash Surrender Value may be withdrawn without being subject to a Surrender Charge (the "Free Withdrawal Amount"). The Free Withdrawal Amount is the greater of 10% of the total premiums or 100% of Earnings. In determining what, if any, portion of a partial withdrawal is in excess of the Free Withdrawal Amount, all previous partial withdrawals that have occurred in the current Policy Year are included. MONTHLY CHARGES On the Policy Date and at the beginning of each Policy Month, a deduction is due from the Net Policy Value to cover certain charges in connection with the Policy until the Maturity Date. On and after the Maturity Date, if there is a Policy Debt under the Policy, loan interest and principal will continue to be payable at the beginning of each Policy Month. Monthly deductions due prior to the Effective Date will be taken on the Effective Date instead of the dates they were due. These charges consist of: o a Premium Load, if applicable; o an administration charge; o a charge for the cost of insurance; o a mortality and expense risks charge; o if applicable, a charge for any supplementary benefits added to the Policy. Unless otherwise allowed by the Company and specified by the policyowner, the Monthly Deduction will be allocated among the Investment Accounts and the Fixed Account in the Policy in the same proportion as the Policy Value in each bears to the Net Policy Value immediately prior to the deduction. However, the mortality and expense risk charge will only be allocated among the Investment Accounts. ADMINISTRATION CHARGE This charge will be equal to $7.50 per Policy Month plus 0.010% of Net Policy Value deducted monthly (equivalent to .12% annually). The charge is designed to cover certain administrative expenses associated with the Policy, including maintaining policy records, collecting premiums and processing death claims, surrender and withdrawal requests and various changes permitted under the Policy. 20 26 COST OF INSURANCE CHARGE The monthly charge for the cost of insurance is determined by multiplying the applicable cost of insurance rate times the net amount at risk at the beginning of each Policy Month. The net amount at risk is equal to (a) minus (b) where: (a) is the death benefit as of the first day of the Policy Month, divided by 1.0032737; and (b) is the Policy Value as of the first day of the Policy Month. The rates for the cost of insurance are based upon the issue age, duration of coverage, sex, and Risk Classification of the Life Insured. For a Survivorship Policy, the rates are determined for each of the Life Insured on the basis described above and then are blended to produce a single cost of insurance rate. Cost of insurance rates will generally increase with the age of the Life Insured. The first year cost of insurance rate is guaranteed. The cost of insurance rates reflect the Company's expectations as to future mortality experience. The rates may be re-determined from time to time on a basis which does not unfairly discriminate within the class of life insured. In no event will the cost of insurance rates exceed the guaranteed rates set forth in the Policy except to the extent that an extra charge is imposed because of an additional rating applicable to the Life Insured. After the first Policy Year, the cost of insurance will generally increase on each Policy Anniversary. The guaranteed rates are based on the 1980 Commissioners Smoker Distinct Mortality tables. MORTALITY AND EXPENSE RISKS CHARGE A monthly charge equal to a percentage of the value of the Investment Accounts is assessed against the Investment Accounts. This charge is to compensate the Company for the mortality and expense risks it assumes under the Policy. The mortality risks assumed are that the Life Insured may live for a shorter period of time than the Company estimated. The expense risks assumed are that expenses incurred in issuing and administering the Policy will be greater than the Company estimated. The Company will realize a gain from this charge to the extent it is not needed to provide benefits and pay expenses under the Policy. The charge varies by Policy Year as follows: GUARANTEED MONTHLY MORTALITY EQUIVALENT ANNUAL AND MORTALITY AND EXPENSE POLICY YEAR EXPENSE RISKS CHARGE RISKS CHARGE - -------------------------------------------------------------------------------- 1-10 0.075% 0.900% 10+ 0.025% 0.300% CHARGES FOR SUPPLEMENTARY BENEFITS If the Policy includes Supplementary Benefits, a charge may apply to such Supplementary Benefit. CHARGES FOR TRANSFERS A charge of $25 will be imposed on each transfer in excess of twelve in a Policy Year. The charge will be deducted from the Investment Account or the Fixed Account to which the transfer is being made. All transfer requests received by the Company on the same Business Day are treated as a single transfer request. REDUCTION IN CHARGES The Policy is available for purchase by corporations and other groups or sponsoring organizations. Group or sponsored arrangements may include reduction or elimination of withdrawal charges and deductions for employees, officers, directors, agents and immediate family members of the foregoing. The Company reserves the right to reduce any of the Policy's charges on certain cases where it is expected that the amount or nature of such cases will result in savings of sales, underwriting, administrative, commissions or other costs. Eligibility for these reductions and the amount of reductions will be determined by a number of factors, including the number of lives to be insured, the total premiums expected to be paid, total assets under management for the policyowner, the nature of the relationship among the insured individuals, the purpose for which the policies are being purchased, expected persistency of the individual policies, and any other circumstances which the Company believes to be relevant to the expected reduction of its expenses. Some of these reductions may be 21 27 guaranteed and others may be subject to withdrawal or modification, on a uniform case basis. Reductions in charges will not be unfairly discriminatory to any policyowners. The Company may modify from time to time, on a uniform basis, both the amounts of reductions and the criteria for qualification. SPECIAL PROVISIONS FOR EXCHANGES The Company will permit policyowners of certain fixed life insurance policies issued either by the Company or Manufacturers USA to exchange their policies for the Policies described in this prospectus (and likewise, policyowners of policies described in this Prospectus may also exchange their Policies for certain fixed policies issued either by the Company or by Manufacturers USA). Policyowners considering an exchange should consult their tax advisors as to the tax consequences of an exchange. COMPANY TAX CONSIDERATIONS At the present time, the Company makes no charge to the Separate Account for any federal, state, or local taxes that the Company incurs that may be attributable to such Account or to the Policies. The Company, however, reserves the right in the future to make a charge for any such tax or other economic burden resulting from the application of the tax laws that it determines to be properly attributable to the Separate Account or to the Policies. POLICY VALUE DETERMINATION OF THE POLICY VALUE A Policy has a Policy Value, a portion of which is available to the policyowner by making a policy loan or partial withdrawal, or upon surrender of the Policy. The Policy Value may also affect the amount of the death benefit. The Policy Value at any time is equal to the sum of the values in the Investment Accounts, the Fixed Account, and the Loan Account. INVESTMENT ACCOUNTS An Investment Account is established under each Policy for each sub-account of the Separate Account to which net premiums or transfer amounts have been allocated. Each Investment Account under a Policy measures the interest of the Policy in the corresponding sub-account. The value of the Investment Account established for a particular sub-account is equal to the number of units of that sub-account credited to the Policy times the value of such units. FIXED ACCOUNT Amounts in the Fixed Account do not vary with the investment performance of any sub-account. Instead, these amounts are credited with interest at a rate determined by the Company. For a detailed description of the Fixed Account, see "The General Account - Fixed Account". LOAN ACCOUNT Amounts borrowed from the Policy are transferred to the Loan Account. Amounts in the Loan Account do not vary with the investment performance of any sub-account. Instead, these amounts are credited with interest at a rate which is equal to 4%. For a detailed description of the Loan Account, see "Policy Loans - Loan Account". UNITS AND UNIT VALUES CREDITING AND CANCELING UNITS Units of a particular sub-account are credited to a Policy when net premiums are allocated to that sub-account or amounts are transferred to that sub-account. Units of a sub-account are canceled whenever amounts are deducted, transferred or withdrawn from the sub-account. The number of units credited or canceled for a specific transaction is based on the dollar amount of the transaction divided by the value of the unit on the Business Day on which the transaction occurs. The number of units credited with respect to a premium payment will be based on the applicable unit values for the Business Day on which the premium is received at the Service Office, except for any premiums received before the Effective Date. For premiums received before the Effective Date, the values will be determined on the Effective Date. A Business Day is any day that the New York Stock Exchange is open for business. A Business Day ends at the close of regularly scheduled day-time trading of the New York Stock Exchange on that day. Units are valued at the end of each Business Day. When an order involving the crediting or canceling of units is received after the end of a Business Day, or on a day which is not a Business Day, the order will be processed on the basis of unit values determined on the next Business Day. Similarly, any determination of Policy Value, Investment Account value or death benefit to be made on a day which is not a Business Day will be made on the next Business Day. 22 28 UNIT VALUES The value of a unit of each sub-account was initially fixed at $10.00. For each subsequent Business Day the unit value for that sub-account is determined by multiplying the unit value for the immediately preceding Business Day by the net investment factor for the sub-account on such subsequent Business Day. The net investment factor for a sub-account on any Business Day is equal to (a) divided by (b) where: (a) is the net asset value of the underlying Portfolio shares held by that sub-account as of the end of such Business Day before any policy transactions are made on that day; and (b) is the net asset value of the underlying Portfolio shares held by that sub-account as of the end of the immediately preceding Business Day after all policy transactions were made for that day; The value of a unit may increase, decrease, or remain the same, depending on the investment performance of a sub-account from one Business Day to the next. TRANSFERS OF POLICY VALUE At any time, a policyowner may transfer Policy Value from one sub-account to another or to the Fixed Account. (Transfers involving the Fixed Account are subject to certain limitations as noted below under "Transfers Involving Fixed Account.") Transfer requests must be in writing in a format satisfactory to the Company, or by telephone if a currently valid telephone transfer authorization form is on file. The Company reserves the right to impose limitations on transfers, including the maximum amount that may be transferred. The Company also reserves the right to modify or terminate the transfer privilege at any time in accordance with applicable law. Transfers may also be delayed when any of the events described under items (i) through (iv) in "Payment of Proceeds" occur. Transfer privileges are also subject to any restrictions that may be imposed by the Trust. In addition, the Company reserves the right to defer the transfer privilege at any time that the Company is unable to purchase or redeem shares of the Trust. While the Policy is in force, the policyowner may transfer the Policy Value from any of the Investment Accounts to the Fixed Account without incurring transfer charges: (a) within eighteen months after the Issue Date; or (b) within 60 days of the effective date of a material change in the investment objectives of any of the sub-accounts or within 60 days of the date of notification of such change, whichever is later. Such transfers will not count against the twelve transfers that may be made free of charge in any Policy Year. TRANSFER CHARGES A policyowner may make up to twelve transfers each Policy Year free of charge. Additional transfers in each Policy Year may be made at a cost of $25 per transfer. This charge will be deducted from the Investment Account or the Fixed Account to which the transfer is being made. All transfer requests received by the Company on the same Business Day are treated as a single transfer request. Transfers under the Dollar Cost Averaging and Asset Allocation Balancer programs do not count against the number of free transfers permitted per Policy Year. TRANSFERS INVOLVING FIXED ACCOUNT The maximum amount that may be transferred from the Fixed Account in any one Policy Year is the greater of $500 or 15% of the Fixed Account Value at the previous Policy Anniversary. Any transfer which involves a transfer out of the Fixed Account may not involve a transfer to the Investment Account for the Money Market Trust. TELEPHONE TRANSFERS Although failure to follow reasonable procedures may result in the Company being liable for any losses resulting from unauthorized or fraudulent telephone transfers, the Company will not be liable for following instructions communicated by telephone that the Company reasonably believes to be genuine. The Company will employ reasonable procedures to confirm 23 29 that instructions communicated by telephone are genuine. Such procedures shall consist of confirming that a valid telephone authorization form is on file, tape recording of all telephone transactions and providing written confirmation thereof. DOLLAR COST AVERAGING The Company will offer policyowners a Dollar Cost Averaging ("DCA") program. Under the DCA program, the policyowner will designate an amount which will be transferred monthly from one Investment Account into any other Investment Account(s) or the Fixed Account. Currently, no charge will be made for this program, although the Company reserves the right to institute a charge on 90 days' written notice to the policyholder. If insufficient funds exist to effect a DCA transfer, the transfer will not be effected and the policyowner will be so notified. The Company reserves the right to cease to offer this program as of 90 days after written notice is sent to the policyowner. ASSET ALLOCATION BALANCER TRANSFERS Under the Asset Allocation Balancer program the policyowner will designate an allocation of Policy Value among Investment Accounts. At six-month intervals beginning six months after the Policy Date (or the last Policy Anniversary), the Company will move amounts among the Investment Accounts as necessary to maintain the policyowner's chosen allocation. A change to the policyowner premium allocation instructions will automatically result in a change in Asset Allocation Balancer instructions so that the two are identical unless the policyowner either instructs the Company otherwise or has elected the Dollar Cost Averaging program. Currently, there is no charge for this program; however, the Company reserves the right to institute a charge on 90 days' written notice to the policyowner. The Company reserves the right to cease to offer this program as of 90 days after written notice is sent to the policyowner. POLICY LOANS While this Policy is in force and has an available loan value, a policyowner may borrow against the Policy Value of the Policy. The Policy serves as the only security for the loan. Policy loans may have tax consequences. MAXIMUM LOANABLE AMOUNT The Maximum Loanable Amount is 90% of the Policy's Net Cash Surrender Value. EFFECT OF POLICY LOAN A policy loan will have an effect on future Policy Values, since that portion of the Policy Value in the Loan Account will increase in value at the crediting interest rate rather than varying with the performance of the underlying Portfolios or increasing in value at the rate of interest credited for amounts allocated to the Fixed Account. A policy loan may cause a Policy to be more susceptible to going into default since a policy loan will be reflected in the Net Cash Surrender Value. See "Lapse and Reinstatement." In addition, a policy loan may result in a termination of the Lapse Protection Benefit since this benefit terminates if Policy Debt exceeds the Cash Surrender Value. Finally, a policy loan will affect the amount payable on the death of the Life Insured, since the death benefit is reduced by the Policy Debt at the date of death in arriving at the insurance benefit. If the Policy is a MEC, then a loan will be treated as a withdrawal for tax purposes and may be taxable. See sections entitled "Tax Treatment of the Policy - - Policies Which Are MECs," and "Tax Treatment of the Policy Policies Which Are Not MECs." INTEREST CHARGED ON POLICY LOANS Interest on the Policy Debt will accrue daily and be payable annually on the Policy Anniversary. The rate of interest charged will be an effective annual rate of 6.00%. If the interest due on a Policy Anniversary is not paid by the policyowner, the interest will be borrowed against the Policy. Interest on the Policy Debt will continue to accrue daily if there is an outstanding loan when monthly deductions and premium payments cease when the Life Insured (youngest of the Life Insured in the case of a Survivorship Policy) reaches age 100. The Policy will go into default at any time the Policy Debt exceeds the Cash Surrender Value. At least 61 days prior to termination, the Company will send the policyowner a notice of the pending termination. Payment of interest on the Policy Debt during the 61 day grace period will bring the policy out of default. 24 30 LOAN ACCOUNT When a loan is made, an amount equal to the loan principal, plus interest to the next Policy Anniversary, will be deducted from the Investment Accounts or the Fixed Account and transferred to the Loan Account. Amounts transferred into the Loan Account cover the loan principal plus loan interest due to the next Policy Anniversary. The policyowner may designate how the amount to be transferred to the Loan Account is allocated among the accounts from which the transfer is to be made. In the absence of instructions, the amount to be transferred will be allocated to each account in the same proportion as the value in each Investment Account and the Fixed Account bears to the Net Policy Value. A transfer from an Investment Account will result in the cancellation of units of the underlying sub-account equal in value to the amount transferred from the Investment Account. However, since the Loan Account is part of the Policy Value, transfers made in connection with a loan will not change the Policy Value. INTEREST CREDITED TO THE LOAN ACCOUNT Nonpreferred Loans Interest will be credited to amounts in the Loan Account at an effective annual rate of 4.00%. The actual rate credited is equal to the rate of interest charged on the policy loan less than the Loan Interest Credited Differential, which is currently 2.00%. (The Loan Interest Credited Differential is the difference between the rate of interest charged on a policy loan and the rate of interest credited to amounts in the Loan Account.) Preferred Loans Preferred interest rates are available in the case of loans of amounts that represent Earnings on the Policy ("Preferred Loans"). Interest will be credited to amounts in the Loan Account at an effective annual rate of 6.00%. The actual rate credited is equal to the rate of interest charged on the policy loan less the Loan Interest Credited Differential, which is currently 0.00%. The Company may change the Current Loan Interest Credited Differential as of 90 days after sending you written notice of such change. For a Policy that is not a MEC, the tax consequences associated with a loan interest credited differential of 0% are unclear. A tax adviser should be consulted before effecting a loan to evaluate the tax consequences that may arise in such a situation. If we determine, in our sole discretion, that there is a substantial risk that a loan will be treated as a taxable distribution under Federal tax law as a result of the differential between the credited interest rate and the loan interest rate, the Company retains the right to increase the loan interest rate to an amount that would result in the transaction being treated as a loan under Federal tax law. If this amount is not prescribed by any IRS ruling or regulation or any court decision, the amount of increase will be that which the Company considers to be most likely to result in the transaction being treated as a loan under Federal tax law. In no event will the loan interest rate exceed the rate charged in the first ten Policy Years. If the Policy is a MEC then, regardless of the loan interest credited differential, a loan will be treated as a withdrawal for tax purposes and may be taxable. See sections entitled "Tax Treatment of the Policy - Policies Which Are MECs," and "Tax Treatment of the Policy - Policies Which Are Not MECs." LOAN ACCOUNT ADJUSTMENTS On the first day of each Policy Anniversary the difference between the Loan Account and the Policy Debt is transferred to the Loan Account from the Investment Accounts or the Fixed Account. Amounts transferred to the Loan Account will be taken from the Investment Accounts and the Fixed Account in the same proportion as the value in each Investment Account and the Fixed Account bears to the Net Policy Value. LOAN REPAYMENTS Policy Debt may be repaid in whole or in part at any time prior to the death of the Life Insured, provided that the Policy is in force. When a repayment is made, the amount is credited to the Loan Account and transferred to the Fixed Account or the Investment Accounts. Loan repayments will be allocated first to the Fixed Account until the associated Loan Sub-Account is reduced to zero and then to each Investment Account in the same proportion as the value in the corresponding Loan Sub-Account bears to the value of the Loan Account. Where permitted by applicable state law, any additional premium payment will be applied to outstanding loan balances. 25 31 POLICY SURRENDER AND PARTIAL WITHDRAWALS POLICY SURRENDER A Policy may be surrendered for its Net Cash Surrender Value at any time while the Life Insured is living. The Net Cash Surrender Value is equal to the Policy Value less any surrender charges and outstanding monthly deductions due (the "Cash Surrender Value") minus the Policy Debt. The Net Cash Surrender Value will be determined as of the end of the Business Day on which the Company receives the Policy and a written request for surrender at its Service Office. After a Policy is surrendered, the insurance coverage and all other benefits under the Policy will terminate. See section entitled "Tax Treatment of the Policy" for a discussion of the potential Federal income tax implications of a surrender of the Policy. PARTIAL WITHDRAWALS A policyowner may make a partial withdrawal of the Net Cash Surrender Value after the first Policy Anniversary. The minimum partial withdrawal amount is $500. The policyowner may specify the portion of the withdrawal to be taken from each Investment Account and the Fixed Account. In the absence of instructions, the withdrawal will be allocated among such accounts in the same proportion as the Policy Value in each account bears to the Net Policy Value. For information on Surrender Charges on a Partial Withdrawal see "Charges and Deductions - Surrender Charges." See section entitled "Tax Treatment of the Policy" for a discussion of the potential Federal income tax implications of a partial withdrawal from the Policy. If the withdrawal would cause the Policy Value to fall below $25,000, we will treat the withdrawal request as a full surrender of the Policy. REDUCTION IN FACE AMOUNT DUE TO A PARTIAL WITHDRAWAL A partial withdrawal will cause a reduction in Face Amount. The Face Amount will be reduced by an amount equal to (a) multiplied by (b) where: (a) is the Face Amount prior to the withdrawal; and (b) is the Policy Value after the withdrawal, divided by the Policy Value prior to the withdrawal. If the reduction in the Face Amount would require the return of premiums in order for the policy to qualify as life insurance under Section 7702 of the Code, or any other equivalent section of the Code, then we will return premiums, with interest, in the year of reduction, or in any subsequent year that the return of premiums is required. If necessary, we will also limit the amount of the withdrawal so that the Face Amount does not fall below the Face Amount associated with the minimum initial premium of $25,000 and the percent of Guideline Single Premium selected. The decrease in Face Amount will be effective as of the date of the withdrawal. LAPSE AND REINSTATEMENT LAPSE Unless the Lapse Protection Benefit is in effect, a Policy will go into default if at the beginning of any Policy Month the Policy's Net Cash Surrender Value would be zero or below after deducting the monthly deduction then due. Therefore, a Policy could lapse eventually if increases in Policy Value (prior to deduction of Policy charges) are not sufficient to cover Policy charges. A Policy could also lapse if the Policy Debt is greater than the Cash Surrender Value since the Lapse Protection Benefit terminates on any date that the Policy Debt exceeds the Cash Surrender Value. The Company will notify the policyowner of the default and will allow a 61 day grace period (from the date the Policy goes into default) in which the policyowner may make a premium payment sufficient to bring the Policy out of default. The required payment will be equal to the amount necessary to bring the Net Cash Surrender Value to zero, if it was less than zero on the date of default, plus the sum of (a) the monthly deductions due at the date of default and (b) the amount equal to the monthly deductions due to the later of the next Policy Anniversary or for at least three Policy Months. If the required payment is not received by the end of the grace period, the Policy will terminate with no value. See section entitled "Tax Treatment of the Policy - Lapse or Surrender" for a discussion of the potential Federal income tax implications of a lapse of the Policy. DEATH DURING GRACE PERIOD If the Life Insured should die during the grace period, the Policy Value used in the calculation of the death benefit will be the Policy Value as of the date of default and the insurance benefit will be reduced by any outstanding Monthly Deductions due at the time of death. 26 32 MATURITY ADVANTAGE OPTION If the Policy is extended after the Maturity Date by electing the Maturity Advantage Option, the Policy will go into default after the Maturity Date if the Policy Debt equals or exceeds the Policy Value. The Company will notify the policyowner of the default and will allow a 61 day grace period (from the date the Policy goes into default) in which the policyowner may make a payment of the loan interest which would then bring the Policy out of default. If the required payment is not received by the end of the grace period, the Policy will terminate with no value. REINSTATEMENT A policyowner can, by making a written request, reinstate a Policy which has terminated after going into default at any time within the five-year period following the date of termination subject to the following conditions: (a) In the case of a Survivorship Policy, the Policy may not be reinstated if any of the Life Insured have died since the Policy lapsed; (b) Evidence of the Life Insured's insurability, satisfactory to the Company is provided to the Company; and (c) A premium equal to the amount that was required to bring the Policy out of default immediately prior to termination, plus an amount equal to the Monthly Deductions due until the next Policy Anniversary or for at least three Policy Months is paid. If the reinstatement is approved, the date of reinstatement will be the later of the date the Company approves the policyowner's request or the date the required payment is received at the Company's Service Office. In addition, any surrender charges will be reinstated to the amount they were at the date of default. The Policy Value on the date of reinstatement, prior to the crediting of any Net Premium paid on the reinstatement, will be equal to the Policy Value on the date the Policy terminated. See section entitled "Tax Treatment of the Policy Lapse or Surrender" for a discussion of the potential Federal income tax implications of a lapse and subsequent reinstatement of the Policy. TERMINATION The Policy will terminate on the earliest to occur of the following events: (a) the end of the grace period for which the policyowner has not paid the amount necessary to bring the Policy out of default, (b) surrender of the Policy for its Net Cash Surrender Value; (c) the Maturity Date unless the policyowner has elected the Maturity Advantage option; (d) the death of the Life Insured. THE GENERAL ACCOUNT The general account of the Company consists of all assets owned by the Company other than those in the Separate Account and other separate accounts of the Company. Subject to applicable law, the Company has sole discretion over the investment of the assets of the general account. By virtue of exclusionary provisions, interests in the general account of the Company have not been registered under the Securities Act of 1933 and the general account has not been registered as an investment company under the Investment Company Act of 1940. Accordingly, neither the general account nor any interests therein are subject to the provisions of these acts, and as a result the staff of the S.E.C. has not reviewed the disclosures in this prospectus relating to the general account. Disclosures regarding the general account may, however, be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of statements made in a prospectus. FIXED ACCOUNT A policyowner may elect to allocate net premiums to the Fixed Account or to transfer all or a portion of the Policy Value to the Fixed Account from the Investment Accounts. The Company will hold the reserves required for any portion of the Policy Value allocated to the Fixed Account in its general account. Transfers from the Fixed Account to the Investment Accounts are subject to restrictions. POLICY VALUE IN THE FIXED ACCOUNT The Policy Value in the Fixed Account is equal to: 27 33 (a) the portion of the net premiums allocated to it; plus (b) any amounts transferred to it; plus (c) interest credited to it; less (d) any charges deducted from it; less (e) any partial withdrawals from it; less (f) any amounts transferred from it. INTEREST ON THE FIXED ACCOUNT An allocation of Policy Value to the Fixed Account does not entitle the policyowner to share in the investment experience of the general account. Instead, the Company guarantees that the Policy Value in the Fixed Account will accrue interest daily at an effective annual rate of at least 4%, without regard to the actual investment experience of the general account. Consequently, if a policyowner pays the planned premiums, allocates all net premiums only to the general account and makes no transfers, partial withdrawals, or policy loans, the minimum amount and duration of the death benefit of the Policy will be determinable and guaranteed. OTHER PROVISIONS OF THE POLICY ASSIGNMENT OF RIGHTS The Company will not be bound by an assignment until it receives a copy of the assignment at its Service Office. The Company assumes no responsibility for the validity or effects of any assignment. BENEFICIARY One or more beneficiaries of the Policy may be appointed by the policyowner by naming them in the application. Beneficiaries may be appointed in three classes - - primary, secondary, and final. Beneficiaries may also be revocable or irrevocable. Unless an irrevocable designation has been elected, the beneficiary may be changed by the policyowner during the Life Insured's lifetime by giving written notice to Manufacturers Life of America in a form satisfactory to the Company. The change will take effect as of the date such notice is signed but will not apply to any payments made or actions taken by the Company prior to receiving such written notice. If the Life Insured dies and there is no surviving beneficiary, the policyowner, or the policyowner's estate if the policyowner is the Life Insured, will be the beneficiary. If a beneficiary dies before the seventh day after the death of the Life Insured, the Company will pay the insurance benefit as if the beneficiary had died before the Life Insured. INCONTESTABILITY The Company will not contest the validity of a Policy after it has been in force during the Life Insured's lifetime for two years from the Issue Date. It will not contest the validity of an increase in Face Amount, after such increase or addition has been in force during the lifetime of the Life Insured for two years from the date of such increase. If a Policy has been reinstated and been in force during the lifetime of the Life Insured for less than two years from the reinstatement date, the Company can contest any misrepresentation of a fact material to the reinstatement. MISSTATEMENT OF AGE OR SEX If the stated age or sex, or both, of the Life Insured in the Policy are incorrect, the Company will change the Face Amount so that the death benefit will be that which the most recent monthly charge for the cost of insurance would have purchased for the correct age and sex. SUICIDE EXCLUSION If the Life Insured dies by suicide within two years after the Issue Date (or within the maximum period permitted by the state in which the Policy was delivered, if less than two years), the Policy will terminate and the Company will pay only the premiums paid less any partial Net Cash Surrender Value withdrawal and less any Policy Debt. The Company reserves the right to obtain evidence of the manner and cause of death of the Life Insured. SUPPLEMENTARY BENEFITS Subject to certain requirements, one or more supplementary benefits may be added to a Policy, including those providing a lapse protection benefit and an acceleration of benefits in the event of a terminal illness. More detailed information 28 34 concerning these supplementary benefits may be obtained from an authorized agent of the Company. The cost, if any, for supplementary benefits will be deducted as part of the monthly deduction. TAX TREATMENT OF THE POLICY INTRODUCTION The following discussion of the Federal income tax treatment of the Policy is not exhaustive, does not purport to cover all situations, and is not intended as tax advice. The Federal income tax treatment of the Policy is unclear in certain circumstances, and a qualified tax advisor should always be consulted with regard to the application of law to individual circumstances. This discussion is based on the Code, Treasury Department regulations, and interpretations existing on the date of this Prospectus. These authorities, however, are subject to change by Congress, the Treasury Department, and judicial decisions. This discussion does not address state or local tax consequences associated with the purchase of the Policy. In addition, THE COMPANY MAKES NO GUARANTEE REGARDING ANY TAX TREATMENT -- FEDERAL, STATE OR LOCAL -- OF ANY POLICY OR OF ANY TRANSACTION INVOLVING A POLICY. THE COMPANY'S TAX STATUS The Company is taxed as a life insurance company under the Code. Since the operations of the Separate Account are a part of, and are taxed with, the operations of the Company, the Separate Account is not separately taxed as a "regulated investment company" under the Code. Under existing Federal income tax laws, investment income and capital gains of the Separate Account are not taxed to the extent they are applied under a Policy. The Company does not anticipate that it will incur any Federal income tax liability attributable to such income and gains of the Separate Account, and therefore the Company does not intend to make any provision for such taxes. If the Company is taxed on investment income or capital gains of the Separate Account, then the Company may impose a charge against the Separate Account to make provision for such taxes. The Company's Federal tax liability is increased, however, in respect of the Policies because of the Federal tax law's treatment of deferred acquisition costs (for which the Company imposes a Federal tax charge) (see "CHARGES AND DEDUCTIONS"). TAXATION OF LIFE INSURANCE POLICIES IN GENERAL Tax Status of the Policy There are several requirements that must be met for a Policy to be considered a Life Insurance Contract under the Code, and thereby to enjoy the tax benefits of such a contract: o The Policy must satisfy the definition of life insurance under Section 7702 of the Code. o The investments of the Separate Account must be "adequately diversified" in accordance with Section 817(h) of the Code and Treasury Regulations. o The Policy must be a valid life insurance contract under applicable state law. o The Policyowner must not possess "incidents of ownership" in the assets of the Separate Account. These four items are discussed in detail below. DEFINITION OF LIFE INSURANCE Section 7702 of the Code sets forth a definition of a life insurance contract for federal tax purposes. For a Policy to be a life insurance contract, it must satisfy either the Cash Value Accumulation Test or the Guideline Premium Test. Only the Guideline Premium Test is permitted under the Policy. The Guideline Premium Test also requires a minimum death benefit, but in addition limits the total premiums that can be paid into a Policy for a given amount of death benefit. With respect to a Policy which is issued on the basis of a standard rate class, the Company believes (largely in reliance on IRS Notice 88-128 and the proposed mortality charge regulations under Section 7702, issued on July 5, 1991) that such a Policy should meet the Section 7702 definition of a life insurance contract. With respect to a Policy that is issued on a substandard basis (i.e., a rate class involving higher-than-standard mortality risk), there is less guidance, in particular as to how mortality and other expense requirements of Section 7702 are to be applied in determining whether such a Policy meets the Section 7702 definition of a life insurance contract. Thus it is not clear whether 29 35 or not such a Policy would satisfy Section 7702, particularly if the policyowner pays the full amount of premiums permitted under the Policy. The Secretary of the Treasury (the "Treasury") is authorized to prescribe regulations implementing Section 7702. However, while proposed regulations and other interim guidance have been issued, final regulations have not been adopted and guidance as to how Section 7702 is to be applied is limited. If a Policy were determined not to be a life insurance contract for purposes of Section 7702, such a Policy would not provide the tax advantages normally provided by a life insurance policy. If it is subsequently determined that a Policy does not satisfy Section 7702, the Company may take whatever steps are appropriate and reasonable to attempt to cause such a Policy to comply with Section 7702. For these reasons, the Company reserves the right to restrict Policy transactions as necessary to attempt to qualify it as a life insurance contract under Section 7702. DIVERSIFICATION Section 817(h) of the Code requires that the investments of the Separate Account be "adequately diversified" in accordance with Treasury regulations in order for the Policy to qualify as a life insurance contract under Section 7702 of the Code (discussed above). The Separate Account, through the Trust, intends to comply with the diversification requirements prescribed in Treas. Reg. Sec. 1.817-5, which affect how the Trust's assets are to be invested. The Company believes that the Separate Account will thus meet the diversification requirement, and the Company will monitor continued compliance with the requirement. STATE LAW State regulations require that the policyowner have appropriate insurable interest in the life insured. Failure to establish an insurable interest may result in the Policy not qualifying as a life insurance contract for federal tax purposes. INVESTOR CONTROL In certain circumstances, owners of variable life insurance Policies may be considered the owners, for federal income tax purposes, of the assets of the separate account used to support their policies. In those circumstances, income and gains from the separate account assets would be includible in the variable policyowner's gross income. The IRS has stated in published rulings that a variable policyowner will be considered the owner of separate account assets if the policyowner possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. The Treasury Department has also announced, in connection with the issuance of regulations concerning diversification, that those regulations "do not provide guidance concerning the circumstances in which investor control of the investments of a segregated asset account may cause the investor (i.e., the policyowner), rather than the insurance company, to be treated as the owner of the assets in the account." This announcement also stated that guidance would be issued by way of regulations or rulings on the "extent to which policyowners may direct their investments to particular sub-accounts without being treated as owners of the underlying assets". As of the date of this prospectus, no such guidance has been issued. The ownership rights under the Policy are similar to, but different in certain respects from, those described by the IRS in rulings in which it was determined that policyowners were not owners of separate account assets. For example, the policyowner has additional flexibility in allocating premium payments and Policy Values. These differences could result in an owner being treated as the owner of a pro-rata portion of the assets of the Separate Account. In addition, the Company does not know what standards will be set forth, if any, in the regulations or rulings which the Treasury Department has stated it expects to issue. The Company therefore reserves the right to modify the Policy as necessary to attempt to prevent an owner from being considered the owner of a pro rata share of the assets of the Separate Account. The remainder of this discussion assumes that the Policy will be treated as a life insurance Policy for Federal tax purposes. Tax Treatment of Life Insurance Death Benefit Proceeds In general, the amount of the death benefit payable from a Policy by reason of the death of the insured is excludable from gross income under Section 101 of the Code. Certain transfers of the Policy for valuable consideration, however, may result in a portion of the death benefit being taxable. If the death benefit is not received in a lump sum and is, instead, applied under one of the settlement options, payments generally will be prorated between amounts attributable to the death benefit which will be excludable from the beneficiary's income and amounts attributable to interest (accruing after the insured's death) which will be includible in the beneficiary's income. 