As filed with the Securities and Exchange Commission on December 16, 2002
Registration No. 333-100567
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON
FORM N-8B-2
[PRE-EFFECTIVE AMENDMENT NO. 1]
SEPARATE ACCOUNT N 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 N 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 N)
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 N)
6 General Information About Manufacturers (Separate Account N)
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 (Manufacturers U.S.A.)
26 *
27 General Information About Manufacturers (Manufacturers U.S.A.);
Other Information (Distribution of the Policy)
28 Other Information (Officers and Directors)
29 General Information About Manufacturers (Manufacturers 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 N);
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 N OF THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
VENTURE CORPORATE VUL
A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
This prospectus describes Venture Corporate 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") to
individuals, corporations, trusts, associations, or similar entities (the
"applicant", "policyholder" or "you").
The Policy is designed for use by corporations and other employers to provide
life insurance and to fund other employee benefits.
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. The insurance
benefit is payable at the life insured's death to the Policy's beneficiary. The
Policy also provides a Net Cash Surrender Value available to you by surrendering
the Policy or by taking policy loans and partial withdrawals. The Policy will
remain in force so long as the Net Cash Surrender Value is sufficient to cover
charges assessed against the Policy.
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 N (the
"Separate Account") to which you allocate net premiums. The assets of each
sub-account will be used to purchase Series I shares (formerly referred to as
"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. Other sub-accounts and Portfolios
may be added in the future.
THIS POLICY IS NOT SUITABLE FOR SHORT-TERM INVESTMENT PURPOSES. PROSPECTIVE
PURCHASERS SHOULD NOTE THAT IT MAY NOT BE ADVISABLE TO PURCHASE A POLICY AS A
REPLACEMENT FOR EXISTING INSURANCE.
The Securities and Exchange Commission (the "SEC") maintains a web site
(http://www.sec.gov) that contains material incorporated by reference and other
information regarding registrants that file electronically with the SEC.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT IS
VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE TRUST.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Manufacturers Life Insurance Company (U.S.A.)
38500 Woodward Avenue
Bloomfield Hills, Michigan 48304
THE DATE OF THIS PROSPECTUS IS [_____], 2002.
CVUL [___/2003]
2
TABLE OF CONTENTS
Policy Summary.................................................................................5
General.....................................................................................5
Death Benefits..............................................................................5
Premiums....................................................................................5
Policy Value................................................................................5
Policy Loans................................................................................5
Surrender and Partial Withdrawals...........................................................5
Lapse and Reinstatement.....................................................................5
Charges and Deductions......................................................................6
Investment Options and Investment Advisers..................................................6
Table of Charges and Deductions.............................................................7
Table of Investment Management Fees and Expenses............................................7
Table of Investment Options and Investment Subadvisers.....................................10
General Information about Manulife USA, the Separate Account and the Trust...................12
Manulife USA...............................................................................12
The Separate Account.......................................................................12
The Trust..................................................................................13
Investment Objectives of the Portfolios....................................................13
Issuing A Policy..............................................................................17
Use of the Policy..........................................................................17
Requirements...............................................................................17
Temporary Insurance Agreement..............................................................18
Underwriting...............................................................................18
Right to Examine the Policy................................................................18
Death Benefits................................................................................19
Life Insurance Qualification...............................................................19
Death Benefit Options......................................................................22
Changing the Death Benefit Option..........................................................23
Changing the Face Amount and Scheduled Death Benefits......................................23
Premium Payments..............................................................................25
Initial Premiums...........................................................................25
Subsequent Premiums........................................................................26
Premium Limitations........................................................................26
Premium Allocation.........................................................................26
Charges and Deductions........................................................................26
Premium Load...............................................................................26
Sales Load or Surrender Charge.............................................................27
Monthly Deductions.........................................................................28
Asset Based Risk Charge Deducted from Investment Accounts..................................28
Reduction in Charges and Enhanced Surrender Values.........................................29
Company Tax Considerations.................................................................29
Policy Value..................................................................................29
Determination of the Policy Value..........................................................29
Units and Unit Values......................................................................29
Transfers of Policy Value..................................................................30
Policy Loans..................................................................................30
Interest Charged on Loans..................................................................31
Loan Account...............................................................................31
Policy Surrender and Partial Withdrawals......................................................31
Policy Surrender...........................................................................31
Partial Withdrawals........................................................................31
Lapse and Reinstatement.......................................................................32
Lapse......................................................................................32
Reinstatement..............................................................................32
The General Account...........................................................................32
Fixed Account..............................................................................32
Other Provisions of the Policy................................................................33
Policyholder Rights........................................................................33
Beneficiary................................................................................33
Incontestability...........................................................................33
Misstatement of Age or Sex.................................................................33
Suicide Exclusion..........................................................................33
Supplementary Benefits.....................................................................33
Tax Treatment of the Policy...................................................................33
Life Insurance Qualification...............................................................34
Tax Treatment of Policy Benefits...........................................................35
Alternate Minimum Tax......................................................................38
Income Tax Reporting.......................................................................38
Other Information.............................................................................38
Payment of Proceeds........................................................................38
Reports to Policyholders...................................................................38
Distribution of the Policies...............................................................38
Responsibilities of MFC....................................................................39
Voting Rights..............................................................................39
Substitution of Portfolio Shares...........................................................39
Records and Accounts.......................................................................40
State Regulations..........................................................................40
Litigation.................................................................................40
Independent Auditors.......................................................................40
FINANCIAL STATEMENTS.......................................................................40
Further Information........................................................................40
Officers and Directors.....................................................................41
APPENDIX A - DEFINITIONS....................................................................
Appendix B - Illustrations.................................................................
Appendix C Audited Financial Statements.....................................................
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, THE PROSPECTUS OF MANUFACTURERS INVESTMENT TRUST, OR THE
STATEMENT OF ADDITIONAL INFORMATION OF MANUFACTURERS INVESTMENT TRUST.
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.
POLICY SUMMARY
GENERAL
The Policy is a flexible premium variable universal life insurance policy. This
summary provides a general description of the important features of the Policy.
It is not comprehensive and is qualified in its entirety by the more detailed
information contained in this prospectus. Unless otherwise stated or implied by
the context, the discussions in this prospectus assume 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. The terms of the Policy and any endorsements or riders
will supersede the disclosure in this prospectus.
DEATH BENEFITS
The Policy provides a Death Benefit in the event of the death of the life
insured while the Policy is in force. The basic Death Benefit amount is the Face
Amount, which is provided for the lifetime of the life insured with no maturity
or expiration date. There may be other amounts added to the Death Benefit as
described below.
FLEXIBLE TERM INSURANCE OPTION
You may add a flexible term insurance option rider (the "FTIO Rider") to the
Policy to provide additional term life insurance coverage on the life insured.
Cost of insurance rates are less than or equal to those of the Policy and no
Sales Loads or Surrender Charges will apply. However, unlike the Face Amount of
the Policy, the FTIO Rider will terminate at the life insured's Attained Age
100. The FTIO Rider also offers the flexibility to schedule varying Death
Benefit amounts on future dates (the "Scheduled Death Benefits").
DEATH BENEFIT OPTIONS
There are two Death Benefit Options. Option 1 provides a Death Benefit equal to
the Face Amount of the Policy or the Scheduled Death Benefits of the FTIO Rider
or, if greater, the Minimum Death Benefit. Option 2 provides a Death Benefit
equal to the Face Amount or the Scheduled Death Benefits, plus the Policy Value
or, if greater, the Minimum Death Benefit. You may change the Death Benefit
Option and increase or decrease the Face Amount and Scheduled Death Benefits.
PREMIUMS
Premium payments may be made at any time prior to Attained Age 100 and in any
amount, subject to certain limitations (see "Premium Payments - Premium
Limitations") Net Premiums will be allocated to one or more of the Investment
Options described below. You may change allocations and make transfers among the
accounts subject to limitations described below.
POLICY VALUE
The Policy Value is the accumulation of premiums paid, less charges and
deductions we take for expenses and cost of insurance, plus or minus the
investment returns of the accounts to which the Policy Value has been allocated.
You may obtain a portion of the Policy Value by taking a policy loan or a
partial withdrawal or by full surrender of the Policy.
POLICY LOANS
You may borrow against the Net Cash Surrender Value of the Policy. Loan interest
will accrue daily and be payable in arrears on each Policy Anniversary. The
Policy Debt will be deducted from amounts payable at the life insured's death or
upon surrender.
SURRENDER AND PARTIAL WITHDRAWALS
You may make a partial withdrawal of Policy Value. It may result in a decrease
in the Face Amount and Scheduled Death Benefits and assessment of a portion of
the Surrender Charges. You may surrender the Policy for its Net Cash Surrender
Value at any time.
LAPSE AND REINSTATEMENT
A Policy will lapse and terminate without value when the Net Cash Surrender
Value is insufficient to pay the next monthly deduction and a grace period of 61
days expires without an adequate premium payment from you. You may reinstate a
lapsed Policy within five years following lapse if the Policy was not
surrendered for its Net Cash Surrender Value. Evidence of insurability is
required, along with a premium payment described under "Reinstatement."
The Policy differs in two important ways from a conventional life insurance
policy. First, failure to make planned premium payments will not itself cause
the Policy to lapse. Second, the Policy can lapse even if planned premiums have
been paid.
5
CHARGES AND DEDUCTIONS
We assess charges and deductions in connection with the Policy, in the form of
monthly deductions for the cost of insurance and administrative expenses,
charges assessed daily against amounts in the Investment Account and loads
deducted from premiums paid. See the Table of Charges and Deductions.
SALES LOAD OR SURRENDER CHARGE COVERAGE
You may choose Coverage Amounts with one of two alternative charge structures
representing different ways to cover a portion of our marketing and distribution
costs. Generally, Policy benefits will be approximately equal in present value
under either alternative. However, there is no guarantee each alternative will
perform the same in all circumstances. Therefore, you should obtain
individualized illustrations for both charge structures.
Sales Load coverage features a load deducted immediately from premiums paid and
no Surrender Charges. Surrender Charge coverage features no added sales load
with surrender charges assessed upon early surrender, lapse, partial withdrawal
or coverage decrease. Current cost of insurance charges in early years are
higher for Surrender Charge coverage.
REDUCTION IN CHARGES AND ENHANCEMENT OF SURRENDER VALUES
The Policy is designed for employers and other sponsoring organizations that may
purchases multiple policies as a Case. The size or nature of the Case may result
in expected savings of sales, underwriting, administrative or other costs. If
so, we expect to offer reductions of Policy charges and enhancements of
surrender value. We may change the nature and amount of reductions and
enhancements available from time to time. They will be determined in a way that
is not unfairly discriminatory to policyholders.
INVESTMENT OPTIONS AND INVESTMENT ADVISERS
The Policy Value is allocated to Manulife USA's general account or to one or
more of the sub-accounts of Manulife USA's Separate Account N. Each sub-account
invests in Series I shares of a corresponding Portfolio of the Trust. The Trust
receives investment advisory services from Manufacturers Securities Services,
LLC ("MSS"), a registered investment adviser under the Investment Advisers Act
of 1940. The Trust also employs subadvisers. The Table of Investment Options and
Investment Subadvisers shows the subadvisers that provide investment subadvisory
services to the Portfolios.
Allocating Policy Value to one or a small number of investment options, other
than the Lifestyle Trusts, should not be considered a balanced investment
strategy. In particular, allocating amounts to a small number of investment
options that concentrate their investments in a particular business or market
sector will increase the risk that the Policy Value will be volatile, since
these investment options may react similarly to business or market specific
events. This risk historically has been and may continue to be particularly high
in such sectors as technology related businesses, including Internet related
businesses, small cap securities and foreign securities. We do not provide
advice on investment allocations and you should discuss this matter with your
financial adviser.
INVESTMENT MANAGEMENT FEES AND EXPENSES
The Separate Account purchases shares of the Portfolios at net asset value,
after deduction of investment management fees and other expenses. The fees and
expenses of each Portfolio for the Trust's last fiscal year are shown in the
Table of Investment Management Fees and Expenses. These fees and expenses are
described in detail in the accompanying Trust prospectus.
6
TABLE OF CHARGES AND DEDUCTIONS
Premium Load
A charge not to exceed 2.00% is deducted from each premium payment. Currently,
we charge 0% in Policy Years 11 and higher
Sales Load
(Not applicable to Coverage Amounts to which a Surrender Charge applies)
A charge is deducted from each premium amount attributed to a Coverage Amount
that is subject to a Sales Load as indicated in the Policy. Currently, we charge
the percentages below which are guarantee never to be exceeded:
Coverage Year Percentage Coverage Year Percentage
- ------------- ---------- ------------- ----------
1 8.0% 4 2.0%
2 6.0% 5 1.0%
3 3.0% 6+ 0.0%
Surrender Charge
(Not applicable to Coverage Amounts to which a Sales Load applies)
A charge is assessed (a) upon termination or reduction of any Coverage Amount
that is subject to a Surrender Charge, (b) upon Policy surrender or lapse,(c)
upon a partial withdrawal in excess of the Free Withdrawal Amount or (d) upon a
Face Amount decrease. Surrender Charges are percentages of the sum of all
premium payments attributed to a Coverage Amount in to which a Sales Load
applies) the first 5 Coverage Years. Currently, we charge the percentages below
which are guaranteed never to be exceeded:
Coverage Year Percentage Coverage Year Percentage
- ------------- ---------- ------------- ----------
1 5.0% 6 1.5%
2 4.0% 7 1.0%
3 3.0% 8 1.0%
4 2.5% 9 0.5%
5 2.0% 10+ 0.0%
Administration Charge
A monthly charge not to exceed $12 is deducted from Net Policy Value. Currently,
we charge $12.
Cost of Insurance Charge
A monthly charge is deducted from the Net Policy Value, equal to the cost of
insurance rate for that Coverage Year multiplied by the net amount at risk (as
defined in "Charges and Deductions - Cost of Insurance Charge"). Guaranteed
maximum cost of insurance rates are stated in the Policy. The guaranteed rates
are based on the 1980 Commissioners Standard Ordinary Sex Distinct (unless
unisex rates are required by law) and Aggregate Ultimate Mortality Tables..
Asset Based Risk Charge
A charge is deducted daily from amounts in Investment Accounts at a rate not to
exceed 0.0013699% (equal to an annual rate of 0.50%). Currently we charge the
following rates:
Policy Years Daily Rate Annual Rate
- ------------ ---------- -----------
1-10 0.0013699% 0.50%
11+ 0.0006849% 0.25%
Loan Interest Charges
The excess of loan interest charged over loan interest credited is a charge
against Net Policy Value. The maximum Loan interest is charged at a fixed rate
of 4%. Loan interest is credited to the Loan Account at rate not less than 3.25%
so the loan interest credited differential will not be greater than 0.75%.
Currently we credit 3.75% in Policy Years 11 and higher for a loan interest
credited differential of 0.25%.
Supplementary Benefits -
FTIO Rider
A monthly Cost of Insurance Charge is deducted based on the FTIO Rider Term
Insurance Benefit. This charge is calculated the same manner as the Policy's
Cost of Insurance Charges, described above. The current cost of insurance rates
are generally less than or equal to those of the Policy and the guaranteed are
the same. No other loads or charges apply to this Rider.
7
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)(A)
TOTAL TRUST
SERIES I OTHER EXPENSES ANNUAL EXPENSES
MANAGEMENT RULE 12B-1 (AFTER EXPENSE (AFTER EXPENSE
TRUST PORTFOLIO FEES FEES 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%(B)
Science & Technology 0.916%(E) 0.150% 0.060% 1.13%
International Small Cap 0.950% 0.150% 0.500% 1.60%
Health Sciences 0.942%(E) 0.150% 0.350% 1.44%(B)
Aggressive Growth 0.850% 0.150% 0.070% 1.07%
Emerging Small Company 0.900% 0.150% 0.070% 1.12%
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%(B)
Mid Cap Opportunities 0.850% 0.150% 0.440% 1.44%(B)
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%(B)
Overseas 0.800% 0.150% 0.150% 1.10%
International Stock 0.838%(E) 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%(B)
Global Equity 0.750% 0.150% 0.110% 1.01%
Strategic Growth 0.750% 0.150% 0.200% 1.10%(B)
All Cap Core 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%(B)
Capital Opportunities 0.750% 0.150% 0.500%(G) 1.40%(B)(G)
Quantitative Equity 0.599% 0.150% 0.060% 0.81%
Blue Chip Growth 0.702%(E) 0.150% 0.060% 0.91%
Utilities 0.750% 0.150% 0.500%(G) 1.40%(B)(G)
Real Estate Securities 0.645% 0.150% 0.070% 0.87%
Small Company Value 0.891%(E) 0.150% 0.110% 1.15%
Mid Cap Value 0.800% 0.150% 0.200% 1.15%(B)
Value 0.642% 0.150% 0.060% 0.85%
Tactical Allocation 0.750% 0.150% 0.400% 1.30%
Equity Index(H) 0.250% 0.000% 0.150% 0.400%
Fundamental Value 0.798% 0.150% 0.120% 1.07%(B)
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%(E) 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%
8
Money Market 0.350% 0.150% 0.050% 0.55%
TOTAL TRUST
OTHER EXPENSES ANNUAL EXPENSES
MANAGEMENT SERIES I RULE (AFTER EXPENSE (AFTER EXPENSE
TRUST PORTFOLIO FEES 12B-1 FEES REIMBURSEMENT) REIMBURSEMENT)
- --------------- ---------- -------------- --------------- ---------------
Small Cap Index(F) 0.375% 0.150% 0.075% 0.60%
International Index(F) 0.400% 0.150% 0.050% 0.60%
Mid Cap Index(F) 0.375% 0.150% 0.075% 0.60%
Total Stock Market Index(F) 0.375% 0.150% 0.060% 0.59%
500 Index(I)(F) 0.375% 0.150% 0.050% 0.57%
Lifestyle Aggressive 1000 0.065% 0.000% 1.081% 1.146%(C),(D)
Lifestyle Growth 820 0.054% 0.000% 0.998% 1.052%(C),(D)
Lifestyle Balanced 640 0.054% 0.000% 0.914% 0.968%(C),(D)
Lifestyle Moderate 460 0.062% 0.000% 0.823% 0.885%(C),(D)
Lifestyle Conservative 280 0.069% 0.000% 0.790% 0.859%(C),(D)
(A) 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.
(B) Annualized; For the period April 30, 2001 (commencement of operations) to
December 31, 2001.
(C) The investment adviser to the Trust, Manufacturers Securities Services,
LLC ("MSS" or the "Adviser") has voluntarily agreed to pay certain
expenses of each Lifestyle Trust as noted below. (For purposes of the
expense reimbursement, total expenses of a Lifestyle Trust includes the
advisory fee but excludes (a) the expenses of the Underlying Portfolios,
(b) taxes, (c) portfolio brokerage, (d) interest, (e) litigation and (f)
indemnification expenses and other extraordinary expenses not incurred in
the ordinary course of the Trust's business.)
If total expenses of a Lifestyle Trust (absent reimbursement) exceed 0.075%, the
Adviser will reduce the advisory fee or reimburse expenses of that Lifestyle
Trust by an amount such that total expenses of the Lifestyle Trust equal
0.075%. If the total expenses of the Lifestyle Trust (absent reimbursement)
are equal to or less than 0.075%, then no expenses will be reimbursed by the
Adviser.
This voluntary expense reimbursement may be terminated at any time. If such
expense reimbursement was not in effect, Total Trust Annual Expenses would be
higher (based on current advisory fees and the Other Expenses of the
Lifestyle Trusts for the fiscal year ended December 31, 2001) as noted in the
chart below:
TOTAL TRUST
RULE OTHER ANNUAL
TRUST PORTFOLIO MANAGEMENT FEES 12B-1 FEES EXPENSES EXPENSES
- --------------- --------------- ---------- -------- ------------
Lifestyle Aggressive 1000 0.065% 0.000% 1.106% 1.171%
Lifestyle Growth 820 0.054% 0.000% 1.013% 1.067%
Lifestyle Balanced 640 0.054% 0.000% 0.929% 0.983%
Lifestyle Moderate 460 0.062% 0.000% 0.848% 0.910%
Lifestyle Conservative 280 0.069% 0.000% 0.815% 0.844%
(D) Each Lifestyle Trust will invest in shares of the Underlying Portfolios.
Therefore, each Lifestyle Trust will bear its pro rata share of the fees
and expenses incurred by the Underlying Portfolios in which it invests,
and the investment return of each Lifestyle Trust will be net of the
Underlying Portfolio expenses. Each Lifestyle Portfolio must bear its own
expenses. However, the Adviser is currently paying certain of these
expenses as described in footnote(C) above.
(E) 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%
9
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 $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.
(F) 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.
(G) 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.
(H) The Equity Index Trust is available only to Policies issued to Cases with
at least one Manulife USA variable life insurance policy applied for prior
to May 1, 2000 and still in force. A Policy with allocations to the Equity
Index Trust may not also allocate to the 500 Index Trust. Under the
Advisory Agreement, MSS has agreed to reduce its advisory fee or reimburse
the Equity Index Trust if the total of all expenses (excluding advisory
fees, taxes, portfolio brokerage commissions, interest, litigation and
indemnification expenses and other extraordinary expenses not incurred in
the ordinary course of the Trust's business) exceeds an annual rate of
0.15% of the average annual net assets of the Equity Index Trust. The
expense limitation may be terminated at any time by MSS. If this expense
reimbursement had not been in effect, Total Trust Annual Expenses would
have been 0.41%, and Other Expenses would have been 0.16%, of the average
annual net assets of the Equity Index Trust.
(I) For any Policy with premiums allocated to the 500 Index Trust, we will
waive Policy charges by an amount sufficient so that the total trust
annual expenses for the 500 Index Trust will not exceed 0.40% per annum on
an annualized basis. This waiver may be terminated at any time by us.
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 MFC
Global Investment Management (U.S.A.) Limited. Both MSS and MFC Global
Investment Management (U.S.A.) Limited are affiliates of ours.
SUBADVISER PORTFOLIO
- ---------- ---------
A I M Capital Management, Inc. All Cap Growth Trust
Aggressive Growth Trust
Capital Guardian Trust Company Small Company Blend Trust
U.S. Large Cap Value Trust
Income & Value Trust
Diversified Bond Trust
Davis Select Advisors. Financial Services Trust
Fundamental Value Trust
Deutsche Asset Management, Inc. Real Estate Securities Trust
Dynamic Growth Trust
All Cap Core Trust
Lifestyle Trusts(A)
Deutsche Asset Management International Stock Trust
Investment Services Ltd.]
The Dreyfus Corporation All Cap Value Trust
Fidelity Management & Research Company Strategic Opportunities Trust(A)
Large Cap Growth Trust
Overseas Trust
10
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
Jennison Associates LLC Capital Appreciation Trust
SUBADVISER PORTFOLIO
Lord, Abbett & Co. Mid Cap Value Trust
MFC Global Investment Management (U.S.A.) Limited Pacific Rim Emerging Markets Trust
Quantitative Equity Trust
Quantitative Mid Cap Trust
Equity Index Trust(B)
Money Market Trust
Index Trusts
Lifestyle Trusts(A)
Balanced Trust
Massachusetts Financial Services Company Strategic Growth Trust
Capital Opportunities Trust
Utilities Trust
Miller Anderson(C) 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
T. Rowe Price Associates, Inc. Science & Technology Trust
Small Company Value Trust
Health Sciences Trust
Blue Chip Growth Trust
Equity-Income Trust
Templeton Investment Counsel, Inc. International Value Trust
UBS Global Asset Management Tactical Allocation Trust
Wellington Management Company, LLP Growth & Income Trust
Investment Quality Bond Trust
Mid Cap Stock Trust
(A) Deutsche Asset Management, Inc. provides subadvisory consulting services
to MFC Global Investment Management (U.S.A.) Limited regarding management
of the Lifestyle Trusts.
(B) The Equity Index Trust is available to Policies issued to Cases with at
least one Manulife USA variable life insurance policy I force with an
application dated prior to May 1, 2000. A Policy with premiums allocated
to the Equity Index Trust may not also allocate premiums to the 500 Index
Trust.
11
(C) Morgan Stanley Investment Management Inc. ("MSIM") is the subadviser to
the Value Trust and the High Yield Trust. MSIM does business in certain
instances (including its role as the subadviser to the Value Trust and the
High Yield Trust) using the name "Miller Anderson". Prior to May 1, 2002,
Morgan Stanley Investments LP, and affiliate of MSIM, (formerly, Miller
Anderson & Sherrerd LLP) was the subadviser to the Value Trust and High
Yield Trust.
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 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
AA+ Fitch
Very strong capacity to meet policyholder and contract obligations; 2nd category
of 22.
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 our ability to
honor the death benefit but not specifically to its products, the performance
(return) of these products, the value of any investment in these products upon
withdrawal or to individual securities held in any portfolio.
THE SEPARATE ACCOUNT
The Manufacturers Life Insurance Company of America ("ManAmerica") established
its Separate Account Four (the "Separate Account") on March 17, 1987 as a
separate account under Pennsylvania law. Since December 9, 1992, it has been
operated under Michigan law. On January 1, 2002, 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. As a result of the transaction
Separate Account Four of ManAmerica has been renamed to Separate Account N of
Manulife USA. The ultimate parent of both ManAmerica and Manulife USA is 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. We
will at all times maintain assets in the Separate Account with a total market
value at least equal to the reserves and other liabilities relating to variable
benefits under all policies participating in the Separate Account. These assets
may not be charged with liabilities that arise from any other business we
conduct. However, all obligations under the variable life insurance policies are
general corporate obligations of Manulife USA.
REGISTRATION
The Separate Account is registered with the SEC under the Investment Company Act
of 1940 ("1940 Act") as a unit investment trust. A unit investment trust is a
type of investment company that invests its assets in specified securities, such
as the shares of one or more investment companies, rather than in a portfolio of
unspecified securities. Registration under the 1940 Act does not involve any
supervision by the SEC of the management or investment policies or practices of
the Separate Account. For state law purposes the Separate Account is treated as
a part or division of Manulife USA.
12
THE TRUST
Each sub-account of the Separate Account will purchase shares only of Series I
(formerly referred to as Class A) of a particular Portfolio of the Trust. The
Trust is registered under the 1940 Act as an open-end management investment
company. Each of the Trust portfolios, except the Lifestyle Trusts and the
Equity Index Trust, are subject to a Rule 12b-1 fee of .15% of a portfolio's
Series I net assets. The Separate Account will purchase and redeem shares of the
Portfolios at net asset value. Shares will be redeemed to the extent necessary
for Manulife USA to provide benefits under the Policies, to transfer assets from
one sub-account to another or to the general account as requested by
policyholders, 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 Manulife USA or life
insurance companies affiliated with us. We will also purchase shares through our
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 policyholders 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.
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.
13
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 stocks and other equity securities of
medium-sized U.S. companies with strong growth potential.
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 stocks and other securities with equity characteristics of
companies located in the developed countries that make up the MSCI EAFE Index.
The INTERNATIONAL VALUE TRUST seeks long-term growth of capital by investing,
under normal market conditions, primarily in equity securities of companies
located outside the U.S., including emerging markets.
The CAPITAL APPRECIATION TRUST seeks long-term capital growth by investing at
least 65% of its total assets in equity-related securities of companies that
exceed $1 billion in market capitalization and that the subadviser believes have
above-average growth prospectus. These companies are generally medium-to-large
capitalization companies.
The STRATEGIC OPPORTUNITIES TRUST (formerly, Mid Cap Blend Trust) seeks growth
of capital by investing primarily in common stocks of U.S. issuers and
securities convertible into or carrying the right to buy common stocks.
The QUANTITATIVE MID CAP TRUST seeks long-term growth of capital by investing,
under normal market conditions, at least 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 ALL CAP CORE TRUST (formerly, Growth Trust) seeks long-term growth of
capital by investing primarily in common stocks and other equity securities
within all asset classes (small, mid and large cap) primarily those within the
Russell 3000 Index.
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.
14
The ALL CAP VALUE TRUST seeks capital appreciation by investing, under normal
market conditions, at least 65% of the portfolio's total assets in the stocks of
value companies of any size.
The CAPITAL OPPORTUNITIES TRUST seeks capital appreciation by investing, under
normal market conditions, at least 65% of the portfolio's total assets in common
stocks and related securities, such as preferred stock, convertible securities
and depositary receipts. The portfolio focuses on companies which the subadviser
believes have favorable growth prospects and attractive valuations based on
current and expected earnings or cash flow.
The QUANTITATIVE EQUITY TRUST seeks to achieve intermediate and long-term growth
through capital appreciation and current income by investing in common stocks
and other equity securities of well established companies with promising
prospects for providing an above average rate of return.
The BLUE CHIP GROWTH TRUST seeks to achieve long-term growth of capital (current
income is a secondary objective) by investing at least 65% of the portfolio's
total assets in the common stocks of large and medium-sized blue chip companies.
Many of the stocks in the portfolio are expected to pay dividends.
The UTILITIES TRUST seeks capital growth and current income (income above that
available from a portfolio invested entirely in equity securities) by investing,
under normal market conditions, at least 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 equity securities of real estate investment trusts ("REITS") and
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) in mid-sized companies, with market
capitalizations of roughly $500 million to $10 billion.
The VALUE TRUST seeks to realize an above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in common and preferred stocks, convertible securities, rights and
warrants to purchase common stocks, ADRs and other equity securities of
companies with equity capitalizations usually greater than $300 million.
The 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 to Policies issued to Cases with at least one Manulife USA
variable life insurance policy in force with an application dated prior to May
1, 2000. A Policy with premiums allocated to the Equity Index Trust may not also
allocate premiums to the 500 Index Trust.)
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.
15
The INCOME & VALUE TRUST seeks the balanced accomplishment of (a) conservation
of principal and (b) long-term growth of capital and income by investing the
portfolio's assets in both equity and fixed-income securities. The subadviser
has full discretion to determine the allocation between equity and fixed income
securities.
The BALANCED TRUST seeks current income and capital appreciation by investing
the portfolio's assets in a balanced portfolio of (i) equity securities and (ii)
fixed income securities.
The HIGH YIELD TRUST seeks to realize an above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in high yield debt securities, including corporate bonds and
other fixed-income securities.
The STRATEGIC BOND TRUST seeks a high level of total return consistent with
preservation of capital by giving its subadviser broad discretion to deploy the
portfolio's assets among certain segments of the fixed income market as the
subadviser believes will best contribute to achievement of the portfolio's
investment objective.
The GLOBAL BOND TRUST seeks to realize maximum total return, consistent with
preservation of capital and prudent investment management by investing the
portfolio's asset primarily in fixed income securities denominated in major
foreign currencies, baskets of foreign currencies (such as the ECU), and the
U.S. dollar.
The TOTAL RETURN TRUST seeks to realize maximum total return, consistent with
preservation of capital and prudent investment management by investing, under
normal market conditions, at least 65% of the portfolio's assets in a
diversified portfolio of fixed income securities of varying maturities. The
average portfolio duration will normally vary within a three- to six-year time
frame based on the subadviser's forecast for interest rates.
The INVESTMENT QUALITY BOND TRUST seeks a high level of current income
consistent with the maintenance of principal and liquidity, by investing 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.
16
The LIFESTYLE BALANCED 640 TRUST seeks to provide a balance between a high level
of current income and growth of capital with a greater emphasis given to capital
growth by investing approximately 40% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 60% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The LIFESTYLE MODERATE 460 TRUST seeks to provide a balance between a high level
of current income and growth of capital with a greater emphasis given to current
income by investing approximately 60% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 40% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The LIFESTYLE CONSERVATIVE 280 TRUST seeks to provide a high level of current
income with some consideration also given to growth of capital by investing
approximately 80% of the Lifestyle Trust's assets in Underlying Portfolios which
invest primarily in fixed income securities and approximately 20% of its assets
in Underlying Portfolios which invest primarily in equity securities.
*"Standard & Poor's(R)," "S&P 500(R)," "Standard and Poor's 500(R)" and
"Standard and Poor's 400(R)" are trademarks of The McGraw-Hill Companies, Inc.
"Russell 2000(R)" 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
USE OF THE POLICY
The Policy is designed to provide employers or other organizations with life
insurance coverage on employees or other individuals in whose lives they have an
insurable interest. The Policy may be owned by an individual or a corporation,
trust, association, or similar entity. The Policy may be used for such purposes
as funding non-qualified executive deferred compensation or salary continuation
liabilities or death benefit liabilities of executive retirement plans, or as a
source for funding cash flow obligations under such plans.
REQUIREMENTS
To purchase a Policy, an applicant must submit a completed application. A Policy
will not be issued until the underwriting process is completed to our
satisfaction and we approve issuance of the Policy.
Policies may be issued on a basis that does not distinguish between the life
insured's sex and/or smoking status, with prior approval from us. A Policy will
only be issued on the lives of insureds from Issue Ages 20 through 80.
Each Policy has a Policy Date, an Effective Date and an Issue Date.
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 measured. The Policy Date is also the effective date of
the initial Coverage Amount. The Policy Date is the same date as the
Effective Date unless the Policy is backdated (see "Backdating a Policy").
The Effective Date is the date we become obligated under the Policy and
when the first monthly deductions are taken. It is the later of the date
we approve issuance of the Policy and the date we receive at least the
Minimum Initial Premium. The Issue Date is the date from which the Suicide
and Incontestability provisions of the Policy are measured.
If we approve issuance of a Policy before we receive the Minimum Initial Premium
then the Effective Date will be later than the Issue Date. The Minimum Initial
Premium must be received by us within 60 days after the Issue Date and the life
insured must be in good health on the Effective Date. If the Minimum Initial
Premium is not paid or if the application is rejected, the Policy will be
canceled and any premiums paid will be returned to the applicant.
Net Premiums received prior to the Effective Date will be credited with interest
at the rate of return earned on amounts allocated to the Money Market Trust. On
the Effective Date, Net Premiums received plus any interest credited will be
allocated to Investment Accounts and the Fixed Account according to your
instructions, unless first allocated to the Money Market Trust for the duration
of the right to examine period (see "Right to Examine the Policy").
MINIMUM FACE AMOUNT AND SCHEDULED DEATH BENEFIT
The minimum Face Amount is $50,000 unless the FTIO Rider is added to the Policy.
With an FTIO Rider, the minimum Face Amount is $25,000 and the minimum Scheduled
Death Benefit is $50,000 at all times.
17
BACKDATING A POLICY
You may request that we backdate the Policy by assigning a Policy Date earlier
than the Effective Date. We will not backdate the Policy to a date earlier than
that 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.
TEMPORARY INSURANCE AGREEMENT
Temporary insurance coverage may be provided under the terms of a Temporary
Insurance Agreement, subject to our underwriting practices. Generally, temporary
life insurance may not exceed $1,000,000 and may not be in effect for more than
90 days. It is issued on a conditional receipt basis, which means that benefits
would only be paid if the life insured met our usual and customary underwriting
standards for the coverage applied for.
UNDERWRITING
The policies are offered on three underwriting classes that require different
types and amounts of information from the applicant and prospective life
insured. Current cost of insurance charges in early Policy Years will vary by
the type of underwriting and charges will generally be lower where underwriting
information is more extensive. Under any of the underwriting bases, the
acceptance of an application is subject to our underwriting rules and we may
request additional information or reject an application for any reason.
SHORT FORM UNDERWRITING
The proposed life insured must answer qualifying questions in the application
but is not required to provide detailed medical history, submit records or
undergo examinations or tests unless requested to do so by us. Availability of
Short Form underwriting depends on characteristics of the Case, such as the
number of lives to be insured, the amounts of insurance and other factors, and
it is generally available only up to Issue Age 65.
SIMPLIFIED UNDERWRITING
The proposed life insured must satisfactorily answer certain health questions in
the application and may be required to submit existing medical records, but
requirements to undergo examinations and tests are minimized. Availability of
Simplified underwriting and the nature of the requirements will depend on
characteristics of the Case and the proposed lives to be insured.
REGULAR (MEDICAL) UNDERWRITING
Where Short Form or Simplified underwriting is unavailable we require
satisfactory evidence of insurability under our regular underwriting guidelines
for individual applicants. This may include medical exams and other information.
A proposed life insured who fails to qualify for a standard risk classification
may be eligible to be insured with an additional substandard rating.
RIGHT TO EXAMINE THE POLICY
A Policy may be returned for a refund within 10 days after you receive it. Some
states provide a longer period of time for this right, which will be stated in
the Policy if applicable. 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 the Service Office we will refund
an amount equal to:
(a) the difference between premiums received and amounts allocated to
Investment Accounts and the Fixed Account; plus
(b) the value of amounts in the Investment Accounts and the Fixed
Account on the date we receive the returned Policy; minus
(c) any partial withdrawals and policy loans.
Some state laws require the refund of premiums paid without adjustment for
investment gains and losses of the Separate Account. In these states, all Net
Premiums will be allocated to the Money Market Trust during the right to examine
period and the refund amount will be equal to all premiums received less any
partial withdrawals and policy loans.
If you request a Face Amount increase that results in new Surrender Charges or
sales loads, you will have the same rights described above to cancel the
increase. If cancelled, the Policy Value and Surrender Charges will be
recalculated to be as they would have been had the increase not taken place. You
may request a refund of all or any portion of premiums paid during this right to
examine period, and the Policy Value and Surrender Charges or sales loads will
be recalculated to be as they would have been had the premiums not been paid.
We reserve the right to delay the refund of any premium paid by check until the
check has cleared.
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DEATH BENEFITS
If the Policy is in force at the time of the life insured's death we will pay an
insurance benefit to the beneficiary. The Policy may remain in force for the
life insured's entire lifetime and there is no specified maturity or expiration
date.
Insurance benefits are only payable when we receive due proof of death at the
Service Office, in the form of either a certified copy of the death certificate,
a certified copy of a decree of a court of competent jurisdiction as to the
finding of death or other proof satisfactory to us.
The amount of the insurance benefit payable will be the Death Benefit on the
date of death, as described below, less any Policy Debt and outstanding monthly
deductions on the date of death. The insurance benefit will be paid in one lump
sum unless another form of settlement is agreed to by the beneficiary and us. If
the insurance benefit is paid in one sum, we will pay interest from the date of
death to the date of payment. If the life insured should die after our receipt
of a request for surrender, no insurance benefit will be payable, and we will
pay only the Net Cash Surrender Value.
LIFE INSURANCE QUALIFICATION
A Policy must satisfy either of two tests to qualify as a life insurance
contract as defined in Section 7702 of the Internal Revenue Code of 1986, as
amended (the "Code"). You must apply for a Policy that uses either the Cash
Value Accumulation Test ("CVA Test") or the Guideline Premium Test ("GP Test")
and the test cannot be changed once the Policy is issued.
CASH VALUE ACCUMULATION TEST
The CVA Test requires the Death Benefit at any time to be at least a certain
ratio of the Policy Value, based on prescribed calculations. The Minimum Death
Benefit provision described below will ensure that the CVA Test is met. There is
no restriction on the amount of premiums you may pay, but we will require you to
provide satisfactory evidence of insurability before we accept an amount of
premium that would increase the Death Benefit by more than the increase in
Policy Value.
GUIDELINE PREMIUM TEST
The GP Test limits the amount of premiums you may pay into the Policy, given its
Death Benefit, based on prescribed calculations. In addition, the GP Test
requires the Death Benefit at any time to be at least a prescribed ratio of the
Policy Value. These prescribed multiples are generally lower than those
calculated under the CVA Test. The Minimum Death Benefit provision described
below will ensure that this second requirement is met.
Changes to the Policy or FTIO Rider, such as changes in Face Amount, Scheduled
Death Benefit, Death Benefit Option or partial withdrawals, may affect the
premium limits under the GP Test. Some changes will reduce future premium limits
and may cause premiums already paid to exceed the new limits and force you to
make a partial withdrawal.
MINIMUM DEATH BENEFIT
Both the CVA Test and the GP Test require the Death Benefit to be at least a
prescribed ratio of the policy value at all times. The Policy's Minimum Death
Benefit ensures that these requirements are met by providing that the Death
Benefit shall be at least equal to the Policy Value multiplied by the applicable
Minimum Death Benefit Percentage for the Attained Age of the life insured.
Tables of Minimum Death Benefit Percentages appear on the following page.
