As filed with the Securities and Exchange Commission on January 2, 2002
Registration No. 333-_____
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
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
SEPARATE ACCOUNT 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.
2
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
SEPARATE ACCOUNT A
Registration Statement on Form S-6
Cross-Reference Sheet
Form
N-8B-2
Item No. Caption in Prospectus / (*** Caption in Prospectus Supplement)
1 - Cover Page; General Information About Manufacturers Life of America,
Separate Account Three, and NASL Series Trust (Manufacturers Life of
America's Separate Account Three); (***General Information About
Manulife USA, The Separate Accounts and the Trust)
2 - Cover Page; General Information About Manufacturers Life of
America, Separate Account Three, and NASL Series Trust (Manufacturers
Life Of America And Manufacturers Life); (***General Information About
Manulife USA, The Separate Accounts and the Trust)
3 - *
4 - Miscellaneous Matters (Distribution of the Policy); (***Other
Information - Distribution of the Policies)
5 - General Information About Manufacturers Life Of America, Separate
Account Three, and NASL Series Trust (Manufacturers Life of America's
Separate Account Three); (***General Information About Manulife USA,
The Separate Accounts and the Trust)
6 - General Information About Manufacturers Life of America, Separate
Account Three, and NASL Series Trust (Manufacturers Life of America's
Separate Account Three); (***General Information About Manulife USA,
The Separate Accounts and the Trust)
7 - *
8 - *
9 - Miscellaneous Matters (Pending Litigation); (***Other Information -
Litigation)
10 - Detailed Information About The Policies
11 - General Information About Manufacturers Life Of America, Separate
Account Three, and NASL Series Trust (NASL Series Trust); (***General
Information About Manulife USA, The Separate Accounts and the Trust)
12 - General Information About Manufacturers Life Of America, Separate
Account Three, and NASL Series Trust (NASL Series Trust) ); (***General
Information About Manulife USA, The Separate Accounts and the Trust)
13 - Detailed Information About The Policies (Charges and Deductions);
(***Investment Management Fees and Expenses)
14 - Detailed Information About the Policies (Premium Provisions -Policy
Issue and Initial Premium); Miscellaneous Matters (Responsibilities
Assumed By Manufacturers Life); (***Other Information -
Responsibilities of Manufacturers Life)
15 - Detailed Information About The Policies (Premium Provisions -- Policy
Issue and Initial Premium)
16 - **
17 - Detailed Information About The Policies (Policy Values - Partial
Withdrawals and Surrenders); Other Provisions -- Payment of Proceeds)
- ----------
* Omitted since answer is negative or item is not applicable.
** Omitted.
Form
N-8B-2
Item No. Caption in Prospectus / (*** Caption in Prospectus Supplement)
18 - General Information About Manufacturers Life Of America, Separate
Account Three, and NASL Series Trust; (***General Information About
Manulife USA, The Separate Accounts and the Trust)
19 - Detailed Information About The Policies (Other Provisions - Reports To
Policyowners); Miscellaneous Matters (Responsibilities Assumed By
Manufacturers Life); (***Other Information - Responsibilities of
Manufacturers Life)
20 - *
21 - Detailed Information About The Policies
22 - *
23 - **
24 - Detailed Information About the Policies (Other General Policy
Provisions)
25 - General Information About Manufacturers Life Of America, Separate
Account Three, and NASL Series Trust (Manufacturers Life Of America And
Manufacturers Life); (***General Information About Manulife USA, The
Separate Accounts and the Trust)
26 - *
27 - **
28 - Miscellaneous Matters (The Directors And Officers Of Manufacturers Life
Of America); (***Other Information - Officers and Directors of Manulife
USA)
29 - General Information About Manufacturers Life Of America, Separate
Account Three, and NASL Series Trust (Manufacturers Life Of America And
Manufacturers Life); (***General Information About Manulife USA, The
Separate Accounts and the Trust)
30 - *
31 - *
32 - *
33 - *
34 - *
35 - **
36 - *
37 - *
38 - Miscellaneous Matters (Distribution of the Policy; Responsibilities
Assumed By Manufacturers Life); (***Other Information -- Distribution
of the Policies; Other Information -- Responsibilities of Manufacturers
Life)
39 - Miscellaneous Matters (Distribution of the Policy); (***Other
Information -- Distribution of the Policies)
40 - *
41 - **
42 - *
43 - *
44 - Detailed Information About The Policies (Policy Values - PolicyValue)
45 - *
46 - Detailed Information About The Policies (Policy Values - Partial
Withdrawals and Surrenders; Other Provisions -- Payment of Proceeds)
Form
N-8B-2
Item No. Caption in Prospectus / (*** Caption in Prospectus Supplement)
47 - General Information About Manufacturers Life Of America, Separate
Account Three, and NASL Series Trust (NASL Series Trust); (***General
Information About Manulife USA, The Separate Accounts and the Trust)
48 - *
49 - *
50 - General Information About Manufacturers Life Of America, Separate
Account Three, and NASL Series Trust (Manufacturers Life Of America's
Separate Account Three); (***General Information About Manulife USA,
The Separate Accounts and the Trust)
51 - Detailed Information About The Policies
52 - Detailed Information About The Policies (Miscellaneous Matters --
Portfolio Share Substitution)
53 - **
54 - *
55 - *
56 - *
57 - *
58 - *
59 - Financial Statements
- ----------
* Omitted since answer is negative or item is not applicable.
** Omitted.
PART I
PROSPECTUS
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
SEPARATE ACCOUNT A
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
SEPARATE ACCOUNT N
OF
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
38500 Woodward Avenue
Bloomfield Hills, Michigan 78304
SUPPLEMENT
DATED JANUARY 2, 2002 TO:
PROSPECTUS FOR THE MANUFACTURERS LIFE INSURANCE COMPANY
OF AMERICA SEPARATE ACCOUNT THREE DATED MAY 1, 1999
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE CONTRACTS
(VENTURE VUL)
PROSPECTUS FOR THE MANUFACTURERS LIFE INSURANCE COMPANY
OF AMERICA SEPARATE ACCOUNT THREE DATED MAY 1, 1998
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE UNIVERSAL LIFE CONTRACTS
(VENTURE SVUL)
PROSPECTUS FOR THE MANUFACTURERS LIFE INSURANCE COMPANY
OF AMERICA SEPARATE ACCOUNT FOUR DATED MAY 1, 1998
FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE CONTRACTS
(VENTURE COLI VUL)
This supplement updates certain information in the attached prospectus
which you received for the variable life insurance policy (the "Policy") you
purchased from The Manufacturers Life Insurance Company of America
("ManAmerica"). This supplement, together with the prospectus described above,
constitutes the current prospectus ("Prospectus") for such Policy. The Policies
are no longer being offered for sale, but policyowners may continue to make
purchase payments under the Policies, make withdrawals from the separate
accounts in which the Policies are funded, and transfer amounts among the
sub-accounts available under the Policies.
THE DATE OF THIS PROSPECTUS IS JANUARY 2, 2002.
TABLE OF CONTENTS
PAGE
Change in Depositor for the Separate Accounts................. 2
Investment Management Fees and Expenses....................... 2
General Information about Manulife USA, the Separate
Accounts and the Trust........................................ 6
Investment Options and Subadvisers............................ 7
Other Information............................................. 13
Illustrations................................................. 16
Independent Auditors.......................................... 16
Financial Statements.......................................... 16
CHANGE IN DEPOSITOR FOR THE SEPARATE ACCOUNTS
Effective January 1, 2002, ManAmerica transferred substantially all of its
assets and liabilities to The Manufacturers Life Insurance Company (U.S.A.)
("Manulife USA", the "Company", "we" or "us"). As a result of the transfer, each
of the separate accounts of ManAmerica named below has been renamed as the
corresponding separate account of Manulife USA indicated below (the "Separate
Accounts"). In addition, Manulife USA became the depositor for each of the
Separate Accounts and the co-issuer with each Separate Account of the Policies
funded through that Separate Account.
Former Separate Account Corresponding New Separate
of ManAmerica Policies Account of Manulife USA
- ------------- -------- -----------------------
The Manufacturers Life Insurance Company Venture VUL The Manufacturers Life Insurance
of America Separate Account Three Venture SVUL Company (U.S.A.) Separate Account A
The Manufacturers Life Insurance Company Venture COLI VUL The Manufacturers Life Insurance
of America Separate Account Four Company (U.S.A.) Separate Account N
Except for the succession of Manulife USA to the role of depositor for
each of the Separate Accounts and to the liabilities and obligations arising
under the Policies, and the change in the name of each of the Separate Accounts
as set forth above, the merger and the transfer did not affect the Separate
Accounts or any provisions of, any rights and obligations under, or any of your
allocations among investment options under, the Policies.
INVESTMENT MANAGEMENT FEES AND EXPENSES
(Supplements information in the Prospectus under the captions "Introduction to
Policy - Charges and Deductions," "Summary of Policy -- Charges and Deductions"
or similar captions)
Each sub-account of the Separate Accounts purchases shares of one of
the separate investment portfolios ("Portfolios") of Manufacturers Investment
Trust (the "Trust") 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.
2
TABLE OF INVESTMENT MANAGEMENT FEES AND EXPENSES
TRUST ANNUAL EXPENSES (CLASS A SHARES)
(as a percentage of Trust average net assets for the fiscal year ended December
31, 2000)(I)
TOTAL TRUST
CLASS A OTHER EXPENSES ANNUAL EXPENSES
MANAGEMENT RULE 12b-1 (BEFORE EXPENSE (BEFORE EXPENSE
TRUST PORTFOLIO FEES FEES REIMBURSEMENT) REIMBURSEMENT)
- ---------------------------------------------------------------------------------------------------
Internet Technologies...... 1.000% 0.150% 0.130% 1.280%(B)
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% 0.050% 1.116%
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%(B)
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% 0.190% 1.190%
International Value........ 0.850% 0.150% 0.180% 1.180%
Capital Appreciation....... 0.750% 0.150% 0.700%(H) 1.600%(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% 0.045% 0.908%
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)
Equity Index(I)............ 0.250% 0.000% 0.150% 0.400%
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% 0.065% 0.940%
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%
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%
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. With such expense
reimbursement in effect, "Other Expenses" and "Total Trust Annual
Expenses" for the fiscal year ended December 31, 2000 were 0.050% and
0.600%, respectively, for the International Index Trust, 0.075% and
0.600%, respectively, for the Small Cap Index Trust, 0.075% and
0.600%, respectively, for the Mid Cap Index Trust and 0.075% and
0.600%, respectively, for the Total Stock Market Index Trust. It is
estimated that the expense reimbursement will not be effective during
the year ending 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) exceeds 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.
As a result of such expense reimbursement, "Other Expenses" and "Total
Trust Annual Expenses" were 0.500% and 1.400%, respectively. These
voluntary expense reimbursements may be terminated at any time.
(I) The Liquidity Index Trust is available only for Policies issued for
applications dated prior to May 1, 2000.
(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>
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% 0.125% 0.650%(A)
International Index 0.400% 0.150% 0.100% 0.650%(B)
Mid Cap Index 0.375% 0.150% 0.165% 0.690%(B)
Total Stock Market Index 0.375% 0.150% 0.095% 0.620%(B)
500 Index 0.375% 0.150% 0.025% 0.550%(B)
Lifestyle Aggressive 1000 0.070% 0.000% 1.063% 1.133%(C)
Lifestyle Growth 820 0.055% 0.000% 0.976% 1.031%(C)
Lifestyle Balanced 640 0.055% 0.000% 0.902% 0.957%(C)
Lifestyle Moderate 460 0.064% 0.000% 0.851% 0.915%(C)
Lifestyle Conservative 280 0.075% 0.000% 0.816% 0.891%(C)
</Table>
(A) Based on estimates to be made during the current fiscal year.
(B) Reflects expenses of the Underlying Portfolios.
(C) The investment advisor 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. With
such expense reimbursement in effect for the fiscal year ended December 31,
2000, Total Trust Annual Expenses were reduced as set forth in the chart
below:
<Table>
<Caption>
TOTAL TRUST
MANAGEMENT RULE OTHER ANNUAL
TRUST PORTFOLIO FEES 12b-1 FEES EXPENSES EXPENSES
- --------------- ---------- ---------- -------- -----------
Lifestyle Aggressive 1000 0.070% 0.000% 1.038% 1.108%
Lifestyle Growth 820 0.055% 0.000% 0.966% 1.021%
Lifestyle Balanced 640 0.055% 0.000% 0.892% 0.947%
Lifestyle Moderate 460 0.064% 0.000% 0.826% 0.890%
Lifestyle Conservative 280 0.075% 0.000% 0.784% 0.859%
</Table>
(D) Each Lifestyle Trust will invest in shares of the Underlying Portfolios.
Therefore, each Lifestyle Trust will bear its pro rata share of the fees
and expenses incurred by the Underlying Portfolios in which it invests, and
the investment return of each Lifestyle Trust will be net of the
Underlying Portfolio expenses. Each Lifestyle Portfolio must bear its own
expenses. However, the Adviser is currently paying certain of these
expenses as described in footnote (C) above.
(E) Annualized - For the period May 1, 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, the Blue Chip Growth Trust, the
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%
5
GENERAL INFORMATION ABOUT MANULIFE USA, THE SEPARATE ACCOUNTS AND THE TRUST
(Replaces information in the Prospectus under a similar caption)
MANULIFE USA
Manulife USA is a stock life insurance company incorporated in Maine on
August 20, 1955 by a special act of the Maine legislature and re-domesticated
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 and
have our home office located at 38500 Woodward Avenue, Bloomfield Hills,
Michigan 48304. Our ultimate parent is Manulife Financial Corporation ("MFC"), a
publicly traded company based in Toronto, Canada. MFC is the holding company of
The Manufacturers Life Insurance Company ("Manufacturers Life") and its
subsidiaries, collectively known as Manulife Financial. Manufacturers Life is
one of the largest life insurance companies in North America and ranks among the
60 largest life insurers in the world as measured by assets. However, neither
Manufacturers Life nor any of its affiliated companies guarantees the investment
performance of the Separate Accounts.
RATINGS
Manufacturers Life and Manulife USA have received the following ratings
from independent rating agencies:
Standard and Poor's Insurance Ratings Service: AA+ (for financial strength)
A.M. Best Company: A++ (for financial strength)
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 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 ACCOUNTS
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A,
formerly The Manufacturers Life Insurance Company of America Separate Account
Three, was established by ManAmerica 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, as a result of the transfer of substantially
all of the assets and liabilities of ManAmerica to Manulife USA, as described
above, Manulife USA became the owner of substantially all of ManAmerica's
assets, including all the assets of this Separate Account, and assumed
substantially all of ManAmerica's obligations, including all those under the
Policies funded through this Separate Account. This Separate Account is
currently used only to support variable life insurance policies.
The Manufacturers Life Insurance Company (U.S.A.) Separate Account N,
formerly The Manufacturers Life Insurance Company of America Separate Account
Four, was established by ManAmerica on March 17, 1987 as a separate account
under Pennsylvania law. Since December 9, 1992, it has been operated under
Michigan law. On January 1, 2002, as a result of the transfer of substantially
all of the assets and liabilities of ManAmerica to Manulife USA, as described
above, Manulife USA became the owner of substantially all of ManAmerica's
assets, including all the assets of this Separate Account, and assumed
substantially all of ManAmerica's obligations, including all those under the
Policies funded through this Separate Account. This Separate Account is
currently used only to support variable life insurance policies.
Manulife USA is the legal owner of the assets of each of the Separate
Accounts. The income, gains and losses of each of the Separate Accounts, whether
or not realized, are, in accordance with the applicable Policies, credited to or
charged against that Separate Account without regard to the other
6
income, gains or losses of Manulife USA. Manulife USA will at all times maintain
assets in each of the Separate Accounts with a total market value at least equal
to the reserves and other liabilities relating to variable benefits under all
policies participating in that Separate Account. These assets may not be charged
with liabilities which arise from any other business Manulife USA conducts.
However, all obligations under the Policies are general corporate obligations of
Manulife USA.
Each of the Separate Accounts is registered with the Securities and
Exchange Commission ("SEC") under the Investment Company Act of 1940 Act, 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 shares of one or more investment companies, rather than in a portfolio
of unspecified securities. Registration under the 1940 Act does not involve
supervision by the SEC of the management or investment policies or practices of
the Separate Accounts. For state law purposes, each of the Separate Accounts is
treated as a part or division of Manulife USA.
THE TRUST
Premiums under the Policies are allocated, in accordance with the
applicable Policy, to one or more of the sub-accounts of the applicable Separate
Account. Under certain Policies, premiums may also be allocated to a guaranteed
interest account or a fixed account. As stated above, the assets of each
sub-account of the Separate Accounts are used to purchase Class A shares of a
particular Portfolio of the Trust. The Trust is registered under the 1940 Act as
an open-end management investment company.
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 ultimate parent of MSS is
MFC. The Trust also employs subadvisers.
INVESTMENT OPTIONS AND SUBADVISERS
The Trust currently has twenty-five subadvisers which manage all of the
Portfolios. One of the subadvisers is Manufacturers Adviser Corporation ("MAC"),
which is an affiliate of ours. The Table of Investment Options and Investment
Subadvisers shows the subadvisers that provide investment subadvisory services
to the indicated Portfolios.
TABLE OF INVESTMENT OPTIONS AND INVESTMENT SUBADVISERS
SUBADVISER / PORTFOLIO SUBADVISER/ PORTFOLIO
- ---------------------- ---------------------
A I M Capital Management, Inc. Manufacturers Adviser Corporation (cont'd)
All Cap Growth Trust Quantitative Mid Cap Trust
Aggressive Growth Trust Equity Index Trust
Money Market Trust
Brinson Advisors, Inc. (formerly, Mitchell Index Trusts
Hutchins Asset Management Inc.) Lifestyle TrustsB
Tactical Allocation Trust Balanced Trust
Capital Guardian Trust Company Massachusetts Financial Services Company
Small Company Blend Trust Strategic Growth Trust
U.S. Large Cap Value Trust Capital Opportunities Trust
Income & Value Trust Utilities Trust
Diversified Bond Trust
Miller Anderson & Sherrerd, LLP
Cohen & Steers Capital Management, Inc. Value Trust
Real Estate Securities Trust High Yield Trust
Davis Select Advisers, L.P. Munder Capital Management
Financial Services Trust Internet Technologies Trust
Fundamental Value Trust
7
Pacific Investment Management Company
The Dreyfus Corporation Global Bond Trust
All Cap Value Trust Putnam Investment Management, L.L.C.
Mid Cap Opportunities Trust
Fidelity Management & Research Company Global Equity Trust
Strategic Opportunities TrustA
Large Cap Growth Trust Salomon Brothers Asset Management Inc.
Overseas Trust U.S. Government Securities Trust
Strategic Bond Trust
Founders Asset Management LLC
International Small Cap Trust SSgA Funds Management, Inc.
Growth Trust
Franklin Advisers, Inc. Lifestyle TrustsB
Emerging Small Company Trust
T. Rowe Price Associates, Inc.
INVESCO Funds Group, Inc. Science & Technology Trust
Telecommunications Trust Small Company Value Trust
Mid Cap Growth Trust Health Sciences Trust
Blue Chip Growth Trust
Janus Capital Corporation Equity-Income Trust
Dynamic Growth Trust
T. Rowe Price International, Inc.
Jennison Associates LLC International Stock Trust
Capital Appreciation Trust
Templeton Investment Counsel, Inc.
Lord, Abbett & Co. International Value Trust
Mid Cap Value Trust
Wellington Management Company, LLP
Manufacturers Adviser Corporation Growth & Income Trust
Pacific Rim Emerging Markets Trust Investment Quality Bond Trust
Quantitative Equity Trust Mid Cap Stock 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.
ELIGIBLE PORTFOLIOS OF THE TRUST
The Portfolios of the Trust which are eligible investment options under
the Policies, and the investment objectives and certain policies of these
Portfolios, are set forth below.
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.
8
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.
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.
9
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.
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.
10
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.
The TACTICAL ALLOCATION TRUST seeks total return, consisting of long-term
capital appreciation and current income, by allocating the portfolio's assets
between (i) a stock portion that is designed to track the performance of the S&P
500 Composite Stock Price Index, and (ii) a fixed income portion that consists
of either five-year U.S. Treasury notes or U.S. Treasury bills with remaining
maturities of 30 days.
The EQUITY INDEX TRUST seeks to achieve investment results which approximate the
total return of publicly traded common stocks which are included in the S&P 500
Composite Stock Price Index.
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.
11
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.
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 500 Index Trust is not an eligible
investment option under the Policies.
12
The LIFESTYLE AGGRESSIVE 1000 TRUST seeks to provide long-term growth of capital
(current income is not a consideration) by investing 100% of the Lifestyle
Trust's assets in other portfolios of the Trust ("Underlying Portfolios") which
invest primarily in equity securities.
The LIFESTYLE GROWTH 820 TRUST seeks to provide long-term growth of capital with
consideration also given to current income by investing approximately 20% of the
Lifestyle Trust's assets in Underlying Portfolios which invest primarily in
fixed income securities and approximately 80% of its assets in Underlying
Portfolios which invest primarily in equity securities.
The LIFESTYLE BALANCED 640 TRUST seeks to provide a balance between a high level
of current income and growth of capital with a greater emphasis given to capital
growth by investing approximately 40% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 60% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The LIFESTYLE MODERATE 460 TRUST seeks to provide a balance between a high level
of current income and growth of capital with a greater emphasis given to current
income by investing approximately 60% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 40% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The LIFESTYLE CONSERVATIVE 280 TRUST seeks to provide a high level of current
income with some consideration also given to growth of capital by investing
approximately 80% of the Lifestyle Trust's assets in Underlying Portfolios which
invest primarily in fixed income securities and approximately 20% of its assets
in Underlying Portfolios which invest primarily in equity securities.
*"Standard & Poor's(R)," "S&P 500(R)," "Standard and Poor's 500(R)" and
"Standard and Poor's 400(R)" are trademarks of The McGraw-Hill Companies, Inc.
"Russell 2000(R)" is a trademark of Frank Russell Company. "Wilshire 5000(R)" is
a trademark of Wilshire Associates. "Morgan Stanley European Australian Far East
Free" and "EAFE(R)" are trademarks of Morgan Stanley & Co. Incorporated. None of
the Index Trusts are sponsored, endorsed, managed, advised, sold or promoted by
any of these companies, and none of these companies makes any representation
regarding the advisability of investing in the Trust.
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.
OTHER INFORMATION
(Supplements information in the Prospectus under the captions "Distribution of
the Policy," "Pending Litigation" and "Responsibilities of Manufacturers Life"
or similar captions)
DISTRIBUTION OF THE POLICIES
Manulife Financial Securities LLC ("Manulife Securities"), an indirect
wholly-owned subsidiary of MFC, is the principal underwriter of 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, and the following officers of Manulife USA have power to act on behalf of
Manulife Securities: John DesPrez* (Chairman and President), John Ostler** (Vice
President and Chief Financial Officer) and James Gallagher* (Vice President,
Secretary and General Counsel). The board of managers of Manulife Securities
(consisting of Gary Buchanan**, Robert Cook* and John Vrysen***) may also act on
behalf of Manulife Securities.
* Principal business office is 73 Tremont Street, Boston, MA 02108
** Principal business office is 200 Bloor Street, Toronto, Canada M4W 1E5
13
***Principal business office is 680 Washington Blvd, Stamford, CT 06901
LITIGATION
There is no pending litigation that would have a material impact on
Manulife USA or the Separate Accounts.
RESPONSIBILITIES OF MANUFACTURERS LIFE
Manufacturers Life and Manulife USA have entered into an agreement with
Manulife Securities pursuant to which Manufacturers Life or Manulife USA, 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
Manufacturers Life or Manulife USA for all sales commissions paid by
Manufacturers Life or Manulife U.S.A and will pay Manufacturers Life or Manulife
USA for its other services under the agreement in such amounts and at such times
as agreed to by the parties.
MFC has also entered into a Service Agreement with Manulife USA pursuant
to which MFC will provide Manulife USA with issue, administrative and general
services and recordkeeping functions on behalf of Manulife USA with respect to
all of its insurance policies, including the Policies.
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 contracts 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.
OFFICERS AND DIRECTORS OF MANULIFE USA
(Replaces information in the Prospectus under the similar caption)
Position with
Name Manulife USA Principal Occupation
- --------------------------------------------------------------------------------------------------------------
James Boyle (42)** Director President of U.S. Annuities, Manulife 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. Cook Senior Vice President, Senior Vice President, U.S. Individual Insurance, The
(45)** U.S. Insurance; Director Manufacturers Life Insurance Company, January 1999 to
present; Vice President, Product Management, The Manufacturers
Life Insurance Company, January 1996 to December 1998; Sales
and Marketing Director, The Manufacturers Life Insurance
Company, 1994 to 1995.
Peter Copestake Vice President, Finance Vice President & Treasurer, The Manufacturers Life Insurance
(45)*** Company, November 1999 to 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. DesPrez Chairman and President Executive Vice President, U.S. Operation, The Manufacturers
III (44)** Life Insurance Company, January 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.
14
Position with
Name Manulife USA Principal Occupation
- --------------------------------------------------------------------------------------------------------------
James D. Gallagher Vice President, Vice President, US Law and Government Relations, U.S.
(45)** Secretary and General Operations, The Manufacturers Life Insurance Company, January
Counsel 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 Guloien Executive Vice President Executive Vice President & Chief Investment Officer, The
(44)*** and Chief Investment Manufacturers Life Insurance Company, March 2001 to Present;
Officer Executive Vice 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 Manufacturers
(53)*** 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(48) *** Vice President and Chief Vice President & Chief Financial Officer, Investments, The
Financial Officer, Manufacturers Life Insurance Company; April 2001 to
Investments; Director Present; Vice President, Business Development, The
Manufacturers Life Insurance Company, 1995-2001; Assistant
Vice President, Business Development, The Manufacturers Life
Insurance Company, 1994-1995; Director/Manager, Corporate
Finance, The Manufacturers Life Insurance Company, 1992-1994.
James O'Malley Senior Vice President, Senior Vice President, U.S. Pensions, The Manufacturers Life
(54)*** U.S. Group Pension; Insurance Company, January 1999 to present; Vice President,
Director Systems New Business Pensions, The Manufacturers Life
Insurance Company, 1984 to December 1998.
Rex Schlaybaugh, Director Member, Dykema Gossett, PLLC, 1982 to present.
Jr. (51)****
John Ostler (47)** Vice President and Chief Vice President and Chief Financial Officer, U.S. Operations,
Financial Officer The Manufacturers Life Insurance Company, October 1, 2000 to
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 Thomson Senior Vice President, Senior Vice President, Investments, The Manufacturers Life
(46)*** Investments Insurance Company, May 2001 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 and Vice President and Chief Accountant, U.S. Division, The
15
Position with
Name Manulife USA Principal Occupation
- --------------------------------------------------------------------------------------------------------------
(44)*** Treasurer 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.
- --------------------------------------------------------------------------------------------------------------
**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.
ILLUSTRATIONS
(Supplements the "Sample Illustrations of Policy Values, Cash Surrender Values
and Death Benefits" appearing in the Prospectus or an Appendix thereto)
The Company is not providing updated illustrations of policy values,
cash surrender values and death benefits because the Policies are no longer
being sold.
INDEPENDENT AUDITORS
(Replaces information in the Prospectus under the caption "Experts")
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, as applicable, (i) the
financial statements of Separate Account Three of The Manufacturers Life
Insurance Company of America at December 31, 2000 and 1999, and for each of the
two years in the period ended December 31, 2000 (applicable with respect to the
Venture VUL and Venture SVUL Policies), or (ii) the financial statements of
Separate Account Four of The Manufacturers Life Insurance Company of America at
December 31, 2000 and 1999, and for each of the two years in the period ended
December 31, 2000 (applicable with respect to the Venture COLI VUL Policies),
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.
FINANCIAL STATEMENTS
The financial statements of Manulife USA included in this Prospectus
should be distinguished from the financial statements of the applicable Separate
Account and should be considered only as bearing upon the ability of Manulife
USA to meet its obligations under the Policies.
16
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
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
PROSPECTUS
THE MANUFACTURERS LIFE INSURANCE
COMPANY OF AMERICA
SEPARATE ACCOUNT THREE
VENTURE VUL
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
This prospectus describes the flexible premium variable life insurance policy
(the "Policy") issued by The Manufacturers Life Insurance Company of America
("Manufacturers Life of America" or the "Company"). The Policies are designed to
provide lifetime insurance protection together with flexibility as to
- the timing and amount of premium payments,
- the investments underlying the Policy Value and
- the amount of insurance coverage.
This flexibility allows you, the policyowner, to pay premiums and adjust
insurance coverage in light of your current financial circumstances and
insurance needs.
Policy Value may be accumulated on a fixed basis or vary with the investment
performance of the sub-accounts of Manufacturers Life of America's Separate
Account Three (the "Separate Account").
We use the assets of each sub-account to purchase shares of a particular
investment portfolio ("Portfolio") of Manufacturers Investment Trust. The
accompanying prospectus for Manufacturers Investment Trust and the corresponding
statement of additional information describe the investment objectives of the
Portfolios in which you may invest net premiums. The Portfolios available to you
are set forth under the subheading "Eligible Portfolios." Other sub-accounts and
Portfolios may be added in the future.
You should ask a Manulife Financial representative if changing, or adding to,
existing insurance coverage would be advantageous. You should note that it may
not be advisable to purchase a Policy as a replacement for existing insurance.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT IS
VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS FOR MANUFACTURERS INVESTMENT
TRUST.
The Securities and Exchange Commission maintains a Web site (http://www.sec.gov)
that contains material incorporated by reference and other information regarding
registrants that file electronically with the Commission.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Manufacturers Life Insurance Service Office:
Company of America 200 Bloor Street East
500 N. Woodward Avenue Toronto, Ontario, Canada M4W 1E5
Bloomfield Hills, Michigan 48304 TELEPHONE: 1-800-827-4546
(1-800-VARILIN[E])
THE DATE OF THIS PROSPECTUS IS MAY 1, 1999.
PROSPECTUS CONTENTS
PAGE
----
INTRODUCTION TO POLICIES .....................................................1
GENERAL INFORMATION ABOUT MANUFACTURERS
LIFE OF AMERICA SEPARATE ACCOUNT THREE
AND MANUFACTURERS INVESTMENT TRUST..........................................7
Manufacturers Life of America And Manufacturers Life.....................7
Manufacturers Life of America's Separate Account Three...................7
Manufacturers Investment Trust...........................................8
DETAILED INFORMATION ABOUT THE POLICIES......................................11
PREMIUM PROVISIONS...........................................................11
Policy Issue And Initial Premium........................................11
Premium Allocation......................................................12
Premium Limitations.....................................................12
Short-Term Cancellation Right And "Free Look" Provisions................12
PROVISIONS FOR AVOIDING LAPSE................................................13
No Lapse Guarantee......................................................13
Death Benefit Guarantee.................................................14
INSURANCE BENEFIT............................................................15
The Insurance Benefit...................................................15
Death Benefit Options...................................................15
Death Benefit Option Changes............................................16
Face Amount Changes.....................................................17
POLICY VALUES................................................................18
Policy Value............................................................18
Transfers Of Policy Value...............................................18
Policy Loans............................................................19
Partial Withdrawals And Surrenders......................................22
Charges and Deductions..................................................22
Deductions From Premiums................................................23
Surrender Charges.......................................................23
Monthly Deductions......................................................30
Administration Charge...................................................30
Cost Of Insurance Charge................................................30
Mortality And Expense Risks Charge......................................31
Other Charges...........................................................31
Special Provisions For Group Or Sponsored Arrangements..................33
Special Provisions For Exchanges........................................34
The General Account.....................................................34
OTHER GENERAL POLICY PROVISIONS..............................................34
Policy Default..........................................................34
Policy Reinstatement....................................................34
Miscellaneous Policy Provisions.........................................35
OTHER PROVISIONS.............................................................36
Supplementary Benefits..................................................36
Payment Of Proceeds.....................................................36
Reports To Policyowners.................................................36
MISCELLANEOUS MATTERS........................................................36
Portfolio Share Substitution............................................36
ii
Federal Income Tax Considerations.......................................37
Tax Status Of The Policy................................................37
Tax Treatment Of Policy Benefits.............................................38
The Company's Taxes.....................................................40
Distribution Of The Policy..............................................40
Responsibilities Assumed By Manufacturers Life..........................41
Voting Rights...........................................................41
Directors And Officers Of Manufacturers Life of America.................42
Year 2000 Issues........................................................44
State Regulations.......................................................45
Pending Litigation......................................................45
Additional Information..................................................45
Independent Auditors....................................................45
Financial Statements........................................................F-1
Appendices..................................................................A-1
A. Sample Illustrations Of Policy Values, Cash Surrender
Values And Death Benefits..............................................A-1
B. Definitions............................................................B-1
C. Deferred Sales Charge Tables...........................................C-1
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION WHERE THE
OFFERING WOULD NOT BE LAWFUL. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED
IN THIS PROSPECTUS OR IN THE PROSPECTUS OR STATEMENT OF ADDITIONAL INFORMATION
OF MANUFACTURERS INVESTMENT TRUST. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH INFORMATION THAT IS DIFFERENT.
