As filed with the Securities and Exchange Commission on May 21, 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
SEPARATE ACCOUNT A OF
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
(Exact name of Registrant)
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
(Name of Depositor)
38500 Woodward Avenue
Bloomfield Hills, Michigan 48304
(Address of Depositor's Principal Executive Offices)
James D. Gallagher
Secretary and General Counsel
The Manufacturers Life Insurance Company (U.S.A.)
73 Tremont Street
Boston, MA 02108
(Name and Address of Agent for Service)
Copy to:
J. Sumner Jones, Esq.
Jones & Blouch L.L.P.
1025 Thomas Jefferson Street, NW
Washington, DC 20007
Title of Securities Being Registered: Variable Life Insurance Contracts
Approximate date of commencement of proposed public offering: As soon after
the effective date of this registration statement as is practicable.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that the Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Separate Account A of
The Manufacturers Life Insurance Company (U.S.A.)
Registration Statement on Form S-6
Cross-Reference Sheet
FORM
N-8B-2
ITEM NO. CAPTION IN PROSPECTUS
1 Cover Page; General Information About Manufacturers (Separate Account A)
2 Cover Page; General Information About Manufacturers (Manufacturers
(U.S.A.))
3 *
4 Other Information (Distribution of the Policy)
5 General Information About Manufacturers Life (Separate Account A)
6 General Information About Manufacturers (Separate Account A)
7 *
8 *
9 Other Information (Litigation)
10 Death Benefits; Premium Payments; Charges and Deductions; Policy Value;
Policy Loans; Policy Surrender and Partial Withdrawals; Lapse and
Reinstatement; Other Provisions of the Policy; Other Information
11 General Information About Manufacturers (Manufacturers Investment Trust)
12 General Information About Manufacturers (Manufacturers Investment Trust)
13 Charges and Deductions
14 Issuing A Policy; Other Information (Responsibilities Assumed By
Manufacturers Life)
15 Issuing A Policy
16 General Information About Manufacturers (Manufacturers Investment Trust)
17 Policy Surrender and Partial Withdrawals
18 General Information About Manufacturers
19 Other Information (Reports to Policyholders; Responsibilities Assumed By
Manufacturers Life)
20 *
21 Policy Loans
22 *
23 **
24 Other Provisions of the Policy
25 General Information About Manufacturers (Manulife U.S.A.)
26 *
27 General Information About Manufacturers (Manulife U.S.A.); Other
Information (Distribution of the Policy)
28 Other Information (Officers and Directors)
29 General Information About Manufacturers (Manulife U.S.A.)
30 *
31 *
32 *
33 *
34 *
35 **
36 *
37 *
38 Other Information (Distribution of the Policies; Responsibilities of
Manufacturers Life)
39 Other Information (Distribution of the Policies)
40 *
41 Other Information (Distribution of the Policy)
42 Other Information (Distribution of the Policy)
43 *
44 Policy Values --Determination of Policy Value; Units and Unit Values)
45 *
46 Policy Surrender and Partial Withdrawals; Other Information -- Payment
of Proceeds)
47 General Information About Manufacturers (Manufacturers Investment Trust)
48 *
49 *
50 General Information About Manufacturers
51 Issuing a Policy; Death Benefits; Premium Payments; Charges and
Deductions; Policy Value; Policy Loans; Policy Surrender and Partial
Withdrawals; Lapse and Reinstatement; Other Policy Provisions
52 Other Information (Substitution of Portfolio Shares)
53 General Information About Manufacturers Life (Separate Account A); Tax
Treatment of the Policy
54 *
55 *
56 *
57 *
58 *
59 Financial Statements
* Omitted since answer is negative or item is not applicable.
PART I
INFORMATION REQUIRED IN PROSPECTUS
PROSPECTUS
SEPARATE ACCOUNT A OF THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
VENTURE VUL PROTECTOR
A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
This prospectus describes Venture VUL, a flexible premium variable universal
life insurance policy (the "Policy") offered by The Manufacturers Life Insurance
Company (U.S.A.) (the "Company," "Manulife USA" "we" or "us").
The Policy is designed to provide lifetime insurance protection together with
flexibility as to:
- the timing and amount of premium payments,
- the investments underlying the Policy Value, and
- the amount of insurance coverage.
This flexibility allows you, the policyowner, to pay premiums and adjust
insurance coverage in light of your current financial circumstances and
insurance needs.
Policy Value may be accumulated on a fixed basis or vary with the investment
performance of the sub-accounts of Manulife USA's Separate Account A (the
"Separate Account"). The assets of each sub-account will be used to purchase
Series I shares (formerly "Class A shares") of a particular investment portfolio
(a "Portfolio") of Manufacturers Investment Trust (the "Trust"). The
accompanying prospectus for the Trust, and the corresponding statement of
additional information, describe the investment objectives of the Portfolios in
which you may invest net premiums. Other sub-accounts and Portfolios may be
added in the future.
BECAUSE OF THE SUBSTANTIAL NATURE OF SURRENDER CHARGES, THE POLICY IS NOT
SUITABLE FOR SHORT TERM INVESTMENT PURPOSES. ALSO PROSPECTIVE PURCHASERS SHOULD
NOTE THAT IT MAY NOT BE ADVISABLE TO PURCHASE A POLICY AS A REPLACEMENT FOR
EXISTING INSURANCE.
The Securities and Exchange Commission (the "SEC") maintains a web site
(http://www.sec.gov) that contains material incorporated by reference and other
information regarding registrants that file electronically with the Commission.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT IS
VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE TRUST.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The Manufacturers Life Insurance Company (U.S.A.)
38500 Woodward Avenue
Bloomfield Hills, Michigan 48304
THE DATE OF THIS PROSPECTUS IS ______, 2002
1
TABLE OF CONTENTS
DEFINITIONS..................................................................................4
POLICY SUMMARY...............................................................................6
General....................................................................................6
Death Benefits.............................................................................6
Return of Premium Rider....................................................................6
Premiums...................................................................................7
Policy Value...............................................................................7
Policy Loans...............................................................................7
Surrender and Partial Withdrawals..........................................................7
Lapse and Reinstatement....................................................................7
Charges and Deductions.....................................................................7
Investment Options and Investment Advisers.................................................8
Investment Management Fees and Expenses....................................................8
Table of Charges and Deductions............................................................8
Table of Investment Management Fees and Expenses...........................................9
Table of Investment Options and Investment Subadvisers....................................13
GENERAL INFORMATION ABOUT MANULIFE USA, THE SEPARATE ACCOUNT AND THE TRUST..................15
Manulife USA..............................................................................15
The Separate Account......................................................................15
The Trust.................................................................................16
Investment Objectives of the Portfolios...................................................16
ISSUING A POLICY............................................................................21
Requirements..............................................................................21
Temporary Insurance Agreement.............................................................21
Right to Examine the Policy...............................................................22
Life Insurance Qualification..............................................................22
DEATH BENEFITS..............................................................................23
Death Benefit Options.....................................................................23
Changing the Death Benefit Option.........................................................23
Changing the Face Amount..................................................................24
PREMIUM PAYMENTS............................................................................24
Initial Premiums..........................................................................24
Subsequent Premiums.......................................................................25
Maximum Premium Limitation................................................................25
Premium Allocation........................................................................25
CHARGES AND DEDUCTIONS......................................................................25
Premium Charge............................................................................25
Surrender Charges.........................................................................26
Mortality and Expense Risks Charge........................................................30
Charges for Transfers.....................................................................30
Reduction in Charges......................................................................30
Special Provisions for Exchanges..........................................................31
POLICY VALUE................................................................................31
Determination of the Policy Value.........................................................31
Units and Unit Values.....................................................................31
Transfers of Policy Value.................................................................32
POLICY LOANS................................................................................33
Effect of Policy Loan.....................................................................33
Interest Charged on Policy Loans..........................................................33
Loan Account..............................................................................34
POLICY SURRENDER AND PARTIAL WITHDRAWALS....................................................34
Policy Surrender..........................................................................34
Partial Withdrawals.......................................................................35
LAPSE AND REINSTATEMENT.....................................................................35
2
Lapse.....................................................................................35
THE GENERAL ACCOUNT.........................................................................37
Fixed Account.............................................................................37
OTHER PROVISIONS OF THE POLICY..............................................................37
Return of Premium Rider...................................................................38
Policyowner Rights........................................................................38
Beneficiary...............................................................................38
Incontestability..........................................................................38
Misstatement of Age or Sex................................................................39
Suicide Exclusion.........................................................................39
Supplementary Benefits....................................................................39
TAX TREATMENT OF THE POLICY.................................................................39
Life Insurance Qualification..............................................................40
Tax Treatment of Policy Benefits..........................................................41
Alternate Minimum Tax.....................................................................45
Income Tax Reporting......................................................................45
OTHER INFORMATION...........................................................................45
Payment of Proceeds.......................................................................45
Reports to Policyowners...................................................................45
Distribution of the Policies..............................................................45
Responsibilities of Manufacturers Life....................................................46
Voting Rights.............................................................................46
Substitution of Portfolio Shares..........................................................46
Records and Accounts......................................................................47
State Regulations.........................................................................47
Litigation................................................................................47
Independent Auditors......................................................................47
Further Information.......................................................................47
Officers and Directors....................................................................48
OPTIONAL TERM RIDER.........................................................................50
ILLUSTRATIONS...............................................................................50
Appendix A - Sample Illustrations of Policy Values, Cash Surrender Values and
Death Benefits ..............................................................A-1
Appendix B - Audited Financial Statements.................................................B-1
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION WHERE IT
WOULD NOT BE LAWFUL. YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS, THE PROSPECTUS OF MANUFACTURERS INVESTMENT TRUST, OR THE STATEMENT
OF ADDITIONAL INFORMATION OF MANUFACTURERS INVESTMENT TRUST. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.
THE PURPOSE OF THIS VARIABLE LIFE INSURANCE POLICY IS TO PROVIDE INSURANCE
PROTECTION FOR THE BENEFICIARY NAMED THEREIN. NO CLAIM IS MADE THAT THIS
VARIABLE LIFE INSURANCE POLICY IS IN ANY WAY SIMILAR OR COMPARABLE TO A
SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND.
Examine this prospectus carefully. The Policy Summary will briefly describe the
Policy. More detailed information will be found further in the prospectus.
3
DEFINITIONS
Additional Rating
is an increase to the Cost of Insurance Rate for insureds who do not meet, at a
minimum, the Company's underwriting requirements for the standard Risk
Classification.
Age
on any date is the life insured's age on his or her nearest birthday to the
Policy Date. If no specific age is mentioned, age means the life insured's age
on the Policy Anniversary nearest to the birthday.
Attained Age
is the age at issue plus the number of whole years that
have elapsed since the Policy Date.
Business Day
is any day that the New York Stock Exchange is open for business. A Business Day
ends at the close of regularly scheduled daytime trading of the New York Stock
Exchange on that day.
Cash Surrender Value
is the Policy Value less the Surrender Charge and any outstanding Monthly
Deductions due.
Effective Date
is the date the underwriters approve issuance of the Policy. If the Policy is
approved without the initial premium, the Effective Date will be the date the
Company receives at least the minimum initial premium at our Service Office. In
either case, the Company will take the first Monthly Deduction on the Effective
Date.
Fixed Account
is that part of the Policy Value which reflects the value the policyowner has in
the general account of the Company.
Gross Withdrawal
is the amount of partial Net Cash Surrender Value the policyowner requests plus
any Surrender Charge applicable to the withdrawal.
Investment Account
is that part of the Policy Value which reflects the value the policyowner has in
one of the sub-accounts of the Separate Account.
Issue Date
is the date the Company issued the Policy. The Issue Date is also the date from
which the Suicide and Incontestability provisions of the Policy are measured.
Life Insured
is the person whose life is insured under this Policy.
Loan Account
is that part of the Policy Value which reflects the value transferred from the
Fixed Account or the Investment Accounts as collateral for a policy loan.
Monthly No-Lapse Guarantee Premium
is one-twelfth of the No-Lapse Guarantee Premium.
4
Net Cash Surrender Value
is the Cash Surrender Value less the Policy Debt.
Net Policy Value
is the Policy Value less the value in the Loan Account.
Net Premium
is the gross premium paid less the Premium Charge. It is the amount of premium
allocated to the Fixed Account and/or Investment Accounts.
No-Lapse Guarantee
is a provision of the Policy which occurs when the Policy is in the No-Lapse
Guarantee Period, and meets the No-Lapse Guarantee Cumulative Premium Test. If
such a condition is met the Policy will not lapse, even when the Net Cash
Surrender Value falls to or below zero.
No-Lapse Guarantee Period
is set at issue and will vary by issue age, as set forth in the Policy. The
Policy has two levels of No-Lapse Guarantee Periods determined at the issue of
the Policy: (i) a 10 year period and (ii) a 20 year period. Each level has
separate premium amount requirements. The 10 year No-Lapse Guarantee terminates
at the beginning of the 11th Policy Year and the 20 Year No-Lapse Guarantee
terminates at the beginning of the 21st Year Policy. Both the 10 Year and the
20 Year No Lapse Guarantee are limited to the number of years remaining until
the life insured's age 95, or particular state law requirement.
No-Lapse Guarantee Premium
is the annual premium used to determine the Monthly No-Lapse Guarantee Premium.
The no Lapse Guarantee Premium is higher for the 20 year guarantee period
than for the 10 year guarantee period. If the sum of premiums paid drops below
the level required for the 20 year guarantee period, the Policy may still be
eligible for the 10 year guarantee period. The premium is set at issue and is
recalculated, prospectively, whenever any of the following changes occur under
the Policy:
- - the Face Amount of insurance changes.
- - There is a decrease in Face Amount Due to a partial withdrawal.
- - a Supplementary Benefit is added, changed or terminated.
- - the risk classification of the life insured changes.
- - a temporary Additional Rating is added (due to a Face Amount
increase), or terminated.
- - the Death Benefit Option changes.
No-Lapse Guarantee Cumulative Premium
is the minimum amount due to satisfy the No-Lapse Guarantee Cumulative Premium
Test. This amount equals the sum, from issue to the date of the test, of the
Monthly No-Lapse Guarantee Premiums.
No-Lapse Guarantee Cumulative Premium Test
is a test that, if satisfied, during the No Lapse Guarantee Period will keep the
policy in force when the Net Cash Surrender Value is less than zero. The
test is satisfied if the sum of all premiums paid, less any gross partial
withdrawals and less any Policy Debt, is greater than or equal to the sum of the
monthly No-Lapse Guarantee Premiums due since the Policy Date.
Policy Date
is the date coverage takes effect under the Policy, provided the Company
receives the minimum initial premium at its Service Office, and is the date from
which charges for the first monthly deduction are calculated, and the date from
which Policy Years, Policy Months, and Policy Anniversaries are determined.
Policy Debt
as of any date equals (a) plus (b) plus (c) minus (d), where:
(a) is the total amount of loans borrowed as of such date;
5
(b) is the total amount of any unpaid loan interest charges which have been
borrowed against the Policy on a Policy Anniversary;
(c) is any interest charges accrued from the last Policy Anniversary to the
current date; and
(d) is the total amount of loan repayments as of such date.
Policy Value
is the sum of the values in the Loan Account, the Fixed Account, and the
Investment Accounts.
Service Office Address
is 200 Bloor Street East, Toronto, Ontario, Canada M4W 1E5.
Surrender Charge Period
is the period following the Policy Date or following any increase in Face Amount
during which the Company will assess surrender charges. Surrender charges will
apply during this period if the policy terminates due to default, if the
policyowner surrenders the policy or makes a partial withdrawal.
Written Request
is the policyowner's request to the Company which must be in a form satisfactory
to the Company, signed and dated by the policyowner, and received at the Service
Office.
POLICY SUMMARY
GENERAL
We have prepared the following summary as a general description of the most
important features of the Policy. It is not comprehensive and you should refer
to the more detailed information contained in this prospectus. Unless otherwise
indicated or required by the context, the discussion throughout this prospectus
assumes that the Policy has not gone into default, there is no outstanding
Policy Debt, and the death benefit is not determined by the minimum death
benefit percentage. The Policy's provisions may vary in some states and the
terms of your Policy and any endorsement or rider, supersede the disclosure in
this prospectus.
DEATH BENEFITS
There are two death benefit options. Under Option 1 the death benefit is
the FACE AMOUNT OF THE POLICY at the date of death or, if greater, the Minimum
Death Benefit. Under Option 2 the death benefit is the FACE AMOUNT PLUS THE
POLICY VALUE OF THE POLICY at the date of death or, if greater, the Minimum
Death Benefit.
OPTIONAL TERM RIDER
The Policy may be issued with an optional term insurance rider (the "Term
Rider"). The benefit of the term rider is that the cost of insurance rates will
always be less than or equal to the cost of insurance rates on the Policy.
HOWEVER, UNLIKE THE DEATH BENEFIT UNDER THE POLICY, THE DEATH BENEFIT UNDER THE
TERM RIDER IS NOT PROTECTED BY THE NO-LAPSE GUARANTEE AFTER THE SECOND POLICY
YEAR AND TERMINATES AT AGE 100.
RETURN OF PREMIUM RIDER
The Policy may be issued with an optional Return of Premium Death Benefit rider
if death benefit Option 1 is elected. This rider provides an additional death
benefit payable upon death of the life insured after the Company receives due
proof of death. The Return of Premium Death Benefit is calculated as follows:
The return of premium rider death benefit is equal to the initial premium. Any
subsequent premiums will increase the death benefit at the time of the premium
payment by the amount of the premium. Any partial withdrawal will reduce the
death benefit at the time of withdrawal by an amount equal to the withdrawal
plus any applicable Surrender Charge (except that the rider death benefit will
not be reduced to less than zero). The No Lapse Guarantee provisions of the
Policy apply to the Return of Premium Rider Death Benefit for the first two
Policy Years only.
6
PREMIUMS
You may pay premiums at any time and in any amount, subject to certain
limitations as described under "Premium Payments - Subsequent Premiums." Net
Premiums will be allocated, according to your instructions and at the Company's
discretion, to one or more of our general account and the sub-accounts of the
Separate Account. You may change your allocation instructions at any time. You
may also transfer amounts among the accounts.
POLICY VALUE
The Policy has a Policy Value reflecting premiums paid, certain charges for
expenses and cost of insurance, and the investment performance of the accounts
to which you have allocated premiums.
POLICY LOANS
You may borrow an amount not to exceed 90% of your Policy's Net Cash Surrender
Value. Loan interest at a rate of 5.25% during the first ten Policy Years and 4%
thereafter is due on each Policy Anniversary. We will deduct all outstanding
Policy Debt from proceeds payable at the insured's death, or upon surrender.
SURRENDER AND PARTIAL WITHDRAWALS
You may make a partial withdrawal of your Policy Value. A partial withdrawal may
result in a reduction in the Face Amount of the Policy and an assessment of a
portion of the surrender charges to which the Policy is subject.