FLEXIBLE TERM INSURANCE OPTION RIDER
You may add a flexible term insurance option rider (the "FTIO Rider") to the
Policy to provide additional death benefit coverage on the life insured. The
FTIO Rider provides flexible term life insurance to Attained Age 100 with cost
of insurance charges less than or equal to those of the Policy. The Rider will
terminate at the earlier of Attained Age 100, the date the Policy lapses or
surrenders, and your request to cancel the FTIO Rider.
You may schedule the death benefit amounts that will apply at specified times
(the "Scheduled Death Benefits"). Scheduled Death Benefits may be constant or
varying from time to time. The Death Benefit Schedule will be shown in the
Policy.
The Term Insurance Benefit of the FTIO Rider is equal to (a) minus (b) but not
less than zero where:
(a) the Scheduled Death Benefit for the Policy Month, and
(b) the Face Amount of the Policy or, if greater, the Policy's Minimum
Death Benefit
Even if the Term Insurance Benefit may be zero in a Policy Month, the Rider will
not terminate.
19
EXAMPLE. A POLICY IS PURCHASED FOR AN EXECUTIVE AS PART OF AN EMPLOYEE BENEFIT
PLAN. THE DEATH BENEFIT PROVIDED BY THE POLICY IS TO BE EQUAL TO THE EXECUTIVE'S
SALARY OF $100,000 INCREASING AT 5% PER YEAR THROUGH AGE 64. ASSUMING THE
EXECUTIVE IS CURRENTLY 55, THE POLICY WILL BE ISSUED WITH A DEATH BENEFIT
SCHEDULE AS FOLLOWS:
POLICY SCHEDULED POLICY SCHEDULED
YEAR DEATH BENEFIT YEAR DEATH BENEFIT
- ------ ------------- ------ -------------
1 100,000 6 127,628
2 105,000 7 134,010
3 110,250 8 140,710
4 115,763 9 147,746
5 121,551 10+ 155,133
THE FLEXIBLE TERM INSURANCE OPTION RIDER AMOUNT WILL CHANGE EACH YEAR AS
NECESSARY TO PROVIDE THE BENEFITS SHOWN IN THE SCHEDULE, AS FOLLOWS:
FLEXIBLE
TERM
POLICY TOTAL FACE INSURANCE
YEAR DEATH BENEFIT AMOUNT AMOUNT
- ------ ------------- ------ ---------
1 100,000 100000 0
2 105,000 100000 5,000
3 110,250 100000 10,250
4 115,763 100000 15,763
5 121,551 100000 21,551
6 127,628 100000 27,628
7 134,010 100000 34,010
8 140,710 100000 40,710
9 147,746 100000 47,746
10 155,133 100000 55,133
20
TABLE OF MINIMUM DEATH BENEFIT PERCENTAGES
GP TEST CVA TEST GP TEST CVA TEST
------- -------- ------- --------
AGE PERCENT MALE FEMALE UNISEX AGE PERCENT MALE FEMALE UNISEX
- --- ------- ---- ------ ------ --- ------- ---- ------ ------
20 250% 653% 779% 674% 60 130% 192% 221% 197%
21 250% 634% 754% 654% 61 128% 187% 214% 192%
22 250% 615% 730% 635% 62 126% 182% 208% 187%
23 250% 597% 706% 616% 63 124% 178% 203% 183%
24 250% 580% 684% 598% 64 122% 174% 197% 178%
25 250% 562% 662% 579% 65 120% 170% 192% 174%
26 250% 545% 640% 561% 66 119% 166% 187% 170%
27 250% 528% 619% 544% 67 118% 162% 182% 166%
28 250% 511% 599% 526% 68 117% 159% 177% 162%
29 250% 494% 580% 509% 69 116% 155% 173% 159%
30 250% 479% 561% 493% 70 115% 152% 169% 156%
31 250% 463% 542% 477% 71 113% 149% 164% 152%
32 250% 448% 525% 461% 72 111% 146% 160% 149%
33 250% 433% 507% 446% 73 109% 144% 156% 146%
34 250% 419% 491% 432% 74 107% 141% 153% 144%
35 250% 406% 475% 418% 75 105% 139% 149% 141%
36 250% 392% 459% 404% 76 105% 136% 146% 139%
37 250% 380% 444% 391% 77 105% 134% 143% 136%
38 250% 367% 430% 378% 78 105% 132% 140% 134%
39 250% 356% 416% 366% 79 105% 130% 138% 132%
40 250% 344% 403% 355% 80 105% 129% 135% 130%
41 243% 333% 390% 343% 81 105% 127% 133% 128%
42 236% 323% 378% 333% 82 105% 125% 130% 127%
43 229% 313% 366% 322% 83 105% 124% 128% 125%
44 222% 303% 355% 312% 84 105% 122% 126% 123%
45 215% 294% 344% 303% 85 105% 121% 124% 122%
46 209% 285% 333% 294% 86 105% 120% 123% 121%
47 203% 277% 323% 285% 87 105% 119% 121% 119%
48 197% 268% 313% 276% 88 105% 118% 119% 118%
49 191% 260% 304% 268% 89 105% 116% 118% 117%
50 185% 253% 295% 260% 90 105% 116% 117% 116%
51 178% 245% 286% 253% 91 104% 115% 115% 115%
52 171% 238% 278% 245% 92 103% 114% 114% 114%
53 164% 232% 270% 238% 93 102% 112% 113% 113%
54 157% 225% 262% 232% 94 101% 111% 112% 111%
55 150% 219% 254% 225% 95 100% 110% 110% 110%
56 146% 213% 247% 219% 96 100% 109% 109% 109%
57 142% 207% 240% 213% 97 100% 107% 107% 107%
58 138% 202% 233% 208% 98 100% 106% 106% 106%
59 134% 197% 227% 202% 99 100% 105% 105% 105%
100 + 100% 100% 100% 100%
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DEATH BENEFIT OPTIONS
You may choose either of two Death Benefit Options:
DEATH BENEFIT OPTION 1
The Death Benefit on any date is:
(a) the Face Amount of the Policy or, if greater, the Minimum Death
Benefit, plus
(b) the Term Insurance Benefit of the FTIO Rider.
DEATH BENEFIT OPTION 2
The Death Benefit on any date is:
(a) the Face Amount plus the Policy Value or, if greater, the Minimum
Death Benefit, plus
(b) the Term Insurance Benefit of the FTIO Rider.
CHANGING THE DEATH BENEFIT OPTION
You may change the Death Benefit Option at any time. The change will take effect
at the beginning of the next Policy Month at least 30 days after your written
request is received at the Service Office. We reserve the right to limit changes
that could cause the Policy to fail to qualify as life insurance for tax
purposes.
A change in the Death Benefit Option will result in a change in the Face Amount
and Scheduled Death Benefits to avoid any change in the amount of Death Benefit,
as follows:
CHANGE FROM OPTION 1 TO OPTION 2
The new Face Amount will be:
the Face Amount prior to the change less the Policy Value on the date of
the change .
The Scheduled Death benefit amounts for dates on or after the date of the change
will be:
the amounts scheduled prior to the change less the Policy value on the
date of the change.
Coverage Amounts will be reduced or eliminated in the order that they are listed
in the Policy until the total decrease in Coverage Amounts equals the decrease
in Face Amount.
Surrender Charges will not be assessed for reductions that are solely due to a
change in the Death Benefit Option.
Example. A policy is issued with a Face amount of $100,000, Death Benefit Option
1, and the following schedule:
POLICY SCHEDULED
YEAR DEATH BENEFIT
1 100,000
2 125,000
3 150,000
4 175,000
5+ 200,000
The Death Benefit Option is changed to Option 2 at the beginning of Policy Year
3. If the Policy Value at the time of the change is $10,000, then the Face
Amount after the change will be $90,000, (the Face Amount prior to the change
less the Policy Value) and the Death Benefit Schedule after the change will
become:
POLICY SCHEDULED
YEAR DEATH BENEFIT
3 140,000
4 165,000
22
5+ 190,000
Change from Option 2 to Option 1
The new Face Amount will be:
the Face Amount prior to the change plus the Policy Value on the
date of the change (but the new Face Amount will be no greater than
the Scheduled Death Benefit on the date of the change.)
The resulting Face Amount increase amount will be added to the first Coverage
Amount listed in the Policy.
However, the Annual Premium Target for this Coverage Amount will not be
increased and new Surrender Charges or Sales Loads will not apply, for an
increase solely due to a change in the Death Benefit Option.
Example. A policy is issued with a Face amount of $100,000, Death Benefit Option
2, and the following schedule:
YEAR DEATH BENEFIT
1 100,000
2 125,000
3 150,000
4 175,000
5+ 200,000
The Death Benefit Option is changed to Option 1 at the beginning of Policy Year
3. If the Policy Value at the time of the change is $10,000, then the face
amount after the change will be $110,000 (the Face Amount prior to the change
plus the Policy Value), and the Death Benefit Schedule after the change will
become:
POLICY SCHEDULED
YEAR DEATH BENEFIT
3 160,000
4 185,000
5+ 210,000
CHANGING THE FACE AMOUNT AND SCHEDULED DEATH BENEFITS
At any time, you may request an increase or decrease to the Face Amount or any
Scheduled Death Benefits effective on or after the date of change. We reserve
the right to limit changes that could cause the Policy to fail to qualify as
life insurance for tax purposes.
INCREASES IN FACE AMOUNT AND SCHEDULED DEATH BENEFITS
Increases in Face Amount and Scheduled Death Benefits are subject to the
following conditions:
1. Increases in face amount and scheduled death benefits will require
satisfactory evidence of the life insured's insurability.
2. Increases will take effect at the beginning of the next Policy Month
after we approve the request.
3. We may refuse a requested increase that would not meet our
requirements for new policy issues at the time due to the life
insured's attained age or other factors.
4. If the Face Amount is increased (other than as required by a Death
Benefit Option change) then all Scheduled Death Benefits effective
on or after the date of the change will be increased by the amount
of the Face Amount increase.
NEW CHARGES FOR A FACE AMOUNT INCREASE
Coverage Amounts equal to the amount of the increase will be added to the Policy
as follows:
23
First, Coverage Amounts that were reduced or eliminated by a prior Face
Amount decrease will be restored.
Second, if needed, a new Coverage Amount will be added to the Policy with
an Annual Premium Target and new Surrender Charges or Sales Loads. Any new
Coverage Amount will be based on the life insured's Attained Age and other
relevant factors on the effective date of the increase.
Premiums paid on or after the increase may be attributed to the new Coverage
Amount and result in Surrender Charges or Sales Loads (see "Charges and
Deductions - Attribution of Premiums").
DECREASES IN FACE AMOUNT AND SCHEDULED DEATH BENEFITS
Decreases in Face Amount and Scheduled Death Benefits are subject to the
following conditions:
1. Decreases in Face Amount and Scheduled Death Benefits will take
effect at the beginning of the next Policy Month which is 30 days
after your written request is received at the Service Office.
2. If the Face Amount is decreased then all Scheduled Death Benefits
effective on or after the date of the change will be decreased by
the same amount.
3. If at any time the Scheduled Death Benefit decreases to less than
the Face Amount, the Face Amount will be decreased to be equal to
the Scheduled Death Benefit at that time.
4. 4. Coverage Amounts equal to the amount of the Face Amount decrease
will be reduced or eliminated in the reverse order that they are
listed in the Policy. Surrender Charges may be assessed (see
"Charges and Deductions - Sales Load or Surrender Charge").
DECREASES IN FACE AMOUNT UNDER DEATH BENEFIT OPTION 1 DUE TO A PARTIAL
WITHDRAWAL
If Death Benefit Option 1 is in effect when a partial withdrawal is made, the
Face Amount will be decreased by an amount equal to :
(a) minus (b) but not less than zero, where:
(a) is the partial withdrawal amount plus any applicable Surrender
Charge and
(b) is the excess, if any, of the Policy's Minimum Death Benefit over
its Face Amount, immediately prior to the partial withdrawal.
Decreases in Face Amount under Death Benefit Option 1 due to a Partial
Withdrawal are subject to the following conditions:
1. Coverage Amounts equal to the amount of the Face Amount decrease
will be reduced or eliminated in the reverse order that they are
listed in the Policy.
2. All Scheduled Death Benefits effective on or after the date of the
partial withdrawal will be decreased by the amount of the Face
Amount decrease, unless you request otherwise and we approve.
3. A Face Amount decrease due to a partial withdrawal will not incur
any Surrender Charge in addition to that applicable to the partial
withdrawal (see "Charges and Deductions - Sales Load or Surrender
Charge").
Example for Face Increases and Decreases
A Policy is issued with the Sales Load Option, a Face Amount of $100,000, Death
Benefit Option 1, and a Death Benefit Schedule as follows:
POLICY SCHEDULED
YEAR DEATH BENEFIT
1 100,000
2 125,000
24
3 150,000
4 175,000
5+ 200,000
Assume the following Policy activity:
Activity Effect on Policy
In Policy Year 2, the Face Amount is
reduced to $80,000. The initial Coverage Amount is reduced
to $80,000. The Death Benefit Schedule
is changed to the following:
POLICY SCHEDULED
YEAR DEATH BENEFIT
2 105,000
3 130,000
4 155,000
5+ 180,000
In Policy Year 3, the Face Amount is The initial Coverage Amount (which
increased to $120,000 earlier was reduced to $80,000) is
restored to its original level of
$100,000. A new Coverage Amount for
$20,000 is added to the Policy. This
new Coverage Amount will have its own
Annual Premium Target, and if
applicable, its own Sales Load or
Surrender Charges. A portion of the
future premiums paid will be attributed
to this coverage amount to determine
the amount of the Sales Load or
Surrender Charge.
The Death Benefit Schedule is changed
to the following:
POLICY SCHEDULED
YEAR DEATH BENEFIT
3 170,000
4 195,000
5+ 220,000
In Policy Year 4, a Partial The Face Amount is reduced to $90,000.
Withdrawal OF $30,000 IS MADE. The most recent Coverage Amount of
$20,000 is reduced to $0, and the
initial Coverage Amount is reduced to
$90,000.
The Death Benefit Schedule is changed
to the following:
POLICY SCHEDULED
YEAR DEATH BENEFIT
4 165,000
5 190,000
PREMIUM PAYMENTS
INITIAL PREMIUMS
No premiums will be accepted prior to receipt of a completed application by us.
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 earned on amounts allocated to the Money Market Trust. No
insurance will take effect before we approve the application and receive at
least the Minimum Initial Premium.
25
On the Effective Date, the Net Premiums paid plus interest credited will be
allocated among the Investment Accounts or the Fixed Account in accordance with
your instructions, unless first allocated to the Money Market Trust for the
duration of the right to examine period (see "Right to Examine the Policy").
SUBSEQUENT PREMIUMS
After the payment of the initial premium, premiums may be paid at any time
during the lifetime of the life insured prior to Attained Age 100 and in any
amount subject to the premium limitations described below. A Policy will be
issued with a planned premium, which is based on the amount of premium you wish
to pay. We will send you notices of your planned premium at the payment interval
you select. However, you are under no obligation to make the planned premium
payment.
Payment of premiums will not guarantee that the Policy will stay in force and
failure to pay premiums will not necessarily cause the Policy to lapse. The
Policy will remain in force so long as the Net Cash Surrender Value is
sufficient to cover Policy charges.
PREMIUM LIMITATIONS
If the Policy is issued under the GP Test, the total of all premiums paid may
not exceed the then-current maximum premium limitations established by federal
income tax law for the Policy to qualify as life insurance. The GP Test premium
limits are stated in the Policy. If a premium is received which would result in
total premiums exceeding the applicable GP Test limit, we will only accept that
portion of the premium that will not exceed the limit. Any premium in excess of
that amount will be returned.
If the Policy is issued under the CVA Test, there is no restriction on the
amount of premiums that may be paid into a Policy, but you must provide
satisfactory evidence of insurability before we accept any premium that would
increase the Death Benefit by an amount greater than the increase in Policy
Value.
PREMIUM ALLOCATION
You may allocate premiums to the Fixed Account and Investment Accounts.
Allocations may be made as percentages that are between zero and 100% that sum
to exactly 100%. Alternatively, you may allocate a premium in dollar amounts
that sum to exactly the Net Premium amount. You may change premium allocations
at any time and the change will take effect on the date a request for change
satisfactory to us is received at the Service Office.
CHARGES AND DEDUCTIONS
PREMIUM LOAD
We will deduct a Premium Load as a percentage of each premium payment that is
guaranteed never to exceed 2%. Currently, we waive this load in Policy Years 11
and later and charge 0%.
The charge is intended to cover a portion of the aggregate amount of various
taxes and fees we pay to federal, state and local governments. It is not based
on the actual premium tax rate of your state of residence or any other specific
tax.
SALES LOAD OR SURRENDER CHARGE
Each Coverage Amount listed in the Policy is designated as having either a Sales
Load or Surrender Charge. One or the other of these charges will apply to a
Coverage Amount, but not both. This designation cannot be changed after a
Coverage Amount is effective and, currently, the same alternative must apply to
all Coverage Amounts.
Generally, Policy benefits will be approximately equal in present value under
either alternative. However, there is no guarantee each alternative will perform
the same in all circumstances. Therefore, you should obtain individualized
illustrations for both charge structures. Current cost of insurance rates in
early Policy Years will be higher for the Surrender Charge alternative.
The Sales Load or Surrender Charge is intended to cover a portion of our costs
of marketing and distributing the policies.
ATTRIBUTION OF PREMIUMS
An Annual Premium Target is associated with each Coverage Amount. Annual Premium
Targets are based on the Coverage Amount and the life insured's Attained Age,
sex and smoking status on the effective date of the Coverage Amount. The Annual
Premium Targets are listed with the Coverage Amounts in the Policy.
Premium payments will be attributed to Coverage Amounts that have been in effect
for less than 5 years. Attribution will begin with the first applicable Coverage
Amount that is listed in the Policy. The sum of all premium amounts attributed
to a Coverage Amount in a Coverage Year is limited to the Annual Premium Target
shown in the Policy. Premium amounts that exceed the Annual Premium Target will
be attributed to the next listed Coverage Amount, up to its own Annual Premium
Target. Attribution will continue in this manner until either the entire premium
is attributed to Coverage Amounts or the Annual Premium Target is exceeded for
all applicable Coverage Amounts.
26
SALES LOAD
We deduct a Sales Load from all premium amounts attributed to a Coverage Amount
designated as having a Sales Load. The Sales Load is a percentage of premiums
guaranteed never to exceed the percentages below. Currently we are charging
these percentages.
Coverage Year Percentage Coverage Year Percentage
1 8% 4 2%
2 6% 5 1%
3 3% 6+ 0%
SURRENDER CHARGE
We will deduct a Surrender Charge from the Net Policy Value upon elimination or
reduction of a Coverage Amount designated as having a Surrender Charge during
the first 9 Coverage Years. Coverage Amounts may be eliminated or reduced and a
Surrender Charge assessed due to:
- surrender of the Policy for its Net Cash Surrender Value,
- a partial withdrawal which exceeds the Free Partial Withdrawal
Amount,
- a Face Amount decrease that is not solely due to a Death Benefit
Option change, or
- lapse of the Policy.
The Surrender Charge for an applicable Coverage Amount is a percentage of the
sum of all premiums attributed to it since its effective date. Surrender Charge
percentages are guaranteed never to exceed those below. Currently, we are
charging these percentages:
Coverage Year Percentage Coverage Year Percentage
1 5.0% 6 1.5%
2 4.0% 7 1.0%
3 3.0% 8 1.0%
4 2.5% 9 0.5%
5 2.0% 10+ 0.0%
Although the Surrender Charge percentages remain level or decrease as the
Coverage Year increases, the total dollar amount of Surrender Charges may
increase, as the total premium paid increases. Premiums paid in any Coverage
Year in excess of the Annual Premium Target and premiums paid after the fifth
Coverage Year may not add to the Surrender Charge, so the timing of premium
payments may affect the amount of the Surrender Charge.
Depending upon circumstances such as premiums paid and performance of the
underlying investment options, there may be a Policy Value but no Cash Surrender
Value available due to the existence of the Surrender Charge.
Unless otherwise allowed by us and specified by you, Surrender Charges will be
allocated among the Investment Accounts and the Fixed Account in the same
proportion as the Policy Value in each Account bears to the Net Policy Value.
SURRENDER CHARGES ON A PARTIAL WITHDRAWAL
We will assess a portion of the Surrender Charge if you take a partial
withdrawal that exceeds the Free Withdrawal Amount. The Free Withdrawal Amount
is 10% of the Net Cash Surrender Value at the time of the withdrawal less the
amount of any partial withdrawals already taken in the same Policy Year.
The portion of the Policy's total Surrender Charge that will be assessed is the
ratio of (a) to (b), where (a) is the amount being withdrawn in excess of the
Free Withdrawal Amount and (b) is the Net Cash Surrender Value immediately prior
to the withdrawal. The remaining Surrender Charges for all Coverage Amounts will
be reduced in the same proportion that the Surrender Charge assessed bears to
the Policy's total Surrender Charge immediately prior to the partial withdrawal.
SURRENDER CHARGES ON A FACE AMOUNT DECREASE
We will assess a portion of the Surrender Charge upon a Face Amount decrease
that is not required due to a Death Benefit Option change or partial withdrawal.
For each Coverage Amount that is reduced or eliminated as a result of the
decrease, we will assess a portion of any applicable Surrender Charge. The
proportion of the Surrender Charge that is assessed will be the ratio of amount
by which the Coverage Amount is reduced to the Coverage Amount prior to
reduction. The remaining Surrender Charges for affected Coverage Amounts will be
reduced by the same ratio.
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MONTHLY DEDUCTIONS
On the Policy Date and at the beginning of each Policy Month prior to Attained
Age 100, a deduction is due from the Net Policy Value to cover certain charges
described below. Monthly deductions due prior to the Policy's Effective Date
will be taken on the Effective Date. Unless otherwise allowed by us and
specified by you, the monthly deduction will be allocated among the Investment
Accounts and the Fixed Account in the same proportion as the Policy Value in
each Account bears to the Net Policy Value.
ADMINISTRATION CHARGE
Currently we deduct a charge of $12 per Policy Month, which is guaranteed never
to be exceeded. This charge is intended 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 a Policy.
COST OF INSURANCE CHARGE
A monthly charge for the cost of insurance is determined by multiplying a cost
of insurance rate by the net amount at risk at the beginning of each Policy
Month.
A net amount at risk is equal to the greater of zero, or (a) minus (b), where
(a) is the applicable death benefit amount on the first day of the
month, divided by 1.0024663; and
(b) is the Policy Value attributed to that death benefit amount on the
first day of the month.
Cost of insurance rates and net amounts at risk are determined separately for
each Coverage Amount and for the excess of the Death Benefit over the Face
Amount (the Face Amount is the sum of the Coverage Amounts).
ATTRIBUTION OF POLICY VALUE FOR NET AMOUNTS AT RISK
To determine the net amounts at risk, the Policy Value will be attributed to
Coverage Amounts in the order listed in the Policy. The amount of Policy Value
attributed to a Coverage Amount will be limited to the amount that results in
zero net amount at risk, and any excess Policy Value will then be attributed to
the next listed Coverage Amount. Attribution will continue in this manner until
either the entire Policy Value is attributed or the end of the list of Coverage
Amounts is reached. Any remaining Policy Value will then be attributed to the
excess of the Death Benefit over the Face Amount.
CURRENT COST OF INSURANCE RATES
Cost of insurance rates are determined separately for each Coverage Amount and
the excess of the Death Benefit over the Face Amount. There are different
current cost of insurance rate bases for:
Coverage Amounts having Sales Loads,
Coverage Amounts having Surrender Charges, and
The excess of the Death Benefit over the Face Amount, including any Term
Insurance Benefit under the FTIO Rider.
The cost of insurance rate in a specific Policy Month for an applicable death
benefit amount will depend on:
- the cost of insurance rate basis for the applicable death benefit
amount,
- the life insured's Attained Age, sex (unless unisex rates are
required by law) and smoking status on the effective date of the
applicable death benefit amount,
- the underwriting class of the applicable death benefit amount,
- the Coverage Year, or Policy Year for the excess of the Death
Benefit over the Face Amount,
- any extra charges for substandard ratings, as stated in the Policy.
Cost of insurance rates will generally increase with the life insured's age and
the Coverage Year.
Cost of insurance rates reflect our expectation as to future mortality
experience. They are also intended to cover our general costs of providing the
Policy, to the extent that these costs are not covered by other charges. Current
cost of insurance rates may be changed by us on a basis that does not unfairly
discriminate within the class of lives insured.
GUARANTEED MAXIMUM COST OF INSURANCE RATES
In no event will the cost of insurance rates we charge exceed the guaranteed
maximum rates set forth in the Policy, except to the extent that an extra charge
is imposed for a substandard rating. The guaranteed rates are the 1980
Commissioners Standard Ordinary Sex Distinct (unless unisex rates are required
by law) ANB Aggregate Ultimate Mortality Tables
ASSET BASED RISK CHARGE DEDUCTED FROM INVESTMENT ACCOUNTS
We assess a daily charge against amounts in the Investment Accounts. This charge
is intended to compensate us for insurance risks we assume under the Policy,
such as benefit payments and expenses that are higher than we expected. We will
realize a gain from this charge to the extent it is not needed to provide
benefits and pay expenses under the Policy.
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The charge is a percentage of amounts in the Investment Accounts, which will
reduce Unit Values of the sub-accounts. The charge is guaranteed never to exceed
0.0013699% (a annual rate of 0.50%). Currently, we charge the following rates:
Policy Year Daily Asset Based Risk Charge Annual Rate
1-10 0.0013699% 0.50%
11+ 0.0006849% 0.25%
REDUCTION IN CHARGES AND ENHANCED SURRENDER VALUES
The Policy is designed for employers and other sponsoring organizations that may
purchase multiple policies as a Case. The size or nature of the Case may result
in expected savings of sales, underwriting, administrative or other costs. If
so, we expect to offer reductions of Policy charges and enhancements of
surrender value. Eligibility for reductions and enhancements and the amounts
available 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 policyholder, the nature of the relationship among the lives
insured, the purpose for which the policies are being purchased, expected
persistency of the individual policies, and any other circumstances which we
believe to be relevant to the expected reduction of our expenses. Some of
reductions and enhancements may be guaranteed and others may be subject to
restrictions or to withdrawal or modification, on a uniform Case basis. We may
change the nature and amount of reductions and enhancements available from time
to time. Reductions and enhancements will be determined in a way that is not
unfairly discriminatory to policyholders.
COMPANY TAX CONSIDERATIONS
Currently, we make no specific charge to the Separate Account for any federal,
state, or local taxes that we incur that may be attributable to such Account or
to the Policy. We reserve the right in the future to make a charge for any such
tax or other economic burden resulting from the application of tax laws that we
determines to be attributable to the Separate Account or to the Policy.
POLICY VALUE
DETERMINATION OF THE POLICY VALUE
A Policy has a Policy Value, a portion of which is available to you 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. 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 determined by
Manulife USA that is lower than the loan interest rate charged on Policy Debt.
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 cancelled whenever amounts are deducted, transferred
or withdrawn from the sub-account. The number of units credited or cancelled 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.
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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 that 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 that
is not a Business Day will be made on the next Business Day.
UNIT VALUES
The value of a unit of each sub-account was initially fixed at $10.00. For each
subsequent Business Day the unit value for that sub-account is determined by
multiplying the unit value for the immediately preceding Business Day by the net
investment factor for the that sub-account on such subsequent Business Day.
The net investment factor for a sub-account on any Business Day is equal to (a)
divided by (b) minus (c), 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 transaction are made on that day;
(b) is the net asset value of the underlying Portfolio shares held by
that sub-account as of the end of the immediately preceding Business
Day after all policy transaction were made for that day; and
(c) is a charge not exceeding the daily mortality and expense risk
charge shown in the "Charges and Deductions - Asset Based Risk
Charge Deducted from Investment Accounts" section.
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, you may transfer Policy Value from one sub-account to another or to
the Fixed Account. We reserve the right to impose limitations on transfers,
including limiting the number of transfers and amounts transferred in a period
of time in accordance with applicable law. We would impose such transfer
limitations in a manner that does not unfairly discriminate between individual
policy owners. Transfers may also be delayed when any of the events described
under items (i) through (iii) in "Payment of Proceeds" occur. In addition,
transfer privileges are 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 of redeem shares of the Trust.
The Policy is not designed for professional market timing organizations or other
entities or persons engaging in programmed, frequent or large exchanges
(collectively, "market timers") to speculate on short-term movements in the
market since such activity may be disruptive to the Trust portfolios and
increase their transaction costs. Therefore, in order to prevent excessive use
of the transfer privilege, we reserve the right to impose specific limitations
with respect to market timers, including restricting exchanges by market timer
to certain variable investment options. Any action take by us pursuant to this
provision will be preceded by written notice to the affected policy owner.
TRANSFER REQUESTS
Transfer requests may be made in writing in a format satisfactory to us. From
time to time we may offer you alternate means of communicating transfer requests
to us, such as electronic mail, the Internet or telephone. We will use
reasonable procedures to confirm that instructions received by alternate means
are genuine and we will not be liable for following instructions we have
reasonably determined to be genuine.
LIMITATIONS ON TRANSFERS FROM THE FIXED ACCOUNT
The maximum amount that may be transferred from the Fixed Account in any Policy
Year is 25% of the Fixed Account Value at the previous Policy Anniversary. Any
transfer that involves a transfer out of the Fixed Account may not involve a
transfer to the Investment Account for the Money Market Trust. We may allow
greater amounts to be transferred from the Fixed Account if a systematic plan of
withdrawals is agreed to in advance. For example, we will allow the transfer of
20%, 25%, 33%, 50% and 100% of the remaining balance in the Fixed Account in
five successive years provided we agree in advance in writing and that no
amounts are transferred into the Fixed Account during the 5 year period.
POLICY LOANS
At any time while the Policy is in force, you may borrow against the Policy
Value. The Policy is the only security for the loan. Policy loans may have tax
consequences. See "Tax Treatment of Policy Benefits - Policy Loan Interest."
A policy loan will affect future Policy Values, since the portion of the Policy
Value in the Loan Account will receive the loan interest credited rate rather
than varying with the performance of the underlying Portfolios or increasing at
the Fixed Account interest credited rate. A policy loan may cause a Policy to be
more susceptible to lapse since it reduces the Net Cash Surrender Value from
which
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monthly deductions are taken. A policy loan causes the amount payable upon death
of the life insured to be reduced by the amount of outstanding Policy Debt.
MAXIMUM LOAN
The amount of any loan cannot exceed the amount that would cause the Policy Debt
to equal the Policy's Cash Surrender Value less the monthly deductions due from
the date of the loan to the to the next Policy Anniversary.
INTEREST CHARGED ON LOANS
Interest on the Policy Debt will accrue daily and be payable annually on the
Policy Anniversary. The rate of interest charged will be an effective annual
rate of 4%.
LOAN ACCOUNT
When a loan is made, an amount equal to the loan will be deducted from the
Investment Accounts or the Fixed Account and transferred to the Loan Account.
You may designate how this amount is allocated among the Accounts. If you give
no instructions, the amount transferred will be allocated among the Investment
Accounts and the Fixed Account in the same proportion as the Policy Value in
each 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
Policy Value in the Loan Account will earn interest at an effective annual rate
guaranteed to be at least 3.25%. We may declare a current interest rate that is
greater than this, subject to change at any time. The excess of the loan
interest charged rate (4%) over the loan interest credited rates will result in
a net charge against the Policy Value with respect to any Policy Debt.
Currently we credit loan interest rates which vary by Policy Year as follows:
Policy Years Current Loan Excess Loan Interest
Interest Charged Rate
Credited Rates
1-10 3.25% 0.75%
11+ 3.75% 0.25%
LOAN ACCOUNT ADJUSTMENTS
On the first day of each Policy Month the difference between the Loan Account
and the Policy Debt is transferred to the Loan Account from the Investment
Accounts or the Fixed Account. The amount transferred will be allocated to the
Investment Accounts and the Fixed Account in the same proportion as the Policy
Value in each 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 while the Policy is in force. A loan repayment amount will
be credited to the Loan Account and transferred to the Fixed Account or the
Investment Accounts in the same proportion as the Policy Value in each Account
bears to the Net Policy Value.
Amounts paid to us not specifically designated in writing as loan repayments
will be treated as premiums.
POLICY SURRENDER AND PARTIAL WITHDRAWALS
POLICY SURRENDER
A Policy may be surrendered for its Net Cash Surrender Value at any time while
the life insured is living. The Net Cash Surrender Value is equal to the Policy
Value less any Surrender Charges, monthly deductions due and Policy Debt. The
Net Cash Surrender Value will be determined at the end of the Business Day on
which we receive the Policy and a written request for surrender at the Service
Office. When a Policy is surrendered, the insurance coverage and all other
benefits under the Policy will terminate.
PARTIAL WITHDRAWALS
You may make a partial withdrawal of the Net Cash Surrender Value at any time.
You may designate how the withdrawal amount is allocated among the Investment
Account and the Fixed Account. If you give no instructions, the withdrawal
amount will be allocated among the Accounts in the same proportion as the Policy
Value in each Account bears to the Net Policy Value.
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Surrender Charges may be assessed on a Partial Withdrawal. See "Charges and
Deductions - Surrender Charges." The Death Benefit may be reduced as a result of
a Partial Withdrawal. See "Death Benefits - Decreases in Face Amount under Death
Benefit Option 1 due to a Partial Withdrawal").
LAPSE AND REINSTATEMENT
LAPSE
A Policy will go into default if at the beginning of a Policy Month if the Net
Cash Surrender Value would go below zero after deducting the monthly deduction
then due. A lapse could have adverse tax consequences as described under "Tax
Treatment of the Policy - Tax Treatment of Policy Benefits - Surrender or
Lapse." We will notify you of the default and will allow you a 61-day grace
period in which to make a premium payment sufficient to bring the Policy out of
default. The required payment will be equal to the amount necessary to bring the
Net Cash Surrender Value to zero, if it was less than zero on the date of
default, plus the monthly deductions due at the date of default and payable at
the beginning of each of the two Policy Months thereafter, plus any applicable
premium load. If the required payment is not received by the end of the grace
period, the Policy will terminate with no value.
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 on the date of
default and the insurance benefit will be reduced by any outstanding monthly
deductions due at the time of death.
REINSTATEMENT
You may reinstate a Policy that 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) The Policy must not have been surrendered for its Net Cash Surrender
Value;
(b) Evidence of the life insured's insurability satisfactory to us must be
provided; and
(c) A premium equal to the payment required during the grace period
following default to keep the Policy in force is paid.
THE GENERAL ACCOUNT
The general account of Manulife USA consists of all assets owned by us other
than those in the Separate Account and other separate accounts of the Company.
Subject to applicable law, we have sole discretion over 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
You may allocate net premiums to the Fixed Account or 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 our 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 you to share
in the investment experience of the general account. Instead, we guarantee that
the Policy Value in the Fixed Account will accrue interest daily at an effective
annual rate of at least 3%, without regard to the actual investment experience
of the general account. We may declare a current interest rate in excess of the
guaranteed rate, subject to change at any time.
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OTHER PROVISIONS OF THE POLICY
POLICYHOLDER RIGHTS
Unless otherwise restricted by a separate agreement, you may:
- - Vary the premiums paid under the Policy.
- - Change the Death Benefit Option.
- - Change the premium allocation for future premiums.
- - Transfer amounts between sub-accounts.
- - Take loans and/or partial withdrawals.
- - Surrender the contract.
- - Transfer ownership to a new owner.
- - Name a contingent owner that will automatically become owner if you
die before the life insured.
- - Change or revoke a contingent owner.
- - Change or revoke a beneficiary.
ASSIGNMENT OF RIGHTS
We will not be bound by an assignment until we receive a copy of the assignment
at the Service Office. We assume no responsibility for the validity or effects
of any assignment.
BENEFICIARY
You may appoint one or more beneficiaries of the Policy by naming them in the
application. Beneficiaries may be appointed in three classes - primary,
secondary, and final. Beneficiaries may also be revocable or irrevocable. Unless
an irrevocable designation has been elected, you may change the beneficiary
during the life insured's lifetime by giving written notice in a form
satisfactory to us. If the life insured dies and there is no surviving
beneficiary, you, or your estate if you are the life insured, will be the
beneficiary. If a beneficiary dies before the seventh day after the death of the
life insured, we will pay the insurance benefit as if the beneficiary had died
before the life insured.
INCONTESTABILITY
We will not contest the validity of a Policy after it has been in force during
the life insured's lifetime for two years from the Issue Date stated in the
Policy, nor will we contest the validity of an increase in Face Amount after it
has been in force during the life insured's lifetime for two years. If a Policy
has been reinstated, we can contest any misrepresentation of a fact material to
the reinstatement for a period of two years after the reinstatement date.
MISSTATEMENT OF AGE OR SEX
If the life insured's stated age or sex or both in the Policy are incorrect, we
will change the Face Amount 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, whether sane or insane, dies by suicide within two years
from the Issue Date stated in The Policy (or within the maximum period permitted
by the state in which the Policy was delivered, if less than two years), we will
pay only the premiums paid less any partial withdrawals and any Policy Debt. If
the life insured should die by suicide within two years after a Face Amount
increase, the Death Benefit for the increase will be limited to the monthly
deductions for the increase. At our discretion, this provision may be waived,
such as policies purchased in conjunction with certain existing benefit plans.
SUPPLEMENTARY BENEFITS
Subject to certain requirements, one or more supplementary benefits may be added
to a Policy, including the FTIO Rider (see "Death Benefits - Flexible Term
Insurance Option Rider") and, in the case of a Policy owned by a corporation or
other similar entity, a benefit permitting a change in the life insured (a
taxable event). More detailed information concerning this supplementary benefit
may be obtained from us. There is no cost for any supplementary benefit
currently offered by us, with the exception of FTIO Rider (see "Charges and
Deductions - Monthly Deductions").
TAX TREATMENT OF THE POLICY
The following summary provides a general description of the federal income tax
considerations associated with the Policy and does not purport to be complete or
to cover all situations. This discussion is not intended as tax advice. Counsel
or other competent tax advisers should be consulted for more complete
information. This discussion is based upon our understanding of the present
federal income tax laws as they are currently interpreted by the Internal
Revenue Service (the "Service"). 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.
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The Policy 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 the
Policy in any such arrangement, the value of which depends in part on the tax
consequences, is contemplated, a qualified tax adviser should be consulted for
advice on the tax attributes of the particular arrangement.
Manulife USA is taxed as a life insurance company. Because the operations of the
Separate Account are a part of, and are taxed with, our operations, the Separate
Account is not separately taxed as a "regulated investment company" under the
Code. Under existing Federal income tax laws, we are not taxed on the investment
income and capital gains of the Separate Account, but we may be eligible for
certain tax credits or deductions relating to foreign taxes paid and dividends
received by Trust portfolios. Our use of these tax credits or deductions will
not adversely affect or benefit the Separate Account. We do not anticipate that
it will be taxed on the income and gains of the Separate Account in the future,
but if we are, we 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 Internal Revenue Code, and thereby to enjoy
the tax benefits of such a contract:
1. The Policy must satisfy the definition of life insurance under Section
7702 of the Code.
2. The investments of the Separate Account must be "adequately diversified"
in accordance with Section 817(h) of the Code and Treasury Regulations.
3. The Policy must be a valid life insurance contract under applicable state
law.
4. The policyholder must not possess "incidents of ownership" in the assets
of the Separate Account.
These four items are discussed in detail below.
DEFINITION OF LIFE INSURANCE
Section 7702 of the Code sets forth a definition of a life insurance contract
for federal tax purposes. For a Policy to be a life insurance contract, it must
satisfy either the Cash Value Accumulation Test or the Guideline Premium Test.
By limiting cash value at any time to the net single premium that would be
required in order to fund future benefits under the contract, 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 which is issued on the basis of a standard rate class,
we believe (largely in reliance on IRS Notice 88-128 and the proposed mortality
charge regulations under Section 7702, issued on July 5, 1991) that such a
Policy should meet the Section 7702 definition of a life insurance contract.
With respect to a Policy that is issued on a substandard basis (i.e., a 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 policyholder 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, we
may take whatever steps are appropriate and reasonable to attempt to cause such
a Policy to comply with Section 7702. For these reasons, we reserve the right to
restrict Policy transactions as necessary to attempt to qualify it as a life
insurance contract under Section 7702.
