As filed with the Securities and Exchange Commission on December 16, 2002
Registration No. 333-100597
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT
INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
PRE-EFFECTIVE AMENDMENT NO. 1
SEPARATE ACCOUNT A OF
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
(Exact name of Registrant)
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
(Name of Depositor)
38500 Woodward Avenue
Bloomfield Hills, Michigan 48304
(Address of Depositor's Principal Executive Offices)
James D. Gallagher
Secretary and General Counsel
The Manufacturers Life Insurance Company (U.S.A.)
73 Tremont Street
Boston, MA 02108
(Name and Address of Agent for Service)
Copy to:
J. Sumner Jones, Esq.
Jones & Blouch L.L.P.
1025 Thomas Jefferson Street, NW
Washington, DC 20007
Title of Securities Being Registered: Variable Life Insurance Contracts
Approximate date of commencement of proposed public offering: As soon after the
effective date of this registration statement as is practicable.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that the Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Separate Account A of
The Manufacturers Life Insurance Company (U.S.A.)
Registration Statement on Form S-6
Cross-Reference Sheet
FORM
N-8B-2
ITEM NO. CAPTION IN PROSPECTUS
1 Cover Page; General Information About Manufacturers (Separate Account A)
2 Cover Page; General Information About Manufacturers (Manufacturers
(U.S.A.))
3 *
4 Other Information (Distribution of the Policy)
5 General Information About Manufacturers Life (Separate Account A)
6 General Information About Manufacturers (Separate Account A)
7 *
8 *
9 Other Information (Litigation)
10 Death Benefits; Premium Payments; Charges and Deductions; Policy Value;
Policy Loans; Policy Surrender and Partial Withdrawals; Lapse and
Reinstatement; Other Provisions of the Policy; Other Information
11 General Information About Manufacturers (Manufacturers Investment Trust)
12 General Information About Manufacturers (Manufacturers Investment Trust)
13 Charges and Deductions
14 Issuing A Policy; Other Information (Responsibilities Assumed By
Manufacturers Life)
15 Issuing A Policy
16 General Information About Manufacturers (Manufacturers Investment Trust)
17 Policy Surrender and Partial Withdrawals
18 General Information About Manufacturers
19 Other Information (Reports to Policyholders; Responsibilities Assumed By
Manufacturers Life)
20 *
21 Policy Loans
22 *
23 **
24 Other Provisions of the Policy
25 General Information About Manufacturers (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 A); Tax
Treatment of the Policy
54 *
55 *
56 *
57 *
58 *
59 Financial Statements
* Omitted since answer is negative or item is not applicable.
PART I
INFORMATION REQUIRED IN PROSPECTUS
PROSPECTUS
SEPARATE ACCOUNT A OF
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
VENTURE SURVIVORSHIP VUL
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
This prospectus describes Survivorship VUL, a flexible premium survivorship
variable universal life insurance policy (the "Policy") offered by The
Manufacturers Life Insurance Company (U.S.A.) (the "Company" or "Manulife USA,"
"we" or "us"), a stock life insurance company that is an indirect wholly-owned
subsidiary of The Manufacturers Life Insurance Company ("Manufacturers Life").
The Policy is designed to provide lifetime insurance protection together with
flexibility as to the timing and amount of premium payments, the investments
underlying the Policy Value, and the amount of insurance coverage. This
flexibility allows the policyowner to pay premiums and adjust insurance coverage
in light of his or her current financial circumstances and insurance needs.
The Policy provides for:
(1) a Net Cash Surrender Value that can be obtained by surrendering the
Policy;
(2) policy loans and partial withdrawals; and
(3) an insurance benefit payable at the death of the last-to-die of the
Lives Insured.
Unless the No-Lapse Guarantee is in effect, the Policy will remain in force so
long as the Net Cash Surrender Value is sufficient to cover charges assessed
against the Policy. If the No-Lapse Guarantee is in effect, the Policy will
remain in force as long as the No-Lapse Guarantee Cumulative Premium Test has
been met.
Policy Value may be accumulated on a fixed basis or vary with the investment
performance of the sub-accounts of Manulife USA's Separate Account A (the
"Separate Account") to which the policyowner allocates net premiums. The assets
of each sub-account will be used to purchase shares of a particular investment
portfolio (a "Portfolio") of Manufacturers Investment Trust (the "Trust"). The
accompanying prospectus for the Trust, and the corresponding statement of
additional information, describe the investment objectives of the Portfolios.
The Portfolios available for allocation of Net Premiums are shown in the Policy
Summary under "Investment Options and Investment Advisers." Other sub-accounts
and Portfolios may be added in the future.
BECAUSE OF THE SUBSTANTIAL NATURE OF THE SURRENDER CHARGES, THE POLICY IS NOT
SUITABLE FOR SHORT-TERM INVESTMENT PURPOSES. ALSO, PROSPECTIVE PURCHASERS SHOULD
NOTE THAT IT MAY NOT BE ADVISABLE TO PURCHASE A POLICY AS A REPLACEMENT FOR
EXISTING INSURANCE.
The Securities and Exchange Commission (the "SEC") maintains a web site
(http://www.sec.gov) that contains material incorporated by reference and other
information regarding registrants that file electronically with the Commission.
PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT IS
VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE TRUST.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Manufacturers Life Insurance Company (U.S.A.)
38500 Woodward Avenue
Bloomfield Hills, Michigan 48304
THE DATE OF THIS PROSPECTUS IS _____, 2002
TABLE OF CONTENTS
POLICY SUMMARY.............................................................. 5
General................................................................... 5
Death Benefits............................................................ 6
Premiums.................................................................. 6
Policy Value.............................................................. 6
Policy Loans.............................................................. 6
Surrender and Partial Withdrawals......................................... 6
Lapse and Reinstatement................................................... 6
Charges and Deductions.................................................... 7
Investment Options and Investment Advisers................................ 7
Investment Management Fees and Expenses................................... 7
Table of Charges and Deductions........................................... 7
Table of Investment Management Fees and Expenses.......................... 9
Table of Investment Options and Investment Subadvisers.................... 12
GENERAL INFORMATION ABOUT MANULIFE USA, THE SEPARATE ACCOUNT AND THE TRUST.. 13
Manulife USA.............................................................. 13
The Separate Account...................................................... 14
The Trust................................................................. 14
Investment Objectives of the Portfolios................................... 14
ISSUING A POLICY............................................................ 18
Requirements.............................................................. 18
Temporary Insurance Agreement............................................. 19
Right to Examine the Policy............................................... 19
Life Insurance Qualification.............................................. 20
DEATH BENEFITS.............................................................. 21
Death Benefit Options..................................................... 21
Changing the Face Amount.................................................. 21
PREMIUM PAYMENTS............................................................ 22
Initial Premiums.......................................................... 22
Subsequent Premiums....................................................... 22
Maximum Premium Limitation................................................ 22
Premium Allocation........................................................ 22
CHARGES AND DEDUCTIONS...................................................... 23
Amount Deducted from Premium.............................................. 23
Surrender Charges......................................................... 23
Monthly Charges........................................................... 27
Charges for Transfers..................................................... 28
Reduction in Charges...................................................... 28
SPECIAL PROVISIONS FOR EXCHANGES............................................ 28
COMPANY TAX CONSIDERATIONS.................................................. 28
POLICY VALUE................................................................ 29
Determination of the Policy Value......................................... 29
Units and Unit Values..................................................... 29
Transfers of Policy Value................................................. 29
POLICY LOANS................................................................ 30
Effect of Policy Loan..................................................... 31
Interest Charged on Policy Loans.......................................... 31
Loan Account.............................................................. 31
POLICY SURRENDER AND PARTIAL WITHDRAWALS.................................... 31
Policy Surrender.......................................................... 31
Partial Withdrawals...................................................... 31
LAPSE AND REINSTATEMENT..................................................... 32
Lapse..................................................................... 32
No-Lapse Guarantee........................................................ 32
No-Lapse Guarantee Cumulative Premium Test................................ 33
Optional Extended No-Lapse Guarantee............................................................. 33
Reinstatement................................................................................... 33
THE GENERAL ACCOUNT................................................................................. 33
Fixed Account.................................................................................... 33
OTHER PROVISIONS OF THE POLICY...................................................................... 34
Return of Premium Death Benefit.................................................................. 34
Policyowner Rights............................................................................... 35
Beneficiary...................................................................................... 35
Incontestability................................................................................. 35
Misstatement of Age or Sex....................................................................... 35
Suicide Exclusion................................................................................ 35
Supplementary Benefits........................................................................... 35
TAX TREATMENT OF THE POLICY......................................................................... 36
Life Insurance Qualification..................................................................... 36
Tax Treatment of Policy Benefits................................................................. 37
Alternative Minimum Tax.......................................................................... 40
Income Tax Reporting............................................................................. 40
OTHER INFORMATION................................................................................... 41
Return of Premium Rider.......................................................................... 41
Payment of Proceeds.............................................................................. 41
Reports to Policyowners.......................................................................... 41
Distribution of the Policies..................................................................... 41
Responsibilities of Manufacturers Life........................................................... 41
Voting Rights.................................................................................... 42
Records and Accounts............................................................................. 42
State Regulations................................................................................ 42
Litigation....................................................................................... 43
Independent Auditors............................................................................. 43
FINANCIAL STATEMENTS................................................................................ 43
Further Information.............................................................................. 43
Officers and Directors........................................................................... 43
OPTIONAL BENEFITS................................................................................... 45
Optional Term Rider.............................................................................. 45
ILLUSTRATIONS....................................................................................... 45
Appendix A: Definitions.......................................................................... A-1
Appendix B: Sample Illustrations of Policy Values, Cash Surrender Values and Death Benefits...... B-1
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.
4
POLICY SUMMARY
GENERAL
The Policy is a flexible premium survivorship variable universal life insurance
policy. The following summary is intended to provide a general description of
the most important features of the Policy. It is not comprehensive and is
qualified in its entirety by the more
5
detailed information contained in this prospectus. Unless otherwise indicated or
required by the context, the discussion throughout this prospectus assumes that
the Policy has not gone into default, there is no outstanding Policy Debt, and
the death benefit is not determined by the minimum death benefit percentage. The
Policy's provisions may vary in some states and the terms of your Policy and any
endorsement or rider, supersede the disclosure in this prospectus.
DEATH BENEFITS
The Policy provides a death benefit in the event of the death of the last-to-die
of the Lives Insured. There are two death benefit options. Under Option 1 the
death benefit is the Face Amount of the Policy at the date of death or, if
greater, the Minimum Death Benefit. Under Option 2 the death benefit is the Face
Amount plus the Policy Value of the Policy at the date of death or, if greater,
the Minimum Death Benefit. The policyowner may change the death benefit option
and increase or decrease the Face Amount.
RETURN OF PREMIUM RIDER
The Policy may be issued with an optional Return of Premium Death Benefit rider
if death benefit Option 1 is elected. This rider provides an additional death
benefit payable upon death of the last-to-die of the Lives Insured after the
Company receives due proof of death. The Return of Premium Death Benefit is
calculated as follows:
The return of premium rider death benefit is equal to the initial premium. Any
subsequent premiums will increase the death benefit at the time of the premium
payment by the amount of the premium. Any partial withdrawal will reduce the
death benefit at the time of withdrawal by an amount equal to the withdrawal
plus any applicable Surrender Charge (except that the rider death benefit will
not be reduced to less than zero). The Return of Premium rider is not protected
by the No Lapse Guarantee after the second Policy Year.
OPTIONAL TERM RIDER
The Policy may be issued with an optional term insurance rider (the "Term
Rider"). The benefit of the term rider is that the cost of insurance rates will
always be less than or equal to the cost of insurance rates on the Policy.
However, unlike the death benefit under the Policy, the death benefit under the
Term Rider is not protected by the no-lapse guarantee after the second Policy
Year and terminates at age 100.
PREMIUMS
Premium payments may be made at any time and in any amount, subject to certain
limitations as described under "Premium Payments -- Subsequent Premiums." Net
Premiums will be allocated, according to the policyowner's instructions and at
the Company's discretion, to one or more of the general account and the
sub-accounts of Manulife USA's Separate Account A. Allocation instructions may
be changed at any time and transfers among the accounts may be made.
POLICY VALUE
The Policy has a Policy Value reflecting premiums paid, certain charges for
expenses and cost of insurance, and the investment performance of the accounts
to which the policyowner has allocated premiums. The policyowner 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
The policyowner may borrow against the Cash Surrender Value of the Policy. Loan
interest at a rate of 5.25% is due and payable in arrears on each Policy
Anniversary. All outstanding Policy Debt will be deducted from proceeds payable
at the insured's death, or upon surrender.
SURRENDER AND PARTIAL WITHDRAWALS
The policyowner may make a partial withdrawal of the Policy Value. A partial
withdrawal may result in a reduction in the Face Amount of the Policy and an
assessment of a portion of the surrender charges to which the Policy is subject.
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 Surrender Charges and outstanding Monthly Deductions due minus the
Policy Debt.
LAPSE AND REINSTATEMENT
Unless the No-Lapse Guarantee is in effect, 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
payment being made by the policyowner. If the No-Lapse Guarantee is in effect,
the Policy will lapse if the No-Lapse Guarantee Cumulative Premium Test (see
definition) has not been met.
6
The Policies, therefore, differ in two important respects from conventional life
insurance policies. First, the failure to make planned premium payments will not
itself cause a Policy to lapse. Second, a Policy can lapse even if planned
premiums have been paid.
