As filed with the Securities and Exchange Commission on January 2, 2002
Registration No. 333-71134
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 A OF
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
(Exact name of Registrant)
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
(Name of Depositor)
38500 Woodward Avenue
Bloomfield Hills, Michigan 48304
(Address of Depositor's Principal Executive Offices)
James D. Gallagher
Secretary and General Counsel
The Manufacturers Life Insurance Company (U.S.A.)
73 Tremont Street
Boston, MA 02108
(Name and Address of Agent for Service)
Copy to:
J. Sumner Jones, Esq.
Jones & Blouch L.L.P.
1025 Thomas Jefferson Street, NW
Washington, DC 20007
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.
Separate Account A of
The Manufacturers Life Insurance Company (U.S.A.)
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
A)
2 Cover Page; General Information About Manufacturers (Manulife USA)
3 *
4 Other Information (Distribution of the Policy)
5 General Information About Manufacturers Life (Separate Account A)
6 General Information About Manufacturers Life (Separate Account A)
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 General Information About Manufacturers (Manufacturers Investment
Trust)
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 **
24 Other Provisions of the Policy
25 General Information About Manufacturers (Manulife USA)
26 *
27 General Information About Manufacturers (Manulife USA);
Other Information (Distribution of the Policy)
28 Other Information (Officers and Directors)
29 General Information About Manufacturers (Manulife USA)
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 Other Information (Distribution of the Policy)
42 Other Information (Distribution of the Policy)
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)
53 General Information About Manufacturers Life (Separate Account A);
Tax Treatment of the Policy
54 *
55 *
56 *
57 *
58 *
59 Financial Statements
* Omitted since answer is negative or item is not applicable.
PART I
INFORMATION REQUIRED IN PROSPECTUS
PROSPECTUS
SEPARATE ACCOUNT A OF
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
VENTURE VUL [EPVUL] ACCUMULATOR
A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
This prospectus describes Venture VUL [EPVUL] Accumulator, a flexible premium
variable universal life insurance policy (the "Policy") offered by The
Manufacturers Life Insurance Company (U.S.A.) (the "Company," "Manulife USA,"
"we" or "us").
The Policy is designed to provide lifetime insurance protection together with
flexibility as to:
- - the timing and amount of premium payments,
- - the investments underlying the Policy Value, and
- - the amount of insurance coverage.
This flexibility allows you, the policyowner, to pay premiums and adjust
insurance coverage in light of your current financial circumstances and
insurance needs.
Policy Value may be accumulated on a fixed basis or vary with the investment
performance of the sub-accounts of Manulife USA's Separate Account A (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.
THE POLICY IS NOT SUITABLE FOR SHORT-TERM INVESTMENT PURPOSES. ALSO PROSPECTIVE
PURCHASERS SHOULD NOTE THAT IT MAY NOT BE ADVISABLE TO PURCHASE A POLICY AS A
REPLACEMENT FOR EXISTING INSURANCE.
The Securities and Exchange Commission (the "SEC") maintains a web site
(http://www.sec.gov) that contains material incorporated by reference and other
information regarding registrants that file electronically with the SEC.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT IS
VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE TRUST.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Manufacturers Life Insurance Company (U.S.A.)
38500 Woodward Avenue
Bloomfield Hills, Michigan 48304
THE DATE OF THIS PROSPECTUS IS JANUARY 1, 2002
1
TABLE OF CONTENTS
DEFINITIONS .............................................................. 4
POLICY SUMMARY ........................................................... 6
General .............................................................. 6
Death Benefits ....................................................... 6
Optional Term Rider .................................................. 6
Cash Value Enhancement Riders ........................................ 6
Premiums ............................................................. 6
Policy Value ......................................................... 7
Policy Loans ......................................................... 7
Surrender and Partial Withdrawals .................................... 7
Lapse and Reinstatement .............................................. 7
Charges and Deductions ............................................... 7
Investment Options and Investment Advisers ........................... 8
Investment Management Fees and Expenses .............................. 8
Table of Charges and Deductions ...................................... 8
Table of Investment Management Fees and Expenses ..................... 10
Table of Investment Options and Investment Subadvisers ............... 12
GENERAL INFORMATION ABOUT MANULIFE USA, THE SEPARATE ACCOUNT AND THE TRUST 14
MANULIFE USA ......................................................... 14
The Separate Account ................................................. 14
The Trust ............................................................ 15
Investment Objectives of the Portfolios .............................. 15
ISSUING A POLICY ......................................................... 20
Requirements ......................................................... 20
Temporary Insurance Agreement ........................................ 20
Right to Examine the Policy .......................................... 21
Life Insurance Qualification ......................................... 21
DEATH BENEFITS ........................................................... 22
Death Benefit Options ................................................ 22
Changing the Death Benefit Option .................................... 23
Changing the Face Amount ............................................. 23
PREMIUM PAYMENTS ......................................................... 24
Initial Premiums ..................................................... 24
Subsequent Premiums .................................................. 24
Maximum Premium Limitation ........................................... 25
Premium Allocation ................................................... 25
CHARGES AND DEDUCTIONS ................................................... 25
Premium Charge ....................................................... 25
Surrender Charges .................................................... 25
Monthly Deductions ................................................... 27
Charges for Transfers ................................................ 28
Reduction in Charges ................................................. 28
SPECIAL PROVISIONS FOR EXCHANGES ......................................... 29
COMPANY TAX CONSIDERATIONS ............................................... 29
POLICY VALUE ............................................................. 29
Determination of the Policy Value .................................... 29
Units and Unit Values ................................................ 29
Transfers of Policy Value ............................................ 30
POLICY LOANS ............................................................. 31
Effect of Policy Loan ................................................ 31
Interest Charged on Policy Loans ..................................... 31
Loan Account ......................................................... 31
POLICY SURRENDER AND PARTIAL WITHDRAWALS ................................. 32
Policy Surrender ..................................................... 32
Partial Withdrawals .................................................. 32
LAPSE AND REINSTATEMENT .................................................. 33
Lapse ................................................................ 33
2
No-Lapse Guarantee ................................................... 33
No-Lapse Guarantee Cumulative Premium Test ........................... 34
Reinstatement ........................................................ 34
THE GENERAL ACCOUNT ...................................................... 34
Fixed Account ........................................................ 35
OTHER PROVISIONS OF THE POLICY ........................................... 35
Cash Value Enhancement Riders ........................................ 35
Policyowner Rights ................................................... 36
Beneficiary .......................................................... 36
Validity ............................................................. 36
Misstatement of Age or Sex ........................................... 36
Suicide Exclusion .................................................... 37
Supplementary Benefits ............................................... 37
TAX TREATMENT OF THE POLICY .............................................. 37
Life Insurance Qualification ......................................... 37
Tax Treatment of Policy Benefits ..................................... 39
Alternate Minimum Tax ................................................ 42
Income Tax Reporting ................................................. 42
OTHER INFORMATION ........................................................ 42
Payment of Proceeds .................................................. 42
Reports to Policyowners .............................................. 42
Distribution of the Policies ......................................... 43
Responsibilities of MFC .............................................. 43
Voting Rights ........................................................ 43
Substitution of Portfolio Shares ..................................... 44
Records and Accounts ................................................. 44
State Regulations .................................................... 44
Litigation ........................................................... 44
Independent Auditors ................................................. 44
Further Information .................................................. 44
Officers and Directors ............................................... 45
Optional Term Rider .................................................. 46
ILLUSTRATIONS ............................................................ 46
APPENDIX A - SAMPLE ILLUSTRATIONS OF POLICY VALUES, CASH SURRENDER
VALUES AND DEATH BENEFITS ................................... A-1
APPENDIX B - AUDITED FINANCIAL STATEMENTS ................................ B-1
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION WHERE IT
WOULD NOT BE LAWFUL. YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS, THE PROSPECTUS OF MANUFACTURERS INVESTMENT TRUST, OR THE STATEMENT
OF ADDITIONAL INFORMATION OF MANUFACTURERS INVESTMENT TRUST. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
THE PURPOSE OF THIS VARIABLE LIFE INSURANCE POLICY IS TO PROVIDE INSURANCE
PROTECTION FOR THE BENEFICIARY NAMED THEREIN. NO CLAIM IS MADE THAT THIS
VARIABLE LIFE INSURANCE POLICY IS IN ANY WAY SIMILAR OR COMPARABLE TO A
SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND.
Examine this prospectus carefully. The Policy Summary will briefly describe the
Policy. More detailed information will be found further in the prospectus.
3
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 to the
Policy Date. If no specific age is mentioned, age means the life insured's age
on the Policy Anniversary nearest to the birthday.
Attained Age
is the Age at issue plus the number of whole years that have elapsed since the
Policy Date.
Business Day
is any day that the New York Stock Exchange is open for business. A Business Day
ends at the close of regularly scheduled daytime trading of the New York Stock
Exchange on that day.
Cash Surrender Value
is the Policy Value less the Surrender Charge and any outstanding monthly
deductions due.
Gross Withdrawal
is the amount of partial Net Cash Surrender Value the policyowner requests plus
any Surrender Charge applicable to the withdrawal.
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. 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.
Investment Account
is that part of the Policy Value which reflects the value the policyowner has in
one of the sub-accounts of the Separate Account.
Issue Date
is the date the Company issued the Policy. The Issue Date is also the date from
which the Suicide and Validity provisions of the Policy are measured.
Life Insured
is the person whose life is insured under this Policy.
Loan Account
is that part of the Policy Value which reflects the value transferred from the
Fixed Account or the Investment Accounts as collateral for a policy loan.
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.
Maximum Loanable Amount
is 100% of the Policy Net Cash Surrender Value less estimated charges to the
next Policy anniversary, including loan interest.
Minimum Death Benefit
is on any date the Policy Value on that date multiplied by the applicable
minimum death benefit percentage for the Attained Age of the life insured.
Monthly No-Lapse Guarantee Premium
is one-twelfth of the No-Lapse Guarantee Premium.
4
Service Office Address
is 200 Bloor Street East, Toronto, Ontario, Canada M4W 1E5.
Surrender Charge Period
is the period following the Policy Date or following any increase in Face Amount
during which the Company will assess Surrender Charges. Surrender Charges will
apply during this period if the policy terminates due to default, if the
policyowner surrenders the policy or makes a partial withdrawal.
Surrender Charge Premium Limit
is used to determine the Surrender Charge. The Surrender Charge Premium Limit
for the initial Face Amount is stated in the Policy. The Company will advise the
policyowner of the Surrender Charge Premium Limit for any increase in Face
Amount.
Written Request
is the policyowner's request to the Company which must be in a form satisfactory
to the Company, signed and dated by the policyowner, and received at the Service
Office.
POLICY SUMMARY
GENERAL
We have prepared the following summary as a general description of the most
important features of the Policy. It is not comprehensive and you should refer
to the more detailed information contained in this prospectus. Unless otherwise
indicated or required by the context, the discussion throughout this prospectus
assumes that the Policy has not gone into default, there is no outstanding
Policy Debt, and the death benefit is not determined by the minimum death
benefit percentage. The Policy's provisions may vary in some states and the
terms of your Policy and any endorsement or rider supersede the disclosure in
this prospectus.
DEATH BENEFITS
There are three death benefit options. Under Option 1, the death benefit is the
FACE AMOUNT OF THE POLICY at the date of death. Under Option 2, the death
benefit is the FACE AMOUNT PLUS THE POLICY VALUE OF THE POLICY at the date of
death. Under Option 3, the death benefit is the FACE AMOUNT PLUS THE PREMIUM
DEATH BENEFIT ACCOUNT at the date of death. If on the date of death of the
insured, the Policy is being kept in force under the No-Lapse Guarantee
provision, the death benefit will be the Face Amount of the Policy only. The
actual death benefit will be the greater of the death benefit under the
applicable death benefit option or the Minimum Death Benefit. The Minimum Death
Benefit is on any date the Policy Value on that date multiplied by the
applicable minimum death benefit percentage for the Attained Age of the life
insured. A table of Minimum Death Benefit Percentages is located under "Death
Benefits - Minimum Death Benefit." You may change the death benefit option and
increase or decrease the Face Amount subject to the limitations described in
this Prospectus.
OPTIONAL TERM RIDER
The Policy may be issued with an optional term insurance rider (the "Term
Rider") which provides an additional insurance amount which is level term life
insurance. The benefit of the Term Rider is that the cost of insurance will
always be less than or equal to the cost of insurance under the Policy. HOWEVER,
UNLIKE THE DEATH BENEFIT UNDER THE POLICY, THE DEATH BENEFIT UNDER THE TERM
RIDER IS NOT PROTECTED BY THE NO-LAPSE GUARANTEE AFTER THE SECOND POLICY YEAR
AND TERMINATES AT THE LIFE INSURED'S ATTAINED AGE 100.
CASH VALUE ENHANCEMENT RIDERS
The Policy may be issued with one of two optional Cash Value Enhancement riders.
The benefit of either rider is that the Cash Surrender Value under the Policy
will be enhanced during the period for which Surrender Charges apply. The
decision to add one of these two riders must be made at issuance of the Policy
and, once made, is irrevocable. Adding either of these riders will result in
different premium and asset-based risk charges under the Policy.
PREMIUMS
You may pay premiums at any time and in any amount, subject to certain
limitations as described under "Premium Payments - Subsequent Premiums." Net
Premiums will be allocated, according to your instructions and at the Company's
discretion, to one or more of our general account and the sub-accounts of the
Separate Account. You may change your allocation instructions at any time. You
may also transfer amounts among the accounts.
6
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 the Maximum Loanable Amount. Loan
interest at a rate of 5.25% during the first ten Policy Years and 4% thereafter
is due on each Policy Anniversary. We will deduct all outstanding Policy Debt
from proceeds payable at the insured's death or upon surrender.
SURRENDER AND PARTIAL WITHDRAWALS
You may make a partial withdrawal of your Policy Value. A partial withdrawal may
result in a reduction in the Face Amount of or the death benefit under the
Policy and an assessment of a portion of the Surrender Charges to which the
Policy is subject.
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 any Surrender Charge and outstanding monthly deductions due minus the
Policy Debt.
LAPSE AND REINSTATEMENT
Unless the No-Lapse Guarantee Cumulative Premium Test has been met, a Policy
will lapse (and terminate without value) when its Net Cash Surrender Value is
insufficient to pay the next monthly deduction and a grace period of 61 days
expires without your having made an adequate payment.
The Policies, therefore, differ in two important respects from conventional life
insurance policies. First, the failure to make planned premium payments will not
itself cause a Policy to lapse. Second, a Policy can lapse even if planned
premiums have been paid.
A policyowner may reinstate a lapsed Policy at any time within the five year
period following lapse provided the Policy was not surrendered for its Net Cash
Surrender Value. We will require evidence of insurability along with a certain
amount of premium as described under "Reinstatement."
CHARGES AND DEDUCTIONS
We assess certain charges and deductions in connection with the Policy. These
include:
- charges deducted from premiums paid,
- monthly deductions for administration, asset-based risk and
cost of insurance charges,
- charges assessed on surrender or lapse, and
- if applicable, a charge for any supplementary benefits added
to the Policy.
The charges are summarized in the Table of Charges and Deductions. We may allow
you to request that the sum of the charges assessed monthly for the cost of
insurance and administrative expenses be deducted from the Fixed Account or one
or more of the sub-accounts of the Separate Account.
In addition, there are charges deducted from each Portfolio of the Trust. These
charges are summarized in the Table of Investment Management Fees and Expenses.
The Policy may be issued with either one of the two optional Cash Value
Enhancement riders which we offer. In the case of the Cash Value Enhancement
rider, the Surrender Charge is reduced. In the case of the Cash Value
Enhancement Plus rider, the Surrender Charge is eliminated. If a Policy is
issued with either of these riders, it will have different premium charges and
the same or higher asset-based risk charges as noted under the "Table of Charges
and Deductions."
7
INVESTMENT OPTIONS AND INVESTMENT ADVISERS
You may allocate Net Premiums to the Fixed Account or to one or more of the
sub-accounts of the Separate Account. 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, as amended.
The Trust also employs subadvisers. The Table of Investment Options and
Investment Subadvisers shows the subadvisers that provide investment subadvisory
services to the indicated Portfolios.
Allocating net premiums only to one or a small number of the investment options
(other than the Lifestyle Trusts) should not be considered a balanced investment
strategy. In particular, allocating net premiums to a small number of investment
options that concentrate their investments in a particular business or market
sector will increase the risk that the value of your Policy will be more
volatile since these investment options may react similarly to business or
market specific events. Examples of business or market sectors where this risk
historically has been and may continue to be particularly high include: (a)
technology related businesses, including internet related businesses, (b) small
cap securities and (c) foreign securities. The Company does not provide advice
regarding appropriate investment allocations. Please discuss this matter with
your financial adviser.
INVESTMENT MANAGEMENT FEES AND EXPENSES
Each sub-account of the Separate Account purchases shares of one 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
The table below sets forth the charges and deductions for the Policy. The Policy
may be issued with either one of two optional riders, the Cash Value Enhancement
Rider and the Cash Value Enhancement Plus Rider. Adding either one of these
riders to the Policy will alter certain charges under the Policy. The charges
associated with these riders are discussed below.
Premium The Policy provides for a deduction of 7.5% of the
Charges: premium paid during the first 10 Policy Years and
5.0% of each premium paid thereafter. Where the Cash
Value Enhancement Rider is used, the premium charges
are increased to 8.5% of the premium paid during the
first 10 Policy Years and 5.5% thereafter. Where the
Cash Value Enhancement Plus Rider is used, the
premium charges are 3.25% for the first 10 Policy
Years and 2.25% thereafter.
Monthly An ADMINISTRATION CHARGE of $40 plus a per $1000 of
Deductions: Face Amount charge per Policy Month is deducted in
the first five Policy Years. In subsequent years, the
administration charge is $20 plus a per $1000 of Face
Amount charge per Policy Month. The monthly charge
per $1000 of Face Amount varies by the Age of the
life insured at issuance (or the Attained Age of the
life insured at the time of an increase) and the
death benefit option in effect. It applies to the
initial Face Amount for the first 10 Policy Years and
thereafter to the initial Face Amount less any
decreases. (See the chart under "Charges and
Deductions - Administration Charge" for the exact per
$1000 Face Amount charge.) The monthly administration
charge does not vary with the Cash Value Enhancement
options.
A monthly ASSET-BASED RISK CHARGE is assessed against
the Policy value in the Investment Accounts at an
annual rate of 0.15%. This rate is guaranteed not to
exceed 0.45%. Where the Cash Value Enhancement Rider
is used, the asset-based risk charges are the same as
those provided in the Policy - an annual rate of
0.15% guaranteed not to exceed 0.45%. Where the Cash
Value Enhancement Plus Rider is used, the current
asset-based risk charges are at an annual rate of
1.00% for the first 15 Policy Years and 0.25%
thereafter. The guaranteed rates are 1.30% for the
first 15 Policy Years and 0.55% thereafter.
A COST OF INSURANCE CHARGE is assessed monthly based
on the amount at risk under the Policy. The rate of
this charge does not vary with the Cash Value
Enhancement options.
8
Surrender A Surrender Charge is assessed upon surrender of the
Charges: Policy, a partial withdrawal of Net Cash Surrender
Value or lapse of the Policy occurring during the
first 10 years following the Policy Date or the
effective date of a Face Amount increase. The
Surrender Charge is calculated separately for the
initial Face Amount and each Face Amount increase.
The Surrender Charge is the sum of (i) plus (ii),
multiplied by (iii), multiplied by the Grading
Percentage, where:
(i) is the Rate per $1000 of initial Face Amount (or
Face Amount increase); (ii) is 80% of the lesser of
(a) the premiums paid per $1000 of Face Amount during
the first two Policy Years (or premiums attributable
to each $1000 of Face Amount increase for the two
years following the increase) or (b) the Surrender
Charge Premium Limit set out in the Policy for the
initial Face Amount (or furnished by the Company with
respect to a Face Amount increase); and (iii) is the
initial Face Amount (or Face Amount increase) divided
by 1000.
The Rate per $1000 of initial Face Amount is based on
the life insured's Age at issuance of the Policy. The
Rate per $1000 of Face Amount increase is based on
the life insured's Attained Age at the time of the
increase. (See the chart under "Charges and
Deductions - Surrender Charges" for the exact Rate
per $1000 of initial Face Amount.)
The Grading Percentage starts at 100% for the first
Policy Month and grades down by .833% each subsequent
Policy Month reaching zero at the end of 10 years.
If the Policy is issued with a Cash Value Enhancement
Rider, the Surrender Charge calculated as described
above is reduced by 80% for a surrender, withdrawal
or lapse occurring in the first two Policy Years, 60%
in the third policy Year, 40% in the fourth policy
Year and 20% in the fifth Policy Year.
If the Policy is issued with a Cash Value Enhancement
Plus Rider, there is no Surrender Charge.
Loan Charges: A fixed loan interest rate of 5.25% is charged during
the first 10 Policy Years and 4% thereafter. Interest
is credited to amounts in the Loan Account at a rate
of 4%. This rate is guaranteed not to be less than
4.00% during the first 10 policy years and 3.50%
thereafter.
Transfer A charge of $25 per transfer is assessed for each
Charge: transfer in excess of 12 in a Policy Year.
Dollar Cost The charge for a transfer made under the Dollar Cost
Averaging Averaging program will not exceed $5.
Charge:
Asset The charge for a transfer made under the Asset
Allocation Allocation Balancer program will not exceed $15.
Balancer
Charge:
9
TABLE OF INVESTMENT MANAGEMENT FEES AND EXPENSES
TRUST ANNUAL EXPENSES
(as a percentage of Trust average net assets for the fiscal year ended December
31, 2000)(J)
TOTAL TRUST
OTHER EXPENSES ANNUAL EXPENSES
MANAGEMENT (AFTER EXPENSE (AFTER EXPENSE
TRUST PORTFOLIO FEES CLASS A RULE 12B-1 FEE REIMBURSEMENT) REIMBURSEMENT)
- -----------------------------------------------------------------------------------------------------------------------
Internet Technologies ....... 1.000% 0.150% 0.130% 1.280%(E)
Pacific Rim Emerging Markets 0.700% 0.150% 0.180% 1.030%
Telecommunications .......... 0.950% 0.150% 0.130% 1.230%(A)
Science & Technology ........ 0.916%(F) 0.150% 0.040% 1.106%
International Small Cap ..... 0.914% 0.150% 0.440% 1.504%
Health Sciences ............. 0.950%(F) 0.150% 0.130% 1.230%(A)
Aggressive Growth ........... 0.850% 0.150% 0.070% 1.070%
Emerging Small Company ...... 0.896% 0.150% 0.050% 1.096%
Small Company Blend ......... 0.900% 0.150% 0.140% 1.190%
Dynamic Growth .............. 0.850% 0.150% 0.070% 1.070%(E)
Mid Cap Growth .............. 0.850% 0.150% 0.280% 1.280%(A)
Mid Cap Opportunities ....... 0.850% 0.150% 0.230% 1.230%(A)
Mid Cap Stock ............... 0.775% 0.150% 0.075% 1.000%
All Cap Growth .............. 0.778% 0.150% 0.050% 0.978%
Financial Services .......... 0.800% 0.150% 0.090% 1.040%(A)
Overseas .................... 0.800% 0.150% 0.200% 1.150%
International Stock ......... 0.850%(F) 0.150% 0.180% 1.180%
International Value ......... 0.850% 0.150% 0.180% 1.180%
Capital Appreciation ........ 0.750% 0.150% 0.500%(H) 1.400%(H)
Strategic Opportunities ..... 0.700% 0.150% 0.050% 0.900%
Quantitative Mid Cap ........ 0.650% 0.150% 0.070% 0.870%(A)
Global Equity ............... 0.750% 0.150% 0.120% 1.020%
Strategic Growth ............ 0.750% 0.150% 0.120% 1.020%(A)
Growth ...................... 0.683% 0.150% 0.050% 0.883%
Large Cap Growth ............ 0.750% 0.150% 0.065% 0.965%
All Cap Value ............... 0.800% 0.150% 0.140% 1.090%(A)
Capital Opportunities ....... 0.750% 0.150% 0.160% 1.060%(A)
Quantitative Equity ......... 0.596% 0.150% 0.050% 0.796%
Blue Chip Growth ............ 0.713%(F) 0.150% 0.035% 0.898%
Utilities ................... 0.750% 0.150% 0.270% 1.170%(A)
Real Estate Securities ...... 0.647%(A) 0.150% 0.060% 0.857%
Small Company Value ......... 0.900%(F) 0.150% 0.190% 1.240%
Mid Cap Value ............... 0.800% 0.150% 0.160% 1.110%(A)
Value ....................... 0.650% 0.150% 0.060% 0.860%
Tactical Allocation ......... 0.750% 0.150% 0.430% 1.330%(E)
Fundamental Value ........... 0.800% 0.150% 0.130% 1.080%(A)
Growth & Income ............. 0.524% 0.150% 0.040% 0.714%
U.S. Large Cap Value ........ 0.725% 0.150% 0.055% 0.930%
Equity-Income ............... 0.725%(F) 0.150% 0.035% 0.910%
Income & Value .............. 0.650% 0.150% 0.060% 0.860%
Balanced .................... 0.554%(A) 0.150% 0.060% 0.764%
High Yield .................. 0.625% 0.150% 0.065% 0.840%
Strategic Bond .............. 0.625% 0.150% 0.095% 0.870%
Global Bond ................. 0.600% 0.150% 0.200% 0.950%
Total Return ................ 0.600% 0.150% 0.065% 0.815%
Investment Quality Bond ..... 0.500% 0.150% 0.080% 0.730%
Diversified Bond ............ 0.600% 0.150% 0.060% 0.810%
U.S. Government Securities .. 0.550% 0.150% 0.070% 0.770%
Money Market ................ 0.350% 0.150% 0.040% 0.540%
Small Cap Index ............. 0.375% 0.150% 0.075%(G) 0.600%(E)
International Index ......... 0.400% 0.150% 0.050%(G) 0.600%(E)
10
Mid Cap Index ............... 0.375% 0.150% 0.075%(G) 0.600%(E)
Total Stock Market Index .... 0.375% 0.150% 0.075%(G) 0.600%(E)
500 Index ................... 0.375% 0.150% 0.025%(G) 0.550%(E)
Lifestyle Aggressive 1000(D) 0.070% 0.000% 1.038%(B) 1.108%(C)
Lifestyle Growth 820(D) ..... 0.055% 0.000% 0.966%(B) 1.021%(C)
Lifestyle Balanced 640(D) ... 0.055% 0.000% 0.892%(B) 0.947%(C)
Lifestyle Moderate 460(D) ... 0.064% 0.000% 0.826%(B) 0.890%(C)
Lifestyle Conservative 280(D) 0.075% 0.000% 0.784%(B) 0.859%(C)
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Small Mid-Cap Growth ........ 0.850% 0.150% 0.100%(I) 1.100%(A)
Small-Mid Cap ............... 0.950% 0.150% 0.100%(I) 1.200%(A)
International Equity Select . 0.900% 0.150% 0.150%(I) 1.200%(A)
Select Growth ............... 0.800% 0.150% 0.100%(I) 1.050%(A)
Global Equity Select ........ 0.900% 0.150% 0.150%(I) 1.200%(A)
Core Value .................. 0.850% 0.150% 0.100%(I) 1.100%(A)
High Grade Bond ............. 0.600% 0.150% 0.100%(I) 0.850%(A)
- -----------------------------------------------------------------------------------------------------------------------
(A) Based on estimates to be made during the current fiscal year.
(B) Reflects expenses of the Underlying Portfolios.
(C) The investment adviser to the Trust, Manufacturers Securities Services,
LLC ("MSS" or the "Adviser") has voluntarily agreed to pay certain
expenses of each Lifestyle Trust as noted below. (For purposes of the
expense reimbursement, total expenses of a Lifestyle Trust includes the
advisory fee but excludes (a) the expenses of the Underlying
Portfolios, (b) taxes, (c) portfolio brokerage, (d) interest, (e)
litigation and (f) indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the Trust's business.)
If total expenses of a Lifestyle Trust (absent reimbursement) exceed 0.075%, the
Adviser will reduce the advisory fee or reimburse expenses of that Lifestyle
Trust by an amount such that total expenses of the Lifestyle Trust equal 0.075%.
If the total expenses of the Lifestyle Trust (absent reimbursement) are equal to
or less than 0.075%, then no expenses will be reimbursed by the Adviser.
This voluntary expense reimbursement may be terminated at any time. If such
expense reimbursement was not in effect, Total Trust Annual Expenses would be
higher (based on current advisory fees and the Other Expenses of the Lifestyle
Trusts for the fiscal year ended December 31, 2000) as noted in the chart below:
MANAGEMENT RULE 12b-1 OTHER TOTAL TRUST
TRUST PORTFOLIO FEES FEES EXPENSES ANNUAL EXPENSES
- --------------------------------------------------------------------------------------------------------
Lifestyle Aggressive 1000 . 0.070% 0.000% 1.063% 1.133%
Lifestyle Growth 820 ...... 0.055% 0.000% 0.976% 1.031%
Lifestyle Balanced 640 .... 0.055% 0.000% 0.902% 0.957%
Lifestyle Moderate 460 .... 0.064% 0.000% 0.851% 0.915%
Lifestyle Conservative 280 0.075% 0.000% 0.816% 0.891%
(D) Each Lifestyle Trust will invest in shares of the Underlying
Portfolios. Therefore, each Lifestyle Trust will bear its pro rata
share of the fees and expenses incurred by the Underlying Portfolios in
which it invests, and the investment return of each Lifestyle Trust
will be net of the Underlying Portfolio expenses. Each Lifestyle
Portfolio must bear its own expenses. However, the Adviser is currently
paying certain of these expenses as described in footnote ( C ) above.
(E) Annualized - For the period May 1, 2000 (commencement of operations) to
December 31, 2000.
(F) Effective June 1, 2000, the Adviser voluntarily agreed to waive a
portion of its advisory fee for the Science & Technology Trust, Health
Sciences Trust, Small Company Value Trust, Blue Chip Growth Trust,
Equity-Income Trust and the International Stock Trust. Once the
combined assets exceed specified amounts, the fee reduction is
increased. The percentage fee reduction for each asset level is as
follows:
FEE REDUCTION
COMBINED ASSET LEVELS (AS A PERCENTAGE OF THE
ADVISORY FEE)
First $750 million 0.00%
Between $750 million and $1.5 billion 2.50%
Between $1.5 billion and $3.0 billion 3.75%
Over $3.0 billion 5.00%
11
The fee reductions are applied to the advisory fees of each of the six
portfolios. This voluntary fee waiver may be terminated at any time by
the adviser. As of September 30, 2001, the combined asset level for all
six portfolios was approximately $3.396 billion resulting in a fee
reduction of 3.408%. There is no guarantee that the combined asset
level will remain at this amount. If the combined asset level were to
decrease to a lower breakpoint, the fee reduction would decrease as
well.
(G) MSS has voluntarily agreed to pay expenses of each Index Trust
(excluding the advisory fee) that exceed the following amounts: 0.050%
in the case of the International Index Trust and 500 Index Trust and
0.075% in the case of the Small Cap Index Trust, the Mid Cap Index
Trust and Total Stock Market Index Trust. If such expense reimbursement
were not in effect, it is estimated that "Other Expenses" and "Total
Trust Annual Expenses" would be 0.097% and 0.650%, respectively, for
the International Index Trust, 0.125% and 0.650%, respectively, for the
Small Cap Index Trust, and 0.164% and 0.690%, respectively, for the Mid
Cap Index Trust and 0.090% and 0.620%, respectively, for the Total
Stock Market Index Trust. It is estimated that the expense
reimbursement will not be effective during the year end December 31,
2001 for the 500 Index Trust. The expense reimbursement may be
terminated at any time by MSS.
(H) Annualized - For period November 1, 2000 (commencement of operations)
to December 31, 2000. For all portfolios except the Lifestyle Trusts,
the Adviser reduces its advisory fee or reimburses the portfolio if the
total of all expenses (excluding advisory fees, taxes, portfolio
brokerage commissions, interest, litigation and indemnification
expenses and other extraordinary expenses not incurred in the ordinary
course of the portfolio's business) exceed certain annual rates. In the
case of the Capital Appreciation Trust, the Adviser reimbursed the
portfolio for certain expenses for the year ended December 31, 2000. If
such expense reimbursement were not in effect, it is estimated that
"Other Expenses" and "Total Trust Annual Expenses" would be 0.700% and
1.600%, respectively. These voluntary expense reimbursements may be
terminated at any time.
(I) MSS has voluntarily agreed to pay expense of each portfolio that exceed
the following amounts: .15% for the International Equity Select Trust
and Global Equity Select Trust and .10% for the Small-Mid Cap Growth
Trust, Small-Mid Cap Trust, Select Growth Trust, Core Value Trust and
High Grade Bond Trust. If such expense reimbursement were not in
effect, it is estimated that "Other Expenses" and "Total Trust Annual
Expenses" would be 2.94% and 3.99%, respectively, for the International
Equity Select Trust, 2.75% and 3.80%, respectively, for the Global
Equity Select Trust, 3.02% and 3.97%, respectively, for the Small-Mid
Cap Growth Trust, 2.99% and 4.09%, respectively, for the Small-Mid Cap
Trust , 3.38% and 4.33%, respectively, for the Select Growth Trust,
3.14% and 4.09%, respectively, for the Core Value Trust and 3.19% and
3.94%, respectively, for the High Grade Bond Trust. It is estimated
that the expense reimbursement will remain in effect during the year
end December 31, 2001. The expense reimbursement may be terminated at
any time by MSS.
(J) Effective January 1, 2002, the Trust implemented a Class A Rule 12b-1
plan while simultaneously reducing its advisory fees and implementing
advisory fee breakpoints. The Trust Annual Expense chart reflects these
changes.
TABLE OF INVESTMENT OPTIONS AND INVESTMENT SUBADVISERS
The Trust currently has twenty-five subadvisers who manage all of the
portfolios, one of which subadvisers is Manufacturers Adviser Corporation
("MAC"). Both MSS and MAC are affiliates of ours.
SUBADVISER PORTFOLIO
A I M Capital Management, Inc. All Cap Growth Trust
Aggressive Growth Trust
Brinson Advisors, Inc. Tactical Allocation Trust
(formerly, Mitchell Hutchins Asset Management Inc.)
Capital Guardian Trust Company Small Company Blend Trust
U.S. Large Cap Value Trust
Income & Value Trust
Diversified Bond Trust
Cohen & Steers Capital Management, Inc. Real Estate Securities Trust
Davis Select Advisers, L.P. Financial Services Trust
Fundamental Value Trust
The Dreyfus Corporation All Cap Value Trust
Fidelity Management & Research Company Strategic Opportunities Trust(A)
Large Cap Growth Trust
Overseas Trust
12
Founders Asset Management LLC International Small Cap Trust
Franklin Advisers, Inc. Emerging Small Company Trust
INVESCO Funds Group, Inc. Telecommunications Trust
Mid Cap Growth Trust
Janus Capital Corporation Dynamic Growth Trust
Jennison Associates LLC Capital Appreciation Trust
Lord, Abbett & Co. Mid Cap Value Trust
Manufacturers Adviser Corporation Pacific Rim Emerging Markets Trust
Quantitative Equity Trust
Quantitative Mid Cap Trust
Money Market Trust
Index Trusts
Lifestyle Trusts(B)
Balanced Trust
Massachusetts Financial Services Company Strategic Growth Trust
Capital Opportunities Trust
Utilities Trust
Miller Anderson & Sherrerd, LLP Value Trust
High Yield Trust
Munder Capital Management Internet Technologies Trust
Pacific Investment Management Company Global Bond Trust
Total Return Trust
Putnam Investment Management, L.L.C. Mid Cap Opportunities Trust
Global Equity Trust
Salomon Brothers Asset Management Inc U.S. Government Securities Trust
Strategic Bond Trust
SSgA Funds Management, Inc. Growth Trust
Lifestyle Trusts(B)
T. Rowe Price Associates, Inc. Science & Technology Trust
Small Company Value Trust
Health Sciences Trust
Blue Chip Growth Trust
Equity-Income Trust
T. Rowe Price International, Inc. International Stock Trust
Templeton Investment Counsel, Inc. International Value Trust
Wellington Management Company, LLP Growth & Income Trust
Investment Quality Bond Trust
Mid Cap Stock Trust
13
Allegiance Capital, Inc High Grade Bond Trust
Kayne Anderson Rudnick Investment Management, LLC Small-Mid Cap Trust
Lazard Asset Management Global Equity Select Trust
International Equity Select Trust
Navellier Management Inc. Small-Mid Cap Growth Trust
Rorer Asset Management, LLC Core Value Trust
Roxbury Capital Management, LLC Select Growth Trust
- ----------
(A) Formerly, the Mid Cap Blend Trust.
(B) SSgA Funds Management, Inc. provides subadvisory consulting services to
Manufacturers Adviser Corporation regarding management of the Lifestyle Trusts.
GENERAL INFORMATION ABOUT MANULIFE USA, THE SEPARATE ACCOUNT AND THE TRUST
MANULIFE USA
We are a stock life insurance company incorporated in Maine on August 20, 1955
by a special act of the Maine legislature and redomesticated under the laws of
Michigan. We are a licensed life insurance company in the District of Columbia
and all states of the United States except New York. Our ultimate parent is
Manulife Financial Corporation ("MFC"), a publicly traded company, based in
Toronto, Canada. MFC is the holding company of The Manufacturers Life Insurance
Company ("MANUFACTURERS LIFE") and its subsidiaries, collectively known as
Manulife Financial. The Manufacturers Life Insurance Company is one of the
largest life insurance companies in North America and ranks among the 60 largest
life insurers in the world as measured by assets. However, neither Manufacturers
Life nor any of its affiliated companies guarantees the investment performance
of the Separate Account.
RATINGS
The Manufacturers Life Insurance Company and the Manufacturers Life Insurance
Company (U.S.A.) have received the following ratings from independent ratings
agencies:
Standard and Poor's Insurance Ratings Service: AA+ (for financial strength)
A.M. Best Company: A++ (for financial strength)
Fitch: AAA (for insurer financial strength)
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 Manulife USA as a measure of the Company's
ability to honor the death benefit and no lapse guarantees but not specifically
to its products, the performance (return) of these products, the value of any
investment in these products upon withdrawal or to individual securities held in
any portfolio.
THE SEPARATE ACCOUNT
The Manufacturers Life Insurance Company of America ("ManAmerica") established
its Separate Account Three on August 22, 1986 as a separate account under
Pennsylvania law. Since December 9, 1992, it has been operated under Michigan
law. On January 1, 2002, ManAmerica transferred substantially all of its assets
and liabilities to Manulife USA. As a result of this transaction, Manulife USA
became the owner of all of ManAmerica's assets, including the assets of the
Separate Account Three (Now Referred to as Separate Account A of Manulife USA)
and assumed all of ManAmerica's obligations including those under the Policies.
The ultimate parent of both ManAmerica and Manulife USA is Manulife Financial
Corporation ("MFC"). Separate Account A of Manulife USA (the "Separate Account")
holds assets that are segregated from all of Manulife USA's other assets. The
Separate Account is currently used only to support variable life insurance
policies.
14
ASSETS OF THE SEPARATE ACCOUNT
Manulife USA 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 Manulife USA. Manulife USA 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
Manulife USA conducts. However, all obligations under the variable life
insurance policies are general corporate obligations of Manulife USA.
REGISTRATION
The Separate Account is registered with the SEC under the Investment
Company Act of 1940, as amended (the"1940 Act") as a unit investment
trust. A unit investment trust is a type of investment company which
invests its assets in specified securities, such as the shares of one
or more investment companies, rather than in a portfolio of unspecified
securities. Registration under the 1940 Act does not involve any
supervision by the SEC of the management or investment policies or
practices of the Separate Account. For state law purposes the Separate
Account is treated as a part or division of Manulife USA.
THE TRUST
Each sub-account of the Separate Account will purchase Class A shares
only of a particular Portfolio. The Trust is registered under the 1940
Act as an open-end management investment company. Each of the Trust
portfolios, except the Lifestyle Trusts and the Equity Index Trust, are
subject to a Rule 12b-1 fee of .15% of a portfolio's Class A net
assets. The Separate Account will purchase and redeem shares of the
Portfolios at net asset value. Shares will be redeemed to the extent
necessary for Manulife USA to provide benefits under the Policies, to
transfer assets from one sub-account to another or to the general
account as requested by policyowners, and for other purposes not
inconsistent with the Policies. Any dividend or capital gain
distribution received from a Portfolio with respect to the Policies
will be reinvested immediately at net asset value in shares of that
Portfolio and retained as assets of the corresponding sub-account.
The Trust shares are issued to fund benefits under both variable
annuity contracts and variable life insurance policies issued by the
Company or life insurance companies affiliated with the Company.
Manulife USA may also purchase shares through its general account for
certain limited purposes including initial portfolio seed money. For a
description of the procedures for handling potential conflicts of
interest arising from the funding of such benefits see the accompanying
Trust prospectus.
INVESTMENT OBJECTIVES OF THE PORTFOLIOS
The investment objectives and certain policies of the Portfolios
currently available to policyowners through corresponding sub-accounts
are set forth below. There is, of course, no assurance that these
objectives will be met. A full description of the Trust, its investment
objectives, policies and restrictions, the risks associated therewith,
its expenses, and other aspects of its operation is contained in the
accompanying Trust prospectus, which should be read together with this
prospectus.
ELIGIBLE PORTFOLIOS
The Portfolios of the Trust available under the Policies are as
follows:
The INTERNET TECHNOLOGIES TRUST seeks long-term capital appreciation by
investing the portfolio's assets primarily in companies engaged in
Internet-related business (such businesses also include
Intranet-related businesses).
The 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 TELECOMMUNICATIONS TRUST seeks capital appreciation (with earning
income as a secondary objective) by investing, under normal market
conditions, primarily in equity securities of companies engaged in the
telecommunications sector, that is, in the design, development,
manufacture, distribution or sale of communications services and
equipment and companies that are involved in supplying equipment or
services to such companies.
The SCIENCE & TECHNOLOGY TRUST seeks long-term growth of capital by
investing at least 65% of the portfolio's total assets in common stocks
of companies expected to benefit from the development, advancement, and
use of science and technology. Current income is incidental to the
portfolio's objective.
15
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 HEALTH SCIENCES TRUST seeks long-term capital appreciation by
investing, under normal market conditions, at least 65% of the
portfolio's total assets in common stocks of companies engaged in the
research, development, production, or distribution of products or
services related to health care, medicine, or the life sciences
(collectively termed "health sciences").
The AGGRESSIVE GROWTH TRUST seeks long-term capital appreciation by
investing the portfolio's asset principally in common stocks,
convertible bonds, convertible preferred stocks and warrants of
companies which in the opinion of the subadviser are expected to
achieve earnings growth over time at a rate in excess of 15% per year.
Many of these companies are in the small and medium-sized category.
The EMERGING SMALL COMPANY TRUST seeks long-term growth of capital by
investing, under normal market conditions, at least 65% of the
portfolio's total assets in common stock equity securities of companies
with market capitalizations that approximately match the range of
capitalization of the Russell 2000 Index ("small cap stocks") at the
time of purchase.
The SMALL COMPANY BLEND TRUST seeks long-term growth of capital and
income by investing the portfolio's assets, under normal market
conditions, primarily in equity and equity-related securities of
companies with market capitalizations that approximately match the
range of capitalization of the Russell 2000 Index at the time of
purchase.
The DYNAMIC GROWTH TRUST seeks long-term growth of capital by investing
the portfolio's assets primarily in equity securities selected for
their growth potential. Normally at least 50% of its equity assets are
invested in medium-sized companies.
The MID CAP GROWTH TRUST seeks capital appreciation by investing
primarily in common stocks of mid-sized companies - those with market
capitalizations between $2 billion and $15 billion at the time of
purchase.
The MID CAP OPPORTUNITIES TRUST seeks capital appreciation by
investing, under normal market conditions, primarily in common stocks
and other equity securities of U.S. companies, with a focus on growth
stocks of mid size companies.
The MID CAP STOCK TRUST seeks long-term growth of capital by investing
primarily in equity securities with significant capital appreciation
potential, with emphasis on medium-sized companies.