You are urged to examine this prospectus carefully. The INTRODUCTION TO POLICIES
will briefly describe the Flexible Premium Variable Life Insurance Policy. More
detailed information will be found within.
iii
INTRODUCTION TO POLICIES
The following summary is intended to provide a general description of the most
important features of the Policy. It is not a complete description. You should
read all of this prospectus in order to fully understand the provisions of the
Policy.
GENERAL
The Policy provides a death benefit in the event of the death of the life
insured to the person you name as the beneficiary.
You may pay premiums at any time and in any amount, subject to certain
limitations.
You may instruct us as to how your premiums, net of certain deductions, will be
allocated. You may choose among the general account and the sub-accounts of
Manufacturers Life of America's Separate Account Three. The premiums you
allocate to the sub-accounts of Separate Account Three are invested in shares of
a particular Portfolio of Manufacturers Investment Trust. You may change your
instructions as to how premiums should be allocated at any time. You may also
transfer amounts among the sub-accounts subject to certain restrictions (see
"Transfers of Policy Value").
The Portfolios currently available to you are set forth beginning on the inside
front cover of this prospectus. In the future we may make available other
sub-accounts and Portfolios.
The Policy has a Policy Value reflecting premiums you have paid, the investment
performance of the accounts to which you have allocated premiums, and certain
charges for expenses and cost of insurance. You may obtain a portion of the
Policy Value by taking a policy loan or a partial withdrawal, or by full
surrender of the Policy.
DEATH BENEFIT
DEATH BENEFIT OPTIONS. You choose one of two death benefit options:
- a death benefit equal to the face amount of the Policy, or
- a death benefit equal to the face amount of the Policy plus the Policy
Value.
Under either option, the death benefit may have to be increased to satisfy the
so-called "corridor percentage test" under the definition of life insurance in
the Internal Revenue Code. See DETAILED INFORMATION ABOUT THE POLICIES:
INSURANCE BENEFIT -- "The Insurance Benefit" and "Death Benefit Options."
YOU MAY CHANGE THE DEATH BENEFIT OPTION. You may change the death benefit option
after the Policy has been in force for two years. See Detailed Information About
The Policies; Insurance Benefit -- "Death Benefit Option Changes."
YOU MAY INCREASE THE FACE AMOUNT. After the Policy has been in force for two
years, you may increase the face amount of the Policy once per policy year. You
may have to furnish satisfactory evidence of your insurability. Usually a Policy
will have new surrender charges after an increase. See DETAILED INFORMATION
ABOUT THE POLICIES; INSURANCE BENEFIT -- "Face Amount Changes."
YOU MAY DECREASE THE FACE AMOUNT. After the Policy has been in force for two
years, you may decrease the face amount once per policy year, except during the
two-year period following any increase in face amount. A decrease in face amount
may result in the deduction of surrender charges. At any time during the
two-year period following an increase, you may choose to cancel the increase.
See DETAILED INFORMATION ABOUT THE POLICIES; INSURANCE BENEFIT -- "Face Amount
Changes."
1
PREMIUM PAYMENTS ARE FLEXIBLE
You may pay premiums at any time and in any amount, subject to certain
limitations. See DETAILED INFORMATION ABOUT THE POLICIES; PREMIUM PROVISIONS --
"Policy Issue" and "Premium Limitations."
You must pay at least the Initial Premium to put the Policy in force. See
DETAILED INFORMATION ABOUT THE POLICIES; PREMIUM PROVISIONS -- "Policy
Limitations" and "Death Benefit Guarantee."
After the Initial Premium is paid there is no minimum premium required. However,
by complying with certain tests reflecting the amount of premiums paid, you can
ensure that the Policy will not go into default for the first three policy
years. For Policies with a face amount of at least $250,000, the protection
against default extends beyond the three year period. See DETAILED INFORMATION
ABOUT THE POLICIES; PREMIUM PROVISIONS -- "Death Benefit Guarantee."
The Policy is subject to maximum premium limitations to ensure that it qualifies
as life insurance under rules defined in the Internal Revenue Code. See DETAILED
INFORMATION ABOUT THE POLICIES; PREMIUM PROVISIONS -- "Premium Limitations."
THE POLICY VALUE
The Policy has a Policy Value which reflects the following:
- the premium payments you have made;
- the investment performance of the sub-accounts to which you have
allocated net premiums;
- the interest we have credited to amounts allocated to our general
account;
- any partial withdrawals you have made;
- and charges we have deducted under the Policy.
The Policy Value is the sum of the values in the Investment Accounts, the Fixed
Account and the Loan Account.
INVESTMENT ACCOUNT. We establish an Investment Account under the Policy for each
sub-account of the Separate Account to which you have allocated net premiums or
have transferred amounts. An Investment Account measures the interest of the
Policy in the corresponding sub-account.
The value of each Investment Account under the Policy varies each Business Day
and reflects the investment performance of the Portfolio shares held in the
corresponding sub-account. See DETAILED INFORMATION ABOUT THE POLICIES; Policy
Values -- "Policy Value."
FIXED ACCOUNT. The Fixed Account consists of that portion of the Policy Value
based on net premiums allocated to, and amounts transferred to, the general
account of the Company. We credit interest on amounts in the Fixed Account at an
effective annual rate guaranteed to be at least 4%. See DETAILED INFORMATION
ABOUT THE POLICIES and The General Account.
LOAN ACCOUNT. When you make a policy loan, we will establish a Loan Account
under the Policy. We will transfer an amount from the Investment Accounts and
the Fixed Account to the Loan Account.
We will credit interest to amounts in the Loan Account at an effective annual
rate of at least 4%. The actual rate credited on loan amounts will be the rate
charged on loan amounts less an interest rate differential, currently 1.75%. For
Select Loan
2
Amounts the interest rate differential is currently 0%. This is subject to
change in certain circumstances. See DETAILED INFORMATION ABOUT THE POLICIES;
Policy Values -- "Policy Loans."
TRANSFERS ARE PERMITTED. You may transfer amounts among the sub-accounts of
Separate Account Three and our general account, subject to certain restrictions.
We permit twelve transfers per policy year at no cost to you. Transfers in
excess of that will cost $25 per transfer. If you request more than one transfer
at the same time, we will treat your requests as a single request.
Certain restrictions may apply to transfer requests. See DETAILED INFORMATION
ABOUT THE POLICIES; Policy Values -- "Policy Value."
USING THE POLICY VALUE
BORROWING AGAINST THE POLICY VALUE. You may borrow against the Policy Value. The
minimum loan amount is $500.
Loan interest will be charged on a fixed basis at an effective annual rate of
5.75%. See DETAILED INFORMATION ABOUT THE POLICIES; Policy Values -- "Policy
Loans."
YOU MAY MAKE A PARTIAL WITHDRAWAL OF THE POLICY VALUE. After a Policy has been
in force for two years, you may make a partial withdrawal of the Policy Value.
The minimum amount you may withdraw is $500. You may specify that the withdrawal
is to be made from a specific Investment Account or the Fixed Account.
A partial withdrawal may result in a reduction in the face amount of the Policy.
It may also result in the assessment of a portion of the surrender charges to
which the Policy is subject. See DETAILED INFORMATION ABOUT THE POLICIES; Policy
Values -- "Partial Withdrawals and Surrenders" and Charges and Deductions --
"Surrender Charges."
THE POLICY MAY BE SURRENDERED FOR ITS NET CASH SURRENDER VALUE. The Net Cash
Surrender Value is equal to the Policy Value less surrender charges, outstanding
monthly deductions due and the value of the Loan Account. Surrender of a Policy
during the Surrender Charge Period will usually result in assessment of
surrender charges. See Detailed Information About the Policies; Policy Values --
"Partial Withdrawals and Surrenders" and Charges and Deductions -- "Surrender
Charges."
CHARGES AND DEDUCTIONS
1) DEDUCTIONS FROM PREMIUMS.
- we reserve the right to make a charge for state, local and federal
taxes in an amount not to exceed 3.60% (in Oregon no state premium tax
is deducted).
2) SURRENDER CHARGES. We usually deduct a deferred underwriting charge and a
deferred sales charge if, during the Surrender Charge Period:
- you surrender the Policy for its Net Cash Surrender Value,
- you make a partial withdrawal in excess of the Withdrawal Tier Amount,
- you decrease the face amount of the Policy, or
- the Policy lapses.
The deferred underwriting charge is $6 for each $1,000 of face amount of life
insurance coverage initially or added by increase.
3
In effect, the charge applies only to the first $500,000 of face amount
initially purchased or the first $500,000 of each subsequent increase in face
amount. Thus, the charge made in connection with any one underwriting will not
exceed $3,000.
The full amount of the deferred underwriting charge will be in effect for five
years following Policy issue. Beginning in the sixth year these charges grade
downward over a maximum ten-year period. See DETAILED INFORMATION ABOUT THE
POLICIES; Charges And Deductions -- "Surrender Charges."
The maximum deferred sales charge is 50% of premiums paid up to a maximum number
of Target Premiums that varies (from -0.180 to 3.031) according to the issue age
of the life insured, the face amount at issue and the amount of any increase.
Subject to compliance with the sales charge limitation provisions described
below, the maximum deferred sales charge will be in effect for at least the
first two years of the Surrender Charge Period. After that, the portion of the
deferred sales charge that remains in effect will grade down at a rate that also
varies according to the issue age of the life insured, until at the end of the
Surrender Charge Period there is no deferred sales charge. See DETAILED
INFORMATION ABOUT THE POLICIES -- "Charges And Deductions" -- Surrender Charges.
Because of the sales charge limitation described below, the deferred sales
charge assessable under the Policy may increase at the beginning of the third
policy year.
If you increase the face amount, the surrender charges applicable to the
increase will be those rates that would apply if a Policy were issued to the
life insured at his or her then attained age and based on the amount of the
increase.
LIMITATIONS OF SALES CHARGES. If the Policy is surrendered at any time during
the first two years following issuance or following an increase in face amount
or if you cancel the increase during the two-year period following the increase,
then we may forego deducting the maximum deferred sales charge applicable to the
Policy or the increase. See DETAILED INFORMATION ABOUT THE POLICIES; Charges and
Deductions -- "Surrender Charges." If you surrender the Policy after that
two-year period, the full amount of the applicable sales charge will apply.
3) MONTHLY DEDUCTIONS. At the beginning of each policy month we deduct from the
Policy Value:
- an administration charge of $35 per month until the first policy
anniversary; thereafter $10 per month (the right is reserved to
increase the administration charge by an additional amount of up to
$.01 per $1,000 of face amount per
- a charge for the cost of insurance,
- a charge for mortality and expense risks of .90% per annum through the
later of the tenth policy anniversary and your attained age 60 and,
thereafter,.45% per annum (This charge is assessed against the value
of your investment accounts.), and
- charge(s) for any supplementary benefit(s) added to the Policy.
At the Company's discretion, the policy owner may request that the sum of all
charges assessed monthly be deducted from the Fixed Account or one of the
sub-accounts of the Separate Account.
The cost of insurance charge varies based on the net amount at risk under the
Policy and the applicable cost of insurance rate. Cost of insurance rates vary
according to issue age, the duration of the coverage, sex (unless unisex rates
are required by law), any additional risk ratings indicated in the policy, and
risk class of the life insured. The maximum cost of insurance rate we charge
will not exceed the 1980 Commissioners Standard Ordinary Smoker/Nonsmoker
Mortality Tables. However, any additional ratings as indicated in the Policy
will be added to the cost of insurance rate. See DETAILED INFORMATION ABOUT THE
POLICIES; Charges and Deductions --"Monthly Deductions."
4
If the Policy is still in force when the life insured attains age 100, we will
not take any further monthly deductions from the Policy Value.
4) OTHER CHARGES. Charges will be imposed on certain transfers of Policy Values,
including a $25 charge for each transfer in excess of twelve per policy year and
a $5 charge for each Dollar Cost Averaging transfer if Policy Value does not
exceed $15,000. See Policy Values -- "Transfers Of Policy Value."
INVESTMENT MANAGEMENT FEES AND EXPENSES
The Separate Account purchases shares of the Portfolios at net asset value. The
net asset value of those shares reflects investment management fees and certain
expenses. The Trust (excluding the Lifestyle Trusts) pays investment management
fees that range from 0.25% to 1.10% of the assets of the Portfolios. In
addition, the Portfolios' other expenses range from between 0.04% and 0.36% of
the assets of the Portfolios (excluding the Lifestyle Trusts). Because each
Lifestyle Trust invests in shares of other Portfolios, each bears its pro rata
shares of the fees and expenses incurred by the other 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. These fees and
expenses are described in detail in the accompanying Trust prospectus to which
reference should be made.
We reserve the right to charge or establish a provision for any federal, state
or local taxes that may be attributable to the Separate Account or our
operations with respect to the Policies. This charge or provision for taxes
would be in addition to the deductions for state, local and federal taxes
currently being made.
SUPPLEMENTARY BENEFITS
You may choose to add certain supplementary benefits to the Policy. These
supplementary benefits include
- an accidental death benefit,
- life insurance for additional insured persons,
- acceleration of benefits in the event of terminal illness,
- a disability benefit to waive the cost of monthly deductions, and
- an option to ensure a guaranteed Policy Value.
The cost of any supplementary benefits will be deducted from the Policy Value
monthly. See DETAILED INFORMATION ABOUT THE POLICIES; Other Provisions --
"Supplementary Benefits."
DEFAULT
Unless the Death Benefit Guarantee is in effect, the Policy will go into default
if the Net Cash Surrender Value at the beginning of any policy month would go
below zero after deducting the monthly charges then due. The Policy will not go
into default if the policy qualifies for the Death Benefit Guarantee. We will
send a notice to you if the Policy goes into default. It will allow a grace
period in which you may make a premium payment sufficient to bring the Policy
out of default. If you do not pay the required premium during the grace period,
the Policy will terminate. See DETAILED INFORMATION ABOUT THE POLICIES; Premium
Provisions -- "Policy Default."
DEATH BENEFIT GUARANTEE
5
A death benefit guarantee is available under Policies issued and maintained with
a minimum face amount of $250,000. As long as the Cumulative Premium Test or,
where applicable, the Fund Value Test is satisfied, we guarantee that the Policy
will not go into default
- prior to the life insured's attaining age 100 if Death Benefit Option
1 is maintained throughout the life of the Policy and
- prior to the life insured's attaining age 85 if Death Benefit Option 2
is selected at any time, regardless of the investment performance of
the Funds underlying the Policy Value.
Under Policies with face amounts of less than $250,000 there is no Death Benefit
Guarantee after the third policy anniversary. The Death Benefit Guarantee is not
available under Policies issued in the state of New Jersey. See DETAILED
INFORMATION ABOUT THE POLICIES; Premium Provisions -- "Death Benefit Guarantee."
REINSTATEMENT
If your Policy is terminated, you may have it reinstated within either the
21-day or five-year period following the date of termination, providing certain
conditions are met. See DETAILED INFORMATION ABOUT THE POLICIES; Premium
Provisions -- "Policy Reinstatement."
FREE LOOK
You may return a Policy for a refund of premium within the later of:
- 10 days after you receive the Policy,
- 45 days after you sign the application for the Policy, or
- 10 days after we mail or deliver a notice of this right of withdrawal.
If you request an increase in face amount which results in new surrender
charges, the "free look" provision will also apply to the increase. See DETAILED
INFORMATION ABOUT THE POLICIES; PREMIUM PROVISIONS -- "Short-Term Cancellation
Right and 'Free Look' Provisions."
FEDERAL TAX MATTERS
We believe that a Policy issued on a standard risk class basis should meet the
definition of a life insurance contract as set forth in Section 7702 of the
Internal Revenue Code of 1986. With respect to a Policy issued on a substandard
basis, there is less guidance available to determine if such a Policy would
satisfy the Section 7702 definition of a life insurance contract, particularly
if the policyowner pays the full amount of premiums permitted under such a
Policy. If your Policy qualifies as a life insurance contract for Federal income
tax purposes, you should not be deemed to be in constructive receipt of Policy
Value under a Policy until there is a distribution from the Policy. Moreover,
death benefits payable under a Policy should be completely excludable from the
gross income of the beneficiary. As a result, the beneficiary generally should
not be taxed on these proceeds. See MISCELLANEOUS MATTERS -- FEDERAL INCOME TAX
CONSIDERATIONS -- (TAX STATUS OF THE POLICY).
Under certain circumstances, a Policy may be treated as a "Modified Endowment
Contract." If the Policy is a Modified Endowment Contract, then all pre-death
distributions, including Policy loans, will be treated first as a distribution
of taxable income and then as a return of investment in the Policy. In addition,
prior to age 59 1/2 any such distributions generally will be subject to a 10%
penalty tax. See MISCELLANEOUS MATTERS -- FEDERAL INCOME TAX CONSIDERATIONS --
(TAX TREATMENT OF POLICY BENEFITS).
6
If the Policy is not a Modified Endowment Contract, distributions generally will
be treated first as a return of investment in the Policy and then a disbursement
of taxable income. Moreover, loans will not be treated as distributions. Select
Loans may, however, be treated as taxable distributions. If you are considering
the use of systematic policy loans as one element of a comprehensive retirement
income plan, you should consult your personal tax adviser regarding the
potential tax consequences if such loans were to so reduce Policy Value that the
Policy would lapse, absent additional payments. The premium payment necessary to
avert lapse would increase with the age of the insured. Finally, neither
distributions nor loans under a Policy that is not a Modified Endowment Contract
are subject to the 10% penalty tax. See MISCELLANEOUS MATTERS -- FEDERAL INCOME
TAX CONSIDERATIONS -- (DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED
ENDOWMENT CONTRACTS).
The United States Congress has in the past considered, and in the future may
consider legislation that, if enacted, could change the tax treatment of life
insurance policies. In addition, the Treasury Department may amend existing
regulations, or adopt new interpretations of existing laws, state tax laws or,
if the policyowner is not a United States resident, foreign tax laws, which may
affect the tax consequences to him or her, the lives insured or the beneficiary.
These laws may change from time to time without notice and, as a result, the tax
consequences may be altered. There is no way of predicting whether, when or in
what form any such change would be adopted. Any such change could have a
retroactive effect regardless of the date of enactment. We suggest that you
consult a tax adviser.
ESTATE AND GENERATION-SKIPPING TAX
The proceeds of this life insurance policy may be taxable under Estate and
Generation-Skipping Tax provisions of the Internal Revenue Code. You should
consult your tax adviser regarding these taxes.
GENERAL INFORMATION ABOUT MANUFACTURERS LIFE OF AMERICA, SEPARATE ACCOUNT THREE,
AND MANUFACTURERS INVESTMENT TRUST
MANUFACTURERS LIFE OF AMERICA AND MANUFACTURERS LIFE
We are a stock life insurance company governed by the laws of Michigan. We are
licensed to do business as a life insurance company in the District of Columbia
and all states of the United States except New York. We are an indirect
wholly-owned subsidiary of The Manufacturers Life Insurance Company
("Manufacturers Life"), a mutual life insurance company based in Toronto,
Canada. Manufacturers Life and its subsidiaries, together, constitute one of the
largest life insurance companies in North America and rank among the 60 largest
life insurers in the world as measured by assets.
We and Manufacturers Life have received the following ratings from independent
rating agencies: Standard and Poor's Insurance Rating Service -- AA+ (for
financial strength), A.M. Best Company -- A++ (for financial strength), Duff &
Phelps Credit Rating Co. -- AAA (for claims paying ability), and Moody's
Investors Service, Inc. - Aa2 (for financial strength). Neither we nor
Manufacturers Life guarantees the investment performance of the Separate
Account.
MANUFACTURER'S LIFE OF AMERICA SEPARATE ACCOUNT THREE
We established Separate Account Three on August 22, 1986. The Separate Account
holds assets that are segregated from all of our other assets. The Separate
Account is currently used only to support variable life insurance policies.
We are 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 our other income, gains or losses.
We 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 we
conduct. However, our obligations under the policies are part of our general
corporate obligations.
7
The Separate Account is registered with the Securities and Exchange Commission
("S.E.C.") under the Investment Company Act of 1940 ("1940 Act") as a unit
investment trust. A unit investment trust is a type of investment company which
invests its assets in specified securities, such as the shares of one or more
investment companies, rather than in a portfolio of unspecified securities.
Registration under the 1940 Act does not involve any supervision by the S.E.C.
of the management or investment policies or practices of the Separate Account.
For state law purposes the Separate Account is treated as a part or division of
Manufacturers Life of America.
MANUFACTURERS INVESTMENT TRUST
We invest the assets of each sub-account of the Separate Account in shares of a
particular Portfolio of Manufacturers Investment Trust. The Trust is registered
under the 1940 Act as an open-end management investment company. It receives
investment advisory services from Manufacturers Securities Services, LLC.
Manufacturers Securities Services, LLC is a registered investment adviser under
the Investment Advisers Act of 1940. It too is an indirect wholly-owned
subsidiary of Manufacturers Life.
Manufacturers Investment Trust employs sub-advisers to perform the securities
selection process. The sub-adviser for each Portfolio is identified in the
description of the eligible Portfolios set forth commencing on the inside front
cover of this prospectus.
The Separate Account purchases and redeems shares of Manufacturers Investment
Trust at net asset value. Any dividend or capital gain distribution received
from a Portfolio will be reinvested immediately at net asset value in shares of
that Portfolio and retained as assets of the corresponding sub-account.
The list of Portfolios in which you may invest under the Policy and the
investment objectives and certain policies of those Portfolios is set forth
below. A full description of Manufacturers Investment Trust, its investment
objectives, policies and restrictions, the risks associated therewith, its
expenses, and other aspects of its operation is contained in the accompanying
Manufacturers Investment Trust prospectus, which should be read together with
this prospectus.
We use shares of Manufacturers Investment Trust to support benefits under both
variable annuity contracts and variable life insurance policies that we or life
insurance companies affiliated with us issue. We also purchase shares through
our general account for certain limited purposes including providing initial
portfolio seed money. For a description of the procedures for handling potential
conflicts of interest arising from the funding of benefits under both types of
policies, you should review the accompanying Manufacturers Investment Trust
prospectus.
ELIGIBLE PORTFOLIOS
The Portfolios of Manufacturers Investment Trust available under the Policies
are as follows:
The PACIFIC RIM EMERGING MARKETS TRUST seeks long-term growth of capital by
investing in a diversified portfolio that is comprised primarily of common
stocks and equity-related securities of corporations domiciled in countries in
the Pacific Rim region.
The SCIENCE & TECHNOLOGY TRUST seeks long-term growth of capital. Current income
is incidental to the portfolio's objective.
The INTERNATIONAL SMALL CAP TRUST seeks capital appreciation by investing
primarily in securities issued by foreign companies which have total market
capitalization or annual revenues of $1 billion or less. These securities may
represent companies in both established and emerging economies throughout the
world.
The AGGRESSIVE GROWTH TRUST (formerly, the Pilgrim Baxter Growth Trust) seeks
long-term capital appreciation by investing the portfolio's asset principally in
common stocks, convertible bonds, convertible preferred stocks and warrants of
companies which in the opinion of the subadviser are expected to achieve
earnings growth over time at a rate in excess of 15% per year. Many of these
companies are in the small and medium-sized category.
8
The EMERGING SMALL COMPANY TRUST (formerly, the Emerging Growth Trust) seeks
long-term growth of capital by investing, under normal market conditions, at
least 65% of the portfolio's total assets in common stock equity securities of
small capitalization ("small cap") growth companies. In general, companies in
which the portfolios invests will have market cap values of less than $1.5
billion at the time of purchase.
The SMALL COMPANY BLEND TRUST seeks long-term growth of capital and income by
investing the portfolio's assets, under normal market conditions, primarily in
equity and equity-related securities of companies with market capitalization
between $50 million and $1 billion.
The MID CAP GROWTH TRUST (formerly, the Small/Mid Cap Trust) seeks long-term
capital appreciation by investing the portfolio's assets principally in common
stocks, with emphasis on medium-sized and smaller emerging growth companies.
The MID CAP STOCK TRUST seeks long-term growth of capital by investing primarily
in equity securities of companies with market capitalizations that approximately
match the range of capitalization of the Wilshire Mid Cap 750 Index.
The OVERSEAS TRUST (formerly, the International Growth & Income Trust) seeks
growth of capital by investing, under normal market conditions, at least 65% of
the portfolios' assets in foreign securities (including American Depositary
Receipts (ADRs) and European Depositary Receipts (EDRs). The portfolios expects
to invest primarily in equity securities.
The INTERNATIONAL STOCK TRUST seeks long-term growth of capital by investing
primarily in common stocks of established, non-U.S. companies.
The INTERNATIONAL VALUE TRUST seeks long-term growth of capital by investing,
under normal market conditions, primarily in equity securities of companies
located outside the U.S., including in emerging markets.
The MID CAP BLEND TRUST (formerly, the Equity Trust) seeks growth of capital by
investing primarily in common stocks of United States issuers and securities
convertible into or carrying the right to buy common stocks.
The SMALL COMPANY VALUE TRUST seeks long term growth of capital by investing in
equity securities of smaller companies which are traded principally in the
markets of the United States.
The GLOBAL EQUITY TRUST seeks long-term capital appreciation by investing
primarily in equity securities throughout the world, including U.S. issuers and
emerging markets.
The GROWTH TRUST seeks long-term growth of capital by investing primarily in
large capitalization growth securities (market capitalizations of approximately
$1 billion or greater).
The LARGE CAP GROWTH TRUST (formerly, the Aggressive Asset Allocation Trust)
seeks long-term growth of capital by investing, under normal market conditions,
at least 65% of the portfolio's assets in equity securities of companies with
large market capitalizations.
The QUANTITATIVE EQUITY TRUST seeks to achieve intermediate and long-term growth
through capital appreciation and current income by investing in common stocks
and other equity securities of well established companies with promising
prospects for providing an above average rate of return.
The BLUE CHIP GROWTH TRUST seeks to achieve long-term growth of capital (current
income is a secondary objective) and many of the stocks in the portfolio are
expected to pay dividends.
The REAL ESTATE SECURITIES TRUST seeks to achieve a combination of long-term
capital appreciation and satisfactory current income by investing in real estate
related equity and debt securities.
9
The VALUE TRUST seeks to realize an above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in common and preferred stocks, convertible securities, rights and
warrants to purchase common stocks, ADRs and other equity securities of
companies with equity capitalizations usually greater than $300 million.
The EQUITY INDEX TRUST seeks to achieve investment results which approximate the
aggregate total return of publicly traded common stocks which are included in
the Standard & Poor's 500 Composite Stock Price.
The GROWTH & INCOME TRUST seeks long-term growth of capital and income,
consistent with prudent investment risk, by investing primarily in a diversified
portfolio of common stocks of United States issuers which the subadviser
believes are of high quality.
The U.S. LARGE CAP TRUST seeks long-term growth of capital and income by
investing the portfolio's assets, under normal market conditions, primarily in
equity and equity-related securities of companies with market capitalization
greater than $500 million.
The EQUITY-INCOME TRUST seeks to provide substantial dividend income and also
long-term capital appreciation by investing primarily in dividend-paying common
stocks, particularly of established companies with favorable prospects for both
increasing dividends and capital appreciation.
The INCOME & VALUE TRUST (formerly, the Moderate Asset Allocation Trust) seeks
the balanced accomplishment of (a) conservation of principal and (b) long-term
growth of capital and income by investing the portfolio's assets in both equity
and fixed-income securities. The subadviser has full discretion to determine the
allocation between equity and fixed-income securities.
The BALANCED TRUST seeks current income and capital appreciation by investing in
a balanced portfolio of common stocks, U.S. and foreign government obligations
and a variety of corporate fixed-income securities.
The HIGH YIELD TRUST seeks to realize an above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in high yield debt securities, including corporate bonds and
other fixed-income securities.
The STRATEGIC BOND TRUST seeks a high level of total return consistent with
preservation of capital by giving its subadviser broad discretion to deploy the
portfolio's assets among certain segments of the fixed-income market as the
subadviser believes will best contribute to achievement of the portfolio's
investment objective.
The GLOBAL BOND TRUST (formerly, the Global Government Bond Trust) seeks to
realize maximum total return, consistent with preservation of capital and
prudent investment management by investing the portfolio's asset primarily in
fixed income securities denominated in major foreign currencies, baskets of
foreign currencies (such as the ECU), and the U.S. dollar.
The TOTAL RETURN TRUST seeks to realize maximum total return, consistent with
preservation of capital and prudent investment management by investing, under
normal market conditions, at least 65% of the portfolio's assets in a
diversified portfolio of fixed income securities of varying maturities. The
average portfolio duration will normally vary within a three- to six- year time
frame based on PIMCO's forecast for interest rates.
The INVESTMENT QUALITY BOND TRUST seeks a high level of current income
consistent with the maintenance of principal and liquidity, by investing
primarily in a diversified portfolio of investment grade corporate bonds and
U.S. Government bonds with intermediate to longer term maturities. The portfolio
may also invest up to 20% of its assets in non-investment grade fixed income
securities.
The DIVERSIFIED BOND TRUST (formerly, the Conservative Asset Allocation Trust)
seeks high total return as is consistent with the conservation of capital by
investing at least 75% of the portfolio's assets in fixed-income securities.
10
The U.S. GOVERNMENT SECURITIES TRUST seeks a high level of current income
consistent with preservation of capital and maintenance of liquidity, by
investing in debt obligations and mortgage-backed securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
derivative securities such as collateralized mortgage obligations backed by such
securities.
The MONEY MARKET TRUST seeks maximum current income consistent with preservation
of principal and liquidity by investing in high quality money market instruments
with maturities of 397 days or less issued primarily by United States entities.
The LIFESTYLE AGGRESSIVE 1000 TRUST seeks to provide long-term growth of capital
(current income is not a consideration) by investing 100% of the Lifestyle
Trust's assets in other portfolios of the Trust ("Underlying Portfolios") which
invest primarily in equity securities.
The LIFESTYLE GROWTH 820 TRUST seeks to provide long-term growth of capital with
consideration also given to current income by investing approximately 20% of the
Lifestyle Trust's assets in Underlying Portfolios which invest primarily in
fixed income securities and approximately 80% of its assets in Underlying
Portfolios which invest primarily in equity securities.