A lapsed Policy may be reinstated by the policyowner at any time within the five
year period following lapse provided none of the Lives Insured dies after the
policy termination and the Policy was not surrendered for its Net Cash Surrender
Value. Evidence of insurability is required, along with a certain amount of
premium as described under "Reinstatement."
CHARGES AND DEDUCTIONS
The Company assesses certain charges and deductions in connection with the
Policy. These include: (i) charges assessed monthly for mortality and expense
risks, cost of insurance, administration expenses, (ii) amounts deducted from
premiums paid (iii) and charges assessed on surrender or lapse. These charges
are summarized in the Table of Charges and Deductions.
In addition, there are charges deducted from each Portfolio of the Trust. These
charges are summarized in the Table of Investment Management Fees and Expenses.
INVESTMENT OPTIONS AND INVESTMENT ADVISERS
Net Premiums may be allocated to the general account or to one or more of the
sub-accounts of Manulife USA's Separate Account A. Each of the sub-accounts
invests in the shares of one of the Portfolios of the Trust. The Trust receives
investment advisory services from Manufacturers Securities Services, LLC
("MSS"). MSS is a registered investment adviser under the Investment Advisers
Act of 1940. The Trust also employs subadvisers. The Table of Investment Options
and Investment Subadvisers shows the subadvisers that provide investment
subadvisory services to the indicated Portfolios.
Allocating net premiums only to one or a small number of the investment options
(other than the Lifestyle Trusts) should not be considered a balanced investment
strategy. In particular, allocating net premiums to a small number of investment
options that concentrate their investments in a particular business or market
sector will increase the risk that the value of your policy will be more
volatile since these investment options may react similarly to business or
market specific events. Examples of business or market sectors where this risk
historically has been and may continue to be particularly high include: (a)
technology related businesses, including internet related businesses, (b) small
cap securities and (c) foreign securities. The Company does not provide advice
regarding appropriate investment allocations. Please discuss this matter with
your financial adviser.
INVESTMENT MANAGEMENT FEES AND EXPENSES
The Separate Account purchases shares of the Portfolios at net asset value. The
net asset value of those shares reflects investment management fees and certain
expenses. The fees and expenses for each Portfolio for the Trust's last fiscal
year are shown in the Table of Investment Management Fees and Expenses. These
fees and expenses are described in detail in the accompanying Trust prospectus
to which reference should be made.
TABLE OF CHARGES AND DEDUCTIONS
Amount Deducted from Premium 15% of each premium paid during the first ten Policy Years.
Surrender Charges A Surrender Charge is applicable during the
first 15 Policy Years. The Surrender Charge is
determined by the following formula:
Surrender Charge = (Surrender Charge Rate) x (Grading
Percentage)
The Grading Percentage is based on the issue age of
the youngest insured and the policy year in which the
transaction causing the assessment of the charge
occurs and is set forth in the table under "Surrender
Charges."
The Surrender Charge Rate is calculated as follows:
Surrender Charge Rate = (Factor) x (Surrender Face Amount /
1000) + (82.5%) x (Surrender Charge Premium)
The Surrender Charge Premium is the lesser of:
(a) the premiums paid during the first policy year;
(b) the premium amount used to measure the maximum Surrender
Charge under the Policy;
7
(c) the net level annual premium required to provide
level insurance to attained age 100 of the younger
insured based on guaranteed monthly mortality charges
and an interest rate of 4%; and
(d) $27.50 per $1000 of Face Amount.
The maximum Surrender Charge for any Policy per $1000 of
Face Amount is $31.19.
A portion of this charge may be assessed on
a partial withdrawal, as set forth under
"Charges and Deductions -- Surrender Charges
on a Partial Withdrawal."
Monthly Deductions An administration charge of $_0.175 per
$1,000 of current face amount per policy
month will be deducted in the first policy
year.
The cost of insurance charge. (The maximum cost of
insurance charge is $___ per $1000 Face Amount.
Any additional charges for supplementary benefits.
A mortality and expense risks charge. This charge varies
by Policy Year as follows:
GUARANTEED EQUIVALENT
MONTHLY ANNUAL
MORTALITY MORTALITY AND
AND EXPENSE EXPENSE
POLICY YEARS RISK CHARGE RISKS CHARGE
1-15 0.10% 1.20%
16+ 0.025% 0.30%
All of the above charges are deducted from the Net
Policy Value.
Loan Charges A fixed loan interest rate of 5.25%.
Interest credited to amounts in the Loan Account will
be equal to the 4% rate charged to the loan less the
current and maximum loan spread of 1.25%.
Transfer Charge A charge of $25 per transfer for each transfer in excess of 12
in a Policy Year.
8
TABLE OF INVESTMENT MANAGEMENT FEES AND EXPENSES
TRUST ANNUAL EXPENSES (SERIES I)
(as a percentage of Trust average net assets for the
fiscal year ended December 31, 2001)
OTHER
TRUST PORTFOLIO EXPENSES TOTAL TRUST
(AFTER ANNUAL EXPENSES
MANAGEMENT SERIES I RULE EXPENSE (AFTER EXPENSE
FEES 12B-1 FEES(G) REIMBURSEMENT) REIMBURSEMENT)
Internet Technologies 1.000% 0.150% 0.110% 1.26%
Pacific Rim Emerging Markets 0.700% 0.150% 0.380% 1.23%
Telecommunications 0.950% 0.150% 0.340% 1.44%(A)
Science & Technology 0.916%(D) 0.150% 0.060% 1.13%
International Small Cap 0.950% 0.150% 0.500% 1.60%
Health Sciences 0.942%(D) 0.150% 0.350% 1.44%(A)
Aggressive Growth 0.850% 0.150% 0.070% 1.07%
Emerging Small Company 0.900% 0.150% 0.070% 1.12%
Small Company Blend 0.900% 0.150% 0.120% 1.17%
Dynamic Growth 0.850% 0.150% 0.080% 1.08%
Mid Cap Growth 0.850% 0.150% 0.390% 1.39%(A)
Mid Cap Opportunities 0.850% 0.150% 0.440% 1.44%(A)
Mid Cap Stock 0.775% 0.150% 0.080% 1.00%
All Cap Growth 0.785% 0.150% 0.060% 0.99%
Financial Services 0.800% 0.150% 0.260% 1.21%(A)
Overseas 0.800% 0.150% 0.150% 1.10%
International Stock 0.838%(D) 0.150% 0.170% 1.16%
International Value 0.850% 0.150% 0.150% 1.15%
Capital Appreciation 0.750% 0.150% 0.300% 1.20%
Strategic Opportunities 0.700% 0.150% 0.060% 0.91%
Quantitative Mid Cap 0.650% 0.150% 0.100% 0.90%(A)
Global Equity 0.750% 0.150% 0.110% 1.01%
Strategic Growth 0.750% 0.150% 0.200% 1.10%(A)
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%(A)
Capital Opportunities 0.750% 0.150% 0.560%(G) 1.46%(A)(F)
Quantitative Equity 0.599% 0.150% 0.060% 0.81%
Blue Chip Growth 0.702%(D) 0.150% 0.060% 0.91%
Utilities 0.750% 0.150% 0.610%(G) 1.51%(A)
Real Estate Securities 0.645% 0.150% 0.070% 0.87%
Small Company Value 0.891%(D) 0.150% 0.110% 1.15%
Mid Cap Value 0.800% 0.150% 0.200% 1.15%(A)
Value 0.642% 0.150% 0.060% 0.85%
Equity Index(H) 0.250% 0.000% 0.150% 0.40%
Tactical Allocation 0.750% 0.150% 0.400% 1.30%
Fundamental Value 0.798% 0.150% 0.120% 1.07%(A)
Growth & Income 0.529% 0.150% 0.050% 0.73%
U.S. Large Cap Value 0.725% 0.150% 0.050% 0.93%
Equity-Income 0.711%(D) 0.150% 0.050% 0.91%
Income & Value 0.650% 0.150% 0.070% 0.87%
Balanced 0.563% 0.150% 0.100% 0.81%
High Yield 0.625% 0.150% 0.060% 0.84%
Strategic Bond 0.625% 0.150% 0.080% 0.86%
Global Bond 0.600% 0.150% 0.220% 0.97%
Total Return 0.600% 0.150% 0.060% 0.81%
Investment Quality Bond 0.500% 0.150% 0.090% 0.74%
Diversified Bond 0.600% 0.150% 0.070% 0.82%
9
U.S. Government Securities 0.550% 0.150% 0.060% 0.76%
Money Market 0.350% 0.150% 0.050% 0.55%
Small Cap Index(E) 0.375% 0.150% 0.075% 0.60%
International Index(E) 0.400% 0.150% 0.050% 0.60%
Mid Cap Index(E) 0.375% 0.150% 0.075% 0.60%
Total Stock Market Index(E) 0.375% 0.150% 0.060% 0.59%
500 Index(E) 0.375% 0.150% 0.050% 0.57%
Lifestyle Aggressive 1000 0.065% 0.000% 0.081% 1.146%(B)(C)
Lifestyle Growth 820 0.054% 0.000% 0.998% 1.052%(B)(C)
Lifestyle Balanced 640 0.054% 0.000% 0.914% 0.968%(B)(C)
Lifestyle Moderate 460 0.062% 0.000% 0.823% 0.885%(B)(C)
Lifestyle Conservative 280 0.069% 0.000% 0.790% 0.859%(B)(C)
(A) Annualized; For the period April 30, 2001 (commencement of operations) to
December 31, 2001.
(B) The investment adviser to the Trust, Manufacturers Securities Services, LLC
("MSS" or the "Adviser") has voluntarily agreed to pay certain expenses of each
Lifestyle Trust as noted below. (For purposes of the expense reimbursement,
total expenses of a Lifestyle Trust includes the advisory fee but excludes (a)
the expenses of the Underlying Portfolios, (b) taxes, (c) portfolio brokerage,
(d) interest, (e) litigation and (f) indemnification expenses and other
extraordinary expenses not incurred in the ordinary course of the Trust's
business.)
If total expenses of a Lifestyle Trust (absent reimbursement) exceed 0.075%, the
Adviser will reduce the advisory fee or reimburse expenses of that Lifestyle
Trust by an amount such that total expenses of the Lifestyle Trust equal 0.075%.
If the total expenses of the Lifestyle Trust (absent reimbursement) are equal to
or less than 0.075%, then no expenses will be reimbursed by the Adviser.
This voluntary expense reimbursement may be terminated at any time. If such
expense reimbursement was not in effect, Total Trust Annual Expenses would be
higher (based on current advisory fees and the Other Expenses of the Lifestyle
Trusts for the fiscal year ended December 31, 2001) as noted in the chart below:
10
TOTAL
OTHER TRUST
TRUST PORTFOLIO MANAGEMENT RULE EXPENSES ANNUAL
FEES 12B-1 FEES 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% 0.884%
(C) Each Lifestyle Trust will invest in shares of the Underlying Portfolios.
Therefore, each Lifestyle Trust will bear its pro rata share of the fees
and expenses incurred by the Underlying Portfolios in which it invests,
and the investment return of each Lifestyle Trust will be net of the
Underlying Portfolio expenses. Each Lifestyle Portfolio must bear its own
expenses. However, the Adviser is currently paying certain of these
expenses as described in footnote (B) above.
(D) Effective June 1, 2000, the Adviser voluntarily agreed to waive a portion
of its advisory fee for the Science & Technology Trust, Health Sciences
Trust, Small Company Value Trust, the Blue Chip Growth Trust, the
Equity-Income Trust and the International Stock Trust. Once the combined
assets exceed specified amounts, the fee reduction is increased. The
percentage fee reduction for each asset level is as follows:
FEE REDUCTION
COMBINED ASSET LEVELS (AS A PERCENTAGE OF THE ADVISORY FEE)
- --------------------- -------------------------------------
First $750 million 0.00%
Between $750 million and $1.5 billion 5.00%
Between $1.5 billion and $3.0 billion 7.50%
Over $3.0 billion 10.00%
The fee reductions are applied to the advisory fees of each of the six
portfolios. (However, in the case of the Small Company Value Trust, the
fee reduction will be reduced by 0.05% of the first $500 million in net
assets.) This voluntary fee waiver may be terminated at any time by the
adviser. As of December 31, 2001, the combined asset level for all six
portfolios was approximately $4.097 billion resulting in a fee reduction
of 5.00%. There is no guarantee that the combined asset level will remain
at this amount. If the combined asset level were to decrease to a lower
breakpoint, the fee reduction would decrease as well.
(E) MSS has voluntarily agreed to pay expenses of each Index Trust (excluding
the advisory fee) that exceed the following amounts: 0.050% in the case of
the International Index Trust and 500 Index Trust and 0.075% in the case
of the Small Cap Index Trust, the Mid Cap Index Trust and Total Stock
Market Index Trust. For Series I shares, if such expense reimbursement
were not in effect, it is estimated that "Other Expenses" and "Total Trust
Annual Expenses" would be 0.07% and 0.62%, respectively, for the
International Index Trust, 0.075% and 0.60%, respectively, for the Small
Cap Index Trust, and 0.075% and 0.60%, respectively, for the Mid Cap Index
Trust and 0.060% and 0.59%, respectively, for the Total Stock Market Index
Trust. It is estimated that the expense reimbursement will not be
effective during the year end December 31, 2002 for the 500 Index Trust.
The expense reimbursement may be terminated at any time by MSS.