The ALL CAP GROWTH TRUST seeks long-term capital appreciation by
investing the portfolio's asset,s under normal market conditions,
principally in common stocks of companies that are likely to benefit
from new or innovative products, services or processes, as well as
those that have experienced above average, long-term growth in earnings
and have excellent prospects for future growth.
The FINANCIAL SERVICES TRUST seeks growth of capital by investing
primarily in common stocks of financial companies. During normal market
conditions, at least 65% of the portfolio's assets are invested in
companies that are principally engaged in financial services. A company
is "principally engaged" in financial services if it owns financial
services-related assets constituting at least 50% of the value of its
total assets, or if at least 50% of its revenues are derived from its
provision of financial services.
The OVERSEAS TRUST seeks growth of capital by investing, under normal
market conditions, at least 65% of the portfolio's assets in foreign
securities (including American Depositary Receipts (ADRs) and European
Depositary Receipts (EDRs)). The portfolio expects to invest primarily
in equity securities.
The INTERNATIONAL STOCK TRUST seeks long-term growth of capital by
investing primarily in common stocks of established, non-U.S.
companies.
The INTERNATIONAL VALUE TRUST seeks long-term growth of capital by
investing, under normal market conditions, primarily in equity
securities of companies located outside the U.S., including emerging
markets.
The CAPITAL APPRECIATION TRUST seeks long-term capital growth by
investing at least 65% of its total assets in equity-related securities
of companies that exceed $1 billion in market capitalization and that
the subadviser believes have above-average growth prospectus. These
companies are generally medium-to-large capitalization companies.
16
The STRATEGIC OPPORTUNITIES TRUST (formerly, Mid Cap Blend Trust) seeks
growth of capital by investing primarily in common stocks of U.S.
issuers and securities convertible into or carrying the right to buy
common stocks.
The QUANTITATIVE MID CAP TRUST seeks long-term growth of capital by
investing, under normal market conditions, at least 65% of the
portfolio's total assets in U.S. mid-cap stocks, convertible preferred
stocks, convertible bonds and warrants.
The GLOBAL EQUITY TRUST seeks long-term capital appreciation by
investing, under normal market conditions, at least 65% of the
portfolio's total assets in equity securities of companies in at least
three different countries, including the U.S. The portfolio may invest
in companies of any size but emphasizes mid- and large-capitalization
companies that the subadviser believes are undervalued.
The STRATEGIC GROWTH TRUST seeks capital appreciation by investing,
under normal market conditions, at least 65% of the portfolio's total
assets in common stocks and related securities (such as preferred
stocks, bonds, warrants or rights convertible into stock and depositary
receipts for these securities) of companies which the subadviser
believes offer superior prospects for growth.
The GROWTH TRUST seeks long-term growth of capital by investing
primarily in large capitalization growth securities (market
capitalizations of approximately $1 billion or greater).
The LARGE CAP GROWTH TRUST seeks long-term growth of capital by
investing, under normal market conditions, at least 65% of the
portfolio's assets in equity securities of companies with large market
capitalizations.
The ALL CAP VALUE TRUST seeks capital appreciation by investing, under
normal market conditions, at least 65% of the portfolio's total assets
in the stocks of value companies of any size.
The CAPITAL OPPORTUNITIES TRUST seeks capital appreciation by
investing, under normal market conditions, at least 65% of the
portfolio's total assets in common stocks and related securities, such
as preferred stock, convertible securities and depositary receipts. The
portfolio focuses on companies which the subadviser believes have
favorable growth prospects and attractive valuations based on current
and expected earnings or cash flow.
The QUANTITATIVE EQUITY TRUST seeks to achieve intermediate and
long-term growth through capital appreciation and current income by
investing in common stocks and other equity securities of well
established companies with promising prospects for providing an above
average rate of return.
The BLUE CHIP GROWTH TRUST seeks to achieve long-term growth of capital
(current income is a secondary objective) by investing at least 65% of
the portfolio's total assets in the common stocks of large and
medium-sized blue chip companies. Many of the stocks in the portfolio
are expected to pay dividends.
The UTILITIES TRUST seeks capital growth and current income (income
above that available from a portfolio invested entirely in equity
securities) by investing, under normal market conditions, at least 65%
of the portfolio's total assets in equity and debt securities of
domestic and foreign companies in the utilities industry.
The REAL ESTATE SECURITIES TRUST seeks to achieve a combination of
long-term capital appreciation and current income by investing, under
normal market conditions, substantially (at least 65% of total assets)
in equity securities of real estate companies, such as real estate
investment trusts ("REITs").
The SMALL COMPANY VALUE TRUST seeks long-term growth of capital by
investing, under normal market conditions, primarily in small companies
whose common stocks are believed to be undervalued. Normally, the
portfolio will invest at least 65% of its total assets in companies
with a market capitalization that do not exceed the maximum market
capitalization of any security in the Russell 2000 Index at the time of
purchase.
The MID CAP VALUE TRUST seeks capital appreciation by investing, under
normal market conditions, at least 65% of the portfolios total assets
in equity securities which the subadviser believes to be undervalued in
the marketplace. Normally, at least 65% of the portfolio's total assets
will consist of investments in mid-sized companies, with market
capitalizations of roughly $500 million to $10 billion.
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.
17
The TACTICAL ALLOCATION TRUST seeks total return, consisting of
long-term capital appreciation and current income, by allocating the
portfolio's assets between (i) a stock portion that is designed to
track the performance of the S&P 500 Composite Stock Price Index, and
(ii) a fixed income portion that consists of either five-year U.S.
Treasury notes or U.S. Treasury bills with remaining maturities of 30
days.
The FUNDAMENTAL VALUE TRUST seeks growth of capital by investing, under
normal market conditions, primarily in common stocks of U.S. companies
with market capitalizations of at least $5 billion that the subadviser
believes are undervalued. The portfolio may also invest in U.S.
companies with smaller capitalizations.
The GROWTH & INCOME TRUST seeks long-term growth of capital and income,
consistent with prudent investment risk, by investing primarily in a
diversified portfolio of common stocks of U.S. issuers which the
subadviser believes are of high quality.
The U.S. LARGE CAP VALUE TRUST seeks long-term growth of capital and
income by investing the portfolio's assets, under normal market
conditions, primarily in equity and equity-related securities of
companies with market capitalization greater than $500 million.
The EQUITY-INCOME TRUST seeks to provide substantial dividend income
and also long-term capital appreciation by investing primarily in
dividend-paying common stocks, particularly of established companies
with favorable prospects for both increasing dividends and capital
appreciation.
The INCOME & VALUE TRUST seeks the balanced accomplishment of (a)
conservation of principal and (b) long-term growth of capital and
income by investing the portfolio's assets in both equity and
fixed-income securities. The subadviser has full discretion to
determine the allocation between equity and fixed income securities.
The BALANCED TRUST seeks current income and capital appreciation by
investing the portfolio's assets in a balanced portfolio of (i) equity
securities and (ii) fixed income securities.
The HIGH YIELD TRUST seeks to realize an above-average total return
over a market cycle of three to five years, consistent with reasonable
risk, by investing primarily in high yield debt securities, including
corporate bonds and other fixed-income securities.
The STRATEGIC BOND TRUST seeks a high level of total return consistent
with preservation of capital by giving its subadviser broad discretion
to deploy the portfolio's assets among certain segments of the fixed
income market as the subadviser believes will best contribute to
achievement of the portfolio's investment objective.
The GLOBAL BOND TRUST seeks to realize maximum total return, consistent
with preservation of capital and prudent investment management by
investing the portfolio's asset primarily in fixed income securities
denominated in major foreign currencies, baskets of foreign currencies
(such as the ECU), and the U.S. dollar.
The TOTAL RETURN TRUST seeks to realize maximum total return,
consistent with preservation of capital and prudent investment
management by investing, under normal market conditions, at least 65%
of the portfolio's assets in a diversified portfolio of fixed income
securities of varying maturities. The average portfolio duration will
normally vary within a three- to six-year time frame based on the
subadviser's forecast for interest rates.
The INVESTMENT QUALITY BOND TRUST seeks a high level of current income
consistent with the maintenance of principal and liquidity, by
investing primarily in a diversified portfolio of investment grade
corporate bonds and U.S. Government bonds with intermediate to longer
term maturities. The portfolio may also invest up to 20% of its assets
in non-investment grade fixed income securities.
The DIVERSIFIED BOND TRUST seeks high total return consistent with the
conservation of capital by investing at least 75% of the portfolio's
assets in fixed income securities.
The U.S. GOVERNMENT SECURITIES TRUST seeks a high level of current
income consistent with preservation of capital and maintenance of
liquidity, by investing in debt obligations and mortgage-backed
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and derivative securities such as collateralized
mortgage obligations backed by such securities.
The MONEY MARKET TRUST seeks maximum current income consistent with
preservation of principal and liquidity by investing in high quality
money market instruments with maturities of 397 days or less issued
primarily by U.S. entities.
18
The SMALL CAP INDEX TRUST seeks to approximate the aggregate total
return of a small cap U.S. domestic equity market index by attempting
to track the performance of the Russell 2000 Index.*
The INTERNATIONAL INDEX TRUST seeks to approximate the aggregate total
return of a foreign equity market index by attempting to track the
performance of the Morgan Stanley European Australian Far East Free
Index (the "MSCI EAFE Index").*
The MID CAP INDEX TRUST seeks to approximate the aggregate total return
of a mid cap U.S. domestic equity market index by attempting to track
the performance of the S&P Mid Cap 400 Index.*
The TOTAL STOCK MARKET INDEX seeks to approximate the aggregate total
return of a broad U.S. domestic equity market index by attempting to
track the performance of the Wilshire 5000 Equity Index.*
The 500 INDEX TRUST seeks to approximate the aggregate total return of
a broad U.S. domestic equity market index by attempting to track the
performance of the S&P 500 Composite Stock Price Index.*
The LIFESTYLE AGGRESSIVE 1000 TRUST seeks to provide long-term growth
of capital (current income is not a consideration) by investing 100% of
the Lifestyle Trust's assets in other portfolios of the Trust
("Underlying Portfolios") which invest primarily in equity securities.
The LIFESTYLE GROWTH 820 TRUST seeks to provide long-term growth of
capital with consideration also given to current income by investing
approximately 20% of the Lifestyle Trust's assets in Underlying
Portfolios which invest primarily in fixed income securities and
approximately 80% of its assets in Underlying Portfolios which invest
primarily in equity securities.
The LIFESTYLE BALANCED 640 TRUST seeks to provide a balance between a
high level of current income and growth of capital with a greater
emphasis given to capital growth by investing approximately 40% of the
Lifestyle Trust's assets in Underlying Portfolios which invest
primarily in fixed income securities and approximately 60% of its
assets in Underlying Portfolios which invest primarily in equity
securities.
The LIFESTYLE MODERATE 460 TRUST seeks to provide a balance between a
high level of current income and growth of capital with a greater
emphasis given to current income by investing approximately 60% of the
Lifestyle Trust's assets in Underlying Portfolios which invest
primarily in fixed income securities and approximately 40% of its
assets in Underlying Portfolios which invest primarily in equity
securities.
The LIFESTYLE CONSERVATIVE 280 TRUST seeks to provide a high level of
current income with some consideration also given to growth of capital
by investing approximately 80% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities
and approximately 20% of its assets in Underlying Portfolios which
invest primarily in equity securities.
The SMALL-MID CAP GROWTH TRUST seeks long-term growth of capital by
investing principally in equity securities issued of fast growing
companies that offer innovative products, services, or technologies to
a rapidly expanding marketplace.
The SMALL-MID CAP TRUST seeks to achieve long-term capital
appreciation, with dividend income as a secondary consideration, by
investing principally in common stocks of small and mid cap companies
that the subadviser believes are of high quality.
The INTERNATIONAL EQUITY SELECT TRUST seeks long-term capital
appreciation by investing primarily in equity securities, principal
American Depository Receipts and common stocks, of relatively large
non-U.S. companies with market capitalizations in the range of the
Morgan Stanley Capital International (MSCI) Europe, Australia and Far
East Index that the subadviser believes are undervalued based on their
earnings, cash flow or asset values.
The SELECT GROWTH TRUST seeks long-term growth of capital by investing
primarily large-cap equity securities.
The GLOBAL EQUITY SELECT TRUST seeks long-term capital by investing
primarily in equity securities, including American and Global
Depository Receipts and common stocks, of relatively large U.S. and
non-U.S. companies with market capitalizations in the range of the
Morgan Stanley Capital International (MSCI) World Index that the
subadviser believes are undervalued based on their earnings, cash flow
or asset values.
The CORE VALUE TRUST seeks long-term capital appreciation by investing,
under normal market conditions, primarily in equity and equity-related
securities of companies with market capitalization greater than $1
billion at the time of purchase.
19
The HIGH GRADE BOND TRUST seeks to maximize total return, consistent
with the preservation of capital and prudent investment management, by
investing primarily (at least 80% under normal market conditions) in
investment grade, fixed income securities of varying maturities.
*"Standard & Poor's(R)," "S&P 500(R)," "Standard and Poor's 500(R)" and
"Standard and Poor's 400(R)" are trademarks of The McGraw-Hill
Companies, Inc. "Russell 2000(R)" is a trademark of Frank Russell
Company. "Wilshire 5000(R)" is a trademark of Wilshire Associates.
"Morgan Stanley European Australian Far East Free" and "EAFE(R)" are
trademarks of Morgan Stanley & Co. Incorporated. None of the Index
Trusts are sponsored, endorsed, managed, advised, sold or promoted by
any of these companies, and none of these companies make any
representation regarding the advisability of investing in the Trust.
ISSUING A POLICY
REQUIREMENTS
To purchase a Policy, an applicant must submit a completed application.
A Policy will not be issued until the underwriting process has been
completed to the Company's satisfaction.
Policies may be issued on a basis which does not distinguish between
the insured's sex, with prior approval from the Company. A Policy will
generally be issued only on the lives of insureds from ages 0 through
90.
Each Policy has a Policy Date, an Effective Date and an Issue Date (See
"Definitions" above).
The Policy Date is the date from which the first monthly deductions are
calculated and from which Policy Years, Policy Months and Policy
Anniversaries are determined. The Effective Date is the date the
Company becomes obligated under the Policy and when the first monthly
deductions are deducted from the Policy Value. The Issue Date is the
date from which Suicide and Validity are measured.
If an application accepted by the Company is not accompanied by a check
for the initial premium and no request to backdate the Policy has been
made:
(i) the Policy Date and the Effective Date will be the date the
Company receives the check at its Service Office, and
(ii) the Issue Date will be the date the Company issues the Policy.
The initial premium must be received within 60 days after the Issue
Date, and the life insured must be in good health on the date the
initial premium is received. If the premium is not paid or if the
application is rejected, we will cancel the Policy and return any
partial premiums paid to the applicant.
MINIMUM INITIAL FACE AMOUNT
We will generally issue a Policy only if it has a Face Amount of at
least $100,000 [$500,000].
BACKDATING A POLICY
Under limited circumstances, the Company may backdate a Policy, upon
request, by assigning a Policy Date earlier than the date the
application is signed. However, in no event will a Policy be backdated
earlier than the earliest date allowed by state law, which is generally
three months to one year prior to the date of application for the
Policy. Monthly deductions will be made for the period the Policy Date
is backdated. Regardless of whether or not a Policy is backdated, we
will credit Net Premiums received prior to the Effective Date of a
Policy with interest from the date of receipt at the rate of return
then being earned on amounts allocated to the Money Market Trust.
As of the Effective Date, the premiums paid plus interest credited, net
of the premium charge, will be allocated among the Investment Accounts
and/or Fixed Account in accordance with the policyowner's instructions
unless such amount is first allocated to the Money Market Trust 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.
21
The acceptance of an application is subject to the Company's
underwriting rules, and we reserve the right to request additional
information or to reject an application for any reason.
Persons failing to meet standard underwriting classification may be
eligible for a Policy with an Additional Rating assigned to it.
RIGHT TO EXAMINE THE POLICY
You may return a Policy 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
may be mailed or delivered to the Manulife USA agent who sold it or to
our Service Office. Immediately on such delivery or mailing, the Policy
shall be deemed void from the beginning. Within seven days after we
receive the returned Policy at our Service Office, we will refund to
the policyowner 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 you request an increase in Face Amount which results in new
Surrender Charges, you 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. You 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.
We reserve the right to delay the refund of any premium paid by check
until the check has cleared.
LIFE INSURANCE QUALIFICATION
A Policy must satisfy either one of two tests to qualify as a life
insurance contract for purposes of Section 7702 of the Internal Revenue
Code of 1986, as amended (the "Code"). At the time of application, the
policyowner must choose either the Cash Value Accumulation Test or the
Guideline Premium Test. The test cannot be changed once the Policy is
issued.
CASH VALUE ACCUMULATION TEST
Under the Cash Value Accumulation Test ("CVAT"), the Policy Value may
not at any time exceed the Net Single Premium. The Net Single Premium
is the one payment that would be needed on a specific date to fund
future Policy benefits, assuming guaranteed charges and 4% net
interest. To ensure that a Policy meets the CVAT, the Company will
generally increase the death benefit, temporarily, to the required
minimum amount. However, we reserve the right to require evidence of
insurability should a premium payment cause the death benefit to
increase by more than the premium payment amount. Any excess premiums
will be refunded.
GUIDELINE PREMIUM TEST
Under the Guideline Premium Test, the sum of premiums paid into the
Policy may not at any time exceed the Guideline Premium Limitation as
of such time. The Guideline Premium Limitation is, as of any date, the
greater of:
(a) the Guideline Single Premium, or
(b) the sum of the Guideline Level Premiums to such date.
If you elected this test, the Guideline Single Premium and the
Guideline Level Premium are as set forth in the Policy.
The Guideline Premium Test requires a life insurance policy to meet
minimum ratios of life insurance coverage to policy value. This is
achieved by ensuring that the death benefit is at all times at least
equal to the Minimum Death Benefit. The Minimum Death Benefit on any
date is defined as the Policy Value on that date times the applicable
minimum death benefit percentage for the Attained Age of the life
insured. See "Death Benefits - Minimum Death Benefit."
22
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.
Changes to the Policy may affect the maximum amount of premiums, such
as:
- a change in the Policy's Face Amount.
- a change in the death benefit option.
- partial withdrawals.
- addition or deletion of Supplementary Benefits.
Any of the above changes could cause the total premiums paid to exceed
the new maximum limit. In this situation, the Company may refund any
excess premiums paid. In addition, these changes could reduce the
future premium limitations.
DEATH BENEFITS
If the Policy is in force at the time of the death of the life insured,
the Company will pay an insurance benefit. The amount payable will be
the death benefit under the selected death benefit option, plus any
amounts payable under any Supplementary Benefits added to the Policy,
less the Policy Debt and less any outstanding monthly deductions due.
The insurance benefit will be paid in one lump sum unless another form
of settlement option is agreed to by the beneficiary and the Company.
If the insurance benefit is paid in one sum, the Company will pay
interest from the date of death to the date of payment. If the life
insured should die after we receive a request for surrender, no
insurance benefit will be payable, and we will pay only the Net Cash
Surrender Value.
DEATH BENEFIT OPTIONS
There are three death benefit options, described below. The actual
death benefit is the amount shown below under the applicable death
benefit option or, if greater, the Minimum Death Benefit as described
below.
DEATH BENEFIT OPTION 1
Under Option 1, the death benefit is the Face Amount of the Policy at
the date of death.
DEATH BENEFIT OPTION 2
Under Option 2, the death benefit is the Face Amount plus the Policy
Value of the Policy at the date of death.
DEATH BENEFIT OPTION 3
Under Option 3, the death benefit is the Face Amount plus the Premium
Death Benefit Account. The Premium Death Benefit Account is the sum of
the premiums paid to date less any Gross Withdrawals, but not less than
zero. Gross Withdrawals are the amounts of partial withdrawals plus any
Surrender Charges applicable thereto.
If on the date of death of the insured, the Policy is being kept in
force under the No-Lapse Guarantee provision, the death benefit will be
the Face Amount of the Policy only.
If any partial withdrawals are made, the death benefit, whether it is
Option 1, 2 or 3, will be less than it would be if no withdrawals were
made. Making a partial withdrawal will result in a reduction in the
Face Amount of insurance for Death Benefit Option 1 and, in certain
circumstances, Death Benefit Option 3. See "Policy Surrender and
Partial Withdrawals - Reduction in Face Amount due to a Partial
Withdrawal."
If the life insured should die during a grace period, the death benefit
will be reduced by the amount of any monthly deductions due, and the
Policy Value will be calculated as of the date of the default giving
rise to the grace period.
MINIMUM DEATH BENEFIT.
The Minimum Death Benefit depends on whether the policyowner elected
the Guideline Premium Test or the Cash Value Accumulation Test for
qualification of the Policy as life insurance under the Code. See
"Issuing a Policy - Life Insurance Qualification."
If you elected the Guideline Premium Test, the sum of the death benefit
as described above and the benefit payable under any Supplementary Term
Insurance on the life insured will never be less than the Policy Value
at the date of death multiplied by the applicable minimum death benefit
percentage in the table below.
23
TABLE OF MINIMUM DEATH BENEFIT PERCENTAGES
---------------------------------------------
ATTAINED AGE APPLICABLE PERCENTAGE
40 and under 250%
45 215%
50 185%
55 150%
60 130%
65 120%
70 115%
75 105%
90 105%
95 and above 100%
For ages not shown, the applicable percentage can be found by reducing
the above applicable percentages proportionately.
If you elected the Cash Value Accumulation Test, on any date the sum of
the death benefit as described above, plus the benefit payable under
any Supplementary Term Insurance on the life insured, will always be
equal to the amount required on such date to produce a Policy Value
that does not exceed the Net Single Premium required to fund future
benefits under the policy.
CHANGING THE DEATH BENEFIT OPTION
You may change the death benefit option as described below once each
Policy Year after the first Policy Year. The change will occur on the
first day of the next Policy Month after we receive a written request
for a change at our Service Office. The Company reserves the right to
limit a request for a change if the change would cause the Policy to
fail to qualify as life insurance for tax purposes. We will not allow a
change in death benefit option if it would cause the Face Amount to
decrease below $100,000 [$500,000].
A change in the death benefit option will result in a change in the
Policy's Face Amount in order to avoid any change in the amount of the
death benefit, as follows:
CHANGE FROM OPTION 1 TO OPTION 2
The new Face Amount will be equal to the Face Amount prior to the
change minus the Policy Value as of the date of the change.
CHANGE FROM OPTION 2 TO OPTION 1
The new Face Amount will be equal to the Face Amount prior to the
change plus the Policy Value as of the date of the change.
CHANGE FROM OPTION 3 TO OPTION 1
The new Face Amount will be equal to the Face Amount prior to the
change plus the Premium Death Benefit Account as of the date of the
change.
No new Surrender Charges will apply to an increase in Face Amount
solely due to a change in the death benefit option.
CHANGING THE FACE AMOUNT
Subject to the limitations stated in this prospectus, you may, upon
written request, increase or decrease the Face Amount of the Policy.
The Company reserves the right to limit a change in Face Amount so as
to prevent the Policy from failing to qualify as life insurance for tax
purposes.
INCREASE IN FACE AMOUNT
You may increase the Face Amount once each Policy Year after the first
Policy Year. Any increase in Face Amount must be at least $50,000 or
such other Minimum Face Amount Increase as the Company may establish on
90 days written notice to you. An increase will become effective at the
beginning of the Policy Month following the date we approve the
requested increase. Increases in Face Amount are subject to
satisfactory evidence of insurability. We reserve the right to refuse a
requested increase if the life insured's Attained Age at the effective
date of the increase would be greater than the maximum issue age for
new Policies at that time.
24
NEW SURRENDER CHARGES FOR AN INCREASE
An increase in Face Amount will usually result in the Policy being
subject to new Surrender Charges. The new Surrender Charges will be
computed as if a new Policy were being purchased for the increase in
Face Amount. The premiums attributable to the new Face Amount will not
exceed the Surrender Charge Premium Limit associated with that
increase. There will be no new Surrender Charges associated with
restoration of a prior decrease in Face Amount. As with the purchase of
a Policy, a policyowner will have a right to examine with respect to
any increase resulting in new Surrender Charges.
An additional premium may be required for a Face Amount increase, and a
new No-Lapse Guarantee Premium will be determined, if the No-Lapse
Guarantee is in effect at the time of the face amount increase.
INCREASE WITH PRIOR DECREASES
If, at the time of the increase, there have been prior decreases in
Face Amount, these prior decreases will be restored first. The
insurance coverage eliminated by the decrease of the oldest Face Amount
will be deemed to be restored first.
CHANGING BOTH THE FACE AMOUNT AND THE DEATH BENEFIT OPTION
If you request to change both the Face Amount and the death benefit
option in the same month, the death benefit option change shall be
deemed to occur first.
DECREASE IN FACE AMOUNT
Decreases in Face Amount may be made once each Policy Year after the
first Policy Year. Any decrease in Face Amount must be at least $50,000
or such other Minimum Face Amount Decrease as the Company may establish
on 90 days written notice to you. A written request from a policyowner
for a decrease in the Face Amount will be effective at the beginning of
the Policy Month following the date we approve the requested decrease.
If there have been previous increases in Face Amount, the decrease will
be applied to the most recent increase first and thereafter to the next
most recent increases successively. Under no circumstances should the
sum of all decreases cause the Policy to fall below the minimum Face
Amount of $100,000.
PREMIUM PAYMENTS
INITIAL PREMIUMS
No premiums will be accepted prior to receipt of a completed
application by the Company. All premiums received prior to the
Effective Date of the Policy will be held in the general account and
credited with interest from the date of receipt at the rate of return
then being earned on amounts allocated to the Money Market Trust.
The minimum initial premium is one-twelfth of the No-Lapse Guarantee
Premium. (For policies issued in the state of Florida, the minimum
initial premium is one-twelfth of the No-Lapse Guarantee Value
Deduction (which is set forth in the Table of Values in your policy).
On the later of the Effective Date or the date a premium is received,
the Net Premiums paid plus interest credited will be allocated among
the Investment Accounts or the Fixed Account in accordance with the
policyowner's instructions unless such amount is first allocated to the
Money Market Trust for the duration of the Right to Examine period.
SUBSEQUENT PREMIUMS
After the payment of the initial premium, premiums may be paid at any
time and in any amount until the life insured's Attained Age 100,
subject to the limitations on premium amount described below.
A Policy will be issued with a planned premium, which is based on the
amount of premium the policyowner wishes to pay. We will send notices
to the policyowner setting forth the planned premium at the payment
interval selected by the policyowner. However, the policyowner is under
no obligation to make the indicated payment.
The Company may refuse any premium payment that would cause the Policy
to fail to qualify as life insurance under the Code. We also reserve
the right to request evidence of insurability if a premium payment
would result in an increase in the death benefit that is greater than
the increase in Policy Value.
Payment of premiums will not guarantee that the Policy will stay in
force. Conversely, failure to pay premiums will not necessarily cause
the Policy to lapse.
25
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 we receive the premiums at our Service Office unless such
amount is first allocated to the Money Market Trust for the duration of
the Right to Examine period. Monthly deductions are due on the Policy
Date and at the beginning of each Policy Month thereafter. However, if
due prior to the Effective Date, they will be taken on the Effective
Date instead of the dates they were due.
MAXIMUM PREMIUM LIMITATION
If the Policy is issued under the Guideline Premium Test, in no event
may the total of all premiums paid exceed the then current maximum
premium limitations established by federal income tax law for a Policy
to qualify as life insurance.
If, at any time, a premium is paid which would result in total premiums
exceeding the above maximum premium limitation, the Company will only
accept that portion of the premium which will make the total premiums
equal to the maximum. Any part of the premium in excess of that amount
will be returned and no further premiums will be accepted until allowed
by the then current maximum premium limitation.
PREMIUM ALLOCATION
Premiums may be allocated to the Fixed Account for accumulation at a
rate of interest equal to at least 3% 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
whole number between zero and 100, provided the total allocation equals
100. You 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. Changes may also be made by telephone if a valid
authorization form is on file with us.
CHARGES AND DEDUCTIONS
The Company makes various charges under the Policy. Charges are
deducted from premiums, monthly from Policy Values and upon surrender
of a Policy, a partial withdrawal or lapse of a Policy. These charges
are discussed below.
The Policy may be issued with either one of two optional riders, the
Cash Value Enhancement Rider and the Cash Value Enhancement Plus Rider.
Adding either rider to the Policy will alter certain charges under the
Policy. The charges associated with these riders are discussed under
"Other Provisions of the Policy - Cash Value Enhancement Riders."
PREMIUM CHARGES
During the first 10 Policy Years, Manulife USA deducts a premium charge
from each premium payment equal to 7.5% of the premium. Thereafter, the
premium charge is equal to 5.0% of the premium. The premium charge is
designed to cover a portion of the Company's acquisition and sales
expenses and premium taxes. Premium taxes vary from state to state,
ranging from 0% to 3.5%.
SURRENDER CHARGES
The Company will deduct a Surrender Charge if, during the first 10
years following the Policy Date or the effective date of a Face Amount
increase:
- the Policy is surrendered for its Net Cash Surrender Value,
- a partial withdrawal is made, or
- the Policy lapses.
The Surrender Charge, together with a portion of the premium charge, is
designed to compensate the Company for some of the expenses it incurs
in selling and distributing the Policies, including agents'
commissions, advertising, agent training and the printing of
prospectuses and sales literature. The Surrender Charge is calculated
separately for the initial Face Amount and each Face Amount increase.
The Surrender Charge is the sum of (i) plus (ii), multiplied by (iii),
multiplied by the applicable Grading Percentage, where:
(i) is the Rate per $1000 of initial Face Amount (or Face Amount
increase);
(ii) is 80% of the lesser of (a) the premiums paid in the first two
Policy Years per $1000 of initial Face Amount (or the premiums
attributable to each $1000 of Face Amount increase in the two
years following the increase) or (b) the Surrender Charge
Premium Limit set out in the Policy for the initial Face
Amount (or furnished by the Company with respect to a Face
Amount increase); and
(iii) is the initial Face Amount (or the Face Amount increase)
divided by 1000.
26
The Rate per $1000 of initial Face Amount is based on the life
insured's Age at issuance of the Policy. The Rate per $1000 of Face
Amount increase is based on the life insured's Attained Age at the time
of an increase. The Rates per $1000 are set forth in the following
table.
TABLE OF GUARANTEED SURRENDER CHARGE RATES PER $ 1000
OF FACE AMOUNT OR FACE AMOUNT INCREASE
AGE AT ISSUANCE OR DEATH BENEFIT DEATH BENEFIT
ATTAINED AGE AT INCREASE OPTIONS 1 AND 3 OPTION 2
25 or less $7.30 $6.30
26 - 35 $6.40 $5.60
36 - 45 $5.90 $4.70
46 - 55 $4.00 $4.50
56 - 65 $2.90 $1.90
66 or greater $2.40 $1.90
The Grading Percentage varies with the Policy Month in which the
transaction causing the assessment of the Surrender Charge occurs. As
indicated in the following table, the Grading Percentage starts at 100%
for the first Policy Month and grades down 10% each Policy Year (or
.833% each Policy Month) reaching zero at the end of 10 years.
GRADING PERCENTAGES DURING THE SURRENDER CHARGE PERIOD
(Applicable to the Initial Face Amount and Subsequent Increases)
The Grading Percentages Will Not Exceed The Following:
Surrender Charge Period Grading
(Policy Year) Percentage*
1 100%
2 90%
3 80%
4 70%
5 60%
6 50%
7 40%
8 30%
9 20%
10 10%
11 0%
* The Grading Percentages shown are at the
beginning of each Policy Year. Proportionate
Grading Percentages apply for other Policy
Months.
ILLUSTRATION OF SURRENDER CHARGE CALCULATION
ASSUMPTIONS
- 45 year old male (standard risk and nonsmoker status)
- Death Benefit Option 1
- $20,000 in premiums have been paid on the Policy in the first
two Policy Years
- Surrender Charge Premium Limit for the Policy is $16.74
- Face Amount of the Policy at issue is $500,000 and no
increases have occurred
- Policy is surrendered during the first month of the first
policy year.
SURRENDER CHARGE
The Surrender Charge to be assessed would be $9,646 determined as
follows:
(1) First, the applicable Rate per $1000 of initial Face Amount as set
forth in the table above ($5.90) is added to 80% of the lesser of the
premiums paid per $1000 of initial Face Amount or the Surrender Charge
Premium Limit.
27
$5.90 plus (80%) x [the lesser of $20,000/(500,000/1000) or $16.74] =
$19.29.
(2) Next, this figure is multiplied by the initial Face Amount divided
by 1000.
$19.29 x [500,000/1000 or 500] = $9,646.
(3) Finally, the figure obtained in step 2 is multiplied by the
applicable Grading Percentage for the first month of the first Policy
Year (100%).
$9,646 x 100% = $9,646.
Depending upon the Face Amount of the Policy, the Age of the life
insured at issuance, premiums paid under the Policy and the performance
of the underlying investment options, the Policy may have no Cash
Surrender Value and, therefore, the policyowner may receive no
surrender proceeds upon surrendering the Policy.
SURRENDER CHARGES ON A PARTIAL WITHDRAWAL
A partial withdrawal made during the Surrender Charge Period will
result in the assessment of a pro-rata portion of the Surrender Charges
to which the Policy is subject. The portion of the Surrender Charges
assessed will be based on the ratio of the amount of the withdrawal to
the Net Cash Surrender Value of the Policy as of the date of the
withdrawal. It will equal (a) divided by (b), multiplied by (c), where:
(a) is the amount of the partial Net Cash Surrender Value withdrawal;
(b) is the Net Cash Surrender Value prior to the withdrawal; and
(c) is the current total Surrender Charge prior to the withdrawal.
The Surrender Charges will be deducted from the Policy Value at the
time of the partial withdrawal on a pro-rata basis from each of the
Investment Accounts and the Fixed Account unless you direct that the
Surrender Charges be deducted from one or more Investment Accounts or
the Fixed Account. If the amount in the accounts is not sufficient to
pay the Surrender Charges assessed, then the amount of the withdrawal
will be reduced.
Whenever a portion of the Surrender Charges is deducted as a result of
a partial withdrawal, the Policy's remaining Surrender Charges will be
reduced in the same proportion that the Surrender Charge deducted bears
to the total Surrender Charge immediately before the partial
withdrawal.
MONTHLY DEDUCTIONS
On the Policy Date and at the beginning of each Policy Month, a
deduction is taken from the Net Policy Value to cover certain charges
in connection with the Policy until the Policy Anniversary when the
life insured reaches Attained Age 100, unless certain riders are in
effect in which case such charges may continue. If there is a Policy
Debt under the Policy, loan interest and principal will continue to be
payable at the beginning of each Policy Month. Monthly deductions due
prior to the Effective Date will be taken on the Effective Date instead
of the dates they were due. These monthly deductions consist of:
- an administration charge;
- an asset-based risk charge; and
- a cost of insurance charge. If applicable, there may be
additional monthly charges for any Supplementary Benefits
added to the Policy.
All of the monthly deductions, except for the asset-based risk charge,
may be allocated among the Investment Accounts and the Fixed Account as
specified by the policyowner and approved by us. Absent such
specification, the monthly deductions, except the asset-based risk
charge, 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. The asset-based risk charge will be allocated among
the Investment Accounts in the same proportion as the value in each
Investment Account bears to the total value of all Investment Accounts.
ADMINISTRATION CHARGE
The administration 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.
During the first five Policy Years, this monthly charge will be $40
plus a per $1000 of Face Amount charge. For all subsequent Policy
Years, the monthly administration charge will be $20 plus a per $1000
of Face Amount charge. The per $1000 component of the administration
charge applies to the initial Face Amount for the first 10 Policy Years
and thereafter to the initial Face Amount less any Face Amount
decreases. The per $1000 charge is based on
28
the life insured's Age at issuance or Attained Age at the time of an
increase and the death benefit option in effect as set forth in the
following table.
DEATH BENEFIT DEATH BENEFIT
OPTIONS 1 AND 3 OPTION 2
---------------------------- ----------------------------
AGE*/ First Five Subsequent First Five Subsequent
ATTAINED AGE* Policy Years Policy Years Policy Years Policy Years
- --------------- ------------- ------------- ------------ ------------
25- 0.105 0.025 0.215 0.025
35 0.195 0.025 0.295 0.040
45 0.290 0.060 0.440 0.090
55 0.535 0.105 0.520 0.140
65 0.700 0.155 0.950 0.300
75 0.850 0.250 0.950 0.300
85+ 1.075 0.500 1.150 0.575
*The monthly charge for non-decennial ages is found by interpolating the two
nearest tabular entries.
ASSET-BASED RISK CHARGE
A charge is assessed against the Investment Accounts monthly at an
annual rate of 0.15%. This rate is guaranteed not to exceed 0.45%. This
charge is to compensate the Company for the sales, administrative and
other expenses it may incur. 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.
COST OF INSURANCE CHARGE
The monthly cost of insurance charge is determined as the rate of the
cost of insurance for a specific Policy Month, as described below,
multiplied by the net amount at risk.
For Death Benefit Options 1 and 3, the net amount at risk is equal to
the greater of zero or the result of (a) minus (b), where:
(a) is the death benefit as of the first day of the Policy Month,
divided by 1.0024663; and (b) is the Policy Value as of the first day
of the Policy Month after the deduction of the monthly cost of
insurance.
For Death Benefit Option 2, the net amount at risk is equal to the Face
Amount of insurance.
The rates for the cost of insurance, as of the Policy Date and
subsequently for each Face Amount increase, are based on the life
insured's Age, sex and Risk Classification, the duration that coverage
has been in force and the net amount at risk.
The Company applies unisex rates where appropriate under the law. This
currently includes the state of Montana and policies purchased by
employers and employee organizations in connection with
employment-related insurance or benefit programs.
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 any
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,
Age Nearest Birthday, Mortality tables.
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 in certain cases where it is expected that the amount
or nature of such cases will result in savings of sales, underwriting,
administrative, commission 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
29
which the Policies are being purchased, expected persistency of the
individual Policies, and any other circumstances which the Company
believes to be relevant to the expected reduction of its expenses. Some
of these reductions may be guaranteed and others may be subject to
withdrawal or modification, on a uniform case basis. Reductions in
charges will not be unfairly discriminatory to any policyowners. The
Company may modify from time to time, on a uniform basis, both the
amounts of reductions and the criteria for qualification.
SPECIAL PROVISIONS FOR EXCHANGES
The Company will permit owners of certain fixed life insurance
contracts issued by the Company to exchange their contracts for the
Policies described in this prospectus (and likewise, owners of Policies
described in this prospectus may also exchange their Policies for
certain fixed life insurance contracts issued by the Company).
Policyowners considering an exchange should consult their tax advisor
as to the tax consequences of an exchange.
COMPANY TAX CONSIDERATIONS
At the present time, the Company makes no specific charge to the
Separate Account for any federal, state, or local taxes that the
Company incurs that may be attributable to the Separate 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 Manulife USA. For a detailed
description of the Fixed Account, see "The General Account - Fixed
Account."
LOAN ACCOUNT
Amounts borrowed from the Policy are transferred to the Loan Account.
Amounts in the Loan Account do not vary with the investment performance
of any sub-account. Instead, these amounts are credited with interest
at a rate which is equal to the amount charged on the outstanding
Policy Debt less the Loan Interest Credited Differential. 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 (currently 4:00 p.m.
Eastern Time) on that day.
Units are valued at the end of each Business Day. When an order
involving the crediting or canceling of units is received after the end
of a Business Day, or on a day which is not a Business Day, the order
will be processed on the basis of unit values determined on the next
Business Day. Similarly, any determination of Policy Value, Investment
Account value or
30
death benefit to be made on a day which is not a Business Day will be
made on the next Business Day.
UNIT VALUES
The value of a unit of each sub-account was initially fixed at $10.00.
For each subsequent Business Day the unit value for that sub-account is
determined by multiplying the unit value for the immediately preceding
Business Day by the net investment factor for the sub-account on such
subsequent Business Day.
The net investment factor for a sub-account on any Business Day is
equal to (a) divided by (b) where:
(a) is the net asset value of the underlying Portfolio shares held
by that sub-account as of the end of such Business Day before
any policy transactions are made on that day; and
(b) is the net asset value of the underlying Portfolio shares held
by that sub-account as of the end of the immediately preceding
Business Day after all policy transactions were made for that
day.
The value of a unit may increase, decrease, or remain the same,
depending on the investment performance of a sub-account from one
Business Day to the next.
TRANSFERS OF POLICY VALUE
At any time, the 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 noted below under
"Transfers Involving Fixed Accounts." Transfer requests must be in
writing in a form satisfactory to the Company, or by telephone if a
currently valid telephone transfer authorization form is on file.
We reserve the right to impose limitations on transfers, including the
maximum amount that may be transferred. We reserve 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 (iii) in "Payment of Proceeds"
occurs. Transfer privileges are also subject to any restrictions that
may be imposed by the Trust. In addition, we reserve the right to defer
the transfer privilege at any time when we are unable to purchase or
redeem shares of the Trust.
While the Policy is in force, you 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.
TRANSFERS INVOLVING FIXED ACCOUNT
The maximum amount that you may transfer from the Fixed Account in any
one Policy Year is the greater of $500 or 15% of the Fixed Account
Value at the previous Policy Anniversary. Any transfer which involves a
transfer out of the Fixed Account may not involve a transfer to the
Investment Account for the Money Market Trust.
TELEPHONE TRANSFERS
Although failure to follow reasonable procedures may result in the
Company being liable for any losses resulting from unauthorized or
fraudulent telephone transfers, the Company will not be liable for
following instructions communicated by telephone that the Company
reasonably believes to be genuine. The Company will employ reasonable
procedures to confirm that instructions communicated by telephone are
genuine. Such procedures shall consist of confirming that a valid
telephone authorization form is on file, tape recording of all
telephone transactions and providing written confirmation thereof.
DOLLAR COST AVERAGING
The Company offers policyowners an optional 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. The charge
for a transfer made under the DCA program will not exceed $5. The
Company will provide you with 90 days' written notice of any change in
the current charge. 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 of termination is sent to the policyowner.
31
ASSET ALLOCATION BALANCER TRANSFERS
Under the optional Asset Allocation Balancer program, the policyowner
will designate an allocation of Policy Value among Investment Accounts.
At six-month intervals beginning six months after the Policy Date, the
Company will transfer amounts among the Investment Accounts as
necessary to maintain the policyowner's chosen allocation. A change to
the policyowner's 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 DCA program. The charge for a
transfer made under the Asset Allocation Balancer program will not
exceed $15. The Company will provide you with 90 days' written notice
of any change in the current charge.
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 a Policy is in force and has an available loan value, a
policyowner may borrow against the Policy Value in an amount not to
exceed the Maximum Loanable Amount. The Policy serves as the only
security for the loan. Policy loans may have tax consequences. See "Tax
Treatment of Policy Benefits - Interest on Policy Loans After Year 10"
and "Tax Treatment of Policy Benefits - Policy Loan Interest."
EFFECT OF POLICY LOAN
A Policy loan will have an effect on future Policy Values, since that
portion of the Policy Value in the Loan Account will increase in value
at the crediting interest rate rather than varying with the performance
of the underlying Portfolios or increasing in value at the rate of
interest credited for amounts allocated to the Fixed Account. A Policy
loan may cause a Policy to be more susceptible to going into default
since a policy loan will be reflected in the Net Cash Surrender Value.
See "Lapse and Reinstatement." In addition, a Policy loan may result in
a Policy's failing to satisfy the No-Lapse Guarantee Cumulative Premium
Test since the Policy Debt is subtracted from the sum of the premiums
paid in determining whether this test is satisfied. Finally, a Policy
loan will affect the amount payable on the death of the life insured,
since the death benefit is reduced by the Policy Debt at the date of
death in arriving at the insurance benefit.
INTEREST CHARGED ON POLICY LOANS
Interest on the Policy Debt will accrue daily and be payable annually
on the Policy Anniversary. During the first 10 Policy Years, the rate
of interest charged will be an effective annual rate of 5.25%.
Thereafter, the rate of interest charged will be an effective annual
rate of 4%. If the interest due on a Policy Anniversary is not paid by
the policyowner, the interest will be borrowed against the Policy and
added to the Policy Debt.