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. We believe that
the Separate Account will thus meet the diversification requirement, and we will
monitor continued compliance with the requirement.
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STATE LAW
A Policy must qualify as a valid life insurance contract under applicable state
laws. State regulations require that the policyholder 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
policyholder's gross income. The IRS has stated in published rulings that a
variable policyholder will be considered the owner of separate account assets if
the policyholder 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 policyholder), 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 policyholders 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 policyholders were not owners of separate account assets. For example, the
Policy has many more portfolios to which policyholders may allocate premium
payments and Policy Values than were available in the policies described in the
rulings. These differences could result in an owner being treated as the owner
of a pro-rata portion of the assets of the Separate Account. In addition, we do
not know what standards will be set forth, if any, in the regulations or rulings
which the Treasury Department has stated it expects to issue. We therefore
reserve the right to modify the Policy as necessary to attempt to prevent an
owner from being considered the owner of a pro rata share of the assets of the
Separate Account.
TAX TREATMENT OF POLICY BENEFITS
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes. We believe that the proceeds
and cash value increases of a Policy should be treated in a manner consistent
with a fixed-benefit life insurance policy for federal income tax purposes.
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 policyholder or
beneficiary.
DEATH BENEFIT
The death benefit under the Policy should be generally excludible from the gross
income of the beneficiary under Section 101(a)(1) of the Code. A transfer of the
Policy for valuable consideration, however, may cause a portion of the death
benefit to be taxable (See "Other Transactions" below).
CASH VALUES
Generally, the policyholder will not be deemed to be in constructive receipt of
the Policy Value until there is a distribution. This includes additions
attributable to interest, dividends, appreciation or gains realized on transfers
among sub-accounts.
INVESTMENT IN THE POLICY
Investment in the Policy means:
(a) the aggregate amount of any premiums or other consideration paid for the
Policy; minus
(b) the aggregate amount, other than loan amounts, received under the Policy
which has been excluded from the gross income of the policyholder (except
that the amount of any loan from, or secured by, a Policy that is a
Modified Endowment Contract or "MEC," to the extent such amount has been
excluded from gross income, will be disregarded); plus
(c) 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
policyholder.
The repayment of a policy loan, or the payment of interest on a loan, does not
affect the Investment in the Policy.
35
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, 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-MECS
A distribution from a non-MEC is generally treated as a tax-free recovery by the
policyholder 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 policyholder.
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 policyholder 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 MECS
Policies classified as MECs will be subject to the following tax rules:
(a) First, all partial withdrawals from such a Policy are treated as ordinary
income subject to tax up to the amount equal to the excess (if any) of the
Policy Value immediately before the distribution over the Investment in
the Policy at such time.
(b) Second, loans taken from or secured by such a Policy and assignments and
pledges of any part of its value are treated as partial withdrawals from
the Policy and taxed accordingly. Past-due loan interest that is added to
the loan amount is treated as a loan.
(c) 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:
(i) is made on or after the policyholder attains age 59 1/2;
(ii) is attributable to the policyholder becoming disabled; or
(iii) is part of a series of substantially equal periodic payments for the
life (or life expectancy) of the policyholder or the joint lives (or
joint life expectancies) of the policyholder and the policyholder's
beneficiary.
These exceptions are not likely to apply in situations where the Policy is not
owned by an individual.
Definition of Modified Endowment Contracts
Section 7702A establishes a class of life insurance contracts designated as
"Modified Endowment Contracts," which applies to Policies entered into or
materially changed after June 20, 1988.
In general, a Policy will be a Modified Endowment Contract if the accumulated
premiums paid at any time during the first seven policy years exceed the
"seven-pay premium limit". The seven-pay premium limit on any date is equal to
the sum of the net level premiums that would have been paid on or before such
date if the Policy provided for paid-up future benefits after the payment of
seven level annual premiums (the "seven-pay premium").
The rules relating to whether a Policy will be treated as a MEC are extremely
complex and cannot be adequately described in the limited confines of this
summary. Therefore, a current or prospective policyholder 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 depends upon the relationship among
36
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 us 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, we will not apply the portion of the
premium which would cause MEC status ("excess premium") to the Policy when
received. The excess premium will be placed in a suspense account until the next
Policy Anniversary, 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 will be refunded to the policyholder). The policyholder 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
policyholder does not respond, the premium and interest will be applied as
described above).
If a premium, which would cause the Policy to become a MEC, is received more
than 23 days prior to the next Policy Anniversary, we will refund any excess
premium to the policyholder. The portion of the premium which is not excess will
be applied as of the date received. The policyholder 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.
Multiple Policies
All MEC's that are issued by a Company (or its affiliates) to the same
policyholder during any calendar year are treated as one MEC for purposes of
determining the amount includible in gross income under Section 72(e) of the
Code.
POLICY LOAN INTEREST
Generally, personal interest paid on any loan under a Policy which is owned by
an individual is not deductible. For policies purchased on or after January 1,
1996, interest on any loan under a Policy owned by a taxpayer and covering the
life of any individual who is an officer or employee of or is financially
interested in the business carried on by the taxpayer will not be tax deductible
unless the employee is a key person within the meaning of Section 264 of the
Code. A deduction will not be permitted for interest on a loan under a Policy
held on the life of a key person to the extent the aggregate of such loans with
respect to contracts covering the key person exceed $50,000. The number of
employees who can qualify as key persons depends in part on the size of the
employer but cannot exceed 20 individuals.
Furthermore, if a non-natural person owns a Policy, or is the direct or indirect
beneficiary under a Policy, section 264(f) of the Code disallows a pro-rata
portion of the taxpayer's interest expense allocable to unborrowed Policy cash
values attributable to insurance held on the lives of individuals who are not
20% (or more) owners of the taxpayer-entity, officers, employees, or former
employees of the taxpayer.
The portion of the interest expense that is allocable to unborrowed Policy cash
values is an amount that bears the same ratio to that interest expense as the
taxpayer's average unborrowed Policy cash values under such life insurance
policies issued after June 8, 1997 bear to the sum of such average unborrowed
cash values and the average adjusted bases for all other assets of the taxpayer.
If the policyholder is an individual, and if the taxpayer is a business and is
not the policyholder, 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.
POLICY EXCHANGES
A policyholder generally will not recognize gain upon the exchange of a Policy
for another life insurance policy covering the same life insured and issued by
us or another insurance company, except to the extent that the policyholder
receives cash in the exchange or is relieved of Policy indebtedness as a result
of the exchange. In no event will the gain recognized exceed the amount by which
the Policy Value (including any unpaid loans) exceeds the policyholder's
Investment in the Policy.
37
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 policyholder and beneficiary.
ALTERNATE MINIMUM TAX
Corporate owners may be subject to Alternate Minimum Tax on the annual increases
in Cash Surrender Values and on the Death Benefit proceeds.
INCOME TAX REPORTING
In certain employer-sponsored life insurance arrangements, including equity
split-dollar arrangements, participants may be required to report for income tax
purposes, one or more of the following:
(a) the value each year of the life insurance protection provided;
(b) an amount equal to any employer-paid premiums;
(c) income equal to imputed interest on deemed employer loan; or
(d) 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, we will ordinarily pay any policy loans,
surrenders, partial withdrawals or insurance benefit within seven days after
receipt at the Service Office of all the documents required for such a payment.
We may delay the payment of any policy loans, surrenders, partial withdrawals,
or insurance benefit that depends on Fixed Account values for up to six months
or in the case of any Investment Account for any period during which (i) the New
York Stock Exchange is closed for trading (except for normal weekend and holiday
closings), (ii) trading on the New York Stock Exchange is restricted (iii) an
emergency exists as a result of which disposal of securities held in the
Separate Account is not reasonably practicable or it is not reasonably
practicable to determine the value of the Separate Account's net assets or (iv)
the SEC, by order, so permits for the protection of security holders; provided
that applicable rules and regulations of the SEC shall govern as to whether the
conditions described in (2) and (3) exist.
REPORTS TO POLICYHOLDERS
Within 30 days after each Policy Anniversary, we will send you 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.
You 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 Securities"), an indirect wholly
owned subsidiary of MFC, will act as the principal underwriter of, and
continuously offer, the Policies pursuant to a Distribution Agreement with
Manulife USA. Manulife Securities is registered as a broker-dealer under the
Securities Exchange Act of 1934 and is a member of the National Association of
Securities Dealers. Manulife Securities is located at 73 Tremont Street, Boston,
MA 02108 and is organized as a Delaware limited liability company. The managing
member of Manulife Securities is Manulife USA. The Policies will be sold by
registered representatives of
38
either Manulife Securities or other broker-dealers having distribution
agreements with Manulife Securities who are authorized by state insurance
departments to do so. The Policies will be sold in all states of the United
States except New York.
A registered representative will receive commissions not to exceed 25% of
premiums paid up to the Annual Premium Target, and 5% of premiums paid in excess
of the Annual Premium Target in Policy Years 1 through 5, commissions of 5% of
premiums paid in Policy Years 6 and later, and after the fifth Policy
Anniversary 0.20% of the Policy Value per year. Representatives who meet certain
productivity standards with regard to the sale of the Policies and certain other
policies issued by Manulife USA or Manufacturers Life will be eligible for
additional compensation.
RESPONSIBILITIES OF MFC
MFC entered into an agreement with Manulife Securities pursuant to which MFC, on
behalf of Manulife Securities will pay the sales commissions in respect of the
Policies and certain other policies issued by Manulife USA, prepare and maintain
all books and records required to be prepared and maintained by Manulife
Securities with respect to the Policies and such other policies, and send all
confirmations required to be sent by Manulife Securities with respect to the
Policies and such other policies. Manulife Securities will promptly reimburse
MFC for all sales commissions paid by MFC and will pay MFC for its other
services under the agreement in such amounts and at such times as agreed to by
the parties.
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 recordkeeping functions on behalf of Manulife USA with respect to
all of its insurance policies including the Policies.
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 policyholders having an interest in such sub-accounts. Shares held in each
sub-account for which no timely instructions from policyholders 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 policyholder 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, we
may disregard voting instructions that would require changes in the investment
policies or investment adviser, provided that we reasonably disapprove such
changes in accordance with applicable federal regulations. If Manulife USA does
disregard voting instructions, it will advise policyholders of that action and
its reasons for such action in the next communication to policyholders.
SUBSTITUTION OF PORTFOLIO SHARES
It is possible that in the judgment of the management of Manulife USA, one or
more of the Portfolios may become unsuitable for investment by the Separate
Account because of a change in investment policy or a change in the applicable
laws or regulations, because the shares are no longer available for investment,
or for some other reason. In that event, Manulife USA may seek to substitute the
shares of another Portfolio or of an entirely different mutual fund. Before this
can be done, the approval of the SEC and one or more state insurance departments
may be required.
Manulife USA also reserves the right (i) to combine other separate accounts with
the Separate Account, (ii) to create new separate accounts, (iii) to establish
additional sub-accounts within the Separate Account to invest in additional
portfolios of the Trust or another management investment company, (iv) to
eliminate existing sub-accounts and to stop accepting new allocations and
transfers into the corresponding portfolio, (v) to combine sub-accounts or to
transfer assets in one sub-account to another sub-account or (vi) to transfer
assets from the Separate Account to another separate account and from another
separate account to the Separate Account. We also reserve 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.
39
RECORDS AND ACCOUNTS
The Service Office is responsible for performing all administrative functions,
such as decreases, increases, surrender and partial withdrawals, and fund
transfers although certain of these functions may be delegated to McCamish
Systems, L.L.C., 6425 Powers Ferry Road, Atlanta, Georgia 30339.
All records and accounts relating to the Separate Account and the Portfolios
will be maintained by us. All financial transactions will be handled by us. All
reports required to be made and information required to be given will be
provided the Company or by McCamish Systems on behalf of us.
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 N of The Manufacturers Life Insurance Company (U.S.A.) (formerly known
as Separate Account Four 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.
FINANCIAL STATEMENTS
The most current financial statements of The Manufacturers Life Insurance
Company (U.S.A.) ("ManUSA") are those as of December 31, 2001. ManUSA does not
customarily issue U.S. GAAP financial statements more often than annually and
believes that any incremental benefit to prospective policyowners that may
result from issuing and delivery more current financial statements, though
unaudited, does not justify the additional cost that would be incurred. In
addition, ManUSA represents that there have been no adverse changes in the
financial condition or operations of the company between December 31, 2001 and
the date of this prospectus.
FURTHER INFORMATION
A registration statement under the Securities Act of 1933 has been filed with
the SEC relating to the offering described in this prospectus. This prospectus
does not include all the information set forth in the registration statement.
The omitted information may be obtained from the SEC's principal office in
Washington D.C. upon payment of the prescribed fee. The SEC also maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC which is
located at http://www.sec.gov.
For further information you may also contact Manulife USA's home office, the
address and telephone number of which are on the first page of the prospectus.
40
OFFICERS AND DIRECTORS
POSITION WITH
NAME MANULIFE USA PRINCIPAL OCCUPATION
- ---- ------------ --------------------
James Boyle (43)** President, President, U.S. Annuities, Manulife USA, January 2002 to present; Senior Vice
U.S. Annuities, Director 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, President, U.S. Individual Insurance, Manulife USA, January 2002 to present;
(47)** U.S. Insurance; Director 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 Copestake Vice President, Finance Vice President, Finance, Manulife USA, December 1999 to present; Vice President
(46)*** & Treasurer, The Manufacturers Life Insurance Company, November 1999 to
present; Vice President, Asset Liability Management, Canadian Imperial Bank of
Commerce (CIBC), 1991 to 1999; Director, Capital Management, Bank of Montreal,
1986-1990; Inspector General of Banks, Department of Finance, 1980-1985.
John D. DesPrez Chairman and President President, Manulife USA, January 1999 to date; Executive Vice President, U.S.
III (45)** Operations, The Manufacturers Life Insurance 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. Gallagher Vice President, Vice President, Secretary & General Counsel, Manulife USA, January 1996 to
(47)** Secretary and General present; Vice President, Chief Legal Officer & Government Relations, U.S.
Counsel 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 President Executive Vice President & Chief Investments Officer, Manulife USA, June 2001
(45)*** and Chief Investment to present; Executive Vice President & Chief Investment Officer, The
Officer 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.
41
POSITION WITH
NAME MANULIFE USA PRINCIPAL OCCUPATION
- ---- ------------ --------------------
Geoffrey Guy Director Executive Vice President and Chief Actuary, The Manufacturers Life Insurance
(54)*** 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 USA, June 2001
(49) *** Chief Financial to present; Vice President & Chief Financial Officer, Investments, The
Officer, Investments; Manufacturers Life Insurance Company; April 2001 to present; Vice President,
Director Business Development, The Manufacturers Life Insurance Company, 1995-2001;
Assistant Vice President, Business Development, The Manufacturers Life Insurance
Company, 1994-1995; Director/Manager, Corporate Finance, The Manufacturers Life
Insurance Company, 1992-1994.
Steven Mannik President, Reinsurance; President, Reinsurance, Manulife USA, January 2001 to present; Senior Vice
(43)*** Director President, Reinsurance Operations, The Manufacturers 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, President, U.S. Pensions, Manulife USA, January 2002 to present, Senior Vice
(55)*** U.S. Pensions; Director 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 Schlaybaugh, Director Member, Dykema Gossett, PLLC, 1982 to present; Vice Chairman, Oxford
Jr. (52)**** Automotive, Inc. 1997 to present
John Ostler Executive Vice Executive Vice President and Chief Financial Officer, Manulife USA, January
(48)*** President and Chief 2002 to present; Vice President and Chief Financial Officer, Manulife USA,
Financial Officer 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 President, Senior Vice President, Investments, Manulife USA, June 2001 to present; Senior
(47)*** Investments Vice President, Investments, The Manufacturers 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.
42
POSITION WITH
NAME MANULIFE USA PRINCIPAL OCCUPATION
- ---- ------------ --------------------
Denis Turner Senior Vice President Senior Vice President and Treasurer, Manulife USA, January 2002 to present;
(45)*** and Treasurer Vice President and Treasurer, Manulife USA, May 1999 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.
43
Appendix A
Definitions
Annual Premium Target
is an amount set forth in the Policy that limits the amount of premium
attributable to a Coverage Amount in Surrender Charge or Sales Load
calculations.
Attained Age
is the Issue Age of the life insured plus the number of completed Policy Years.
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 trading of the New York Stock Exchange
(currently 4:00 p.m. Eastern Time) on that day.
Case
is a group of Policies insuring individual lives with common employment or other
relationship, independent of the Policies.
Cash Surrender Value
is the Policy Value less the Surrender Charge and any outstanding monthly
deductions due.
Coverage Amount
is an amount of insurance coverage under the Policy with a distinct effective
date. The Face Amount of the Policy at any time is the sum of the Coverage
Amounts in effect.
Coverage Year
is a one-year period beginning on a Coverage Amount's effective date and on each
anniversary of this date. For Coverage Amounts in effect on the Policy's
Effective Date, the Coverage Year is the same as the Policy Year.
Fixed Account
is the part of the Policy Value that reflects the value you have in our general
account.
Investment Account
is the part of the Policy Value that reflects the value you have in one of the
sub-accounts of the Separate Account.
Issue Age
is the life insured's age on the birthday closer to the Policy Date.
Loan Account
is the part of the Policy Value that reflects policy loans and interest credited
to the Policy Value in connection with such loans.
Minimum Initial Premium
is the sum of the Monthly Deductions due for the first 3 Policy Months plus the
Premium Charges deductible from this amount.
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 premium paid less the Premium Load and Sales Load.
44
Policy Date, Policy Anniversary, Policy Month and Policy Year
Policy Date is the date from which the first Monthly Deductions are calculated
and from which Policy Years, Policy Months, and Policy Anniversaries are
measured.
Policy Debt
on any date is the aggregate amount of policy loans, including borrowed and
accrued interest, less any loan repayments.
Policy Value
is the sum of the values in the Loan Account, the Fixed Account, and the
Investment Accounts.
Service Office
is 200 Bloor Street East, Toronto, Ontario, Canada M4W 1E5, or such other
address as we specify to you by written notice.
45
APPENDIX B
ILLUSTRATIONS
The following tables illustrate the way in which a Policy's Death Benefit,
Policy Value, and Cash Surrender Value could vary over an extended period of
time.
ASSUMPTIONS
- - Hypothetical gross annual investment returns for the Portfolios (i.e.,
investment income and capital gains and losses, realized or unrealized)
equivalent to constant gross annual rates of 0%, 6%, and 12% over the
periods indicated.
- - A life insured who is a male, Issue Age 45, non-smoker. Short Form
Underwriting was used.
- - A Face Amount of $365,000 and Death Benefit Option 1 in all Policy Years.
- - Payment of an annual premium of $20,000 on the first day of each of the
first seven Policy Years.
- - All policy values are allocated to the Investment Accounts for the entire
period shown.
- - There are no partial withdrawals or policy loans.
- - Tables 1, 2, and 3 assumes a Surrender Charge
- - Tables 4, 5, and 6 assume a Sales Load.
- - The Cash Value Accumulation Test is used.
- - All currently applicable charges and deductions are assessed against the
Policy, i.e. a Premium Load, Sales Load or Surrender Charge, monthly Cost
of Insurance Charge and Administration Charge and an Asset Based Risk
Charge deducted daily from Investment Accounts. The first set of columns
in each table, under the heading "Current Charges", assumes rates of
charges and deductions that we currently expect to charge. The second set
of columns, under the heading "Guaranteed Charges", assumes maximum rates
of charges and deductions.
- - The amounts shown in the Tables also take into account the Portfolios'
investment management fees and other expenses, which are assumed to be at
an annual rate of .971% of the average daily net assets of the portfolio.
The Death Benefits, Policy Values, and Cash Surrender Values would be different
from those shown if the returns averaged 0%, 6%, and 12%, but fluctuated over
and under those averages throughout the years. The values would also be
different depending on the allocation of the Policy Value among the Portfolios,
if the actual rates of return averaged 0%, 6%, or 12%, but the rates of each
Portfolio varied above and below such averages.
The gross annual rates of returns correspond to net annual rates of return
according to the table below:
Gross Rate of Return
Policy Year 0.00% 6.00% 12.00%
----------- ----- ----- ------
Net Rate 1-10 -1.46% 4.45% 10.36%
of Return 11+ -1.26% 4.66% 10.59%
Current Cost of Insurance are below the guaranteed rates in many instances and
may be changed. The Premium Load rate and Asset Based Risk Charge rate we
currently expect to charge in Policy Years 11 and later are below the guaranteed
rates and may be changed.
The illustrations reflect the expense reimbursement in effect for the Science &
Technology, International Stock, Blue Chip Growth, Health Sciences Trust, Small
Company Value Trust, Equity-Income and Lifestyle Trusts and the expense
limitations in effect for the Capital Opportunities Trust, the Utilities Trust
and the Index Trusts and the waiver of Policy charges in effect for the 500
Index Trust. In the absence of such expense reimbursement and expense
limitation, the average of the Portfolios' current expenses would have been
..977% 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 -1.47%, 4.44% and
10.36% for Policy Years 1-10 and 1.27%, 4.65% and 10.58% for Policy Years 11 and
after. The expense reimbursement for the Life-style Trusts and the expense
limitation for the Equity Index Trust remained in effect during the fiscal year
ended December 31, 2001 and are expected to remain in effect during the fiscal
year ending December 31, 2002. Were the expense reimbursement and expense
limitation to terminate, the average of the Portfolios' current expenses would
be higher and the approximate net annual rates of return would be lower.
A-46
Upon request, the Company will furnish a comparable illustration based on the
proposed life insured's Issue Age, sex and risk class, any additional ratings
and the death benefit option, Face Amount, Death Benefit Schedule (if
applicable), and planned premium requested. Illustrations for smokers would show
less favorable results than the illustration shown in this prospectus.
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 or 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.
The Policies were first sold to the public [ON____________]. 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 the same as for the
first full year the Policies were offered.
A-47
Table 1 - Surrender Charge - Short Form Underwriting
Hypothetical Gross Investment Return of 0.00%
Current Charges
---------------
Premium Policy plus less Less plus Policy Net Cash Death
Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit
Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr
- ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------
1 20,000 21,000 0 19,600 144 1,430 -274 17,752 1,000 16,752 365,000
2 20,000 43,050 17,752 19,600 144 1,487 -533 35,189 1,600 33,589 365,000
3 20,000 66,203 35,189 19,600 144 1,550 -787 52,307 1,800 50,507 365,000
4 20,000 90,513 52,307 19,600 144 1,609 -1,037 69,117 2,000 67,117 365,000
5 20,000 116,038 69,117 19,600 144 1,631 -1,283 85,659 2,000 83,659 365,000
6 20,000 142,840 85,659 19,600 144 1,684 -1,524 101,907 1,500 100,407 365,000
7 20,000 170,982 101,907 19,600 144 1,691 -1,761 117,911 1,000 116,911 365,000
8 0 179,531 117,911 0 144 1,844 -1,708 114,215 1,000 113,215 365,000
9 0 188,508 114,215 0 144 2,032 -1,652 110,387 500 109,887 365,000
10 0 197,933 110,387 0 144 2,248 -1,594 106,400 0 106,400 365,000
11 0 207,830 106,400 0 144 2,400 -1,223 102,633 0 102,633 365,000
12 0 218,221 102,633 0 144 2,445 -1,179 98,866 0 98,866 365,000
13 0 229,132 98,866 0 144 2,219 -1,136 95,366 0 95,366 365,000
14 0 240,589 95,366 0 144 1,988 -1,097 92,137 0 92,137 365,000
15 0 252,619 92,137 0 144 1,804 -1,061 89,129 0 89,129 365,000
16 0 265,249 89,129 0 144 1,774 -1,026 86,185 0 86,185 365,000
17 0 278,512 86,185 0 144 1,877 -991 83,173 0 83,173 365,000
18 0 292,438 83,173 0 144 2,088 -954 79,987 0 79,987 365,000
19 0 307,059 79,987 0 144 2,417 -915 76,511 0 76,511 365,000
20 0 322,412 76,511 0 144 2,781 -872 72,713 0 72,713 365,000
25 0 411,489 54,786 0 144 4,851 -606 49,185 0 49,185 365,000
30 0 525,176 19,678 0 144 9,479 -169 9,886 0 9,886 365,000
Guaranteed Charges
------------------
Premium Policy plus less Less plus Policy Net Cash Death
Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit
Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr
- ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------
1 20,000 21,000 0 19,600 144 1,571 -273 17,612 1,000 16,612 365,000
2 20,000 43,050 17,612 19,600 144 1,614 -530 34,924 1,600 33,324 365,000
3 20,000 66,203 34,924 19,600 144 1,653 -783 51,944 1,800 50,144 365,000
4 20,000 90,513 51,944 19,600 144 1,687 -1,031 68,683 2,000 66,683 365,000
5 20,000 116,038 68,683 19,600 144 1,722 -1,275 85,141 2,000 83,141 365,000
6 20,000 142,840 85,141 19,600 144 1,751 -1,516 101,331 1,500 99,831 365,000
7 20,000 170,982 101,331 19,600 144 1,787 -1,752 117,247 1,000 116,247 365,000
8 0 179,531 117,247 0 144 1,979 -1,697 113,428 1,000 112,428 365,000
9 0 188,508 113,428 0 144 2,199 -1,639 109,445 500 108,945 365,000
10 0 197,933 109,445 0 144 2,453 -1,579 105,269 0 105,269 365,000
11 0 207,830 105,269 0 144 2,731 -1,516 100,878 0 100,878 365,000
12 0 218,221 100,878 0 144 3,041 -1,449 96,244 0 96,244 365,000
13 0 229,132 96,244 0 144 3,374 -1,379 91,348 0 91,348 365,000
14 0 240,589 91,348 0 144 3,739 -1,304 86,160 0 86,160 365,000
15 0 252,619 86,160 0 144 4,143 -1,225 80,648 0 80,648 365,000
16 0 265,249 80,648 0 144 4,602 -1,141 74,762 0 74,762 365,000
17 0 278,512 74,762 0 144 5,126 -1,051 68,441 0 68,441 365,000
18 0 292,438 68,441 0 144 5,734 -954 61,609 0 61,609 365,000
19 0 307,059 61,609 0 144 6,442 -848 54,175 0 54,175 365,000
20 0 322,412 54,175 0 144 7,258 -733 46,039 0 46,039 365,000
25 0 411,489 4,378 0 36 3,263 -8 0 0 0 0
30 0 525,176 0 0 0 0 0 0 0 0 0
- - The policy value, cash surrender value, and the death benefit will differ
if premiums are paid in different amounts or frequencies.
- - It is emphasized that the hypothetical investment returns are illustrative
only, and should not be deemed a representation of past or future results.
Actual investment returns may be more or less than those shown and will
depend on a number of factors, including the investment allocation made by
the policyholder, and the investment return for the portfolios of
Manufacturers Investment Trust.
- - The policy value, cash surrender value and death benefit would be
different from those shown if actual rates of investment return averaged
the rate shown above over a period of years, but also fluctuated above or
below that average for individual policy years.
- - No representations can be made that any hypothetical rate of return can be
achieved for any one year or other period of time.
A-1
Table 2 - Surrender Charge - Short Form Underwriting
Hypothetical Gross Investment Return of 6.00%
Current Charges
---------------
Premium Policy plus less less plus Policy Net Cash Death
Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit
Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr
- ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------
1 20,000 0 0 19,600 144 1,428 835 18,863 1,000 17,863 365,000
2 20,000 18,863 18,863 19,600 144 1,477 1,673 38,515 1,600 36,915 365,000
3 20,000 38,515 38,515 19,600 144 1,526 2,547 58,992 1,800 57,192 365,000
4 20,000 58,992 58,992 19,600 144 1,561 3,457 80,344 2,000 78,344 365,000
5 20,000 80,344 80,344 19,600 144 1,549 4,408 102,659 2,000 100,659 365,000
6 20,000 102,659 102,659 19,600 144 1,553 5,401 125,963 1,500 124,463 365,000
7 20,000 125,963 125,963 19,600 144 1,500 6,440 150,359 1,000 149,359 368,378
8 0 150,359 150,359 0 144 1,577 6,651 155,288 1,000 154,288 369,586
9 0 155,288 155,288 0 144 1,680 6,868 160,333 500 159,833 371,973
10 0 160,333 160,333 0 144 1,787 7,090 165,493 0 165,493 372,358
11 0 165,493 165,493 0 144 1,842 7,837 171,343 0 171,343 375,241
12 0 171,343 171,343 0 144 1,813 8,116 177,502 0 177,502 378,079
13 0 177,502 177,502 0 144 1,594 8,415 184,180 0 184,180 381,252
14 0 184,180 184,180 0 144 1,390 8,739 191,384 0 191,384 386,596
15 0 191,384 191,384 0 144 1,231 9,086 199,095 0 199,095 392,218
16 0 199,095 199,095 0 144 1,178 9,455 207,228 0 207,228 397,878
17 0 207,228 207,228 0 144 1,210 9,842 215,716 0 215,716 403,388
18 0 215,716 215,716 0 144 1,309 10,244 224,507 0 224,507 408,602
19 0 224,507 224,507 0 144 1,481 10,658 233,540 0 233,540 415,701
20 0 233,540 233,540 0 144 1,663 11,084 242,817 0 242,817 422,502
25 0 283,090 283,090 0 144 2,478 13,425 293,894 0 293,894 455,535
30 0 339,681 339,681 0 144 3,894 16,086 351,729 0 351,729 495,938
Guaranteed Charges
------------------
Premium Policy plus less less plus Policy Net Cash Death
Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit
Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr
- ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------
1 20,000 21,000 0 19,600 144 1,569 831 18,718 1,000 17,718 365,000
2 20,000 43,050 18,718 19,600 144 1,603 1,664 38,235 1,600 36,635 365,000
3 20,000 66,203 38,235 19,600 144 1,627 2,532 58,595 1,800 56,795 365,000
4 20,000 90,513 58,595 19,600 144 1,637 3,438 79,852 2,000 77,852 365,000
5 20,000 116,038 79,852 19,600 144 1,636 4,384 102,056 2,000 100,056 365,000
6 20,000 142,840 102,056 19,600 144 1,616 5,373 125,269 1,500 123,769 365,000
7 20,000 170,982 125,269 19,600 144 1,585 6,407 149,547 1,000 148,547 366,390
8 0 179,531 149,547 0 144 1,692 6,612 154,324 1,000 153,324 367,290
9 0 188,508 154,324 0 144 1,813 6,822 159,188 500 158,688 369,317
10 0 197,933 159,188 0 144 1,944 7,035 164,136 0 164,136 369,306
11 0 207,830 164,136 0 144 2,081 7,252 169,163 0 169,163 370,467
12 0 218,221 169,163 0 144 2,224 7,473 174,268 0 174,268 371,190
13 0 229,132 174,268 0 144 2,362 7,697 179,458 0 179,458 371,479
14 0 240,589 179,458 0 144 2,514 7,924 184,725 0 184,725 373,144
15 0 252,619 184,725 0 144 2,669 8,155 190,066 0 190,066 374,430
16 0 265,249 190,066 0 144 2,834 8,389 195,478 0 195,478 375,317
17 0 278,512 195,478 0 144 3,005 8,626 200,955 0 200,955 375,785
18 0 292,438 200,955 0 144 3,184 8,865 206,492 0 206,492 375,815
19 0 307,059 206,492 0 144 3,414 9,106 212,040 0 212,040 377,431
20 0 322,412 212,040 0 144 3,653 9,347 217,590 0 217,590 378,607
25 0 411,489 239,864 0 144 4,789 10,559 245,489 0 245,489 380,508
30 0 525,176 267,453 0 144 6,383 11,749 272,675 0 272,675 384,471
- - The policy value, cash surrender value, and the death benefit will differ
if premiums are paid in different amounts or frequencies.
- - It is emphasized that the hypothetical investment returns are illustrative
only, and should not be deemed a representation of past or future results.
Actual investment returns may be more or less than those shown and will
depend on a number of factors, including the investment allocation made by
the policyholder, and the investment return for the portfolios of
Manufacturers Investment Trust.
- - The policy value, cash surrender value and death benefit would be
different from those shown if actual rates of investment return averaged
the rate shown above over a period of years, but also fluctuated above or
below that average for individual policy years.
- - No representations can be made that any hypothetical rate of return can be
achieved for any one year or other period of time.
A-2
Table 3 - Surrender Charge - Short Form Underwriting
Hypothetical Gross Investment Return of 12.00%
Current Charges
---------------
Premium Policy plus less less plus Policy Net Cash Death
Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit
Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr
- ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------
1 20,000 21,000 0 19,600 144 1,426 1,944 19,975 1,000 18,975 365,000
2 20,000 43,050 19,975 19,600 144 1,467 4,012 41,976 1,600 40,376 365,000
3 20,000 66,203 41,976 19,600 144 1,500 6,290 66,222 1,800 64,422 365,000
4 20,000 90,513 66,222 19,600 144 1,509 8,803 92,973 2,000 90,973 365,000
5 20,000 116,038 92,973 19,600 144 1,456 11,578 122,551 2,000 120,551 365,000
6 20,000 142,840 122,551 19,600 144 1,437 14,645 155,214 1,500 153,714 392,691
7 20,000 170,982 155,214 19,600 144 1,647 18,019 191,042 1,000 190,042 468,053
8 0 179,531 191,042 0 144 1,828 19,691 208,761 1,000 207,761 496,851
9 0 188,508 208,761 0 144 2,109 21,512 228,019 500 227,519 529,005
10 0 197,933 228,019 0 144 2,385 23,493 248,984 0 248,984 560,213
11 0 207,830 248,984 0 144 2,614 26,476 272,702 0 272,702 597,217
12 0 218,221 272,702 0 144 2,718 29,008 298,847 0 298,847 636,545
13 0 229,132 298,847 0 144 2,598 31,811 327,917 0 327,917 678,788
14 0 240,589 327,917 0 144 2,334 34,935 360,374 0 360,374 727,955
15 0 252,619 360,374 0 144 2,203 38,415 396,441 0 396,441 780,989
16 0 265,249 396,441 0 144 2,221 42,271 436,348 0 436,348 837,788
17 0 278,512 436,348 0 144 2,425 46,529 480,307 0 480,307 898,174
18 0 292,438 480,307 0 144 2,845 51,207 528,525 0 528,525 961,916
19 0 307,059 528,525 0 144 3,429 56,332 581,285 0 581,285 1,034,686
20 0 322,412 581,285 0 144 4,128 61,936 638,948 0 638,948 1,111,770
25 0 411,489 929,377 0 144 8,444 98,926 1,019,716 0 1,019,716 1,580,559
30 0 525,176 1,470,499 0 144 17,351 156,305 1,609,309 0 1,609,309 2,269,125
Guaranteed Charges
------------------
Premium Policy plus less less plus Policy Net Cash Death
Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit
Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr
- ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------
1 20,000 21,000 0 19,600 144 1,567 1,937 19,826 1,000 18,826 365,000
2 20,000 43,050 19,826 19,600 144 1,592 3,990 41,679 1,600 40,079 365,000
3 20,000 66,203 41,679 19,600 144 1,600 6,254 65,789 1,800 63,989 365,000
4 20,000 90,513 65,789 19,600 144 1,582 8,754 92,417 2,000 90,417 365,000
5 20,000 116,038 92,417 19,600 144 1,538 11,516 121,851 2,000 119,851 365,000
6 20,000 142,840 121,851 19,600 144 1,513 14,569 154,362 1,500 152,862 390,536
7 20,000 170,982 154,362 19,600 144 1,909 17,917 189,826 1,000 188,826 465,074
8 0 179,531 189,826 0 144 2,161 19,547 207,068 1,000 206,068 492,821
9 0 188,508 207,068 0 144 2,467 21,317 225,774 500 225,274 523,796
10 0 197,933 225,774 0 144 2,795 23,238 246,074 0 246,074 553,666
11 0 207,830 246,074 0 144 3,175 25,321 268,076 0 268,076 587,086
12 0 218,221 268,076 0 144 3,594 27,578 291,916 0 291,916 621,781
13 0 229,132 291,916 0 144 4,038 30,025 317,759 0 317,759 657,762
14 0 240,589 317,759 0 144 4,557 32,675 345,733 0 345,733 698,381
15 0 252,619 345,733 0 144 5,123 35,543 376,009 0 376,009 740,737
16 0 265,249 376,009 0 144 5,751 38,646 408,760 0 408,760 784,819
17 0 278,512 408,760 0 144 6,447 42,003 444,172 0 444,172 830,601
18 0 292,438 444,172 0 144 7,221 45,630 482,437 0 482,437 878,035
19 0 307,059 482,437 0 144 8,184 49,543 523,652 0 523,652 932,100
20 0 322,412 523,652 0 144 9,256 53,756 568,008 0 568,008 988,334
25 0 411,489 781,717 0 144 16,014 80,132 845,691 0 845,691 1,310,821
30 0 525,176 1,150,271 0 144 28,166 117,663 1,239,624 0 1,239,624 1,747,869
- - The policy value, cash surrender value, and the death benefit will differ
if premiums are paid in different amounts or frequencies.
- - It is emphasized that the hypothetical investment returns are illustrative
only, and should not be deemed a representation of past or future results.
Actual investment returns may be more or less than those shown and will
depend on a number of factors, including the investment allocation made by
the policyholder, and the investment return for the portfolios of
Manufacturers Investment Trust.
- - The policy value, cash surrender value and death benefit would be
different from those shown if actual rates of investment return averaged
the rate shown above over a period of years, but also fluctuated above or
below that average for individual policy years.
- - No representations can be made that any hypothetical rate of return can be
achieved for any one year or other period of time.
A-3
Table 4 - Sales Load - Short Form Underwriting
Hypothetical Gross Investment Return of 0.00%
Current Charges
---------------
Premium Policy plus less less plus Policy Net Cash Death
Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit
Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr
- ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------
1 20,000 21,000 0 18,000 144 653 -257 16,946 0 16,946 365,000
2 20,000 43,050 16,946 18,400 144 775 -509 33,918 0 33,918 365,000
3 20,000 66,203 33,918 19,000 144 902 -765 51,107 0 51,107 365,000
4 20,000 90,513 51,107 19,200 144 991 -1,019 68,154 0 68,154 365,000
5 20,000 116,038 68,154 19,400 144 1,063 -1,270 85,077 0 85,077 365,000
6 20,000 142,840 85,077 19,600 144 1,180 -1,519 101,834 0 101,834 365,000
7 20,000 170,982 101,834 19,600 144 1,310 -1,763 118,217 0 118,217 365,000
8 0 179,531 118,217 0 144 1,517 -1,715 114,841 0 114,841 365,000
9 0 188,508 114,841 0 144 1,773 -1,663 111,260 0 111,260 365,000
10 0 197,933 111,260 0 144 2,016 -1,609 107,491 0 107,491 365,000
11 0 207,830 107,491 0 144 2,160 -1,237 103,950 0 103,950 365,000
12 0 218,221 103,950 0 144 2,262 -1,195 100,348 0 100,348 365,000
13 0 229,132 100,348 0 144 2,153 -1,154 96,898 0 96,898 365,000
14 0 240,589 96,898 0 144 1,928 -1,115 93,711 0 93,711 365,000
15 0 252,619 93,711 0 144 1,794 -1,079 90,694 0 90,694 365,000
16 0 265,249 90,694 0 144 1,764 -1,044 87,742 0 87,742 365,000
17 0 278,512 87,742 0 144 1,867 -1,009 84,723 0 84,723 365,000
18 0 292,438 84,723 0 144 2,076 -972 81,530 0 81,530 365,000
19 0 307,059 81,530 0 144 2,404 -933 78,049 0 78,049 365,000
20 0 322,412 78,049 0 144 2,766 -890 74,248 0 74,248 365,000
25 0 411,489 56,322 0 144 4,827 -624 50,727 0 50,727 365,000
30 0 525,176 21,276 0 144 9,436 -187 11,509 0 11,509 365,000
Guaranteed Charges
------------------
Premium Policy plus less less plus Policy Net Cash Death
Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit
Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr
- ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------
1 20,000 21,000 0 18,000 144 1,579 -249 16,028 0 16,028 365,000
2 20,000 43,050 16,028 18,400 144 1,627 -489 32,168 0 32,168 365,000
3 20,000 66,203 32,168 19,000 144 1,671 -733 48,619 0 48,619 365,000
4 20,000 90,513 48,619 19,200 144 1,708 -976 64,991 0 64,991 365,000
5 20,000 116,038 64,991 19,400 144 1,746 -1,218 81,282 0 81,282 365,000
6 20,000 142,840 81,282 19,600 144 1,776 -1,459 97,503 0 97,503 365,000
7 20,000 170,982 97,503 19,600 144 1,815 -1,696 113,447 0 113,447 365,000
8 0 179,531 113,447 0 144 2,009 -1,641 109,653 0 109,653 365,000
9 0 188,508 109,653 0 144 2,232 -1,584 105,694 0 105,694 365,000
10 0 197,933 105,694 0 144 2,489 -1,524 101,537 0 101,537 365,000
11 0 207,830 101,537 0 144 2,770 -1,461 97,162 0 97,162 365,000
12 0 218,221 97,162 0 144 3,084 -1,394 92,540 0 92,540 365,000
13 0 229,132 92,540 0 144 3,420 -1,324 87,652 0 87,652 365,000
14 0 240,589 87,652 0 144 3,789 -1,250 82,469 0 82,469 365,000
15 0 252,619 82,469 0 144 4,197 -1,171 76,957 0 76,957 365,000
16 0 265,249 76,957 0 144 4,661 -1,087 71,065 0 71,065 365,000
17 0 278,512 71,065 0 144 5,191 -996 64,734 0 64,734 365,000
18 0 292,438 64,734 0 144 5,805 -899 57,886 0 57,886 365,000
19 0 307,059 57,886 0 144 6,521 -793 50,427 0 50,427 365,000
20 0 322,412 50,427 0 144 7,345 -678 42,260 0 42,260 365,000
25 0 411,489 374 0 0 0 0 0 0 0 0
30 0 525,176 0 0 0 0 0 0 0 0 0
- - The policy value, cash surrender value, and the death benefit will differ
if premiums are paid in different amounts or frequencies.