(F) For all portfolios except the Lifestyle Trusts, the Adviser reduces its
advisory fee or reimburses the portfolio if the total of all expenses
(excluding advisory fees, taxes, portfolio brokerage commissions,
interest, litigation and indemnification expenses and other extraordinary
expenses not incurred in the ordinary course of the portfolio's business)
exceed certain annual rates. In the case of the Capital Opportunities and
Utilities Trusts, the Adviser reimbursed the portfolios for certain
expenses for the year ended December 31, 2001. As of the date of this
prospectus, such expense reimbursements are no longer operative since the
expenses of these portfolio no longer exceed such annual rates. For Series
I shares, if such expense reimbursement were reflected, it is estimated
that "Other Expenses" and "Total Trust Annual Expenses" would be 0.500%
and 1.40%, respectively, for the Capital Opportunities Trust and 0.500%
and 1.40%, respectively for the Utilities Trust for the period April 30,
2001 (commencement of operations) to December 31 2001 (annualized). These
voluntary expense reimbursements may be terminated at any time.
(G) Effective January 1, 2002, the Trust implemented a Series I Rule 12b-1
plan while simultaneously reducing its advisory fees and implementing
advisory fee breakpoints. The Trust Annual Expense chart reflects these
changes.
(H) The Equity Index Trust is available only for Policies issued for
applications dated prior to May 1, 2000. Under the Advisory Agreement, MSS
has agreed to reduce its advisory fee or reimburse the Equity Index Trust
if the total of all expenses (excluding advisory fees, taxes, portfolio
brokerage commissions, interest, litigation and indemnification expenses
and other
11
extraordinary expenses not incurred in the ordinary course of the Trust's
business) exceeds an annual rate of 0.15% of the average annual net assets
of the Equity Index Trust. The expense limitation may be terminated at any
time by MSS. If this expense reimbursement had not been in effect, Total
Trust Annual Expenses would have been 0.41%, and Other Expenses would have
been 0.16%, of the average annual net assets of the Equity Index Trust.
TABLE OF INVESTMENT OPTIONS AND INVESTMENT SUBADVISERS
The Trust currently has the following subadvisers who manage the portfolios of
the Trust which are investment options for this Policy, one of which is MFC
Global Investment Management (U.S.A.). 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 Advisors Financial Services Trust
Fundamental Value Trust
The Dreyfus Corporation All Cap 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.
Fidelity Management & Research Company Strategic Opportunities Trust(A)
Large Cap Growth Trust
Overseas Trust
Founders Asset Management LLC International Small Cap Trust
Franklin Advisers, Inc. Emerging Small Company Trust
INVESCO Funds Group, Inc. Telecommunications Trust
Mid Cap Growth Trust
Jennison Associates LLC Capital Appreciation Trust
Lord, Abbett & Co. Mid Cap Value Trust
MFC Global Investment Management (U.S.A.) Limited Pacific Rim Emerging Markets
Trust Quantitative Mid Cap Trust
Quantitative Equity Trust
Equity Index Trust
Money Market Trust
Index Trusts
Lifestyle Trusts(A)
Balanced Trust
Massachusetts Financial Services Company Strategic Growth Trust
Capital Opportunities Trust
Utilities Trust
12
Miller Anderson(B) Value Trust
High Yield Trust
Munder Capital Management Internet Technologies Trust
Pacific Investment Management Company Global Bond Trust
Total Return Trust
Putnam Investment Management, LLC 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
(formerly, Brinson Advisors, Inc..)
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) Morgan Stanley Investment Management Inc. ("MSIM") is the sub-adviser to
the Value Trust and the High Yield Trust. MSIM does business in certain
instances (including its role as the sub-adviser to the Value Trust and
the High Yield Trust) using the name "Miller Anderson". Prior to May 1,
2002, Morgan Stanley Investments LP, an affiliate of MSIM, (formerly,
Miller Anderson & Sherrerd LLP) was the sub-adviser to the Value Trust and
High Yield Trust.
GENERAL INFORMATION ABOUT MANULIFE USA, THE SEPARATE ACCOUNT AND THE TRUST
MANULIFE USA
We are a stock life insurance company incorporated in Maine on August 20, 1955
by a special act of the Maine legislature and redomesticated under the laws of
Michigan. We are a licensed life insurance company in the District of Columbia
and all states of the United States except New York. Our ultimate parent is
Manulife Financial Corporation ("MFC"), a publicly traded company, based in
Toronto, Canada. MFC is the holding company of The Manufacturers Life Insurance
Company ("Manufacturers Life") and its subsidiaries, collectively known as
Manulife Financial. The Manufacturers Life Insurance Company is one of the
largest life insurance companies in North America and ranks among the 60 largest
life insurers in the world as measured by assets. However, neither Manufacturers
Life nor any of its affiliated companies guarantees the investment performance
of the Separate Account.
RATINGS
The Manufacturers Life Insurance Company and The Manufacturers Life Insurance
Company (U.S.A.) have received the following ratings from independent rating
agencies:
A++ A.M. Best
Superior companies have a very strong ability to meet their obligations;
1st category of 16
AA+ Fitch
Very strong capacity to meet policyholder and contract obligations; 2nd
category of 22
13
AA+ Standard & Poor's
Very strong financial security characteristics; 2nd category of 21
Aa2 Moody's
Excellent in financial strength; 3rd category of 21
These ratings, which are current as of the date of this prospectus and are
subject to change, are assigned to Manulife USA as a measure of the Company's
ability to honor the death benefit and life annuitization guarantees but not
specifically to its products, the performance (return) of these products, the
value of any investment in these products upon withdrawal or to individual
securities held in any portfolio.
THE SEPARATE ACCOUNT
The Manufacturers Life Insurance Company of America ("ManAmerica") established
its Separate Account Three (the "Separate Account") on August 22, 1986 as a
separate account under Pennsylvania law. Since December 9, 1992, it has been
operated under Michigan law. On January 1, 2002, ManAmerica transferred
substantially all of its assets and liabilities to Manulife USA. As a result of
this transaction, Manulife USA became the owner of all of ManAmerica's assets,
including the assets of the Separate Account and assumed all of ManAmerica's
obligations including those under the Policies. As a result of the transaction
Separate Account Three of ManAmerica has been renamed to Separate Account A 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.
Manulife USA will at all times maintain assets in the Separate Account with a
total market value at least equal to the reserves and other liabilities relating
to variable benefits under all policies participating in the Separate Account.
These assets may not be charged with liabilities which arise from any other
business Manulife USA conducts. However, all obligations under the variable life
insurance policies are general corporate obligations of Manulife USA
REGISTRATION
The Separate Account is registered with the Securities and Exchange Commission
("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 which
invests its assets in specified securities, such as the shares of one or more
investment companies, rather than in a portfolio of unspecified securities.
Registration under the 1940 Act does not involve any supervision by the SEC of
the management or investment policies or practices of the Separate Account. For
state law purposes the Separate Account is treated as a part or division of
Manulife USA.
THE TRUST
Each sub-account of the Separate Account will only purchase Series I shares
(formerly referred to as "Class A shares") of a particular Portfolio. The Trust
is registered under the 1940 Act as an open-end management investment company.
Each of the Trust portfolios, except the Lifestyle Trusts and the Equity Index
Trust, are subject to a Rule 12b-1 fee of 0.15% 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 policyowners,
and for other purposes not inconsistent with the Policies. Any dividend or
capital gain distribution received from a Portfolio with respect to the Policies
will be reinvested immediately at net asset value in shares of that Portfolio
and retained as assets of the corresponding sub-account.
The Trust shares are issued to fund benefits under both variable annuity
contracts and variable life insurance policies issued by the Company or life
insurance companies affiliated with the Company. Manulife USA may also purchase
shares through its general account for certain limited purposes including
initial portfolio seed money. For a description of the procedures for handling
potential conflicts of interest arising from the funding of such benefits see
the accompanying Trust prospectus.
INVESTMENT OBJECTIVES OF THE PORTFOLIOS
The investment objectives and certain policies of the Portfolios currently
available to policyowners through corresponding sub-accounts are set forth
below. There is, of course, no assurance that these objectives will be met. A
full description of the Trust, its investment objectives, policies and
restrictions, the risks associated therewith, its expenses, and other aspects of
its operation is contained in the accompanying Trust prospectus, which should be
read together with this prospectus.
ELIGIBLE PORTFOLIOS
The Portfolios of the Trust available under the Policies are as follows:
14
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.
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.
15
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.
The ALL CAP VALUE TRUST seeks capital appreciation by investing, under normal
market conditions, at least 65% of the portfolio's total assets in the stocks of
value companies of any size.
The CAPITAL OPPORTUNITIES TRUST seeks capital appreciation by investing, under
normal market conditions, at least 65% of the portfolio's total assets in common
stocks and related securities, such as preferred stock, convertible securities
and depositary receipts. The portfolio focuses on companies which the subadviser
believes have favorable growth prospects and attractive valuations based on
current and expected earnings or cash flow.
The QUANTITATIVE EQUITY TRUST seeks to achieve intermediate and long-term growth
through capital appreciation and current income by investing in common stocks
and other equity securities of well established companies with promising
prospects for providing an above average rate of return.
The BLUE CHIP GROWTH TRUST seeks to achieve long-term growth of capital (current
income is a secondary objective) by investing, under normal market conditions,
at least 80% of the portfolio's total assets in the common stocks of large and
medium-sized blue chip growth companies. Many of the stocks in the portfolio are
expected to pay dividends.
The UTILITIES TRUST seeks capital growth and current income (income above that
available from a portfolio invested entirely in equity securities) by investing,
under normal market conditions, at least 80% of the portfolio's net assets (plus
any borrowings for investment purposes) in equity and debt securities of
domestic and foreign companies in the utilities industry.
The REAL ESTATE SECURITIES TRUST seeks to achieve a combination of long-term
capital appreciation and current income by investing, under normal market
conditions, at least 80% of its net assets (plus any borrowings for investment
purposes) in 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
16
will invest at least 80% of its net assets (plus any borrowings for investment
purposes) in companies with a market capitalization that do not exceed the
maximum market capitalization of any security in the Russell 2000 Index at the
time of purchase.
The MID CAP VALUE TRUST seeks capital appreciation by investing, under normal
market conditions, at least 80% of the portfolio's net assets (plus any
borrowings for investment purposes) will consist of investments in mid-sized
companies, with market capitalizations of roughly $500 million to $10 billion.
The VALUE TRUST seeks to realize an above-average total return over a market
cycle of three to five years, consistent with reasonable risk, by investing
primarily in common and preferred stocks, convertible securities, rights and
warrants to purchase common stocks, ADRs and other equity securities of
companies with equity capitalizations usually greater than $300 million.
The EQUITY INDEX TRUST seeks to achieve investment results which approximate the
aggregate total return of publicly traded common stocks which are included in
the Standard & Poor's 500 Composite Stock Price Index. (The Equity Index Trust
is available only for policies issued for applications dated prior to May 1,
2000).
The TACTICAL ALLOCATION TRUST seeks total return, consisting of long-term
capital appreciation and current income, by allocating the portfolio's assets
between (i) a stock portion that is designed to track the performance of the S&P
500 Composite Stock Price Index, and (ii) a fixed income portion that consists
of either five-year U.S. Treasury notes or U.S. Treasury bills with remaining
maturities of 30 days.
The FUNDAMENTAL VALUE TRUST seeks growth of capital by investing, under normal
market conditions, primarily in common stocks of U.S. companies with market
capitalizations of at least $5 billion that the subadviser believes are
undervalued. The portfolio may also invest in U.S. companies with smaller
capitalizations.
The GROWTH & INCOME TRUST seeks long-term growth of capital and income,
consistent with prudent investment risk, by investing primarily in a diversified
portfolio of common stocks of U.S. issuers which the subadviser believes are of
high quality.
The U.S. LARGE CAP VALUE TRUST seeks long-term growth of capital and income by
investing the portfolio's assets, under normal market conditions, primarily in
equity and equity-related securities of companies with market capitalization
greater than $500 million.
The EQUITY-INCOME TRUST seeks to provide substantial dividend income and also
long-term capital appreciation by investing primarily in dividend-paying common
stocks, particularly of established companies with favorable prospects for both
increasing dividends and capital appreciation.
The INCOME & VALUE TRUST seeks the balanced accomplishment of (a) conservation
of principal and (b) long-term growth of capital and income by investing the
portfolio's assets in both equity and fixed-income securities. The subadviser
has full discretion to determine the allocation between equity and fixed income
securities.
The BALANCED TRUST seeks current income and capital appreciation by investing
the portfolio's assets in a balanced portfolio of (i) equity securities and (ii)
fixed income securities.
The HIGH YIELD TRUST seeks to realize an above-average total return over a
market cycle of three to five years, consistent with reasonable risk, by
investing primarily in high yield debt securities, including corporate bonds and
other fixed-income securities.
The STRATEGIC BOND TRUST seeks a high level of total return consistent with
preservation of capital by giving its subadviser broad discretion to deploy the
portfolio's assets among certain segments of the fixed income market as the
subadviser believes will best contribute to achievement of the portfolio's
investment objective.
The GLOBAL BOND TRUST seeks to realize maximum total return, consistent with
preservation of capital and prudent investment management by investing the
portfolio's asset primarily in fixed income securities denominated in major
foreign currencies, baskets of foreign currencies (such as the ECU), and the
U.S. dollar.
The TOTAL RETURN TRUST seeks to realize maximum total return, consistent with
preservation of capital and prudent investment management by investing, under
normal market conditions, at least 65% of the portfolio's assets in a
diversified portfolio of fixed income securities of varying maturities. The
average portfolio duration will normally vary within a three- to six-year time
frame based on the subadviser's forecast for interest rates.
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.