Interest on the Policy Debt will continue to accrue daily if there is
an outstanding loan when monthly deductions and premium payments cease
at the life insured's Attained Age 100. The Policy will go into default
at any time the Policy Debt exceeds the Policy Value. At least 61 days
prior to termination, the Company will send you a notice of the pending
termination. Payment of interest on the Policy Debt during the 61 day
grace period will bring the Policy out of default.
LOAN ACCOUNT
When a loan is made, an amount equal to the loan principal, plus
interest to the next Policy Anniversary, will be deducted from the
Investment Accounts or the Fixed Account and transferred to the Loan
Account. Amounts transferred into the Loan Account cover the loan
principal plus loan interest due to the next Policy Anniversary. The
policyowner may designate how the amount to be transferred to the Loan
Account is allocated among the accounts from which the transfer is to
be made. In the absence of instructions, the amount to be transferred
will be allocated to each account in the same proportion as the value
in each Investment Account and the Fixed Account bears to the Net
Policy Value. A transfer from an Investment Account will result in the
cancellation of units of the underlying sub-account equal in value to
the amount transferred from the Investment Account. However, since the
Loan Account is part of the Policy Value, transfers made in connection
with a loan will not change the Policy Value.
INTEREST CREDITED TO THE LOAN ACCOUNT
Interest will be credited to amounts in the Loan Account at an
effective annual rate of 4%. This rate is guaranteed not to be less
than 4.00% during the first 10 policy years and 3.50% thereafter. The
actual rate credited is equal to the rate of interest charged on the
policy loan less the Loan Interest Credited Differential, which is
currently 1.25% during the first ten policy years and 0% thereafter,
and is guaranteed not to exceed 1.25% during the first ten policy years
and 0.50% thereafter. The Company may change the Loan Interest Credited
Differential as of 90 days after sending you written notice of such
change.
For a Policy that is not a Modified Endowment Contract ("MEC"), the tax
consequences associated with a loan interest credited differential of
0% are unclear. A tax advisor should be consulted before effecting a
loan to evaluate the tax consequences that may arise in such a
situation. If we determine, in our sole discretion, that there is a
substantial risk that a
32
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, we retain 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.
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
You may repay the Policy Debt 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. We
will allocate loan repayments first to the Fixed Account until the
associated Loan Sub-Account is reduced to zero and then to each
Investment Account in the same proportion as the value in the
corresponding Loan Sub-Account bears to the value of the Loan Account.
Amounts paid to the Company not specifically designated in writing as
loan repayments will be treated as premiums. Where permitted by
applicable state law, when a portion of the Loan Account amount is
allocated to the Fixed Account, the Company may require that any
amounts paid to it be applied to outstanding loan balances.
POLICY SURRENDER AND PARTIAL WITHDRAWALS
POLICY SURRENDER
You may surrender a 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 any Surrender Charges and outstanding monthly
deductions due (the "Cash Surrender Value") minus the Policy Debt. If
there have been any prior Face Amount increases, the Surrender Charge
will be the sum of the Surrender Charge for the Initial Face Amount
plus the Surrender Charge for each increase. The Net Cash Surrender
Value will be determined as of the end of the Business Day on which we
receive the Policy and your written request for surrender at our
Service Office. After a Policy is surrendered, the insurance coverage
and all other benefits under the Policy will terminate.
PARTIAL WITHDRAWALS
You may make a partial withdrawal of the Net Cash Surrender Value once
each Policy Month after the first Policy Anniversary. You may specify
the portion of the withdrawal to be taken from each Investment Account
and the Fixed Account. In the absence of instructions, the withdrawal
will be allocated among such accounts in the same proportion as the
Policy Value in each account bears to the Net Policy Value. For
information on Surrender Charges on a partial withdrawal, see "Charges
and Deductions - Surrender Charges."
Withdrawals will be limited if they would otherwise cause the Face
Amount to fall below $100,000.
REDUCTION IN FACE AMOUNT DUE TO A PARTIAL WITHDRAWAL
If Death Benefit Option 1 is in effect when a partial withdrawal is
made and the death benefit equals the Face Amount, the Face Amount of
the Policy will be reduced by the amount of the withdrawal plus any
applicable Surrender Charge. Otherwise, if the death benefit is the
Minimum Death Benefit as described under "Death Benefit - Minimum Death
Benefit," the Face Amount will be reduced by the amount, if any, by
which the withdrawal plus the pro-rata Surrender Charge exceeds the
difference between the death benefit and the Face Amount plus the
Premium Death Benefit Account.
If Death Benefit Option 3 is in effect when a partial withdrawal is
made, the withdrawal plus the pro-rata Surrender Charge exceeds the
Premium Death Benefit Account and the death benefit equals the Face
Amount plus the Premium Death Benefit Account, the Face Amount of the
Policy will be reduced by the amount by which the withdrawal plus the
pro-rata Surrender Charge exceeds the Premium Death Benefit Account. If
the death benefit is the Minimum Death Benefit, the Face Amount will be
reduced by the amount, if any, by which such excess exceeds the
difference between the death benefit and the Face Amount plus the
Premium Death Benefit Account.
If Death Benefit Option 2 is in effect, partial withdrawals do not
affect the Face Amount of a Policy.
When the Face Amount of a Policy is based on one or more increases
subsequent to issuance of the Policy, a reduction resulting from a
partial withdrawal will be applied in the same manner as a requested
decrease in Face Amount, i.e., against the Face Amount provided by the
most recent increase, then against the next most recent increases
successively and finally against the initial Face Amount.
33
LAPSE AND REINSTATEMENT
LAPSE
Unless the No-Lapse Guarantee is in effect, a Policy will go into
default if at the beginning of any Policy Month the Policy's Net Cash
Surrender Value would be zero or below after deducting the monthly
deduction then due. Therefore, a Policy could lapse eventually if
increases in Policy Value (prior to deduction of Policy charges) are
not sufficient to cover Policy charges. A lapse could have adverse tax
consequences as described under "Tax Treatment of the Policy - Tax
Treatment of Policy Benefits - Surrender or Lapse." The Company will
notify the policyowner of the default and will allow a 61 day grace
period in which you may make a premium payment sufficient to bring the
Policy out of default. The required payment will be equal to the amount
necessary to bring the Net Cash Surrender Value to zero, if it was less
than zero on the date of default, plus the monthly deductions due at
the date of default and payable at the beginning of each of the two
Policy Months thereafter, plus any applicable premium charge. If we do
not receive the required payment by the end of the grace period, the
Policy will terminate with no value.
NO-LAPSE GUARANTEE
(See below for provisions applicable for policies issued in Florida)
In those states where it is permitted, as long as the No-Lapse
Guarantee Cumulative Premium Test is satisfied during the No-Lapse
Guarantee Period, as described below, the Company will guarantee that
the Policy will not go into default even if adverse investment
experience or other factors should cause the Policy's Net Cash
Surrender Value to fall to zero or below during such period.
The Monthly No-Lapse Guarantee Premium is one-twelfth of the No-Lapse
Guarantee Premium.
The No-Lapse Guarantee Premium is set at issuance of the Policy and
reflects any Additional Rating and Supplementary Benefits, if
applicable. It is subject to change if there is (i) a change in the
Face Amount of the Policy, (ii) a change of the death benefit option ,
(iii) a decrease in the Face Amount of insurance due to a partial
withdrawal, or (iv) any change in the Supplementary Benefits added to
the Policy or the Risk Classification of the life insured.
The No-Lapse Guarantee Period is described under "Definitions."
While the No-Lapse Guarantee is in effect, the Company will determine,
at the beginning of any Policy Month that a Policy would otherwise be
in default, whether the No-Lapse Guarantee Cumulative Premium Test,
described below, has been met. If the test has not been satisfied, the
Company will notify the policyowner of that fact and allow a 61-day
grace period in which you may make a premium payment sufficient to keep
the policy from going into default. This required payment, as described
in the notification, will be equal to the lesser of:
(a) the outstanding premium requirement to satisfy the No-Lapse
Guarantee Cumulative Premium Test at the date of default plus
the Monthly No-Lapse Guarantee Premium due for the next two
Policy Months, or
(b) the amount necessary to bring the Net Cash Surrender Value to
zero plus the monthly deductions due, plus the next two
monthly deductions plus the applicable premium charge.
If we do not receive the required payment by the end of the grace
period, the No-Lapse Guarantee and the Policy will terminate.
Policies Issued in Florida. The following changes are applicable for
Policies issued in Florida:
A No-Lapse Guarantee Value Test (as opposed to a No-Lapse Guarantee
Cumulative Premium Test) is used to determine whether the No-Lapse
Guarantee is in effect.
The No-Lapse Guarantee Value Test is satisfied if, as of the beginning
of the Policy Month that your Policy would otherwise be in default, the
sum of all premiums paid less:
(a) the sum of the No-Lapse Guarantee Value Deductions,
(b) any gross withdrawals, and
(c) any Policy Debt
is equal to or greater than zero.
34
The No-Lapse Guarantee Value Deduction is set forth in the Table of
Values in your Policy. It is set at issue and is recalculated,
prospectively, whenever any of the following changes occur under the
Policy:
- the face amount of insurance changes.
- a supplementary benefit is added, changed or terminated.
- the risk classification of the life insured changes.
- a temporary Additional Rating is added (due to a face amount
increase), or terminated.
- The Death Benefit Option changes.
If, during the No-Lapse Guarantee Period, the
No-Lapse Guarantee Value Test has not been met, the
No-Lapse Guarantee Value Test (as opposed to the
No-Lapse Guarantee Cumulative Premium Test) will be
used to determine the amount necessary to keep your
Policy from going into default. This required payment
will be equal to the lesser of:
(a) the amount necessary to satisfy the No-Lapse Guarantee Value
Test at the date of default, plus the sum of two monthly
No-Lapse Guarantee Value Deductions, or
(b) the amount necessary to bring the Net Cash Surrender Value to
zero plus:
1. the monthly deductions due,
2. the next two monthly deductions, and
3. the applicable premium charge.
NO-LAPSE GUARANTEE CUMULATIVE PREMIUM TEST
The No-Lapse Guarantee Cumulative Premium Test is satisfied if, as of
the beginning of the Policy Month that your Policy would otherwise be
in default, the sum of all premiums paid to date, less any Policy Debt
and less any gross withdrawals taken on or before the date of the test,
is equal to or exceeds the sum of the Monthly No-Lapse Guarantee
Premiums due from the Policy Date to the date of the test.
DEATH DURING GRACE PERIOD
If the life insured should die during the grace period, the Policy
Value used in the calculation of the death benefit will be the Policy
Value as of the date of default and the insurance benefit will be
reduced by any outstanding monthly deductions due at the time of death.
REINSTATEMENT
A policyowner may, by making a written request, reinstate a Policy
which has terminated after going into default at any time within the
five-year period following the date of termination subject to the
following conditions:
(a) Evidence of the life insured's insurability, satisfactory to
the Company, is provided to the Company; and
(b) A premium equal to the amount that was required to bring the
Policy out of default immediately prior to termination, plus
the amount needed to keep the Policy in force to the next
scheduled date for payment of the Planned Premium, must be
paid to the Company.
If the reinstatement is approved, the date of reinstatement will be the
later of the date we approve the policyowner's request or the date we
receive the required payment at our Service Office. In addition, any
Surrender Charges will be reinstated to the amount they were at the
date of default. The Policy Value on the date of reinstatement, prior
to the crediting of any Net Premium paid on the reinstatement, will be
equal to the Policy Value on the date the Policy terminated.
THE GENERAL ACCOUNT
The general account of Manulife USA 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, Manulife USA has
sole discretion over the investment of the assets of the general
account.
By virtue of exclusionary provisions, interests in the general account
of Manulife USA have not been registered under the Securities Act of
1933 and the general account has not been registered as an investment
company under the 1940 Act. Accordingly, neither the general account
nor any interests therein are subject to the provisions of these acts,
and as a result the staff of the SEC has not reviewed the disclosures
in this prospectus relating to the general account. Disclosures
regarding the general account may, however, be subject to certain
generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of statements made in a prospectus.
FIXED ACCOUNT
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A policyowner may elect to allocate net premiums to the Fixed Account
or to transfer all or a portion of the Policy Value to the Fixed
Account from the Investment Accounts. The Company will hold the
reserves required for any portion of the Policy Value allocated to the
Fixed Account in its general account. Transfers from the Fixed Account
to the Investment Accounts are subject to restrictions.
POLICY VALUE IN THE FIXED ACCOUNT The Policy Value in the Fixed Account
is equal to:
(a) the portion of the net premiums allocated to it; plus
(b) any amounts transferred to it; plus
(c) interest credited to it; less
(d) any charges deducted from it; less
(e) any partial withdrawals from it; less
(f) any amounts transferred from it.
INTEREST ON THE FIXED ACCOUNT
An allocation of Policy Value to the Fixed Account does not entitle the
policyowner to share in the investment experience of the general
account. Instead, we guarantee that the Policy Value in the Fixed
Account will accrue interest daily at an effective annual rate of at
least 3%, without regard to the actual investment experience of the
general account. Consequently, if you pay the planned premiums,
allocate all net premiums only to the general account and make 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
CASH VALUE ENHANCEMENT RIDERS
The Policy may be issued with one of two optional Cash Value
Enhancement riders: (1) the Cash Value Enhancement Rider or (2) the
Cash Value Enhancement Plus Rider. The decision to add either one of
these two riders to a Policy must be made at issuance of the Policy
and, once made, is irrevocable. The benefit of these riders is that the
Cash Surrender Value of a Policy is enhanced during the period for
which Surrender Charges are applicable. The enhancement is provided by
deducting a Surrender Charge that is less than the Surrender Charge
that would otherwise have applied. Under the Cash Value Enhancement
Plus Rider, there will be no Surrender Charge.
Under each of the riders, the enhancement in Cash Surrender Value is
equal to the Surrender Charge multiplied by the applicable Cash Value
Enhancement Factor. The applicable Cash Value Enhancement Factors under
the two riders during the 10 years of the Surrender Charge Period are
set forth below:
CASH VALUE ENHANCEMENT FACTORS
(Applicable to Initial Face Amount and Subsequent Increases)
Cash Value Enhancement Cash Value Enhancement
Policy Year Rider Plus Rider
1 - 2 80% 100%
3 60% 100%
4 40% 100%
5 20% 100%
6 - 10 0% 100%
Adding either of the Cash Value Enhancement riders to a Policy will
alter certain of the charges under the Policy, as illustrated in the
following table. There will be no change in the monthly administration
and cost of insurance charges under the Policy.
COMPARATIVE MONTHLY CHARGES WITH ADDITION OF
CASH VALUE ENHANCEMENT RIDERS
CHARGES
THE POLICY
Premium Charge 7.5% for first 10 Policy Years and 5.0% thereafter
Asset-Based Risk Charge 0.15% per Policy Year (guaranteed not to exceed 0.45%)
36
THE POLICY WITH CASH VALUE ENHANCEMENT RIDER
Premium Charge 8.5% for first 10 Policy Years and 5.5% thereafter
Asset-Based Risk Charge 0.15% per Policy Year (guaranteed not to exceed 0.45%)
THE POLICY WITH CASH VALUE ENHANCEMENT PLUS RIDER
Premium Charge 3.25% for first 10 Policy Years and 2.25% thereafter
Asset-Based Risk Charge 1.00% per Policy Year for the first 15 Policy Years (guaranteed not to
exceed 1.30%) and 0.25% thereafter (guaranteed not to exceed 0.55%)
POLICYOWNER RIGHTS
Unless otherwise restricted by a separate agreement, the policyowner
may, until the life insured's death:
- Vary the premiums paid under the Policy.
- Change the death benefit option.
- Change the premium allocation for future premiums.
- Transfer amounts between sub-accounts.
- Take loans and/or partial withdrawals.
- Surrender the contract.
- Transfer ownership to a new owner.
- Name a contingent owner that will automatically become owner
if the policyowner dies before the insured.
- Change or revoke a contingent owner.
- Change or revoke a beneficiary.
ASSIGNMENT OF RIGHTS
Manulife USA will not be bound by an assignment until it receives a
copy of the assignment at its Service Office. We assume 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 in the same class will share equally in the insurance
benefit payable to them. Beneficiaries may be revocable or irrevocable.
Unless an irrevocable designation has been elected, you may change the
beneficiary during the life insured's lifetime by giving written notice
to the Company in a form satisfactory to us. The change will take
effect as of the date such notice is signed. 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, we will pay the insurance benefit as if the
beneficiary had died before the life insured.
VALIDITY
The Company will not contest the validity of a Policy after it has been
in force during any life insured's lifetime for two years from the
Issue Date. We will not contest the validity of an increase in Face
Amount, after such increase or addition has been in force during the
lifetime of the life insured for two years. If a Policy has been
reinstated and been in force during the lifetime of the life insured
for less than two years from the reinstatement date, the Company can
contest any misrepresentation of a fact material to the reinstatement.
MISSTATEMENT OF AGE OR SEX
If the stated age or sex, or both, of the life insured in the Policy
are incorrect, we 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.
37
SUICIDE EXCLUSION
If the life insured dies by suicide within two years after the Issue Date
(or within the maximum period permitted by the state in which the
Policy was delivered, if less than two years), the Policy will
terminate and the Company will pay only the premiums paid less any
partial Net Cash Surrender Value withdrawal and less any Policy Debt.
If the life insured dies by suicide within two years after the effective
date of an increase in Face Amount, the death benefit for that increase
will be limited to the Monthly Deductions taken for the increase.
The Company reserves the right to obtain evidence of the manner and
cause of death of the life insured.
SUPPLEMENTARY BENEFITS
Subject to certain requirements, one or more Supplementary Benefits may
be added to a Policy, including those providing a death benefit
guarantee, term insurance for an additional insured, providing
accidental death coverage, waiving monthly deductions upon disability,
accelerating benefits in the event of a terminal illness, and, in the
case of corporate-owned policies, permitting a change of the life
insured (a taxable event). More detailed information concerning these
supplementary benefits may be obtained from an authorized agent of the
Company. The cost, if any, for supplementary benefits will be deducted
as part of the monthly deductions.
TAX TREATMENT OF THE POLICY
The following summary provides a general description of the federal
income tax considerations associated with the Policy and does not
purport to be complete or to cover all situations. This discussion is
not intended as tax advice. Counsel or other competent tax advisors
should be consulted for more complete information. This discussion is
based upon the Company's understanding of the present federal income
tax laws as they are currently interpreted by the Internal Revenue
Service (the "IRS"). No representation is made as to the likelihood of
continuation of the present federal income tax laws nor of the current
interpretations by the IRS. Manulife USA does not make any guarantee
regarding the tax status of any policy or any transaction regarding the
policy.
The Policies may be used in various arrangements, including
non-qualified deferred compensation or salary continuation plans, split
dollar insurance plans, executive bonus plans, retiree medical benefit
plans and others. The tax consequences of such plans may vary depending
on the particular facts and circumstances of each individual
arrangement. Therefore, if the use of such Policies in any such
arrangement, the value of which depends in part on the tax
consequences, is contemplated, a qualified tax advisor should be
consulted for advice on the tax attributes of the particular
arrangement.
The Company is taxed as a life insurance company. Because the
operations of the Separate Account are a part of, and are taxed with,
the Company's operations, the Separate Account is not separately taxed
as a "regulated investment company" under the Code. Under existing
Federal income tax laws, the Company is not taxed on the investment
income and capital gains of the Separate Account, but the operations of
the Separate Account may reduce the Company's Federal income taxes. For
example, the Company may be eligible for certain tax credits or
deductions relating to foreign taxes paid and dividends received by
Trust portfolios. The Company's use of these tax credits and deductions
will not adversely affect or benefit the Separate Account. The Company
does not anticipate that it will be taxed on the income and gains of
the Separate Account in the future, but if the Company is, it may
impose a corresponding charge against the Separate Account.
LIFE INSURANCE QUALIFICATION
There are several requirements that must be met for a Policy to be
considered a Life Insurance Contract under the Code, and thereby to
enjoy the tax benefits of such a contract:
- The Policy must satisfy the definition of life insurance under
Section 7702 of the Code.
- The investments of the Separate Account must be "adequately
diversified" in accordance with Section 817(h) of the Code and
Treasury Regulations.
- The Policy must be a valid life insurance contract under
applicable state law.
- The policyowner must not possess "incidents of ownership" in
the assets of the Separate Account.
These four items are discussed in detail below.
DEFINITION OF LIFE INSURANCE
Section 7702 of the Code sets forth a definition of a life insurance
contract for federal tax purposes. For a Policy to be a life insurance
contract, it must satisfy either the Cash Value Accumulation Test or
the Guideline Premium and the Cash Value Corridor Tests. By limiting
cash value at any time to the net single premium that would be required
in order to fund future benefits under the Policy, the Cash Value
Accumulation Test in effect requires a minimum death benefit for a
given Policy
38
Value. The Guideline Premium Test also requires a minimum death
benefit, but in addition limits the total premiums that can be paid
into a Policy for a given amount of death benefit.
With respect to a Policy that is issued on the basis of a standard rate
class, the Company believes (largely in reliance on IRS Notice 88-128
and the proposed mortality charge regulations under Section 7702,
issued on July 5, 1991) that such a Policy should meet the Section 7702
definition of a life insurance contract.
With respect to a Policy that is issued on a substandard basis (i.e., a
rate class involving higher-than-standard mortality risk), there is
less guidance, in particular as to how mortality and other expense
requirements of Section 7702 are to be applied in determining whether
such a Policy meets the Section 7702 definition of a life insurance
contract. Thus it is not clear whether or not such a Policy would
satisfy Section 7702, particularly if the policyowner pays the full
amount of premiums permitted under the Policy.
The Secretary of the Treasury (the "Treasury") is authorized to
prescribe regulations implementing Section 7702. However, while
proposed regulations and other interim guidance have been issued, final
regulations have not been adopted and guidance as to how Section 7702
is to be applied is limited. If a Policy were determined not to be a
life insurance contract for purposes of Section 7702, such a Policy
would not provide the tax advantages normally provided by a life
insurance policy.
If it is subsequently determined that a Policy does not satisfy Section
7702, the Company may take whatever steps are appropriate and
reasonable to attempt to cause such a Policy to comply with Section
7702. For these reasons, the Company reserves the right to restrict
Policy transactions as necessary to attempt to qualify it as a life
insurance contract under Section 7702.
DIVERSIFICATION
Section 817(h) of the Code requires that the investments of the
Separate Account be "adequately diversified" in accordance with
Treasury regulations in order for the Policy to qualify as a life
insurance contract under Section 7702 of the Code (discussed above).
The Separate Account, through the Trust, intends to comply with the
diversification requirements prescribed in Treas. Reg. Sec. 1.817-5,
which affect how the Trust's assets are to be invested. The Company
believes that the Separate Account will thus meet the diversification
requirement, and the Company will monitor continued compliance with the
requirement.
STATE LAW
A policy must qualify as a valid life insurance contract under
applicable state laws. 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 Policy has many more portfolios to which
policyowners may allocate premium payments and Policy Values than were
available in the policies described in the rulings. 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.
39
TAX TREATMENT OF POLICY BENEFITS
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes.
The Company believes that the proceeds and cash value increases of a
Policy should be treated in a manner consistent with a fixed-benefit
life insurance policy for federal income tax purposes. Depending on the
circumstances, the exchange of a Policy, a change in the Policy's death
benefit option, a Policy loan, partial withdrawal, surrender, change in
ownership, the addition of an accelerated death benefit rider, or an
assignment of the Policy may have federal income tax consequences. In
addition, federal, state and local transfer, and other tax consequences
of ownership or receipt of Policy proceeds depend on the circumstances
of each policyowner or beneficiary.
DEATH BENEFIT
The death benefit under the Policy should be excludable from the gross
income of the beneficiary under Section 101(a)(1) of the Code.
In general, at the insured's death, an estate tax is imposed on assets
that are treated as part of the insured's estate. Death benefits are
included in the insured's estate if the estate is the beneficiary under
the policy, if the insured owned the policy at death, or if the insured
had retained certain incidents of ownership in the policy. In addition,
if within three years of the insured's death, the insured made a gift
of the policy or relinquished those incidents of ownership which would
have otherwise caused the policy to be treated as part of the insured's
estate, the death benefit will be included in the insured's estate.
CASH VALUES
Generally, the policyowner will not be deemed to be in constructive
receipt of the Policy Value, including increments thereof, until there
is a distribution. This includes additions attributable to interest,
dividends, appreciation or gains realized on transfers among
sub-accounts.
INVESTMENT IN THE POLICY
Investment in the Policy means:
- the aggregate amount of any premiums or other consideration
paid for a Policy; minus
- the aggregate amount, other than loan amounts, received under
the Policy which has been excluded from the gross income of
the policyowner (except that the amount of any loan from, or
secured by, a Policy that is a modified endowment contract
("MEC"), to the extent such amount has been excluded from
gross income, will be disregarded); plus
- the amount of any loan from, or secured by a Policy that is a
MEC to the extent that such amount has been included in the
gross income of the policyowner.
The repayment of a policy loan, or the payment of interest on a loan,
does not affect the Investment in the Policy.
SURRENDER OR LAPSE
Upon a complete surrender or lapse of a Policy or when benefits are
paid at a Policy's maturity date, if the amount received plus the
amount of Policy Debt exceeds the total Investment in the Policy, the
excess will generally be treated as ordinary income subject to tax.
If, at the time of lapse or surrender, a Policy has a loan, the loan is
extinguished and the amount of the loan is a deemed payment to the
policyholder. If the amount of this deemed payment exceeds the
investment in the contract, the excess is taxable income and is subject
to Internal Revenue Service reporting requirements.
DISTRIBUTIONS
The tax consequences of distributions from, and loans taken from or
secured by, a Policy depend on whether the Policy is classified as a
MEC.
DISTRIBUTIONS FROM NON-MEC'S
A distribution from a non-MEC is generally treated as a tax-free
recovery by the policyowner of the Investment in the Policy to the
extent of such Investment in the Policy, and as a distribution of
taxable income only to the extent the distribution exceeds the
Investment in the Policy. In general, loans from, or secured by, a
non-MEC are not treated as distributions. Instead, such loans are
treated as indebtedness of the policyowner. (But see the discussion of
the tax treatment of loans made after year ten in the section "Interest
on Policy Loans After Year 10").
40
FORCE OUTS
An exception to this general rule occurs in the case of a decrease in the
Policy's death benefit or any other change that reduces benefits under the
Policy in the first 15 years after the Policy is issued and that results in a
cash distribution to the policyowner in order for the Policy to continue to
comply with the Section 7702 definitional limits. Such a cash distribution will
be taxed in whole or in part as ordinary income (to the extent of any gain in
the Policy) under rules prescribed in Section 7702. Changes include partial
withdrawals and death benefit option changes.
DISTRIBUTIONS FROM MEC'S
Policies classified as MEC's will be subject to the following tax rules:
- - First, all partial withdrawals from such a Policy are treated as ordinary
income subject to tax up to the amount equal to the excess (if any) of the
Policy Value immediately before the distribution over the Investment in
the Policy at such time.
- - Second, loans taken from or secured by such a Policy and assignments or
pledges of any part of its value are treated as partial withdrawals from
the Policy and taxed accordingly. Past-due loan interest that is added to
the loan amount is treated as a loan.
- - Third, a 10% additional income tax is imposed on the portion of any
distribution (including distributions on surrender) from, or loan taken
from or secured by, such a policy that is included in income except where
the distribution or loan:
- - is made on or after the policyowner attains age 59 -1/2;
- - is attributable to the policyowner becoming disabled; or
- - is part of a series of substantially equal periodic payments for the
life (or life expectancy) of the policyowner or the joint lives (or joint
life expectancies) of the policyowner and the policyowner's beneficiary.
These exceptions are not likely to apply in situations where the Policy is not
owned by an individual.
Definition of Modified Endowment Contracts Section 7702A establishes a class of
life insurance contracts designated as "Modified Endowment Contracts" or "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 "seven-pay premium limit". The
seven-pay premium limit on any date is equal to the sum of the net level
premiums that would have been paid on or before such date if the policy provided
for paid-up future benefits after the payment of seven level annual premiums
(the "seven-pay premium").
The rules relating to whether a Policy will be treated as a MEC are extremely
complex and cannot be adequately described in the limited confines of this
summary. Therefore, a current or prospective policyowner should consult with a
competent adviser to determine whether a transaction will cause the Policy to be
treated as a MEC.
Material Changes
A Policy that is not a MEC may become a MEC if it is "materially changed." If
there is a material change to the Policy, the seven year testing period for MEC
status is restarted. The material change rules for determining whether a Policy
is a MEC are complex. In general, however, the determination of whether a Policy
will be a MEC after a material change generally depends upon the relationship
among the death benefit of the Policy at the time of such change, the Policy
Value at the time of the change, and the additional premiums paid into the
Policy during the seven years starting with the date on which the material
change occurs.
Reductions in Face Amount
If there is a reduction in benefits during the first seven Policy Years, the
seven-pay premium limit is recalculated as if the policy had been originally
issued at the reduced benefit level. Failure to comply would result in
classification as a MEC regardless of any efforts by the Company to provide a
payment schedule that will not violate the seven pay test.
Exchanges
A life insurance contract received in exchange for a MEC will also be treated as
a MEC.
Processing of Premiums
If a premium is received which would cause the Policy to become a MEC within 23
days of the next Policy Anniversary, the Company will not apply the portion of
the premium which would cause MEC status ("excess premium") to the Policy when
received. The excess premium will be placed in a suspense account until the next
anniversary date, at which point the excess premium, along with interest, earned
on the excess premium at a rate of 3.5% from the date the premium was received,
will be applied to the Policy. (Any amount that would still be excess premium on
the next anniversary will be refunded to the policyowner.) The policyowner will
be advised of this action and will be offered the opportunity to have the
premium credited as of the original date received or to have the premium
returned. If the policyowner does not respond, the premium
41
and interest will be applied to the Policy as of the first day of the next
anniversary. The interest credited will be taxable to the owner in the year
earned.
If a premium is received which would cause the Policy to become a MEC more than
23 days prior to the next Policy Anniversary, the Company will refund any excess
premium to the policyowner. The portion of the premium which is not excess will
be applied as of the date received. The policyowner will be advised of this
action and will be offered the opportunity to return the premium and have it
credited to the account as of the original date received.
If, in connection with the application or issue of the Policy, the policyowner
acknowledges that the policy is or will become a MEC, excess premiums that would
cause MEC status will be credited to the account as of the original date
received.
Multiple Policies
All MEC's that are issued by a company (or its affiliates) to the same
policyowner during any calendar year are treated as one MEC for purposes of
determining the amount includible in gross income under Section 72(e) of the
Code.
POLICY LOAN INTEREST
Generally, personal interest paid on any loan under a Policy which is owned by
an individual is not deductible. For policies purchased on or after January 1,
1996, interest on any loan under a Policy owned by a taxpayer and covering the
life of any individual who is an officer or employee of or is financially
interested in the business carried on by the taxpayer will not be tax deductible
unless the employee is a key person within the meaning of Section 264 of the
Code. A deduction will not be permitted for interest on a loan under a Policy
held on the life of a key person to the extent the aggregate of such loans with
respect to contracts covering the key person exceed $50,000. The number of
employees who can qualify as key persons depends in part on the size of the
employer but cannot exceed 20 individuals.
Furthermore, if a non-natural person owns a Policy, or is the direct or indirect
beneficiary under a Policy, section 264(f) of the Code disallows a pro-rata
portion of the taxpayer's interest expense allocable to unborrowed Policy cash
values attributable to insurance held on the lives of individuals who are not
20% (or more) owners of the taxpayer-entity, officers, employees, or former
employees of the taxpayer.
The portion of the interest expense that is allocable to unborrowed Policy cash
values is an amount that bears the same ratio to that interest expense as the
taxpayer's average unborrowed Policy cash values under such life insurance
policies bear to the average adjusted bases for all assets of the taxpayer.
If the policyowner is an individual, and if the taxpayer is a business and is
not the policyowner, but is the direct or indirect beneficiary under the Policy,
then the amount of unborrowed cash value of the Policy taken into account in
computing the portion of the taxpayer's interest expense allocable to unborrowed
Policy cash values cannot exceed the benefit to which the taxpayer is directly
or indirectly entitled under the Policy.
INTEREST ON POLICY LOANS AFTER YEAR 10
Interest is credited to amounts in the Loan Account at an effective annual rate
of 4.00%. This rate is guaranteed not to be less than 4.00% during the first 10
policy years and 3.50% thereafter. The actual rate credited is equal to the rate
of interest charged on the policy loan, less the Loan Interest Credited
Differential, which is currently 1.25% during the first ten policy years and 0%
thereafter, and is guaranteed not to exceed 1.25% during the first ten policy
years and 0.50% thereafter. 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 no differential between the credited interest
rate and the loan interest rate, the Company retains the right to decrease the
crediting rate under the loan to an amount that would result in the transaction
being treated as a loan under Federal tax law. If this amount is not prescribed
by any IRS ruling or regulation or any court decision, the amount of increase
will be that which the Company considers to be most likely to result in the
transaction being treated as a loan under Federal tax law.
POLICY EXCHANGES
A policyowner generally will not recognize gain upon the exchange of a Policy
for another life insurance policy covering the same life insured and issued by
the Company or another insurance company, except to the extent that the
policyowner receives cash in the exchange or is relieved of Policy indebtedness
as a result of the exchange. The receipt of cash or forgiveness of indebtedness
is treated as "boot" which is taxable up to the amount of the gain in the
policy. In no event will the gain recognized exceed the amount by which the
Policy Value (including any unpaid loans) exceeds the policyowner's Investment
in the Policy.
OTHER TRANSACTIONS
A transfer of the Policy, a change in the owner, a change in the life insured, a
change in the beneficiary, and certain other changes to the Policy, as well as
particular uses of the Policy (including use in a so called "split-dollar"
arrangement) may
42
have tax consequences depending upon the particular circumstances and should not
be undertaken prior to consulting with a qualified tax adviser. For instance, if
the owner transfers the Policy or designates a new owner in return for valuable
consideration (or, in some cases, if the transferor is relieved of a liability
as a result of the transfer), then the death benefit payable upon the death of
the life insured may in certain circumstances be includible in taxable income to
the extent that the death benefit exceeds the prior consideration paid for the
transfer and any premiums or other amounts subsequently paid by the transferee.
Further, in such a case, if the consideration received exceeds the transferor's
Investment in the Policy, the difference will be taxed to the transferor as
ordinary income.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the individual
circumstances of each policyowner and beneficiary.
ALTERNATE MINIMUM TAX
Corporate owners may be subject to Alternate Minimum Tax on the annual increases
in Cash Surrender Values and on the death benefit proceeds.
INCOME TAX REPORTING
In certain employer-sponsored life insurance arrangements, including equity
split dollar arrangements, participants may be required to report for income tax
purposes, one or more of the following:
- - the value each year of the life insurance protection provided;
- - an amount equal to any employer-paid premiums; or
- - some or all of the amount by which the current value exceeds the
employer's interest in the Policy.
Participants should consult with their tax adviser to determine the tax
consequences of these arrangements.
OTHER INFORMATION
PAYMENT OF PROCEEDS
As long as the Policy is in force, Manulife USA 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, and (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;
provided that applicable rules and regulations of the SEC shall govern as to
whether the conditions described in (ii) and (iii) exist.
REPORTS TO POLICYOWNERS
Within 30 days after each Policy Anniversary, Manulife USA will send the
policyowner a statement showing, among other things:
- - the amount of death benefit;
- - the Policy Value and its allocation among the Investment Accounts, the
Fixed Account and the Loan Account;
- - the value of the units in each Investment Account to which the Policy
Value is allocated;
- - the Policy Debt and any loan interest charged since the last report;
- - the premiums paid and other Policy transactions made during the period
since the last report; and
- - any other information required by law.
Each policyowner will also be sent an annual and a semi-annual report for the
Trust which will include a list of the securities held in each Portfolio as
required by the 1940 Act.
43
DISTRIBUTION OF THE POLICIES
Manulife Financial Securities LLC ("Manulife Securities"), an indirect
wholly-owned subsidiary of MFC, will act as the principal underwriter of, and
continuously offer, the Policies pursuant to a Distribution Agreement with
Manulife USA. Manulife Securities is registered as a broker-dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers. Manulife Securities is located at 73 Tremont Street, Boston,
MA 02108 and is organized as a Delaware limited liability company. The sole
member of Manulife Securities is Manulife USA. The Policies will be sold by
registered representatives of either Manulife Securities or other broker-dealers
having distribution agreements with Manulife Securities who are also authorized
by state insurance departments to do so. The Policies will be sold in all states
of the United States except New York.
The commissions payable to a registered representative on sales of the Policy
will not exceed: (a) 115% [110%] of premiums paid in the first year of the
Policy plus (b) 2% of all premiums paid in years after the first year plus (c)
1.00% of the Net Policy Value per year. Commissions relating to a particular
premium payment are generally paid in the year that the premium payment is made.
However, these commissions may also, under certain circumstances, be paid over a
period of time. Representatives who meet certain productivity standards with
regard to the sale of the Policies and certain other policies issued by
Manufacturers Life of America or Manufacturers Life will be eligible for
additional compensation.
RESPONSIBILITIES OF MFC
MFC entered into an agreement with Manulife Securities pursuant to which MFC, on
behalf of Manulife Securities will pay the sales commissions in respect of the
Policies and certain other policies issued by Manulife USA, prepare and maintain
all books and records required to be prepared and maintained by Manulife
Securities with respect to the Policies and such other policies, and send all
confirmations required to be sent by Manulife Securities with respect to the
Policies and such other policies. Manulife Securities will promptly reimburse
MFC for all sales commissions paid by MFC and will pay MFC for its other
services under the agreement in such amounts and at such times as agreed to by
the parties.
Finally, Manulife USA may, from time to time in its sole discretion, enter into
one or more reinsurance agreements with other life insurance companies under
which policies issued by it may be reinsured, such that its total amount at risk
under a policy would be limited for the life of the insured.
VOTING RIGHTS
As stated previously, all of the assets held in each sub-account of the Separate
Account will be invested in shares of a particular Portfolio of the Trust.
Manulife USA 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, Manulife USA 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 Manulife USA
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 Manulife USA 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
Manulife USA, 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.
Manulife USA may, if required by state officials, disregard voting instructions
if such instructions would require shares to be voted so as to cause a change in
the sub-classification or investment policies of one or more of the Portfolios,
or to approve or disapprove an investment management contract. In addition, the
Company itself may disregard voting instructions that would require changes in
the investment policies or investment adviser, provided that Manulife USA
reasonably disapproves such changes in accordance with applicable federal
regulations. If Manulife USA does disregard voting instructions, it will advise
policyowners of that action and its reasons for such action in the next
communication to policyowners.
44
SUBSTITUTION OF PORTFOLIO SHARES
Although we believe it to be unlikely, it is possible that in the judgment of
the management of Manulife USA, 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 regulations, because the
shares are no longer available for investment, or for some other reason. In that
event, Manulife USA may seek to substitute the shares of another Portfolio or of
an entirely different mutual fund. Before this can be done, the approval of the
SEC and one or more state insurance departments may be required.
Manulife USA 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
Manulife USA 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.
Manulife USA 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 (U.S.A.) at December 31, 2000 and 1999 and for each of the three years
in the period ended December 31, 2000 and the financial statements of Separate
Account Three of The Manufacturers Life Insurance Company America at December
31, 2000 and 1999, and for each of the two years in the period ended December
31, 2000, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given on the authority of such firm as experts in accounting and
auditing.
FURTHER INFORMATION
A registration statement under the Securities Act of 1933 has been filed with
the SEC relating to the offering described in this prospectus. This prospectus
does not include all the information set forth in the registration statement.
The omitted information may be obtained from the SEC's principal office in
Washington D.C. upon payment of the prescribed fee. The SEC also maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC which is
located at http://www.sec.gov.
For further information you may also contact Manulife USA's Home Office, the
address and telephone number of which are on the first page of the prospectus.
45
OFFICERS AND DIRECTORS
Position with
Name Manulife USA Principal Occupation
- ---- ------------ --------------------
James Boyle Director President of U.S. Annuities, Manulife
(42)** Financial, July 1999 to present; Vice
President, Institutional Markets, Manulife
Financial, May 1998 to June 1999; Vice
President, Administration of U.S. Annuities,
Manulife Financial, September 1996 to May 1998;
Vice President, Treasurer and Chief
Administrative Officer, North American Funds,
June 1994 to September 1996.
Robert A. Senior Vice Senior Vice President, U.S. Individual
Cook (45)** President, U.S. Insurance, The Manufacturers Life Insurance
Insurance; Company, January 1999 to present; Vice
Director President, Product Management, The
Manufacturers Life Insurance Company, January
1996 to December 1998; Sales and Marketing
Director, The Manufacturers Life Insurance
Company, 1994 to 1995.
Peter Vice President, Vice President & Treasurer, The Manufacturers
Copestake Finance Life Insurance Company, November 1999 to
(45)*** present; Vice President, Asset Liability
Management, Canadian Imperial Bank of Commerce
(CIBC), 1991 to 1999; Director, Capital
Management, Bank of Montreal, 1986-1990;
Inspector General of Banks, Department of
Finance, 1980-1985.
John D. Chairman and Executive Vice President, U.S. Operation, The
DesPrez III President Manufacturers Life Insurance Company, January
(44)** 1999 to date; Senior Vice President, U.S.
Annuities, The Manufacturers Life Insurance
Company, September 1996 to December 1998;
President of The Manufacturers Life Insurance
Company of North America, September 1996 to
December, 1998; Vice President, Mutual Funds,
North American Security Life Insurance Company,
January 1995 to September 1996.
James D. Vice President, Vice President, US Law and Government
Gallagher Secretary and Relations, U.S. Operations, The Manufacturers
(45)** General Counsel Life Insurance Company, January 1996 to
present; President, The Manufacturers Life
Insurance Company of New York, August 1999 to
present, Vice President, Secretary and General
Counsel, The Manufacturers Life Insurance
Company of America, January 1997 to present;
Secretary and General Counsel, Manufacturers
Adviser Corporation, January 1997 to present;
Vice President, Secretary and General Counsel,
The Manufacturers Life Insurance Company of
North America, 1994 to present.
Donald Executive Vice Executive Vice President & Chief Investment
Guloien President and Officer, The Manufacturers Life Insurance
(44)*** Chief Investment Company, March 2001 to Present; Executive Vice
Officer President, Business Development, The
Manufacturers Life Insurance Company, January
1999 to March 2001; Senior Vice President,
Business Development, The Manufacturers Life
Insurance Company, 1994 to December 1998.
Geoffrey Guy Director Executive Vice President and Chief Actuary, The
(53)*** Manufacturers Life Insurance Company,
February 2000 to present; Senior Vice
President and Chief Actuary, The Manufacturers
Life Insurance Company, 1996 to 2000; Vice
President and Chief Actuary, The Manufacturers
Life Insurance Company, 1993 to 1996; Vice
President and Chief Financial Officer, U.S.
Operations, The Manufacturers Life Insurance
Company, 1987 to 1993.
John Lyon Vice President Vice President & Chief Financial Officer,
(48) *** and Chief Investments, The Manufacturers Life Insurance
Financial Company; April 2001 to Present; Vice President,
Officer, Business Development, The Manufacturers Life
Investments; Insurance Company, 1995-2001; Assistant Vice
Director President, Business Development, The
Manufacturers Life Insurance Company,
1994-1995; Director/Manager, Corporate Finance,
The Manufacturers Life Insurance Company,
1992-1994.
James Senior Vice Senior Vice President, U.S. Pensions, The
O'Malley President, U.S. Manufacturers Life Insurance Company, January
(54)*** Group Pension; 1999 to present; Vice President, Systems New
Director Business Pensions, The Manufacturers Life
Insurance Company, 1984 to December 1998.
Rex Director Member, Dykema Gossett, PLLC, 1982 to present.
Schlaybaugh,
Jr. (51)****
46
Position with
Name Manulife USA Principal Occupation
- ---- ------------ --------------------
John Ostler Vice President Vice President and Chief Financial Officer,
(47)** and Chief U.S. Operations, The Manufacturers Life
Financial Insurance Company, October 1, 2000 to
Officer present; Vice President and Corporate Actuary,
The Manufacturers Life Insurance Company, March
1998 to September 2000; Vice President & CFO
U.S. Individual Insurance, The Manufacturers
Life Insurance Company, 1992 to March 1998;
Vice President, U.S. Insurance Products, The
Manufacturers Life Insurance Company, 1990 -
1992; Assistant Vice President & Pricing
Actuary, US Insurance, The Manufacturers Life
Insurance Company, 1988-1990.