30 36 Tax Deferral During Accumulation Period Under existing provisions of the Code, except as described below, any increase in an policyowner's Policy value is generally not taxable to the policyowner unless amounts are received (or are deemed to be received) from the Policy prior to the insured's death. Lapse or Surrender Upon a lapse or surrender of the Policy, the amount received will be includible in the policyowner's income to the extent the amount received exceeds the "investment in the Policy." If there is any debt at the time of a lapse or surrender, such debt will be treated as an amount received by the policyowner. The "investment in the Policy" generally is the aggregate amount of premium payments and other consideration paid for the Policy, less the aggregate amount received under the Policy previously to the extent such amounts received were excludable from gross income. A subsequent reinstatement will not change this tax treatment of a surrendered or lapsed Policy. Policies Which Are MECs ------------------------ Characterization of a Policy as a MEC. Section 7702A establishes a class of life insurance contracts designated as Modified Endowment Contracts ("MECs"), which applies to Policies entered into or materially changed after June 20, 1988. In general, a Policy will be a MEC if the accumulated premiums paid at any time during the first seven Policy Years exceed the sum of the net level premiums which would have been paid on or before such time if the Policy paid up future benefits after the payment of seven level annual premiums (the "seven-pay test"). The determination of whether a Policy will be a MEC after a material change generally depends upon the relationship of the death benefit and the Policy Value at the time of such change and the additional premiums paid in the seven years following the material change. In general, this Policy will constitute a MEC unless: (1) it was received in exchange for another life insurance policy which was not a MEC, (2) no premium payments (other than the exchanged policy) are paid into the Policy during the first seven Policy years, and (3) the death benefit on the new Policy is not less than the death benefit on the exchanged policy. If the death benefit on the new policy is less than the death benefit on the exchanged policy, the new policy may become a MEC if (1) the exchanged policy was, at the time of the exchange, subject to the MEC rules, (2) premium payments had been made to the old policy after it had become subject to the MEC rules, and (3) the exchanged policy was in a seven-pay test period at the time of exchange or, in the case of a Survivorship Policy, the Policy was issued (or deemed issued) after September 13, 1989. In addition, even if the Policy initially is not a MEC, it may in certain circumstances become a MEC. These circumstances would include a later increase in benefits, any other material change of the Policy (within the meaning of the tax law), and a withdrawal or reduction in the death benefit during the first seven Policy years. Tax Treatment of Withdrawals, Loans, Assignments and Pledges under MECs. If the Policy is a MEC, withdrawals from the Policy will be treated first as withdrawals of income and then as a recovery of premium payments. Thus, withdrawals will be includible in income to the extent the Policy value exceeds the investment in the Policy. The amount of any loan (including unpaid interest thereon) under the Policy will be treated as a withdrawal from the Policy for tax purposes. In addition, if the policyowner assigns or pledges any portion of the value of a Policy (or agrees to assign or pledge any portion), such portion will be treated as a withdrawal from the Policy for tax purposes. The policyowner's investment in the Policy is increased by the amount includible in income with respect to such assignment, pledge, or loan, though it is not affected by any other aspect of the assignment, pledge, or loan (including its release or repayment). Before assigning, pledging, or requesting a loan under a Policy which is a MEC, a policyowner should consult a qualified tax advisor. Penalty Tax. Generally, withdrawals (or the amount of any deemed withdrawals) from a MEC are subject to a penalty tax equal to 10% of the portion of the withdrawal that is includible in income, unless the withdrawals are made (1) after the policyowner attains age 59 1/2, (2) because the policyowner has become disabled (as defined in the tax law), or (3) as substantially equal periodic payments over the life or life expectancy of the policyowner (or the joint lives or life expectancies of the policyowner and his or her beneficiary, as defined in the tax law). Aggregation of Policies. All life insurance Policies which are MECs and which are purchased by the same person from the Company or any of its affiliates within the same calendar year will be aggregated and treated as one Policy for 31 37 purposes of determining the amount of a withdrawal (including a deemed withdrawal) that is includible in income. The effects of such aggregation are not clear; however, it could affect the amount of a withdrawal (or a deemed withdrawal) that is taxable and the amount which might be subject to the 10% penalty tax described above. Policies Which Are Not MECs --------------------------- Tax Treatment of Withdrawals Generally. If the Policy is not a MEC (described above), the amount of any withdrawal from the Policy will be treated first as a non-taxable recovery of premium payments and then as income from the Policy. Thus, a withdrawal from a Policy that is not a MEC will not be includible in income except to the extent it exceeds the investment in the Policy immediately before the withdrawal. Certain Distributions Required by the Tax Law in the First 15 Policy Years. As indicated under "Payments," Section 7702 places limitations on the amount of premium payments that may be made and the Policy values that can accumulate relative to the death benefit. Where cash distributions are required under Section 7702 in connection with a reduction in benefits during the first 15 years after the Policy is issued (or if withdrawals are made in anticipation of a reduction in benefits, within the meaning of the tax law, during this period), some or all of such amounts may be includible in income. A reduction in benefits may result upon a decrease in the face amount, if withdrawals are made, and in certain other instances. Tax Treatment of Loans. If a Policy is not a MEC, a loan received under the Policy generally will be treated as indebtedness of the policyowner. As a result, no part of any loan under such a Policy will constitute income to the policyowner so long as the Policy remains in force. Nevertheless, in those situations where the interest rate credited to the loan account equals the interest rate charged for the loan, it is possible that some or all of the loan proceeds may be includible in income. If a policy lapses (or if all Policy value is withdrawn) when a loan is outstanding, the amount of the loan outstanding will be treated as withdrawal proceeds for purposes of determining whether any amounts are includible in the policyowner's income. Survivorship Policies Although the Company believes that the Policy, when issued as a Survivor Policy, complies with Section 7702 of the Code, the manner in which Section 7702 should be applied to Survivor Policies is not directly addressed by Section 7702. In the absence of final regulations or other guidance issued under Section 7702 regarding this form of Policy, there is necessarily some uncertainty whether a Survivor Policy will meet the Section 7702 definition of a life insurance Policy. Prospective policyowners considering purchase of the Policy as a Survivor Policy should consult a qualified tax advisor. Where the policyowner of the Policy is the last surviving insured, the death proceeds will generally be includible in the policyowner's estate on his or her death for purposes of the Federal estate tax. If the policyowner dies and was not the last surviving insured, the fair market value of the Policy would be included in the policyowner's estate. In general, no part of the Policy value would be includible in the last surviving insured's estate if he or she neither retained incidents of policyownership at death nor had given up policyownership within three years before death. Treatment of Maturity Benefits and Extension of Maturity Date At the maturity date, the surrender value will be paid to the policyowner, and this amount will be includible in income to the extent the amount received exceeds the investment in the Policy. If the policyowner elects to extend the maturity date past the year in which the insured attains age 100 (which must be done prior to the original maturity date), the Company believes the Policy will continue to qualify as a life insurance policy for Federal tax purposes. However, there is some uncertainty regarding this treatment, and it is possible that the policyowner would be viewed as constructively receiving the cash value in the year the insured attains age 100. If this were the case, an amount equal to the excess of the cash value over the investment in the Policy would be includible in the policyowner's income at that time. Actions to Ensure Compliance with the Tax Law The Company believes that the maximum amount of premium payments it has determined for the Policies will comply with the Federal tax definition of life insurance. The Company will monitor the amount of premium payments, and, if the premium payments during a Policy year exceed those permitted by the tax law, the Company will refund the excess premiums within 60 days of the end of the Policy year and will pay interest and other earnings (which will be includible in income subject to tax) as required by law on the amount refunded. The Company also reserves the right to increase the death benefit (which may result in larger charges under a Policy) or to take any other action deemed necessary to ensure the compliance of the Policy with the Federal tax definition of life insurance. 32 38 Other Considerations Changing the policyowner, exchanging the Policy, and other changes under the Policy may have tax consequences (in addition to those discussed herein) depending on the circumstances of such change. Federal estate tax, state and local estate and inheritance tax, and other tax consequences of policyownership or receipt of Policy proceeds depend on the circumstances of each policyowner or beneficiary. Federal estate tax is integrated with Federal gift tax under a unified rate schedule. In general, estates valued at less than the "applicable exclusion amount" will not incur a Federal estate tax liability. The applicable exclusion amount for decedents dying in 1999 is $625,000 and increases annually until it reaches $1,000,000 for decedents dying in 2006 and after. In addition, an unlimited marital deduction may be available for Federal estate and gift tax purposes. If the policyowner (whether or not he or she is an insured) transfers policyownership of the Policy to someone two or more generations younger, the transfer may be subject to the generation-skipping tax, the amount subject to tax being the value of the Policy. The generation-skipping tax provisions generally apply to transfers which would be subject to the gift or estate tax rules. Individuals are generally allowed an aggregate generation-skipping tax exemption of $1 million. For generation skipping transfers of decedents dying after 1998, this exemption is indexed for inflation. Because the Federal estate tax, gift tax, and generation skipping tax rules are complex, prospective Policyowners should consult a qualified tax advisor before using this Policy for estate planning purposes. DISALLOWANCE OF INTEREST DEDUCTIONS The Policy generally will be characterized as a single premium life insurance Policy under Section 264 of the Code and, as a result, interest paid on any loans under the Policy will not be tax deductible, irrespective of whether the policyowner is an individual or a non-natural entity, such as a corporation or a trust. In addition, in the case of Policies issued to a non-natural taxpayer, or held for the benefit of such an entity, a portion of the taxpayer's otherwise deductible interest expenses may not be deductible as a result of policyownership of a Policy even if no loans are taken under the Policy. An exception to the latter rule is provided for certain life insurance Policies which cover the life of an individual who is a 20-percent policyowner, or an officer, director, or employee of, a trade or business. Entities that are considering purchasing the policy, or entities that will be beneficiaries under a Policy, should consult a tax advisor. FEDERAL INCOME TAX WITHHOLDING The Company will withhold and remit to the Federal government a part of the taxable portion of withdrawals made under a Policy unless the policyowner notifies the Company in writing at or before the time of the withdrawal that he or she elects not to have any amounts withheld. Regardless of whether the policyowner requests that no taxes be withheld or whether the Company withholds a sufficient amount of taxes, the policyowner will be responsible for the payment of any taxes and early distribution penalties that may be due on the amounts received. The policyowner may also be required to pay penalties under the estimated tax rules, if the policyowner's withholding and estimated tax payments are insufficient to satisfy the policyowner's total tax liability. OTHER INFORMATION PAYMENT OF PROCEEDS As long as the Policy is in force, the Company will ordinarily pay any policy loans, surrenders, partial withdrawals or insurance benefit within seven days after receipt at its Service Office of all the documents required for such a payment. The Company may delay for up to six months the payment from the Fixed Account of any policy loans, surrenders, partial withdrawals, or insurance benefit. In the case of any such payments from any Investment Account, the Company may delay payment during any period during which: (i) the New York Stock Exchange is closed for trading (except for normal weekend and holiday closings), (ii) trading on the New York Stock Exchange is restricted, (iii) an emergency exists as a result of which disposal of securities held in the Separate Account is not reasonably practicable or it is not reasonably practicable to determine the value of the Separate Account's net assets or (iv) the SEC, by order, so permits for the protection of security holders; provided that applicable rules and regulations of the SEC shall govern as to whether the conditions described in (ii) and (iii) exist. 33 39 REPORTS TO POLICYOWNERS Within 30 days after each Policy Anniversary, the Company will send the policyowner a statement showing, among other things: o the amount of death benefit; o the Policy Value and its allocation among the Investment Accounts, the Fixed Account and the Loan Account; o the value of the units in each Investment Account to which the Policy Value is allocated; o the Policy Debt and any loan interest charged since the last report; o the premiums paid and other Policy transactions made during the period since the last report; and o any other information required by law. Each policyowner will also be sent an annual and a semi-annual report for the Trust which will include a list of the securities held in each Portfolio as required by the 1940 Act. DISTRIBUTION OF THE POLICIES ManEquity, Inc., an indirect wholly-owned subsidiary of Manufacturers Life, will act as the principal underwriter of, and continuously offer, the Policies pursuant to a Distribution Agreement with the Company. ManEquity, Inc. is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers. ManEquity, Inc. is located at 200 Bloor Street East, Toronto, Ontario, Canada, M4W 1E5 and was organized under the laws of Colorado on May 4, 1970. The directors of ManEquity, Inc. are: Roy Bubbs, Gary Buchanan, Robert Cook, Douglas Myers and Joseph Scott. The officers of ManEquity, Inc. are: (i) Douglas Myers - President, (ii) Gary Buchanan - Vice President, Compliance, (iii) Thomas Reives Treasurer, (iv) Brian Buckley - Secretary and General Counsel. ManEquity has entered into a non-exclusive promotional agent agreement with Manulife Wood Logan Associates, Inc. ("Manulife Wood Logan"). Wood Logan is a broker-dealer registered under the 1934 Act and a member of the NASD. Manulife Wood Logan is a wholly owned subsidiary of a holding company that is 78.4% owned by The Manufacturers Life Insurance Company (U.S.A.) and 21.6% owned by MRL Holding, LLC. Sales of the Policies will be made by registered representatives of broker-dealers authorized by ManEquity to sell the Policies. Those registered representatives will also be the Company's licensed insurance agents. Under the promotional agent agreement, Manulife Wood Logan will recruit and provide sales training and licensing assistance to those registered representatives. In addition, Manulife Wood Logan will prepare sales and promotional materials for the Company's approval. ManEquity will pay distribution compensation to selling broker-dealers in varying amounts which under normal circumstances are not expected to exceed the amounts set forth below. ManEquity may from time to time pay additional compensation pursuant to promotional contests. Additionally, in some circumstances, ManEquity will provide reimbursement of certain sales and marketing expenses. ManEquity will pay the promotional agent for providing marketing support for the distribution of the Policies. The Policies will be sold in all states of the United States except New York. A registered representative will receive commissions not to exceed either (a) 7% of premiums in the first year or (b) 5.75% of premiums in the first year and .25% of Net Policy Value annually beginning 19 months after issuance of the Policy. Representatives who meet certain productivity standards with regard to the sale of the Policies and certain other policies issued by the Company or Manufacturers Life will be eligible for additional compensation. RESPONSIBILITIES OF MANUFACTURERS LIFE Manufacturers Life and Manufacturers USA have entered into an agreement with ManEquity, Inc. pursuant to which Manufacturers Life or Manufacturers USA, on behalf of ManEquity, Inc. will pay the sales commissions in respect of the Policies and certain other policies issued by the Company, prepare and maintain all books and records required to be prepared and maintained by ManEquity, Inc. with respect to the Policies and such other policies, and send all confirmations required to be sent by ManEquity, Inc. with respect to the Policies and such other policies. ManEquity, Inc. will promptly reimburse Manufacturers Life or Manufacturers USA for all sales commissions paid by Manufacturers Life or Manufacturers USA and will pay Manufacturers Life or Manufacturers USA for its other services under the agreement in such amounts and at such times as agreed to by the parties. Manufacturers Life and Manufacturers USA have also entered into a Service Agreement with the Company pursuant to which Manufacturers Life and Manufacturers USA will provide to the Company all issue, administrative, general services and recordkeeping functions on behalf of the Company with respect to all of its insurance policies including the Policies. 34 40 Finally, the Company may, from time to time in its sole discretion, enter into one or more reinsurance agreements with other life insurance companies under which policies issued by it may be reinsured, such that its total amount at risk under a policy would be limited for the life of an insured. VOTING RIGHTS As stated previously, all of the assets held in the sub-accounts of the Separate Account will be invested in shares of a particular Portfolio of the Trust. The Company is the legal owner of those shares and as such has the right to vote upon certain matters that are required by the 1940 Act to be approved or ratified by the shareholders of a mutual fund and to vote upon any other matters that may be voted upon at a shareholders' meeting. However, the Company will vote shares held in the sub-accounts in accordance with instructions received from policyowners having an interest in such sub-accounts. Shares held in each sub-account for which no timely instructions from policyowners are received, including shares not attributable to the Policies, will be voted by the Company in the same proportion as those shares in that sub-account for which instructions are received. Should the applicable federal securities laws or regulations change so as to permit the Company to vote shares held in the Separate Account in its own right, it may elect to do so. The number of shares in each sub-account for which instructions may be given by a policyowner is determined by dividing the portion of the Policy Value derived from participation in that sub-account, if any, by the value of one share of the corresponding Portfolio. The number will be determined as of a date chosen by the Company, but not more than 90 days before the shareholders' meeting. Fractional votes are counted. Voting instructions will be solicited in writing at least 14 days prior to the meeting. The Company may, if required by state officials, disregard voting instructions if such instructions would require shares to be voted so as to cause a change in the sub-classification or investment policies of one or more of the Portfolios, or to approve or disapprove an investment management policy. In addition, the Company itself may disregard voting instructions that would require changes in the investment policies or investment adviser, provided that the Company reasonably disapproves such changes in accordance with applicable federal regulations. If the Company does disregard voting instructions, it will advise policyowners of that action and its reasons for such action in the next communication to policyowners. SUBSTITUTION OF PORTFOLIO SHARES It is possible that in the judgment of the management of the Company, one or more of the Portfolios may become unsuitable for investment by the Separate Account because of a change in investment policy or a change in the applicable laws or regulation, because the shares are no longer available for investment, or for some other reason. In that event, the Company may seek to substitute the shares of another Portfolio or of an entirely different mutual fund. Before this can be done, the approval of the S.E.C. and one or more state insurance departments may be required. The Company also reserves the right (i) to combine other separate accounts with the Separate Account, (ii) to create new separate accounts, (iii) to establish additional sub-accounts within the Separate Account to invest in additional portfolios of the Trust or another management investment company, (iv) to eliminate existing sub-accounts and to stop accepting new allocations and transfers into the corresponding portfolio, (v) to combine sub-accounts or to transfer assets in one sub-account to another sub-account or (vi) to transfer assets from the Separate Account to another separate account and from another separate account to the Separate Account. The Company also reserves the right to operate the Separate Account as a management investment company or other form permitted by law, and to de-register the Separate Account under the 1940 Act. Any such change would be made only if permissible under applicable federal and state law. RECORDS AND ACCOUNTS The Service Office will perform administrative functions, such as decreases, increases, surrenders and partial withdrawals, and fund transfers on behalf of the Company. All records and accounts relating to the Separate Account and the Portfolios will be maintained by the Company. All financial transactions will be handled by the Company. All reports required to be made and information required to be given will be provided by the Company. STATE REGULATIONS The Company is subject to the regulation and supervision by the Michigan Department of Insurance, which periodically examines its financial condition and operations. It is also subject to the insurance laws and regulations of all jurisdictions in which it is authorized to do business. The Policies have been filed with insurance officials, and meet all standards set by law, in each jurisdiction where they are sold. 35 41 The Company is required to submit annual statements of its operations, including financial statements, to the insurance departments of the various jurisdictions in which it does business for the purposes of determining solvency and compliance with local insurance laws and regulations. LITIGATION No litigation is pending that would have a material effect upon the Separate Account or the Trust. INDEPENDENT AUDITORS The consolidated financial statements of The Manufacturers Life Insurance Company of America and Separate Account Three of The Manufacturers Life Insurance Company of America at December 31, 1998 and 1997, and for each of the three years in the period ended December 31, 1998, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing. FURTHER INFORMATION A registration statement under the Securities Act of 1933 has been filed with the S.E.C. relating to the offering described in this prospectus. This prospectus does not include all the information set forth in the registration statement. The omitted information may be obtained from the S.E.C.'s principal office in Washington D.C. upon payment of the prescribed fee. The Commission also maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission which is located at http://www.sec.gov. For further information you may also contact the Company's Home Office, the address and telephone number of which are on the first page of the prospectus. OFFICERS AND DIRECTORS The directors and executive officers of the Company, together with their principal occupations during the past five years, are as follows:
POSITION WITH MANUFACTURERS NAME (AGE) LIFE OF AMERICA PRINCIPAL OCCUPATION - ------------------------------------------------------------------------------------------------------------------------------ Sandra M. Cotter (36)* Director (since December 1992) Attorney, Dykema, Gossett, PLLC, 1989 to present. James D. Gallagher (45)** Director (since May 1996), Vice President, Secretary and General Counsel, The Secretary and General Counsel Manufacturers Life Insurance Company (USA), January 1997 to present; Secretary and General Counsel, Manufacturers Adviser Corporation, January 1997 to present; Vice President, Legal Services - U.S. Operations, The Manufacturers Life Insurance Company, January 1996 to present; Vice President, Secretary and General Counsel, The Manufacturers Life Insurance Company of North America, 1994 to present; Vice President and Associate General Counsel, The Prudential Insurance Company of America, 1991 to 1994. Donald A. Guloien (41)*** Director (since August 1990) and Executive Vice President, Business Development, The President Manufacturers Life Insurance Company, January 1999 to present; Senior Vice President, Business Development, The Manufacturers Life Insurance Company, 1994 to December 1998; Vice President, U.S. Individual Business, The Manufacturers Life Insurance Company, 1990 to 1994. Theodore Kilkuskie (43)** Director (since May 1996) Senior Vice President, U.S. Annuities, The Manufacturers Life Insurance Company, January 1999 to present; President, The Manufacturers Life Insurance Company of North America, January 1999 to present; Senior Vice President, U.S. Individual Insurance, The Manufacturers Life Insurance February 1998 to December 1998; Vice President, U.S. Individual Insurance, The Manufacturers Life Insurance Company, June 1995 to February 1998; Executive Vice President, Mutual Fund Sales & Marketing, State Street Research & Management, March 1994 to June 1995.
36 42
POSITION WITH MANUFACTURERS LIFE NAME (AGE) OF AMERICA PRINCIPAL OCCUPATION - ------------------------------------------------------------------------------------------------------------------------------ James O'Malley (52)*** Director (since November 1998) Senior Vice President, U.S. Pensions, The Manufacturers Life Insurance Company, January 1999 to present; Vice President, Systems New Business Pensions, The Manufacturers Life Insurance Company, 1984 to December 1998. Joseph J. Pietroski (60)*** Director (since July 1992) Senior Vice President, General Counsel and Corporate Secretary, The Manufacturers Life Insurance Company, 1988 to present. John D. Richardson (61)*** Chairman and Director (since Senior Executive Vice President, The Manufacturers Life January 1995) Insurance Company, January 1999 to present; Executive Vice President, U.S. Operations, The Manufacturers Life Insurance Company, November 1997 to December 1998; Senior Vice President and General Manager, U.S. Operations, The Manufacturers Life Insurance Company, January 1995 to October 1997; Senior Vice President and General Manager, Canadian Operations, The Manufacturers Life Insurance Company, June 1992 to December 1994. Victor Apps (51)*** Vice President, Asia Executive Vice President, Asia Operations, The Manufacturers Life Insurance Company, November 1997 to present; Senior Vice President and General Manager, Greater China Division, The Manufacturers Life Insurance Company, 1995 to 1997; Vice President and General Manager, Greater China Division, The Manufacturers Life Insurance Company, 1993 to 1995; International Vice President, Asia Pacific Division, The Manufacturers Life Insurance Company, 1988 to 1993. Felix Chee (52)*** Vice President, Investments Executive Vice President, The Manufacturers Life Insurance Company, November 1997 to present; Chief Investment Officer, The Manufacturers Life Insurance Company, June 1997 to present; Senior Vice President and Treasurer, The Manufacturers Life Insurance Company, August 1994 to May 1997; Vice President and Treasurer, The Manufacturers Life Insurance Company, October 1993 to July 1994. Robert A. Cook (44)** Vice President, Marketing Senior Vice President, US Individual Insurance, The Manufacturers Life Insurance Company, January 1999 to present; Vice President, Product Management, The Manufacturers Life Insurance Company, 1996 to December 1998; Sales and Marketing Director, U.K. Division, The Manufacturers Life Insurance Company, 1994 to-1995.
37 43
POSITION WITH MANUFACTURERS LIFE NAME (AGE) OF AMERICA PRINCIPAL OCCUPATION - --------------------------------------------------------------------------------------------------------------------------- Douglas H. Myers (44)*** Vice President, Finance and President, ManEquity, Inc., April 1994 to present; Compliance, Controller Assistant Vice President and Controller, U.S. Operations, The Manufacturers Life Insurance Company, 1988 to present. John G. Vrysen (43)** Vice President and Appointed Chief Financial Officer and Treasurer, Manulife-Wood Actuary Logan Holding Co., Inc., January 1996 to present; Vice President and Chief Financial Officer, U.S. Operations, The Manufacturers Life Insurance Company, January 1996 to present; Vice President and Chief Actuary, The Manufacturers Life Insurance Company of New York, March 1992 to present; Vice President and Chief Actuary, The Manufacturers Life Insurance Company of North America, January 1986 to present. Jean Wong (35)*** Vice President and Treasurer Vice President, Product Management, US Insurance, The Manufacturers Life Insurance Company, March 1999 to present; Vice President and Chief Accountant, US Division, The Manufacturers Life Insurance Company, May 1998 to February 1999; Chief Accountant, US Division, The Manufacturers Life Insurance Company, July 1996 to May 1998; Director, Finance and Administration, Star Data Systems Inc., December 1995 to July 1996; Vice President and Chief Financial Officer, Primerica Financial Services, June 1993 to December 1995.
* Principal business address is Dykema Gossett, 800 Michigan National Tower, Lansing, Michigan 48933. ** Principal business address is Manulife Financial, 73 Tremont Street, Boston, MA 02109 *** Principal business address is Manulife Financial, 200 Bloor Street, Toronto, Ontario Canada M4W 1E5. IMPACT OF YEAR 2000 The Company makes extensive use of information systems in the operations of its various businesses, including for the exchange of financial data and other information with customers, suppliers and other counterparties. The Company also uses software and information systems provided by third parties in its accounting, business and investment systems. The Year 2000 risk, as it is commonly known, is the result of computer programs being written using two digits, rather than four, to define the applicable year. Any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in systems' failures or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send premium billing notices, make claims payments or engage in other normal business activities. The systems used by the Company have been assessed as part of a comprehensive written plan conducted by The Manufacturers Life Insurance Company (collectively with its subsidiaries "Manulife Financial") to ensure that the computer systems and processes of Manulife Financial, including the Company's, will continue to perform through the end of this century and in the next. In 1996, in order to make Manulife Financial's systems Year 2000 compliant, a Project was instituted to modify or replace both Manulife Financial's information technology systems ("IT systems") and embedded technology systems ("Non-IT systems"). The phases of this Project include (i) an inventory and assessment of all systems to determine which are critical, (ii) planning and designing the required modifications and replacements, (iii) making these modifications and replacements, (iv) testing modified replaced systems, (v) redeploying modified or replaced systems and (vi) final management review and certification. As at June 30, 1999, management believes that the certification phase has been completed for all the Company's critical IT and Non-IT systems. Management believes that the Company's non-critical systems were Year 2000 compliant by the end of the first quarter 1999. In addition to efforts directed at the Company's own systems, Manulife Financial consulted vendors, customers, borrowers and other third parties with which the Company deals in an effort to ensure that no material aspect of the Company's operations will be hindered by Year 2000 problems of these third parties. This process included sending questionnaires to third parties regarding the state of their Year 2000 readiness and, where possible or where appropriate, 38 44 conducting further due diligence activities. Where appropriate, risk management steps are being followed as a result of the third-party assessment. 39 45 APPENDIX A DEFINITIONS Additional Rating is an increase to the Cost of Insurance Rate for insureds who do not meet, at a minimum, the Company's underwriting requirements for the standard Risk Classification. Age on any date is the Life Insured's age on his or her nearest birthday. If no specific date is mentioned, Age means the Life Insured's age on the Policy Anniversary nearest to the birthday. Attained Age on any date is the Age at issue plus the number of whole years that have elapsed since the Policy Date. In the case of a Survivorship Policy, Attained Age is based on the youngest Life Insured at issue of the Policy. Business Day is any day that the New York Stock Exchange is open for business. A Business Day ends at the close of regularly scheduled day-time trading of the New York Stock Exchange on that day. Cash Surrender Value is the Policy Value less the sum of (a) the Surrender Charge and (b) any outstanding Monthly Deductions due. The Company (or "we," "us" or "our") refers to The Manufacturers Life Insurance Company of America. Earnings is an amount calculated in relation to a loan and free withdrawals. The amount is calculated as of the date the Company receives the request for the loan or the free withdrawal and is equal to the Policy Value less the sum of (a) the value of any Policy Debt and (b) total premiums paid. Effective Date is the date the underwriters approve issuance of the Policy. If the Policy is approved without the initial premium, the Effective Date will be the date the Company receives at least the minimum initial premium at our Service Office. In either case, the Company will take the first Monthly Deduction on the Effective Date. Fixed Account is that part of the Policy Value which reflects the value the policyowner has in the general account of the Company. Guideline Single Premium is the maximum premium that can be paid under the Guideline Premium Test (described under "Life Insurance Qualification") which will still allow the Policy to qualify as life insurance for tax purposes under Section 7702 of the Code. Investment Account is that part of the Policy Value which reflects the value the policyowner has in one of the sub-accounts of the Separate Account. Issue Date is the date the Company issued the Policy. The Issue Date is also the date from which the Suicide and Validity provisions of the Policy are measured. Life Insured is the person or persons whose life (or lives) is (are) covered by the Policy. In the case of a Survivorship Policy, all provisions of the Policy which are based on the death of the Life Insured will be based on the death of the last survivor of the persons so named and reference to the youngest of the Life Insured means the youngest person insured under the Policy when it is first issued. A-1 46 Loan Account is that part of the Policy Value which reflects the value transferred from the Fixed Account or the Investment Accounts as collateral for a policy loan. Maturity Date is the date shown in the Policy. In the case of a Single Life Policy, it is the Policy Anniversary nearest Attained Age 100 of the Life Insured. In the case of a Survivorship Policy, it is the Policy Anniversary nearest Attained Age 100 of the youngest of the Life Insured at issue. The Maturity Date may be extended pursuant to the Maturity Advantage Option described under "Maturity Date." Net Cash Surrender Value is the Cash Surrender Value less the Policy Debt. Net Policy Value is the Policy Value less the value in the Loan Account. Net Premium is the gross premium paid less the Premium Charge. It is the amount of premium allocated to the Fixed Account and/or Investment Accounts. Policy Date is the date coverage takes effect under the Policy, provided the underwriting process has been completed to the Company's satisfaction and the Company has received the minimum initial premium at its Service Office, and is the date from which charges for the first monthly deduction are calculated, and the date from which Policy Years, Policy Months, and Policy Anniversaries are determined. Policy Debt as of any date equals (a) plus (b) plus (c) minus (d), where: (a) is the total amount of loans borrowed as of such date; (b) is the total amount of any unpaid loan interest charges which have been borrowed against the policy on a Policy Anniversary; (c) is any interest charges accrued from the last Policy Anniversary to the current date; and (d) is the total amount of loan repayments as of such date. Policy Value is the sum of the values in the Loan Account, the Fixed Account, and the Investment Accounts. Single Life Policy is a modified single premium variable life insurance policy offered on a single life basis under the Policy described in this Prospectus. Separate Account refers to Separate Account Three of the Company. Service Office Address is 200 Bloor Street East, Toronto, Ontario, Canada M4W 1E5. Surrender Charge Period is the period following the Issue Date during which the Company will assess surrender charges. Surrender charges will apply during this period if the Policy terminates due to default, if the policyowner surrenders the Policy or makes a partial withdrawal. Survivorship Policy is a modified single premium survivorship variable life insurance policy offered on a survivorship basis under the Policy described in this Prospectus. Written Request A-2 47 is the policyowner's request to the Company which must be in a form satisfactory to the Company, signed and dated by the policyowner, and received at the Service Office. A-3 48 APPENDIX B SAMPLE ILLUSTRATIONS OF POLICY VALUES, CASH SURRENDER VALUES AND DEATH BENEFITS The following tables have been prepared to help show how values under the Policy change with investment performance. The tables are based on initial premiums of $25,000 and $100,000. A male age 55 and a female age 55 are illustrated for the single life Policy. A male age 55 and female age 50 are illustrated for the last survivorship Policy. The tables include both Policy Values and Cash Surrender Values as well as Death Benefits. The Policy Value is the sum of the values in the Investment Accounts, as the tables assume no values in the Fixed Account or Loan Account. The Cash Surrender Value is the Policy Value less any applicable surrender charges. The tables illustrate how Policy Values and Cash Surrender Values, which reflect all applicable charges and deductions, and Death Benefits of the Policy on an insured of given age would vary over time if the return on the assets of the Portfolios was a uniform, gross, after-tax, annual rate of 0%, 6% or 12%. The Policy Values, Death Benefits and Cash Surrender Values would be different from those shown if the returns averaged 0%, 6% or 12%, but fluctuated over and under those averages throughout the years. The charges reflected in the tables include those for deductions from premiums, surrender charges, and monthly deductions. The amounts shown for the Policy Value, Death Benefit and Cash Surrender Value as of each Policy Year reflect the fact that the net investment return on the assets held in the sub-accounts is lower than the gross, after-tax return. This is because the expenses and fees borne by Manufacturers Investment Trust are deducted from the gross return. The illustrations reflect a simple average of those Portfolios' current expenses, which is approximately 0.960% per annum. The gross annual rates of return of 0%, 6% and 12% correspond to approximate net annual rates of return of -0.955%, 4.987% and 10.930%. The expense of the Portfolios may fluctuate from year to year but are assumed to remain constant for purposes of these tables. The illustrations reflect the expense reimbursement in effect for the Lifestyle Trusts. In the absence of such expense reimbursement, the average of the Portfolio's current expenses would have been 0.963% per annum and the gross annual rates of return of 0%, 6% and 12% would have corresponded to approximate net annual rates of return of -0.958%, 4.984% and 10.927%. The expense reimbursement for the Lifestyle Trusts is expected to remain in effect during the fiscal year ended December 31, 1999 and the fiscal year ended December 31, 2000. Were the expense reimbursement and expense limitation to terminate, the average of the Portfolios' current expenses would be higher and the approximate net annual rates of return would be lower. The tables assume that no premiums have been allocated to the Fixed Account, that planned premiums are paid on the Policy Anniversary and that no transfers, partial withdrawals, Policy loans, changes in death benefit options or changes in face amount have been made. The tables reflect the fact that no charges for federal, state or local taxes are currently made against the Separate Account. If such a charge is made in the future, it would take a higher gross rate of return to produce after-tax returns of 0%, 6% and 12% than it does now. There are two tables shown for each Policy, one based on current cost of insurance charges assessed by the Company and the other based on the maximum cost of insurance charges based on the 1980 Commissioners Smoker Distinct Mortality Tables. Current cost of insurance charges are not guaranteed and may be changed. Upon request, Manufacturers Life of America will furnish a comparable illustration based on the proposed life insured's issue age, sex (unless unisex rates are required by law, or are requested) and risk classes and any additional ratings, face amount and planned premium requested. From time to time, in advertisements or sales literature for the Policies that quote performance data of one or more of the Portfolios, the Company may include Cash Surrender Values and Death Benefit figures computed using the same methodology as that used in the following illustrations, but with the average annual total return of the Portfolio for which performance data is shown in the advertisement replacing the hypothetical rates of return shown in the following tables. This information may be shown in the form of B-1 49 graphs, charts, tables and examples. The Policies have been offered to the public only since approximately _______, 1999. However, total return data may be advertised for as long a period of time as the underlying Portfolio has been in existence. The results for any period prior to the Policies' being offered would be calculated as if the Policies had been offered during that period of time, with all charges assumed to be those applicable to the Policies. B-2 50 SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY MALE NON-SMOKER ISSUE AGE 55 $25,000 PLANNED SINGLE PREMIUM $73,724 FACE AMOUNT ASSUMING CURRENT CHARGES