You may surrender your Policy for its Net Cash Surrender Value at any time while
the life insured is living. The Net Cash Surrender Value is equal to the Policy
Value less Surrender Charges and outstanding Monthly Deductions due minus the
Policy Debt.
LAPSE AND REINSTATEMENT
Unless the No-Lapse Guarantee Cumulative Premium Test has been met, a Policy
will lapse (and terminate without value) when its Net Cash Surrender Value is
insufficient to pay the next monthly deduction and a grace period of 61 days
expires without your having made an adequate payment.
The Policies, therefore, differ in two important respects from conventional life
insurance policies. First, the failure to make planned premium payments will not
itself cause a Policy to lapse. Second, a Policy can lapse even if planned
premiums have been paid.
A policyowner may reinstate a lapsed Policy at any time within the five year
period following lapse provided the Policy was not surrendered for its Net Cash
Surrender Value. We will require evidence of insurability along with a certain
amount of premium as described under "Reinstatement."
CHARGES AND DEDUCTIONS
We assess certain charges and deductions in connection with the Policy. These
include:
charges assessed monthly for mortality and expense risks, cost of
insurance, administration expenses,
charges deducted from premiums paid, and
charges assessed on surrender or lapse.
These charges are summarized in the Table of Charges and Deductions. We may
allow you to request that the sum of all charges assessed monthly for mortality
and expense risks, cost of insurance and administration expenses be deducted
from the Fixed Account or one or more of the sub-accounts of the Separate
Account.
In addition, there are charges deducted from each Portfolio of the Trust. These
charges are summarized in the Table of Investment Management Fees and Expenses.
7
INVESTMENT OPTIONS AND INVESTMENT ADVISERS
You may allocate Net Premiums to the Fixed Account or to one or more of the
sub-accounts of the Separate Account. Each of the sub-accounts invests in the
shares of one of the Portfolios of the Trust.
The Trust receives investment advisory services from Manufacturers Securities
Services, LLC ("MSS"). MSS is a registered investment adviser under the
Investment Advisers Act of 1940, as amended.
The Trust also employs subadvisers. The Table of Investment Options and
Investment Subadvisers shows the subadvisers that provide investment subadvisory
services to the indicated Portfolios.
Allocating net premiums only to one or a small number of the investment options
(other than the Lifestyle Trusts) should not be considered a balanced investment
strategy. In particular, allocating net premiums to a small number of investment
options that concentrate their investments in a particular business or market
sector will increase the risk that the value of your Policy will be more
volatile since these investment options may react similarly to business or
market specific events. Examples of business or market sectors where this risk
historically has been and may continue to be particularly high include: (a)
technology related businesses, including internet related businesses, (b) small
cap securities and (c) foreign securities. The Company does not provide advice
regarding appropriate investment allocations. Please discuss this matter with
your financial adviser.
INVESTMENT MANAGEMENT FEES AND EXPENSES
Each sub-account of the Separate Account purchases shares of one of the
Portfolios at net asset value. The net asset value of those shares reflects
investment management fees and certain expenses of the Portfolios. The fees and
expenses for each Portfolio for the Trust's last fiscal year are shown in the
Table of Investment Management Fees and Expenses below. These fees and expenses
are described in detail in the accompanying Trust prospectus to which reference
should be made.
TABLE OF CHARGES AND DEDUCTIONS
Premium Charge: (a) during Policy Year 1, ___% of the premium paid (up
to the target premium as specified in the Policy) and
___% on any premium paid in excess of the target premium,
(b) during Policy Years 2 through ___, ___% of the premium
paid and (c) during Policy Years after ___, ___% (on a
non-guaranteed basis in the state of New Jersey).
Surrender Charges: A Surrender Charge is applicable for Policy Years from
the Policy Date or an increase in Face Amount. The
Surrender Charge is determined by the following formula:
Surrender Charge = (Surrender Charge Rate) x (Face Amount
Associated with the Surrender Charge/1000) x (Grading
Percentage)
The Grading Percentage is based on the Policy Year in
which the transaction causing the assessment of the charge
occurs and is set forth in the table under "Surrender
Charges."
The Surrender Charge Rate is calculated as follows:
Surrender Charge Rate = (Rate per $1000 of Face Amount) +
( %) x (Surrender Charge Premium)
The Rate per $1000 of Face Amount is based on the age at
which the transaction causing the assessment of the charge
occurs and is set forth in a table under "Surrender
Charges."
The Surrender Charge Premium is the lesser of:
8
- the premiums paid during the first Policy Year
(or premiums attributable to a Face Amount
increase) per $1000 of Face Amount, and
- the Surrender Charge Premium Limit specified in
the Policy per $1000 of Face Amount.
The premiums attributable to a Face Amount increase will
equal a portion of each payment made within one year of
the increase plus a portion of the Policy Value at the
time of the increase.
The maximum Surrender Charge for any Policy per $1000 of
Face Amount is $ . A portion of this charge will be
assessed on a partial withdrawal.
Monthly Deductions: An administration charge of $ plus $ per
$1000 of current Face Amount per Policy Month will be
deducted in the first Policy Year. In subsequent years,
the administration charge will not exceed $ plus
$ per $1000 of current Face Amount per Policy Month.
The cost of insurance charge.
Any additional charges for supplementary benefits, if
applicable.
A mortality and expense risks charge. This charge varies
as follows:
---------- -------------------------- --------------------------
[ ] Guaranteed Monthly Guaranteed Annual
Mortality and Expense Mortality and Expense
Risks Charge Risks Charge
[ ] [ ] [ ]
[ ] [ ] [ ]
---------- -------------------------- --------------------------
All of the above charges are deducted from the Net Policy
Value.
Loan Charges: A fixed loan interest rate of 5.25% during the
first 10 Policy Years and 4% thereafter. Interest credited
to amounts in the Loan Account is guaranteed not to be
less than 4% at all times. The maximum loan amount is 90%
of the Net Cash Surrender Value.
Transfer Charge: A charge of $25 per transfer for each transfer in excess
of 12 in a Policy Year.
TABLE OF INVESTMENT MANAGEMENT FEES AND EXPENSES
TRUST ANNUAL EXPENSES (SERIES I SHARES)
(as a percentage of Trust average net assets for the fiscal year ended December
31, 2001)
TOTAL TRUST
SERIES I OTHER EXPENSES ANNUAL EXPENSES
MANAGEMENT RULE 12B-1 (AFTER EXPENSE (AFTER EXPENSE
TRUST PORTFOLIO FEES FEES(G) REIMBURSEMENT) REIMBURSEMENT)
--------------------------- ------------ ----------- ----------------- -----------------
Internet Technologies 1.000% 0.150% 0.110% 1.26%
Pacific Rim Emerging Markets 0.700% 0.150% 0.380% 1.23%
Telecommunications 0.950% 0.150% 0.340% 1.44%(A)
Science & Technology 0.916%(D) 0.150% 0.060% 1.13%
International Small Cap 0.950% 0.150% 0.500% 1.60%
Health Sciences 0.942%(D) 0.150% 0.350% 1.44%(A)
Aggressive Growth 0.850% 0.150% 0.070% 1.07%
Emerging Small Company 0.900% 0.150% 0.070% 1.12%
9
TOTAL TRUST
SERIES I OTHER EXPENSES ANNUAL EXPENSES
MANAGEMENT RULE 12B-1 (AFTER EXPENSE (AFTER EXPENSE
TRUST PORTFOLIO FEES FEES(G) REIMBURSEMENT) REIMBURSEMENT)
--------------------------- ------------ ----------- ----------------- -----------------
Small Company Blend 0.900% 0.150% 0.120% 1.17%
Dynamic Growth 0.850% 0.150% 0.080% 1.08%
Mid Cap Growth 0.850% 0.150% 0.390% 1.39%(A)
Mid Cap Opportunities 0.850% 0.150% 0.440% 1.44%(A)
Mid Cap Stock 0.775% 0.150% 0.080% 1.00%
All Cap Growth 0.785% 0.150% 0.060% 0.99%
Financial Services 0.800% 0.150% 0.260% 1.21%(A)
Overseas 0.800% 0.150% 0.150% 1.10%
International Stock 0.838%(D) 0.150% 0.170% 1.16%
International Value 0.850% 0.150% 0.150% 1.15%
Capital Appreciation 0.750% 0.150% 0.300% 1.20%
Strategic Opportunities 0.700% 0.150% 0.060% 0.91%
Quantitative Mid Cap 0.650% 0.150% 0.100% 0.90%(A)
Global Equity 0.750% 0.150% 0.110% 1.01%
Strategic Growth 0.750% 0.150% 0.200% 1.10%(A)
Growth 0.697% 0.150% 0.060% 0.91%
Large Cap Growth 0.750% 0.150% 0.080% 0.98%
All Cap Value 0.800% 0.150% 0.470% 1.42%(A)
Capital Opportunities 0.750% 0.150% 0.500%(G) 1.40%(A)(F)
Quantitative Equity 0.599% 0.150% 0.060% 0.81%
Blue Chip Growth 0.702%(D) 0.150% 0.060% 0.91%
Utilities 0.750% 0.150% 0.500%(G) 1.40%(A)(F)
Real Estate Securities 0.645% 0.150% 0.070% 0.87%
Small Company Value 0.891%(D) 0.150% 0.110% 1.15%
Mid Cap Value 0.800% 0.150% 0.200% 1.15%(A)
Value 0.642% 0.150% 0.060% 0.85%
Equity Index H 0.250% 0.000% 0.150% 0.40%
Tactical Allocation 0.750% 0.150% 0.400% 1.30%
Fundamental Value 0.798% 0.150% 0.120% 1.07%(A)
Growth & Income 0.529% 0.150% 0.050% 0.73%
U.S. Large Cap Value 0.725% 0.150% 0.050% 0.93%
Equity-Income 0.711%(D) 0.150% 0.050% 0.91%
Income & Value 0.650% 0.150% 0.070% 0.87%
Balanced 0.563% 0.150% 0.100% 0.81%
High Yield 0.625% 0.150% 0.060% 0.84%
Strategic Bond 0.625% 0.150% 0.080% 0.86%
Global Bond 0.600% 0.150% 0.220% 0.97%
Total Return 0.600% 0.150% 0.060% 0.81%
Investment Quality Bond 0.500% 0.150% 0.090% 0.74%
Diversified Bond 0.600% 0.150% 0.070% 0.82%
U.S. Government Securities 0.550% 0.150% 0.060% 0.76%
Money Market 0.350% 0.150% 0.050% 0.55%
Small Cap Index E 0.375% 0.150% 0.075% 0.60%
International Index E 0.400% 0.150% 0.050% 0.60%
Mid Cap Index E 0.375% 0.150% 0.075% 0.60%
Total Stock Market Index E 0.375% 0.150% 0.060% 0.59%
500 Index E 0.375% 0.150% 0.050% 0.57%
Lifestyle Aggressive 1000 0.065% 0.000% 0.010% 0.075%(B)(C)
Lifestyle Growth 820 0.054% 0.000% 0.021% 0.075%(B)(C)
10
TOTAL TRUST
SERIES I OTHER EXPENSES ANNUAL EXPENSES
MANAGEMENT RULE 12B-1 (AFTER EXPENSE (AFTER EXPENSE
TRUST PORTFOLIO FEES FEES(G) REIMBURSEMENT) REIMBURSEMENT)
--------------------------- ------------ ----------- ----------------- -----------------
Lifestyle Balanced 640 0.054% 0.000% 0.021% 0.075%(B)(C)
Lifestyle Moderate 460 0.062% 0.000% 0.013% 0.075%(B)(C)
Lifestyle Conservative 280 0.069% 0.000% 0.006% 0.075%(B)(C)
(A) Annualized; For the period April 30, 2001 (commencement of operations) to
December 31, 2001.
(B) The investment adviser to the Trust, Manufacturers Securities Services,
LLC ("MSS" or the "Adviser") has voluntarily agreed to pay certain
expenses of each Lifestyle Trust as noted below. (For purposes of the
expense reimbursement, total expenses of a Lifestyle Trust includes the
advisory fee but excludes (a) the expenses of the Underlying Portfolios,
(b) taxes, (c) portfolio brokerage, (d) interest, (e) litigation and (f)
indemnification expenses and other extraordinary expenses not incurred in
the ordinary course of the Trust's business.) If total expenses of a
Lifestyle Trust (absent reimbursement) exceed 0.075%, the Adviser will
reduce the advisory fee or reimburse expenses of that Lifestyle Trust by
an amount such that total expenses of the Lifestyle Trust equal 0.075%. If
the total expenses of the Lifestyle Trust (absent reimbursement) are equal
to or less than 0.075%, then no expenses will be reimbursed by the
Adviser. This voluntary expense reimbursement may be terminated at any
time. If such expense reimbursement was not in effect, Total Trust Annual
Expenses would be higher (based on current advisory fees and the Other
Expenses of the Lifestyle Trusts for the fiscal year ended December 31,
2001) as noted in the chart below:
11
TOTAL
TRUST
MANAGEMENT RULE OTHER ANNUAL
TRUST PORTFOLIO FEES 12B-1 FEES EXPENSES EXPENSES
------------------------- ---------- ---------- --------- ----------
Lifestyle Aggressive 1000 0.065% 0.000% 1.081% 1.146%
Lifestyle Growth 820 0.054% 0.000% 0.998% 1.052%
Lifestyle Balanced 640 0.054% 0.000% 0.914% 0.968%
Lifestyle Moderate 460 0.062% 0.000% 0.823% 0.885%
Lifestyle Conservative 280 0.069% 0.000% 0.790% 0.859%
(C) 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 (B) above.
(D) 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%
Between $750 million and $1.5 billion 5.00%
Between $1.5 billion and $3.0 billion 7.50%
Over $3.0 billion 10.00%
The fee reductions are applied to the advisory fees of each of the six
portfolios. (However, in the case of the Small Company Value Trust, the
fee reduction will be reduced by 0.05% of the first $500 million in net
assets.) This voluntary fee waiver may be terminated at any time by the
adviser. As of December 31, 2001, the combined asset level for all six
portfolios was approximately $4.097 billion resulting in a fee reduction
of 5.00%. 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.
(E) 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. For Series I shares, if such expense
reimbursement were not in effect, it is estimated that "Other Expenses"
and "Total Trust Annual Expenses" would be 0.07% and 0.62%,
respectively, for the International Index Trust, 0.075% and 0.60%,
respectively, for the Small Cap Index Trust, and 0.075% and 0.60%,
respectively, for the Mid Cap Index Trust and 0.060% and 0.59%,
respectively, for the Total Stock Market Index Trust. It is estimated
that the expense reimbursement will not be effective during the year end
December 31, 2002 for the 500 Index Trust. The expense reimbursement may
be terminated at any time by MSS.
(F) For all portfolios except the Lifestyle Trusts, the Adviser reduces its
advisory fee or reimburses the portfolio if the total of all expenses
(excluding advisory fees, taxes, portfolio brokerage commissions,
interest, litigation and indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the
portfolio's business) exceed certain annual rates. In the case of the
Capital Opportunities and Utilities Trusts, the Adviser reimbursed the
portfolios for certain expenses for the year ended December 31, 2001.
For Series I shares, if such expense reimbursement were not in effect,
it is estimated that "Other Expenses" and "Total Trust Annual Expenses"
would be 0.560% and 1.46%, respectively, for the Capital Opportunities
Trust and 0.610% and 1.51%, respectively for the Utilities Trust. These
voluntary expense reimbursements may be terminated at any time.
(G) Effective January 1, 2002, the Trust implemented a Series I Rule 12b-1
plan while simultaneously reducing its advisory fees and implementing
advisory fee breakpoints. The Trust Annual Expense chart reflects these
changes.
(H) The Equity Index Trust is available only for Policies issued for
applications dated prior to May 1, 2000. Under the Advisory Agreement,
MSS has agreed to reduce its advisory fee or reimburse the Equity Index
Trust if the total of all expenses (excluding advisory fees, taxes,
portfolio brokerage commissions, interest, litigation and
12
indemnification expenses and other extraordinary expenses not incurred
in the ordinary course of the Trust's business) exceeds an annual rate
of 0.15% of the average annual net assets of the Equity Index Trust. The
expense limitation may be terminated at any time by MSS. If this expense
reimbursement had not been in effect, Total Trust Annual Expenses would
have been 0.41%, and Other Expenses would have been 0.16%, of the
average annual net assets of the Equity Index Trust.
TABLE OF INVESTMENT OPTIONS AND INVESTMENT SUBADVISERS
The Trust currently has the following subadvisers who manage the portfolios of
the Trust which are investment options for this Policy, one of which is
Manufacturers Adviser Corporation ("MAC"). Both MSS and MAC are affiliates of
ours.
SUBADVISER PORTFOLIO
---------- ---------
A I M Capital Management, Inc. Aggressive Growth Trust
All Cap Growth Trust
Capital Guardian Trust Company Small Company Blend Trust
U.S. Large Cap Value Trust
Income & Value Trust
Diversified Bond Trust
Cohen & Steers Capital Management, Inc. Real Estate Securities Trust
Davis Advisors Financial Services Trust
Fundamental Value Trust
The Dreyfus Corporation All Cap Value Trust
Fidelity Management & Research Company Strategic Opportunities Trust(A)
Large Cap Growth Trust
Overseas Trust
Founders Asset Management LLC International Small Cap Trust
Franklin Advisers, Inc. Emerging Small Company Trust
INVESCO Funds Group, Inc. Telecommunications Trust
Mid Cap Growth Trust
Janus Capital Corporation Dynamic Growth Trust
Jennison Associates LLC Capital Appreciation Trust
Lord, Abbett & Co. Mid Cap Value Trust
Manufacturers Adviser Corporation Pacific Rim Emerging Markets Trust
Quantitative Mid Cap Trust
Quantitative Equity Trust
Equity Index Trust
Money Market Trust
Index Trusts
Lifestyle Trusts(A)
Balanced Trust
13
SUBADVISER PORTFOLIO
---------- ---------
Massachusetts Financial Services Company Strategic Growth Trust
Capital Opportunities Trust
Utilities Trust
Miller Anderson(B) Value Trust
High Yield Trust
Munder Capital Management Internet Technologies Trust
Pacific Investment Management Company Global Bond Trust
Total Return Trust
Putnam Investment Management, L.L.C. Mid Cap Opportunities Trust
Global Equity Trust
Salomon Brothers Asset Management Inc U.S. Government Securities Trust
Strategic Bond Trust
SSgA Funds Management, Inc. Growth Trust
Lifestyle Trusts(A)
T. Rowe Price Associates, Inc. Science & Technology Trust
Small Company Value Trust
Health Sciences Trust
Blue Chip Growth Trust
Equity-Income Trust
T. Rowe Price International, Inc. International Stock Trust
Templeton Investment Counsel, Inc. International Value Trust
UBS Global Asset Management Tactical Allocation Trust
(formerly, Brinson Advisors, Inc.)
Wellington Management Company, LLP Growth & Income Trust
Investment Quality Bond Trust
Mid Cap Stock Trust
-----------------
(A) SSgA Funds Management, Inc. provides subadvisory consulting services to
Manufacturers Adviser Corporation regarding management of the Lifestyle
Trusts.