- - It is emphasized that the hypothetical investment returns are illustrative
only, and should not be deemed a representation of past or future results.
Actual investment returns may be more or less than those shown and will
depend on a number of factors, including the investment allocation made by
the policyholder, and the investment return for the portfolios of
Manufacturers Investment Trust.
- - The policy value, cash surrender value and death benefit would be
different from those shown if actual rates of investment return averaged
the rate shown above over a period of years, but also fluctuated above or
below that average for individual policy years.
- - No representations can be made that any hypothetical rate of return can be
achieved for any one year or other period of time.
A-4
Table 5 - Sales Load - Short Form Underwriting
Hypothetical Gross Investment Return of 6.00%
Current Charges
- -----------------------------------------------------------------------------------------------------------------------
Premium Policy plus less less plus Policy Net Cash Death
Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit
Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr
- ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------
1 20,000 21,000 0 18,000 144 652 782 17,986 0 17,986 365,000
2 20,000 43,050 17,986 18,400 144 770 1,598 37,070 0 37,070 365,000
3 20,000 66,203 37,070 19,000 144 889 2,471 57,508 0 57,508 365,000
4 20,000 90,513 57,508 19,200 144 962 3,388 78,989 0 78,989 365,000
5 20,000 116,038 78,989 19,400 144 1,012 4,352 101,585 0 101,585 365,000
6 20,000 142,840 101,585 19,600 144 1,091 5,364 125,315 0 125,315 365,000
7 20,000 170,982 125,315 19,600 144 1,164 6,419 150,026 0 150,026 367,563
8 0 179,531 150,026 0 144 1,302 6,643 155,223 0 155,223 369,431
9 0 188,508 155,223 0 144 1,472 6,870 160,478 0 160,478 372,309
10 0 197,933 160,478 0 144 1,611 7,101 165,824 0 165,824 373,103
11 0 207,830 165,824 0 144 1,671 7,857 171,866 0 171,866 376,386
12 0 218,221 171,866 0 144 1,695 8,144 178,171 0 178,171 379,504
13 0 229,132 178,171 0 144 1,562 8,448 184,913 0 184,913 382,770
14 0 240,589 184,913 0 144 1,363 8,774 192,180 0 192,180 388,204
15 0 252,619 192,180 0 144 1,236 9,124 199,925 0 199,925 393,852
16 0 265,249 199,925 0 144 1,182 9,494 208,093 0 208,093 399,539
17 0 278,512 208,093 0 144 1,215 9,883 216,618 0 216,618 405,075
18 0 292,438 216,618 0 144 1,314 10,287 225,446 0 225,446 410,313
19 0 307,059 225,446 0 144 1,486 10,703 234,519 0 234,519 417,444
20 0 322,412 234,519 0 144 1,670 11,131 243,836 0 243,836 424,275
25 0 411,489 284,279 0 144 2,488 13,481 295,128 0 295,128 457,448
30 0 525,176 341,106 0 144 3,911 16,154 353,205 0 353,205 498,019
Guaranteed Charges
- -----------------------------------------------------------------------------------------------------------------------
Premium Policy plus less less plus Policy Net Cash Death
Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit
Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr
- ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------
1 20,000 21,000 0 18,000 144 1,577 760 17,039 0 17,039 365,000
2 20,000 43,050 17,039 18,400 144 1,618 1,535 35,213 0 35,213 365,000
3 20,000 66,203 35,213 19,000 144 1,647 2,370 54,792 0 54,792 365,000
4 20,000 90,513 54,792 19,200 144 1,661 3,250 75,437 0 75,437 365,000
5 20,000 116,038 75,437 19,400 144 1,666 4,178 97,205 0 97,205 365,000
6 20,000 142,840 97,205 19,600 144 1,649 5,156 120,168 0 120,168 365,000
7 20,000 170,982 120,168 19,600 144 1,623 6,179 144,180 0 144,180 365,000
8 0 179,531 144,180 0 144 1,734 6,372 148,674 0 148,674 365,000
9 0 188,508 148,674 0 144 1,858 6,569 153,241 0 153,241 365,000
10 0 197,933 153,241 0 144 1,996 6,769 157,871 0 157,871 365,000
11 0 207,830 157,871 0 144 2,137 6,972 162,562 0 162,562 365,000
12 0 218,221 162,562 0 144 2,285 7,177 167,310 0 167,310 365,000
13 0 229,132 167,310 0 144 2,431 7,385 172,121 0 172,121 365,000
14 0 240,589 172,121 0 144 2,579 7,596 176,993 0 176,993 365,000
15 0 252,619 176,993 0 144 2,731 7,809 181,928 0 181,928 365,000
16 0 265,249 181,928 0 144 2,893 8,025 186,915 0 186,915 365,000
17 0 278,512 186,915 0 144 3,068 8,242 191,946 0 191,946 365,000
18 0 292,438 191,946 0 144 3,260 8,462 197,004 0 197,004 365,000
19 0 307,059 197,004 0 144 3,471 8,682 202,070 0 202,070 365,000
20 0 322,412 202,070 0 144 3,697 8,902 207,132 0 207,132 365,000
25 0 411,489 227,214 0 144 4,870 9,993 232,192 0 232,192 365,000
30 0 525,176 251,401 0 144 6,442 11,031 255,846 0 255,846 365,000
- - The policy value, cash surrender value, and the death benefit will differ
if premiums are paid in different amounts or frequencies.
- - It is emphasized that the hypothetical investment returns are illustrative
only, and should not be deemed a representation of past or future results.
Actual investment returns may be more or less than those shown and will
depend on a number of factors, including the investment allocation made by
the policyholder, and the investment return for the portfolios of
Manufacturers Investment Trust.
- - The policy value, cash surrender value and death benefit would be
different from those shown if actual rates of investment return averaged
the rate shown above over a period of years, but also fluctuated above or
below that average for individual policy years.
- - No representations can be made that any hypothetical rate of return can be
achieved for any one year or other period of time.
A-5
Table 6 - Sales Load - Short Form Underwriting
Hypothetical Gross Investment Return of 12.00%
Current Charges
---------------
Premium Policy plus less less plus Policy Net Cash Death
Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit
Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr
- ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------
1 20,000 21,000 0 18,000 144 651 1,821 19,026 0 19,026 365,000
2 20,000 43,050 19,026 18,400 144 765 3,828 40,345 0 40,345 365,000
3 20,000 66,203 40,345 19,000 144 875 6,094 64,420 0 64,420 365,000
4 20,000 90,513 64,420 19,200 144 931 8,606 91,152 0 91,152 365,000
5 20,000 116,038 91,152 19,400 144 953 11,396 120,851 0 120,851 365,000
6 20,000 142,840 120,851 19,600 144 1,013 14,492 153,786 0 153,786 389,078
7 20,000 170,982 153,786 19,600 144 1,354 17,887 189,774 0 189,774 464,948
8 0 179,531 189,774 0 144 1,603 19,572 207,599 0 207,599 494,086
9 0 188,508 207,599 0 144 1,952 21,400 226,903 0 226,903 526,416
10 0 197,933 226,903 0 144 2,264 23,384 247,880 0 247,880 557,730
11 0 207,830 247,880 0 144 2,511 26,364 271,589 0 271,589 594,780
12 0 218,221 271,589 0 144 2,656 28,892 297,681 0 297,681 634,060
13 0 229,132 297,681 0 144 2,578 31,688 326,647 0 326,647 676,159
14 0 240,589 326,647 0 144 2,322 34,800 358,981 0 358,981 725,141
15 0 252,619 358,981 0 144 2,195 38,266 394,908 0 394,908 777,970
16 0 265,249 394,908 0 144 2,213 42,108 434,660 0 434,660 834,547
17 0 278,512 434,660 0 144 2,416 46,349 478,449 0 478,449 894,699
18 0 292,438 478,449 0 144 2,834 51,009 526,480 0 526,480 958,194
19 0 307,059 526,480 0 144 3,415 56,114 579,034 0 579,034 1,030,681
20 0 322,412 579,034 0 144 4,112 61,696 636,474 0 636,474 1,107,465
25 0 411,489 925,776 0 144 8,411 98,543 1,015,764 0 1,015,764 1,574,434
30 0 525,176 1,464,797 0 144 17,284 155,699 1,603,068 0 1,603,068 2,260,326
Guaranteed Charges
------------------
Premium Policy plus less less plus Policy Net Cash Death
Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit
Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr
- ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------
1 20,000 21,000 0 18,000 144 1,574 1,770 18,052 0 18,052 365,000
2 20,000 43,050 18,052 18,400 144 1,608 3,681 38,381 0 38,381 365,000
3 20,000 66,203 38,381 19,000 144 1,622 5,849 61,464 0 61,464 365,000
4 20,000 90,513 61,464 19,200 144 1,610 8,262 87,172 0 87,172 365,000
5 20,000 116,038 87,172 19,400 144 1,574 10,949 115,804 0 115,804 365,000
6 20,000 142,840 115,804 19,600 144 1,503 13,941 147,699 0 147,699 373,677
7 20,000 170,982 147,699 19,600 144 1,836 17,230 182,549 0 182,549 447,245
8 0 179,531 182,549 0 144 2,078 18,797 199,124 0 199,124 473,915
9 0 188,508 199,124 0 144 2,372 20,499 217,107 0 217,107 503,688
10 0 197,933 217,107 0 144 2,687 22,346 236,621 0 236,621 532,398
11 0 207,830 236,621 0 144 3,053 24,348 257,772 0 257,772 564,521
12 0 218,221 257,772 0 144 3,456 26,518 280,691 0 280,691 597,871
13 0 229,132 280,691 0 144 3,882 28,870 305,534 0 305,534 632,456
14 0 240,589 305,534 0 144 4,382 31,417 332,426 0 332,426 671,500
15 0 252,619 332,426 0 144 4,926 34,175 361,531 0 361,531 712,215
16 0 265,249 361,531 0 144 5,530 37,158 393,015 0 393,015 754,588
17 0 278,512 393,015 0 144 6,198 40,384 427,057 0 427,057 798,596
18 0 292,438 427,057 0 144 6,943 43,872 463,842 0 463,842 844,192
19 0 307,059 463,842 0 144 7,869 47,633 503,462 0 503,462 896,163
20 0 322,412 503,462 0 144 8,899 51,683 546,103 0 546,103 950,219
25 0 411,489 751,543 0 144 15,396 77,038 813,042 0 813,042 1,260,215
30 0 525,176 1,105,837 0 144 27,078 113,117 1,191,733 0 1,191,733 1,680,343
- - The policy value, cash surrender value, and the death benefit will differ
if premiums are paid in different amounts or frequencies.
- - It is emphasized that the hypothetical investment returns are illustrative
only, and should not be deemed a representation of past or future results.
Actual investment returns may be more or less than those shown and will
depend on a number of factors, including the investment allocation made by
the policyholder, and the investment return for the portfolios of
Manufacturers Investment Trust.
- - The policy value, cash surrender value and death benefit would be
different from those shown if actual rates of investment return averaged
the rate shown above over a period of years, but also fluctuated above or
below that average for individual policy years.
- - No representations can be made that any hypothetical rate of return can be
achieved for any one year or other period of time.
A-6
APPENDIX C:
FINANCIAL STATEMENTS
B-1
THE MANUFACTURERS LIFE
INSURANCE COMPANY
(U.S.A.)
AUDITED CONSOLIDATED
FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 2001, 2000 AND 1999
[MANULIFE FINANCIAL LOGO]
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
CONTENTS
REPORT OF INDEPENDENT AUDITORS...............................................1
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS.............................................2
CONSOLIDATED STATEMENTS OF INCOME.......................................3
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS...............4
CONSOLIDATED STATEMENTS OF CASH FLOWS...................................5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..............................6
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
We have audited the accompanying consolidated balance sheets of The
Manufacturers Life Insurance Company (U.S.A.) and subsidiaries as of December
31, 2001 and 2000, and the related consolidated statements of income, changes in
capital and surplus, and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Manufacturers Life Insurance Company (U.S.A.) and subsidiaries at December 31,
2001 and 2000, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States.
As discussed in Note 2 to the financial statements, in 2001, the Company changed
its accounting for certain investments.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 22, 2002
1
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
CONSOLIDATED BALANCE SHEETS
As at December 31 ($ millions)
ASSETS 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENTS:
Securities available-for-sale, at fair value:
Fixed-maturity (amortized cost: 2001 $9,656 ; 2000 $9,580) $ 10,108 $ 9,797
Equity (cost: 2001 $889 ; 2000 $707) 845 852
Mortgage loans 1,675 1,539
Real estate 969 986
Policy loans 2,226 1,998
Short-term investments 539 715
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $ 16,362 $ 15,887
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents $ 109 $ 98
Deferred acquisition costs 2,302 2,066
Deferred income taxes 79 125
Due from affiliates 508 511
Amounts recoverable from reinsurers 767 572
Other assets 641 757
Separate account assets 30,217 29,681
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 50,985 $ 49,697
======================================================================================================================
LIABILITIES, CAPITAL AND SURPLUS
- ----------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Policyholder liabilities and accruals $ 17,415 $ 16,240
Note payable 200 200
Due to affiliate 250 250
Other liabilities 601 778
Separate account liabilities 30,217 29,681
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 48,683 $ 47,149
======================================================================================================================
CAPITAL AND SURPLUS:
Capital stock $ 5 $ 5
Retained earnings 2,176 2,260
Accumulated other comprehensive income 121 283
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL AND SURPLUS $ 2,302 $ 2,548
- ----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES, CAPITAL AND SURPLUS $ 50,985 $ 49,697
======================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
2
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31
($ millions) 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------
REVENUE:
Premiums $ 794 $ 814 $ 881
Fee income 903 958 746
Net investment income 1,115 1,135 1,121
Realized investment gains 35 137 27
Other 12 -- 5
- ------------------------------------------------------------------------------------------------------------------------
TOTAL REVENUE $2,859 $ 3,044 $ 2,780
- ------------------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES:
Policyholder benefits and claims $1,567 $ 1,535 $ 1,429
Operating expenses and commissions 600 617 494
Amortization of deferred acquisition costs 277 180 40
Interest expense 30 19 8
Policyholder dividends 348 339 323
Minority interest expense -- 16 16
- ------------------------------------------------------------------------------------------------------------------------
TOTAL BENEFITS AND EXPENSES $2,822 $ 2,706 $ 2,310
- ------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 37 338 470
- ------------------------------------------------------------------------------------------------------------------------
INCOME TAX (BENEFIT) EXPENSE (4) 90 177
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 41 $ 248 $ 293
========================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
3
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
ACCUMULATED
OTHER TOTAL
FOR THE YEARS ENDED DECEMBER 31 CAPITAL RETAINED COMPREHENSIVE CAPITAL AND
($ millions) STOCK EARNINGS INCOME (LOSS) SURPLUS
- -----------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 1, 1999 $ 5 $1,697 $ 149 $ 1,851
Comprehensive income -- 293 (21) 272
- -----------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 $ 5 $1,990 $ 128 $ 2,123
- -----------------------------------------------------------------------------------------------------------------
Comprehensive income -- 248 155 403
Contributed surplus -- 22 -- 22
- -----------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 $ 5 $2,260 $ 283 $ 2,548
Comprehensive income -- 41 (162) (121)
Dividend to shareholder -- (125) -- (125)
- -----------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 $ 5 $2,176 $ 121 $ 2,302
=================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
4
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
($ millions) 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net Income $ 41 $ 248 $ 293
Adjustments to reconcile net income to net cash provided by
operating activities:
Additions to policyholder liabilities and accruals 442 330 404
Deferred acquisition costs (538) (590) (463)
Amortization of deferred acquisition costs 277 180 40
Amounts recoverable from reinsurers (91) 23 334
Realized investment gains (35) (137) (27)
Decreases to deferred income taxes 60 34 194
Amounts due from affiliates 3 259 22
Other assets and liabilities, net (38) (244) 258
Other, net 3 (62) 58
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 124 $ 41 $ 1,113
- -----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Fixed-maturity securities sold, matured or repaid $ 9,976 $ 6,584 $ 4,302
Fixed-maturity securities purchased (10,031) (6,792) (4,763)
Equity securities sold 412 1,185 303
Equity securities purchased (587) (1,012) (349)
Mortgage loans advanced (334) (187) (148)
Mortgage loans repaid 200 274 314
Real estate sold 42 101 54
Real estate purchased (29) (58) (219)
Policy loans advanced, net (228) (155) (133)
Short-term investments 176 (431) (251)
Separate account seed money -- -- 32
Other investments, net (26) 196 (355)
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities $ (429) $ (295) $ (1,213)
- -----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Deposits and interest credited to policyholder account balances $ 1,934 $ 1,336 $ 1,263
Withdrawals from policyholder account balances (1,532) (1,579) (987)
Amounts due to affiliates 150 250 --
Principal repayment of amounts due to affiliates (150) -- --
Net reinsurance recoverable (payable) 39 87 (158)
Dividend to shareholder (125) -- --
Borrowed funds -- 107 50
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities $ 316 $ 201 $ 168
- -----------------------------------------------------------------------------------------------------------------
CASH:
Increase (decrease) during the year 11 (53) 68
Balance, beginning of year 98 151 83
- -----------------------------------------------------------------------------------------------------------------
BALANCE, END OF YEAR $ 109 $ 98 $ 151
=================================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
5
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
(IN MILLIONS OF DOLLARS)
1. ORGANIZATION
The Manufacturers Life Insurance Company (U.S.A.) ("ManUSA") is an
indirectly wholly-owned subsidiary of Manulife Financial Corporation, a
Canadian-based publicly traded company. Manulife Financial Corporation
("MFC") and its subsidiaries are collectively known as "Manulife
Financial". ManUSA and its subsidiaries, collectively known as the
"Company", operate in the life insurance industry, offering a broad
range of insurance and wealth management related products. These
products are offered both on an individual and group basis and are
marketed primarily in the United States.
In December of 2000 through an issuance of shares, the Company acquired
the remaining 21.6% minority interest in Manulife-Wood Logan Holding
Co. Inc ("MWLH"), a subsidiary of the Company, from MRL Holding, LLC
("MRL-LLC"), an affiliated company. As this was a related party
transaction, the purchase was accounted for at MRL-LLC's carrying value
and no goodwill was generated.
2. SIGNIFICANT ACCOUNTING POLICIES
a) BASIS OF PRESENTATION
The accompanying consolidated financial statements of ManUSA have been
prepared in accordance with accounting principles generally accepted in
the United States ("GAAP") and include accounts and operations, after
intercompany eliminations, of ManUSA and its subsidiaries.
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from these estimates.
b) RECENT ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets".
SFAS No. 141 requires the purchase method of accounting to be used for
all future business combinations. SFAS No. 142 eliminates the practice
of amortizing goodwill through periodic charges to earnings and
establishes a new methodology for recognizing and measuring goodwill
and other intangible assets. Under this new accounting standard, the
Company will cease goodwill amortization effective January 1, 2002. The
Company is currently considering the other provisions of the new
standard. The impact of adopting these two standards on the Company's
financial statements is not expected to be material.
6
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EITF Issue No. 99-20 ("EITF 99-20"), "Recognition of Interest Income
and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Assets", applies to all securities, purchased or
retained, which represent beneficial interests in securitized assets,
unless they meet certain exception criteria. Such securities include
many collateralized mortgage, bond, debt and loan obligations,
mortgage-backed securities, and asset-backed securities. EITF 99-20
significantly changes the method of assessing "other than temporary
impairments" and for recognizing interest income. A decline in fair
value below the "amortized cost" basis is considered to be an other
than temporary impairment whenever there is an adverse change in the
amount or timing of cash flows to be received, regardless of the
resulting yield, unless the decrease is solely a result of changes in
market interest rates. Interest income is based on prospective
estimates of future cash flows. EITF 99-20 was effective for fiscal
quarters beginning after March 15, 2001. We reviewed all applicable
securities held by the Company since April 1, 2001 and deemed the
impact of this new accounting clarification as immaterial.
c) INVESTMENTS
The Company classifies all of its fixed-maturity and equity securities
as available-for-sale and records these securities at fair value. The
cost of fixed-maturity securities is adjusted for the amortization of
premiums and accretion of discounts, which are calculated using the
effective interest method. For the mortgage-backed bond portion of the
fixed-maturity securities portfolio, the Company recognizes
amortization using a constant effective yield based on anticipated
prepayments and the estimated economic life of the securities. When
actual prepayments differ significantly from anticipated prepayments,
the effective yield is recalculated to reflect actual payments to date
and anticipated future payments. The net investment in the security is
adjusted to the amount that would have existed had the new effective
yield been applied since the acquisition of the security. That
adjustment is included in net investment income.
Realized gains and losses on sales of securities classified as
available-for-sale are recognized in net income using the
specific-identification method. Temporary changes in the fair value of
securities available-for-sale are reflected directly in accumulated
other comprehensive income after adjustments for deferred taxes,
deferred acquisition costs, policyholder liabilities and unearned
revenue liability.
Mortgage loans are reported at unpaid principal balances, net of a
provision for losses. The provision for losses is established for
mortgage loans both on a specific as well as on an aggregate basis.
Mortgage loans are considered to be impaired when the Company has
determined that it is probable that all amounts due under contractual
terms will not be collected. Impaired loans are reported at the lower
of unpaid principal or fair value of the underlying collateral.
Real estate held for investment is carried at cost, less accumulated
depreciation and provisions for impairment and write-downs, if
applicable. Real estate held for sale is carried at the lower of cost
or market value where changes in estimates of market value are
recognized as realized gains or losses in the income statement.
Policy loans are reported at aggregate unpaid balances, which
approximates fair value.
7
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Short-term investments, which include investments with maturities of
less than one year and greater than ninety days as at the date of
acquisition, are reported at amortized cost which approximates fair
value.
d) CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with
an original maturity date of three months or less to be cash
equivalents. Cash equivalents are stated at cost plus accrued interest,
which approximates fair value.
e) DEFERRED ACQUISITION COSTS ("DAC")
Commissions and other expenses, which vary with and are primarily
related to the production of new business, are deferred to the extent
recoverable from future gross profits and included as an asset. The
portion of DAC associated with variable annuity and variable life
insurance contracts, universal life insurance contracts, investment
contracts, and participating life insurance contracts is charged to
expense in relation to the estimated gross profits of those contracts.
This amortization is adjusted retrospectively when current gross
profits or estimates of future gross profits are revised. Certain
changes in assumptions regarding the variable annuity product line were
made which refined the amortization pattern. DAC associated with all
other insurance contracts is amortized over the premium-paying period
of the related policies. Assuming the unrealized gains or losses on
securities had been realized at year-end, DAC is adjusted for the
impact on current and estimated future gross profits. The impact of any
such adjustments is included in net unrealized gains (losses) in
accumulated other comprehensive income. DAC is reviewed annually to
determine recoverability from future income and if not recoverable, is
immediately expensed.
f) POLICYHOLDER LIABILITIES AND ACCRUALS
Policyholder liabilities for traditional non-participating life
insurance policies and for accident and health policies are computed
using the net level premium method. The calculations are based upon
estimates as to future mortality, morbidity, persistency, maintenance
expenses, and interest rate yields that were applicable in the year of
issue. The assumptions include a provision for the risk of adverse
deviation.
For payout annuities in loss recognition, policyholder liabilities are
computed using estimates of expected mortality, expenses, and
investment yields as determined at the time these contracts first moved
into loss recognition. Payout annuity reserves are adjusted for the
impact of net unrealized gains associated with the underlying assets.
For variable annuity and variable life contracts, universal life
insurance contracts, and investment contracts with no substantial
mortality or morbidity risk, policyholder liabilities equal the
policyholder account values. Account values are increased for deposits
received and interest credited and are reduced by withdrawals,
mortality charges, and administrative expenses charged to the
policyholders.
8
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For traditional participating life insurance policies, policyholder
liabilities are computed using the net level premium reserve for death
and endowment policy benefits. Mortality and interest assumptions are
the same as the non-forfeiture benefit assumptions at the time the
policy was issued. Interest rate assumptions used in the calculation of
the liabilities for traditional participating life insurance policies
range from 2.5% to 7.0%. As of December 31, 2001, participating
insurance expressed as a percentage of insurance in force is 69.1%.
For participating policies inforce as of September 23, 1999, the
demutualization of The Manufacturers Life Insurance Company ("MLT"), an
indirect parent, separate sub-accounts were established within the
participating accounts of the Company. These sub-accounts permit this
participating business to be operated as separate "closed block" of
business. As at December 31, 2001, $7,441 (2000 - $7,048) of both
assets and actuarial liabilities related to the participating
policyholders' account are included in the closed block.
ManUSA's Board of Directors approves the amount of policyholder
dividends to be paid annually. The aggregate amount of policyholder
dividends is calculated based on actual interest, mortality, morbidity
and expense experience for the year, and on management's judgment as to
the appropriate level of equity to be retained by the Company. The
carrying value of this liability approximates the earned amount and
fair value as at December 31, 2001.
g) SEPARATE ACCOUNTS
Separate account assets and liabilities represent funds that are
separately administered, principally for investment contracts related
to group pension business as well as for variable annuity and variable
life contracts, and for which the contract holder, rather than the
Company, bears the investment risk. Separate account contract holders
have no claim against the assets of the general account of the Company.
Separate account assets are recorded at market value. Operations of the
separate accounts are not included in the accompanying financial
statements. However, fees charged on separate account policyholder
funds are included in revenue of the Company.
h) REVENUE RECOGNITION
Premiums on long-duration life insurance contracts are recognized as
revenue when due. Premiums on short-duration contracts are earned over
the related contract period. Net premiums on limited-payment contracts
are recognized as revenue and the difference between the gross premium
received and the net premium is deferred and recognized in income based
on either a constant relationship to insurance in force or the present
value of annuity benefits, depending on the product type.
Fee income from annuity contracts, pension contracts, and insurance
contracts consist of charges for mortality, expense, surrender and
administration that have been assessed against the policyholder account
balances. To the extent such charges compensate the Company for future
services, they are deferred and recognized in income over the period
earned using the same assumptions as those associated with the
amortization of DAC.
Interest on fixed-maturity securities and performing mortgage loans is
recorded as income when earned and is adjusted for any amortization of
premiums or discounts. Interest on restructured mortgage loans is
recorded as income based on the rate to be paid; interest on delinquent
mortgage loans is recorded as income on a cash basis. Dividends are
recorded as income on ex-dividend dates.
9
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
i) POLICYHOLDER BENEFITS AND CLAIMS
Benefits for variable annuity and variable life contracts, for
universal life insurance contracts, and for investment pension
contracts include interest credited to policyholder account values and
benefit claims incurred during the period in excess of policyholder
account values.
j) REINSURANCE
The Company routinely utilizes reinsurance transactions to minimize
exposure to large risks. Life reinsurance is accomplished through
various plans including yearly renewable term, co-insurance, and
modified co-insurance. Reinsurance premiums, policy charges for cost of
insurance, and claims are accounted for on a basis consistent with that
used in accounting for the original policies issued and the terms of
the reinsurance contracts. Premiums, fees, and claims are reported net
of reinsured amounts.
The amount recoverable from reinsures and pertaining to policyholder
liabilities is presented as a separate asset on the balance sheet. For
those claims paid and covered by a reinsurance treaty, a reinsurance
receivable has been included as part of other assets.
k) INCOME TAX
Income taxes have been provided for in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
Under this method, deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax rates
and laws that likely will be in effect when the differences are
expected to reverse. The measurement of deferred tax assets is reduced
by a valuation allowance if, based upon the available evidence, it is
more likely than not that some or all of the deferred tax assets will
not be realized.
ManUSA joins its direct parent, Manulife Reinsurance Corporation
(U.S.A.) ("MRC"), its indirect parent, The Manufacturers Investment
Corporation ("MIC"), and its subsidiary, The Manufacturers Life
Insurance Company of America ("MLA"), in filing a U.S. consolidated
income tax return as a life insurance group under the provisions of the
Internal Revenue Service. A separate life insurance group for certain
of ManUSA's subsidiaries is also in place. In accordance with the
income tax-sharing agreements, the Company's income tax provision (or
benefit) is computed as if ManUSA and the companies within the two
groups filed separate income tax returns. Tax benefits from operating
losses are provided at the U.S. statutory rate plus any tax credits
attributable, provided the consolidated group utilizes such benefits
currently.
l) FOREIGN EXCHANGE
The balance sheet and statement of income of the Company's foreign
operations as well as non-U.S. dollar investments are translated into
U.S. dollars using exchange rates in effect at the balance sheet date
and average exchange rates prevailing during the respective periods.
Translation adjustments are included in accumulated other comprehensive
income.
10
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
m) DERIVATIVES
The Company adopted the Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities," as
amended by Statement of Financial Accounting Standards No. 138, on
January 1, 2001. As a result, all derivative instruments are reported
on the Consolidated Balance Sheet at their fair value, with changes in
fair value recorded in income or equity, depending on the nature of the
derivative instrument. Changes in the fair value of derivatives not
designated as hedges are recognized in current period earnings. There
was no cumulative transition adjustment at the time of adoption.
For fair value hedges, the Company is hedging changes in the fair value
of assets, liabilities or firm commitments with changes in fair values
of the derivative instruments. Both sets of changes are recorded
through income. For cash flow hedges, the Company is hedging the
variability of cash flows related to forecasted transactions. The
effective portion of changes in the fair value of cash flow hedges is
recorded in other comprehensive income and reclassified into income in
the same period or periods during which the hedged transaction affects
earnings. The Company estimates that deferred net losses of $4 after
tax, included in other comprehensive income as at December 31, 2001,
will be reclassified into earnings within the next twelve months. Cash
flow hedges include hedges of certain forecasted transactions of
varying periods up to a maximum of 40 years.
n) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
current year presentation.
3. INVESTMENTS AND INVESTMENT INCOME
a) FIXED-MATURITY AND EQUITY SECURITIES
At December 31, 2001, all fixed-maturity and equity securities have
been classified as available-for-sale and reported at fair value. The
amortized cost and fair value is summarized as follows:
GROSS GROSS
AMORTIZED COST UNREALIZED UNREALIZED FAIR VALUE
AS AT DECEMBER 31 GAINS LOSSES
($ millions) 2001 2000 2001 2000 2001 2000 2001 2000
----------------------------------------------------------------------------------------------------------
FIXED-MATURITY SECURITIES:
U.S. government $1,963 $1,240 $65 $103 $ (9) $ -- $ 2,019 $1,343
Foreign governments 1,290 1,730 169 204 (2) -- 1,457 1,934
Corporate 5,728 5,561 297 111 (98) (215) 5,927 5,457
Asset - backed 675 1,049 32 21 (2) (7) 705 1,063
----------------------------------------------------------------------------------------------------------
TOTAL FIXED-MATURITY
SECURITIES 9,656 9,580 563 439 (111) (222) 10,108 9,797
----------------------------------------------------------------------------------------------------------
EQUITY SECURITIES $ 889 $ 707 $ 93 $210 $ (137) $(65) $ 845 $ 852
----------------------------------------------------------------------------------------------------------
Proceeds from sales of fixed-maturity securities during 2001 were
$10,063 (2000 - $6,584 and 1999 - $4,302). Gross gains and losses of
$225 and $98 respectively, were realized on those sales (2000 - $71 and
$242 respectively, 1999 - $49 and $167 respectively).
11
3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED)
Proceeds from the sale of equity securities during 2001 were $412 (2000 -
$1,185 and 1999 - $303). Gross gains and losses of $20 and $31
respectively, were realized on those sales (2000 - $319 and $60
respectively, 1999 - $84 and $39 respectively).
The contractual maturities of fixed-maturity securities at December 31,
2001 are shown below.
AS AT DECEMBER 31, 2001
($ millions) AMORTIZED COST FAIR VALUE
- ----------------------------------------------------------------------------------------------------
Fixed-maturity securities, excluding mortgage-backed securities:
One year or less $ 230 $ 242
Greater than 1; up to 5 years 1,310 1,342
Greater than 5; up to 10 years 2,930 3,022
Due after 10 years 4,511 4,797
Asset - backed securities 675 705
- ----------------------------------------------------------------------------------------------------
TOTAL FIXED-MATURITY SECURITIES $ 9,656 $ 10,108
- ----------------------------------------------------------------------------------------------------
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
prepayment penalties. Corporate requirements and investment strategies may
result in the sale of investments before maturity.
b) MORTGAGE LOANS
Mortgage loans are reported at amortized cost, net of a provision for
losses. The impaired mortgage loans and the related allowance for mortgage
loan losses were as follows:
AS AT DECEMBER 31
($ millions) 2001 2000
- -----------------------------------------------------------------------
IMPAIRED LOANS $ 79 $ 80
- -----------------------------------------------------------------------
Allowance, January 1 $ 51 $ 57
Deductions (1) (6)
- -----------------------------------------------------------------------
ALLOWANCE, DECEMBER 31 $ 50 $ 51
- -----------------------------------------------------------------------
c) INVESTMENT INCOME
Income by type of investment was as follows:
FOR THE YEARS ENDED DECEMBER 31
($ millions) 2001 2000 1999
- -----------------------------------------------------------------------
Fixed-maturity securities $ 698 $ 727 $ 726
Equity securities 42 60 18
Mortgage loans 128 126 149
Investment real estate 81 95 71
Other investments 200 184 195
- -----------------------------------------------------------------------
Gross investment income 1,149 1,192 1,159
Investment expenses (34) (57) (38)
- -----------------------------------------------------------------------
NET INVESTMENT INCOME $ 1,115 $ 1,135 $ 1,121
- -----------------------------------------------------------------------
12
3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED)
d) SIGNIFICANT EQUITY INTERESTS
ManUSA holds a 27.7% (2000 - 22.4%) indirect interest in Flex Leasing
I, LLC and a 19.6% direct interest in Flex Leasing II, LLC. These
investments are accounted for using the equity method whereby ManUSA
would recognize its proportionate share of the respective investee's
net income or loss. As at December 31, 2001, the sum of total assets
for both these investees was $396 (2000 - $392), with total liabilities
amounting to $295 (2000 - $288). For the year ended December 31, 2001,
total net loss for both these investees amounted to $4 (2000 - net
income of $1).
4. COMPREHENSIVE INCOME
a) Total comprehensive income was as follows:
FOR THE YEARS ENDED DECEMBER 31
($ millions) 2001 2000 1999
- -----------------------------------------------------------------------------------------
NET INCOME $ 41 $ 248 $ 293
- -----------------------------------------------------------------------------------------
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF INCOME TAX:
Unrealized holding (losses) gains arising during the
year (146) 69 (4)
Foreign currency translation (13) (3) 1
Less:
Reclassification adjustment for realized gains and
losses included in net income 3 (89) 18
- -----------------------------------------------------------------------------------------
Other comprehensive (loss) income (162) 155 (21)
- -----------------------------------------------------------------------------------------
COMPREHENSIVE (LOSS) INCOME $(121) $ 403 $ 272
=========================================================================================
Other comprehensive (loss) income is reported net of tax (benefit)
expense of ($81), $87, and $30 for 2001, 2000 and 1999, respectively.
13
4. COMPREHENSIVE INCOME (CONTINUED)
Accumulated other comprehensive income is comprised of the following:
AS AT DECEMBER 31
($ millions) 2001 2000
- -------------------------------------------------------------
UNREALIZED GAINS :
Beginning balance $ 290 $ 132
Current period change (149) 158
- -------------------------------------------------------------
Ending balance $ 141 $ 290
- -------------------------------------------------------------
FOREIGN CURRENCY:
Beginning balance $ (7) $ (4)
Current period change (13) (3)
- -------------------------------------------------------------
Ending balance $ (20) $ (7)
- -------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME $ 121 $ 283
=============================================================
b) UNREALIZED GAINS (LOSSES) ON SECURITIES AVAILABLE-FOR-SALE
Net unrealized gains (losses) on fixed-maturity and equity securities
included in other comprehensive income were as follows:
AS AT DECEMBER 31
($ millions) 2001 2000
- ------------------------------------------------------------------------------
Gross unrealized gains $ 656 $ 648
Gross unrealized losses (248) (286)
DAC and other amounts required to satisfy policyholder
liabilities (191) 39
Deferred income taxes (76) (111)
- ------------------------------------------------------------------------------
NET UNREALIZED GAINS ON SECURITIES AVAILABLE-FOR-SALE $ 141 $ 290
==============================================================================
5. DEFERRED ACQUISITION COSTS
The components of the change in DAC were as follows:
FOR THE YEARS ENDED DECEMBER 31
($ millions) 2001 2000
- -----------------------------------------------------------------------
Balance, January 1 $ 2,066 $ 1,631
Capitalization 538 590
Amortization (277) (180)
Effect of net unrealized gains on securities
available-for-sale (25) 25
=======================================================================
BALANCE, DECEMBER 31 $ 2,302 $ 2,066
=======================================================================
14
6. INCOME TAXES
The components of income tax (benefit) expense were as follows:
FOR THE YEARS ENDED DECEMBER 31
($ millions) 2001 2000 1999
- -----------------------------------------------------------------
Current (benefit) expense $ (64) $ 56 $ (17)
Deferred expense 60 34 194
- -----------------------------------------------------------------
TOTAL (BENEFIT) EXPENSE $ (4) $ 90 $ 177
=================================================================
Income before federal income taxes differs from taxable income
principally due to tax-exempt investment income; dividends received tax
deductions, differences in the treatment of policy acquisition costs,
and differences in reserves for policy and contract liabilities for tax
and financial reporting purposes.
The Company's deferred income tax asset (liability), which results from
tax affecting the differences between financial statement values and
tax values of assets and liabilities at each balance sheet date,
relates to the following:
FOR THE YEARS ENDED DECEMBER 31
($ millions) 2001 2000 1999
- ------------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Differences in computing policy reserves $682 $630 $635
Investments 1 -- --
Policyholder dividends payable 13 11 9
Net capital loss -- 6 --
Net operating loss 87 41 --
Other deferred tax assets 37 19 --
- ------------------------------------------------------------------------------------
Deferred tax assets $820 $707 $644
- ------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Deferred acquisition costs $412 $340 $244
Unrealized gains on securities available-for-sale 163 140 189
Premiums receivable 16 13 14
Investments 112 47 14
Other deferred tax liabilities 38 42 32
- ------------------------------------------------------------------------------------
Deferred tax liabilities $741 $582 $493
- ------------------------------------------------------------------------------------
NET DEFERRED TAX ASSETS $ 79 $125 $151
====================================================================================
15
6. INCOME TAXES (CONTINUED)
The Company files a consolidated federal income tax return for all its
subsidiaries except for The Manufacturers Life Insurance Company of
North America ("MNA") and The Manufacturers Life Insurance Company of
New York ("MNY"). MNA and MNY file a separate consolidated federal
income tax return. ManUSA and its subsidiaries file separate state
income tax returns. The method of allocation among the companies is
subject to a written tax sharing agreement under which the tax
liability is allocated to each member on a pro rata basis based on the
relationship that the member's tax liability (computed on a separate
return basis) bears to the tax liability of the consolidated group. The
tax charge to each of the respective companies will not be more than
that which each company would have paid on a separate return basis.