0% Hypothetical 6% Hypothetical 12% Hypothetical Gross Investment Return Gross Investment Return Gross Investment Return ----------------------- ----------------------- ----------------------- End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit Year (1) Value Value Value 1 26,250 24,227 22,254 73,724 25,688 23,582 73,724 27,148 24,910 73,724 2 27,563 23,431 21,739 73,724 26,362 24,434 73,724 29,466 27,445 73,724 3 28,941 22,610 21,186 73,724 27,024 25,287 73,724 31,972 30,201 73,724 4 30,388 21,753 20,582 73,724 27,663 26,142 73,724 34,680 33,160 73,724 5 31,907 20,854 19,921 73,724 28,276 27,005 73,724 37,614 36,343 73,724 6 33,502 19,924 19,212 73,724 28,874 27,853 73,724 40,811 39,790 73,724 7 35,178 18,956 18,448 73,724 29,452 28,681 73,724 44,299 43,558 73,724 8 36,936 17,945 17,694 73,724 30,008 29,602 73,724 48,116 47,710 73,724 9 38,783 16,888 16,870 73,724 30,540 30,508 73,724 52,301 52,270 73,724 10 40,722 15,765 15,765 73,724 31,035 31,035 73,724 56,898 56,898 73,724 11 42,758 14,688 14,688 73,724 31,778 31,778 73,724 62,557 62,557 75,068 12 44,896 13,547 13,547 73,724 32,518 32,518 73,724 68,820 68,820 81,895 13 47,141 12,325 12,325 73,724 33,248 33,248 73,724 75,712 75,712 89,340 14 49,498 11,016 11,016 73,724 33,966 33,966 73,724 83,297 83,297 97,458 15 51,973 9,613 9,613 73,724 34,673 34,673 73,724 91,648 91,648 106,311 16 54,572 8,117 8,117 73,724 35,373 35,373 73,724 100,843 100,843 115,969 17 57,300 6,529 6,529 73,724 36,069 36,069 73,724 110,996 110,996 125,426 18 60,165 4,850 4,850 73,724 36,769 36,769 73,724 122,218 122,218 135,661 19 63,174 3,083 3,083 73,724 37,477 37,477 73,724 134,630 134,630 146,747 20 66,332 1,232 1,232 73,724 38,200 38,200 73,724 148,372 148,372 158,758 25 84,659 0 (3) 0 (3) 73,724 40,599 40,599 73,724 241,343 241,343 253,410 30 108,049 0 (3) 0 (3) 73,724 39,059 39,059 73,724 390,482 390,482 410,007 35 137,900 0 (3) 0 (3) 73,724 26,353 26,353 73,724 625,993 625,993 657,293 40 176,000 0 (3) 0 (3) 73,724 0 (3) 0 (3) 73,724 1,007,082 1,007,082 1,017,152 45 224,625 0 (3) 0 (3) 73,724 0 (3) 0 (3) 73,724 1,655,923 1,655,923 1,655,923
(1) All values shown are as of the end of the policy year indicated, have been rounded to the nearest dollar, and assume that (a) no policy loan has been made, (b) no partial withdrawal of the Cash Surrender Value has been made, and (c) no premiums have been allocated to the Fixed Account. (2) Assumes net interest of 5% compounded annually. (3) In the absence of additional premium payments, the Policy will lapse, unless the Lapse Protection Benefit is in effect. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. B-3 51 SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY MALE NON-SMOKER ISSUE AGE 55 $25,000 PLANNED SINGLE PREMIUM $73,724 FACE AMOUNT ASSUMING MAXIMUM CHARGES
0% Hypothetical 6% Hypothetical 12% Hypothetical Gross Investment Return Gross Investment Return Gross Investment Return ----------------------- ----------------------- ----------------------- End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit Year (1) Value Value Value 1 26,250 24,227 22,254 73,724 25,688 23,582 73,724 27,148 24,910 73,724 2 27,563 23,153 21,483 73,724 26,088 24,181 73,724 29,195 27,175 73,724 3 28,941 22,051 20,666 73,724 26,463 24,766 73,724 31,415 29,644 73,724 4 30,388 20,916 19,795 73,724 26,811 25,332 73,724 33,826 32,306 73,724 5 31,907 19,740 18,863 73,724 27,125 25,874 73,724 36,449 35,178 73,724 6 33,502 18,514 17,860 73,724 27,399 26,382 73,724 39,308 38,287 73,724 7 35,178 17,230 16,776 73,724 27,624 26,853 73,724 42,430 41,664 73,724 8 36,936 15,874 15,657 73,724 27,790 27,384 73,724 45,847 45,441 73,724 9 38,783 14,430 14,416 73,724 27,885 27,854 73,724 49,597 49,566 73,724 10 40,722 12,882 12,882 73,724 27,896 27,896 73,724 53,726 53,726 73,724 11 42,758 11,327 11,327 73,724 28,085 28,085 73,724 58,862 58,862 73,724 12 44,896 9,617 9,617 73,724 28,180 28,180 73,724 64,612 64,612 76,888 13 47,141 7,730 7,730 73,724 28,165 28,165 73,724 70,947 70,947 83,718 14 49,498 5,642 5,642 73,724 28,024 28,024 73,724 77,898 77,898 91,141 15 51,973 3,322 3,322 73,724 27,736 27,736 73,724 85,525 85,525 99,209 16 54,572 727 727 73,724 27,269 27,269 73,724 93,891 93,891 107,975 17 57,300 0 (3) 0 (3) 73,724 26,554 26,554 73,724 103,099 103,099 116,502 18 60,165 0 (3) 0 (3) 73,724 25,596 25,596 73,724 113,262 113,262 125,721 19 63,174 0 (3) 0 (3) 73,724 24,301 24,301 73,724 124,488 124,488 135,692 20 66,332 0 (3) 0 (3) 73,724 22,592 22,592 73,724 136,912 136,912 146,496 25 84,659 0 (3) 0 (3) 73,724 4,084 4,084 73,724 220,609 220,609 231,639 30 108,049 0 (3) 0 (3) 73,724 0 (3) 0 (3) 73,724 352,126 352,126 369,732 35 137,900 0 (3) 0 (3) 73,724 0 (3) 0 (3) 73,724 553,566 553,566 581,245 40 176,000 0 (3) 0 (3) 73,724 0 (3) 0 (3) 73,724 877,414 877,414 886,188 45 224,625 0 (3) 0 (3) 73,724 0 (3) 0 (3) 73,724 1,442,637 1,442,637 1,442,637
(1) All values shown are as of the end of the policy year indicated, have been rounded to the nearest dollar, and assume that (a) no policy loan has been made, (b) no partial withdrawal of the Cash Surrender Value has been made, and (c) no premiums have been allocated to the Fixed Account. (2) Assumes net interest of 5% compounded annually. (3) In the absence of additional premium payments, the Policy will lapse, unless the Lapse Protection Benefit is in effect. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. B-4 52 SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY MALE NON-SMOKER ISSUE AGE 55 $100,000 PLANNED SINGLE PREMIUM $305,427 FACE AMOUNT ASSUMING CURRENT CHARGES
0% Hypothetical 6% Hypothetical 12% Hypothetical Gross Investment Return Gross Investment Return Gross Investment Return ----------------------- ----------------------- ----------------------- End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit Year (1) Value Value Value 1 105,000 97,153 89,237 305,427 103,003 94,556 305,427 108,854 99,875 305,427 2 110,250 94,200 87,394 305,427 105,956 98,199 305,427 118,400 110,317 305,427 3 115,763 91,135 85,388 305,427 108,857 101,855 305,427 128,720 121,636 305,427 4 121,551 87,910 83,171 305,427 111,668 105,585 305,427 139,867 133,784 305,427 5 127,628 84,503 80,716 305,427 114,374 109,290 305,427 151,936 146,852 305,427 6 134,010 80,963 78,065 305,427 117,023 112,939 305,427 165,082 160,999 305,427 7 140,710 77,257 75,183 305,427 119,594 116,511 305,427 179,425 176,341 305,427 8 147,746 73,371 72,342 305,427 122,081 120,456 305,427 195,109 193,484 305,427 9 155,133 69,283 69,209 305,427 124,471 124,346 305,427 212,302 212,177 305,427 10 162,889 64,924 64,924 305,427 126,717 126,717 305,427 231,179 231,179 305,427 11 171,034 60,745 60,745 305,427 129,975 129,975 305,427 254,387 254,387 305,427 12 179,586 56,299 56,299 305,427 133,233 133,233 305,427 280,143 280,143 333,371 13 188,565 51,519 51,519 305,427 136,456 136,456 305,427 308,491 308,491 364,019 14 197,993 46,383 46,383 305,427 139,645 139,645 305,427 339,691 339,691 397,439 15 207,893 40,856 40,856 305,427 142,795 142,795 305,427 374,035 374,035 433,881 16 218,287 34,950 34,950 305,427 145,930 145,930 305,427 411,856 411,856 473,635 17 229,202 28,663 28,663 305,427 149,069 149,069 305,427 453,617 453,617 512,587 18 240,662 22,006 22,006 305,427 152,235 152,235 305,427 499,769 499,769 554,743 19 252,695 14,989 14,989 305,427 155,455 155,455 305,427 550,819 550,819 600,392 20 265,330 7,629 7,629 305,427 158,757 158,757 305,427 607,336 607,336 649,850 25 338,635 0 (3) 0 (3) 305,427 170,700 170,700 305,427 989,698 989,698 1,039,183 30 432,194 0 (3) 0 (3) 305,427 167,930 167,930 305,427 1,603,090 1,603,090 1,683,244 35 551,602 0 (3) 0 (3) 305,427 123,865 123,865 305,427 2,571,749 2,571,749 2,700,337 40 703,999 0 (3) 0 (3) 305,427 0 (3) 0 (3) 305,427 4,139,169 4,139,169 4,180,561 45 898,501 0 (3) 0 (3) 305,427 0 (3) 0 (3) 305,427 6,807,770 6,807,770 6,807,770
(1) All values shown are as of the end of the policy year indicated, have been rounded to the nearest dollar, and assume that (a) no policy loan has been made, (b) no partial withdrawal of the Cash Surrender Value has been made, and (c) no premiums have been allocated to the Fixed Account. (2) Assumes net interest of 5% compounded annually. (3) In the absence of additional premium payments, the Policy will lapse, unless the Lapse Protection Benefit is in effect. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. B-5 53 SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY MALE NON-SMOKER ISSUE AGE 55 $100,000 PLANNED SINGLE PREMIUM $305,427 FACE AMOUNT ASSUMING MAXIMUM CHARGES
0% Hypothetical 6% Hypothetical 12% Hypothetical Gross Investment Return Gross Investment Return Gross Investment Return ----------------------- ----------------------- ----------------------- End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit Year (1) Value Value Value 1 105,000 97,153 89,237 305,427 103,003 94,556 305,427 108,854 99,875 305,427 2 110,250 93,030 86,319 305,427 104,798 97,135 305,427 117,259 109,175 305,427 3 115,763 88,785 83,204 305,427 106,496 99,661 305,427 126,367 119,284 305,427 4 121,551 84,397 79,871 305,427 108,083 102,116 305,427 136,257 130,173 305,427 5 127,628 79,833 76,283 305,427 109,532 104,472 305,427 147,009 141,925 305,427 6 134,010 75,060 72,403 305,427 110,816 106,733 305,427 158,719 154,635 305,427 7 140,710 70,037 68,186 305,427 111,904 108,821 305,427 171,501 168,417 305,427 8 147,746 64,711 63,822 305,427 112,754 111,129 305,427 185,482 183,857 305,427 9 155,133 59,019 58,958 305,427 113,314 113,189 305,427 200,815 200,690 305,427 10 162,889 52,889 52,889 305,427 113,527 113,527 305,427 217,685 217,685 305,427 11 171,034 46,728 46,728 305,427 114,464 114,464 305,427 238,636 238,636 305,427 12 179,586 39,926 39,926 305,427 115,018 115,018 305,427 262,126 262,126 311,930 13 188,565 32,394 32,394 305,427 115,125 115,125 305,427 288,119 288,119 339,980 14 197,993 24,035 24,035 305,427 114,719 114,719 305,427 316,638 316,638 370,467 15 207,893 14,723 14,723 305,427 113,710 113,710 305,427 347,929 347,929 403,598 16 218,287 4,276 4,276 305,427 111,971 111,971 305,427 382,255 382,255 439,594 17 229,202 0 (3) 0 (3) 305,427 109,220 109,220 305,427 420,035 420,035 474,639 18 240,662 0 (3) 0 (3) 305,427 105,475 105,475 305,427 461,731 461,731 512,521 19 252,695 0 (3) 0 (3) 305,427 100,354 100,354 305,427 507,785 507,785 553,485 20 265,330 0 (3) 0 (3) 305,427 93,540 93,540 305,427 558,757 558,757 597,870 25 338,635 0 (3) 0 (3) 305,427 18,779 18,779 305,427 902,119 902,119 947,225 30 432,194 0 (3) 0 (3) 305,427 0 (3) 0 (3) 305,427 1,441,701 1,441,701 1,513,786 35 551,602 0 (3) 0 (3) 305,427 0 (3) 0 (3) 305,427 2,268,221 2,268,221 2,381,632 40 703,999 0 (3) 0 (3) 305,427 0 (3) 0 (3) 305,427 3,596,961 3,596,961 3,632,930 45 898,501 0 (3) 0 (3) 305,427 0 (3) 0 (3) 305,427 5,915,912 5,915,912 5,915,912
(1) All values shown are as of the end of the policy year indicated, have been rounded to the nearest dollar, and assume that (a) no policy loan has been made, (b) no partial withdrawal of the Cash Surrender Value has been made, and (c) no premiums have been allocated to the Fixed Account. (2) Assumes net interest of 5% compounded annually. (3) In the absence of additional premium payments, the Policy will lapse, unless the Lapse Protection Benefit is in effect. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. B-6 54 SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY FEMALE NON-SMOKER ISSUE AGE 55 $25,000 PLANNED SINGLE PREMIUM $86,857 FACE AMOUNT ASSUMING CURRENT CHARGES
0% Hypothetical 6% Hypothetical 12% Hypothetical Gross Investment Return Gross Investment Return Gross Investment Return ----------------------- ----------------------- -------------------------------- End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit Year (1) Value Value Value 1 26,250 24,242 22,267 86,857 25,702 23,595 86,857 27,163 24,923 86,857 2 27,563 23,460 21,766 86,857 26,391 24,460 86,857 29,494 27,473 86,857 3 28,941 22,652 21,225 86,857 27,064 25,324 86,857 32,009 30,238 86,857 4 30,388 21,812 20,637 86,857 27,716 26,195 86,857 34,725 33,204 86,857 5 31,907 20,926 19,989 86,857 28,336 27,065 86,857 37,656 36,386 86,857 6 33,502 20,007 19,292 86,857 28,936 27,915 86,857 40,840 39,820 86,857 7 35,178 19,053 18,543 86,857 29,516 28,745 86,857 44,307 43,566 86,857 8 36,936 18,062 17,809 86,857 30,074 29,668 86,857 48,088 47,682 86,857 9 38,783 17,053 17,034 86,857 30,626 30,594 86,857 52,233 52,202 86,857 10 40,722 16,015 16,015 86,857 31,165 31,165 86,857 56,781 56,781 86,857 11 42,758 15,115 15,115 86,857 32,017 32,017 86,857 62,386 62,386 86,857 12 44,896 14,188 14,188 86,857 32,890 32,890 86,857 68,619 68,619 86,857 13 47,141 13,234 13,234 86,857 33,787 33,787 86,857 75,557 75,557 89,157 14 49,498 12,223 12,223 86,857 34,689 34,689 86,857 83,226 83,226 97,374 15 51,973 11,193 11,193 86,857 35,626 35,626 86,857 91,688 91,688 106,358 16 54,572 10,131 10,131 86,857 36,590 36,590 86,857 101,024 101,024 116,177 17 57,300 9,027 9,027 86,857 37,579 37,579 86,857 111,335 111,335 125,809 18 60,165 7,881 7,881 86,857 38,597 38,597 86,857 122,729 122,729 136,229 19 63,174 6,692 6,692 86,857 39,646 39,646 86,857 135,325 135,325 147,504 20 66,332 5,462 5,462 86,857 40,732 40,732 86,857 149,254 149,254 159,702 25 84,659 0 (3) 0 (3) 86,857 45,472 45,472 86,857 243,671 243,671 255,854 30 108,049 0 (3) 0 (3) 86,857 47,495 47,495 86,857 396,258 396,258 416,071 35 137,900 0 (3) 0 (3) 86,857 42,567 42,567 86,857 639,704 639,704 671,689 40 176,000 0 (3) 0 (3) 86,857 18,390 18,390 86,857 1,034,808 1,034,808 1,045,156 45 224,625 0 (3) 0 (3) 86,857 0 (3) 0 (3) 86,857 1,701,530 1,701,530 1,701,530
(1) All values shown are as of the end of the policy year indicated, have been rounded to the nearest dollar, and assume that (a) no policy loan has been made, (b) no partial withdrawal of the Cash Surrender Value has been made, and (c) no premiums have been allocated to the Fixed Account. (2) Assumes net interest of 5% compounded annually. (3) In the absence of additional premium payments, the Policy will lapse, unless the Lapse Protection Benefit is in effect. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. B-7 55 SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY FEMALE NON-SMOKER ISSUE AGE 55 $25,000 PLANNED SINGLE PREMIUM $86,857 FACE AMOUNT ASSUMING MAXIMUM CHARGES
0% Hypothetical 6% Hypothetical 12% Hypothetical Gross Investment Return Gross Investment Return Gross Investment Return ----------------------------- ----------------------------- --------------------------------- End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit Year (1) Value Value Value 1 26,250 24,242 22,267 86,857 25,702 23,595 86,857 27,163 24,923 86,857 2 27,563 23,182 21,510 86,857 26,114 24,205 86,857 29,218 27,197 86,857 3 28,941 22,111 20,722 86,857 26,514 24,813 86,857 31,455 29,684 86,857 4 30,388 21,029 19,902 86,857 26,905 25,420 86,857 33,893 32,373 86,857 5 31,907 19,933 19,047 86,857 27,284 26,024 86,857 36,556 35,285 86,857 6 33,502 18,818 18,152 86,857 27,646 26,625 86,857 39,465 38,444 86,857 7 35,178 17,675 17,207 86,857 27,985 27,214 86,857 42,642 41,879 86,857 8 36,936 16,491 16,263 86,857 28,290 27,884 86,857 46,114 45,708 86,857 9 38,783 15,250 15,234 86,857 28,548 28,517 86,857 49,909 49,877 86,857 10 40,722 13,938 13,938 86,857 28,745 28,745 86,857 54,061 54,061 86,857 11 42,758 12,671 12,671 86,857 29,158 29,158 86,857 59,190 59,190 86,857 12 44,896 11,299 11,299 86,857 29,512 29,512 86,857 64,895 64,895 86,857 13 47,141 9,815 9,815 86,857 29,803 29,803 86,857 71,263 71,263 86,857 14 49,498 8,215 8,215 86,857 30,027 30,027 86,857 78,372 78,372 91,695 15 51,973 6,485 6,485 86,857 30,174 30,174 86,857 86,211 86,211 100,004 16 54,572 4,599 4,599 86,857 30,227 30,227 86,857 94,836 94,836 109,061 17 57,300 2,521 2,521 86,857 30,157 30,157 86,857 104,348 104,348 117,913 18 60,165 196 196 86,857 29,927 29,927 86,857 114,845 114,845 127,477 19 63,174 0 (3) 0 (3) 86,857 29,489 29,489 86,857 126,435 126,435 137,814 20 66,332 0 (3) 0 (3) 86,857 28,789 28,789 86,857 139,250 139,250 148,997 25 84,659 0 (3) 0 (3) 86,857 19,081 19,081 86,857 225,762 225,762 237,050 30 108,049 0 (3) 0 (3) 86,857 0 (3) 0 (3) 86,857 363,157 363,157 381,315 35 137,900 0 (3) 0 (3) 86,857 0 (3) 0 (3) 86,857 575,717 575,717 604,503 40 176,000 0 (3) 0 (3) 86,857 0 (3) 0 (3) 86,857 916,086 916,086 925,247 45 224,625 0 (3) 0 (3) 86,857 0 (3) 0 (3) 86,857 1,506,249 1,506,249 1,506,249
(1) All values shown are as of the end of the policy year indicated, have been rounded to the nearest dollar, and assume that (a) no policy loan has been made, (b) no partial withdrawal of the Cash Surrender Value has been made, and (c) no premiums have been allocated to the Fixed Account. (2) Assumes net interest of 5% compounded annually. (3) In the absence of additional premium payments, the Policy will lapse, unless the Lapse Protection Benefit is in effect. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. B-8 56 SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY FEMALE NON-SMOKER ISSUE AGE 55 $100,000 PLANNED SINGLE PREMIUM $360,771 FACE AMOUNT ASSUMING CURRENT CHARGES
0% Hypothetical 6% Hypothetical 12% Hypothetical Gross Investment Return Gross Investment Return Gross Investment Return ----------------------- ----------------------- -------------------------------- End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit Year (1) Value Value Value 1 105,000 97,214 89,292 360,771 103,064 94,611 360,771 108,915 99,930 360,771 2 110,250 94,322 87,506 360,771 106,076 98,310 360,771 118,518 110,434 360,771 3 115,763 91,310 85,551 360,771 109,024 102,010 360,771 128,876 121,793 360,771 4 121,551 88,155 83,400 360,771 111,891 105,807 360,771 140,058 133,975 360,771 5 127,628 84,802 80,999 360,771 114,627 109,544 360,771 152,119 147,036 360,771 6 134,010 81,304 78,392 360,771 117,285 113,202 360,771 165,214 161,131 360,771 7 140,710 77,655 75,569 360,771 119,862 116,778 360,771 179,465 176,382 360,771 8 147,746 73,847 72,809 360,771 122,353 120,728 360,771 195,007 193,382 360,771 9 155,133 69,953 69,878 360,771 124,825 124,700 360,771 212,042 211,917 360,771 10 162,889 65,937 65,937 360,771 127,251 127,251 360,771 230,724 230,724 360,771 11 171,034 62,487 62,487 360,771 130,964 130,964 360,771 253,723 253,723 360,771 12 179,586 58,919 58,919 360,771 134,771 134,771 360,771 279,297 279,297 360,771 13 188,565 55,242 55,242 360,771 138,690 138,690 360,771 307,768 307,768 363,166 14 197,993 51,325 51,325 360,771 142,636 142,636 360,771 339,299 339,299 396,979 15 207,893 47,329 47,329 360,771 146,736 146,736 360,771 374,090 374,090 433,944 16 218,287 43,196 43,196 360,771 150,963 150,963 360,771 412,471 412,471 474,342 17 229,202 38,892 38,892 360,771 155,308 155,308 360,771 454,865 454,865 513,997 18 240,662 34,413 34,413 360,771 159,782 159,782 360,771 501,708 501,708 556,896 19 252,695 29,756 29,756 360,771 164,402 164,402 360,771 553,491 553,491 603,305 20 265,330 24,929 24,929 360,771 169,187 169,187 360,771 610,759 610,759 653,513 25 338,635 0 (3) 0 (3) 360,771 190,569 190,569 360,771 998,923 998,923 1,048,869 30 432,194 0 (3) 0 (3) 360,771 201,651 201,651 360,771 1,626,257 1,626,257 1,707,570 35 551,602 0 (3) 0 (3) 360,771 186,580 186,580 360,771 2,627,165 2,627,165 2,758,523 40 703,999 0 (3) 0 (3) 360,771 100,194 100,194 360,771 4,251,604 4,251,604 4,294,121 45 898,501 0 (3) 0 (3) 360,771 0 (3) 0 (3) 360,771 6,992,710 6,992,710 6,992,710
(1) All values shown are as of the end of the policy year indicated, have been rounded to the nearest dollar, and assume that (a) no policy loan has been made, (b) no partial withdrawal of the Cash Surrender Value has been made, and (c) no premiums have been allocated to the Fixed Account. (2) Assumes net interest of 5% compounded annually. (3) In the absence of additional premium payments, the Policy will lapse, unless the Lapse Protection Benefit is in effect. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. B-9 57 SINGLE PREMIUM VARIABLE LIFE INSURANCE POLICY FEMALE NON-SMOKER ISSUE AGE 55 $100,000 PLANNED SINGLE PREMIUM $360,771 FACE AMOUNT ASSUMING MAXIMUM CHARGES
0% Hypothetical 6% Hypothetical 12% Hypothetical Gross Investment Return Gross Investment Return Gross Investment Return ----------------------- ----------------------- --------------------------------- End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit Year (1) Value Value Value 1 105,000 97,214 89,292 360,771 103,064 94,611 360,771 108,915 99,930 360,771 2 110,250 93,153 86,431 360,771 104,908 97,236 360,771 117,355 109,272 360,771 3 115,763 89,037 83,439 360,771 106,710 99,860 360,771 126,536 119,452 360,771 4 121,551 84,869 80,315 360,771 108,476 102,486 360,771 136,545 130,461 360,771 5 127,628 80,637 77,047 360,771 110,198 105,115 360,771 147,469 142,386 360,771 6 134,010 76,317 73,609 360,771 111,855 107,771 360,771 159,397 155,314 360,771 7 140,710 71,877 69,969 360,771 113,420 110,336 360,771 172,425 169,342 360,771 8 147,746 67,262 66,332 360,771 114,849 113,224 360,771 186,653 185,028 360,771 9 155,133 62,407 62,342 360,771 116,085 115,960 360,771 202,194 202,069 360,771 10 162,889 57,249 57,249 360,771 117,074 117,074 360,771 219,193 219,193 360,771 11 171,034 52,271 52,271 360,771 118,945 118,945 360,771 240,157 240,157 360,771 12 179,586 46,854 46,854 360,771 120,576 120,576 360,771 263,465 263,465 360,771 13 188,565 40,976 40,976 360,771 121,951 121,951 360,771 289,471 289,471 360,771 14 197,993 34,614 34,614 360,771 123,057 123,057 360,771 318,552 318,552 372,705 15 207,893 27,716 27,716 360,771 123,854 123,854 360,771 350,703 350,703 406,816 16 218,287 20,175 20,175 360,771 124,266 124,266 360,771 386,081 386,081 443,993 17 229,202 11,839 11,839 360,771 124,182 124,182 360,771 425,098 425,098 480,361 18 240,662 2,483 2,483 360,771 123,443 123,443 360,771 468,151 468,151 519,647 19 252,695 0 (3) 0 (3) 360,771 121,852 121,852 360,771 515,691 515,691 562,103 20 265,330 0 (3) 0 (3) 360,771 119,192 119,192 360,771 568,249 568,249 608,027 25 338,635 0 (3) 0 (3) 360,771 80,468 80,468 360,771 923,079 923,079 969,233 30 432,194 0 (3) 0 (3) 360,771 0 (3) 0 (3) 360,771 1,486,637 1,486,637 1,560,969 35 551,602 0 (3) 0 (3) 360,771 0 (3) 0 (3) 360,771 2,358,558 2,358,558 2,476,486 40 703,999 0 (3) 0 (3) 360,771 0 (3) 0 (3) 360,771 3,754,746 3,754,746 3,792,294 45 898,501 0 (3) 0 (3) 360,771 0 (3) 0 (3) 360,771 6,175,447 6,175,447 6,175,447
(1) All values shown are as of the end of the policy year indicated, have been rounded to the nearest dollar, and assume that (a) no policy loan has been made, (b) no partial withdrawal of the Cash Surrender Value has been made, and (c) no premiums have been allocated to the Fixed Account. (2) Assumes net interest of 5% compounded annually. (3) In the absence of additional premium payments, the Policy will lapse, unless the Lapse Protection Benefit is in effect. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. B-10 58 SINGLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY MALE NON-SMOKER ISSUE AGE 55 AND FEMALE NON-SMOKER ISSUE AGE 50 $25,000 PLANNED SINGLE PREMIUM $136,940 FACE AMOUNT ASSUMING CURRENT CHARGES
0% Hypothetical 6% Hypothetical 12% Hypothetical Gross Investment Return Gross Investment Return Gross Investment Return ----------------------- ---------------------------- -------------------------------- End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit Year (1) Value Value Value 1 26,250 24,329 22,346 136,940 25,792 23,676 136,940 27,254 25,005 136,940 2 27,563 23,665 21,954 136,940 26,603 24,654 136,940 29,711 27,690 136,940 3 28,941 23,006 21,553 136,940 27,432 25,666 136,940 32,390 30,619 136,940 4 30,388 22,357 21,149 136,940 28,286 26,765 136,940 35,317 33,796 136,940 5 31,907 21,719 20,742 136,940 29,166 27,896 136,940 38,515 37,244 136,940 6 33,502 21,088 20,329 136,940 30,072 29,051 136,940 42,009 40,988 136,940 7 35,178 20,462 19,909 136,940 31,001 30,230 136,940 45,826 45,105 136,940 8 36,936 19,840 19,558 136,940 31,953 31,547 136,940 49,994 49,592 136,940 9 38,783 19,219 19,198 136,940 32,928 32,897 136,940 54,548 54,516 136,940 10 40,722 18,596 18,596 136,940 33,923 33,923 136,940 59,521 59,521 136,940 11 42,758 18,139 18,139 136,940 35,273 35,273 136,940 65,579 65,579 136,940 12 44,896 17,665 17,665 136,940 36,665 36,665 136,940 72,264 72,264 136,940 13 47,141 17,170 17,170 136,940 38,100 38,100 136,940 79,643 79,643 136,940 14 49,498 16,646 16,646 136,940 39,572 39,572 136,940 87,788 87,788 136,940 15 51,973 16,093 16,093 136,940 41,085 41,085 136,940 96,787 96,787 136,940 16 54,572 15,505 15,505 136,940 42,636 42,636 136,940 106,734 106,734 136,940 17 57,300 14,878 14,878 136,940 44,224 44,224 136,940 117,737 117,737 140,108 18 60,165 14,208 14,208 136,940 45,851 45,851 136,940 129,891 129,891 153,272 19 63,174 13,490 13,490 136,940 47,515 47,515 136,940 143,303 143,303 167,664 20 66,332 12,720 12,720 136,940 49,218 49,218 136,940 158,102 158,102 183,399 25 84,659 7,361 7,361 136,940 57,928 57,928 136,940 258,575 258,575 276,676 30 108,049 0 (3) 0 (3) 136,940 65,514 65,514 136,940 423,100 423,100 444,255 35 137,900 0 (3) 0 (3) 136,940 67,464 67,464 136,940 689,111 689,111 723,566 40 176,000 0 (3) 0 (3) 136,940 53,739 53,739 136,940 1,112,589 1,112,589 1,168,219 45 224,625 0 (3) 0 (3) 136,940 0 (3) 0 (3) 136,940 1,798,715 1,798,715 1,816,702 50 286,685 0 (3) 0 (3) 136,940 0 (3) 0 (3) 136,940 2,958,049 2,958,049 2,958,049
(1) All values shown are as of the end of the policy year indicated, have been rounded to the nearest dollar, and assume that (a) no policy loan has been made, (b) no partial withdrawal of the Cash Surrender Value has been made, and (c) no premiums have been allocated to the Fixed Account. (2) Assumes net interest of 5% compounded annually. (3) In the absence of additional premium payments, the Policy will lapse, unless the Lapse Protection Benefit is in effect. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. B-11 59 SINGLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY MALE NON-SMOKER ISSUE AGE 55 AND FEMALE NON-SMOKER ISSUE AGE 50 $25,000 PLANNED SINGLE PREMIUM $136,940 FACE AMOUNT ASSUMING MAXIMUM CHARGES
0% Hypothetical 6% Hypothetical 12% Hypothetical Gross Investment Return Gross Investment Return Gross Investment Return ----------------------- ----------------------------- -------------------------------- End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit Year (1) Value Value Value 1 26,250 24,329 22,346 136,940 25,792 23,676 136,940 27,254 25,005 136,940 2 27,563 23,665 21,954 136,940 26,603 24,654 136,940 29,711 27,690 136,940 3 28,941 23,006 21,553 136,940 27,432 25,666 136,940 32,390 30,619 136,940 4 30,388 22,348 21,141 136,940 28,277 26,757 136,940 35,308 33,787 136,940 5 31,907 21,689 20,714 136,940 29,137 27,866 136,940 38,486 37,215 136,940 6 33,502 21,025 20,269 136,940 30,009 28,988 136,940 41,947 40,927 136,940 7 35,178 20,352 19,801 136,940 30,889 30,118 136,940 45,716 44,994 136,940 8 36,936 19,664 19,385 136,940 31,773 31,367 136,940 49,819 49,415 136,940 9 38,783 18,956 18,935 136,940 32,658 32,627 136,940 54,286 54,254 136,940 10 40,722 18,222 18,222 136,940 33,538 33,538 136,940 59,150 59,150 136,940 11 42,758 17,623 17,623 136,940 34,740 34,740 136,940 65,071 65,071 136,940 12 44,896 16,972 16,972 136,940 35,946 35,946 136,940 71,589 71,589 136,940 13 47,141 16,254 16,254 136,940 37,147 37,147 136,940 78,769 78,769 136,940 14 49,498 15,454 15,454 136,940 38,332 38,332 136,940 86,684 86,684 136,940 15 51,973 14,553 14,553 136,940 39,485 39,485 136,940 95,419 95,419 136,940 16 54,572 13,529 13,529 136,940 40,590 40,590 136,940 105,075 105,075 136,940 17 57,300 12,350 12,350 136,940 41,622 41,622 136,940 115,768 115,768 137,764 18 60,165 11,002 11,002 136,940 42,571 42,571 136,940 127,586 127,586 150,552 19 63,174 9,447 9,447 136,940 43,409 43,409 136,940 140,593 140,593 164,494 20 66,332 7,647 7,647 136,940 44,107 44,107 136,940 154,903 154,903 179,687 25 84,659 0 (3) 0 (3) 136,940 43,940 43,940 136,940 251,467 251,467 269,070 30 108,049 0 (3) 0 (3) 136,940 29,650 29,650 136,940 408,399 408,399 428,819 35 137,900 0 (3) 0 (3) 136,940 0 (3) 0 (3) 136,940 656,703 656,703 689,538 40 176,000 0 (3) 0 (3) 136,940 0 (3) 0 (3) 136,940 1,039,462 1,039,462 1,091,435 45 224,625 0 (3) 0 (3) 136,940 0 (3) 0 (3) 136,940 1,651,209 1,651,209 1,667,721 50 286,685 0 (3) 0 (3) 136,940 0 (3) 0 (3) 136,940 2,715,423 2,715,423 2,715,423
(1) All values shown are as of the end of the policy year indicated, have been rounded to the nearest dollar, and assume that (a) no policy loan has been made, (b) no partial withdrawal of the Cash Surrender Value has been made, and (c) no premiums have been allocated to the Fixed Account. (2) Assumes net interest of 5% compounded annually. (3) In the absence of additional premium payments, the Policy will lapse, unless the Lapse Protection Benefit is in effect. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. B-12 60 SINGLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY MALE NON-SMOKER ISSUE AGE 55 AND FEMALE NON-SMOKER ISSUE AGE 50 $100,000 PLANNED SINGLE PREMIUM $571,810 FACE AMOUNT ASSUMING CURRENT CHARGES
0% Hypothetical 6% Hypothetical 12% Hypothetical Gross Investment Return Gross Investment Return Gross Investment Return ----------------------- ----------------------------- ----------------------------------- End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit Year (1) Value Value Value 1 105,000 97,582 89,627 571,810 103,441 94,953 571,810 109,299 100,279 571,810 2 110,250 95,185 88,299 571,810 106,967 99,129 571,810 119,436 111,353 571,810 3 115,763 92,798 86,933 571,810 110,574 103,491 571,810 130,484 123,401 571,810 4 121,551 90,448 85,554 571,810 114,293 108,209 571,810 142,556 136,473 571,810 5 127,628 88,129 84,158 571,810 118,122 113,039 571,810 155,748 150,664 571,810 6 134,010 85,836 82,739 571,810 122,062 117,979 571,810 170,159 166,076 571,810 7 140,710 83,558 81,290 571,810 126,108 123,025 571,810 185,900 182,817 571,810 8 147,746 81,285 80,126 571,810 130,255 128,630 571,810 203,091 201,466 571,810 9 155,133 79,010 78,924 571,810 134,503 134,378 571,810 221,869 221,744 571,810 10 162,889 76,718 76,718 571,810 138,843 138,843 571,810 242,376 242,376 571,810 11 171,034 75,105 75,105 571,810 144,641 144,641 571,810 267,324 267,324 571,810 12 179,586 73,417 73,417 571,810 150,625 150,625 571,810 294,850 294,850 571,810 13 188,565 71,639 71,639 571,810 156,792 156,792 571,810 325,229 325,229 571,810 14 197,993 69,737 69,737 571,810 163,125 163,125 571,810 358,763 358,763 571,810 15 207,893 67,709 67,709 571,810 169,633 169,633 571,810 395,807 395,807 571,810 16 218,287 65,532 65,532 571,810 176,310 176,310 571,810 436,752 436,752 571,810 17 229,202 63,190 63,190 571,810 183,154 183,154 571,810 482,041 482,041 573,628 18 240,662 60,663 60,663 571,810 190,166 190,166 571,810 532,094 532,094 627,871 19 252,695 57,935 57,935 571,810 197,345 197,345 571,810 587,328 587,328 687,174 20 265,330 54,989 54,989 571,810 204,695 204,695 571,810 648,279 648,279 752,003 25 338,635 33,953 33,953 571,810 242,462 242,462 571,810 1,062,069 1,062,069 1,136,414 30 432,194 0 (3) 0 (3) 571,810 276,020 276,020 571,810 1,739,650 1,739,650 1,826,633 35 551,602 0 (3) 0 (3) 571,810 287,169 287,169 571,810 2,835,213 2,835,213 2,976,974 40 703,999 0 (3) 0 (3) 571,810 236,194 236,194 571,810 4,579,339 4,579,339 4,808,306 45 898,501 0 (3) 0 (3) 571,810 8,516 8,516 571,810 7,405,194 7,405,194 7,479,246 50 1,146,740 0 (3) 0 (3) 571,810 0 (3) 0 (3) 571,810 12,179,924 12,179,924 12,179,924
(1) All values shown are as of the end of the policy year indicated, have been rounded to the nearest dollar, and assume that (a) no policy loan has been made, (b) no partial withdrawal of the Cash Surrender Value has been made, and (c) no premiums have been allocated to the Fixed Account. (2) Assumes net interest of 5% compounded annually. (3) In the absence of additional premium payments, the Policy will lapse, unless the Lapse Protection Benefit is in effect. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. B-13 61 SINGLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY MALE NON-SMOKER ISSUE AGE 55 AND FEMALE NON-SMOKER ISSUE AGE 50 $100,000 PLANNED SINGLE PREMIUM $571,810 FACE AMOUNT ASSUMING MAXIMUM CHARGES
0% Hypothetical 6% Hypothetical 12% Hypothetical Gross Investment Return Gross Investment Return Gross Investment Return ----------------------- ------------------------------- ---------------------------------- End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death Policy Premiums (2) Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit Year (1) Value Value Value 1 105,000 97,582 89,627 571,810 103,441 94,953 571,810 109,299 100,279 571,810 2 110,250 95,185 88,299 571,810 106,967 99,129 571,810 119,436 111,353 571,810 3 115,763 92,798 86,933 571,810 110,574 103,491 571,810 130,484 123,401 571,810 4 121,551 90,409 85,518 571,810 114,255 108,171 571,810 142,520 136,436 571,810 5 127,628 88,007 84,041 571,810 118,000 112,917 571,810 155,628 150,544 571,810 6 134,010 85,573 82,487 571,810 121,798 117,715 571,810 169,900 165,816 571,810 7 140,710 83,093 80,839 571,810 125,637 122,553 571,810 185,436 182,353 571,810 8 147,746 80,544 79,398 571,810 129,499 127,874 571,810 202,349 200,724 571,810 9 155,133 77,906 77,821 571,810 133,369 133,244 571,810 220,759 220,634 571,810 10 162,889 75,150 75,150 571,810 137,222 137,222 571,810 240,801 240,801 571,810 11 171,034 72,947 72,947 571,810 142,399 142,399 571,810 265,166 265,166 571,810 12 179,586 70,517 70,517 571,810 147,601 147,601 571,810 291,983 291,983 571,810 13 188,565 67,807 67,807 571,810 152,789 152,789 571,810 321,514 321,514 571,810 14 197,993 64,752 64,752 571,810 157,912 157,912 571,810 354,059 354,059 571,810 15 207,893 61,272 61,272 571,810 162,912 162,912 571,810 389,965 389,965 571,810 16 218,287 57,278 57,278 571,810 167,718 167,718 571,810 429,642 429,642 571,810 17 229,202 52,634 52,634 571,810 172,228 172,228 571,810 473,568 473,568 571,810 18 240,662 47,286 47,286 571,810 176,400 176,400 571,810 522,190 522,190 616,184 19 252,695 41,074 41,074 571,810 180,116 180,116 571,810 575,717 575,717 673,589 20 265,330 33,842 33,842 571,810 183,257 183,257 571,810 634,608 634,608 736,145 25 338,635 0 (3) 0 (3) 571,810 183,915 183,915 571,810 1,032,020 1,032,020 1,104,261 30 432,194 0 (3) 0 (3) 571,810 126,328 126,328 571,810 1,677,872 1,677,872 1,761,766 35 551,602 0 (3) 0 (3) 571,810 0 (3) 0 (3) 571,810 2,699,807 2,699,807 2,834,797 40 703,999 0 (3) 0 (3) 571,810 0 (3) 0 (3) 571,810 4,275,169 4,275,169 4,488,928 45 898,501 0 (3) 0 (3) 571,810 0 (3) 0 (3) 571,810 6,792,999 6,792,999 6,860,929 50 1,146,740 0 (3) 0 (3) 571,810 0 (3) 0 (3) 571,810 11,172,950 11,172,950 11,172,950
(1) All values shown are as of the end of the policy year indicated, have been rounded to the nearest dollar, and assume that (a) no policy loan has been made, (b) no partial withdrawal of the Cash Surrender Value has been made, and (c) no premiums have been allocated to the Fixed Account. (2) Assumes net interest of 5% compounded annually. (3) In the absence of additional premium payments, the Policy will lapse, unless the Lapse Protection Benefit is in effect. THE POLICY VALUE, CASH SURRENDER VALUE AND THE DEATH BENEFIT WILL DIFFER IF PREMIUMS ARE PAID IN DIFFERENT AMOUNTS OR FREQUENCIES. IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RETURNS ARE ILLUSTRATIVE ONLY, AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE RESULTS. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATION MADE BY THE POLICYOWNER, AND THE INVESTMENT RETURNS FOR THE FUNDS OF MANUFACTURERS INVESTMENT TRUST. THE POLICY VALUE, CASH SURRENDER VALUE AND DEATH BENEFIT FOR A POLICY WOULD BE DIFFERENT FROM THOSE SHOWN IF ACTUAL RATES OF INVESTMENT RETURN AVERAGED THE RATE SHOWN ABOVE OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THAT AVERAGE FOR INDIVIDUAL POLICY YEARS. NO REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME. B-14 62 CONSOLIDATED FINANCIAL STATEMENTS THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 WITH REPORT OF INDEPENDENT AUDITORS CONTENTS Report of Independent Auditors.................................................. Audited Consolidated Financial Statements....................................... Consolidated Balance Sheets................................................ Consolidated Statements of Income.......................................... Consolidated Statements of Changes in Capital And Surplus.................. Consolidated Statements of Cash Flows...................................... Notes to Consolidated Financial Statements......................................