(B) Morgan Stanley Investment Management Inc. ("MSIM") is the sub-adviser to
the Value Trust and the High Yield Trust. MSIM does business in certain
instances (including its role as the sub-adviser to the Value Trust and
the High Yield Trust) using the name "Miller Anderson". Prior to May 1,
2002, Morgan Stanley Investments LP, an affiliate of MSIM, (formerly,
Miller Anderson & Sherrerd LLP) was the sub-adviser to the Value Trust
and High Yield Trust.
14
GENERAL INFORMATION ABOUT MANULIFE USA, THE SEPARATE ACCOUNT AND THE TRUST
MANULIFE USA
We are a stock life insurance company incorporated in Maine on August 20, 1955
by a special act of the Maine legislature and redomesticated under the laws of
Michigan. We are a licensed life insurance company in the District of Columbia
and all states of the United States except New York. Our ultimate parent is
Manulife Financial Corporation ("MFC"), a publicly traded company, based in
Toronto, Canada. MFC is the holding company of The Manufacturers Life Insurance
Company ("Manufacturers Life") and its subsidiaries, collectively known as
Manulife Financial. The Manufacturers Life Insurance Company is one of the
largest life insurance companies in North America and ranks among the 60 largest
life insurers in the world as measured by assets. However, neither Manufacturers
Life nor any of its affiliated companies guarantees the investment performance
of the Separate Account.
RATINGS
The Manufacturers Life Insurance Company and The Manufacturers Life Insurance
Company (U.S.A.) have received the following ratings from independent rating
agencies:
A++ A.M. Best
Superior companies have a very strong ability to meet their obligations;
1st category of 16
AAA Fitch
Exceptionally strong capacity to meet policyholder and contract
obligations; 1st category of 24
AA+ Standard & Poor's
Very strong financial security characteristics; 2nd category of 21
Aa2 Moody's
Excellent in financial strength; 3rd category of 21
These ratings, which are current as of the date of this prospectus and are
subject to change, are assigned to Manulife USA as a measure of the Company's
ability to honor the death benefit and no lapse guarantees but not specifically
to its products, the performance (return) of these products, the value of any
investment in these products upon withdrawal or to individual securities held in
any portfolio.
THE SEPARATE ACCOUNT
The Manufacturers Life Insurance Company of America ("ManAmerica") established
its Separate Account Three (the "Separate Account") on August 22, 1986 as a
separate account under Pennsylvania law. Since December 9, 1992, it has been
operated under Michigan law. On January 1, 2002, ManAmerica transferred
substantially all of its assets and liabilities to Manulife USA As a result of
this transaction, Manulife USA became the owner of all of ManAmerica's assets,
including the assets of the Separate Account and assumed all of ManAmerica's
obligations including those under the Policies. The ultimate parent of both
ManAmerica and Manulife USA is Manulife Financial Corporation ("MFC"). The
Separate Account holds assets that are segregated from all of Manulife USA's
other assets. The Separate Account is currently used only to support variable
life insurance policies.
ASSETS OF THE SEPARATE ACCOUNT
Manulife USA is the legal owner of the assets in the Separate Account. The
income, gains, and losses of the Separate Account, whether or not realized, are,
in accordance with applicable contracts, credited to or charged against the
Account without regard to the other income, gains, or losses of Manulife USA.
Manulife USA will at all times maintain assets in the Separate Account with a
total market value at least equal to the reserves and other liabilities relating
to variable benefits under all policies participating in the Separate Account.
These assets may not be charged with liabilities which arise from any other
business Manulife USA conducts. However, all obligations under the variable life
insurance policies are general corporate obligations of Manulife USA.
15
REGISTRATION
The Separate Account is registered with the Commission under the Investment
Company Act of 1940, as amended (the"1940 Act") as a unit investment trust. A
unit investment trust is a type of investment company which invests its assets
in specified securities, such as the shares of one or more investment companies,
rather than in a portfolio of unspecified securities. Registration under the
1940 Act does not involve any supervision by the Commission of the management or
investment policies or practices of the Separate Account. For state law purposes
the Separate Account is treated as a part or division of Manulife USA.
THE TRUST
Each sub-account of the Separate Account will only purchase Series I shares
(formerly referred to as "Class A shares") of a particular Portfolio. The Trust
is registered under the 1940 Act as an open-end management investment company.
Each of the Trust Portfolios, except the Lifestyle Trusts and the Equity Index
Trust, are subject to a Rule 12b-1 fee of .15% of a portfolios Series I net
assets. The Separate Account will purchase and redeem Series I shares of the
Portfolios at net asset value. Shares will be redeemed to the extent necessary
for Manulife USA to provide benefits under the Policies, to transfer assets from
one sub-account to another or to the general account as requested by
policyowners, and for other purposes not inconsistent with the Policies. Any
dividend or capital gain distribution received from a Portfolio with respect to
the Policies will be reinvested immediately at net asset value in shares of that
Portfolio and retained as assets of the corresponding sub-account.
The Trust shares are issued to fund benefits under both variable annuity
contracts and variable life insurance policies issued by the Company or life
insurance companies affiliated with the Company. Manulife USA may also purchase
shares through its general account for certain limited purposes including
initial portfolio seed money. For a description of the procedures for handling
potential conflicts of interest arising from the funding of such benefits see
the accompanying Trust prospectus.
INVESTMENT OBJECTIVES OF THE PORTFOLIOS
The investment objectives and certain policies of the Portfolios currently
available to policyowners through corresponding sub-accounts are set forth
below. There is, of course, no assurance that these objectives will be met. A
full description of the Trust, its investment objectives, policies and
restrictions, the risks associated therewith, its expenses, and other aspects of
its operation is contained in the accompanying Trust prospectus, which should be
read together with this prospectus.
ELIGIBLE PORTFOLIOS
The Portfolios of the Trust available under the Policies are as follows:
The INTERNET TECHNOLOGIES TRUST seeks long-term capital appreciation by
investing the portfolio's assets primarily in companies engaged in
Internet-related business (such businesses also include Intranet-related
businesses).
The PACIFIC RIM EMERGING MARKETS TRUST seeks long-term growth of capital by
investing in a diversified portfolio that is comprised primarily of common
stocks and equity-related securities of corporations domiciled in countries in
the Pacific Rim region.
The TELECOMMUNICATIONS TRUST seeks capital appreciation (with earning income as
a secondary objective) by investing, under normal market conditions, primarily
in equity securities of companies engaged in the telecommunications sector, that
is, in the design, development, manufacture, distribution or sale of
communications services and equipment and companies that are involved in
supplying equipment or services to such companies.
The SCIENCE & TECHNOLOGY TRUST seeks long-term growth of capital by investing,
under normal market condition, at least 80% of its net assets (plus any
borrowings for investment purposes) 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 $1.5 billion or less. These securities may
represent companies in both established and emerging economies throughout the
world.
16
The HEALTH SCIENCES TRUST seeks long-term capital appreciation by investing,
under normal market conditions, at least 80% of its net assets (plus any
borrowings for investment purposes) 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 80% of its net assets (plus any
borrowings for investment purposes) in common stock equity securities of
companies with market capitalizations that approximately match the range of
capitalization of the Russell 2000 Growth 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 $2.5 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. mid-size companies.
The MID CAP STOCK TRUST seeks long-term growth of capital by investing primarily
in equity securities of mid-size companies with significant capital appreciation
potential.
The ALL CAP GROWTH TRUST seeks long-term capital appreciation by investing the
portfolio's assets under normal market conditions, principally in common stocks
of companies that are likely to benefit from new or innovative products,
services or processes, as well as those that have experienced above average,
long-term growth in earnings and have excellent prospects for future growth.
The FINANCIAL SERVICES TRUST seeks growth of capital by investing primarily in
common stocks of financial companies. During normal market conditions, at least
65% (80% after July 31, 2002) of the portfolio's net assets (plus any borrowings
for investment purposes) are invested in companies that are principally engaged
in financial services. A company is "principally engaged" in financial services
if it owns financial services-related assets constituting at least 50% of the
value of its total assets, or if at least 50% of its revenues are derived from
its provision of financial services.
The OVERSEAS TRUST seeks growth of capital by investing, under normal market
conditions, at least 80% of its net assets (plus any borrowings for investment
purposes) 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.
17
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 80% of its total assets (plus any
borrowings for investment purposes) 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 80% of its net assets (plus any borrowings
for investment purposes) 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 80% of its net assets (plus any borrowings
for investment purposes) 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, under normal market conditions,
at least 80% of the portfolio's total assets in the common stocks of large and
medium-sized blue chip growth companies. Many of the stocks in the portfolio are
expected to pay dividends.
The UTILITIES TRUST seeks capital growth and current income (income above that
available from a portfolio invested entirely in equity securities) by investing,
under normal market conditions, at least 80% of the portfolio's net assets (plus
any borrowings for investment purposes) 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, at least 80% of its net assets (plus any borrowings for investment
purposes) in securities of real estate companies.
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. Under normal market conditions, the portfolio
will invest at least 80% of its net assets (plus any borrowings for investment
purposes) 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 80% of the portfolio's net assets (plus any
borrowings for investment purposes) will consist of investments in mid-sized
companies, with market capitalizations of roughly $500 million to $10 billion.
18
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 Index. (The Equity Index Trust
is available only for policies issued for applications dated prior to May 1,
2000).
The TACTICAL ALLOCATION TRUST seeks total return, consisting of long-term
capital appreciation and current income, by allocating the portfolio's assets
between (i) a stock portion that is designed to track the performance of the S&P
500 Composite Stock Price Index, and (ii) a fixed income portion that consists
of either five-year U.S. Treasury notes or U.S. Treasury bills with remaining
maturities of 30 days.
The FUNDAMENTAL VALUE TRUST seeks growth of capital by investing, under normal
market conditions, primarily in common stocks of U.S. companies with market
capitalizations of at least $5 billion that the subadviser believes are
undervalued. The portfolio may also invest in U.S. companies with smaller
capitalizations.
The GROWTH & INCOME TRUST seeks long-term growth of capital and income,
consistent with prudent investment risk, by investing primarily in a diversified
portfolio of common stocks of U.S. issuers which the subadviser believes are of
high quality.
The U.S. LARGE CAP VALUE TRUST seeks long-term growth of capital and income by
investing the portfolio's assets, under normal market conditions, primarily in
equity and equity-related securities of companies with market capitalization
greater than $500 million.
The EQUITY-INCOME TRUST seeks to provide substantial dividend income and also
long-term capital appreciation by investing primarily in dividend-paying common
stocks, particularly of established companies with favorable prospects for both
increasing dividends and capital appreciation.
The INCOME & VALUE TRUST seeks the balanced accomplishment of (a) conservation
of principal and (b) long-term growth of capital and income by investing the
portfolio's assets in both equity and fixed-income securities. The subadviser
has full discretion to determine the allocation between equity and fixed income
securities.
The BALANCED TRUST seeks current income and capital appreciation by investing
the portfolio's assets in a balanced portfolio of (i) equity securities and (ii)
fixed income securities.
The HIGH YIELD TRUST seeks to realize an above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in high yield debt securities, including corporate bonds and
other fixed-income securities.
The STRATEGIC BOND TRUST seeks a high level of total return consistent with
preservation of capital by giving its subadviser broad discretion to deploy the
portfolio's assets among certain segments of the fixed income market as the
subadviser believes will best contribute to achievement of the portfolio's
investment objective.
The GLOBAL BOND TRUST seeks to realize maximum total return, consistent with
preservation of capital and prudent investment management by investing the
portfolio's asset primarily in fixed income securities denominated in major
foreign currencies, baskets of foreign currencies (such as the ECU), and the
U.S. dollar.
The TOTAL RETURN TRUST seeks to realize maximum total return, consistent with
preservation of capital and prudent investment management by investing, under
normal market conditions, at least 65% of the portfolio's assets in a
diversified portfolio of fixed income securities of varying maturities. The
average portfolio duration will normally vary within a three- to six-year time
frame based on the subadviser's forecast for interest rates.
19
The INVESTMENT QUALITY BOND TRUST seeks a high level of current income
consistent with the maintenance of principal and liquidity, by investing in a
diversified portfolio of investment grade bonds and tends to focus its
investment on 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, under normal market conditions, at least
80% of the portfolio's net assets (plus any borrowings for investment purposes)
in fixed income securities.
The U.S. GOVERNMENT SECURITIES TRUST seeks a high level of current income
consistent with preservation of capital and maintenance of liquidity, by
investing in debt obligations and mortgage-backed securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
derivative securities such as collateralized mortgage obligations backed by such
securities.
The MONEY MARKET TRUST seeks maximum current income consistent with preservation
of principal and liquidity by investing in high quality money market instruments
with maturities of 397 days or less issued primarily by U. S. entities.
The SMALL CAP INDEX TRUST seeks to approximate the aggregate total return of a
small cap U.S. domestic equity market index by attempting to track the
performance of the Russell 2000 Index.*
The INTERNATIONAL INDEX TRUST seeks to approximate the aggregate total return of
a foreign equity market index by attempting to track the performance of the
Morgan Stanley European Australian Far East Free Index (the "MSCI EAFE Index").*
The MID CAP INDEX TRUST seeks to approximate the aggregate total return of a mid
cap U.S. domestic equity market index by attempting to track the performance of
the S&P Mid Cap 400 Index.*
The TOTAL STOCK MARKET INDEX seeks to approximate the aggregate total return of
a broad U.S. domestic equity market index by attempting to track the performance
of the Wilshire 5000 Equity Index.*
The 500 INDEX TRUST seeks to approximate the aggregate total return of a broad
U.S. domestic equity market index by attempting to track the performance of the
S&P 500 Composite Stock Price Index.*
The LIFESTYLE AGGRESSIVE 1000 TRUST seeks to provide long-term growth of capital
(current income is not a consideration) by investing 100% of the Lifestyle
Trust's assets in other portfolios of the Trust ("Underlying Portfolios") which
invest primarily in equity securities.
The LIFESTYLE GROWTH 820 TRUST seeks to provide long-term growth of capital with
consideration also given to current income by investing approximately 20% of the
Lifestyle Trust's assets in Underlying Portfolios which invest primarily in
fixed income securities and approximately 80% of its assets in Underlying
Portfolios which invest primarily in equity securities.
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.
20
*"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)" and "Russell 2000(R) Growth" is a trademark of Frank Russell
Company. "Wilshire 5000(R)" is a trademark of Wilshire Associates. "Morgan
Stanley European Australian Far East Free" and "EAFE(R)" are trademarks of
Morgan Stanley & Co. Incorporated. None of the Index Trusts are sponsored,
endorsed, managed, advised, sold or promoted by any of these companies, and none
of these companies make any representation regarding the advisability of
investing in the Trust.
ISSUING A POLICY
REQUIREMENTS
To purchase a Policy, an applicant must submit a completed application. A Policy
will not be issued until the underwriting process has been completed to the
Company's satisfaction.
Policies may be issued on a basis which does not take into account the insured's
sex, with prior approval from the Company. A Policy will generally be issued
only on the lives of insureds from ages 0 through 90.
Each Policy has a Policy Date, an Effective Date and an Issue Date (See
"Definitions" above).
The Policy Date is the date from which the first monthly deductions are
calculated and from which Policy Years, Policy Months and Policy Anniversaries
are determined. The Effective Date is the date the Company becomes obligated
under the Policy and when the first monthly deductions are deducted from the
Policy Value. The Issue Date is the date from which Suicide and Incontestability
are measured.
If an application accepted by the Company is not accompanied by a check for the
initial premium and no request to backdate the Policy has been made:
(i) the Policy Date and the Effective Date will be the date the Company
receives the check at its service office, and
(ii) the Issue Date will be the date the Company issues the Policy.
The initial premium must be received within 60 days after the Issue Date, and
the policyowner must be in good health on the date the initial premium is
received. If the premium is not paid or if the application is rejected, the
Policy will be canceled and any partial premiums paid will be returned to the
applicant.
MINIMUM INITIAL FACE AMOUNT
Manulife USA will generally issue a Policy only if it has a Face Amount of at
least $100,000.
BACKDATING A POLICY
Under limited circumstances, the Company may backdate a Policy, upon request, by
assigning a Policy Date earlier than the date the application is signed.
However, in no event will a Policy be backdated earlier than the earliest date
allowed by state law, which is generally three months to one year prior to the
date of application for the Policy. Monthly deductions will be made for the
period the Policy Date is backdated. Regardless of whether or not a policy is
backdated, Net Premiums received prior to the Effective Date of a Policy will be
credited with interest from the date of receipt at the rate of return then being
earned on amounts allocated to the Money Market portfolio.
As of the Effective Date, the premiums paid plus interest credited, net of the
premium charge, will be allocated among the Investment Accounts and/or Fixed
Account in accordance with the policy owner's instructions unless such amount is
first allocated to the Money Market Trust for the duration of the Right to
Examine period.
TEMPORARY INSURANCE AGREEMENT
In accordance with the Company's underwriting practices, temporary insurance
coverage may be provided under the terms of a Temporary Insurance Agreement.
Generally, temporary life insurance may not exceed $1,000,000 and may not be in
effect
21
for more than 90 days. This temporary insurance coverage will be issued on a
conditional receipt basis, which means that any benefits under such temporary
coverage will only be paid if the life insured meets the Company's usual and
customary underwriting standards for the coverage applied for.
The acceptance of an application is subject to the Company's underwriting rules,
and the Company reserves the right to request additional information or to
reject an application for any reason.
Persons failing to meet standard underwriting classification may be eligible for
a Policy with an additional risk rating assigned to it.
RIGHT TO EXAMINE THE POLICY
A Policy may be returned for a refund within 10 days after you received it. Some
states provide a longer period of time to exercise this right. The Policy will
indicate if a longer time period applies. During the "Right to Examine the
Policy Period", premiums may be allocated to the Money Market Trust. After this
period has expired, premiums will then be allocated among the Investment
Accounts and/or Fixed Account in accordance with the policyowner's instructions.
If the policyowner elects to cancel the Policy under this provision, the Policy
can be mailed or delivered to the Manulife USA agent who sold it, or to the
Service Office. Immediately upon such delivery or mailing, the Policy shall be
deemed void from the beginning. Within seven days after receipt of the returned
Policy at its Service Office, the Company will refund to the policyholder an
amount equal to either:
(1) the amount of all premiums paid or
(2)
(a) the difference between payments made and amounts allocated to the
Separate Account and the Fixed Account; plus
(b) the value of the amount allocated to the Separate Account and the Fixed
Account as of the date the returned Policy is received by the Company;
minus
(c) any partial withdrawals made and policy loans taken.
Whether the amount described in (1) or (2) is refunded depends on the
requirements of the applicable state.
If a policyowner requests an increase in face amount which results in new
surrender charges, he or she will have the same rights as described above to
cancel the increase. If canceled, the Policy Value and the surrender charges
will be recalculated to the amounts they would have been had the increase not
taken place. A policyowner may request a refund of all or any portion of
premiums paid during the right to examine period, and the Policy Value and the
surrender charges will be recalculated to the amounts they would have been had
the premiums not been paid.