Warren Senior Vice Senior Vice President, Investments, The
Thomson President, Manufacturers Life Insurance Company, May 2001
(46)*** Investments to Present; President, Norfolk Capital Partners
Inc. 2000 - May 2001; Managing Director, Public
Sector Finance, New Capital Group Inc.
1995-2000; Tax Partner, Coopers & Lybrand
Chartered Accounts, 1994-1995; Taxation Vice
President, The Manufacturers Life Insurance
Company, 1987-1994.
Denis Turner Vice President Vice President and Chief Accountant, U.S.
(44)*** and Treasurer Division, The Manufacturers Life Insurance
Company, May 1999 to present; Vice President
and Treasurer, The Manufacturers Life Insurance
Company of America, May 1999 to present;
Assistant Vice President, Financial Operations,
Reinsurance Division, The Manufacturers Life
Insurance Company, February 1998 to April 1999;
Assistant Vice President & Controller,
Reinsurance Division, The Manufacturers Life
Insurance Company, November 1995, to January
1998, Assistant Vice President, Corporate
Controllers, The Manufacturers Life Insurance
Company, January 1989 to October 1995.
** Principal business address is Manulife Financial, 73 Tremont Street,
Boston, MA 02108.
*** Principal business address is Manulife Financial, 200 Bloor Street,
Toronto, Ontario Canada M4W 1E5.
**** Principal business address is Dykema Gossett, 800 Michigan National Tower,
Lansing, Michigan 48933.
OPTIONAL TERM RIDER
The Policy may be issued with an optional term insurance rider (the "Term
Rider"). The benefit of the term rider is that the cost of insurance will
always be less than or equal to the cost of insurance on the Policy.
HOWEVER, UNLIKE THE DEATH BENEFIT UNDER THE POLICY, THE DEATH BENEFIT
UNDER THE TERM RIDER IS NOT PROTECTED BY THE NO LAPSE GUARANTEE AFTER THE
SECOND POLICY YEAR AND TERMINATES AT AGE 100.
ILLUSTRATIONS
The tables set forth in Appendix A illustrate the way in which a Policy's
Death Benefit, Policy Value, and Cash Surrender Value could vary over an
extended period of time.
47
APPENDIX A:
ILLUSTRATIONS
A-1
CASH ACCUMULATOR
ILLUSTRATIONS
APPENDIX A - SAMPLE ILLUSTRATIONS OF POLICY VALUES, CASH SURRENDER VALUES AND
DEATH BENEFITS
The following tables have been prepared to help show how values under the Policy
change with investment performance. The tables include both Policy Values and
Cash Surrender Values as well as Death Benefits. The Policy Value is the sum of
the values in the Investment Accounts, as the tables assume no values in the
Fixed Account or Loan Account. The Cash Surrender Value is the Policy Value less
any applicable surrender charges. The tables illustrate how Policy Values and
Cash Surrender Values, which reflect all applicable charges and deductions, and
Death Benefits of the Policy on an insured of given age would vary over time if
the return on the assets of the Portfolios was a uniform, gross, after-tax,
annual rate of 0%, 6% or 12%. The Policy Values, Death Benefits and Cash
Surrender Values would be different from those shown if the returns averaged 0%,
6% or 12%, but fluctuated over and under those averages throughout the years.
The charges reflected in the tables include those for deductions from premiums,
surrender charges, and monthly deductions.
The amounts shown for the Policy Value, Death Benefit and Cash Surrender Value
as of each Policy Year reflect the fact that the net investment return on the
assets held in the sub-accounts is lower than the gross, after-tax return. This
is because the expenses and fees borne by Manufacturers Investment Trust are
deducted from the gross return. The illustrations reflect an average of those
Portfolios' current expenses (excluding those of the Equity Index Trust), which
is approximately 0.977% per annum. The gross annual rates of return of 0%, 6%
and 12% correspond to approximate net annual rates of return of -0.972%, 4.970%
and 10.911%. The illustrations reflect the current expense reimbursements in
effect for the Lifestyle Trusts and the Index Trusts. In the absence of such
expense reimbursements, the average of the Portfolio's current expenses would
have been 0.988% 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
- -0.983%, 4.958% and 10.899%. The expense reimbursements for the Lifestyle Trusts
and the Index Trusts are expected to remain in effect during the fiscal year
ended December 31, 2002. Were the expense reimbursements to terminate, the
average of the Portfolios' current expenses would be higher and the approximate
net annual rates of return would be lower.
The tables assume that no premiums have been allocated to the Fixed Account,
that planned premiums are paid on the Policy Anniversary and that no transfers,
partial withdrawals, Policy loans, changes in death benefit options or changes
in face amount have been made. The tables reflect the fact that no charges for
federal, state or local taxes are currently made against the Separate Account.
If such a charge is made in the future, it would take a higher gross rate of
return to produce after-tax returns of 0%, 6% and 12% than it does now.
There are two tables shown for each combination of age and death benefit option
for a Policy issued to a male non-smoker (assuming no optional riders are
elected):
- - one based on current cost of insurance charges assessed by the Company
and reflecting a 20 year no lapse guarantee
- - one based on the maximum cost of insurance charges based on the 1980
Commissioners Smoker Distinct Mortality Tables and reflecting a 20 year
no lapse guarantee.
In addition there is one table shown for death benefit option 3 issued to a male
non-smoker (assuming the Cash Value Enhancement Rider is elected) and one table
shown for death benefit option 1 issued to a male non-smoker (assuming the Cash
Value Enhancement Plus Rider is elected).
Current cost of insurance charges are not guaranteed and may be changed. Upon
request, Manufacturers Life of America will furnish a comparable illustration
based on the proposed life insured's issue age, sex (unless unisex rates are
required by law, or are requested) and risk classes, any additional ratings and
the death benefit option, face amount and planned premium requested.
Illustrations for smokers would show less favorable results than the
illustrations shown below.
From time to time, in advertisements or sales literature for the Policies that
quote performance data of one or more of the Portfolios, the Company may include
Cash Surrender Values and Death Benefit figures computed using the same
methodology as that used in the following illustrations, but with the average
annual total return of the Portfolio for which performance data is shown in the
advertisement replacing the hypothetical rates of return shown in the following
tables. This information may be shown in the form of graphs, charts, tables and
examples.
The Policies have been offered to the public only since approximately February,
2001. However, total return data may be advertised for as long a period of time
as the underlying Portfolio has been in existence. The results for any period
prior to the Policies' being offered would be calculated as if the Policies had
been offered during that period of time, with all charges assumed to be those
applicable to the Policies.
A-1
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$250,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$3,655 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES AND NOT REFLECTING ANY CASH VALUE ENHANCEMENT RIDERS
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year(1) (2) Value (3) Value (3) Value (3)
1 3,837 2,227 0 250,000 2,392 0 250,000 2,557 0 250,000
2 7,866 4,419 1,621 250,000 4,889 2,090 250,000 5,379 2,580 250,000
3 12,097 6,568 4,116 250,000 7,486 5,034 250,000 8,483 6,031 250,000
4 16,539 8,681 6,575 250,000 10,197 8,091 250,000 11,911 9,804 250,000
5 21,204 10,761 9,001 250,000 13,029 11,269 250,000 15,696 13,936 250,000
6 26,101 13,547 12,134 250,000 16,751 15,337 250,000 20,666 19,252 250,000
7 31,243 16,283 15,215 250,000 20,633 19,565 250,000 26,152 25,084 250,000
8 36,643 18,969 18,248 250,000 24,683 23,961 250,000 32,209 31,488 250,000
9 42,312 21,608 21,233 250,000 28,913 28,537 250,000 38,905 38,530 250,000
10 48,265 24,196 24,167 250,000 33,325 33,297 250,000 46,302 46,273 250,000
15 82,804 36,700 36,700 250,000 58,891 58,891 250,000 97,360 97,360 250,000
20 126,884 47,449 47,449 250,000 90,332 90,332 250,000 182,074 182,074 285,856
25 183,144 56,068 56,068 250,000 129,236 129,236 250,000 322,296 322,296 431,877
30 254,946 61,845 61,845 250,000 178,043 178,043 250,000 553,738 553,738 675,561
35 346,587 63,145 63,145 250,000 240,447 240,447 278,918 934,447 934,447 1,083,959
40 463,546 56,521 56,521 250,000 319,059 319,059 341,393 1,561,732 1,561,732 1,671,053
45 612,819 34,369 34,369 250,000 418,222 418,222 439,133 2,600,574 2,600,574 2,730,603
50 803,333 0 (4) 0 (4) 250,000 (4) 539,323 539,323 566,290 4,290,008 4,290,008 4,504,508
55 1,046,483 0 (4) 0 (4) 250,000 (4) 683,901 683,901 718,096 6,997,407 6,997,407 7,347,277
60 1,356,810 0 (4) 0 (4) 250,000 (4) 865,224 865,224 873,876 11,436,557 11,436,557 11,550,922
65 1,752,875 0 (4) 0 (4) 250,000 (4) 1,112,684 1,112,684 1,112,684 19,072,814 19,072,814 19,072,814
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b)
no policy loan has been made, (c) no partial withdrawal of the Cash
Surrender Value has been made and (d) no premiums have been allocated
to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 20 Policy Years. Provided the Death
Benefit Guarantee Cumulative Premium Test has been and continues to be
met, the Death Benefit Guarantee will keep the Policy in force until
age 100.
(4) In the absence of additional premium payments, the Policy will lapse,
unless the Death Benefit Guarantee 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.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$250,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$3,655 ANNUAL PLANNED PREMIUM
ASSUMING MAXIMUM CHARGES AND NOT REFLECTING ANY CASH VALUE ENHANCEMENT RIDERS
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year(1) (2) Value (3) Value (3) Value (3)
1 3,837 1,955 0 250,000 2,111 0 250,000 2,269 0 250,000
2 7,866 3,772 974 250,000 4,204 1,406 250,000 4,656 1,858 250,000
3 12,097 5,541 3,088 250,000 6,368 3,915 250,000 7,269 4,817 250,000
4 16,539 7,259 5,153 250,000 8,603 6,497 250,000 10,129 8,023 250,000
5 21,204 8,922 7,162 250,000 10,910 9,150 250,000 13,259 11,499 250,000
6 26,101 11,276 9,862 250,000 14,059 12,645 250,000 17,477 16,064 250,000
7 31,243 13,559 12,491 250,000 17,314 16,246 250,000 22,102 21,035 250,000
8 36,643 15,774 15,052 250,000 20,681 19,960 250,000 27,179 26,458 250,000
9 42,312 17,915 17,540 250,000 24,161 23,786 250,000 32,751 32,376 250,000
10 48,265 19,983 19,955 250,000 27,760 27,731 250,000 38,874 38,845 250,000
15 82,804 29,525 29,525 250,000 48,113 48,113 250,000 80,588 80,588 250,000
20 126,884 36,466 36,466 250,000 71,848 71,848 250,000 148,624 148,624 250,000
25 183,144 39,384 39,384 250,000 98,984 98,984 250,000 260,263 260,263 348,752
30 254,946 35,937 35,937 250,000 129,861 129,861 250,000 439,905 439,905 536,685
35 346,587 20,982 20,982 250,000 165,390 165,390 250,000 726,557 726,557 842,806
40 463,546 0 (4) 0 (4) 250,000 (4) 209,580 209,580 250,000 1,186,527 1,186,527 1,269,584
45 612,819 0 (4) 0 (4) 250,000 (4) 271,931 271,931 285,528 1,933,674 1,933,674 2,030,358
50 803,333 0 (4) 0 (4) 250,000 (4) 347,095 347,095 364,450 3,105,365 3,105,365 3,260,633
55 1,046,483 0 (4) 0 (4) 250,000 (4) 431,357 431,357 452,925 4,896,318 4,896,318 5,141,134
60 1,356,810 0 (4) 0 (4) 250,000 (4) 536,033 536,033 541,393 7,768,745 7,768,745 7,846,433
65 1,752,875 0 (4) 0 (4) 250,000 (4) 686,018 686,018 686,018 12,770,033 12,770,033 12,770,033
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b)
no policy loan has been made, (c) no partial withdrawal of the Cash
Surrender Value has been made and (d) no premiums have been allocated
to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 20 Policy Years. Provided the Death
Benefit Guarantee Cumulative Premium Test has been and continues to be
met, the Death Benefit Guarantee will keep the Policy in force until
age 100.
(4) In the absence of additional premium payments, the Policy will lapse,
unless the Death Benefit Guarantee 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.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$250,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$10,894 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES AND NOT REFLECTING ANY CASH VALUE ENHANCEMENT RIDERS
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year(1) (2) Value (3) Value (3) Value (3)
1 11,439 8,550 5,367 258,550 9,103 5,920 259,103 9,656 6,473 259,656
2 23,450 16,994 14,302 266,994 18,632 15,940 268,632 20,337 17,646 270,337
3 36,062 25,322 22,964 275,322 28,599 26,241 278,599 32,146 29,787 282,146
4 49,304 33,546 31,520 283,546 39,033 37,008 289,033 45,210 43,184 295,210
5 63,209 41,666 39,973 291,666 49,958 48,266 299,958 59,665 57,973 309,665
6 77,808 50,675 49,315 300,675 62,421 61,061 312,421 76,717 75,358 326,717
7 93,138 59,562 58,535 309,562 75,461 74,434 325,461 95,579 94,552 345,579
8 109,234 68,326 67,632 318,326 89,105 88,411 339,105 116,442 115,749 366,442
9 126,135 76,972 76,612 326,972 103,385 103,024 353,385 139,527 139,166 389,527
10 143,881 85,495 85,467 335,495 118,325 118,297 368,325 165,064 165,036 415,064
15 246,841 127,455 127,455 377,455 205,476 205,476 455,476 341,343 341,343 651,965
20 378,247 165,721 165,721 415,721 314,111 314,111 564,111 631,982 631,982 992,211
25 545,959 199,776 199,776 449,776 449,086 449,086 699,086 1,111,869 1,111,869 1,489,905
30 760,005 228,629 228,629 478,629 615,992 615,992 865,992 1,903,940 1,903,940 2,322,806
35 1,033,190 250,123 250,123 500,123 820,484 820,484 1,070,484 3,206,834 3,206,834 3,719,928
40 1,381,849 260,199 260,199 510,199 1,067,406 1,067,406 1,317,406 5,353,579 5,353,579 5,728,329
45 1,826,838 251,831 251,831 501,831 1,359,210 1,359,210 1,609,210 8,908,812 8,908,812 9,354,252
50 2,394,768 214,468 214,468 464,468 1,694,432 1,694,432 1,944,432 14,690,502 14,690,502 15,425,027
55 3,119,607 133,792 133,792 383,792 2,066,267 2,066,267 2,316,267 23,955,844 23,955,844 25,153,636
60 4,044,705 0 (4) 0 (4) 250,000 (4) 2,466,559 2,466,559 2,716,559 39,147,655 39,147,655 39,539,131
65 5,225,391 0 (4) 0 (4) 250,000 (4) 2,895,209 2,895,209 3,145,209 64,955,402 64,955,402 65,205,402
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b)
no policy loan has been made, (c) no partial withdrawal of the Cash
Surrender Value has been made and (d) no premiums have been allocated
to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 20 Policy Years. Provided the Death
Benefit Guarantee Cumulative Premium Test has been and continues to be
met, the Death Benefit Guarantee will keep the Policy in force until
age 100.
(4) In the absence of additional premium payments, the Policy will lapse,
unless the Death Benefit Guarantee 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.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$250,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$10,894 ANNUAL PLANNED PREMIUM
ASSUMING MAXIMUM CHARGES AND NOT REFLECTING ANY CASH VALUE ENHANCEMENT RIDERS
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year(1) (2) Value (3) Value (3) Value (3)
1 11,439 8,256 5,073 258,256 8,799 5,616 258,799 9,342 6,159 259,342
2 23,450 16,280 13,589 266,280 17,874 15,183 267,874 19,535 16,843 269,535
3 36,062 24,164 21,805 274,164 27,330 24,972 277,330 30,759 28,401 280,759
4 49,304 31,906 29,881 281,906 37,181 35,155 287,181 43,121 41,096 293,121
5 63,209 39,504 37,811 289,504 47,439 45,746 297,439 56,734 55,041 306,734
6 77,808 47,955 46,595 297,955 59,150 57,790 309,150 72,785 71,426 322,785
7 93,138 56,241 55,214 306,241 71,341 70,314 321,341 90,461 89,434 340,461
8 109,234 64,365 63,672 314,365 84,035 83,341 334,035 109,930 109,236 359,930
9 126,135 72,323 71,962 322,323 97,246 96,885 347,246 131,371 131,010 381,371
10 143,881 80,115 80,088 330,115 110,998 110,970 360,998 154,989 154,961 404,989
15 246,841 117,744 117,744 367,744 190,040 190,040 440,040 315,963 315,963 603,489
20 378,247 150,337 150,337 400,337 285,732 285,732 535,732 575,003 575,003 902,755
25 545,959 176,297 176,297 426,297 399,932 399,932 649,932 992,300 992,300 1,329,682
30 760,005 193,153 193,153 443,153 533,846 533,846 783,846 1,663,254 1,663,254 2,029,170
35 1,033,190 196,267 196,267 446,267 686,254 686,254 936,254 2,733,805 2,733,805 3,171,214
40 1,381,849 178,359 178,359 428,359 852,310 852,310 1,102,310 4,451,640 4,451,640 4,763,255
45 1,826,838 127,142 127,142 377,142 1,019,460 1,019,460 1,269,460 7,240,583 7,240,583 7,602,612
50 2,394,768 29,043 29,043 279,043 1,169,811 1,169,811 1,419,811 11,615,511 11,615,511 12,196,286
55 3,119,607 0 (4) 0 (4) 250,000 (4) 1,269,139 1,269,139 1,519,139 18,302,296 18,302,296 19,217,411
60 4,044,705 0 (4) 0 (4) 250,000 (4) 1,284,141 1,284,141 1,534,141 29,027,057 29,027,057 29,317,327
65 5,225,391 0 (4) 0 (4) 250,000 (4) 879,436 879,436 1,129,436 46,827,039 46,827,039 47,077,039
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b)
no policy loan has been made, (c) no partial withdrawal of the Cash
Surrender Value has been made and (d) no premiums have been allocated
to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 20 Policy Years. Provided the Death
Benefit Guarantee Cumulative Premium Test has been and continues to be
met, the Death Benefit Guarantee will keep the Policy in force until
age 100.
(4) In the absence of additional premium payments, the Policy will lapse,
unless the Death Benefit Guarantee 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.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$250,000 FACE AMOUNT DEATH BENEFIT OPTION 3
$9,675 ANNUAL PLANNED PREMIUM FOR 7 YEARS
ASSUMING CURRENT CHARGES AND REFLECTING THE CASH VALUE ENHANCEMENT RIDER
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year(1) (2) Value (3) Value (3) Value (3)
1 10,159 7,637 7,015 259,675 8,127 7,504 259,675 8,617 7,994 259,675
2 20,825 15,177 14,648 269,350 16,632 16,104 269,350 18,147 17,618 269,350
3 32,025 22,611 21,685 279,025 25,526 24,600 279,025 28,680 27,754 279,025
4 43,785 29,949 28,756 288,700 34,835 33,641 288,700 40,333 39,139 288,700
5 56,134 37,192 35,862 298,375 44,580 43,250 298,375 53,226 51,897 298,375
6 69,099 45,079 43,743 308,050 55,544 54,209 308,050 68,282 66,947 308,050
7 82,713 52,853 51,845 317,725 67,014 66,006 317,725 84,936 83,928 317,725
8 86,848 51,762 51,081 317,725 69,736 69,055 317,725 93,559 92,878 317,725
9 91,191 50,662 50,307 317,725 72,571 72,217 317,725 103,095 102,741 330,927
10 95,750 49,544 49,517 317,725 75,517 75,490 317,725 113,620 113,593 352,998
15 122,204 43,518 43,518 317,725 91,988 91,988 317,725 184,883 184,883 489,365
20 155,967 36,227 36,227 317,725 111,575 111,575 317,725 300,480 300,480 681,885
25 199,058 26,811 26,811 317,725 134,748 134,748 317,725 486,992 486,992 956,887
30 254,054 13,706 13,706 317,725 162,074 162,074 317,725 786,121 786,121 1,353,527
35 324,244 0 (4) 0 (4) 0 (4) 194,103 194,103 317,725 1,261,189 1,261,189 1,932,093
40 413,827 231,979 231,979 321,581 2,006,096 2,006,096 2,780,957
45 528,160 275,543 275,543 352,595 3,155,673 3,155,673 4,038,126
50 674,080 323,531 323,531 388,307 4,903,451 4,903,451 5,885,203
55 860,316 375,624 375,624 429,702 7,529,306 7,529,306 8,613,299
60 1,098,006 434,924 434,924 473,379 11,523,990 11,523,990 12,542,915
65 1,401,365 522,138 522,138 523,848 18,278,432 18,278,432 18,338,271
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b)
the Cash Value Accumulation Test is used, (c) no policy loan has been
made, (d) no partial withdrawal of the Cash Surrender Value has been
made, (e) no premiums have been allocated to the Fixed Account, and (f)
the Cash Value Enhancement Rider is used.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 20 Policy Years. Provided the Death
Benefit Guarantee Cumulative Premium Test has been and continues to be
met, the Death Benefit Guarantee will keep the Policy in force until
age 100.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$250,000 FACE AMOUNT DEATH BENEFIT OPTION 3
$9,675 ANNUAL PLANNED PREMIUM FOR 7 YEARS
ASSUMING MAXIMUM CHARGES AND REFLECTING THE CASH VALUE ENHANCEMENT RIDER
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year(1) (2) Value (3) Value (3) Value (3)
1 10,159 7,344 6,722 259,675 7,824 7,202 259,675 8,305 7,683 259,675
2 20,825 14,465 13,936 269,350 15,878 15,349 269,350 17,350 16,821 269,350
3 32,025 21,452 20,526 279,025 24,263 23,337 279,025 27,307 26,380 279,025
4 43,785 28,305 27,111 288,700 32,991 31,798 288,700 38,270 37,077 288,700
5 56,134 35,018 33,688 298,375 42,074 40,745 298,375 50,342 49,013 298,375
6 69,099 42,336 41,001 308,050 52,295 50,960 308,050 64,432 63,097 308,050
7 82,713 49,497 48,489 317,725 62,930 61,922 317,725 79,955 78,947 317,725
8 86,848 47,777 47,096 317,725 64,750 64,069 317,725 87,294 86,613 317,725
9 91,191 46,021 45,666 317,725 66,603 66,249 317,725 95,369 95,015 317,725
10 95,750 44,227 44,200 317,725 68,491 68,464 317,725 104,260 104,232 323,916
15 122,204 34,416 34,416 317,725 78,284 78,284 317,725 163,013 163,013 431,479
20 155,967 22,241 22,241 317,725 88,078 88,078 317,725 254,373 254,373 577,253
25 199,058 5,140 5,140 317,725 96,034 96,034 317,725 394,098 394,098 774,361
30 254,054 0 (4) 0 (4) 0 (4) 98,876 98,876 317,725 604,309 604,309 1,040,487
35 324,244 89,286 89,286 317,725 913,518 913,518 1,399,475
40 413,827 50,609 50,609 317,725 1,358,582 1,358,582 1,883,338
45 528,160 0 (4) 0 (4) 0 (4) 1,981,352 1,981,352 2,535,418
50 674,080 2,844,480 2,844,480 3,413,991
55 860,316 4,019,279 4,019,279 4,597,934
60 1,098,006 5,690,811 5,690,811 6,193,979
65 1,401,365 8,305,085 8,305,085 8,332,273
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b)
the Cash Value Accumulation Test is used, (c) no policy loan has been
made, (d) no partial withdrawal of the Cash Surrender Value has been
made, (e) no premiums have been allocated to the Fixed Account, and (f)
the Cash Value Enhancement Rider is used.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 20 Policy Years. Provided the Death
Benefit Guarantee Cumulative Premium Test has been and continues to be
met, the Death Benefit Guarantee will keep the Policy in force until
age 100.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$555,164 FACE AMOUNT DEATH BENEFIT OPTION 1
$100,000 PLANNED SINGLE PREMIUM
ASSUMING CURRENT CHARGES AND REFLECTING THE CASH VALUE ENHANCEMENT PLUS RIDER
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year(1) (2) Value (3) Value (3) Value (3)
1 105,000 92,989 92,989 555,164 98,621 98,621 555,164 104,254 104,254 555,164
2 110,250 89,280 89,280 555,164 100,545 100,545 555,164 112,475 112,475 555,164
3 115,763 85,606 85,606 555,164 102,508 102,508 555,164 121,468 121,468 555,164
4 121,551 81,979 81,979 555,164 104,526 104,526 555,164 131,324 131,324 555,164
5 127,628 78,401 78,401 555,164 106,604 106,604 555,164 142,132 142,132 555,164
6 134,010 76,215 76,215 555,164 110,133 110,133 555,164 155,418 155,418 555,164
7 140,710 74,030 74,030 555,164 113,762 113,762 555,164 169,979 169,979 555,164
8 147,746 71,842 71,842 555,164 117,496 117,496 555,164 185,942 185,942 555,164
9 155,133 69,658 69,658 555,164 121,343 121,343 555,164 203,452 203,452 555,164
10 162,889 67,462 67,462 555,164 125,297 125,297 555,164 222,655 222,655 555,164
15 207,893 55,994 55,994 555,164 146,560 146,560 555,164 350,312 350,312 669,096
20 265,330 44,570 44,570 555,164 176,711 176,711 555,164 572,987 572,987 899,590
25 338,635 29,289 29,289 555,164 211,594 211,594 555,164 938,810 938,810 1,258,006
30 432,194 7,381 7,381 555,164 251,454 251,454 555,164 1,539,585 1,539,585 1,878,294
35 551,602 0 (4) 0 (4) 0 (4) 295,835 295,835 555,164 2,522,706 2,522,706 2,926,339
40 703,999 343,727 343,727 555,164 4,134,432 4,134,432 4,423,842
45 898,501 394,347 394,347 555,164 6,790,638 6,790,638 7,130,170
50 1,146,740 450,324 450,324 555,164 11,087,620 11,087,620 11,642,001
55 1,463,563 527,897 527,897 555,164 17,937,078 17,937,078 18,833,932
60 1,867,919 648,390 648,390 654,873 29,112,609 29,112,609 29,403,735
65 2,383,990 813,773 813,773 813,773 48,251,319 48,251,319 48,251,319
(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, (c) no premiums have been allocated to the Fixed
Account, and (d) the Cash Value Enhancement Plus Rider is used.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 20 Policy Years. Provided the Death
Benefit Guarantee Cumulative Premium Test has been and continues to be
met, the Death Benefit Guarantee will keep the Policy in force until
age 100.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$555,164 FACE AMOUNT DEATH BENEFIT OPTION 1
$100,000 PLANNED SINGLE PREMIUM
ASSUMING MAXIMUM CHARGES AND REFLECTING THE CASH VALUE ENHANCEMENT PLUS RIDER
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year(1) (2) Value (3) Value (3) Value (3)
1 105,000 92,218 92,218 555,164 97,821 97,821 555,164 103,427 103,427 555,164
2 110,250 87,569 87,569 555,164 98,717 98,717 555,164 110,525 110,525 555,164
3 115,763 82,967 82,967 555,164 99,595 99,595 555,164 118,260 118,260 555,164
4 121,551 78,404 78,404 555,164 100,451 100,451 555,164 126,688 126,688 555,164
5 127,628 73,868 73,868 555,164 101,275 101,275 555,164 135,872 135,872 555,164
6 134,010 70,712 70,712 555,164 103,463 103,463 555,164 147,328 147,328 555,164
7 140,710 67,534 67,534 555,164 105,654 105,654 555,164 159,822 159,822 555,164
8 147,746 64,333 64,333 555,164 107,846 107,846 555,164 173,461 173,461 555,164
9 155,133 61,093 61,093 555,164 110,028 110,028 555,164 188,349 188,349 555,164
10 162,889 57,815 57,815 555,164 112,201 112,201 555,164 204,615 204,615 555,164
15 207,893 40,313 40,313 555,164 122,463 122,463 555,164 311,759 311,759 595,460
20 265,330 20,403 20,403 555,164 135,599 135,599 555,164 496,029 496,029 778,765
25 338,635 0 (4) 0 (4) 0 (4) 143,901 143,901 555,164 791,498 791,498 1,060,607
30 432,194 140,566 140,566 555,164 1,264,179 1,264,179 1,542,298
35 551,602 110,381 110,381 555,164 2,014,248 2,014,248 2,336,527
40 703,999 18,234 18,234 555,164 3,211,806 3,211,806 3,436,632
45 898,501 0 (4) 0 (4) 0 (4) 5,148,199 5,148,199 5,405,609
50 1,146,740 8,167,868 8,167,868 8,576,262
55 1,463,563 12,756,954 12,756,954 13,394,801
60 1,867,919 20,082,470 20,082,470 20,283,295
65 2,383,990 32,788,202 32,788,202 32,788,202
(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, (c) no premiums have been allocated to the Fixed
Account, and (d) the Cash Value Enhancement Plus Rider is used.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 20 Policy Years. Provided the Death
Benefit Guarantee Cumulative Premium Test has been and continues to be
met, the Death Benefit Guarantee will keep the Policy in force until
age 100.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
EPVUL ACCUMULATOR
ILLUSTRATIONS
APPENDIX A - SAMPLE ILLUSTRATIONS OF POLICY VALUES, CASH SURRENDER VALUES AND
DEATH BENEFITS
The following tables have been prepared to help show how values under the Policy
change with investment performance. The tables include both Policy Values and
Cash Surrender Values as well as Death Benefits. The Policy Value is the sum of
the values in the Investment Accounts, as the tables assume no values in the
Fixed Account or Loan Account. The Cash Surrender Value is the Policy Value less
any applicable surrender charges. The tables illustrate how Policy Values and
Cash Surrender Values, which reflect all applicable charges and deductions, and
Death Benefits of the Policy on an insured of given age would vary over time if
the return on the assets of the Portfolios was a uniform, gross, after-tax,
annual rate of 0%, 6% or 12%. The Policy Values, Death Benefits and Cash
Surrender Values would be different from those shown if the returns averaged 0%,
6% or 12%, but fluctuated over and under those averages throughout the years.
The charges reflected in the tables include those for deductions from premiums,
surrender charges, and monthly deductions.
The amounts shown for the Policy Value, Death Benefit and Cash Surrender Value
as of each Policy Year reflect the fact that the net investment return on the
assets held in the sub-accounts is lower than the gross, after-tax return. This
is because the expenses and fees borne by Manufacturers Investment Trust are
deducted from the gross return. The illustrations reflect an average of those
Portfolios' current expenses, which is approximately 0.861% per annum. The gross
annual rates of return of 0%, 6% and 12% correspond to approximate net annual
rates of return of -0.857%, 5.091% and 11.040%. The illustrations reflect the
current expense reimbursements in effect for the Index Trusts. In the absence of
such expense reimbursements, the average of the Portfolio's current expenses
would have been 2.341% 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 -
2.314%, 3.548% and 9.409%. The expense reimbursements for the Index Trusts are
expected to remain in effect during the fiscal year ended December 31, 2002.
Were the expense reimbursements to terminate, the average of the Portfolios'
current expenses would be higher and the approximate net annual rates of return
would be lower.
The tables assume that no premiums have been allocated to the Fixed Account,
that planned premiums are paid on the Policy Anniversary and that no transfers,
partial withdrawals, Policy loans, changes in death benefit options or changes
in face amount have been made. The tables reflect the fact that no charges for
federal, state or local taxes are currently made against the Separate Account.
If such a charge is made in the future, it would take a higher gross rate of
return to produce after-tax returns of 0%, 6% and 12% than it does now.
There are two tables shown for each combination of age and death benefit option
for a Policy issued to a male non-smoker (assuming no optional riders are
elected):
- - one based on current cost of insurance charges assessed by the Company
and reflecting a 20 year no lapse guarantee
- - one based on the maximum cost of insurance charges based on the 1980
Commissioners Smoker Distinct Mortality Tables and reflecting a 20 year
no lapse guarantee.
In addition there is one table shown for death benefit option 3 issued to a male
non-smoker (assuming the Cash Value Enhancement Rider is elected) and one table
shown for death benefit option 1 issued to a male non-smoker (assuming the Cash
Value Enhancement Plus Rider is elected).
Current cost of insurance charges are not guaranteed and may be changed. Upon
request, Manufacturers Life of America will furnish a comparable illustration
based on the proposed life insured's issue age, sex (unless unisex rates are
required by law, or are requested) and risk classes, any additional ratings and
the death benefit option, face amount and planned premium requested.
Illustrations for smokers would show less favorable results than the
illustrations shown below.
From time to time, in advertisements or sales literature for the Policies that
quote performance data of one or more of the Portfolios, the Company may include
Cash Surrender Values and Death Benefit figures computed using the same
methodology as that used in the following illustrations, but with the average
annual total return of the Portfolio for which performance data is shown in the
advertisement replacing the hypothetical rates of return shown in the following
tables. This information may be shown in the form of graphs, charts, tables and
examples.
The Policies have been offered to the public only since approximately July,
2001. However, total return data may be advertised for as long a period of time
as the underlying Portfolio has been in existence. The results for any period
prior to the Policies' being offered would be calculated as if the Policies had
been offered during that period of time, with all charges assumed to be those
applicable to the Policies.
A-1
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$7,003 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES AND NOT REFLECTING ANY CASH VALUE ENHANCEMENT RIDERS
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) (2) Value (3) Value (3) Value (3)
1 7,353 4,658 0 500,000 4,986 0 500,000 5,316 0 500,000
2 15,074 9,249 3,755 500,000 10,198 4,704 500,000 11,188 5,694 500,000
3 23,181 13,756 8,942 500,000 15,628 10,814 500,000 17,659 12,846 500,000
4 31,693 18,195 14,061 500,000 21,304 17,169 500,000 24,812 20,678 500,000
5 40,631 22,570 19,116 500,000 27,240 23,785 500,000 32,724 29,269 500,000
6 50,015 28,123 25,348 500,000 34,731 31,955 500,000 42,797 40,022 500,000
7 59,869 33,581 31,486 500,000 42,553 40,458 500,000 53,930 51,834 500,000
8 70,216 38,946 37,530 500,000 50,725 49,309 500,000 66,239 64,823 500,000
9 81,080 44,225 43,489 500,000 59,270 58,533 500,000 79,860 79,123 500,000
10 92,487 49,406 49,350 500,000 68,195 68,139 500,000 94,927 94,870 500,000
15 158,670 74,496 74,496 500,000 120,051 120,051 500,000 199,265 199,265 500,000
20 243,139 96,208 96,208 500,000 184,251 184,251 500,000 373,411 373,411 586,255
25 350,945 113,775 113,775 500,000 264,261 264,261 500,000 663,215 663,215 888,709
30 488,535 125,757 125,757 500,000 365,425 365,425 500,000 1,144,331 1,144,331 1,396,084
35 664,139 128,870 128,870 500,000 495,425 495,425 574,693 1,940,361 1,940,361 2,250,819
40 888,259 116,232 116,232 500,000 659,721 659,721 705,902 3,259,591 3,259,591 3,487,763
45 1,174,299 72,667 72,667 500,000 868,156 868,156 911,564 5,456,983 5,456,983 5,729,833
50 1,539,367 0 (4) 0 (4) 500,000 (4) 1,124,277 1,124,277 1,180,491 9,051,761 9,051,761 9,504,349
55 2,005,297 0 (4) 0 (4) 500,000 (4) 1,432,033 1,432,033 1,503,635 14,847,260 14,847,260 15,589,623
60 2,599,954 0 (4) 0 (4) 500,000 (4) 1,820,144 1,820,144 1,838,345 24,404,324 24,404,324 24,648,367
65 3,358,904 0 (4) 0 (4) 500,000 (4) 2,352,024 2,352,024 2,352,024 40,932,466 40,932,466 40,932,466
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b)
no policy loan has been made, (c) no partial withdrawal of the Cash
Surrender Value has been made and (d) no premiums have been allocated
to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 20 Policy Years. Provided the Death
Benefit Guarantee Cumulative Premium Test has been and continues to be
met, the Death Benefit Guarantee will keep the Policy in force until
age 100.
(4) In the absence of additional premium payments, the Policy will lapse,
unless the Death Benefit Guarantee 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.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$7,003 ANNUAL PLANNED PREMIUM
ASSUMING MAXIMUM CHARGES AND NOT REFLECTING ANY CASH VALUE ENHANCEMENT RIDERS
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year(1) (2) Value (3) Value (3) Value (3)
1 7,353 4,113 0 500,000 4,425 0 500,000 4,738 0 500,000
2 15,074 7,954 2,460 500,000 8,828 3,334 500,000 9,742 4,248 500,000
3 23,181 11,698 6,884 500,000 13,387 8,574 500,000 15,226 10,413 500,000
4 31,693 15,342 11,208 500,000 18,108 13,973 500,000 21,240 17,106 500,000
5 40,631 18,880 15,425 500,000 22,987 19,533 500,000 27,831 24,376 500,000
6 50,015 23,561 20,786 500,000 29,324 26,549 500,000 36,392 33,617 500,000
7 59,869 28,108 26,013 500,000 35,884 33,788 500,000 45,790 43,694 500,000
8 70,216 32,524 31,108 500,000 42,679 41,263 500,000 56,120 54,704 500,000
9 81,080 36,797 36,060 500,000 49,710 48,973 500,000 67,472 66,736 500,000
10 92,487 40,931 40,874 500,000 56,991 56,934 500,000 79,964 79,907 500,000
15 158,670 60,030 60,030 500,000 98,293 98,293 500,000 165,362 165,362 500,000
20 243,139 74,032 74,032 500,000 146,842 146,842 500,000 305,625 305,625 500,000
25 350,945 80,060 80,060 500,000 202,919 202,919 500,000 536,751 536,751 719,246
30 488,535 73,392 73,392 500,000 267,649 267,649 500,000 910,679 910,679 1,111,028
35 664,139 43,686 43,686 500,000 343,801 343,801 500,000 1,510,849 1,510,849 1,752,584
40 888,259 0 (4) 0 (4) 500,000 (4) 441,774 441,774 500,000 2,479,492 2,479,492 2,653,057
45 1,174,299 0 (4) 0 (4) 500,000 (4) 577,922 577,922 606,818 4,061,889 4,061,889 4,264,983
50 1,539,367 0 (4) 0 (4) 500,000 (4) 739,332 739,332 776,299 6,558,452 6,558,452 6,886,374
55 2,005,297 0 (4) 0 (4) 500,000 (4) 921,479 921,479 967,553 10,398,191 10,398,191 10,918,101
60 2,599,954 0 (4) 0 (4) 500,000 (4) 1,148,933 1,148,933 1,160,422 16,591,114 16,591,114 16,757,025
65 3,358,904 0 (4) 0 (4) 500,000 (4) 1,475,957 1,475,957 1,475,957 27,427,126 27,427,126 27,427,126
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b)
no policy loan has been made, (c) no partial withdrawal of the Cash
Surrender Value has been made and (d) no premiums have been allocated
to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 20 Policy Years. Provided the Death
Benefit Guarantee Cumulative Premium Test has been and continues to be
met, the Death Benefit Guarantee will keep the Policy in force until
age 100.
(4) In the absence of additional premium payments, the Policy will lapse,
unless the Death Benefit Guarantee 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.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$21,491 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES AND NOT REFLECTING ANY CASH VALUE ENHANCEMENT RIDERS
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year(1) (2) Value (3) Value (3) Value (3)
1 22,566 17,327 10,957 517,327 18,432 12,062 518,432 19,538 13,168 519,538
2 46,259 34,457 29,066 534,457 37,750 32,359 537,750 41,177 35,786 541,177
3 71,138 51,375 46,651 551,375 57,981 53,257 557,981 65,127 60,403 565,127
4 97,260 68,098 64,041 568,098 79,184 75,127 579,184 91,655 87,598 591,655
5 124,689 84,631 81,241 584,631 101,410 98,020 601,410 121,043 117,653 621,043
6 153,489 102,721 99,998 602,721 126,512 123,788 626,512 155,461 152,738 655,461
7 183,729 120,585 118,529 620,585 152,807 150,750 652,807 193,575 191,519 693,575
8 215,481 138,225 136,835 638,225 180,353 178,963 680,353 235,785 234,395 735,785
9 248,820 155,647 154,924 655,647 209,217 208,494 709,217 282,542 281,820 782,542
10 283,827 172,840 172,785 672,840 239,449 239,394 739,449 334,327 334,271 834,327
15 486,932 257,735 257,735 757,735 416,383 416,383 916,383 693,013 693,013 1,323,656
20 746,151 335,646 335,646 835,646 638,275 638,275 1,138,275 1,287,817 1,287,817 2,021,873
25 1,076,988 405,477 405,477 905,477 915,688 915,688 1,415,688 2,275,638 2,275,638 3,049,355
30 1,499,229 465,176 465,176 965,176 1,260,962 1,260,962 1,760,962 3,915,556 3,915,556 4,776,978
35 2,038,127 510,346 510,346 1,010,346 1,686,947 1,686,947 2,186,947 6,628,853 6,628,853 7,689,470
40 2,725,913 532,755 532,755 1,032,755 2,205,363 2,205,363 2,705,363 11,125,491 11,125,491 11,904,276
45 3,603,722 518,178 518,178 1,018,178 2,823,750 2,823,750 3,323,750 18,615,412 18,615,412 19,546,182
50 4,724,053 445,251 445,251 945,251 3,542,542 3,542,542 4,042,542 30,868,282 30,868,282 32,411,696
55 6,153,910 284,953 284,953 784,953 4,352,356 4,352,356 4,852,356 50,622,193 50,622,193 53,153,303
60 7,978,811 11,323 11,323 511,323 5,242,142 5,242,142 5,742,142 83,197,393 83,197,393 84,029,367
65 10,307,898 0 (4) 0 (4) 500,000 (4) 6,218,355 6,218,355 6,718,355 138,880,790 138,880,790 138,880,790
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b)
no policy loan has been made, (c) no partial withdrawal of the Cash
Surrender Value has been made and (d) no premiums have been allocated
to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 20 Policy Years. Provided the Death
Benefit Guarantee Cumulative Premium Test has been and continues to be
met, the Death Benefit Guarantee will keep the Policy in force until
age 100.
(4) In the absence of additional premium payments, the Policy will lapse,
unless the Death Benefit Guarantee 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.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$21,491 ANNUAL PLANNED PREMIUM
ASSUMING MAXIMUM CHARGES AND NOT REFLECTING ANY CASH VALUE ENHANCEMENT RIDERS
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year(1) (2) Value (3) Value (3) Value (3)
1 22,566 16,738 10,367 516,738 17,824 11,453 517,824 18,911 12,541 518,911
2 46,259 33,028 27,637 533,028 36,233 30,842 536,233 39,569 34,178 539,569
3 71,138 49,052 44,328 549,052 55,436 50,712 555,436 62,348 57,624 562,348
4 97,260 64,808 60,751 564,808 75,466 71,409 575,466 87,464 83,407 587,464
5 124,689 80,290 76,900 580,290 96,349 92,958 596,349 115,154 111,763 615,154
6 153,489 97,253 94,530 597,253 119,934 117,211 619,934 147,554 144,830 647,554
7 183,729 113,906 111,850 613,906 144,517 142,461 644,517 183,274 181,218 683,274
8 215,481 130,254 128,864 630,254 170,144 168,754 670,144 222,665 221,276 722,665
9 248,820 146,284 145,561 646,284 196,847 196,124 696,847 266,098 265,375 766,098
10 283,827 162,001 161,946 662,001 224,676 224,620 724,676 313,998 313,943 813,998
15 486,932 238,122 238,122 738,122 385,156 385,156 885,156 641,557 641,557 1,225,374
20 746,151 304,513 304,513 804,513 580,673 580,673 1,080,673 1,171,629 1,171,629 1,839,457
25 1,076,988 357,887 357,887 857,887 815,610 815,610 1,315,610 2,030,494 2,030,494 2,720,862
30 1,499,229 393,206 393,206 893,206 1,093,239 1,093,239 1,593,239 3,419,465 3,419,465 4,171,747
35 2,038,127 401,054 401,054 901,054 1,412,201 1,412,201 1,912,201 5,648,683 5,648,683 6,552,472
40 2,725,913 366,679 366,679 866,679 1,764,117 1,764,117 2,264,117 9,246,518 9,246,518 9,893,774
45 3,603,722 265,209 265,209 765,209 2,125,414 2,125,414 2,625,414 15,122,832 15,122,832 15,878,973
50 4,724,053 69,087 69,087 569,087 2,462,046 2,462,046 2,962,046 24,394,897 24,394,897 25,614,642
55 6,153,910 0 (4) 0 (4) 500,000 (4) 2,707,396 2,707,396 3,207,396 38,654,732 38,654,732 40,587,469
60 7,978,811 0 (4) 0 (4) 500,000 (4) 2,796,729 2,796,729 3,296,729 61,653,951 61,653,951 62,270,490
65 10,307,898 0 (4) 0 (4) 500,000 (4) 2,060,207 2,060,207 2,560,207 100,145,460 100,145,460 100,145,460
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b)
no policy loan has been made, (c) no partial withdrawal of the Cash
Surrender Value has been made and (d) no premiums have been allocated
to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 20 Policy Years. Provided the Death
Benefit Guarantee Cumulative Premium Test has been and continues to be
met, the Death Benefit Guarantee will keep the Policy in force until
age 100.