F-1 63 REPORT OF INDEPENDENT AUDITORS The Board of Directors The Manufacturers Life Insurance Company of America We have audited the accompanying consolidated balance sheets of The Manufacturers Life Insurance Company of America as of December 31, 1998 and 1997, and the related consolidated statements of income, changes in capital and surplus and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Manufacturers Life Insurance Company of America at December 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. Philadelphia, Pennsylvania March 15, 1999 Ernst & Young LLP F-2 64 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA CONSOLIDATED BALANCE SHEETS
As at December 31 ($ thousands) ASSETS 1998 1997 INVESTMENTS: Securities available-for-sale, at fair value: (note 3) Fixed maturity (amortized cost: 1998 $45,248; 1997 $66,565) $ 49,254 $ 67,893 Equity (cost: 1998 $ 19,219; 1997 $20,153) 20,524 19,460 Short-term investments 459 2,130 Policy loans 19,320 14,673 TOTAL INVESTMENTS $ 89,557 $ 104,156 Cash and cash equivalents $ 23,789 $ 19,882 Deferred acquisition costs (note 5) 163,506 130,355 Income taxes recoverable 2,665 5,679 Other assets 9,062 9,495 Separate account assets 1,075,231 897,044 - ---------------------------------------------------------------------------------------------------------- TOTAL ASSETS $1,363,810 $1,166,611 ==========================================================================================================
LIABILITIES, CAPITAL AND SURPLUS 1998 1997 - ---------------------------------------------------------------------------------------------------------- LIABILITIES: Policyholder liabilities and accruals $ 60,830 $ 94,477 Notes payable (note 7) - 41,500 Due to affiliates 5,133 13,943 Deferred income taxes (note 6) 763 1,174 Other liabilities 18,656 11,704 Separate account liabilities 1,075,231 897,044 TOTAL LIABILITIES $1,160,613 $1,059,842 ========================================================================================================== CAPITAL AND SURPLUS: Common shares (note 8) $ 4,502 $ 4,502 Preferred shares (note 8) 10,500 10,500 Contributed surplus 193,096 98,569 Retained earnings (deficit) (2,664) (1,910) Accumulated other comprehensive income (loss) (2,237) (4,892) TOTAL CAPITAL AND SURPLUS $ 203,197 $ 106,769 TOTAL LIABILITIES, CAPITAL AND SURPLUS $1,363,810 $1,166,611 ==========================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. F-3 65 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA Consolidated Statements of Income
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------- REVENUE: Premiums $ 9,290 $ 8,607 $ 12,898 Consideration paid on reinsurance terminated (note 10) (40,975) -- -- Fee income 54,547 38,682 40,434 Net investment income (note 3) 6,128 8,275 19,651 Realized investment gains (losses) (206) 118 (119) Other 1,082 544 668 - ------------------------------------------------------------------------------------------------------------- TOTAL REVENUE $ 29,866 $ 56,226 $ 73,532 - ------------------------------------------------------------------------------------------------------------- BENEFITS AND EXPENSES: Policyholder benefits and claims $ 16,541 $ 6,733 $ 14,473 Reduction of reserves on reinsurance terminated (note 10) (40,975) -- -- Operating costs and expenses 41,676 41,742 34,581 Commissions 2,561 2,838 10,431 Amortization of deferred acquisition costs (note 5) 9,266 4,860 13,240 Interest expense 1,722 2,750 12,251 Policyholder dividends 221 1,416 872 - ------------------------------------------------------------------------------------------------------------- TOTAL BENEFITS AND EXPENSES 31,012 60,339 85,848 - ------------------------------------------------------------------------------------------------------------- LOSS BEFORE INCOME TAXES (1,146) (4,113) (12,316) - ------------------------------------------------------------------------------------------------------------- INCOME TAX BENEFIT (NOTE 6) 392 477 3,909 - ------------------------------------------------------------------------------------------------------------- NET LOSS $ (754) $ (3,636) $ (8,407) - -------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. F-4 66 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
ACCUMULATED RETAINED OTHER TOTAL FOR THE YEARS ENDED DECEMBER 31 CAPITAL CONTRIBUTED EARNINGS COMPREHENSIVE CAPITAL AND ($ thousands) STOCK SURPLUS (DEFICIT) INCOME (LOSS) SURPLUS ------------------------------------------------------------------------------------------------------------------------ Balance at January 1, 1996 $ 15,002 $ 83,569 $ 10,133 $ 1,816 $ 110,520 Issuance of shares -- 15,000 -- -- 15,000 Comprehensive income (loss) (note 2) -- -- (8,407) (483) (8,890) ------------------------------------------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1996 $ 15,002 $ 98,569 $ 1,726 $ 1,333 $ 116,630 Comprehensive income (loss) (note 2) -- -- (3,636) (6,225) (9,861) ------------------------------------------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1997 $ 15,002 $ 98,569 $ (1,910) $ (4,892) $ 106,769 Capital contribution (note 8) -- 94,527 -- -- 94,527 Comprehensive income (loss) (note 2) -- -- (754) 2,655 1,901 ------------------------------------------------------------------------------------------------------------------------ BALANCE, DECEMBER 31, 1998 $ 15,002 $ 193,096 $ (2,664) $ (2,237) $ 203,197 ========================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. F-5 67 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1998 1997 1996 - ----------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net Loss $ (754) $ (3,636) $ (8,407) Adjustments to reconcile net loss to net cash used in operating activities: Additions (deductions) to policy liabilities and accruals (36,217) (2,147) 3,287 Deferred acquisition costs (43,065) (33,544) (36,024) Amortization of deferred acquisition costs 9,266 4,860 13,240 Realized (gains) losses on investments 206 (118) 119 Decreases (increases) to deferred income taxes (1,796) 2,730 777 Other 3,067 7,144 6,540 - ----------------------------------------------------------------------------------------------------------------------- Net cash used in operating activities $ (69,293) $ (24,711) $ (20,468) - ----------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Fixed maturity securities sold $ 27,852 $ 73,772 $ 120,234 Fixed maturity securities purchased (6,429) (89,763) (108,401) Equity securities sold 8,555 10,586 25,505 Equity securities purchased (8,082) (11,289) (22,203) Mortgage loans repaid -- 514 6,669 Net change in short-term investments 1,671 4,558 (2,992) Net policy loans advanced (4,647) (4,851) (2,867) Guaranteed annuity contracts -- 171,691 (16,356) - ----------------------------------------------------------------------------------------------------------------------- Cash provided by investing activities $ 18,920 $ 155,218 $ 2,581 - ----------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Receipts from variable life and annuity policies credited to policyholder account balances $ 7,981 $ 7,582 $ 5,493 Withdrawals of policyholder account balances on variable life and annuity policies (5,410) (3,252) (2,994) Bonds payable repaid -- (158,760) -- Issuance of shares -- -- 15,000 Issuance of promissory note -- 33,000 -- Capital Contribution 51,709 -- -- - ----------------------------------------------------------------------------------------------------------------------- Cash provided by (used in) financing activities $ 54,280 $(121,430) $ 17,499 - ----------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS: Increase (decrease) during the year 3,907 9,077 (3,380) Balance, beginning of year 19,882 10,805 14,185 - ----------------------------------------------------------------------------------------------------------------------- BALANCE, END OF YEAR $ 23,789 $ 19,882 $ 10,805 =======================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. F-6 68 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1998 (IN THOUSANDS OF DOLLARS) 1. ORGANIZATION The Manufacturers Life Insurance Company of America (the "Company") is a wholly-owned subsidiary of The Manufacturers Life Insurance Company (U.S.A.) ("ManUSA"), which is in turn an indirectly wholly-owned subsidiary of The Manufacturers Life Insurance Company ("Manulife Financial"), a Canadian-based mutual life insurance company. The Company markets variable annuity and variable life products in the United States and traditional insurance products in Taiwan. On December 31, 1996, ManUSA transferred to the Company all of the common and preferred shares of Manulife Holding Corporation ("Holdco"), an investment holding company. The Company then transferred all the common and preferred shares of Manufacturers Adviser Corporation ("MAC") to Holdco for two shares of $1 common stock of Holdco. Holdco has primarily three wholly-owned subsidiaries, ManEquity Inc., a registered broker/dealer, MAC, an investment fund management company, and Manulife Capital Corporation ("MCC"), an investment holding company. In October 1997, the Manufacturers Life Mortgage Securities Corporation ("MLMSC"), a subsidiary of Holdco, was absorbed into Holdco subsequent to the maturity and repayment of the mortgage-backed US dollar bonds. All assets and liabilities of MLMSC were transferred to Holdco at their respective book values. These transfers have been accounted for using the pooling-of-interests method of accounting. Under this method, the assets, liabilities, capital and surplus, revenues and expenses of each separate entity are combined retroactively at their historical carrying values to form the financial statements of the Company for all periods presented to give effect to the reorganization as if the structure in place at December 31, 1996 had been in place as of the earliest period presented in these consolidated financial statements. The accounts of all subsidiary companies are therefore combined and all significant intercompany balances and transactions are eliminated on combination. In addition, the capital and surplus of the Company has been restated retroactively to reflect the capital structure in place at December 31, 1996. F-7 69 The revenues and net income reported by the separate entities and the combined amounts presented in the accompanying consolidated financial statements are as follows:
FOR THE YEAR ENDED DECEMBER 31 ($ thousands) 1996 ------------------------------------------- Revenue: ManAmerica $ 54,404 Holdco 15,543 MAC 3,585 ------------------------------------------- TOTAL REVENUE $ 73,532 ------------------------------------------- Net Income (loss): ManAmerica $ (8,676) Holdco (670) MAC 939 ------------------------------------------- TOTAL NET LOSS $ (8,407) ===========================================
2. SIGNIFICANT ACCOUNTING POLICIES a) BASIS OF PRESENTATION The accompanying consolidated financial statements of the Company have been prepared in conformity with generally accepted accounting principles ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from reported results using those estimates. Certain reclassifications have been made to 1997 and 1996 financial information to conform to the 1998 presentation. b) RECENT ACCOUNTING STANDARDS i) During 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes standards for reporting and displaying comprehensive income and its components in a full set of general-purpose annual financial statements. Comprehensive income includes all changes in shareholder's equity during a period except those resulting from investments by and distributions to shareholders. The adoption of SFAS No. 130 resulted in revised and additional disclosures but had no effect on the financial position, results of operations, or liquidity of the Company. F-8 70 Total comprehensive income was as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1998 1997 1996 --------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ (754) $(3,636) $(8,407) --------------------------------------------------------------------------------------------------- OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: Unrealized holding gains (losses) arising during the period 2,435 (1,030) (560) Foreign currency translation 86 (5,272) -- Reclassification adjustment for realized gains (losses) included in net income (134) 77 (77) --------------------------------------------------------------------------------------------------- Other comprehensive income (loss) 2,655 (6,225) (483) --------------------------------------------------------------------------------------------------- COMPREHENSIVE INCOME (LOSS) $ 1,901 $(9,861) $(8,890) ===================================================================================================
Other comprehensive income (loss) is reported net of tax expense (benefit) of $1,430, $(513), and $260 for 1998, 1997, and 1996, respectively. Accumulated other comprehensive income is comprised of the following:
AS AT DECEMBER 31 ($ thousands) 1998 1997 ---------------------------------------------------------------------- UNREALIZED GAINS (LOSSES): Beginning balance $ 380 $ 1,333 Current period change 2,569 (953) ---------------------------------------------------------------------- Ending balance $ 2,949 $ 380 ---------------------------------------------------------------------- FOREIGN CURRENCY: Beginning balance $(5,272) $ -- Current period change 86 (5,272) ---------------------------------------------------------------------- Ending balance $(5,186) $(5,272) ---------------------------------------------------------------------- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) $(2,237) $(4,892) ======================================================================
ii) During 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". SFAS No. 131 establishes standards for the disclosure of information about the Company's operating segments, including disclosures about products and services, geographic areas, and major customers. The adoption of SFAS No. 131 did not affect results of operations or financial position, nor did it affect the manner in which the Company defines its operating segments. The Company reports two business segments: Traditional Life Insurance sold in Taiwan and Variable Life and Annuities sold in the U.S. Refer to Note 12 for additional segment information. c) INVESTMENTS The Company classifies all of its fixed maturity and equity securities as available-for-sale and records these securities at fair value. Realized gains and losses on sales of securities classified as available-for-sale are recognized in net income using the specific identification method. Changes in the fair value of securities available-for-sale are reflected directly in accumulated other comprehensive income after adjustments for deferred taxes and deferred acquisition costs. Discounts and premiums on investments are amortized using the effective interest method. Policy loans are reported at aggregate unpaid balances which approximate fair value. Short-term investments include investments with maturities of less than one year at the date of acquisition. F-9 71 d) CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with an original maturity date of three months or less to be cash equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates fair value. e) DEFERRED ACQUISITION COSTS (DAC) Commissions and other expenses which vary with and are primarily related to the production of new business are deferred to the extent recoverable and included as an asset. DAC associated with variable annuity and variable life insurance contracts is charged to expense in relation to the estimated gross profits of those contracts. The amortization is adjusted retrospectively when estimates of current or future gross profits are revised. DAC associated with traditional life insurance policies is charged to expense over the premium paying period of the related policies. DAC is adjusted for the impact on estimated future gross profits assuming the unrealized gains or losses on securities had been realized at year-end. The impact of any such adjustments is included in net unrealized gains (losses) in accumulated other comprehensive income. DAC is reviewed annually to determine recoverability from future income and, if not recoverable, it is immediately expensed. f) POLICYHOLDER LIABILITIES For variable annuity and variable life contracts, reserves equal the policyholder account value. Account values are increased for deposits received and interest credited and are reduced by withdrawals, mortality charges and administrative expenses charged to the policyholders. Policy charges which compensate the Company for future services are deferred and recognized in income over the period earned, using the same assumptions used to amortize DAC. Policyholder liabilities for traditional life insurance policies sold in Taiwan are computed using the net level premium method and are based upon estimates as to future mortality, persistency, maintenance expense and interest rate yields that were established in the year of issue. g) SEPARATE ACCOUNTS Separate account assets and liabilities represent funds that are separately administered, principally for variable annuity and variable life contracts, and for which the contract holder, rather than the Company, bears the investment risk Separate account assets are recorded at market value. Operations of the separate accounts are not included in the accompanying financial statements. h) REVENUE RECOGNITION Fee income from variable annuity and variable life insurance policies consists of policy charges for the cost of insurance, expenses and surrender charges that have been assessed against the policy account balances. Policy charges that are designed to compensate the company for future services are deferred and recognized in income over the period benefited, using the same assumptions used to amortize DAC. Premiums on long-duration life insurance contracts are recognized as revenue when due. Investment income is recorded when due. F-10 72 i) EXPENSES Expenses for variable annuity and variable life insurance policies include interest credited to policy account balances and benefit claims incurred during the period in excess of policy account balances. j) REINSURANCE The Company is routinely involved in reinsurance transactions in order to minimize exposure to large risks. Life reinsurance is accomplished through various plans including yearly renewable term, co-insurance and modified co-insurance. Reinsurance premiums, policy charges for cost of insurance and claims are accounted for on a basis consistent with that used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums, fees and claims are reported net of reinsured amounts. Amounts paid with respect to ceded reinsurance contracts are reported as reinsurance receivables in other assets. k) FOREIGN EXCHANGE The Company's Taiwanese branch balance sheet and statement of income are translated at the current exchange and average exchange rates for the year respectively. The resultant translation adjustments are included in accumulated other comprehensive income. l) INCOME TAX Income taxes have been provided for in accordance with SFAS No. 109 "Accounting for Income Taxes." The Company joins ManUSA, Manulife Reinsurance Corporation ("MRC") and Manulife Reinsurance Limited ("MRL") in filing a U.S. consolidated income tax return as a life insurance group under provisions of the Internal Revenue Code. In accordance with an income tax sharing agreement, the Company's income tax provision (or benefit) is computed as if the Company filed a separate income tax return. Tax benefits from operating losses are provided at the U.S. statutory rate plus any tax credits attributable to the Company, provided the consolidated group utilizes such benefits currently. Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and their recorded amounts for financial reporting purposes. Income taxes recoverable represents amounts due from ManUSA in connection with the consolidated return. F-11 73 3. INVESTMENTS AND INVESTMENT INCOME a) FIXED MATURITY AND EQUITY SECURITIES At December 31, 1998, all fixed maturity and equity securities have been classified as available-for-sale and reported at fair value. The amortized cost and fair value is summarized as follows:
GROSS GROSS AMORTIZED COST UNREALIZED GAINS UNREALIZED LOSSES FAIR VALUE AS AT DECEMBER 31, ($ thousands) 1998 1997 1998 1997 1998 1997 1998 1997 ------------------------------------------------------------------------------------------------------------------------- FIXED MATURITY SECURITIES: U.S. government $27,349 $51,694 $ 2,578 $ 937 $ -- $ (135) $29,927 $52,496 Foreign governments 9,353 6,922 709 203 -- (14) 10,062 7,111 Corporate 8,546 7,949 719 415 -- (78) 9,265 8,286 ------------------------------------------------------------------------------------------------------------------------- Total fixed maturity securities $45,248 $66,565 $ 4,006 $ 1,555 $ -- $ (227) $49,254 $67,893 Equity securities $19,219 $20,153 $ 3,217 $ 1,496 $(1,912) $(2,189) $20,524 $19,460 =========================================================================================================================
Proceeds from sales of fixed maturity securities during 1998 were $27,852 (1997 $73,772; 1996 $120,234). Gross gains of $362 and gross losses of $107 were realized on those sales (1997 $955 and $837; 1996 $1,858 and $1,837 respectively). Proceeds from sale of equity securities during 1998 were $8,555 (1997 $10,586; 1996 $25,505). Gross gains of $16 and gross losses of $477 were realized on those sales (1997 $NIL and $NIL; 1996 $NIL and $140 respectively). The contractual maturities of fixed maturity securities at December 31, 1998 are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties. Corporate requirements and investment strategies may result in the sale of investments before maturity.
($ thousands) AMORTIZED COST FAIR VALUE ----------------------------------------------------------------------- Fixed maturity securities One year or less $ 1,174 $ 1,179 Greater than 1; up to 5 years 7,792 8,081 Greater than 5; up to 10 years 24,422 26,395 Due after 10 years 11,860 13,599 ----------------------------------------------------------------------- TOTAL FIXED MATURITY SECURITIES $45,248 $49,254 =======================================================================
F-12 74 b) INVESTMENT INCOME Income by type of investment was as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1998 1997 1996 ----------------------------------------------------------------------- Fixed maturity securities $ 4,675 $ 4,545 $ 4,447 Equity securities 227 331 671 Guaranteed annuity contracts -- 2,796 13,196 Other investments 1,485 772 1,697 ----------------------------------------------------------------------- Gross investment income 6,387 8,444 20,011 ----------------------------------------------------------------------- Investment expenses 259 169 360 ----------------------------------------------------------------------- NET INVESTMENT INCOME $ 6,128 $ 8,275 $19,651 =======================================================================
4. GUARANTEED ANNUITY CONTRACTS AND BONDS PAYABLE The Company's wholly-owned subsidiary, Manufacturers Life Mortgage Securities Corporation, has historically invested amounts received as repayments of mortgage loans in annuities issued by ManUSA. These annuities were collateral for the 8 1/4 % mortgage-backed bonds payable. On March 1, 1997 the annuities matured and the proceeds were used to repay the bonds payable. In October 1997, MLMSC was absorbed into Manulife Holding Corporation. 5. DEFERRED ACQUISITION COSTS The components of the change in DAC were as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1998 1997 1996 ----------------------------------------------------------------------------------- Balance at January 1, $ 130,355 $ 102,610 $ 78,829 Capitalization 43,065 33,544 36,024 Accretion of interest 11,417 9,357 6,344 Amortization (20,683) (14,217) (19,583) Effect of net unrealized gains (losses) on securities available for sale (784) 1,268 996 Currency 136 (2,207) -- ----------------------------------------------------------------------------------- BALANCE AT DECEMBER 31 $ 163,506 $ 130,355 $ 102,610 ===================================================================================
6. INCOME TAXES Components of income tax expense (benefit) were as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1998 1997 1996 ----------------------------------------------------------------------- Current expense (benefit) $ 1,404 $(3,207) $(4,686) Deferred expense (benefit) (1,796) 2,730 777 ----------------------------------------------------------------------- TOTAL EXPENSE (BENEFIT) $ (392) $ (477) $(3,909) =======================================================================
F-13 75 The Company's deferred income tax liability, which results from tax effecting the differences between financial statement values and tax values of assets and liabilities at each balance sheet date, relates to the following:
AS AT DECEMBER 31 ($ thousands) 1998 1997 ------------------------------------------------------------------------ DEFERRED TAX ASSETS: Differences in computing policy reserves $ 38,888 $ 34,291 Policyholder dividends payable -- 240 Investments 708 793 Other deferred tax assets 333 -- ------------------------------------------------------------------------ Deferred tax assets $ 39,929 $ 35,324 ------------------------------------------------------------------------ DEFERRED TAX LIABILITIES: Deferred acquisition costs $ 38,778 $ 30,682 Investments 1,859 166 Policyholder dividends payable 55 -- Other deferred tax liabilities -- 5,650 ------------------------------------------------------------------------ Deferred tax liabilities $ 40,692 $ 36,498 ------------------------------------------------------------------------ NET DEFERRED TAX LIABILITIES $ (763) $ (1,174) ========================================================================
At December 31, 1998, the consolidated group has utilized all available operating loss carryforwards and net capital loss carryforwards. The losses of the Company, MRC and ManUSA may be used to offset the ordinary and capital gain income of MRL. However, losses of MRL may not be used to offset the income of the other members of the consolidated group. 7. NOTES PAYABLE a) On June 15, 1998, the outstanding promissory note in the amount of $33,000 plus interest at 6.95% issued on December 5, 1997 payable to ManUSA was discharged and the amount due of $34,318 ($33,000 plus interest of $1,318) was recorded as a capital contribution. b) On December 31, 1998, the surplus debenture in the amount of $8,500 plus interest at 6.7% issued on December 31, 1995 to ManUSA was discharged and the amount due of $8,500 was recorded as a capital contribution. 8. CAPITAL AND SURPLUS The Company has two classes of capital stock, as follows:
AS AT DECEMBER 31: ($ thousands, except per share amounts) 1998 1997 ---------------------------------------------------------------------- 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 ======================================================================
F-14 76 During 1996, the Company issued two common shares to its Parent Company in return for a capital contribution of $15,000. In 1998, the outstanding promissory note payable referred to in note 7(a) above, totaling $34,318, was discharged and recorded as a capital contribution. On December 31, 1998, the Company issued one common share to ManUSA in exchange for a capital contribution of $60,209. Included in this capital contribution was the discharge of the surplus debenture in the amount of $8,500 referred to in note 7(b) above. The Company is subject to statutory limitations on the payment of dividends to its Parent. Under Michigan Insurance Law, the payment of dividends to shareholders is restricted to the surplus earnings of the Company, unless prior approval is obtained from the Michigan Insurance Bureau. The aggregate statutory capital and surplus of the Company at December 31, 1998 was $121,799 (1997 $56,598). The aggregate statutory net loss of the Company for the year ended 1998 was $23,491 (1997 $2,550; 1996 $5,961). State regulatory authorities prescribe statutory accounting practices that differ in certain respects from generally accepted accounting principles followed by stock life insurance companies. The significant differences relate to investments, deferred acquisition costs, deferred income taxes, non-admitted asset balances and reserve calculation assumptions. 9. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values and the estimated fair values of certain of the Company's financial instruments at December 31, 1998 were as follows:
ESTIMATED ($ thousands) CARRYING VALUE FAIR VALUE ---------------------------------------------------------------------------- ASSETS: Fixed maturity and equity securities $69,778 $69,778 Short-term investments 459 459 Policy loans 19,320 19,320 Cash and cash equivalents 23,789 23,789 ----------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair values of the above financial instruments: FIXED MATURITY AND EQUITY SECURITIES: Fair values of fixed maturity and equity securities were based on quoted market prices, where available. Fair values were estimated using values obtained from independent pricing services. SHORT-TERM INVESTMENTS AND CASH AND CASH EQUIVALENTS: Carrying values approximate fair values. POLICY LOANS: Carrying values approximate fair values. F-15 77 10. RELATED PARTY TRANSACTIONS The Company has formal service agreements with Manulife Financial and ManUSA which can be terminated by any party upon two months' notice. Under the agreements, the Company will pay direct operating expenses incurred each year by Manulife Financial and ManUSA on its behalf. Services provided under the agreement include legal, actuarial, investment, data processing and certain other administrative services. Costs incurred under these agreements were $34,070, $32,733 and $29,384 in 1998, 1997 and 1996 respectively. In addition, there were $12,817, $11,249 and $6,934 of agents bonuses allocated to the Company during 1998, 1997 and 1996, respectively, which are included in deferred acquisition costs. The Company has several reinsurance agreements with affiliated companies which may be terminated upon the specified notice by either party. These agreements are summarized as follows: (a) On December 31, 1998, the coinsurance treaties under which the Company had assumed two blocks of insurance from ManUSA were terminated. The Company's risk under these treaties was limited to $100,000 of initial face amount per claim plus a pro-rata share of any increase in face amount. Upon the termination of the treaties, the Company paid consideration in the amount of approximately $41.0 million to ManUSA and policyholder reserves totaling $41.0 million were recaptured by ManUSA. No gain or loss resulted from the termination of these treaties. (b) The Company cedes the risk in excess of $25,000 per life to MRC under the terms of an automatic reinsurance agreement (c) The Company cedes a substantial portion of its risk on its Flexible Premium Variable Life policies to MRC under the terms of a stop loss reinsurance agreement. Selected amounts relating to the above treaties reflected in the financial statements are as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1998 1997 1996 ----------------------------------------------------------------------- Life and annuity premiums assumed $ 48 $ 509 $ 724 Life and annuity premiums ceded 76 69 99 Policy reserves assumed -- 40,975 44,497 Policy reserves ceded 145 130 304 -----------------------------------------------------------------------
Reinsurance recoveries on ceded reinsurance contracts to affiliates were $NIL, $3,972 and $NIL during 1998, 1997 and 1996 respectively. The Company and Manulife Financial have entered into an agreement whereby Manulife Financial provides a claims paying guarantee to the Company's U.S. policyholders. This claims paying guarantee does not apply to the Company's separate account contract holders F-16 78 11. REINSURANCE In the normal course of business, the Company assumes and cedes reinsurance as a party to several reinsurance treaties with major unrelated insurance companies. The Company remains liable for amounts ceded in the event that reinsurers do not meet their obligations. The effects of reinsurance on premiums were as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ thousands) 1998 1997 1996 ----------------------------------------------------------------------- Direct premiums $ 9,723 $ 8,607 $12,949 Reinsurance ceded 405 440 676 ----------------------------------------------------------------------- TOTAL PREMIUMS $ 9,318 $ 8,167 $12,273 =======================================================================
Reinsurance recoveries on ceded reinsurance contracts with unrelated insurance companies were $1,362, $909 and $357 during 1998, 1997 and 1996 respectively. 12. SEGMENT DISCLOSURES The Company reports two business segments: Traditional Life Insurance sold in Taiwan and Variable Life and Annuities sold in the U.S. The Company's reportable segments have been determined based on geography, differences in product features, and distribution; the segments are also consistent with the Company's management structure. Segmented information for the Company is as follows:
AS AT DECEMBER 31, ($ thousands) TAIWAN U.S. TOTAL ------------------------------------------------------------------------------------------ 1998 Premiums and fee income $ 9,243 $ 54,594 $ 63,837 Interest expense -- 1,722 1,722 Income taxes (benefit) (1,219) 827 (392) Net income (loss) (2,265) 1,511 (754) Total assets excluding separate account assets $ 30,268 $ 258,311 $ 288,579 ------------------------------------------------------------------------------------------ 1997 Premiums and fee income $ 8,099 $ 39,190 $ 47,289 Interest expense -- 2,750 2,750 Income taxes (benefit) (1,526) 1,049 (477) Net income (loss) (2,835) (801) (3,636) Total assets excluding separate account assets $ 25,401 $ 244,166 $ 269,567 ------------------------------------------------------------------------------------------ 1996 Premiums and fee income $ 12,200 $ 41,132 $ 53,332 Interest expense -- 12,251 12,251 Income taxes (benefit) (6,125) 2,216 (3,909) Net income (loss) (17,500) 9,093 (8,407) Total assets excluding separate account assets $ 15,268 $ 379,241 $ 394,509 ------------------------------------------------------------------------------------------
The accounting policies for each segment above are the same as those described in the summary of significant accounting policies. The Company has no intersegment revenues and no significant major customers. F-17 79 13. CONTINGENCIES The Company is subject to various lawsuits that have arisen in the course of its business. Contingent liabilities arising from litigation, income taxes and other matters are not considered material in relation to the financial position of the Company. 14. UNCERTAINTY DUE TO THE YEAR 2000 RISK (UNAUDITED) The Year 2000 risk is the result of computer programs being written using two digits, rather than four, to define the applicable year. Any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. The effects of the Year 2000 risk may be experienced before, on, or after January 1, 2000 and, if not addressed, could result in systems failures or miscalculations causing disruptions of normal business operations. It is not possible to be certain that the Company's Year 2000 program will fully resolve all aspects of the Year 2000 risk, including those related to third parties. F-18 80 Separate Account Three of The Manufacturers Life Insurance Company of America Financial Statements Three years ended December 31, 1998 CONTENTS Report of Independent Auditors...................................... Audited Financial Statements Statement of Assets and Liabilities................................. Statements of Operations............................................ Statements of Changes in Net Assets................................. Notes to Financial Statements....................................... F-19 81 Report of Independent Auditors To the Board of Directors The Manufacturers Life Insurance Company of America We have audited the accompanying statement of assets and liabilities of Separate Account Three of The Manufacturers Life Insurance Company of America as of December 31, 1998 and the related statements of operations and changes in net assets for each of the periods presented therein. These financial statements are the responsibility of The Manufacturers Life Insurance Company of America's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 1998, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Separate Account Three of The Manufacturers Life Insurance Company of America at December 31, 1998, and the results of its operations and the changes in its net assets for each of the periods presented therein, in conformity with generally accepted accounting principles. Philadelphia, Pennsylvania February 4, 1999 Ernst & Young LLP F-20 82 SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1998
Sub-Account Net Asset Net Asset Units Value Per Value Outstanding Unit ---------------------------------------- Investment in Manufacturers Investment Trust--at market value: Emerging Growth Trust, 2,802,542 shares (cost $62,104,620) $ 66,756,555 $ 1,547,427 $ 43.14 Quantitative Equity Trust, 2,069,537 shares (cost $38,807,860) 52,193,727 1,202,134 43.42 Real Estate Securities Trust, 1,536,662 shares (cost $24,594,352) 22,696,503 689,209 32.93 Balanced Trust, 2,589,172 shares (cost $43,897,491) 50,229,936 1,674,992 29.99 Capital Growth Bond Trust, 1,757,260 shares (cost $19,935,560) 21,245,278 929,261 22.86 Money Market Trust, 3,170,806 shares (cost $31,708,063) 31,708,063 1,731,857 18.31 International Stock Trust, 1,585,335 shares (cost $18,934,357) 20,577,642 1,473,246 13.97 Pacific Rim Emerging Markets Trust, 822,886 shares (cost $5,198,434) 5,620,314 772,206 7.28 Equity Index Trust, 2,839,061 shares (cost $37,536,543) 43,806,714 2,221,635 19.72 Equity Trust, 1,257,356 shares (cost $25,523,708) 24,493,286 1,651,448 14.83 Value Equity Trust, 1,044,760 shares (cost $16,442,598) 18,575,830 1,154,317 16.09 Growth and Income Trust, 1,165,238 shares (cost $26,765,264) 33,127,715 1,678,270 19.74 U.S. Government Securities Trust, 239,148 shares (cost $3,198,130) 3,305,023 276,793 11.94 Conservative Asset Allocation Trust, 80,313 shares (cost $925,126) 950,102 73,213 12.98 Moderate Asset Allocation Trust, 234,294 shares (cost $2,942,382) 3,125,486 218,986 14.27 Aggressive Asset Allocation Trust, 237,596 shares (cost $3,281,821) 3,625,719 233,924 15.50 International Small Cap Trust, 176,272 shares (cost $2,492,390) 2,693,435 190,424 14.14 Blue Chip Growth Trust, 566,488 shares (cost $8,957,998) 10,717,944 519,809 20.62 Science & Technology Trust, 252,885 shares (cost $3,476,302) 4,936,311 244,906 20.16 Pilgram Baxter Growth Trust, 122,992 shares (cost $1,528,419) 1,603,809 105,774 15.16 Small/Mid Cap Trust, 296,586 shares (cost $5,033,231) 5,863,507 299,424 19.58 Worldwide Growth Trust, 71,291 shares (cost $1,065,955) 1,080,064 72,735 14.85 Global Equity Trust, 208,185 shares (cost $3,996,239) 4,242,810 259,150 16.37 Growth Trust, 329,119 shares (cost $6,264,920) 6,746,944 363,585 18.56 Value Trust, 253,715 shares (cost $3,817,475) 3,567,228 251,058 14.21 International Growth and Income Trust, 124,135 shares (cost $1,357,908 1,405,214 104,239 13.48 High Yield Trust, 162,690 shares (cost $2,211,281) 2,101,957 147,641 14.24 Strategic Bond Trust, 247,629 shares (cost $2,962,146) 2,902,215 210,298 13.80 Global Government Bond Trust, 46,669 shares (cost $634,469) 640,768 45,061 14.22 Investment Quality Bond Trust, 114,782 shares (cost $1,396,240) 1,430,181 96,815 14.77 Lifestyle Aggressive 1000 Trust, 288,431 shares (cost $3,929,209) 3,862,092 257,160 15.02 Lifestyle Growth 820 Trust, 1,150,754 shares (cost $15,767,114) 15,857,396 1,049,185 15.11 Lifestyle Balanced 640 Trust, 422,244 shares (cost $5,614,581) 5,696,069 382,101 14.91 Lifestyle Moderate 460 Trust, 48,767 shares (cost $658,448) 678,344 44,619 15.20 Lifestyle Conservative 280 Trust, 7,984 shares (cost $102,293) 108,017 7,151 15.11 Small Company Value Trust, 32,243 shares (cost $355,941) 366,605 42,981 8.53 ------------ Net assets $478,538,803 ============
See accompanying notes. F-21 83 SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENTS OF OPERATIONS
EMERGING GROWTH SUB-ACCOUNT ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/98 DEC. 31/97 DEC. 31/96 ------------------------------------------ Net investment income: Dividend income $ 995,471 $ -- $ 7,702,014 ----------------------------------------- Realized and unrealized gain (loss) on investments: Realized gain (loss) from security transactions: Proceeds from sales 6,100,016 7,107,331 4,088,127 Cost of securities sold 4,854,772 5,908,528 3,518,688 ----------------------------------------- Net realized gain (loss) 1,245,244 1,198,803 569,439 ----------------------------------------- Unrealized appreciation (depreciation) of investments: Beginning of year 6,743,875 (1,640,500) 4,794,911 End of year 4,651,935 6,743,875 (1,640,500) ----------------------------------------- Net unrealized appreciation (depreciation) during the year (2,091,940) 8,384,375 (6,435,411) ----------------------------------------- Net realized and unrealized gain (loss) on investments (846,696) 9,583,178 (5,865,972) ----------------------------------------- Net increase (decrease) in net assets derived from operations $ 148,775 $ 9,583,178 $ 1,836,042 =========================================