The LIFESTYLE BALANCED 640 TRUST seeks to provide a balance between a high level
of current income and growth of capital with a greater emphasis given to capital
growth by investing approximately 40% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 60% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The LIFESTYLE MODERATE 460 TRUST seeks to provide a balance between a high level
of current income and growth of capital with a greater emphasis given to high
income by investing approximately 60% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 40% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The LIFESTYLE CONSERVATIVE 280 TRUST seeks to provide a high level of current
income with some consideration also given to growth of capital by investing
approximately 80% of the Lifestyle Trust's assets in Underlying Portfolios which
invest primarily in fixed income securities and approximately 20% of its assets
in Underlying Portfolios which invest primarily in equity securities.
DETAILED INFORMATION ABOUT THE POLICIES
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 corridor
percentage test (see "Death Benefit Options").
PREMIUM PROVISIONS
POLICY ISSUE AND INITIAL PREMIUM
To purchase a Policy, you must submit a completed application. We will issue a
Policy only if it has a face amount of at least $50,000 ($100,000 for preferred
risk policies). Generally, we issue a Policy only to persons between ages 0 and
90. In certain circumstances we may in our sole discretion issue a Policy to
persons above age 90. Before issuing a Policy, we will require evidence of
insurability satisfactory to us. A life insured will have a risk class of
preferred/non-smoker, preferred/smoker, standard/non-smoker or standard/smoker
as determined by our underwriting rules. We may issue Policies to persons who
fail to meet standard underwriting requirements by assigning an additional
rating. We will accept an application if it meets our insurance underwriting
rules. Each Policy has a policy date from which policy years, policy months and
policy anniversaries are all determined. Each Policy also has an effective date
which is the date we become obligated under the Policy and when the first
monthly deductions are taken.
11
If an application is accompanied by a check for at least the Initial Premium and
we accept the application, the policy date will be the date we receive the
application and check at our Service Office. The effective date will be the date
our underwriters approve issuance of the Policy. If an application is
accompanied by a check for at least the Initial Premium, the life insured may be
covered under the terms of a conditional insurance agreement until the effective
date.
If an application that we accept is not accompanied by a check for at least the
Initial Premium, we will issue the Policy with a policy date which is seven days
after issuance of the Policy (the "issue date") and with an effective date which
is the date our Service Office receives at least the Initial Premium. In certain
situations a different policy date may be used. We must receive the Initial
Premium within 60 days after the policy date; however, we may require the
Initial Premium within 30 days on Policies issued with Additional Ratings. If
the Initial Premium is not paid or if the application is rejected, we will
cancel the Policy and return any premiums paid to the applicant.
Under certain circumstances we may issue a Policy with a backdated policy date.
A Policy will not be backdated more than six months (twelve months where allowed
by state regulation) before the date of the application for the Policy. Monthly
deductions will be made for the period the policy date is backdated.
We will credit interest on all premiums received prior to the effective date of
a Policy from the date of receipt at the rate of return then being earned on
amounts allocated to the Money Market Trust. On the effective date, we will
allocate the premiums paid plus interest credited, net of deductions for
federal, state and local taxes, among the Investment Accounts or the Fixed
Account in accordance with the your instructions.
We will allocate all premiums received on or after the effective date of the
Policy among the Investment Accounts or the Fixed Account as of the date the
premiums were received at our Service Office. Monthly deductions are due on the
policy date and at the beginning of each policy month thereafter. However, if
due prior to the effective date, they will be taken on the effective date
instead of the dates they were due.
PREMIUM ALLOCATION
You may allocate your premium payments, net of deductions, to either the Fixed
Account or to one or more of the Investment Accounts. Amounts allocated to the
Fixed Account will accumulate at an annual rate of interest equal to at least
4%. Amounts allocated to the Investment Accounts will be invested in shares of
the Portfolios held by the corresponding sub-accounts of the Separate Account.
Your allocation must be made as a percentage of the Net Premium. The percentage
may be any whole number between zero and 100, provided the total percentage
equals 100. You may change the way in which your Net Premiums are allocated at
any time without charge. The change will take effect on the date a written or
telephonic request for change, in a format satisfactory to us, is received at
our Service Office.
PREMIUM LIMITATIONS
After you pay the Initial Premium, you may pay additional premiums at any time
and in any amount during the lifetime of the life insured subject to certain
limitations. After the Initial Premium, all premiums must be paid to our Service
Office. Unlike traditional insurance, premiums are not payable at specified
intervals or in specified amounts. Your Policy will be issued with a Planned
Premium which is based on the amount of premium you wish to pay. It is
recommended that the Planned Premium be such that the Cumulative Premium Test
(see Insurance Benefits -- "Death Benefit Guarantee") will be satisfied.
We will send notices to you setting forth the Planned Premium at the payment
interval you select, unless you are making payments pursuant to a pre-authorized
payment plan. However, you are under no obligation to make the indicated
payment.
We will not accept any premium payment which is less than $50, unless the
premium is payable pursuant to a pre-authorized payment plan. In that case we
will accept a payment of as little as $10. We may change these minimums on 90
days' written notice. The Policies also limit the sum of the premiums that may
be paid at any time in order to preserve the qualification of the Policies as
life insurance for federal tax purposes. These limitations are set forth in each
Policy. We
12
reserve the right to refuse or refund any premium payments that may cause a
Policy to fail to qualify as life insurance under applicable tax law.
SHORT TERM CANCELLATION RIGHT AND "FREE LOOK" PROVISIONS
You may return a Policy for a refund of the premium
- within 10 days after it is received,
- within 45 days after the application for the Policy is signed, or
- within 10 days after we mail or deliver a notice of right of
withdrawal,
whichever is latest. The Policy can be mailed or delivered to our agent who sold
it or to our Service Office. Immediately on such delivery or mailing, the Policy
is deemed void from the beginning. Within seven days after receipt of the
returned Policy at our Service Office, we will refund any premium paid. We
reserve the right to delay the refund of any premium paid by check until the
check has cleared.
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 free look period, and the Policy Value and the surrender charges will be
recalculated to the amounts they would have been had the premiums not been paid.
PROVISIONS FOR AVOIDING LAPSE
NO LAPSE GUARANTEE
In those states where it is permitted, you may elect the No Lapse Guarantee on
Policies issued with a face amount of at least $250,000 (calculated as described
below). (In Illinois this benefit is known as Minimum Premium Guarantee.) If
elected, as long as the No Lapse Guarantee Cumulative Premium Test (see below)
is satisfied during the first five policy years, we guarantee that the Policy
will not go into default (see OTHER GENERAL PROVISIONS -- "Policy Default"). Our
guarantee applies even if a combination of Policy loans, adverse investment
experience and other factors causes the Policy's Net Cash Surrender Value to be
insufficient to meet the monthly deductions due at the beginning of a policy
month. For purposes of determining the face amount at issue for the No Lapse
Guarantee, the face amount includes any amounts purchased under the
supplementary insurance option.
The No Lapse Guarantee terminates at the end of the fifth policy year.
The No Lapse Guarantee is not offered to life insureds with an issue age
exceeding 85.
While the No Lapse Guarantee is in effect, we will determine at the beginning of
each policy month whether the No Lapse Guarantee Cumulative Premium Test,
described below, has been satisfied. If it has not been satisfied, we will
notify you of that fact and allow a 61-day grace period in which you may make a
premium payment sufficient to keep the No Lapse Guarantee in effect. This
required payment, as described in the notification to you, will be equal to the
outstanding premium required to meet the No Lapse Guarantee Cumulative Premium
Test as of the date the No Lapse Guarantee was not satisfied plus the Monthly No
Lapse Guarantee Premium due for the next two policy months.
If the required payment is not received by the end of the grace period, the No
Lapse Guarantee will terminate. Thereafter, the Policy may go into default if
the Policy's Net Cash Surrender Value is insufficient to meet the monthly
deductions due at the beginning of a policy month. A death benefit option change
will also terminate the No Lapse Guarantee if it is in effect at the time of the
change as will a decrease in face amount below $250,000. The No Lapse Guarantee
cannot be reinstated
13
after it has been terminated. See OTHER GENERAL POLICY PROVISIONS --"Policy
Default," and INSURANCE BENEFIT -- "Death Benefit Option Changes."
NO LAPSE GUARANTEE CUMULATIVE PREMIUM TEST. The No Lapse Guarantee Cumulative
Premium Test is satisfied if, as of the beginning of the policy month, the sum
of all premiums paid to date less any partial withdrawals and less any Policy
Debt is at least equal to the sum of the Monthly No Lapse Guarantee Premiums due
since the policy date.
The Monthly No Lapse Guarantee Premium is one-twelfth of the No Lapse Guarantee
Premium. The No Lapse Guarantee Premium is set forth in the Policy. It is
subject to change if you change the face amount of the Policy (see INSURANCE
BENEFIT -- "Face Amount Changes"), or if there is any change in the
supplementary benefits added to the Policy or in the risk class of any life
insured.
DEATH BENEFIT GUARANTEE
POLICIES WITH FACE AMOUNTS OF AT LEAST $250,000. If permitted by state law and
if you elect, we will guarantee that a Policy issued and maintained with a
minimum face amount of $250,000 will not go into default if the Cumulative
Premium Test (see below) is satisfied. (See OTHER GENERAL POLICY PROVISIONS --
"Policy Default".) Our guarantee applies even if a combination of policy loans,
adverse investment experience or other factors causes the Policy's Net Cash
Surrender Value to be insufficient to meet the monthly deductions due at the
beginning of a policy month.
If after the tenth policy anniversary the Cumulative Premium Test is not
satisfied but the Fund Value Test (see below) is satisfied, we will keep the
Death Benefit Guarantee in effect.
This Death Benefit Guarantee, which is not available in the state of New Jersey,
will expire at the end of a policy year specified in the Policy. Currently, the
specified policy year is
(i) the year in which the life insured reaches attained age 100 if
Death Benefit Option 1 is maintained throughout the life of the
Policy and
(ii) the year in which the life insured reaches attained age 85 if
Death Benefit Option 2 is selected at any time.
While the guarantee is in effect, we will determine at the beginning of each
policy month whether the Cumulative Premium Test or the Fund Value Test has been
satisfied. If neither has been satisfied, we will notify you of that fact and
allow a 61-day grace period in which you may make a premium payment sufficient
to keep the Death Benefit Guarantee in effect. The required payment will be
equal to the outstanding premium required to meet the Cumulative Premium Test at
the date neither test was satisfied, plus the Monthly Death Benefit Guarantee
Premium due for the next two policy months. If the required payment is not
received by the end of the grace period, the Death Benefit Guarantee will
terminate. Once the Death Benefit Guarantee is terminated, it cannot be
reinstated.
POLICIES WITH FACE AMOUNTS UNDER $250,000. If permitted by state law and you
elect, we will guarantee that a Policy with a face amount less than $250,000 at
issue or after face amount decrease will not go into default during the first
three policy years if the Cumulative Premium Test is satisfied. Our guarantee
applies even if a combination of policy loans, adverse investment experience or
other factors should causes the Policy's Net Cash Surrender Value to be
insufficient to meet the monthly deductions due at the beginning of a policy
month. After the third policy anniversary, the Death Benefit Guarantee
terminates.
CUMULATIVE PREMIUM TEST. The Cumulative Premium Test is satisfied if at the
beginning of each policy month the sum of all premiums paid to date less any
partial withdrawals and any Policy Debt is at least equal to the sum of the
Monthly Death Benefit Guarantee Premiums due since the policy date. The Death
Benefit Guarantee Premium will increase when the insured attains age 70. The
Death Benefit Guarantee Premiums for ages 0-69 and age 70 and above are set
forth in the Policy. They are subject to change if you change the face amount of
the Policy or the death benefit option (see -- "Death
14
Benefit Option Changes" and "Face Amount Changes") or if there is any change in
the supplementary benefits added to the Policy or in the risk class of the life
insured.
FUND VALUE TEST. The Fund Value Test is applicable after the tenth anniversary
of the Policy. The Fund Value Test is satisfied if at the beginning of each
policy month the Net Policy Value is greater than or equal to the Gross Single
Premium.
INSURANCE BENEFIT
THE INSURANCE BENEFIT
If the Policy is in force at the time of the life insured's death, we will pay
an insurance benefit based on the death benefit option that you select upon
receipt of due proof of death. The amount payable will be the death benefit
under the selected option, plus any amounts payable under any supplementary
benefits added to the Policy, less the value of the Loan Account at the date of
death. The insurance benefit will be paid in one sum unless we and the
beneficiary agree upon another form of settlement. If the insurance benefit is
paid in one sum, we will pay interest from the date of death to the date of
payment. If the life insured should die after our receipt of a request for
surrender, no insurance benefit will be payable, and we will pay only the Net
Cash Surrender Value.
DEATH BENEFIT OPTIONS
You may select one of two death benefit options -- Option 1 and Option 2.
Under Option 1 the death benefit is
- the face amount of the Policy at the date of death or, if greater,
- the Policy Value at the date of death multiplied by the applicable
percentage in the table set forth below.
Under Option 2 the death benefit is
- the face amount of the Policy plus the Policy Value at the date of
death or, if greater,
- the Policy Value at the date of death multiplied by the applicable
percentage in the following table:
Age Corridor Age Corridor Age Corridor
Percentage Percentage Percentage
- - --- ---------- --- ---------- --- ----------
40&below 250% 54 157 68 117
41 243 55 150 69 116
42 236 56 146 70 115
43 229 57 142 71 113
44 222 58 138 72 111
45 215 59 134 73 109
46 209 60 130 74 107
47 203 61 128 75-90 105
48 197 62 126 91 104
49 191 63 124 92 103
50 185 64 122 93 102
51 178 65 120 94 101
52 171 66 119 95&above 100
53 164 67 118
15
Regardless of which death benefit option is in effect, the relationship of
Policy Value to death benefit will change whenever we use the "corridor
percentages" to determine the amount of the death benefit. This will occur
whenever multiplying the Policy Value by the applicable percentage set forth in
the above table results in a greater death benefit than would otherwise apply
under the selected option.
For example, assume the life insured under a Policy with a face amount of
$100,000 has an attained age of 40. If Option 1 is in effect, the corridor
percentage will produce a greater death benefit whenever the Policy Value
exceeds $40,000 (250% X $40,000 = $100,000). If the Policy Value is less than
$40,000, an incremental change in Policy Value, up or down, will have no effect
on the death benefit. If the Policy Value is greater than $40,000, an
incremental change in Policy Value will result in a change in the death benefit
by a factor of 2.5. Thus, if the Policy Value were to increase to $40,010, the
death benefit would be increased to $100,025 (250% X $40,010 = $100,025).
If Option 2 were in effect in the above example, the corridor percentage would
produce a greater death benefit whenever the Policy Value exceeded $66,667 (250%
X 66,667 = 166,667). At that point the death benefit produced by multiplying the
Policy Value by 250% would result in a greater amount than adding the Policy
Value to the face amount of the Policy. If the Policy Value is less than
$66,667, an incremental change in Policy Value will have a dollar-for-dollar
effect on the death benefit. If the Policy Value is greater than $66,667, an
incremental change in Policy Value will result in a change in the death benefit
by a factor of 2.5 in the same manner as would be the case under Option 1 when
the corridor percentage determined the death benefit.
DEATH BENEFIT OPTION CHANGES
Your initial selection of the death benefit option is made in the application.
After the Policy has been in force for two years, you may change the death
benefit option. The change will be effective as of any subsequent policy month
following a request. Your written request for a change must be received by us at
least 30 days prior to the beginning of a policy month in order to become
effective on that date. We reserve the right to limit a request for change if
the change would cause the Policy to fail to qualify as life insurance for tax
purposes.
A change in death benefit option will result in a change in the Policy's face
amount. The change in face amount is required in order to avoid any change in
the amount of the death benefit.
CHANGE TO OPTION 2 If the change in death benefit is FROM OPTION 1 TO OPTION 2, the new
face amount will be equal to the face amount prior to the change minus
NEW FACE AMOUNT= the Policy Value on the effective date of the change. A change to
OLD FACE AMOUNT Option 2 will not be allowed if it would cause the face amount of the
MINUS Policy to go below the minimum face amount of $50,000 ($100,000 for
POLICY VALUE preferred risk policies). A change to Option 2 will shorten the death
benefit guarantee period to the year in which the life insured reaches
attained age 85.
CHANGE TO OPTION 1 If the change in death benefit is FROM OPTION 2 TO OPTION 1, the new
face amount will be equal to the face amount prior to the change plus
NEW FACE AMOUNT= the Policy Value on the effective date of the change. The
OLD FACE AMOUNT increase in face amount resulting from a change to Option 1 will
PLUS not affect the amount of surrender charges to which a policy may be
POLICY VALUE subject. The Company has the right to require satisfactory evidence
of insurability before permitting a change from Option 2 to Option 1.
The Company does not currently require evidence of insurability when
making this change.
If you wish to have level insurance coverage, you should generally select Option
1. Under Option 1, increases in Policy Value usually will reduce the net amount
of risk under a Policy which will reduce cost of insurance charges. This means
16
that favorable investment performance should result in a faster increase in
Policy Value than would occur under an identical Policy with Option 2 in effect.
However, the larger Policy Value which may result under Option 1 will not affect
the amount of the death benefit unless the corridor percentages are used to
determine the death benefit.
If you want to have the Policy Value reflected in the death benefit so that any
increases in Policy Value will increase the death benefit, you should generally
select Option 2. Under Option 2, the net amount at risk will remain level unless
the corridor percentages are used to determine death benefit, in which case
increases in Policy Value will increase the net amount at risk.
FACE AMOUNT CHANGES
Subject to certain limitations, you may increase or decrease the face amount of
your Policy. A change in face amount may affect the Death Benefit Guarantee
Premium, the monthly deductions and surrender charges (see "Charges And
Deductions").
MINIMUM CHANGES. Currently, each increase or decrease in face amount (other than
a decrease resulting from a partial withdrawal) must be at least $50,000
($100,000 for increases in preferred risk policies and $10,000 for increases
under Policies purchased under group or sponsored arrangements). We reserve the
right to increase or decrease the minimum face amount change on 90 days' written
notice to you. We also reserve the right to limit a change in face amount to the
extent necessary to prevent the Policy from failing to qualify as life insurance
for tax purposes.
INCREASES. After the Policy has been in force for two years, you may increase
the face amount of your Policy once per policy year. Increases are subject to
satisfactory evidence of insurability. An increase will become effective at the
beginning of the next policy month following the date we approve the requested
increase. We reserve the right to refuse your request for an increase if the
life insured's age at the effective date of the increase would be greater than
the maximum issue age for new Policies at that time.
An increase in face amount will usually subject the Policy 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. For purposes of determining the
new deferred sales charge, a portion of the Policy Value at the time of the
increase, and a portion of the premiums paid on or subsequent to the increase,
will be deemed to be premiums attributable to the increase. See CHARGES AND
DEDUCTIONS -- "Surrender Charges."
Any increase in face amount to a level less than the highest face amount
previously in effect will have no effect on the surrender charges to which the
Policy is subject, since surrender charges, if applicable, will have been
assessed in connection with the prior decrease in face amount. The insurance
coverage eliminated by the decrease of the oldest face amount will be deemed to
be restored first. As with the purchase of a Policy, you will have free look and
sales charge limitation rights with respect to any increase resulting in new
surrender charges.
No additional premium is required for a face amount increase. However, you may
need to pay an additional premium to keep the Policy from going into default.
This is because new surrender charges resulting from an increase would
automatically reduce the Net Cash Surrender Value of the Policy. Moreover, a new
Death Benefit Guarantee Premium will be determined.
DECREASES. After the Policy has been in force for two years, you may decrease
the face amount of your Policy once per policy year. No decrease is allowed
during the two-year period following an increase in face amount. However, during
that two-year period, you may choose to cancel the increase in face amount and
have the deferred sales charge for the increase reduced by applicable
limitations on sales charges attributable to the increase. A decrease in face
amount will become effective at the beginning of the next policy month following
the receipt of a properly executed request. A decrease will not be allowed if it
would cause the face amount to go below the minimum face amount of $50,000
($100,000 for preferred risk policies).
17
Usually, we will deduct surrender charges from the Policy Value whenever a
decrease in face amount is made during the Surrender Charge Period. See CHARGES
AND DEDUCTIONS -- "Surrender Charges." For purposes of determining surrender and
cost of insurance charges, a decrease will reduce face amount in the following
order: (a) the face amount provided by the most recent increase, then (b) the
face amounts provided by the next most recent increases successively, and
finally (c) the initial face amount.
POLICY VALUES
POLICY VALUE
A Policy has a Policy Value. You may access a portion of the Policy Value by
making a policy loan or partial withdrawal or by surrendering the Policy. See
"Policy Loans" and "Partial Withdrawals And Surrenders" below. The Policy Value
may also affect the amount of the death benefit. See INSURANCE BENEFIT -- "Death
Benefit Options." 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. The
following discussion relates only to the Investment Accounts. Policy loans are
discussed under "Policy Loans" and the Fixed Account is discussed under "The
General Account." The portion of the Policy Value based on the Investment
Accounts is not guaranteed and will vary each Business Day with the investment
performance of the underlying Portfolio.
We establish an Investment Account under the Policy for each sub-account of the
Separate Account to which you allocate net premiums or transfer amounts. Each
Investment Account measures the interest of the Policy in the corresponding
sub-account. The value of the Investment Account 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.
We credit sub-account units to a Policy whenever you allocate net premiums or
transfer amounts to that sub-account. Sub-account units 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 at the end of the
Business Day on which the transaction occurs. The number of units credited with
respect to a premium payment is based on the applicable unit values at the end
of the Business Day on which the premium is received at our Service Office or
other office or entity so designated by us.
Units are valued at the end of each Business Day. A Business Day is deemed to
end at the time of the determination of the net asset value of the underlying
Portfolio shares. 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 at the
end of the next Business Day. Similarly, any determination of Policy Value,
Investment Account value or death benefit to be made on a day which is not a
Business Day will be made at the end of the next Business Day.
The value of a unit of each sub-account was initially fixed at $10. For each
subsequent Business Day the unit value is determined by multiplying the unit
value for the preceding Business Day by the "net investment factor" for the
particular sub-account for that subsequent Business Day. The net investment
factor for a sub-account for 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 at the end of such Business Day before any
policy transactions are made on that day;
(b) is the net asset value of the underlying Portfolio shares held by
that sub-account at the end of the immediately preceding Business
Day after all policy transactions have been made for that day.
We reserve the right to adjust the above formula for any taxes determined by us
to be attributable to the operations of the sub-account.
TRANSFERS OF POLICY VALUE
18
You may change the extent to which your Policy Value is based upon any specific
sub-account of the Separate Account or the Company's general account. You make
those changes by transferring amounts from one or more Investment Accounts or
the Company's general account to other Investment Accounts or the Company's
general account. You are permitted to make twelve transfers each policy year
free of charge. If you make additional transfers in a policy year, we will
charge you $25 per transfer. We will assess this charge against the Investment
Account or Fixed Account from which the amount is being transferred. For this
purpose all transfer requests we receive from you on the same Business Day will
be treated as a single transfer request.
The most 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.
Your request for transfer must be in a format satisfactory to us. It must be in
writing unless you have a currently valid telephone transfer authorization form
on file with us. Generally, we will not be liable for following telephone
instructions that we reasonably believe to be genuine. We will employ reasonable
procedures to confirm that telephone instructions are genuine. Those procedures
shall consist of confirming that a valid telephone authorization form is on
file, tape recording all telephone transactions and providing written
confirmation of the instructions. We may be liable for any losses resulting from
unauthorized or fraudulent telephone transfers if we fail to follow reasonable
procedures.
You may effectively convert your Policy to a fixed benefit policy by
transferring the Policy Value in all of the Investment Accounts to the Fixed
Account and by changing your allocation of net premiums entirely to the Fixed
Account. As long as the entire Policy Value is allocated to the Fixed Account,
the Policy Value, other values based thereon and the death benefit will be
determinable and guaranteed. The Investment Account values to be transferred to
the Fixed Account will be determined as of the Business Day on which we receive
the request for conversion. No change in the issue age, risk class of the life
insured or face amount will result from a conversion. You may transfer any or
all of the Policy Value to the Fixed Account at any time, even if a prior
transfer has been made during the policy month.
DOLLAR COST AVERAGING. We offer a Dollar Cost Averaging program. Under this
program amounts will be automatically transferred at predetermined intervals
from one Investment Account to any other Investment Account(s) or the Fixed
Account.
Under the Dollar Cost Averaging program you designate an amount to be
transferred at predetermined intervals from one Investment Account into any
other Investment Account(s) or the Fixed Account. Each transfer under the Dollar
Cost Averaging program must be of a minimum amount set by us. We may change this
minimum at any time in our discretion. Currently, no charge will be made for
this program if the Policy Value exceeds $15,000 on the date of transfer.
Otherwise, there will be a charge of $5 for each transfer. We will deduct the
charge from the value of the Investment Account out of which the transfer is
made. If there are insufficient funds to effect a Dollar Cost Averaging
transfer, including the charge, if applicable, we will not effect the transfer
and will notify you of that fact. We reserve the right to cease to offer this
program on 90 days' written notice.
ASSET ALLOCATION BALANCER TRANSFERS. We also offer policyowners the ability to
have amounts automatically transferred among stipulated Investment Accounts to
maintain an allocated percentage in each stipulated Investment Account.
Under the Asset Allocation Balancer program you designate an allocation of
Policy Value among Investment Accounts. At six month intervals, beginning six
months after the policy date, we will move amounts among the Investment Accounts
as necessary to maintain your chosen allocation. A change to your premium
allocation instructions will automatically result in a change in Asset
Allocation Balancer instructions so that the two are identical unless either you
instruct us differently or a Dollar Cost Averaging request is in effect.
Currently, we make no charge for this program; however, we reserves the right to
institute a charge on 90 days' written notice.
We reserve the right to cease to offer this program on 90 days' written notice.
19
POLICY LOANS
While the Policy is in force, you may borrow against your Policy Value. The
Policy serves as the only security for the loan. The minimum amount of any loan
is $500. The maximum loan amount is the amount which would cause the Modified
Policy Debt to equal the loan value of the Policy on the date of the loan. The
loan value is the Policy's Cash Surrender Value less the monthly deductions due
to the next policy anniversary. The Modified Policy Debt as of any date is the
Policy Debt (the aggregate amount of policy loans, including borrowed interest,
less any loan repayments) plus the amount of interest to be charged to the next
policy anniversary, all discounted from the next policy anniversary to such date
at an annual rate of 4%. We transfer an amount equal to the Modified Policy Debt
to the Loan Account to ensure that a sufficient amount will be available to pay
interest on the Policy Debt at the next policy anniversary.
For example, assume a Policy with a loan value of $5,000, no outstanding policy
loans and a loan interest rate of 5.75%. The maximum amount that can be borrowed
is an amount that will cause the Modified Policy Debt to equal $5,000. If the
loan is made on a policy anniversary, the maximum loan will be $4,917. This
amount at 5.75% interest will equal $5,200 one year later; $5,200 discounted to
the date of the loan at 4% (the Modified Policy Debt) equals $5,000. Because the
minimum rate of interest credited to the Loan Account is 4%, $5,000 must be
transferred to the Loan Account to ensure that $5,200 will be available at the
next policy anniversary to cover the interest accrued on the Policy Debt.
When a loan is made, we will deduct from the Investment Accounts or the Fixed
Account, and transfer to the Loan Account, an amount which will result in the
Loan Account value being equal to the Modified Policy Debt. You 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,
we will allocate the amount to be transferred 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.
A policy loan may result in a Policy's failing to satisfy the Cumulative Premium
Test, since the Policy Debt is subtracted from the sum of the premiums paid in
determining whether the Cumulative Premium Test is satisfied. As a result, the
death benefit guarantee may terminate. See Insurance Benefit -- "Death Benefit
Guarantee" and Other General Policy Provisions -- "Policy Default."
Moreover, if the death benefit guarantee is not in force, 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 Other General Policy
Provisions -- "Policy Default."
A policy loan will also affect 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 selected by the policyowner or increasing in value at the rate of
interest credited for amounts allocated to the Fixed Account.
Policy loans may have tax consequences. If you are considering the use of
systematic policy loans as one element of a comprehensive retirement income
plan, you should consult your personal tax adviser regarding the potential tax
consequences if such loans were to so reduce Policy Value that the Policy would
lapse, absent additional payments. The premium payment necessary to avert lapse
would increase with the age of the insured. See Miscellaneous Matters - Federal
Income Tax Considerations (Tax Treatment of Policy Benefits). Finally, a policy
loan will affect the amount payable on the death of the life insured, since the
death benefit is reduced by the value of the Loan Account at the date of death
in arriving at the insurance benefit.
INTEREST CHARGES ON POLICY LOANS. Interest on the Policy Debt will accrue daily
and be payable annually on the policy anniversary. We will fix the rate of
interest charged at an effective annual rate of 5.75%. If the interest due on a
policy anniversary is not paid by the policyowner, the interest will be borrowed
against the Policy.
20
INTEREST CREDITED ON THE LOAN ACCOUNT. We will credit interest to any amount in
the Loan Account at an effective annual rate of at least 4%. The actual rate
credited is:
- On amounts in excess of the Policy's Select Loan Amount, the rate of
interest charged on the policy loan less an interest rate
differential, currently 1.75%.
- On amounts up to the Policy's Select Loan Amount, the rate of interest
charged on policy loan less an interest rate differential, currently
0%.
The tax consequences associated with a loan interest credited differential of 0%
are unclear. A tax adviser should be consulted before effecting a loan to
evaluate the tax consequences that may arise in such a situation. If we
determine, in our sole discretion, that there is a substantial risk that a loan
will be treated as a taxable distribution under Federal tax law as a result of
the differential between the credited interest rate and the loan interest rate,
the Company retains the right to increase the the loan interest rate to an
amount that would result in the transaction being treated as a loan under
Federal tax law. If this amount is not prescribed by any IRS ruling or
regulation or any court decision, the amount of increase will be that which the
Company considers to be most likely to result in the transaction being treated
as a loan under Federal tax law.
Prior to the later of the tenth policy anniversary and the anniversary following
attained age 55, the amount available as a Select Loan is zero; after the later
of the tenth policy anniversary and the policy anniversary following attained
age 55, the amount available annually as a Select Loan is equal to 12% of the
Policy's Net Cash Surrender Value at the previous policy anniversary. The amount
available as a Select Loan applies to existing and new loans. If, at the time
your are considering a Select Loan, interest due currently on your outstanding
loans equals or exceeds the Select Loan Amount, the Select Loan feature can not
be used to withdraw additional cash from Policy Value. The total of all loans,
including the Select Loan Amount, cannot exceed the maximum loan amount as
described above.
To illustrate the amount available as a Select Loan, assume that a Policy has an
issue age of 47 and a Net Cash Surrender Value on the eleventh policy
anniversary of $10,000. The Select Loan Amount available during the twelfth
policy year is $1,200 (12% X $10,000). Assume that at the beginning of the
twelfth policy year, a loan of $1,500 is taken. $1,200 of that amount is
considered the Select Loan Amount, $300 an ordinary policy loan.
At the end of the twelfth policy year, assume that the Net Cash Surrender Value
is $9,000. The Select Loan Amount available during the thirteenth policy year is
$1,080 (12% X $9,000). If not already repaid, the $300 from the prior year's
loan that was not considered a Select Loan is immediately converted to a Select
Loan, leaving $780 of the Select Loan Amount available for the thirteenth policy
year (provided that the sum of all outstanding loans does not exceed the
Policy's maximum loan amount). The amount of any unpaid interest on the Select
Loan and the ordinary policy loan from the twelfth policy year also would be
borrowed as a Select Loan up to the maximum Select Loan Amount and thereby
reduce by that amount the $780 available for borrowing as a Select Loan during
the remainder of the thirteenth policy year.