The Company reserves the right to delay the refund of any premium paid by check
until the check has cleared.
LIFE INSURANCE QUALIFICATION
A Policy must satisfy either one of two tests to qualify as a life insurance
contract for purposes of Section 7702 of the Internal Revenue Code of 1986, as
amended (the "Code"). At the time of application, the policyowner must choose
either the Cash Value Accumulation Test or the Guideline Premium Test. The test
cannot be changed once the Policy is issued.
CASH VALUE ACCUMULATION TEST
Under the Cash Value Accumulation Test ("CVAT"), the Policy Value must be less
than the Net Single Premium necessary to fund future Policy benefits, assuming
guaranteed charges and 4% net interest. To ensure that a Policy meets the CVAT,
the Company will generally increase the death benefit, temporarily, to the
required minimum amount. However, the Company reserves the right to require
evidence of insurability should a premium payment cause the death benefit to
increase by more than the premium payment amount. Any excess premiums will be
refunded.
GUIDELINE PREMIUM TEST
The Guideline Premium Test restricts the maximum premiums that may be paid into
a life insurance policy for a given death benefit. The policy's death benefit
must also be at least equal to the Minimum Death Benefit (described below).
22
Changes to the Policy may affect the maximum amount of premiums, such as:
- - a change in the policy's Face Amount.
- - a change in the death benefit option.
- - partial Withdrawals.
- - addition or deletion of supplementary benefits.
Any of the above changes could cause the total premiums paid to exceed the new
maximum limit. In this situation, the Company may refund any excess premiums
paid. In addition, these changes could reduce the future premium limitations.
The Guideline Premium Test requires a life insurance policy to meet minimum
ratios of life insurance coverage to policy value. This is achieved by ensuring
that the death benefit is at all times at least equal to the Minimum Death
Benefit. The Minimum Death Benefit on any date is defined as the Policy Value on
that date times the applicable Minimum Death Benefit Percentage for the Attained
Age of the life insured. The Minimum Death Benefit Percentages for this test
appear in the Policy.
DEATH BENEFITS
If the Policy is in force at the time of the death of the life insured, the
Company will pay an insurance benefit. The amount payable will be the death
benefit under the selected death benefit option, plus any amounts payable under
any supplementary benefits added to the Policy, less the Policy Debt and less
any outstanding monthly deductions due. The insurance benefit will be paid in
one lump sum unless another form of settlement option is agreed to by the
beneficiary and the Company. If the insurance benefit is paid in one sum, the
Company will pay interest from the date of death to the date of payment. If the
life insured should die after the Company's receipt of a request for surrender,
no insurance benefit will be payable, and the Company will pay only the Net Cash
Surrender Value.
DEATH BENEFIT OPTIONS
There are two death benefit options, described below.
DEATH BENEFIT OPTION 1
Under Option 1 the death benefit is the Face Amount of the Policy at the date of
death or, if greater, the Minimum Death Benefit.
DEATH BENEFIT OPTION 2
Under Option 2 the death benefit is the Face Amount plus the Policy Value of the
Policy at the date of death or, if greater, the Minimum Death Benefit.
CHANGING THE DEATH BENEFIT OPTION
The death benefit option may be changed once each Policy Year after the first
Policy Year. The change will occur on the first day of the next Policy Month
after a written request for a change is received at the Service Office. The
Company reserves the right to limit a request for a change if the change would
cause the Policy to fail to qualify as life insurance for tax purposes. The
Company will not allow a change in death benefit option if it would cause the
Face Amount to decrease below $100,000.
A change in the death benefit option will result in a change in the Policy's
Face Amount, in order to avoid any change in the amount of the death benefit, as
follows:
CHANGE FROM OPTION 1 TO OPTION 2
The new Face Amount will be equal to the Face Amount prior to the change minus
the Policy Value as of the date of the change.
23
CHANGE FROM OPTION 2 TO OPTION 1
The new Face Amount will be equal to the Face Amount prior to the change plus
the Policy Value as of the date of the change.
No new Surrender Charges will apply to an increase in Face Amount solely due to
a change in the death benefit option.
CHANGING THE FACE AMOUNT
Subject to the limitations stated in this prospectus, a policyowner may, upon
written request, increase or decrease the Face Amount of the Policy. The Company
reserves the right to limit a change in Face Amount so as to prevent the Policy
from failing to qualify as life insurance for tax purposes.
INCREASE IN FACE AMOUNT
Increases in Face Amount may be made once each Policy Year after the first
Policy Year. Any increase in Face Amount must be at least $50,000. An increase
will become effective at the beginning of the policy month following the date
Manulife USA approves the requested increase. Increases in Face Amount are
subject to satisfactory evidence of insurability. The Company reserves the right
to refuse a requested increase if the life insured's Attained Age at the
effective date of the increase would be greater than the maximum issue age for
new Policies at that time.
NEW SURRENDER CHARGES FOR AN INCREASE
An increase in face amount will usually result in the Policy being subject to
new surrender charges. The new surrender charges will be computed as if a new
Policy were being purchased for the increase in Face Amount. The premiums
attributable to the new Face Amount will not exceed the surrender charge premium
limit associated with that increase. There will be no new surrender charges
associated with restoration of a prior decrease in Face Amount. As with the
purchase of a Policy, a policyowner will have a free look right with respect to
any increase resulting in new surrender charges.
An additional premium may be required for a face amount increase, and a new
No-Lapse Guarantee Premium will be determined, if the No-Lapse Guarantee is in
effect at the time of the face amount increase.
INCREASE WITH PRIOR DECREASES
If, at the time of the increase, there have been prior decreases in Face Amount,
these prior decreases will be restored first. The insurance coverage eliminated
by the decrease of the oldest Face Amount will be deemed to be restored first.
CHANGING BOTH THE FACE AMOUNT AND THE DEATH BENEFIT OPTION
If a policyowner requests to change both the Face Amount and the Death Benefit
Option in the same month, the Death Benefit Option change shall be deemed to
occur first.
DECREASE IN FACE AMOUNT
Decreases in Face Amount may be made once each Policy Year after the first
Policy Year. Any decrease in Face Amount must be at least $50,000. A written
request from a policyowner for a decrease in the Face Amount will be effective
at the beginning of the Policy Month following the date Manulife USA approves
the requested decrease. If there have been previous increases in Face Amount,
the decrease will be applied to the most recent increase first and thereafter to
the next most recent increases successively. Under no circumstances should the
sum of all decreases cause the policy to fall below the minimum Face Amount of
$100,000. A decrease in Face Amount will be subject to surrender charges.
See "Charges and Deductions -- Surrender Charges."
PREMIUM PAYMENTS
INITIAL PREMIUMS
No premiums will be accepted prior to receipt of a completed application by the
Company. All premiums received prior to the Effective Date of the Policy will be
held in the general account and credited with interest from the date of receipt
at the rate of return then being earned on amounts allocated to the Money Market
Trust.
24
The minimum initial premium is one-twelfth of the No-Lapse Guarantee Premium
(which is set forth in the Table of Values in your policy).
On the later of the Effective Date or the date a premium is received, the Net
Premiums paid plus interest credited will be allocated among the Investment
Accounts or the Fixed Account in accordance with the policyowner's instructions;
unless such amount is first allocated to the Money Market Trust for the duration
of the Right to Examine period.
SUBSEQUENT PREMIUMS
After the payment of the initial premium, premiums may be paid at any time and
in any amount until the life insured's Attained Age 100, subject to the
limitations on premium amount described below.
A Policy will be issued with a planned premium, which is based on the amount of
premium the policyowner wishes to pay. Manulife USA will send notices to the
policyowner setting forth the planned premium at the payment interval selected
by the policyowner. However, the policyowner is under no obligation to make the
indicated payment.
The Company may refuse any premium payment that would cause the Policy to fail
to qualify as life insurance under the Code. The Company also reserves the right
to request evidence of insurability if a premium payment would result in an
increase in the Death Benefit that is greater than the increase in Policy Value.
Payment of premiums will not guarantee that the Policy will stay in force.
Conversely, failure to pay premiums will not necessarily cause the Policy to
lapse.
All Net Premiums received on or after the Effective Date will be allocated among
Investment Accounts or the Fixed Account as of the Business Day the premiums
were received at the Service Office; unless such amount is first allocated to
the Money Market Trust for the duration of the Right to Examine period. Monthly
deductions are due on the Policy Date and at the beginning of each Policy Month
thereafter. However, if due prior to the Effective Date, they will be taken on
the Effective Date instead of the dates they were due.
MAXIMUM PREMIUM LIMITATION
If the Policy is issued under the Guideline Premium Test, in no event may the
total of all premiums paid exceed the then current maximum premium limitations
established by federal income tax law for a Policy to qualify as life insurance.
If, at any time, a premium is paid which would result in total premiums
exceeding the above maximum premium limitation, the Company will only accept
that portion of the premium which will make the total premiums equal to the
maximum. Any part of the premium in excess of that amount will be returned and
no further premiums will be accepted until allowed by the then current maximum
premium limitation.
PREMIUM ALLOCATION
Premiums may be allocated to the Fixed Account for accumulation at a rate of
interest equal to at least 4% or to one or more of the Investment Accounts for
investment in the Portfolio shares held by the corresponding sub-account of the
Separate Account. Allocations among the Investment Accounts and the Fixed
Account are made as a percentage of the premium. The percentage allocation to
any account may be any number between zero and 100, provided the total
allocation equals 100. A policyowner may change the way in which premiums are
allocated at any time without charge. The change will take effect on the date a
written request for change satisfactory to the Company is received at the
Service Office.
CHARGES AND DEDUCTIONS
PREMIUM CHARGE
We deduct a premium charge from each premium payment equal to : (a) during
Policy Year 1, ___% of the premium paid (up to the target premium as specified
in the Policy) and ___% on any premium paid in excess of the target premium, (b)
during Policy Years 2 through ____, ___% of the premium paid and (c) during
Policy Years after ____, ___% (on a non-guaranteed basis in the state of New
Jersey). The premium
25
charge is designed to cover a portion of the Company's acquisition and sales
expenses and premium taxes. Premium taxes vary from state to state, ranging from
0% to 3.5%.
SURRENDER CHARGES
(the following disclosure is applicable to Policies issued on or after September
14, 2001)
The Company will deduct a Surrender Charge if during the first [ ] following
the Policy Date, or the effective date of a Face Amount increase:
- - the Policy is surrendered for its Net Cash Surrender Value,
- - a partial withdrawal is made,
- - there is a decrease in Face Amount, or
- - the Policy lapses.
The surrender charge, together with a portion of the premium charge, is designed
to compensate the Company for some of the expenses it incurs in selling and
distributing the Policies, including agents' commissions, advertising, agent
training and the printing of prospectuses and sales literature.
SURRENDER CHARGE CALCULATION
The Surrender Charge is determined by the following formula (the calculation is
also described in words below):
Surrender Charge = (Surrender Charge Rate) x (Face Amount associated with the
Surrender Charge / 1000) x (Grading Percentage)
DEFINITIONS OF THE FORMULA FACTORS ABOVE
Face Amount of the Policy Associated with the Surrender Charge
The Face Amount associated with the Surrender Charge equals the Face Amount for
which the Surrender Charge is being applied. The Face Amount may be increased or
decreased as described under "Changing the Face Amount" above.
Surrender Charge Rate (the calculation is also described in words below)
Surrender Charge Rate = (X) + ( %) x (Surrender Charge Premium)
Where "X" is equal to:
TABLE FOR RATE PER $1,000 OF FACE:
Age at Issue Rate per $1,000 Age at Issue Rate per $1,000
or Increase of Face Value ($) or Increase of Face Value ($)
----------- ----------------- ----------- -----------------
0 18
1 19
2 20
3 21
4 22
5 23
6 24
7 25
8 26
9 27
Age at Issue Rate per $1,000 Age at Issue Rate per $1,000
or Increase of Face Value ($) or Increase of Face Value ($)
----------- ----------------- ----------- -----------------
11 29 7.80
12 30 8.00
26
13 31 8.04
14 32 8.08
15 33 8.12
16 34 8.16
17 35 and over 8.20
The Surrender Charge Premium is the lesser of:
a. the premiums paid during the first Policy Year per $1,000 of Face
Amount at issue or following a Face Amount increase, and
b. the Surrender Charge Premium Limit specified in the Policy per
$1,000 of Face Amount.
Grading Percentage
The grading percentages during the Surrender Charge Period and set forth in the
table below apply to the initial Face Amount and to all subsequent Face Amount
increases.
The grading percentage is based on the Policy Year in which the transaction
causing the assessment of the charge occurs as set forth in the table below:
<Table>
<Caption>
Surrender Surrender Charge
Charge Period Grading Percentage
------------- ------------------
1 %
2 %
3 %
4 %
5 %
6 %
7 %
8 %
9 %
10 %
11 %
may be additional
years
</Table>
Within a Policy Year, grading percentages will be interpolated on a monthly
basis. For example, if the policyowner surrenders the Policy during the fourth
month of Policy Year 4, the grading percentage will be 67.5%.
FORMULAS DESCRIBED IN WORDS
Surrender Charge
The Surrender Charge is determined by multiplying the Surrender Charge Rate by
the Face Amount associated with the Surrender Charge divided by 1000. The amount
obtained is then multiplied by the Grading Percentage, a percent which starts at
100% and grades down each policy year to zero over a period not to exceed _____
years.
Surrender Charge Rate
The Surrender Charge Rate is equal to the sum of (a) plus (b) where (a) equals
"X" (see Table above) and (b) equals % times the Surrender Charge Premium.
ILLUSTRATION OF MAXIMUM SURRENDER CHARGE CALCULATION
Assumptions
- - 45 year old male (standard risks and nonsmoker status)
27
- - Policy issued 7 years ago
- - $___ in premiums has been paid on the Policy in equal annual
installments over the 7 year ________ period
- - Surrender Charge Premium for the Policy is $________
- - Face Amount of the Policy at issue is $500,000 and no increases have
occurred
- - Policy is surrendered during the first month of the seventh policy year.
Maximum Surrender Charge
The maximum Surrender Charge to be assessed would be $_____ determined as
follows:
First, the Surrender Charge Rate is determined by applying the Surrender Charge
Rate formula as set forth below.
Surrender Charge Rate = ( ) + ( %) x (Surrender Charge
Premium)
$= ( ) + ( %) x (15.26)
The Surrender Charge Rate is equal to $
Second, the Surrender Charge Rate is entered into the Surrender Charge formula
and the Surrender Charge is determined as set forth below.
Surrender Charge = (Surrender Charge Rate) x (Face Amount of the Policy
associated with the Surrender Charge / 1000)x(Grading Percentage)
$ = ( ) x ($ ) x ( %)
The maximum Surrender Charge is equal to $ .
Depending upon the Face Amount of the Policy, the age of the insured at issue,
premiums paid under the Policy and the performance of the underlying investment
options, the Policy may have no Cash Surrender Value and therefore, the
policyowner may receive no surrender proceeds upon surrendering the Policy.
SURRENDER CHARGES ON A PARTIAL WITHDRAWAL
A partial withdrawal will result in the assessment of a portion of the Surrender
Charges to which the Policy is subject. The portion of the Surrender Charges
assessed will be based on the ratio of the amount of the withdrawal to the Net
Cash Surrender Value of the Policy as at the date of the withdrawal. The
Surrender Charges will be deducted from the Policy Value at the time of the
partial withdrawal on a pro-rata basis from each of the Investment Accounts and
the Fixed Account. If the amount in the accounts is not sufficient to pay the
Surrender Charges assessed, then the amount of the withdrawal will be reduced.
Whenever a portion of the surrender charges is deducted as a result of a partial
withdrawal, the Policy's remaining surrender charges will be reduced in the same
proportion that the surrender charge deducted bears to the total surrender
charge immediately before the partial withdrawal.
28
SURRENDER CHARGE ON DECREASE IN FACE AMOUNT
If the Face Amount of insurance is decreased, a pro-rata Surrender Charge
will be deducted from the Policy Value. A decrease in Face Amount caused by a
change from Death Benefit Option 1 to Option 2 will not incur a pro-rata
Surrender Charge.
Each time a pro-rata Surrender Charge is deducted for a Face Amount decrease,
the remaining Surrender Charge will be reduced in the same proportion that the
Surrender Charge deducted bears to the total Surrender Charge immediately before
the Face Amount decrease.
MONTHLY CHARGES
On the Policy Date and at the beginning of each Policy Month, a deduction is due
from the Net Policy Value to cover certain charges in connection with the Policy
until the Policy Anniversary when the life insured reaches Attained Age 100,
unless certain riders are in effect in which case such charges may continue. If
there is a Policy Debt under the Policy, loan interest and principal will
continue to be payable at the beginning of each Policy Month. Monthly deductions
due prior to the Effective Date will be taken on the Effective Date instead of
the dates they were due. These charges consist of:
- - an administration charge;
- - a charge for the cost of insurance;
- - a mortality and expense risks charge;
- - if applicable, a charge for any supplementary benefits added to the
Policy.
Unless otherwise allowed by the Company and specified by the policyowner, the
Monthly Deductions will be allocated among the Investment Accounts and the Fixed
Account in the same proportion as the Policy value in each bears to the Net
Policy Value.
ADMINISTRATION CHARGE
This charge will be equal to $_____ plus $_____ per $1,000 of current Face
Amount per Policy Month in the first Policy Year. For all subsequent Policy
Years, the administration charge will not exceed $_____ plus $_____ per $1,000
of current Face Amount per Policy Month. The charge is designed to cover certain
administrative expenses associated with the Policy, including maintaining policy
records, collecting premiums and processing death claims, surrender and
withdrawal requests and various changes permitted under the Policy.
COST OF INSURANCE CHARGE
The monthly charge for the cost of insurance is determined by multiplying the
applicable cost of insurance rate times the net amount at risk at the beginning
of each Policy Month. The cost of insurance rate and the net amount at risk are
determined separately for the initial Face Amount and for each increase in Face
Amount. In determining the net amount at risk, if there have been increases in
the Face Amount, the Policy Value shall first be considered a part of the
initial Face Amount. If the Policy Value exceeds the initial Face Amount, it
shall then be considered a part of the additional increases in Face Amount
resulting from the increases, in the order the increases occurred.
For Death Benefit Option 1, the net amount at risk is equal to the greater of
zero, or the result of (a) minus (b) where:
(a) is the death benefit as of the first day of the Policy Month, divided by
1.0032737; and
(b) is the Policy Value as of the first day of the Policy Month after the
deduction of monthly cost of insurance.
For Death Benefit Option 2, the net amount at risk is equal to the Face Amount
of insurance.
The rates for the cost of insurance are based upon the issue age, duration of
coverage, sex, and Risk Classification of the life insured.
Cost of insurance rates will generally increase with the age of the life
insured. The first year cost of insurance rate is guaranteed.