Settlements of taxes are made through an increase or reduction to the
payable to parent, subsidiaries or affiliates. Such settlements occur
on a periodic basis.
At December 31, 2001, the Company has operating loss carry forwards of
$249 that will begin to expire in 2011.
7. NOTE PAYABLE
On December 29, 1997, the Company issued a surplus debenture for $200
plus interest at 7.93% per annum to MIC. The surplus debenture matures
on February 1, 2022. Except in the event of insolvency or wind-up of
the Company, the instrument may not be redeemed by the Company during
the period of five years from date of issue without the approval of the
Office of the Superintendent of Financial Institutions of Canada.
Interest accrued and expensed was $16 for each of 2001, 2000, and 1999.
Interest paid was $16, $9, and $16 for 2001, 2000, and 1999,
respectively.
8. CAPITAL AND SURPLUS
Capital Stock is comprised of the following:
AS AT DECEMBER 31
($ millions) 2001 2000
- ---------------------------------------------------------------------
AUTHORIZED:
50,000,000 Preferred shares, Par value $1.00 -- --
50,000,000 Common shares, Par value $1.00
- ---------------------------------------------------------------------
ISSUED AND OUTSTANDING:
100,000 Preferred shares
4,728,934 Common shares (2000 - 4,711,772 ) 5 5
=====================================================================
Pursuant to an agreement dated December 31, 2000, ManUSA purchased from
MRL-LLC all of MRL-LLC's 21.6% interest in MWLH. In exchange, ManUSA
transferred 167,268 of its common shares to MRL-LLC and forgave a
promissory note owed by MRL-LLC amounting to $52 plus accrued interest.
The result was a $22 addition to the Company's contributed surplus. As
well, the agreement permitted the use of estimates in determining the
value of shares exchanged until a final valuation of the respective
companies was performed. This valuation was completed in 2001 resulting
in an additional 17,162 shares transferred from ManUSA to MRL-LLC.
There was no addition to the Company's contributed surplus.
ManUSA and its life insurance subsidiaries are subject to statutory
limitations on the payment of dividends. Dividend payments in excess of
prescribed limits cannot be paid without the prior approval of U.S.
insurance regulatory authorities.
16
8. CAPITAL AND SURPLUS (CONTINUED)
Net income (loss) and capital and surplus, as determined in accordance
with statutory accounting principles for ManUSA and its life insurance
subsidiaries were as follows:
FOR THE YEARS ENDED DECEMBER 31
($ millions) 2001 2000 1999
- ---------------------------------------------------------------------------------------------------
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.):
Net income $ 55 $ 200 $ 132
Net capital and surplus 1,280 1,384 1,560
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA:
Net loss $ (117) $ (59) $ (3)
Net capital and surplus 212 152 171
THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA:
Net (loss) income $ (20) $ (19) $ 6
Net capital and surplus 100 120 137
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK:
Net (loss) income $ (26) $ (3) $ 1
Net capital and surplus 34 61 64
===================================================================================================
In March 1998, the National Association of Insurance Commissioners
adopted codified statutory accounting principles ("Codification")
effective January 1, 2001. Codification changes prescribed statutory
accounting practices and results in changes to the accounting practices
that the Company's life insurance subsidiaries use to prepare their
statutory-basis financial statements. The states of domicile of these
subsidiaries adopted Codification as the prescribed basis of accounting
on which insurers must report their statutory-basis results. The
cumulative effect of changes in accounting principles adopted to
conform to the requirements of Codification was reported as an increase
to surplus in the statutory-basis financial statement of the respective
life insurance subsidiaries. In total, statutory-basis surplus of the
life insurance entities within the Company increased by $175.
As a result of demutualization of MLI, an indirect parent, there are
regulatory restrictions on the amounts of profit that can be
transferred to shareholders. These restrictions generally take the form
of a fixed percentage of the policyholder dividends. The transfers are
governed by the terms of MLI's Plan of Demutualization.
9. EMPLOYEE BENEFITS
a) EMPLOYEE RETIREMENT PLAN
The Company sponsors a non-contributory pension plan entitled "The
Manulife Financial U.S. Cash Balance Plan" ("the Plan"). Pension
benefits are provided to participants of the Plan after three years of
vesting service with the Company and are a function of the length of
service together with final average earnings. The normal form of
payment under the Plan is a life annuity, payable at the normal
retirement age of 65, and is actuarially equivalent to the cash balance
account. Various optional forms of payment are available including a
lump sum. Early retirement benefits are actuarially equivalent to the
cash balance account, but are subsidized for participants who were age
45 with 5 or more years vesting service with the Company as at July 1,
1998 and who terminate employment after attaining age 50 and have
completed 10 years of service.
17
9. EMPLOYEE BENEFITS (CONTINUED)
Cash balance accounts are credited annually with contribution credits
and semi-annually with interest credits. Future contribution credits
under the Plan vary based on service. Interest credits are a function
of the 1-year U.S. Treasury Bond rate plus 0.50%, but no less than
5.25% per year.
Actuarial valuation of accumulated plan benefits are based on projected
salaries, an assumed discount rate, and best estimates of investment
yields on plan assets, mortality of participants, employee termination,
and ages at retirement. Pension costs that relate to current service
are funded as they accrue and are charged to earnings of the Company in
the current period. Vested benefits are fully funded. Experience gains
and losses are amortized into income of the Company over the estimated
average remaining service lives of the participants. No contributions
were made during the current or prior year because the Plan was subject
to the full funding limitation under the Internal Revenue Code.
The Company also sponsors an unfunded supplemental cash balance plan
entitled "The Manulife Financial U.S. Supplemental Cash Balance Plan"
("the Supplemental Plan"). This non-qualified plan provides defined
pension benefits in excess of limits imposed by law. The Internal
Revenue Code does not restrict compensation nor does it limit benefits.
Benefits under the Supplemental Plan are provided to participants who
terminate after three years of service. The default form of payment
under this plan is a lump sum, although participants may elect to
receive payment in the form of an annuity provided that such an
election is made within the time period prescribed in the Supplemental
Plan. If an annuity form of payment is elected, the amount payable is
equal to the actuarial equivalent of the participant's balance under
the Supplemental Plan, using the factors and assumptions for
determining immediate annuity amounts applicable to the participant
under the Plan.
Cash balance contribution credits vary by service, and interest credits
are a function of the 1-year U.S. Treasury Bond rate plus 0.50%, but no
less than 5.25% per year. The annual contribution credits are made in
respect of the participant's compensation that is in excess of the
limit in the Internal Revenue Code. Together, these contributions serve
to restore to the participant the benefit that he / she would have been
entitled to under the Plan's benefit formula but for the limitation in
Internal Revenue Code.
At December 31, 2001, the projected benefit obligation to the
participants of both the Plan and the Supplemental Plan was $78, which
was based on an assumed interest rate of 7.25%. The fair value of the
Plan assets totaled $72.
b) 401(k) PLAN
The Company sponsors a defined contribution 401(k) Savings Plan which
is subject to the provisions of the Employee Retirement Income Security
Act of 1974 (ERISA). The Company contributed $1 for each of 2001, 2000,
and 1999, respectively.
18
9. EMPLOYEE BENEFITS (CONTINUED)
c) DEFERRED COMPENSATION PLAN
The Company has deferred compensation incentive plans open to all
branch managers and qualified agents. There are no stock option plans
involving stock of ManUSA.
d) POSTRETIREMENT BENEFIT PLAN
In addition to the retirement plans, the Company sponsors a
postretirement benefit plan that provides retiree medical and life
insurance benefits to those who have attained age 50 and have 10 or
more years of service with the Company. This plan provides medical
coverage for retirees and spouses under age 65. When the retirees or
the covered spouses reach age 65, Medicare provides primary coverage
and this plan provides secondary coverage. This plan is contributory
with the amount of contribution based on the service of the employees
as at the time of retirement. This plan provides the retiree with a
life insurance benefit of 100% of the salary just prior to retirement.
The amount is reduced to 65% on the first of January following
retirement, and is further reduced to 30% at age 70.
The Company accounts for its retiree benefit plan using the accrual
method. At December 31, 2001, the benefit obligation of the
postretirement benefit plan was $21, which was based on an assumed
interest rate of 7.25%. This plan is unfunded.
19
9. EMPLOYEE BENEFITS (CONTINUED)
e) FINANCIAL INFORMATION REGARDING THE EMPLOYEE RETIREMENT PLAN AND THE
POSTRETIREMENT BENEFIT PLAN
Information applicable to the Employee Retirement Plan and the
Postretirement Benefit Plan as estimated by a consulting actuary for the
December 31 year-end is as follows:
EMPLOYEE POSTRETIREMENT
RETIREMENT BENEFIT
AS OF DECEMBER 31 PLAN PLAN
-------------------------------------
(in millions) 2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $(74) $(68) $(18) $(17)
Service cost (3) (2) (1) (1)
Interest cost (5) (5) (1) (1)
Amendments -- (1) -- --
Actuarial gain (loss) (1) (3) (1) --
Benefits paid 5 5 1 1
- ------------------------------------------------------------------------------------------------------------
Benefits obligation at end of year $(78) $(74) $(20) $(18)
- ------------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 81 $ 87 $ -- $ --
Actual return on plan assets (6) (2) -- --
Employer contribution 2 1 1 1
Benefits paid (5) (5) (1) (1)
- ------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year $ 72 $ 81 $ -- $ --
- ------------------------------------------------------------------------------------------------------------
Funded status $ (6) $ 7 $(21) $(18)
Unrecognized transition asset (6) (9) -- --
Unrecognized actuarial loss (gain) 30 16 (12) (15)
Unrecognized prior service cost (recovery) 3 3 -- --
- ------------------------------------------------------------------------------------------------------------
Net amount recognized $ 21 $ 17 $(33) $(33)
- ------------------------------------------------------------------------------------------------------------
Amounts recognized in statement of financial position consist of:
Prepaid benefit cost $ 38 $ 34 $ -- $ --
Accrued benefit liability (22) (21) (33) (33)
Intangible asset 1 1 -- --
Accumulated other comprehensive income 4 4 -- --
- ------------------------------------------------------------------------------------------------------------
Net amount recognized $ 21 $ 18 $(33) $(33)
- ------------------------------------------------------------------------------------------------------------
EMPLOYEE POSTRETIREMENT
RETIREMENT BENEFIT
PLAN PLAN
----------------------------------------------
AS OF DECEMBER 31 2001 2000 2001 2000
- -------------------------------------------------------------------------------------
WEIGHTED AVERAGE ASSUMPTIONS
Discount rate 7.25% 7.25% 7.25% 7.25%
Expected return on plan assets 9.00% 8.50% n/a n/a
Rate of compensation increase 5.00% 5.00% 5.00% 5.00%
20
9. EMPLOYEE BENEFITS (CONTINUED)
On December 31, 2001, the accrued postretirement benefit cost was $21.
The postretirement benefit obligation for eligible active employees was
$3. The amount of the postretirement benefit obligation for ineligible
active employees was $6. For measurement purposes as of December 31,
2001, a 7.5% and 9.5% annual rate of increase in the per capita cost of
covered health care benefits was assumed for 2002 for pre-65 and
post-65 coverages, respectively. These rates were assumed to decrease
gradually to 5.0% in 2007 and 2011, respectively, and remain at that
level thereafter.
EMPLOYEE POSTRETIREMENT
RETIREMENT BENEFIT
PLAN PLAN
AS OF DECEMBER 31 ----------------------------------
(in millions) 2001 2000 2001 2000
- ------------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC (BENEFIT) COST FOR
PLAN SPONSOR
Service cost $ 3 $ 2 $ 1 $ 1
Interest cost 5 5 1 1
Expected return on plan assets (7) (7) -- --
Amortization of net transition obligation (2) (2) -- --
Recognized actuarial loss (gain) -- -- (1) (1)
- ------------------------------------------------------------------------------------
NET PERIODIC (BENEFIT) COST $(1) $(2) $ 1 $ 1
====================================================================================
The projected benefit obligation in excess of plan assets, the
accumulated benefit obligation in excess of plan assets, and the fair
value of plan assets for the Supplemental Plan were $23, $22, and $0
respectively as of December 31, 2001 and $22, $21, and $0 respectively
as of December 31, 2000.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage-point
change in assumed health care cost trend rates would have the following
effects on 2001 values:
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT
(in millions) INCREASE DECREASE
- -------------------------------------------------------------------------------------------
Effect on total of service and interest cost
components $ -- $ --
Effect on postretirement benefit obligation $ 3 $ (2)
- -------------------------------------------------------------------------------------------
21
10. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses a variety of off-balance sheet derivative financial
instruments as part of its efforts to manage exposures to foreign
currency, interest rate, and other market risks arising from its
on-balance sheet financial instruments. These instruments include
interest rate exchange agreements, cross currency swaps, and foreign
currency forward contracts.
The Company enters into interest rate exchange agreements to reduce and
manage interest rate risk associated with outstanding non-U.S. dollar
denominated debt. These instruments are regarded as fair value hedges.
The Company uses cross currency swaps to reduce both foreign exchange
and interest rate risk and to alter exposures arising from mismatches
between assets and liabilities. Since the interest payments are in
different currencies, there are no netting arrangements between
counter-parties. These instruments are regarded as fair value hedges.
The Company uses foreign currency forward contracts to hedge some of
the foreign exchange risk, as it generates revenue and holds assets in
U.S. dollars, but incurs a significant portion of its maintenance and
acquisition expenses in Canadian dollars. A foreign currency forward
contract obligates the Company to deliver a specified amount of
currency on a future date at a specified exchange rate. The value of
the foreign exchange forward contracts at any given point fluctuates
according to the underlying level of exchange rate and interest rate
differentials. These instruments are regarded as cash flow hedges.
These instruments are designated and effective as hedges, as there is a
high correlation between changes in market value of the derivative and
the underlying hedged item at inception and over the life of the hedge.
The Company's exposure to credit risk is the risk of loss from a
counterparty failing to perform according to the terms of the contract.
That exposure includes settlement risk (i.e., the risk that the
counterparty defaults after the Company has delivered funds or
securities under terms of the contract) that would result in a loss and
replacement cost risk (i.e. the cost to replace the contract at current
market rates should the counterparty default prior to the settlement
date). To limit exposure associated with counterparty nonperformance on
interest rate exchange agreements, the Company enters into master
netting agreements with its counterparties.
Outstanding derivative instruments with off-balance sheet risks are as
follows:
NOTIONAL OR CONTRACT
AMOUNTS CARRYING VALUE FAIR VALUE
AS AT DECEMBER 31 ------- -------------- ----------
($ millions) 2001 2000 2001 2000 2001 2000
- -----------------------------------------------------------------------------------------------------------
Interest rate & currency swaps &
floors $1,098 $1,008 $ 2 $ 5 $ 2 $ 5
Interest rate option written 22 22 (1) -- (1) --
Equity Contracts 37 68 -- (1) -- (1)
Currency forwards 851 1,125 (10) 5 (10) 5
- -----------------------------------------------------------------------------------------------------------
TOTAL DERIVATIVES $2,008 $2,223 $ (9) $ 9 $ (9) $ 9
===========================================================================================================
22
10. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
Fair value of off-balance sheet derivative financial instruments
reflect the estimated amounts that the Company would receive or pay to
terminate the contract at the balance sheet date, including the current
unrealized gains (losses) on the instruments. Fair values of the
agreements were based on estimates obtained from the individual counter
parties.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values and the estimated fair values of the Company's
financial instruments at December 31, 2001 were as follows:
($ millions) CARRYING VALUE FAIR VALUE
- --------------------------------------------------------------------------
ASSETS:
Fixed-maturity and equity securities $10,953 $10,953
Mortgage loans 1,675 1,783
Policy loans 2,226 2,226
Separate account assets 30,217 30,217
LIABILITIES:
Insurance investment contracts $ 1,699 $ 1,698
Derivative financial instruments 9 9
Separate account liabilities 30,217 30,217
- --------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair
values of the above financial instruments:
FIXED-MATURITY AND EQUITY SECURITIES: Fair values of fixed-maturity and
equity securities were based on quoted market prices where available.
Where no quoted market price was available, fair values were estimated
using values obtained from independent pricing services or, in the case
of private placements, by discounting expected future cash flows using
a current market rate applicable to yield, credit quality, and average
life of the investments.
MORTGAGE LOANS: Fair value of mortgage loans was estimated using
discounted cash flows and took into account the contractual maturities
and discount rates, which were based on current market rates for
similar maturity ranges and adjusted for risk due to the property type.
POLICY LOANS: Carrying values approximate fair values.
DERIVATIVE FINANCIAL INSTRUMENTS: Fair values of derivative financial
instruments were based on estimates obtained from the individual
counterparties.
INSURANCE INVESTMENT CONTRACTS: Fair value of insurance investment
contracts, which do not subject the Company to significant mortality or
morbidity risks, was estimated using cash flows discounted at market
rates.
SEPARATE ACCOUNT ASSETS AND LIABILITIES: The carrying amounts in the
balance sheet for separate account assets and liabilities approximate
their fair value. Fair value was determined by applying the above
outlined methodology to the relevant assets underlying the respective
separate accounts.
23
12. RELATED PARTY TRANSACTIONS
The Company has formal service agreements with MFC, which can be
terminated by either party upon two months notice. Under the various
agreements, the Company will pay direct operating expenses incurred by
MFC on behalf of the Company. Services provided under the agreements
include legal, actuarial, investment, data processing, accounting and
certain other administrative services. Costs incurred under the
agreements were $216 in 2001. Prior to 2001, the agreements were with
MLI. Costs incurred under these agreements were $243 and $194 for 2000
and 1999, respectively.
MFC also provides a claims paying guarantee to certain U.S.
policyholders.
On September 23, 1997, the Company entered into a reinsurance agreement
with Manulife Reinsurance Limited ("MRL"), an affiliated life insurance
company domiciled in Bermuda, to reinsure a closed block of
participating life insurance business. As there was limited transfer of
mortality risk between the Company and MRL, the agreement was
classified as financial reinsurance and given deposit-type accounting
treatment. Title to the assets supporting this block of business was
transferred to MRL under the terms of the agreement. Included in
amounts due from affiliates is $506 (2000 - $568) representing the
receivable from MRL for the transferred assets.
The Company loaned $20 to MRL pursuant to a promissory note dated
September 29, 2000. The loan is due on September 29, 2005 with interest
calculated at 7.30% per annum, payable quarterly starting December 15,
2000.
Pursuant to a promissory note dated June 12, 2000, the Company loaned
$7 to MRL. Principal and accrued interest are payable on June 12, 2003.
Interest on the loan calculated at 7.65% is payable semi-annually
starting August 1, 2000.
Pursuant to a grid promissory note and a credit agreement dated
December 19, 2000, the Company received a loan of $250 ($375 Canadian)
from an affiliate, Manulife Hungary Holdings KFT ("MHH"). The maturity
date with respect to any advances is set at 365 days after the date of
the advancement. Interest on the loan is calculated at the fluctuating
rate to be equivalent to LIBOR plus 25 basis points and is payable
quarterly starting March 28, 2001. The loan has been renewed until
December 19, 2002. On August 7, 2001, the Company repaid $100 ($150
Canadian) of this loan.
Pursuant to a grid promissory note and a credit agreement dated August
7, 2001, MNA received a loan of $100 ($150 Canadian) from MHH. The
maturity date with respect to any advances is set at 365 days after the
date of the advancement. Interest on the loan is calculated at the
fluctuating rate to be equivalent to LIBOR plus 32.5 basis points and
is payable quarterly starting December 28, 2001.
Pursuant to a grid promissory note dated May 11, 2001, the Company
loaned $20 to MRL. Principal and accrued interest are payable on May
11, 2006. Interest on the load is calculated at an annual rate of
interest equal to LIBOR plus 60 basis points annually starting June 15,
2001.
24
13. REINSURANCE
In the normal course of business, the Company assumes and cedes
reinsurance as a party to several reinsurance treaties with major
unrelated insurance companies. The Company remains liable for amounts
ceded in the event that reinsurers do not meet their obligations.
The effects of reinsurance on premiums with unrelated insurance
companies were as follows:
FOR THE YEARS ENDED DECEMBER 31
($ millions) 2001 2000 1999
- ------------------------------------------------------------------
Direct premiums $ 969 $ 963 $ 976
Reinsurance assumed 14 14 12
Reinsurance ceded (189) (163) (107)
- ------------------------------------------------------------------
TOTAL PREMIUMS $ 794 $ 814 $ 881
- ------------------------------------------------------------------
Reinsurance recoveries on ceded reinsurance contracts were $204, $187,
and $33 during 2001, 2000 and 1999, respectively.
14. CONTINGENCIES & COMMITMENTS
The Company and its subsidiaries are subject to legal actions arising
in the ordinary course of business. These legal actions are not
expected to have a material adverse effect on the consolidated
financial position of the Company.
During the year, the Company entered into an office ground lease
agreement, which expires on September 20, 2096. The terms of the lease
provide for adjustments in future periods with the minimum aggregate
rental commitments for the next five years as follows: $0 for 2002 and
2003, and $2 for 2004 and thereafter. There was no other material
operating leases in existence as at the end of 2001.
15. SUBSEQUENT EVENT
Effective on January 1, 2002, all of the operations of MRC and all of
the operations of MNA were merged with and into the operations of
ManUSA. On the same day, all of the inforce operations of MLA were
transferred to the Company by way of an assumption reinsurance
agreement and dividend declarations. As a result of this
reorganization, products previously sold and administered under the
name of MRC, MNA, and MLA are now offered and administered under the
name of ManUSA. Under the new organizational structure, surplus of the
Company would increase by approximately $369.
Also on January 1, 2002, the operations of Manulife-Wood Logan Holding
Co., Inc., Manulife Wood Logan, Inc., and Manulife Holding Corporation,
all subsidiaries of ManUSA, were liquidated into the Company.
25
MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA
SEPARATE ACCOUNT FOUR
Audited Financial Statements
Years ended December 31, 2001 and 2000 with Report of Independent Auditors
The Manufacturers Life Insurance Company of America
Separate Account Four
Audited Financial Statements
Years ended December 31, 2001 and 2000
CONTENTS
Report of Independent Auditors.............................................. 1
Audited Financial Statements
Statement of Assets and Contract Owners' Equity............................. 2
Statements of Operations and Changes in Contract Owners' Equity............. 4
Notes to Financial Statements............................................... 28
Report of Independent Auditors
To the Contract Owners of
The Manufacturers Life Insurance Company
of America Separate Account Four
We have audited the accompanying statement of assets and contract owners' equity
of The Manufacturers Life Insurance Company of America Separate Account Four as
of December 31, 2001 and the related statements of operations and changes in
contract owners' equity for each of the periods presented herein. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Manufacturers Life
Insurance Company of America Separate Account Four at December 31, 2001, and the
results of its operations and the changes in its contract owners' equity for
each of the periods presented herein, in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 1, 2002
1
The Manufacturers Life Insurance Company of America
Separate Account Four
Statement of Assets and Contract Owners' Equity
December 31, 2001
ASSETS
Investments at fair value:
Sub-Accounts:
Aggressive Growth Trust - 386,808 shares (cost $6,328,895) $ 5,113,597
All Cap Growth Trust - 690,486 shares (cost $12,297,360) 10,184,673
All Cap Value Trust - 1,189 shares (cost $13,765) 14,993
Balanced Trust - 2,326,158 shares (cost $40,441,491) 31,589,231
Blue Chip Growth Trust - 2,287,045 shares (cost $41,792,842) 36,203,915
Capital Appreciation Trust - 4,125 shares (cost $34,491) 36,920
Capital Opportunities Trust - 9,041 shares (cost $95,770) 96,738
Diversified Bond Trust - 694,517 shares (cost $7,194,754) 7,354,939
Dynamic Growth Trust - 101,599 shares (cost $562,039) 483,613
Emerging Small Company Trust - 2,422,821 shares (cost $63,525,234) 63,138,723
Equity Income Trust - 1,003,947 shares (cost $15,291,972) 15,189,718
Equity Index Trust - 2,719,033 shares (cost $43,570,921) 38,066,462
Financial Services Trust - 8,343 shares (cost $99,286) 97,034
Fundamental Value Trust - 21,246 shares (cost $251,275) 249,216
Global Bond Trust - 135,000 shares (cost $1,564,259) 1,549,796
Global Equity Trust - 241,605 shares (cost $3,659,938) 3,140,867
Growth Trust - 896,070 shares (cost $16,851,535) 12,500,179
Growth and Income Trust - 1,121,979 shares (cost $30,767,466) 26,826,511
Health Sciences Trust - 11,149 shares (cost $141,500) 150,957
High Yield Trust - 504,044 shares (cost $5,499,318) 4,979,952
Income and Value Trust - 973,086 shares (cost $9,766,277) 9,857,366
International Index Trust - 23,136 shares (cost $225,165) 197,118
International Small Cap Trust - 208,484 shares (cost $2,999,214) 2,355,865
International Stock Trust - 1,333,849 shares (cost $15,899,439) 12,791,612
International Value Trust - 204,439 shares (cost $2,339,354) 2,154,783
Internet Technologies Trust - 32,132 shares (cost $151,037) 121,782
Investment Quality Bond Trust - 1,741,260 shares (cost $20,338,818) 20,633,935
Large Cap Growth Trust - 750,645 shares (cost $9,054,560) 7,423,884
Lifestyle Aggressive 1000 Trust - 62,302 shares (cost $758,704) 644,205
Lifestyle Balanced 640 Trust - 512,591 shares (cost $6,368,184) 6,058,824
Lifestyle Conservative 280 Trust - 289,659 shares (cost $3,668,226) 3,748,192
Lifestyle Growth 820 Trust - 116,988 shares (cost $1,513,947) 1,316,120
Lifestyle Moderate 460 Trust - 67,474 shares (cost $814,360) 817,107
Mid Cap Growth Trust - 17,588 shares (cost $183,201) 184,149
Mid Cap Index Trust - 82,123 shares (cost $979,348) 1,052,814
Mid Cap Opportunities Trust - 561 shares (cost $5,414) 5,945
Mid Cap Stock Trust - 70,834 shares (cost $726,889) 762,884
Mid Cap Value Trust - 10,264 shares (cost $129,337) 134,052
Money Market Trust - 4,081,789 shares (cost $40,817,893) 40,817,893
Overseas Trust - 357,202 shares (cost $3,637,393) 3,057,649
Pacific Rim Emerging Markets Trust - 601,405 shares (cost $4,771,826) 3,999,341
Quantitative Equity Trust - 1,926,285 shares (cost $43,451,109) 33,132,109
Real Estate Securities Trust - 1,276,367 shares (cost $20,144,142) 19,809,218
Science and Technology Trust - 2,314,164 shares (cost $44,277,830) 29,690,730
Small Cap Index Trust - 60,914 shares (cost $683,916) 687,114
Small Company Blend Trust - 289,502 shares (cost $3,075,230) 3,178,735
Small Company Value Trust - 387,669 shares (cost $4,910,100) 5,349,826
Strategic Bond Trust - 265,862 shares (cost $2,821,008) 2,855,362
Strategic Growth Trust - 68,667 shares (cost $713,778) 756,713
Strategic Opportunities Trust - 775,796 shares (cost $11,435,961) 9,806,062
2
The Manufacturers Life Insurance Company of America
Separate Account Four
Statement of Assets and Contract Owners' Equity
December 31, 2001
ASSETS (CONTINUED)
Investments at fair value:
Sub-Accounts:
Tactical Allocation Trust - 8,228 shares (cost $82,477) $ 82,609
Telecommunications Trust - 3,280 shares (cost $29,957) 26,007
Total Return Trust - 1,495,346 shares (cost $20,200,102) 20,755,404
Total Stock Market Index Trust - 311,559 shares (cost $3,090,804) 3,050,162
U.S. Government Securities Trust - 728,328 shares (cost $9,865,108) 9,992,662
U.S. Large Cap Value Trust - 277,970 shares (cost $3,544,430) 3,505,205
Utilities Trust - 5,387 shares (cost $58,804) 50,102
Value Trust - 727,644 shares (cost $11,416,562) 11,984,303
500 Index Trust - 94,297 shares (cost $955,534) 925,055
------------
Total assets $530,740,932
============
CONTRACT OWNERS' EQUITY
Variable universal life contracts $530,740,932
============
See accompanying notes.
3
The Manufacturers Life Insurance Company of America
Separate Account Four
Statements of Operations and Changes in Contract Owners' Equity
SUB-ACCOUNT
---------------------------------------------------------------------
AGGRESSIVE GROWTH ALL CAP GROWTH
TRUST TRUST
---------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00
---------------------------------------------------------------------
Income:
Dividends $ - $ - $ 489,935 $ 494,609
Expenses:
Mortality and expense risks, and
administrative charges 30,923 19,680 58,611 52,700
---------------------------------------------------------------------
Net investment income (loss) during the year (30,923) (19,680) 431,324 441,909
Net realized gain (loss) during the year (1,009,845) 445,778 (1,957,906) 719,966
Unrealized appreciation (depreciation) during
the year (447,976) (1,051,671) (782,386) (2,675,835)
---------------------------------------------------------------------
Net increase (decrease) in assets
from operations (1,488,744) (625,573) (2,308,968) (1,513,960)
---------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 1,994,041 2,017,555 4,577,444 2,987,565
Transfer on terminations (351,908) (153,979) (691,667) (565,315)
Transfer on policy loans (14,639) (1,889) (6,541) (36,214)
Net interfund transfers (399,032) 3,035,625 (179,674) 2,348,259
---------------------------------------------------------------------
Net increase (decrease) in assets
from principal transactions 1,228,462 4,897,312 3,699,562 4,734,295
---------------------------------------------------------------------
Total increase (decrease) in assets (260,282) 4,271,739 1,390,594 3,220,335
Assets beginning of year 5,373,879 1,102,140 8,794,079 5,573,744
---------------------------------------------------------------------
Assets end of year $ 5,113,597 $ 5,373,879 $ 10,184,673 $ 8,794,079
=====================================================================
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
See accompanying notes.
4
SUB-ACCOUNT
- -----------------------------------------------------------------------------------------------------------
CAPITAL
ALL CAP VALUE BLUE CHIP APPRECIATION
TRUST BALANCED TRUST GROWTH TRUST TRUST
- -----------------------------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/01* DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 DEC. 31/01*
- -----------------------------------------------------------------------------------------------------------
$ 3 $ 824,561 $ 2,142,690 $ 2,891,977 $ 1,437,390 $ -
33 231,900 306,448 223,162 225,515 72
- -----------------------------------------------------------------------------------------------------------
(30) 592,661 1,836,242 2,668,815 1,211,875 (72)
(55) (1,536,239) 1,164,938 (3,938,059) 2,219,612 (38)
1,228 (3,408,713) (7,426,525) (5,557,194) (5,137,526) 2,429
- -----------------------------------------------------------------------------------------------------------
1,143 (4,352,291) (4,425,345) (6,826,438) (1,706,039) 2,319
- -----------------------------------------------------------------------------------------------------------
7,951 3,910,908 5,624,260 10,181,726 13,245,945 742
(2,313) (4,011,328) (5,659,955) (2,506,721) (1,872,424) (613)
-- 177,394 (208,941) (94,393) 13 --
8,212 (4,924,849) (7,469,583) (3,947,656) (3,545,368) 34,472
- -----------------------------------------------------------------------------------------------------------
13,850 (4,847,875) (7,714,219) 3,632,956 7,828,166 34,601
- -----------------------------------------------------------------------------------------------------------
14,993 (9,200,166) (12,139,564) (3,193,482) 6,122,127 36,920
-- 40,789,397 52,928,961 39,397,397 33,275,270 --
- -----------------------------------------------------------------------------------------------------------
$ 14,993 $ 31,589,231 $ 40,789,397 $ 36,203,915 $ 39,397,397 $ 36,920
===========================================================================================================
5
The Manufacturers Life Insurance Company of America
Separate Account Four
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
-----------------------------------------------
CAPITAL
OPPORTUNITIES
TRUST DIVERSIFIED BOND TRUST
-----------------------------------------------
PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/01* DEC. 31/01 DEC. 31/00
-----------------------------------------------
Income:
Dividends $ -- $ 171,518 $ 128,166
Expenses:
Mortality and expense risks, and
administrative charges 38 33,185 13,735
-----------------------------------------------
Net investment income (loss) during the year (38) 138,333 114,431
Net realized gain (loss) during the year (6) 208,420 (85,540)
Unrealized appreciation (depreciation) during
the year 968 (22,621) 229,671
-----------------------------------------------
Net increase (decrease) in assets
from operations 924 324,132 258,562
-----------------------------------------------
Changes from principal transactions:
Transfer of net premiums 70,779 2,249,690 1,199,817
Transfer on terminations 8 (373,603) (244,178)
Transfer on policy loans -- 4,226 (55,670)
Net interfund transfers 25,027 1,492,097 1,131,179
-----------------------------------------------
Net increase (decrease) in assets
from principal transactions 95,814 3,372,410 2,031,148
-----------------------------------------------
Total increase (decrease) in assets 96,738 3,696,542 2,289,710
Assets beginning of year -- 3,658,397 1,368,687
-----------------------------------------------
Assets end of year $ 96,738 $ 7,354,939 $ 3,658,397
===============================================
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
** Reflects the period from commencement of operations May 2, 2000 through
December 31, 2000.
See accompanying notes.
6
SUB-ACCOUNT
- -----------------------------------------------------------------------------------------------------------
DYNAMIC GROWTH TRUST EMERGING SMALL COMPANY TRUST EQUITY INCOME TRUST
- -----------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/01 DEC. 31/00** DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00
- -----------------------------------------------------------------------------------------------------------
$ 1,375 $ -- $ 2,633,803 $ 8,896,969 $ 1,021,642 $ 1,215,240
3,105 1,202 404,110 594,318 70,343 52,959
- -----------------------------------------------------------------------------------------------------------
(1,730) (1,202) 2,229,693 8,302,651 951,299 1,162,281
(232,608) (126,482) (1,598,919) 7,060,851 (379,962) (999,933)
25,490 (103,916) (18,801,456) (19,474,370) (471,797) 598,947
- -----------------------------------------------------------------------------------------------------------
(208,848) (231,600) (18,170,682) (4,110,868) 99,540 761,295
- -----------------------------------------------------------------------------------------------------------
330,311 91,367 8,684,233 10,826,056 3,588,138 3,091,072
(14,841) (13,110) (6,650,831) (10,744,665) (1,052,237) (1,003,040)
-- -- 56,171 (877,506) (12,159) 1,625
106,745 423,589 (1,296,935) 1,815,857 4,709,257 (4,746,166)
- -----------------------------------------------------------------------------------------------------------
422,215 501,846 792,638 1,019,742 7,232,999 (2,656,509)
- -----------------------------------------------------------------------------------------------------------
213,367 270,246 (17,378,044) (3,091,126) 7,332,539 (1,895,214)
270,246 -- 80,516,767 83,607,893 7,857,179 9,752,393
- -----------------------------------------------------------------------------------------------------------
$ 483,613 $ 270,246 $ 63,138,723 $ 80,516,767 $ 15,189,718 $ 7,857,179
===========================================================================================================
7
The Manufacturers Life Insurance Company of America
Separate Account Four
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
---------------------------------------------------------------------
FINANCIAL FUNDAMENTAL
EQUITY INDEX TRUST SERVICES TRUST VALUE TRUST
---------------------------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01* DEC. 31/01*
---------------------------------------------------------------------
Income:
Dividends $ 949,563 $ 117,514 $ 27 $ --
Expenses:
Mortality and expense risks, and
administrative charges 226,505 258,059 224 629
---------------------------------------------------------------------
Net investment income (loss) during the year 723,058 (140,545) (197) (629)
Net realized gain (loss) during the year (2,185,633) 3,003,549 (365) (864)
Unrealized appreciation (depreciation) during
the year (3,730,659) (7,096,700) (2,252) (2,058)
---------------------------------------------------------------------
Net increase (decrease) in assets
from operations (5,193,234) (4,233,696) (2,814) (3,551)
---------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 10,652,620 16,333,867 7,461 6,839
Transfer on terminations (2,620,619) (2,849,902) (4,231) (10,780)
Transfer on policy loans 4,330 (154,116) (7) (22)
Net interfund transfers (4,523,947) (7,052,953) 96,625 256,730
---------------------------------------------------------------------
Net increase (decrease) in assets
from principal transactions 3,512,384 6,276,896 99,848 252,767
---------------------------------------------------------------------
Total increase (decrease) in assets (1,680,850) 2,043,200 97,034 249,216
Assets beginning of year 39,747,312 37,704,112 -- --
---------------------------------------------------------------------
Assets end of year $ 38,066,462 $ 39,747,312 $ 97,034 $ 249,216
=====================================================================
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
See accompanying notes.
8
SUB-ACCOUNT
- -----------------------------------------------------------------------------------------------------------
GLOBAL BOND TRUST GLOBAL EQUITY TRUST GROWTH TRUST
- -----------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00
- -----------------------------------------------------------------------------------------------------------
$ -- $ 10,543 $ 507,908 $ 327,718 $ -- $ 1,357,936
3,839 3,171 21,029 19,023 81,450 97,447
- -----------------------------------------------------------------------------------------------------------
(3,839) 7,372 486,879 308,695 (81,450) 1,260,489
(3,286) (30,994) (372,435) (199,982) (4,937,416) 594,711
(12,426) 2,851 (770,710) 234,915 1,754,564 (7,421,452)
- -----------------------------------------------------------------------------------------------------------
(19,551) (20,771) (656,266) 343,628 (3,264,302) (5,566,252)
- -----------------------------------------------------------------------------------------------------------
285,976 139,169 765,943 1,194,857 5,168,717 7,922,560
(27,911) (34,333) (263,724) (226,935) (941,752) (1,151,699)
(4,217) (10,712) (1,252) (40,108) (24,960) (59,763)
916,262 2,695 (238,659) (910,286) (3,675,443) 6,325,216
- -----------------------------------------------------------------------------------------------------------
1,170,110 96,819 262,308 17,528 526,562 13,036,314
- -----------------------------------------------------------------------------------------------------------
1,150,559 76,048 (393,958) 361,156 (2,737,740) 7,470,062
399,237 323,189 3,534,825 3,173,669 15,237,919 7,767,857
- -----------------------------------------------------------------------------------------------------------
$ 1,549,796 $ 399,237 $ 3,140,867 $ 3,534,825 $ 12,500,179 $ 15,237,919
===========================================================================================================
9
The Manufacturers Life Insurance Company of America
Separate Account Four
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
--------------------------------------------------
GROWTH AND INCOME HEALTH SCIENCES
TRUST TRUST
--------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01*
--------------------------------------------------
Income:
Dividends $ 1,481,575 $ 1,677,174 $ --
Expenses:
Mortality and expense risks, and
administrative charges 163,695 178,922 299
--------------------------------------------------
Net investment income (loss) during the year 1,317,880 1,498,252 (299)
Net realized gain (loss) during the year (1,909,561) 2,196,121 (131)
Unrealized appreciation (depreciation) during
the year (2,671,541) (5,943,252) 9,457
--------------------------------------------------
Net increase (decrease) in assets
from operations (3,263,222) (2,248,879) 9,027
--------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 7,197,987 7,793,636 44,675
Transfer on terminations (2,783,042) (3,678,743) (4,643)
Transfer on policy loans (56,065) (14,763) (8)
Net interfund transfers (1,383,997) (4,080,097) 101,906
--------------------------------------------------
Net increase (decrease) in assets
from principal transactions 2,974,883 20,033 141,930
--------------------------------------------------
Total increase (decrease) in assets (288,339) (2,228,846) 150,957
Assets beginning of year 27,114,850 29,343,696 --
--------------------------------------------------
Assets end of year $ 26,826,511 $ 27,114,850 $ 150,957
==================================================
*Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
** Reflects the period from commencement of operations May 2, 2000 through
December 31, 2000.
See accompanying notes.