QUANTITATIVE EQUITY SUB-ACCOUNT ------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/98 DEC. 31/97 DEC. 31/96 ------------------------------------------ Net investment income: Dividend income $ 5,169,494 $ -- $ 4,240,752 ------------------------------------------ Realized and unrealized gain (loss) on investments: Realized gain (loss) from security transactions: Proceeds from sales 4,267,545 3,096,117 1,222,403 Cost of securities sold 2,650,426 2,122,759 976,262 ------------------------------------------ Net realized gain (loss) 1,617,119 973,358 246,141 ------------------------------------------ Unrealized appreciation (depreciation) of investments: Beginning of year 9,470,255 1,534,960 2,295,941 End of year 13,385,867 9,470,255 1,534,960 ------------------------------------------ Net unrealized appreciation (depreciation) during the year 3,915,612 7,935,295 (760,981) ------------------------------------------ Net realized and unrealized gain (loss) on investments 5,532,731 8,908,653 (514,840) ------------------------------------------ Net increase (decrease) in net assets derived from operations $10,702,225 $ 8,908,653 $ 3,725,912 ==========================================
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996 ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997 *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998 See accompanying notes. F-22 84
REAL ESTATE SECURITIES BALANCED CAPITAL GROWTH BOND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR/ENDED YEAR/ENDED YEAR/ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/98 DEC 31/97 DEC.31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 - ------------------------------------------------------------------------------------------------------------------------------- $ 3,092,425 $ -- $ 2,776,056 $ 5,710,136 $ -- $ 4,478,042 $ 1,051,960 $ -- $ 864,430 - ------------------------------------------------------------------------------------------------------------------------------- 2,650,837 1,134,797 660,261 3,244,479 4,291,414 1,836,560 3,019,340 1,876,127 1,292,420 2,269,138 898,569 631,891 2,557,957 3,671,860 1,674,031 2,667,419 1,866,847 1,363,232 - ------------------------------------------------------------------------------------------------------------------------------- 381,699 236,228 28,370 686,522 619,554 162,529 351,921 9,280 (70,812) - ------------------------------------------------------------------------------------------------------------------------------- 5,819,408 2,155,063 748,034 6,626,044 958,041 2,693,376 1,199,605 (223,171) 153,798 (1,897,849) 5,819,409 2,155,063 6,332,445 6,626,043 958,041 1,309,718 1,199,605 (223,171) - ------------------------------------------------------------------------------------------------------------------------------- (7,717,257) 3,664,346 1,407,029 (293,599) 5,668,002 (1,735,335) 110,113 1,422,776 (376,969) - ------------------------------------------------------------------------------------------------------------------------------- (7,335,558) 3,900,574 1,435,399 392,923 6,287,556 (1,572,806) 462,034 1,432,056 (447,781) - ------------------------------------------------------------------------------------------------------------------------------- $(4,243,133) $ 3,900,574 $ 4,211,455 $ 6,103,059 $ 6,287,556 $ 2,905,236 $ 1,513,994 $ 1,432,056 $ 416,649 ===============================================================================================================================
F-23 85 SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENTS OF OPERATIONS (CONTINUED)
MONEY MARKET SUB-ACCOUNT ---------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/98 DEC. 31/97 DEC. 31/96 ---------------------------------------------- Net investment income: Dividend income $ 1,481,440 $ 1,159,280 $ 1,505,315 ----------------------------------------- Realized and unrealized gain (loss) on investments: Realized and unrealized gain (loss) from security transactions: Proceeds from sales 55,917,389 18,425,413 17,344,859 Cost of securities sold 55,917,389 19,340,111 16,936,049 ----------------------------------------- Net realized gain (loss) -- (914,698) 408,810 ----------------------------------------- Unrealized appreciation (depreciation) of investments: Beginning of year -- (914,724) 233,720 End of year -- 1 (914,724) ----------------------------------------- Net unrealized appreciation (depreciation) during the year -- 914,725 (1,148,444) ----------------------------------------- Net realized and unrealized gain (loss) on investments -- 27 (739,634) ----------------------------------------- Net increase (decrease) in net assets derived from operations $ 1,481,440 $ 1,159,307 $ 765,681 ===========================================
INTERNATIONAL STOCK SUB-ACCOUNT --------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/98 DEC. 31/97 DEC. 31/96 --------------------------------------------- Net investment income: Dividend income $ 313,529 $ 209,753 $ 248,736 ------------------------------------------- Realized and unrealized gain (loss) on investments: Realized and unrealized gain (loss) from security transactions: Proceeds from sales 4,550,901 780,310 289,302 Cost of securities sold 3,876,157 656,813 250,445 ------------------------------------------- Net realized gain (loss) 674,744 123,497 38,857 ------------------------------------------- Unrealized appreciation (depreciation) of investment Beginning of year 131,809 450,565 99,777 End of year 1,643,285 131,811 450,565 ------------------------------------------- Net unrealized appreciation (depreciation) during the year 1,511,476 (318,754) 350,788 ------------------------------------------- Net realized and unrealized gain (loss) on investments 2,186,220 (195,257) 389,645 ------------------------------------------- Net increase (decrease) in net assets derived from operations $ 2,499,749 $ 14,496 $ 638,381 ===========================================
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996 ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997 *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998 See accompanying notes. F-24 86
PACIFIC RIM EMERGING MARKETS SUB-ACCOUNT EQUITY INDEX SUB-ACCOUNT EQUITY SUB-ACCOUNT - --------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED* DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 - --------------------------------------------------------------------------------------------------------------------------------- $ -- $ 12,667 $ 239,201 $ 1,392,501 $ 2,468,634 $ 449,782 $ 3,871,537 $ 2,150,334 $ 26,181 - --------------------------------------------------------------------------------------------------------------------------------- 4,347,338 1,556,257 443,740 2,890,323 1,982,591 231,179 1,483,382 1,891,337 54,581 6,967,881 1,571,876 374,390 2,287,244 1,529,141 214,759 1,636,220 1,889,551 56,756 - --------------------------------------------------------------------------------------------------------------------------------- (2,620,543) (15,619) 69,350 603,079 453,450 16,420 (152,838) 1,786 (2,175) - --------------------------------------------------------------------------------------------------------------------------------- (2,120,318) 67,813 88,856 488,049 (46,898) -- 737,427 495,686 -- 421,880 (2,120,317) 67,813 6,270,171 488,048 (46,898) (1,030,422) 737,427 495,686 - --------------------------------------------------------------------------------------------------------------------------------- 2,542,198 (2,188,130) (21,043) 5,782,122 534,946 (46,898) (1,767,849) 241,741 495,686 - --------------------------------------------------------------------------------------------------------------------------------- (78,345) (2,203,749) 48,307 6,385,201 988,396 (30,478) (1,920,687) 243,527 493,511 - --------------------------------------------------------------------------------------------------------------------------------- $ (78,345) $(2,191,082) $ 287,508 $ 7,777,702 $ 3,457,030 $ 419,304 $ 1,950,850 $ 2,393,861 $ 519,692 =================================================================================================================================
F-25 87 SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENTS OF OPERATIONS (CONTINUED)
VALUE EQUITY SUB-ACCOUNT -------------------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED* DEC. 31/98 DEC. 31/97 DEC. 31/96 -------------------------------------- Net investment income: Dividend income $ 976,745 $1,127,557 $ 8,790 ------------------------------------ Realized and unrealized gain (loss) on investments: Realized and unrealized gain (loss) from security transactions: Proceeds from sales 1,391,651 1,288,325 438,548 Cost of securities sold 1,104,171 1,107,952 417,223 ------------------------------------ Net realized gain (loss) 287,480 180,373 21,325 ------------------------------------ Unrealized appreciation (depreciation) of investments: Beginning of year 1,914,865 364,883 -- End of year 2,133,232 1,914,865 364,883 ------------------------------------ Net unrealized appreciation (depreciation) during the year 218,367 1,549,982 364,883 ------------------------------------ Net realized and unrealized gain (loss) on investments 505,847 1,730,355 386,208 ------------------------------------ Net increase (decrease) in net assets derived from operations $1,482,592 $2,857,912 $ 394,998 ====================================
GROWTH AND INCOME SUB-ACCOUNT -------------------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED* DEC. 31/98 DEC. 31/97 DEC. 31/96 -------------------------------------- Net investment income: Dividend income $1,500,080 $ 556,761 $ 1,952 ------------------------------------ Realized and unrealized gain (loss) on investments: Realized and unrealized gain (loss) from security transactions: Proceeds from sales 2,830,806 3,054,342 82,474 Cost of securities sold 2,030,090 2,467,777 77,312 ------------------------------------ Net realized gain (loss) 800,716 586,565 5,162 ------------------------------------ Unrealized appreciation (depreciation) of investments: Beginning of year 2,511,120 405,558 -- End of year 6,362,451 2,511,120 405,558 ------------------------------------ Net unrealized appreciation (depreciation) during the year 3,851,331 2,105,562 405,558 ------------------------------------ Net realized and unrealized gain (loss) on investments 4,652,047 2,692,127 410,720 ------------------------------------ Net increase (decrease) in net assets derived from operations $6,152,127 $3,248,888 $ 412,672 ====================================
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996 ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997 *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998 See accompanying notes. F-26 88
U.S. GOVERNMENT SECURITIES CONSERVATIVE ASSET ALLOCATION MODERATE ASSET ALLOCATION SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ------------------------------------------------------------------------------------------------------------------------ YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED* DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 - ------------------------------------------------------------------------------------------------------------------------ $ 109,401 $ 123,037 $ 26,995 $ 72,830 $ 42,335 $ 8,660 $ 247,923 $ 83,798 $ 2,105 - ------------------------------------------------------------------------------------------------------------------ 986,654 750,917 141,134 207,048 236,418 30,301 147,097 71,531 45,521 954,836 752,455 149,988 202,366 228,648 31,365 136,136 65,973 45,706 - ------------------------------------------------------------------------------------------------------------------ 31,818 (1,538) (8,854) 4,682 7,770 (1,064) 10,961 5,558 (185) - ------------------------------------------------------------------------------------------------------------------ 67,077 38,928 -- 17,540 6,566 -- 101,169 23,967 -- 106,893 67,077 38,928 24,976 17,540 6,566 183,104 101,169 23,967 - ------------------------------------------------------------------------------------------------------------------ 39,816 28,149 38,928 7,436 10,974 6,566 81,935 77,202 23,967 - ------------------------------------------------------------------------------------------------------------------ 71,634 26,611 30,074 12,118 18,744 5,502 92,896 82,760 23,782 - ------------------------------------------------------------------------------------------------------------------ $ 181,035 $ 149,648 $ 57,069 $ 84,948 $ 61,079 $14,162 $ 340,819 $ 166,558 $ 25,887 ===================================================================================================================
F-27 89 SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENTS OF OPERATIONS (CONTINUED)
AGGRESSIVE ASSET ALLOCATION INTERNATIONAL SMALL CAP SUB-ACCOUNT SUB-ACCOUNT ----------------------------------------------------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 ------------------------------------------------------------------------- Net investment income: Dividend income $ 312,103 $ 140,784 $ 11,072 $ 5,687 $ 212 --------------------------------------------------------------------- Realized and unrealized gain (loss) on investments: Realized and unrealized gain (loss) from security transactions: 210,791 226,753 79,723 3,812,286 206,034 Proceeds from sales 181,226 204,492 82,946 3,842,577 203,025 --------------------------------------------------------------------- Cost of securities sold 29,565 22,261 (3,223) (30,291) 3,009 --------------------------------------------------------------------- Net realized gain (loss) Unrealized appreciation (depreciation) of investments: Beginning of year 164,721 43,313 -- (39,080) -- End of year 343,898 164,721 43,313 201,045 (39,080) --------------------------------------------------------------------- Net unrealized appreciation (depreciation) during the year 179,177 121,408 43,313 240,125 (39,080) --------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 208,742 143,669 40,090 209,834 (36,071) --------------------------------------------------------------------- Net increase (decrease) in net assets derived from operations $ 520,845 $ 284,453 $ 51,162 $ 215,521 $ (35,859) =====================================================================
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996 ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997 *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998 See accompanying notes. F-28 90
BLUE CHIP GROWTH SCIENCE & TECHNOLOGY SUB- PILGRAM BAXTER SMALL/MID SUB-ACCOUNT ACCOUNT SUB-ACCOUNT CAP SUB-ACCOUNT - -------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 $ 98,459 $ 104,304 $ -- $ 16,815 $ -- $ -- $ $ -- - ---------------------------------------------------------------------------------------------------------------- 933,491 121,709 7,343,188 457,533 341,421 37,770 341,669 52,379 796,180 128,505 7,715,056 477,311 359,211 36,070 302,630 43,433 - ---------------------------------------------------------------------------------------------------------------- 137,311 (6,796) (371,868) (19,778) (17,790) 1,700 39,039 8,946 - ---------------------------------------------------------------------------------------------------------------- 239,380 -- (62,464) -- (18,510) -- (4,182) -- 1,759,946 239,382 1,460,009 (62,465) 75,390 (18,510) 830,276 (4,182) - ---------------------------------------------------------------------------------------------------------------- 1,520,566 239,382 1,522,473 (62,465) 93,900 (18,510) 834,458 (4,182) - ---------------------------------------------------------------------------------------------------------------- 1,657,877 232,586 1,150,605 (82,243) 76,110 (16,810) 873,497 4,764 - ---------------------------------------------------------------------------------------------------------------- $1,756,336 $ 336,890 $ 1,150,605 $ (65,428) $ 76,110 $(16,810) $ 873,497 $ 4,764 ================================================================================================================
WORLDWIDE GROWTH CAP SUB-ACCOUNT - --------------------------- YEAR ENDED PERIOD ENDED* DEC. 31/98 DEC. 31/97 5,574 $ 2,704 - ----------------------- 884,820 40,572 870,108 38,790 - ----------------------- 14,712 1,782 - ----------------------- (4,391) -- 14,109 (4,391) - ----------------------- 18,500 (4,391) - ----------------------- 33,212 (2,609) - ----------------------- 38,786 $ 95 =======================
F-29 91 SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENTS OF OPERATIONS (CONTINUED)
GLOBAL VALUE EQUITY SUB-ACCOUNT GROWTH SUB-ACCOUNT SUB-ACCOUNT ------------------------------------------------------------------------------------------ YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 ------------------------------------------------------------------------------------------ Net investment income: Dividend income $ 167,578 $ -- $ 95,683 $ -- $ 117,791 $ 33,133 ----------------------------------------------------------------------------------- Realized and unrealized gain (loss) on investments: Realized and unrealized gain (loss) from security transactions: Proceeds from sales 14,996,508 6,150 1,586,113 9,760 539,843 28,449 Cost of securities sold 15,031,676 5,777 1,462,588 8,653 517,327 25,668 ----------------------------------------------------------------------------------- Net realized gain (loss) (35,168) 373 123,525 1,107 22,516 2,781 ----------------------------------------------------------------------------------- Unrealized appreciation (depreciation) of investments: Beginning of year 32,115 -- 15,489 -- (20,774) -- End of year 246,571 32,115 482,024 15,489 (250,247) (20,774) ----------------------------------------------------------------------------------- Net unrealized appreciation (depreciation) during the year 214,456 32,115 466,535 15,489 (229,473) (20,774) ----------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 179,288 32,488 590,060 16,596 (206,957) (17,993) ----------------------------------------------------------------------------------- Net increase (decrease) in net assets derived from operations $ 346,866 $ 32,488 $ 685,743 $ 16,596 $ (89,166) $ 15,140 ===================================================================================
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996 ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997 *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998 See accompanying notes. F-30 92
INTERNATIONAL GROWTH AND INCOME Global SUB-ACCOUNT High Yield Strategic Bond Government Bond Sub-Account Sub-Account Sub-Account - ----------------------------- ---------------------------------------------------------------------------------------- YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED*** DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 - ----------------------------------------------------------------------------------------------------------------------- $ 51,082 $ -- $ 151,912 $ 39,931 $ 86,088 $ -- $ 27,334 $ -- - ------------------------------------------------------------------------------------------------------------------------ 7,091,488 18,809 2,330,540 347,712 556,779 18,384 370,605 3,662 7,095,830 18,622 2,338,454 339,830 574,721 17,681 378,835 3,587 - ------------------------------------------------------------------------------------------------------------------------ (4,342) 187 (7,914) 7,882 (17,942) 703 (8,230) 75 - ------------------------------------------------------------------------------------------------------------------------ (39,257) -- (13,453) -- 10,709 -- 3,801 -- 47,306 (39,257) (109,324) (13,453) (59,931) 10,709 6,299 3,801 - ------------------------------------------------------------------------------------------------------------------------ 86,563 (39,257) (95,871) (13,453) (70,640) 10,709 2,498 3,801 - ------------------------------------------------------------------------------------------------------------------------ 82,221 (39,070) (103,785) (5,571) (88,582) 11,412 (5,732) 3,876 - ------------------------------------------------------------------------------------------------------------------------ $ 133,303 $ (39,070) $ 48,127 $ 34,360 $ (2,494) $ 11,412 $ 21,602 $ 3,876 ========================================================================================================================
INVESTMENT QUALITY BOND SUB-ACCOUNT - --------------------------- YEAR ENDED PERIOD ENDED* DEC. 31/98 DEC. 31/97 - --------------------------- 20,278 $ -- - --------------------------- 134,493 4,700 127,939 4,564 - --------------------------- 6,554 136 - --------------------------- 6,089 -- 33,941 6,089 - --------------------------- 27,852 6,089 - --------------------------- 34,406 6,225 - --------------------------- 54,684 $ 6,225 ===========================
F-31 93 SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENTS OF OPERATIONS (CONTINUED)
LIFESTYLE AGGRESSIVE 1000 LIFESTYLE SUB-ACCOUNT GROWTH 820 SUB-ACCOUNT --------------------------------------------------------- YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 ---------------------------------------------------- Net investment income: $ 168,006 $ 4,916 $ 629,682 $ 36,584 ---------------------------------------------------- Dividend income Realized and unrealized gain (loss) on investments: Realized and unrealized gain (loss) from security transactions: 787,348 18,722 634,837 53,801 Proceeds from sales 797,310 17,881 654,079 50,741 ---------------------------------------------------- Cost of securities sold (9,962) 841 (19,242) 3,060 ---------------------------------------------------- Net realized gain (loss) Unrealized appreciation (depreciation) of investments: (11,048) -- (24,738) -- Beginning of year (67,117) (11,049) 90,282 (24,740) ---------------------------------------------------- End of year Net unrealized appreciation (depreciation during the year (56,069) (11,049) 115,020 (24,740) ---------------------------------------------------- Net realized and unrealized gain (loss) on investments (66,031) (10,208) 95,778 (21,680) ---------------------------------------------------- Net increase (decrease) in net assets derived from operations $ 101,975 $ (5,292) $ 725,460 $ 14,904 ===================================================
LIFESTYLE BALANCED 640 SUB-ACCOUNT ------------------------------- YEAR ENDED PERIOD ENDED** DEC. 31/98 DEC. 31/97 ------------------------------- Net investment income: $ 189,230 $ 16,038 ----------------------- Dividend income Realized and unrealized gain (loss) on investments: Realized and unrealized gain (loss) from security transactions: 896,183 152,797 Proceeds from sales 898,112 147,960 ----------------------- Cost of securities sold (1,929) 4,837 ----------------------- Net realized gain (loss) Unrealized appreciation (depreciation) of investments: 43,780 -- Beginning of year 81,488 43,781 ----------------------- End of year Net unrealized appreciation (depreciation during the year 37,708 43,781 ----------------------- Net realized and unrealized gain (loss) on investments 35,779 48,618 ----------------------- Net increase (decrease) in net assets derived from operations $ 225,009 $ 64,656 ======================
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996 ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997 *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998 See accompanying notes. F-32 94
LIFESTYLE LIFESTYLE SMALL COMPANY MODERATE 460 CONSERVATIVE 280 VALUE TRUST SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL - ------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** PERIOD ENDED*** YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/98 DEC. 31/97 DEC. 31/96 - ------------------------------------------------------------------------------------------------------------------------------ $ 20,025 $ 842 $ 552 $ 9 $ -- $ 28,132,536 $ 8,330,428 $ 22,590,083 - ------------------------------------------------------------------------------------------------------------------------------- 195,747 2,366 64,048 173 20,186 138,107,190 49,351,462 28,281,133 204,400 2,372 62,423 172 23,678 134,346,562 45,853,994 26,801,043 - ------------------------------------------------------------------------------------------------------------------------------- (8,653) (6) 1,625 1 (3,492) 3,760,628 3,497,468 1,480,090 - ------------------------------------------------------------------------------------------------------------------------------- 4 -- 29 -- -- 33,986,145 3,720,050 11,108,413 19,896 3 5,724 29 10,664 45,119,935 33,986,146 3,720,050 - ------------------------------------------------------------------------------------------------------------------------------- 19,892 3 5,695 29 10,664 11,133,790 30,266,096 (7,388,363) - ------------------------------------------------------------------------------------------------------------------------------- 11,239 (3) 7,320 30 7,172 14,894,418 33,763,564 (5,908,273) - ------------------------------------------------------------------------------------------------------------------------------- $ 31,264 $ 839 $ 7,872 $ 39 $ 7,172 $ 43,026,954 $42,093,992 $ 16,681,810 ===============================================================================================================================
F-33 95 SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENTS OF CHANGES IN NET ASSETS
EMERGING GROWTH SUB-ACCOUNT -------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/98 DEC. 31/97 DEC. 31/96 -------------------------------------------------- FROM OPERATIONS Net investment income $ 995,471 $ -- $ 7,702,014 Net realized gain (loss) 1,245,244 1,198,803 569,439 Net unrealized appreciation (depreciation) of investments during the period (2,091,940) 8,384,375 (6,435,411) -------------------------------------------------- Net increase (decrease) in net assets derived from operations 148,775 9,583,178 1,836,042 -------------------------------------------------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 12,733,443 16,038,468 22,504,630 Transfer on death -- -- -- Transfer on terminations (6,445,689) (6,450,838) (4,593,540) Transfer on policy loans (218,046) (358,214) (610,713) Net interfund transfers (5,805,034) (6,440,946) (11,484) -------------------------------------------------- 264,674 2,788,470 17,288,893 -------------------------------------------------- Net increase (decrease) in net assets 413,449 12,371,648 19,124,935 NET ASSETS Beginning of year 66,343,106 53,971,458 34,846,523 --------------------------------------------------- End of year $ 66,756,555 $ 66,343,106 $ 53,971,458 ===================================================
QUANTITATIVE EQUITY SUB-ACCOUNT -------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/98 DEC. 31/97 DEC. 31/96 -------------------------------------------- FROM OPERATIONS Net investment income $ 5,169,494 $ -- $ 4,240,752 Net realized gain (loss) 1,617,119 973,358 246,141 Net unrealized appreciation (depreciation) of investments during the period 3,915,612 7,935,295 (760,981) ----------- ------------ ------------ Net increase (decrease) in net assets derived from operations 10,702,225 8,908,653 3,725,912 ----------- ------------ ------------ FROM CAPITAL TRANSACTIONS Additions (deductions) from: 7,242,095 7,834,132 9,633,477 Transfer of net premiums -- -- -- Transfer on death (3,997,775) (4,132,053) (2,214,864) Transfer on terminations (273,706) (432,977) (113,064) Transfer on policy loans (1,628,360) (60,101) 1,337,385 Net interfund transfers ----------- ------------ ------------ 1,342,254 3,209,001 8,642,934 ----------- ------------ ------------ Net increase (decrease) in net assets NET ASSETS 12,044,479 12,117,654 12,368,846 Beginning of year 40,149,248 28,031,594 15,662,748 ------------------------- ------------ End of year $ 52,193,727 $ 40,149,248 $ 28,031,594 ========================= ============
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996 ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997 *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998 See accompanying notes. F-34 96
REAL ESTATE SECURITIES BALANCED SUB-ACCOUNT SUB-ACCOUNT - -------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 - -------------------------------------------------------------------------------------------------------------------- $ 3,092,425 $ -- $ 2,776,056 $ 5,710,136 $ -- $ 4,478,042 $ 1,051,960 381,699 236,228 28,370 686,522 619,554 162,529 351,921 (7,717,257) 3,664,346 1,407,029 (293,599) 5,668,002 (1,735,335) 110,113 - -------------------------------------------------------------------------------------------------------------------- (4,243,133) 3,900,574 4,211,455 6,103,059 6,287,556 2,905,236 1,513,994 - -------------------------------------------------------------------------------------------------------------------- 5,859,264 5,723,061 4,465,307 7,177,808 8,963,510 10,619,657 3,364,775 -- -- -- -- (44,313) -- -- (2,117,340) (2,219,786) (1,347,117) (4,188,769) (3,729,355) (2,563,981) (1,655,470) (77,402) (369,877) (65,858) (150,786) (417,435) (355,780) (32,638) (2,327,888) 1,279,970 467,823 (534,390) (2,581,258) (394,561) (584,488) - -------------------------------------------------------------------------------------------------------------------- 1,336,634 4,413,368 3,520,155 2,303,863 2,191,149 7,305,335 1,092,179 - -------------------------------------------------------------------------------------------------------------------- (2,906,499) 8,313,942 7,731,610 8,406,922 8,478,705 10,210,571 2,606,173 25,603,002 17,289,060 9,557,450 41,823,014 33,344,309 23,133,738 18,639,105 - -------------------------------------------------------------------------------------------------------------------- $ 22,696,503 $ 25,603,002 $ 17,289,060 $ 50,229,936 $ 41,823,014 $ 33,344,309 $ 21,245,278 ====================================================================================================================
CAPITAL GROWTH BOND SUB-ACCOUNT - -------------------------------- YEAR ENDED YEAR ENDED DEC. 31/97 DEC. 31/96 - -------------------------------- $ -- $ 864,430 9,280 (70,812) 1,422,776 (376,969) - -------------------------------- 1,432,056 416,649 - -------------------------------- 4,146,312 4,480,626 -- -- (1,575,696) (1,205,581) (105,540) (27,779) (81,587) 685,493 - -------------------------------- 2,383,489 3,932,759 - -------------------------------- 3,815,545 4,349,408 14,823,560 10,474,152 - -------------------------------- $ 18,639,105 $ 14,823,560 ================================
F-35 97 Separate Account Three of The Manufacturers Life Insurance Company of America Statements of Changes in Net Assets (continued)
MONEY MARKET INTERNATIONAL STOCK SUB-ACCOUNT SUB-ACCOUNT ------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 ------------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 1,481,440 $ 1,159,280 $ 1,505,315 $ 313,529 $ 209,753 $ 248,736 Net realized gain (loss) -- (914,698) 408,810 674,744 123,497 38,857 Net unrealized appreciation (depreciation) of investments during the period -- 914,725 (1,148,444) 1,511,476 (318,754) 350,788 ------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets derived from operations 1,481,440 1,159,307 765,681 2,499,749 14,496 638,381 ------------------------------------------------------------------------------------------------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 22,297,227 33,859,872 23,926,029 4,538,425 5,795,630 4,320,339 Transfer on death -- -- -- -- -- -- Transfer on terminations (3,358,411) (2,797,321) (2,399,186) (1,187,826) (1,224,478) (555,702) Transfer on policy loans (384,658) (282,014) (34,484) (59,954) (106,208) (31,389) Net interfund transfers (17,755,116) (20,937,650) (16,858,040) (574,437) 1,344,064 2,632,184 ------------------------------------------------------------------------------------------------- 799,042 9,842,887 4,634,319 2,716,208 5,809,008 6,365,432 ------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets 2,280,482 11,002,194 5,400,000 5,215,957 5,823,504 7,003,813 NET ASSETS Beginning of year 29,427,581 18,425,387 13,025,387 15,361,685 9,538,181 2,534,368 ------------------------------------------------------------------------------------------------- End of year $ 31,708,063 $ 29,427,581 $ 18,425,387 $ 20,577,642 $ 15,361,685 $ 9,538,181 =================================================================================================
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996 ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997 *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998 See accompanying notes. F-36 98
PACIFIC RIM EMERGING MARKETS SUB- ACCOUNT EQUITY INDEX SUB-ACCOUNT EQUITY SUB-ACCOUNT - -------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED* DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 - -------------------------------------------------------------------------------------------------------------------------------- $ -- $ 12,667 $ 239,201 $ 1,392,501 $ 2,468,634 $ 449,782 $ 3,871,537 $ 2,150,334 $ 26,181 (2,620,543) (15,619) 69,350 603,079 453,450 16,420 (152,838) 1,786 (2,175) 2,542,198 (2,188,130) (21,043) 5,782,122 534,946 (46,898) (1,767,849) 241,741 495,686 - -------------------------------------------------------------------------------------------------------------------------------- (78,345) (2,191,082) 287,508 7,777,702 3,457,030 419,304 1,950,850 2,393,861 519,692 - -------------------------------------------------------------------------------------------------------------------------------- 1,563,148 2,059,145 2,541,885 12,850,700 7,852,789 5,327,031 5,682,311 7,868,634 4,931,946 (436,588) (620,211) (354,050) (2,024,088) (781,683) (136,828) (1,536,387) (1,054,893) (260,549) (15,173) (58,638) (25,816) (475,140) (721,710) -- (34,034) (45,576) (65,890) 229,348 (630,778) 1,682,204 6,006,985 3,377,661 876,961 19,738 778,412 3,345,171 - -------------------------------------------------------------------------------------------------------------------------------- 1,340,735 749,518 3,844,223 16,358,457 9,727,057 6,067,164 4,131,628 7,546,577 7,950,678 - -------------------------------------------------------------------------------------------------------------------------------- 1,262,390 (1,441,564) 4,131,731 24,136,159 13,184,087 6,486,468 6,082,478 9,940,438 8,470,370 4,357,924 5,799,488 1,667,757 19,670,555 6,486,468 -- 18,410,808 8,470,370 -- - -------------------------------------------------------------------------------------------------------------------------------- $ 5,620,314 $ 4,357,924 $5,799,488 $43,806,714 $19,670,555 $6,486,468 $24,493,286 $18,410,808 $8,470,370 ================================================================================================================================
F-37 99 Separate Account Three of The Manufacturers Life Insurance Company of America Statements of Changes in Net Assets (continued)
VALUE EQUITY GROWTH AND INCOME SUB-ACCOUNT SUB-ACCOUNT -------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED* DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 -------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 976,745 $ 1,127,557 $ 8,790 $ 1,500,080 $ 556,761 $ 1,952 Net realized gain (loss) 287,480 180,373 21,325 800,716 586,565 5,162 Net unrealized appreciation (depreciation) of investments during the period 218,367 1,549,982 364,883 3,851,331 2,105,562 405,558 -------------------------------------------------------------------------------------------- Net increase (decrease) in net assets derived from operations 1,482,592 2,857,912 394,998 6,152,127 3,248,888 412,672 -------------------------------------------------------------------------------------------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 3,243,426 4,090,507 3,266,118 6,862,398 7,079,242 2,527,210 Transfer on death -- -- -- -- -- -- Transfer on terminations (1,437,923) (793,110) (147,201) (1,576,405) (910,308) (98,012) Transfer on policy loans (98,668) (69,774) (36,263) (46,701) (76,204) (13,676) Net interfund transfers 563,898 3,108,426 2,150,892 2,330,998 4,479,340 2,756,146 -------------------------------------------------------------------------------------------- 2,270,733 6,336,049 5,233,546 7,570,290 10,572,070 5,171,668 -------------------------------------------------------------------------------------------- Net increase (decrease) in net assets 3,753,325 9,193,961 5,628,544 13,722,417 13,820,958 5,584,340 NET ASSETS Beginning of year 14,822,505 5,628,544 -- 19,405,298 5,584,340 -- -------------------------------------------------------------------------------------------- End of year $ 18,575,830 $ 14,822,505 $ 5,628,544 $ 33,127,715 $ 19,405,298 $ 5,584,340 ============================================================================================
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996 ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997 *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998 See accompanying notes. F-38 100
U.S. GOVERNMENT CONSERVATIVE ASSET MODERATE ASSET SECURITIES ALLOCATION ALLOCATION SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - --------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED PERIOD ENDED* DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/96 - --------------------------------------------------------------------------------------------------------------------------- $ 109,401 $ 123,037 $ 26,995 $ 72,830 $ 42,335 $ 8,660 $ 247,923 $ 83,798 $ 2,105 31,818 (1,538) (8,854) 4,682 7,770 (1,064) 10,961 5,558 (185) 39,816 28,149 38,928 7,436 10,974 6,566 81,935 77,202 23,967 - --------------------------------------------------------------------------------------------------------------------------- 181,035 149,648 57,069 84,948 61,079 14,162 340,819 166,558 25,887 - --------------------------------------------------------------------------------------------------------------------------- 664,545 745,345 757,201 176,976 334,314 143,807 895,345 692,412 348,167 (154,411) (221,531) (35,748) (52,005) (34,376) (33,413) (208,435) (104,738) (25,611) (32,573) (50,875) (30,576) -- -- -- (7,332) (346) -- 423,298 (76,765) 929,361 46,253 (37,686) 246,043 230,395 588,790 183,575 - --------------------------------------------------------------------------------------------------------------------------- 900,859 396,174 1,620,238 171,224 262,252 356,437 909,973 1,176,118 506,131 - --------------------------------------------------------------------------------------------------------------------------- 1,081,894 545,822 1,677,307 256,172 323,331 370,599 1,250,792 1,342,676 532,018 2,223,129 1,677,307 -- 693,930 370,599 -- 1,874,694 532,018 -- - --------------------------------------------------------------------------------------------------------------------------- $ 3,305,023 $ 2,223,129 $ 1,677,307 $ 950,102 $ 693,930 $ 370,599 $ 3,125,486 $ 1,874,694 $ 532,018 ===========================================================================================================================
F-39 101 Separate Account Three of The Manufacturers Life Insurance Company of America Statements of Changes in Net Assets (continued)
AGGRESSIVE ASSET ALLOCATION INTERNATIONAL SMALL CAP BLUE CHIP GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT --------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED* YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/98 DEC. 31/97 DEC. 31/96 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 --------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 312,103 $ 140,784 $ 11,072 $ 5,687 $ 212 $ 98,459 $ 104,304 Net realized gain (loss) 29,565 22,261 (3,223) (30,291) 3,009 137,311 (6,796) Net unrealized appreciation (depreciation) of investments during the period 179,177 121,408 43,313 240,125 (39,080) 1,520,566 239,382 --------------------------------------------------------------------------------------------- Net increase (decrease) in net assets derived from operations 520,845 284,453 51,162 215,521 (35,859) 1,756,336 336,890 --------------------------------------------------------------------------------------------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 953,535 1,008,793 387,073 923,655 609,617 3,950,204 1,748,929 Transfer on death -- -- -- -- -- -- -- Transfer on terminations (257,332) (143,026) (58,999) (94,819) (48,039) (422,824) (152,046) Transfer on policy loans (9,000) (2,986) -- (11,877) (2,873) (27,578) (5,593) Net interfund transfers 193,464 263,513 434,224 258,711 879,398 1,683,424 1,850,202 --------------------------------------------------------------------------------------------- 880,667 1,126,294 762,298 1,075,670 1,438,103 5,183,226 3,441,492 --------------------------------------------------------------------------------------------- Net increase (decrease) in net assets 1,401,512 1,410,747 813,460 1,291,191 1,402,244 6,939,562 3,778,382 NET ASSETS Beginning of year 2,224,207 813,460 -- 1,402,244 -- 3,778,382 -- ============================================================================================= End of year $3,625,719 $2,224,207 $813,460 $2,693,435 $1,402,244 $10,717,944 $3,778,382 =============================================================================================
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996 ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997 *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998 See accompanying notes. F-40 102
SCIENCE & TECHNOLOGY PILGRAM BAXTER GROWTH WORLDWIDE GROWTH SUB-ACCOUNT SUB-ACCOUNT SMALL/MID CAP SUB-ACCOUNT SUB-ACCOUNT - ----------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 - ---------------------------------------------------------------------------------------------------------------------------------- $ -- $ 16,815 $ -- $ -- $ -- $ -- $ 5,574 $ 2,704 (371,868) (19,778) (17,790) 1,700 39,039 8,946 14,712 1,782 1,522,473 (62,465) 93,900 (18,510) 834,458 (4,182) 18,500 (4,391) - ---------------------------------------------------------------------------------------------------------------------------------- 1,150,605 (65,428) 76,110 (16,810) 873,497 4,764 38,786 95 - ---------------------------------------------------------------------------------------------------------------------------------- 1,150,664 361,963 515,555 141,492 1,769,196 757,544 396,653 143,932 - - - - - - - - (90,696) (21,603) (58,953) (7,886) (173,727) (32,683) (41,648) (4,603) (13,553) (904) (11,158) -- (9,934) (269) (6,172) (1,290) 1,674,262 791,001 520,806 444,653 1,932,598 742,521 377,034 177,277 - ---------------------------------------------------------------------------------------------------------------------------------- 2,720,677 1,130,457 966,250 578,259 3,518,133 1,467,113 725,867 315,316 - ---------------------------------------------------------------------------------------------------------------------------------- 3,871,282 1,065,029 1,042,360 561,449 4,391,630 1,471,877 764,653 315,411 1,065,029 -- 561,449 -- 1,471,877 -- 315,411 -- ================================================================================================================================== $ 4,936,311 $ 1,065,029 $ 1,603,809 $ 561,449 $ 5,863,507 $ 1,471,877 $ 1,080,064 $ 315,411 ==================================================================================================================================