29
The cost of insurance rates reflect the Company's expectations as to future
mortality experience. The rates may be re-determined from time to time on a
basis which does not unfairly discriminate within the class of life insured. In
no event will the cost of insurance rates exceed the guaranteed rates set forth
in the Policy except to the extent that an extra charge is imposed because of an
additional rating applicable to the Life Insured. After the first Policy Year,
the cost of insurance will generally increase on each Policy Anniversary. The
guaranteed rates are based on the 1980 Commissioners Smoker Distinct Mortality
tables.
CHARGES FOR SUPPLEMENTARY BENEFITS
If the Policy includes Supplementary Benefits, a charge may apply to such
Supplementary Benefits.
MORTALITY AND EXPENSE RISKS CHARGE
A monthly charge is assessed against the Policy Value equal to a percentage of
the Policy Value. This charge is to compensate the Company for the mortality and
expense risks it assumes under the Policy. The mortality risk assumed is that
the Life Insured may live for a shorter period of time than the Company
estimated. The expense risk assumed is that expenses incurred in issuing and
administering the Policy will be greater than the Company estimated. The Company
will realize a gain from this charge to the extent it is not needed to provide
benefits and pay expenses under the Policy.
The charge varies as follows:
<Table>
Equivalent Annual
Guaranteed Monthly Mortality Mortality and Expense
and Expense Risks Charge Risks Charge
------------------------ ------------
% %
% %
</Table>
CHARGES FOR TRANSFERS
A charge of $25 will be imposed on each transfer in excess of twelve in a Policy
Year. The charge will be deducted from the Investment Account or the Fixed
Account to which the transfer is being made. All transfer requests received by
the Company on the same Business Day are treated as a single transfer request.
Transfers under the Dollar Cost Averaging and Asset Allocation Balancer programs
do not count against the number of free transfers permitted per Policy Year.
REDUCTION IN CHARGES
The Policy is available for purchase by corporations and other groups or
sponsoring organizations. Group or sponsored arrangements may include reduction
or elimination of withdrawal charges and deductions for employees, officers,
directors, agents and immediate family members of the foregoing. Manulife USA
reserves the right to reduce any of the Policy's charges on certain cases where
it is expected that the amount or nature of such cases will result in savings of
sales, underwriting, administrative, commissions or other costs. Eligibility for
these reductions and the amount of reductions will be determined by a number of
factors, including the number of lives to be insured, the total premiums
expected to be paid, total assets under management for the policyowner, the
nature of the relationship among the insured individuals, the purpose for which
the policies are being purchased, expected persistency of the individual
policies, and any other circumstances which Manulife USA believes to be relevant
to the expected reduction of its expenses. Some of these reductions may be
guaranteed and others may be subject to withdrawal or modification, on a uniform
case basis. Reductions in charges will not be unfairly discriminatory to any
policyowners. Manulife USA may modify from time to time, on a uniform basis,
both the amounts of reductions and the criteria for qualification.
30
SPECIAL PROVISIONS FOR EXCHANGES
The Company will permit owners of certain fixed life insurance contracts issued
by the Company to exchange their contracts for the Policies described in this
prospectus (and likewise, owners of Policies described in this prospectus may
also exchange their Policies for certain fixed life insurance contracts issued
by the Company). Policyowners considering an exchange should consult their tax
advisor as to the tax consequences of an exchange.
COMPANY TAX CONSIDERATIONS
At the present time, the Company makes no special charge to the Separate Account
for any federal, state, or local taxes that the Company incurs that may be
attributable to the Separate Account or to the Policies. The Company, however,
reserves the right in the future to make a charge for any such tax or other
economic burden resulting from the application of the tax laws that it
determines to be properly attributable to the Separate Account or to the
Policies.
POLICY VALUE
DETERMINATION OF THE POLICY VALUE
A Policy has a Policy Value, a portion of which is available to the policyowner
by making a policy loan or partial withdrawal, or upon surrender of the Policy.
The Policy Value may also affect the amount of the death benefit. The Policy
Value at any time is equal to the sum of the values in the Investment Accounts,
the Fixed Account, and the Loan Account.
INVESTMENT ACCOUNTS
An Investment Account is established under each Policy for each sub-account of
the Separate Account to which net premiums or transfer amounts have been
allocated. Each Investment Account under a Policy measures the interest of the
Policy in the corresponding sub-account. The value of the Investment Account
established for a particular sub-account is equal to the number of units of that
sub-account credited to the Policy times the value of such units.
FIXED ACCOUNT
Amounts in the Fixed Account do not vary with the investment performance of any
sub-account. Instead, these amounts are credited with interest at a rate
determined by Manulife USA. For a detailed description of the Fixed Account, see
"The General Account - Fixed Account".
LOAN ACCOUNT
Amounts borrowed from the Policy are transferred to the Loan Account. Amounts in
the Loan Account do not vary with the investment performance of any sub-account.
Instead, these amounts are credited with interest at a rate which is equal to
the amount charged on the outstanding Policy Debt less the Loan Spread. For a
detailed description of the Loan Account, see "Policy Loans - Loan Account".
UNITS AND UNIT VALUES
CREDITING AND CANCELING UNITS
Units of a particular sub-account are credited to a Policy when net premiums are
allocated to that sub-account or amounts are transferred to that sub-account.
Units of a sub-account are canceled whenever amounts are deducted, transferred
or withdrawn from the sub-account. The number of units credited or canceled for
a specific transaction is based on the dollar amount of the transaction divided
by the value of the unit on the Business Day on which the transaction occurs.
The number of units credited with respect to a premium payment will be based on
the applicable unit values for the Business Day on which the premium is received
at the Service Office, except for any premiums received before the Effective
Date. For premiums received before the Effective Date, the values will be
determined on the Effective Date.
A Business Day is any day that the New York Stock Exchange is open for business.
A Business Day ends at the close of regularly scheduled day-time trading of the
New York Stock Exchange (currently 4:00 p.m. Eastern Time) on that day.
31
Units are valued at the end of each Business Day. When an order involving the
crediting or canceling of units is received after the end of a Business Day, or
on a day which is not a Business Day, the order will be processed on the basis
of unit values determined on the next Business Day. Similarly, any determination
of Policy Value, Investment Account value or death benefit to be made on a day
which is not a Business Day will be made on the next Business Day.
UNIT VALUES
The value of a unit of each sub-account was initially fixed at $10.00 and $12.50
depending on the sub-account. For each subsequent Business Day the unit value
for that sub-account is determined by multiplying the unit value for the
immediately preceding Business Day by the net investment factor for the
sub-account on such subsequent Business Day.
The net investment factor for a sub-account on any Business Day is equal to (a)
divided by (b) where:
(a) is the net asset value of the underlying Portfolio shares held by that
sub-account as of the end of such Business Day before any policy
transactions are made on that day; and
(b) is the net asset value of the underlying Portfolio shares held by that
sub-account as of the end of the immediately preceding Business Day after
all policy transactions were made for that day.
The value of a unit may increase, decrease, or remain the same, depending on the
investment performance of a sub-account from one Business Day to the next.
TRANSFERS OF POLICY VALUE
At any time, a policyowner may transfer Policy Value from one sub-account to
another or to the Fixed Account. Transfers involving the Fixed Account are
subject to certain limitations noted below under "Transfers Involving Fixed
Accounts." Transfer requests must be in writing in a format satisfactory to the
Company, or by telephone if a currently valid telephone transfer authorization
form is on file.
The Company reserves the right to impose limitations on transfers, including the
maximum amount that may be transferred. The Company also reserves the right to
modify or terminate the transfer privilege at any time in accordance with
applicable law. Transfers may also be delayed when any of the events described
under items (i) through (iii) in "Payment of Proceeds" occur. Transfer
privileges are also subject to any restrictions that may be imposed by the
Trust. In addition, we reserve the right to defer the transfer privilege at any
time when we are unable to purchase or redeem shares of the Trust.
While the Policy is in force, the policyowner may transfer the Policy Value from
any of the Investment Accounts to the Fixed Account without incurring transfer
charges:
(a) within eighteen months after the Issue Date; or
(b) within 60 days of the effective date of a material change in the
investment objectives of any of the sub-accounts or within 60 days of the
date of notification of such change, whichever is later.
Such transfers will not count against the twelve transfers that may be made free
of charge in any Policy Year.
TRANSFERS INVOLVING FIXED ACCOUNT
The maximum amount that may be transferred from the Fixed Account in any one
Policy Year is the greater of $500 or 15% of the Fixed Account Value at the
previous Policy Anniversary. Any transfer which involves a transfer out of the
Fixed Account may not involve a transfer to the Investment Account for the Money
Market Trust.
TELEPHONE TRANSFERS
Although failure to follow reasonable procedures may result in the Company being
liable for any losses resulting from unauthorized or fraudulent telephone
transfers, Manulife USA will not be liable for following instructions
communicated by telephone that the Company reasonably believes to be genuine.
The Company will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Such procedures shall consist of
confirming that a valid telephone authorization form is on file, tape recording
of all telephone transactions and providing written confirmation thereof.
32
DOLLAR COST AVERAGING
The Company will offer policyowners a Dollar Cost Averaging ("DCA") program.
Under the DCA program, the policyowner will designate an amount which will be
transferred monthly from one Investment Account into any other Investment
Account(s) or the Fixed Account. Currently, no charge will be made for this
program, although the Company reserves the right to institute a charge on 90
days' written notice to the policyholder. If insufficient funds exist to effect
a DCA transfer, the transfer will not be effected and the policyowner will be so
notified.
The Company reserves the right to cease to offer this program as of 90 days
after written notice is sent to the policyowner.
ASSET ALLOCATION BALANCER TRANSFERS
Under the Asset Allocation Balancer program the policyowner will designate an
allocation of Policy Value among Investment Accounts. At six-month intervals
beginning six months after the Policy Date, the Company will move amounts among
the Investment Accounts as necessary to maintain the policyowner's chosen
allocation. A change to the policyowner premium allocation instructions will
automatically result in a change in Asset Allocation Balancer instructions so
that the two are identical unless the policyowner either instructs Manulife USA
otherwise or has elected the Dollar Cost Averaging program. Currently, there is
no charge for this program; however, the Company reserves the right to institute
a charge on 90 days written notice to the policyowner.
The Company reserves the right to cease to offer this program as of 90 days
after written notice is sent to the policyowner.
POLICY LOANS
While this Policy is in force and has an available loan value, a policyowner may
borrow against the Policy Value of the Policy. The Policy serves as the only
security for the loan. Policy loans may have tax consequences, see "Tax
Treatment of Policy Benefits -- Interest on Policy Loans After Year 10" and "Tax
Treatment of Policy Benefits -- Policy Loan Interest."
MAXIMUM LOANABLE AMOUNT
The Maximum Loanable Amount is 90% of the Policy's Net Cash Surrender Value. (In
the state of Florida, the available loan value on any date is the Net Cash
Surrender Value, less estimated interest and Future Monthly Deductions, due to
the next anniversary.)
EFFECT OF POLICY LOAN
A policy loan will have an effect on future Policy Values, since that portion of
the Policy Value in the Loan Account will increase in value at the crediting
interest rate rather than varying with the performance of the underlying
Portfolios or increasing in value at the rate of interest credited for amounts
allocated to the Fixed Account. A policy loan may cause a Policy to be more
susceptible to going into default since a policy loan will be reflected in the
Net Cash Surrender Value. See "Lapse and Reinstatement." In addition, a policy
loan may result in a Policy's failing to satisfy the No-Lapse Guarantee
Cumulative Premium Test since the Policy Debt is subtracted from the sum of the
premiums paid in determining whether this test is satisfied. Finally, a policy
loan will affect the amount payable on the death of the life insured, since the
death benefit is reduced by the Policy Debt at the date of death in arriving at
the insurance benefit.
INTEREST CHARGED ON POLICY LOANS
Interest on the Policy Debt will accrue daily and be payable annually on the
Policy Anniversary. During the first 10 Policy Years, the rate of interest
charged will be an effective annual rate of 5.25%. Thereafter, the rate of
interest charged will be an effective annual rate of 4%, subject to the
Company's reservation of the right to increase the rate as described under the
heading "Tax Treatment of Policy Benefits -- Interest on Policy Loans After Year
10." If the interest due on a Policy Anniversary is not paid by the policyowner,
the interest will be borrowed against the Policy.
Interest on the Policy Debt will continue to accrue daily if there is an
outstanding loan when monthly deductions and premium payments cease when the
life insured reaches age 100. The Policy will go into default at any time the
Policy Debt exceeds the Cash Surrender Value. At least 61 days prior to
termination, the Company will send the policyowner a notice of the pending
termination. Payment of interest on the Policy Debt during the 61 day grace
period will bring the policy out of default.
33
LOAN ACCOUNT
When a loan is made, an amount equal to the loan principal, plus interest to the
next Policy Anniversary, will be deducted from the Investment Accounts or the
Fixed Account and transferred to the Loan Account. Amounts transferred into the
Loan Account cover the loan principal plus loan interest due to the next Policy
Anniversary. The policyowner may designate how the amount to be transferred to
the Loan Account is allocated among the accounts from which the transfer is to
be made. In the absence of instructions, the amount to be transferred will be
allocated to each account in the same proportion as the value in each Investment
Account and the Fixed Account bears to the Net Policy Value. A transfer from an
Investment Account will result in the cancellation of units of the underlying
sub-account equal in value to the amount transferred from the Investment
Account. However, since the Loan Account is part of the Policy Value, transfers
made in connection with a loan will not change the Policy Value.
INTEREST CREDITED TO THE LOAN ACCOUNT
Interest will be credited to amounts in the Loan Account at an effective annual
rate of at least 4.00%. The actual rate credited is equal to the rate of
interest charged on the policy loan less the Loan Interest Credited
Differential, which is currently 1.25% during the first ten policy years and 0%
thereafter, and is guaranteed not to exceed 1.25%. (The Loan Interest Credited
Differential is the difference between the rate of interest charged on a policy
loan and the rate of interest credited to amounts in the Loan Account.) The
Company may change the Current Loan Interest Credited Differential as of 90 days
after sending you written notice of such change.
For a Policy that is not a Modified Endowment Contract ("MEC"), the tax
consequences associated with a loan interest credited differential of 0% are
unclear. A tax advisor should be consulted before effecting a loan to evaluate
the tax consequences that may arise in such a situation. If we determine, in our
sole discretion, that there is a substantial risk that a loan will be treated as
a taxable distribution under federal tax law as a result of the differential
between the credited interest rate and the loan interest rate, we retain the
right to increase the loan interest rate to an amount that would result in the
transaction being treated as a loan under federal tax law.
LOAN ACCOUNT ADJUSTMENTS
On the first day of each Policy Anniversary the difference between the Loan
Account and the Policy Debt is transferred to the Loan Account from the
Investment Accounts or the Fixed Account. Amounts transferred to the Loan
Account will be taken from the Investment Accounts and the Fixed Account in the
same proportion as the value in each Investment Account and the Fixed Account
bears to the Net Policy Value.
LOAN REPAYMENTS
Policy Debt may be repaid in whole or in part at any time prior to the death of
the life insured, provided that the Policy is in force. When a repayment is
made, the amount is credited to the Loan Account and transferred to the Fixed
Account or the Investment Accounts. Loan repayments will be allocated first to
the Fixed Account until the associated Loan Sub-Account is reduced to zero and
then to each Investment Account in the same proportion as the value in the
corresponding Loan Sub-Account bears to the value of the Loan Account.
Amounts paid to the Company not specifically designated in writing as loan
repayments will be treated as premiums. Where permitted by applicable state law,
when a portion of the Loan Account amount is allocated to the Fixed Account, the
Company may require that any amounts paid to it be applied to outstanding loan
balances.
POLICY SURRENDER AND PARTIAL WITHDRAWALS
POLICY SURRENDER
A Policy may be surrendered for its Net Cash Surrender Value at any time while
the life insured is living. The Net Cash Surrender Value is equal to the Policy
Value less any surrender charges and outstanding monthly deductions due (the
"Cash Surrender Value") minus the Policy Debt. If there have been any prior Face
Amount increases, the Surrender Charge will be the sum of the Surrender Charge
for the Initial Face Amount plus the Surrender Charge for each increase. The Net
Cash Surrender Value will be determined as of the end of the Business Day on
which Manulife USA receives the Policy and a written request for surrender at
its Service Office. After a Policy is surrendered, the insurance coverage and
all other benefits under the Policy will terminate.
34
PARTIAL WITHDRAWALS
A policyowner may make a partial withdrawal of the Net Cash Surrender Value once
each Policy Month after the first Policy Anniversary. The policyowner may
specify the portion of the withdrawal to be taken from each Investment Account
and the Fixed Account. In the absence of instructions, the withdrawal will be
allocated among such accounts in the same proportion as the Policy Value in each
account bears to the Net Policy Value. For information on Surrender Charges on a
Partial Withdrawal see "Charges and Deductions - Surrender Charges."
Withdrawals will be limited if they would otherwise cause the Face Amount to
fall below $100,000.
REDUCTION IN FACE AMOUNT DUE TO A PARTIAL WITHDRAWAL
If Death Benefit Option 1 is in effect when a partial withdrawal is made, the
Face Amount of the Policy will be reduced by the amount of the withdrawal plus
any applicable Surrender Charges.
If the death benefit is based upon the Policy Value times the minimum death
benefit percentage set forth under "Death Benefit - Minimum Death Benefit," the
Face Amount will be reduced only to the extent that the amount of the withdrawal
plus the portion of the Surrender Charge assessed exceeds the difference between
the death benefit and the Face Amount. When the Face Amount of a Policy is based
on one or more increases subsequent to issuance of the Policy, a reduction
resulting from a partial withdrawal will be applied in the same manner as a
requested decrease in Face Amount, i.e., against the Face Amount provided by the
most recent increase, then against the next most recent increases successively
and finally against the initial Face Amount.
Partial withdrawals do not affect the Face Amount of a Policy if Death Benefit
Option 2 is in effect.
LAPSE AND REINSTATEMENT
LAPSE
Unless the No-Lapse Guarantee is in effect, a Policy will go into default if at
the beginning of any Policy Month the Policy's Net Cash Surrender Value would be
zero or below after deducting the monthly deduction then due. Therefore, a
Policy could lapse eventually if increases in Policy Value (prior to deduction
of Policy charges) are not sufficient to cover Policy charges. A lapse could
have adverse tax consequences as described under "Tax Treatment of the Policy -
Tax Treatment of Policy Benefits - Surrender or Lapse." The Company will notify
the policyowner of the default and will allow a 61 day grace period in which the
policyowner may make a premium payment sufficient to bring the Policy out of
default. The required payment will be equal to the amount necessary to bring the
Net Cash Surrender Value to zero, if it was less than zero on the date of
default, plus the monthly deductions due at the date of default and payable at
the beginning of each of the two Policy Months thereafter, plus any applicable
premium charge. If the required payment is not received by the end of the grace
period, the Policy will terminate with no value.
NO-LAPSE GUARANTEE
In those states where it is permitted, as long as the No-Lapse Guarantee
Cumulative Premium Test is satisfied during the No-Lapse Guarantee Period, as
described below, the Company will guarantee that the Policy will not go into
default, even if adverse investment experience or other factors should cause the
Policy's Net Cash Surrender Value to fall to zero or below during such period.