10
SUB-ACCOUNT
- -----------------------------------------------------------------------------------------------------
INCOME & VALUE INTERNATIONAL INDEX
HIGH YIELD TRUST TRUST TRUST
- -----------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00**
- -----------------------------------------------------------------------------------------------------
$ 364,655 $ 13,566 $ 313,451 $ 952,189 $ 2,308 $ 624
24,364 25,447 47,256 31,429 1,201 85
- -----------------------------------------------------------------------------------------------------
340,291 (11,881) 266,195 920,760 1,107 539
(426,272) (127,211) (559,898) (302,448) 19,590 (309)
(124,780) (253,583) 489,673 (418,733) (25,006) (3,041)
- -----------------------------------------------------------------------------------------------------
(210,761) (392,675) 195,970 199,579 (4,309) (2,811)
- -----------------------------------------------------------------------------------------------------
1,463,073 1,396,133 2,927,089 2,354,495 41,657 3,789
(318,463) (236,289) (507,821) (379,895) 1,461 (599)
(12,792) (11,335) (2,345) (80,612) -- --
18,333 (172,527) 998,546 710,007 113,831 44,099
- -----------------------------------------------------------------------------------------------------
1,150,151 975,982 3,415,469 2,603,995 156,949 47,289
- -----------------------------------------------------------------------------------------------------
939,390 583,307 3,611,439 2,803,574 152,640 44,478
4,040,562 3,457,255 6,245,927 3,442,353 44,478 --
- -----------------------------------------------------------------------------------------------------
$ 4,979,952 $ 4,040,562 $ 9,857,366 $ 6,245,927 $ 197,118 $ 44,478
=====================================================================================================
11
The Manufacturers Life Insurance Company of America
Separate Account Four
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
---------------------------------------------------------------------
INTERNATIONAL SMALL CAP INTERNATIONAL STOCK
TRUST TRUST
---------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00
---------------------------------------------------------------------
Income:
Dividends $ -- $ 694,416 $ 724,688 $ 84,131
Expenses:
Mortality and expense risks, and
administrative charges 19,248 23,770 85,559 110,826
---------------------------------------------------------------------
Net investment income (loss) during the year (19,248) 670,646 639,129 (26,695)
Net realized gain (loss) during the year (2,445,760) (138,612) (2,874,694) 571,024
Unrealized appreciation (depreciation) during
the year 1,133,243 (2,406,462) (1,742,352) (3,695,939)
---------------------------------------------------------------------
Net increase (decrease) in assets
from operations (1,331,765) (1,874,428) (3,977,917) (3,151,610)
---------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 1,124,796 1,799,696 3,455,803 5,040,119
Transfer on terminations (291,278) (347,872) (1,140,441) (1,565,059)
Transfer on policy loans (2,399) (2,578) 18,665 22,239
Net interfund transfers (1,382,848) 2,678,076 (3,182,024) 720,414
---------------------------------------------------------------------
Net increase (decrease) in assets
from principal transactions (551,729) 4,127,322 (847,997) 4,217,713
---------------------------------------------------------------------
Total increase (decrease) in assets (1,883,494) 2,252,894 (4,825,914) 1,066,103
Assets beginning of year 4,239,359 1,986,465 17,617,526 16,551,423
---------------------------------------------------------------------
Assets end of year $ 2,355,865 $ 4,239,359 $ 12,791,612 $ 17,617,526
=====================================================================
** Reflects the period from commencement of operations May 2, 2000 through
December 31, 2000.
See accompanying notes.
12
SUB-ACCOUNT
- -----------------------------------------------------------------------------------------------------------
INTERNATIONAL VALUE INTERNET TECHNOLOGIES INVESTMENT QUALITY BOND
TRUST TRUST TRUST
- -----------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00** DEC. 31/01 DEC. 31/00
- -----------------------------------------------------------------------------------------------------------
$ 51,943 $ 17,130 $ -- $ -- $ 1,038,232 $ 1,309,195
12,480 15,330 534 707 117,157 109,903
- -----------------------------------------------------------------------------------------------------------
39,463 1,800 (534) (707) 921,075 1,199,292
(136,918) (106,248) (105,359) (62,279) 56,285 (240,339)
(109,824) (114,496) 57,990 (87,244) 120,363 437,793
- -----------------------------------------------------------------------------------------------------------
(207,279) (218,944) (47,903) (150,230) 1,097,723 1,396,746
- -----------------------------------------------------------------------------------------------------------
767,659 1,289,123 39,504 69,573 2,162,620 2,734,616
(91,002) (134,761) (51,889) (805) (1,810,385) (2,078,469)
(2,127) 7,727 38,672 (40,607) (59,787) 27,427
(156,513) 406,659 11,323 254,144 2,956,184 (4,994,725)
- -----------------------------------------------------------------------------------------------------------
518,017 1,568,748 37,610 282,305 3,248,632 (4,311,151)
- -----------------------------------------------------------------------------------------------------------
310,738 1,349,804 (10,293) 132,075 4,346,355 (2,914,405)
1,844,045 494,241 132,075 -- 16,287,580 19,201,985
- -----------------------------------------------------------------------------------------------------------
$ 2,154,783 $ 1,844,045 $ 121,782 $ 132,075 $ 20,633,935 $ 16,287,580
===========================================================================================================
13
The Manufacturers Life Insurance Company of America
Separate Account Four
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
-----------------------------------------------------------------
LARGE CAP GROWTH LIFESTYLE AGGRESSIVE 1000
TRUST TRUST
-----------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00
-----------------------------------------------------------------
Income:
Dividends $ 295,174 $ 933,644 $ 48,963 $ 37,648
Expenses:
Mortality and expense risks, and
administrative charges 46,931 42,374 4,132 4,794
-----------------------------------------------------------------
Net investment income (loss) during the year 248,243 891,270 44,831 32,854
Net realized gain (loss) during the year (1,527,720) 236,149 (22,918) 14,597
Unrealized appreciation (depreciation) during
the year (209,087) (2,285,423) (125,118) (84,082)
-----------------------------------------------------------------
Net increase (decrease) in assets
from operations (1,488,564) (1,158,004) (103,205) (36,631)
-----------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 2,254,611 3,140,695 231,142 71,415
Transfer on terminations (668,625) (990,185) (81,277) (84,132)
Transfer on policy loans (8,444) (60,521) (33,421) (692)
Net interfund transfers 151,119 286,718 (42,839) (82,072)
-----------------------------------------------------------------
Net increase (decrease) in assets
from principal transactions 1,728,661 2,376,707 73,605 (95,481)
-----------------------------------------------------------------
Total increase (decrease) in assets 240,097 1,218,703 (29,600) (132,112)
Assets beginning of year 7,183,787 5,965,084 673,805 805,917
-----------------------------------------------------------------
Assets end of year $ 7,423,884 $ 7,183,787 $ 644,205 $ 673,805
=================================================================
See accompanying notes.
14
SUB-ACCOUNT
- -----------------------------------------------------------------------------------------------------
LIFESTYLE BALANCED 640 LIFESTYLE CONSERVATIVE 280 LIFESTYLE GROWTH 820
TRUST TRUST TRUST
- -----------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00
- -----------------------------------------------------------------------------------------------------
$ 331,915 $ 89,487 $ 18,155 $ 29,153 $ 138,327 $ 149,038
29,162 14,134 8,121 2,482 10,035 11,827
- -----------------------------------------------------------------------------------------------------
302,753 75,353 10,034 26,671 128,292 137,211
(136,989) 51,498 4,995 (10,067) (137,729) 46,233
(249,686) (151,961) 66,747 5,241 (157,193) (248,793)
- -----------------------------------------------------------------------------------------------------
(83,922) (25,110) 81,776 21,845 (166,630) (65,349)
- -----------------------------------------------------------------------------------------------------
371,326 2,347,394 187,412 31,809 677,808 600,657
(362,681) (156,204) (138,365) (102,927) (251,621) (179,618)
348 (51,653) 57,345 (56,838) (18,770) (27,215)
2,286,328 167,632 3,266,336 (92,469) (434,872) (756,569)
- -----------------------------------------------------------------------------------------------------
2,295,321 2,307,169 3,372,728 (220,425) (27,455) (362,745)
- -----------------------------------------------------------------------------------------------------
2,211,399 2,282,059 3,454,504 (198,580) (194,085) (428,094)
3,847,425 1,565,366 293,688 492,268 1,510,205 1,938,299
- -----------------------------------------------------------------------------------------------------
$ 6,058,824 $ 3,847,425 $ 3,748,192 $ 293,688 $ 1,316,120 $ 1,510,205
=====================================================================================================
15
The Manufacturers Life Insurance Company of America
Separate Account Four
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
---------------------------------------------
MID CAP GROWTH
LIFESTYLE MODERATE 460 TRUST TRUST
---------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01*
---------------------------------------------
Income:
Dividends $ 45,549 $ 5,907 $ --
Expenses:
Mortality and expense risks, and
administrative charges 4,531 917 280
---------------------------------------------
Net investment income (loss) during the year 41,018 4,990 (280)
Net realized gain (loss) during the year (48,000) 1,296 (668)
Unrealized appreciation (depreciation) during
the year 3,455 (4,375) 948
---------------------------------------------
Net increase (decrease) in assets
from operations (3,527) 1,911 --
---------------------------------------------
Changes from principal transactions:
Transfer of net premiums 299,371 391,104 2,160
Transfer on terminations (27,261) (34,414) (5,328)
Transfer on policy loans (1,577) 1,146 (13)
Net interfund transfers 255,068 (425,840) 187,330
---------------------------------------------
Net increase (decrease) in assets
from principal transactions 525,601 (68,004) 184,149
---------------------------------------------
Total increase (decrease) in assets 522,074 (66,093) 184,149
Assets beginning of year 295,033 361,126 --
---------------------------------------------
Assets end of year $ 817,107 $ 295,033 $ 184,149
=============================================
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
** Reflects the period from commencement of operations May 2, 2000 through
December 31, 2000.
See accompanying notes
16
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------
MID CAP OPPORTUNITIES
MID CAP INDEX TRUST TRUST MID CAP STOCK TRUST
- ------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/01 DEC. 31/00** DEC. 31/01* DEC. 31/01 DEC. 31/00
- ------------------------------------------------------------------------------------------
$ 6,646 $ 4,817 $ - $ - $ -
2,477 252 9 3,662 2,347
- ------------------------------------------------------------------------------------------
4,169 4,565 (9) (3,662) (2,347)
(8,484) 167 (86) (45,762) (13,526)
79,350 (5,883) 531 40,189 (2,643)
- ------------------------------------------------------------------------------------------
75,035 (1,151) 436 (9,235) (18,516)
- ------------------------------------------------------------------------------------------
165,037 3,514 11,097 290,579 106,206
(15,787) (1,484) (299) (46,475) (21,708)
-- -- -- (775) (223)
583,037 244,613 (5,289) 148,323 133,861
- ------------------------------------------------------------------------------------------
732,287 246,643 5,509 391,652 218,136
- ------------------------------------------------------------------------------------------
807,322 245,492 5,945 382,417 199,620
245,492 -- -- 380,467 180,847
- ------------------------------------------------------------------------------------------
$ 1,052,814 $ 245,492 $ 5,945 $ 762,884 $ 380,467
==========================================================================================
17
The Manufacturers Life Insurance Company of America
Separate Account Four
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
--------------------------------------------------------
MID CAP VALUE
TRUST MONEY MARKET TRUST
--------------------------------------------------------
PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/01* DEC. 31/01 DEC. 31/00
--------------------------------------------------------
Income:
Dividends $ 300 $ 1,406,181 $ 1,932,420
Expenses:
Mortality and expense risks, and
administrative charges 354 247,839 212,370
--------------------------------------------------------
Net investment income (loss) during the year (54) 1,158,342 1,720,050
Net realized gain (loss) during the year (121) -- --
Unrealized appreciation (depreciation) during
the year 4,715 -- --
--------------------------------------------------------
Net increase (decrease) in assets
from operations 4,540 1,158,342 1,720,050
--------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 4,757 15,914,531 19,729,086
Transfer on terminations (6,299) (4,138,780) (6,012,717)
Transfer on policy loans -- 59,448 204,008
Net interfund transfers 131,054 (12,495,921) (3,132,123)
--------------------------------------------------------
Net increase (decrease) in assets
from principal transactions 129,512 (660,722) 10,788,254
--------------------------------------------------------
Total increase (decrease) in assets 134,052 497,620 12,508,304
Assets beginning of year -- 40,320,273 27,811,969
--------------------------------------------------------
Assets end of year $ 134,052 $ 40,817,893 $ 40,320,273
========================================================
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
See accompanying notes.
18
SUB-ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
PACIFIC RIM EMERGING
OVERSEAS TRUST MARKETS TRUST QUANTITATIVE EQUITY TRUST
- ----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00
- ----------------------------------------------------------------------------------------------------------------------------
$ 280,476 $ 118,152 $ 17,876 $ 20,741 $ 5,763,630 $ 5,932,623
19,262 12,911 28,589 35,497 245,827 309,403
- ----------------------------------------------------------------------------------------------------------------------------
261,214 105,241 (10,713) (14,756) 5,517,803 5,623,220
(947,613) (59,142) (544,084) (85,747) 3,969 2,793,944
(133,134) (565,259) (363,220) (1,449,,544) (16,124,132) (5,866,904)
- ----------------------------------------------------------------------------------------------------------------------------
(819,533) (519,160) (918,017) (1,550,047) (10,602,360) 2,550,260
- ----------------------------------------------------------------------------------------------------------------------------
1,825,852 2,381,221 893,495 1,893,650 3,856,667 3,739,616
(172,669) (239,365) (370,974) (669,458) (4,824,890) (4,929,423)
(1,045) (2,019) 9,636 (17,017) (204,485) (344,939)
(707,543) 753,735 (753,963) 19,115 (1,271,560) (605,234)
- ----------------------------------------------------------------------------------------------------------------------------
944,595 2,893,572 (221,806) 1,226,290 (2,444,268) (2,139,980)
- ----------------------------------------------------------------------------------------------------------------------------
125,062 2,374,412 (1,139,823) (323,757) (13,046,628) 410,280
2,932,587 558,175 5,139,164 5,462,921 46,178,737 45,768,457
- ----------------------------------------------------------------------------------------------------------------------------
$ 3,057,649 $ 2,932,587 $ 3,999,341 $ 5,139,164 $ 33,132,109 $ 46,178,737
============================================================================================================================
19
The Manufacturers Life Insurance Company of America
Separate Account Four
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
--------------------------------------------------------------------------------
REAL ESTATE SECURITIES SCIENCE & TECHNOLOGY
TRUST TRUST
--------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00
------------------------------------------------------------------------------
Income:
Dividends $ 565,952 $ 548,910 $ 2,074,187 $ 1,118,209
Expenses:
Mortality and expense risks, and
administrative charges 114,582 96,131 208,115 308,316
------------------------------------------------------------------------------
Net investment income (loss) during the year 451,370 452,779 1,866,072 809,893
Net realized gain (loss) during the year 15,488 (373,361) (23,439,867) 6,027,471
Unrealized appreciation (depreciation) during
the year 23,813 3,308,154 799,159 (27,894,294)
------------------------------------------------------------------------------
Net increase (decrease) in assets
from operations 490,671 3,387,572 (20,774,636) (21,056,930)
------------------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 2,354,244 1,902,266 15,791,038 23,717,592
Transfer on terminations (2,137,436) (1,529,570) (2,038,794) (3,000,348)
Transfer on policy loans (128,228) (152,860) 7,147 (129,110)
Net interfund transfers 2,063,609 (473,949) (5,452,439) 7,234,394
--------------------------------------------------------------------------------
Net increase (decrease) in assets
from principal transactions 2,152,189 (254,113) 8,306,952 27,822,528
------------------------------------------------------------------------------
Total increase (decrease) in assets 2,642,860 3,133,459 (12,467,684) 6,765,598
Assets beginning of year 17,166,358 14,032,899 42,158,414 35,392,816
------------------------------------------------------------------------------
Assets end of year $ 19,809,218 $ 17,166,358 $ 29,690,730 $ 42,158,414
================================================================================
** Reflects the period from commencement of operations May 2, 2000 through
December 31, 2000.
See accompanying notes.
20
SUB-ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------
SMALL CAP INDEX SMALL COMPANY BLEND SMALL COMPANY VALUE
TRUST TRUST TRUST
- ---------------------------------------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/01 DEC. 31/00** DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00
- ---------------------------------------------------------------------------------------------------------------------
$ 10,858 $ 1,534 $ 9,171 $ 133,872 $ 6,135 $ 2,007
1,175 58 14,376 5,510 21,354 11,945
- ---------------------------------------------------------------------------------------------------------------------
9,683 1,476 (5,205) 128,362 (15,219) (9,938)
(22,401) 75 (529,157) 24,165 56,062 64,625
5,971 (2,773) 632,730 (568,390) 255,780 82,411
- ---------------------------------------------------------------------------------------------------------------------
(6,747) (1,222) 98,368 (415,863) 296,623 137,098
- ---------------------------------------------------------------------------------------------------------------------
108,743 4,377 979,340 661,522 1,135,468 1,025,807
(5,551) (373) (102,979) (31,361) (194,581) (79,835)
(630) -- (1,125) (10,610) (10,873) (11,079)
547,601 40,916 870,424 894,978 1,662,081 262,214
- ---------------------------------------------------------------------------------------------------------------------
650,163 44,920 1,745,660 1,514,529 2,592,095 1,197,107
- ---------------------------------------------------------------------------------------------------------------------
643,416 43,698 1,844,028 1,098,666 2,888,718 1,334,205
43,698 -- 1,334,707 236,041 2,461,108 1,126,903
- ---------------------------------------------------------------------------------------------------------------------
$ 687,114 $ 43,698 $ 3,178,735 $ 1,334,707 $ 5,349,826 $ 2,461,108
=====================================================================================================================
21
The Manufacturers Life Insurance Company of America
Separate Account Four
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
------------------------------------------------------
STRATEGIC
STRATEGIC BOND TRUST GROWTH TRUST
------------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01*
------------------------------------------------------
Income:
Dividends $ 80,052 $ 85,997 $ -
Expenses:
Mortality and expense risks, and
administrative charges 11,568 6,711 1,198
------------------------------------------------------
Net investment income (loss) during the year 68,484 79,286 (1,198)
Net realized gain (loss) during the year (24,852) (41,693) (1,048)
Unrealized appreciation (depreciation) during
the year 36,476 28,826 42,935
------------------------------------------------------
Net increase (decrease) in assets
from operations 80,108 66,419 40,689
------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 270,389 134,439 14,734
Transfer on terminations (93,614) (42,241) 7,320
Transfer on policy loans (51,468) (3,131) --
Net interfund transfers 1,620,314 (404,574) 693,970
------------------------------------------------------
Net increase (decrease) in assets
from principal transactions 1,745,621 (315,507) 716,024
------------------------------------------------------
Total increase (decrease) in assets 1,825,729 (249,088) 756,713
Assets beginning of year 1,029,633 1,278,721 --
------------------------------------------------------
Assets end of year $ 2,855,362 $ 1,029,633 $ 756,713
=====================================================
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
See accompanying notes.
22
SUB-ACCOUNT
- --------------------------------------------------------------------------
TACTICAL TELECOMMUNICATIONS
STRATEGIC OPPORTUNITIES TRUST ALLOCATION TRUST TRUST
- --------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/01*
- --------------------------------------------------------------------------
$ 2,218,057 $ 1,408,900 $ 537 $ --
92,932 81,796 185 70
- --------------------------------------------------------------------------
2,125,125 1,327,104 352 (70)
(5,224,037) (242,930) (10,966) (55)
(449,024) (2,200,855) 132 (3,950)
- --------------------------------------------------------------------------
(3,547,936) (1,116,681) (10,482) (4,075)
- --------------------------------------------------------------------------
5,381,675 3,657,647 12,503 55
(992,898) (2,369,868) (1,918) (249)
23,131 (79,984) -- --
(5,638,761) 5,347,608 82,506 30,276
- --------------------------------------------------------------------------
(1,226,853) 6,555,403 93,091 30,082
- --------------------------------------------------------------------------
(4,774,789) 5,438,722 82,609 26,007
14,580,851 9,142,129 -- --
- --------------------------------------------------------------------------
$ 9,806,062 $ 14,580,851 $ 82,609 $ 26,007
==========================================================================
23
The Manufacturers Life Insurance Company of America
Separate Account Four
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
------------------------------------------------------------------------------
TOTAL STOCK MARKET
TOTAL RETURN TRUST INDEX TRUST
------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00**
------------------------------------------------------------------------------
Income:
Dividends $ 234,318 $ 27,495 $ 24,546 $ 12,374
Expenses:
Mortality and expense risks, and
administrative charges 61,535 15,109 13,278 2,888
------------------------------------------------------------------------------
Net investment income (loss) during the year 172,783 12,386 11,268 9,486
Net realized gain (loss) during the year 196,395 22,935 (318,709) (1,756)
Unrealized appreciation (depreciation) during
the year 277,899 277,035 99,910 (140,552)
------------------------------------------------------------------------------
Net increase (decrease) in assets
from operations 647,077 312,356 (207,531) (132,822)
------------------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 3,312,061 1,516,546 336,664 2,071
Transfer on terminations (359,550) (75,925) (100,895) (24,855)
Transfer on policy loans (51,927) -- -- --
Net interfund transfers 12,577,035 2,577,623 1,698,661 1,478,869
------------------------------------------------------------------------------
Net increase (decrease) in assets
from principal transactions 15,477,619 4,018,244 1,934,430 1,456,085
------------------------------------------------------------------------------
Total increase (decrease) in assets 16,124,696 4,330,600 1,726,899 1,323,263
Assets beginning of year 4,630,708 300,108 1,323,263 --
------------------------------------------------------------------------------
Assets end of year $ 20,755,404 $ 4,630,708 $ 3,050,162 $ 1,323,263
==============================================================================
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
** Reflects the period from commencement of operations May 2, 2000 through
December 31, 2000.
See accompanying notes.
24
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES U.S. LARGE CAP VALUE
TRUST TRUST UTILITIES TRUST
- ------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 DEC. 31/01*
- ------------------------------------------------------------------------------------------------
$ 290,455 $ 162,231 $ 21,133 $ 7,307 $ 251
38,775 14,820 16,581 9,544 147
- ------------------------------------------------------------------------------------------------
251,680 147,411 4,552 (2,237) 104
45,200 (46,024) (120,809) 67,805 (90)
28,056 123,103 (57,196) (30,733) (8,702)
- ------------------------------------------------------------------------------------------------
324,936 224,490 (173,453) 34,835 (8,688)
- ------------------------------------------------------------------------------------------------
1,522,630 491,787 1,960,789 659,231 394
(445,162) (463,269) (208,867) (95,636) (478)
(27,403) (31,242) (5,424) 14,332 --
6,043,832 (179,509) (126,044) 19,431 58,874
- ------------------------------------------------------------------------------------------------
7,093,897 (182,233) 1,620,454 597,358 58,790
- ------------------------------------------------------------------------------------------------
7,418,833 42,257 1,447,001 632,193 50,102
2,573,829 2,531,572 2,058,204 1,426,011 --
- ------------------------------------------------------------------------------------------------
$ 9,992,662 $ 2,573,829 $ 3,505,205 $ 2,058,204 $ 50,102
================================================================================================
25
The Manufacturers Life Insurance Company of America
Separate Account Four
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
---------------------------------------------------------------------------
VALUE TRUST 500 INDEX TRUST
---------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00**
---------------------------------------------------------------------------
Income:
Dividends $ 225,855 $ - $ 6,837 $ 512
Expenses:
Mortality and expense risks, and
administrative charges 52,453 24,109 2,267 397
---------------------------------------------------------------------------
Net investment income (loss) during the year 173,402 (24,109) 4,570 115
Net realized gain (loss) during the year 398,422 (100,839) (38,573) (2,289)
Unrealized appreciation (depreciation) during
the year (253,028) 1,097,226 (13,693) (16,787)
---------------------------------------------------------------------------
Net increase (decrease) in assets
from operations 318,796 972,278 (47,696) (18,961)
---------------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 2,580,365 1,034,204 381,978 266,299
Transfer on terminations (540,089) (224,326) (35,458) (6,826)
Transfer on policy loans 1,379 3,564 2,238 (21,009)
Net interfund transfers 4,910,592 (394,919) 375,732 28,758
---------------------------------------------------------------------------
Net increase (decrease) in assets
from principal transactions 6,952,247 418,523 724,490 267,222
---------------------------------------------------------------------------
Total increase (decrease) in assets 7,271,043 1,390,801 676,794 248,261
Assets beginning of year 4,713,260 3,322,459 248,261 --
---------------------------------------------------------------------------
Assets end of year $ 11,984,303 $ 4,713,260 $ 925,055 $ 248,261
===========================================================================
** Reflects the period from commencement of operations May 2, 2000 through
December 31, 2000.
See accompanying notes.
26
TOTAL
- -------------------------------------
YEAR ENDED YEAR ENDED
DEC. 31/01 DEC. 31/00
- -------------------------------------
$ 27,590,700 $ 33,640,178
3,162,753 3,367,318
- -------------------------------------
24,427,947 30,272,860
(58,758,141) 23,929,759
(50,836,713) (98,403,823)
- -------------------------------------
(85,166,907) (44,201,204)
- -------------------------------------
134,837,297 156,665,425
(44,885,104) (54,308,095)
(379,191) (2,312,875)
(131,156) (132,679)
- -------------------------------------
89,441,846 99,911,776
- -------------------------------------
4,274,939 55,710,572
526,465,993 470,755,421
- -------------------------------------
$ 530,740,932 $ 526,465,993
=====================================
27
The Manufacturers Life Insurance Company of America
Separate Account Four
Notes to Financial Statements
December 31, 2001
1. ORGANIZATION
The Manufacturers Life Insurance Company of America Separate Account Four (the
Account) is a separate account established by the Manufacturers Life Insurance
Company of America (the Company). The Account operates as a Unit Investment
Trust under the Investment Company Act of 1940, as amended and invests in
fifty-nine investment sub-accounts. Each investment sub-account invests solely
in shares of a particular Manufacturers Investment Trust (Trust) portfolio. The
Trust is an open-end management investment company, commonly known as a mutual
fund, which is not offered to the public but sold only to insurance companies
and their separate accounts as the underlying investment medium for variable
contracts. The Account is a funding vehicle for allocation of net premiums under
variable universal life insurance contracts (the Contracts) issued by the
Company. The Account was established by the Company, a life insurance company
organized in 1983 under Michigan law. The Company is an indirect, wholly owned
subsidiary of The Manufacturers Life Insurance Company (Manulife Financial), a
Canadian life insurance company. The Trust is registered under the Investment
Company Act of 1940 as an open-end management investment company.
The Company is required to maintain assets in the Account with a total fair
value at least equal to the reserves and other liabilities relating to the
variable benefits under all Contracts participating in the Account. These assets
may not be charged with liabilities which arise from any other business the
Company conducts. However, all obligations under the variable contracts are
general corporate obligations of the Company.
Additional assets are held in the Company's general account to cover the
contingency that the guaranteed minimum death benefit might exceed the death
benefit which would have been payable in the absence of such guarantee.
As the result of portfolio changes, the following sub-accounts of the Account
have been renamed as follows:
PREVIOUS NAME NEW NAME EFFECTIVE DATE
------------- -------- --------------
Mid Cap Blend Trust Strategic Opportunities Trust May 1, 2001
Mid Cap Growth Trust All Cap Growth Trust May 2, 2000
28
The Manufacturers Life Insurance Company of America
Separate Account Four
Notes to Financial Statements (continued)
1. ORGANIZATION (CONTINUED)
The following sub-accounts of the Account were added as investment options for
variable universal life insurance contract holders of the Company:
COMMENCEMENT OF OPERATIONS OF
THE SUB-ACCOUNTS
-----------------------------
All Cap Value Trust May 1, 2001
Capital Appreciation Trust May 1, 2001
Capital Opportunities Trust May 1, 2001
Dynamic Growth Trust May 2, 2000
Financial Services Trust May 1, 2001
Fundamental Value Trust May 1, 2001
Health Sciences Trust May 1, 2001
International Index Trust May 2, 2000
Internet Technologies Trust May 2, 2000
Mid Cap Growth Trust May 1, 2001
Mid Cap Index Trust May 2, 2000
Mid Cap Opportunities Trust May 1, 2001
Mid Cap Value Trust May 1, 2001
Quantitative Mid Cap Trust May 1, 2001
Small Cap Index Trust May 2, 2000
Strategic Growth Trust May 1, 2001
Tactical Allocation Trust May 2, 2000
Telecommunications Trust May 1, 2001
Total Stock Market Index Trust May 2, 2000
Utilities Trust May 1, 2001
500 Index Trust May 2, 2000
2. SIGNIFICANT ACCOUNTING POLICIES
Investments of each sub-account are made in the portfolios of the Trust and are
valued at the reported net asset values of such portfolios, which value their
investment securities at fair value. Transactions are recorded on the trade
date. Income from dividends is recorded on the ex-dividend date. Realized gains
and losses on the sales of investments are computed on the basis of the
identified cost of the investment sold.
29
The Manufacturers Life Insurance Company of America
Separate Account Four
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In addition to the Account, a contract holder may also allocate funds to the
Fixed Account, which is part of the Company's general account. Because of
exemptive and exclusionary provisions, interests in the Fixed Account have not
been registered under the Securities Act of 1933, and the Company's general
account has not been registered as an investment company under the Investment
Company Act of 1940.
The operations of the Account are included in the federal income tax return of
the Company, which is taxed as a life insurance company under the provisions of
the Internal Revenue Code (the Code). Under the current provisions of the Code,
the Company does not expect to incur federal income taxes on the earnings of the
Account to the extent the earnings are credited under the Contracts. Based on
this, no charge is being made currently to the Account for federal income taxes.
The Company will review periodically the status of such decision based on
changes in the tax law. Such a charge may be made in future years for any
federal income taxes that would be attributable to the Contract.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that could affect the amounts reported herein. Actual results
could differ from these estimates.
3. MORTALITY AND EXPENSE RISKS CHARGE
The Company deducts from the assets of the Account a daily charge equivalent to
annual rates between 0.40% and 0.65% of the average net value of the Account's
assets for the assumption of mortality and expense risks.
4. CONTRACT CHARGES
The Company deducts certain charges from gross premium before placing the
remaining net premiums in the sub-account. In the event of a surrender,
surrender charges may be made by the Company to cover sales expenses and
administrative expenses associated with underwriting the policy issue. Each
month a deduction consisting of an administration charge, a charge for cost of
insurance and charges for supplementary benefits is deducted from the policy
value.
30
The Manufacturers Life Insurance Company of America
Separate Account Four
Notes to Financial Statements (continued)
5. PURCHASES AND SALES OF INVESTMENTS
The cost of purchases and proceeds from sales of investments for the year ended
December 31, 2001 were as follows:
PURCHASES SALES
----------- -----------
SUB-ACCOUNTS:
Aggressive Growth Trust $ 3,476,333 $ 2,278,794
All Cap Growth Trust 8,557,561 4,426,675
All Cap Value Trust 17,954 4,134
Balanced Trust 5,412,161 9,667,374
Blue Chip Growth Trust 27,727,010 21,425,240
Capital Appreciation Trust 35,214 686
Capital Opportunities Trust 96,004 228
Diversified Bond Trust 7,558,684 4,047,942
Dynamic Growth Trust 2,218,605 1,798,120
Emerging Small Company Trust 23,371,135 20,348,803
Equity Income Trust 13,276,662 5,092,364
Equity Index Trust 25,891,942 21,656,500
Financial Services Trust 103,084 3,433
Fundamental Value Trust 260,391 8,252
Global Bond Trust 1,505,061 338,789
Global Equity Trust 2,611,134 1,861,947
Growth Trust 7,265,891 6,820,780
Growth and Income Trust 16,732,414 12,439,650
Health Sciences Trust 193,105 51,474
High Yield Trust 5,629,141 4,138,699
Income and Value Trust 6,406,743 2,725,079
International Index Trust 721,269 563,213
International Small Cap Trust 2,135,572 2,706,549
International Stock Trust 13,418,704 13,627,572
International Value Trust 1,411,246 853,766
Internet Technologies Trust 134,003 96,926
Investment Quality Bond Trust 12,324,781 8,155,072
Large Cap Growth Trust 6,334,949 4,358,046
Lifestyle Aggressive 1000 Trust 493,571 375,134
Lifestyle Balanced 640 Trust 4,438,892 1,840,818
Lifestyle Conservative 280 Trust 3,714,338 331,577
31
The Manufacturers Life Insurance Company of America
Separate Account Four
Notes to Financial Statements (continued)
5. PURCHASES AND SALES OF INVESTMENTS (CONTINUED)
PURCHASES SALES
------------ -----------
SUB-ACCOUNTS:
Lifestyle Growth 820 Trust 913,972 813,135
Lifestyle Moderate 460 Trust 1,459,250 892,632
Mid Cap Growth Trust 187,775 3,905
Mid Cap Index Trust 1,140,189 403,732
Mid Cap Opportunities Trust 11,046 5,547
Mid Cap Stock Trust 687,344 299,354
Mid Cap Value Trust 132,548 3,091
Money Market Trust 38,325,899 37,828,278
Overseas Trust 3,127,126 1,921,319
Pacific Rim Emerging Markets Trust 2,490,761 2,723,280
Quantitative Equity Trust 10,379,755 7,306,218
Real Estate Securities Trust 7,861,522 5,257,963
Science and Technology Trust 40,958,367 30,785,343
Small Cap Index Trust 1,253,948 594,102
Small Company Blend Trust 2,746,849 1,006,394
Small Company Value Trust 5,076,953 2,500,077
Strategic Bond Trust 3,192,856 1,378,752
Strategic Growth Trust 721,856 7,031
Strategic Opportunities Trust 10,265,811 9,367,539
Tactical Allocation Trust 194,305 100,862
Telecommunications Trust 30,305 293
Total Return Trust 19,663,644 4,013,242
Total Stock Market Index 3,023,461 1,077,764
U.S. Government Securities Trust 9,743,314 2,397,739
U.S. Large Cap Value Trust 4,875,742 3,250,737
Utilities Trust 59,519 625
Value Trust 10,864,772 3,739,123
500 Index Trust 871,169 142,109
------------ ------------
Total $383,733,612 $269,863,832
============ ============
32
The Manufacturers Life Insurance Company of America
Separate Account Four
Notes to Financial Statements (continued)
6. FINANCIAL HIGHLIGHTS
The Manufacturers Life Insurance Company of America Separate Account Four is a
funding vehicle for a number of variable universal life insurance products which
have unique combinations of features and fees that are charged against the
contract owner's account balance. Differences in the fee structures result in a
variety of unit values, expense ratios and total returns.
The following table was developed by determining which products offered by the
Company have the lowest and highest total return. Only product designs within
each sub-account that had units outstanding during the respective periods were
considered when determining the lowest and highest total return. The summary may
not reflect the minimum and maximum contract charges offered by the Company as
contract owners may not have selected all available and applicable contract
options as discussed in Note 3.
FOR THE YEAR ENDED
AS AT DECEMBER 31, 2001 DECEMBER 31, 2001
---------------------------------------------------------------------------------------------
EXPENSE
INVESTMENT RATIO** TOTAL RETURN***
UNIT NET INCOME LOWEST TO LOWEST TO HIGHEST
UNITS VALUE ASSETS RATIO* HIGHEST GAIN (LOSS)
---------------------------------------------------------------------------------------------
SUB-ACCOUNTS:
Aggressive Growth Trust 388,103 $10.82 to $14.91 $ 5,113,597 -- .55% to .65% (26.46%) to (26.39%)
All Cap Growth Trust 604,579 9.71 to 18.73 10,184,673 -- .45 to .65 (24.27) to (24.11)
All Cap Value Trust+ 1,194 12.56 14,993 0.04% .65 0.46
Balanced Trust 1,197,589 9.85 to 26.49 31,589,231 2.19 .40 to .65 (10.78) to (10.55)
Blue Chip Growth Trust 1,996,442 10.60 to 19.85 36,203,915 -- .40 to .65 (15.16) to (14.95)
Capital Appreciation Trust+ 3,341 11.05 36,920 -- .65 (11.60)
Capital Opportunities Trust+ 9,069 10.65 to 10.67 96,738 -- .45 to .65 (14.77) to (14.67)
Diversified Bond Trust 507,459 14.49 to 14.89 7,354,939 5.48 .45 to .65 6.38 to 6.61
Dynamic Growth Trust 102,477 4.72 to 4.73 483,613 0.17 .55 to .65 (40.63) to (40.57)
Emerging Small Company Trust 1,065,694 11.69 to 79.51 63,138,723 -- .40 to .65 (22.75) to 22.55
Equity Income Trust 840,766 13.50 to 18.38 15,189,718 1.64 .40 to .65 0.63 to 0.89
Equity Index Trust 2,189,228 10.18 to 18.26 38,066,462 1.03 .40 to .65 (12.83) to (12.61)
Financial Services Trust+ 8,377 11.58 97,034 0.08 .65 (7.34)
Fundamental Value Trust+ 21,338 11.68 249,216 -- .65 (6.57)
Global Bond Trust 118,128 12.45 to 13.16 1,549,796 -- .55 to .65 (0.12) to (0.03)
Global Equity Trust 206,811 11.79 to 15.50 3,140,867 2.45 .55 to .65 (16.63) to (16.55)
Growth Trust 955,887 7.75 to 14.12 12,500,179 -- .55 to .65 (21.88) to (21.80)
Growth and Income Trust 1,605,126 10.44 to 18.66 26,826,511 0.41 .40 to .65 (11.85) to (11.63)
Health Sciences Trust+ 11,197 13.48 150,957 -- .65 (7.85)
High Yield Trust 395,816 10.82 to 12.87 4,979,952 9.19 .40 to .65 (6.09) to (5.85)
Income and Value Trust 649,395 13.27 to 15.86 9,857,366 2.68 .40 to .65 0.33 to 0.58
International Index Trust 22,786 8.65 197,118 1.22 .65 (22.91)
International Small Cap Trust 215,989 7.73 to 12.36 2,355,865 -- .55 to .65 (31.55) to (31.48)
International Stock Trust 1,135,448 9.22 to 11.33 12,791,612 0.20 .40 to .65 (22.05) to (21.85)
International Value Trust 200,221 10.74 to 11.12 2,154,783 1.02 .40 to .65 (10.56) to (10.33)
Internet Technologies Trust 32,484 3.75 to 3.76 121,782 -- .55 to .65 (46.45) to (46.38)
Investment Quality Bond Trust 1,255,012 14.38 to 16.56 20,633,935 5.47 .40 to .65 6.63 to 6.90
Large Cap Growth Trust 583,261 9.39 to 13.17 7,423,884 -- .40 to .65 (18.35) to (18.14)
Lifestyle Aggressive 1000 Trust 47,093 13.68 644,205 0.37 .65 (14.23)
Lifestyle Balanced 640 Trust 385,225 12.53 to 15.90 6,058,824 2.55 .45 to .65 (5.40) to (5.21)
33
The Manufacturers Life Insurance Company of America
Separate Account Four
Notes to Financial Statements (continued)
6. FINANCIAL HIGHLIGHTS (CONT'D)
---------------------------------------------------------------------------------------------
EXPENSE
INVESTMENT RATIO** TOTAL RETURN***
UNIT NET INCOME LOWEST TO LOWEST TO HIGHEST
UNITS VALUE ASSETS RATIO* HIGHEST GAIN (LOSS)
---------------------------------------------------------------------------------------------
SUB-ACCOUNTS:
Lifestyle Conservative 280 Trust 220,989 13.81 to 16.98 3,748,192 3.89 .55 to .65 2.56 to 2.66
Lifestyle Growth 820 Trust 87,349 11.62 to 15.11 1,316,120 1.40 .45 to .65 (9.63) to (9.44)
Lifestyle Moderate 460 Trust 53,694 12.98 to 16.41 817,107 3.30 .55 to .65 (1.74) to (1.63)
Mid Cap Growth Trust+ 17,665 10.42 184,149 -- .65 (16.61)
Mid Cap Index Trust 80,845 13.02 to 13.04 1,052,814 0.85 .55 to .65 (2.38) to (2.27)
Mid Cap Opportunities Trust+ 564 10.54 5,945 -- .65 (15.65)
Mid Cap Stock Trust 72,047 10.59 to 11.19 762,884 -- .55 to .65 (11.57) to (11.48)
Mid Cap Value Trust+ 10,285 13.03 134,052 0.74 .65 4.27
Money Market Trust 2,216,771 13.63 to 18.91 40,817,893 3.59 .40 to .65 2.91 to 3.17
Overseas Trust 296,994 9.12 to 11.80 3,057,649 0.27 .55 to .65 (21.61) to (21.53)
Pacific Rim Emerging Markets Trust 569,972 6.94 to 8.48 3,999,341 0.41 .55 to .65 (19.10) to (19.03)
Quantitative Equity Trust 707,953 10.59 to 51.01 33,132,109 0.30 .45 to .65 (23.45) to (23.30)
Real Estate Securities Trust 495,247 15.99 to 40.88 19,809,218 3.75 .40 to .65 2.48 to 2.74
Science and Technology Trust 2,589,114 5.75 to 15.15 29,690,730 -- .40 to .65 (41.63) to (41.49)
Small Cap Index Trust 58,468 11.75 to 11.77 687,114 1.85 .55 to .65 0.85 to 0.94
Small Company Blend Trust 259,656 10.89 to 12.39 3,178,735 -- .55 to .65 (2.94) to (2.84)
Small Company Value Trust 521,854 10.15 to 15.03 5,349,826 0.17 .40 to .65 5.85 to 6.11
Strategic Bond Trust 183,559 14.17 to 15.62 2,855,362 7.96 .55 to .65 5.55 to 5.66
Strategic Growth Trust+ 68,964 10.97 756,713 -- .65 (12.22)
Strategic Opportunities Trust 706,044 10.77 to 14.47 9,806,062 0.50 .55 to .65 (15.81) to (15.72)
Tactical Allocation Trust 7,967 10.37 82,609 0.11 .65 (13.95)
Telecommunications Trust+ 3,294 7.90 26,007 -- .65 (36.83)
Total Return Trust 1,419,177 14.60 to 14.65 20,755,404 3.59 .40 to .65 7.58 to 7.85
Total Stock Market Index Trust 309,502 9.85 to 9.87 3,050,162 0.92 .55 to .65 (11.99) to (11.90)
U.S. Government Securities Trust 719,661 13.61 to 14.52 9,992,662 4.75 .45 to .65 6.33 to 6.55
U.S. Large Cap Value Trust 277,574 12.61 to 12.66 3,505,205 0.38 .45 to .65 (3.18) to (2.98)
Utilities Trust+ 5,383 9.31 50,102 1.05 .65 (25.55)
Value Trust 700,592 15.42 to 17.26 11,984,303 0.53 .40 to .65 2.75 to 3.00
500 Index Trust 94,218 9.80 to 9.85 925,055 0.84 .40 to .65 (12.93) to (12.71)
* These ratios represent the dividends, excluding distributions of
capital gains, distributed by the Trust portfolio, net of
management fees and expenses assessed by the fund manager,
divided by the average net assets of the respective Trust
portfolio which approximates the ratio of dividends, excluding
distribution of capital gains, received by the sub-account of the
Account, net of management fees and expenses assessed by the fund
manager, divided by the average unit value. These ratios exclude
those expenses, such as mortality and expense charges, that
result in direct reduction in the unit values. The recognition of
investment income by the sub-account is affected by the timing of
the declaration of dividends by the underlying Trust portfolio in
which the sub-accounts invest.