(4) In the absence of additional premium payments, the Policy will lapse,
unless the Death Benefit Guarantee 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.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 3
$19,337 ANNUAL PLANNED PREMIUM FOR 7 YEARS
ASSUMING CURRENT CHARGES AND REFLECTING THE CASH VALUE ENHANCEMENT RIDER
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year(1) (2) Value (3) Value (3) Value (3)
1 20,304 15,759 14,540 519,337 16,754 15,535 519,337 17,749 16,530 519,337
2 41,623 31,336 30,302 538,675 34,310 33,276 538,675 37,405 36,370 538,675
3 64,008 46,715 44,902 558,012 52,691 50,878 558,012 59,155 57,341 558,012
4 87,512 61,913 59,577 577,349 71,954 69,617 577,349 83,246 80,910 577,349
5 112,192 76,933 74,329 596,686 92,142 89,539 596,686 109,935 107,332 596,686
6 138,105 93,015 90,401 616,024 114,584 111,970 616,024 140,827 138,213 616,024
7 165,314 108,887 106,913 635,361 138,089 136,116 635,361 175,041 173,067 635,361
8 173,580 107,035 105,701 635,361 144,145 142,812 635,361 193,326 191,992 641,256
9 182,259 105,159 104,465 635,361 150,465 149,771 635,361 213,556 212,862 685,498
10 191,372 103,243 103,189 635,361 157,048 156,994 635,361 235,910 235,857 732,930
15 244,244 92,716 92,716 635,361 194,138 194,138 635,361 387,838 387,838 1,026,566
20 311,724 79,555 79,555 635,361 238,947 238,947 635,361 635,772 635,772 1,442,768
25 397,848 62,066 62,066 635,361 293,025 293,025 635,361 1,038,199 1,038,199 2,039,952
30 507,766 37,158 37,158 635,361 358,508 358,508 635,361 1,687,479 1,687,479 2,905,467
35 648,053 0 (4) 0 (4) 0 (4) 437,616 437,616 670,410 2,724,854 2,724,854 4,174,372
40 827,098 530,019 530,019 734,740 4,361,336 4,361,336 6,045,915
45 1,055,610 635,036 635,036 812,618 6,902,347 6,902,347 8,832,522
50 1,347,255 751,814 751,814 902,340 10,789,504 10,789,504 12,949,739
55 1,719,477 879,810 879,810 1,006,476 16,665,665 16,665,665 19,065,019
60 2,194,536 1,026,530 1,026,530 1,117,293 25,657,931 25,657,931 27,926,547
65 2,800,846 1,241,519 1,241,519 1,245,584 40,935,233 40,935,233 41,069,244
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b)
the Cash Value Accumulation Test is used, (c) no policy loan has been
made, (d) no partial withdrawal of the Cash Surrender Value has been
made, (e) no premiums have been allocated to the Fixed Account, and (f)
the Cash Value Enhancement Rider is used.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 20 Policy Years. Provided the Death
Benefit Guarantee Cumulative Premium Test has been and continues to be
met, the Death Benefit Guarantee will keep the Policy in force until
age 100.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 3
$19,337 ANNUAL PLANNED PREMIUM FOR 7 YEARS
ASSUMING MAXIMUM CHARGES AND REFLECTING THE CASH VALUE ENHANCEMENT RIDER
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year(1) (2) Value (3) Value (3) Value (3)
1 20,304 15,172 13,953 519,337 16,149 14,930 519,337 17,126 15,907 519,337
2 41,623 29,909 28,874 538,675 32,799 31,764 538,675 35,807 34,772 538,675
3 64,008 44,391 42,577 558,012 50,158 48,344 558,012 56,400 54,587 558,012
4 87,512 58,612 56,276 577,349 68,252 65,916 577,349 79,105 76,769 577,349
5 112,192 72,566 69,963 596,686 87,108 84,505 596,686 104,139 101,536 596,686
6 138,105 87,501 84,887 616,024 108,050 105,436 616,024 133,083 130,470 616,024
7 165,314 102,137 100,163 635,361 129,870 127,896 635,361 165,015 163,041 635,361
8 173,580 99,015 97,682 635,361 134,105 132,771 635,361 180,704 179,370 635,361
9 182,259 95,814 95,121 635,361 138,440 137,747 635,361 197,994 197,300 635,547
10 191,372 92,533 92,480 635,361 142,882 142,829 635,361 217,013 216,959 674,219
15 244,244 74,349 74,349 635,361 166,436 166,436 635,361 342,988 342,988 907,852
20 311,724 51,312 51,312 635,361 191,367 191,367 635,361 540,073 540,073 1,225,596
25 397,848 18,347 18,347 635,361 214,687 214,687 635,361 843,373 843,373 1,657,138
30 507,766 0 (4) 0 (4) 0 (4) 231,156 231,156 635,361 1,302,544 1,302,544 2,242,693
35 648,053 229,073 229,073 635,361 1,982,285 1,982,285 3,036,784
40 827,098 182,487 182,487 635,361 2,967,015 2,967,015 4,113,033
45 1,055,610 16,299 16,299 635,361 4,354,082 4,354,082 5,571,659
50 1,347,255 0 (4) 0 (4) 0 (4) 6,289,023 6,289,023 7,548,188
55 1,719,477 8,939,982 8,939,982 10,227,070
60 2,194,536 12,733,420 12,733,420 13,859,280
65 2,800,846 18,692,976 18,692,976 18,754,172
(1) All values shown are as of the end of the policy year indicated, have
been rounded to the nearest dollar, and assume that (a) premiums paid
after the initial premium are received on the policy anniversary, (b)
the Cash Value Accumulation Test is used, (c) no policy loan has been
made, (d) no partial withdrawal of the Cash Surrender Value has been
made, (e) no premiums have been allocated to the Fixed Account, and (f)
the Cash Value Enhancement Rider is used.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 20 Policy Years. Provided the Death
Benefit Guarantee Cumulative Premium Test has been and continues to be
met, the Death Benefit Guarantee will keep the Policy in force until
age 100.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$555,164 FACE AMOUNT DEATH BENEFIT OPTION 1
$100,000 PLANNED SINGLE PREMIUM
ASSUMING CURRENT CHARGES AND REFLECTING THE CASH VALUE ENHANCEMENT PLUS RIDER
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year(1) (2) Value (3) Value (3) Value (3)
1 105,000 93,098 93,098 555,164 98,737 98,737 555,164 104,376 104,376 555,164
2 110,250 89,492 89,492 555,164 100,783 100,783 555,164 112,741 112,741 555,164
3 115,763 85,914 85,914 555,164 102,876 102,876 555,164 121,903 121,903 555,164
4 121,551 82,378 82,378 555,164 105,031 105,031 555,164 131,955 131,955 555,164
5 127,628 78,885 78,885 555,164 107,254 107,254 555,164 142,991 142,991 555,164
6 134,010 76,779 76,779 555,164 110,938 110,938 555,164 156,545 156,545 555,164
7 140,710 74,670 74,670 555,164 114,733 114,733 555,164 171,416 171,416 555,164
8 147,746 72,555 72,555 555,164 118,644 118,644 555,164 187,739 187,739 555,164
9 155,133 70,439 70,439 555,164 122,680 122,680 555,164 205,665 205,665 555,164
10 162,889 68,309 68,309 555,164 126,835 126,835 555,164 225,350 225,350 555,164
15 207,893 57,113 57,113 555,164 149,319 149,319 555,164 356,677 356,677 681,252
20 265,330 45,929 45,929 555,164 181,305 181,305 555,164 586,845 586,845 921,347
25 338,635 30,814 30,814 555,164 218,811 218,811 555,164 967,179 967,179 1,296,020
30 432,194 8,982 8,982 555,164 262,449 262,449 555,164 1,595,418 1,595,418 1,946,410
35 551,602 0 (4) 0 (4) 0 (4) 312,433 312,433 555,164 2,629,497 2,629,497 3,050,217
40 703,999 369,170 369,170 555,164 4,334,631 4,334,631 4,638,055
45 898,501 435,352 435,352 555,164 7,160,993 7,160,993 7,519,043
50 1,146,740 523,384 523,384 555,164 11,760,474 11,760,474 12,348,497
55 1,463,563 644,441 644,441 676,663 19,136,396 19,136,396 20,093,216
60 1,867,919 796,649 796,649 804,615 31,239,949 31,239,949 31,552,349
65 2,383,990 1,006,197 1,006,197 1,006,197 52,078,474 52,078,474 52,078,474
(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, (c) no premiums have been allocated to the Fixed
Account, and (d) the Cash Value Enhancement Plus Rider is used.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 20 Policy Years. Provided the Death
Benefit Guarantee Cumulative Premium Test has been and continues to be
met, the Death Benefit Guarantee will keep the Policy in force until
age 100.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$555,164 FACE AMOUNT DEATH BENEFIT OPTION 1
$100,000 PLANNED SINGLE PREMIUM
ASSUMING MAXIMUM CHARGES AND REFLECTING THE CASH VALUE ENHANCEMENT PLUS RIDER
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year(1) (2) Value (3) Value (3) Value (3)
1 105,000 92,326 92,326 555,164 97,936 97,936 555,164 103,548 103,548 555,164
2 110,250 87,779 87,779 555,164 98,952 98,952 555,164 110,788 110,788 555,164
3 115,763 83,270 83,270 555,164 99,957 99,957 555,164 118,687 118,687 555,164
4 121,551 78,794 78,794 555,164 100,945 100,945 555,164 127,307 127,307 555,164
5 127,628 74,338 74,338 555,164 101,908 101,908 555,164 136,710 136,710 555,164
6 134,010 71,256 71,256 555,164 104,242 104,242 555,164 148,421 148,421 555,164
7 140,710 68,147 68,147 555,164 106,587 106,587 555,164 161,209 161,209 555,164
8 147,746 65,010 65,010 555,164 108,943 108,943 555,164 175,187 175,187 555,164
9 155,133 61,829 61,829 555,164 111,298 111,298 555,164 190,466 190,466 555,164
10 162,889 58,605 58,605 555,164 113,654 113,654 555,164 207,182 207,182 555,164
15 207,893 41,309 41,309 555,164 124,996 124,996 555,164 317,701 317,701 606,809
20 265,330 21,533 21,533 555,164 139,703 139,703 555,164 508,479 508,479 798,313
25 338,635 0 (4) 0 (4) 0 (4) 150,202 150,202 555,164 816,155 816,155 1,093,648
30 432,194 150,034 150,034 555,164 1,311,231 1,311,231 1,599,702
35 551,602 124,733 124,733 555,164 2,101,471 2,101,471 2,437,706
40 703,999 41,011 41,011 555,164 3,370,493 3,370,493 3,606,428
45 898,501 0 (4) 0 (4) 0 (4) 5,434,112 5,434,112 5,705,818
50 1,146,740 8,671,771 8,671,771 9,105,359
55 1,463,563 13,622,899 13,622,899 14,304,044
60 1,867,919 21,570,567 21,570,567 21,786,273
65 2,383,990 35,422,787 35,422,787 35,422,787
(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, (c) no premiums have been allocated to the Fixed
Account, and (d) the Cash Value Enhancement Plus Rider is used.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the No Lapse Guarantee will keep the Policy in
force until the end of the first 20 Policy Years. Provided the Death
Benefit Guarantee Cumulative Premium Test has been and continues to be
met, the Death Benefit Guarantee will keep the Policy in force until
age 100.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
APPENDIX B
AUDITED FINANCIAL STATEMENTS
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
SEPARATE ACCOUNT THREE
Audited Financial Statements
Years ended December 31, 2000 and 1999 with Report of Independent Auditors
The Manufacturers Life Insurance Company of America
Separate Account Three
Audited Financial Statements
Years ended December 31, 2000 and 1999
CONTENTS
Report of Independent Auditors............................................. 1
Audited Financial Statements
Statement of Assets and Contract Owners' Equity............................ 2
Statements of Operations and Changes in Contract Owners' Equity............ 3
Notes to Financial Statements............................................. 21
Report of Independent Auditors
To the Contract Owners of
The Manufacturers Life Insurance Company
of America Separate Account Three
We have audited the accompanying statement of assets and contract owners' equity
of The Manufacturers Life Insurance Company of America Separate Account Three as
of December 31, 2000 and the related statements of operations and changes in
contract owners' equity for each of the periods presented therein. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Manufacturers Life
Insurance Company of America Separate Account Three at December 31, 2000, and
the results of its operations and the changes in its contract owners' equity for
each of the periods presented therein, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
February 2, 2001
1
The Manufacturers Life Insurance Company of America
Separate Account Three
Statement of Assets and Contract Owners' Equity
December 31, 2000
ASSETS
Investments at market value:
Sub-Accounts:
Aggressive Growth Trust - 414,568 shares (cost $8,317,795) $ 7,404,188
All Cap Growth Trust - 917,816 shares (cost $21,435,305) 18,952,901
Balanced Trust - 2,301,089 shares (cost $41,156,745) 35,574,830
Blue Chip Growth Trust - 1,740,059 shares (cost $34,754,268) 35,027,389
Diversified Bond Trust - 311,760 shares (cost $3,265,279) 3,264,125
Dynamic Growth Trust - 185,672 shares (cost $2,011,883) 1,481,662
Emerging Small Company Trust - 2,675,893 shares (cost $68,799,429) 93,709,783
Equity Income Trust - 1,541,771 shares (cost $24,918,914) 25,947,998
Equity Index Trust - 4,534,540 shares (cost $72,791,172) 74,366,453
Global Bond Trust 64,239 shares (cost $737,497) 733,612
Global Equity Trust - 604,842 shares (cost $10,311,871) 11,177,484
Growth Trust - 929,129 shares (cost $21,769,812) 16,482,743
Growth and Income Trust - 1,839,411 shares (cost $49,602,514) 52,496,785
High Yield Trust - 396,203 shares (cost $5,141,212) 4,615,768
Income and Value Trust - 566,502 shares (cost $6,727,177) 5,982,262
International Index Trust - 14,306 shares (cost $165,548) 158,938
International Small Cap Trust - 403,953 shares (cost $7,928,391) 6,624,824
International Stock Trust - 2,081,416 shares (cost $29,313,291) 26,662,943
International Value Trust - 133,744 shares (cost $1,579,527) 1,612,952
Internet Technologies Trust - 91,624 shares (cost $1,060,691) 644,117
Investment Quality Bond Trust - 2,262,945 shares (cost $26,320,858) 26,566,974
Large Cap Growth Trust - 1,041,019 shares (cost $15,668,005) 13,096,022
Lifestyle Aggressive 1000 Trust - 355,321 shares (cost $4,789,421) 4,651,150
Lifestyle Balanced 640 Trust - 732,304 shares (cost $9,796,654) 9,915,393
Lifestyle Conservative 280 Trust - 16,890 shares (cost $221,862) 222,609
Lifestyle Growth 820 Trust - 1,751,576 shares (cost $24,247,282) 23,821,430
Lifestyle Moderate 460 Trust - 122,270 shares (cost $1,633,000) 1,590,737
Mid Cap Blend Trust - 1,932,550 shares (cost $37,279,394) 33,858,271
Mid Cap Index Trust - 41,943 shares (cost $556,459) 550,706
Mid Cap Stock Trust - 144,085 shares (cost $1,819,018) 1,743,424
Money Market Trust - 6,389,899 shares (cost $63,898,986) 63,898,986
Overseas Trust - 581,540 shares (cost $7,200,225) 6,926,139
Pacific Rim Emerging Markets Trust - 1,127,991 shares (cost $10,976,143) 9,249,526
Quantitative Equity Trust - 2,533,760 shares (cost $57,968,253) 66,536,535
Real Estate Securities Trust - 1,509,058 shares (cost $23,955,631) 23,496,035
Science and Technology Trust - 1,260,592 shares (cost $42,396,074) 29,296,160
Small Cap Index Trust - 13,777 shares (cost $165,715) 155,544
Small Company Blend Trust - 158,597 shares (cost $2,356,277) 1,793,734
Small Company Value Trust - 240,324 shares (cost $2,971,748) 3,119,400
Strategic Bond Trust - 453,123 shares (cost $5,014,118) 4,952,630
Tactical Allocation Trust - 27,178 shares (cost $341,964) 317,168
Total Return Trust - 176,445 shares (cost $2,214,939) 2,360,830
Total Stock Market Index Trust - 26,376 shares (cost $316,787) 293,833
U.S. Government Securities Trust - 394,061 shares (cost $5,223,915) 5,347,411
U.S. Large Cap Value Trust - 576,467 shares (cost $7,414,578) 7,545,950
Value Trust - 552,755 shares (cost $7,722,162) 9,109,405
500 Index Trust - 474,340 shares (cost $5,624,453) 5,350,558
------------
Total assets $778,688,317
============
CONTRACT OWNERS' EQUITY
Variable life contracts $778,688,317
============
See accompanying notes.
2
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity
SUB-ACCOUNT
--------------------------------------------------------------------
AGGRESSIVE GROWTH ALL CAP GROWTH
--------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99
--------------------------------------------------------------------
Income:
Net investment income (loss) during the year $ - $ - $ 1,203,584 $ 893,908
Realized gain (loss) during the year 781,308 201,319 1,755,854 465,497
Unrealized appreciation (depreciation) during
the year (1,388,722) 399,725 (5,835,143) 2,522,463
--------------------------------------------------------------------
Net increase (decrease) in assets from operations (607,414) 601,044 (2,875,705) 3,881,868
--------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 2,881,144 595,127 5,299,576 1,888,993
Transfer on termination (306,391) (133,411) (1,097,397) (645,925)
Transfer on policy loans (53,389) (156) (261,519) (17,003)
Net interfund transfers 3,030,368 (206,543) 3,919,834 2,996,672
--------------------------------------------------------------------
Net increase (decrease) in assets from principal
transactions 5,551,732 255,017 7,860,494 4,222,737
--------------------------------------------------------------------
Total increase (decrease) in assets 4,944,318 856,061 4,984,789 8,104,605
Assets beginning of year 2,459,870 1,603,809 13,968,112 5,863,507
--------------------------------------------------------------------
Assets end of year $ 7,404,188 $ 2,459,870 $ 18,952,901 $ 13,968,112
====================================================================
See accompanying notes.
3
SUB-ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
CAPITAL GROWTH
BALANCED BLUE CHIP GROWTH BOND DIVERSIFIED BOND
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99 DEC. 31/99 DEC. 31/00 DEC. 31/99
- ---------------------------------------------------------------------------------------------------------------------------
$ 1,922,658 $ 3,363,625 $ 1,256,181 $ 704,256 $ 1,504,363 $ 236,515 $ 96,499
720,883 1,479,053 1,099,991 613,535 (404,112) (34,002) (9,175)
(6,253,446) (5,660,915) (3,834,145) 2,347,320 (1,309,718) 45,990 (72,120)
- ---------------------------------------------------------------------------------------------------------------------------
(3,609,905) (818,237) (1,477,973) 3,665,111 (209,467) 248,503 15,204
- ---------------------------------------------------------------------------------------------------------------------------
4,618,303 5,916,660 10,092,471 6,033,752 1,253,415 815,715 561,745
(5,579,871) (5,526,738) (2,477,865) (1,605,280) (627,273) (127,254) (59,417)
(296,021) (340,550) (326,876) (118,582) (25,224) (39,836) (1,024)
(4,910,092) (4,108,655) 3,417,891 7,106,796 (21,636,729) 623,649 276,738
- ---------------------------------------------------------------------------------------------------------------------------
(6,167,681) (4,059,283) 10,705,621 11,416,686 (21,035,811) 1,272,274 778,042
- ---------------------------------------------------------------------------------------------------------------------------
(9,777,586) (4,877,520) 9,227,648 15,081,797 (21,245,278) 1,520,777 793,246
45,352,416 50,229,936 25,799,741 10,717,944 21,245,278 1,743,348 950,102
- ---------------------------------------------------------------------------------------------------------------------------
$ 35,574,830 $ 45,352,416 $ 35,027,389 $ 25,799,741 $ -- $ 3,264,125 $ 1,743,348
===========================================================================================================================
4
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
---------------------------------------------------
DYNAMIC GROWTH EMERGING SMALL COMPANY
---------------------------------------------------
PERIOD ENDED DEC. YEAR ENDED DEC. YEAR ENDED DEC.
31/00** 31/00 31/99
---------------------------------------------------
Income:
Net investment income (loss) during the year $ - $ 10,861,111 $ 931,296
Realized gain (loss) during the year (34,245) 6,301,844 2,234,670
Unrealized appreciation (depreciation) during
the year (530,220) (20,697,016) 40,955,434
---------------------------------------------------
Net increase (decrease) in assets from operations (564,465) (3,534,061) 44,121,400
---------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 1,038,582 10,324,298 9,489,193
Transfer on termination (116,055) (11,469,437) (8,527,672)
Transfer on policy loans (44,428) (1,229,828) (504,673)
Net interfund transfers 1,168,028 (2,950,927) (8,765,065)
---------------------------------------------------
Net increase (decrease) in assets from principal
transactions 2,046,127 (5,325,894) (8,308,217)
---------------------------------------------------
Total increase (decrease) in assets 1,481,662 (8,859,955) 35,813,183
Assets beginning of year - 102,569,738 66,756,555
---------------------------------------------------
Assets end of year $ 1,481,662 $ 93,709,783 $ 102,569,738
===================================================
** Reflects the period from commencement of operations May 1, 2000 through
December 31, 2000.
See accompanying notes.
5
SUB-ACCOUNT
- ----------------------------------------------------------------------------------------------------------
EQUITY INCOME EQUITY INDEX GLOBAL BOND
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC.31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99
- ----------------------------------------------------------------------------------------------------------
$ 2,760,281 $ 1,458,179 $ 221,869 $ 1,825,519 $ 18,358 $ 43,890
(80,630) 374,940 2,696,756 3,651,616 (7,326) (70,367)
150,879 (1,255,027) (10,555,450) 5,860,560 4,720 (14,905)
- ----------------------------------------------------------------------------------------------------------
2,830,530 578,092 (7,636,825) 11,337,695 15,752 (41,382)
- ----------------------------------------------------------------------------------------------------------
3,349,523 3,893,423 15,766,592 18,917,139 220,199 124,531
(1,273,761) (1,286,389) (6,954,587) (4,357,423) (33,905) (33,062)
(53,101) (77,443) (248,765) (494,140) (2,085) (11)
(900,697) 311,991 (1,523,237) 5,753,290 (39,466) (117,727)
- ----------------------------------------------------------------------------------------------------------
1,121,964 2,841,582 7,040,003 19,818,866 144,743 (26,269)
- ----------------------------------------------------------------------------------------------------------
3,952,494 3,419,674 (596,822) 31,156,561 160,495 (67,651)
21,995,504 18,575,830 74,963,275 43,806,714 573,117 640,768
- ----------------------------------------------------------------------------------------------------------
$ 25,947,998 $ 21,995,504 $ 74,366,453 $ 74,963,275 $ 733,612 $ 573,117
==========================================================================================================
6
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
--------------------------------------------------------------------
GLOBAL EQUITY GROWTH
--------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99
--------------------------------------------------------------------
Income:
Net investment income (loss) during the year $ 1,026,287 $ 493,157 $ 1,603,161 $ 447,543
Realized gain (loss) during the year (631,106) (155,359) 695,686 530,120
Unrealized appreciation (depreciation) during
the year 740,951 (121,909) (8,128,839) 2,359,746
--------------------------------------------------------------------
Net increase (decrease) in assets from operations 1,136,132 215,889 (5,829,992) 3,337,409
--------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 2,106,572 1,527,332 6,069,409 2,817,768
Transfer on termination (515,552) (386,590) (1,297,222) (500,367)
Transfer on policy loans (14,792) (21,561) (120,470) (74,903)
Net interfund transfers 1,068,265 1,818,979 3,009,403 2,324,764
--------------------------------------------------------------------
Net increase (decrease) in assets from principal
transactions 2,644,493 2,938,160 7,661,120 4,567,262
--------------------------------------------------------------------
Total increase (decrease) in assets 3,780,625 3,154,049 1,831,128 7,904,671
Assets beginning of year 7,396,859 4,242,810 14,651,615 6,746,944
--------------------------------------------------------------------
Assets end of year $ 11,177,484 $ 7,396,859 $ 16,482,743 $ 14,651,615
====================================================================
See accompanying notes.
7
SUB-ACCOUNT
- ---------------------------------------------------------------------------------------------------------
GROWTH AND INCOME HIGH YIELD INCOME AND VALUE
- ---------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99
- ---------------------------------------------------------------------------------------------------------
$ 3,025,404 $ 1,278,189 $ 14,646 $ 340,814 $1,092,315 $ 408,866
985,560 1,264,337 (62,640) (57,295) (16,392) 13,556
(7,885,806) 4,417,624 (346,754) (69,365) (833,733) (94,286)
- ---------------------------------------------------------------------------------------------------------
(3,874,842) 6,960,150 (394,748) 214,154 242,190 328,136
- ---------------------------------------------------------------------------------------------------------
11,665,612 7,477,562 1,336,937 799,494 1,131,379 1,638,769
(3,632,508) (3,261,292) (275,933) (179,923) (459,846) (330,215)
(666,144) (176,590) (56,383) (4,294) (15,719) (9,200)
1,931,597 2,945,525 182,737 891,770 329,751 1,531
- ---------------------------------------------------------------------------------------------------------
9,298,557 6,985,205 1,187,358 1,507,047 985,565 1,300,885
- ---------------------------------------------------------------------------------------------------------
5,423,715 13,945,355 792,610 1,721,201 1,227,755 1,629,021
47,073,070 33,127,715 3,823,158 2,101,957 4,754,507 3,125,486
- ---------------------------------------------------------------------------------------------------------
$ 52,496,785 $ 47,073,070 $ 4,615,768 $ 3,823,158 $5,982,262 $ 4,754,507
=========================================================================================================
8
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
--------------------------------------------------
INTERNATIONAL
INDEX INTERNATIONAL SMALL CAP
--------------------------------------------------
PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/00** DEC. 31/00 DEC. 31/99
--------------------------------------------------
Income:
Net investment income (loss) during the year $ 2,220 $1,275,987 $ 9,451
Realized gain (loss) during the year (982) (941,463) 1,126,604
Unrealized appreciation (depreciation) during
the year (6,610) (2,864,772) 1,360,161
--------------------------------------------------
Net increase (decrease) in assets from operations (5,372) (2,530,248) 2,496,216
--------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 125,117 2,151,313 826,503
Transfer on termination (5,611) (399,289) (206,773)
Transfer on policy loans (6,792) (227,364) (11,684)
Net interfund transfers 51,596 2,099,442 (266,727)
--------------------------------------------------
Net increase (decrease) in assets from principal
transactions 164,310 3,624,102 341,319
--------------------------------------------------
Total increase (decrease) in assets 158,938 1,093,854 2,837,535
Assets beginning of year - 5,530,970 2,693,435
--------------------------------------------------
Assets end of year $ 158,938 $6,624,824 $ 5,530,970
==================================================
* Reflects the period from commencement of operations May 1, 1999 through
December 31, 1999.
** Reflects the period from commencement of operations May 1, 2000 through
December 31, 2000.
See accompanying notes.
9
SUB-ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
INTERNET
INTERNATIONAL STOCK INTERNATIONAL VALUE TECHNOLOGIES INVESTMENT QUALITY BOND
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99* DEC. 31/00** DEC. 31/00 DEC. 31/99
- ----------------------------------------------------------------------------------------------------------------------------
$ 141,854 $ 2,378,902 $ 4,865 $ - $ - $ 1,764,230 $ 115,157
1,979,909 1,389,951 (24,646) (6,853) (156) (65,106) (118,167)
(7,021,945) 2,728,312 (339) 33,763 (416,574) 543,010 (330,836)
- ----------------------------------------------------------------------------------------------------------------------------
(4,900,182) 6,497,165 (20,120) 26,910 (416,730) 2,242,134 (333,846)
- ----------------------------------------------------------------------------------------------------------------------------
4,769,383 3,991,679 970,793 67,544 613,893 3,717,837 2,534,307
(2,042,903) (1,409,171) (57,439) (5,873) (49,773) (2,138,923) (1,228,511)
(319,996) (245,714) (6,340) - (4,746) (183,365) (45,188)
306,879 (561,839) 268,631 368,846 501,473 (247,524) 20,819,872
- ----------------------------------------------------------------------------------------------------------------------------
2,713,363 1,774,955 1,175,645 430,517 1,060,847 1,148,025 22,080,480
- ----------------------------------------------------------------------------------------------------------------------------
(2,186,819) 8,272,120 1,155,525 457,427 644,117 3,390,159 21,746,634
28,849,762 20,577,642 457,427 - - 23,176,815 1,430,181
- ----------------------------------------------------------------------------------------------------------------------------
$ 26,662,943 $ 28,849,762 $ 1,612,952 $ 457,427 $ 644,117 $ 26,566,974 $ 23,176,815
============================================================================================================================
10
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
------------------------------------------------------------------
LARGE CAP GROWTH LIFESTYLE AGGRESSIVE 1000
------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99
------------------------------------------------------------------
Income:
Net investment income (loss) during the year $ 1,441,638 $ 371,353 $ 216,326 $ 178,067
Realized gain (loss) during the year 21,675 100,576 (9,437) (51,566)
Unrealized appreciation (depreciation) during
the year (3,593,685) 677,804 (443,010) 371,856
------------------------------------------------------------------
Net increase (decrease) in assets from operations (2,130,372) 1,149,733 (236,121) 498,357
------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 4,930,460 1,349,722 1,402,412 1,220,401
Transfer on termination (935,574) (310,785) (465,958) (711,359)
Transfer on policy loans (149,564) (20,962) (1,220) (3,817)
Net interfund transfers 4,710,968 876,677 (2,198) (911,439)
------------------------------------------------------------------
Net increase (decrease) in assets from principal
transactions 8,556,290 1,894,652 933,036 (406,214)
------------------------------------------------------------------
Total increase (decrease) in assets 6,425,918 3,044,385 696,915 92,143
Assets beginning of year 6,670,104 3,625,719 3,954,235 3,862,092
------------------------------------------------------------------
Assets end of year $ 13,096,022 $ 6,670,104 $ 4,651,150 $ 3,954,235
==================================================================
See accompanying notes.
11
SUB-ACCOUNT
- -------------------------------------------------------------------------------------------------------
LIFESTYLE BALANCED 640 LIFESTYLE CONSERVATIVE 280 LIFESTYLE GROWTH 820
- -------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99
- -------------------------------------------------------------------------------------------------------
$ 569,650 $ 396,729 $ 13,788 $ 11,447 $ 1,673,771 $ 962,278
86,155 (30,994) (844) 1,866 79,771 (74,308)
(472,949) 510,201 2,739 (7,716) (2,474,203) 1,958,069
- -------------------------------------------------------------------------------------------------------
182,856 875,936 15,683 5,597 (720,661) 2,846,039
- -------------------------------------------------------------------------------------------------------
3,308,556 3,129,737 30,443 42,811 5,916,596 5,461,863
(883,442) (1,094,958) (9,144) (8,329) (2,038,161) (1,622,631)
(122,975) (64,221) -- -- (134,239) (279,099)
(805,706) (306,459) 70,433 (32,902) 127,472 (1,593,145)
- -------------------------------------------------------------------------------------------------------
1,496,433 1,664,099 91,732 1,580 3,871,668 1,966,988
- -------------------------------------------------------------------------------------------------------
1,679,289 2,540,035 107,415 7,177 3,151,007 4,813,027
8,236,104 5,696,069 115,194 108,017 20,670,423 15,857,396
- -------------------------------------------------------------------------------------------------------
$ 9,915,393 $ 8,236,104 $ 222,609 $ 115,194 $ 23,821,430 $ 20,670,423
=======================================================================================================
12
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
-------------------------------------------------------------------
LIFESTYLE MODERATE 460 MID CAP BLEND
-------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99
-------------------------------------------------------------------
Income:
Net investment income (loss) during the year $ 164,841 $ 49,688 $ 4,905,140 $ 3,059,165
Realized gain (loss) during the year (8,201) (1,920) (440,187) (531,319)
Unrealized appreciation (depreciation) during
the year (93,118) 30,959 (6,852,403) 4,461,702
-------------------------------------------------------------------
Net increase (decrease) in assets from operations 63,522 78,727 (2,387,450) 6,989,548
-------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 499,839 324,816 5,698,436 5,041,183
Transfer on termination (278,844) (80,708) (2,255,941) (1,858,127)
Transfer on policy loans (4,505) (61,993) (210,773) (108,303)
Net interfund transfers 34,843 336,696 333,630 (1,877,218)
-------------------------------------------------------------------
Net increase (decrease) in assets from principal
transactions 251,333 518,811 3,565,352 1,197,535
-------------------------------------------------------------------
Total increase (decrease) in assets 314,855 597,538 1,177,902 8,187,083
Assets beginning of year 1,275,882 678,344 32,680,369 24,493,286
-------------------------------------------------------------------
Assets end of year $ 1,590,737 $ 1,275,882 $ 33,858,271 $ 32,680,369
===================================================================
* Reflects the period from commencement of operations May 1, 1999 through
December 31, 1999.
** Reflects the period from commencement of operations May 1, 2000 through
December 31, 2000.
See accompanying notes.
13
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------
MID CAP INDEX MID CAP STOCK MONEY MARKET OVERSEAS
- ------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/00** DEC. 31/00 DEC. 31/99* DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99
- ------------------------------------------------------------------------------------------------------------------------
$ 9,975 $ -- $ -- $ 2,837,122 $ 1,699,216 $ 410,096 $ --
2,568 4,809 (158) -- -- (743,314) 588,825
(5,753) (82,824) 7,230 -- -- (806,861) 485,470
- ------------------------------------------------------------------------------------------------------------------------
6,790 (78,015) 7,072 2,837,122 1,699,216 (1,140,079) 1,074,295
- ------------------------------------------------------------------------------------------------------------------------
62,405 1,209,637 114,220 60,929,701 29,641,080 2,507,305 516,783
(18,904) (70,213) (9,534) (7,374,966) (5,654,160) (284,281) (73,681)
-- (1,970) -- (602,642) 266,827 (199,359) (14,262)
500,415 497,797 74,430 (37,492,208) (12,059,047) 1,670,197 1,464,007
- ------------------------------------------------------------------------------------------------------------------------
543,916 1,635,251 179,116 15,459,885 12,194,700 3,693,862 1,892,847
- ------------------------------------------------------------------------------------------------------------------------
550,706 1,557,236 186,188 18,297,007 13,893,916 2,553,783 2,967,142
-- 186,188 -- 45,601,979 31,708,063 4,372,356 1,405,214
- ------------------------------------------------------------------------------------------------------------------------
$ 550,706 $ 1,743,424 $ 186,188 $ 63,898,986 $ 45,601,979 $ 6,926,139 $ 4,372,356
========================================================================================================================
14
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
------------------------------------------------------------------
PACIFIC RIM
EMERGING MARKETS QUANTITATIVE EQUITY
------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99
------------------------------------------------------------------
Income:
Net investment income (loss) during the year $ 37,735 $ 188,217 $ 8,207,833 $ 5,044,334
Realized gain (loss) during the year 1,142,246 1,967,184 3,373,479 3,505,103
Unrealized appreciation (depreciation) during
the year (3,893,747) 1,745,251 (7,729,114) 2,911,530
------------------------------------------------------------------
Net increase (decrease) in assets from operations (2,713,766) 3,900,652 3,852,198 11,460,967
------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 1,890,887 1,679,389 8,153,108 7,800,323
Transfer on termination (692,836) (471,769) (8,068,279) (5,396,356)
Transfer on policy loans (93,909) (33,384) (437,721) (474,041)
Net interfund transfers 349,025 (185,077) 1,180,710 (3,728,101)
------------------------------------------------------------------
Net increase (decrease) in assets from principal
transactions 1,453,167 989,159 827,818 (1,798,175)
------------------------------------------------------------------
Total increase (decrease) in assets (1,260,599) 4,889,811 4,680,016 9,662,792
Assets beginning of year 10,510,125 5,620,314 61,856,519 52,193,727
------------------------------------------------------------------
Assets end of year $ 9,249,526 $ 10,510,125 $ 66,536,535 $ 61,856,519
==================================================================
* Reflects the period from commencement of operations May 1, 1999 through
December 31, 1999.
** Reflects the period from commencement of operations May 1, 2000 through
December 31, 2000.
See accompanying notes.
15
SUB-ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------------
REAL ESTATE SECURITIES SCIENCE AND TECHNOLOGY SMALL CAP INDEX SMALL COMPANY BLEND
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99 DEC. 31/00** DEC. 31/00 DEC. 31/99*
- ---------------------------------------------------------------------------------------------------------------------------
$ 725,501 $ 1,081,197 $ 875,644 $ 1,831,034 $ 5,143 $ 166,689 $ 7,350
(368,039) 82,415 4,226,679 2,759,418 (1,758) (184,160) 1,781
4,345,939 (2,907,686) (19,928,665) 5,368,742 (10,171) (603,705) 41,163
- ---------------------------------------------------------------------------------------------------------------------------
4,703,401 (1,744,074) (14,826,342) 9,959,194 (6,786) (621,176) 50,294
- ---------------------------------------------------------------------------------------------------------------------------
2,709,003 3,182,121 11,215,089 3,767,735 94,350 1,152,722 174,380
(1,866,577) (2,092,541) (2,826,592) (796,754) (6,716) (46,909) (10,104)
(245,678) (117,862) (405,481) (98,286) (3,396) (27,509) --
(847,081) (2,881,180) 9,680,246 8,691,040 78,092 954,977 167,059
- ---------------------------------------------------------------------------------------------------------------------------
(250,333) (1,909,462) 17,663,262 11,563,735 162,330 2,033,281 331,335
- ---------------------------------------------------------------------------------------------------------------------------
4,453,068 (3,653,536) 2,836,920 21,522,929 155,544 1,412,105 381,629
19,042,967 22,696,503 26,459,240 4,936,311 -- 381,629 --
- ---------------------------------------------------------------------------------------------------------------------------
$ 23,496,035 $ 19,042,967 $ 29,296,160 $ 26,459,240 $ 155,544 $ 1,793,734 $ 381,629
===========================================================================================================================
16
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
---------------------------------------------------------------
SMALL COMPANY VALUE STRATEGIC BOND
---------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99
---------------------------------------------------------------
Income:
Net investment income (loss) during the year $ 2,245 $ 305 $ 286,876 $ 204,203
Realized gain (loss) during the year 93,029 7,291 (66,380) (74,383)
Unrealized appreciation (depreciation) during
the year 48,360 88,627 61,320 (62,876)
---------------------------------------------------------------
Net increase (decrease) in assets from operations 143,634 96,223 281,816 66,944
---------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 747,241 398,042 1,165,949 747,221
Transfer on termination (104,932) (50,211) (235,557) (169,596)
Transfer on policy loans (9,018) -- (45,301) (15,952)
Net interfund transfers 1,241,872 289,944 304,387 (49,496)
---------------------------------------------------------------
Net increase (decrease) in assets from principal
transactions 1,875,163 637,775 1,189,478 512,177
---------------------------------------------------------------
Total increase (decrease) in assets 2,018,797 733,998 1,471,294 579,121
Assets beginning of year 1,100,603 366,605 3,481,336 2,902,215
---------------------------------------------------------------
Assets end of year $ 3,119,400 $ 1,100,603 $ 4,952,630 $ 3,481,336
===============================================================
* Reflects the period from commencement of operations May 1, 1999 through
December 31, 1999.
** Reflects the period from commencement of operations May 1, 2000 through
December 31, 2000.
See accompanying notes.
17
SUB-ACCOUNT
- -------------------------------------------------------------------------------------------------------
TACTICAL TOTAL STOCK
ALLOCATION TOTAL RETURN MARKET INDEX U.S. GOVERNMENT SECURITIES
- -------------------------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/00** DEC. 31/00 DEC. 31/99* DEC. 31/00** DEC. 31/00 DEC. 31/99
- -------------------------------------------------------------------------------------------------------
$ 11,333 $ 29,836 $ -- $ 2,748 $ 319,991 $ 143,586
(20) 6,187 (252) (239) (33,921) 21,642
(24,796) 145,527 364 (22,955) 189,826 (173,224)
- -------------------------------------------------------------------------------------------------------
(13,483) 181,550 112 (20,446) 475,896 (7,996)
- -------------------------------------------------------------------------------------------------------
270,846 800,492 102,093 199,595 1,442,818 933,102
(7,090) (68,577) (17,463) (9,092) (420,953) (302,051)
(3,393) (48,429) -- -- 1,677 75
70,288 1,016,257 394,795 123,776 (710,743) 630,563
- -------------------------------------------------------------------------------------------------------
330,651 1,699,743 479,425 314,279 312,799 1,261,689
- -------------------------------------------------------------------------------------------------------
317,168 1,881,293 479,537 293,833 788,695 1,253,693
-- 479,537 -- -- 4,558,716 3,305,023
- -------------------------------------------------------------------------------------------------------
$ 317,168 $ 2,360,830 $ 479,537 $ 293,833 $ 5,347,411 $ 4,558,716
=======================================================================================================
18
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
--------------------------------------------------------------
U.S. LARGE CAP VALUE VALUE
--------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/00 DEC. 31/99* DEC. 31/00 DEC. 31/99
--------------------------------------------------------------
Income:
Net investment income (loss) during the year $ 30,478 $ -- $ -- $ 160,502
Realized gain (loss) during the year 2,018 18 (204,029) (36,495)
Unrealized appreciation (depreciation) during
the year 35,510 95,862 1,955,231 (317,742)
--------------------------------------------------------------
Net increase (decrease) in assets from operations 68,006 95,880 1,751,202 (193,735)
--------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 3,097,133 373,681 1,668,925 1,586,580
Transfer on termination (306,562) (40,839) (372,336) (292,517)
Transfer on policy loans (6,546) -- (118,965) (4,081)
Net interfund transfers 2,799,989 1,465,208 1,097,532 419,572
--------------------------------------------------------------
Net increase (decrease) in assets from principal
transactions 5,584,014 1,798,050 2,275,156 1,709,554
--------------------------------------------------------------
Total increase (decrease) in assets 5,652,020 1,893,930 4,026,358 1,515,819
Assets beginning of year 1,893,930 -- 5,083,047 3,567,228
--------------------------------------------------------------
Assets end of year $ 7,545,950 $ 1,893,930 $ 9,109,405 $ 5,083,047
==============================================================
* Reflects the period from commencement of operations May 1, 1999 through
December 31, 1999.
** Reflects the period from commencement of operations May 1, 2000 through
December 31, 2000.
See accompanying notes.