LOAN ACCOUNT ADJUSTMENTS. Whenever a loan is first taken out, and at specified
events thereafter, we adjust the value of the Loan Account. We take the
difference between (i) the Loan Account before any adjustment and (ii) the
Modified Policy Debt at the time of adjustment and transfer that amount between
the Loan Account and the Investment Accounts or the Fixed Account. The amount
transferred to or from the Loan Account will be such that the value of the Loan
Account after the adjustment will be equal to the Modified Policy Debt.
The specified events which cause an adjustment to the Loan Account are (i) a
policy anniversary, (ii) a partial or full loan repayment, (iii) a new loan or
(iv) an amount is needed to meet a monthly deduction. A loan repayment may be
implicit in that policy debt is effectively repaid upon termination (i.e., upon
death of the life insured, surrender or lapse of the policy). In each of these
instances, the Loan Account will be adjusted so that any excess of the Loan
Account over the Modified Policy Debt after the repayment will be included in
the termination proceeds.
Except as noted below under "Loan Repayments," we will allocate amounts
transferred from the Loan Account to the Investment Accounts and the Fixed
Account in the same proportion as the value in the corresponding "loan
sub-account"
21
bears to the value of the Loan Account. A "loan sub-account" exists for each
Investment Account and for the Fixed Account. Amounts transferred to the Loan
Account are allocated to the appropriate loan sub-account to reflect the account
from which the transfer was made.
LOAN ACCOUNT ILLUSTRATION.(Dollar amounts in this illustration have been rounded
to the nearest dollar.) The operation of the Loan Account may be illustrated as
follows: assume a Policy with a loan value of $5,000, a loan interest rate of
5.75%, and a maximum loan amount on a policy anniversary of $4,917. For purposes
of the illustration, assume that the Select Loan Amount is zero. If a loan in
the maximum amount of $4,917 is made, an amount equal to the Modified Policy
Debt, $5,000, is transferred to the Loan Account. At the next policy anniversary
the value of the Loan Account will have increased to $5,200 ($5,000 X 1.04)
reflecting interest credited at an effective annual rate of 4.0%. At that time
the loan will have accrued interest charges of $283 ($4,917 X .0575), bringing
the Policy Debt to $5,200.
If the accrued interest charges are paid on the policy anniversary, the Policy
Debt will continue to be $4,917, and the Modified Policy Debt, reflecting
interest for the next policy year and discounting the Policy Debt and such
interest at 4%, will be $5,000. An amount will be transferred from the Loan
Account to the Fixed Account or the Investment Accounts so that the Loan Account
value will equal the Modified Policy Debt. Since the Loan Account value was
$5,200, a transfer of $200 will be required ($5,200 -- $5,000).
If, however, the accrued interest charges of $283 are borrowed, an amount will
be transferred from the Investment Accounts and the Fixed Account so that the
Loan Account value will equal the Modified Policy Debt recomputed at the policy
anniversary. The new Modified Policy Debt is the Policy Debt, $5,200, plus loan
interest to be charged to the next policy anniversary, $299 ($5,200 X .0575),
discounted at 4%, which results in a figure of $5,288. Since the value of the
Loan Account was $5,200, a transfer of $88 will be required. This amount is
equivalent to the 1.75% interest rate differential on the $5,000 transferred to
the Loan Account on the previous policy anniversary.
LOAN REPAYMENTS. You may repay Policy Debt in whole or in part at any time prior
to the death of the life insured provided the Policy is in force. When a
repayment is made, we will credit the repayment amount to the Loan Account and
transfer an amount to the Fixed Account or the Investment Accounts so that the
Loan Account at that time will equal the Modified Policy Debt. We will allocate
loan repayments first to the Fixed Account until the associated loan sub-account
is reduced to zero. We will then allocate loan repayments 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 us not
specifically designated in writing as loan repayments will be treated as
premiums.
PARTIAL WITHDRAWALS AND SURRENDERS
Partial Withdrawals. After a Policy has been in force for two policy years, you
may make a partial withdrawal of the Net Cash Surrender Value. The minimum
amount that may be withdrawn is $500. You should specify the portion of the
withdrawal to be taken from each Investment Account and the Fixed Account. In
the absence of instructions we will allocate the withdrawal among such accounts
in the same proportion as the Policy Value in each account bears to the Net
Policy Value. No more than one partial withdrawal may be made in any one policy
month.
If you make a partial withdrawal during the Surrender Charge Period, we will
usually assess a portion of the surrender charges to which the Policy is subject
(see Charges And Deductions -- "Surrender Charges") if the amount withdrawn is
in excess of the Withdrawal Tier Amount. The Withdrawal Tier Amount is 10% of
the Net Cash Surrender
Value determined as of the previous policy anniversary. The portion of a partial
withdrawal that is considered to be in excess of the Withdrawal Tier Amount
includes all previous partial withdrawals that have occurred in the current
policy year. If the Option 1 death benefit is in effect under a Policy from
which a partial withdrawal is made, the face amount of the Policy will be
reduced. See CHARGES AND DEDUCTIONS -- SURRENDER CHARGES (CHARGES ON PARTIAL
WITHDRAWALS).
Full Surrenders. 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
the Policy Value less any surrender charges and outstanding monthly deductions
22
due (the "Cash Surrender Value") minus the value of the Loan Account. The Net
Cash Surrender Value will be determined at the end of the Business Day on which
we receive the Policy and a 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. Surrender of a Policy during the Surrender
Charge Period will usually result in our assessment of surrender charges. See
Charges And Deductions -- "Surrender Charges."
CHARGES AND DEDUCTIONS
The charges we make under the Policy are assessed as (i) deductions from
premiums, (ii) surrender charges upon surrender, partial withdrawals, decreases
in face amount or lapse, (iii) monthly deductions, and (iv) other charges. These
charges are described below.
DEDUCTIONS FROM PREMIUMS
We currently make no deduction from premium payments for state and local taxes.
The maximum amount we may deduct for such taxes in the future is 2.35% (except
for Oregon where no premium tax is deducted). We currently make no deduction
from premium payments for federal taxes. The maximum amount we may deduct for
such taxes in the future is 1.25%.
SURRENDER CHARGES
We will assess surrender charges upon surrender, a partial withdrawal of Policy
Value in excess of the Withdrawal Tier Amount, a requested decrease in face
amount, or lapse. We usually assess these charges if any of the above
transactions occurs within the Surrender Charge Period (see Table 1 below)
unless the charges have been previously deducted. There are two surrender
charges -- a deferred underwriting charge and a deferred sales charge.
DEFERRED UNDERWRITING CHARGE. The deferred underwriting charge is $6 for each
$1,000 of face amount of life insurance coverage initially purchased or added by
increase, multiplied by the percentages shown in Table 1 below. In effect, the
charge applies only to the first $500,000 of face amount initially purchased or
the first $500,000 of each subsequent increase in face amount. Thus, the charge
made in connection with any one underwriting will not exceed $3,000. The amount
of the charge remains level for five years. Following the fifth year after
issuance of the Policy or a face amount increase, the charge applicable to the
initial face amount or increase will decrease each month by varying rates
depending upon the life insured's issue age until the charge has decreased to
zero. The applicable percentage of the deferred underwriting charges to which
the Policy is subject is illustrated by the following table:
TABLE 1: DEFERRED UNDERWRITING CHARGES
Transaction Occurs after
Monthly Deduction Taken Percent of Deferred Underwriting Charges by Issue Age*
For Last Month Preceding ------------------------------------------------------
End of Month* Age
- - ------------------------- ------------------------------------------------------
Month 0-50 51 52 53 54 55+
- - ------------------------- ---- -- -- -- -- ---
12 100% 100% 100% 100% 100% 100%
24 100% 100% 100% 100% 100% 100%
36 100% 100% 100% 100% 100% 100%
48 100% 100% 100% 100% 100% 100%
60 100% 100% 100% 100% 100% 100%
72 90% 88.89% 87.50% 85.71% 83.33% 80.00%
84 80% 77.78% 75.00% 71.43% 66.67% 60.00%
23
96 70% 66.67% 62.50% 57.14% 50.00% 40.00%
108 60% 55.56% 50.00% 42.86% 33.33% 20.00%
120 50% 44.44% 37.50% 28.57% 16.67% 0%
132 40% 33.33% 25.00% 14.28% 0%
144 30% 22.22% 12.50% 0%
156 20% 11.11% 0%
168 10% 0%
180 0%
* Months not shown may be calculated by interpolation.
We designed the deferred underwriting charge to cover the administrative
expenses associated with underwriting and policy issue, including the costs of
processing applications, conducting medical examinations, determining the life
insured's risk class and establishing policy records.
DEFERRED SALES CHARGE. The maximum deferred sales charge is 50% of premiums paid
up to a maximum number of Target Premiums that varies (from -0.180 to 3.031)
according to the issue age of the life insured, the face amount at issue and the
amount of any increase. This charge compensates us for some of the expenses of
selling and distributing the Policies, including agents' commissions,
advertising, agent training and the printing of prospectuses and sales
literature.
The deferred sales charge deducted in any policy year is not specifically
related to sales expenses incurred in that year. Instead, we expect that the
major portion of the sales expenses attributable to a Policy will be incurred
during the first policy year, although the deferred sales charge might be
deducted up to fifteen years later. We anticipate that the aggregate amounts we
receive under the Policies for sales charges will be insufficient to cover our
aggregate sales expenses. To the extent that our sales expenses exceed our sales
charges, we will pay the excess from our other assets or surplus, including
amounts derived from the mortality and expense risks charge described below. If
you surrender the Policy for its Net Cash Surrender Value during the first two
policy years, or during the first two policy years following a face amount
increase, we may forego deducting a portion of the deferred sales charge. Where
that sales charge limitation is applicable, the deferred sales charge assessable
under the Policy will increase at the beginning of the third policy year to the
level that would have applied absent the limitation. See Surrender Charges
(Sales Charge Limitation) below.
We specify the Target Premium for the initial face amount in the Policy. We will
compute a Target Premium for each increase in face amount above the highest face
amount of coverage previously in effect, and we will advise you of each new
Target Premium.
Target Premiums depend upon the face amount of insurance provided at issue or by
an increase and the issue age and sex (unless unisex rates are required by law)
of the life insured. The maximum number of Target Premiums subject to the
deferred sales charge varies, based on the issue age of the life insured, the
face amount at issue and the amount of any increase, according to the following
tables:
24
TABLE 2: NUMBER OF TARGET PREMIUMS SUBJECT TO DEFERRED SALES CHARGE FOR POLICIES
ISSUED PRIOR TO JULY 10, 1995
(APPLICABLE TO THE INITIAL FACE AMOUNT AND INCREASES)
$250,000 UNDER $250,000 UNDER $250,000 UNDER
AGE OR MORE $250,000 AGE OR MORE $250,000 AGE OR MORE $250,000
--- -------- -------- --- -------- -------- --- -------- --------
*0 -0.031 -0.039 30 1.319 1.648 60 2.356 2.945
*1 -0.144 -0.180 31 1.366 1.707 61 2.375 2.968
*2 -0.081 -0.102 32 1.415 1.768 62 2.399 2.998
*3 -0.020 -0.025 33 1.459 1.823 63 2.425 3.031
4 0.037 0.046 34 1.503 1.878 64 2.380 2.975
5 0.096 0.120 35 1.542 1.927 65 2.269 2.836
6 0.166 0.207 36 1.590 1.987 66 2.124 2.655
7 0.221 0.276 37 1.633 2.041 67 2.006 2.507
8 0.281 0.351 38 1.672 2.090 68 1.888 2.360
9 0.340 0.425 39 1.718 2.147 69 1.787 2.233
10 0.391 0.488 40 1.756 2.195 70 1.691 2.113
11 0.453 0.566 41 1.790 2.237 71 1.592 1.990
12 0.514 0.642 42 1.832 2.290 72 1.494 1.867
13 0.560 0.700 43 1.869 2.336 73 1.396 1.745
14 0.614 0.767 44 1.904 2.380 74 1.317 1.646
15 0.560 0.700 45 1.937 2.421 75 1.241 1.551
16 0.606 0.757 46 1.969 2.461 76 1.162 1.452
17 0.658 0.822 47 2.000 2.500 77 1.084 1.355
18 0.718 0.897 48 2.032 2.540 78 1.010 1.262
19 0.767 0.958 49 2.062 2.577 79 0.946 1.182
20 0.817 1.021 50 2.093 2.616 80 0.887 1.108
21 0.870 1.087 51 2.123 2.653 81 0.831 1.038
22 0.924 1.155 52 2.154 2.692 82 0.779 0.973
23 0.973 1.216 53 2.182 2.727 83 0.733 0.916
24 1.026 1.282 54 2.211 2.763 84 0.688 0.860
25 1.075 1.343 55 2.234 2.792 85 0.646 0.807
26 1.125 1.406 56 2.259 2.823 86 0.606 0.757
27 1.177 1.471 57 2.284 2.855 87 0.567 0.708
28 1.228 1.535 58 2.307 2.883 88 0.530 0.662
29 1.274 1.592 59 2.333 2.916 89 0.493 0.616
90 0.484 0.605
* A negative number of Target Premiums produces a negative deferred sales
charge. When combined with the deferred underwriting charge, a negative deferred
sales charge reduces the total surrender charge.
25
TABLE 3: NUMBER OF TARGET PREMIUMS SUBJECT TO DEFERRED SALES CHARGE FOR POLICIES
ISSUED ON OR AFTER JULY 10, 1995
(APPLICABLE TO THE INITIAL FACE AMOUNT AND INCREASES)
$250,000 UNDER $250,000 UNDER $250,000 UNDER
AGE OR MORE $250,000 AGE OR MORE $250,000 AGE OR MORE $250,000
- - --- -------- -------- --- -------- -------- --- -------- --------
*0 -0.031 -0.039 30 1.319 1.648 60 2.356 2.945
*1 -0.144 -0.180 31 1.366 1.707 61 2.375 2.968
*2 -0.081 -0.102 32 1.415 1.768 62 2.399 2.998
*3 -0.020 -0.025 33 1.459 1.823 63 2.425 3.031
4 0.037 0.046 34 1.503 1.878 64 2.367 2.959
5 0.096 0.120 35 1.542 1.927 65 2.259 2.824
6 0.166 0.207 36 1.590 1.987 66 2.113 2.641
7 0.221 0.276 37 1.633 2.041 67 1.992 2.490
8 0.281 0.351 38 1.672 2.090 68 1.875 2.344
9 0.340 0.425 39 1.718 2.147 69 1.777 2.222
10 0.391 0.488 40 1.756 2.195 70 1.679 2.099
11 0.453 0.566 41 1.790 2.237 71 1.583 1.979
12 0.514 0.642 42 1.832 2.290 72 1.486 1.857
13 0.560 0.700 43 1.869 2.336 73 1.392 1.740
14 0.614 0.767 44 1.904 2.380 74 1.315 1.644
15 0.560 0.700 45 1.937 2.421 75 1.238 1.547
16 0.606 0.757 46 1.969 2.461 76 1.161 1.451
17 0.658 0.822 47 2.000 2.500 77 1.083 1.354
18 0.718 0.897 48 2.032 2.540 78 1.007 1.259
19 0.767 0.958 49 2.062 2.577 79 0.945 1.182
20 0.817 1.021 50 2.093 2.616 80 0.885 1.106
21 0.870 1.087 51 2.123 2.653 81 0.829 1.037
22 0.924 1.155 52 2.154 2.692 82 0.779 0.973
23 0.973 1.216 53 2.182 2.727 83 0.732 0.915
24 1.026 1.282 54 2.211 2.763 84 0.687 0.859
25 1.075 1.343 55 2.234 2.792 85 0.644 0.806
26 1.125 1.406 56 2.259 2.823 86 0.604 0.755
27 1.177 1.471 57 2.284 2.855 87 0.566 0.708
28 1.228 1.535 58 2.307 2.883 88 0.529 0.661
29 1.274 1.592 59 2.333 2.916 89 0.493 0.616
90 0.484 0.605
* A negative number of Target Premiums produces a negative deferred sales
charge. When combined with the deferred underwriting charge, a negative deferred
sales charge reduces the total surrender charge.
Except for surrenders to which the sales charge limitation provisions described
below apply, the maximum deferred sales charge will be in effect for at least
the first two years of the Surrender Charge Period. After that, the portion of
the deferred sales charge that remains in effect will grade down at a rate that
also varies according to the issue age of the life insured until, at the end of
the Surrender Charge Period, there is no deferred sales charge. The tables we
use to reduce the applicable deferred sales charge during the Surrender Charge
Period are set forth in Appendix C to this Prospectus. The applicable table will
be set forth in each Policy, and we will inform you of the table to be used in
connection with sales charges on increases in face amount.
26
In order to determine the deferred sales charge applicable to a face amount
increase, we will treat a portion of the Policy Value on the date of increase as
a premium attributable to the increase. In addition, a portion of each premium
paid on or subsequent to the increase will be attributed to the increase. In
each case, the portion attributable to the increase will be the ratio of the
"guideline annual premium" for the increase to the sum of the guideline annual
premiums for the initial face amount and all increases including the requested
increase.
A "guideline annual premium" is a hypothetical amount that we use to measure the
maximum amount of the deferred sales charge that may be imposed upon surrender,
partial withdrawal, a decrease in face amount or lapse during the first two
years after issuance or after an increase in face amount.
The following example illustrates how deferred underwriting and deferred sales
charges are calculated using data from Tables 1, 2 and 3 above and from the
tables in Appendix C.
Assume a 36-year-old male (standard risk), whose Policy was issued prior to July
10, 1995, at age 30, and who has paid $9,000 in premiums under a Policy with a
Target
Premium of $1,500 and a face amount of $100,000, surrenders his Policy during
the last month of the sixth policy year.
A deferred underwriting charge of $540 will be assessed. The maximum deferred
underwriting charge of $600 ($6 per $1,000 of face amount X 100) will be
multiplied by the 90% listed in Table 1 as applicable to surrenders during the
last month of the sixth policy year [90% X ($6 X 100) = $540].
A deferred sales charge of $1,192.74 will also be assessed. According to Table
2, the maximum number of Target Premiums subject to the deferred sales charge
for a person who was 30 years old when his or her Policy with a face amount less
than $250,000 was issued would be 1.648. Thus $2,472 (1.648 X $1,500) will be
the maximum amount of premiums subject to the 50% sales charge, producing a
maximum sales charge of $1,236 (50% X $2,472 = $1,236). Because the surrender
occurs during the last month of the sixth policy year, only 96.50% (from the
table in Appendix C for issue age 30) of the maximum sales charge remains
applicable [96.50% X (.50 X 1.648 X $1,500) = $1,192.74].
SALES CHARGE LIMITATION. If you surrender your Policy or decrease its face
amount at any time during the first two years after issuance or after an
increase in face amount, we will forego taking that part of the deferred sales
charge with respect to "premiums" paid for the initial face amount or such
increase (including the portion of Policy Value treated as premiums for the
increase, as described above), whichever is applicable, which exceeds the sum of
(i) 30% of the premiums paid up to the lesser of one guideline
annual premium or the maximum amount of premiums subject to the
deferred sales charge
plus
(ii) 10% of the premiums paid in excess of one guideline annual
premium, up to the lesser of two guideline annual premiums or
the maximum amount of premiums subject to the deferred sales
charge,
plus
(iii) 9% of the premiums paid in excess of two guideline annual
premiums up to the maximum amount of premiums subject to the
deferred sales charge.
The operation of the sales charge limitation for Policies issued prior to July
10, 1995 is illustrated by the following example. A 67-year-old male non-smoker
purchased a Policy with a face amount in excess of $250,000 when he was age 65.
He has paid $30,000 in premiums under the Policy and it has a guideline annual
premium (GAP) of $15,997 and a Target Premium (TP) of $11,835. He surrenders his
policy during the second policy year. In the absence of the sales charge
limitation, the maximum deferred sales charge would be 50% of the lesser of
premiums paid ($30,000) or the maximum amount of premiums subject to the
deferred sales charge (TP X Maximum Number of TP's = $11,835 X 2.269 = $26,854),
27
which results in 50% of $26,854 (the "Maximum Chargeable Amount" or "MCA") or
$13,427 as the maximum deferred sales charge. However, under the formula
described above, the maximum sales charge allowable will be $5,885. This is
calculated as the sum of:
(i) 30% of one GAP, or $4,799 [.30 X $15,997 = $4,799], because
one GAP ($15,997) is less than premiums paid ($30,000) and
less than the MCA ($26,854);
plus
(ii) 10% of the MCA in excess of one GAP, or $1,086 (.10 X $10,857
= $1,086) because the MCA in excess of one GAP ($26,854 -
$15,997 = $10,857) is less than premiums paid in excess of one
GAP ($30,000 - $15,997 = $14,003) and less than the amount of
a second GAP ($15,997);
plus
(iii) $0, because no premiums in excess of two GAPs were paid and
would not have been chargeable in any event, as the MCA was
less than two GAPs.
Thus, (i) $4,799 plus (ii) $1,086 plus (iii) $0 equals $5,885, the maximum sales
charge allowable.
If the Policy in the foregoing example were issued on or after July 10, 1995,
the maximum sales charge allowable would be $5,873, because the maximum amount
of Target Premiums subject to the deferred sales charge would be 2.259 (from
Table 3) instead of 2.269 (from Table 2).
Since a deferred sales charge is deducted when a Policy terminates for failure
to make the required payment following the Policy's going into default, the
sales charge limitation will apply if the termination occurs during the two-year
period following issuance or any increase in face amount. If the Policy
terminates during the two years after a face amount increase, the sales charge
limitation will relate only to the sales charges applicable to the increase.
CHARGES ON PARTIAL WITHDRAWALS. Whenever a portion of the surrender charges is
deducted as a result of a partial withdrawal of Policy Value in excess of the
Withdrawal Tier Amount, we will reduce the Policy's remaining surrender charges
by the amount of the charges taken. The surrender charges not assessed as a
result of the 10% free withdrawal provision remain in effect under the Policy
and may be assessed upon surrender or lapse, other partial withdrawals, or a
requested decrease in face amount. The portion of the surrender charges assessed
will be based on the ratio of (i) to (ii), where
(i) is the amount of the withdrawal in excess of the Withdrawal Tier
Amount, and
(ii) is the Net Cash Surrender Value of the Policy less the Withdrawal
Tier Amount immediately prior to the withdrawal.
We will deduct the surrender charges from each Investment Account and the Fixed
Account in the same proportion as the amount of the withdrawal taken from such
account bears to the total amount of the withdrawal. If the amount in the
account is insufficient to pay the portion of the surrender charges allocated to
that account, then the portion of the withdrawal allocated to that account will
be reduced so that the withdrawal plus the portion of the surrender charges
allocated to that account equal the value of that account.
Units equal to the amount of the partial withdrawal taken, and surrender charges
deducted, from each Investment Account will be canceled based on the value of
such units determined at the end of the Business Day on which we receive a
written request for withdrawal at our Service Office.
If the Option 1 death benefit is in effect under a Policy from which a partial
withdrawal is made, we will reduce the face amount of the Policy. If the death
benefit is equal to the face amount at the time of withdrawal, the face amount
will be
28
reduced by the amount of the withdrawal plus the portion of the surrender
charges assessed. If the death benefit is based upon the Policy Value times the
applicable percentage set forth under Insurance Benefit -- "Death Benefit
Options" above, the face amount will be reduced only to the extent that the
amount of the withdrawal plus the portion of the surrender charges assessed
exceeds the difference between the death benefit and the face amount.
Reductions in face amount resulting from partial withdrawals will not incur any
surrender charges above the surrender charges applicable to the withdrawal. 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.
CHARGES ON DECREASES IN FACE AMOUNT. As with partial withdrawals, we will deduct
a portion of a Policy's surrender charges upon a decrease, or a cancellation of
an increase, in face amount which you request. Since surrender charges are
determined separately for the initial face amount and each face amount increase,
and since a decrease in face amount will have a different impact on each level
of insurance coverage, we will determine separately the portion of the surrender
charges to be deducted with respect to each level of insurance coverage. That
portion will be the same as the ratio of the amount of the reduction in such
coverage to the amount of such coverage prior to the reduction.
As noted under Insurance Benefit -- "Face Amount Changes," we apply decreases to
the most recent increase first and thereafter to the next most recent increases
successively. We will deduct the charges from the Policy Value, and we will
allocate the amount so deducted among the Investment Accounts and the Fixed
Account in the same proportion as the Policy Value in each bears to the Net
Policy Value. Whenever a portion of the surrender charges is deducted as a
result of a decrease in face amount, the Policy's remaining surrender charges
will be reduced by the amount of the charges taken.
CHARGES REMAINING AFTER FACE AMOUNT DECREASES OR PARTIAL WITHDRAWALS. Each time
a pro-rata deferred underwriting charge or a pro-rata deferred sales charge for
a face amount decrease or for a partial withdrawal is deducted, the remaining
deferred underwriting charge and deferred sales charge will be reduced
proportionately.
We will calculate the remaining deferred underwriting charge using Table 1
above. The actual remaining charge will be the result of (a) divided by (b),
multiplied by (c), where
(a) is the grading percentage applicable to the life insured's issue
age and Policy duration;
(b) is the grading percentage applicable to the life insured's issued
age at the time of the last face amount decrease or partial
withdrawal;
and
(c) is the remaining deferred sales charge prior to the last face
amount decrease or partial withdrawal less the deferred
underwriting charge deducted for that face amount decrease or
partial withdrawal.
We will calculate the remaining deferred sales charge using Table 2 above and
Appendix C. The actual remaining charge will be the result of (a) divided by
(b), multiplied by (c), where:
(a) is the grading percentage applicable to the Policy duration;
(b) is the grading percentage at the time of the last face amount
decrease or partial withdrawal;
and
(c) is the remaining deferred sales charge prior to the last face
amount decrease or partial withdrawal less the deferred sales
charge deducted for that face amount decrease or partial
withdrawal.
29
Until the sum of premiums paid equals or exceeds the number of Target Premiums
subject to deferred sales charge multiplied by the Target Premium, subsequent
premium payments will increase the remaining referred sales charge.
MONTHLY DEDUCTIONS
Each month we make a deduction from Policy Value consisting of an administration
charge, a charge for the cost of insurance, a charge for mortality and expense
risks, and charge(s) for any supplementary benefit(s) (see Other Provisions --
"Supplementary Benefits"). We allocate the monthly deduction among the
Investment Accounts and (other than the mortality and expense risks charge) the
Fixed Account in the same proportion as the Policy Value in each bears to the
Net Policy Value. Monthly deductions due prior to the effective date will be
taken on the effective date instead of the dates they were due. If the Policy is
still in force when the life insured attains age 100, no further monthly
deductions will be taken from the Policy Value.
ADMINISTRATION CHARGE
The monthly administration charge is $35 until the first anniversary and,
thereafter, $10 (the right is reserved to increase the administration charge by
an additional amount of up to $.01 per $1,000 of face amount per month). The
charge is designed to cover certain administrative expenses associated with the
Policy, including maintaining policy records, collecting premiums and processing
death claims, surrender and withdrawal requests and various charges permitted
under a Policy.
COST OF INSURANCE CHARGE
The monthly charge for the cost of insurance is determined by multiplying the
applicable cost of insurance rate times the net amount at risk at the beginning
of each policy month. The cost of insurance rate is based on
- the life insured's issue age,
- the duration of the coverage,
- sex (unless unisex rates are required by law),
- risk class, and,
- in the case of certain Policies issued in group or sponsored
arrangements providing for reduction in cost of insurance charges (see
"Special Provisions For Group Or Sponsored Arrangements"), the face
amount of the Policy.
See Miscellaneous Matters -- "Legal Considerations." We determine the rate
separately for the initial face amount and for each increase in face amount.
Cost of insurance rates will generally increase with the life insured's age. Any
additional ratings as indicated in the Policy will be added to the cost of
insurance rate.
We use cost of insurance rates that reflect our expectations as to future
mortality experience as based on current experience. We may change the rates
from time to time on a basis which does not unfairly discriminate within the
class of life insureds. In no event will the cost of insurance rate exceed the
guaranteed rate set forth in the Policy except to the extent that an extra rate
is imposed because of an additional rating applicable to the life insured or if
simplified underwriting is granted in a group or sponsored arrangement (see
"Special Provisions For Group Or Sponsored Arrangements"). The guaranteed rates
are based on the 1980 Commissioners Standard Ordinary Smoker/Nonsmoker Mortality
Tables.
If requested by the applicant, we may offer the Policy with provisions based on
actuarial tables that do not differentiate on the basis of sex to such
prospective purchasers in states where the unisex version of the Policy has been
approved.
The State of Montana currently prohibits the issuance of policies with
assumptions that distinguish between men and women in determining premiums and
policy benefits for policies issued on the life of any of its residents.
The net amount at risk to which the cost of insurance rate is applied is the
difference between the death benefit, divided by 1.0032737 (a factor which
reduces the net amount at risk for cost of insurance charge purposes by taking
into account assumed monthly earnings at an annual rate of 4%), and the Policy
Value. Because different cost of insurance rates may
30
apply to different levels of insurance coverage, we will calculate the net
amount at risk separately for each level of insurance coverage. When the Option
1 death benefit is in effect, for purposes of determining the net amount at risk
applicable to each level of insurance coverage, the Policy Value is attributed
first to the initial face amount and then, if the Policy Value is greater than
the initial face amount, to each increase in face amount in the order made.
Because the calculation of the net amount at risk is different under the death
benefit options when more than one level of insurance coverage is in effect, a
change in the death benefit option may result in a different net amount at risk
for each level of insurance coverage than would have occurred had the death
benefit option not been changed. Since the cost of insurance is calculated
separately for each level of insurance coverage, any change in the net amount at
risk for a level of insurance coverage resulting from a change in the death
benefit option may affect the amount of the charge for the cost of insurance.
Partial withdrawals and decreases in face amount will also affect the manner in
which the net amount at risk for each level of insurance coverage is calculated.
MORTALITY AND EXPENSE RISK CHARGE
We make a monthly charge against your Policy Value for the mortality and expense
risks we assume under the Policies. We make this charge at the beginning of each
policy month at an annual rate of
- .90% through the later of the tenth anniversary of the Policy and your
attained age of 60
- and, thereafter, .45%.
We assess the charge against the value of your Investment Accounts by canceling
units in the same proportion as the value of each Investment Account bears to
the total value of your Investment Accounts. The mortality risk assumed is that
lives insured may live for a shorter period of time than we estimated. The
expense risk assumed is that expenses incurred in issuing and administering the
Policies will be greater than we estimated. We estimate that virtually all of
the mortality and expense risks charge currently relates to expense risks. We
will realize a gain from this charge to the extent it is not needed to provide
benefits and pay expenses under the Policies.
OTHER CHARGES
Currently, we make no charge against the Separate Account for federal, state or
local taxes that may be attributable to the Separate Account or to our
operations with respect to the Policies. However, if we incur any such taxes, we
may make a charge therefor.
We impose charges on certain transfers of Policy Values, including a $25 charge
for each transfer in excess of twelve in a policy year and a $5 charge for each
Dollar Cost Averaging transfer when Policy Value does not exceed $15,000. See
Policy Values -- "Transfers Of Policy Value."
The Separate Account purchases shares of Portfolios at net asset value. The net
asset value of those shares reflects the investment management fees and expenses
of the Portfolios, which are set forth below. More detailed information
concerning these fees and expenses is set forth under the caption "Management of
The Trust" in the prospectus for the Trust that accompanies this prospectus.