17
The DIVERSIFIED BOND TRUST seeks high total return consistent with the
conservation of capital by investing, under normal market conditions, at least
80% of the portfolio's net assets (plus any borrowings for investment purposes)
in fixed income securities.
The U.S. GOVERNMENT SECURITIES TRUST seeks a high level of current income
consistent with preservation of capital and maintenance of liquidity, by
investing in debt obligations and mortgage-backed securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
derivative securities such as collateralized mortgage obligations backed by such
securities.
The MONEY MARKET TRUST seeks maximum current income consistent with preservation
of principal and liquidity by investing in high quality money market instruments
with maturities of 397 days or less issued primarily by U. S. entities.
The SMALL CAP INDEX TRUST seeks to approximate the aggregate total return of a
small cap U.S. domestic equity market index by attempting to track the
performance of the Russell 2000 Index.*
The INTERNATIONAL INDEX TRUST seeks to approximate the aggregate total return of
a foreign equity market index by attempting to track the performance of the
Morgan Stanley European Australian Far East Free Index (the "MSCI EAFE Index").*
The MID CAP INDEX TRUST seeks to approximate the aggregate total return of a mid
cap U.S. domestic equity market index by attempting to track the performance of
the S&P Mid Cap 400 Index.*
The TOTAL STOCK MARKET INDEX seeks to approximate the aggregate total return of
a broad U.S. domestic equity market index by attempting to track the performance
of the Wilshire 5000 Equity Index.*
The 500 INDEX TRUST seeks to approximate the aggregate total return of a broad
U.S. domestic equity market index by attempting to track the performance of the
S&P 500 Composite Stock Price Index.*
The LIFESTYLE AGGRESSIVE 1000 TRUST seeks to provide long-term growth of capital
(current income is not a consideration) by investing 100% of the Lifestyle
Trust's assets in other portfolios of the Trust ("Underlying Portfolios") which
invest primarily in equity securities.
The LIFESTYLE GROWTH 820 TRUST seeks to provide long-term growth of capital with
consideration also given to current income by investing approximately 20% of the
Lifestyle Trust's assets in Underlying Portfolios which invest primarily in
fixed income securities and approximately 80% of its assets in Underlying
Portfolios which invest primarily in equity securities.
The LIFESTYLE BALANCED 640 TRUST seeks to provide a balance between a high level
of current income and growth of capital with a greater emphasis given to capital
growth by investing approximately 40% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 60% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The LIFESTYLE MODERATE 460 TRUST seeks to provide a balance between a high level
of current income and growth of capital with a greater emphasis given to current
income by investing approximately 60% of the Lifestyle Trust's assets in
Underlying Portfolios which invest primarily in fixed income securities and
approximately 40% of its assets in Underlying Portfolios which invest primarily
in equity securities.
The LIFESTYLE CONSERVATIVE 280 TRUST seeks to provide a high level of current
income with some consideration also given to growth of capital by investing
approximately 80% of the Lifestyle Trust's assets in Underlying Portfolios which
invest primarily in fixed income securities and approximately 20% of its assets
in Underlying Portfolios which invest primarily in equity securities.
*"Standard & Poor's(R)," "S&P 500(R)," "Standard and Poor's 500(R)" and
"Standard and Poor's 400(R)" are trademarks of The McGraw-Hill Companies, Inc.
"Russell 2000(R)" and "Russell 2000(R) Growth" is a trademark of Frank Russell
Company. "Wilshire 5000(R)" is a trademark of Wilshire Associates. "Morgan
Stanley European Australian Far East Free" and "EAFE(R)" are trademarks of
Morgan Stanley & Co. Incorporated. None of the Index Trusts are sponsored,
endorsed, managed, advised, sold or promoted by any of these companies, and none
of these companies make any representation regarding the advisability of
investing in the Trust.
ISSUING A POLICY
REQUIREMENTS
To purchase a Policy, an applicant must submit a completed application. A Policy
will not be issued until the underwriting process has
18
been completed to the Company's satisfaction.
Policies may be issued on a basis which does not take into account the insured's
sex and/or smoking status, with prior approval from the Company. A Policy will
generally be issued only on the lives of insureds from ages 0 through 90.
Each Policy is issued with a Policy Date, an Effective Date and an Issue Date
(see Definitions). The Issue Date is the date from which the Suicide and
Validity provisions of the Policy are determined and is the expected date of
actual delivery of the Policy to the policyowner. The Effective Date is the date
on which the first monthly deductions are taken, and is the date on which the
underwriters approve the Policy issuance. The Policy Date is the date coverage
takes effect under the Policy, provided the Company receives the minimum initial
premium at its Service Office, is the date from which charges for the first
monthly deduction are calculated, and is the date from which Policy Years,
Policy Months and Policy Anniversaries are determined.
If an application accepted by the Company is not accompanied by a check for the
initial premium and no request to backdate the Policy has been made:
(i) the Policy Date and the Effective Date will be the date the Company
receives the check at its service office, and
(ii) the Issue Date will be the date the Company issues the Policy.
The initial premium must be received within 60 days after the Issue Date, and
the policyowner must be in good health on the date the initial premium is
received. If the premium is not paid or if the application is rejected, the
Policy will be canceled and any partial premiums paid will be returned to the
applicant.
MINIMUM INITIAL FACE AMOUNT
Manulife USA will generally issue a Policy only if it has a Face Amount of at
least $250,000.
BACKDATING A POLICY
Under limited circumstances, the Company may backdate a Policy, upon request, by
assigning a Policy Date earlier than the date the application is signed.
However, in no event will a Policy be backdated earlier than the earliest date
allowed by state law, which is generally three months to one year prior to the
date of application for the Policy. Monthly deductions will be made for the
period the Policy Date is backdated. Regardless of whether or not a policy is
backdated, Net Premiums received prior to the Effective Date of a Policy will be
credited with interest from the date of receipt at the rate of return then being
earned on amounts allocated to the Money Market portfolio.
As of the Effective Date, the premiums paid plus interest credited, net of the
premium charge, will be allocated among the Investment Accounts and/or Fixed
Account in accordance with the policy owner's instructions unless such amount is
first allocated to the Money Market Trust for the duration of the Right to
Examine period.
TEMPORARY INSURANCE AGREEMENT
In accordance with the Company's underwriting practices, temporary insurance
coverage may be provided under the terms of a Temporary Insurance Agreement.
Generally, temporary life insurance may not exceed $5,000,000 and may not be in
effect for more than 90 days. This temporary insurance coverage will be issued
on a conditional receipt basis, which means that any benefits under such
temporary coverage will only be paid if the Lives Insured meet the Company's
usual and customary underwriting standards for the coverage applied for.
The acceptance of an application is subject to the Company's underwriting rules,
and the Company reserves the right to request additional information or to
reject an application for any reason.
Persons failing to meet standard underwriting classification may be eligible for
a Policy with an additional rating assigned to it.
RIGHT TO EXAMINE THE POLICY
A Policy may be returned for a refund within 10 days after it is received. Some
states provide a longer period of time to exercise this right. The Policy will
indicate if a longer time period applies. During the "Right to Examine the
Policy Period," premiums may be allocated to the Money Market Trust. After this
period has expired, premiums will then be allocated among the Investment
Accounts and/or Fixed Account in accordance with the policyowner's instructions.
If the policyowner elects to cancel the Policy under this provision, the Policy
can be mailed or delivered to the Manulife USA agent who sold it or to the
Service Office. Immediately upon such delivery or mailing, the Policy shall be
deemed void from the beginning. Within seven days after receipt of the returned
Policy at its Service Office, the Company will refund to the policyholder an
amount equal to either:
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(1) the amount of all premiums paid, or
(2) (a) the difference between payments made and amounts allocated to
the Separate Account and the Fixed Account; plus
(b) the value of the amount allocated to the Separate Account and
the Fixed Account as of the date the returned Policy is received
by the Company; minus
(c) any partial withdrawals made and policy loans taken.
Whether the amount described in (1) or (2) is refunded depends upon the
requirements of the applicable state.
If a policyowner requests an increase in face amount which results in new
surrender charges, he or she will have the same rights as described above to
cancel the increase. If canceled, the Policy Value and the surrender charges
will be recalculated to the amounts they would have been had the increase not
taken place. A policyowner may request a refund of all or any portion of
premiums paid during the free look period, and the Policy Value and the
surrender charges will be recalculated to the amounts they would have been had
the premiums not been paid.
The Company reserves the right to delay the refund of any premium paid by check
until the check has cleared.
LIFE INSURANCE QUALIFICATION
This product uses the Guideline Premium Test to qualify as a life insurance
contract for purposes of Section 7702 of the Internal Revenue Code of 1986, as
amended.
GUIDELINE PREMIUM TEST
The Guideline Premium Test restricts the maximum premiums that may be paid into
a life insurance policy for a given death benefit. The policy's death benefit
must also be at least equal to the Minimum Death Benefit (described below).
Changes to the Policy may affect the maximum amount of premiums, such as:
- - A change in the policy's Face Amount.
- - A change in the death benefit option.
- - Partial Withdrawals.
- - Addition or deletion of supplementary benefits.
Any of the above changes could cause the total premiums paid to exceed the new
maximum limit. In this situation, the Company will require the policyowner to
take a partial withdrawal. In addition, these changes could reduce the future
premium limitations.
MINIMUM DEATH BENEFIT
The Guideline Premium Test requires a life insurance policy to meet minimum
ratios of life insurance coverage to policy value. This is achieved by ensuring
that the death benefit is at all times at least equal to the Minimum Death
Benefit. The Minimum Death Benefit on any date is defined as the Policy Value on
that date times the applicable Minimum Death Benefit Percentage for the Attained
Age of the youngest of the Lives Insured, or the Attained Age such person would
have reached if living. The Minimum Death Benefit Percentages are shown in the
Table of Minimum Death Benefit Percentages.
TABLE OF MINIMUM DEATH BENEFIT PERCENTAGES
ATTAINED AGE APPLICABLE PERCENTAGE
- --------------------------------------------------------------------------------
40 and under.............................................. 250%
45........................................................ 215%
50........................................................ 185%
55........................................................ 150%
60........................................................ 130%
65........................................................ 120%
70........................................................ 115%
75........................................................ 105%
90........................................................ 105%
95 and above.............................................. 100%
To determine the Applicable Percentage in the above table, use the Attained Age
of the youngest of the Lives Insured, or the Attained Age such person would have
reached if living. For ages not shown, the Applicable Percentage can be found by
reducing the values
20
proportionately
DEATH BENEFITS
If the Policy is in force at the time of the death of the last-to-die of the
Lives Insured, the Company will pay an insurance benefit. The amount payable
will be the death benefit under the selected death benefit option, plus any
amounts payable under any supplementary benefits added to the Policy, less the
Policy Debt and less any outstanding monthly deductions due. The insurance
benefit will be paid in one lump sum unless another form of settlement option is
agreed to by the beneficiary and the Company. If the insurance benefit is paid
in one sum, the Company will pay interest from the date of death to the date of
payment. If the Life Insured should die after the Company's receipt of a request
for surrender, no insurance benefit will be payable, and the Company will pay
only the Net Cash Surrender Value.
DEATH BENEFIT OPTIONS
There are two death benefit options, described below.
DEATH BENEFIT OPTION 1
Under Option 1 the death benefit is the Face Amount of the Policy at the date of
death or, if greater, the Minimum Death Benefit.
DEATH BENEFIT OPTION 2
Under Option 2 the death benefit is the Face Amount plus the Policy Value of the
Policy at the date of death or, if greater, the Minimum Death Benefit.
CHANGING THE DEATH BENEFIT OPTION
The death benefit option may be changed on the first day of any policy month
once each Policy Year after the first Policy Year. . The change will occur on
the first day of the next Policy Month after a written request for a change is
received at the Service Office. The Company reserves the right to limit a
request for a change if the change would cause the Policy to fail to qualify as
life insurance for tax purposes.
A change in the death benefit option will result in a change in the Policy's
Face Amount, in order to avoid any change in the amount of the death benefit, as
follows:
CHANGE FROM OPTION 1 TO OPTION 2
The new Face Amount will be equal to the Face Amount prior to the change minus
the Policy Value as of the date of the change. The Policy will not be assessed a
Surrender Charge for a reduction in Face Amount solely due to a change in the
death benefit option.
CHANGE FROM OPTION 2 TO OPTION 1
The new Face Amount will be equal to the Face Amount prior to the change plus
the Policy Value as of the date of the change.
CHANGING THE FACE AMOUNT
Subject to the limitations stated in this Prospectus, a policyowner may, upon
written request, increase or decrease the Face Amount of the Policy. The Company
reserves the right to limit a change in Face Amount so as to prevent the Policy
from failing to qualify as life insurance for tax purposes.
INCREASE IN FACE AMOUNT
Increases in Face Amount may be made once each Policy Year after the first
Policy Year. Any increase in Face Amount must be at least $50,000. An increase
will become effective at the beginning of the policy month following the date
Manulife USA approves the requested increase. Increases in Face Amount are
subject to satisfactory evidence of insurability. The Company reserves the right
to refuse a requested increase if any of the Lives Insureds' Attained Ages at
the effective date of the increase would be greater than the maximum issue age
for new Policies at that time.
NEW SURRENDER CHARGES FOR AN INCREASE
An increase in face amount will usually result in the Policy being subject to
new surrender charges. There will be no new surrender charges associated with
restoration of a prior decrease in Face Amount. As with the purchase of a
Policy, a policyowner will have free look right with respect to any increase
resulting in new surrender charges.
An additional premium may be required for a face amount increase, and a new
No-Lapse Guarantee Premium will be determined, if the No-Lapse Guarantee is in
effect at the time of the face amount increase.