The Monthly No-Lapse Guarantee Premium is one-twelfth of the No-Lapse Guarantee
Premium.
The No-Lapse Guarantee Premium is set at issue and reflects any Additional
Rating and Supplementary Benefits, if applicable. It is subject to change if (i)
the Face Amount of the Policy is changed, (ii) there is a Death Benefit
Option change, (iii) there is a decrease in the Face Amount of insurance due to
a partial withdrawal, (iv) there is any change in the supplementary benefits
added to the Policy or in the risk classification of the life insured or (v) a
temporary Additional Rating is added (due to a Face Amount increase), or
terminated.
The No-Lapse Guarantee Period is described under "Definitions." There are two
levels of guarantee period each with
35
separate premium requirements.
While the No-Lapse Guarantee is in effect, the Company will determine at the
beginning of the Policy Month that your policy would otherwise be in default,
whether the No-Lapse Guarantee Cumulative Premium Test, described below, has
been met. If the test has not been satisfied, the Company will notify the
policyowner of that fact and allow a 61-day grace period in which the
policyowner may make a premium payment sufficient to keep the policy from going
into default. This required payment, as described in the notification to the
policyowner, will be equal to the lesser of:
(a) the outstanding premium requirement to satisfy the No-Lapse Guarantee
Cumulative Premium Test at the date of default, plus the Monthly
No-Lapse Guarantee Premium due for the next two Policy Months, or
(b) the amount necessary to bring the Net Cash Surrender Value to zero plus
the monthly deductions due, plus the next two monthly deductions plus
the applicable premium charge.
If the required payment is not received by the end of the grace period, the
No-Lapse Guarantee and the Policy will terminate.
NO-LAPSE GUARANTEE CUMULATIVE PREMIUM TEST
The No-Lapse Guarantee Cumulative Premium Test is satisfied if, as of the
beginning of the Policy Month that your Policy would otherwise be in default,
the sum of all premiums paid to date less any gross withdrawals taken on or
before the date of the test and less any Policy Debt is equal to or exceeds the
sum of the Monthly No-Lapse Guarantee Premiums due from the Policy Date to the
date of the test.
OPTIONAL EXTENDED NO-LAPSE GUARANTEE
In states where approved, for policies issued on or after September 14, 2001, an
optional rider may be added to the Policy that extends the No-Lapse Guarantee
Period to the earlier of: (a) termination of the Policy or the rider, (b)
subject to any applicable state limitations, the number of years selected by the
Policyowner and (c) age 100 of the life insureds. (The rider may be terminated
at any time but cannot be reinstated once terminated.) In order for the Extended
No-Lapse Guarantee to be applicable a Cumulative Premium Test must be satisfied.
This test is described in the rider. The cost of the rider varies by issue age
and Face Amount and a change in the Face Amount of the Policy may affect the
cost of the rider. Neither the No-Lapse Guarantee nor the Extended No-Lapse
Guarantee apply to the Term Rider.
DEATH DURING GRACE PERIOD
If the life insured should die during the grace period, the Policy Value used in
the calculation of the death benefit will be the Policy Value as of the date of
default and the insurance benefit will be reduced by any outstanding Monthly
Deductions due at the time of death.
REINSTATEMENT
A policyowner can reinstate a Policy which has terminated after going into
default at any time within 21 days following the date of termination without
furnishing evidence of insurability, subject to the following conditions:
(a) The life insured's risk classification is standard or preferred, and
(b) The life insured's Attained Age is less than 46.
A policyowner can, by making a written request, reinstate a Policy which has
terminated after going into default at any time within the five-year period
following the date of termination subject to the following conditions:
(a) Evidence of the life insured's insurability, satisfactory to the Company
is provided to the Company;
(b) A premium equal to the amount that was required to bring the Policy out
of default immediately prior to termination, plus the amount needed to
keep the Policy in force to the next scheduled date for payment of the
Planned Premium must be paid to the Company.
36
If the reinstatement is approved, the date of reinstatement will be the later of
the date the Company approves the policyowner's request or the date the required
payment is received at the Company's Service Office. In addition, any surrender
charges will be reinstated to the amount they were at the date of default. The
Policy Value on the date of reinstatement, prior to the crediting of any Net
Premium paid on the reinstatement, will be equal to the Policy Value on the date
the Policy terminated.
THE GENERAL ACCOUNT
The general account of Manulife USA consists of all assets owned by the Company
other than those in the Separate Account and other separate accounts of the
Company. Subject to applicable law, Manulife USA has sole discretion over the
investment of the assets of the general account.
By virtue of exclusionary provisions, interests in the general account of
Manulife USA have not been registered under the Securities Act of 1933 and the
general account has not been registered as an investment company under the
Investment Company Act of 1940. Accordingly, neither the general account nor any
interests therein are subject to the provisions of these acts, and as a result
the staff of the SEC has not reviewed the disclosures in this prospectus
relating to the general account. Disclosures regarding the general account may,
however, be subject to certain generally applicable provisions of the federal
securities laws relating to the accuracy and completeness of statements made in
a prospectus.
FIXED ACCOUNT
A policyowner may elect to allocate net premiums to the Fixed Account or to
transfer all or a portion of the Policy Value to the Fixed Account from the
Investment Accounts. Manulife USA will hold the reserves required for any
portion of the Policy Value allocated to the Fixed Account in its general
account. Transfers from the Fixed Account to the Investment Accounts are subject
to restrictions.
POLICY VALUE IN THE FIXED ACCOUNT The Policy Value in the Fixed Account is equal
to:
(a) the portion of the net premiums allocated to it; plus
(b) any amounts transferred to it; plus
(c) interest credited to it; less
(d) any charges deducted from it; less
(e) any partial withdrawals from it; less
(f) any amounts transferred from it.
INTEREST ON THE FIXED ACCOUNT
An allocation of Policy Value to the Fixed Account does not entitle the
policyowner to share in the investment experience of the general account.
Instead, Manulife USA guarantees that the Policy Value in the Fixed Account will
accrue interest daily at an effective annual rate of at least 4%, without regard
to the actual investment experience of the general account. Consequently, if a
policyowner pays the planned premiums, allocates all net premiums only to the
general account and makes no transfers, partial withdrawals, or policy loans,
the minimum amount and duration of the death benefit of the Policy will be
determinable and guaranteed.
OTHER PROVISIONS OF THE POLICY
RETURN OF PREMIUM RIDER DEATH BENEFIT
The policy may be issued with an optional Return of Premium Death Benefit rider
if death benefit Option 1 is elected. This rider provides an additional death
benefit payable upon the death of the life insured after the company receives
due proof of death. The return of Premium Death Benefit is calculated as flows:
37
The return of Premium Rider death benefit is equal to initial premium. Any
subsequent premiums will increase the rider death benefit at the time of the
premium payment by the amount of the premium. Any partial withdrawal will reduce
the death benefit at the time of withdrawal by an amount equal to the withdrawal
plus any applicable Surrender Charge (except that the rider death benefit will
not be reduce to less than zero).
After increases cease, the Company will not take into account any more premiums
paid in determining the amount of the Return of Premium Death Benefit.
DECREASES IN COVERAGE. The Return Of Premium Death Benefit may be
decreased if requested by the policyowner. The decrease will take effect at the
beginning of the Policy Month on or next following the date Company approves the
request. The Return of Premium Rider Death Benefit coverage will be reduced by
the amount of the requested decreased. Decreases in the death benefit are not
subject to pro-rata Surrender Charges.
PARTIAL WITHDRAWALS. If the Policyowner makes a written request for a
partial withdrawal of net cash surrender value while this rider is in force, the
Company will process the withdrawal so that it first reduces the amount of the
Return of Premium Death Benefit coverage. Any withdrawals will be subject to a
pro-rata surrender charge as described under "Charges and Deductions --
Surrender Charges." In addition, the Face Amount will be reduced by the amount
by which the withdrawal plus the Surrender Charge exceeds the amount of the
return of Premium Rider Death Benefit.
NO LAPSE GUARANTEE. The No Lapse Guarantee provisions of the Policy
apply to the Return of Premium Rider Death Benefit for the first two Policy
Years only.
POLICYOWNER RIGHTS
Unless otherwise restricted by a separate agreement, the policyowner may, until
the life insured's death:
- - Vary the premiums paid under the Policy.
- - Change the death benefit option.
- - Change the premium allocation for future premiums.
- - Transfer amounts between sub-accounts.
- - Take loans and/or partial withdrawals.
- - Surrender the contract.
- - Transfer ownership to a new owner.
- - Name a contingent owner that will automatically become owner if the
policyowner dies before the insured.
- - Change or revoke a contingent owner.
- - Change or revoke a beneficiary.
ASSIGNMENT OF RIGHTS
Manulife USA will not be bound by an assignment until it receives a copy of the
assignment at its Service Office. Manulife USA assumes no responsibility for the
validity or effects of any assignment.
BENEFICIARY
One or more beneficiaries of the Policy may be appointed by the policyowner by
naming them in the application. Beneficiaries may be appointed in three classes
- - primary, secondary, and final. Beneficiaries may also be revocable or
irrevocable. Unless an irrevocable designation has been elected, the beneficiary
may be changed by the policyowner during the life insured's lifetime by giving
written notice to Manulife USA in a form satisfactory to the Company. The change
will take effect as of the date such notice is signed. If the life insured dies
and there is no surviving beneficiary, the policyowner, or the policyowner's
estate if the policyowner is the life insured, will be the beneficiary. If a
beneficiary dies before the seventh day after the death of the life insured, the
Company will pay the insurance benefit as if the beneficiary had died before the
life insured.
INCONTESTABILITY
Manulife USA will not contest the validity of a Policy after it has been in
force during the life insured's lifetime for two years from the Issue Date. It
will not contest the validity of an increase in Face Amount, after such increase
or addition has been in force during the lifetime of the life insured for two
years. If a Policy has been reinstated and been in force during the lifetime
38
of the life insured for less than two years from the reinstatement date, the
Company can contest any misrepresentation of a fact material to the
reinstatement.
MISSTATEMENT OF AGE OR SEX
If the stated age or sex, or both, of the life insured in the Policy are
incorrect, Manulife USA will change the Face Amount so that the death benefit
will be that which the most recent monthly charge for the cost of insurance
would have purchased for the correct age and sex.
SUICIDE EXCLUSION
If the life insured dies by suicide within two years after the Issue Date (or
within the maximum period permitted by the state in which the Policy was
delivered, if less than two years), the Policy will terminate and the
Company will pay only the premiums paid less any partial Net Cash Surrender
Value withdrawal and less any Policy Debt.
If the life insured dies by suicide within two years after the effective date
of an increase in Face Amount, the Company will credit the amount of any
Monthly Deductions taken for the increase and reduce the Face Amount to what
it was prior to the increase. If the insured's death is by suicide, the
Death Benefit for that increase will be limited to the Monthly Deductions
taken for the increase.
The Company reserves the right to obtain evidence of the manner and cause of
death of the life insured.
SUPPLEMENTARY BENEFITS
Subject to certain requirements, one or more supplementary benefits may be added
to a Policy, including those providing, term insurance for an additional
insured, providing accidental death coverage, waiving monthly deductions upon
disability, accelerating benefits in the event of a terminal illness, and, in
the case of corporate-owned policies, permitting a change of the life insured (a
taxable event). More detailed information concerning these supplementary
benefits may be obtained from an authorized agent of the Company. The cost, if
any, for supplementary benefits will be deducted as part of the monthly
deduction.
TAX TREATMENT OF THE POLICY
The following summary provides a general description of the federal income tax
considerations associated with the Policy and does not purport to be complete or
to cover all situations. This discussion is not intended as tax advice. Counsel
or other competent tax advisers should be consulted for more complete
information. This discussion is based upon the Company's understanding of the
present federal income tax laws as they are currently interpreted by the
Internal Revenue Service (the "Service"). No representation is made as to the
likelihood of continuation of the present federal income tax laws nor of the
current interpretations by the Service. MANULIFE USA DOES NOT MAKE ANY GUARANTEE
REGARDING THE TAX STATUS OF ANY POLICY OR ANY TRANSACTION REGARDING THE POLICY.
39
The Policies may be used in various arrangements, including non-qualified
deferred compensation or salary continuation plans, split dollar insurance
plans, executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if the use of such
Policies in any such arrangement, the value of which depends in part on the tax
consequences, is contemplated, a qualified tax advisor should be consulted for
advice on the tax attributes of the particular arrangement.
The Company is taxed as a life insurance company. Because the operations of the
Separate Account are a part of, and are taxed with, the Company's operations,
the Separate Account is not separately taxed as a "regulated investment company"
under the Code. Under existing Federal income tax laws, the Company is not taxed
on the investment income and capital gains of the Separate Account, but the
Company may be eligible for certain tax credits or deductions relating to
foreign taxes paid and dividends received by Trust portfolios. The Company's use
of these tax credits and deductions will not adversely affect or benefit the
Separate Account. The Company does not anticipate that it will be taxed on the
income and gains of the Separate Account in the future, but if the Company is,
it may impose a corresponding charge against the Separate Account.
LIFE INSURANCE QUALIFICATION
There are several requirements that must be met for a Policy to be considered a
Life Insurance Contract under the Code, and thereby to enjoy the tax benefits of
such a contract:
- - The Policy must satisfy the definition of life insurance under Section
7702 of the Code.
- - The investments of the Separate Account must be "adequately diversified"
in accordance with Section 817(h) of the Code and Treasury Regulations.
- - The Policy must be a valid life insurance contract under applicable state
law.
- - The Policyowner must not possess "incidents of ownership" in the assets of
the Separate Account.
These four items are discussed in detail below.
DEFINITION OF LIFE INSURANCE
Section 7702 of the Code sets forth a definition of a life insurance contract
for federal tax purposes. For a Policy to be a life insurance contract, it must
satisfy either the Cash Value Accumulation Test or the Guideline Premium and the
Cash Value Corridor Tests. By limiting cash value at any time to the net single
premium that would be required in order to fund future benefits under the
Policy, the Cash Value Accumulation Test in effect requires a minimum death
benefit for a given Policy Value. The Guideline Premium Test also requires a
minimum death benefit, but in addition limits the total premiums that can be
paid into a Policy for a given amount of death benefit.
With respect to a Policy that is issued on the basis of a standard rate class,
the Company believes (largely in reliance on IRS Notice 88-128 and the proposed
mortality charge regulations under Section 7702, issued on July 5, 1991) that
such a Policy should meet the Section 7702 definition of a life insurance
contract.
With respect to a Policy that is issued on a substandard basis (i.e., a rate
class involving higher-than-standard mortality risk), there is less guidance, in
particular as to how mortality and other expense requirements of Section 7702
are to be applied in determining whether such a Policy meets the Section 7702
definition of a life insurance contract. Thus it is not clear whether or not
such a Policy would satisfy Section 7702, particularly if the policyowner pays
the full amount of premiums permitted under the Policy.
The Secretary of the Treasury (the "Treasury") is authorized to prescribe
regulations implementing Section 7702. However, while proposed regulations and
other interim guidance have been issued, final regulations have not been adopted
and guidance as to how Section 7702 is to be applied is limited. If a Policy
were determined not to be a life insurance contract for purposes of Section
7702, such a Policy would not provide the tax advantages normally provided by a
life insurance policy.
If it is subsequently determined that a Policy does not satisfy Section 7702,
the Company may take whatever steps are appropriate and reasonable to attempt to
cause such a Policy to comply with Section 7702. For these reasons, the Company
reserves the right to restrict Policy transactions as necessary to attempt to
qualify it as a life insurance contract under Section 7702.
40
DIVERSIFICATION
Section 817(h) of the Code requires that the investments of the Separate Account
be "adequately diversified" in accordance with Treasury regulations in order for
the Policy to qualify as a life insurance contract under Section 7702 of the
Code (discussed above). The Separate Account, through the Trust, intends to
comply with the diversification requirements prescribed in Treas. Reg. Sec.
1.817-5, which affect how the Trust's assets are to be invested. The Company
believes that the Separate Account will thus meet the diversification
requirement, and the Company will monitor continued compliance with the
requirement.
STATE LAW
A policy must qualify as a valid life insurance contract under applicable state
laws. State regulations require that the policyowner have appropriate insurable
interest in the life insured. Failure to establish an insurable interest may
result in the Policy not qualifying as a life insurance contract for federal tax
purposes.
INVESTOR CONTROL
In certain circumstances, owners of variable life insurance policies may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their Policies. In those circumstances, income
and gains from the separate account assets would be includible in the variable
policyowner's gross income. The IRS has stated in published rulings that a
variable policyowner will be considered the owner of separate account assets if
the policyowner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. The Treasury Department
has also announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the policyowner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyowners may direct their
investments to particular sub-accounts without being treated as owners of the
underlying assets." As of the date of this prospectus, no such guidance has been
issued.
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that policyowners were not owners of separate account assets. For example, the
Policy has many more portfolios to which policyowners may allocate premium
payments and Policy Values than were available in the policies described in the
rulings. These differences could result in an owner being treated as the owner
of a pro-rata portion of the assets of the Separate Account. In addition, the
Company does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has stated it expects to
issue. The Company therefore reserves the right to modify the Policy as
necessary to attempt to prevent an owner from being considered the owner of a
pro rata share of the assets of the Separate Account.
TAX TREATMENT OF POLICY BENEFITS
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes.
The Company believes that the proceeds and cash value increases of a Policy
should be treated in a manner consistent with a fixed-benefit life insurance
policy for federal income tax purposes. Depending on the circumstances, the
exchange of a Policy, a change in the Policy's death benefit option, a Policy
loan, partial withdrawal, surrender, change in ownership, the addition of an
accelerated death benefit rider, or an assignment of the Policy may have federal
income tax consequences. In addition, federal, state and local transfer, and
other tax consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each policyowner or beneficiary.
DEATH BENEFIT
The death benefit under the Policy should be excludable from the gross income of
the beneficiary under Section 101(a)(1) of the Code.
CASH VALUES
Generally, the policyowner will not be deemed to be in constructive receipt of
the Policy Value, including increments thereof, until there is a distribution.
This includes additions attributable to interest, dividends, appreciation or
gains realized on transfers among sub-accounts.
41
INVESTMENT IN THE POLICY
Investment in the Policy means:
- - the aggregate amount of any premiums or other consideration paid for a
Policy; minus
- - the aggregate amount, other than loan amounts, received under the Policy
which has been excluded from the gross income of the policyowner (except
that the amount of any loan from, or secured by, a Policy that is a
modified endowment contract ("MEC"), to the extent such amount has been
excluded from gross income, will be disregarded); plus
- - the amount of any loan from, or secured by a Policy that is a MEC to the
extent that such amount has been included in the gross income of the
policyowner.
The repayment of a policy loan, or the payment of interest on a loan, does not
affect the Investment in the Policy.