** These ratios represent the annualized contract expenses of the
separate account, consisting primarily of mortality and expense
charges, for the period indicated. The ratios include only those
expenses that result in a direct reduction to unit values.
Charges made directly to contract owner accounts through the
redemption of units and expenses of the underlying Trust
portfolio are excluded.
34
The Manufacturers Life Insurance Company of America
Separate Account Four
Notes to Financial Statements (continued)
6. FINANCIAL HIGHLIGHTS (CONT'D)
*** These ratios represent the total return for the period indicated,
including changes in the value of the underlying Trust portfolio,
and reflect deductions for all items included in the expense
ratio. The total return does not include any expenses assessed
through the redemption of units; inclusion of these expenses in
the calculation would result in a reduction in the total return
presented. Investment options with a date notation indicate the
effective date of that investment option in the separate account.
The total return is calculated for the period indicated or from
the effective date through the end of the reporting period.
+ Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
7. RELATED PARTY TRANSACTIONS
ManEquity, Inc., a registered broker-dealer and indirect wholly owned subsidiary
of Manulife Financial, acts as the principal underwriter of the Contracts
pursuant to a Distribution Agreement with Manufacturers Life of America.
Registered representatives of either ManEquity, Inc. or other broker-dealers
having distribution agreements with ManEquity, Inc. who are also authorized as
variable life insurance agents under applicable state insurance laws sell the
Contracts. Registered representatives are compensated on a commission basis.
The Company has a formal service agreement with its affiliates, Manulife
Financial and The Manufacturers Life Insurance Company (U.S.A.) ("Manulife
U.S.A."), which can be terminated by either party upon two months notice. Under
this Agreement, the Company pays for legal, actuarial, investment and certain
other administrative services.
8. SUBSEQUENT EVENT
Effective January 1, 2002, the Company transferred all of its variable business
to Manulife U.S.A. via an assumption reinsurance agreement. As a result,
products originally sold and administered under the name of the Company will be
offered and administered under the name of Manulife U.S.A. As such and effective
January 1, 2002, the account will be known as The Manufacturers Life Insurance
Company U.S.A. Separate Account N.
Also, effective January 1, 2002, ManEquity, Inc. was merged into Manulife
Financial Securities LLC. Manulife Financial Securities LLC, a subsidiary of
Manulife U.S.A., will carry on the business of ManEquity, Inc.
35
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
SEPARATE ACCOUNT N
Financial Statements
Nine months ended September 30, 2002 (Unaudited) with December 31, 2001
comparatives
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Financial Statements
Nine months ended September 30, 2002 (Unaudited)
with December 31, 2001 comparatives
CONTENTS
Financial Statements
Statement of Assets and Contract Owners' Equity ...............................1
Statements of Operations and Changes in Contract Owners' Equity ...............3
Notes to Financial Statements ................................................28
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Statement of Assets and Contract Owners' Equity
September 30, 2002 (Unaudited)
ASSETS
Investments at fair value:
Sub-Accounts:
Aggressive Growth Trust - 422,846 shares (cost $5,695,896) $ 3,974,750
All Cap Growth Trust - 683,394 shares (cost $9,403,409) 7,237,144
All Cap Value Trust - 20,256 shares (cost $218,776) 160,426
Balanced Trust - 2,146,698 shares (cost $36,439,486) 22,948,198
Blue Chip Growth Trust - 2,380,966 shares (cost $35,288,383) 26,547,774
Capital Appreciation Trust - 39,785 shares (cost $275,583) 239,508
Capital Opportunities Trust - 30,623 shares (cost $272,901) 219,258
Diversified Bond Trust - 782,682 shares (cost $8,204,324) 8,296,424
Dynamic Growth Trust - 171,247 shares (cost $730,560) 577,103
Emerging Small Company Trust - 2,348,397 shares (cost $56,952,353) 38,560,676
Equity-Income Trust - 1,696,425 shares (cost $23,526,710) 19,644,606
Equity Index Trust - 2,558,733 shares (cost $32,893,612) 25,408,217
Financial Services Trust - 34,971 shares (cost $384,010) 312,290
Fundamental Value Trust - 35,713 shares (cost $391,467) 330,343
Global Bond Trust - 190,771 shares (cost $2,374,155) 2,504,822
Global Equity Trust - 357,350 shares (cost $4,343,496) 3,487,735
Growth Trust - 861,720 shares (cost $11,454,998) 8,306,984
Growth & Income Trust - 1,200,105 shares (cost $26,919,846) 19,105,668
Health Sciences Trust - 158,016 shares (cost $1,700,642) 1,529,590
High Yield Trust - 732,987 shares (cost $6,691,765) 5,973,843
Income & Value Trust - 1,287,329 shares (cost $11,812,413) 9,732,208
International Index Trust - 31,453 shares (cost $268,739) 209,793
International Small Cap Trust - 308,411 shares (cost $3,530,533) 2,871,305
International Stock Trust - 1,497,390 shares (cost $14,421,815) 10,691,363
International Value Trust - 385,685 shares (cost $3,956,852) 3,077,764
Internet Technologies Trust - 16,470 shares (cost $43,605) 31,457
Investment Quality Bond Trust - 2,036,855 shares (cost $23,844,504) 24,625,581
Large Cap Growth Trust - 1,002,498 shares (cost $9,833,705) 7,207,964
Lifestyle Aggressive 1000 Trust - 56,828 shares (cost $682,482) 430,757
Lifestyle Balanced 640 Trust - 787,292 shares (cost $8,891,446) 7,644,610
Lifestyle Conservative 280 Trust - 284,143 shares (cost $3,588,915) 3,509,169
Lifestyle Growth 820 Trust - 150,485 shares (cost $1,722,597) 1,304,702
Lifestyle Moderate 460 Trust - 81,985 shares (cost $964,715) 885,443
Mid Cap Growth Trust - 43,768 shares (cost $399,303) 290,180
Mid Cap Index Trust - 138,257 shares (cost $1,687,675) 1,422,666
Mid Cap Opportunities Trust - 8,181 shares (cost $63,053) 57,511
Mid Cap Stock Trust - 197,082 shares (cost $1,941,105) 1,527,383
Mid Cap Value Trust - 287,451 shares (cost $3,517,228) 3,173,461
Money Market Trust - 4,462,309 shares (cost $44,623,094) 44,623,094
Overseas Trust - 500,034 shares (cost $4,376,089) 3,255,220
Pacific Rim Emerging Markets Trust - 502,131 shares (cost $4,003,748) 2,952,529
Quantitative Equity Trust - 1,736,261 shares (cost $38,438,365) 19,741,284
Quantitative Mid Cap Trust - 893 shares (cost $7,623) 7,023
Real Estate Securities Trust - 1,437,200 shares (cost $22,994,653) 22,391,582
Science and Technology Trust - 2,500,223 shares (cost $29,456,490) 15,901,421
Small Cap Index Trust - 244,708 shares (cost $2,565,065) 2,050,653
Small Company Blend Trust - 489,700 shares (cost $4,889,659) 3,755,997
1
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Statement of Assets and Contract Owners' Equity
September 30, 2002 (Unaudited)
ASSETS (CONTINUED)
Investments at fair value:
Sub-Accounts:
Small Company Value Trust - 846,060 shares (cost $11,157,965) $ 10,245,789
Strategic Bond Trust - 352,105 shares (cost $3,659,940) 3,679,492
Strategic Growth Trust - 115,191 shares (cost $924,358) 817,859
Strategic Opportunities Trust - 1,103,221 shares (cost $13,387,800) 8,252,095
Tactical Allocation Trust - 1,164 shares (cost $11,257) 8,309
Telecommunications Trust - 3,957 shares (cost $19,259) 15,037
Total Return Trust - 2,538,742 shares (cost $35,103,427) 35,694,711
Total Stock Market Index Trust - 489,551 shares (cost $4,464,440) 3,505,185
U.S. Government Securities Trust - 1,174,241 shares (cost $16,086,739) 16,509,823
U.S. Large Cap Value Trust - 260,180 shares (cost $2,901,251) 2,164,697
Utilities Trust - 1,338 shares (cost $9,534) 8,723
Value Trust - 763,753 shares (cost $11,718,415) 8,676,230
500 Index Trust - 294,168 shares (cost $2,396,363) 2,062,115
------------
Total assets $480,377,544
============
CONTRACT OWNERS' EQUITY
Variable life contracts $480,377,544
============
See accompanying notes.
2
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
SUB-ACCOUNT
-------------------------------------------------------------------
AGGRESSIVE GROWTH TRUST ALL CAP GROWTH TRUST
-------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01
-------------------------------------------------------------------
Income:
Dividends $ -- $ -- $ -- $ 489,935
Expenses:
Mortality and expense risks, and
administrative charges 22,451 30,923 42,819 58,611
-------------------------------------------------------------------
Net investment income (loss) during the period (22,451) (30,923) (42,819) 431,324
Net realized gain (loss) during the period (1,163,147) (1,009,845) (2,739,241) (1,957,906)
Unrealized appreciation (depreciation) during
the period (505,848) (447,976) (53,577) (782,386)
-------------------------------------------------------------------
Net increase (decrease) in assets
from operations (1,691,446) (1,488,744) (2,835,637) (2,308,968)
-------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 992,522 1,994,041 2,377,921 4,577,444
Transfer on terminations (337,171) (351,908) (339,294) (691,667)
Transfer on policy loans 3,205 (14,639) 6,290 (6,541)
Net interfund transfers (105,957) (399,032) (2,156,809) (179,674)
-------------------------------------------------------------------
Net increase (decrease) in assets
from principal transactions 552,599 1,228,462 (111,892) 3,699,562
-------------------------------------------------------------------
Total increase (decrease) in assets (1,138,847) (260,282) (2,947,529) 1,390,594
Assets beginning of year 5,113,597 5,373,879 10,184,673 8,794,079
-------------------------------------------------------------------
Assets end of period $ 3,974,750 $ 5,113,597 $ 7,237,144 $ 10,184,673
===================================================================
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
See accompanying notes.
3
SUB-ACCOUNT
- --------------------------------------------------------------------------------------------------------
ALL CAP VALUE TRUST BALANCED TRUST BLUE CHIP GROWTH TRUST
- --------------------------------------------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01* SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01
- --------------------------------------------------------------------------------------------------------
$ 16 $ 3 $ 678,287 $ 824,561 $ -- $ 2,891,977
1,671 33 132,287 231,900 143,949 223,162
- --------------------------------------------------------------------------------------------------------
(1,655) (30) 546,000 592,661 (143,949) 2,668,815
(145,121) (55) (1,791,996) (1,536,239) (8,066,690) (3,938,059)
(59,578) 1,228 (4,639,027) (3,408,713) (3,151,682) (5,557,194)
- --------------------------------------------------------------------------------------------------------
(206,354) 1,143 (5,885,023) (4,352,291) (11,362,321) (6,826,438)
- --------------------------------------------------------------------------------------------------------
49,189 7,951 1,821,150 3,910,908 6,434,090 10,181,726
(16,192) (2,313) (2,871,796) (4,011,328) (3,037,186) (2,506,721)
5 -- 36,437 177,394 (12,618) (94,393)
318,785 8,212 (1,741,801) (4,924,849) (1,678,106) (3,947,656)
- --------------------------------------------------------------------------------------------------------
351,787 13,850 (2,756,010) (4,847,875) 1,706,180 3,632,956
- --------------------------------------------------------------------------------------------------------
145,433 14,993 (8,641,033) (9,200,166) (9,656,141) (3,193,482)
14,993 -- 31,589,231 40,789,397 36,203,915 39,397,397
- --------------------------------------------------------------------------------------------------------
$ 160,426 $14,993 $ 22,948,198 $ 31,589,231 $ 26,547,774 $ 36,203,915
========================================================================================================
4
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
-------------------------------------------------------------
CAPITAL APPRECIATION TRUST CAPITAL OPPORTUNITIES TRUST
-------------------------------------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
SEPT. 30/02 DEC. 31/01* SEPT. 30/02 DEC. 31/01*
-------------------------------------------------------------
Income:
Dividends $ -- $ -- $ -- $ --
Expenses:
Mortality and expense risks, and
administrative charges 389 72 447 38
-------------------------------------------------------------
Net investment income (loss) during the period (389) (72) (447) (38)
Net realized gain (loss) during the period 2,704 (38) (1,387) (6)
Unrealized appreciation (depreciation) during
the period (38,505) 2,429 (54,611) 968
-------------------------------------------------------------
Net increase (decrease) in assets
from operations (36,190) 2,319 (56,445) 924
-------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 19,697 742 151,756 70,779
Transfer on terminations (20,192) (613) (8,197) 8
Transfer on policy loans -- -- (7,598) --
Net interfund transfers 239,273 34,472 43,004 25,027
-------------------------------------------------------------
Net increase (decrease) in assets
from principal transactions 238,778 34,601 178,965 95,814
-------------------------------------------------------------
Total increase (decrease) in assets 202,588 36,920 122,520 96,738
Assets beginning of year 36,920 -- 96,738 --
-------------------------------------------------------------
Assets end of period $ 239,508 $ 36,920 $ 219,258 $ 96,738
=============================================================
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
See accompanying notes.
5
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------
DIVERSIFIED BOND TRUST DYNAMIC GROWTH TRUST EMERGING SMALL COMPANY TRUST
- ------------------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01
- ------------------------------------------------------------------------------------------------
$ 249,195 $ 171,518 $ -- $ 1,375 $ -- $ 2,633,803
29,717 33,185 2,277 3,105 247,778 404,110
- ------------------------------------------------------------------------------------------------
219,478 138,333 (2,277) (1,730) (247,778) 2,229,693
137,045 208,420 (96,078) (232,608) (5,277,816) (1,598,919)
(68,085) (22,621) (75,030) 25,490 (18,005,167) (18,801,456)
- ------------------------------------------------------------------------------------------------
288,438 324,132 (173,385) (208,848) (23,530,761) (18,170,682)
- ------------------------------------------------------------------------------------------------
2,281,115 2,249,690 458,813 330,311 5,042,473 8,684,233
(295,433) (373,603) (19,534) (14,841) (4,529,214) (6,650,831)
42,947 4,226 -- -- 48,242 56,171
(1,375,582) 1,492,097 (172,404) 106,745 (1,608,787) (1,296,935)
- ------------------------------------------------------------------------------------------------
653,047 3,372,410 266,875 422,215 (1,047,286) 792,638
- ------------------------------------------------------------------------------------------------
941,485 3,696,542 93,490 213,367 (24,578,047) (17,378,044)
7,354,939 3,658,397 483,613 270,246 63,138,723 80,516,767
- ------------------------------------------------------------------------------------------------
$ 8,296,424 $7,354,939 $ 577,103 $ 483,613 $ 38,560,676 $ 63,138,723
================================================================================================
6
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
--------------------------------------------------------------------
EQUITY-INCOME TRUST EQUITY INDEX TRUST
--------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01
--------------------------------------------------------------------
Income:
Dividends $ 744,284 $ 1,021,642 $ 371,813 $ 949,563
Expenses:
Mortality and expense risks, and
administrative charges 83,040 70,343 149,912 226,505
--------------------------------------------------------------------
Net investment income (loss) during the period 661,244 951,299 221,901 723,058
Net realized gain (loss) during the period (1,577,802) (379,962) (8,972,926) (2,185,633)
Unrealized appreciation (depreciation) during
the period (3,779,850) (471,797) (1,980,935) (3,730,659)
--------------------------------------------------------------------
Net increase (decrease) in assets
from operations (4,696,408) 99,540 (10,731,960) (5,193,234)
--------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 5,978,385 3,588,138 5,883,353 10,652,620
Transfer on terminations (893,793) (1,052,237) (3,940,027) (2,620,619)
Transfer on policy loans (618) (12,159) (79,113) 4,330
Net interfund transfers 4,067,322 4,709,257 (3,790,498) (4,523,947)
--------------------------------------------------------------------
Net increase (decrease) in assets
from principal transactions 9,151,296 7,232,999 (1,926,285) 3,512,384
--------------------------------------------------------------------
Total increase (decrease) in assets 4,454,888 7,332,539 (12,658,245) (1,680,850)
Assets beginning of year 15,189,718 7,857,179 38,066,462 39,747,312
--------------------------------------------------------------------
Assets end of period $ 19,644,606 $ 15,189,718 $ 25,408,217 $ 38,066,462
====================================================================
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
See accompanying notes.
7
SUB-ACCOUNT
- --------------------------------------------------------------------------------------
FINANCIAL SERVICES TRUST FUNDAMENTAL VALUE TRUST GLOBAL BOND TRUST
- --------------------------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01* SEPT. 30/02 DEC. 31/01* SEPT. 30/02 DEC. 31/01
- --------------------------------------------------------------------------------------
$ 6 $ 27 $ 260 $ -- $ -- $ --
1,115 224 1,347 629 6,380 3,839
- --------------------------------------------------------------------------------------
(1,109) (197) (1,087) (629) (6,380) (3,839)
(7,370) (365) (18,800) (864) 20,592 (3,286)
(69,468) (2,252) (59,066) (2,058) 145,129 (12,426)
- --------------------------------------------------------------------------------------
(77,947) (2,814) (78,953) (3,551) 159,341 (19,551)
- --------------------------------------------------------------------------------------
211,064 7,461 44,688 6,839 760,512 285,976
(18,206) (4,231) (31,404) (10,780) (32,936) (27,911)
-- (7) -- (22) 1,162 (4,217)
100,345 96,625 146,796 256,730 66,947 916,262
- --------------------------------------------------------------------------------------
293,203 99,848 160,080 252,767 795,685 1,170,110
- --------------------------------------------------------------------------------------
215,256 97,034 81,127 249,216 955,026 1,150,559
97,034 -- 249,216 -- 1,549,796 399,237
- --------------------------------------------------------------------------------------
$312,290 $97,034 $330,343 $249,216 $2,504,822 $1,549,796
======================================================================================
8
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
----------------------------------------------------------------
GLOBAL EQUITY TRUST GROWTH TRUST
----------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01
----------------------------------------------------------------
Income:
Dividends $ 38,442 $ 507,908 $ -- $ --
Expenses:
Mortality and expense risks, and
administrative charges 15,314 21,029 51,090 81,450
----------------------------------------------------------------
Net investment income (loss) during the period 23,128 486,879 (51,090) (81,450)
Net realized gain (loss) during the period (578,661) (372,435) (5,048,798) (4,937,416)
Unrealized appreciation (depreciation) during
the period (336,689) (770,710) 1,203,343 1,754,564
----------------------------------------------------------------
Net increase (decrease) in assets
from operations (892,222) (656,266) (3,896,545) (3,264,302)
----------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 455,919 765,943 2,162,062 5,168,717
Transfer on terminations (296,565) (263,724) (629,824) (941,752)
Transfer on policy loans (6,997) (1,252) (14,502) (24,960)
Net interfund transfers 1,086,733 (238,659) (1,814,386) (3,675,443)
----------------------------------------------------------------
Net increase (decrease) in assets
from principal transactions 1,239,090 262,308 (296,650) 526,562
----------------------------------------------------------------
Total increase (decrease) in assets 346,868 (393,958) (4,193,195) (2,737,740)
Assets beginning of year 3,140,867 3,534,825 12,500,179 15,237,919
----------------------------------------------------------------
Assets end of period $3,487,735 $3,140,867 $ 8,306,984 $ 12,500,179
================================================================
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
See accompanying notes.
9
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------
GROWTH & INCOME TRUST HEALTH SCIENCES TRUST HIGH YIELD TRUST
- ------------------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01* SEPT. 30/02 DEC. 31/01
- ------------------------------------------------------------------------------------------------
$ 1,028,738 $ 1,481,575 $ 2,415 $ -- $ 454,868 $ 364,655
108,820 163,695 4,754 299 26,234 24,364
- ------------------------------------------------------------------------------------------------
919,918 1,317,880 (2,339) (299) 428,634 340,291
(5,710,904) (1,909,561) (155,736) (131) (918,716) (426,272)
(3,873,223) (2,671,541) (180,508) 9,457 (198,556) (124,780)
- ------------------------------------------------------------------------------------------------
(8,664,209) (3,263,222) (338,583) 9,027 (688,638) (210,761)
- ------------------------------------------------------------------------------------------------
4,053,380 7,197,987 975,267 44,675 1,415,142 1,463,073
(1,574,063) (2,783,042) (70,097) (4,643) (293,525) (318,463)
(24,656) (56,065) (259) (8) 14,868 (12,792)
(1,511,295) (1,383,997) 812,305 101,906 546,044 18,333
- ------------------------------------------------------------------------------------------------
943,366 2,974,883 1,717,216 141,930 1,682,529 1,150,151
- ------------------------------------------------------------------------------------------------
(7,720,843) (288,339) 1,378,633 150,957 993,891 939,390
26,826,511 27,114,850 150,957 -- 4,979,952 4,040,562
- ------------------------------------------------------------------------------------------------
$ 19,105,668 $ 26,826,511 $1,529,590 $150,957 $5,973,843 $4,979,952
================================================================================================
10
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
--------------------------------------------------------------
INCOME & VALUE TRUST INTERNATIONAL INDEX TRUST
---------------------------- ----------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01
----------- ----------- ----------- -----------
Income:
Dividends $ 219,396 $ 313,451 $ 3 $ 2,308
Expenses:
Mortality and expense risks, and
administrative charges 47,582 47,256 1,047 1,201
----------- ----------- ----------- -----------
Net investment income (loss) during the period 171,814 266,195 (1,044) 1,107
Net realized gain (loss) during the period (1,001,802) (559,898) (22,619) 19,590
Unrealized appreciation (depreciation) during
the period (2,171,294) 489,673 (30,899) (25,006)
----------- ----------- ----------- -----------
Net increase (decrease) in assets
from operations (3,001,282) 195,970 (54,562) (4,309)
----------- ----------- ----------- -----------
Changes from principal transactions:
Transfer of net premiums 2,845,960 2,927,089 74,390 41,657
Transfer on terminations (458,882) (507,821) (9,074) 1,461
Transfer on policy loans 4,091 (2,345) -- --
Net interfund transfers 484,955 998,546 1,921 113,831
----------- ----------- ----------- -----------
Net increase (decrease) in assets
from principal transactions 2,876,124 3,415,469 67,237 156,949
----------- ----------- ----------- -----------
Total increase (decrease) in assets (125,158) 3,611,439 12,675 152,640
Assets beginning of year 9,857,366 6,245,927 197,118 44,478
----------- ----------- ----------- -----------
Assets end of period $ 9,732,208 $ 9,857,366 $ 209,793 $ 197,118
=========== =========== =========== ===========
See accompanying notes.
11
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP TRUST INTERNATIONAL STOCK TRUST INTERNATIONAL VALUE TRUST
- ------------------------------ ------------------------------ ------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01
- ------------ ------------ ------------ ------------ ------------ ------------
$ -- $ -- $ 55,435 $ 724,688 $ 22,818 $ 51,943
13,966 19,248 53,181 85,559 15,075 12,480
- ------------ ------------ ------------ ------------ ------------ ------------
(13,966) (19,248) 2,254 639,129 7,743 39,463
(598,851) (2,445,760) (3,055,356) (2,874,694) (220,066) (136,918)
(15,879) 1,133,243 (622,625) (1,742,352) (694,518) (109,824)
- ------------ ------------ ------------ ------------ ------------ ------------
(628,696) (1,331,765) (3,675,727) (3,977,917) (906,841) (207,279)
- ------------ ------------ ------------ ------------ ------------ ------------
471,795 1,124,796 2,545,094 3,455,803 902,294 767,659
(184,343) (291,278) (631,628) (1,140,441) (129,113) (91,002)
4,647 (2,399) 1,077 18,665 (20) (2,127)
852,037 (1,382,848) (339,065) (3,182,024) 1,056,661 (156,513)
- ------------ ------------ ------------ ------------ ------------ ------------
1,144,136 (551,729) 1,575,478 (847,997) 1,829,822 518,017
- ------------ ------------ ------------ ------------ ------------ ------------
515,440 (1,883,494) (2,100,249) (4,825,914) 922,981 310,738
2,355,865 4,239,359 12,791,612 17,617,526 2,154,783 1,844,045
- ------------ ------------ ------------ ------------ ------------ ------------
$ 2,871,305 $ 2,355,865 $ 10,691,363 $ 12,791,612 $ 3,077,764 $ 2,154,783
============ ============ ============ ============ ============ ============
12
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
------------------------------------------------------------------
INTERNET TECHNOLOGIES INVESTMENT QUALITY BOND
TRUST TRUST
------------------------------ ------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01
------------ ------------ ------------ ------------
Income:
Dividends $ -- $ -- $ 1,189,894 $ 1,038,232
Expenses:
Mortality and expense risks, and
administrative charges 232 534 110,634 117,157
------------ ------------ ------------ ------------
Net investment income (loss) during the period (232) (534) 1,079,260 921,075
Net realized gain (loss) during the period (49,718) (105,359) 50,397 56,285
Unrealized appreciation (depreciation) during
the period 17,107 57,990 485,960 120,363
------------ ------------ ------------ ------------
Net increase (decrease) in assets
from operations (32,843) (47,903) 1,615,617 1,097,723
------------ ------------ ------------ ------------
Changes from principal transactions:
Transfer of net premiums 111,472 39,504 3,616,217 2,162,620
Transfer on terminations (3,973) (51,889) (2,016,536) (1,810,385)
Transfer on policy loans 1,049 38,672 5,628 (59,787)
Net interfund transfers (166,030) 11,323 770,720 2,956,184
------------ ------------ ------------ ------------
Net increase (decrease) in assets
from principal transactions (57,482) 37,610 2,376,029 3,248,632
------------ ------------ ------------ ------------
Total increase (decrease) in assets (90,325) (10,293) 3,991,646 4,346,355
Assets beginning of year 121,782 132,075 20,633,935 16,287,580
------------ ------------ ------------ ------------
Assets end of period $ 31,457 $ 121,782 $ 24,625,581 $ 20,633,935
============ ============ ============ ============
See accompanying notes.
13
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------
LIFESTYLE AGGRESSIVE LIFESTYLE BALANCED
LARGE CAP GROWTH TRUST 1000 TRUST 640 TRUST
- ---------------------------- ---------------------------- ----------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01
- ----------- ----------- ----------- ----------- ----------- -----------
$ 23,587 $ 295,174 $ 4,221 $ 48,963 $ 279,111 $ 331,915
34,247 46,931 2,640 4,132 37,151 29,162
- ----------- ----------- ----------- ----------- ----------- -----------
(10,660) 248,243 1,581 44,831 241,960 302,753
(1,293,105) (1,527,720) (20,435) (22,918) (672,996) (136,989)
(995,065) (209,087) (137,227) (125,118) (937,476) (249,686)
- ----------- ----------- ----------- ----------- ----------- -----------
(2,298,830) (1,488,564) (156,081) (103,205) (1,368,512) (83,922)
- ----------- ----------- ----------- ----------- ----------- -----------
1,984,597 2,254,611 67,694 231,142 3,702,268 371,326
(474,572) (668,625) (117,469) (81,277) (979,357) (362,681)
78 (8,444) 31,639 (33,421) 3,663 348
572,807 151,119 (39,231) (42,839) 227,724 2,286,328
- ----------- ----------- ----------- ----------- ----------- -----------
2,082,910 1,728,661 (57,367) 73,605 2,954,298 2,295,321
- ----------- ----------- ----------- ----------- ----------- -----------
(215,920) 240,097 (213,448) (29,600) 1,585,786 2,211,399
7,423,884 7,183,787 644,205 673,805 6,058,824 3,847,425
- ----------- ----------- ----------- ----------- ----------- -----------
$ 7,207,964 $ 7,423,884 $ 430,757 $ 644,205 $ 7,644,610 $ 6,058,824
=========== =========== =========== =========== =========== ===========
14
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
--------------------------------------------------------------
LIFESTYLE CONSERVATIVE LIFESTYLE GROWTH
280 TRUST 820 TRUST
---------------------------- ----------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01
----------- ----------- ----------- -----------
Income:
Dividends $ 106,248 $ 18,155 $ 25,843 $ 138,327
Expenses:
Mortality and expense risks, and
administrative charges 15,624 8,121 6,124 10,035
----------- ----------- ----------- -----------
Net investment income (loss) during the period 90,624 10,034 19,719 128,292
Net realized gain (loss) during the period 11,160 4,995 (115,710) (137,729)
Unrealized appreciation (depreciation) during
the period (159,712) 66,747 (220,068) (157,193)
----------- ----------- ----------- -----------
Net increase (decrease) in assets
from operations (57,928) 81,776 (316,059) (166,630)
----------- ----------- ----------- -----------
Changes from principal transactions:
Transfer of net premiums 961,681 187,412 506,830 677,808
Transfer on terminations (66,531) (138,365) (195,643) (251,621)
Transfer on policy loans -- 57,345 11,839 (18,770)
Net interfund transfers (1,076,245) 3,266,336 (18,385) (434,872)
----------- ----------- ----------- -----------
Net increase (decrease) in assets
from principal transactions (181,095) 3,372,728 304,641 (27,455)
----------- ----------- ----------- -----------
Total increase (decrease) in assets (239,023) 3,454,504 (11,418) (194,085)
Assets beginning of year 3,748,192 293,688 1,316,120 1,510,205
----------- ----------- ----------- -----------
Assets end of period $ 3,509,169 $ 3,748,192 $ 1,304,702 $ 1,316,120
=========== =========== =========== ===========
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
See accompanying notes.
15
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------
LIFESTYLE MODERATE
460 TRUST MID CAP GROWTH TRUST MID CAP INDEX TRUST
- ---------------------------- ---------------------------- ----------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01* SEPT. 30/02 DEC. 31/01
- ----------- ----------- ----------- ----------- ----------- -----------
$ 22,961 $ 45,549 $ -- $ -- $ 54 $ 6,646
3,610 4,531 1,295 280 5,672 2,477
- ----------- ----------- ----------- ----------- ----------- -----------
19,351 41,018 (1,295) (280) (5,618) 4,169
(10,575) (48,000) (25,898) (668) (7,573) (8,484)
(82,019) 3,455 (110,071) 948 (338,476) 79,350
- ----------- ----------- ----------- ----------- ----------- -----------
(73,243) (3,527) (137,264) -- (351,667) 75,035
- ----------- ----------- ----------- ----------- ----------- -----------
251,577 299,371 181,830 2,160 443,550 165,037
(32,711) (27,261) (17,347) (5,328) (40,256) (15,787)
(1,639) (1,577) -- (13) -- --
(75,648) 255,068 78,812 187,330 318,225 583,037
- ----------- ----------- ----------- ----------- ----------- -----------
141,579 525,601 243,295 184,149 721,519 732,287
- ----------- ----------- ----------- ----------- ----------- -----------
68,336 522,074 106,031 184,149 369,852 807,322
817,107 295,033 184,149 -- 1,052,814 245,492
- ----------- ----------- ----------- ----------- ----------- -----------
$ 885,443 $ 817,107 $ 290,180 $ 184,149 $ 1,422,666 $ 1,052,814
=========== =========== =========== =========== =========== ===========
16
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
--------------------------------------------------------------
MID CAP OPPORTUNITIES
TRUST MID CAP STOCK TRUST
---------------------------- ----------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01* SEPT. 30/02 DEC. 31/01
----------- ----------- ----------- -----------
Income:
Dividends $ -- $ -- $ -- $ --
Expenses:
Mortality and expense risks, and
administrative charges 332 9 7,215 3,662
----------- ----------- ----------- -----------
Net investment income (loss) during the period (332) (9) (7,215) (3,662)
Net realized gain (loss) during the period (24,433) (86) (79,484) (45,762)
Unrealized appreciation (depreciation) during
the period (6,073) 531 (449,717) 40,189
----------- ----------- ----------- -----------
Net increase (decrease) in assets
from operations (30,838) 436 (536,416) (9,235)
----------- ----------- ----------- -----------
Changes from principal transactions:
Transfer of net premiums 68,096 11,097 245,551 290,579
Transfer on terminations (16,248) (299) (69,071) (46,475)
Transfer on policy loans -- -- 76 (775)
Net interfund transfers 30,556 (5,289) 1,124,359 148,323
----------- ----------- ----------- -----------
Net increase (decrease) in assets
from principal transactions 82,404 5,509 1,300,915 391,652
----------- ----------- ----------- -----------
Total increase (decrease) in assets 51,566 5,945 764,499 382,417
Assets beginning of year 5,945 -- 762,884 380,467
----------- ----------- ----------- -----------
Assets end of period $ 57,511 $ 5,945 $ 1,527,383 $ 762,884
=========== =========== =========== ===========
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
See accompanying notes.
17
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------
MID CAP VALUE TRUST MONEY MARKET TRUST OVERSEAS TRUST
- ------------------------------ ------------------------------ ------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01* SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01
- ------------ ------------ ------------ ------------ ------------ ------------
$ -- $ 300 $ 359,467 $ 1,406,181 $ 18,535 $ 280,476
7,747 354 178,858 247,839 15,747 19,262
- ------------ ------------ ------------ ------------ ------------ ------------
(7,747) (54) 180,609 1,158,342 2,788 261,214
(15,420) (121) -- -- (402,609) (947,613)
(348,483) 4,715 -- -- (541,125) (133,134)
- ------------ ------------ ------------ ------------ ------------ ------------
(371,650) 4,540 180,609 1,158,342 (940,946) (819,533)
- ------------ ------------ ------------ ------------ ------------ ------------
667,956 4,757 19,804,266 15,914,531 521,887 1,825,852
(97,613) (6,299) (3,100,767) (4,138,780) (241,275) (172,669)
(8,480) -- 434 59,448 (18,373) (1,045)
2,849,196 131,054 (13,079,341) (12,495,921) 876,278 (707,543)
- ------------ ------------ ------------ ------------ ------------ ------------
3,411,059 129,512 3,624,592 (660,722) 1,138,517 944,595
- ------------ ------------ ------------ ------------ ------------ ------------
3,039,409 134,052 3,805,201 497,620 197,571 125,062
134,052 -- 40,817,893 40,320,273 3,057,649 2,932,587
- ------------ ------------ ------------ ------------ ------------ ------------
$ 3,173,461 $ 134,052 $ 44,623,094 $ 40,817,893 $ 3,255,220 $ 3,057,649
============ ============ ============ ============ ============ ============
18
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
------------------------------------------------------------------
PACIFIC RIM
EMERGING MARKETS TRUST QUANTITATIVE EQUITY TRUST
------------------------------ ------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01
------------ ------------ ------------ ------------
Income:
Dividends $ 4,494 $ 17,876 $ 74,512 $ 5,763,630
Expenses:
Mortality and expense risks, and
administrative charges 18,846 28,589 128,452 245,827
------------ ------------ ------------ ------------
Net investment income (loss) during the period (14,352) (10,713) (53,940) 5,517,803
Net realized gain (loss) during the period (111,679) (544,084) (2,020,857) 3,969
Unrealized appreciation (depreciation) during
the period (278,733) (363,220) (8,378,081) (16,124,132)
------------ ------------ ------------ ------------
Net increase (decrease) in assets
from operations (404,764) (918,017) (10,452,878) (10,602,360)
------------ ------------ ------------ ------------
Changes from principal transactions:
Transfer of net premiums 373,874 893,495 2,263,481 3,856,667
Transfer on terminations (216,356) (370,974) (2,418,269) (4,824,890)
Transfer on policy loans 8,851 9,636 45,761 (204,485)
Net interfund transfers (808,417) (753,963) (2,828,920) (1,271,560)
------------ ------------ ------------ ------------
Net increase (decrease) in assets
from principal transactions (642,048) (221,806) (2,937,947) (2,444,268)
------------ ------------ ------------ ------------
Total increase (decrease) in assets (1,046,812) (1,139,823) (13,390,825) (13,046,628)
Assets beginning of year 3,999,341 5,139,164 33,132,109 46,178,737
------------ ------------ ------------ ------------
Assets end of period $ 2,952,529 $ 3,999,341 $ 19,741,284 $ 33,132,109
============ ============ ============ ============
See accompanying notes.