F-41 103 Separate Account Three of The Manufacturers Life Insurance Company of America Statements of Changes in Net Assets (continued)
GLOBAL EQUITY SUB-ACCOUNT GROWTH SUB-ACCOUNT VALUE SUB-ACCOUNT -------------------------------------------------------------------------------------------- YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 -------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 167,578 $ -- $ 95,683 $ -- $ 117,791 $ 33,133 Net realized gain (loss) (35,168) 373 123,525 1,107 22,516 2,781 Net unrealized appreciation (depreciation) of investments during the period 214,456 32,115 466,535 15,489 (229,473) (20,774) -------------------------------------------------------------------------------------------- Net increase (decrease) in net assets derived from operations 346,866 32,488 685,743 16,596 (89,166) 15,140 -------------------------------------------------------------------------------------------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 1,830,508 697,468 3,294,658 470,000 1,600,753 346,369 Transfer on death -- -- -- -- -- -- Transfer on terminations (146,797) (22,616) (107,258) (29,691) (117,194) (21,998) Transfer on policy loans (6,447) (283) (38,221) (2,329) (12,965) (1,030) Net interfund transfers 750,096 761,527 1,662,737 794,709 1,104,824 742,495 -------------------------------------------------------------------------------------------- 2,427,360 1,436,096 4,811,916 1,232,689 2,575,418 1,065,836 -------------------------------------------------------------------------------------------- Net increase (decrease) in net assets 2,774,226 1,468,584 5,497,659 1,249,285 2,486,252 1,080,976 NET ASSETS Beginning of year 1,468,584 -- 1,249,285 -- 1,080,976 -- -------------------------------------------------------------------------------------------- End of year $ 4,242,810 $ 1,468,584 $ 6,746,944 $ 1,249,285 $ 3,567,228 $ 1,089,976 ============================================================================================
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996 ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997 *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998 See accompanying notes. F-42 104
INTERNATIONAL GROWTH AND INCOME GLOBAL GOVERNMENT BOND SUB-ACCOUNT HIGH YIELD SUB-ACCOUNT STRATEGIC BOND SUB-ACCOUNT SUB-ACCOUNT - ------------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 - ------------------------------------------------------------------------------------------------------------------------------------ $ 51,082 $ -- $ 151,912 $ 39,931 $ 86,088 $ -- $ 27,334 $ -- (4,342) 187 (7,914) 7,882 (17,942) 703 (8,230) 75 86,563 (39,257) (95,871) (13,453) (70,640) 10,709 2,498 3,801 - ------------------------------------------------------------------------------------------------------------------------------------ 133,303 (39,070) 48,127 34,360 (2,494) 11,412 21,602 3,876 - ------------------------------------------------------------------------------------------------------------------------------------ 515,640 744,217 943,552 276,881 1,272,907 273,501 143,923 58,746 -- -- -- -- -- -- -- -- (50,349) (9,912) (111,555) (31,310) (103,790) (11,295) (17,835) (2,335) (2,253) -- (7,304) (6,696) (10,279) (504) (6,107) -- 23,545 90,093 158,145 797,757 1,091,881 380,876 277,425 161,473 - ------------------------------------------------------------------------------------------------------------------------------------ 486,583 824,398 982,838 1,036,632 2,250,719 642,578 397,406 217,884 - ------------------------------------------------------------------------------------------------------------------------------------ 619,886 785,328 1,030,965 1,070,992 2,248,225 653,990 419,008 221,760 785,328 -- 1,070,992 -- 653,990 -- 221,760 -- - ------------------------------------------------------------------------------------------------------------------------------------ $ 1,405,214 $ 785,328 $ 2,101,957 $ 1,070,992 $ 2,902,215 $ 653,990 $ 640,768 $ 221,760 ====================================================================================================================================
F-43 105 Separate Account Three of The Manufacturers Life Insurance Company of America Statements of Changes in Net Assets (continued)
INVESTMENT QUALITY BOND SUB- LIFESTYLE AGGRESSIVE 1000 SUB- LIFESTYLE GROWTH 820 SUB- ACCOUNT ACCOUNT ACCOUNT --------------------------------------------------------------------------------------------- YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 --------------------------------------------------------------------------------------------- FROM OPERATIONS Net investment income $ 20,278 $ -- $ 168,006 $ 4,916 $ 629,682 $ 36,584 Net realized gain (loss) 6,554 136 (9,962) 841 (19,242) 3,060 Net unrealized appreciation (depreciation) of investments during the period 27,852 6,089 (56,069) (11,049) 115,020 (24,740) --------------------------------------------------------------------------------------------- Net increase (decrease) in net assets derived from operations 54,684 6,225 101,975 (5,292) 725,460 14,904 --------------------------------------------------------------------------------------------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 443,446 75,411 1,299,712 421,769 7,009,770 2,011,046 Transfer on death -- -- -- -- -- -- Transfer on terminations (45,715) (3,321) (258,375) (47,502) (827,050) (85,509) Transfer on policy loans (46,096) -- (26,714) (3,766) (176,891) (826) Net interfund transfers 762,855 182,692 316,522 2,063,763 3,867,109 3,319,383 --------------------------------------------------------------------------------------------- 1,114,490 254,782 1,331,145 2,434,264 9,872,938 5,244,094 --------------------------------------------------------------------------------------------- Net increase (decrease) in net assets 1,169,174 261,007 1,433,120 2,428,972 10,598,398 5,258,998 NET ASSETS Beginning of year 261,007 -- 2,428,972 -- 5,258,998 -- --------------------------------------------------------------------------------------------- End of year $ 1,430,181 $ 261,007 $ 3,862,092 $ 2,428,972 $ 15,857,396 $ 5,258,998 =============================================================================================
* Reflects the period from commencement of operations February 14, 1996 through December 31, 1996 ** Reflects the period from commencement of operations May 1, 1997 through December 31, 1997 *** Reflects the period from commencement of operations May 1, 1998 through December 31, 1998 See accompanying notes F-44 106
SMALL COMPANY LIFESTYLE BALANCED 640 LIFESTYLE MODERATE 460 LIFESTYLE CONSERVATIVE 280 VALUE TRUST SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ----------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** YEAR ENDED PERIOD ENDED** PERIOD ENDED*** DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 DEC. 31/97 DEC. 31/98 - ----------------------------------------------------------------------------------------------------------------------------------- $ 189,230 $ 16,038 $ 20,025 $ 842 $ 552 $ 9 $ -- (1,929) 4,837 (8,653) (6) 1,625 1 (3,492) 37,708 43,781 19,892 3 5,695 29 10,664 - ----------------------------------------------------------------------------------------------------------------------------------- 225,009 64,656 31,264 839 7,872 39 7,172 - ----------------------------------------------------------------------------------------------------------------------------------- 2,223,707 568,684 287,313 92,570 35,078 150 183,290 -- -- -- -- -- -- -- (520,437) (122,871) (25,583) (2,513) (3,934) (224) (6,126) (28,495) -- -- -- -- -- -- 1,672,788 1,613,028 282,970 11,484 67,660 1,376 182,269 - ----------------------------------------------------------------------------------------------------------------------------------- 3,347,563 2,058,841 544,700 101,541 98,804 1,302 359,433 - ----------------------------------------------------------------------------------------------------------------------------------- 3,572,572 2,123,497 575,964 102,380 106,676 1,341 366,605 2,123,497 -- 102,380 -- 1,341 -- -- - ----------------------------------------------------------------------------------------------------------------------------------- $ 5,696,069 $ 2,123,497 $ 678,344 $ 102,380 $ 108,017 $ 1,341 $ 366,605 ===================================================================================================================================
TOTAL - ----------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/98 DEC. 31/97 DEC. 31/96 - ----------------------------------------------------- $ 28,132,536 $ 8,330,428 $ 22,590,083 3,760,628 3,497,468 1,480,090 11,133,790 30,266,096 (7,388,363) - ----------------------------------------------------- 43,026,954 42,093,992 16,681,810 - ----------------------------------------------------- 125,895,605 123,892,455 100,180,503 -- (44,313) -- (33,859,519) (27,451,360) (16,030,382) (2,357,855) (3,124,737) (1,411,288) (497,675) 179,113 463,377 - ----------------------------------------------------- 89,180,556 93,451,158 83,202,210 - ----------------------------------------------------- 132,207,510 135,545,150 99,884,020 346,331,293 210,786,143 110,902,123 - ----------------------------------------------------- $ 478,538,803 $ 346,331,293 $ 210,786,143 =====================================================
F-45 107 Separate Account Three of The Manufacturers Life Insurance Company of America Notes to Financial Statements December 31, 1998 1. ORGANIZATION Separate Account Three of The Manufacturers Life Insurance Company of America (the "Separate Account") is a unit investment trust registered under the Investment Company Act of 1940, as amended. The Separate Account is comprised of investment sub-accounts available for allocation of net premiums under single premium variable life and variable universal life insurance policies (the "Policies") issued by The Manufacturers Life Insurance Company of America ("Manufacturers Life of America"). The Separate Account was established by Manufacturers Life of America, a life insurance company organized in 1983 under Michigan law. Manufacturers Life of America is an indirect, wholly-owned subsidiary of The Manufacturers Life Insurance Company ("Manulife Financial"), a Canadian mutual life insurance company. Each investment sub-account invests solely in shares of a particular Manufacturers Investment Trust. Manufacturers Investment Trust is registered under the Investment Company Act of 1940 as an open-end management investment company. The Equity Index Fund, Equity, Value Equity, Growth and Income, U.S. Government Securities, Conservative Asset Allocation, Moderate Asset Allocation, and Aggressive Asset Allocation Trusts were added to the Separate Account on February 14, 1996 as investment options for variable universal life policy holders of Manufacturers Life of America. The International Small Cap and Blue Chip Growth Trusts was added to the Separate Account on January 1, 1997 as investment options for variable universal life policy holders of Manufacturers Life of America. The Science & Technology, Pilgram Baxter Growth, Small/Mid Cap, Worldwide Growth, Global Equity, Growth, Value, International Growth and Income, High Yield, Strategic Bond, Global Government Bond, Investment Quality Bond, Lifestyle Aggressive 1000, Lifestyle Growth 820, Lifestyle Balanced 640, Lifestyle Moderate 460, and Lifestyle Conservative 280 Trusts were added to the Separate Account on May 1, 1997 as investment options for variable universal life policy holders of Manufacturers Life of America. The Small Company Value Trust was added to the Separate Account on May 1, 1998. F-46 108 Separate Account Three of The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) 1. ORGANIZATION (CONTINUED) Manufacturers Life of America is the legal owner of the Separate Account. Manufacturers Life of America is required to maintain assets in the Separate Account with a total market value at least equal to the reserves and other liabilities relating to the variable benefits under all policies participating in the Separate Account. These assets may not be charged with liabilities which arise from any other business Manufacturers Life of America conducts. However, all obligations under the variable policies are general corporate obligations of Manufacturers Life of America. Additional assets are held in Manufacturers Life of America's general account to cover the contingency that the guaranteed minimum death benefit might exceed the death benefit which would have been payable in the absence of such guarantee. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Separate Account in preparation of its financial statements: a. Valuation of Investments - Investments are made among thirty-six Trusts of Manufacturers Investment Trust and are valued at the reported net asset values of these Trusts. Transactions are recorded on the trade date. Net investment income and net realized gains on investments in Manufacturers Investment Trust are reinvested. b. Realized gains and losses on the sale of investments are computed on the first-in, first-out basis. c. Dividend income is recorded on the ex-dividend date. d. Federal Income Taxes - Manufacturers Life of America, the Separate Account's sponsor, is taxed as a "life insurance company" under the Internal Revenue Code. Under these provisions of the Code, the operations of the Separate Account form part of the sponsor's total operations and are not taxed separately. The current year's operations of the Separate Account are not expected to affect the sponsor's tax liabilities and, accordingly, no charges were made against the Separate Account for federal, state and local taxes. However, in the future, should the sponsor incur significant tax liabilities related to the Separate Account's operations, it intends to make a charge or establish a provision within the Separate Account for such taxes. F-47 109 Separate Account Three of The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. PREMIUM DEDUCTIONS Manufacturers Life of America deducts certain charges for state, local, and federal taxes from the gross premium before placing the remaining net premiums in the sub-accounts. 4. PURCHASES AND SALES OF MANUFACTURERS INVESTMENT TRUST SHARES Purchases and sales of the shares of common stock of Manufacturers Investment Trust for the year ended December 31, 1998 were $255,373,727 and $138,107,190, respectively, and for the year ended December 31, 1997 were $152,223,137 and $49,351,462, respectively. 5. RELATED PARTY TRANSACTIONS ManEquity, Inc., a registered broker-dealer and indirect wholly-owned subsidiary of Manulife Financial, acts as the principal underwriter of the Policies pursuant to a Distribution Agreement with Manufacturers Life of America. Registered representatives of either ManEquity, Inc. or other broker-dealers having distribution agreements with ManEquity, Inc. who are also authorized as variable life insurance agents under applicable state insurance laws, sell the Policies. Registered representatives are compensated on a commission basis. Manufacturers Life of America has a formal service agreement with its affiliates, Manulife Financial and The Manufacturers Life Insurance Company (U.S.A.), which can be terminated by either party upon two months notice. Under this Agreement, Manufacturers Life of America pays for legal, actuarial, investment and certain other administrative services. F-48 110 FINANCIAL STATEMENTS THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA SIX MONTHS ENDED JUNE 30, 1999 (WITH DECEMBER 31, 1998 COMPARATIVE) F-49 111 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA CONSOLIDATED BALANCE SHEETS
As at As at June 30 December 31 ASSETS ($ thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------------------- INVESTMENTS: (UNAUDITED) Securities available-for-sale, at fair value: Fixed maturity (amortized cost: 1999 $66,805; 1998 $45,248) $ 67,622 $ 49,254 Equity (cost: 1999 $ - ; 1998 $19,219) - 20,524 Short-term investments 4,628 459 Policy loans 22,897 19,320 - ------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS $ 95,147 $ 89,557 - ------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents 20,650 23,789 Deferred acquisition costs 175,971 163,506 Income taxes recoverable - 2,665 Deferred income taxes 1,009 - Other assets 12,068 9,062 Separate account assets 1,175,391 1,075,231 - ------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 1,480,236 $ 1,363,810 =================================================================================================================== LIABILITIES, CAPITAL AND SURPLUS ($ thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------------------- LIABILITIES: Policyholder liabilities and accruals $ 66,768 $ 60,830 Due to affiliates 9,061 5,133 Deferred income taxes - 763 Other liabilities 20,082 18,656 Separate account liabilities 1,175,391 1,075,231 - ------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES $ 1,271,302 $ 1,160,613 =================================================================================================================== CAPITAL AND SURPLUS: Common shares $ 4,502 $ 4,502 Preferred shares 10,500 10,500 Contributed surplus 195,596 193,096 Retained earnings (deficit) 2,714 (2,664) Accumulated other comprehensive income (loss) (4,378) (2,237) - ------------------------------------------------------------------------------------------------------------------- TOTAL CAPITAL AND SURPLUS $ 208,934 $ 203,197 - ------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES, CAPITAL AND SURPLUS $ 1,480,236 $ 1,363,810 ===================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. F-50 112 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA Consolidated Statements of Income (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ($ thousands) 1999 1998 1999 1998 - ---------------------------------------------------------------------------------------------------------------------- REVENUE: Premiums $ 2,302 $ 2,208 $ 4,452 $ 4,158 Fee income 18,010 13,344 34,095 26,011 Net investment income 1,614 985 3,177 2,619 Realized investment gains (losses) - 74 1,051 (8) Other - 47 106 104 - ---------------------------------------------------------------------------------------------------------------------- TOTAL REVENUE $ 21,926 $ 16,658 $42,881 $32,884 - ---------------------------------------------------------------------------------------------------------------------- BENEFITS AND EXPENSES: Policyholder benefits and claims $ 3,980 $ 2,406 $ 5,485 $ 7,582 Operating costs and expenses 11,540 9,117 21,461 19,473 Commissions 489 743 1,343 1,296 Amortization of deferred acquisition costs 3,144 3,158 5,676 4,486 Interest expense - 976 46 1,884 Policyholder dividends 30 138 110 794 - ---------------------------------------------------------------------------------------------------------------------- TOTAL BENEFITS AND EXPENSES $ 19,183 $ 16,538 $34,121 $35,515 - ---------------------------------------------------------------------------------------------------------------------- INCOME (LOSS) BEFORE INCOME TAXES 2,743 120 8,760 (2,631) - ---------------------------------------------------------------------------------------------------------------------- INCOME TAX BENEFIT (EXPENSE) (982) (22) (3,382) 968 - ---------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ 1,761 $ 98 $ 5,378 $(1,663) - ----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. F-51 113 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL AND SURPLUS (UNAUDITED)
ACCUMULATED RETAINED OTHER TOTAL CAPITAL CONTRIBUTED EARNINGS COMPREHENSIVE SHAREHOLDER'S ($ thousands) STOCK SURPLUS (DEFICIT) LOSS EQUITY ------------------------------------------------------------------------------------------------------------------- Balance at January 1, 1999 $15,002 $193,096 $(2,664) $(2,237) $ 203,197 Capital contribution (note 4) - 2,500 - - 2,500 Comprehensive income (note 3) - - 5,378 (2,141) 3,237 ------------------------------------------------------------------------------------------------------------------- BALANCE, JUNE 30, 1999 $15,002 $195,596 $ 2,714 $(4,378) $ 208,934 -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. F-52 114 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30 ($ thousands) 1999 1998 - ------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income (loss) $ 5,378 $ (1,663) Adjustments to reconcile net income to net cash used in operating activities: Additions to policy liabilities 1,492 304 Deferred acquisition costs (17,401) (24,055) Amortization of deferred acquisition costs 5,676 4,486 Realized (gain) loss on investments (1,051) 8 Increases (decreases) to deferred income taxes (449) 1,110 Other 7,863 2,720 - ------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities $ 1,508 $ (17,090) - ------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Fixed maturity securities sold $ 1,086 $ 23,438 Fixed maturity securities purchased (22,703) (5,538) Equity securities sold 20,284 4,922 Equity securities purchased (14) (5,177) Net change in short-term investments (4,169) (8,145) Net policy loans advanced (3,577) (2,305) - ------------------------------------------------------------------------------------------------------------------- Cash provided by (used in) investing activities $ (9,093) $ 7,195 - ------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Receipts from variable life and annuity policies credited to policyholder account balances $ 5,934 $ 4,080 Withdrawals of policyholder account balances on variable life and annuity policies (1,488) (2,236) - ------------------------------------------------------------------------------------------------------------------- Cash provided by financing activities $ 4,446 $ 1,844 - ------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS: Increase (decrease) during the period $ (3,139) $ (8,051) Balance, beginning of year 23,789 19,882 - ------------------------------------------------------------------------------------------------------------------- BALANCE, END OF PERIOD $ 20,650 $ 11,831 - -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. F-53 115 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1999 (UNAUDITED) (IN THOUSANDS OF DOLLARS) 1. ORGANIZATION The Manufacturers Life Insurance Company of America (hereafter referred to as "ManAmerica" or the "Company") is a direct wholly-owned U.S. subsidiary of The Manufacturers Life Insurance Company (U.S.A.) ("ManUSA"), which in turn is a direct wholly-owned subsidiary of The Manulife Reinsurance Corporation (U.S.A.) ("MRC"). MRC is an indirectly wholly-owned subsidiary of The Manufacturers Life Insurance Company ("Manulife Financial"), a Canadian mutual insurance company. 2. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of ManAmerica and its wholly-owned subsidiaries have been prepared in accordance with generally accepted accounting principles ("GAAP"), except that they do not contain complete notes. However, in the opinion of management, these statements include all normal recurring adjustments necessary for a fair presentation of the results. These financial statements should be read in conjunction with the financial statements and the related notes included in ManAmerica's annual report on Form 10-K for the year ended December 31, 1998. Operating results for the six months ended June 30, 1999 are not necessarily indicative of the results that may be expected for the full year ending December 31, 1999. 3. COMPREHENSIVE INCOME Total comprehensive income for the three months and six months ended June 30, 1999 and 1998 was as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 COMPREHENSIVE INCOME: 1999 1998 1999 1998 -------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ 1,761 $ 98 $ 5,378 $ (1,663) OTHER COMPREHENSIVE INCOME, NET OF TAX: Unrealized holding gains (losses) on available-for-sale securities (854) (179) (2,457) 990 Foreign currency translation 294 (742) 316 (789) -------------------------------------------------------------------------------------------------- Other comprehensive income (loss) $ (560) $ (921) $ (2,141) $ 201 -------------------------------------------------------------------------------------------------- COMPREHENSIVE INCOME (LOSS) $ 1,201 $ (823) $ 3,237 $ (1,462) --------------------------------------------------------------------------------------------------
Other comprehensive income is reported net of taxes payable (recoverable) of $(460) and $(96) for the three months, and $(1,323) and $533 for the six months ended June 30, 1999 and 1998, respectively. F-54 116 Accumulated other comprehensive income is comprised of the following:
AS AT JUNE 30 AS AT DECEMBER 31 ($ thousands) 1999 1998 ----------------------------------------- ---------------- ------------------- UNREALIZED GAINS (LOSSES): Beginning balance $ 2,949 $ 380 Current period change (2,457) 2,569 ----------------------------------------- ---------------- ------------------- Ending balance $ 492 $ 2,949 ----------------------------------------- ---------------- ------------------- FOREIGN CURRENCY: Beginning balance $ (5,186) $ (5,272) Current period change 316 86 ----------------------------------------- ---------------- ------------------- Ending balance $ (4,870) $ (5,186) ----------------------------------------- ---------------- ------------------- ACCUMULATED OTHER COMPREHENSIVE LOSS $ (4,378) $ (2,237) ----------------------------------------- ---------------- -------------------
4. CAPITAL CONTRIBUTION On January 29, 1999, ManUSA contributed an amount receivable from a subsidiary to the Company in the amount of $1,722 in exchange for one common share. On April 15, 1999, ManUSA contributed an additional amount receivable of $778 from a subsidiary to the Company. 5. DISPOSAL OF EQUITY SECURITIES In January 1999, the Company disposed of shares of the Manufacturers Investment Trust for proceeds of $18.8 million and realized a gain of $1,051 on the sale. 6. SEGMENT DISCLOSURES The Company reports two business segments: Traditional Life Insurance sold in Taiwan and Variable Life Insurance sold in the U.S. The Company's reportable segments have been determined based on geography, differences in product features, and distribution; the segments are also consistent with the Company's management structure. F-55 117 6. SEGMENT DISCLOSURES (CONTINUED) Segmented information for the Company is as follows:
AS AT AND FOR THE SIX MONTHS ENDED JUNE 30 ($ thousands) TAIWAN U.S. TOTAL -------------------------------------------------- ---------------- ------------ ---------- 1999 Premiums and fee income $ 4,452 $ 34,095 $ 38,547 Interest expense - 46 46 Income tax benefit (expense) 697 (4,079) (3,382) Net income (loss) (1,294) 6,672 5,378 Total assets excluding separate account assets $ 30,510 $274,335 $ 304,845 -------------------------------------------------- ---------------- ------------ ---------- 1998 Premiums and fee income $ 4,158 $ 26,011 $ 30,169 Interest expense - 1,884 1,884 Income tax benefit 551 417 968 Net loss (1,024) (639) (1,663) Total assets excluding separate account assets $ 27,344 $261,235 $ 288,579 -------------------------------------------------- ---------------- ------------ ----------
FOR THE THREE MONTHS ENDED JUNE 30 ($ thousands) TAIWAN U.S. TOTAL -------------------------------------------------- ---------------- ------------ ---------- 1999 Premiums and fee income $ 2,302 $ 18,010 $ 20,312 Interest expense - - - Income tax benefit (expense) 246 (1,228) (982) Net income (loss) (457) 2,218 1,761 -------------------------------------------------- ---------------- ------------ ---------- 1998 Premiums and fee income $ 2,208 $ 13,490 $ 15,698 Interest expense - 976 976 Income tax benefit (expense) 271 (293) (22) Net income (loss) (224) 332 98 -------------------------------------------------- ---------------- ------------ ----------
7. COMPARATIVE FIGURES Certain amounts in the 1998 financial statements have been reclassified to conform to the 1999 financial statement presentation. F-56 118 FINANCIAL STATEMENTS SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA SIX MONTHS ENDED JUNE 30, 1999 (WITH DECEMBER 31, 1998 COMPARATIVE) F-57 119 SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENT OF ASSETS AND LIABILITIES JUNE 30, 1999 (UNAUDITED)
ASSETS NET ASSET UNITS NAV PER INVESTMENT IN MANUFACTURERS INVESTMENT TRUST SHARES VALUE OUTSTANDING UNIT AT MARKET VALUE: Emerging Small Company Trust, 2,642,695 shares (cost $59,364,648 ) $65,855,969 1,438,146 45.79 Quantitative Equity Trust, 2,256,865 shares (cost $45,055,936 ) 57,708,032 1,196,869 48.22 Real Estate Securities Trust, 1,558,925 shares (cost $25,013,157 ) 22,354,987 663,260 33.70 Balanced Trust, 2,754,218 shares (cost $47,490,762 ) 50,429,727 1,664,153 30.30 Money Market Trust, 3,294,497 shares (cost $32,944,973 ) 32,944,973 1,761,488 18.70 International Stock Trust, 1,658,487 shares (cost $20,524,605 ) 21,958,364 1,540,807 14.25 Pacific Rim Emerging Markets Trust, 852,791 shares (cost $5,790,318 ) 7,231,667 792,271 9.13 Equity Index Trust, 3,447,098 shares (cost $49,019,613 ) 59,427,963 2,685,850 22.13 International Small Cap Trust, 191,490 shares (cost $3,000,385 ) 3,155,758 206,161 15.31 Mid-Cap Blend Trust, 1,503,718 shares (cost $29,807,089 ) 30,269,844 1,738,117 17.42 Value Equity Trust, 1,211,500 shares (cost $19,597,144 ) 22,449,094 1,241,376 18.08 Growth and Income Trust, 1,312,537 shares (cost $31,927,846 ) 40,675,524 1,827,473 22.26 U.S. Government Securities Trust, 306,698 shares (cost $4,122,053 ) 4,033,084 340,853 11.83 Diversified Bond Trust, 136,966 shares (cost $1,541,802 ) 1,472,389 113,386 12.99 Income and Value Trust, 344,917 shares (cost $4,377,101 ) 4,366,648 287,062 15.21 Large Cap Growth, 262,544 shares (cost $3,705,023 ) 3,851,513 232,955 16.53 Blue Chip Growth Trust, 993,356 shares (cost $17,292,162 ) 19,708,187 872,911 22.58 Science and Technology Trust, 448,958 shares (cost $9,984,593 ) 11,403,544 434,210 26.26 Aggressive Growth Trust, 129,755 shares (cost $1,574,347 ) 1,684,220 111,592 15.09 Mid Cap Trust, 440,853 shares (cost $7,899,798 ) 8,296,861 387,270 21.42 Global Equity Trust, 395,715 shares (cost $7,341,561 ) 7,439,447 438,111 16.98 Growth Trust, 496,583 shares (cost $10,015,710 ) 11,168,158 524,273 21.30 Value Trust, 332,302 shares (cost $4,945,179 ) 5,230,440 328,828 15.91 Overseas Trust, 189,025 shares (cost $2,244,078 ) 2,264,522 158,728 14.27 High Yield Trust, 192,627 shares (cost $2,571,677 ) 2,590,835 174,811 14.82 Strategic Bond Trust, 271,345 shares (cost $3,193,120 ) 2,963,088 214,275 13.83 Global Bond Trust, 45,358 shares (cost $594,333 ) 517,083 39,647 13.04 Investment Quality Bond Trust, 2,007,056 shares (cost $23,681,394 ) 23,221,644 1,604,773 14.47 Lifestyle Aggressive 1000 Trust, 269,087 shares (cost $3,612,009 ) 3,535,804 229,218 15.43 Lifestyle Growth 820 Trust, 1,255,999 shares (cost $17,095,766 ) 17,445,830 1,092,051 15.98 Lifestyle Balanced 640 Trust, 502,138 shares (cost $6,655,542 ) 6,688,478 431,527 15.50 Lifestyle Moderate 460 Trust, 86,140 shares (cost $1,168,125 ) 1,185,291 74,686 15.87 Lifestyle Conservative 280 Trust, 9,000 shares (cost $120,922 ) 117,629 7,629 15.42 Small Company Value Trust, 77,402 shares (cost $837,230 ) 896,314 103,104 8.69 U.S. Large Cap Value Trust, 19,753 shares (cost $243,583 ) 251,066 19,753 12.71 Mid Cap Stock Trust, 9,467 shares (cost $121,035 ) 124,772 9,467 13.18 Small Company Blend Trust, 6,165 shares (cost $77,614 ) 84,026 6,165 13.63 International Value Trust, 4,541 shares (cost $56,089 ) 56,307 4,541 12.40 Total Return Trust, 13,608 shares (cost $167,388 ) 168,327 13,608 12.37 ------------ NET ASSETS $555,227,409 ============
F-58 120 SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENT OF OPERATIONS FOR THE PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
EMERGING QUANTITATIVE REAL ESTATE SMALL COMPANY EQUITY SECURITIES SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------- ----------------- ----------------- Net Investment Income: Dividend Income $ 931,296 $ 5,044,334 $1,081,197 Realized and unrealized gain (loss) on investments: Realized gain (loss) from security transactions: Proceeds from sales 7,014,531 3,223,628 1,862,095 Cost of securities sold 6,006,058 1,763,023 1,674,981 ---------- ----------- ---------- Net realized gain (loss) 1,008,473 1,460,605 187,114 ---------- ----------- ---------- Unrealized appreciation (depreciation) of investments: Beginning of Year 4,651,935 13,385,867 (1,897,849) End of Period 6,491,321 12,652,096 (2,658,170) ---------- ----------- ---------- Net unrealized appreciation (depreciation) during the period 1,839,386 (733,771) (760,321) ---------- ----------- ---------- Net realized and unrealized gain (loss) on investments 2,847,859 726,834 (573,207) ---------- ----------- ---------- Net increase (decrease) in net assets derived from operations $3,779,155 $ 5,771,168 $ 507,990 ========== =========== ==========
+ Reflects the period from commencement of operation May 1, 1999 through June 30, 1999. See accompanying notes. F-59 121
CAPITAL MONEY INTERNATIONAL PACIFIC RIM EQUITY BALANCED GROWTH BOND MARKET STOCK EMERGING MARKETS INDEX SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ------------------- ----------------- ----------------- ----------------- ---------------------- ----------------- $3,363,625 $ 1,504,363 $ 750,562 $ 5,783 $ 62,317 $ 231,456 2,589,600 21,751,844 38,776,777 4,497,336 2,623,313 5,033,945 2,035,569 22,155,955 38,776,777 3,864,630 2,292,130 3,435,102 ---------- ----------- ----------- ---------- ---------- ----------- 554,031 (404,111) 0 632,706 331,183 1,598,843 ---------- ----------- ----------- ---------- ---------- ----------- 6,332,445 1,309,718 0 1,643,285 421,880 6,270,171 2,938,965 0 0 1,433,759 1,441,349 10,408,350 ---------- ----------- ----------- ---------- ---------- ----------- (3,393,480) (1,309,718) 0 (209,526) 1,019,469 4,138,179 ---------- ----------- ----------- ---------- ---------- ----------- (2,839,449) (1,713,829) 0 423,180 1,350,652 5,737,022 ---------- ----------- ----------- ---------- ---------- ----------- $ 524,176 ($ 209,466) $ 750,562 $ 428,963 $1,412,969 $ 5,968,478 ========== =========== =========== ========== ========== ===========
F-60 122 SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENT OF OPERATIONS (CONTINUED) FOR THE PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
INTERNATIONAL MID-CAP VALUE GROWTH SMALL CAP BLEND EQUITY AND INCOME SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------- ----------------- ----------------- ----------------- Net Investment Income: Dividend Income $ 9,451 $3,059,165 $1,458,179 $1,278,189 Realized and unrealized gain (loss) on investments: Realized gain (loss) from security transactions: Proceeds from sales 2,623,578 1,817,643 1,262,929 2,365,429 Cost of securities sold 2,377,625 1,977,119 1,004,711 1,569,269 ---------- ---------- ---------- ---------- Net realized gain (loss) 245,953 (159,476) 258,218 796,160 ---------- ---------- ---------- ---------- Unrealized appreciation (depreciation) of investments: Beginning of Year 201,045 (1,030,422) 2,133,232 6,362,451 End of Period 155,373 462,755 2,851,950 8,747,678 ---------- ---------- ---------- ---------- Net unrealized appreciation (depreciation) during the period (45,672) 1,493,177 718,718 2,385,227 ---------- ---------- ---------- ---------- Net realized and unrealized gain (loss) on investments 200,281 1,333,701 976,936 3,181,387 ---------- ---------- ---------- ---------- Net increase (decrease) in net assets derived from operations $ 209,732 $4,392,866 $2,435,115 $4,459,576 ========== ========== ========== ==========
+ Reflects the period from commencement of operation May 1, 1999 through June 30, 1999. See accompanying notes. F-61 123
U.S. GOVERNMENT DIVERSIFIED INCOME LARGE CAP BLUE CHIP SECURITIES BOND AND VALUE GROWTH GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ----------------- ----------------- ----------------- ----------------- ----------------- $143,586 $ 96,499 $408,866 $371,353 $ 704,256 482,702 142,682 192,733 474,535 256,099 466,950 140,752 172,545 410,865 170,108 -------- -------- -------- -------- ---------- 15,752 1,930 20,188 63,670 85,991 -------- -------- -------- -------- ---------- 106,893 24,976 183,104 343,898 1,759,946 (88,969) (69,413) (10,453) 146,490 2,416,025 -------- -------- -------- -------- ---------- (195,862) (94,389) (193,557) (197,408) 656,079 -------- -------- -------- -------- ---------- (180,110) (92,459) (173,369) (133,738) 742,070 -------- -------- -------- -------- ---------- ($ 36,524) $ 4,040 $235,497 $237,615 $1,446,326 ======== ======== ======== ======== ==========
F-62 124 SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENT OF OPERATIONS (CONTINUED) FOR THE PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
SCIENCE AND AGGRESSIVE WORLDWIDE TECHNOLOGY GROWTH MID CAP GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------- ----------------- ----------------- ----------------- Net Investment Income: Dividend Income $ 10,181 $ 0 $ 893,908 $ 11,362 Realized and unrealized gain (loss) on investments: Realized gain (loss) from security transactions: Proceeds from sales 5,047,247 677,065 1,220,851 1,873,661 Cost of securities sold 3,222,831 732,308 995,700 1,804,984 ---------- -------- ---------- ---------- Net realized gain (loss) 1,824,416 (55,243) 225,151 68,677 ---------- -------- ---------- ---------- Unrealized appreciation (depreciation) of investments: Beginning of Year 1,460,009 75,390 830,276 14,109 End of Period 1,418,951 109,873 397,063 0 ---------- -------- ---------- ---------- Net unrealized appreciation (depreciation) during the period (41,058) 34,483 (433,213) (14,109) ---------- -------- ---------- ---------- Net realized and unrealized gain (loss) on investments 1,783,358 (20,760) (208,062) 54,568 ---------- -------- ---------- ---------- Net increase (decrease) in net assets derived from operations $1,793,539 ($ 20,760) $ 685,846 $ 65,930 ========== ======== ========== ==========
+ Reflects the period from commencement of operation May 1, 1999 through June 30, 1999. See accompanying notes. F-63 125
GLOBAL EQUITY GROWTH VALUE OVERSEAS HIGH YIELD SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ----------------- ----------------- ----------------- ----------------- ----------------- $ 493,157 $ 447,543 $ 18 $ 0 $ 0 10,287,519 870,999 548,163 5,911,702 530,729 10,409,357 765,604 559,447 5,767,764 566,187 ----------- ---------- -------- ---------- -------- (121,838) 105,395 (11,284) 143,938 (35,458) ----------- ---------- -------- ---------- -------- 246,571 482,024 (250,247) 47,306 (109,324) 97,886 1,152,448 285,261 20,444 19,158 ----------- ---------- -------- ---------- -------- (148,685) 670,424 535,508 (26,862) 128,482 ----------- ---------- -------- ---------- -------- (270,523) 775,819 524,224 117,076 93,024 ----------- ---------- -------- ---------- -------- $ 222,634 $1,223,362 $524,242 $ 117,076 $ 93,024 =========== ========== ======== ========== ========
F-64 126 SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENT OF OPERATIONS FOR THE PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
LIFESTYLE STRATEGIC GLOBAL INVESTMENT AGGRESSIVE BOND BOND QUALITY BOND 1000 SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------- ----------------- ----------------- ----------------- Net Investment Income: Dividend Income $204,203 $ 43,890 $115,157 $ 145,631 Realized and unrealized gain (loss) on investments: Realized gain (loss) from security transactions: Proceeds from sales 323,235 470,149 747,776 1,116,062 Cost of securities sold 353,028 475,994 762,547 1,179,370 -------- -------- -------- ---------- Net realized gain (loss) (29,793) (5,845) (14,771) (63,308) -------- -------- -------- ---------- Unrealized appreciation (depreciation) of investments: Beginning of Year (59,931) 6,299 33,941 (67,117) End of Period (230,032) (77,250) (459,750) (76,205) -------- -------- -------- ---------- Net unrealized appreciation (depreciation) during the period (170,101) (83,549) (493,691) (9,088) -------- -------- -------- ---------- Net realized and unrealized gain (loss) on investments (199,894) (89,394) (508,462) (72,396) -------- -------- -------- ---------- Net increase (decrease) in net assets derived from operations $ 4,309 ($ 45,504) ($393,305) $ 73,235 ======== ======== ======== ==========
+ Reflects the period from commencement of operation May 1, 1999 through June 30, 1999. See accompanying notes. F-65 127
LIFESTYLE LIFESTYLE LIFESTYLE LIFESTYLE GROWTH BALANCED MODERATE CONSERVATIVE SMALL COMPANY 820 640 460 280 VALUE SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ----------------- ----------------- ----------------- ----------------- ----------------- $ 778,105 $304,677 $41,437 $ 9,799 $ 305 2,616,795 529,555 84,912 128,582 86,622 2,697,152 539,855 85,754 126,192 93,509 ---------- -------- ------- -------- ------- (80,357) (10,300) (842) 2,390 (6,887) ---------- -------- ------- -------- ------- 90,282 81,488 19,896 5,724 10,664 350,064 32,936 17,166 (3,293) 59,084 ---------- -------- ------- -------- ------- 259,782 (48,552) (2,730) (9,017) 48,420 ---------- -------- ------- -------- ------- 179,425 (58,852) (3,572) (6,627) 41,533 ---------- -------- ------- -------- ------- $ 957,530 $245,825 $37,865 $ 3,172 $41,838 ========== ======== ======= ======== =======
F-66 128 SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENT OF OPERATIONS FOR THE PERIOD ENDED JUNE 30, 1999 (UNAUDITED)