TRUST ANNUAL EXPENSES
(as a percentage of Trust average net assets)
OTHER EXPENSES
MANAGEMENT (AFTER EXPENSE TOTAL TRUST
TRUST PORTFOLIO FEES REIMBURSEMENT)*** ANNUAL EXPENSES
- - -------------------------------------------------------------------------------------------------------
Pacific Rim Emerging Markets........ 0.850% 0.360% 1.210%
Science & Technology................ 1.100% 0.110% 1.210%
International Small Cap............. 1.100% 0.150% 1.250%
Aggressive Growth................... 1.000%+ 0.090% 1.090%
31
Emerging Small Company.............. 1.050% 0.050% 1.100%
Small Company Blend................. 1.050% 0.150%* 1.200%
Mid Cap Growth...................... 0.950%+ 0.040% 0.990%
Mid Cap Stock....................... 0.925% 0.000%* 0.925%
OTHER EXPENSES
MANAGEMENT (AFTER EXPENSE TOTAL TRUST
TRUST PORTFOLIO FEES REIMBURSEMENT)*** ANNUAL EXPENSES
- - -------------------------------------------------------------------------------------------------------
Overseas............................ 0.950% 0.210% 1.160%
International Stock................. 1.050% 0.200% 1.250%
International Value................. 1.000% 0.300%* 1.300%
Mid Cap Blend....................... 0.850%+ 0.050% 0.900%
Small Company Value................. 1.050% 0.180% 1.230%
Global Equity....................... 0.900% 0.110% 1.010%
Growth.............................. 0.850% 0.050% 0.900%
Large Cap Growth.................... 0.875%+ 0.130% 1.005%
Quantitative Equity................. 0.700% 0.060% 0.760%
Blue Chip Growth.................... 0.875%+ 0.045% 0.920%
Real Estate Securities.............. 0.700% 0.060% 0.760%
Value............................... 0.800% 0.050% 0.850%
Equity Index........................ 0.250% 0.150%** 0.400%**
Growth & Income..................... 0.750% 0.040% 0.790%
U.S. Large Cap Value................ 0.875% 0.100%* 0.975%
Equity-Income....................... 0.875%+ 0.050% 0.925%
Income & Value...................... 0.800% 0.090% 0.890%
Balanced............................ 0.800% 0.070% 0.870%
High Yield.......................... 0.775% 0.065% 0.840%
Strategic Bond...................... 0.775% 0.075% 0.850%
Global Bond......................... 0.800% 0.110% 0.910%
Total Return........................ 0.775% 0.100%* 0.875%
Investment Quality Bond............. 0.650% 0.070% 0.720%
Diversified Bond.................... 0.750% 0.140% 0.890%
U.S. Government Securities.......... 0.650% 0.070% 0.720%
Money Market........................ 0.500% 0.120% 0.620%
Lifestyle Aggressive 1000#.......... 0% 1.110%*** 1.110%
Lifestyle Growth 820#............... 0% 1.000%*** 1.000%
Lifestyle Balanced 640#............. 0% 0.920%*** 0.920%
Lifestyle Moderate 460#............. 0% 0.830%*** 0.830%
Lifestyle Conservative 280#......... 0% 0.720%*** 0.720%
+Management Fees for these portfolios changed effective May 1, 1999. Prior to
May 1, 1999, management fees were as follows:
Aggressive Growth Trust 1.050%
Mid Cap Growth Trust 1.000%
Mid Cap Blend Trust 0.750%
Large Cap Growth Trust 0.750%
Blue Chip Growth Trust 0.925%
Equity Income Trust 0.800%
Income & Value Trust 0.750%
*Based on estimates of payments to be made during the current fiscal year.
** Under the Advisory Agreement, MSS has agreed o reduce its advisory fee or
reimburse the Equity Index Trust if the total of all expenses (excluding
advisory fees, taxes, portfolio brokerage commissions, interest, litigation and
32
indemnification expenses and other extraordinary expenses not incurred in the
ordinary course of the Trust's business) exceed an annual rate of 0.15% of the
average annual net assets of the Equity Index Trust. The expense limitation will
continue in effect from year to year unless otherwise terminated at any year end
by MSS on 30 days' notice to the Trust. If this expense reimbursement had not
been in effect, Total Trust Annual Trust. If this expense reimbursement had not
been in effect, Total Trust Annual Trust. If this expense reimbursement had not
been in effect, Total Trust Annual Expenses would have been 0.55%, and Other
Expenses would have been 0.30%, of the average annual net assets of the Equity
Index Trust.
*** Reflects expenses of the Underlying Portfolios. Manufacturers Securities
Services, LLC ("MSS") has voluntarily agreed to pay the expenses of each
Lifestyle Trust (excluding the expenses of the Underlying Portfolios). This
voluntary expense reimbursement may be terminated at any time. If such expense
reimbursement was not in effect, Total Trust Annual Expenses would be 0.02%
higher, except for the Lifestyle Conservative 280 Trust, which would be 0.03%
higher (based on expenses of the Lifestyle Trusts for the fiscal year ended
December 31, 1998) as noted in the chart below:
MANAGEMENT OTHER TOTAL TRUST
TRUST PORTFOLIO FEES EXPENSES ANNUAL EXPENSES
- - ----------------------------------------------------------------------------------------------------
Lifestyle Aggressive 1000........... 0% 1.130% 1.130%
Lifestyle Growth 820................ 0% 1.020% 1.020%
Lifestyle Balanced 640.............. 0% 0.940% 0.940%
Lifestyle Moderate 460.............. 0% 0.850% 0.850%
Lifestyle Conservative 280.......... 0% 0.750% 0.750%
# Each Lifestyle Trust will bear its own pro rata share of the fees and expenses
incurred by the Underlying Portfolios in which it invests, and the investment
return of each Lifestyle Trust will be net of the Underlying Portfolio expenses.
Each Lifestyle Portfolio must also bear its own expenses. However, MSS is
currently paying those expenses as described in footnote (***) above.
SPECIAL PROVISIONS FOR GROUP OR SPONSORED ARRANGEMENTS
Where permitted by state insurance laws, Policies may be purchased under group
or sponsored arrangements, as well as on an individual basis. A "group
arrangement" includes a program under which a trustee, employer or similar
entity purchases Policies covering a group of individuals on a group basis. In
California all participants of group arrangements will be individually
underwritten. A "sponsored arrangement" includes a program under which an
employer permits group solicitation of its employees or an association permits
group solicitation of its members for the purchase of Policies on an individual
basis.
We may reduce the charges and deductions described above for Policies issued in
connection with group or sponsored arrangements. Such arrangements may include
sales without withdrawal charges and deductions to our employees, officers,
directors, agents, immediate family members of the foregoing, and employees of
our agents and of our subsidiaries. We will reduce the above charges and
deductions in accordance with our rules in effect as of the date an application
for a Policy is approved. To qualify for such a reduction, a group or sponsored
arrangement must satisfy certain criteria as to, for example, size of the group,
expected number of participants and anticipated premium payments from the group.
Generally, the sales contacts and effort, administrative costs and mortality
cost per Policy vary based on such factors as the size of the group or sponsored
arrangements, the purposes for which Policies are purchased and certain
characteristics of its members. The amount of reduction and the criteria for
qualification will reflect the reduced sales effort and administrative costs
resulting from, and the different mortality experience expected as a result of,
sales to qualifying groups and sponsored arrangements.
We may modify from time to time, on a uniform basis, both the amounts of
reductions and the criteria for qualification. Reductions in these charges will
not be unfairly discriminatory against any person, including the affected
policyowners and all other policyowners funded by the Separate Account.
33
In addition, groups and persons purchasing under a sponsored arrangement may
apply for simplified underwriting. If simplified underwriting is granted, the
cost of insurance charge may increase as a result of higher anticipated
mortality experience. In addition, groups or persons purchasing under a
sponsored arrangement may request increases or decreases in face amount at any
time after issue and decreases in face amount at any time after an increase in
face amount.
SPECIAL PROVISIONS FOR EXCHANGES
We will permit owners of certain life insurance policies issued either by us or
Manufacturers Life to exchange their policies for the Policies described in this
prospectus. Charges under the policies being exchanged or the Policies issued in
exchange therefor may be reduced or eliminated. Owners of certain policies may
be entitled to convert their policies to the Policies described in this
prospectus. If they elect to convert, they may receive a credit upon conversion
in an amount up to their first-year premium. Policy loans made under policies
being exchanged may, in some circumstances, be carried over to the new Policies
without repayment at the time of exchange. Policyowners considering an exchange
should consult their tax advisers as to the tax consequences of an exchange.
THE GENERAL ACCOUNT
By virtue of exclusionary provisions, interests in our general account have not
been registered under the Securities Act of 1933 and our general account has not
been registered as an investment company under the Investment Company Act of
1940. Accordingly, neither our general account nor any interests therein are
subject to the provisions of these acts, and as a result the staff of the
Securities and Exchange Commission 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.
Our general account consists of all assets owned by us other than those in our
separate accounts. Subject to applicable law, we have sole discretion over the
investment of the assets of our general account.
You may elect to allocate net premiums to the Fixed Account or to transfer all
or a portion of your Policy Value to the Fixed Account from the Investment
Accounts. Transfers from the Fixed Account to the Investment Accounts are
subject to restrictions. See Policy Values -- "Transfers Of Policy Value" and
"Policy Value." We will hold the reserves required for any portion of the Policy
Value allocated to the Fixed Account in our general account. However, your
allocation of Policy Value to the Fixed Account does not entitle you to share in
the investment experience of our general account. Instead, we guarantee that
your Policy Value in the Fixed Account will accrue interest daily at an
effective annual rate of at least 4%, without regard to the actual investment
experience of our general account. We may, at our sole discretion, credit a
higher rate of interest, although we are not obligated to do so. You assume the
risk that interest credited may not exceed the guaranteed minimum rate of 4% per
year.
34
OTHER GENERAL POLICY PROVISIONS
POLICY DEFAULT
Unless the Death Benefit Guarantee is in effect, your Policy will go into
default if the Policy's Net Cash Surrender Value at the beginning of any policy
month would go below zero after deducting the monthly deductions then due. We
will notify you 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
payment you must make will be equal to the amount necessary to bring the Net
Cash Surrender Value to zero, if it was less than zero at the date of default,
plus the monthly deductions due at the date of default and at the beginning of
each of the two policy months thereafter, based on the Policy Value at the date
of default. If we do not receive the required payment by the end of the grace
period, we will terminate the Policy and pay to you the Net Cash Surrender Value
(subject to any applicable limitation on surrender charges; see Charges And
Deductions -- "Surrender Charges") as of the date of default less the monthly
deductions then due. If the life insured should die during the grace period
following a Policy's going into default, 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 payable will be reduced by any outstanding
monthly deductions due at the time of death.
POLICY REINSTATEMENT
You can reinstate a Policy which has terminated after going into default at any
time within 21 days following the date of termination without furnishing
evidence of insurability, subject to the following conditions:
(a) The life insured's risk class is standard or preferred; and
(b) The life insured's attained age is less than 46.
You can reinstate a Policy which has terminated after going into default at any
time within the five-year period following the date of termination subject to
the following conditions:
(a) You must not have surrendered the Policy for its Net Cash
Surrender Value;
(b) You furnish to us satisfactory evidence of the life insured's
insurability;
(c) You pay us a premium equal to the payment required during the
61-day grace period following default to keep the Policy in
force; and
(d) You repay to us an amount equal to any amounts paid by us in
connection with the termination of the Policy.
If we approve the reinstatement, the date of reinstatement will be the later of
the date of your written request or the date we receive the required payment at
our Service Office.
MISCELLANEOUS POLICY PROVISIONS
BENEFICIARY. You may appoint one or more beneficiaries of the Policy by naming
them in the application. Beneficiaries may be appointed in three classes --
primary, secondary and final. Thereafter you may change the beneficiary during
the life insured's lifetime by giving written notice to us in a form
satisfactory to us unless an irrevocable designation has been elected. If the
life insured dies and there is no surviving beneficiary, you, or your estate if
you are 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.
INCONTESTABILITY. We will not contest the validity of a Policy after it has been
in force during the life insured's lifetime for two years from the issue date.
We will not contest the validity of an increase in face amount or the addition
of a
35
supplementary benefit after such increase or addition has been in force during
the life insured's lifetime for two years. If a Policy has been reinstated and
been in force for less than two years from the reinstatement date, we can
contest any misrepresentation of a fact material to the reinstatement.
MISSTATEMENT OF AGE OR SEX. If the life insured's stated age or sex or both in
the Policy are incorrect, we will change the face amount of insurance so that
the death benefit will be that which the most recent monthly charge for the cost
of insurance would have bought for the correct age and sex (unless unisex rates
are required by law).
SUICIDE EXCLUSION. If the life insured, whether sane or insane, dies by suicide
within two years from the issue date, we will pay only the premiums paid less
any partial withdrawals of the Net Cash Surrender Value and any amount in the
Loan Account. If the life insured should die by suicide within two years after a
face amount increase, the death benefit for the increase will be limited to the
monthly deduction for the increase.
ASSIGNMENT. We will not be bound by an assignment until we receive a copy of it
at our Service Office. We assume no responsibility for the validity or effects
of any assignment.
OTHER PROVISIONS
SUPPLEMENTARY BENEFITS
Subject to certain requirements, you may add one or more supplementary benefits
to a Policy, including those providing term insurance for additional insureds,
providing accidental death coverage, waiving monthly deductions upon disability,
guaranteeing the Policy Value, accelerating benefits in the event of terminal
illness, and, in the case of corporate-owned Policies, permitting a change of
the life insured. You may obtain more detailed information concerning
supplementary benefits from one of our authorized agents. We will deduct the
cost of any supplementary benefits as part of the monthly deduction. See Charges
And Deductions -- "Monthly Deductions."
PAYMENT OF PROCEEDS
As long as the Policy is in force, we will ordinarily pay any policy loans,
partial withdrawals, Net Cash Surrender Value or any insurance benefit within
seven days after receipt at our Service Office of all the documents required for
such a payment.
We may delay the payment of any policy loans, partial withdrawals, Net Cash
Surrender Value or the portion of any insurance benefit that depends on the
Fixed Account value for up to six months; otherwise we may delay payment for any
period during which (i) the New York Stock Exchange is closed for trading
(except for normal holiday closings) or trading on the Exchange is otherwise
restricted; or (ii) an emergency exists as defined by the S.E.C. or the S.E.C.
requires that trading be restricted; or (iii) the S.E.C. permits a delay for the
protection of policyowners. Also, we may deny transfers in the circumstances
stated in clauses (i), (ii) and (iii) above and in the circumstances previously
set forth. See Policy Values -- "Transfers Of Policy Value."
REPORTS TO POLICYOWNERS
Within 30 days after each policy anniversary, we will send you a statement
showing, among other things, the amount of the 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, any Loan Account balance and any interest charged since the
last statement, the premiums paid and policy transactions made during the period
since the last statement and any other information required by law.
Within 10 days after any transaction involving purchase, sale, or transfer of
units of Investment Accounts, we will send a confirmation statement.
36
You will also be sent an annual and a semi-annual report for Manufacturers
Investment Trust which will include a list of the securities held in each
Portfolio as required by the 1940 Act.
MISCELLANEOUS MATTERS
PORTFOLIO SHARE SUBSTITUTION
Although we believe it to be highly unlikely, it is possible that in the
judgment of our management, 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, we may
seek to substitute the shares of another Portfolio or of an entirely different
mutual fund. Before this can be done, the approval of the S.E.C. and one or more
state insurance departments may be required.
We also reserve the right to combine other separate accounts with the Separate
Account, to establish additional sub-accounts within the Separate Account, to
operate the Separate Account as a management investment company or other form
permitted by law, to transfer assets from this Separate Account to another
separate account and from another separate account to this Separate Account, and
to de-register the Separate Account under the 1940 Act. We would make the change
only if permissible under applicable federal and state law.
We will not materially change the investment objectives of the Separate Account
without first filing the change with the Insurance Commissioner of the State of
Michigan. You will be advised of any change at the time it is made.
FEDERAL INCOME TAX CONSIDERATIONS
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. You
should consult counsel or other competent tax advisers for more complete
information. This discussion is based upon our understanding of the present
federal income tax laws as they are currently interpreted by the Internal
Revenue Service (the "Service"). We make no representation as to the likelihood
of continuation of the present federal income tax laws or of the current
interpretations by the Service. WE DO NOT MAKE ANY GUARANTEE REGARDING THE TAX
STATUS OF ANY POLICY OR ANY TRANSACTION REGARDING THE POLICIES.
The Policies may be used in various arrangements, including non-qualified
deferred compensation or salary continuance 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 its tax
consequences, is contemplated, you should consult a qualified tax adviser for
advice on the tax attributes of the particular arrangement.
TAX STATUS OF THE POLICY
Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code"), sets
forth a definition of a life insurance contract for federal tax purposes. The
Secretary of 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 Policy
would not provide the tax advantages normally provided by a life insurance
policy.
With respect to a Policy issued on the basis of a standard rate class, we
believe (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 premium
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
37
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.
If it is subsequently determined that a Policy does not satisfy Section 7702, we
may take whatever steps are appropriate and reasonable to attempt to cause such
a Policy to comply with Section 7702. For these reasons, we reserve the right to
restrict Policy transactions as necessary to attempt to qualify it as a life
insurance contract under Section 7702. 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 Manufacturers Investment Trust, intends to comply with
the diversification requirements prescribed in Treas. Reg. Sec. 1.817-5, which
affect how Manufacturers Investment Trust's assets are to be invested. We
believe that the Separate Account will thus meet the diversification
requirement, and we will monitor continued compliance with the requirement.
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 subaccounts without being treated as owners of the
underlying assets."
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, we do 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. We therefore reserve the right to modify the Policy as
necessary to attempt to prevent an owner from being considered the owner of a
pro rata share of the assets of the Separate Account.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. We believe 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. Thus, the death benefit under the Policy
should be excludable from the gross income of the beneficiary under Section
101(a)(1) of the Code.
Depending on the circumstances, the exchange of a Policy, a change in the
Policy's [Generally, you will not be deemed to be in constructive receipt of
your Policy Value until there is a distribution.] death benefit option, a Policy
loan, a partial withdrawal, a surrender, a change in ownership, a change of
insured, 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.
Generally, the policyowner will not be deemed to be in constructive receipt of
the Policy Value, including increments thereof, until there is a distribution.
The tax consequences of distributions from, and loans taken from or secured by,
a Policy depend on whether the Policy is classified as a "Modified Endowment
Contract." 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
38
indebtedness exceeds the total investment in the Policy, the excess will
generally be treated as ordinary income subject to tax, regardless of whether
the Policy is or is not a Modified Endowment Contract.
MODIFIED ENDOWMENT CONTRACTS. Section 7702A establishes a class of life
insurance contracts designated as "Modified Endowment Contracts," which applies
to Policies entered into or materially changed after June 20, 1988.
Because of the Policy's flexibility, classification as a Modified Endowment
Contract will depend on the individual circumstances of each Policy. In general,
a Policy will be a Modified Endowment Contract if the accumulated premiums paid
at any time during the first seven policy years exceed the sum of the net level
premiums which would have been paid on or before such time if the Policy
provided for paid-up future benefits after the payment of seven level annual
premiums. The determination of whether a Policy will be a Modified Endowment
Contract after a material change generally depends upon the relationship of the
death benefit and Policy Value at the time of such change and the additional
premiums paid in the seven years following the material change. If a premium is
received which would cause the Policy to become a Modified Endowment Contract
(MEC) within 23 days of the next policy anniversary, we will not apply the
portion of the premium which would cause MEC status (excess premium) to the
Policy when received. The excess premium will be placed in a suspense account
until the next anniversary date, at which point the excess premium, along with
interest earned on the excess premium at a rate of 3.5% from the date the
premium was received, will be applied to the Policy. The policyowner will be
advised of this action and will be offered the opportunity to have the premium
credited as of the original date received or to have the premium returned. If
the policyowner does not respond, the premium and interest will be applied to
the Policy as of the first day of the next anniversary.
If a premium is received which would cause your Policy to become a MEC more than
23 days prior to the next policy anniversary, we will refund any excess premium
to you. The portion of the premium which is not excess will be applied as of the
date received. We will advise you of this action and will offer 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, you acknowledge
that your Policy is or will become a MEC, we will credit excess premiums that
would cause MEC status as of the date received.
Further, if a transaction occurs which reduces the face amount of your Policy
during the first seven years, we will retest the Policy, retroactive to the date
of purchase, to determine compliance with the seven-pay test based on the lower
face amount. As well, if a reduction of the face amount occurs within seven
years of a material change, we will retest the Policy for compliance retroactive
to the date of the material change. Failure to comply would result in
classification as a Modified Endowment Contract regardless of any efforts by us
to provide a payment schedule that will not violate the seven-pay test.
The rules relating to whether a Policy will be treated as a Modified Endowment
Contract are extremely complex and cannot be adequately described in the limited
confines of this summary. Therefore, you should consult with a competent adviser
to determine whether a transaction will cause the Policy to be treated as a
Modified Endowment Contract.
DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS. Policies
classified as Modified Endowment Contracts 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 (described below) at such time. Second, loans taken from or secured by
such a Policy are treated as partial withdrawals from the Policy and taxed
accordingly. Past-due loan interest that is added to the loan amount is treated
as a loan. Third, a 10% additional income tax is imposed on the portion of any
distribution (including distributions upon surrender) from, or loans 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's 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.
DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS. A
distribution from a Policy that is not a Modified Endowment Contract is
generally treated as a tax-free recovery by the policyowner of the investment in
the Policy (described below) to the extent of such investment in the Policy, and
as a distribution of taxable income only to the extent
39
the distribution exceeds the investment in the Policy. 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 complying 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.
Loans from, or secured by, a Policy that is not a Modified Endowment Contract
are not treated as distributions. Instead, such loans are treated as
indebtedness of the policyowner. Select Loans may, however, be treated as a
distribution.
Finally, neither distributions (including distributions upon surrender) nor
loans from, or secured by, a Policy that is not a Modified Endowment Contract
are subject to the 10% additional tax.
POLICY LOAN INTEREST. Generally, personal interest paid on any loan under a
Policy which is owned by an individual is not deductible. In addition, except
for the transition rules described in the paragraph below, 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 exceeds $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.
For policies issued after June 20, 1986 and prior to January 1, 1994 a
transition rule permits all or a portion of the interest paid on policy debt
incurred before January 1, 1996 to be deducted. For policies issued in 1994 or
1995 the transition rule applies to indebtedness incurred before January 1,
1997. To be deducted the interest must be paid or accrued prior to January 1,
1999, and must meet other rules contained in Section 264 of the Code and section
501 of the Health Insurance Portability and Accountability Act of 1996.
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 bears to the average adjusted bases for all assets of the taxpayer.
If the taxpayer is not the owner, but is the direct or indirect beneficiary
under the contract, 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.
INVESTMENT IN THE POLICY. Investment in the Policy means (i) the aggregate
amount of any premiums or other consideration paid for a Policy, minus (ii) the
aggregate amount received under the Policy which has been excluded from gross
income of the policyowner (except that the amount of any loan from, or secured
by, a Policy that is a Modified Endowment Contract, to the extent such amount
has been excluded from gross income, will be disregarded), plus (iii) the amount
of any loan from, or secured by, a Policy that is a Modified Endowment Contract
to the extent that such amount has been included in the gross income of the
policyowner.
MULTIPLE POLICIES. All Modified Endowment Contracts that are issued by us (or
our affiliates) to the same policyowner during any calendar year are treated as
one Modified Endowment Contract for purposes of determining the amount
includible in the gross income under Section 72(e) of the Code.
THE COMPANY'S TAXES
40
As a result of the Omnibus Budget Reconciliation Act of 1990, insurance
companies are generally required to capitalize and amortize certain policy
acquisition expenses over a 10-year period rather than currently deducting such
expenses. This treatment applies to the deferred acquisition expenses of a
Policy and results in a significantly higher corporate income tax liability for
the Company. We reserve the right to make a charge to premiums to compensate us
for the anticipated higher corporate income taxes.
At the present time, we make no charge to the Separate Account for any federal,
state or local taxes that we incur that may be attributable to the Account or to
the Policies. We, 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 we determine to be properly attributable to the Separate Account or to
the Policies.
DISTRIBUTION OF THE POLICY
ManEquity, Inc., one of our indirect wholly-owned subsidiaries, acts as the
principal underwriter of, and continuously offers, the Policies pursuant to a
Distribution Agreement with us. ManEquity, Inc. is registered as a broker-dealer
under the Securities Exchange Act of 1934 and is a member of the National
Association of Securities Dealers. The Policies will be sold by registered
representatives of either ManEquity, Inc. or other broker-dealers having
distribution agreements with ManEquity, Inc. who are also authorized by state
insurance departments to do so. Compensation is comprised of first-year
commissions and bonus not to exceed 105% of premiums paid up to the Target
Premium, commissions not to exceed 2% of premiums in excess thereof and, after
the third anniversary, 0.15% of the Policy Value per annum. If certain standards
with regard to the sale of the Policies and certain other policies issued by us
or Manufacturers Life (USA) are met, additional compensation will be available.
RESPONSIBILITIES ASSUMED BY MANUFACTURERS LIFE
Manufacturers Life and Manufacturers USA have entered into an agreement with
ManEquity, Inc. pursuant to which Manufacturers Life or Manufacturers USA, on
behalf of ManEquity, Inc., will pay the sales commissions in respect of the
Policies and certain other policies issued by us, prepare and maintain all books
and records required to be prepared and maintained by ManEquity, Inc. with
respect to the Policies and such other policies, and send all confirmations
required to be sent by ManEquity, Inc. with respect to the Policies and such
other policies. ManEquity, Inc. will promptly reimburse Manufacturers Life or
Manufacturers USA for all sales commissions paid by them and will pay them for
their other services under the agreement in such amounts and at such times as
agreed to by the parties.
Manufacturers Life and Manufacturers USA have also entered into a Service
Agreement with us pursuant to which Manufacturers Life or Manufacturers USA will
provide to us all issue, administrative, general services and recordkeeping
functions on our behalf with respect to all of our insurance policies including
the Policies.
Finally, Manufacturers Life of America may, from time to time in its sole
discretion, enter into one or more reinsurance agreements with other life
insurance companies under which policies issued by it may be reinsured, such
that its total amount at risk under a policy would be limited for the life of an
insured.
VOTING RIGHTS
As stated above, we will invest all of the assets held in the sub-accounts of
the Separate Account in shares of a particular Portfolio of Manufacturers
Investment Trust. We are the legal owner of those shares and as such have the
right to vote upon matters that are required by the 1940 Act to be approved or
ratified by the shareholders of a mutual and to vote upon any other matters that
may be voted upon at a shareholders' meeting. However, we will vote shares held
in the sub-accounts in accordance with instructions received from policyowners
having an interest in such sub-accounts.
We will vote shares held in each sub-account for which no timely instructions
from policyowners are received, including shares not attributable to Policies,
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 us to vote shares held in the Separate
Account in our own right, we may elect to do so.
41
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 of Manufacturers Investment Trust. We will determine the
number as of a date chosen by us, 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 shareholders' meeting.
We may, if required by state insurance 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, we
may disregard voting instructions that would require changes in the investment
policies or investment adviser, provided that we reasonably disapprove such
changes in accordance with applicable federal regulations. If we disregard
voting instructions, we will advise you of that action and our reasons for such
action in the next communication to policyowners.
DIRECTORS AND OFFICERS OF MANUFACTURERS LIFE OF AMERICA
Position with
Manufacturers Life
Name of America Principal Occupation
Sandra M. Cotter (36) Director Attorney, Dykema Gosset, PLLC, 1989 to present.
(since December 1992)
James D. Gallagher (44) Director (since May 1996), Vice President, Secretary and General Counsel,
Secretary and The Manufacturers Life Insurance Company (USA),
General Counsel January 1997 to present; Secretary and General
Counsel, Manufacturers Adviser Corporation,
January 1997 to present; Vice President, Legal
Services - U.S. Operations, The Manufacturers
Life Insurance Company, January 1996 to
present; Vice President, Secretary and General
Counsel, The Manufacturers Life Insurance
Company of North America , 1994 to present;
Vice President and Associate General Counsel,
The Prudential Insurance Company of America,
1991 to 1994.
Theodore Kilkuskie, Jr. (43) Director (since May 1996) Senior Vice President, U.S. Annuities, The
Manufacturers Life Insurance Company, January
1999 to present; President, The Manufacturers
Life Insurance Company of North America,
January 1999 to present; Senior Vice President,
U.S. Individual Insurance, The Manufacturers
Life Insurance Company, August 1998 to December
1998; Vice President, U.S. Individual
Insurance, The Manufacturers Life Insurance
Company, June 1995 to February 1998; Executive
Vice President, Mutual Fund Sales & Marketing,
State Street Research, March 1994 to June 1995.
42
James O'Malley (52) Director (since November 1998) Senior Vice President, U.S. Pensions, The
Manufacturers Life Insurance Company, January
1999 to present; Vice President, Systems New
Business Pensions, The Manufacturers Life
Insurance Company, 1984 to December 1998.
Joseph J. Pietroski (60) Director (since July 1992) Senior Vice President, General Counsel and
Corporate Secretary, The Manufacturers Life
Insurance Company, 1988 to present.
John D. Richardson (61) Chairman and Director Senior Executive Vice President, The
(since January 1995) Manufacturers Life Insurance Company; January
1999 to present; Executive Vice President, U.S.
Operations, The Manufacturers Life Insurance
Company, November 1995 to December 1998; Senior
Vice President and General Manager, U.S.
Operations, The Manufacturers Life Insurance
Company, January 1995 to October 1997; Senior
Vice President and General Manager, Canadian
Operations, The Manufacturers Life Insurance
Company, June 1992 to December 1994.
Victor Apps (51) Vice President, Asia Executive Vice President, Asia Operations, The
Manufacturers Life Insurance Company, November
1997 to present; Senior Vice President and
General Manager, Greater China Division, The
Manufacturers Life Insurance Company, 1995 to
1997; Vice President and General Manager,
Greater China Division, The Manufacturers Life
Insurance Company, 1993 to 1995; International
Vice President, Asia Pacific Division, The
Manufacturers Life Insurance Company, 1988 to
1993.
Felix Chee (52) Vice President, Investments Executive Vice President ,The Manufacturers
Life Insurance Company; November 1997 to
present, Chief Investment Officer, The
Manufacturers Life Insurance Company, June 1997
to present, Senior Vice President and
Treasurer, The Manufacturers Life Insurance
Company, August 1994 to May 1997; Vice
President and Treasurer, The Manufacturers Life
Insurance Company, October 1993 to July 1994.
Robert A. Cook (44) Vice President, Marketing Senior Vice President, U.S. Individual
Insurance, The Manufacturers Life Insurance
Company, January 1999 to present; Vice
President, Product Management, The
Manufacturers Life Insurance Company, 1996 to
December 1998; Sales and Marketing Director,
The Manufacturers Life Insurance Company, 1994
to 1995.
Hugh C. McHaffie (40) Vice President Vice President, Product Development, U.S.
Annuities, The Manufacturers Life Insurance
Company, January 1996 to present; Vice
43
President U.S. Annuities, The Manufacturers
Life Insurance Company of North America,
September 1996 to present; Vice President,
Product Actuary, The Manufacturers Life
Insurance Company of North America, August 1994
to September 1996; Product Development
Executive, The Manufacturers Life Insurance
Company of North America, August 1990 to August
1994.
Douglas H. Myers (44) Vice President, Finance and President, ManEquity, Inc., April 1994 to
Compliance, Controller present; Assistant Vice President and
Controller, U.S. Operations, The Manufacturers
Life Insurance Company, 1988 to present.
John G. Vrysen (43) Vice President, Appointed Chief Financial Officer and Treasurer,
Actuary Manulife-Wood Logan Holding Co., Inc., January
1996 to present; Vice President and Chief
Financial Officer, U.S. Operations, The
Manufacturers Life Insurance Company, January
1996 to present; Vice President and Chief
Actuary, The Manufacturers Life Insurance
Company of New York, March 1992 to present;
Vice President and Chief Actuary, The
Manufacturers Life Insurance Company of North
America, January 1986 to present.