SURRENDER OR LAPSE
Upon a complete surrender or lapse of a Policy or when benefits are paid at a
Policy's maturity date, if the amount received plus the amount of Policy Debt
exceeds the total investment in the Policy, the excess will generally be treated
as ordinary income subject to tax.
If, at the time of lapse or surrender, a Policy has a loan, the loan is
extinguished and the amount of the loan is a deemed payment to the policyholder.
If the amount of this deemed payment exceeds the investment in the contract, the
excess is taxable income and is subject to Internal Revenue Service reporting
requirements.
DISTRIBUTIONS
The tax consequences of distributions from, and loans taken from or secured by,
a Policy depend on whether the Policy is classified as a MEC.
DISTRIBUTIONS FROM NON-MEC'S
A distribution from a non-MEC is generally treated as a tax-free recovery by the
policyowner of the Investment in the Policy to the extent of such Investment in
the Policy, and as a distribution of taxable income only to the extent the
distribution exceeds the Investment in the Policy. Loans from, or secured by, a
non-MEC are not treated as distributions. Instead, such loans are treated as
indebtedness of the policyowner.
FORCE OUTS
An exception to this general rule occurs in the case of a decrease in the
Policy's death benefit or any other change that reduces benefits under the
Policy in the first 15 years after the Policy is issued and that results in a
cash distribution to the policyowner in order for the Policy to continue to
comply with the Section 7702 definitional limits. Such a cash distribution will
be taxed in whole or in part as ordinary income (to the extent of any gain in
the Policy) under rules prescribed in Section 7702. Changes include partial
withdrawals and death benefit option changes.
DISTRIBUTIONS FROM MEC'S
Policies classified as MEC's will be subject to the following tax rules:
- - First, all partial withdrawals from such a Policy and assignments or
pledges of any part of its value are treated as ordinary income subject to
tax up to the amount equal to the excess (if any) of the Policy Value
immediately before the distribution over the Investment in the Policy at
such time.
- - Second, loans taken from or secured by such a Policy are treated as
partial withdrawals from the Policy and taxed accordingly. Past-due loan
interest that is added to the loan amount is treated as a loan.
- - Third, a 10% additional income tax is imposed on the portion of any
distribution (including distributions on surrender) from, or loan taken
from or secured by, such a policy that is included in income except where
the distribution or loan:
- is made on or after the date on which the policyowner attains age
59-1/2;
- is attributable to the policyowner becoming disabled; or
- is part of a series of substantially equal periodic payments for the
life (or life expectancy) of the policyowner or the joint lives (or
joint life expectancies) of the policyowner and the policyowner's
beneficiary.
These exceptions are not likely to apply in situations where the Policy is
not owned by an individual.
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Definition of Modified Endowment Contracts
Section 7702A establishes a class of life insurance contracts designated as
"Modified Endowment Contracts" or "MECs," which applies to Policies entered into
or materially changed after June 20, 1988.
In general, a Policy will be a MEC if the accumulated premiums paid at any time
during the first seven Policy Years exceed the "seven-pay premium limit". The
seven-pay premium limit on any date is equal to the sum of the net level
premiums that would have been paid on or before such date if the policy provided
for paid-up future benefits after the payment of seven level annual premiums
(the "seven-pay premium").
The rules relating to whether a Policy will be treated as a MEC are extremely
complex and cannot be adequately described in the limited confines of this
summary. Therefore, a current or prospective policyowner should consult with a
competent adviser to determine whether a transaction will cause the Policy to be
treated as a MEC.
Material Changes
A Policy that is not a MEC may become a MEC if it is "materially changed." If
there is a material change to the Policy, the seven year testing period for MEC
status is restarted. The material change rules for determining whether a Policy
is a MEC are complex. In general, however, the determination of whether a Policy
will be a MEC after a material change generally depends upon the relationship
among the death benefit of the Policy at the time of such change, the Policy
Value at the time of the change, and the additional premiums paid into the
Policy during the seven years starting with the date on which the material
change occurs.
Reductions in Face Amount
If there is a reduction in benefits during the first seven Policy Years, the
seven-pay premium limit is recalculated as if the policy had been originally
issued at the reduced benefit level. Failure to comply would result in
classification as a MEC regardless of any efforts by the Company to provide a
payment schedule that will not violate the seven pay test.
Exchanges
A life insurance contract received in exchange for a MEC will also be treated as
a MEC.
Processing of Premiums
If a premium which would cause the Policy to become a MEC is received within 23
days of the next Policy Anniversary, the Company will not apply the portion of
the premium which would cause MEC status ("excess premium") to the Policy when
received. The excess premium will be placed in a suspense account until the next
anniversary date, at which point the excess premium, along with interest, earned
on the excess premium at a rate of 3.5% from the date the premium was received,
will be applied to the Policy. (Any amount that would still be excess premium on
the next anniversary will be refunded to the policyowner.) The policyowner will
be advised of this action and will be offered the opportunity to have the
premium credited as of the original date received or to have the premium
returned. If the policyowner does not respond, the premium and interest will be
applied to the Policy as of the next anniversary.
If a premium which would cause the Policy to become a MEC is received more than
23 days prior to the next Policy Anniversary, the Company will refund any excess
premium to the policyowner. The portion of the premium which is not excess will
be applied as of the date received. The policyowner will be advised of this
action and will be offered the opportunity to return the premium and have it
credited to the account as of the original date received.
If in connection with the application or issue of the Policy, the policyowner
acknowledges that the policy is or will become a MEC, excess premiums that would
cause MEC status will be credited to the account as of the original date
received.
Multiple Policies
All MEC's that are issued by a Company (or its affiliates) to the same
policyowner during any calendar year are treated as one MEC for purposes of
determining the amount includible in gross income under Section 72(e) of the
Code.
POLICY LOAN INTEREST
Generally, personal interest paid on any loan under a Policy which is owned by
an individual is not deductible. For policies purchased on or after January 1,
1996, interest on any loan under a Policy owned by a taxpayer and covering the
life of any
43
individual who is an officer or employee of or is financially interested in the
business carried on by the taxpayer will not be tax deductible unless the
employee is a key person within the meaning of Section 264 of the Code. A
deduction will not be permitted for interest on a loan under a Policy held on
the life of a key person to the extent the aggregate of such loans with respect
to contracts covering the key person exceed $50,000. The number of employees who
can qualify as key persons depends in part on the size of the employer but
cannot exceed 20 individuals.
Furthermore, if a non-natural person owns a Policy, or is the direct or indirect
beneficiary under a Policy, section 264(f) of the Code disallows a pro-rata
portion of the taxpayer's interest expense allocable to unborrowed Policy cash
values attributable to insurance held on the lives of individuals who are not
20% (or more) owners of the taxpayer-entity, officers, employees, or former
employees of the taxpayer.
The portion of the interest expense that is allocable to unborrowed Policy cash
values is an amount that bears the same ratio to that interest expense as the
taxpayer's average unborrowed Policy cash values under such life insurance
policies bear to the sum of such average unborrowed Policy cash values and the
average adjusted bases for all other assets of the taxpayer.
If the policyowner is an individual and if the taxpayer is a business and is not
the policyowner, but is the direct or indirect beneficiary under the Policy,
then the amount of unborrowed cash value of the Policy taken into account in
computing the portion of the taxpayer's interest expense allocable to unborrowed
Policy cash values cannot exceed the benefit to which the taxpayer is directly
or indirectly entitled under the Policy.
INTEREST ON POLICY LOANS AFTER YEAR 10
Interest credited to amounts in the Loan Account at an effective annual rate of
at least 4.00%. The actual rate credited is equal to the rate of interest
charged on the policy loan less than the Loan Interest Credited Differential,
which is currently 1.25% during the first ten policy years and 0% thereafter,
and is guaranteed not to exceed 1.25%. The tax consequences associated with a
loan interest credited differential of 0% are unclear. A tax adviser should be
consulted before effecting a loan to evaluate the tax consequences that may
arise in such a situation. If we determine, in our sole discretion, that there
is a substantial risk that a loan will be treated as a taxable distribution
under Federal tax law as a result of the differential between the credited
interest rate and the loan interest rate, the Company retains the right to
increase the loan interest rate to an amount that would result in the
transaction being treated as a loan under Federal tax law. If this amount is not
prescribed by any IRS ruling or regulation or any court decision, the amount of
increase will be that which the Company considers to be most likely to result in
the transaction being treated as a loan under Federal tax law.
POLICY EXCHANGES
A policyowner generally will not recognize gain upon the exchange of a Policy
for another life insurance policy covering the same life insured issued by the
Company or another insurance company, except to the extent that the policyowner
receives cash in the exchange or is relieved of Policy indebtedness as a result
of the exchange. The receipt of cash or forgiveness of indebtedness is treated
as "boot" which is taxable up to the amount of the gain in the policy. In no
event will the gain recognized exceed the amount by which the Policy Value
(including any unpaid loans) exceeds the policyowner's Investment in the Policy.
OTHER TRANSACTIONS
A transfer of the Policy, a change in the owner, a change in the life insured, a
change in the beneficiary, and certain other changes to the Policy, as well as
particular uses of the Policy (including use in a so called "split-dollar"
arrangement) may have tax consequences depending upon the particular
circumstances and should not be undertaken prior to consulting with a qualified
tax adviser. For instance, if the owner transfers the Policy or designates a new
owner in return for valuable consideration (or, in some cases, if the transferor
is relieved of a liability as a result of the transfer), then the Death Benefit
payable upon the death of the Life Insured may in certain circumstances be
includible in taxable income to the extent that the Death Benefit exceeds the
prior consideration paid for the transfer and any premiums or other amounts
subsequently paid by the transferee. Further, in such a case, if the
consideration received exceeds the transferor's Investment in the Policy, the
difference will be taxed to the transferor as ordinary income.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the individual
circumstances of each policyowner and beneficiary.
44
ALTERNATIVE MINIMUM TAX
Corporate owners may be subject to Alternative Minimum Tax on the annual
increases in Cash Surrender Values and on the Death Benefit proceeds.
INCOME TAX REPORTING
In certain employer-sponsored life insurance arrangements, including equity
split-dollar arrangements, participants may be required to report for income tax
purposes one or more of the following:
- - the value each year of the life insurance protection provided;
- - an amount equal to imputed interest on a deemed employer loan;
- - an amount equal to any employer-paid premiums; or
- - some or all of the amount by which the current value exceeds the
employer's interest in the Policy.
Participants should consult with their tax adviser to determine the tax
consequences of these arrangements.
OTHER INFORMATION
PAYMENT OF PROCEEDS
As long as the Policy is in force, Manulife USA will ordinarily pay any policy
loans, surrenders, partial withdrawals or insurance benefit within seven days
after receipt at its Service Office of all the documents required for such a
payment. The Company may delay for up to six months the payment from the Fixed
Account of any policy loans, surrenders, partial withdrawals, or insurance
benefit. In the case of any such payments from any Investment Account the
Company may delay payment during any period during which (i) the New York Stock
Exchange is closed for trading (except for normal weekend and holiday closings),
(ii) trading on the New York Stock Exchange is restricted, and (iii) an
emergency exists as a result of which disposal of securities held in the
Separate Account is not reasonably practicable or it is not reasonably
practicable to determine the value of the Separate Account's net assets;
provided that applicable rules and regulations of the Commission shall govern as
to whether the conditions described in (ii) and (iii) exist.
REPORTS TO POLICYOWNERS
Within 30 days after each Policy Anniversary, Manulife USA will send the
policyowner a statement showing, among other things:
- - the amount of death benefit;
- - the Policy Value and its allocation among the Investment Accounts, the
Fixed Account and the Loan Account;
- - the value of the units in each Investment Account to which the Policy
Value is allocated;
- - the Policy Debt and any loan interest charged since the last report;
- - the premiums paid and other Policy transactions made during the period
since the last report; and
- - any other information required by law.
Each policyowner will also be sent an annual and a semi-annual report for the
Trust which will include a list of the securities held in each Portfolio as
required by the 1940 Act.
DISTRIBUTION OF THE POLICIES
Manulife Financial Securities LLC ("Manulife Financial Securities"), an indirect
wholly-owned subsidiary of MFC, will act as the principal underwriter of, and
continuously offer, the Policies pursuant to a Distribution Agreement with
Manulife USA. Manulife Financial 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 Financial Securities is located at
73 Tremont Street, Boston, MA 02108 and is organized as a Delaware limited
liability company. The managing member of Manulife Financial Securities is
Manulife USA. The Policies will be sold by registered representatives of either
Manulife Financial Securities or other broker-dealers having distribution
agreements with Manulife Financial Securities who are also authorized by state
insurance departments to do so. The Policies will be sold in all states of the
United States except New York.
45
A registered representative will receive commissions not to exceed 115% of
premiums in the first Policy Year, __% of all premiums paid in the second
Policy Year and after the second Policy Year __% of Policy Value per
year. Representatives who meet certain productivity standards with regard to
the sale of the Policies and certain other policies issued by Manulife USA or
Manufacturers Life will be eligible for additional compensation.
RESPONSIBILITIES OF MANUFACTURERS LIFE
Manufacturers Life and Manulife USA, have entered into an agreement with
Manulife Financial Securities pursuant to which Manufacturers Life or Manulife
USA, on behalf of Manulife Financial 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 Financial Securities with respect to the Policies and
such other policies, and send all confirmations required to be sent by Manulife
Financial Securities with respect to the Policies and such other policies.
Manulife Financial 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 U.S.A 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 to Manulife USA with issue, administrative, general
services and record keeping 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 policies issued by it may be reinsured, such that its total amount at risk
under a policy would be limited for the life of the insured.
VOTING RIGHTS
As stated previously, all of the assets held in each sub-account of the Separate
Account will be invested in shares of a particular Portfolio of the Trust.
Manulife USA is the legal owner of those shares and as such has the right to
vote upon certain matters that are required by the 1940 Act to be approved or
ratified by the shareholders of a mutual fund and to vote upon any other matters
that may be voted upon at a shareholders' meeting. However, Manulife USA will
vote shares held in the sub-accounts in accordance with instructions received
from policyowners having an interest in such sub-accounts. Shares held in each
sub-account for which no timely instructions from policyowners are received,
including shares not attributable to the Policies, will be voted by Manulife USA
in the same proportion as those shares in that sub-account for which
instructions are received. Should the applicable federal securities laws or
regulations change so as to permit Manulife USA to vote shares held in the
Separate Account in its own right, it may elect to do so.
The number of shares in each sub-account for which instructions may be given by
a policyowner is determined by dividing the portion of the Policy Value derived
from participation in that sub-account, if any, by the value of one share of the
corresponding Portfolio. The number will be determined as of a date chosen by
Manulife USA, but not more than 90 days before the shareholders' meeting.
Fractional votes are counted. Voting instructions will be solicited in writing
at least 14 days prior to the meeting.
Manulife USA may, if required by state officials, disregard voting instructions
if such instructions would require shares to be voted so as to cause a change in
the sub-classification or investment policies of one or more of the Portfolios,
or to approve or disapprove an investment management contract. In addition, the
Company itself may disregard voting instructions that would require changes in
the investment policies or investment adviser, provided that Manulife USA
reasonably disapproves such changes in accordance with applicable federal
regulations. If Manulife USA does disregard voting instructions, it will advise
policyowners of that action and its reasons for such action in the next
communication to policyowners.
SUBSTITUTION OF PORTFOLIO SHARES
Although we believe it to be unlikely, it is possible that in the judgment of
the management of Manulife U.SA., one or more of the Portfolios may become
unsuitable for investment by the Separate Account because of a change in
investment policy or a change in the applicable laws or regulations, because the
shares are no longer available for investment, or for some other reason. In that
event, Manulife USA may seek to substitute the shares of another Portfolio or of
an entirely different mutual fund. Before this can be done, the approval of the
Commission and one or more state insurance departments may be required.
46
Manulife USA also reserves the right (i) to combine other separate accounts with
the Separate Account, (ii) to create new separate accounts, (iii) to establish
additional sub-accounts within the Separate Account to invest in additional
portfolios of the Trust or another management investment company, (iv) to
eliminate existing sub-accounts and to stop accepting new allocations and
transfers into the corresponding portfolio, (v) to combine sub-accounts or to
transfer assets in one sub-account to another sub-account or (vi) to transfer
assets from the Separate Account to another separate account and from another
separate account to the Separate Account. The Company also reserves the right to
operate the Separate Account as a management investment company or other form
permitted by law, and to de-register the Separate Account under the 1940 Act.
Any such change would be made only if permissible under applicable federal and
state law.
RECORDS AND ACCOUNTS
The Service Office will perform administrative functions, such as decreases,
increases, surrenders and partial withdrawals, and fund transfers on behalf of
the Company.
All records and accounts relating to the Separate Account and the Portfolios
will be maintained by the Company. All financial transactions will be handled by
the Company. All reports required to be made and information required to be
given will be provided by the Company.
STATE REGULATIONS
Manulife USA is subject to the regulation and supervision by the Michigan
Department of Insurance, which periodically examines its financial condition and
operations. It is also subject to the insurance laws and regulations of all
jurisdictions in which it is authorized to do business. The Policies have been
filed with insurance officials, and meet all standards set by law, in each
jurisdiction where they are sold.
Manulife USA is required to submit annual statements of its operations,
including financial statements, to the insurance departments of the various
jurisdictions in which it does business for the purposes of determining solvency
and compliance with local insurance laws and regulations.
LITIGATION
No litigation is pending that would have a material effect upon the Separate
Account or the Trust.
INDEPENDENT AUDITORS
The consolidated financial statements of The Manufacturers Life Insurance
Company (U.S.A.) at December 31, 2001 and 2000 and for each of the three years
in the period ended December 31, 2001 and the financial statements of Separate
Account Three of The Manufacturers Life Insurance Company of America at December
31, 2001, and for each of the two years in the period ended December 31, 2001,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere herein, and are included in reliance upon such reports given
on the authority of such firm as experts in accounting and auditing.
FURTHER INFORMATION
A registration statement under the Securities Act of 1933 has been filed with
the Commission. relating to the offering described in this prospectus. This
prospectus does not include all the information set forth in the registration
statement. The omitted information may be obtained from the Commission's
principal office in Washington D.C. upon payment of the prescribed fee. The
Commission also maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission which is located at http://www.sec.gov.
For further information you may also contact Manulife USA's Home Office, the
address and telephone number of which are on the first page of the prospectus.
47
OFFICERS AND DIRECTORS
POSITION WITH
NAME MANULIFE USA PRINCIPAL OCCUPATION
- ---------------- ------------------- ------------------------------------------------------------------
James Boyle President, U.S. President, U.S. Annuities, Manulife USA, January 2002 to present;
(43)** Annuities, Director Senior Vice President, U.S. Annuities, The Manufacturers Life
Insurance Company, July 1999 to present; President, The
Manufacturers Life Insurance Company of North America, July 1999 to
December 2001; 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 President, U.S. President, U.S. Individual Insurance, Manulife USA, January 2002
(47)** Insurance; Director to present; Senior Vice President, U.S. Individual Insurance,
Manulife USA, January 1999 to December 2001; Senior Vice
President, The Manufacturers Life Insurance Company, January 1999
to present; Vice President, Product Management, The Manufacturers
Life Insurance Company, January 1996 to December 1998; Sales and
Marketing Director, The Manufacturers Life Insurance Company, 1994
to 1995.