U.S. SMALL LARGE CAP MID CAP COMPANY INTERNATIONAL VALUE + STOCK + BLEND + VALUE + SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ----------------- ----------------- ----------------- ----------------- Net Investment Income: Dividend Income $ 0 $ 0 $ 0 $ 0 Realized and unrealized gain (loss) on investments: Realized gain (loss) from security transactions: Proceeds from sales 24,068 24,938 3,572 50 Cost of securities sold 24,197 24,557 3,501 52 ------- ------- ------ ---- Net realized gain (loss) (129) 381 71 (2) ------- ------- ------ ---- Unrealized appreciation (depreciation) of investments: Beginning of Year 0 0 0 0 End of Period 7,483 3,737 6,412 218 ------- ------- ------ ---- Net unrealized appreciation (depreciation) during the period 7,483 3,737 6,412 218 ------- ------- ------ ---- Net realized and unrealized gain (loss) on investments 7,354 4,118 6,483 216 ------- ------- ------ ---- Net increase (decrease) in net assets derived from operations $ 7,354 $ 4,118 $6,483 $216 ======= ======= ====== ====
TOTAL RETURN + SUB-ACCOUNT TOTAL ----------------- --------------- Net Investment Income: Dividend Income $ 0 $ 24,003,850 Realized and unrealized gain (loss) on investments: Realized gain (loss) from security transactions: Proceeds from sales 9,221 $130,124,872 Cost of securities sold 9,386 $121,493,445 ------ ------------ Net realized gain (loss) (165) 8,631,427 ------ ------------ Unrealized appreciation (depreciation) of investments Beginning of Year 0 45,119,935 End of Period 939 50,451,699 ------ ------------ Net unrealized appreciation (depreciation) during the period 939 5,331,764 ------ ------------ Net realized and unrealized gain (loss) on investments 774 13,963,191 ------ ------------ Net increase (decrease) in net assets derived from operations $ 774 $ 37,967,041 ====== ============
+ Reflects the period from commencement of operation May 1, 1999 through June 30, 1999. See accompanying notes. F-67 129 SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
EMERGING SMALL COMPANY QUANTITATIVE EQUITY REAL ESTATE SECURITIES SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------------ ------------------------------ ----------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 --------------- -------------- --------------- -------------- --------------- ------------- FROM OPERATIONS Net investment income $ 931,296 $ 995,471 $ 5,044,334 $ 5,169,494 $ 1,081,197 $ 3,092,425 Net realized gain (loss) 1,008,473 1,245,244 1,460,605 1,617,119 187,114 381,699 Net unrealized appreciation (depreciation) of investments during the period 1,839,386 (2,091,940) (733,771) 3,915,612 (760,321) (7,717,257) ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets derived from operations 3,779,155 148,775 5,771,168 10,702,225 507,990 (4,243,133) ----------- ----------- ----------- ----------- ----------- ----------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 5,347,868 12,733,443 3,563,916 7,242,095 1,771,957 5,859,264 Transfer of terminations (5,268,277) (6,445,689) (2,684,387) (3,997,775) (1,193,679) (2,117,340) Transfer of policy loans (195,967) (218,046) (157,801) (273,706) (86,952) (77,402) Net interfund transfers (4,563,365) (5,805,034) (978,591) (1,628,360) (1,340,832) (2,327,888) ----------- ----------- ----------- ----------- ----------- ----------- (4,679,741) 264,674 (256,863) 1,342,254 (849,506) 1,336,634 ----------- ----------- ----------- ----------- ----------- ----------- Net increase (decrease) in net assets (900,586) 413,449 5,514,305 12,044,479 (341,516) (2,906,499) NET ASSETS Beginning of Year 66,756,555 66,343,106 52,193,727 40,149,248 22,696,503 25,603,002 ----------- ----------- ----------- ----------- ----------- ----------- End of Period $65,855,969 $66,756,555 $57,708,032 $52,193,727 $22,354,987 $22,696,503 =========== =========== =========== =========== =========== ===========
* Reflects the period from commencement of operations May 1, 1998 through December 31, 1998 + Reflects the period from commencement of operations May 1, 1999 through June 30, 1999 See accompanying notes. F-68 130
BALANCED CAPITAL GROWTH BOND MONEY MARKET SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ------------------------------ ------------------------------ ----------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 - --------------- -------------- --------------- -------------- --------------- ------------- $ 3,363,625 $ 5,710,136 $ 1,504,363 $ 1,051,960 $ 750,562 $ 1,481,440 554,031 686,522 (404,111) 351,921 0 0 (3,393,480) (293,599) (1,309,718) 110,113 0 0 ----------- ----------- ----------- ----------- ----------- ----------- 524,176 6,103,059 (209,466) 1,513,994 750,562 1,481,440 ----------- ----------- ----------- ----------- ----------- ----------- 3,626,148 7,177,808 1,251,376 3,364,775 13,559,352 22,297,227 (2,742,241) (4,188,769) (778,521) (1,655,470) (1,682,232) (3,358,411) (100,412) (150,786) (22,046) (32,638) (247,553) (384,658) (1,107,880) (534,390) (21,486,621) (584,488) (11,143,219) (17,755,116) ----------- ----------- ----------- ----------- ----------- ----------- (324,385) 2,303,863 (21,035,812) 1,092,179 486,348 799,042 ----------- ----------- ----------- ----------- ----------- ----------- 199,791 8,406,922 (21,245,278) 2,606,173 1,236,910 2,280,482 50,229,936 41,823,014 21,245,278 18,639,105 31,708,063 29,427,581 ----------- ----------- ----------- ----------- ----------- ----------- $50,429,727 $50,229,936 $ 0 $21,245,278 $32,944,973 $31,708,063 =========== =========== =========== =========== =========== ===========
F-69 131 SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENT OF CHANGES IN NET ASSETS (CONTINUED) (UNAUDITED)
INTERNATIONAL PACIFIC RIM STOCK EMERGING MARKETS EQUITY INDEX SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------------ ------------------------------ ----------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 --------------- -------------- --------------- -------------- --------------- ------------- FROM OPERATIONS Net investment income $ 5,783 $ 313,529 $ 62,317 $ 0 $ 231,456 $ 1,392,501 Net realized gain (loss) 632,706 674,744 331,183 (2,620,543) 1,598,843 603,079 Net unrealized appreciation (depreciation) of investments during the period (209,526) 1,511,476 1,019,469 2,542,198 4,138,179 5,782,122 ----------- ----------- ---------- ---------- ----------- ----------- Net increase (decrease) in net assets derived from operations 428,963 2,499,749 1,412,969 (78,345) 5,968,478 7,777,702 ----------- ----------- ---------- ---------- ----------- ----------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 2,003,941 4,538,425 708,521 1,563,148 8,003,052 12,850,700 Transfer of terminations (743,908) (1,187,826) (200,534) (436,588) (2,271,577) (2,024,088) Transfer of policy loans (90,323) (59,954) (20,755) (15,173) (111,201) (475,140) Net interfund transfers (217,951) (574,437) (288,848) 229,348 4,032,497 6,006,985 ----------- ----------- ---------- ---------- ----------- ----------- 951,759 2,716,208 198,384 1,340,735 9,652,771 16,358,457 ----------- ----------- ---------- ---------- ----------- ----------- Net increase (decrease) in net assets 1,380,722 5,215,957 1,611,353 1,262,390 15,621,249 24,136,159 NET ASSETS Beginning of Year 20,577,642 15,361,685 5,620,314 4,357,924 43,806,714 19,670,555 ----------- ----------- ---------- ---------- ----------- ----------- End of Period $21,958,364 $20,577,642 $7,231,667 $5,620,314 $59,427,963 $43,806,714 =========== =========== ========== ========== =========== ===========
* Reflects the period from commencement of operations May 1, 1998 through December 31, 1998 + Reflects the period from commencement of operations May 1, 1999 through June 30, 1999 See accompanying notes. F-70 132
INTERNATIONAL SMALL CAP MID-CAP BLEND VALUE EQUITY SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ------------------------------ ------------------------------ ----------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 - --------------- -------------- --------------- -------------- --------------- ------------- $ 9,451 $ 5,687 $ 3,059,165 $ 3,871,537 $ 1,458,179 $ 976,745 245,953 (30,291) (159,476) (152,838) 258,218 287,480 (45,672) 240,125 1,493,177 (1,767,849) 718,718 218,367 ---------- ---------- ----------- ----------- ----------- ----------- 209,732 215,521 4,392,866 1,950,850 2,435,115 1,482,592 ---------- ---------- ----------- ----------- ----------- ----------- 388,279 923,655 2,918,003 5,682,311 1,734,858 3,243,426 (77,370) (94,819) (858,623) (1,536,387) (638,452) (1,437,923) (8,666) (11,877) (149,465) (34,034) (119,023) (98,668) (49,652) 258,711 (526,223) 19,738 460,766 563,898 ---------- ---------- ----------- ----------- ----------- ----------- 252,591 1,075,670 1,383,692 4,131,628 1,438,149 2,270,733 ---------- ---------- ----------- ----------- ----------- ----------- 462,323 1,291,191 5,776,558 6,082,478 3,873,264 3,753,325 2,693,435 1,402,244 24,493,286 18,410,808 18,575,830 14,822,505 ---------- ---------- ----------- ----------- ----------- ----------- $3,155,758 $2,693,435 $30,269,844 $24,493,286 $22,449,094 $18,575,830 ========== ========== =========== =========== =========== ===========
F-71 133 SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENT OF CHANGES IN NET ASSETS (CONTINUED) (UNAUDITED)
GROWTH U.S. GOVERNMENT AND INCOME SECURITIES DIVERSIFIED BOND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------------ ------------------------------ ----------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 --------------- -------------- --------------- -------------- --------------- ------------- FROM OPERATIONS Net investment income $ 1,278,189 $ 1,500,080 $ 143,586 $ 109,401 $ 96,499 $ 72,830 Net realized gain (loss) 796,160 800,716 15,752 31,818 1,930 4,682 Net unrealized appreciation (depreciation) of investments during the period 2,385,227 3,851,331 (195,862) 39,816 (94,389) 7,436 ----------- ----------- ---------- ---------- ---------- -------- Net increase (decrease) in net assets derived from operations 4,459,576 6,152,127 (36,524) 181,035 4,040 84,948 ----------- ----------- ---------- ---------- ---------- -------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 3,240,275 6,862,398 487,494 664,545 469,430 176,976 Transfer of terminations (1,250,657) (1,576,405) (190,314) (154,411) (25,449) (52,005) Transfer of policy loans (193,794) (46,701) (118) (32,573) 0 0 Net interfund transfers 1,292,409 2,330,998 467,523 423,298 74,266 46,253 ----------- ----------- ---------- ---------- ---------- -------- 3,088,233 7,570,290 764,585 900,859 518,247 171,224 ----------- ----------- ---------- ---------- ---------- -------- Net increase (decrease) in net assets 7,547,809 13,722,417 728,061 1,081,894 522,287 256,172 NET ASSETS Beginning of Year 33,127,715 19,405,298 3,305,023 2,223,129 950,102 693,930 ----------- ----------- ---------- ---------- ---------- -------- End of Period $40,675,524 $33,127,715 $4,033,084 $3,305,023 $1,472,389 $950,102 =========== =========== ========== ========== ========== ========
* Reflects the period from commencement of operations May 1, 1998 through December 31, 1998 + Reflects the period from commencement of operations May 1, 1999 through June 30, 1999 See accompanying notes. F-72 134
INCOME AND VALUE LARGE CAP GROWTH BLUE CHIP GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ------------------------------ ------------------------------ ----------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 - --------------- -------------- --------------- -------------- --------------- ------------- $ 408,866 $ 247,923 $ 371,353 $ 312,103 $ 704,256 $ 98,459 20,188 10,961 63,670 29,565 85,991 137,311 (193,557) 81,935 (197,408) 179,177 656,079 1,520,566 ---------- ---------- ---------- ---------- ----------- ----------- 235,497 340,819 237,615 520,845 1,446,326 1,756,336 ---------- ---------- ---------- ---------- ----------- ----------- 997,372 895,345 485,229 953,535 2,477,226 3,950,204 (168,698) (208,435) (146,715) (257,332) (464,434) (422,824) 404 (7,332) (8,543) (9,000) (24,494) (27,578) 176,587 230,395 (341,792) 193,464 5,555,619 1,683,424 ---------- ---------- ---------- ---------- ----------- ----------- 1,005,665 909,973 (11,821) 880,667 7,543,917 5,183,226 ---------- ---------- ---------- ---------- ----------- ----------- 1,241,162 1,250,792 225,794 1,401,512 8,990,243 6,939,562 3,125,486 1,874,694 3,625,719 2,224,207 10,717,944 3,778,382 ---------- ---------- ---------- ---------- ----------- ----------- $4,366,648 $3,125,486 $3,851,513 $3,625,719 $19,708,187 $10,717,944 ========== ========== ========== ========== =========== ===========
F-73 135 SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENT OF CHANGES IN NET ASSETS (CONTINUED) (UNAUDITED)
SCIENCE AND TECHNOLOGY AGGRESSIVE GROWTH MID CAP SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------------ ------------------------------ ----------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 --------------- -------------- --------------- -------------- --------------- ------------- FROM OPERATIONS Net investment income $ 10,181 $ 0 $ 0 $ 0 $ 893,908 $ 0 Net realized gain (loss) 1,824,416 (371,868) (55,243) (17,790) 225,151 39,039 Net unrealized appreciation (depreciation) of investments during the period (41,058) 1,522,473 34,483 93,900 (433,213) 834,458 ----------- ---------- ---------- ---------- ---------- ---------- Net increase (decrease) in net assets derived from operations 1,793,539 1,150,605 (20,760) 76,110 685,846 873,497 ----------- ---------- ---------- ---------- ---------- ---------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 1,402,337 1,150,664 406,146 515,555 754,229 1,769,196 Transfer of terminations (244,130) (90,696) (49,178) (58,953) (186,195) (173,727) Transfer of policy loans (8,750) (13,553) 63 (11,158) (3,103) (9,934) Net interfund transfers 3,524,237 1,674,262 (255,860) 520,806 1,182,577 1,932,598 ----------- ---------- ---------- ---------- ---------- ---------- 4,673,694 2,720,677 101,171 966,250 1,747,508 3,518,133 ----------- ---------- ---------- ---------- ---------- ---------- Net increase (decrease) in net assets 6,467,233 3,871,282 80,411 1,042,360 2,433,354 4,391,630 NET ASSETS Beginning of Year 4,936,311 1,065,029 1,603,809 561,449 5,863,507 1,471,877 ----------- ---------- ---------- ---------- ---------- ---------- End of Period $11,403,544 $4,936,311 $1,684,220 $1,603,809 $8,296,861 $5,863,507 =========== ========== ========== ========== ========== ==========
* Reflects the period from commencement of operations May 1, 1998 through December 31, 1998 + Reflects the period from commencement of operations May 1, 1999 through June 30, 1999 See accompanying notes. F-74 136
WORLDWIDE GROWTH GLOBAL EQUITY GROWTH SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ------------------------------ ------------------------------ ----------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 - --------------- -------------- --------------- -------------- --------------- ------------- $ 11,362 $ 5,574 $ 493,157 $ 167,578 $ 447,543 $ 95,683 68,677 14,712 (121,838) (35,168) 105,395 123,525 (14,109) 18,500 (148,685) 214,456 670,424 466,535 ---------- ---------- ---------- ---------- ----------- ---------- 65,930 38,786 222,634 346,866 1,223,362 685,743 ---------- ---------- ---------- ---------- ----------- ---------- 274,876 396,653 578,029 1,830,508 1,094,392 3,294,658 (16,806) (41,648) (155,905) (146,797) (202,861) (107,258) (11,284) (6,172) (20,124) (6,447) (58,536) (38,221) (1,392,780) 377,034 2,572,003 750,096 2,364,857 1,662,737 ---------- ---------- ---------- ---------- ----------- ---------- (1,145,994) 725,867 2,974,003 2,427,360 3,197,852 4,811,916 ---------- ---------- ---------- ---------- ----------- ---------- (1,080,064) 764,653 3,196,637 2,774,226 4,421,214 5,497,659 1,080,064 315,411 4,242,810 1,468,584 6,746,944 1,249,285 ---------- ---------- ---------- ---------- ----------- ---------- $ 0 $1,080,064 $7,439,447 $4,242,810 $11,168,158 $6,746,944 ========== ========== ========== ========== =========== ==========
F-75 137 SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENT OF CHANGES IN NET ASSETS (CONTINUED) (UNAUDITED)
VALUE OVERSEAS SUB-ACCOUNT SUB-ACCOUNT ------------------------------ ------------------------------ PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 --------------- -------------- --------------- -------------- FROM OPERATIONS Net investment income $ 18 $ 117,791 $ 0 $ 51,082 Net realized gain (loss) (11,284) 22,516 143,938 (4,342) Net unrealized appreciation (depreciation) of investments during the period 535,508 (229,473) (26,862) 86,563 ---------- ---------- ---------- ---------- Net increase (decrease) in net assets derived from operations 524,242 (89,166) 117,076 133,303 ---------- ---------- ---------- ---------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 820,811 1,600,753 219,543 515,640 Transfer of terminations (115,892) (117,194) (20,919) (50,349) Transfer of policy loans (3,571) (12,965) (12,488) (2,253) Net interfund transfers 437,622 1,104,824 556,096 23,545 ---------- ---------- ---------- ---------- 1,138,970 2,575,418 742,232 486,583 ---------- ---------- ---------- ---------- Net increase (decrease) in net assets 1,663,212 2,486,252 859,308 619,886 NET ASSETS Beginning of Year 3,567,228 1,080,976 1,405,214 785,328 ---------- ---------- ---------- ---------- End of Period $5,230,440 $3,567,228 $2,264,522 $1,405,214 ========== ========== ========== ==========
* Reflects the period from commencement of operations May 1, 1998 through December 31, 1998 + Reflects the period from commencement of operations May 1, 1999 through June 30, 1999 See accompanying notes. F-76 138
HIGH YIELD STRATEGIC BOND GLOBAL BOND SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ------------------------------ ------------------------------ ----------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 - --------------- -------------- --------------- -------------- --------------- ------------- $ 0 $ 151,912 $ 204,203 $ 86,088 $ 43,890 $ 27,334 (35,458) (7,914) (29,793) (17,942) (5,845) (8,230) 128,482 (95,871) (170,101) (70,640) (83,549) 2,498 ---------- ---------- ---------- ---------- -------- -------- 93,024 48,127 4,309 (2,494) (45,504) 21,602 ---------- ---------- ---------- ---------- -------- -------- 414,227 943,552 274,170 1,272,907 85,904 143,923 (77,091) (111,555) (76,533) (103,790) (13,584) (17,835) (56) (7,304) (16,670) (10,279) 33 (6,107) 58,774 158,145 (124,403) 1,091,881 (150,534) 277,425 ---------- ---------- ---------- ---------- -------- -------- 395,854 982,838 56,564 2,250,719 (78,181) 397,406 ---------- ---------- ---------- ---------- -------- -------- 488,878 1,030,965 60,873 2,248,225 (123,685) 419,008 2,101,957 1,070,992 2,902,215 653,990 640,768 221,760 ---------- ---------- ---------- ---------- -------- -------- $2,590,835 $2,101,957 $2,963,088 $2,902,215 $517,083 $640,768 ========== ========== ========== ========== ======== ========
F-77 139 SEPARATE ACCOUNT OF THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENT OF CHANGES IN NET ASSETS (CONTINUED) (UNAUDITED)
INVESTMENT LIFESTYLE AGGRESSIVE LIFESTYLE GROWTH QUALITY BOND 1000 820 SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------------ ------------------------------ ----------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 --------------- -------------- --------------- -------------- --------------- ------------- FROM OPERATIONS Net investment income $ 115,157 $ 20,278 $ 145,631 $ 168,006 $ 778,105 $ 629,682 Net realized gain (loss) (14,771) 6,554 (63,308) (9,962) (80,357) (19,242) Net unrealized appreciation (depreciation) of investments during the period (493,691) 27,852 (9,088) (56,069) 259,782 115,020 ----------- ---------- ---------- ---------- ----------- ----------- Net increase (decrease) in net assets derived from operations (393,305) 54,684 73,235 101,975 957,530 725,460 ----------- ---------- ---------- ---------- ----------- ----------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 870,313 443,446 663,234 1,299,712 3,038,399 7,009,770 Transfer of terminations (451,318) (45,715) (560,615) (258,375) (715,925) (827,050) Transfer of policy loans (10,784) (46,096) 1,755 (26,714) (277,480) (176,891) Net interfund transfers 21,776,557 762,855 (503,897) 316,522 (1,414,090) 3,867,109 ----------- ---------- ---------- ---------- ----------- ----------- 22,184,768 1,114,490 (399,523) 1,331,145 630,904 9,872,938 ----------- ---------- ---------- ---------- ----------- ----------- Net increase (decrease) in net assets 21,791,463 1,169,174 (326,288) 1,433,120 1,588,434 10,598,398 NET ASSETS Beginning of Year 1,430,181 261,007 3,862,092 2,428,972 15,857,396 5,258,998 ----------- ---------- ---------- ---------- ----------- ----------- End of Period $23,221,644 $1,430,181 $3,535,804 $3,862,092 $17,445,830 $15,857,396 =========== ========== ========== ========== =========== ===========
* Reflects the period from commencement of operations May 1, 1998 through December 31, 1998 + Reflects the period from commencement of operations May 1, 1999 through June 30, 1999 See accompanying notes. F-78 140
LIFESTYLE BALANCED LIFESTYLE MODERATE LIFESTYLE CONSERVATIVE 640 460 280 SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT - ------------------------------ ------------------------------ ----------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 JUN. 30/99 DEC. 31/98 - --------------- -------------- --------------- -------------- --------------- ------------- $ 304,677 $ 189,230 $ 41,437 $ 20,025 $ 9,799 $ 552 (10,300) (1,929) (842) (8,653) 2,390 1,625 (48,552) 37,708 (2,730) 19,892 (9,017) 5,695 ---------- ---------- ---------- -------- -------- -------- 245,825 225,009 37,865 31,264 3,172 7,872 ---------- ---------- ---------- -------- -------- -------- 991,331 2,223,707 165,966 287,313 31,973 35,078 (310,657) (520,437) (53,639) (25,583) (4,668) (3,934) (53,583) (28,495) 0 0 0 0 119,493 1,672,788 356,755 282,970 (20,865) 67,660 ---------- ---------- ---------- -------- -------- -------- 746,584 3,347,563 469,082 544,700 6,440 98,804 ---------- ---------- ---------- -------- -------- -------- 992,409 3,572,572 506,947 575,964 9,612 106,676 5,696,069 2,123,497 678,344 102,380 108,017 1,341 ---------- ---------- ---------- -------- -------- -------- $6,688,478 $5,696,069 $1,185,291 $678,344 $117,629 $108,017 ========== ========== ========== ======== ======== ========
F-79 141 SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA STATEMENT OF CHANGES IN NET ASSETS (CONTINUED) (UNAUDITED)
U.S. LARGE SMALL COMPANY VALUE CAP VALUE MID CAP STOCK SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT ------------------------------ ------------------------------ PERIOD ENDED PERIOD ENDED* PERIOD ENDED+ PERIOD ENDED+ JUN. 30/99 DEC. 31/98 JUN. 30/99 JUN. 30/98 --------------- -------------- --------------- -------------- FROM OPERATIONS Net investment income $ 305 $ 0 $ 0 $ 0 Net realized gain (loss) (6,887) (3,492) (129) 381 Net unrealized appreciation (depreciation) of investments during the period 48,420 10,664 7,483 3,737 -------- -------- -------- -------- Net increase (decrease) in net assets derived from operations 41,838 7,172 7,354 4,118 -------- -------- -------- -------- FROM CAPITAL TRANSACTIONS Additions (deductions) from: Transfer of net premiums 121,372 183,290 28,418 23,842 Transfer on death 0 0 0 0 Transfer of terminations (20,080) (6,126) (2,315) (1,501) Transfer of policy loans 0 0 0 0 Net interfund transfers 386,579 182,269 217,609 98,313 -------- -------- -------- -------- 487,871 359,433 243,712 120,654 -------- -------- -------- -------- Net increase (decrease) in net assets 529,709 366,605 251,066 124,772 NET ASSETS Beginning of Year 366,605 0 0 0 -------- -------- -------- -------- End of Period $896,314 $366,605 $251,066 $124,772 ======== ======== ======== ========
* Reflects the period from commencement of operations May 1, 1998 through December 31, 1998 + Reflects the period from commencement of operations May 1, 1999 through June 30, 1999 See accompanying notes. F-80 142
SMALL INTERNATIONAL COMPANY BLEND VALUE TOTAL RETURN SUB-ACCOUNT SUB-ACCOUNT SUB-ACCOUNT TOTAL - --------------- -------------- --------------- ------------------------------ PERIOD ENDED+ PERIOD ENDED+ PERIOD ENDED+ PERIOD ENDED YEAR ENDED JUN. 30/99 JUN. 30/98 JUN. 30/99 JUN. 30/98 JUN. 30/99 - --------------- -------------- --------------- -------------- --------------- $ 0 $ 0 $ 0 $ 24,003,850 $ 28,132,536 71 (2) (165) 8,631,427 3,760,628 6,412 218 939 5,331,764 11,133,790 ------- ------- -------- ------------ ------------ 6,483 216 774 37,967,041 43,026,954 ------- ------- -------- ------------ ------------ 929 1,103 2,506 65,298,347 125,895,605 (555) (288) (581) (24,667,304) (33,859,519) 0 0 0 (2,011,287) (2,357,855) 77,169 55,276 165,628 101,809 (497,675) ------- ------- -------- ------------ ------------ 77,543 56,091 167,553 38,721,565 89,180,556 ------- ------- -------- ------------ ------------ 84,026 56,307 168,327 76,688,606 132,207,510 0 0 0 478,538,803 346,331,293 ------- ------- -------- ------------ ------------ $84,026 $56,307 $168,327 $555,227,409 $478,538,803 ======= ======= ======== ============ ============
F-81 143 Separate Account Three of The Manufacturers Life Insurance Company of America Notes to Financial Statements June 30, 1999 1. ORGANIZATION Separate Account Three of The Manufacturers Life Insurance Company of America (the "Separate Account") is a unit investment trust registered under the Investment Company Act of 1940, as amended. The Separate Account is comprised of investment sub-accounts available for allocation of net premiums under single premium variable life and variable universal life insurance policies (the "Policies") issued by The Manufacturers Life Insurance Company of America ("Manufacturers Life of America"). Each investment sub-account invests solely in shares of a particular portfolio of Manufacturers Investment Trust. Manufacturers Investment Trust is registered under the Investment Company Act of 1940 as open-end management investment companies. The Separate Account was established by Manufacturers Life of America, a life insurance company organized in 1983 under Michigan law. Manufacturers Life of America is an indirect, wholly-owned subsidiary of The Manufacturers Life Insurance Company ("Manulife Financial"), a Canadian life insurance company. As the result of portfolio changes, effective May 1, 1999 the following sub-accounts of the Separate Account have been replaced with a new fund as follows: PREVIOUS FUND - ------------- Emerging Growth Trust Conservative Asset Allocation Trust Moderate Asset Allocation Trust Aggressive Asset Allocation Trust Pilgrim Baxter Growth Trust Small/Mid Cap Trust International Growth & Income Trust Global Government Bond Trust Equity Trust NEW FUND - -------- Emerging Small Company Trust Diversified Bond Trust Income & Value Trust Large Cap Growth Aggressive Growth Trust Mid Cap Growth Trust Overseas Trust Global Bond Trust Mid-Cap Blend Trust Effective May 1, 1999 the following sub-accounts of the Separate Account were merged with another current fund as follows: Capital Growth Bond merged with Investment Quality Bond Worldwide Growth merged with Global Equity F-82 144 Separate Account of Three of The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) June 30, 1999 The following sub-accounts of the Separate Account were added as investment options for variable universal life insurance policy holders of Manufacturers Life of America: Commencement of Operations of the Subaccount U.S. Large Cap Value Trust May 1, 1999 Mid Cap Stock Trust May 1, 1999 Small Company Blend Trust May 1, 1999 International Value Trust May 1, 1999 Total Return Trust May 1, 1999 Small Company Value Trust May 1, 1998 Science & Technology Trust May 1, 1997 Pilgram Baxter Growth Trust May 1, 1997 Small/Mid Cap Trust May 1, 1997 Worldwide Growth Trust May 1, 1997 Global Equity Trust May 1, 1997 Growth Trust May 1, 1997 Value Trust May 1, 1997 International Growth and Income Trust May 1, 1997 High Yield Trust May 1, 1997 Strategic Bond Trust May 1, 1997 Global Government Bond Trust May 1, 1997 Investment Quality Bond Trust May 1, 1997 Lifestyle Aggressive 1000 Trust May 1, 1997 Lifestyle Growth 820 Trust May 1, 1997 Lifestyle Balanced 640 Trust May 1, 1997 Lifestyle Moderate 460 Trust May 1, 1997 Lifestyle Conservative 280 Trust May 1, 1997 International Small Cap Trust January 1, 1997 Blue Chip Growth Trust January 1, 1997 Manufacturers Life of America is the legal owner of the Separate Account. Manufacturers Life of America is required to maintain assets in the Separate Account with a total market value at least equal to the reserves and other liabilities relating to the variable benefits under all policies participating in the Separate Account. These assets may not be charged with liabilities which arise from any other business Manufacturers Life of America F-83 145 Separate Account Three of The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) June 30, 1999 conducts. However, all obligations under the variable policies are general corporate obligations of Manufacturers Life of America. Additional assets are held in Manufacturers Life of America's general account to cover the contingency that the guaranteed minimum death benefit might exceed the death benefit which would have been payable in the absence of such guarantee. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Separate Account in preparation of its financial statements: a. Valuation of Investments - Investments are made among the thirty-nine Trusts of Manufacturers Investment Trust and are valued at the reported net asset values of these Trusts. Transactions are recorded on the trade date. Net investment income and net realized gains on investments in Manufacturers Investment Trust are reinvested. b. Realized gains and losses on the sale of investments are computed on the first-in, first-out basis. c. Dividend income is recorded on the ex-dividend date. d. Federal Income Taxes - Manufacturers Life of America, the Separate Account's sponsor, is taxed as a "life insurance company" under the Internal Revenue Code. Under these provisions of the Code, the operations of the Separate Account form part of the sponsor's total operations and are not taxed separately. The current year's operations of the Separate Account are not expected to affect the sponsor's tax liabilities and, accordingly, no charges were made against the Separate Account for federal, state and local taxes. However, in the future, should the sponsor incur significant tax liabilities related to the Separate Account's operations, it intends to make a charge or establish a provision within the Separate Account for such taxes. F-84 146 Separate Account Three of The Manufacturers Life Insurance Company of America Notes to Financial Statements (continued) June 30, 1999 USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. PREMIUM DEDUCTIONS Manufacturers Life of America deducts certain charges for state, local, and federal taxes from the gross premium before placing the remaining net premiums in the sub-accounts. 4. PURCHASES AND SALES OF MANUFACTURERS INVESTMENT TRUST SHARES Purchases and sales of the shares of the portfolios of Manufacturers Investment Trust for the period ended June 30, 1999 were $192,850,287 and $130,124,872 respectively, and for the year ended December 31, 1998 were $255,373,727 and $138,107,190 respectively. 5. RELATED PARTY TRANSACTIONS ManEquity, Inc., a registered broker-dealer and indirect wholly-owned subsidiary of Manulife Financial, acts as the principal underwriter of the Policies pursuant to a Distribution Agreement with Manufacturers Life of America. Registered representatives of either ManEquity, Inc. or other broker-dealers having distribution agreements with ManEquity, Inc. who are also authorized as variable life insurance agents under applicable state insurance laws, sell the Policies. Registered representatives are compensated on a commission basis. Manufacturers Life of America has a formal service agreement with its affiliates, Manulife Financial and The Manufacturers Life Insurance Company (U.S.A.), which can be terminated by either party upon two months notice. Under this Agreement, Manufacturers Life of America pays for legal, actuarial, investment and certain other administrative services. F-85 147 PART II. OTHER INFORMATION Representation of Insurer Pursuant to Section 26 of the Investment Company Act of 1940 The Manufacturers Life Insurance Company of America hereby represents that the fees and charges deducted under the contracts issued pursuant to this registration statement in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the Company. CONTENTS OF REGISTRATION STATEMENT This registration statement comprises the following papers and documents: The facing sheet; Cross-Reference Sheet; The Prospectus, consisting of 141 pages; Representation of Insurer Pursuant to Section 26 of the Investment Company Act of 1940 The signatures; Written consents of the following persons: A. Ernst & Young LLP B. Brian Koop, FSA MAAA C. James D. Gallagher The following exhibits are filed as part of this Registration Statement: 1. Copies of all exhibits required by paragraph A of the instructions as to exhibits in Form N-8B-2 are set forth below under designations based on such instructions: A(1) Resolutions of Board of Directors of The Manufacturers Life Insurance Company of America establishing Separate Account Three. Incorporated by reference to Exhibit A(1) to the registration statement on Form S-6, file number 333-66303 filed October 29, 1998 (the "SVUL Registration Statement"). A(3)(a)(i) Distribution Agreement between The Manufacturers Life Insurance Company of America and ManEquity, Inc. dated December 23, 1986. Incorporated by reference to Exhibit A(3)(a)(i) to the SVUL Registration Statement. A(3)(a)(ii) Amendment to Distribution Agreement between The Manufacturers Life Insurance Company of America and ManEquity, Inc. dated May 30, 1992. Incorporated by reference to Exhibit A(3)(a)(ii) to the SVUL Registration Statement. A(3)(a)(iii) Amendment to Distribution Agreement between The Manufacturers Life Insurance Company of America and ManEquity, Inc. dated February 23, 1994. Incorporated by reference to Exhibit A(3)(a)(iii) to the SVUL Registration Statement. A(3)(b)(i) Specimen Agreement between ManEquity, Inc. and registered representatives. Incorporated by reference to Exhibit A(3)(b)(i) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(3)(b)(ii) Specimen agreement between The Manufacturers Life Insurance Company of America and registered representatives. Incorporated by reference to Exhibit A(3)(b)(ii) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(3)(b)(iii) Specimen Agreement between ManEquity, Inc. and dealers. Incorporated by reference to Exhibit A(3)(b)(iii) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. 148 A(3)(b)(iv) Specimen agreement between The Manufacturers Life Insurance Company of America and dealers. Incorporated by reference to Exhibit A(3)(b)(iv) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(5)(a) Specimen Flexible Premium Variable Life Insurance Policy - Incorporated by reference to Exhibit A(5)(a) to the initial filing for this registration statement made on July 8, 1999. A(6)(a) Restated Articles of Redomestication of The Manufacturers Life Insurance Company of America. Incorporated by reference to Exhibit A(6)(a) to post-effective amendment no. 20 to the registration statement on Form S-6, file number 33-13774, filed April 26, 1996. A(6)(b) By-Laws of The Manufacturers Life Insurance Company of America. Incorporated by reference to Exhibit A(6)(b) to post-effective amendment no. 20 to the registration statement on Form S-6, file number 33-13774, filed April 26, 1996. A(8)(a)(i) Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated June 1, 1988. Incorporated by reference to Exhibit A(8)(a)(i) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(8)(a)(ii) Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated December 31, 1992. Incorporated by reference to Exhibit A(8)(a)(ii) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(8)(a)(iii) Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated May 31, 1993. Incorporated by reference to Exhibit A(8)(a)(iii) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(8)(a)(iv) Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated June 30, 1993. Incorporated by reference to Exhibit A(8)(a)(iv) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(8)(a)(v) Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated December 31, 1996. Incorporated by reference to Exhibit A(8)(a)(v) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(8)(a)(vi) Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated May 31, 1998. Incorporated by reference to Exhibit A(8)(a)(vi) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(8)(a)(vii) Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated December 31, 1998. Incorporated by reference to Exhibit A(8)(a)(vii) to post-effective amendment No. 11 to the registration statement on Form N-4, file number 33-57018 filed March 1, 1999. 149 A(8)(b) Specimen Stoploss Reinsurance Agreement between The Manufacturers Life Insurance Company of America and The Manufacturers Life Insurance Company. Incorporated by reference to Exhibit A(8)(b) to the SVUL Registration Statement. A(8)(c)(i) Service Agreement between The Manufacturers Life Insurance Company and ManEquity, Inc. dated January 2, 1991. Incorporated by reference to Exhibit A(8)(c)(i) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(8)(c)(ii) Amendment to Service Agreement between The Manufacturers Life Insurance Company and ManEquity, Inc. dated March 1, 1994. Incorporated by reference to Exhibit A(8)(c)(ii) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(8)(c)(iii) Form of Agreement between ManEquity, Inc. and Manulife Wood Logan - Filed Herewith A(10)(a) Specimen Application for Flexible Premium Variable Life Insurance Policy. Incorporated by reference to Exhibit A(10) to post effective amendment no. 7 to the registration statement on Form S-6, file number 33-52310, filed April 26, 1996. A(10)(b) Specimen Application Supplement for Flexible Premium Variable Life Insurance Policy. Incorporated by reference to Exhibit A(10)(a) to post effective amendment no. 9 to the registration statement on Form S-6, file number 33-52310, filed December 23, 1996. 2. Consents of the following: A. Opinion and consent of James D. Gallagher, Esq., Secretary and General Counsel of The Manufacturers Life Insurance Company of America B. Opinion and consent of Brian Koop, FSA, MAAA, Actuary C. Consent of Ernst & Young LLP 3. No financial statements are omitted from the prospectus pursuant to instruction 1(b) or (c) of Part I. 4. Not applicable. 6. Memorandum Regarding Issuance, Face Amount Increase, Redemption and Transfer Procedures for the Policies. - FILED HEREWITH 7. Power of Attorney. Incorporated by reference to Exhibit 12 to post effective amendment no. 10 to the registration statement on Form S-6, file number 33-52310, filed February 28, 1997. James P. O'Malley - Incorporated by reference to initial filing for this registration statement made on July 8, 1999. 