Jean Wong (35) Vice President and Treasurer Vice President and Chief Accountant, U.S.
Division, The Manufacturers Life Insurance
Company, May 1998 to present; Chief Accountant,
U.S. Division, The Manufacturers Life Insurance
Company, July 1996 to May 1998; Director,
Finance and Administration, Star Data Systems
Inc., December 1995 to July 1996; Vice
President and Chief Financial Officer,
Primerica Financial Services, June 1993 to
December 1995.
IMPACT OF YEAR 2000
The Company makes extensive use of information systems in the operations of its
various businesses, including for the exchange of financial data and other
information with customers, suppliers and other counterparties. The Company also
uses software and information systems provided by third parties in its
accounting, business and investment systems.
The Year 2000 risk, as it is commonly known, is the result of computer programs
being written suing two digits, rather than four, to define the applicable year.
Any of the Company's computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the Year 2000. This
could result in systems failures or miscalculations causing disruptions of
operations, including among other things, a temporary inability to process
transactions, send premium billing notices, make claims payments or engage in
other normal business activities.
The systems used by the company have been assessed as part of a comprehensive
written plan conducted by The Manufacturers Life Insurance Company (collectively
with its subsidiaries, "Manulife Financial"), to ensure that computer systems
and processes of Manulife Financial and its subsidiaries and affiliates,
including the Company, will continue to perform through the end of this century
and in the next.
44
In 1996, in order to make Manulife Financial's systems Year 2000 compliant, a
program was instituted to modify or replace both Manulife Financial's
information technology systems ("IT systems") and embedded technology systems
"Non-IT systems"). The phases of this program include (I) an inventory and
assessment of all systems to determine which are critical, (ii) planning and
designing the required modifications and replacements, (iii) making these
modifications and replacements, (iv) testing modified or replaced systems, (v)
redeploying modified or replaced systems and (vi) final management review and
certification. For most IT and Non-IT systems identified as critical,
certification has been completed for the company. Of those systems classified as
critical, management believes that over 99% were Year 2000 compliant at the end
of 1998. Management continues to focus attention on the remaining 1% of critical
systems. Those that affect the Company are expected to be compliant by the end
of the first quarter in 1999. Management believes that the Company's
non-critical systems will be Year 2000 compliant by the end of the first quarter
1999.
In addition to efforts directed at Manulife Financial's own systems, Manulife
Financial is presently consulting vendors, customers, and other third parties
with which it deals in an effort to ensure that no material aspect of Manulife
Financial's operations will be hindered by Year 2000 problems of these third
parties. This process includes providing third parties with questionnaires
regarding the state of their Year 2000 readiness and, where possible or where
appropriate, conducting further due diligence activities.
Manulife Financial recognizes the importance of preparing for the change to the
Year 2000 and, in January 1999, commenced preparation of contingency plans, in
the event that Manulife Financial's year 2000 program has not fully resolved its
Year 2000 issues. The Year 2000 Project Management Office for Manulife
Financial's U.S. division is coordinating the preparation of the Year 2000
contingency plan on behalf of U.S. Division affiliates and subsidiaries.
Contingency planning is targeted for completion by mid-1999.
Management currently believes that, with modifications to existing software and
conversions to new software, the Year 2000 risk will not pose significant
operations problems for Manulife Financial's computer systems. As part of the
Year 2000 program, critical systems were "time-shift" tested in the year 2000
and beyond to confirm that they will continue to function properly before,
during and after the change to the Year 2000. However, there can be no assurance
that Manulife Financial's Year 2000 program, including consulting third parties
and its contingency planning, will avoid any material adverse effect on Manulife
Financial's operations, customer relations or financial condition. Manulife
Financial estimates the total cost of its Year 2000 program will be
approximately $59 million, of which $49.5 million has been incurred through
December 31, 1998; however, there can be no assurance that the actual cost
incurred will not be materially higher than such estimate. Most costs will be
expensed as incurred; however, those costs attributed to the purchase of new
software and hardware will generally be capitalized. The total cost of the Year
2000 program is not expected to have a material effect on Manulife Financial's
net operating income.
STATE REGULATIONS
We are subject to regulation and supervision by the Michigan Department of
Insurance, which periodically examines our financial condition and operations.
We are also subject to the insurance laws and regulations of all jurisdictions
in which we are 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.
We are required to submit annual statements of our operations, including
financial statements, to the insurance departments of the various jurisdictions
in which we do business for the purposes of determining solvency and compliance
with local insurance laws and regulations.
PENDING LITIGATION
No litigation is pending that would have a material effect upon the Separate
Account or Manufacturers Investment Trust.
ADDITIONAL INFORMATION
45
We have filed a registration statement under the Securities Act of 1933 with the
S.E.C. relating to the offering described in this prospectus. This prospectus
does not include all the information set forth in the registration statement.
You may obtain the omitted information from the S.E.C.'s principal office in
Washington, D.C. upon payment of the prescribed fee.
For further information you may also contact Manufacturers Life of America's
Service Office, the address and telephone number of which are on the cover page
of this prospectus.
INDEPENDENT AUDITORS
The consolidated financial statements of Manufacturers Life Insurance Company of
America and Separate Account Three of The Manufacturers Life Insurance Company
of America at December 31, 1998 and 1997, and for each of the three years in the
period ended December 31, 1998, appearing in this Prospectus and Registration
Statement have been audited by Ernst & 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.
FINANCIAL STATEMENTS
The financial statements of Manufacturers Life of America included herein should
be distinguished from the financial statements of Separate Account Three and
should be considered only as bearing upon the ability of Manufacturers Life of
America to meet its obligations under the Policies.
46
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 a given age would vary over time
if the return on the assets of the Portfolio 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
for state, local and federal taxes, deferred underwriting and sales charges, and
monthly deductions for administration, cost of insurance and mortality and
expense risks.
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 the Portfolios are deducted from the
gross return. The illustrations reflect an average of those Portfolios' current
expenses, which is approximately 0.949% per annum. The gross annual rates of
return of 0%, 6% and 12% correspond to approximate net annual rates of return of
- - -0.944%, 4.999% and 10.942%. The illustrations reflect the expense
reimbursements in effect for the Lifestyle Trusts and the expense limitation in
effect for the Equity Index Trust. In the absence of such expense reimbursements
and expense limitation, the average of the Portfolio's current expenses would
have been 0.953% per annum and the gross annual rates of return of 0%, 6% and
12% would have corresponded to approximate net annual rates of return of
0.949%, 4.994% and 10.938%. The expense reimbursements for the Lifestyle Trusts
and the expense limitation for the Equity Index Trust remained in effect during
the fiscal year ended December 31, 1998, and are expected to remain in effect
during the fiscal year ended December 31, 1999. Were the expense reimbursement
and expense limitation to terminate, the average of the Portfolios' current
expenses would be higher and the approximate net annual rates of return would be
lower.
The tables assume that no premiums have been allocated to the Fixed Account,
that planned premiums are paid on the policy anniversary and that no transfers,
partial withdrawals, policy loans, changes in death benefit options or changes
in face amount have been made. The tables reflect the fact that no charges for
federal, state or local taxes are currently made against the Separate Account.
If such a charge is made in the future, it would take a higher gross rate of
return to produce after-tax returns of 0%, 6% and 12% than it does now.
There are two tables shown for each combination of age and death benefit option
for male non-smokers, one based on current cost of insurance and monthly
administration charges and the other based on the maximum administration
charges, deductions from premiums and cost of insurance charges based on the
1980 Commissioners Standard Ordinary Smoker/Nonsmoker Mortality Tables. The
current waiver of deductions from premiums and current monthly administration
charges and 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 age, sex (unless unisex rates
are required by law) and risk class, any additional ratings and the death
benefit option, face amount and planned premium requested. Illustrations for
smokers would show less favorable results than the illustrations shown below.
From time to time, in advertisements or sales literature for the Policies that
quote performance data of one or more of the Portfolios, the Company may include
cash surrender values and death benefit figures computed using the same
methodology as that used in the following illustrations, but with the average
annual total return of the Portfolios for which performance data is shown in the
advertisement replacing the hypothetical rates of return shown in the following
tables. This information may be shown in the form of graphs, charts, tables and
examples.
The Policies have been offered to the public only since September 10, 1993.
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'
A-1
being offered would be calculated as if the Policies had been offered during
that period of time, with all charges assumed to be those applicable to the
Policies.
A-2
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$5,960 ANNUAL PLANNED PREMIUM*
ASSUMING CURRENT CHARGES
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) (2) Value Value Value
(3)(4) (3)(4) (3)(4)
1 6,258 4,614 0 500,000 4,925 271 500,000 5,238 584 500,000
2 12,829 9,408 4,637 500,000 10,324 5,554 500,000 11,279 6,509 500,000
3 19,728 14,070 7,548 500,000 15,899 9,377 500,000 17,879 11,357 500,000
4 26,973 18,598 12,129 500,000 21,652 15,183 500,000 25,089 18,620 500,000
5 34,579 22,985 16,565 500,000 27,582 21,161 500,000 32,961 26,541 500,000
6 42,566 27,256 21,135 500,000 33,719 27,599 500,000 41,588 35,468 500,000
7 50,953 31,374 25,554 500,000 40,035 34,215 500,000 51,009 45,189 500,000
8 59,758 35,345 29,824 500,000 46,540 41,020 500,000 61,309 55,789 500,000
9 69,004 39,159 34,156 500,000 53,233 48,230 500,000 72,571 67,568 500,000
10 78,712 42,823 38,760 500,000 60,126 56,063 500,000 84,898 80,835 500,000
11 88,906 46,334 43,084 500,000 67,224 63,974 500,000 98,399 95,149 500,000
12 99,609 49,674 47,236 500,000 74,520 72,082 500,000 113,183 110,745 500,000
13 110,848 52,842 51,217 500,000 82,020 80,395 500,000 129,385 127,760 500,000
14 122,648 55,833 55,021 500,000 89,727 88,915 500,000 147,152 146,340 500,000
15 135,039 58,635 58,635 500,000 97,642 97,642 500,000 166,646 166,646 500,000
16 148,049 61,242 61,242 500,000 105,768 105,768 500,000 188,052 188,052 500,000
17 161,709 63,627 63,627 500,000 114,094 114,094 500,000 211,564 211,564 500,000
18 176,052 65,796 65,796 500,000 122,636 122,636 500,000 237,425 237,425 500,000
19 191,113 67,728 67,728 500,000 131,387 131,387 500,000 265,892 265,892 500,000
20 206,927 69,524 69,524 500,000 140,453 140,453 500,000 297,322 297,322 500,000
21 223,531 71,186 71,186 500,000 149,851 149,851 500,000 332,048 332,048 500,000
22 240,966 72,536 72,536 500,000 159,453 159,453 500,000 370,252 370,252 540,567
23 259,272 73,563 73,563 500,000 169,268 169,268 500,000 412,113 412,113 585,200
24 278,494 74,247 74,247 500,000 179,303 179,303 500,000 457,993 457,993 632,030
25 298,676 74,553 74,553 500,000 189,553 189,553 500,000 508,295 508,295 681,115
26 319,868 74,787 74,787 500,000 200,932 200,932 500,000 566,011 566,011 735,815
27 342,119 74,556 74,556 500,000 212,625 212,625 500,000 629,492 629,492 805,750
28 365,483 73,796 73,796 500,000 224,632 224,632 500,000 699,307 699,307 881,127
29 390,016 72,432 72,432 500,000 236,958 236,958 500,000 776,089 776,089 962,351
30 415,774 71,022 71,022 500,000 250,003 250,003 500,000 860,825 860,825 1,050,207
31 442,821 69,550 69,550 500,000 263,803 263,803 500,000 954,362 954,362 1,145,234
32 471,220 67,395 67,395 500,000 278,072 278,072 500,000 1,057,199 1,057,199 1,258,067
33 501,039 64,495 64,495 500,000 292,860 292,860 500,000 1,170,254 1,170,254 1,380,899
34 532,349 60,781 60,781 500,000 308,225 308,225 500,000 1,294,538 1,294,538 1,514,609
35 565,224 56,160 56,160 500,000 324,233 324,233 500,000 1,431,162 1,431,162 1,660,148
36 600,131 50,712 50,712 500,000 341,288 341,288 500,000 1,581,659 1,581,659 1,818,908
37 636,783 43,678 43,678 500,000 359,046 359,046 500,000 1,747,353 1,747,353 1,974,509
38 675,268 35,115 35,115 500,000 377,721 377,721 500,000 1,930,108 1,930,108 2,142,420
A-3
39 715,677 24,287 24,287 500,000 397,348 397,348 500,000 2,131,723 2,131,723 2,323,578
40 758,106 11,230 11,230 500,000 418,226 418,226 500,000 2,354,680 2,354,680 2,519,507
41 802,657 0 (5) 0 (5) 500,000 440,416 440,416 500,000 2,601,347 2,601,347 2,731,415
42 849,435 0 (5) 0 (5) 500,000 464,347 464,347 500,000 2,871,952 2,871,952 3,015,550
43 898,552 0 (5) 0 (5) 500,000 490,322 490,322 514,839 3,169,108 3,169,108 3,327,564
44 950,125 0 (5) 0 (5) 500,000 517,286 517,286 543,151 3,495,288 3,495,288 3,670,052
45 1,004,277 0 (5) 0 (5) 500,000 545,209 545,209 572,470 3,853,150 3,853,150 4,045,807
46 1,061,136 0 (5) 0 (5) 500,000 574,096 574,096 602,801 4,245,516 4,245,516 4,457,792
47 1,120,838 0 (5) 0 (5) 500,000 603,944 603,944 634,142 4,675,384 4,675,384 4,909,153
48 1,183,526 0 (5) 0 (5) 500,000 634,738 634,738 666,475 5,145,895 5,145,895 5,403,190
49 1,249,348 0 (5) 0 (5) 500,000 666,453 666,453 699,776 5,660,360 5,660,360 5,943,378
50 1,318,460 0 (5) 0 (5) 500,000 699,068 699,068 734,022 6,222,351 6,222,351 6,533,468
51 1,391,029 0 (5) 0 (5) 500,000 732,959 732,959 769,607 6,839,425 6,839,425 7,181,396
52 1,467,226 0 (5) 0 (5) 500,000 768,155 768,155 806,563 7,516,766 7,516,766 7,892,604
53 1,547,232 0 (5) 0 (5) 500,000 804,727 804,727 844,964 8,260,481 8,260,481 8,673,505
54 1,631,240 0 (5) 0 (5) 500,000 842,724 842,724 884,860 9,076,997 9,076,997 9,530,846
55 1,719,447 0 (5) 0 (5) 500,000 882,195 882,195 926,305 9,973,379 9,973,379 10,472,048
56 1,812,065 0 (5) 0 (5) 500,000 923,024 923,024 969,175 10,955,369 10,955,369 11,503,137
57 1,909,313 0 (5) 0 (5) 500,000 966,280 966,280 1,004,931 12,043,805 12,043,805 12,525,557
58 2,011,425 0 (5) 0 (5) 500,000 1,012,291 1,012,291 1,042,660 13,253,182 13,253,182 13,650,777
59 2,118,641 0 (5) 0 (5) 500,000 1,061,554 1,061,554 1,082,785 14,602,149 14,602,149 14,894,192
60 2,231,219 0 (5) 0 (5) 500,000 1,114,493 1,114,493 1,125,637 16,110,747 16,110,747 16,271,855
61 2,349,425 0 (5) 0 (5) 500,000 1,171,443 1,171,443 1,171,443 17,800,262 17,800,262 17,800,262
62 2,473,542 0 (5) 0 (5) 500,000 1,230,973 1,230,973 1,230,973 19,666,234 19,666,234 19,666,234
63 2,603,864 0 (5) 0 (5) 500,000 1,293,197 1,293,197 1,293,197 21,727,094 21,727,094 21,727,094
64 2,740,703 0 (5) 0 (5) 500,000 1,358,239 1,358,239 1,358,239 24,003,196 24,003,196 24,003,196
65 2,884,384 0 (5) 0 (5) 500,000 1,426,225 1,426,225 1,426,225 26,517,020 26,517,020 26,517,020
* Note that the second tier Death Benefit Guarantee Premium level of $6,329 is
paid from age 70.
(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 5 Policy Years. Provided the
Cumulative Premium Test or the Fund Value Test has been and continues
to be met, the Death Benefit Guarantee will keep the Policy in force
on all policies for the first three years and until age 100 on
Policies issued and maintained with a minimum face amount of $250,000
and Death Benefit Option 1; to age 85 on policies issued and
maintained with a face amount of at least $250,000 and if Death
benefit Option 2 is selected at any time.
(4) Cash Surrender Value for the first two years reflects sales charge
limitations imposed by the S.E.C.
(5) 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.
A-4
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$5,960 ANNUAL PLANNED PREMIUM*
ASSUMING MAXIMUM CHARGES
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) (2) Value Value Value
(3)(4) (3)(4) (3)(4)
1 6,258 4,339 0 500,000 4,636 0 500,000 4,933 279 500,000
2 12,829 8,864 4,093 500,000 9,734 4,964 500,000 10,641 5,871 500,000
3 19,728 13,261 6,739 500,000 14,995 8,473 500,000 16,873 10,351 500,000
4 26,973 17,529 11,060 500,000 20,421 13,952 500,000 23,677 17,208 500,000
5 34,579 21,660 15,240 500,000 26,011 19,590 500,000 31,104 24,683 500,000
6 42,566 25,655 19,534 500,000 31,768 25,648 500,000 39,214 33,094 500,000
7 50,953 29,501 23,681 500,000 37,687 31,867 500,000 48,065 42,245 500,000
8 59,758 33,204 27,684 500,000 43,779 38,258 500,000 57,737 52,217 500,000
9 69,004 36,752 31,749 500,000 50,037 45,034 500,000 68,304 63,300 500,000
10 78,712 40,151 36,088 500,000 56,473 52,411 500,000 79,861 75,798 500,000
11 88,906 43,384 40,134 500,000 63,080 59,830 500,000 92,499 89,249 500,000
12 99,609 46,449 44,011 500,000 69,858 67,421 500,000 106,327 103,890 500,000
13 110,848 49,339 47,713 500,000 76,812 75,187 500,000 121,469 119,844 500,000
14 122,648 52,050 51,237 500,000 83,944 83,131 500,000 138,061 137,249 500,000
15 135,039 54,569 54,569 500,000 91,249 91,249 500,000 156,252 156,252 500,000
16 148,049 56,891 56,891 500,000 98,735 98,735 500,000 176,214 176,214 500,000
17 161,709 58,991 58,991 500,000 106,384 106,384 500,000 198,126 198,126 500,000
18 176,052 60,842 60,842 500,000 114,185 114,185 500,000 222,193 222,193 500,000
19 191,113 62,424 62,424 500,000 122,129 122,129 500,000 248,652 248,652 500,000
20 206,927 63,704 63,704 500,000 130,199 130,199 500,000 277,767 277,767 500,000
21 223,531 64,656 64,656 500,000 138,385 138,385 500,000 309,849 309,849 500,000
22 240,966 65,250 65,250 500,000 146,675 146,675 500,000 345,253 345,253 504,069
23 259,272 65,470 65,470 500,000 155,072 155,072 500,000 384,192 384,192 545,552
24 278,494 65,290 65,290 500,000 163,572 163,572 500,000 426,845 426,845 589,046
25 298,676 64,661 64,661 500,000 172,154 172,154 500,000 473,585 473,585 634,604
26 319,868 63,835 63,835 500,000 181,635 181,635 500,000 527,200 527,200 685,360
27 342,119 62,448 62,448 500,000 191,256 191,256 500,000 586,126 586,126 750,241
28 365,483 60,417 60,417 500,000 200,995 200,995 500,000 650,883 650,883 820,113
29 390,016 57,645 57,645 500,000 210,826 210,826 500,000 722,048 722,048 895,339
30 415,774 54,022 54,022 500,000 220,726 220,726 500,000 800,260 800,260 976,318
31 442,821 49,441 49,441 500,000 230,681 230,681 500,000 886,244 886,244 1,063,493
32 471,220 43,802 43,802 500,000 240,697 240,697 500,000 980,593 980,593 1,166,905
33 501,039 36,984 36,984 500,000 250,774 250,774 500,000 1,084,106 1,084,106 1,279,246
34 532,349 28,852 28,852 500,000 260,923 260,923 500,000 1,197,673 1,197,673 1,401,277
35 565,224 19,231 19,231 500,000 271,148 271,148 500,000 1,322,262 1,322,262 1,533,824
36 600,131 8,220 8,220 500,000 281,816 281,816 500,000 1,459,312 1,459,312 1,678,209
37 636,783 0 (5) 0 (5) 500,000 292,557 292,557 500,000 1,610,237 1,610,237 1,819,568
38 675,268 0 (5) 0 (5) 500,000 303,340 303,340 500,000 1,776,627 1,776,627 1,972,056
A-5
39 715,677 0 (5) 0 (5) 500,000 314,142 314,142 500,000 1,960,345 1,960,345 2,136,776
40 758,106 0 (5) 0 (5) 500,000 324,963 324,963 500,000 2,163,608 2,163,608 2,315,061
41 802,657 0 (5) 0 (5) 500,000 335,858 335,858 500,000 2,389,096 2,389,096 2,508,551
42 849,435 0 (5) 0 (5) 500,000 346,911 346,911 500,000 2,636,578 2,636,578 2,768,407
43 898,552 0 (5) 0 (5) 500,000 358,236 358,236 500,000 2,908,064 2,908,064 3,053,467
44 950,125 0 (5) 0 (5) 500,000 369,990 369,990 500,000 3,205,738 3,205,738 3,366,025
45 1,004,277 0 (5) 0 (5) 500,000 382,348 382,348 500,000 3,531,934 3,531,934 3,708,531
46 1,061,136 0 (5) 0 (5) 500,000 395,504 395,504 500,000 3,889,113 3,889,113 4,083,569
47 1,120,838 0 (5) 0 (5) 500,000 409,713 409,713 500,000 4,279,861 4,279,861 4,493,854
48 1,183,526 0 (5) 0 (5) 500,000 425,315 425,315 500,000 4,706,860 4,706,860 4,942,203
49 1,249,348 0 (5) 0 (5) 500,000 442,803 442,803 500,000 5,172,897 5,172,897 5,431,542
50 1,318,460 0 (5) 0 (5) 500,000 462,907 462,907 500,000 5,680,934 5,680,934 5,964,981
51 1,391,029 0 (5) 0 (5) 500,000 486,185 486,185 510,495 6,234,148 6,234,148 6,545,856
52 1,467,226 0 (5) 0 (5) 500,000 510,221 510,221 535,732 6,835,955 6,835,955 7,177,753
53 1,547,232 0 (5) 0 (5) 500,000 534,767 534,767 561,505 7,489,992 7,489,992 7,864,492
54 1,631,240 0 (5) 0 (5) 500,000 559,804 559,804 587,794 8,200,205 8,200,205 8,610,216
55 1,719,447 0 (5) 0 (5) 500,000 585,304 585,304 614,569 8,970,691 8,970,691 9,419,226
56 1,812,065 0 (5) 0 (5) 500,000 611,232 611,232 641,794 9,805,661 9,805,661 10,295,944
57 1,909,313 0 (5) 0 (5) 500,000 639,043 639,043 664,605 10,734,634 10,734,634 11,164,019
58 2,011,425 0 (5) 0 (5) 500,000 669,077 669,077 689,149 11,772,759 11,772,759 12,125,942
59 2,118,641 0 (5) 0 (5) 500,000 701,740 701,740 715,775 12,938,422 12,938,422 13,197,191
60 2,231,219 0 (5) 0 (5) 500,000 737,520 737,520 744,895 14,254,096 14,254,096 14,396,637
61 2,349,425 0 (5) 0 (5) 500,000 777,104 777,104 777,104 15,749,382 15,749,382 15,749,382
62 2,473,542 0 (5) 0 (5) 500,000 818,480 818,480 818,480 17,400,840 17,400,840 17,400,840
63 2,603,864 0 (5) 0 (5) 500,000 861,729 861,729 861,729 19,224,780 19,224,780 19,224,780
64 2,740,703 0 (5) 0 (5) 500,000 906,937 906,937 906,937 21,239,218 21,239,218 21,239,218
65 2,884,384 0 (5) 0 (5) 500,000 954,191 954,191 954,191 23,464,050 23,464,050 23,464,050
* Note that the second tier Death Benefit Guarantee Premium level of $6,329 is
paid from age 70.
(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 5 Policy Years. Provided the
Cumulative Premium Test or the Fund Value Test has been and continues
to be met, the Death Benefit Guarantee will keep the Policy in force
on all policies for the first three years and until age 100 on
Policies issued and maintained with a minimum face amount of $250,000
and Death Benefit Option 1; to age 85 on policies issued and
maintained with a face amount of at least $250,000 and if Death
benefit Option 2 is selected at any time.
(4) Cash Surrender Value for the first two years reflects sales charge
limitations imposed by the S.E.C.
(5) 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.
A-6
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$7,450 ANNUAL PLANNED PREMIUM*
ASSUMING CURRENT CHARGES
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) (2) Value Value Value
(3)(4) (3)(4) (3)(4)
1 7,823 6,068 931 506,068 6,467 1,329 506,467 6,866 1,729 506,866
2 16,036 12,280 7,143 512,280 13,460 8,322 513,460 14,687 9,550 514,687
3 24,660 18,325 11,803 518,325 20,681 14,159 520,681 23,230 16,708 523,230
4 33,716 24,201 17,732 524,201 28,135 21,666 528,135 32,559 26,090 532,559
5 43,224 29,897 23,477 529,897 35,818 29,397 535,818 42,741 36,321 542,741
6 53,208 35,442 29,321 535,442 43,763 37,643 543,763 53,885 47,765 553,885
7 63,691 40,796 34,976 540,796 51,939 46,119 551,939 66,044 60,223 566,044
8 74,698 45,963 40,443 545,963 60,356 54,835 560,356 79,317 73,797 579,317
9 86,255 50,935 45,932 550,935 69,010 64,006 569,010 93,804 88,800 593,804
10 98,391 55,715 51,652 555,715 77,911 73,848 577,911 109,624 105,562 609,624
11 111,133 60,301 57,051 560,301 87,063 83,813 587,063 126,905 123,655 626,905
12 124,512 64,672 62,234 564,672 96,452 94,014 596,452 145,767 143,329 645,767
13 138,560 68,827 67,202 568,827 106,081 104,456 606,081 166,360 164,735 666,360
14 153,310 72,758 71,945 572,758 115,948 115,136 615,948 188,844 188,031 688,844
15 168,798 76,450 76,450 576,450 126,045 126,045 626,045 213,388 213,388 713,388
16 185,061 79,898 79,898 579,898 136,367 136,367 636,367 240,185 240,185 740,185
17 202,136 83,069 83,069 583,069 146,888 146,888 646,888 269,421 269,421 769,421
18 220,066 85,968 85,968 585,968 157,616 157,616 657,616 301,338 301,338 801,338
19 238,891 88,571 88,571 588,571 168,529 168,529 668,529 336,172 336,172 836,172
20 258,658 90,997 90,997 590,997 179,750 179,750 679,750 374,333 374,333 874,333
21 279,414 93,247 93,247 593,247 191,292 191,292 691,292 416,151 416,151 916,151
22 301,207 95,113 95,113 595,113 202,947 202,947 702,947 461,764 461,764 961,764
23 324,090 96,583 96,583 596,583 214,702 214,702 714,702 511,530 511,530 1,011,530
24 348,117 97,635 97,635 597,635 226,531 226,531 726,531 565,831 565,831 1,065,831
25 373,345 98,229 98,229 598,229 238,387 238,387 738,387 625,067 625,067 1,125,067
26 399,835 98,778 98,778 598,778 251,359 251,359 751,359 692,800 692,800 1,192,800
27 427,649 98,772 98,772 598,772 264,355 264,355 764,355 767,025 767,025 1,267,025
28 456,854 98,144 98,144 598,144 277,296 277,296 777,296 848,340 848,340 1,348,340
29 487,519 96,817 96,817 596,817 290,093 290,093 790,093 937,396 937,396 1,437,396
30 519,718 95,455 95,455 595,455 303,415 303,415 803,415 1,035,696 1,035,696 1,535,696
31 553,526 94,042 94,042 594,042 317,266 317,266 817,266 1,144,187 1,144,187 1,644,187
32 589,025 91,858 91,858 591,858 330,929 330,929 830,929 1,263,169 1,263,169 1,763,169
33 626,299 88,855 88,855 588,855 344,334 344,334 844,334 1,393,675 1,393,675 1,893,675
34 665,436 84,980 84,980 584,980 357,403 357,403 857,403 1,536,838 1,536,838 2,036,838
35 706,531 80,161 80,161 580,161 370,034 370,034 870,034 1,693,893 1,693,893 2,193,893
36 751,234 75,574 75,574 575,574 383,447 383,447 883,447 1,867,608 1,867,608 2,367,608
37 798,172 69,376 69,376 569,376 395,740 395,740 895,740 2,057,686 2,057,686 2,557,686
A-7
38 847,457 61,727 61,727 561,727 407,002 407,002 907,002 2,265,981 2,265,981 2,765,981
39 899,206 51,957 51,957 551,957 416,475 416,475 916,475 2,493,662 2,493,662 2,993,662
40 953,543 40,286 40,286 540,286 424,276 424,276 924,276 2,742,956 2,742,956 3,242,956
41 1,010,597 25,138 25,138 525,138 428,673 428,673 928,673 3,014,415 3,014,415 3,514,415
42 1,070,503 6,116 6,116 506,116 429,053 429,053 929,053 3,309,881 3,309,881 3,809,881
43 1,133,405 0 (5) 0 (5) 500,000 426,594 426,594 926,594 3,633,263 3,633,263 4,133,263
44 1,199,451 0 (5) 0 (5) 500,000 421,058 421,058 921,058 3,987,362 3,987,362 4,487,362
45 1,268,801 0 (5) 0 (5) 500,000 412,127 412,127 912,127 4,375,205 4,375,205 4,875,205
46 1,341,617 0 (5) 0 (5) 500,000 399,341 399,341 899,341 4,800,000 4,800,000 5,300,000
47 1,418,074 0 (5) 0 (5) 500,000 382,135 382,135 882,135 5,265,201 5,265,201 5,765,201
48 1,498,355 0 (5) 0 (5) 500,000 359,804 359,804 859,804 5,774,511 5,774,511 6,274,511
49 1,582,649 0 (5) 0 (5) 500,000 331,571 331,571 831,571 6,331,974 6,331,974 6,831,974
50 1,671,158 0 (5) 0 (5) 500,000 296,766 296,766 796,766 6,942,203 6,942,203 7,442,203
51 1,764,092 0 (5) 0 (5) 0 (5) 260,329 260,329 760,329 7,616,110 7,616,110 8,116,110
52 1,861,673 221,900 221,900 721,900 8,360,048 8,360,048 8,860,048
53 1,964,133 181,694 181,694 681,694 9,181,647 9,181,647 9,681,647
54 2,071,717 139,545 139,545 639,545 10,088,912 10,088,912 10,593,358
55 2,184,679 95,316 95,316 595,316 11,087,320 11,087,320 11,641,686
56 2,303,289 46,995 46,995 546,995 12,181,083 12,181,083 12,790,137
57 2,427,830 0 (5) 0 (5) 0 (5) 13,393,130 13,393,130 13,928,856
58 2,558,598 14,728,518 14,728,518 15,228,518
59 2,695,905 16,200,775 16,200,775 16,700,775
60 2,840,077 17,826,319 17,826,319 18,326,319
61 2,991,457 19,619,738 19,619,738 20,119,738
62 3,150,406 21,587,538 21,587,538 22,087,538
63 3,317,303 23,738,205 23,738,205 24,238,205
64 3,492,545 26,071,385 26,071,385 26,571,385
65 3,676,548 28,567,246 28,567,246 29,067,246
* Note that the second tier Death Benefit Guarantee Premium level of $8,930 is
paid from age 70.