19
SUB-ACCOUNT
- ------------------------------------
WORLDWIDE GROWTH 500 INDEX TOTAL
- ------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/99 DEC. 31/00** DEC. 31/00 DEC. 31/99
- ------------------------------------------------------------------------
$ 11,362 $ 11,246 $ 51,387,171 $ 31,693,647
68,678 (16,940) 22,080,244 20,827,272
(14,108) (273,894) (115,641,365) 69,327,505
- ------------------------------------------------------------------------
65,932 (279,588) (42,173,950) 121,848,424
- ------------------------------------------------------------------------
274,770 3,899,444 214,068,040 138,216,989
(16,702) (203,952) (70,163,910) (51,392,480)
(11,284) (18,727) (7,067,602) (3,208,585)
(1,392,780) 1,953,381 275,952 (253,364)
- ------------------------------------------------------------------------
(1,145,996) 5,630,146 137,112,480 83,362,560
- ------------------------------------------------------------------------
(1,080,064) 5,350,558 94,938,530 205,210,984
1,080,064 -- 683,749,787 478,538,803
- ------------------------------------------------------------------------
$ -- $ 5,350,558 $ 778,688,317 $ 683,749,787
========================================================================
20
The Manufacturers Life Insurance Company of America
Separate Account Three
Notes to Financial Statements
December 31, 2000
1. ORGANIZATION
The Manufacturers Life Insurance Company of America Separate Account Three (the
Account) is a separate account established by The Manufacturers Life Insurance
Company of America (the Company). The account operates as a Unit Investment
Trust under the Investment Company Act of 1940, as amended and invests in
forty-seven sub-accounts of Manufacturers Investment Trust (the Trust). The
account is a funding vehicle for allocation of net premiums under single premium
variable life and variable universal life insurance contracts (the Contracts)
issued by the Company. The Account was established by the Company, a life
insurance company organized in 1983 under Michigan law. The Company is an
indirect, wholly owned subsidiary of the Manufacturers Life Insurance Company
(Manulife Financial), a Canadian life insurance company. Each investment
sub-account invests solely in shares of a particular portfolio of the Trust. The
Trust is registered under the Investment Company Act of 1940 as an open-end
management investment company.
The Company is required to maintain assets in the Account with a total market
value at least equal to the reserves and other liabilities relating to the
variable benefits under all contracts participating in the Account. These assets
may not be charged with liabilities which arise from any other business the
Company conducts. However, all obligations under the variable contracts are
general corporate obligations of the Company.
Additional assets are held in the Company's general account to cover the
contingency that the guaranteed minimum death benefit might exceed the death
benefit which would have been payable in the absence of such guarantee.
As the result of portfolio changes, effective May 2, 2000, the following
sub-account of the Account has been replaced with a new sub-account fund as
follows:
PREVIOUS FUND NEW FUND
Mid Cap Growth Trust All Cap Growth Trust
21
The Manufacturers Life Insurance Company of America
Separate Account Three
Notes to Financial Statements (continued)
1. ORGANIZATION (CONTINUED)
The following sub-accounts of the Account were added as investment options for
variable life insurance contract holders of Manufacturers Life of America:
Commencement of
Operations of the
Sub-accounts
-----------------
Dynamic Growth Trust May 2, 2000
International Index Trust May 2, 2000
International Value Trust May 1, 1999
Internet Technologies Trust May 2, 2000
Mid Cap Index Trust May 2, 2000
Mid Cap Stock Trust May 1, 1999
Small Cap Index Trust May 2, 2000
Small Company Blend Trust May 1, 1999
Tactical Allocation Trust May 2, 2000
Total Return Trust May 1, 1999
Total Stock Market Index Trust May 2, 2000
U.S. Large Cap Value Trust May 1, 1999
500 Index Trust May 2, 2000
2. SIGNIFICANT ACCOUNTING POLICIES
Investments are made in the portfolios of the Trust and are valued at the
reported net asset value of such portfolios. Transactions are recorded on the
trade date. Income from dividends is recorded on the ex-dividend date. Realized
gains and losses on the sales of investments are computed on the basis of the
identified cost of the investment sold.
22
The Manufacturers Life Insurance Company of America
Separate Account Three
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In addition to the Account, a contract holder may also allocate funds to the
Fixed Account, which is part of the Company's general account. Because of
exemptive and exclusionary provisions, interests in the Fixed Account have not
been registered under the Securities Act of 1933, and the Company's general
account has not been registered as an investment company under the Investment
Company Act of 1940.
The operations of the Account are included in the federal income tax return of
the Company, which is taxed as a life insurance company under the provisions of
the Internal Revenue Code (the Code). Under the current provisions of the Code,
the Company does not expect to incur federal income taxes on the earnings of the
Account to the extent the earnings are credited under the contracts. Based on
this, no charge is being made currently to the Account for federal income taxes.
The Company will review periodically the status of such decision based on
changes in the tax law. Such a charge may be made in future years for any
federal income taxes that would be attributable to the contract.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future as
more information becomes known, which could impact the amounts reported and
disclosed herein.
3. PREMIUM DEDUCTIONS
Manufacturers Life of America deducts certain charges for state, local, and
federal taxes from the gross premium before placing the remaining net premiums
in the sub-accounts.
23
The Manufacturers Life Insurance Company of America
Separate Account Three
Notes to Financial Statements (continued)
4. PURCHASES AND SALES
The following table shows aggregate cost of shares purchased and proceeds from
sales of each Trust portfolio for the period ended December 31, 2000:
PURCHASES SALES
--------- -----
Aggressive Growth Trust $ 8,019,899 $ 2,468,166
All Cap Growth Trust 16,182,742 7,118,664
Balanced Trust 4,205,822 8,450,845
Blue Chip Growth Trust 15,877,023 3,915,222
Diversified Bond Trust 1,769,759 260,970
Dynamic Growth Trust 2,197,718 151,590
Emerging Small Company Trust 18,477,959 12,942,742
Equity Income Trust 6,769,753 2,887,508
Equity Index Trust 18,733,836 11,471,964
Global Bond Trust 304,886 141,785
Global Equity Trust 18,079,661 14,408,881
Growth Trust 11,696,647 2,432,366
Growth & Income Trust 15,046,839 2,722,878
High Yield Trust 2,427,826 1,225,821
Income and Value Trust 2,514,745 436,865
International Index Trust 174,861 8,331
International Small Cap Trust 16,507,631 11,607,542
International Stock Trust 21,063,260 18,208,044
International Value Trust 2,464,874 1,284,364
Internet Technologies Trust 1,691,129 630,282
Investment Quality Bond Trust 5,805,208 2,892,953
Large Cap Growth Trust 11,430,246 1,432,319
Lifestyle Aggressive 1000 Trust 1,666,763 517,400
Lifestyle Balanced 640 Trust 3,973,581 1,907,498
Lifestyle Conservative 280 Trust 120,201 14,680
Lifestyle Growth 820 Trust 7,105,742 1,560,302
Lifestyle Moderate 460 Trust 704,837 288,663
Mid Cap Blend Trust 11,675,074 3,204,582
Mid Cap Index Trust 858,391 304,500
Mid Cap Stock Trust 2,505,863 870,613
Money Market Trust 133,882,405 115,585,398
Overseas Trust 21,862,479 17,758,521
Pacific Rim Emerging Markets Trust 10,745,858 9,254,956
Quantitative Equity Trust 17,411,696 8,376,044
Real Estate Securities Trust 3,372,234 2,897,066
Science & Technology Trust 40,656,264 22,117,359
Small Cap Index Trust 188,065 20,592
Small Company Blend Trust 4,543,750 2,343,780
Small Company Value Trust 2,836,537 959,130
Strategic Bond Trust 2,180,768 704,413
Tactical Allocation Trust 347,423 5,439
Total Return Trust 2,007,281 277,702
Total Stock Market Index 322,499 5,472
U.S. Government Securities Trust 2,117,690 1,484,900
U.S. Large Cap Value Trust 6,193,938 579,446
Value Trust 3,939,653 1,664,497
500 Index Trust 5,883,114 241,721
------------------------------
Total $488,544,430 $300,044,776
==============================
24
The Manufacturers Life Insurance Company of America
Separate Account Three
Notes to Financial Statements (continued)
5. UNIT VALUES
A summary of the accumulation unit values at December 31, 2000 and December 31,
1999 and the accumulation units and dollar value outstanding at December 31,
2000 for the variable life contracts are as follows:
1999 2000
-----------------------------------------------------------
UNIT VALUE UNIT VALUE UNITS DOLLARS
-----------------------------------------------------------
Aggressive Growth Trust $20.16 $20.77 356,548 $ 7,404,188
All Cap Growth Trust 28.33 25.28 749,807 18,952,901
Balanced Trust 29.49 26.74 1,330,346 35,574,830
Blue Chip Growth Trust 24.63 23.95 1,462,754 35,027,389
Diversified Bond Trust 13.07 14.42 226,375 3,264,125
Dynamic Growth Trust - 7.98 185,672 1,481,662
Emerging Small Company Trust 74.86 71.65 1,307,969 93,709,783
Equity Income Trust 16.64 18.80 1,380,099 25,947,998
Equity Index Trust 23.78 21.57 3,447,963 74,366,453
Global Bond Trust 13.27 13.49 54,365 733,612
Global Equity Trust 16.97 19.04 587,025 11,177,484
Growth Trust 25.46 18.51 890,331 16,482,743
Growth and Income Trust 23.46 21.79 2,408,919 52,496,785
High Yield Trust 15.37 14.00 329,776 4,615,768
Income and Value Trust 15.51 16.28 367,507 5,982,262
International Index Trust - 11.27 14,103 158,938
International Small Cap Trust 26.16 18.53 357,528 6,624,824
International Stock Trust 18.12 15.12 1,763,929 26,662,943
International Value Trust 12.98 12.14 132,848 1,612,952
Internet Technologies Trust - 7.03 91,924 644,117
Investment Quality Bond Trust 14.51 15.87 1,673,822 26,566,974
Large Cap Growth Trust 19.42 16.65 786,413 13,096,022
Lifestyle Aggressive 1000 Trust 17.21 16.33 284,768 4,651,150
Lifestyle Balanced 640 Trust 16.76 17.18 577,034 9,915,393
Lifestyle Conservative 280 Trust 15.74 16.95 13,131 222,609
Lifestyle Growth 820 Trust 17.62 17.09 1,393,678 23,821,430
Lifestyle Moderate 460 Trust 16.40 17.10 93,014 1,590,737
Mid Cap Blend Trust 18.95 17.74 1,908,650 33,858,271
Mid Cap Index Trust - 13.39 41,116 550,706
Mid Cap Stock Trust 12.60 12.10 144,085 1,743,424
Money Market Trust 19.15 20.28 3,151,211 63,898,986
Overseas Trust 18.96 15.41 449,483 6,926,139
Pacific Rim Emerging Markets Trust 11.85 8.97 1,031,699 9,249,526
Quantitative Equity Trust 53.10 56.45 1,178,769 66,536,535
Real Estate Securities Trust 30.30 38.08 616,941 23,496,035
Science & Technology Trust 40.21 26.51 1,104,943 29,296,160
Small Cap Index - 11.70 13,291 155,544
Small Company Blend Trust 16.07 12.90 139,069 1,793,734
Small Company Value Trust 9.21 9.76 319,683 3,119,400
Strategic Bond Trust 14.11 15.15 326,940 4,952,630
Tactical Allocation Trust - 12.10 26,212 317,168
Total Return Trust 12.37 13.72 172,081 2,360,830
Total Stock Market Index Trust - 11.24 26,131 293,833
U.S. Government Securities Trust 11.91 13.21 404,853 5,347,411
U.S. Large Cap Value Trust 12.84 13.20 571,773 7,545,950
Value Trust 13.81 17.20 529,481 9,109,405
500 Index Trust - 11.30 473,346 5,350,558
------------
Total $778,688,317
============
25
The Manufacturers Life Insurance Company of America
Separate Account Three
Notes to Financial Statements (continued)
6. RELATED PARTY TRANSACTIONS
ManEquity, Inc., a registered broker-dealer and indirect wholly owned subsidiary
of Manulife Financial, acts as the principal underwriter of the Contracts
pursuant to a Distribution Agreement with the Company. Registered
representatives of either ManEquity, Inc. or other broker-dealers having
distribution agreements with ManEquity, Inc. who are also authorized as variable
life insurance agents under applicable state insurance laws, sell the Contracts.
Registered representatives are compensated on a commission basis.
The Company has a formal service agreement with its affiliates, Manulife
Financial and The Manufacturers Life Insurance Company (U.S.A.), which can be
terminated by either party upon two months notice. Under this Agreement, the
Company pays for legal, actuarial, investment and certain other administrative
services.
26
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA SEPARATE ACCOUNT THREE
Financial Statements
Nine months ended September 30, 2001 (unaudited)
with December 31, 2000 comparative (audited)
The Manufacturers Life Insurance Company of America
Separate Account Three
Financial Statements
Nine months ended September 30, 2001 (unaudited)
with December 31, 2000 comparative (audited)
CONTENTS
Financial Statements
Statement of Assets and Contract Owners' Equity................................1
Statements of Operations and Changes in Contract Owners' Equity................3
Notes to Financial Statements.................................................25
The Manufacturers Life Insurance Company of America
Separate Account Three
Statement of Assets and Contract Owners' Equity
September 30, 2001 (Unaudited)
ASSETS
Investments at market value:
Sub-Accounts:
Aggressive Growth Trust - 508,805 shares (cost $9,677,637) $ 5,897,048
All Cap Growth Trust - 1,080,522 shares (cost $23,979,270) 13,484,917
All Cap Value Trust - 10,683 shares (cost $131,525) 114,092
Balanced Trust - 2,270,419 shares (cost $40,120,924) 28,811,614
Blue Chip Growth Trust - 2,175,555 shares (cost $41,922,870) 30,327,232
Capital Appreciation Trust - 10,310 shares (cost $103,352) 79,282
Capital Opportunities Trust - 18,475 shares (cost $199,028) 168,673
Diversified Bond Trust - 522,738 shares (cost $5,416,251) 5,525,336
Dynamic Growth Trust - 361,612 shares (cost $2,845,505) 1,507,921
Emerging Small Company Trust - 2,693,625 shares (cost $70,005,360) 56,108,198
Equity Growth Trust - 1,206 shares (cost $11,989) 12,785
Equity Income Trust - 1,982,680 shares (cost $31,788,582) 27,856,659
Equity Index Trust - 4,652,921 shares (cost $75,249,952) 58,952,512
Equity Value Trust - 2,237 shares (cost $23,978) 25,253
Financial Services Trust - 14,888 shares (cost $171,064) 157,669
Fundamental Value Trust - 111,039 shares (cost $1,336,102) 1,174,790
Global Bond Trust - 76,605 shares (cost $873,706) 903,172
Global Equity Trust - 764,648 shares (cost $12,038,170) 9,099,307
Global Value Trust - 1,102 shares (cost $11,989) 12,749
Growth Trust - 1,020,903 shares (cost $22,564,639) 12,455,020
Growth and Income Trust - 2,126,922 shares (cost $57,352,008) 46,260,544
Health Sciences Trust - 35,646 shares (cost $460,082) 428,104
High Yield Trust - 516,875 shares (cost $5,726,082) 4,936,161
Income and Value Trust - 751,654 shares (cost $8,532,980) 6,794,948
International Index Trust - 68,940 shares (cost $688,785) 560,482
International Small Cap Trust - 418,408 shares (cost $5,117,244) 4,184,079
International Stock Trust - 2,305,227 shares (cost $28,967,621) 20,285,996
International Value Trust - 258,725 shares (cost $2,872,105) 2,413,908
Internet Technologies Trust - 127,271 shares (cost $1,063,234) 352,541
Investment Quality Bond Trust - 2,487,349 shares (cost $28,897,893) 29,499,957
Large Cap Growth Trust - 1,417,185 shares (cost $19,532,020) 12,612,943
Lifestyle Aggressive 1000 Trust - 505,549 shares (cost $6,387,244) 4,610,606
Lifestyle Balanced 640 Trust - 1,053,623 shares (cost $13,659,044) 11,621,467
Lifestyle Conservative 280 Trust - 26,860 shares (cost $344,070) 340,855
Lifestyle Growth 820 Trust - 2,201,229 shares (cost $28,907,381) 22,342,471
Lifestyle Moderate 460 Trust - 181,191 shares (cost $2,336,702) 2,103,628
1
The Manufacturers Life Insurance Company of America
Separate Account Three
Statement of Assets and Contract Owners' Equity
September 30, 2001 (Unaudited)
ASSETS (CONTINUED)
Investments at market value:
Sub-Accounts:
Managed Bond Trust - 4,647 shares (cost $59,945) $ 60,595
Mid Cap Growth Trust - 30,733 shares (cost $347,487) 250,169
Mid Cap Index Trust - 102,009 shares (cost $1,328,985) 1,118,021
Mid Cap Opportunities Trust - 8,060 shares (cost $80,493) 68,187
Mid Cap Stock Trust - 240,094 shares (cost $2,670,368) 2,141,641
Mid Cap Value Trust - 67,628 shares (cost $842,973) 781,779
Money Market Trust - 7,661,984 shares (cost $76,619,838) 76,619,838
Overseas Trust - 731,368 shares (cost $6,585,016) 5,799,745
Pacific Rim Emerging Markets Trust - 1,165,693 shares (cost $9,192,377) 6,842,619
Quantitative Equity Trust - 3,032,794 shares (cost $68,110,324) 46,826,333
Quantitative Mid Cap Trust - 3,607 shares (cost $32,866) 33,115
Real Estate Securities Trust - 1,520,358 shares (cost $23,857,598) 22,866,188
Science and Technology Trust - 1,530,902 shares (cost $39,281,373) 14,528,264
Small Cap Index Trust - 122,472 shares (cost $1,432,739) 1,162,263
Small Company Blend Trust - 240,768 shares (cost $2,630,501) 2,082,643
Small Company Value Trust - 362,726 shares (cost $4,691,959) 4,341,826
Small Mid Cap Trust - 1,143 shares (cost $11,989) 12,286
Strategic Bond Trust - 536,472 shares (cost $5,831,701) 5,702,692
Strategic Growth Trust - 44,314 shares (cost $498,408) 409,016
Strategic Opportunities Trust - 2,454,580 shares (cost $44,162,528) 26,362,184
Tactical Allocation Trust - 38,747 shares (cost $469,491) 354,919
Telecommunications Trust - 2,074 shares (cost $20,045) 13,727
Total Return Trust - 407,190 shares (cost $5,327,828) 5,659,935
Total Stock Market Index Trust - 183,763 shares (cost $1,911,602) 1,617,111
U.S. Government Securities Trust - 561,956 shares (cost $7,480,605) 7,738,134
U.S. Large Cap Value Trust - 809,326 shares (cost $10,420,317) 8,708,343
Utilities Trust - 7,442 shares (cost $84,183) 69,061
Value Trust - 886,044 shares (cost $13,441,872) 13,184,335
500 Index Trust - 955,933 shares (cost $10,378,673) 8,546,044
------------
Total assets $685,923,932
============
CONTRACT OWNERS' EQUITY
Variable life contracts $685,923,932
============
See accompanying notes.
2
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
SUB-ACCOUNT
---------------------------------------------------------------------
AGGRESSIVE GROWTH ALL CAP GROWTH
---------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00
---------------------------------------------------------------------
Income:
Net investment income during the period $ -- $ -- $ 998,403 $ 1,203,584
Realized gain (loss) during the period (128,782) 781,308 (338,894) 1,755,854
Unrealized appreciation (depreciation)
during the period (2,866,983) (1,388,722) (8,011,949) (5,835,143)
---------------------------------------------------------------------
Net increase (decrease) in assets from
operations (2,995,765) (607,414) (7,352,440) (2,875,705)
---------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 1,762,397 2,881,144 2,889,377 5,299,576
Transfer on termination (398,211) (306,391) (1,212,195) (1,097,397)
Transfer on policy loans (10,610) (53,389) (27,510) (261,519)
Net interfund transfers 135,049 3,030,368 234,784 3,919,834
---------------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 1,488,625 5,551,732 1,884,456 7,860,494
---------------------------------------------------------------------
Total increase (decrease) in assets (1,507,140) 4,944,318 (5,467,984) 4,984,789
Assets beginning of year 7,404,188 2,459,870 18,952,901 13,968,112
---------------------------------------------------------------------
Assets end of period $ 5,897,048 $ 7,404,188 $ 13,484,917 $ 18,952,901
=====================================================================
* Reflects the period from commencement of operations May 1, 2001 through
September 30, 2001.
See accompanying notes.
3
SUB-ACCOUNT
- -----------------------------------------------------------------------------------------------------------
ALL CAP CAPITAL
VALUE BALANCED BLUE CHIP GROWTH APPRECIATION
- -----------------------------------------------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
SEPT. 30/01* SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00 SEPT. 30/01*
- -----------------------------------------------------------------------------------------------------------
$ -- $ 713,899 $ 1,922,658 $ 2,422,196 $ 1,256,181 $ --
(650) (495,778) 720,883 (29,049) 1,099,991 (141)
(17,432) (5,727,394) (6,253,446) (11,868,759) (3,834,145) (24,071)
- -----------------------------------------------------------------------------------------------------------
(18,082) (5,509,273) (3,609,905) (9,475,612) (1,477,973) (24,212)
- -----------------------------------------------------------------------------------------------------------
14,025 2,783,750 4,618,303 6,926,559 10,092,471 27,404
(2,471) (3,032,354) (5,579,871) (2,439,704) (2,477,865) (1,231)
-- (250,398) (296,021) (138,570) (326,876) --
120,620 (754,941) (4,910,092) 427,170 3,417,891 77,321
- -----------------------------------------------------------------------------------------------------------
132,174 (1,253,943) (6,167,681) 4,775,455 10,705,621 103,494
- -----------------------------------------------------------------------------------------------------------
114,092 (6,763,216) (9,777,586) (4,700,157) 9,227,648 79,282
-- 35,574,830 45,352,416 35,027,389 25,799,741 --
- -----------------------------------------------------------------------------------------------------------
$ 114,092 $ 28,811,614 $ 35,574,830 $ 30,327,232 $ 35,027,389 $ 79,282
===========================================================================================================
4
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
--------------------------------------------------
CAPITAL
OPPORTUNITIES DIVERSIFIED BOND
--------------------------------------------------
PERIOD ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/01* SEPT. 30/01 DEC. 31/00
--------------------------------------------------
Income:
Net investment income during the period $ -- $ 228,405 $ 236,515
Realized gain (loss) during the period (1,981) (48,456) (34,002)
Unrealized appreciation (depreciation)
during the period (30,355) 110,239 45,990
--------------------------------------------------
Net increase (decrease) in assets from
operations (32,336) 290,188 248,503
--------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 57,362 1,003,050 815,715
Transfer on termination (1,978) (242,099) (127,254)
Transfer on policy loans -- (4,714) (39,836)
Net interfund transfers 145,625 1,214,786 623,649
--------------------------------------------------
Net increase (decrease) in assets from
principal transactions 201,009 1,971,023 1,272,274
--------------------------------------------------
Total increase (decrease) in assets 168,673 2,261,211 1,520,777
Assets beginning of year -- 3,264,125 1,743,348
--------------------------------------------------
Assets end of period $ 168,673 $ 5,525,336 $ 3,264,125
==================================================
* Reflects the period from commencement of operations May 1, 2001 through
September 30, 2001.
** Reflects the period from commencement of operations May 2, 2000 through
December 31, 2000.
See accompanying notes.
5
SUB-ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
EMERGING EQUITY
DYNAMIC GROWTH SMALL COMPANY GROWTH EQUITY INCOME
- -----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/01 DEC. 31/00** SEPT. 30/01 DEC. 31/00 SEPT. 30/01* SEPT. 30/01 DEC. 31/00
- -----------------------------------------------------------------------------------------------------------------------------
$ 2,669 $ -- $ 2,989,181 $ 10,861,111 $ -- $ 3,013,469 $ 2,760,281
(216,158) (34,245) 647,374 6,301,844 -- 161,920 (80,630)
(807,364) (530,220) (38,807,515) (20,697,016) 796 (4,961,007) 150,879
- -----------------------------------------------------------------------------------------------------------------------------
(1,020,853) (564,465) (35,170,960) (3,534,061) 796 (1,785,618) 2,830,530
- -----------------------------------------------------------------------------------------------------------------------------
536,661 1,038,582 6,183,144 10,324,298 -- 3,363,680 3,349,523
(57,551) (116,055) (6,220,607) (11,469,437) -- (1,720,914) (1,273,761)
(27,834) (44,428) (400,789) (1,229,828) -- (56,332) (53,101)
595,836 1,168,028 (1,992,373) (2,950,927) 11,989 2,107,845 (900,697)
- -----------------------------------------------------------------------------------------------------------------------------
1,047,112 2,046,127 (2,430,625) (5,325,894) 11,989 3,694,279 1,121,964
- -----------------------------------------------------------------------------------------------------------------------------
26,259 1,481,662 (37,601,585) (8,859,955) 12,785 1,908,661 3,952,494
1,481,662 -- 93,709,783 102,569,738 -- 25,947,998 21,995,504
- -----------------------------------------------------------------------------------------------------------------------------
$ 1,507,921 $ 1,481,662 $ 56,108,198 $ 93,709,783 $ 12,785 $ 27,856,659 $ 25,947,998
=============================================================================================================================
6
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
--------------------------------------------------------------------
FINANCIAL
EQUITY INDEX EQUITY VALUE SERVICES
--------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
SEPT. 30/01 DEC. 31/00 SEPT. 30/01* SEPT. 30/01*
--------------------------------------------------------------------
Income:
Net investment income during the period $ 1,793,940 $ 221,869 $ -- $ --
Realized gain (loss) during the period 407,681 2,696,756 -- (2,997)
Unrealized appreciation (depreciation)
during the period (17,872,721) (10,555,450) 1,275 (13,395)
--------------------------------------------------------------------
Net increase (decrease) in assets from
operations (15,671,100) (7,636,825) 1,275 (16,392)
--------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 7,873,939 15,766,592 -- 25,656
Transfer on termination (4,663,843) (6,954,587) -- (2,816)
Transfer on policy loans (142,095) (248,765) -- (753)
Net interfund transfers (2,810,842) (1,523,237) 23,978 151,974
--------------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 257,159 7,040,003 23,978 174,061
--------------------------------------------------------------------
Total increase (decrease) in assets (15,413,941) (596,822) 25,253 157,669
Assets beginning of year 74,366,453 74,963,275 -- --
--------------------------------------------------------------------
Assets end of period $ 58,952,512 $ 74,366,453 $ 25,253 $ 157,669
====================================================================
* Reflects the period from commencement of operations May 1, 2001 through
September 30, 2001.
See accompanying notes.
7
SUB-ACCOUNT
- -----------------------------------------------------------------------------------------------------------
FUNDAMENTAL GLOBAL
VALUE GLOBAL BOND GLOBAL EQUITY VALUE
- -----------------------------------------------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
SEPT. 30/01* SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00 SEPT. 30/01*
- -----------------------------------------------------------------------------------------------------------
$ -- $ -- $ 18,358 $ 1,777,032 $ 1,026,287 $ --
(2,754) (3,902) (7,326) (710,683) (631,106) --
(161,312) 33,352 4,720 (3,804,475) 740,951 760
- -----------------------------------------------------------------------------------------------------------
(164,066) 29,450 15,752 (2,738,126) 1,136,132 760
- -----------------------------------------------------------------------------------------------------------
183,046 148,356 220,199 1,599,684 2,106,572 --
(13,336) (54,099) (33,905) (1,180,641) (515,552) --
(2,258) -- (2,085) (21,659) (14,792) --
1,171,404 45,853 (39,466) 262,565 1,068,265 11,989
- -----------------------------------------------------------------------------------------------------------
1,338,856 140,110 144,743 659,949 2,644,493 11,989
- -----------------------------------------------------------------------------------------------------------
1,174,790 169,560 160,495 (2,078,177) 3,780,625 12,749
-- 733,612 573,117 11,177,484 7,396,859 --
- -----------------------------------------------------------------------------------------------------------
$ 1,174,790 $ 903,172 $ 733,612 $ 9,099,307 $ 11,177,484 $ 12,749
===========================================================================================================
8
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
---------------------------------------------------------------------
GROWTH GROWTH AND INCOME
---------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00
---------------------------------------------------------------------
Income:
Net investment income during the period $ -- $ 1,603,161 $ 2,743,694 $ 3,025,404
Realized gain (loss) during the period (740,395) 695,686 432,698 985,560
Unrealized appreciation (depreciation)
during the period (4,822,549) (8,128,839) (13,985,734) (7,885,806)
---------------------------------------------------------------------
Net increase (decrease) in assets from
operations (5,562,944) (5,829,992) (10,809,342) (3,874,842)
---------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 3,286,828 6,069,409 7,540,733 11,665,612
Transfer on termination (1,408,322) (1,297,222) (3,049,830) (3,632,508)
Transfer on policy loans (15,863) (120,470) (149,454) (666,144)
Net interfund transfers (327,422) 3,009,403 231,652 1,931,597
---------------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 1,535,221 7,661,120 4,573,101 9,298,557
---------------------------------------------------------------------
Total increase (decrease) in assets (4,027,723) 1,831,128 (6,236,241) 5,423,715
Assets beginning of year 16,482,743 14,651,615 52,496,785 47,073,070
---------------------------------------------------------------------
Assets end of period $ 12,455,020 $ 16,482,743 $ 46,260,544 $ 52,496,785
=====================================================================
* Reflects the period from commencement of operations May 1, 2001 through
September 30, 2001.
** Reflects the period from commencement of operations May 2, 2000 through
December 31, 2000.
See accompanying notes.
9
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
HEALTH
SCIENCES HIGH YIELD INCOME AND VALUE INTERNATIONAL INDEX
- ------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
SEPT. 30/01* SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00**
- ------------------------------------------------------------------------------------------------------------------------------
$ -- $ 499,808 $ 14,646 $ 315,493 $ 1,092,315 $ 30 $ 2,220
(113) (727,064) (62,640) (65,021) (16,392) (11,629) (982)
(31,978) (264,478) (346,754) (993,117) (833,733) (121,693) (6,610)
- ------------------------------------------------------------------------------------------------------------------------------
(32,091) (491,734) (394,748) (742,645) 242,190 (133,292) (5,372)
- ------------------------------------------------------------------------------------------------------------------------------
26,849 906,119 1,336,937 1,227,448 1,131,379 418,018 125,117
(1,454) (253,629) (275,933) (428,546) (459,846) (27,848) (5,611)
(753) (20,607) (56,383) 6,336 (15,719) 270 (6,792)
435,553 180,244 182,737 750,093 329,751 144,396 51,596
- ------------------------------------------------------------------------------------------------------------------------------
460,195 812,127 1,187,358 1,555,331 985,565 534,836 164,310
- ------------------------------------------------------------------------------------------------------------------------------
428,104 320,393 792,610 812,686 1,227,755 401,544 158,938
-- 4,615,768 3,823,158 5,982,262 4,754,507 158,938 --
- ------------------------------------------------------------------------------------------------------------------------------
$ 428,104 $ 4,936,161 $ 4,615,768 $ 6,794,948 $ 5,982,262 $ 560,482 $ 158,938
==============================================================================================================================
10
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
---------------------------------------------------------------------
INTERNATIONAL SMALL CAP INTERNATIONAL STOCK
---------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00
---------------------------------------------------------------------
Income:
Net investment income during the period $ -- $ 1,275,987 $ 1,090,518 $ 141,854
Realized gain (loss) during the period (3,010,638) (941,463) (2,755,243) 1,979,909
Unrealized appreciation (depreciation)
during the period 370,402 (2,864,772) (6,031,276) (7,021,945)
---------------------------------------------------------------------
Net increase (decrease) in assets from
operations (2,640,236) (2,530,248) (7,696,001) (4,900,182)
---------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 869,562 2,151,313 3,045,438 4,769,383
Transfer on termination (327,151) (399,289) (1,778,133) (2,042,903)
Transfer on policy loans (13,762) (227,364) (5,732) (319,996)
Net interfund transfers (329,158) 2,099,442 57,481 306,879
---------------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 199,491 3,624,102 1,319,054 2,713,363
---------------------------------------------------------------------
Total increase (decrease) in assets (2,440,745) 1,093,854 (6,376,947) (2,186,819)
Assets beginning of year 6,624,824 5,530,970 26,662,943 28,849,762
---------------------------------------------------------------------
Assets end of period $ 4,184,079 $ 6,624,824 $ 20,285,996 $ 26,662,943
=====================================================================
** Reflects the period from commencement of operations May 2, 2000 through
December 31, 2000.
See accompanying notes.
11
<Caption>
SUB-ACCOUNT
- -----------------------------------------------------------------------------------------------------------
INTERNATIONAL VALUE INTERNET TECHNOLOGIES INVESTMENT QUALITY BOND
- -----------------------------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00** SEPT. 30/01 DEC. 31/00
- -----------------------------------------------------------------------------------------------------------
$ 54,398 $ 4,865 $ -- $ -- $ 1,683,400 $ 1,764,230
(76,351) (24,646) (177,447) (156) (45,220) (65,106)
(491,622) (339) (294,119) (416,574) 355,948 543,010
- -----------------------------------------------------------------------------------------------------------
(513,575) (20,120) (471,566) (416,730) 1,994,128 2,242,134
- -----------------------------------------------------------------------------------------------------------
707,770 970,793 251,896 613,893 2,658,645 3,717,837
(117,650) (57,439) (61,740) (49,773) (2,238,883) (2,138,923)
(994) (6,340) (24,556) (4,746) (50,915) (183,365)
725,405 268,631 14,390 501,473 570,008 (247,524)
- -----------------------------------------------------------------------------------------------------------
1,314,531 1,175,645 179,990 1,060,847 938,855 1,148,025
- -----------------------------------------------------------------------------------------------------------
800,956 1,155,525 (291,576) 644,117 2,932,983 3,390,159
1,612,952 457,427 644,117 -- 26,566,974 23,176,815
- -----------------------------------------------------------------------------------------------------------
$ 2,413,908 $ 1,612,952 $ 352,541 $ 644,117 $ 29,499,957 $ 26,566,974
===========================================================================================================
12
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
---------------------------------------------------------------------
LARGE CAP GROWTH LIFESTYLE AGGRESSIVE 1000
---------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00
---------------------------------------------------------------------
Income:
Net investment income during the period $ 543,947 $ 1,441,638 $ 388,350 $ 216,326
Realized gain (loss) during the period (270,309) 21,675 (71,102) (9,437)
Unrealized appreciation (depreciation)
during the period (4,347,095) (3,593,685) (1,638,367) (443,010)
---------------------------------------------------------------------
Net increase (decrease) in assets from
operations (4,073,457) (2,130,372) (1,321,119) (236,121)
---------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 3,678,621 4,930,460 1,425,836 1,402,412
Transfer on termination (1,042,647) (935,574) (339,574) (465,958)
Transfer on policy loans (32,806) (149,564) 2,456 (1,220)
Net interfund transfers 987,210 4,710,968 191,857 (2,198)
---------------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 3,590,378 8,556,290 1,280,575 933,036
---------------------------------------------------------------------
Total increase (decrease) in assets (483,079) 6,425,918 (40,544) 696,915
Assets beginning of year 13,096,022 6,670,104 4,651,150 3,954,235
---------------------------------------------------------------------
Assets end of period $ 12,612,943 $ 13,096,022 $ 4,610,606 $ 4,651,150
=====================================================================
See accompanying notes.
13
SUB-ACCOUNT
- -----------------------------------------------------------------------------------------------------------
LIFESTYLE BALANCED 640 LIFESTYLE CONSERVATIVE 280 LIFESTYLE GROWTH 820
- -----------------------------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00
- -----------------------------------------------------------------------------------------------------------
$ 840,004 $ 569,650 $ 7,122 $ 13,788 $ 2,133,146 $ 1,673,771
(6,333) 86,155 (2,190) (844) (629,529) 79,771
(2,156,317) (472,949) (3,963) 2,739 (6,139,057) (2,474,203)
- -----------------------------------------------------------------------------------------------------------
(1,322,646) 182,856 969 15,683 (4,635,440) (720,661)
- -----------------------------------------------------------------------------------------------------------
3,120,529 3,308,556 296,991 30,443 5,905,512 5,916,596
(830,259) (883,442) (17,713) (9,144) (3,352,952) (2,038,161)
(32,609) (122,975) -- -- 278,937 (134,239)
771,059 (805,706) (162,001) 70,433 324,984 127,472
- -----------------------------------------------------------------------------------------------------------
3,028,720 1,496,433 117,277 91,732 3,156,481 3,871,668
- -----------------------------------------------------------------------------------------------------------
1,706,074 1,679,289 118,246 107,415 (1,478,959) 3,151,007
9,915,393 8,236,104 222,609 115,194 23,821,430 20,670,423
- -----------------------------------------------------------------------------------------------------------
$ 11,621,467 $ 9,915,393 $ 340,855 $ 222,609 $ 22,342,471 $ 23,821,430
===========================================================================================================
14
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
--------------------------------------------------------------------
MANAGED MID CAP
LIFESTYLE MODERATE 460 BOND GROWTH
--------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
SEPT. 30/01 DEC. 31/00 SEPT. 30/01* SEPT. 30/01*
--------------------------------------------------------------------
Income:
Net investment income during the period $ 108,993 $ 164,841 $ -- $ --
Realized gain (loss) during the period (27,676) (8,201) -- (746)
Unrealized appreciation (depreciation)
during the period (190,812) (93,118) 650 (97,318)
--------------------------------------------------------------------
Net increase (decrease) in assets from
operations (109,495) 63,522 650 (98,064)
--------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 636,407 499,839 -- 45,031
Transfer on termination (100,387) (278,844) -- (4,579)
Transfer on policy loans 68,632 (4,505) -- (1,506)
Net interfund transfers 17,734 34,843 59,945 309,287
--------------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 622,386 251,333 59,945 348,233
--------------------------------------------------------------------
Total increase (decrease) in assets 512,891 314,855 60,595 250,169
Assets beginning of year 1,590,737 1,275,882 -- --
--------------------------------------------------------------------
Assets end of period $ 2,103,628 $ 1,590,737 $ 60,595 $ 250,169
====================================================================
* Reflects the period from commencement of operations May 1, 2001 through
September 30, 2001.
** Reflects the period from commencement of operations May 2, 2000 through
December 31, 2000.
See accompanying notes.
15
SUB-ACCOUNT
- -----------------------------------------------------------------------------------------------------------
MID CAP
MID CAP INDEX OPPORTUNITIES MID CAP STOCK MID CAP VALUE
- -----------------------------------------------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
SEPT. 30/01 DEC. 31/00** SEPT. 30/01* SEPT. 30/01 DEC. 31/00 SEPT. 30/01*
- -----------------------------------------------------------------------------------------------------------
$ 28 $ 9,975 $ -- $ -- $ -- $ --
(81,228) 2,568 (154) (149,398) 4,809 (256)
(205,210) (5,753) (12,306) (453,133) (82,824) (61,194)
- -----------------------------------------------------------------------------------------------------------
(286,410) 6,790 (12,460) (602,531) (78,015) (61,450)
- -----------------------------------------------------------------------------------------------------------
503,846 62,405 10,414 788,755 1,209,637 58,450
(46,258) (18,904) (1,764) (124,466) (70,213) (5,638)
-- -- -- (4,924) (1,970) --
396,137 500,415 71,997 341,383 497,797 790,417
- -----------------------------------------------------------------------------------------------------------
853,725 543,916 80,647 1,000,748 1,635,251 843,229
- -----------------------------------------------------------------------------------------------------------
567,315 550,706 68,187 398,217 1,557,236 781,779
550,706 -- -- 1,743,424 186,188 --
- -----------------------------------------------------------------------------------------------------------
$ 1,118,021 $ 550,706 $ 68,187 $ 2,141,641 $ 1,743,424 $ 781,779
===========================================================================================================
16
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
---------------------------------------------------------------------
MONEY MARKET OVERSEAS
---------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00
---------------------------------------------------------------------
Income:
Net investment income during the period $ 2,049,964 $ 2,837,122 $ 592,006 $ 410,096
Realized gain (loss) during the period -- -- (2,107,858) (743,314)
Unrealized appreciation (depreciation)
during the period -- -- (511,184) (806,861)
---------------------------------------------------------------------
Net increase (decrease) in assets from
operations 2,049,964 2,837,122 (2,027,036) (1,140,079)
---------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 41,978,772 60,929,701 997,473 2,507,305
Transfer on termination (7,656,194) (7,374,966) (332,616) (284,281)
Transfer on policy loans (1,317,464) (602,642) (35,163) (199,359)
Net interfund transfers (22,334,226) (37,492,208) 270,948 1,670,197
---------------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 10,670,888 15,459,885 900,642 3,693,862
---------------------------------------------------------------------
Total increase (decrease) in assets 12,720,852 18,297,007 (1,126,394) 2,553,783
Assets beginning of year 63,898,986 45,601,979 6,926,139 4,372,356
---------------------------------------------------------------------
Assets end of period $ 76,619,838 $ 63,898,986 $ 5,799,745 $ 6,926,139
=====================================================================
* Reflects the period from commencement of operations May 1, 2001 through
September 30, 2001.
See accompanying notes.
17
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
PACIFIC RIM QUANTITATIVE
EMERGING MARKETS QUANTITATIVE EQUITY MID CAP REAL ESTATE SECURITIES
- ------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00 SEPT. 30/01* SEPT. 30/01 DEC. 31/00
- ------------------------------------------------------------------------------------------------------------------------------
$ 32,951 $ 37,735 $ 8,592,412 $ 8,207,833 $ -- $ 746,285 $ 725,501
(2,060,080) 1,142,246 372,568 3,373,479 (26) (289,756) (368,039)
(623,141) (3,893,747) (29,852,273) (7,729,114) 250 (531,815) 4,345,939
- ------------------------------------------------------------------------------------------------------------------------------
(2,650,270) (2,713,766) (20,887,293) 3,852,198 224 (75,286) 4,703,401
- ------------------------------------------------------------------------------------------------------------------------------
984,535 1,890,887 6,284,436 8,153,108 32,560 2,043,802 2,709,003
(558,320) (692,836) (4,518,694) (8,068,279) 331 (2,519,756) (1,866,577)
763 (93,909) (443,259) (437,721) -- (181,503) (245,678)
(183,615) 349,025 (145,392) 1,180,710 -- 102,896 (847,081)
- ------------------------------------------------------------------------------------------------------------------------------
243,363 1,453,167 1,177,091 827,818 32,891 (554,561) (250,333)
- ------------------------------------------------------------------------------------------------------------------------------
(2,406,907) (1,260,599) (19,710,202) 4,680,016 33,115 (629,847) 4,453,068
9,249,526 10,510,125 66,536,535 61,856,519 -- 23,496,035 19,042,967
- ------------------------------------------------------------------------------------------------------------------------------
$ 6,842,619 $ 9,249,526 $ 46,826,333 $ 66,536,535 $ 33,115 $ 22,866,188 $ 23,496,035
==============================================================================================================================
18
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
---------------------------------------------------------------------
SCIENCE AND
TECHNOLOGY SMALL CAP INDEX
---------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00**
---------------------------------------------------------------------
Income:
Net investment income during the period $ 1,203,870 $ 875,644 $ -- $ 5,143
Realized gain (loss) during the period (7,927,109) 4,226,679 (68,825) (1,758)
Unrealized appreciation (depreciation)
during the period (11,653,196) (19,928,665) (260,305) (10,171)
---------------------------------------------------------------------
Net increase (decrease) in assets from
operations (18,376,435) (14,826,342) (329,130) (6,786)
---------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 5,414,221 11,215,089 494,545 94,350
Transfer on termination (1,554,395) (2,826,592) (51,835) (6,716)
Transfer on policy loans (67,141) (405,481) 141 (3,396)
Net interfund transfers (184,146) 9,680,246 892,998 78,092
---------------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 3,608,539 17,663,262 1,335,849 162,330
---------------------------------------------------------------------
Total increase (decrease) in assets (14,767,896) 2,836,920 1,006,719 155,544
Assets beginning of year 29,296,160 26,459,240 155,544 --
---------------------------------------------------------------------
Assets end of period $ 14,528,264 $ 29,296,160 $ 1,162,263 $ 155,544
=====================================================================
* Reflects the period from commencement of operations May 1, 2001 through
September 30, 2001.
** Reflects the period from commencement of operations May 2, 2000 through
December 31, 2000.
See accompanying notes.