150 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant and the Depositor have caused this amendment to the Registration Statement to be signed on their behalf in the City of Toronto, Province of Ontario, Canada, on this 22nd day of September, 1999. SEPARATE ACCOUNT THREE OF THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA (Registrant) By: THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA (Depositor) By: /s/ Donald A. Guloien --------------------- DONALD A. GULOIEN President THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA By: /s/ Donald A. Guloien --------------------- DONALD A. GULOIEN President 151 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, amendment to the Registration Statement has been signed by the following persons in the capacities indicated on this 22nd day of September, 1999. SIGNATURE TITLE - --------- ----- *_______________________ Chairman and Director JOHN D. RICHARDSON /s/ Donald A. Guloien President and Director - ------------------------ (Principal Executive Officer) DONALD A. GULOIEN *_______________________ Director SANDRA M. COTTER /s/ James D. Gallagher Director - ------------------------ JAMES D. GALLAGHER *_______________________ Director JAMES O'MALLEY *_______________________ Director JOSEPH J. PIETROSKI *_______________________ Director THEODORE KILKUSKIE, JR. /s/ Douglas H. Myers Vice President, Finance - ------------------------ (Principal Financial and DOUGLAS H. MYERS Accounting Officer) *By: /s/ James D. Gallagher ---------------------- James D. Gallagher Attorney-in-Fact Pursuant to Powers of Attorney 152 EXHIBIT INDEX Item No. Description (8)(c)(iii) Form of Agreement between ManEquity, Inc. and Manulife Wood Logan Consents of the following: A. Opinion and consent of James D. Gallagher, Esq., Secretary and General Counsel of The Manufacturers Life Insurance Company of America B. Opinion and consent of Opinion Brian Koop, Actuary C. Consent of Ernst & Young LLP Procedures Memorandum EX-99.A(8)(C)(III) 2 FORM OF AGREEMENT WITH MAN EQUITY, INC. 1 PROMOTIONAL AGENT AGREEMENT AGREEMENT ("Agreement") made as of this _____ day of ________________, 1999 by and among ManEquity, Inc. ("ManEquity"), a broker-dealer registered under the Securities Exchange Act of 1934 (1934 Act") and a member of the National Association of Securities Dealers, Inc. ("NASD"), and Wood Logan Associates, Inc. ("Promotional Agent"), also registered as a broker-dealer under the 1934 Act and a member of the NASD. I. DEFINITIONS As used in this Agreement, the following terms shall have the meanings set forth below: Insurance Products - life insurance contracts, as specified in Schedule A attached hereto, issued by The Manufacturers Life Insurance Company of America ("ManAmerica") as of the date of this Agreement. Additional products may be added with written consent of all parties to this Agreement. Selling Agreements - contracts among Broker-Dealers, ManEquity and ManAmerica providing for the distribution of Insurance Products issued, sponsored or developed by ManAmerica. Broker-Dealers - brokerage firms and insurance agencies (to the extent they are licensed to sell Insurance Products) that have entered into Selling Agreements to distribute Insurance Products to retail customers. II. INTRODUCTION WHEREAS, ManAmerica is in the business of issuing, developing and sponsoring various Insurance Products; WHEREAS, ManAmerica distributes such Insurance Products through its affiliate ManEquity, which is the principal underwriter of all its products regulated under the federal securities laws; WHEREAS, ManEquity is authorized to enter into Selling Agreements with ManAmerica's consent with Broker-Dealers for the distribution of Insurance Products; and WHEREAS, Promotional Agent wishes to assist ManEquity in making arrangements with Broker-Dealers for the distribution of Insurance Products and 2 in promoting the sale thereof through such Broker-Dealers, and ManEquity wishes Promotional Agent to do so; NOW THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, the parties hereto agree as follows: III. APPOINTMENT OF PROMOTIONAL AGENT A. APPOINTMENT ManEquity hereby appoints Promotional Agent as its non-exclusive agent for the promotion of sales of Insurance Products through Broker-Dealers, and Promotional Agent accepts such appointment subject to the terms and conditions set forth herein. IV. DUTIES OF PROMOTIONAL AGENT A. PROMOTION OF CONTRACTS Promotional Agent agrees to use its best efforts to promote the sale of Insurance Products through Broker-Dealers, and in furtherance thereof Promotional Agent shall to the extent it deems appropriate and at its own expense: (i) Use its best efforts to secure, or cause others to secure, duly qualified Broker-Dealers to enter into Selling Agreements for the distribution of Insurance Products; (ii) Prepare or cause to be prepared sales and promotional materials, such materials being subject, however, to the approval of ManEquity and ManAmerica as provided in Section VII B of this Agreement; (iii) File or cause to be filed with the NASD all sales and promotional materials that are required to be reviewed by the NASD. V. DUTIES OF MANEQUITY AND MANAMERICA A. DUTIES ManEquity or ManAmerica shall to the extent they deem appropriate and at their own expense: 3 (i) Where permitted, obtain such corporate registrations and agent licenses as are necessary to carry on business and issue and sell Insurance Products in all states of the United States and its territories and shall process all licensing and appointment applications of Broker-Dealers; (ii) Underwrite Insurance Products; (iii) Issue Insurance Products and provide full administration services therefore; (iv) Draft and file as required, prospectuses, contracts, application forms and Selling Agreements; (v) Comply with all other legal and regulatory requirements in respect of Insurance Products; and (vi) Review any marketing materials prepared by Promotional Agent promptly. B. COOPERATION OF MANEQUITY AND MANAMERICA ManEquity and ManAmerica agree that to the extent the cooperation or concurrence of one is required to enable the other to fulfill its obligations pursuant to this Agreement, they will cooperate or concur to the extent permitted by law. VI. COMPENSATION A. COMPENSATION SCHEDULE In consideration of providing the services called for under this Agreement, with respect to each category of Insurance Products the Promotional Agent shall receive the compensation detailed in Schedule B ("Statement of Expenses and Compensation") attached hereto and as amended from time to time pursuant to Section X, paragraph I of this Agreement. Compensation shall be paid to Promotional Agent within Fifteen (15) days of the close of each month. Such compensation shall constitute full compensation to Promotional Agent for all services performed under this Agreement. VII. LIMITATIONS ON PROMOTIONAL AGENT'S AUTHORITY A. SOLICITATION Nothing contained herein shall be construed as granting authority to Promotional Agent to sell Insurance Products directly to, or solicit applications for Insurance Products directly from, customers or prospective customers. 4 B. MARKETING MATERIALS Promotional Agent will not use any marketing materials without ManEquity's or ManAmerica's prior review and written approval. C. RESTRICTION ON INFORMATION Neither Promotional Agent nor its representatives, employees and affiliated companies are authorized to give any information or make any representations concerning Insurance Products other than those contained in any registration statements or related prospectuses and statements of additional information filed with the Securities and Exchange Commission relating thereto or in such sales literature as may be specifically authorized in writing by ManEquity or ManAmerica (as applicable) . VIII. RECORDS A. RECORD-KEEPING DUTIES Promotional Agent, ManEquity and ManAmerica agree to keep all necessary records as are required of each by applicable federal and state law and acceptable business practices and to render any necessary assistance to one another for the accurate and timely preparation of such records. The parties to this Agreement, their representatives and the representatives of any regulatory body with jurisdiction, during normal business hours and upon five (5) days written notice, shall have access to any records pertaining to this Agreement maintained by the other parties hereto for purposes of reviewing or copying same. IX. CUSTOMER CONFIDENTIALITY A. CONFIDENTIALITY Promotional Agent agrees that the names and addresses of all customers and prospective customers of ManEquity and ManAmerica and of any affiliated company, which may come to the attention of Promotional Agent or any company or person affiliated with Promotional Agent, are confidential. Such customer information shall not be used without the prior written consent of ManEquity or ManAmerica by Promotional Agent or any company or person affiliated with Promotional Agent for any purposes whatsoever except as may be necessary in connection with Insurance Products covered by this Agreement. 5 X. GENERAL PROVISIONS A. WAIVER Failure of any party to insist upon strict compliance with any of the conditions of this Agreement shall not be construed as a waiver of any of the conditions, but the same shall remain in full force and effect. No waiver of any of the provisions of this Agreement shall be deemed to be, or shall constitute, a waiver of any other provisions, whether or not similar, nor shall any waiver constitute a continuing waiver. B. BINDING EFFECT This Agreement shall be binding on, and shall inure to the benefit of, the parties to it and their respective successors and permitted assigns, provided that this Agreement or any rights or obligations hereunder may not be assigned without the prior written consent of the parties hereto. C. REGULATIONS All parties agree to observe and comply with all laws, rules and regulations applicable to the business contemplated by this Agreement. D. GOVERNING LAW This Agreement shall be construed in accordance with and governed by the laws of the Commonwealth of Massachusetts. E. COMPLAINTS AND INVESTIGATIONS Promotional Agent, ManEquity and ManAmerica agree to cooperate fully in the event of any regulatory investigation, inquiry or proceeding, judicial proceeding or customer complaint involving Insurance Products. F. TERMINATION (a) This Agreement shall be for a period of five (5) years from the date first mentioned above renewable automatically for one year periods thereafter unless terminated by any party at the end of the five year period or thereafter at the end of any one year period. (b) This Agreement will terminate automatically if either ManEquity (or any 6 successor thereto) or Promotional Agent should cease to be a registered broker-dealer under the 1934 Act or a member of the NASD. Termination shall not affect the obligations of the parties under Section IX of this Agreement or under paragraph D of Section X. (c) This Agreement may be terminated by mutual consent of all the parties to the Agreement. G. AMENDMENT This Agreement or any schedule annexed hereto may be amended only in writing signed by all parties. H. COUNTERPARTS This Agreement may be signed by the parties in counterpart. The parties hereby execute this Agreement effective the date first mentioned above. 7 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA By: ________________________________________________ Name Title: MANEQUITY, INC. By: ________________________________________________ Name Title: WOOD LOGAN ASSOCIATES, INC. By: __________________________________________________ Name Title: 8 SCHEDULE A (i) Single Premium Variable Universal Life Insurance. (ii) Such other Insurance Products as are from time to time agreed by the parties to the foregoing AgreEment and added to this schedule in accordance therewith. 9 SCHEDULE B STATEMENT OF EXPENSES AND COMPENSATION Promotional Agent shall be compensated as follows: Single Premium Variable Universal Life Insurance - 1.75% of total premiums. EX-99.2(A) 3 OPINION AND CONSENT OF JAMES D. GALLAGHER 1 The Manufacturers Life Insurance Company of America 200 Bloor Street East Toronto, Ontario, Canada M4W 1E5 September 22, 1999 To whom it may concern, This opinion is written in reference to the modified single premium variable life insurance policy (the "Policy") that will be offered and sold by The Manufacturers Life Insurance Company of America (the "Company") with respect to the variable portion for which a Registration Statement on Form S-6 (the "Registration Statement") is being filed under the Securities Act of 1933, as amended (the "Act"). As Counsel to the Company, I have examined such records and documents and reviewed such questions of law as I deemed necessary for purposes of this opinion. 1. The Company has been duly incorporated under the laws of the state of Michigan and is a validly existing corporation. 2. Separate Account Three of The Manufacturers Life Insurance Company of America (the "Variable Life Account") is a separate account of the Company and is duly created and validly existing pursuant to The Insurance Code of 1956. 3. The portion of the assets to be held in the Variable Life Account equal to the reserves and other liabilities under the Policy is not chargeable with liabilities arising out of any other business the Company may conduct. 4. The Policy, when issued in accordance with the prospectus contained in the effective Registration Statement and upon compliance with applicable local law, will be legal and binding obligations of the Company. I consent to the filing of this opinion with the Securities and Exchange Commission as an exhibit to the Registration Statement on Form S-6. Very truly yours, /s/ James D. Gallagher James D. Gallagher Secretary and General Counsel EX-99.2(B) 4 OPINION AND CONSENT OF BRIAN KOOP 1 [LOGO] MANULIFE FINANCIAL Brian Koop, FSA, FCIA Assistant Vice President & Pricing Actuary Manulife Financial 200 Bloor Street East Toronto, Ontario, Canada M4W 1E5 Phone: (416) 926-6380 Fax: (416) 926-3121 September 16, 1999 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 Re: Actuarial Opinion on Illustrations Contained in Pre-Effective Amendment No. 1 to a Registration Statement on Form S-6 (File No. 333-82449) Dear Sirs: This opinion is furnished in connection with the above-referenced registration statement under the Securities Act of 1933, as amended, describing a modified single premium variable life insurance policy (the "Policy") that will be offered and sold by The Manufacturers Life Insurance Company of America. The hypothetical illustrations of death benefits, Policy values and surrender values used in this registration statement are consistent with the provisions of the Policy and the Company's administrative procedures. The rate structure of the Policy has not been designed so as to make the relationship between premiums and benefits, as shown in the illustrations, appear disproportionately more favorable to a prospective purchaser of the Policy for the age and risk class illustrated than for any other prospective purchaser. The particular illustrations shown are for a commonly used risk class and for premium amounts and ages appropriate to the markets in which the Policy is sold. I hereby consent to the use of this opinion as an exhibit to the Securities Act Registration Statement on Form S-6. Sincerely, /s/ Brian Koop, FSA, MAAA Brian Koop, FSA, MAAA Actuary EX-99.2(C) 5 CONSENT OF ERNST AND YOUNG 1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Independent Auditors" and to the use of our report dated March 15, 1999 accompanying the consolidated financial statements of The Manufacturers Life Insurance Company of America and to the use of our report dated February 4, 1999 accompanying the financial statements of Separate Account Three of The Manufacturers Life Insurance Company of America in Pre-Effective Amendment No. 1 to the Registration Statement No. 333-82449 of Form S-6 and related prospectus of Separate Account Three of The Manufacturers Life Insurance Company of America. Philadelphia, Pennsylvania September 22, 1999 Ernst & Young LLP EX-99.6 6 PROCEDURES MEMORANDUM 1 EXHIBIT 6 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA DESCRIPTION OF PURCHASE, TRANSFER AND REDEMPTION PROCEDURES VARIABLE UNIVERSAL LIFE INSURANCE POLICIES (1933 FILE ACT NO. 333-82449) This document sets forth, as required by Rule 6e-3(T)(b)(12)(iii), the administrative procedures that will be followed by The Manufacturers Life Insurance Company of America (the "Company") and any office the Company designates for the receipt of payments and processing of policyowner requests (the "Service Office") in connection with the issuance of its modified single premium variable universal life insurance policies described in this registration statement (1933 Act file no. 333-82449) (the "Policy"), the transfer of assets held thereunder, and the redemption by policyowners of their interests in the Policy. I. ISSUING A POLICY A. PREMIUMS The Policy permits the payment of a large initial premium and, subject to the restrictions described below, additional premiums. The minimum initial premium is $25,000. The policyowner may choose an initial premium that is 80%, 90% or 100% of the Guideline Single Premium (based on Face Amount selected by the policyowner). In the case of simplified underwriting, the initial premium must be 100% of the Guideline Single Premium for the Face Amount of the Policy. The Lapse Protection Benefit applies to a Policy only if the initial premium paid is 100% of the Guideline Single Premum for the Face Amount of the Policy. 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. After payment of the initial premium, additional premiums may be made subject to the following conditions: (a) while there is an outstanding Policy Debt, any additional premium payment will be applied first to repay the loan; (b) Face Amount increases are not permitted in connection with additional premiums (Therefore, the total of all premiums paid for a Policy may not exceed 100% of the Guideline Single Premium for the Face Amount of the Policy); (c) the Company may refuse or refund any premium payment (or any portion of such premium payment) that would cause the Policy to fail to qualify as life 2 insurance under Section 7702 of the Code, and (d) additional premiums may require evidence of insurability on the Life Insured satisfactory to the Company unless the additional premium is applied to repay a loan. The Company will add additional premiums to Policy Value as of the Business Day* it receives the additional premium at its Service Office unless evidence of insurability is required in which case the additional premium will be added to Policy Value as of the Business Day the Company's underwriters approve the additional premium. (*Business Day is any day that the New York Stock Exchange is open for trading. The Company will deem each Business day to end at the close of regularly scheduled day-time trading of the New York Stock Exchange (currently 4:00 p.m. Eastern Time) on that day.) The Policy is issued under the Guideline Premium Test which requires that in no event may the total of all premiums paid exceed the then-current maximum premium limitations established by federal income tax law for Policies that 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- 2 3 current maximum premium limitation. B. UNDERWRITING 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. The Company will require satisfactory evidence of insurability. This may include medical exams and other information. Persons failing to meet standard underwriting classification may be eligible for a Policy with an additional rating assigned to it. Under current underwriting rules, which are subject to change, proposed insureds are eligible for simplified underwriting without a medical examination if (a) their application responses and initial payment meet simplified underwriting standards and (b) the initial premium is 100% of the Guideline Single Premium. Customary underwriting standards will apply to all other proposed insured. The maximum initial premium currently permitted on a simplified underwriting basis varies with the issue age of the insured according to the following table. Simplified underwriting is not available for additional premium payments. AGE* SIMPLIFIED UNDERWRITING MAXIMUM INITIAL PAYMENT 20-29 $30,000 30-39 $60,000 40-49 $100,000 50-74 $150,000 75-90 $100,000 *In the case of a Survivorship Policy, the youngest of the Life Insured. C. APPLICATION To purchase a Policy, an applicant must submit a completed application. A Policy will not be issued until the underwriting process has been completed to the Company's satisfaction. Policies may be issued on a basis which does not distinguish between the insured's sex, with prior approval from the Company. Generally, a Policy will only be issued on the lives of insureds from ages 20 through 90. Each Policy is issued with a Policy Date, an Effective Date and an Issue Date. The POLICY DATE is the date coverage takes effect under the Policy, provided the underwriting process has been completed to the Company's satisfaction and the 3 4 Company has received the minimum initial premium at its Service Office, and is the date from which the first monthly deductions are calculated and from which Policy Years, Policy Months and Policy Anniversaries are determined. The EFFECTIVE DATE is the date the 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 its Service Office. The Effective Date is the date the Company becomes obligated under the Policy and when the first monthly deductions are deducted from the Policy Value. The ISSUE DATE is the date the Company issued the Policy. It is the date from which the suicide and incontestability provisions are measured. If an application is accompanied by a check for the initial premium and the application is accepted: (i) the Policy Date will be the date the application and check were received at the Service Office (unless a special Policy Date is requested (See "Backdating a Policy" below); (ii) the Effective Date will be the date the Company's underwriters approve issuance of the Policy; and (iii) the Issue Date will be the date the Company issues the Policy. If an application accepted by the Company is not accompanied by a check for the initial premium: (i) the Policy Date will be the date the Company issues the Policy (unless a special Policy Date is requested (See "Backdating a Policy" below); (ii) the Effective Date will be the date the Service Office receives the initial premium; and (iii) the Issue Date will be the date the Company issues the Policy. The initial premium must be received within 60 days after the Policy Date. If the premium is not paid or if the application is rejected, the Policy will be canceled and any partial premiums paid will be returned to the applicant. D. MINIMUM INITIAL FACE AMOUNT The Company will generally issue a Policy only if it has a Face Amount that corresponds to an initial premium of at least $25,000. 4 5 E. 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, all premiums received prior to the Effective Date of a Policy will be credited with interest from the date of receipt at the rate of return then being earned on amounts allocated to the Money Market portfolio. As of the Effective Date, the premiums paid plus interest credited, net of the premium charge (if any), will be allocated among the Investment Accounts (as described below under ("Policy Value - Investment Accounts") and/or Fixed Account in accordance with the policyowner's instructions unless such amount is first allocated to the Money Market portfolio for the duration of the Right to Examine period. F. TEMPORARY INSURANCE In accordance with the Company's underwriting practices, temporary insurance coverage may be provided under the terms of a Temporary Insurance Agreement. Generally, temporary life insurance may not exceed $1,000,000 and may not be in effect for more than 90 days. This temporary insurance coverage will be issued on a conditional receipt basis, which means that any benefits under such temporary coverage will only be paid if the life insured meets the Company's usual and customary underwriting standards for the coverage applied for. The acceptance of an application is subject to the Company's underwriting rules, and the Company reserves the right to request additional information or to reject an application for any reason. Persons failing to meet standard underwriting classification may be eligible for a Policy with an additional rating assigned to it. G. 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 the policyowner has a longer time. The Policy can be mailed or delivered to the Company's agent who sold it or to the Service Office. Immediately on such delivery or mailing, the Policy shall be deemed void from the beginning. Within seven days after receipt of the returned Policy at its Service Office, the Company will refund to the policyowner an amount equal to either: 5 6 (1) the amount of all premiums paid, or (2) (a) the difference between payments made and amounts allocated to the Separate Account and the Fixed Account; plus (b) the value of the amount allocated to the Separate Account and the Fixed Account as of the date the returned Policy is received by the Company; minus (c) any partial withdrawals made and policy loans taken. Whether the amount described in (1) or (2) is refunded depends on the requirements of the applicable state. If a policyowner requests an increase in face amount, he or she will have the same rights as described above to cancel the increase. If canceled, the Policy Value and the surrender charges will be recalculated to the amounts they would have been had the increase not taken place. A policyowner may request a refund of all or any portion of premiums paid during the 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. H. PREMIUM ALLOCATION 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 of the Company 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. On the later of the Effective Date or the Business Day a premium is received, the Net Premiums paid plus interest credited will be allocated among the Investment Accounts or the Fixed Account in accordance with the policyowner's instructions. 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. Premiums may be allocated to either the Fixed Account for accumulation at a rate of interest determined by the Company (the rate of interest will be at least 4%) or to one or more of the Investment Accounts for investment in the 6 7 Portfolio shares held by the corresponding sub-account of the Separate Account. Allocations among the Investment Accounts and the Fixed Account are made as a percentage of the premium. The percentage allocation to any account may be any number between zero and 100, provided the total allocation equals 100. A policyowner may change the way in which premiums are allocated at any time without charge. The change will take effect on the date a written request for change satisfactory to the Company is received at the Service Office. A policyowner may also change premium allocation by telephone if he or she has a currently valid authorization form on file with the Company. III. POLICY VALUE A. 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. B. 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. C. FIXED ACCOUNT Amounts in the Fixed Account do not vary with the investment performance of any sub-account. Instead, these amounts are credited with interest at a rate determined by the Company. D. 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 (the aggregate amount of policy loans, including borrowed and accrued interest, less any loan repayments) less the Loan Interest Credited Differential set forth in the Policy. (See "Policy Loans - Interested Credited to Loan Account" below). E. 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 7 8 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 of Manufacturers Investment Trust held by that sub-account as of the end of such Business Day before any policy transaction 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 transaction 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. V. TRANSFER OF POLICY VALUE A. GENERAL TRANSFERS At any time, a policyowner may transfer Policy Value (the sum of the values in the Loan Account, the Fixed Account and the Investment Accounts) 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. 8 9 The Company reserves the right to impose limitations on transfers, including the maximum amount that may be transferred. The Company also reserves the right to modify or terminate the transfer privilege at any time in accordance with applicable law. Transfers may also be delayed when any of the events described below occur: (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. Transfer privileges are also subject to any restrictions that may be imposed by the Trust. In addition, the Company reserves the right to defer the transfer privilege at any time that the Company is unable to purchase or redeem shares of the Trust. 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 per transfer as set forth in the currently effective prospectus. 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. While the Policy is in force, the policyowner may transfer the Policy Value from any of the Investment Accounts to the Fixed Account without incurring transfer charges: (a) within eighteen months after the Issue Date; or (b) within 60 days of the effective date of a material change in the investment objectives of any of the sub-accounts or within 60 days of the date of notification of such change, whichever is later. Such transfers will not count against the twelve transfers that may be made free of charge in any Policy Year. 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. 9 10 Although failure to follow reasonable procedures may result in the Company being liable for any losses resulting from unauthorized or fraudulent telephone transfers, the Company will not be liable for following instructions communicated by telephone that the Company reasonably believes to be genuine. The Company will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. Such procedures shall consist of confirming that a valid telephone authorization form is on file, tape recording of all telephone transactions and providing written confirmation thereof. VI. POLICY SURRENDER AND PARTIAL WITHDRAWALS A. POLICY SURRENDER A Policy may be surrendered for its Net Cash Surrender Value at any time while the life insured is living. The Net Cash Surrender Value is equal to the Policy Value less any surrender charges and outstanding monthly deductions due (the "Cash Surrender Value") minus the Policy Debt. The Net Cash Surrender Value will be determined at the end of the Business Day on which the Company receives the Policy and a written request for surrender at its Service Office. After a Policy is surrendered, the insurance coverage and all other benefits under the Policy will terminate. A policyowner may make a partial withdrawal of the Net Cash Surrender Value after the first Policy Anniversary. The minimum partial withdrawal amount is $500. The policyowner may specify the portion of the withdrawal to be taken from each Investment Account and the Fixed Account. In the absence of instructions, the withdrawal will be allocated among such accounts in the same proportion as the Policy Value in each account bears to the Net Policy Value (Policy Value less the value in the Loan Account). If the withdrawal would cause the Policy Value to fall below $25,000, we will treat the withdrawal request as a full surrender of the Policy. If a partial withdrawal is made, the Face Amount of the Policy will be reduced by the same percentage that the Policy Value is reduced due to the withdrawal. The reduced Face Amount is determined by the following formula: (a) multiplied by (b), where: (a) is the Face Amount prior to the withdrawal; and (b) is the Policy Value after the withdrawal, divided by the Policy Value prior to the withdrawal If the reduction in the Face Amount would require the return of premiums in order for the policy to qualify as life insurance under Section 7702 of the Code, or any other equivalent section of the Code, then we will return premiums, with 10 11 interest, in the year of reduction, or in any subsequent year that the return of premiums is required. If necessary, we will also limit the amount of the withdrawal so that the Face Amount does not fall below the Face Amount associated with the minimum initial premium of $25,000 and the percent of Guideline Single Premium selected. The decrease in Face Amount will be effective as of the date of the withdrawal. As long as the Policy is in force, the Company will ordinarily pay any policy loans, surrenders, partial withdrawals or insurance benefit within seven days after receipt at its Service Office of all the documents required for such a payment. The Company may delay the payment of any policy loans, surrenders, partial withdrawals, or insurance benefit that depends on Fixed Account values for up to six months. In the case of 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. B. SURRENDER CHARGES The Company will deduct a Surrender Charge if during the first 10 years following the Policy date, or the effective date of a Face Amount increase: - the Policy is surrendered for its Net Cash Surrender Value, - a partial withdrawal is made (above the Free Withdrawal Amount), or - the Policy terminates due to default. Surrender Charge Calculation The Surrender Charge is determined by multiplying the amount withdrawn or surrendered in excess of the Free Withdrawal Amount by the applicable total Surrender Charge percentage shown in the table below. Policy Year Surrender Charge 1 10.00% 2 9.00% 3 8.00% 4 7.00% 5 6.00% 11 12 6 5.00% 7 4.00% 8 3.00% 9 1.50% 10+ 0% If necessary, the the Company will reduce the surrender charge deducted upon a partial withdrawal or a surrender of the Policy so that the sum of all premium loads, the administration charges and surrender charge deducted (including the surrender charge to be deducted upon such partial withdrawal or surrender) does not exceed 10% of aggregate payments made during the first Policy Year. The Company will allocate the deduction of the Surrender Charge for a withdrawal to the Fixed Account and the Investment Accounts in the same proportion that the withdrawal from each account bears to the total withdrawal. If the withdrawal plus the Surrender Charge allocated to a particular account are greater than the value of that account, the Company will reduce the portion of the withdrawal allocated to that account. The Company will reduce the allocated portion so that the withdrawal plus the charge allocated to the account equals the value of the account. If the amount in all accounts is not sufficient to pay the Surrender Charge, the Company will reduce the amount of the withdrawal. A portion of the Net Cash Surrender Value may be withdrawn without being subject to a Surrender Charge (the "Free Withdrawal Amount"). The Free Withdrawal Amount is the greater of 10% of the total premiums or 100% of Earnings. In determining what, if any, portion of a partial withdrawal is in excess of the Free Withdrawal Amount, all previous partial withdrawals that have occurred in the current Policy Year are included. VII. LAPSE AND REINSTATEMENT A. LAPSE Unless the Lapse Protection Benefit is in effect, a Policy will go into default if at the beginning of any Policy Month the Policy's Net Cash Surrender Value would be zero or below after deducting the monthly deduction then due. Therefore, a Policy could lapse eventually if increases in Policy Value (prior to deduction of Policy charges) are not sufficient to cover Policy charges. A Policy could also lapse if the Policy Debt is greater than the Cash Surrender Value since the Lapse Protection Benefit terminates on any date that the Policy Debt exceeds the Cash Surrender Value. The Company will notify the policyowner of the default and will allow a 61 day grace period (from the date the Policy goes into default) in which the policyowner may make a premium payment sufficient to bring the Policy out of default. The required payment will be equal to the amount necessary to bring the Net Cash Surrender Value to zero, if it was less than zero on the date of default, plus the sum of (a) the 12 13 monthly deductions due at the date of default and (b) the amount equal to the monthly deductions due to the later of the next Policy Anniversary or for at least three Policy Months. If the required payment is not received by the end of the grace period, the Policy will terminate with no value. Death During Grace Period If the life insured should die during the grace period, the Policy Value used in the calculation of the death benefit will be the Policy Value as of the date of default and the insurance benefit will be reduced by any outstanding monthly deductions due at the time of death. Maturity Advantage Option If the Policy is extended after the Maturity Date by electing the Maturity Advantage Option, the Policy will go into default after the Maturity Date if any of the following occur the Policy Debt equals or exceed the Policy Value. The Company will notify the policyowner of the default and will allow a 61 day grace period (from the date the Policy goes into default) in which the policyowner may make a payment of the loan interest which would then bring the Policy out of default. If the required payment is not received by the end of the grace period, the Policy will terminate with no value. B. REINSTATEMENT A policyowner can, by making a written request, reinstate a Policy which has terminated after going into default at any time within the five-year period following the date of termination subject to the following conditions: (a) In the case of a Survivorship Policy, the Policy may not be reinstated if any of the Life Insured have died since the Policy lapsed; (b) Evidence of the life insured's insurability, satisfactory to the Company is provided to the Company; (c) A premium equal to the amount that was required to bring the Policy out of default immediately prior to termination, plus an amount equal to the Monthly Deductions due until the next Policy Anniversary or for at least three Policy Months is paid. If the reinstatement is approved, the date of reinstatement will be the later of the date the Company approves the policyowner's request or the date the required payment is received at the Company's Service Office. In addition, any surrender charges will be reinstated to the amount they were at the date of default. The Policy Value on the date of reinstatement, prior to the crediting of any Net Premium paid on the reinstatement, will be equal to the Policy Value on the date the Policy terminated. 13 14 C. LAPSE PROTECTION BENEFIT The Lapse Protection Benefit protects the Policy from going into default. As long as this benefit is in force and any outstanding Policy Debt is less than the Cash Surrender Value, the Policy will not go into default. The Lapse Protection Benefit applies to a Policy only if the initial premium paid is 100% of the Guideline Single Premium for the Face Amount of the Policy. The Lapse Protection Benefit terminates on the Maturity Date of the Policy unless the Maturity Advantage option has been elected. VIII. POLICY LOANS While the Policy is in force and has an available loan value, a policyowner may borrow against the Policy Value of the Policy. The Policy serves as the only security for the loan. A. AVAILABLE LOAN VALUE The amount of any loan cannot exceed 90% of the Net Cash Surrender Value. B. INTEREST CHARGED ON POLICY LOANS Interest on the Policy Debt will accrue daily and be payable annually on the Policy Anniversary. During the first ten Policy Years, the rate of interest charged will be an effective annual rate of 6.00%. C. INTERESTED CREDITED TO THE LOAN ACCOUNT Nonpreferred Loans Interest will be credited to amounts in the Loan Account at an effective annual rate of 4.00%. The actual rate credited is equal to the rate of interest charged on the policy loan less than the Loan Interest Credited Differential, which is currently 2%. (The Loan Interest Credited Differential is the difference between the rate of interest charged on a policy loan and the rate of interest credited to amounts in the Loan Account.) Preferred Loans Preferred interest rates are available in the case of loans of amounts that represent Earnings on the Policy. 14 15 Interest will be credited to amounts in the Loan Account at an effective annual rate of 6.00%. The actual rate credited is equal to the rate of interest charged on the policy loan less the Loan Interest Credited Differential, which is currently 0.50%. The Company may change the Current Loan Interest Credited Differential as of 90 days after sending you written notice of such change. D. LOAN ACCOUNT When a loan is made, the amount necessary to cover the loan principal, plus loan interest due to the next Policy Anniversary, will be deducted from the Investment Accounts or the Fixed Account and transferred to the Loan Account. Amounts transferred into the Loan Account cover the loan principal plus loan interest due to the next Policy Anniversary. The policyowner may designate how the amount to be transferred to the Loan Account is allocated among the accounts from which the transfer is to be made. In the absence of instructions, the amount to be transferred will be allocated to each account in the same proportion as the value in each Investment Account and the Fixed Account bears to the Net Policy Value. A transfer from an Investment Account will result in the cancellation of units of the underlying sub-account equal in value to the amount transferred from the Investment Account. However, since the Loan Account is part of the Policy Value, transfers made in connection with a loan will not change the Policy Value. E. LOAN ACCOUNT ADJUSTMENTS On the first day of each Policy Anniversary the difference between the Loan Account and the Policy Debt is transferred to the Loan Account from the Investment Accounts or the Fixed Account. Amounts transferred to the Loan Account will be taken from the Investment Accounts and the Fixed Account in the same proportion as the value in each Investment Account and the Fixed Account bears to the Net Policy Value. F. LOAN REPAYMENTS Policy Debt may be repaid in whole or in part at any time prior to the death of the life insured, provided that the Policy is in force. When a repayment is made, the amount is credited to the Loan Account and transferred to the Fixed Account or the Investment Accounts. Loan repayments will be allocated first to the Fixed Account until the associated Loan Sub-Account is reduced to zero and then to each Investment Account in the same proportion as the value of the corresponding Loan Sub-Account bears to the value of the Loan Account. Where permitted by applicable state law, any additional premium payment will be applied first to repay outstanding loan balances. 15 16 VIII. MATURITY DATE Provided that the Policy is in force and the Life Insured (last-to-die of the life insured in the case of a Survivorship Policy) is alive, the Company will pay the policyowner the Policy Value (less any outstanding Policy Debt) calculated as of the Maturity Date (the Maturity Date is stated in the Policy). MATURITY ADVANTAGE OPTION If the Life Insured is alive (or in the case of a Survivorship Policy, the last to die of the Life Insured is alive) on the Maturity Date, the policyowner may elect to continue the Policy. The Policyowner's written election to continue the Policy must be received at the Service Office prior to the Maturity Date. If this election is made, the Policy will continue in force subject to the following: (a) any existing Investment Account Value will be transferred to the Fixed Account; (b) no additional premium payments will be accepted although loan repayments will be accepted; (c) no additional charges or deductions will be assessed; (d) interest on any Policy Debt will continue to accrue; (e) the death benefit described below will be payable to the beneficiary upon receipt of due proof of death of the Life Insured. The death benefit payable after the Maturity Date if the Maturity Advantage Option is elected is the greater of the Face Amount or the Minimum Death Benefit (as described above) less any Policy Debt due at the date of death. If the Policy is continued after the Maturity Date, the Policy will go into default after the Maturity Date if the Policy Debt equals or exceeds the Policy Value. The Company will notify the policyowner of the default and will allow a 61 day grace period (from the date the Policy goes into default) in which the policyowner may make a payment of the loan interest which would then bring the Policy out of default. If the required payment is not received by the end of the grace period, the Policy will terminate with no value. VIII. TERMINATION The Policy will terminate on the earliest to occur of the following events: (a) the end of the grace period for which the policyowner has not paid the amount necessary to bring the Policy out of default, (b) surrender of the Policy for its Net Cash Surrender Value; (c) the Maturity Date unless the policyowner has elected the Maturity Advantage option; (d) the death of the Life Insured. 16 17 17 -----END PRIVACY-ENHANCED MESSAGE-----