(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 5 Policy Years. Provided the
Cumulative Premium Test or the Fund Value Test has been and continues
to be met, the Death Benefit Guarantee will keep the Policy in force
on all policies for the first three years and until age 100 on
Policies issued and maintained with a minimum face amount of $250,000
and Death Benefit Option 1; to age 85 on policies issued and
maintained with a face amount of at least $250,000 and if Death
benefit Option 2 is selected at any time.
(4) Cash Surrender Value for the first two years reflects sales charge
limitations imposed by the S.E.C.
(5) Provided the Death Benefit Guarantee has been in effect, the Policy
will have been kept in force until the end of the policy year in which
the life insured reached attained age 85, at which time the Death
Benefit Guarantee will expire and in the absence of additional premium
payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
A-8
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 35 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$7,450 ANNUAL PLANNED PREMIUM*
ASSUMING MAXIMUM CHARGES
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) (2) Value Value Value
(3)(4) (3)(4) (3)(4)
1 7,823 5,740 603 505,740 6,121 984 506,121 6,503 1,366 506,503
2 16,036 11,633 6,496 511,633 12,757 7,620 512,757 13,927 8,790 513,927
3 24,660 17,364 10,842 517,364 19,606 13,084 519,606 22,032 15,510 522,032
4 33,716 22,930 16,461 522,930 26,672 20,203 526,672 30,880 24,411 530,880
5 43,224 28,326 21,905 528,326 33,953 27,533 533,953 40,535 34,115 540,535
6 53,208 33,548 27,428 533,548 41,453 35,333 541,453 51,071 44,951 551,071
7 63,691 38,586 32,765 538,586 49,166 43,345 549,166 62,561 56,741 562,561
8 74,698 43,442 37,922 543,442 57,100 51,579 557,100 75,100 69,580 575,100
9 86,255 48,106 43,103 548,106 65,248 60,245 565,248 88,776 83,772 588,776
10 98,391 52,581 48,518 552,581 73,621 69,558 573,621 103,702 99,639 603,702
11 111,133 56,850 53,600 556,850 82,206 78,956 582,206 119,981 116,731 619,981
12 124,512 60,908 58,470 560,908 91,002 88,564 591,002 137,738 135,301 637,738
13 138,560 64,748 63,123 564,748 100,006 98,381 600,006 157,110 155,484 657,110
14 153,310 68,365 67,553 568,365 109,219 108,406 609,219 178,245 177,433 678,245
15 168,798 71,743 71,743 571,743 118,626 118,626 618,626 201,300 201,300 701,300
16 185,061 74,876 74,876 574,876 128,227 128,227 628,227 226,453 226,453 726,453
17 202,136 77,735 77,735 577,735 137,994 137,994 637,994 253,878 253,878 753,878
18 220,066 80,289 80,289 580,289 147,896 147,896 647,896 283,763 283,763 783,763
19 238,891 82,515 82,515 582,515 157,910 157,910 657,910 316,322 316,322 816,322
20 258,658 84,374 84,374 584,374 167,994 167,994 667,994 351,773 351,773 851,773
21 279,414 85,839 85,839 585,839 178,115 178,115 678,115 390,367 390,367 890,367
22 301,207 86,877 86,877 586,877 188,234 188,234 688,234 432,375 432,375 932,375
23 324,090 87,471 87,471 587,471 198,325 198,325 698,325 478,111 478,111 978,111
24 348,117 87,595 87,595 587,595 208,352 208,352 708,352 527,908 527,908 1,027,908
25 373,345 87,199 87,199 587,199 218,251 218,251 718,251 582,107 582,107 1,082,107
26 399,835 86,636 86,636 586,636 228,999 228,999 728,999 643,993 643,993 1,143,993
27 427,649 85,439 85,439 585,439 239,571 239,571 739,571 711,659 711,659 1,211,659
28 456,854 83,526 83,526 583,526 249,865 249,865 749,865 785,612 785,612 1,285,612
29 487,519 80,803 80,803 580,803 259,762 259,762 759,762 866,400 866,400 1,366,400
30 519,718 77,173 77,173 577,173 269,132 269,132 769,132 954,621 954,621 1,454,621
31 553,526 72,549 72,549 572,549 277,848 277,848 777,848 1,050,945 1,050,945 1,550,945
32 589,025 66,866 66,866 566,866 285,800 285,800 785,800 1,156,134 1,156,134 1,656,134
33 626,299 60,045 60,045 560,045 292,855 292,855 792,855 1,271,015 1,271,015 1,771,015
34 665,436 52,012 52,012 552,012 298,882 298,882 798,882 1,396,504 1,396,504 1,896,504
35 706,531 42,666 42,666 542,666 303,710 303,710 803,710 1,533,584 1,533,584 2,033,584
36 751,234 33,249 33,249 533,249 308,589 308,589 808,589 1,684,847 1,684,847 2,184,847
37 798,172 22,142 22,142 522,142 311,810 311,810 811,810 1,849,971 1,849,971 2,349,971
A-9
38 847,457 9,086 9,086 509,086 313,006 313,006 813,006 2,030,105 2,030,105 2,530,105
39 899,206 0 (5) 0 (5) 500,000 311,763 311,763 811,763 2,226,483 2,226,483 2,726,483
40 953,543 0 (5) 0 (5) 500,000 307,666 307,666 807,666 2,440,487 2,440,487 2,940,487
41 1,010,597 0 (5) 0 (5) 500,000 300,380 300,380 800,380 2,673,747 2,673,747 3,173,747
42 1,070,503 0 (5) 0 (5) 500,000 289,568 289,568 789,568 2,928,076 2,928,076 3,428,076
43 1,133,405 0 (5) 0 (5) 500,000 274,905 274,905 774,905 3,205,504 3,205,504 3,705,504
44 1,199,451 0 (5) 0 (5) 500,000 256,091 256,091 756,091 3,508,312 3,508,312 4,008,312
45 1,268,801 0 (5) 0 (5) 500,000 232,723 232,723 732,723 3,838,930 3,838,930 4,338,930
46 1,341,617 0 (5) 0 (5) 500,000 204,236 204,236 704,236 4,199,895 4,199,895 4,699,895
47 1,418,074 0 (5) 0 (5) 500,000 169,940 169,940 669,940 4,593,902 4,593,902 5,093,902
48 1,498,355 0 (5) 0 (5) 500,000 128,984 128,984 628,984 5,023,797 5,023,797 5,523,797
49 1,582,649 0 (5) 0 (5) 500,000 80,418 80,418 580,418 5,492,660 5,492,660 5,992,660
50 1,671,158 0 (5) 0 (5) 500,000 23,362 23,362 523,362 6,004,007 6,004,007 6,504,007
51 1,764,092 0 (5) 0 (5) 0 (5) 0 (5) 0 (5) 0 (5) 6,561,871 6,561,871 7,061,871
52 1,861,673 7,170,843 7,170,843 7,670,843
53 1,964,133 7,836,053 7,836,053 8,336,053
54 2,071,717 8,563,318 8,563,318 9,063,318
55 2,184,679 9,358,962 9,358,962 9,858,962
56 2,303,289 10,229,584 10,229,584 10,741,063
57 2,427,830 11,183,178 11,183,178 11,683,178
58 2,558,598 12,227,468 12,227,468 12,727,468
59 2,695,905 13,370,889 13,370,889 13,870,889
60 2,840,077 14,621,089 14,621,089 15,121,089
61 2,991,457 15,983,806 15,983,806 16,483,806
62 3,150,406 17,460,116 17,460,116 17,960,116
63 3,317,303 19,040,273 19,040,273 19,540,273
64 3,492,545 20,691,894 20,691,894 21,191,894
65 3,676,548 22,335,999 22,335,999 22,835,999
* Note that the second tier Death Benefit Guarantee Premium level of $8,930 is
paid from age 70.
(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 5 Policy Years. Provided the
Cumulative Premium Test or the Fund Value Test has been and continues
to be met, the Death Benefit Guarantee will keep the Policy in force
on all policies for the first three years and until age 100 on
Policies issued and maintained with a minimum face amount of $250,000
and Death Benefit Option 1; to age 85 on policies issued and
maintained with a face amount of at least $250,000 and if Death
benefit Option 2 is selected at any time.
(4) Cash Surrender Value for the first two years reflects sales charge
limitations imposed by the S.E.C.
(5) Provided the Death Benefit Guarantee has been in effect, the Policy
will have been kept in force until the end of the policy year in which
the life insured reached attained age 85, at which time the Death
Benefit Guarantee will expire and in the absence of additional premium
payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
A-10
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$15,095 ANNUAL PLANNED PREMIUM*
ASSUMING CURRENT CHARGES
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) (2) Value Value Value
(3)(4) (3)(4) (3)(4)
1 15,850 10,718 3,338 500,000 11,479 4,098 500,000 12,242 4,861 500,000
2 32,492 21,325 12,807 500,000 23,520 15,002 500,000 25,810 17,293 500,000
3 49,966 31,485 15,571 500,000 35,807 19,892 500,000 40,498 24,583 500,000
4 68,314 41,479 25,894 500,000 48,636 33,051 500,000 56,720 41,135 500,000
5 87,580 51,327 36,089 500,000 62,056 46,817 500,000 74,666 59,427 500,000
6 107,809 61,007 47,267 500,000 76,072 62,332 500,000 94,503 80,763 500,000
7 129,049 70,361 60,055 500,000 90,559 80,253 500,000 116,291 105,985 500,000
8 151,351 79,323 72,452 500,000 105,481 98,610 500,000 140,197 133,327 500,000
9 174,768 87,943 84,508 500,000 120,915 117,479 500,000 166,525 163,090 500,000
10 199,356 96,221 96,221 500,000 136,896 136,896 500,000 195,573 195,573 500,000
11 225,174 104,822 104,822 500,000 154,336 154,336 500,000 228,860 228,860 500,000
12 252,282 113,340 113,340 500,000 172,734 172,734 500,000 266,037 266,037 500,000
13 280,746 121,739 121,739 500,000 192,117 192,117 500,000 307,557 307,557 500,000
14 310,633 129,648 129,648 500,000 212,248 212,248 500,000 353,782 353,782 500,000
15 342,015 137,043 137,043 500,000 233,192 233,192 500,000 405,394 405,394 500,000
16 375,572 144,218 144,218 500,000 255,453 255,453 500,000 463,607 463,607 533,148
17 410,807 150,628 150,628 500,000 278,610 278,610 500,000 527,816 527,816 596,432
18 447,805 156,173 156,173 500,000 302,755 302,755 500,000 598,611 598,611 664,458
19 486,651 160,094 160,094 500,000 327,665 327,665 500,000 676,609 676,609 737,503
20 527,441 161,054 161,054 500,000 353,017 353,017 500,000 762,479 762,479 815,853
21 570,269 158,682 158,682 500,000 379,204 379,204 500,000 857,279 857,279 900,143
22 615,239 153,412 153,412 500,000 407,040 407,040 500,000 961,338 961,338 1,009,405
23 662,458 145,966 145,966 500,000 437,384 437,384 500,000 1,075,647 1,075,647 1,129,429
24 712,038 136,073 136,073 500,000 470,865 470,865 500,000 1,201,162 1,201,162 1,261,220
25 764,096 123,350 123,350 500,000 506,594 506,594 531,924 1,338,912 1,338,912 1,405,858
26 818,758 107,228 107,228 500,000 543,622 543,622 570,803 1,489,994 1,489,994 1,564,493
27 876,152 86,931 86,931 500,000 581,953 581,953 611,051 1,655,569 1,655,569 1,738,347
28 936,416 61,388 61,388 500,000 621,582 621,582 652,661 1,836,861 1,836,861 1,928,704
29 999,694 29,189 29,189 500,000 662,489 662,489 695,614 2,035,158 2,035,158 2,136,916
30 1,066,135 0 (5) 0 (5) 500,000 704,660 704,660 739,893 2,251,851 2,251,851 2,364,443
31 1,135,899 0 (5) 0 (5) 500,000 748,481 748,481 785,905 2,489,783 2,489,783 2,614,272
32 1,209,150 0 (5) 0 (5) 500,000 793,996 793,996 833,696 2,750,957 2,750,957 2,888,505
33 1,286,064 0 (5) 0 (5) 500,000 841,292 841,292 883,357 3,037,725 3,037,725 3,189,612
34 1,366,824 0 (5) 0 (5) 500,000 890,433 890,433 934,954 3,352,566 3,352,566 3,520,195
35 1,451,622 0 (5) 0 (5) 500,000 941,483 941,483 988,557 3,698,206 3,698,206 3,883,116
36 1,540,660 0 (5) 0 (5) 500,000 994,330 994,330 1,044,047 4,076,885 4,076,885 4,280,729
37 1,634,149 0 (5) 0 (5) 500,000 1,050,146 1,050,146 1,092,152 4,496,485 4,496,485 4,676,344
A-11
38 1,732,314 0 (5) 0 (5) 500,000 1,109,316 1,109,316 1,142,595 4,962,559 4,962,559 5,111,435
39 1,835,386 0 (5) 0 (5) 500,000 1,172,420 1,172,420 1,195,868 5,482,241 5,482,241 5,591,886
40 1,943,612 0 (5) 0 (5) 500,000 1,239,963 1,239,963 1,252,362 6,063,215 6,063,215 6,123,848
41 2,057,249 0 (5) 0 (5) 500,000 1,312,362 1,312,362 1,312,362 6,713,658 6,713,658 6,713,658
42 2,176,568 0 (5) 0 (5) 500,000 1,388,038 1,388,038 1,388,038 7,432,035 7,432,035 7,432,035
43 2,301,853 0 (5) 0 (5) 500,000 1,467,141 1,467,141 1,467,141 8,225,440 8,225,440 8,225,440
44 2,433,403 0 (5) 0 (5) 500,000 1,549,825 1,549,825 1,549,825 9,101,712 9,101,712 9,101,712
45 2,571,529 0 (5) 0 (5) 500,000 1,636,253 1,636,253 1,636,253 10,069,503 10,069,503 10,069,503
* Note that the second tier Death Benefit Guarantee Premium level of $15,673 is
paid from age 70.
(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 5 Policy Years. Provided the
Cumulative Premium Test or the Fund Value Test has been and continues
to be met, the Death Benefit Guarantee will keep the Policy in force
on all policies for the first three years and until age 100 on
Policies issued and maintained with a minimum face amount of $250,000
and Death Benefit Option 1; to age 85 on policies issued and
maintained with a face amount of at least $250,000 and if Death
benefit Option 2 is selected at any time.
(4) Cash Surrender Value for the first two years reflects sales charge
limitations imposed by the S.E.C.
(5) 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.
A-12
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$15,095 ANNUAL PLANNED PREMIUM*
ASSUMING MAXIMUM CHARGES
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) (2) Value Value Value
(3)(4) (3)(4) (3)(4)
1 15,850 10,042 2,661 500,000 10,766 3,385 500,000 11,492 4,111 500,000
2 32,492 19,892 11,375 500,000 21,970 13,452 500,000 24,138 15,621 500,000
3 49,966 29,246 13,332 500,000 33,320 17,405 500,000 37,744 21,829 500,000
4 68,314 38,093 22,507 500,000 44,810 29,225 500,000 52,405 36,820 500,000
5 87,580 46,398 31,159 500,000 56,416 41,178 500,000 68,214 52,976 500,000
6 107,809 54,130 40,390 500,000 68,116 54,376 500,000 85,281 71,541 500,000
7 129,049 61,256 50,950 500,000 79,886 69,580 500,000 103,737 93,431 500,000
8 151,351 67,718 60,847 500,000 91,688 84,817 500,000 123,719 116,849 500,000
9 174,768 73,450 70,014 500,000 103,472 100,037 500,000 145,389 141,953 500,000
10 199,356 78,380 78,380 500,000 115,192 115,192 500,000 168,944 168,944 500,000
11 225,174 82,843 82,843 500,000 127,414 127,414 500,000 195,548 195,548 500,000
12 252,282 86,411 86,411 500,000 139,619 139,619 500,000 224,874 224,874 500,000
13 280,746 89,013 89,013 500,000 151,795 151,795 500,000 257,367 257,367 500,000
14 310,633 90,579 90,579 500,000 163,939 163,939 500,000 293,580 293,580 500,000
15 342,015 91,004 91,004 500,000 176,036 176,036 500,000 334,178 334,178 500,000
16 375,572 90,690 90,690 500,000 188,638 188,638 500,000 380,608 380,608 500,000
17 410,807 88,873 88,873 500,000 201,134 201,134 500,000 433,354 433,354 500,000
18 447,805 85,270 85,270 500,000 213,442 213,442 500,000 492,795 492,795 547,003
19 486,651 79,534 79,534 500,000 225,473 225,473 500,000 558,372 558,372 608,625
20 527,441 71,278 71,278 500,000 237,159 237,159 500,000 630,845 630,845 675,005
21 570,269 60,134 60,134 500,000 248,495 248,495 500,000 711,136 711,136 746,693
22 615,239 45,662 45,662 500,000 259,487 259,487 500,000 799,301 799,301 839,266
23 662,458 27,347 27,347 500,000 270,162 270,162 500,000 896,064 896,064 940,867
24 712,038 4,584 4,584 500,000 280,576 280,576 500,000 1,002,209 1,002,209 1,052,319
25 764,096 0 (5) 0 (5) 500,000 290,750 290,750 500,000 1,118,575 1,118,575 1,174,504
26 818,758 0 (5) 0 (5) 500,000 300,663 300,663 500,000 1,246,050 1,246,050 1,308,353
27 876,152 0 (5) 0 (5) 500,000 310,264 310,264 500,000 1,385,569 1,385,569 1,454,847
28 936,416 0 (5) 0 (5) 500,000 319,464 319,464 500,000 1,538,102 1,538,102 1,615,007
29 999,694 0 (5) 0 (5) 500,000 328,162 328,162 500,000 1,704,661 1,704,661 1,789,894
30 1,066,135 0 (5) 0 (5) 500,000 336,294 336,294 500,000 1,886,319 1,886,319 1,980,635
31 1,135,899 0 (5) 0 (5) 500,000 343,839 343,839 500,000 2,084,226 2,084,226 2,188,438
32 1,209,150 0 (5) 0 (5) 500,000 350,809 350,809 500,000 2,299,616 2,299,616 2,414,597
33 1,286,064 0 (5) 0 (5) 500,000 357,221 357,221 500,000 2,533,802 2,533,802 2,660,492
34 1,366,824 0 (5) 0 (5) 500,000 363,122 363,122 500,000 2,788,207 2,788,207 2,927,617
35 1,451,622 0 (5) 0 (5) 500,000 368,522 368,522 500,000 3,064,309 3,064,309 3,217,524
36 1,540,660 0 (5) 0 (5) 500,000 373,388 373,388 500,000 3,363,630 3,363,630 3,531,812
37 1,634,149 0 (5) 0 (5) 500,000 377,620 377,620 500,000 3,696,412 3,696,412 3,844,268
A-13
38 1,732,314 0 (5) 0 (5) 500,000 380,999 380,999 500,000 4,068,018 4,068,018 4,190,059
39 1,835,386 0 (5) 0 (5) 500,000 383,101 383,101 500,000 4,484,964 4,484,964 4,574,663
40 1,943,612 0 (5) 0 (5) 500,000 382,860 382,860 500,000 4,955,213 4,955,213 5,004,765
41 2,057,249 0 (5) 0 (5) 500,000 377,881 377,881 500,000 5,489,246 5,489,246 5,489,246
42 2,176,568 0 (5) 0 (5) 500,000 362,421 362,421 500,000 6,079,055 6,079,055 6,079,055
43 2,301,853 0 (5) 0 (5) 500,000 320,390 320,390 500,000 6,730,466 6,730,466 6,730,466
44 2,433,403 0 (5) 0 (5) 500,000 194,409 194,409 500,000 7,449,911 7,449,911 7,449,911
45 2,571,529 0 (5) 0 (5) 500,000 0 (5) 0 (5) 500,000 8,244,497 8,244,497 8,244,497
* Note that the second tier Death Benefit Guarantee Premium level of $15,673 is
paid from age 70.
(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 5 Policy Years. Provided the
Cumulative Premium Test or the Fund Value Test has been and continues
to be met, the Death Benefit Guarantee will keep the Policy in force
on all policies for the first three years and until age 100 on
Policies issued and maintained with a minimum face amount of $250,000
and Death Benefit Option 1; to age 85 on policies issued and
maintained with a face amount of at least $250,000 and if Death
benefit Option 2 is selected at any time.
(4) Cash Surrender Value for the first two years reflects sales charge
limitations imposed by the S.E.C.
(5) 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.
A-14
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$17,920 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) (2) Value Value Value
(3)(4) (3)(4) (3)(4)
1 18,816 13,395 5,019 513,395 14,316 5,940 514,316 15,239 6,863 515,239
2 38,573 26,534 15,595 526,534 29,202 18,263 529,202 31,982 21,044 531,982
3 59,317 39,071 23,156 539,071 44,318 28,403 544,318 50,007 34,092 550,007
4 81,099 51,301 35,715 551,301 59,969 44,383 559,969 69,743 54,157 569,743
5 103,970 63,247 48,009 563,247 76,193 60,954 576,193 91,379 76,140 591,379
6 127,985 74,886 61,146 574,886 92,984 79,244 592,984 115,072 101,332 615,072
7 153,200 86,033 75,727 586,033 110,169 99,863 610,169 140,827 130,521 640,827
8 179,676 96,602 89,732 596,602 127,666 120,795 627,666 168,747 161,876 668,747
9 207,476 106,646 103,211 606,646 145,531 142,095 645,531 199,091 195,656 699,091
10 236,666 116,157 116,157 616,157 163,759 163,759 663,759 232,082 232,082 732,082
11 267,315 125,932 125,932 625,932 183,420 183,420 683,420 269,430 269,430 769,430
12 299,497 135,482 135,482 635,482 203,880 203,880 703,880 310,584 310,584 810,584
13 333,287 144,757 144,757 644,757 225,119 225,119 725,119 355,885 355,885 855,885
14 368,768 153,249 153,249 653,249 246,645 246,645 746,645 405,223 405,223 905,223
15 406,022 160,912 160,912 660,912 268,410 268,410 768,410 458,955 458,955 958,955
16 445,139 167,322 167,322 667,322 289,978 289,978 789,978 517,081 517,081 1,017,081
17 486,212 172,503 172,503 672,503 311,346 311,346 811,346 580,064 580,064 1,080,064
18 529,339 176,288 176,288 676,288 332,314 332,314 832,314 648,218 648,218 1,148,218
19 574,622 177,544 177,544 677,544 351,677 351,677 851,677 720,855 720,855 1,220,855
20 622,169 174,300 174,300 674,300 367,289 367,289 867,289 796,311 796,311 1,296,311
21 672,093 166,155 166,155 666,155 378,503 378,503 878,503 874,386 874,386 1,374,386
22 724,514 154,038 154,038 654,038 386,008 386,008 886,008 956,270 956,270 1,456,270
23 779,556 139,323 139,323 639,323 390,998 390,998 890,998 1,043,764 1,043,764 1,543,764
24 837,350 121,938 121,938 621,938 393,247 393,247 893,247 1,137,338 1,137,338 1,637,338
25 898,033 101,749 101,749 601,749 392,454 392,454 892,454 1,237,445 1,237,445 1,737,445
26 961,751 78,498 78,498 578,498 388,174 388,174 888,174 1,344,452 1,344,452 1,844,452
27 1,028,654 51,847 51,847 551,847 379,859 379,859 879,859 1,458,675 1,458,675 1,958,675
28 1,098,903 21,356 21,356 521,356 366,822 366,822 866,822 1,580,349 1,580,349 2,080,349
29 1,172,664 0 (5) 0 (5) 500,000 348,305 348,305 848,305 1,709,692 1,709,692 2,209,692
30 1,250,113 0 (5) 0 (5) 500,000 323,654 323,654 823,654 1,847,086 1,847,086 2,347,086
31 1,331,435 0 (5) 0 (5) 0 (5) 297,831 297,831 797,831 1,998,773 1,998,773 2,498,773
32 1,416,823 270,497 270,497 770,497 2,165,949 2,165,949 2,665,949
33 1,506,480 241,888 241,888 741,888 2,350,548 2,350,548 2,850,548
34 1,600,620 211,862 211,862 711,862 2,554,300 2,554,300 3,054,300
35 1,699,467 180,304 180,304 680,304 2,779,156 2,779,156 3,279,156
36 1,803,256 145,228 145,228 645,228 3,025,343 3,025,343 3,525,343
37 1,912,235 104,170 104,170 604,170 3,292,714 3,292,714 3,792,714
A-15
38 2,026,663 56,503 56,503 556,503 3,583,115 3,583,115 4,083,115
39 2,146,812 4,153 4,153 504,153 3,901,243 3,901,243 4,401,243
40 2,272,969 0 (5) 0 (5) 0 (5) 4,252,119 4,252,119 4,752,119
41 2,405,433 4,637,739 4,637,739 5,137,739
42 2,544,521 5,050,706 5,050,706 5,550,706
43 2,690,563 5,484,149 5,484,149 5,984,149
44 2,843,907 5,920,753 5,920,753 6,420,753
45 3,004,918 6,321,954 6,321,954 6,821,954
(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 5 Policy Years. Provided the
Cumulative Premium Test or the Fund Value Test has been and continues
to be met, the Death Benefit Guarantee will keep the Policy in force
on all policies for the first three years and until age 100 on
Policies issued and maintained with a minimum face amount of $250,000
and Death Benefit Option 1; to age 85 on policies issued and
maintained with a face amount of at least $250,000 and if Death
benefit Option 2 is selected at any time.
(4) Cash Surrender Value for the first two years reflects sales charge
limitations imposed by the S.E.C.
(5) Provided the Death Benefit Guarantee has been in effect, the Policy
will have been kept in force until the end of the policy year in which
the life insured reached attained age 85, at which time the Death
Benefit Guarantee will expire and in the absence of additional premium
payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
A-16
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$17,920 ANNUAL PLANNED PREMIUM
ASSUMING MAXIMUM CHARGES
0% Hypothetical 6% Hypothetical 12% Hypothetical
Gross Investment Return Gross Investment Return Gross Investment Return
----------------------- ----------------------- -----------------------
End Of Accumulated Policy Cash Death Policy Cash Death Policy Cash Death
Policy Premiums Value Surrender Benefit Value Surrender Benefit Value Surrender Benefit
Year (1) (2) Value Value Value
(3)(4) (3)(4) (3)(4)
1 18,816 12,622 4,246 512,622 13,500 5,124 513,500 14,381 6,005 514,381
2 38,573 24,910 13,971 524,910 27,442 16,503 527,442 30,083 19,144 530,083
3 59,317 36,547 20,633 536,547 41,511 25,596 541,511 46,895 30,980 546,895
4 81,099 47,513 31,928 547,513 55,677 40,092 555,677 64,891 49,306 564,891
5 103,970 57,759 42,520 557,759 69,883 54,644 569,883 84,126 68,887 584,126
6 127,985 67,239 53,499 567,239 84,069 70,329 584,069 104,660 90,920 604,660
7 153,200 75,904 65,598 575,904 98,168 87,862 598,168 126,554 116,248 626,554
8 179,676 83,680 76,809 583,680 112,085 105,214 612,085 149,849 142,978 649,849
9 207,476 90,478 87,043 590,478 125,705 122,270 625,705 174,573 171,138 674,573
10 236,666 96,209 96,209 596,209 138,905 138,905 638,905 200,754 200,754 700,754
11 267,315 101,273 101,273 601,273 152,275 152,275 652,275 229,489 229,489 729,489
12 299,497 105,144 105,144 605,144 165,092 165,092 665,092 260,030 260,030 760,030
13 333,287 107,744 107,744 607,744 177,232 177,232 677,232 292,466 292,466 792,466
14 368,768 109,002 109,002 609,002 188,574 188,574 688,574 326,901 326,901 826,901
15 406,022 108,817 108,817 608,817 198,958 198,958 698,958 363,416 363,416 863,416
16 445,139 107,027 107,027 607,027 208,153 208,153 708,153 402,035 402,035 902,035
17 486,212 103,440 103,440 603,440 215,885 215,885 715,885 442,750 442,750 942,750
18 529,339 97,801 97,801 597,801 221,797 221,797 721,797 485,480 485,480 985,480
19 574,622 89,826 89,826 589,826 225,484 225,484 725,484 530,105 530,105 1,030,105
20 622,169 79,249 79,249 579,249 226,539 226,539 726,539 576,506 576,506 1,076,506
21 672,093 65,911 65,911 565,911 224,639 224,639 724,639 624,659 624,659 1,124,659
22 724,514 49,660 49,660 549,660 219,456 219,456 719,456 674,547 674,547 1,174,547
23 779,556 30,379 30,379 530,379 210,678 210,678 710,678 726,181 726,181 1,226,181
24 837,350 7,987 7,987 507,987 198,015 198,015 698,015 779,613 779,613 1,279,613
25 898,033 0 (5) 0 (5) 500,000 181,075 181,075 681,075 834,810 834,810 1,334,810
26 961,751 0 (5) 0 (5) 500,000 159,309 159,309 659,309 891,588 891,588 1,391,588
27 1,028,654 0 (5) 0 (5) 500,000 132,038 132,038 632,038 949,637 949,637 1,449,637
28 1,098,903 0 (5) 0 (5) 500,000 98,425 98,425 598,425 1,008,487 1,008,487 1,508,487
29 1,172,664 0 (5) 0 (5) 500,000 57,534 57,534 557,534 1,067,550 1,067,550 1,567,550
30 1,250,113 0 (5) 0 (5) 500,000 8,500 8,500 508,500 1,126,298 1,126,298 1,626,298
31 1,331,435 0 (5) 0 (5) 0 (5) 0 (5) 0 (5) 0 (5) 1,184,292 1,184,292 1,684,292
32 1,416,823 1,241,186 1,241,186 1,741,186
33 1,506,480 1,296,657 1,296,657 1,796,657
34 1,600,620 1,350,501 1,350,501 1,850,501
35 1,699,467 1,402,390 1,402,390 1,902,390
36 1,803,256 1,451,856 1,451,856 1,951,856
37 1,912,235 1,498,250 1,498,250 1,998,250
38 2,026,663 1,540,590 1,540,590 2,040,590
A-17
39 2,146,812 1,577,416 1,577,416 2,077,416
40 2,272,969 1,605,444 1,605,444 2,105,444
41 2,405,433 1,618,342 1,618,342 2,118,342
42 2,544,521 1,603,854 1,603,854 2,103,854
43 2,690,563 1,537,510 1,537,510 2,037,510
44 2,843,907 1,370,665 1,370,665 1,870,665
45 3,004,918 1,006,378 1,006,378 1,506,378
(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 5 Policy Years. Provided the
Cumulative Premium Test or the Fund Value Test has been and continues
to be met, the Death Benefit Guarantee will keep the Policy in force
on all policies for the first three years and until age 100 on
Policies issued and maintained with a minimum face amount of $250,000
and Death Benefit Option 1; to age 85 on policies issued and
maintained with a face amount of at least $250,000 and if Death
benefit Option 2 is selected at any time.
(4) Cash Surrender Value for the first two years reflects sales charge
limitations imposed by the S.E.C.