21
INCREASE WITH PRIOR DECREASES
If, at the time of the increase, there have been prior decreases in Face Amount,
these prior decreases will be restored first. The insurance coverage eliminated
by the decrease of the oldest face amount will be deemed to be restored first.
DECREASE IN FACE AMOUNT
Decreases in Face Amount may be made once each Policy Year after the first
Policy Year. Any decrease in Face Amount must be at least $50,000. A written
request from a policy owner for a decrease in the Face Amount will be effective
at the beginning of the Policy Month following the date Manulife USA approves
the requested decrease. If there have been previous increases in Face Amount,
the decrease will be applied to the most recent increase first and thereafter to
the next most recent increases successively. A decrease in Face Amount will be
subject to surrender charges. See "Charges and Deductions - Surrender Charges"
PREMIUM PAYMENTS
INITIAL PREMIUMS
No premiums will be accepted prior to receipt of a completed application by the
Company. All premiums received prior to the Effective Date of the Policy will be
held in the general account and credited with interest from the date of receipt
at the rate of return then being earned on amounts allocated to the Money Market
Trust.
The minimum initial premium is one-twelfth of the No-Lapse Guarantee Premium
(which is set forth in the Table of Values in your policy).
On the later of the Effective Date or the date the premium is received, the Net
Premiums paid plus interest credited will be allocated among the Investment
Accounts or the Fixed Account in accordance with the policyowner's instructions;
unless such amount is first allocated to the Money Market Trust for the duration
of the Right to Examine period.
SUBSEQUENT PREMIUMS
After the payment of the initial premium, premiums may be paid at any time and
in any amount until the youngest of the Lives Insured has reached Attained Age
100, or the date such person would have reached Attained Age 100, if living,
subject to the limitations on premium amount described below.
A Policy will be issued with a planned premium, which is based on the amount of
premium the policyowner wishes to pay. Manulife USA will send notices to the
policyowner setting forth the planned premium at the payment interval selected
by the policyowner. However, the policyowner is under no obligation to make the
indicated payment.
The Company may refuse any premium payment that would cause the Policy to fail
to qualify as life insurance under the Internal Revenue Code. The Company also
reserves the right to request evidence of insurability if a premium payment
would result in an increase in the Death Benefit that is greater than the
increase in Policy Value.
Payment of premiums will not guarantee that the Policy will stay in force.
Conversely, failure to pay premiums will not necessarily cause the Policy to
lapse.
All Net Premiums received on or after the Effective Date will be allocated among
Investment Accounts or the Fixed Account as of the Business Day the premiums
were received at the Service Office; unless such amount is first allocated to
the Money Market Trust for the duration of the Right to Examine period. Monthly
deductions are due on the Policy Date and at the beginning of each Policy Month
thereafter. However, if due prior to the Effective Date, they will be taken on
the Effective Date instead of the dates they were due.
MAXIMUM PREMIUM LIMITATION
In no event may the total of all premiums paid exceed the then current maximum
premium limitations established by federal income tax law for a Policy to
qualify as life insurance.
If, at any time, a premium is paid which would result in total premiums
exceeding the above maximum premium limitation, the Company will only accept
that portion of the premium which will make the total premiums equal to the
maximum. Any part of the premium in excess of that amount will be returned and
no further premiums will be accepted until allowed by the then current maximum
premium limitation.
PREMIUM ALLOCATION
Premiums may be allocated to either the Fixed Account for accumulation at a rate
of interest equal to at least 4% or to one or more of the Investment Accounts
for investment in the Portfolio shares held by the corresponding sub-account of
the Separate Account.
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Allocations among the Investment Accounts and the Fixed Account are made as a
percentage of the premium. The percentage allocation to any account may be any
number between zero and 100, provided the total allocation equals 100. A
policyowner may change the way in which premiums are allocated at any time
without charge. The change will take effect on the date a written request for
change satisfactory to the Company is received at the Service Office.
CHARGES AND DEDUCTIONS
AMOUNT DEDUCTED FROM PREMIUM
Manulife USA deducts an amount from each premium payment, equal to 15% of the
premium during the first ten policy years.
SURRENDER CHARGES
The Company will deduct a Surrender Charge if during the first fifteen years
following the Policy Date, or the effective date of a Face Amount increase:
- the Policy is surrendered for its Net Cash Surrender Value,
- a partial withdrawal is made in excess of the Withdrawal Tier Amount
(see below for a description of this amount),
- there is a decrease in Face Amount, or
- the Policy Lapses.
SURRENDER CHARGE CALCULATION
The Surrender Charge for the initial Face Amount or for the amount of any
increase in Face Amount is determined by the following formula (the calculation
is also described in words below):
Surrender Charge = (Surrender Charge Rate) x (Grading Percentage)
Surrender Charge Rate (the calculation is also described in words below)
Surrender Charge Rate = (Factor) x (Surrender Face Amount / 1000) + (82.5%) x
(Surrender Charge Premium)
DEFINITIONS OF THE FORMULA FACTORS ABOVE
Surrender Face Amount
If the Face Amount at the time of surrender is equal to or less than the initial
Face Amount, then the Surrender Face Amount is equal to the Face Amount at the
time of surrender. However, if the Face Amount has increased, then the surrender
charge is calculated separately on (a) the initial Face Amount and (b) on the
amount of Face Amount above the initial Face Amount. In the case of (a), the
Surrender Face Amount is equal to the initial Face Amount and in the case of (b)
the Surrender Face Amount is equal to the Face Amount above the initial Face
Amount.
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The Factor is set forth in the following chart:
ISSUE AGE FACTOR
- --------------------------------------------------------------------------------
38 or younger.................................. 3.75
39............................................. 4.25
40............................................. 4.75
41............................................. 5.25
42............................................. 5.75
43............................................. 6.25
44............................................. 6.75
45............................................. 7.25
46............................................. 7.75
47............................................. 8.25
48 or older.................................... 8.50
The Surrender Charge Premium is the lesser of:
(a) the premiums paid during the first policy year;
(b) the premium amount used to measure the maximum Surrender Charge under the
Policy;
(c) the net level annual premium ("Net Level Premium") required to provide
level insurance to attained age 100 of the younger insured based on
guaranteed maximum mortality charges and an interest rate of $40; and
(d) $27.50 per $1000 of Face Amount. Grading Percentage
The grading percentage is based on the issue age of the youngest insured and the
Policy Year in which the transaction causing the assessment of the charge occurs
as set forth in the table below:
SURRENDER CHARGE GRADING PERCENTAGE
--------------------------------------
ISSUE AGES OF YOUNGER INSURED 0-75 76 77 78 79 80+
- ----------------------------------------------------------------------------------
Policy Year 1........................... 93% 92% 92% 91% 90% 90%
Policy Year 2........................... 86% 85% 84% 83% 81% 80%
Policy Year 3........................... 80% 78% 76% 75% 72% 70%
Policy Year 4........................... 73% 71% 69% 66% 63% 60%
Policy Year 5........................... 66% 64% 61% 58% 54% 50%
Policy Year 6........................... 60% 57% 53% 50% 45% 40%
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Policy Year 7........................... 53% 50% 46% 41% 36% 30%
Policy Year 8........................... 46% 42% 38% 33% 27% 20%
Policy Year 9........................... 40% 35% 30% 25% 18% 10%
Policy Year 10.......................... 33% 28% 23% 16% 9% 0%
Policy Year 11.......................... 26% 21% 15% 8% 0%
Policy Year 12.......................... 20% 14% 7% 0%
Policy Year 13.......................... 13% 7% 0%
Policy Year 14.......................... 6% 0%
Policy Year 15.......................... 0%
Formulas Described in Words
Surrender Charge
The Surrender Charge is determined by multiplying the Surrender Charge Rate by
the Grading Percentage, a percent which starts at 100% and grades down each
policy year to zero over a period not to exceed fifteen years.
Surrender Charge Rate
The Surrender Charge Rate is equal to the sum of (a) plus (b) where (a) equals
the Factor multiplied by the Surrender Face Amount divided by 1000 and (b)
equals 82.5% times the Surrender Charge Premium.
Illustration of Surrender Charge Calculation
Assumptions
- - 50 year old male and 40 year old female (standard risks and nonsmoker
status)
- - Policy issued 7 years ago
- - A total of $904 IN premiums have been paid on the Policy in equal annual
installments over the 7 year period
- - the premium amount used to measure the maximum Surrender Charge under the
Policy is $2188
- - Net Level Premium for the Policy is $2541
- - Face Amount of the Policy is $250,000
- - Policy is surrendered during the last month of the seventh policy year
Surrender Charge
The Surrender Charge to be assessed would be $1025, determined as follows:
First, the Surrender Charge Rate is determined by applying the Surrender Charge
Rate formula as set forth below.
Surrender Charge Rate = (Factor) x (Surrender Face Amount / 1000) + (82.5%) x
(Surrender Charge Premium)
1933.30 = (4.75) x ($250,000 / 1000) + (82.5%) X (904)
The Surrender Charge Rate is equal to 1933.30.
Second, the Surrender Charge Rate is entered into the Surrender Charge formula
and the Surrender Charge is determined as set forth below.
Surrender Charge = (Surrender Charge Rate) x (Grading Percentage)
25
$1025 = (1933.30) X (53%)
The Surrender Charge is equal to $1025.
The following calculation illustrates the maximum Surrender Charge that would be
payable on a Policy under the assumptions set forth below.
Illustration of Maximum Surrender Charge Calculation
Assumptions
- - 50 year old male and 40 year old female (standard risks and nonsmoker
status)
- - Policy issued 7 years ago
- - a total of $2188 in premiums have been paid on the Policy in equal annual
installments over the 7 year period
- - the premium amount used to measure the maximum Surrender Charge under the
Policy is $2188
- - Net Level Premium for the Policy is $2541
- - Face Amount of the Policy is $250,000
- - Policy is surrendered during the last month of the seventh policy year
Maximum Surrender Charge
The maximum Surrender Charge to be assessed would be $1586, determined as
follows:
First, the Surrender Charge Rate is determined by applying the Surrender Charge
Rate formula as set forth below.
Surrender Charge Rate = (Factor) x (Surrender Face Amount / 1000) + ( 82.5%) x
(Surrender Charge Premium)
2992.60 = 4.75 x ($250,000 / 1000) + (82.5%) X (2188)
The Surrender Charge Rate is equal to 2992.60.
Second, the Surrender Charge Rate is entered into the Surrender Charge formula
and the Surrender Charge is determined as set forth below.
Surrender Charge = (Surrender Charge Rate) x (Grading Percentage)
$1586 = (2992.60) X 53%
The maximum Surrender Charge payable on the Policy is equal to $1586.
Depending upon the Face Amount of the Policy, the age of the youngest insured at
issue, premiums paid under the Policy and the performance of the underlying
investment options, the Policy may have no Cash Surrender Value and therefore,
the policyowner may receive no surrender proceeds upon surrendering the Policy.
SURRENDER CHARGES ON A PARTIAL WITHDRAWAL
A partial withdrawal will result in the assessment of a portion of the Surrender
Charges to which the Policy is subject. The portion of the Surrender Charges
assessed will be based on the ratio of the amount of the withdrawal which
exceeds the Withdrawal Tier Amount to the Net Cash Surrender Value of the Policy
as at the date of the withdrawal. The Surrender Charges will be deducted from
the Policy Value at the time of the partial withdrawal on a pro-rata basis from
each of the Investment Accounts and the Fixed Account. If the amount in the
accounts is not sufficient to pay the Surrender Charges assessed, then the
amount of the withdrawal will be reduced.
Whenever a portion of the surrender charges is deducted as a result of a partial
withdrawal, the Policy's remaining surrender charges will be reduced in the same
proportion that the surrender charge deducted bears to the total surrender
charge immediately before the partial withdrawal.
SURRENDER CHARGE ON DECREASE IN FACE AMOUNT
If the Face Amount of insurance is decreased, a pro-rata Surrender Charge will
be deducted from the Policy Value. A decrease in Face Amount caused by a change
from Death Benefit Option 1 to Option 2 will not incur a pro-rata Surrender
Charge.
26
Each time a pro-rata Surrender Charge is deducted for a Face Amount decrease,
the remaining Surrender Charge will be reduced in the same proportion that the
Surrender Charge deducted bears to the total Surrender Charge immediately before
the Face Amount decrease.
WITHDRAWAL TIER AMOUNT
The Withdrawal Tier Amount is equal to 10% of the Net Cash Surrender Value as at
the last Policy Anniversary. In determining what, if any, portion of a partial
withdrawal is in excess of the Withdrawal Tier Amount, all previous partial
withdrawals that have occurred in the current Policy Year are included.
MONTHLY CHARGES
On the Policy Date and at the beginning of each Policy Month, a deduction is due
from the Net Policy Value to cover certain charges in connection with the Policy
until the youngest of the Lives Insured reaches Attained Age 100, or the date
such person would have reached Attained Age 100, if living. If there is a Policy
Debt under the Policy, loan interest and principal will continue to be payable
at the beginning of each Policy Month. Monthly deductions due prior to the
Effective Date will be taken on the Effective Date instead of the dates they
were due. The charges consist of:
(i) a monthly administration charge;
(ii) a monthly charge for the cost of insurance;
(iii) a monthly mortality and expense risk charge;
(iv) a monthly charge for any supplementary benefits added to the Policy.
Unless otherwise allowed by the Company and specified by the policyowner, the
Monthly Deduction will be allocated among the Investment Accounts and the Fixed
Account in the same proportion as the Policy value in each bears to the Net
Policy Value.