19
SUB-ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
SMALL
SMALL COMPANY BLEND SMALL COMPANY VALUE MID CAP STRATEGIC BOND
- -----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00 SEPT. 30/01* SEPT. 30/01 DEC. 31/00
- -----------------------------------------------------------------------------------------------------------------------------
$ 11,383 $ 166,689 $ 7,567 $ 2,245 $ -- $ 394,888 $ 286,876
(600,023) (184,160) 19,835 93,029 -- (56,948) (66,380)
14,684 (603,705) (497,785) 48,360 297 (67,521) 61,320
- -----------------------------------------------------------------------------------------------------------------------------
(573,956) (621,176) (470,383) 143,634 297 270,419 281,816
- -----------------------------------------------------------------------------------------------------------------------------
603,264 1,152,722 1,027,189 747,241 -- 720,136 1,165,949
(153,624) (46,909) (366,799) (104,932) -- (453,601) (235,557)
(3,918) (27,509) (84,747) (9,018) -- (15,692) (45,301)
417,143 954,977 1,117,166 1,241,872 11,989 228,800 304,387
- -----------------------------------------------------------------------------------------------------------------------------
862,865 2,033,281 1,692,809 1,875,163 11,989 479,643 1,189,478
- -----------------------------------------------------------------------------------------------------------------------------
288,909 1,412,105 1,222,426 2,018,797 12,286 750,062 1,471,294
1,793,734 381,629 3,119,400 1,100,603 -- 4,952,630 3,481,336
- -----------------------------------------------------------------------------------------------------------------------------
$ 2,082,643 $ 1,793,734 $ 4,341,826 $ 3,119,400 $ 12,286 $ 5,702,692 $ 4,952,630
=============================================================================================================================
20
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
--------------------------------------------------
STRATEGIC
GROWTH STRATEGIC OPPORTUNITIES
--------------------------------------------------
PERIOD ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/01* SEPT. 30/01 DEC. 31/00
--------------------------------------------------
Income:
Net investment income during the period $ -- $ 4,829,644 $ 4,905,140
Realized gain (loss) during the period (2,951) (537,147) (440,187)
Unrealized appreciation (depreciation)
during the period (89,392) (14,379,220) (6,852,403)
--------------------------------------------------
Net increase (decrease) in assets from
operations (92,343) (10,086,723) (2,387,450)
--------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 88,813 5,016,270 5,698,436
Transfer on termination (5,156) (2,330,146) (2,255,941)
Transfer on policy loans -- (106,772) (210,773)
Net interfund transfers 417,702 11,284 333,630
--------------------------------------------------
Net increase (decrease) in assets from
principal transactions 501,359 2,590,636 3,565,352
--------------------------------------------------
Total increase (decrease) in assets 409,016 (7,496,087) 1,177,902
Assets beginning of year -- 33,858,271 32,680,369
--------------------------------------------------
Assets end of period $ 409,016 $ 26,362,184 $ 33,858,271
==================================================
* Reflects the period from commencement of operations May 1, 2001 through
September 30, 2001.
** Reflects the period from commencement of operations May 2, 2000 through
December 31, 2000.
See accompanying notes.
21
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------
TELE- TOTAL
TACTICAL ALLOCATION COMMUNICATIONS TOTAL RETURN STOCK MARKET INDEX
- ------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
SEPT. 30/01 DEC. 31/00** SEPT. 30/01* SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00**
- ------------------------------------------------------------------------------------------------------------------------------
$ 187 $ 11,333 $ -- $ 151,288 $ 29,836 $ -- $ 2,748
(4,742) (20) (155) 26,067 6,187 (50,121) (239)
(89,776) (24,796) (6,317) 186,216 145,527 (271,537) (22,955)
- ------------------------------------------------------------------------------------------------------------------------------
(94,331) (13,483) (6,472) 363,571 181,550 (321,658) (20,446)
- ------------------------------------------------------------------------------------------------------------------------------
102,322 270,846 7,053 1,402,464 800,492 729,903 199,595
(33,053) (7,090) (641) (215,518) (68,577) (67,056) (9,092)
(5,527) (3,393) -- 273 (48,429) (6,453) --
68,340 70,288 13,787 1,748,315 1,016,257 988,542 123,776
- ------------------------------------------------------------------------------------------------------------------------------
132,082 330,651 20,199 2,935,534 1,699,743 1,644,936 314,279
- ------------------------------------------------------------------------------------------------------------------------------
37,751 317,168 13,727 3,299,105 1,881,293 1,323,278 293,833
317,168 -- -- 2,360,830 479,537 293,833 --
- ------------------------------------------------------------------------------------------------------------------------------
$ 354,919 $ 317,168 $ 13,727 $ 5,659,935 $ 2,360,830 $ 1,617,111 $ 293,833
==============================================================================================================================
22
The Manufacturers Life Insurance Company of America
Separate Account Three
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
---------------------------------------------------------------------
U.S. GOVERNMENT
SECURITIES U.S. LARGE CAP VALUE
---------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00
---------------------------------------------------------------------
Income:
Net investment income during the period $ 358,458 $ 319,991 $ 93,316 $ 30,478
Realized gain (loss) during the period (19,278) (33,921) 23,952 2,018
Unrealized appreciation (depreciation)
during the period 134,033 189,826 (1,843,346) 35,510
---------------------------------------------------------------------
Net increase (decrease) in assets from
operations 473,213 475,896 (1,726,078) 68,006
---------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 1,147,603 1,442,818 2,273,866 3,097,133
Transfer on termination (308,768) (420,953) (510,296) (306,562)
Transfer on policy loans (14,414) 1,677 (1,781) (6,546)
Net interfund transfers 1,093,089 (710,743) 1,126,682 2,799,989
---------------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 1,917,510 312,799 2,888,471 5,584,014
---------------------------------------------------------------------
Total increase (decrease) in assets 2,390,723 788,695 1,162,393 5,652,020
Assets beginning of year 5,347,411 4,558,716 7,545,950 1,893,930
---------------------------------------------------------------------
Assets end of period $ 7,738,134 $ 5,347,411 $ 8,708,343 $ 7,545,950
=====================================================================
* Reflects the period from commencement of operations May 1, 2001 through
September 30, 2001.
** Reflects the period from commencement of operations May 2, 2000 through
December 31, 2000.
See accompanying notes.
23
SUB-ACCOUNT
- ----------------------------------------------------------------------------------------
UTILITIES VALUE 500 INDEX TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/01* SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00** SEPT. 30/01 DEC. 31/00
- ------------------------------------------------------------------------------------------------------------------------------
$ -- $ 393,971 $ -- $ 165 $ 11,246 $ 43,806,480 $ 51,387,171
(950) 187,525 (204,029) (209,591) (16,940) (22,484,207) 22,080,244
(15,122) (1,644,780) 1,955,231 (1,558,734) (273,894) (200,002,612) (115,641,365)
- ------------------------------------------------------------------------------------------------------------------------------
(16,072) (1,063,284) 1,751,202 (1,768,160) (279,588) (178,680,339) (42,173,950)
- ------------------------------------------------------------------------------------------------------------------------------
18,596 2,363,187 1,668,925 3,795,009 3,899,444 150,313,807 214,068,040
(1,826) (826,947) (372,336) (389,150) (203,952) (59,657,533) (70,163,910)
-- (93,395) (118,965) 1,448 (18,727) (3,455,976) (7,067,602)
68,363 3,695,369 1,097,532 1,556,339 1,953,381 (1,284,344) 275,952
- ------------------------------------------------------------------------------------------------------------------------------
85,133 5,138,214 2,275,156 4,963,646 5,630,146 85,915,954 137,112,480
- ------------------------------------------------------------------------------------------------------------------------------
69,061 4,074,930 4,026,358 3,195,486 5,350,558 (92,764,385) 94,938,530
-- 9,109,405 5,083,047 5,350,558 -- 778,688,317 683,749,787
- ------------------------------------------------------------------------------------------------------------------------------
$ 69,061 $ 13,184,335 $ 9,109,405 $ 8,546,044 $ 5,350,558 $685,923,932 $778,688,317
==============================================================================================================================
24
The Manufacturers Life Insurance Company of America
Separate Account Three
Notes to Financial Statements
September 30, 2001 (Unaudited)
1. ORGANIZATION
The Manufacturers Life Insurance Company of America Separate Account Three (the
Account) is a separate account established by The Manufacturers Life Insurance
Company of America (the Company). The account operates as a Unit Investment
Trust under the Investment Company Act of 1940, as amended and invests in sixty
sub-accounts of Manufacturers Investment Trust (the Trust). The account is a
funding vehicle for allocation of net premiums under single premium variable
life and variable universal life insurance contracts (the Contracts) issued by
the Company. The Account was established by the Company, a life insurance
company organized in 1983 under Michigan law. The Company is an indirect, wholly
owned subsidiary of the Manufacturers Life Insurance Company (Manulife
Financial), a Canadian life insurance company. Each investment sub-account
invests solely in shares of a particular portfolio of the Trust. The Trust is
registered under the Investment Company Act of 1940 as an open-end management
investment company.
The Company is required to maintain assets in the Account with a total market
value at least equal to the reserves and other liabilities relating to the
variable benefits under all contracts participating in the Account. These assets
may not be charged with liabilities which arise from any other business the
Company conducts. However, all obligations under the variable contracts are
general corporate obligations of the Company.
Additional assets are held in the Company's general account to cover the
contingency that the guaranteed minimum death benefit might exceed the death
benefit which would have been payable in the absence of such guarantee.
As the result of portfolio changes, the following sub-accounts of the Account
have been replaced with new sub-accounts as follows:
PREVIOUS FUND NEW FUND EFFECTIVE DATE
------------- -------- --------------
Mid Cap Blend Trust Strategic Opportunities Trust May 1, 2001
Mid Cap Growth Trust All Cap Growth Trust May 2, 2000
25
The Manufacturers Life Insurance Company of America
Separate Account Three
Notes to Financial Statements (continued)
1. ORGANIZATION (CONTINUED)
The following sub-accounts of the Account were added as investment options for
variable life insurance contract holders of the Company:
Commencement of
Operations of
the Sub-accounts
----------------
All Cap Value Trust May 1, 2001
Capital Appreciation Trust May 1, 2001
Capital Opportunities Trust May 1, 2001
Dynamic Growth Trust May 2, 2000
Equity Growth Trust May 1, 2001
Equity Value Trust May 1, 2001
Financial Services Trust May 1, 2001
Fundamental Value Trust May 1, 2001
Global Value Trust May 1, 2001
Health Sciences Trust May 1, 2001
International Index Trust May 2, 2000
Internet Technologies Trust May 2, 2000
Managed Bond Trust May 1, 2001
Mid Cap Growth Trust May 1, 2001
Mid Cap Index Trust May 2, 2000
Mid Cap Opportunities Trust May 1, 2001
Mid Cap Value Trust May 1, 2001
Quantitative Mid Cap Trust May 1, 2001
Small Cap Index Trust May 2, 2000
Small Mid Cap Trust May 1, 2001
Strategic Growth Trust May 1, 2001
Tactical Allocation Trust May 2, 2000
Telecommunications Trust May 1, 2001
Total Stock Market Index Trust May 2, 2000
Utilities Trust May 1, 2001
500 Index Trust May 2, 2000
26
The Manufacturers Life Insurance Company of America
Separate Account Three
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES
Investments are made in the portfolios of the Trust and are valued at the
reported net asset value of such portfolios. Transactions are recorded on the
trade date. Income from dividends is recorded on the ex-dividend date. Realized
gains and losses on the sales of investments are computed on the basis of the
identified cost of the investment sold.
In addition to the Account, a contract holder may also allocate funds to the
Fixed Account, which is part of the Company's general account. Because of
exemptive and exclusionary provisions, interests in the Fixed Account have not
been registered under the Securities Act of 1933, and the Company's general
account has not been registered as an investment company under the Investment
Company Act of 1940.
The operations of the Account are included in the federal income tax return of
the Company, which is taxed as a life insurance company under the provisions of
the Internal Revenue Code (the Code). Under the current provisions of the Code,
the Company does not expect to incur federal income taxes on the earnings of the
Account to the extent the earnings are credited under the contracts. Based on
this, no charge is being made currently to the Account for federal income taxes.
The Company will review periodically the status of such decision based on
changes in the tax law. Such a charge may be made in future years for any
federal income taxes that would be attributable to the contract.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future as
more information becomes known, which could impact the amounts reported and
disclosed herein.
3. PREMIUM DEDUCTIONS
Manufacturers Life of America deducts certain charges for state, local, and
federal taxes from the gross premium before placing the remaining net premiums
in the sub-accounts.
27
The Manufacturers Life Insurance Company of America
Separate Account Three
Notes to Financial Statements (continued)
4. PURCHASES AND SALES
The following table shows aggregate cost of shares purchased and proceeds from
shares sold of each Trust portfolio for the period ended September 30, 2001:
PURCHASES SALES
-------------------------------
Aggressive Growth Trust $ 2,054,859 $ 566,234
All Cap Growth Trust 5,783,223 2,900,364
All Cap Value Trust 142,523 10,349
Balanced Trust 2,254,696 2,794,739
Blue Chip Growth Trust 9,427,349 2,229,697
Capital Appreciation Trust 104,338 844
Capital Opportunities Trust 212,450 11,441
Diversified Bond Trust 2,538,733 339,305
Dynamic Growth Trust 1,240,633 190,853
Emerging Small Company Trust 6,718,136 6,159,580
Equity Growth Trust 11,989 -
Equity Income Trust 9,040,478 2,332,730
Equity Index Trust 7,485,491 5,434,392
Equity Value Trust 23,978 -
Financial Services Trust 225,683 51,623
Fundamental Value Trust 1,350,449 11,593
Global Bond Trust 215,881 75,770
Global Equity Trust 9,322,814 6,885,833
Global Value Trust 11,989 -
Growth Trust 3,257,972 1,722,751
Growth & Income Trust 9,084,781 1,767,986
Health Sciences Trust 465,427 5,233
High Yield Trust 4,268,927 2,956,993
Income and Value Trust 2,146,652 275,827
International Index Trust 574,933 40,067
International Small Cap Trust 9,277,917 9,078,427
International Stock Trust 11,924,058 9,514,485
International Value Trust 2,990,356 1,621,428
Internet Technologies Trust 305,875 125,885
Investment Quality Bond Trust 5,671,632 3,049,377
Large Cap Growth Trust 4,895,488 761,163
Lifestyle Aggressive 1000 Trust 1,887,588 218,664
Lifestyle Balanced 640 Trust 4,474,690 605,966
Lifestyle Conservative 280 Trust 418,596 294,198
Lifestyle Growth 820 Trust 7,898,232 2,608,605
Lifestyle Moderate 460 Trust 965,332 233,954
Managed Bond Trust 59,945 -
Mid Cap Growth Trust 352,710 4,478
Mid Cap Index Trust 2,256,921 1,403,166
Mid Cap Opportunities Trust 81,532 884
Mid Cap Stock Trust 1,357,981 357,232
Mid Cap Value Trust 860,430 17,200
Money Market Trust 80,068,510 67,347,658
Overseas Trust 15,932,237 14,439,588
Pacific Rim Emerging Markets Trust 6,511,137 6,234,823
Quantitative Equity Trust 14,558,114 4,788,612
28
The Manufacturers Life Insurance Company of America
Separate Account Three
Notes to Financial Statements (continued)
4. PURCHASES AND SALES (CONTINUED)
PURCHASES SALES
-------------------------------
Quantitative Mid Cap Trust 33,091 199
Real Estate Securities Trust 3,347,906 3,156,182
Science & Technology Trust 11,891,536 7,079,128
Small Cap Index Trust 2,997,334 1,661,485
Small Company Blend Trust 2,094,643 1,220,396
Small Company Value Trust 3,090,364 1,389,987
Small Mid Cap Trust 11,989 -
Strategic Bond Trust 1,499,343 624,811
Strategic Growth Trust 520,196 18,837
Strategic Opportunities Trust 9,755,866 2,335,586
Tactical Allocation Trust 158,628 26,359
Telecommunications Trust 20,619 420
Total Return Trust 3,494,106 407,284
Total Stock Market Index Trust 2,637,202 992,266
U.S. Government Securities Trust 3,609,457 1,333,490
U.S. Large Cap Value Trust 3,453,798 472,011
Utilities Trust 91,479 6,346
Value Trust 6,774,769 1,242,583
500 Index Trust 5,974,761 1,010,949
-------------------------------
Total $312,170,752 $182,448,316
===============================
5. UNIT VALUES
A summary of the accumulation unit values at September 30, 2001 and December 31,
2000 and the accumulation units and dollar value outstanding at September 30,
2001 for the variable life contracts are as follows:
2000 2001
------------------------------------------------------------------------
UNIT VALUE UNIT VALUE UNITS DOLLARS
------------------------------------------------------------------------
Aggressive Growth Trust $ 20.77 $ 13.48 437,599 $ 5,897,048
All Cap Growth Trust 25.28 16.30 827,136 13,484,917
All Cap Value Trust -- 10.68 10,683 114,092
Balanced Trust 26.74 22.44 1,283,867 28,811,614
Blue Chip Growth Trust 23.95 18.01 1,684,196 30,327,232
Capital Appreciation Trust -- 9.54 8,314 79,282
Capital Opportunities Trust -- 9.13 18,475 168,673
Diversified Bond Trust 14.42 15.41 358,520 5,525,336
Dynamic Growth Trust 7.98 4.18 360,959 1,507,921
Emerging Small Company Trust 71.65 44.53 1,260,011 56,108,198
Equity Growth Trust -- 10.60 1,206 12,785
Equity Income Trust 18.80 17.69 1,575,167 27,856,659
Equity Index Trust 21.57 17.13 3,442,167 58,952,512
Equity Value Trust -- 11.29 2,237 25,253
Financial Services Trust -- 10.59 14,888 157,669
Fundamental Value Trust -- 10.58 111,039 1,174,790
Global Bond Trust 13.49 13.93 64,830 903,172
Global Equity Trust 19.04 14.63 622,162 9,099,307
Global Value Trust -- 11.57 1,102 12,749
29
The Manufacturers Life Insurance Company of America
Separate Account Three
Notes to Financial Statements (continued)
5. UNIT VALUES (CONTINUED)
2000 2001
------------------------------------------------------------------------
UNIT VALUE UNIT VALUE UNITS DOLLARS
------------------------------------------------------------------------
Growth Trust 18.51 12.73 978,277 12,455,020
Growth and Income Trust 21.79 17.59 2,630,227 46,260,544
Health Sciences Trust -- 12.01 35,646 428,104
High Yield Trust 14.00 12.79 386,002 4,936,161
Income and Value Trust 16.28 14.67 463,213 6,794,948
International Index Trust 11.27 8.25 67,957 560,482
International Small Cap Trust 18.53 11.30 370,322 4,184,079
International Stock Trust 15.12 10.88 1,864,008 20,285,996
International Value Trust 12.14 9.68 249,471 2,413,908
Internet Technologies Trust 7.03 2.77 127,271 352,541
Investment Quality Bond Trust 15.87 17.05 1,730,216 29,499,957
Large Cap Growth Trust 19.42 12.32 1,024,074 12,612,943
Lifestyle Aggressive 1000 Trust 16.33 12.44 370,731 4,610,606
Lifestyle Balanced 640 Trust 17.18 15.27 761,113 11,621,467
Lifestyle Conservative 280 Trust 16.95 17.15 19,881 340,855
Lifestyle Growth 820 Trust 17.09 14.03 1,592,778 22,342,471
Lifestyle Moderate 460 Trust 17.10 16.21 129,781 2,103,628
Managed Bond Trust -- 13.04 4,647 60,595
Mid Cap Growth Trust -- 8.14 30,733 250,169
Mid Cap Index Trust 13.39 11.18 99,989 1,118,021
Mid Cap Opportunities Trust -- 8.46 8,060 68,187
Mid Cap Stock Trust 12.10 8.92 240,094 2,141,641
Mid Cap Value Trust -- 11.56 67,628 781,779
Money Market Trust 20.28 20.90 3,665,791 76,619,838
Overseas Trust 15.41 11.26 514,910 5,799,745
Pacific Rim Emerging Markets Trust 8.97 6.44 1,061,853 6,842,619
Quantitative Equity Trust 56.45 39.04 1,199,410 46,826,333
Quantitative Mid Cap Trust -- 9.18 3,607 33,115
Real Estate Securities Trust 38.08 38.07 600,645 22,866,188
Science & Technology Trust 26.51 11.52 1,260,906 14,528,264
Small Cap Index Trust 11.70 9.84 118,156 1,162,263
Small Company Blend Trust 12.90 9.93 209,799 2,082,643
Small Company Value Trust 9.76 9.02 481,504 4,341,826
Small Mid Cap Trust -- 10.75 1,143 12,286
Strategic Bond Trust 15.15 15.93 357,999 5,702,692
Strategic Growth Trust -- 9.23 44,314 409,016
Strategic Opportunities Trust 17.74 12.77 2,063,786 26,362,184
Tactical Allocation Trust 12.10 9.50 37,350 354,919
Telecommunications Trust -- 6.62 2,074 13,727
Total Return Trust 13.72 14.88 380,451 5,659,935
Total Stock Market Index Trust 11.24 8.88 182,053 1,617,111
U.S. Government Securities Trust 13.21 14.19 545,379 7,738,134
U.S. Large Cap Value Trust 13.20 10.97 793,494 8,708,343
Utilities Trust -- 9.28 7,442 69,061
Value Trust 17.20 16.07 820,183 13,184,335
500 Index Trust 11.30 8.96 953,916 8,546,044
------------
Total $685,923,932
============
30
The Manufacturers Life Insurance Company of America
Separate Account Three
Notes to Financial Statements (continued)
6. RELATED PARTY TRANSACTIONS
ManEquity, Inc., a registered broker-dealer and indirect wholly owned subsidiary
of Manulife Financial, acts as the principal underwriter of the Contracts
pursuant to a Distribution Agreement with the Company. Registered
representatives of either ManEquity, Inc. or other broker-dealers having
distribution agreements with ManEquity, Inc. who are also authorized as variable
life insurance agents under applicable state insurance laws, sell the Contracts.
Registered representatives are compensated on a commission basis.
The Company has a formal service agreement with its affiliates, Manulife
Financial and The Manufacturers Life Insurance Company (U.S.A.) ("Manulife
U.S.A."), which can be terminated by either party upon two months notice. Under
this Agreement, the Company pays for legal, actuarial, investment and certain
other administrative services.
7. SUBSEQUENT EVENT
Subject to the approval of state and federal regulators and effective for
January 1, 2002, it is the intention to transfer all of the Company's Variable
business to Manulife U.S.A. via an assumption reinsurance agreement. As a
result, products currently sold and administered under the name of the Company
will be offered and administered under the name of Manulife U.S.A.
31
THE MANUFACTURERS LIFE INSURANCE COMPANY
(U.S.A.)
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
PREPARED IN CONFORMITY WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED STATES
================================================================================
[MANULIFE FINANCIAL LOGO]
FINANCIAL STATEMENTS AND SCHEDULES
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
WITH REPORT OF INDEPENDENT AUDITORS
CONTENTS
Report of Independent Auditors............................................... 3
Audited Consolidated Financial Statements
Consolidated Balance Sheets............................................. 4
Consolidated Statements of Income....................................... 5
Consolidated Statements of Changes in Capital and Surplus............... 6
Consolidated Statements of Cash Flows................................... 7
Notes to Consolidated Financial Statements................................... 8
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A)
We have audited the accompanying consolidated balance sheets of The
Manufacturers Life Insurance Company (U.S.A) as of December 31, 2000 and 1999,
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, 2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Manufacturers Life Insurance Company (U.S.A.) at December 31, 2000 and 1999, and
the consolidated results of its operations and its cash flows for each of the
three years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States.
Philadelphia, Pennsylvania /s/ ERNST & YOUNG LLP
March 23, 2001
3
The Manufacturers Life Insurance Company (U.S.A.)
Consolidated Balance Sheets
As at December 31 ($ millions)
ASSETS 2000 1999
- -----------------------------------------------------------------------------------------
INVESTMENTS:
Securities available-for-sale, at fair value:
Fixed-maturity (amortized cost: 2000 $9,580; 1999 $9,561) $ 9,797 $ 9,358
Equity (cost: 2000 $707; 1999 $622) 852 1,106
Mortgage loans 1,539 1,622
Real estate 986 1,027
Policy loans 1,998 1,843
Short-term investments 715 284
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENTS $15,887 $15,240
- -----------------------------------------------------------------------------------------
Cash and cash equivalents $ 164 $ 131
Deferred acquisition costs 2,066 1,631
Deferred income taxes 125 151
Due from affiliates 261 504
Amount recoverable from reinsurers 572 679
Other assets 677 882
Separate account assets 29,681 27,329
- -----------------------------------------------------------------------------------------
TOTAL ASSETS $49,433 $46,547
=========================================================================================
LIABILITIES, CAPITAL AND SURPLUS
- -----------------------------------------------------------------------------------------
LIABILITIES:
Policyholder liabilities and accruals $16,240 $15,894
Note payable 200 200
Other liabilities 764 1,001
Separate account liabilities 29,681 27,329
- -----------------------------------------------------------------------------------------
TOTAL LIABILITIES $46,885 $44,424
=========================================================================================
CAPITAL AND SURPLUS:
Capital stock $ 5 $ 5
Retained earnings 2,260 1,990
Accumulated other comprehensive income 283 128
- -----------------------------------------------------------------------------------------
TOTAL CAPITAL AND SURPLUS $ 2,548 $ 2,123
- -----------------------------------------------------------------------------------------
TOTAL LIABILITIES, CAPITAL AND SURPLUS $49,433 $46,547
=========================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
4
The Manufacturers Life Insurance Company (U.S.A.)
Consolidated Statements of Income
FOR THE YEARS ENDED DECEMBER 31
($ millions) 2000 1999 1998
- --------------------------------------------------------------------------------
REVENUE:
Premiums $ 814 $ 881 $ 848
Fee income 958 746 584
Net investment income 1,135 1,121 1,100
Realized investment gains 137 27 51
Other -- 5 5
- --------------------------------------------------------------------------------
TOTAL REVENUE $ 3,044 $ 2,780 $ 2,588
- --------------------------------------------------------------------------------
BENEFITS AND EXPENSES:
Policyholder benefits and claims $ 1,520 $ 1,412 $ 1,570
Operating expenses and commissions 617 494 389
Amortization of deferred acquisition costs 180 40 113
Interest expense 34 25 14
Policyholder dividends 339 323 265
Minority interest expense 16 16 15
- --------------------------------------------------------------------------------
TOTAL BENEFITS AND EXPENSES $ 2,706 $ 2,310 $ 2,366
- --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 338 470 222
- --------------------------------------------------------------------------------
INCOME TAXES 90 177 82
- --------------------------------------------------------------------------------
NET INCOME $ 248 $ 293 $ 140
================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
5
The Manufacturers Life Insurance Company (U.S.A.)
Consolidated Statements of Changes in Capital And Surplus
ACCUMULATED OTHER TOTAL
FOR THE YEARS ENDED DECEMBER 31 CAPITAL RETAINED COMPREHENSIVE CAPITAL AND
($ millions) STOCK EARNINGS INCOME (LOSS) SURPLUS
- ---------------------------------------------------------------------------------------------
BALANCE AT JANUARY 1, 1998 $ 5 $1,707 $ 128 $ 1,840
Comprehensive income -- 140 21 161
Dividend to shareholder -- (150) -- (150)
- ---------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 $ 5 $1,697 $ 149 $ 1,851
Comprehensive income -- 293 (21) 272
- ---------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $ 5 $1,990 $ 128 $ 2,123
- ---------------------------------------------------------------------------------------------
Comprehensive income -- 248 155 403
Contributed surplus 22 22
- ---------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 $ 5 $2,260 $ 283 $ 2,548
=============================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
6
The Manufacturers Life Insurance Company (U.S.A.)
Consolidated Statements of Cash Flows
FOR THE YEARS ENDED DECEMBER 31
($ millions) 2000 1999 1998
- ------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net Income $ 248 $ 293 $ 140
Adjustments to reconcile net income to net cash provided by
operating activities:
Additions to policyholder liabilities and accruals 330 404 410
Deferred acquisition costs (590) (463) (286)
Amounts recoverable from reinsurers 23 334 9
Amortization of deferred acquisition costs 180 40 113
Realized investment gains (137) (27) (51)
Decreases (additions) to deferred income taxes 34 194 7
Amounts due from (to) affiliates 259 22 (126)
Other assets and liabilities, net (158) 238 8
Other, net (62) 59 25
- ------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 127 $ 1,094 $ 249
- ------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Fixed-maturity securities sold, matured or repaid $ 6,584 $ 4,302 $ 3,906
Fixed-maturity securities purchased (6,792) (4,763) (3,730)
Equity securities sold 1,185 303 290
Equity securities purchased (1,012) (349) (284)
Mortgage loans advanced (187) (148) (453)
Mortgage loans repaid 274 314 274
Real estate sold 101 54 40
Real estate purchased (58) (219) (117)
Policy loans advanced, net (155) (133) (145)
Short-term investments (431) (251) 85
Separate account seed money -- 32 (2)
Other investments, net 196 (355) 25
- ------------------------------------------------------------------------------------------------------
Net cash used in investing activities $ (295) $ (1,213) $ (111)
- ------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Deposits and interest credited to policyholder account balances $ 1,336 $ 1,263 $ 668
Withdrawals from policyholder account balances (1,579) (987) (611)
Amounts due to affiliates 250 -- --
Net reinsurance (payable) recoverable 87 (158) (86)
Dividend to shareholder -- -- (150)
Borrowed funds 107 50 --
- ------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities $ 201 $ 168 $ (179)
- ------------------------------------------------------------------------------------------------------
CASH:
Increase (decrease) during the year 33 49 (41)
Balance, beginning of year 131 82 123
- ------------------------------------------------------------------------------------------------------
BALANCE, END OF YEAR $ 164 $ 131 $ 82
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
7
The Manufacturers Life Insurance Company (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(IN MILLIONS OF DOLLARS)
1. ORGANIZATION
The Manufacturers Life Insurance Company (U.S.A.) ("ManUSA") is an
indirectly wholly-owned subsidiary of The Manufacturers Life Insurance
Company ("Manufacturers Life"), which in turn is a wholly owned subsidiary
of Manulife Financial Corporation, a Canadian-based publicly traded
company. . Manulife Financial Corporation and its subsidiaries are
collectively known as "Manulife Financial". ManUSA and its subsidiaries,
collectively known as the "Company", operate in the life insurance
industry, offering a broad range of insurance related products. These
products are offered both on an individual and group basis and are
marketed primarily in the United States.
In June of 1999, the Company increased its ownership interest in its
subsidiary, Manulife-Wood Logan Holding Co. Inc. ("MWL"), to 78.4% through
the purchase of the 15% outside party interest. The purchase was at fair
value and generated goodwill of $45.0, which is being amortized into
income on a straight-line basis over 15 years.
In December of 2000 and through an issue of shares, the Company acquired
the remaining 21.6% minority interest in MWL from MRL Holding, LLC
("MRL-LLC"), an affiliated company. As this was a related party
transaction, the purchase was accounted for at MRL-LLC's carrying value at
the time of purchase and no goodwill was generated.
2. SIGNIFICANT ACCOUNTING POLICIES
a) BASIS OF PRESENTATION
The accompanying consolidated financial statements of ManUSA have been
prepared in accordance with accounting principles generally accepted in
the United States ("GAAP") and include accounts and operations, after
intercompany eliminations, of ManUSA and its subsidiaries.
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes.
Actual results could differ from these estimates.
b) RECENT ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities.
The statement also addresses contracts that contain embedded derivatives,
such as certain insurance contracts. In July 1999, the FASB issued
Statement No. 137, which delayed the effective date of SFAS No. 133 to
fiscal
8
years beginning after June 15, 2000. In June 2000, the FASB issued SFAS
No. 138 which made certain changes to the hedging provisions of SFAS No.
133, and is effective concurrent with SFAS No. 133.
Effective January 1, 2001, all derivatives instruments will be reported on
the Consolidated Balance Sheets at their fair value, with changes in fair
value recorded in income or equity, depending on the nature of the
derivative instrument. Changes in the fair value of derivatives that are
not designated as hedges will be recognized in current period earnings.
Based on the Company's derivative positions as at December 31, 2000, the
Company estimates that there will be no material impact to the income
statement upon adoption of this new accounting standard.
As formal interpretations of this new standard continue to be issued by
the FASB, the Company is continuing its analysis of insurance products in
order to identify embedded derivatives that may require bifurcation under
the statement. Any embedded derivatives identified and that require
bifurcation will be marked to market through earnings
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.
Temporary changes in the fair value of securities available-for-sale are
reflected directly in other comprehensive income after adjustments for
deferred taxes, deferred acquisition costs, policyholder liabilities and
unearned revenue liability. Discounts and premiums on investments are
amortized using the effective interest method.
Mortgage loans are reported at unpaid principal balances, net of a
provision for losses. The provision for losses is established for mortgage
loans which are considered to be impaired when the Company has determined
that it is probable that all amounts due under contractual terms will not
be collected. Impaired loans are reported at the lower of unpaid principal
or fair value of the underlying collateral.
Interest on fixed-maturity securities and performing mortgage loans is
recorded as income when earned and is adjusted for any amortization of
premiums or discount. Interest on restructured mortgage loans is recorded
as income based on the rate to be paid; interest on delinquent mortgage
loans is recorded as income on a cash basis. Dividends are recorded as
income on ex-dividend dates.
Real estate held for investment is carried at cost, less accumulated
depreciation and provisions for impairment and write-downs, if applicable.
Real estate held for sale is carried at the lower of cost or market value
where changes in estimates of market value are recognized as realized
gains or losses in the income statement.
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.
9
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
from future gross profits and included as an asset. DAC associated with
variable annuity and variable life insurance contracts, universal life
insurance contracts, investment contracts, and participating life
insurance contracts is charged to expense in relation to the estimated
gross profits of those contracts. The amortization is adjusted
retrospectively when current gross profits or estimates of future gross
profits are revised. DAC associated with all other insurance contracts is
charged to expense over the premium paying period of the related policies.
DAC is adjusted for the impact on current and estimated future gross
profits assuming the unrealized gains or losses on securities had been
realized at year-end. The equity impact of any such adjustments is
included in net unrealized gains (losses) in other comprehensive income.
DAC is reviewed annually to determine recoverability from future income.
To the extent that the DAC is assessed as not recoverable, it is
immediately expensed.
f) POLICYHOLDER LIABILITIES
Policyholder liabilities for traditional non-participating life insurance
policies are computed using the net level premium method. The calculations
are based upon estimates as to future mortality, morbidity, persistency,
maintenance expenses, and interest rate yields that were applicable in the
year of issue. The assumptions include a provision for the risk of adverse
deviation.
For payout annuities in loss recognition, policyholder liabilities are
computed using estimates of expected mortality, expenses, and investment
yields as determined at the time these contracts first moved into loss
recognition. Payout annuity reserves are adjusted for the impact of net
unrealized gains associated with the underlying assets.
For variable annuity and variable life contracts, universal life insurance
contracts, and investment contracts with no substantial mortality or
morbidity risk, policyholder liabilities equal the policyholder account
values. 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.
For traditional participating life insurance policies, policyholder
liabilities are computed using the net level premium reserve for death and
endowment policy benefits. Mortality and interest assumptions are the same
as the non-forfeiture benefit assumptions at the time the policy was
issued. Interest rate assumptions used in the calculation of the
liabilities for traditional participating life insurance policies range
from 2.5% to 7.0%.
10
As of December 31, 2000, participating insurance expressed as a percentage
of insurance in force is 66.3%. The amount of policyholders' dividends to
be paid is approved annually by Manulife Financial's Board of Directors.
The aggregate amount of policyholders' dividends is calculated based on
actual interest, mortality, morbidity and expense experience for the year,
and on management's judgment as to the appropriate level of equity to be
retained by the Company. The carrying value of this liability approximates
the earned amount and fair value as at December 31, 2000.
g) SEPARATE ACCOUNTS
Separate account assets and liabilities represent funds that are
separately administered, principally for investment contracts related to
group pension business as well as for variable annuity and variable life
contracts, and for which the contract holder, rather than the Company,
bears the investment risk. Separate account contract holders have no claim
against the assets of the general account of the Company. Separate account
assets are recorded at market value. Operations of the separate accounts
are not included in the accompanying financial statements.
h) REVENUE RECOGNITION
Premiums on long-duration life insurance contracts are recognized as
revenue when due. Premiums on short-duration contracts are earned over the
related contract period.
Receipts on variable annuity and variable life contracts, universal life
insurance contracts, and investment contracts are reported as deposits to
account values as described in note 2(f) and not as premiums. Revenue from
these policies consists of policy charges for the cost of insurance,
expenses and surrender charges that have been assessed against the
policyholder account values. 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.
Net premiums on limited-payment contracts are recognized as revenue and
the difference between the gross premium received and the net premium is
deferred and recognized in income based on either a constant relationship
to insurance in force or the present value of annuity benefits, depending
on the product type.
Investment income is recorded as revenue when due.
i) EXPENSES
Expenses for variable annuity and variable life contracts, and for
universal life insurance contracts include interest credited to
policyholder account values and benefit claims incurred during the period
in excess of policyholder account values.
11
j) REINSURANCE
The Company routinely utilizes reinsurance transactions 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) INCOME TAX
Income taxes have been provided for in accordance with Statement of
Financial Accounting Standards 109 ("SFAS 109"), "Accounting for Income
Taxes." ManUSA joins its direct parent, Manulife Reinsurance Corporation
(U.S.A.), its indirect parent, The Manufacturers Investment Corporation,
and its subsidiary, The Manufacturers Life Insurance Company of America,
in filing a U.S. consolidated income tax return as a life insurance group
under the provisions of the Internal Revenue Service. A separate life
insurance group for certain of ManUSA's subsidiaries is also in place. In
accordance with the income tax-sharing agreements, the Company's income
tax provision (or benefit) is computed as if ManUSA and the companies
within the two groups filed separate income tax returns. Tax benefits from
operating losses are provided at the U.S. statutory rate plus any tax
credits attributable, 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.
l) FOREIGN EXCHANGE
The balance sheet and statement of income of the Company's foreign
operations as well as non-U.S. dollar investments are translated into U.S.
dollars using the current exchange and average exchange rates
respectively. Translation adjustments are included in accumulated other
comprehensive income (loss).
m) DERIVATIVES
The Company uses derivatives to manage exposures to foreign currency,
interest rate and other market risks arising from its on-balance sheet
financial instruments. These derivatives are designated and effective as
hedges, as there is a high correlation between changes in market value of
the derivative and the underlying hedged item at inception and over the
life of the hedge. Realized and unrealized gains and losses on these
derivatives are accounted for on the same basis as the underlying assets
and liabilities. Realized and unrealized gains and losses on derivative
transactions established as hedges but no longer considered hedges are
included in income from the date at which they are no longer considered to
be hedges.
The Company also uses derivatives to manage foreign currency exposures
associated with expected future policy maintenance and acquisition
expenses relating to the current inforce block of business. These
derivatives are designated as non-hedges. Realized and unrealized gains
and losses on these derivatives are included in income.
12
Derivative income and expenses are included in investment income in the
Consolidated Statements of Income. Cash flows relating to derivatives
associated with invested assets and financial liabilities are included in
the Consolidated Statements of Cash Flows on a basis consistent with the
cash flows from the underlying invested assets and financial liabilities.
Derivative assets and liabilities are included in other investments and
other liabilities, respectively, with deferred realized net gains
presented as such in the Consolidated Balance Sheets.
3. INVESTMENTS AND INVESTMENT INCOME
a) FIXED-MATURITY AND EQUITY SECURITIES
At December 31, 2000, 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
($ millions) 2000 1999 2000 1999 2000 1999 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Fixed-maturity securities:
U.S. government $ 1,240 $ 1,440 $ 103 $ 23 $ -- $ (57) $ 1,343 $ 1,406
Foreign governments 1,730 1,677 204 81 -- (16) 1,934 1,742
Corporate 5,561 5,323 111 56 (215) (254) 5,457 5,125
Asset - backed 1,049 1,121 21 4 (7) (40) 1,063 1,085
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED-MATURITY 9,580 9,561 439 164 (222) (367) 9,797 9,358
SECURITIES
- -------------------------------------------------------------------------------------------------------------------------------
Equity securities $ 707 $ 622 $ 210 $ 524 $ (65) $ (40) $ 852 $ 1,106
- -------------------------------------------------------------------------------------------------------------------------------
Proceeds from sales of fixed-maturity securities during 2000 were $6,583.5
(1999 - $4,302.4 and 1998 - $3,906.1). Gross gains and losses of $70.7 and
$241.9 respectively, were realized on those sales (1999 - $49.0 and $166.7
respectively, 1998 - $90.6 and $90.4 respectively).
Proceeds from the sale of equity securities during 2000 were $1,185.2
(1999 - $303.3 and 1998 - $290.0). Gross gains and losses of $319.2 and
$59.8 respectively, were realized on those sales (1999 - $84.0 and $38.7
respectively, 1998 - $47.4 and $45.0 respectively).
13
The contractual maturities of fixed-maturity securities at December 31,
2000 are shown below.
AS AT DECEMBER 31, 2000
($ millions)
AMORTIZED COST FAIR VALUE
- ----------------------------------------------------------------------------------------------------
Fixed-maturity securities, excluding mortgage-backed securities:
One year or less $ 230 $ 228
Greater than 1; up to 5 years 1,134 1,144
Greater than 5; up to 10 years 2,425 2,429
Due after 10 years 4,742 4,933
Asset - backed securities 1,049 1,063
- ----------------------------------------------------------------------------------------------------
TOTAL FIXED-MATURITY SECURITIES $ 9,580 $ 9,797
- ----------------------------------------------------------------------------------------------------
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.
b) MORTGAGE LOANS
Mortgage loans are reported at amortized cost, net of a provision for
losses. The impaired mortgage loans and the related allowance for mortgage
loan losses were as follows:
AS AT DECEMBER 31
($ millions) 2000 1999
- --------------------------------------------------------------------------------
IMPAIRED LOANS $ 80 $ 86
- --------------------------------------------------------------------------------
Allowance, January 1 $ 57 $106
Deductions (6) (49)
- --------------------------------------------------------------------------------
ALLOWANCE, DECEMBER 31 $ 51 $ 57
- --------------------------------------------------------------------------------
c) INVESTMENT INCOME
Income by type of investment was as follows:
FOR THE YEARS ENDED DECEMBER 31
($ MILLIONS) 2000 1999 1998
- --------------------------------------------------------------------------------
Fixed-maturity securities $ 727 $ 726 $ 729
Equity securities 60 18 16
Mortgage loans 126 149 156
Investment real estate 95 71 62
Other investments 184 195 164
- --------------------------------------------------------------------------------
Gross investment income 1,192 1,159 1,127
Investment expenses (57) (38) (27)
- --------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 1,135 $ 1,121 $ 1,100
- --------------------------------------------------------------------------------
14
4. COMPREHENSIVE INCOME
a) COMPREHENSIVE INCOME
Total comprehensive income was as follows:
FOR THE YEARS ENDED DECEMBER 31
($ millions) 2000 1999 1998
- -------------------------------------------------------------------------------------------
NET INCOME $ 248 $ 293 $ 140
- -------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF INCOME TAX:
Unrealized holding gains (losses) arising during the year 73 (4) 54
Foreign currency translation (7) 1 --
Less:
Reclassification adjustment for realized gains and losses
Included in net income (89) 18 33
- -------------------------------------------------------------------------------------------
Other comprehensive income (loss) 155 (21) 21
- -------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $ 403 $ 272 $ 161
- -------------------------------------------------------------------------------------------
Other comprehensive income (loss) is reported net of tax (benefit) expense
of ($87), $30, and $(11) for 2000, 1999, and 1998, respectively.