Peter Vice President, Vice President, Finance, Manulife USA, December 1999 to present;
Copestake Finance Vice President & Treasurer, The Manufacturers Life Insurance
(46)*** 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. Chairman and President, Manulife USA, January 1999 to date; Executive Vice
DesPrez III President President, U.S. Operations, The Manufacturers Life Insurance
(45)** Company, January 1999 to present; Senior Vice President, U.S.
Annuities, The Manufacturers Life Insurance Company, September
1996 to December 1998; President of The Manufacturers Life
Insurance Company of North America, September 1996 to December,
1998; Vice President, Mutual Funds, North American Security Life
Insurance Company , January 1995 to September 1996.
James D. Vice President, Vice President, Secretary & General Counsel, Manulife USA, January
Gallagher Secretary and 1996 to present; Vice President, Chief Legal Officer & Government
(47)** General Counsel Relations, U.S. Operations, The Manufacturers Life Insurance
Company, January 1996 to present; President, The Manufacturers
Life Insurance Company of New York, August 1999 to present; Vice
President, Secretary and General Counsel, The Manufacturers Life
Insurance Company of America, January 1997 to present; Secretary
and General Counsel, Manufacturers Adviser Corporation, January
1997 to present; Vice President, Secretary and General Counsel,
The Manufacturers Life Insurance Company of North America, 1994 to
December 2001.
Donald Guloien Executive Vice Executive Vice President & Chief Investments Officer, Manulife
(45)*** President and Chief USA, June 2001 to present; Executive Vice President & Chief
Investment Officer Investment Officer, The Manufacturers Life Insurance
Company, March 2001 to present; 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.
48
POSITION WITH
NAME MANULIFE USA PRINCIPAL OCCUPATION
- ---------------- ------------------- ------------------------------------------------------------------
Geoffrey Guy Director Executive Vice President and Chief Actuary, The Manufacturers Life
(54)*** Insurance Company, February 2000 to present; Senior Vice President
and Chief Actuary, The Manufacturers Life Insurance Company, 1996
to 2000; Vice President and Chief Actuary, The Manufacturers Life
Insurance Company, 1993 to 1996; Vice President and Chief
Financial Officer, U.S. Operations, The Manufacturers Life
Insurance Company, 1987 to 1993.
John Lyon Vice President and Vice President & Chief Financial Officer, Investments, Manulife
(49) *** Chief Financial USA, June 2001 to present; Vice President & Chief Financial
Officer, Officer, Investments, The Manufacturers Life Insurance Company;
Investments; April 2001 to present; Vice President, Business Development, The
Director 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.
Steven Mannik President, President, Reinsurance, Manulife USA, January 2001 to present;
(43)*** Reinsurance; Senior Vice President, Reinsurance Operations, The Manufacturers
Director Life Insurance Company, June 2001 to present; President, Manulife
Reinsurance Corporation (U.S.A.), June, 2001 to December 2001;
Vice President, Business Development, The Manufacturers Life
Insurance Company, 1999 to June 2001; Principal, Towers Perrin,
1988 to 1999.
James O'Malley President, U.S. President, U.S. Pensions, Manulife USA, January 2002 to present,
(55)*** Pensions; Director Senior Vice President, U.S. Pensions, Manulife USA, January 1999
to December present; 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.
Rex Director Member, Dykema Gossett, PLLC, 1982 to present; Vice Chairman,
Schlaybaugh, Oxford Automotive, Inc. 1997 to present
Jr. (52)****
John Ostler Executive Vice Executive Vice President and Chief Financial Officer, Manulife
(48)*** President and Chief USA, January 2002 to present; Vice President and Chief Financial
Financial Officer Officer, Manulife USA, October 1, 2000 to present; Vice
President and Chief Financial Officer, U.S. Operations, 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 Senior Vice President, Investments, Manulife USA, June 2001 to
(47)*** President, present; Senior Vice President, Investments, The Manufacturers
Investments Life 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.
49
POSITION WITH
NAME MANULIFE USA PRINCIPAL OCCUPATION
- ---------------- ------------------- ------------------------------------------------------------------
Denis Turner Senior Vice Senior Vice President and Treasurer, Manulife USA, January 2002
(45)*** President and to present; Vice President and Treasurer, Manulife USA, May 1999
Treasurer to December 2001; Vice President and Chief Accountant, U.S.
Operations, The Manufacturers Life Insurance Company, May 1999 to
present; Vice President and Treasurer, The Manufacturers Life
Insurance Company of America, May 1999 to present; Assistant Vice
President, Financial Operations, Reinsurance Division, The
Manufacturers Life Insurance Company, February 1998 to April
1999; Assistant Vice President & Controller, Reinsurance
Division, The Manufacturers Life Insurance Company, November
1995, to January 1998, Assistant Vice President, Corporate
Controllers, The Manufacturers Life Insurance Company, January
1989 to October 1995.
** Principal business address is Manulife Financial, 73 Tremont Street,
Boston, MA 02108.
*** Principal business address is Manulife Financial, 200 Bloor Street East,
Toronto, Ontario Canada M4W 1E5.
**** Principal business address is Dykema Gossett, 800 Michigan National Tower,
Lansing, Michigan 48933.
OPTIONAL TERM RIDER
The Policy may be issued with an optional term insurance rider (the "Term
Rider"). The benefit of the term rider is that the cost of insurance rates will
always be less than or equal to the cost of insurance rates on the Policy.
HOWEVER, UNLIKE THE DEATH BENEFIT UNDER THE POLICY, THE DEATH BENEFIT UNDER THE
TERM RIDER IS NOT PROTECTED BY THE NO LAPSE GUARANTEE AFTER THE SECOND POLICY
YEAR AND TERMINATES AT AGE 100.
ILLUSTRATIONS
The tables set forth in Appendix A illustrate the way in which a Policy's Death
Benefit, Policy Value, and Cash Surrender Value could vary over an extended
period of time.
50
APPENDIX A - SAMPLE ILLUSTRATIONS OF POLICY VALUES, CASH SURRENDER VALUES AND
DEATH BENEFITS
The following tables have been prepared to help show how values under the Policy
change with investment performance. The tables include both Policy Values and
Cash Surrender Values as well as Death Benefits. The Policy Value is the sum of
the values in the Investment Accounts, as the tables assume no values in the
Fixed Account or Loan Account. The Cash Surrender Value is the Policy Value less
any applicable surrender charges. The tables illustrate how Policy Values and
Cash Surrender Values, which reflect all applicable charges and deductions, and
Death Benefits of the Policy on an insured of given age would vary over time if
the return on the assets of the Portfolios was a uniform, gross, after-tax,
annual rate of 0%, 6% or 12%. The Policy Values, Death Benefits and Cash
Surrender Values would be different from those shown if the returns averaged 0%,
6% or 12%, but fluctuated over and under those averages throughout the years.
The charges reflected in the tables include those for deductions from premiums,
surrender charges, and monthly deductions.
The amounts shown for the Policy Value, Death Benefit and Cash Surrender Value
as of each Policy Year reflect the fact that the net investment return on the
assets held in the sub-accounts is lower than the gross, after-tax return. This
is because the expenses and fees borne by Manufacturers Investment Trust are
deducted from the gross return. The illustrations reflect an average of those
Portfolios' current expenses (excluding those of the Equity Index Trust), which
is approximately 0.937% per annum. The gross annual rates of return of 0%, 6%
and 12% correspond to approximate net annual rates of return of -0.933%, 5.012%
and 10.956%. The illustrations reflect the current expense reimbursements in
effect for the Lifestyle Trusts and the Index Trusts. In the absence of such
expense reimbursements, the average of the Portfolio's current expenses would
have been 01.019% 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
- --1.014%, 4.926% and 10.865%. The expense reimbursements for certain of the
Trusts (as described in the "Trust Annual Expenses" table) are expected to
remain in effect during the fiscal year ended December 31, 2002. Were the
expense reimbursements to terminate, the average of the Portfolios' current
expenses would be higher and the approximate net annual rates of return would be
lower.
The tables assume that no premiums have been allocated to the Fixed Account,
that planned premiums are paid on the Policy Anniversary and that no transfers,
partial withdrawals, Policy loans, changes in death benefit options or changes
in face amount have been made. The tables reflect the fact that no charges for
federal, state or local taxes are currently made against the Separate Account.
If such a charge is made in the future, it would take a higher gross rate of
return to produce after-tax returns of 0%, 6% and 12% than it does now.
There are four tables shown for each combination of age and death benefit option
for a Policy issued to a male non-smoker:
20 Year No Lapse Guarantee
- - one based on current cost of insurance charges assessed by the Company and
reflecting a 20 year no lapse guarantee
- - one based on the maximum cost of insurance charges based on the 1980
Commissioners Smoker Distinct Mortality Tables and reflecting a 20 year no
lapse guarantee.
10 Year No Lapse Guarantee
one based on the current cost of charges assessed by the Company
and reflecting a 10 year no lapse guarantee
one based on the maximum cost of insurance charges based on the 1980
Commissioners Smoke Distinct Mortality Tables and reflecting a 10
year no lapse guarantee.
Current cost of insurance charges are not guaranteed and may be changed. Upon
request, Manulife USA will furnish a comparable illustration based on the
proposed life insured's issue age, sex (unless unisex rates are required by law,
or are requested) and risk classes, any additional ratings and the death benefit
option, face amount and planned premium requested. Illustrations for smokers
would show less favorable results than the illustrations shown below.
From time to time, in advertisements or sales literature for the Policies that
quote performance data of one or more of the Portfolios, the Company may include
Cash Surrender Values and Death Benefit figures computed using the same
methodology as that used in the following illustrations, but with the average
annual total return of the Portfolio for which performance data is shown in the
advertisement replacing the hypothetical rates of return shown in the following
tables. This information may be shown in the form of graphs, charts, tables and
examples.
The Policies have been offered to the public only since approximately
______, 2002. However, total return data may be advertised for as long a
period of time as the underlying Portfolio has been in existence. The results
for any period prior to the Policies' being offered would be calculated as if
the Policies had been offered during that period of time, with all charges
assumed to be those applicable to the Policies.
A-1
B-2
PART 2
OTHER INFORMATION
PART II. OTHER INFORMATION
Representation of Insurer Pursuant to Section 26 of the Investment Company Act
of 1940
The Manufacturers Life Insurance Company (U.S.A.) hereby represents that
the fees and charges deducted under the policies issued pursuant to this
registration statement in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed
by the Company.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet;
Cross-Reference Sheet;
The Prospectus, consisting of __ pages;
Representation of Insurer Pursuant to Section 26 of the Investment Company Act
of 1940 The signatures; Written consents of the following persons:
A. James D. Gallagher -- To Be Filed by Amendment
B. Ernst & Young LLP -- To Be Filed by Amendment
C. Opinion and Consent of Actuary -- To Be Filed by Amendment
The following exhibits are filed as part of this Registration Statement:
1. Copies of all exhibits required by paragraph A of the instructions as to
exhibits in Form N-8B-2 are set forth below under designations based on such
instructions:
A(1) Resolutions of Board of Directors of The Manufacturers Life
Insurance Company (U.S.A.) establishing Separate Account A.
Incorporated by reference to Exhibit A(1) to the registration
statement on Form S-6, file number 333-70950 filed January 2,
2002 (The January 2, 2002 Amendment")
A(3)(a)(i) Form of Distribution Agreement. Incorporated by reference to
Exhibit A(3)(a)(i), (ii) and (iii) to the registration
statement on Form S-6, file number 333-66303 filed October 29,
1998 (the "SVUL Registration Statement").
A(3)(b)(i) Form of broker-dealer agreement -- Incorporated by reference to
Exhibit A(3)(b)(i), to the initial registration statement on
Form S-6, file number 333-70950 filed October 4, 2001
A(5)(a) Form of Specimen Flexible Premium Variable Life Insurance
Policy -- To Be Filed by Amendment
A(6)(a) Restated Articles of Redomestication of The Manufacturers Life
Insurance Company (U.S.A.) -- Incorporated by reference to
Exhibit A(6) to the registration statement filed July 20, 2000
(File No. 333-41814) (the "Initial Registration Statement")
A(6)(b) By-Laws of The Manufacturers Life Insurance Company (U.S.A.) --
Incorporated by reference to Exhibit A(6)(b) to the Initial
Registration Statement.
A(8)(a)(i) Form of Service Agreement between The Manufacturers Life
Insurance Company and The Manufacturers Life Insurance Company
(U.S.A.). Incorporated by reference to Exhibit A(8)(a)(i),(ii),
(iii), (iv), (v) and (vi) to pre-effective amendment no. 1 to
the registration statement on Form S-6, file number 333-51293
filed August 28, 1998.
A(8)(a)(vii) Form of Amendment to Service Agreement between The
Manufacturers Life Insurance Company and The Manufacturers Life
Insurance Company (U.S.A.). Incorporated by
reference to Exhibit A(8)(a)(vii) to post-effective amendment
No. 11 to the registration statement on Form N-4, file number
33-57018 filed March 1, 1999.
A(8)(b)(i) Form of Service Agreement. Incorporated by reference to Exhibit
A(8)(c)(i) to pre-effective amendment no. 1 to the registration
statement on Form S-6, file number 333-51293 filed August 28,
1998.
A(8)(b)(ii) Form of Amendment to Service Agreement. Incorporated by
reference to Exhibit A(8)(c)(ii) to pre-effective amendment no.
1 to the registration statement on Form S-6, file number
333-51293 filed August 28, 1998.
A(9)(a) Form of Assumption Reinsurance or Merger Agreement with The
Manufacturers Life Insurance Company (U.S.A.) and The
Manufacturers Life Insurance Company of America -- Incorporated
by reference to Exhibit A(9)(a) to the initial registration
statement on Form S-6, file number 333-70950 filed October 4,
2001 ("the ManUSA Initial Registration Statement")
A(10)(a)(i) Form of Specimen Application for Flexible Premium Variable Life
Insurance Policy. Incorporated by reference to Exhibit A(10) to
post effective amendment no. 7 to the registration statement on
Form S-6, file number 33-52310, filed April 26, 1996.
A(10)(b) Specimen Application Supplement for Flexible Premium Variable
Life Insurance Policy. Incorporated by reference to Exhibit
A(10)(a) to post effective amendment no. 9 to the registration
statement on Form S-6, file number 33-52310, filed December 23,
1996.
A(10)(c) Form of Assumption Reinsurance Agreement with The Manufacturers
Life Insurance Company (U.S.A.) and The Manufacturers Life
Insurance Company of America -- Incorporated by reference to
Exhibit A(10)(c) to the ManUSA Initial Registration Statement.
2. Consents of the following:
A. Opinion and consent of James D. Gallagher, Esq., Secretary and General
Counsel of The Manufacturers Life Insurance Company (U.S.A.) -- To
Be Filed by Amendment
B. Opinion and consent of Actuary, of The Manufacturers Life Insurance
Company (U.S.A.) -- To Be Filed by Amendment
C. Consent of Ernst & Young LLP -- To Be Filed by Amendment
3. No financial statements are omitted from the prospectus pursuant to
instruction 1(b) or (c) of Part I.
4. Not applicable.
6. Memorandum Regarding Issuance, Face Amount Increase, Redemption and
Transfer Procedures for the Policies. -- To Be Filed by Amendment
7. Powers of Attorney
(i) (Felix Chee, Robert A. Cook, John DesPrez III, Geoffrey Guy,
James O'Malley, Joseph J. Pietroski, Rex Schaybaugh) incorporated
by reference to exhibit 7(i) to initial registration statement on
Form S-6, file number 333-41814 filed July 20, 2000 on behalf of
The Manufacturers Life Insurance Company (U.S.A.)
(ii) Powers of Attorney (John Ostler) -- Incorporated by reference to
Exhibit 7(ii) to the initial registration statement on Form S-6,
file number 333-70950 filed October 4, 2001.
(iii) Powers of Attorney (Jim Boyle, John Lyon) -- Incorporated by
reference to Exhibit 7(iii) to the initial registration statement
on Form S-6, file number 333-70950 filed October 4, 2001.
(iv) Power of Attorney (Steve Mannik) -- Incorporated by reference to
Exhibit 7(iv) to post-effective amendment no. 1 to the
registration statement on Form S-6, file number 333-70950 filed
March 1, 2002.
8. Undertakings
Article XII of the Restated Articles of Redomestication of The Manufacturers
Life Insurance Company (U.S.A.) provides as follows:
No director of this Corporation shall be personally liable to the Corporation or
its shareholders or policyholders for monetary damages for breach of the
director's fiduciary duty, provided that the foregoing shall not eliminate or
limit the liability of a director for any of the following:
i) a breach of the director's duty or loyalty to the Corporation or its
shareholders or policyholders;
ii) acts or omissions not in good faith or that involve intentional
misconduct or knowing violation of law;
iii) a violation of Sections 5036, 5276 or 5280 of the Michigan Insurance
Code, being MCLA 500.5036, 500.5276 and 500.5280;
iv) a transaction from which the director derived an improper personal
benefit; or
v) an act or omission occurring on or before the date of filing of these
Articles of Incorporation.
If the Michigan Insurance Code is hereafter amended to authorize the further
elimination or limitation of the liability of directors. then the liability of a
director of the Corporation, in addition to the limitation on personal liability
contained herein, shall be eliminated or limited to the fullest extent permitted
by the Michigan Insurance Code as so amended. No amendment or repeal of this
Article XII shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to the effective date of any such
amendment or repeal.
Notwithstanding the foregoing, Registrant hereby makes the following undertaking
pursuant to Rule 484 under the Securities Act of 1933:
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant and the Depositor and have caused this Registration Statement to be
signed on their behalf in the City of Boston, Massachusetts, on this 21st day of
May, 2002.
SEPARATE ACCOUNT A OF
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
(Registrant)
By: THE MANUFACTURERS LIFE INSURANCE
COMPANY (U.S.A.)
(Depositor)
By: /s/ John D. DesPrez III
John D. DesPrez III
President
Pursuant to the requirements of the Securities Act of 1933, the
Depositor has duly caused this Registration Statement to be signed by the
undersigned on the 21st day of May, 2002 in the City of Boston, Massachusetts.
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 21st day of May, 2002.
Signature Title
/s/ John D. DesPrez III Chairman and President
- ----------------------
John D. DesPrez III (Principal Executive Officer)
* Executive Vice President and
- -------------------------- (Chief Financial Officer)
John Ostler
* Director
- -------------------------
James Boyle
* Director
- -------------------------
Robert A. Cook
* Director
- -------------------------
Geoffrey Guy
* Director
- -------------------------
James O'Malley
* Director
- -------------------------
Steve Mannik
* Director
- -------------------------
John Lyon
* Director
- -------------------------
Rex Schlaybaugh, Jr.
*/s/James D. Gallagher
- -----------------------------
JAMES D. GALLAGHER
Pursuant to Power of Attorney