ADMINISTRATION CHARGE
This charge will be equal to $0.175 per $1,000 of current face amount per Policy
Month in the first Policy Year. The charge is designed to cover certain
administrative expenses associated with the Policy, including maintaining policy
records, collecting premiums and processing death claims, surrender and
withdrawal requests and various changes permitted under the Policy.
COST OF INSURANCE CHARGE
The monthly charge for the cost of insurance is determined by multiplying the
applicable cost of insurance rate times the net amount at risk at the beginning
of each Policy Month. The cost of insurance rate and the net amount at risk are
determined separately for the initial Face Amount and for each increase in Face
Amount. In determining the net amount at risk, if there have been increases in
the Face Amount, the Policy Value shall first be considered a part of the
initial Face Amount. If the Policy Value exceeds the initial Face Amount, it
shall then be considered a part of the additional increases in Face Amount
resulting from the increases, in the order the increases occurred.
For Death Benefit Options 1 and 2, the net amount at risk is equal to the
greater of zero, or the result of (a) minus (b) where:
(a) is the death benefit as of the first day of the Policy Month, divided by
1.0032737; and
(b) is the Policy Value as of the first day of the Policy Month prior to
deduction of monthly cost of insurance.
The rates for the cost of insurance are blended and based upon the Attained Age,
sex, and Risk Classification of the Lives Insured.
Cost of insurance rates will generally increase with the age of each of the
Lives Insured. The first year cost of insurance rate is guaranteed.
The cost of insurance rates reflect the Company's expectations as to future
mortality experience. The rates may be re-determined from time to time on a
basis which does not unfairly discriminate within the class of Lives Insured. In
no event will the cost of insurance rates exceed the guaranteed rates set forth
in the Policy except to the extent that an extra charge is imposed because of an
additional rating applicable to the Lives Insured. After the first Policy Year,
the cost of insurance will generally increase on each Policy Anniversary. The
guaranteed rates are based on the 1980 Commissioners Standard Ordinary
Smoker/Non-Smoker Mortality Tables.
27
CHARGES FOR SUPPLEMENTARY BENEFITS
If the Policy includes Supplementary Benefits, a charge will be made applicable
to such Supplementary Benefit.
MORTALITY AND EXPENSE RISK CHARGE
A monthly charge is assessed against the Policy Value equal to a percentage of
the Policy Value. This charge is to compensate the Company for the mortality and
expense risks it assumes under the Policy. The mortality risk assumed is that
Lives Insured may live for a shorter period of time than the Company estimated.
The expense risk assumed is that expenses incurred in issuing and administering
the Policy will be greater than the Company estimated. The Company will realize
a gain from this charge to the extent it is not needed to provide benefits and
pay expenses under the Policy.
The charge varies by Policy Year as follows:
GUARANTEED
MONTHLY MORTALITY EQUIVALENT ANNUAL
AND EXPENSE MORTALITY AND
POLICY YEAR RISKS CHARGE RISKS CHARGE
- --------------------------------------------------------------------------------
1-15................................. 0.10% 1.20%
16+.................................. 0.025% 0.30%
CHARGES FOR TRANSFERS
A charge of $25 will be imposed on each transfer in excess of twelve in a Policy
Year, other than transfers made pursuant to the Dollar Cost Averaging or Asset
Allocation Balancer programs.
REDUCTION IN CHARGES
The Policy is available for purchase by corporations and other groups or
sponsoring organizations. Group or sponsored arrangements may include reduction
or elimination of withdrawal charges and deductions for employees, officers,
directors, agents, immediate family members of the foregoing, and employees or
agents of Manufacturers Life and its subsidiaries. Manulife USA reserves the
right to reduce any of the Policy's loads or charges on certain cases where it
is expected that the amount or nature of such cases will result in savings of
sales, underwriting, administrative, commissions or other costs. Eligibility for
these reductions and the amount of reductions will be determined by a number of
factors, including the number of lives to be insured, the total premiums
expected to be paid, total assets under management for the policyowner, the
nature of the relationship among the insured individuals, the purpose for which
the policies are being purchased, expected persistency of the individual
policies, and any other circumstances which Manulife USA believes to be relevant
to the expected reduction of its expenses.
Some of these reductions may be guaranteed and others may be subject to
withdrawal or modification, on a uniform case basis. Reductions in charges will
not be unfairly discriminatory to any policyowners. Manulife USA may modify from
time to time, on a uniform basis, both the amounts of reductions and the
criteria for qualification.
In addition, groups and persons purchasing under a sponsored arrangement may
apply for simplified underwriting. If simplified underwriting is granted, the
cost of insurance charge may increase as a result of higher anticipated
mortality experience.
SPECIAL PROVISIONS FOR EXCHANGES
The Company will permit owners of certain fixed life insurance contracts issued
by the Company to exchange their contracts for the Policies described in this
prospectus (and likewise, owners of Policies described in this prospectus may
also exchange their Policies for certain fixed life insurance contracts issued
by the Company). Policyowners considering an exchange should consult their tax
advisers as to the tax consequences of an exchange.
COMPANY TAX CONSIDERATIONS
At the present time, the Company makes no specific charge to the Separate
Account for any federal, state, or local taxes that the Company incurs that may
be attributable to such Account or to the Policies. The Company, however,
reserves the right in the future to make a charge for any such tax or other
economic burden resulting from the application of the tax laws that it
determines to be properly attributable to the Separate Account or to the
Policies.
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POLICY VALUE
DETERMINATION OF THE POLICY VALUE
A Policy has a Policy Value, a portion of which is available to the policyowner
by making a policy loan or partial withdrawal, or upon surrender of the Policy.
The Policy Value may also affect the amount of the death benefit. The Policy
Value at any time is equal to the sum of the values in the Investment Accounts,
the Fixed Account, and the Loan Account.
INVESTMENT ACCOUNTS
An Investment Account is established under each Policy for each sub-account of
the Separate Account to which net premiums or transfer amounts have been
allocated. Each Investment Account under a Policy measures the interest of the
Policy in the corresponding sub-account. The value of the Investment Account
established for a particular sub-account is equal to the number of units of that
sub-account credited to the Policy times the value of such units.
FIXED ACCOUNT
Amounts in the Fixed Account do not vary with the investment performance of any
sub-account. Instead, these amounts are credited with interest at a rate
determined by Manulife USA For a detailed description of the Fixed Account, see
"The General Account -- Fixed Account".
LOAN ACCOUNT
Amounts borrowed from the Policy are transferred to the Loan Account. Amounts in
the Loan Account do not vary with the investment performance of any sub-account.
Instead, these amounts are credited with interest at a rate which is equal to
the amount charged on the outstanding Policy Debt less the Loan Spread. For a
detailed description of the Loan Account, see "Policy Loans -- Loan Account".
UNITS AND UNIT VALUES
CREDITING AND CANCELING UNITS
Units of a particular sub-account are credited to a Policy when net premiums are
allocated to that sub-account or amounts are transferred to that sub-account.
Units of a sub-account are canceled whenever amounts are deducted, transferred
or withdrawn from the sub-account. The number of units credited or canceled for
a specific transaction is based on the dollar amount of the transaction divided
by the value of the unit on the Business Day on which the transaction occurs.
The number of units credited with respect to a premium payment will be based on
the applicable unit values for the Business Day on which the premium is received
at the Service Office, except for any premiums received before the Effective
Date. For premiums received before the Effective Date, the values will be
determined on the Effective Date.
Units are valued at the end of each Business Day. When an order involving the
crediting or canceling of units is received after the end of a Business Day, or
on a day which is not a Business Day, the order will be processed on the basis
of unit values determined on the next Business Day. Similarly, any determination
of Policy Value, Investment Account value or death benefit to be made on a day
which is not a Business Day will be made on the next Business Day.
UNIT VALUES
The value of a unit of each sub-account was initially fixed at $10.00 and $12.50
depending on the sub-account. For each subsequent Business Day the unit value
for that sub-account is determined by multiplying the unit value for the
immediately preceding Business Day by the net investment factor for the that
sub-account on such subsequent Business Day.
The net investment factor for a sub-account on any Business Day is equal to (a)
divided by (b) where:
(a) is the net asset value of the underlying Portfolio shares held by that
sub-account as of the end of such Business Day before any policy
transactions are made on that day; and
(b) is the net asset value of the underlying Portfolio shares held by that
sub-account as of the end of the immediately preceding Business Day after
all policy transactions were made for that day;
The value of a unit may increase, decrease, or remain the same, depending on the
investment performance of a sub-account from one Business Day to the next.
TRANSFERS OF POLICY VALUE
At any time, a policyowner may transfer Policy Value from one sub-account to
another or to the Fixed Account. Transfer requests
29
must be in writing in a format satisfactory to the Company, or by telephone if a
currently valid telephone transfer authorization form is on file.
The Company reserves the right to impose limitations on transfers, including the
maximum amount that may be transferred. In addition, transfer privileges are
subject to any restrictions that may be imposed by the Trust.
While the Policy is in force, the policyowner may transfer the Policy Value from
any of the Investment Accounts to the Fixed Account without incurring transfer
charges:
(a) within eighteen months after the Issue Date; or
(b) within 60 days of the effective date of a material change in the investment
objectives of any of the sub-accounts or within 60 days of the date of
notification of such change, whichever is later.
TRANSFER CHARGES
A policyowner may make up to twelve transfers each Policy Year free of charge.
Additional transfers in each Policy Year may be made at a cost of $25 per
transfer. This charge will be deducted from the Investment Account or the Fixed
Account to which the transfer is being made. All transfer requests received by
the Company on the same Business Day are treated as a single transfer request.
Transfers under the Dollar Cost Averaging and Asset Allocation Balancer programs
do not count against the number of free transfers permitted per Policy Year.
TRANSFERS INVOLVING FIXED ACCOUNT
The maximum amount that may be transferred from the Fixed Account in any one
Policy Year is the greater of $500 or 15% of the Fixed Account Value at the
previous Policy Anniversary. Any transfer which involves a transfer out of the
Fixed Account may not involve a transfer to the Investment Account for the Money
Market Trust.
TELEPHONE TRANSFERS
Although failure to follow reasonable procedures may result in the Company being
liable for any losses resulting from unauthorized or fraudulent telephone
transfers, Manulife USA will not be liable for following instructions
communicated by telephone that the Company reasonably believes to be genuine.
The Company will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. Such procedures shall consist of
confirming that a valid telephone authorization form is on file, tape recording
of all telephone transactions and providing written confirmation thereof.
DOLLAR COST AVERAGING
The Company will offer policyowners a Dollar Cost Averaging program. Under the
Dollar Cost Averaging program the policyowner will designate an amount which
will be transferred at predetermined intervals from one Investment Account into
any other Investment Account(s) or the Fixed Account. Currently, no charge will
be made for this program. If insufficient funds exist to effect a Dollar Cost
Averaging transfer, the transfer will not be effected and the policyowner will
be so notified.
The Company reserves the right to cease to offer this program as of 90 days
after written notice is sent to the policyowner.
ASSET ALLOCATION BALANCER TRANSFERS
Under the Asset Allocation Balancer program the policyowner will designate an
allocation of Policy Value among Investment Accounts. At six-month intervals
beginning six months after the Policy Date, the Company will move amounts among
the Investment Accounts as necessary to maintain the policyowner's chosen
allocation. A change to the policyowner premium allocation instructions will
automatically result in a change in Asset Allocation Balancer instructions so
that the two are identical unless the policyowner either instructs Manulife USA
otherwise or has elected the Dollar Cost Averaging program. Currently, there is
no charge for this program; however, the Company reserves the right to institute
a charge on 90 days' written notice to the policyowner.
The Company reserves the right to cease to offer this program as of 90 days
after written notice is sent to the policyowner.
POLICY LOANS
At any time while this Policy is in force, a policyowner may borrow against the
Policy Value of the Policy. The amount of any loan cannot exceed 90% of the
Policy's Net Cash Surrender Value. In the state of Florida, the available loan
value on any date is the Net Cash Surrender Value, less estimated interest and
future Monthly Deductions, due to the next anniversary. The Policy serves as the
only security for the loan. Policy loans may have tax consequences, see "Tax
Treatment of Policy Benefits -- Policy Loan Interest."
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LOAN VALUE
The Loan Value is equal to the Policy's Net Cash Surrender Value less the
monthly deductions due to the next Policy Anniversary.
EFFECT OF POLICY LOAN
A policy loan will have an effect on future Policy Values, since that portion of
the Policy Value in the Loan Account will increase in value at the crediting
interest rate rather than varying with the performance of the underlying
Portfolios or increasing in value at the rate of interest credited for amounts
allocated to the Fixed Account. A policy loan may cause a Policy to be more
susceptible to going into default since a policy loan will be reflected in the
Net Cash Surrender Value. See "Lapse and Reinstatement." In addition, a policy
loan may result in a Policy's failing to satisfy the No-Lapse Guarantee
Cumulative Premium Test since the Policy Debt is subtracted from the sum of the
premiums paid in determining whether this test is satisfied. Finally, a policy
loan will affect the amount payable on the death of the last-to-die of the Lives
Insured, since the death benefit is reduced by the Policy Debt at the date of
death in arriving at the insurance benefit.
INTEREST CHARGED ON POLICY LOANS
Interest on the Policy Debt will accrue daily and be payable annually on the
Policy Anniversary. The rate of interest charged will be an effective annual
rate of 5.25%. If the interest due on a Policy Anniversary is not paid by the
policyowner, the interest will be borrowed against the Policy.