Accumulated other comprehensive income is comprised of the following:
AS AT DECEMBER 31
($ millions) 2000 1999
- --------------------------------------------------------------------------------
UNREALIZED GAINS :
Beginning balance $ 132 $ 154
Current period change 158 (22)
- --------------------------------------------------------------------------------
Ending balance $ 290 $ 132
- --------------------------------------------------------------------------------
FOREIGN CURRENCY:
Beginning balance $ (4) $ (5)
Current period change (3) 1
- --------------------------------------------------------------------------------
Ending balance $ (7) $ (4)
- --------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME $ 283 $ 128
================================================================================
15
b) UNREALIZED GAINS (LOSSES) ON SECURITIES AVAILABLE-FOR-SALE
Net unrealized gains (losses) on fixed-maturity and equity securities
included in other comprehensive income were as follows:
AS AT DECEMBER 31
($ millions) 2000 1999
- --------------------------------------------------------------------------------
Gross unrealized gains $ 688 $ 753
Gross unrealized losses (340) (439)
DAC and other amounts required to satisfy policyholder 53 (117)
liabilities
Deferred income taxes (111) (65)
- --------------------------------------------------------------------------------
NET UNREALIZED GAINS ON SECURITIES AVAILABLE-FOR-SALE $ 290 $ 32
- --------------------------------------------------------------------------------
5. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
FOR THE YEARS ENDED DECEMBER 31
($ millions) 2000 1999
- --------------------------------------------------------------------------------
Balance, January 1 $ 1,631 $ 1,078
Capitalization 590 463
Accretion of interest 92 82
Amortization (272) (122)
Effect of net unrealized gains on securities 25 130
available-for-sale
Currency Translation -- --
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31 $ 2,066 $ 1,631
================================================================================
6. INCOME TAXES
The components of income tax expense (benefit) were as follows:
FOR THE YEARS ENDED DECEMBER 31
($ millions) 2000 1999 1998
- --------------------------------------------------------------------------------
Current expense (benefit) $ 56 $ (17) $ 75
Deferred expense (benefit) 34 194 7
- --------------------------------------------------------------------------------
TOTAL EXPENSE $ 90 $ 177 $ 82
================================================================================
Income before federal income taxes differs from taxable income principally
due to tax-exempt investment income, dividends received tax deductions,
differences in the treatment of policy acquisition costs, and differences
in reserves for policy and contract liabilities for tax and financial
reporting purposes.
16
Included in the current benefit for 2000 is a $28.9 one time reduction of
tax expense for periods prior to 2000. This resulted from a new IRS
technical memorandum clarifying the treatment of dividends received
deduction for Separate Accounts. The tax benefit pertaining to 2000
earnings is $9.1.
The Company's deferred income tax asset (liability), which results from
tax effecting the differences between financial statement values and tax
values of assets and liabilities at each balance sheet date, relates to
the following:
FOR THE YEARS ENDED DECEMBER 31
($ millions) 2000 1999 1999
- -----------------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Differences in computing policy reserves $ 630 $ 635 $ 850
Investments -- -- 85
Policyholder dividends payable 11 9 11
Net capital loss 6 -- --
Net operating loss 41 -- --
Other deferred tax assets 19 -- 10
- -----------------------------------------------------------------------------------------
Deferred tax assets $ 707 $ 644 $ 956
- -----------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Deferred acquisition costs $ 340 $ 244 $ 103
Unrealized gains on securities available-for-sale 140 189 387
Premiums receivable 13 14 19
Investments 47 14 --
Other deferred tax liabilities 42 32 72
- -----------------------------------------------------------------------------------------
Deferred tax liabilities $ 582 $ 493 $ 581
- -----------------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $ 125 $ 151 $ 375
- -----------------------------------------------------------------------------------------
The Company files a consolidated federal income tax return. ManUSA and its
subsidiaries file separate state income tax returns. The method of
allocation among the companies is subject to a written tax sharing
agreement under which the tax liability is allocated to each member on a
pro rata basis based on the relationship that the member's tax liability
(computed on a separate return basis) bears to the tax liability of the
consolidated group. The tax charge to each of the respective companies
will not be more than that company would have paid on a separate return
basis. Settlements of taxes are made through an increase or reduction to
the payable to parent, subsidiaries and affiliates, which is settled
periodically.
At December 31, 2000, the Company has operating loss carry forwards of
$116 that will begin to expire in 2014, and capital loss carry forwards of
$18 that are available for carry back.
17
7. NOTE PAYABLE
On December 29, 1997, the Company issued a surplus debenture for $200,000
plus interest at 7.93% per annum to Manufacturers Investment Corporation
("MIC"), an indirect parent company. The surplus debenture matures on
February 1, 2022. Except in the event of insolvency or winding-up of the
Company, the instrument may not be redeemed by the Company during the
period of five years from date of issue without the approval of the Office
of the Superintendent of Financial Institutions of Canada. Interest
accrued and expensed was $16 for each of 2000, 1999, and 1998. Interest
paid was $9, $16, and $9 for 2000, 1999, and 1998, respectively.
8. CAPITAL AND SURPLUS
Capital Stock is comprised of the following:
AS AT DECEMBER 31
($ millions) 2000 1999
- --------------------------------------------------------------------------------
AUTHORIZED:
50,000,000 Preferred shares, Par value $1.00 - -
50,000,000 Common shares, Par value $1.00
- --------------------------------------------------------------------------------
ISSUED AND OUTSTANDING:
100,000 Preferred shares
4,711,772 Common shares (4,544,504 in 1999) 5 5
================================================================================
Pursuant to an agreement dated December 31, 2000, ManUSA purchased from
MRL-LLC all of MRL-LLC's 21.6% interest in Manulife Wood Logan Holdings.
In exchange, ManUSA transferred 167,268 of its common shares to MRL-LLC
and forgave a promissory note owed by MRL-LLC amounting to $52 plus
accrued interest. The result was a $22 addition to the Company's
contributed surplus. The agreement permits the use of estimates in
determining the value of the shares exchanged until, at a mutually agreed
upon date, a final valuation of the respective companies is performed. As
a result of the valuation, there may be a future adjustment to the number
of shares transferred.
ManUSA and its life insurance subsidiaries are subject to statutory
limitations on the payment of dividends. Dividend payments in excess of
prescribed limits cannot be paid without the prior approval of U.S.
insurance regulatory authorities.
Net (loss) income and capital and surplus, as determined in accordance
with statutory accounting principles for ManUSA and its life insurance
subsidiaries were as follows:
FOR THE YEARS ENDED DECEMBER 31
($ millions) 2000 1999 1998
- ------------------------------------------------------------------------------------------------
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A):
Net income $ 200 $ 132 $ 87
Net capital and surplus 1,384 1,560 1,305
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA:
Net (loss) income $ (59) $ (3) $ 28
Net capital and surplus 152 171 158
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA:
Net (loss) income $ (19) $ 6 $ (24)
Net capital and surplus 120 137 122
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK:
Net (loss) income (3) 1 (6)
Net capital and surplus 61 64 63
- ------------------------------------------------------------------------------------------------
18
The National Association of Insurance Commissioners has revised the
Accounting Practices and Procedure Manual in a process referred to as
Codification effective for January 1, 2001. The revised manual has
changed, to some extent, prescribed statutory accounting practices and
will result in changes to the accounting practices that ManUSA and its
life insurance subsidiaries use in preparing their statutory-basis
financial statements. The cumulative effect of such changes will be
reported as an adjustment to statutory-basis capital and surplus as of
January 1, 2001. The effect of adopting these changes has not resulted in
a significant reduction in the statutory-basis capital and surplus of
ManUSA nor of its life insurance subsidiaries.
As a result of the demutualization of Manufacturers Life, there are
regulatory restrictions on the amounts of profit that can be transferred
to shareholders. These restrictions generally take the form of a fixed
percentage of the policyholder dividends. The transfers are governed by
the terms of Manufacturers Life's Plan of Demutualization.
9. EMPLOYEE BENEFITS
a) EMPLOYEE RETIREMENT PLAN
The Company sponsors a non-contributory pension plan, the Cash Balance
Plan ("the Plan"), which provides pension benefits based on length of
service and final average earnings. Pension benefits are provided to those
participants after three years of vesting service, and the normal
retirement benefit is actuarially equivalent to the cash balance account
at normal retirement date. The normal form of payment under the Plan is a
life annuity, with various optional forms available. Vested benefits are
fully funded; current pension costs are funded as they accrue.
Actuarial valuation of accumulated plan benefits are based on projected
salaries and best estimates of investment yields on plan assets, mortality
of participants, employee termination and ages at retirement. Pension
costs that relate to current service are charged to earnings in the
current period. Experience gains and losses are amortized to income over
the estimated average remaining service lives of the participants. No
pension expense was recognized in 2000, 1999, or 1998 because the plan was
subject to the full funding limitation under the Internal Revenue Code.
At December 31, 2000, the projected benefit obligation of the plan based
on an assumed interest rate of 7.25% was $52. The fair value of plan
assets is $81.
The Company also sponsors an unfunded supplemental cash balance plan ("the
Supplemental Plan") for its executives. This non-qualified plan provides
defined pension benefits in excess of limits imposed by the law to those
retiring after age 50 with 10 or more years of vesting service. This plan
covers the Company employees and selected executives. Pension benefits are
provided to those who terminate after 5 years of vesting service, and the
pension benefit is a final average benefit based on the executive's
highest 5-year average earnings. Compensation is not limited, and benefits
are not restricted by the Internal Revenue Code Section 415. Contribution
credits vary by service, and interest credits are a function of the 1-year
U.S. Treasury Bond rate plus 0.50%, but no less than 5.25% per year. These
annual contribution credits are made in respect of the participant's
compensation that is in excess of the limit in Internal Revenue Code
Section 401(a)(17). In addition, a one-time contribution may be made for a
participant if it is determined at the time of their termination of
employment that the participant's pension benefit under the Plan is
limited
19
by Internal Revenue Code Section 415. Together, these contributions serve
to restore to the participant the benefit that he / she would have been
entitled to under the Plan's benefit formula but for the limitation in
Internal Revenue Code Sections 401(a)(17) and 415.
Benefits under the Supplemental Plan are provided to participants after
three years. The default form of payment under this plan is a lump sum
although participants may elect to receive payment in the form of an
annuity provided that such election is made within the time period
prescribed in the plan. If an annuity form of payment is elected, the
amount payable is equal to the actuarial equivalent of the participant's
balance under the Supplemental Plan, using the factors and assumptions for
determining immediate annuity amounts applicable to the participant under
the Plan.
At December 31, 2000, the projected benefit obligation to the participants
of the Supplemental Plan was $22. This is based on an assumed interest
rate of 7.25%.
Prior to July 1, 1998, the Company also participated in an unfunded
Supplemental Executive Retirement Plan ("Manulife SERP") sponsored by
Manufacturers Life for executives. This was a non qualified plan that
provided defined pension benefits in excess of limits imposed by the law
to those retiring after age 50 with 10 or more years of vesting service.
The Manulife SERP covered the Company's employees and selected executives
of MNA. Pension benefits were provided to those who terminate after 5
years of vesting service, and the pension benefit is a final average
benefit based on the executive's highest 5-year average earnings.
Compensation is not limited, and benefits are not restricted by the
Internal Revenue Code Section 415.
b) 401(K) PLAN
The Company sponsors a defined contribution 401(k) Savings Plan which is
subject to the provisions of the Employee Retirement Income Security Act
of 1974 (ERISA). The Company contributed $1 for each of 2000, 1999, and
1998.
c) DEFERRED COMPENSATION PLAN
The Company has deferred compensation incentive plans open to all branch
managers and qualified agents. There are no stock option plans involving
stock of ManUSA.
d) POSTRETIREMENT BENEFIT PLAN
In addition to the retirement plans, the Company sponsors a postretirement
benefit plan, which provides retiree medical and life insurance benefits
to those who have attained age 55 with 10 or more years of service. The
plan provides the medical coverage for retirees and spouses under age 65.
Medicare provides primary coverage and the plan provides secondary
coverage. There is no contribution for post-age 65 coverage and no
contributions are required for retirees for life insurance coverage. The
plan is unfunded.
The Company accounts for its retiree benefit plan using the accrual
method.
The postretirement benefit cost for the year ended December 31, 2000 was
$2. This amount includes the expected cost of postretirement benefits for
newly eligible employees and for vested employees, interest cost, and
gains and losses arising from differences between actuarial assumptions
and actual experience.
20
e) FINANCIAL INFORMATION REGARDING THE EMPLOYEE RETIREMENT PLAN AND THE
POSTRETIREMENT BENEFIT PLAN
Information applicable to the Employee Retirement Plan and the
Postretirement Benefit Plan, determined in accordance with GAAP as
estimated by a consulting actuary for the December 31 year end of the
respective plans, is as follows:
EMPLOYEE POSTRETIREMENT
RETIREMENT BENEFIT
PLAN PLAN
AS OF DECEMBER 31 ---------------------------------------------------
(in thousands) 2000 1999 2000 1999
- -----------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $(68,410) $(67,253) $(16,966) $(19,893)
Service cost (2,202) (2,288) (482) (613)
Interest cost (5,044) (4,575) (1,150) (1,082)
Amendments (1,011) -- -- --
Actuarial gain (loss) (2,629) (854) 60 3,903
Benefits paid 5,497 6,560 658 719
- -----------------------------------------------------------------------------------------------
Benefits obligation at end of year $(73,799) $(68,410) $(17,880) $(16,966)
- -----------------------------------------------------------------------------------------------
EMPLOYEE POSTRETIREMENT
RETIREMENT BENEFIT
PLAN PLAN
AS OF DECEMBER 31 ---------------------------------------------------
(in $thousands) 2000 1999 2000 1999
- ---------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 86,777 $ 84,686 $ -- $ --
Actual return on plan assets (1,618) 7,428 -- --
Employer contribution 1,320 1,223 658 719
Benefits paid (5,497) (6,560) (658) (719)
- ---------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 80,982 $ 86,777 $ -- $ --
- ---------------------------------------------------------------------------------------------------------
Funded status $ 7,183 $ 18,367 $(17,880) $(16,966)
Unrecognized transition obligation (asset) (8,455) (10,778) -- --
Unrecognized actuarial loss (gain) 15,580 4,303 (14,695) (15,621)
Unrecognized prior service cost 3,187 2,437 -- --
- ---------------------------------------------------------------------------------------------------------
Net amount recognized $ 17,495 $ 14,329 $(32,575) $(32,587)
- ---------------------------------------------------------------------------------------------------------
Amounts recognized in statement of financial
position of the Company consist of:
Prepaid benefit cost $ 34,082 $ 29,934 $ -- $ --
Accrued benefit liability (21,130) (20,741) (32,575) (32,587)
Intangible asset 928 1,172 -- --
Accumulated other comprehensive income 3,615 3,964 -- --
- ---------------------------------------------------------------------------------------------------------
Net amount recognized $ 17,495 $ 14,329 $(32,575) $(32,587)
- ---------------------------------------------------------------------------------------------------------
Other comprehensive income attributable to change $ (349) -- -- --
in additional minimum liability recognition
- ---------------------------------------------------------------------------------------------------------
* Amount is net of retiree contributions.
21
e) FINANCIAL INFORMATION REGARDING THE EMPLOYEE RETIREMENT PLAN AND THE
POSTRETIREMENT BENEFIT PLAN (CONTINUED)
EMPLOYEE POSTRETIREMENT
RETIREMENT BENEFIT
PLAN PLAN
-----------------------------------------
AS OF DECEMBER 31 2000 1999 2000 1999
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE ASSUMPTIONS
Discount rate 7.25% 7.50% 7.25% 7.50%
Expected return on plan assets 8.50% 8.50% n/a n/a
Rate of compensation increase 5.00% 5.00% 5.00% 5.00%
On December 31, 2000, the accrued postretirement benefit cost was $18. The
postretirement benefit obligation for eligible active employees was $2.
The amount of the postretirement benefit obligation for ineligible active
employees was $4. For measurement purposes as of December 31, 2000, an 8 %
and 10 % annual rate of increase in the per capita cost of covered health
care benefits was assumed for 2001 for pre-65 and post-65 coverages,
respectively. These rates were assumed to decrease gradually to 5 % in
2006 and 2010, respectively, and remain at those levels thereafter.
EMPLOYEE POSTRETIREMENT
AS OF DECEMBER 31 RETIREMENT BENEFIT
(IN THOUSANDS) PLAN PLAN
-----------------------------------------------
2000 1999 2000 1999
- ------------------------------------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST FOR PLAN SPONSOR
Service cost $ 2,202 $ 2,288 $ 483 $ 613
Interest cost 5,044 4,575 1,150 1,082
Expected return on plan assets (7,181) (7,088) -- --
Amortization of net transition obligation (2,323) (2,323) -- --
Amortization of prior service cost 262 221
Recognized actuarial loss (gain) 150 343 (986) (892)
- ------------------------------------------------------------------------------------------------------------
Net periodic (benefit) cost $ (1,846) $ (1,984) $ 647 $ 803
- ------------------------------------------------------------------------------------------------------------
The projected benefit obligation in excess of plan assets, the accumulated
benefit obligation in excess of plan assets, and the fair value of plan
assets for the Supplemental Plan were $22, $21, and $0 respectively, as of
December 31, 2000 and $21, $22, and $0 respectively, as of December 31,
1999.
The health care cost trend rate assumption has a significant effect on the
amounts reported. A one-percentage-point change in assumed health care
cost trend rates would have the following effects on 2000 values:
100 BASIS-POINT 100 BASIS-POINT
(in thousands) INCREASE DECREASE
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Effect on total of service and interest cost components $ 275 $ (214)
Effect on postretirement benefit obligation $ 2,521 $(2,036)
- -----------------------------------------------------------------------------------------------
22
10. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses a variety of off-balance sheet financial instruments as
part of its efforts to manage exposures to foreign currency, interest rate
and other market risks arising from its on-balance sheet financial
instruments. Those instruments include interest rate exchange agreements
and foreign currency forward contracts. The contract or notional amounts
of those instruments reflect the extent of involvement in the various
types of financial instruments.
The Company's exposure to credit risk is the risk of loss from a
counterparty failing to perform according to the terms of the contract.
That exposure includes settlement risk (i.e., the risk that the
counterparty defaults after the Company has delivered funds or securities
under terms of the contract) that would result in an accounting loss and
replacement cost risk (i.e. the cost to replace the contract at current
market rates should the counterparty default prior to the settlement
date). To limit exposure associated with counterparty nonperformance on
interest rate exchange agreements, the Company enters into master netting
agreements with its counterparties.
INTEREST RATE EXCHANGE AGREEMENTS (SWAPS AND FLOORS)
The Company enters into interest rate exchange agreements to reduce and
manage interest rate risk associated with individual assets and
liabilities, and its overall aggregate portfolio. These interest rate
exchange agreements consist primarily of interest rate swap agreements and
interest rate floors. The amounts to be received or paid pursuant to these
agreements are accrued and recognized in the accompanying statements of
operations through an adjustment to investment income, as appropriate,
over the lives of the agreements. Gains or losses realized on closed or
terminated agreements accounted for as hedges are deferred and amortized
to investment income on a straight-line basis over the shorter of the
lives of the agreements or the expected remaining lives of the underlying
assets or liabilities.
FOREIGN CURRENCY FORWARDS
The Company uses foreign currency forward contracts to hedge some of the
foreign exchange risk resulting from the fact that it generates revenue
and holds assets in U.S. dollars, but incurs a significant portion of its
maintenance expense in Canadian dollars. A foreign currency forward
contract obligates the Company to deliver a specified amount of currency
on a future date at a specified exchange rate. The value of the foreign
exchange forward contracts at any given point fluctuates according to the
underlying level of exchange rate and interest rate differentials.
23
Outstanding derivatives with off-balance sheet risks are as follows:
NOTIONAL OR
AS AT DECEMBER 31 CONTRACT AMOUNTS CARRYING VALUE FAIR VALUE
($ millions) 2000 1999 2000 1999 2000 1999
- --------------------------------------------------------------------------------------------------------
Interest rate & currency swaps & floors $1,008 $ 869 $ 5 $ (2) $ 5 $ (2)
Interest rate option written 22 22 -- -- -- --
Equity Contracts 68 -- (1) -- (1) --
Currency forwards 1,125 973 5 32 5 32
- --------------------------------------------------------------------------------------------------------
TOTAL DERIVATIVES $2,223 $1,864 $ 9 $ 30 $ 9 $ 30
========================================================================================================
Fair value of off-balance sheet derivative financial instruments reflect
the estimated amounts that the Company would receive or pay to terminate
the contract at the balance sheet date, including the current unrealized
gains (losses) on the instruments. Fair values of the agreements were
based on estimates obtained from the individual counterparties.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and the estimated fair values of the Company's
financial instruments at December 31, 2000 were as follows:
($ millions) CARRYING VALUE FAIR VALUE
- --------------------------------------------------------------------------------
ASSETS:
Fixed-maturity and equity securities $ 10,649 $ 10,649
Mortgage loans 1,539 1,626
Policy loans 1,998 1,998
Derivative financial instruments 9 9
Separate account assets 29,681 29,681
LIABILITIES:
Insurance investment contracts $ 1,550 $ 1,517
Separate account liabilities 29,681 29,681
- --------------------------------------------------------------------------------
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.
Where no quoted market price was available, fair values were estimated
using values obtained from independent pricing services or, in the case of
private placements, by discounting expected future cash flows using a
current market rate applicable to yield, credit quality, and average life
of the investments.
MORTGAGE LOANS: Fair value of mortgage loans was estimated using
discounted cash flows and took into account the contractual maturities and
discount rates which were based on current market rates for similar
maturity ranges and adjusted for risk due to the property type.
24
POLICY LOANS: Carrying values approximate fair values.
DERIVATIVE FINANCIAL INSTRUMENTS: Fair values of derivative financial
instruments were based on estimates obtained from the individual
counterparties.
INSURANCE INVESTMENT CONTRACTS: Fair value of insurance investment
contracts which do not subject the Company to significant mortality or
morbidity risks was estimated using cash flows discounted at market rates.
SEPARATE ACCOUNT ASSETS AND LIABILITIES: The carrying amounts in the
balance sheet for separate account assets and liabilities approximate
their fair value.
12. RELATED PARTY TRANSACTIONS
The Company has formal service agreements with ManUSA's indirect parent,
Manufacturers Life, which can be terminated by either party upon two
months' notice. Under the various agreements, the Company will pay direct
operating expenses incurred by Manulife Financial on behalf of the
Company. Services provided under the agreements include legal, actuarial,
investment, data processing, accounting and certain other administrative
services. Costs incurred under the agreements were $243, $194, and $171 in
2000, 1999, and 1998, respectively.
Manulife Financial provides a claims paying guarantee to most U.S.
policyholders.
On September 23, 1997, the Company entered into a reinsurance agreement
with Manulife Reinsurance Limited ("MRL"), an affiliated life insurance
company domiciled in Bermuda, to reinsure a closed block of participating
life insurance business. As there was an insufficient transfer of
mortality risk between the Company and MRL, the agreement was classified
as financial reinsurance and given deposit-type accounting treatment.
Title to the assets supporting this block of business was transferred to
MRL under the terms of the agreement. Included in amounts due from
affiliates is $568 (1999 - $562) representing the receivable from MRL for
the transferred assets.
The Company loaned $20 to MRL pursuant to a promissory note dated
September 29, 2000. The loan is due on September 29, 2005 with interest
calculated at 7.30% per annum, payable quarterly starting December 15,
2000.
Pursuant to a promissory note dated June 12, 2000, the Company loaned $7
to MRL. Principal and accrued interest are payable on June 12, 2003.
Interest on the loan calculated at 7.65% is payable semi-annually starting
August 1, 2000.
Pursuant to a promissory note and a credit agreement dated December 19,
2000, the Company received a loan of $250 ($375 Canadian) from an
affiliate, Manulife Hungary Holdings KFT. The maturity date with respect
to any advances is set at 365 days after the date of the advancement.
Interest on the loan is calculated at the fluctuating rate to be
equivalent to LIBOR plus 25 basis points and is payable quarterly starting
March 28, 2001.
25
13. REINSURANCE
In the normal course of business, the Company assumes and cedes
reinsurance as a party to several reinsurance treaties with major
unrelated insurance companies. The Company remains liable for amounts
ceded in the event that reinsurers do not meet their obligations.
The effects of reinsurance on premiums with unrelated insurance companies
were as follows:
FOR THE YEARS ENDED DECEMBER 31 2000 1999 1998
($ millions)
- --------------------------------------------------------------------------------
Direct premiums $ 963 $ 976 $ 908
Reinsurance assumed 14 12 --
Reinsurance ceded (163) (107) (60)
- --------------------------------------------------------------------------------
TOTAL PREMIUMS $ 814 $ 881 $ 848
- --------------------------------------------------------------------------------
Reinsurance recoveries on ceded reinsurance contracts were $186.9, $32.9,
and $41.2 during 2000, 1999, and 1998, respectively.
14. CONTINGENCIES
In 1999, the Company settled a class action lawsuit related to policies
sold on a "vanishing premium" basis. As a result of the settlement, the
Company has agreed to pay special enhancements for certain policies
beginning on or after July 1, 1999. The present value of these payments
has an expected value of $150. In addition, the Company will pay $50 to
policyholders as part of a claims resolution process and has agreed,
subject to certain conditions, to not reduce dividends for a period of 3
years and to maintain the program of voluntary enhancements that was
previously implemented. The voluntary enhancements have an expected
present value of $300. Management believes that these provisions are also
adequate to address the remaining class actions and individual actions,
including actions that may result from policyholders who have opted out of
class settlement. However, there can be no assurance that these legal
proceedings or any further litigation relating to life insurance pricing
and sales practices will not have a material adverse effect on the
Company's business, financial conditions or results of operation.
The Company has provided for the estimated costs of settlement in these
consolidated financial statements based on the terms of the settlement.
The Company is subject to legal actions arising in the ordinary course of
business. These legal actions are not expected to have a material adverse
effect on the consolidated financial position of the Company.
26
THE MANUFACTURERS LIFE INSURANCE COMPANY
(U.S.A.)
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
PREPARED IN CONFORMITY WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED STATES
================================================================================
[MANULIFE FINANCIAL LOGO]
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
CONSOLIDATED BALANCE SHEETS
AS AT AS AT
SEPTEMBER 30 DECEMBER 31
ASSETS ($ millions) 2001 2000
- --------------------------------------------------------------------------------------------------------
(UNAUDITED)
INVESTMENTS
Securities available-for-sale, at fair value
Fixed-maturity (amortized cost: 2001 $9,568 ; 2000 $9,580) $ 10,085 $ 9,797
Equity (cost: 2001 $ 956 ; 2000 $707) 833 852
Mortgage loans 1,629 1,539
Real estate 964 986
Policy loans 2,171 1,998
Short-term investments 863 715
- --------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $ 16,545 $ 15,887
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 26 $ 164
Deferred acquisition costs 2,224 2,066
Deferred income taxes 144 125
Due from affiliates 276 261
Amounts recoverable from reinsurers 821 572
Other assets 583 677
Separate account assets 26,228 29,681
- --------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 46,847 $ 49,433
========================================================================================================
LIABILITIES, CAPITAL AND SURPLUS ($ millions)
- --------------------------------------------------------------------------------------------------------
LIABILITIES:
Policyholder liabilities and accruals $ 17,331 $ 16,240
Note payable 200 200
Other liabilities 650 764
Separate account liabilities 26,228 29,681
- --------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 44,409 $ 46,885
- --------------------------------------------------------------------------------------------------------
CAPITAL AND SURPLUS:
Capital stock $ 5 $ 5
Retained earnings 2,345 2,260
Accumulated other comprehensive income 88 283
- --------------------------------------------------------------------------------------------------------
TOTAL CAPITAL AND SURPLUS $ 2,438 $ 2,548
- --------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES, CAPITAL AND SURPLUS $ 46,847 $ 49,433
========================================================================================================
See accompanying notes.
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
Consolidated Statements of (Loss) Income (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
($ millions) 2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------
REVENUE:
Premiums $ 203 $ 196 $ 594 $ 613
Fee income 222 244 678 702
Net investment income 283 287 835 846
Realized investment gains (losses) 22 (24) 109 129
Other 1 2 3 --
- --------------------------------------------------------------------------------------------------
TOTAL REVENUE $ 731 $ 705 $2,219 $2,290
- --------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES:
Policyholder benefits and claims $ 443 $ 393 $1,191 $1,249
Operating expenses and commissions 135 148 427 446
Amortization of deferred acquisition costs 89 52 204 97
Interest expense 7 4 23 13
Policyholder dividends 91 87 258 251
Minority interest expense -- 13 -- 19
- --------------------------------------------------------------------------------------------------
TOTAL BENEFITS AND EXPENSES $ 765 $ 697 $2,103 $2,075
- --------------------------------------------------------------------------------------------------
(LOSS) INCOME BEFORE INCOME TAX (RECOVERY) EXPENSE $ (34) $ 8 $ 116 $ 215
- --------------------------------------------------------------------------------------------------
INCOME TAX (RECOVERY) EXPENSE $ (14) $ (27) $ 31 $ 46
- --------------------------------------------------------------------------------------------------
NET (LOSS) INCOME $ (20) $ 35 $ 85 $ 169
- --------------------------------------------------------------------------------------------------
See accompanying notes.
2
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS (UNAUDITED)
ACCUMULATED
OTHER
CAPITAL RETAINED COMPREHENSIVE TOTAL CAPITAL
($millions) STOCK EARNINGS INCOME AND SURPLUS
- --------------------------------------------------------------------------------------
Balance at December 31, 2000 $ 5 $ 2,260 $ 283 $ 2,548
Comprehensive income -- 85 (195) (110)
- --------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2001 $ 5 $ 2,345 $ 88 $ 2,438
======================================================================================
See accompanying notes.
3
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30
($ millions) 2001 2000
- ------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 85 $ 169
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Additions to policyholder liabilities and accruals 306 237
Deferred acquisition costs (390) (446)
Amortization of deferred acquisition costs 204 97
Amounts recoverable from reinsurers (6) 72
Realized investment gains (109) (129)
Decreases (additions) to deferred income taxes 40 (25)
Amounts due from affiliates 34 367
Other assets and liabilities, net (173) (295)
Other, net 87 50
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities $ 78 $ 97
- ------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Fixed-maturity securities sold, matured or repaid $ 7,511 $ 4,355
Fixed-maturity securities purchased (7,454) (4,682)
Equity securities sold 180 692
Equity securities purchased (419) (458)
Mortgage loans advanced (212) (104)
Mortgage loans repaid 124 218
Real estate sold 42 50
Real estate purchased (20) (46)
Policy loans advanced, net (173) (108)
Short-term investments (147) (77)
Other investments, net (18) 218
- ------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities $ (586) $ 58
- ------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Deposits and interest credited to policyholder account balances $ 1,401 $ 910
Withdrawals from policyholder account balances (1,064) (1,175)
Net reinsurance recoverable 33 71
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities $ 370 $ (194)
- ------------------------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents during the period $ (138) $ (39)
Cash and cash equivalents at beginning of year 164 131
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, END OF PERIOD $ 26 $ 92
========================================================================================================================
See accompanying notes.
4
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
(IN MILLIONS OF DOLLARS)
(UNAUDITED)
1. ORGANIZATION
The Manufacturers Life Insurance Company (U.S.A.) ("ManUSA") is an
indirectly wholly-owned subsidiary of Manulife Financial Corporation, a
Canadian-based publicly traded company. Manulife Financial Corporation and
its subsidiaries are collectively known as "Manulife Financial". ManUSA
and its subsidiaries, collectively known as the "Company", operate in the
life insurance industry, offering a broad range of insurance related
products. These products are offered both on an individual and group basis
and are marketed primarily in the United States.
In December of 2000 through an issue of shares, the Company acquired the
remaining 21.6% minority interest in Manulife-Wood Logan Holding Co. Inc,
a subsidiary of the Company, from MRL Holding, LLC ("MRL-LLC"), an
affiliated company. As this was a related party transaction, the purchase
was accounted for at MRL-LLC's carrying value and no goodwill was
generated.
2. SIGNIFICANT ACCOUNTING POLICIES
a) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of the
Company have been prepared in accordance with accounting principles
generally accepted in the United States ("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. Operating results for the nine months ended
September 30, 2001 are not necessarily indicative of the results that may
be expected for the full year ending December 31, 2001.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
b) RECENT ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 141, "Business Combinations"
and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141
requires the purchase method of accounting to be used for all future
business combinations. SFAS No. 142 eliminates the practice of amortizing
goodwill through periodic charges to earnings and establishes a new
methodology for recognizing and measuring goodwill and other intangible
assets. Under this new accounting standard, the Company will cease
goodwill amortization on January 1, 2002. Goodwill amortization for full
year 2001 is not expected to be material and would have been approximately
the same amount in 2002 under accounting standards currently in effect.
The Company is currently considering the other provisions of the new
standard. The impact of adopting these two standards on the Company's
financial statements is not expected to be material.
5
3. DERIVATIVE FINANCIAL INSTRUMENTS
Effective January 1, 2001 with the adoption of the Financial Accounting
Standards Board Statement No. 133 - "Accounting for Derivative Instrument
and Hedging Activities", and Statement No. 138 "Accounting for Certain
Derivatives and Certain Hedging Activities", all derivative instruments
are reported on the Consolidated Balance Sheets at their fair value, with
changes in fair value recorded in income or equity, depending on the use
of the derivative instrument. Changes in the fair value of derivatives
that are not designated as hedges are recognized in current period
earnings.
The Company has entered into a reinsurance agreement with an unaffiliated
reinsurer to reinsure the risk associated with the "Guaranteed Retirement
Income Program", a rider offered on one of the variable annuity products
sold. This rider is designed to protect the policyholder against adverse
investment market movements. As a result, there is an embedded derivative
within this agreement that has an estimated fair market value of $276 as
at September 30, 2001, and is reflected in the Consolidated Balance Sheets
as part of "Amounts recoverable from reinsurers". The related $276
estimated fair value of the obligation to the policyholder has been
reflected in the Consolidated Balance Sheets as part of "Policyholder
liabilities and accruals". There was no cumulative effect on surplus in
the consolidated financial statements of the Company upon the adoption of
these accounting statements.
4. COMPREHENSIVE INCOME
Total comprehensive income was as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
COMPREHENSIVE INCOME (LOSS):
($ millions) 2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------
NET (LOSS) INCOME $ (20) $ 35 $ 85 $ 169
- ----------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized holding gains (losses) arising
during the period 5 (38) (111) (32)
Foreign currency translation (16) -- (29) (5)
Less:
Reclassification adjustment for realized
gains (losses) included in net (loss) income (1) (43) 55 75
- ----------------------------------------------------------------------------------------------
Other comprehensive income (loss) (10) 5 (195) (112)
- ----------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME (LOSS) $ (30) $ 40 $ (110) $ 57
==============================================================================================
Other comprehensive loss is reported net of taxes payable (recoverable) of
$3 and $3 for the three months and ($89) and ($58) for the nine months
ended September 30, 2001 and 2000, respectively.
6
Accumulated other comprehensive income is comprised of the following:
AS AT AS AT
($ millions) SEPTEMBER 30, 2001 DECEMBER 31, 2000
- -----------------------------------------------------------------------------------
UNREALIZED GAINS :
Beginning balance $ 290 $ 132
Current period change (166) 158
- -----------------------------------------------------------------------------------
Ending balance $ 124 $ 290
- -----------------------------------------------------------------------------------
FOREIGN CURRENCY:
Beginning balance $ (7) $ (4)
Current period change (29) (3)
- -----------------------------------------------------------------------------------
Ending balance $ (36) $ (7)
- -----------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME $ 88 $ 283
===================================================================================
5. CONTINGENCIES
The Company has provided for the estimated costs of settlement in these
consolidated financial statements based on the terms of the settlement.
The Company and its subsidiaries are subject to legal actions arising in
the ordinary course of business. These legal actions are not expected to
have a material adverse effect on the consolidated financial position of
the Company.
6. CODIFICATION
In March 1998, the National Association of Insurance Commissioners adopted
codified statutory accounting principles ("Codification") effective
January 1, 2001. Codification changes prescribed statutory accounting
practices and results in changes to the accounting practices that the
Company's life insurance subsidiaries use to prepare their statutory-basis
financial statements. The states of domicile of these subsidiaries adopted
Codification as the prescribed basis of accounting on which insurers must
report their statutory-basis results. The cumulative effect of changes in
accounting principles adopted to conform to the requirements of
Codification was reported as an increase to surplus in the statutory-basis
financial statement of the respective life insurance subsidiaries. In
total, statutory-basis surplus of the life insurance entities within the
Company increased by $182.
7. SUBSEQUENT EVENT
Subject to the approval of state and federal regulators and effective for
January 1, 2002, it is the intention of management to merge all of the
operations of The Manufacturers Reinsurance Corporation (U.S.A.) ("MRC"),
the direct parent company of ManUSA, into the operations of ManUSA
beginning on that date. As a result, products currently sold and
administered under the name of MRC will be offered and administered under
the name of ManUSA.
7
PART II
OTHER INFORMATION
PART II. OTHER INFORMATION
Representation of Insurer Pursuant to Section 26 of the Investment Company Act
of 1940
The Manufacturers Life Insurance Company (U.S.A.) hereby represents that
the fees and charges deducted under the policies issued pursuant to this
registration statement in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed
by the Company.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet;
Cross-Reference Sheet;
The Prospectus, consisting of 192 pages;
Representation of Insurer Pursuant to Section 26 of the Investment Company Act
of 1940
The signatures;
Written consents of the following persons:
A. Ernst & Young LLP -- FILED HEREWITH
B. Opinion and Consent of Actuary -- FILED HEREWITH
C. Opinion and Consent of James D. Gallagher, Attorney -- FILED
HEREWITH
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 (U.S.A.) establishing Separate Account A.
-- FILED HEREWITH
A(3)(a)(i) Form of Distribution Agreement. Incorporated by Reference to
Exhibit A(3)(a)(i) to the registration statement on Form
S-6, file number 333-66303 filed October 29, 1998 (the "SVUL
Registration Statement").
A(3)(a)(ii) Form of Amendment to Distribution Agreement. Incorporated by
reference to Exhibit A(3)(a)(ii) to the "SVUL Registration
Statement.
A(3)(a)(iii) Form of Amendment to Distribution Agreement. Incorporated by
reference to Exhibit A(3)(a)(iii) to the SVUL Registration
Statement.
A(3)(b)(i) Form of broker-dealer agreement. Incorporated by Reference
to Exhibit A(3)(B)(i) to the registration statement on Form
S-6, file number 333-71134 filed October 5, 2001 (the
"ACCUMULATOR Registration Statement").
A(5)(a) Form of Flexible Premium Variable Life Insurance Policy --
Incorporated by reference to Exhibit A(5)(a) to
post-effective amendment no. 1 to the registration statement
on Form S-6, file number 333-45970 filed April 25, 2001.
A(6)(a) Restated Articles of Redomestication of The Manufacturers
Life Insurance Company (U.S.A.) -- Incorporated by reference
to Exhibit A(6) to the registration statement filed July 20,
2000 (File No. 333-41814) (the "Initial Registration
Statement").
A(6)(b) By-Laws of The Manufacturers Life Insurance Company (U.S.A.)
-- Incorporated by reference to Exhibit A(6)(b) to the
Initial Registration Statement.
A(8)(a)(i) Form of 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) Form of 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) Form of 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) Form of 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) Form of 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) Form of 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) Form of Amendment to Service Agreement between The Manufacturers
Life Insurance Company and The Manufacturers Life Insurance
Company of America dated December 31, 1998. Incorporated by
reference to Exhibit A(8)(a)(vii) to post-effective amendment No.
11 to the registration statement on Form N-4, file number
33-57018 filed March 1, 1999.
A(8)(b) Form of Stoploss Reinsurance Agreement. Incorporated by reference
to Exhibit A(8)(b) to the SVUL Registration Statement.
A(8)(c)(i) Form of Service Agreement. 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) Form of Amendment to Service Agreement. 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(10)(a)(i) Form of 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)(a)(ii) Form of Rider for Flexible Premium Variable Life Insurance Policy
Incorporated by reference to Exhibit A(10)(a)(ii) to post
effective amendment no. 1 to the registration statement on Form
S-6, file number 333-69719, filed February 25, 2000.
A(10)(b) Form of 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.
A(10)(c) Form of Assumption Reinsurance Agreement with The Manufacturers
Life Insurance Company (U.S.A.) and The Manufacturers Life
Insurance Company of America - Incorporated by reference to
exhibit A(10)(c) to the ACCUMULATOR Registration Statement.
2. Consents of the following:
A. Opinion and consent of James D. Gallagher, Esq., Secretary and General
Counsel of The Manufacturers Life Insurance Company (U.S.A.) - FILED
HEREWITH
B. Opinion and consent of Naveed Irshad, Pricing Actuary, of The
Manufacturers Life Insurance Company (U.S.A.) - FILED HEREWITH
C. Consent of Ernst & Young LLP (Philadelphia, Pennsylvania) - FILED
HEREWITH
3. No financial statements are omitted from the prospectus pursuant to
instruction 1(b) or (c) of Part I.
4. Not applicable.
6. Memorandum Regarding Issuance, Face Amount Increase, Redemption and Transfer
Procedures for the Policies. Incorporated by reference to Exhibit A(6) to
post-effective amendment no. 1 to the registration statement on Form S-6,
file number 333-45970 filed April 25, 2001.
7. Powers of Attorney
(i) (Robert A. Cook, John DesPrez III, Geoffrey Guy, James
O'Malley, Joseph J. Pietroski, Rex Schlaybaugh)
incorporated by reference to exhibit 7 to initial
registration statement on Form S-6, file number 333-41814
filed July 20, 2000 on behalf of The Manufacturers Life
Insurance Company (U.S.A.).
(ii) Powers of Attorney (John Ostler). Incorporated by
reference to exhibit 7 to the ACCUMULATOR Registration
Statement.
(iii) Powers of Attorney (Jim Boyle, John Lyon). Incorporated by
reference to exhibit 7 to the ACCUMULATOR Registration
Statement.
8. Undertakings
Article XII of the Restated Articles of Redomestication of The Manufacturers
Life Insurance Company (U.S.A.) provides as follows:
No director of this Corporation shall be personally liable to the Corporation
or its shareholders or policyholders for monetary damages for breach of the
director's fiduciary duty, provided that the foregoing shall not eliminate or
limit the liability of a director for any of the following:
i) a breach of the director's duty or loyalty to the Corporation or its
shareholders or policyholders;
ii) acts or omissions not in good faith or that involve intentional misconduct
or knowing violation of law;
iii) a violation of Sections 5036, 5276 or 5280 of the Michigan Insurance Code,
being MCLA 500.5036, 500.5276 and 500.5280;
iv) a transaction from which the director derived an improper personal benefit;
or
v) an act or omission occurring on or before the date of filing of these
Articles of Incorporation.
If the Michigan Insurance Code is hereafter amended to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the Corporation, in addition to the limitation on personal liability
contained herein, shall be eliminated or limited to the fullest extent permitted
by the Michigan Insurance Code as so amended. No amendment or repeal of this
Article XII shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to the effective date of any such
amendment or repeal.
Notwithstanding the foregoing, Registrant hereby makes the following undertaking
pursuant to Rule 484 under the Securities Act of 1933:
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue].
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant and the Depositor and have caused this pre-effective amendment to the
Registration Statement to be signed on their behalf in the City of Boston,
Massachusetts, on this 1st day of January, 2002.
SEPARATE ACCOUNT A OF
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
(Registrant)
By: THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
(Depositor)
By: /s/ John D. DesPrez III
---------------------------
John D. DesPrez III
President
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
By: /s/John D. DesPrez III
---------------------------
John D. DesPrez III
President
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
pre-effective amendment to the Registration Statement has been signed by the
following persons in the capacities indicated on this 1st day of January, 2002.
Signature Title
- --------- -----
/s/ John D. DesPrez III Chairman and President
- -------------------------- (Principal Executive Officer)
John D. DesPrez III
*
- -------------------------- Vice President and
John Ostler (Chief Financial Officer)
*
- -------------------------- Director
James Boyle
*
- -------------------------- Director
Robert A. Cook
*
- -------------------------- Director
John Lyon
*
- -------------------------- Director
Geoffrey Guy
*
- -------------------------- Director
James O'Malley
*
- -------------------------- Director
Rex Schlaybaugh, Jr.
* /s/ James D. Gallagher
- -------------------------
JAMES D. GALLAGHER
Pursuant to Power of Attorney
EXHIBIT INDEX
Item No. Description
A(1) Resolutions of Board of Directors of The Manufacturers Life
Insurance Company (U.S.A.) establishing Separate Account A.
2(A) Opinion and consent of James D. Gallagher, Esq., Secretary and
General Counsel of The Manufacturers Life Insurance Company
(U.S.A.)
2(B) Opinion and consent of Naveed Irshad, Pricing Actuary, of The
Manufacturers Life Insurance Company (U.S.A.)
2(C) Consent of Ernst & Young LLP (Philadelphia, Pennsylvania)