(5) Provided the Death Benefit Guarantee has been in effect, the Policy
will have been kept in force until the end of the policy year in which
the life insured reached attained age 85, at which time the Death
Benefit Guarantee will expire and in the absence of additional premium
payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only, and should not be deemed
a representation of past or future results. Actual investment returns may be
more or less than those shown and will depend on a number of factors, including
the investment allocation made by the policyowner, and the investment returns
for the funds of Manufacturers Investment Trust. The policy value, cash
surrender value and death benefit for a policy would be different from those
shown if actual rates of investment return averaged the rate shown above over a
period of years, but also fluctuated above or below that average for individual
policy years. No representations can be made that these hypothetical rates of
return can be achieved for any one year or sustained over any period of time.
A-18
APPENDIX B
DEFINITIONS
The following terms have the following meanings when used in this Prospectus:
ADDITIONAL RATING -- an addition to the cost of insurance rate for insureds who
do not meet at least the underwriting requirements of the standard risk class.
BUSINESS DAY -- any day that the New York Stock Exchange is open for trading.
The net asset value of the underlying shares of a sub-account of the Separate
Account will be determined at the end of each Business Day.
CASH SURRENDER VALUE -- the Policy Value less the deferred sales charge, the
deferred underwriting charge and any outstanding monthly deductions due.
CUMULATIVE PREMIUM TEST -- a test that, if satisfied in the first three policy
years and, where applicable, if satisfied in subsequent policy years, will
maintain the Death Benefit Guarantee. To satisfy the Cumulative Premium Test,
the sum of premiums paid, less withdrawals, and less policy loans, must equal or
exceed the sum of Death Benefit Guarantee Premiums since issue as at the
beginning of each policy month.
DEATH BENEFIT GUARANTEE -- Manufacturers Life of America's guarantee that the
Policy will not go into default even if a combination of policy loans, adverse
investment experience or other factors should cause the Policy's Net Cash
Surrender Value to be insufficient to meet the monthly deductions due at the
beginning of a policy month.
DEATH BENEFIT GUARANTEE PREMIUM -- a measure of premium used in determining
compliance with the Cumulative Premium Test. The Death Benefit Guarantee Premium
as an annual amount is established by the Company based on issue age, sex
(unless unisex rates are required by law), risk class, death benefit option,
supplementary benefits and additional ratings. The Death Benefit Guarantee
Premium, which is set forth in the Policy, will increase, when the policyowner
reaches attained age 70, to an amount as specified in the Policy.
EFFECTIVE DATE -- the date that Manufacturers Life of America becomes obligated
under the Policy and when the first monthly deductions are taken.
FIXED ACCOUNT -- that part of the Policy Value which reflects the value the
policyowner has in the general account of Manufacturers Life of America.
FUND VALUE TEST -- a test which, if satisfied in applicable policy years will
maintain the Death Benefit Guarantee feature. To satisfy the Fund Value Test,
the Gross Single Premium at the beginning of any applicable policy month must
not be greater than the Net Policy Value.
GROSS SINGLE PREMIUM -- the amount of premium needed to endow the Policy to the
expiration of the Death Benefit Guarantee assuming 4% interest and current
charges.
GUIDELINE ANNUAL PREMIUM -- an amount defined by S.E.C. regulation. It is used
to determine maximum sales charges that may be deducted during the first two
years following issuance of a Policy.
INITIAL PREMIUM -- at least 1/12 of the Target Premium. The Initial Premium must
be received within 60 days after the policy date.
B-1
INVESTMENT ACCOUNT -- that part of the Policy Value which reflects the value the
policyowner has in one of the sub-accounts of the Separate Account.
ISSUE AGE -- the age on the nearest birthday, at policy date, as shown in the
Policy.
LOAN ACCOUNT -- that part of the Policy Value which reflects the value the
policyowner has transferred from the Fixed Account or the Investment Accounts as
collateral for a policy loan.
MODIFIED POLICY DEBT -- as of any date, the Policy Debt plus the amount of
interest to be charged to the next policy anniversary, all discounted from the
next policy anniversary to such date at an annual rate of 4%.
MONTHLY DEATH BENEFIT GUARANTEE PREMIUM -- 1/12 of the Death Benefit Guarantee
Premium.
MONTHLY NO LAPSE GUARANTEE PREMIUM -- 1/12 of the No Lapse Guarantee Premium.
NET CASH SURRENDER VALUE -- the Cash Surrender Value less Policy Debt.
NET POLICY VALUE -- the Policy Value less the value in the Loan Account.
NET PREMIUM -- amount of premium allocated to the Investment Accounts or Fixed
Account. It equals gross premiums less the deduction for state, local and
federal taxes.
NO LAPSE GUARANTEE -- Manufacturers Life of America guarantees that the Policy
will not go into default even if a combination of Policy loans, adverse
investment experience and other factors should cause the Policy's Net Cash
Surrender Value to be insufficient to meet the monthly deductions due at the
beginning of a policy month. In Illinois this benefit is known as the Minimum
Premium Guarantee.
NO LAPSE GUARANTEE CUMULATIVE PREMIUM TEST -- a test that, if satisfied in the
No Lapse Guarantee Period, will maintain the No Lapse Guarantee. To satisfy the
No Lapse Guarantee Cumulative Premium Test, the sum of premiums paid, less
withdrawals, and less Policy loans must equal or exceed the sum of No Lapse
Guarantee Premiums since issue as at the beginning of each policy month.
NO LAPSE GUARANTEE PERIOD -- is the first 5 policy years for life insureds with
an issue age up to and including 85. It is not offered to life insureds whose
Issue Age exceeds 85.
NO LAPSE GUARANTEE PREMIUM -- is a measure of premium used in determining
compliance with the No Lapse Guarantee Cumulative Premium Test. The No Lapse
Guarantee premium for each policyowner is set forth in the Policy.
PLANNED PREMIUM -- The premium the policyowner plans to pay periodically.
Subject to certain requirements of law, the Planned Premium may be changed at
any time.
POLICY DATE -- The date from which policy years, policy months and policy
anniversaries are determined. Monthly deductions are due on the policy date. If
a check for at least the Initial Premium accompanies the application, the policy
date is the date the application and check are received at the Service office.
If an application accepted by the Company is not accompanied by a check for the
Initial Premium, the policy will be issued with a policy date which is 7 days
after issuance of the policy.
POLICY DEBT -- as of any date, the aggregate amount of policy loans, including
borrowed interest, less any loan repayments.
POLICY VALUE -- the sum of the values in the Loan Account, the Fixed Account and
the Investment Accounts.
B-2
SELECT LOAN -- A loan on which the differential between the interest credited
and the interest charged is currently 0%; provided, however, if at some time in
the future it is determined that the current differential could cause the loan
to be treated as a taxable distribution under any applicable ruling, regulation
or court decision, Manufacturers Life of America has the right to increase the
differential on all subsequent Select Loans either (i) to an amount that may be
presented in such ruling, regulation or court decision that would result in the
transaction being treated as a loan under federal tax law or (ii) if no amount
is prescribed, to an amount that Manufacturers Life of America feels would be
more likely to result in the transaction being treated as a loan under Federal
tax law.
SELECT LOAN AMOUNT -- the amount of any Select Loan.
SERVICE OFFICE -- the office designated to service the Policies, which is shown
on the cover page of this prospectus.
SURRENDER CHARGE PERIOD -- the period (set forth in Table 1 under the heading
"Charges and Deductions - Surrender Charges" in this prospectus) following
issuance of the Policy or any increase in face amount during which surrender
charges may be assessed if the Policy is surrendered or lapsed, the face amount
is decreased or a partial withdrawal takes place.
TARGET PREMIUM -- a premium amount used to measure the maximum deferred sales
charge under a Policy. The Target Premium for the initial face amount is set
forth in the Policy. The policyowner will be advised of the Target Premium for
any increase in face amount.
WITHDRAWAL TIER AMOUNT -- as of any date, the net Cash Surrender Value at the
previous anniversary multiplied by 10%.
B-3
APPENDIX C
The maximum deferred sales charge is 50% of premiums received up to a specified
number of Target Premiums that varies (from -0.180 to 3.031) with the issue age
of the life insured, the face amount of the Policy and the amount of any
increase. Beginning after two policy years, that maximum deferred sales charge
decreases over time according to a pattern that varies with the issue age of the
life insured. In all cases, the deferred sales charge is eliminated entirely by
the last month of the 15th policy year. The same pattern applies to sales
charges occasioned by face amount increases, with time periods and issue age
computed using the date of the increase in face amount rather than the Policy
Date.
The following tables show the percentage of the maximum sales charge that would
be applicable in the last month of the years shown. The percentages for other
months would be derived by interpolation.
If the transaction occurs in the last month of
ISSUE AGE
POLICY ---------------------------------------------------------------------------------------------------------------------
YEAR* 0 1 2 3 4 5 6 7 8
- - ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9666 0.9500 0.9642 0.9444 0.9555 0.9811 0.9843 0.9866 0.9885
4 0.9666 0.9500 0.9285 0.9444 0.9555 0.9622 0.9687 0.9600 0.9655
5 0.9333 0.9000 0.8928 0.9166 0.9111 0.9433 0.9531 0.9466 0.9540
6 0.9333 0.9000 0.8928 0.9166 0.9111 0.9433 0.9531 0.9466 0.9540
7 0.9333 0.9000 0.8928 0.9166 0.9111 0.9433 0.9531 0.9466 0.9540
8 0.9333 0.9000 0.8928 0.9166 0.9111 0.9433 0.9531 0.9466 0.9540
9 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503
10 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803
11 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442
12 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082
13 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721
14 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
ISSUE AGE
POLICY ------------------------------------------------------------------------------------------
YEAR* 9 10 11 12 13 14 15
- - ------ ------ ------ ------ ------ ------ ------ ------
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9861 0.9873 0.9885 0.9895 0.9875 0.9940 0.9898
4 0.9696 0.9734 0.9765 0.9722 0.9751 0.9831 0.9796
5 0.9595 0.9646 0.9609 0.9652 0.9689 0.9719 0.9695
6 0.9595 0.9646 0.9609 0.9652 0.9689 0.9719 0.9695
7 0.9595 0.9646 0.9609 0.9652 0.9689 0.9719 0.9695
8 0.9595 0.9646 0.9609 0.9652 0.9689 0.9719 0.9695
9 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503 0.8503
C-1
10 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803 0.6803
11 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442 0.5442
12 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082 0.4082
13 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721 0.2721
14 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361 0.1361
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
ISSUE AGE
POLICY ---------------------------------------------------------------------------------------------------------------------
YEAR* 16 17 18 19 20 21 22 23 24
- - ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9912 0.9872 0.9884 0.9842 0.9903 0.9867 0.9878 0.9887 0.9896
4 0.9788 0.9795 0.9768 0.9789 0.9806 0.9778 0.9796 0.9804 0.9792
5 0.9718 0.9681 0.9653 0.9631 0.9661 0.9646 0.9674 0.9699 0.9688
6 0.9667 0.9667 0.9653 0.9631 0.9661 0.9646 0.9674 0.9699 0.9688
7 0.9333 0.9333 0.9333 0.9333 0.9333 0.9396 0.9396 0.9396 0.9396
8 0.9000 0.9000 0.9000 0.9000 0.9000 0.9060 0.9060 0.9060 0.9060
9 0.8333 0.8333 0.8333 0.8333 0.8333 0.8389 0.8389 0.8389 0.8389
10 0.6667 0.6667 0.6667 0.6667 0.6667 0.6711 0.6711 0.6711 0.6711
11 0.5333 0.5333 0.5333 0.5333 0.5333 0.5369 0.5369 0.5369 0.5369
12 0.4000 0.4000 0.4000 0.4000 0.4000 0.4027 0.4027 0.4027 0.4027
13 0.2667 0.2667 0.2667 0.2667 0.2667 0.2685 0.2685 0.2685 0.2685
14 0.1330 0.1330 0.1330 0.1330 0.1330 0.1342 0.1342 0.1342 0.1342
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
ISSUE AGE
POLICY ------------------------------------------------------------------------------------------
YEAR* 25 26 27 28 29 30 31
- - ------ ------ ------ ------ ------ ------ ------ ------
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9901 0.9885 0.9889 0.9897 0.9887 0.9889 0.9885
4 0.9803 0.9793 0.9779 0.9770 0.9757 0.9772 0.9771
5 0.9679 0.9678 0.9678 0.9659 0.9644 0.9650 0.9624
6 0.9679 0.9678 0.9678 0.9659 0.9644 0.9650 0.9624
7 0.9396 0.9432 0.9469 0.9507 0.9545 0.9583 0.9622
8 0.9060 0.9122 0.9184 0.9247 0.9310 0.9375 0.9441
9 0.8389 0.8446 0.8503 0.8562 0.8621 0.8681 0.8741
10 0.6711 0.6757 0.6803 0.6849 0.6897 0.6944 0.6993
11 0.5369 0.5405 0.5442 0.5479 0.5517 0.5556 0.5594
12 0.4027 0.4054 0.4082 0.4110 0.4138 0.4167 0.4196
C-2
13 0.2685 0.2703 0.2721 0.2740 0.2759 0.2778 0.2797
14 0.1342 0.1351 0.1361 0.1370 0.1379 0.1389 0.1399
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
*Months not shown may be calculated by interpolation.
If the transaction occurs in the last month of
ISSUE AGE
POLICY ---------------------------------------------------------------------------------------------------------------------
YEAR* 32 33 34 35 36 37 38 39 40
- - ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9878 0.9886 0.9883 0.9888 0.9860 0.9859 0.9868 0.9858 0.9849
4 0.9741 0.9758 0.9751 0.9739 0.9733 0.9728 0.9725 0.9714 0.9706
5 0.9634 0.9630 0.9614 0.9602 0.9593 0.9577 0.9573 0.9572 0.9529
6 0.9634 0.9630 0.9614 0.9602 0.9593 0.9577 0.9573 0.9572 0.9529
7 0.9634 0.9630 0.9614 0.9602 0.9593 0.9577 0.9573 0.9572 0.9529
8 0.9507 0.9574 0.9614 0.9602 0.9593 0.9577 0.9573 0.9572 0.9529
9 0.8803 0.8865 0.8929 0.8993 0.8999 0.9006 0.9012 0.9019 0.9025
10 0.7042 0.7092 0.7143 0.7194 0.7199 0.7205 0.7210 0.7215 0.7220
11 0.5634 0.5674 0.5714 0.5755 0.5760 0.5764 0.5768 0.5772 0.5776
12 0.4225 0.4255 0.4286 0.4317 0.4320 0.4323 0.4326 0.4329 0.4332
13 0.2817 0.2837 0.2857 0.2878 0.2880 0.2882 0.2884 0.2886 0.2888
14 0.1408 0.1418 0.1429 0.1439 0.1440 0.1441 0.1442 0.1443 0.1444
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
ISSUE AGE
POLICY ------------------------------------------------------------------------------------------
YEAR* 41 42 43 44 45 46 47
- - ------ ------ ------ ------ ------ ------ ------ ------
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9850 0.9828 0.9839 0.9822 0.9833 0.9819 0.9808
4 0.9692 0.9680 0.9664 0.9651 0.9659 0.9639 0.9627
5 0.9526 0.9501 0.9496 0.9480 0.9473 0.9446 0.9425
6 0.9526 0.9501 0.9496 0.9480 0.9473 0.9446 0.9425
7 0.9526 0.9501 0.9496 0.9480 0.9473 0.9190 0.9176
8 0.9526 0.9501 0.9496 0.9480 0.9473 0.9117 0.9104
9 0.9032 0.9038 0.9045 0.9051 0.9058 0.9045 0.9032
10 0.7225 0.7231 0.7236 0.7241 0.7246 0.7236 0.7225
11 0.5780 0.5785 0.5789 0.5793 0.5797 0.5789 0.5780
12 0.4335 0.4338 0.4342 0.4345 0.4348 0.4342 0.4335
13 0.2890 0.2892 0.2894 0.2896 0.2899 0.2894 0.2890
14 0.1445 0.1446 0.1447 0.1448 0.1449 0.1447 0.1445
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
C-3
ISSUE AGE
POLICY ---------------------------------------------------------------------------------------------------------------------
YEAR* 48 49 50 51 52 53 54 55 56
- - ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9809 0.9796 0.9786 0.9795 0.9779 0.9770 0.9763 0.9761 0.9738
4 0.9619 0.9598 0.9577 0.9573 0.9563 0.9541 0.9523 0.9512 0.9477
5 0.9418 0.9385 0.9354 0.9351 0.9330 0.9300 0.9268 0.9250 0.9207
6 0.9365 0.9251 0.9137 0.9023 0.8910 0.8797 0.8684 0.8571 0.8689
7 0.9163 0.9150 0.9101 0.8567 0.8032 0.7498 0.6963 0.6429 0.6517
8 0.9091 0.9078 0.9029 0.8080 0.7132 0.6183 0.5235 0.4286 0.4345
9 0.9019 0.9006 0.8993 0.7623 0.6253 0.4883 0.3513 0.2143 0.2172
10 0.7215 0.7205 0.7194 0.5755 0.4316 0.2878 0.1439 0.0000 0.0000
11 0.5772 0.5764 0.5755 0.4316 0.2876 0.1439 0.0000 0.0000 0.0000
12 0.4329 0.4323 0.4317 0.2878 0.1439 0.0000 0.0000 0.0000 0.0000
13 0.2886 0.2882 0.2878 0.1439 0.0000 0.0000 0.0000 0.0000 0.0000
14 0.1443 0.1441 0.1439 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
ISSUE AGE
POLICY ------------------------------------------------------------------------------------------
YEAR* 57 58 59 60 61 62 63
- - ------ ------ ------ ------ ------ ------ ------ ------
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9731 0.9720 0.9707 0.9711 0.9700 0.9690 0.9678
4 0.9460 0.9441 0.9417 0.9410 0.9389 0.9367 0.9341
5 0.9192 0.9160 0.9128 0.9109 0.9078 0.9044 0.9006
6 0.8811 0.8939 0.9071 0.9087 0.9039 0.8986 0.8937
7 0.6608 0.6704 0.6803 0.6907 0.7015 0.7128 0.7247
8 0.4406 0.4469 0.4536 0.4605 0.4677 0.4752 0.4831
9 0.2203 0.2235 0.2268 0.2302 0.2338 0.2376 0.2416
10 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
11 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
12 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
13 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
14 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
C-4
ISSUE AGE
POLICY ------------------------------------------------------------------------------------------------------
YEAR* 64 65 66 67 68 69 70 71
- - ------ ------ ------ ------ ------ ------ ------ ------ ------
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9650 0.9638 0.9637 0.9612 0.9597 0.9573 0.9572 0.9559
4 0.9315 0.9277 0.9261 0.9224 0.9196 0.9158 0.9144 0.9129
5 0.8966 0.8916 0.8874 0.8836 0.8796 0.8745 0.8727 0.8700
6 0.8872 0.8823 0.8769 0.8719 0.8665 0.8612 0.8582 0.8554
7 0.7370 0.7500 0.7500 0.7500 0.7500 0.7500 0.7500 0.7500
8 0.4914 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000
9 0.2457 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500
10 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
11 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
12 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
13 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
14 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
ISSUE AGE
POLICY -------------------------------------------------------------------------------------------------------
YEAR* 72 73 74 75 76 77 78 79
- - ------ ------ ------ ------ ------ ------ ------ ------ ------
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9555 0.9532 0.9518 0.9504 0.9491 0.9464 0.9436 0.9422
4 0.9113 0.9078 0.9050 0.9021 0.8982 0.8939 0.8885 0.8856
5 0.8676 0.8623 0.8581 0.8526 0.8472 0.8404 0.8347 0.8301
6 0.8520 0.8441 0.8387 0.8317 0.8239 0.8170 0.8099 0.8054
7 0.7500 0.7500 0.7500 0.7500 0.7500 0.7500 0.7500 0.7500
8 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000
9 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500
10 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
11 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
12 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
13 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
14 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
*Months not shown may be calculated by interpolation.
C-5
If the transaction occurs in the last month of
ISSUE AGE
POLICY ------------------------------------------------------------------------------------------------------
YEAR* 80 81 82 83 84 85 86 87
- - ------ ------ ------ ------ ------ ------ ------ ------ ------
1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
2 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000
3 0.9405 0.9388 0.9375 0.9362 0.9360 0.9345 0.9320 0.9303
4 0.8824 0.8806 0.8777 0.8762 0.8747 0.8705 0.8663 0.8608
5 0.8267 0.8235 0.8204 0.8176 0.8145 0.8079 0.8009 0.7899
6 0.8016 0.7971 0.7940 0.7897 0.7842 0.7749 0.7627 0.7451
7 0.7500 0.7500 0.7500 0.7500 0.7500 0.7405 0.7232 0.6964
8 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000 0.5000
9 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500 0.2500
10 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
11 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
12 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
13 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
14 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
ISSUE AGE
POLICY -------------------------------------------------------------------------------------------------------
YEAR* 88 89 90 91 92 93 94 95
- - ------ ------ ------ ------ ------ ------ ------ ------ ------
1 1.0000 1.0000 1.0000 0.0000 0.0000 0.0000 0.0000 0.0000
2 1.0000 1.0000 1.0000 0.0000 0.0000 0.0000 0.0000 0.0000
3 0.9261 0.9191 0.9115 0.0000 0.0000 0.0000 0.0000 0.0000
4 0.8510 0.8357 0.8165 0.0000 0.0000 0.0000 0.0000 0.0000
5 0.7732 0.7483 0.7136 0.0000 0.0000 0.0000 0.0000 0.0000
6 0.7192 0.6822 0.6308 0.0000 0.0000 0.0000 0.0000 0.0000
7 0.6597 0.6068 0.5399 0.0000 0.0000 0.0000 0.0000 0.0000
8 0.5000 0.5000 0.4439 0.0000 0.0000 0.0000 0.0000 0.0000
9 0.2500 0.2500 0.2500 0.0000 0.0000 0.0000 0.0000 0.0000
10 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
11 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
12 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
13 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
14 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
15 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
*Months not shown may be calculated by interpolation.
C-6
PART II
OTHER INFORMATION
UNDERTAKINGS
(a) 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 contracts issued pursuant to this
registration statement, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed
by the Company.
(b) Rule 484 Undertaking.
Article XII of the Restated Articles of Redomestication of the Company 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.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet;
The Prospectus Supplement, consisting of ___ pages.
The Prospectus dated May 9, 1999, consisting of ___ pages;
Representation pursuant to Section 26 of the Investment Company Act of
1940;
Rule 484 Undertaking;
The signatures;
Written consents of the following persons:
A. Ernst & Young LLP - FILED HEREWITH
B. Opinion and Consent of Actuary - Incorporated by reference
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)(a) Resolutions of Board of Directors of The Manufacturers Life
Insurance Company of America establishing its Separate Account
Three. Incorporated by reference to Exhibit A(1) to the
Registration Statement on Form S-6 filed October 29, 1998
(file no. 333-66303).
A(1)(b) Resolutions of Board of Directors of The Manufacturers Life
Insurance Company (U.S.A.) regarding Separate Account A. -
FILED HEREWITH
A(3)(a)(i) Distribution Agreement between The Manufacturers Life
Insurance Company of America and ManEquity, Inc. dated
December 23, 1986. Incorporated by reference to Exhibit
A(3)(a)(i) to the Registration Statement on Form S-6 filed
October 29, 1998 (file no. 333-66303).
A(3)(a)(ii) Amendment to Distribution Agreement between The Manufacturers
Life Insurance Company of America and ManEquity, Inc. dated
May 30, 1992. Incorporated by reference to Exhibit A(3)(a)(ii)
to the Registration Statement on Form S-6 filed October 29,
1998 (file no. 333-66303).
A(3)(a)(iii) Amendment to Distribution Agreement between The Manufacturers
Life Insurance Company of America and ManEquity, Inc. dated
February 23, 1994. Incorporated by reference to Exhibit
A(3)(a)(iii) to the Registration Statement on Form S-6 filed
October 29, 1998 (file no. 333-66303).
A(3)(b)(i) Form of broker-dealer agreement. Incorporated by reference to
Exhibit 3 (iv) to the Registration Statement on Form N-4 for
The Manufacturers Life Insurance Company (U.S.A.) filed
October 2, 2001 (file no. 333-70728).
A(5)(a) Form of Flexible Premium Variable Life Insurance Policy.
Incorporated by reference to Exhibit A(5)(a)(i) to
Post-Effective Amendment No. 13 to the Registration Statement
on Form S-6 filed February 19, 1999 (file no. 33-52310).
A(5)(a)(i) Endorsement No. 776-1ua to Flexible Premium Variable Life
Insurance Policy. Incorporated by reference to Exhibit
A(5)(a)(i) to Post-Effective Amendment No. 11 to the
Registration Statement on Form S-6 filed April 29, 1997 (file
no. 33-52310).
A(5)(a)(ii) Endorsement No. 770-10ua to Flexible Premium Variable Life
Insurance Policy. Incorporated by reference to Exhibit
A(5)(a)(ii) to Post-Effective Amendment No. 11 to the
Registration Statement on Form S-6 filed April 29, 1997 (file
no. 33-52310).
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 on Form S-6 filed
July 20, 2000 (file no. 333-41814).
A(6)(b) By-Laws of The Manufacturers Life Insurance Company (U.S.A.).
Incorporated by reference to Exhibit A(6)(b) to the
Registration Statement on Form S-6 filed July 20, 2000 (file
no. 333-41814).
A(8)(a)(i) Service Agreement between The Manufacturers Life Insurance
Company and The Manufacturers Life Insurance Company of
America dated June 1, 1988. Incorporated by reference to
Exhibit A(8)(a)(i) to Pre-effective Amendment No. 1 to the
Registration Statement on Form S-6 filed August 28, 1998 (file
no. 333-51293).
A(8)(a)(ii) Amendment to Service Agreement between The Manufacturers Life
Insurance Company and The Manufacturers Life Insurance Company
of America dated December 31, 1992. Incorporated by reference
to Exhibit A(8)(a)(ii) to Pre-effective Amendment No. 1 to the
Registration Statement on Form S-6 filed August 28, 1998 (file
no. 333-51293).
A(8)(a)(iii) Amendment to Service Agreement between The Manufacturers Life
Insurance Company and The Manufacturers Life Insurance Company
of America dated May 31, 1993. Incorporated by reference to
Exhibit A(8)(a)(iii) to Pre-effective Amendment No. 1 to the
Registration Statement on Form S-6 filed August
28, 1998 (file no. 333-51293).
A(8)(a)(iv) Amendment to Service Agreement between The Manufacturers Life
Insurance Company and The Manufacturers Life Insurance Company
of America dated June 30, 1993. Incorporated by reference to
Exhibit A(8)(a)(iv) to Pre-effective Amendment No. 1 to the
Registration Statement on Form S-6 filed August 28, 1998 (file
no. 333-51293).
A(8)(a)(v) Amendment to Service Agreement between The Manufacturers Life
Insurance Company and The Manufacturers Life Insurance Company
of America dated December 31, 1996. Incorporated by reference
to Exhibit A(8)(a)(v) to Pre-effective Amendment No. 1 to the
Registration Statement on Form S-6 filed August 28, 1998 (file
no. 333-51293).
A(8)(a)(vi) Amendment to Service Agreement between The Manufacturers Life
Insurance Company and The Manufacturers Life Insurance Company
of America dated May 31, 1998. Incorporated by reference to
Exhibit A(8)(a)(vi) to Pre-effective Amendment No. 1 to the
Registration Statement on Form S-6 filed August 28, 1998 (file
no. 333-51293).
A(8)(a)(vii) Amendment to Service Agreement between The Manufacturers Life
Insurance Company and The Manufacturers Life Insurance Company
of America dated December 31, 1998. Incorporated by reference
to Exhibit A(8)(a)(vii) to Post-Effective Amendment No. 11 to
the Registration Statement on Form N-4 (file no. 33-7018).
A(8)(b) Form of Stoploss Reinsurance Agreement between The
Manufacturers Life Insurance Company of America and The
Manufacturers Life Insurance Company. Incorporated by
reference to Exhibit A(8)(b) to Post-Effective Amendment No.
13 to the Registration Statement on Form S-6 filed February
19, 1999 (file no. 33-52310).
A(8)(c)(i) Service Agreement between The Manufacturers Life Insurance
Company and ManEquity, Inc. dated January 2, 1991.
Incorporated by reference to Exhibit A(8)(c)(i) to
Pre-effective Amendment No. 1 to the Registration Statement on
Form S-6 filed August 28, 1998 (file no. 333-51293).
A(8)(c)(ii) Amendment to Service Agreement between The Manufacturers Life
Insurance Company and ManEquity, Inc. dated March 1, 1994.
Incorporated by reference to Exhibit A(8)(c)(ii) to
Pre-effective Amendment No. 1 to the Registration Statement on
Form S-6 filed August 28, 1998 (file no. 333-51293).
A(8)(d) Form of Assumption Reinsurance Agreement between The
Manufacturers Life Insurance Company (U.S.A.) and The
Manufacturers Life Insurance Company of America - FILED
HEREWITH
A(10) Form of Application for Flexible Premium Variable Life
Insurance Policy. Incorporated by reference to Exhibit (A)(10)
to Post-Effective Amendment No. 7 1 to the Registration
Statement on Form S-6 filed April 26, 1996 (file no.
33-52310).
A(10)(a) 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 filed December 23, 1996 (file no.
33-52310).
A(11) Not Applicable.
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 Actuary - Incorporated by reference
to Exhibit 6 to Post-Effective Amendment No. 24 to the
Registration Statement on Form S-6 filed April 27, 1999
(file no. 33-52310).
C. Consent of Ernst & Young LLP- FILED HEREWITH
3. No financial statements are omitted from the prospectus pursuant to
instruction 1(b) or (c) of Part I.
4. Not applicable.
5. Memorandum Regarding Issuance, Face Amount Increase, Redemption and
Transfer Procedures for the Policies. Previously filed as Exhibit 9 to
Post Effective Amendment No. 8 on Form S-6 filed December 1, 1996 (File
No. 33-52310).
7. Powers of Attorney
(i) (Robert A. Cook, John DesPrez III, Geoffrey Guy,
James O'Malley, Rex Schlaybaugh) incorporated by
reference to Exhibit 7 to the Registration Statement
on Form S-6 for The Manufacturers Life Insurance
Company (U.S.A.) filed July 20, 2000 (File No.
333-41814).
(ii) (John Ostler) incorporated by reference to Exhibit
15(ii) to the Registration Statement on Form N-4 for
The Manufacturers Life Insurance Company (U.S.A.)
filed October 2, 2001 (File No. 333-70728).
(iii) (Jim Boyle, John Lyon) incorporated by reference to
Exhibit 15 (iii) to the Registration Statement on
Form N-4 for The Manufacturers Life Insurance Company
(U.S.A.) filed October 2, 2001 (File No. 333-70728).
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant and the Depositor and have caused this Registration Statement to be
signed on their behalf in the City of Boston, Massachusetts, on this 1st day of
January, 2002.
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
SEPARATE ACCOUNT 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
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
- ------------------------------- Chief Financial Officer
John Ostler
* Director
- -------------------------------
James Boyle
*
- ------------------------------- Director
Robert A. Cook
*
- ------------------------------- Director
Geoffrey Guy
*
- ------------------------------- Director
James O'Malley
* Director
- -------------------------------
John Lyon
* Director
- -------------------------------
Rex Schaybaugh, Jr.
*/s/ James D. Gallagher
- -------------------------------
JAMES D. GALLAGHER
Pursuant to Power of Attorney
EXHIBIT INDEX
Exhibit No. Description
A(1)(b) Resolutions of Board of Directors of The Manufacturers Life
Insurance Company (U.S.A.)
A(8)(d) Form of Assumption Reinsurance Agreement
2 A Opinion and consent of James D. Gallagher, Esq.
2 C Consent of Ernst & Young LLP