The Policy will go into default at any time the Policy Debt exceeds the Policy
Value. At least 61 days prior to termination, the Company will send the
policyowner a notice of the pending termination. Payment of interest on the
Policy Debt during the 61 day grace period will bring the policy out of default.
LOAN ACCOUNT
When a loan is made, an amount equal to the loan, discounted by 4%, will be
deducted from the Investment Accounts or the Fixed Account and transferred to
the Loan Account. The policyowner may designate how the amount to be transferred
to the Loan Account is allocated among the accounts from which the transfer is
to be made. In the absence of instructions, the amount to be transferred will be
allocated to each account in the same proportion as the value in each Investment
Account and the Fixed Account bears to the Net Policy Value. A transfer from an
Investment Account will result in the cancellation of units of the underlying
sub-account equal in value to the amount transferred from the Investment
Account. However, since the Loan Account is part of the Policy Value, transfers
made in connection with a loan will not change the Policy Value.
INTEREST CREDITED TO THE LOAN ACCOUNT
Interest will be credited to amounts in the Loan Account at an effective annual
rate of at least 4%. The actual rate credited is equal to the rate of interest
charged on the policy loan less the Loan Interest Credited Differential, which
is currently 1.25% and is guaranteed not to exceed this amount.
LOAN REPAYMENTS
Policy Debt may be repaid in whole or in part at any time prior to the death of
the last-to-die of the Lives Insured, provided that the Policy is in force. When
a repayment is made, the amount is credited to the Loan Account and transferred
to the Fixed Account or the Investment Accounts. Loan repayments will be
allocated first to the Fixed Account until the associated Loan sub-account is
reduced to zero and then to each Investment Account in the same proportion as
the value in the corresponding Loan Sub-Account bears to the value of the Loan
Account.
Amounts paid to the Company not specifically designated in writing as loan
repayments will be treated as premiums.
POLICY SURRENDER AND PARTIAL WITHDRAWALS
POLICY SURRENDER
A Policy may be surrendered for its Net Cash Surrender Value at any time while
the Life Insured is living. The Net Cash Surrender Value is equal to the Policy
Value less any surrender charges and outstanding monthly deductions due (the
"Cash Surrender Value") minus the Policy Debt. If there have been any prior Face
Amount increases, the Surrender Charge will be the sum of the Surrender Charge
for the Initial Face Amount plus the Surrender Charge for each increase. The Net
Cash Surrender Value will be determined as of the end of the Business Day on
which Manulife USA receives the Policy and a written request for surrender at
its Service Office. After a Policy is surrendered, the insurance coverage and
all other benefits under the Policy will terminate.
PARTIAL WITHDRAWALS
A policyowner may make a partial withdrawal of the Net Cash Surrender Value once
each Policy Month after the first Policy Anniversary. The policyowner may
specify the portion of the withdrawal to be taken from each Investment Account
and the Fixed
31
Account. In the absence of instructions, the withdrawal will be allocated among
such accounts in the same proportion as the Policy Value in each account bears
to the Net Policy Value. For information on Surrender Charges on a Partial
Withdrawal see "Charges and Deductions -- Surrender Charges."
REDUCTION IN FACE AMOUNT DUE TO A PARTIAL WITHDRAWAL
If Death Benefit Option 1 is in effect when a partial withdrawal is made, the
Face Amount of the Policy will be reduced by the amount of the withdrawal plus
any applicable Surrender Charges.
If the death benefit is based upon the Policy Value times the minimum death
benefit percentage set forth under "Death Benefit Minimum Death Benefit," the
Face Amount will be reduced only to the extent that the amount of the withdrawal
plus the portion of the Surrender Charge assessed exceeds the difference between
the death benefit and the Face Amount. When the Face Amount of a Policy is based
on one or more increases subsequent to issuance of the Policy, a reduction
resulting from a partial withdrawal will be applied in the same manner as a
requested decrease in Face Amount, i.e., against the Face Amount provided by the
most recent increase, then against the next most recent increases successively
and finally against the initial Face Amount.
LAPSE AND REINSTATEMENT
LAPSE
Unless the No-Lapse Guarantee is in effect, a Policy will go into default if at
the beginning of any Policy Month the Policy's Net Cash Surrender Value would be
zero or below after deducting the monthly deduction then due. Therefore, a
Policy could lapse eventually if increases in Policy Value (prior to deduction
of Policy charges) are not sufficient to cover Policy charges. A lapse could
have adverse tax consequences as described under "Tax Treatment of the Policy --
Tax Treatment of Policy Benefits -- Surrender or Lapse." Manulife USA will
notify the policyowner of the default and will allow a 61 day grace period in
which the policyowner may make a premium payment sufficient to bring the Policy
out of default. The required payment will be equal to the amount necessary to
bring the Net Cash Surrender Value to zero, if it was less than zero on the date
of default, plus the monthly deductions due at the date of default and payable
at the beginning of each of the two Policy Months thereafter, plus any
applicable premium load. If the required payment is not received by the end of
the grace period, the Policy will terminate with no value.
NO-LAPSE GUARANTEE
In those states where it is permitted, as long as the No-Lapse Guarantee
Cumulative Premium Test is satisfied during the No-Lapse Guarantee Period, as
described below, the Company will guarantee that the Policy will not go into
default, even if adverse investment experience or other factors should cause the
Policy's Net Cash Surrender Value to be insufficient to meet the monthly
deductions due at the beginning of a Policy Month.
The Monthly No-Lapse Guarantee Premium is one-twelfth of the No-Lapse Guarantee
Premium.
The No-Lapse Guarantee Premium is set at issue and reflects any Additional
Rating and Supplementary Benefits, if applicable. It is subject to change if the
face amount of the Policy is changed, if there is a Death Benefit Option change,
or if there is any change in the supplementary benefits added to the Policy or
in the risk classification of any Lives Insured because of a change in smoking
status.
The No-Lapse Guarantee Period is described under "Definitions".
While the No-Lapse Guarantee is in effect, the Company will determine at the
beginning of the Policy Month that the Policy would otherwise be in default,
whether the No-Lapse Guarantee Cumulative Premium Test, described below, has
been met. If it has not been satisfied, the Company will notify the policyowner
of that fact and allow a 61-day grace period in which the policyowner may make a
premium payment sufficient to keep the policy from going into default. This
required payment, as described in the notification to the policyowner, will be
equal to the lesser of:
(a) the outstanding premium requirement to satisfy the No-Lapse Guarantee
Cumulative Premium Test at the date of default, plus the Monthly No-Lapse
Guarantee Premium due for the next two Policy Months, or
(b) the amount necessary to bring the Net Cash Surrender Value to zero plus the
monthly deductions due, plus the next two monthly deductions plus the
applicable premium load.
If the required payment is not received by the end of the grace period, the
No-Lapse Guarantee and the Policy will terminate.
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NO-LAPSE GUARANTEE CUMULATIVE PREMIUM TEST
The No-Lapse Guarantee Cumulative Premium Test is satisfied if, as of the
beginning of the Policy Month that the Policy would otherwise be in default, the
sum of all premiums paid to date less any gross withdrawals and less any Policy
Debt, is at least equal to the sum of the Monthly No-Lapse Guarantee Premiums
due from the Policy Date to the date of the test.
OPTIONAL EXTENDED NO-LAPSE GUARANTEE
In states where approved, an optional rider may be added to the Policy that
extends the No-Lapse Guarantee Period to the earlier of: (a) termination of the
Policy or the rider, (b) subject to any applicable state limitations, the number
of years selected by the Policyowner and (c) age 100 of the life insureds. (The
rider may be terminated at any time but cannot be reinstated once terminated.)
In order for the Extended No-Lapse Guarantee to be applicable a Cumulative
Premium Test must be satisfied. This test is described in the rider. The cost of
the rider varies by issue age, sex, risk classification, smoking status and Face
Amount and a change in the Face Amount of the Policy may affect the cost of the
rider. The Extended No-Lapse Guarantee does not protect the Term Rider. The
No-Lapse Guarantee doesn't protect the term rider beyond the second Policy Year.
DEATH DURING GRACE PERIOD
If the Life Insured should die during the grace period, the Policy Value used in
the calculation of the death benefit will be the Policy Value as of the date of
default and the insurance benefit will be reduced by any outstanding Monthly
Deductions due at the time of death.
REINSTATEMENT
A policyowner can reinstate a Policy which has terminated after going into
default at any time within 21 days following the date of termination without
furnishing evidence of insurability, subject to the following conditions:
(a) All Lives Insured's risk classifications are standard or preferred, and
(b) All Lives Insured's Attained Ages are less than 46.
A policyowner can reinstate a Policy which has terminated after going into
default at any time within the five-year period following the date of
termination subject to the following conditions:
(a) Evidence of all Lives Insured's insurability, or on the survivor(s) who
were insured at the end of the grace period, satisfactory to the Company is
provided to the Company;
(b) A premium equal to the amount that was required to bring the Policy out of
default immediately prior to termination, plus the next two monthly
deductions;
(c) The Policy cannot be reinstated if any of the Lives Insured die after the
Policy has terminated.
If the reinstatement is approved, the date of reinstatement will be the later of
the date the Company approves the policyowner's request or the date the required
payment is received at the Company's Service Office. In addition, any surrender
charges will be reinstated to the amount they were at the date of default. The
Policy Value on the date of reinstatement, prior to the crediting of any Net
Premium paid on the reinstatement, will be equal to the Policy Value on the date
the Policy terminated.
THE GENERAL ACCOUNT
The general account of Manulife USA consists of all assets owned by the Company
other than those in the Separate Account and other separate accounts of the
Company. Subject to applicable law, Manulife USA has sole discretion over the
investment of the assets of the general account.
By virtue of exclusionary provisions, interests in the general account of
Manulife USA have not been registered under the Securities Act of 1933 and the
general account has not been registered as an investment company under the
Investment Company Act of 1940. Accordingly, neither the general account nor any
interests therein are subject to the provisions of these acts, and as a result
the staff of the S.E.C. has not reviewed the disclosures in this prospectus
relating to the general account. Disclosures regarding the general account may,
however, be subject to certain generally applicable provisions of the federal
securities laws relating to the accuracy and completeness of statements made in
a prospectus.
FIXED ACCOUNT
A policyowner may elect to allocate net premiums to the Fixed Account or to
transfer all or a portion of the Policy Value to the Fixed
33
Account from the Investment Accounts. Manulife USA will hold the reserves
required for any portion of the Policy Value allocated to the Fixed Account in
its general account. Transfers from the Fixed Account to the Investment Accounts
are subject to restrictions.
POLICY VALUE IN THE FIXED ACCOUNT
The Policy Value in the Fixed Account is equal to:
(a) the portion of the net premiums allocated to it; plus
(b) any amounts transferred to it; plus
(c) interest credited to it; less
(d) any charges deducted from it; less
(e) any partial withdrawals from it; less
(f) any amounts transferred from it.
INTEREST ON THE FIXED ACCOUNT
An allocation of Policy Value to the Fixed Account does not entitle the
policyowner to share in the investment experience of the general account.
Instead, Manulife USA guarantees that the Policy Value in the Fixed Account will
accrue interest daily at an effective annual rate of at least 3%, without regard
to the actual investment experience of the general account. Consequently, if a
policyowner pays the planned premiums, allocates all net premiums only to the
general account and makes no transfers, partial withdrawals, or policy loans,
the minimum amount and duration of the death benefit of the Policy will be
determinable and guaranteed.
OTHER PROVISIONS OF THE POLICY
RETURN OF PREMIUM RIDER DEATH BENEFIT
The Policy may be issued with an optional Return of Premium Death Benefit rider
if death benefit Option 1 is elected. This rider provides an additional death
benefit payable upon the death of the last-to-die of the Lives Insured after the
Company receives due proof of death. The Return of Premium Death Benefit is
calculated as follows:
The Return of Premium Rider death benefit is equal to initial premium. Any
subsequent premiums will increase the rider death benefit at the time of the
premium payment by the amount of the premium. Any partial withdrawal will reduce
the death benefit at the time of withdrawal by an amount equal to the withdrawal
plus any applicable Surrender Charge (except that the rider death benefit will
not be reduce to less than zero).
Cessation of Increases. Increases in the Return of Premium Death Benefit
coverage will cease at the earlier of:
(a) the Policy Anniversary coincident with or next following the date
we receive your written request for cessation of any further
increases;
(b) the beginning of the Policy Month coincident with or next
following the date we approve your written request for a change
to Death Benefit Option 2; or
(c) the date as of which Monthly Deductions cease and no further
premiums may be paid in determining the amount of the Return of
Premium death benefit coverage.
Decreases in Coverage. The Return of Premium Death Benefit may be
decreased if requested by the policyowner. The decrease will take effect at the
beginning of the Policy Month on or next following the date Company approves the
request. The Return of Premium Rider Death Benefit coverage will be reduced by
the amount of the requested decreased. Decreases in the death benefit are not
subject to pro-rata Surrender Charges.
Partial Withdrawals. If the Policyowner makes a written request for a
partial withdrawal of net cash surrender value while this rider is in force, the
Company will process the withdrawal so that it first reduces the amount of the
Return of Premium Death Benefit coverage. Any withdrawals will be subject to a
pro-rata surrender charge as described under "Charges and Deductions - Surrender
Charges." In addition, the Face Amount will be reduced by the amount by which
the withdrawal plus the Surrender Charge exceeds the amount of the Return of
Premium Rider Death Benefit.
34
No Lapse Guarantee. The No Lapse Guarantee provisions of the Policy apply
to the Return of Premium Rider Death Benefit for the first TWO Policy Years
only.