19
SUB-ACCOUNT
- ------------------------------------------------------------------------------------
QUANTITATIVE REAL ESTATE SECURITIES SCIENCE AND TECHNOLOGY
MID CAP TRUST TRUST TRUST
- ------------ ------------------------------ ------------------------------
PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01
- ------------ ------------ ------------ ------------ ------------
$ -- $ 679,289 $ 565,952 $ -- $ 2,074,187
17 100,857 114,582 109,348 208,115
- ------------ ------------ ------------ ------------ ------------
(17) 578,432 451,370 (109,348) 1,866,072
(808) 150,979 15,488 (17,260,711) (23,439,867)
(601) (268,147) 23,813 1,032,032 799,159
- ------------ ------------ ------------ ------------ ------------
(1,426) 461,264 490,671 (16,338,027) (20,774,636)
- ------------ ------------ ------------ ------------ ------------
50,544 2,931,495 2,354,244 5,987,627 15,791,038
(1,402) (1,392,334) (2,137,436) (1,969,273) (2,038,794)
-- 15,387 (128,228) 43,116 7,147
(40,693) 566,552 2,063,609 (1,512,752) (5,452,439)
- ------------ ------------ ------------ ------------ ------------
8,449 2,121,100 2,152,189 2,548,718 8,306,952
- ------------ ------------ ------------ ------------ ------------
7,023 2,582,364 2,642,860 (13,789,309) (12,467,684)
-- 19,809,218 17,166,358 29,690,730 42,158,414
- ------------ ------------ ------------ ------------ ------------
$ 7,023 $ 22,391,582 $ 19,809,218 $ 15,901,421 $ 29,690,730
============ ============ ============ ============ ============
20
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
--------------------------------------------------------------
SMALL COMPANY BLEND
SMALL CAP INDEX TRUST TRUST
---------------------------- ----------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01
----------- ----------- ----------- -----------
Income:
Dividends $ -- $ 10,858 $ 7,812 $ 9,171
Expenses:
Mortality and expense risks, and
administrative charges 7,150 1,175 18,849 14,376
----------- ----------- ----------- -----------
Net investment income (loss) during the period (7,150) 9,683 (11,037) (5,205)
Net realized gain (loss) during the period (154,686) (22,401) (226,386) (529,157)
Unrealized appreciation (depreciation) during
the period (517,610) 5,971 (1,237,168) 632,730
----------- ----------- ----------- -----------
Net increase (decrease) in assets
from operations (679,446) (6,747) (1,474,591) 98,368
----------- ----------- ----------- -----------
Changes from principal transactions:
Transfer of net premiums 916,936 108,743 759,828 979,340
Transfer on terminations (42,258) (5,551) 33,082 (102,979)
Transfer on policy loans 681 (630) 1,424 (1,125)
Net interfund transfers 1,167,626 547,601 1,257,519 870,424
----------- ----------- ----------- -----------
Net increase (decrease) in assets
from principal transactions 2,042,985 650,163 2,051,853 1,745,660
----------- ----------- ----------- -----------
Total increase (decrease) in assets 1,363,539 643,416 577,262 1,844,028
Assets beginning of year 687,114 43,698 3,178,735 1,334,707
----------- ----------- ----------- -----------
Assets end of period $ 2,050,653 $ 687,114 $ 3,755,997 $ 3,178,735
=========== =========== =========== ===========
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
See accompanying notes.
21
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------
SMALL COMPANY VALUE TRUST STRATEGIC BOND TRUST STRATEGIC GROWTH TRUST
- ------------------------------ ------------------------------ ------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01*
- ------------ ------------ ------------ ------------ ------------ ------------
$ 52,194 $ 6,135 $ 160,273 $ 80,052 $ -- $ --
37,287 21,354 14,212 11,568 3,160 1,198
- ------------ ------------ ------------ ------------ ------------ ------------
14,907 (15,219) 146,061 68,484 (3,160) (1,198)
(67,420) 56,062 (24,940) (24,852) (173,558) (1,048)
(1,351,902) 255,780 (14,802) 36,476 (149,433) 42,935
- ------------ ------------ ------------ ------------ ------------ ------------
(1,404,415) 296,623 106,319 80,108 (326,151) 40,689
- ------------ ------------ ------------ ------------ ------------ ------------
2,230,991 1,135,468 694,008 270,389 384,475 14,734
(332,145) (194,581) (170,875) (93,614) (78,709) 7,320
(9,334) (10,873) (5,348) (51,468) -- --
4,410,866 1,662,081 200,026 1,620,314 81,531 693,970
- ------------ ------------ ------------ ------------ ------------ ------------
6,300,378 2,592,095 717,811 1,745,621 387,297 716,024
- ------------ ------------ ------------ ------------ ------------ ------------
4,895,963 2,888,718 824,130 1,825,729 61,146 756,713
5,349,826 2,461,108 2,855,362 1,029,633 756,713 --
- ------------ ------------ ------------ ------------ ------------ ------------
$ 10,245,789 $ 5,349,826 $ 3,679,492 $ 2,855,362 $ 817,859 $ 756,713
============ ============ ============ ============ ============ ============
22
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
--------------------------------------------------------------
STRATEGIC OPPORTUNITIES TRUST TACTICAL ALLOCATION TRUST
----------------------------- ----------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01
----------- ---------- ----------- ----------
Income:
Dividends $ -- $ 2,218,057 $ -- $ 537
Expenses:
Mortality and expense risks, and
administrative charges 48,817 92,932 259 185
----------- ----------- --------- ---------
Net investment income (loss) during the period (48,817) 2,125,125 (259) 352
Net realized gain (loss) during the period (1,803,103) (5,224,037) (6,422) (10,966)
Unrealized appreciation (depreciation) during
the period (3,505,806) (449,024) (3,080) 132
----------- ----------- --------- ---------
Net increase (decrease) in assets
from operations (5,357,726) (3,547,936) (9,761) (10,482)
----------- ----------- --------- ---------
Changes from principal transactions:
Transfer of net premiums 2,084,583 5,381,675 11,640 12,503
Transfer on terminations (559,506) (992,898) (616) (1,918)
Transfer on policy loans (32,104) 23,131 -- --
Net interfund transfers 2,310,786 (5,638,761) (75,563) 82,506
----------- ----------- --------- ---------
Net increase (decrease) in assets
from principal transactions 3,803,759 (1,226,853) (64,539) 93,091
----------- ----------- --------- ---------
Total increase (decrease) in assets (1,553,967) (4,774,789) (74,300) 82,609
Assets beginning of year 9,806,062 14,580,851 82,609 --
----------- ----------- --------- ---------
Assets end of period $ 8,252,095 $ 9,806,062 $ 8,309 $ 82,609
=========== =========== ========= =========
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
See accompanying notes.
23
Sub-Account
--------------------------------------------------------------------------------------------------------------
Total Stock Market
Telecommunications Trust Total Return Trust Index Trust
--------------------------------- --------------------------------- ---------------------------------
Period Ended Period Ended Period Ended Year Ended Period Ended Year Ended
Sept. 30/02 Dec. 31/01* Sept. 30/02 Dec. 31/01 Sept. 30/02 Dec. 31/01
----------- ------------ ------------ ------------ ----------- ------------
$ -- $ -- $ 1,306,870 $ 234,318 $ -- $ 24,546
192 70 113,425 61,535 15,767 13,278
------------ ------------ ------------ ------------ ------------- -----------
(192) (70) 1,193,445 172,783 (15,767) 11,268
(32,201) (55) 469,243 196,395 (165,300) (318,709)
(273) (3,950) 35,982 277,899 (918,614) 99,910
------------ ------------ ------------ ------------ ------------- -----------
(32,666) (4,075) 1,698,670 647,077 (1,099,681) (207,531)
------------ ------------ ------------ ------------ ------------- -----------
79,296 55 6,796,890 3,312,061 1,660,146 336,664
(3,990) (249) (1,109,745) (359,550) (101,134) (100,895)
-- -- 55,590 (51,927) -- --
(53,610) 30,276 7,497,902 12,577,035 (4,308) 1,698,661
------------ ------------ ------------ ------------ ------------- -----------
21,696 30,082 13,240,637 15,477,619 1,554,704 1,934,430
------------ ------------ ------------ ------------ ------------- -----------
(10,970) 26,007 14,939,307 16,124,696 455,023 1,726,899
26,007 -- 20,755,404 4,630,708 3,050,162 1,323,263
------------ ------------ ------------ ------------ ------------- -----------
$ 15,037 $ 26,007 $ 35,694,711 $ 20,755,404 $ 3,505,185 $ 3,050,162
============ ============ ============ ============ ============= ===========
24
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
Sub-Account
- --------------------------------------------------------------------------------------------------------------
U.S. Government U.S. Large Cap
Securities Trust Value Trust
--------------------------- ----------------------------
Period Ended Year Ended Period Ended Year Ended
Sept. 30/02 Dec. 31/01 Sept. 30/02 Dec. 31/01
----------- ---------- ----------- ----------
Income:
Dividends $ 437,328 $ 290,455 $ 10,471 $ 21,133
Expenses:
Mortality and expense risks, and
administrative charges 53,012 38,775 14,413 16,581
----------- ----------- ---------- ---------
Net investment income (loss) during the period 384,316 251,680 (3,942) 4,552
Net realized gain (loss) during the period 136,113 45,200 (586,816) (120,809)
Unrealized appreciation (depreciation) during
the period 295,531 28,056 (697,328) (57,196)
----------- ----------- ---------- ---------
Net increase (decrease) in assets
from operations 815,960 324,936 1,288,086) (173,453)
----------- ----------- ---------- ---------
Changes from principal transactions:
Transfer of net premiums 4,475,026 1,522,630 928,572 1,960,789
Transfer on terminations (662,339) (445,162) (38,109) (208,867)
Transfer on policy loans 53,232 (27,403) 1,175 (5,424)
Net interfund transfers 1,835,282 6,043,832 (944,060) (126,044)
----------- ----------- ---------- ---------
Net increase (decrease) in assets
from principal transactions 5,701,201 7,093,897 (52,422) 1,620,454
----------- ----------- ---------- ---------
Total increase (decrease) in assets 6,517,161 7,418,833 (1,340,508) 1,447,001
Assets beginning of year 9,992,662 2,573,829 3,505,205 2,058,204
----------- ----------- ---------- ---------
Assets end of period $16,509,823 $ 9,992,662 $ 2,164,697 $3,505,205
=========== =========== ========== =========
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
See accompanying notes.
25
Sub-Account
----------------------------------------------------------------------------------------------------------
Utilities Trust Value Trust 500 Index Trust
------------------------------- -------------------------------- -----------------------------
Period Ended Period Ended Period Ended Year Ended Period Ended Year Ended
Sept. 30/02 Dec. 31/01* Sept. 30/02 Dec. 31/01 Sept. 30/02 Dec. 31/01
------------ ------------ ------------ ------------ ------------ ------------
$ 2 $ 251 $ 247,450 $ 225,855 $ 34 $ 6,837
206 147 57,623 52,453 5,372 2,267
------------ ------------ ------------ ------------ ------------ ------------
(204) 104 189,827 173,402 (5,338) 4,570
(16,851) (90) (654,050) 398,422 (244,942) (38,573)
7,891 (8,702) (3,609,925) (253,028) (303,769) (13,693)
------------ ------------ ------------ ------------ ------------ ------------
(9,164) (8,688) (4,074,148) 318,796 (554,049) (47,696)
------------ ------------ ------------ ------------ ------------ ------------
17,481 394 2,453,726 2,580,365 1,336,167 381,978
(1,103) (478) (1,462,746) (540,089) 497,279 (35,458)
-- -- (27,309) 1,379 706 2,238
(48,593) 58,874 (197,596) 4,910,592 (143,043) 375,732
------------ ------------ ------------ ------------ ------------ ------------
(32,215) 58,790 766,075 6,952,247 1,691,109 724,490
------------ ------------ ------------ ------------ ------------ ------------
(41,379) 50,102 (3,308,073) 7,271,043 1,137,060 676,794
50,102 -- 11,984,303 4,713,260 925,055 248,261
------------ ------------ ------------ ------------ ------------ ------------
$ 8,723 $ 50,102 $ 8,676,230 $ 11,984,303 $ 2,062,115 $ 925,055
============ ============ ============ ============ ============ ============
26
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Statements of Operations and Changes in Contract Owners' Equity
(Unaudited)
(continued)
Total
--------------------------------
Period Ended Year Ended
Sept. 30/02 Dec. 31/01
------------- -------------
Income:
Dividends $ 8,876,626 $ 27,590,700
Expenses:
Mortality and expense risks, and
administrative charges 2,377,034 3,162,753
------------- -------------
Net investment income (loss) during the period 6,499,592 24,427,947
Net realized gain (loss) during the period (72,460,336) (58,758,141)
Unrealized appreciation (depreciation) during
the period (63,002,429) (50,836,713)
------------- -------------
Net increase (decrease) in assets
from operations (128,963,173) (85,166,907)
------------- -------------
Changes from principal transactions:
Transfer of net premiums 117,980,289 134,837,297
Transfer on terminations (38,167,606) (44,885,104)
Transfer on policy loans 194,332 (379,191)
Net interfund transfers (1,407,230) (131,156)
------------- -------------
Net increase (decrease) in assets
from principal transactions 78,599,785 89,441,846
------------- -------------
Total increase (decrease) in assets (50,363,388) 4,274,939
Assets beginning of year 530,740,932 526,465,993
------------- -------------
Assets end of period $ 480,377,544 $ 530,740,932
============= =============
See accompanying notes.
27
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Notes to Financial Statements
September 30, 2002 (Unaudited)
1. ORGANIZATION
The Manufacturers Life Insurance Company (U.S.A.) Separate Account N (the
"Account") is a separate account administered and sponsored by The Manufacturers
Life Insurance Company (U.S.A.) ("ManUSA" or the "Company"). The Account
operates as a Unit Investment Trust under the Investment Company Act of 1940, as
amended (the "Act") and has sixty investment sub-accounts. Each investment
sub-account invests solely in shares of a particular Manufacturers Investment
Trust (the "Trust") portfolio. The Trust is registered under the Act as an
open-end management investment company, commonly known as a mutual fund, which
does not transact with the general public. Instead, the Trust deals exclusively
with insurance companies by providing the investment medium for variable
contracts. The Account is a funding vehicle for the allocation of net premiums
under variable universal life insurance contracts (the "Contracts") issued by
the Company.
The Account was established by The Manufacturers Life Insurance Company of
America ("MLA"), a life insurance company organized in 1983 under Michigan law.
Effective January 1, 2002, MLA transferred all of its variable business to
ManUSA via an assumption reinsurance agreement and as a result, products
originally sold and administered under the name of MLA are now offered and
administered under the name of ManUSA. Accordingly and effective January 1,
2002, the Account changed its name to The Manufacturers Life Insurance Company
(U.S.A.) Separate Account N from The Manufacturers Life Insurance Company of
America Separate Account Four.
The Company is a stock life insurance company incorporated under the laws of
Michigan in 1979. Both the Company and MLA are indirect, wholly owned
subsidiaries of Manulife Financial Corporation ("MFC"), a Canadian based
publicly traded life insurance company.
The Company is required to maintain assets in the Account with a total fair
value at least equal to the reserves and other liabilities relating to the
variable benefits under all Contracts participating in the Account. These assets
may not be charged with liabilities which arise from any other business the
Company conducts. However, all obligations under the variable contracts are
general corporate obligations of the Company.
Additional assets are held in the Company's general account to cover the
contingency that the guaranteed minimum death benefit might exceed the death
benefit which would have been payable in the absence of such guarantee.
28
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Notes to Financial Statements (continued)
1. ORGANIZATION (CONTINUED)
As the result of portfolio changes, the following sub-account of the Account has
been renamed as follows:
PREVIOUS NAME NEW NAME EFFECTIVE DATE
- ------------------- ----------------------------- --------------
Mid Cap Blend Trust Strategic Opportunities Trust May 1, 2001
The following sub-accounts of the Account were added as investment options for
variable universal life insurance contract holders of the Company:
COMMENCEMENT OF OPERATIONS OF
THE SUB-ACCOUNTS
-----------------------------
All Cap Value Trust May 1, 2001
Capital Appreciation Trust May 1, 2001
Capital Opportunities Trust May 1, 2001
Financial Services Trust May 1, 2001
Fundamental Value Trust May 1, 2001
Health Sciences Trust May 1, 2001
Mid Cap Growth Trust May 1, 2001
Mid Cap Opportunities Trust May 1, 2001
Mid Cap Value Trust May 1, 2001
Quantitative Mid Cap Trust May 1, 2001
Strategic Growth Trust May 1, 2001
Telecommunications Trust May 1, 2001
Utilities Trust May 1, 2001
2. SIGNIFICANT ACCOUNTING POLICIES
Investments of each sub-account consist of shares in the respective portfolios
of the Trust. These shares are stated at fair value and are calculated using the
fair value of the investment securities underlying each Trust portfolio.
Transactions are recorded on the trade date. Income from dividends is recorded
on the ex-dividend date. Realized gains and losses on the sale of investments
are computed on the basis of the specifically identified cost of the investment
sold.
29
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Notes to Financial Statements (continued)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In addition to the Account, a contract holder may also allocate funds to the
fixed account contained within the Company's general account. Because of
exemptive and exclusionary provisions, interests in the fixed account have not
been registered under the Securities Act of 1933 and the Company's general
account has not been registered as an investment company under the Act.
The operations of the Account are included in the federal income tax return of
the Company, which is taxed as a life insurance company under the provisions of
the Internal Revenue Code (the "Code"). Under the current provisions of the
Code, the Company does not expect to incur federal income taxes on the earnings
of the Account to the extent the earnings are credited under the Contracts.
Based on this, no charge is being made currently to the Account for federal
income taxes. The Company will periodically reassess this position taking into
account changes in the tax law. Such a charge may be made in future years for
any federal income taxes that would be attributable to the Contract.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported herein. Actual results could
differ from these estimates.
3. MORTALITY AND EXPENSE RISKS CHARGE
The Company deducts from the assets of the Account a daily charge equivalent to
annual rates between 0.40% and 0.65% of the average net value of the Account's
assets for the assumption of mortality and expense risks.
4. CONTRACT CHARGES
The Company deducts certain charges from gross premium before placing the
remaining net premiums in the sub-account. In the event of a surrender,
surrender charges may be made by the Company to cover sales expenses and
administrative expenses associated with underwriting the policy issue. Each
month a deduction consisting of an administration charge, a charge for cost of
insurance and a charge for supplementary benefits is deducted from the policy
value.
30
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Notes to Financial Statements (continued)
5. PURCHASES AND SALES
The cost of purchases and proceeds from sales of investments for the nine month
period ended September 30, 2002 were as follows:
PURCHASES SALES
--------------------------------
SUB-ACCOUNTS:
Aggressive Growth Trust $ 3,774,009 $ 3,243,860
All Cap Growth Trust 6,064,502 6,219,213
All Cap Value Trust 872,937 522,805
Balanced Trust 4,132,934 6,342,943
Blue Chip Growth Trust 29,929,447 28,367,215
Capital Appreciation Trust 335,530 97,142
Capital Opportunities Trust 202,068 23,551
Diversified Bond Trust 13,640,470 12,767,946
Dynamic Growth Trust 591,912 327,314
Emerging Small Company Trust 17,273,296 18,568,360
Equity-Income Trust 23,723,668 13,911,129
Equity Index Trust 25,681,144 27,385,528
Financial Services Trust 396,452 104,357
Fundamental Value Trust 359,117 200,124
Global Bond Trust 2,667,431 1,878,126
Global Equity Trust 3,507,305 2,245,087
Growth Trust 6,203,676 6,551,415
Growth & Income Trust 18,604,672 16,741,387
Health Sciences Trust 2,484,068 769,190
High Yield Trust 7,114,600 5,003,436
Income & Value Trust 9,240,699 6,192,761
International Index Trust 173,962 107,770
International Small Cap Trust 2,840,856 1,710,686
International Stock Trust 15,510,267 13,932,535
International Value Trust 2,830,187 992,622
Internet Technologies Trust 135,167 192,881
Investment Quality Bond Trust 9,508,708 6,053,420
Large Cap Growth Trust 5,676,387 3,604,136
Lifestyle Aggressive 1000 Trust 100,244 156,031
Lifestyle Balanced 640 Trust 5,924,507 2,728,250
Lifestyle Conservative 280 Trust 2,471,033 2,561,503
Lifestyle Growth 820 Trust 939,847 615,487
Lifestyle Moderate 460 Trust 532,968 372,038
Mid Cap Growth Trust 397,668 155,668
Mid Cap Index Trust 1,329,805 613,904
Mid Cap Opportunities Trust 509,918 427,846
Mid Cap Stock Trust 1,880,442 586,742
Mid Cap Value Trust 5,036,224 1,632,913
Money Market Trust 54,739,503 50,934,303
Overseas Trust 2,341,271 1,199,966
Pacific Rim Emerging Markets Trust 1,578,390 2,234,789
Quantitative Equity Trust 2,860,232 5,852,120
Quantitative Mid Cap Trust 55,159 46,728
Real Estate Securities Trust 14,560,426 11,860,895
Science and Technology Trust 19,532,863 17,093,493
Small Cap Index Trust 3,229,207 1,193,372
Small Company Blend Trust 4,419,651 2,378,837
31
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Notes to Financial Statements (continued)
5. Purchases and Sales (continued)
Purchases Sales
----------------------------------
Sub-Accounts:
Small Company Value Trust $ 15,732,899 $ 9,417,613
Strategic Bond Trust 5,663,419 4,799,547
Strategic Growth Trust 2,611,093 2,226,955
Strategic Opportunities Trust 7,217,853 3,462,910
Tactical Allocation Trust 216,875 281,673
Telecommunications Trust 153,987 132,485
Total Return Trust 42,281,657 27,847,575
Total Stock Market Index Trust 2,519,322 980,385
U.S. Government Securities Trust 15,888,459 9,802,941
U.S. Large Cap Value Trust 4,199,644 4,256,007
Utilities Trust 72,522 104,941
Value Trust 8,599,953 7,644,049
500 Index Trust 4,706,046 3,020,275
------------ --------------
$445,778,558 $ 360,679,180
============ ==============
6. Financial Highlights
The Account is a funding vehicle for a number of variable universal life
insurance products which have unique combinations of features and fees that are
charged against the contract owner's account balance. Differences in the fee
structures result in a variety of unit values, expense ratios and total returns.
The following table was developed by determining which products offered by the
Company have the lowest and highest total return. Only product designs within
each sub-account that had units outstanding during period were considered when
determining the lowest and highest total return. The summary may not reflect the
minimum and maximum contract charges offered by the Company as contract owners
may not have selected all available and applicable contract options as discussed
in note 3.
32
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Notes to Financial Statements (continued)
6. Financial Highlights (continued)
For the period ended
As at September 30, 2002 September 30, 2002
--------------------------------------------------------------------------------------------
Expense
Investment Ratio** Total Return***
Unit Net Income lowest to lowest to highest
Units Value Assets Ratio* highest Gain(Loss)
------------------------------------------------------------------------------------------
Sub-Accounts:
Aggressive Growth Trust 430,627 $7.66 to $10.59 $ 3,974,750 - .45% to .65% (29.24%) to (29.13%)
All Cap Growth Trust 589,156 6.94 to 13.40 7,237,144 - .45 to .65 (28.55) to (28.45)
All Cap Value Trust 20,436 7.85 to 7.87 160,426 - .45 to .65 (37.50) to (37.40)
Balanced Trust 1,085,768 7.91 to 21.29 22,948,198 2.46% .40 to .65 (19.80) to (19.65)
Blue Chip Growth Trust 2,107,837 7.43 to 13.94 26,547,774 - .40 to .65 (29.91) to (29.77)
Capital Appreciation Trust 32,345 7.41 to 7.74 239,508 - .45 to .65 (33.07) to (32.96)
Capital Opportunities Trust 30,823 7.09 to 7.11 219,258 - .45 to .65 (33.41) to (33.31)
Diversified Bond Trust 536,875 15.11 to 15.55 8,296,424 3.92 .45 to .65 4.23 to 4.39
Dynamic Growth Trust 173,474 3.33 to 4.72 577,103 - .45 to .65 (29.55) to (29.42)
Emerging Small Company Trust 1,127,174 7.34 to 49.95 38,560,676 - .40 to .65 (37.30) to (37.18)
Equity-Income Trust 1,394,858 10.70 to 14.58 19,644,606 1.26 .40 to .65 (20.81) to (20.67)
Equity Index Trust 2,067,789 7.26 to 13.04 25,408,217 1.10 .40 to .65 (28.71) to (28.57)
Financial Services Trust 35,231 8.85 to 8.88 312,290 - .45 to .65 (23.58) to (23.47)
Fundamental Value Trust 35,989 9.17 to 9.20 330,343 0.09 .45 to. 65 (21.45) to (21.34)
Global Bond Trust 169,784 14.18 to 15.03 2,504,822 - .45 to .65 13.82 to 13.99
Global Equity Trust 317,741 8.92 to 11.76 3,487,735 1.18 .45 to .65 (24.38) to (24.27)
Growth Trust 930,852 5.33 to 9.75 8,306,984 - .45 to .65 (31.23) to (31.13)
Growth & Income Trust 1,701,670 7.20 to 12.88 19,105,668 0.60 .40 to .65 (31.10) to (30.97)
Health Sciences Trust 158,921 9.61 to 9.64 1,529,590 - .45 to .65 (28.70) to (28.59)
High Yield Trust 533,895 9.64 to 11.48 5,973,843 7.73 .40 to .65 (10.94) to (10.75)
Income &Value Trust 852,323 10.05 to 11.98 9,732,208 2.10 .40 to .65 (24.35) to (24.20)
International Index Trust 31,123 6.76 to 6.74 209,793 - .45 to .65 (22.10) to (21.97)
International Small Cap Trust 343,594 6.34 to 10.17 2,871,305 - .45 to .65 (18.01) to (17.89)
International Stock Trust 1,285,371 6.86 to 8.45 10,691,363 0.43 .40 to .65 (25.61) to (25.47)
International Value Trust 377,385 8.15 to 8.45 3,077,764 0.71 .40 to .65 (24.13) to (23.99)
Internet Technologies Trust 16,701 1.88 to 1.89 31,457 - .45 to .65 (49.83) to (49.75)
Investment Quality Bond Trust 1,397,771 15.44 to 17.80 24,625,581 5.20 .40 to .65 7.27 to 7.48
Large Cap Growth Trust 794,262 6.82 to 9.60 7,207,964 0.32 .40 to .65 (27.44) to (27.31)
Lifestyle Aggressive 1000 Trust 42,852 10.05 to 10.09 430,757 0.78 .45 to .65 (26.53) to (26.41)
Lifestyle Balanced 640 Trust 572,046 10.56 to 13.45 7,644,610 3.46 .45 to .65 (15.53) to (15.41)
Lifestyle Conservative 280 Trust 213,388 13.59 to 16.74 3,506,169 3.25 .45 to .65 (1.71) to (1.56)
Lifestyle Growth 820 Trust 112,396 9.10 to 11.84 1,304,702 2.02 .45 to .65 (21.78) to (21.65)
Lifestyle Moderate 460 Trust 59,074 11.93 to 15.08 885,443 3.01 .55 to .65 (8.12) to (8.05)
Mid Cap Growth Trust 44,125 6.57 to 6.59 290,180 - .45 to .65 (36.99) to (36.89)
Mid Cap Index Trust 136,716 10.40 to 10.44 1,422,666 - .45 to .65 (20.12) to (20.00)
Mid Cap Opportunities Trust 8,237 6.97 to 6.98 57,511 - .45 to .65 (33.94) to (33.84)
Mid Cap Stock Trust 201,333 7.58 to 8.02 1,527,383 - .40 to .65 (28.39) to (28.26)
Mid Cap Value Trust 289,243 10.96 to 10.99 3,173,461 - .45 to .65 (15.87) to (15.75)
Money Market Trust 2,426,451 13.69 to 19.03 44,623,094 0.91 .40 to .65 0.43 to 0.60
Overseas Trust 365,578 6.94 to 9.01 3,255,220 0.52 .45 to .65 (23.93) to (23.81)
Pacific Rim Emerging Markets Trust 454,414 6.11 to 6.94 2,952,529 0.11 .45 to .65 (11.90) to (11.77)
Quantitative Equity Trust 665,754 6.99 to 33.69 19,741,283 0.28 .45 to .65 (34.05) to (33.95)
Quantitative Mid Cap Trust 899 7.79 to 7.81 7,023 - .45 to .65 (23.32) to (23.20)
Real Estate Securities Trust 559,024 16.49 to 42.19 22,391,582 3.13 .40 to .65 3.01 to 3.20
Science and Technology Trust 2,885,167 2.84 to 7.49 15,901,421 - .40 to .65 (50.67) to (50.58)
Small Cap Index Trust 235,635 8.69 to 8.72 2,050,653 - .40 to .65 (26.07) to (25.93)
33
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Notes to Financial Statements (continued)
6. Financial Highlights (continued)
For the period ended
As at September 30, 2002 September 30, 2002
------------------------------------------------------------------------------------------------
Expense
Investment Ratio** Total Return***
Unit Net Income lowest to lowest to highest
Units Value Assets Ratio* highest Gain(Loss)
----------------------------------------------------------------------------------------------
Sub-Accounts:
Small Company Blend Trust 442,615 $7.59 to $8.65 $ 3,755,997 0.20% .45% to .65% (30.37%) to (30.26%)
Small Company Value Trust 1,122,778 8.92 to 13.22 10,245,789 0.27 .40 to .65 (12.11) to (11.95)
Strategic Bond Trust 229,157 14.76 to 16.31 3,679,492 5.33 .45 to .65 4.05 to 4.20
Strategic Growth Trust 116,023 7.04 to 7.06 817,859 - .40 to .65 (35.88) to (35.77)
Strategic Opportunities Trust 1,029,656 6.35 to 8.55 8,252,095 - .45 to .65 (41.11) to (41.03)
Tactical Allocation Trust 1,132 7.34 to 7.36 8,309 - .45 to .65 (29.23) to (29.12)
Telecommunications Trust 3,983 3.77 to 3.78 15,037 - .45 to .65 (52.32) to (52.24)
Total Return Trust 2,297,165 15.51 to 15.57 35,694,711 2.89 .40 to .65 6.19 to 6.38
Total Stock Market Index Trust 488,577 7.17 to 7.20 3,505,185 - .45 to .65 (27.21) to (27.11)
U.S. Government Securities Trust 1,120,994 14.46 to 15.44 16,509,823 3.68 .40 to .65 6.26 to 6.46
U.S. Large Cap Value Trust 260,192 8.31 to 8.36 2,164,697 0.33 .40 to .65 (34.17) to (34.05)
Utilities Trust 1,340 6.49 to 6.51 8,723 - .45 to .65 (30.23) to (30.13)
Value Trust 727,013 10.78 to 12.10 8,676,230 0.80 .40 to .65 (30.13) to (30.00)
500 Index Trust 294,240 6.97 to 7.03 2,062,115 - .40 to .65 (28.80) to (28.67)
* These ratios represent the dividends, excluding distributions of capital
gains, received by the sub-account from the underlying Trust portfolio,
net of management fees assessed by the Trust portfolio adviser, divided by
the average net assets of the sub-account. These ratios exclude those
expenses, such as mortality and expense charges, that result in direct
reduction in unit values. The recognition of investment income by the
sub-account is affected by the timing of the declaration of dividends by
the underlying Trust portfolio in which the sub-accounts invest. It is the
practice of the Trust, for income tax reasons, to declare dividends in
April for investment income received in the previous calendar year for all
sub-accounts of the Trust except the Money Market Trust which declares and
reinvests dividends on a daily basis. Any dividend distribution received
from a sub-account of the Trust is reinvested immediately, at net asset
value, in shares of that sub-account and retained as assets of the
corresponding sub-account so that the unit value of the sub-account is not
affected by the declaration and reinvestment of dividends.
** These ratios represent the annualized contract expenses of the separate
account, consisting primarily of mortality and expense charges, for the
period indicated. The ratios include only those expenses that result in a
direct reduction in unit values. Charges made directly to contract owner
accounts through the redemption of units and expenses of the underlying
Trust portfolio are excluded. \
*** These ratios represent the total return for the period indicated,
including changes in the value of the underlying Trust portfolio, and
reflect deductions for all items included in the expense ratio. The total
return does not include any expenses assessed through the redemption of
units; inclusion of these expenses in the calculation would result in a
reduction in the total return presented.
34
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account N
Notes to Financial Statements (continued)
7. RELATED PARTY TRANSACTIONS
Manulife Financial Securities LLC, a registered broker-dealer and wholly owned
subsidiary of ManUSA, acts as the principal underwriter of the Contracts
pursuant to a distribution agreement with the Company. Registered
representatives of either Manulife Financial Securities LLC or other
broker-dealers having distribution agreements with Manulife Financial Securities
LLC who are also authorized as variable life insurance agents under applicable
state insurance laws sell the Contracts. Registered representatives are
compensated on a commission basis.
These underwriting and distribution services had been performed by ManEquity,
Inc. before it was merged into Manulife Financial Securities LLC on January 1,
2002. ManEquity, Inc. was also an indirect wholly owned subsidiary of MFC.
The Company has a formal service agreement with its ultimate parent company,
MFC, which can be terminated by either party upon two months notice. Under this
agreement, the Company pays for legal, actuarial, investment and certain other
administrative services.
8. SUBSEQUENT EVENT
As the result of portfolio changes, the following sub-account of the Account
will be renamed as follows:
PREVIOUS NAME NEW NAME EFFECTIVE DATE
- ------------- ------------------ -----------------
Growth Trust All Cap Core Trust November 25, 2002
35
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 48 pages;
Representation of Insurer Pursuant to Section 26 of the Investment Company Act
of 1940
The signatures;
Written consents of the following persons:
A. Opinion and Consent of James D. Gallagher, Attorney -
FILED HEREWITH
B. Ernst & Young LLP - FILED HEREWITH
C. Opinion and Consent of Actuary - FILED BY HEREWITH
The following exhibits are filed as part of this Registration Statement:
1. Copies of all exhibits required by paragraph A of the instructions as to
exhibits in Form N-8B-2 are set forth below under designations based on such
instructions:
A(1) Resolutions of Board of Directors of The Manufacturers
Life Insurance Company (U.S.A.) establishing Separate
Account N - Incorporated by reference to Exhibit A(1) to
the pre-effective amendment no. 1 to the registration
statement on Form S-6, file number 333-71312 filed
January 2, 2002.
A(3)(a)(i) Form of Distribution Agreement. Incorporated by
reference to Exhibit A(3)(a)(i) to the registration
statement on Form S-6, file number 333-66303 filed
October 29, 1998 (the "SVUL Registration Statement").
A(3)(a)(ii) Form of Amendment to Distribution Agreement.
Incorporated by reference to Exhibit A(3)(a)(ii) to the
SVUL Registration Statement.
A(3)(a)(iii) Form of Amendment to Distribution Agreement.
Incorporated by reference to Exhibit A(3)(a)(iii) to the
SVUL Registration Statement.
A(3)(b) Form of broker-dealer agreement. Incorporated by
reference to exhibit A(3)(b) to the initial registration
statement on Form S-6, File Number 333-70950, filed
October 4, 2001
A(5)(a) Form of Flexible Premium Variable Life Insurance Policy
- FILED HEREWITH.
A(6)(a) Restated Articles of Redomestication of The
Manufacturers Life Insurance Company (U.S.A.) -
Incorporated by reference to Exhibit A(6) to the
registration statement filed July 20, 2000 (File No.
333-41814) (the "Initial Registration Statement")
A(6)(b) By-Laws of The Manufacturers Life Insurance Company
(U.S.A.) - Incorporated by reference to Exhibit A(6)(b)
to the Initial Registration Statement.
A(8)(a)(i) Form of Service Agreement between The Manufacturers Life
Insurance Company and The Manufacturers Life Insurance
Company of America dated June 1, 1988. Incorporated by
reference to Exhibit A(8)(a)(i) to pre-effective
amendment no. 1 to the registration statement on Form
S-6, file number 333-51293 filed August 28, 1998.
A(8)(a)(ii) Form of Amendment to Service Agreement between The
Manufacturers Life Insurance Company and The
Manufacturers Life Insurance Company of America dated
December 31, 1992. Incorporated by reference to Exhibit
A(8)(a)(ii) to pre-effective amendment no. 1 to the
registration statement on Form S-6, file number
333-51293 filed August 28, 1998.
A(8)(a)(iii) Form of Amendment to Service Agreement between The
Manufacturers Life Insurance Company and The
Manufacturers Life Insurance Company of America dated
May 31, 1993. Incorporated by reference to Exhibit
A(8)(a)(iii) to pre-effective amendment no. 1 to the
registration statement on Form S-6, file number
333-51293 filed August 28, 1998.
A(8)(a)(iv) Form of Amendment to Service Agreement between The
Manufacturers Life Insurance Company and The
Manufacturers Life Insurance Company of America dated
June 30, 1993. Incorporated by reference to Exhibit
A(8)(a)(iv) to pre-effective amendment no. 1 to the
registration statement on Form S-6, file number
333-51293 filed August 28, 1998.
A(8)(a)(v) Form of Amendment to Service Agreement between The
Manufacturers Life Insurance Company and The
Manufacturers Life Insurance Company of America dated
December 31, 1996. Incorporated by reference to Exhibit
A(8)(a)(v) to pre-effective amendment no. 1 to the
registration statement on Form S-6, file number
333-51293 filed August 28, 1998.
A(8)(a)(vi) Form of Amendment to Service Agreement between The
Manufacturers Life Insurance Company and The
Manufacturers Life Insurance Company of America dated
May 31, 1998. Incorporated by reference to Exhibit
A(8)(a)(vi) to pre-effective amendment no. 1 to the
registration statement on Form S-6, file number
333-51293 filed August 28, 1998.
A(8)(a)(vii) Form of Amendment to Service Agreement between The
Manufacturers Life Insurance Company and The
Manufacturers Life Insurance Company of America dated
December 31, 1998. Incorporated by reference to Exhibit
A(8)(a)(vii) to post-effective amendment No. 11 to the
registration statement on Form N-4, file number 33-57018
filed March 1, 1999.
A(8)(b) Form of Stoploss Reinsurance Agreement. Incorporated by
reference to Exhibit A(8)(b) to the SVUL Registration
Statement.
A(8)(c)(i) Form of Service Agreement. Incorporated by reference to
Exhibit A(8)(c)(i) to pre-effective amendment no. 1 to
the registration statement on Form S-6, file number
333-51293 filed August 28, 1998.
A(8)(c)(ii) Form of Amendment to Service Agreement. Incorporated by
reference to Exhibit A(8)(c)(ii) to pre-effective
amendment no. 1 to the registration statement on Form
S-6, file number 333-51293 filed August 28, 1998.
A(10)(a)(i) Form of Application for Flexible Premium Variable Life
Insurance Policy. Incorporated by reference to Exhibit
A(10) to pre- effective amendment no. 1 to the
registration statement on Form S-6, file number
33-51293, filed August 28, 1998.
A(10)(b) 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 the initial registration
statement on for S-6, file number 333-70950, filed
October 4, 2001
2. Consents of the following:
A. Opinion and consent of James D. Gallagher, Esq., Secretary and
General Counsel of The Manufacturers Life Insurance Company of
America - FILED HEREWITH
B. B. Opinion and consent of Brian Koop, Actuary, of The Manufacturers
Life Insurance Company of America - FILED HEREWITH
C. Consent of Ernst & Young LLP- FILED HEREWITH
3. No financial statements are omitted from the prospectus pursuant to
instruction 1(b) or (c) of Part I.
4. Not applicable.
6. Memorandum Regarding Issuance, Face Amount Increase, Redemption and Transfer
Procedures for the Policies. - FILED HEREWITH
7. Powers of Attorney
(i) (Robert A. Cook, John DesPrez III, Geoffrey Guy, James
O'Malley, Joseph J. Pietroski, Rex Schlaybaugh) incorporated
by reference to exhibit 7 to initial registration statement on
Form S-6, file number 333-41814 filed July 20, 2000 on behalf
of The Manufacturers Life Insurance Company (U.S.A.)
(ii) Powers of Attorney (John Ostler) incorporated by reference to
exhibit 7(ii) of 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) of the initial registration
statement on Form S-6, file number 333-70950, filed October 4,
2001
(iv) Power of Attorney (Steven Mannik) - Incorporated by reference
to exhibit 7(iv) of post-effective amendment no. 1 on Form
S-6, filed number 71312
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
has caused this amendment to the Registration Statement to be signed on its
behalf in the City of Boston, Massachusetts, on this 16th day of December, 2002.
SEPARATE ACCOUNT N 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 16th day of December, 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 amended
Registration Statement has been signed by the following persons in the
capacities indicated on this 16th day of December, 2002.
Signature Title
* Chairman and President
- ----------------------------- (Principal Executive Officer)
John D. DesPrez III
* 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
333-____ New COLI Dec 2002
EXHIBIT INDEX
Item No. Description
A(5)(A) FORM OF FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
2. Consents of the following:
A. Opinion and consent of James D. Gallagher, Esq., Secretary and
General Counsel of the Manufacturers Life Insurance Company of
America
B. B. Opinion and consent of Brian Koop, Actuary, of The Manufacturers
Life Insurance Company of America
C. Consent of Ernst & Young LLP
6. Memorandum Regarding Issuance, Face Amount Increase, Redemption and Transfer
Procedures for the Policies.