POLICYOWNER RIGHTS
Unless otherwise restricted by a separate agreement, the policyowner may:
- Vary the premiums paid under the Policy.
- Change the death benefit option.
- Change the premium allocation for future premiums.
- Transfer amounts between sub-accounts.
- Take loans and/or partial withdrawals.
- Surrender the contract.
- Transfer ownership to a new owner.
- Name a contingent owner that will automatically become owner if the
policyowner dies before the insured.
- Change or revoke a contingent owner.
- Change or revoke a beneficiary.
ASSIGNMENT OF RIGHTS
Manulife USA will not be bound by an assignment until it receives a copy of the
assignment at its Service Office. Manulife USA assumes no responsibility for the
validity or effects of any assignment.
BENEFICIARY
One or more beneficiaries of the Policy may be appointed by the policyowner by
naming them in the application. Beneficiaries may be appointed in three classes
- -- primary, secondary, and final. Beneficiaries may also be revocable or
irrevocable. Unless an irrevocable designation has been elected, the beneficiary
may be changed by the policyowner during the Lives Insured lifetime by giving
written notice to Manulife USA in a form satisfactory to the Company. The change
will take effect as of the date such notice is signed. If the Life Insured dies
and there is no surviving beneficiary, the policyowner, or the policyowner's
estate if the policyowner is the Life Insured, will be the beneficiary. If a
beneficiary dies before the seventh day after the death of the Life Insured, the
Company will pay the insurance benefit as if the beneficiary had died before the
Life Insured.
INCONTESTABILITY
Manulife USA will not contest the validity of a Policy after it has been in
force during any Lives Insured's lifetime for two years from the Issue Date. It
will not contest the validity of an increase in Face Amount, after such increase
or addition has been in force during the lifetime of the Lives Insured for two
years. If a Policy has been reinstated and been in force during the lifetime of
the Lives Insured for less than two years from the reinstatement date, the
Company can contest any misrepresentation of a fact material to the
reinstatement.
MISSTATEMENT OF AGE OR SEX
If the stated age or sex or both of any of the Lives Insured in the Policy are
incorrect, Manulife USA will change the Face Amount so that the death benefit
will be that which the most recent monthly charge for the cost of insurance
would have purchased for the correct age and sex.
SUICIDE EXCLUSION
If any of the Lives Insured dies by suicide within two years after the Issue
Date, the Policy will terminate and the Company will pay only the premiums paid
less any partial Net Cash Surrender Value withdrawal and less any Policy Debt.
If any of the Lives Insured dies by suicide within two years after the effective
date of an applied for increase in Face Amount, the Company will credit the
amount of any Monthly Deductions taken for the increase and reduce the Face
Amount to what it was prior to the increase. If the last death is by suicide,
the Death Benefit for that increase will be limited to the Monthly Deductions
taken for the increase.
The Company reserves the right to obtain evidence of the manner and cause of
death of the Lives Insured.
SUPPLEMENTARY BENEFITS
Subject to certain requirements, one or more supplementary benefits may be added
to a Policy, including the Estate Preservation Rider which provides additional
term insurance at no extra charge during the first four Policy Years to protect
against application of the "three year contemplation of death" rule and an
option to split the Policy into two individual policies upon divorce, or certain
federal
35
tax law changes without evidence of insurability (the "Policy Split Option").
More detailed information concerning these supplementary benefits may be
obtained from an authorized agent of the Company. The cost of any supplementary
benefits will be deducted as part of the monthly deduction. (For policies issued
in the state of Maryland, there is an additional charge of 6 cents per $1,000 of
Face Amount for the Estate Preservation Rider.)
TAX TREATMENT OF THE POLICY
The following summary provides a general description of the federal income tax
considerations associated with the Policy and does not purport to be complete or
to cover all situations. This discussion is not intended as tax advice. Counsel
or other competent tax advisers should be consulted for more complete
information. This discussion is based upon the Company's understanding of the
present federal income tax laws as they are currently interpreted by the
Internal Revenue Service (the "Service"). No representation is made as to the
likelihood of continuation of the present federal income tax laws nor of the
current interpretations by the Service. MANULIFE USA DOES NOT MAKE ANY GUARANTEE
REGARDING THE TAX STATUS OF ANY POLICY OR ANY TRANSACTION REGARDING THE
POLICIES.
The Policies may be used in various arrangements, including non-qualified
deferred compensation or salary continuation plans, split dollar insurance
plans, executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if the use of such
Policies in any such arrangement, the value of which depends in part on the tax
consequences, is contemplated, a qualified tax adviser should be consulted for
advice on the tax attributes of the particular arrangement.
The Company is taxed as a life insurance company. Because the operations of the
Separate Account are a part of, and are taxed with, the Company's operations,
the Separate Account is not separately taxed as a "regulated investment company"
under the Code. Under existing Federal income tax laws, the Company is not taxed
on the investment income and capital gains of the Separate Account, but the
Company may be eligible for certain tax credits or deductions relating to
foreign taxes paid and dividends received by Trust portfolios. The Company's use
of these tax credits and deductions will not adversely affect or benefit the
Separate Account. The Company does not anticipate that it will be taxed on the
income and gains of the Separate Account in the future, but if the Company is,
it may impose a corresponding charge against the Separate Account.
LIFE INSURANCE QUALIFICATION
There are several requirements that must be met for a Policy to be considered a
Life Insurance Contract under the 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 Internal Revenue Code of 1986 (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 Policyowner must not possess "incidents of ownership" in the assets of
the Separate Account.
These four items are discussed in detail below.
DEFINITION OF LIFE INSURANCE
Section 7702 of the Code sets forth a definition of a life insurance contract
for federal tax purposes. For a Policy to be a life insurance contract, it must
satisfy either the Cash Value Accumulation Test or the Guideline Premium and
Cash Value Corridor 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
Policy, the Cash Value Accumulation Test in effect requires a minimum death
benefit for a given Policy Value. The Guideline Premium Test also requires a
minimum death benefit, but in addition limits the total premiums that can be
paid into a Policy for a given amount of death benefit.
With respect to a Policy that is issued on the basis of a standard rate class,
the Company believes (largely in reliance on IRS Notice 88-128 and the proposed
mortality charge regulations under Section 7702, issued on July 5, 1991) that
such a Policy should meet the Section 7702 definition of a life insurance
contract.
With respect to a Policy that is issued on a substandard basis (i.e., a rate
class involving higher-than-standard mortality risk), there is less guidance, in
particular as to how mortality and other expense requirements of Section 7702
are to be applied in determining whether such a Policy meets the Section 7702
definition of a life insurance contract. Thus it is not clear whether or not
such a Policy would satisfy Section 7702, particularly if the policyowner pays
the full amount of premiums permitted under the Policy.
36
The Secretary of the Treasury (the "Treasury") is authorized to prescribe
regulations implementing Section 7702. However, while proposed regulations and
other interim guidance have been issued, final regulations have not been adopted
and guidance as to how Section 7702 is to be applied is limited. If a Policy
were determined not to be a life insurance contract for purposes of Section
7702, such a Policy would not provide the tax advantages normally provided by a
life insurance policy.
If it is subsequently determined that a Policy does not satisfy Section 7702,
the Company may take whatever steps are appropriate and reasonable to attempt to
cause such a Policy to comply with Section 7702. For these reasons, the Company
reserves the right to restrict Policy transactions as necessary to attempt to
qualify it as a life insurance contract under Section 7702.
DIVERSIFICATION
Section 817(h) of the Code requires that the investments of the Separate Account
be "adequately diversified" in accordance with Treasury regulations in order for
the Policy to qualify as a life insurance contract under Section 7702 of the
Code (discussed above). The Separate Account, through the Trust, intends to
comply with the diversification requirements prescribed in Treas. Reg. Sec.
1.817-5, which affect how the Trust's assets are to be invested. The Company
believes that the Separate Account will thus meet the diversification
requirement, and the Company will monitor continued compliance with the
requirement.
STATE LAW
A policy must qualify as a valid life insurance contract under applicable state
law. State regulations require that the policyowner have appropriate insurable
interest in the Life Insured. Failure to establish an insurable interest may
result in the Policy not qualifying as a life insurance contract for federal tax
purposes.
INVESTOR CONTROL
In certain circumstances, owners of variable life insurance Policies may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their Policies. In those circumstances, income
and gains from the separate account assets would be includible in the variable
policyowner's gross income. The IRS has stated in published rulings that a
variable policyowner will be considered the owner of separate account assets if
the policyowner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. The Treasury Department
has also announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the policyowner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyowners may direct their
investments to particular sub-accounts without being treated as owners of the
underlying assets". As of the date of this prospectus, no such guidance has been
issued.
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that policyowners were not owners of separate account assets. For example, the
Policy has many more portfolios to which policyowners may allocate premium
payments and Policy Values than were available in the policies described in the
rulings. These differences could result in an owner being treated as the owner
of a pro-rata portion of the assets of the Separate Account. In addition, the
Company does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury Department has stated it expects to
issue. The Company therefore reserves the right to modify the Policy as
necessary to attempt to prevent an owner from being considered the owner of a
pro rata share of the assets of the Separate Account.
TAX TREATMENT OF POLICY BENEFITS
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes.
The Company believes that the proceeds and cash value increases of a Policy
should be treated in a manner consistent with a fixed-benefit life insurance
policy for federal income tax purposes. Depending on the circumstances, the
exchange of a Policy, a change in the Policy's death benefit option, a Policy
loan, partial withdrawal, surrender, change in ownership, the addition of an
accelerated death benefit rider, or an assignment of the Policy may have federal
income tax consequences. In addition, federal, state and local transfer, and
other tax consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each policyowner or beneficiary.
DEATH BENEFIT
The death benefit under the Policy should be excludible from the gross income of
the beneficiary under Section 101(a)(1) of the Code.
CASH VALUES
Generally, the policyowner will not be deemed to be in constructive receipt of
the Policy Value, including increments thereof, until there is a distribution.
This includes additions attributable to interest, dividends, appreciation or
gains realized on transfers among sub-accounts.
37
INVESTMENT IN THE POLICY
Investment in the Policy means:
- - the aggregate amount of any premiums or other consideration paid for a
Policy; minus
- - the aggregate amount, other than loan amounts, received under the Policy
which has been excluded from the gross income of the policyowner (except
that the amount of any loan from, or secured by, a Policy that is a
modified endowment contract ("MEC"), to the extent such amount has been
excluded from gross income, will be disregarded); plus
- - the amount of any loan from, or secured by a Policy that is a MEC to the
extent that such amount has been included in the gross income of the
policyowner.
The repayment of a policy loan, or the payment of interest on a loan, does not
affect the Investment in the Policy.
SURRENDER OR LAPSE
Upon a complete surrender or lapse of a Policy, if the amount received plus the
amount of Policy Debt exceeds the total investment in the Policy, the excess
will generally be treated as ordinary income subject to tax.
If, at the time of lapse or surrender, a Policy has a loan, the loan is
extinguished and the amount of the loan is a deemed payment to the policyholder.
If the amount of this deemed payment exceeds the investment in the contract, the
excess is taxable income and is subject to Internal Revenue Service reporting
requirements."
DISTRIBUTIONS
The tax consequences of distributions from, and loans taken from or secured by,
a Policy depend on whether the Policy is classified as a "Modified Endowment
Contract" or "MEC".
DISTRIBUTIONS FROM NON-MEC'S
A distribution from a non-MEC is generally treated as a tax-free recovery by the
policyowner of the Investment in the Policy to the extent of such Investment in
the Policy, and as a distribution of taxable income only to the extent the
distribution exceeds the Investment in the Policy. Loans from, or secured by, a
non-MEC are not treated as distributions. Instead, such loans are treated as
indebtedness of the policyowner.
Force Outs
An exception to this general rule occurs in the case of a decrease in the
Policy's death benefit or any other change that reduces benefits under the
Policy in the first 15 years after the Policy is issued and that results in a
cash distribution to the policyowner in order for the Policy to continue to
comply with the Section 7702 definitional limits. Such a cash distribution will
be taxed in whole or in part as ordinary income (to the extent of any gain in
the Policy) under rules prescribed in Section 7702. Changes include partial
withdrawals and death benefit option changes.
DISTRIBUTIONS FROM MEC'S
Policies classified as MEC's will be subject to the following tax rules:
- - First, all partial withdrawals from such a Policy are treated as ordinary
income subject to tax up to the amount equal to the excess (if any) of the
Policy Value immediately before the distribution over the Investment in the
Policy at such time.
- - Second, loans taken from or secured by such a Policy and assignments or
pledges of any part of its value are treated as partial withdrawals from
the Policy and taxed accordingly. Past-due loan interest that is added to
the loan amount is treated as a loan.
- - Third, a 10% additional income tax is imposed on the portion of any
distribution (including distributions on surrender) from, or loan taken
from or secured by, such a policy that is included in income except where
the distribution or loan:
- is made on or after the date on which the policyowner attains
age 59 1/2;
- is attributable to the policyowner becoming disabled; or
- is part of a series of substantially equal periodic payments for the
life (or life expectancy) of the policyowner or the joint lives (or
joint life expectancies) of the policyowner and the policyowner's
beneficiary.
These exceptions are not likely to apply in situations where the Policy is
not owned by an individual.
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.
38
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 policyowner should consult with a
competent adviser to determine whether a transaction will cause the Policy to be
treated as a MEC.
Material Changes
A policy that is not a MEC may become a MEC if it is "materially changed". If
there is a material change to the policy, the seven year testing period for MEC
status is restarted. The material change rules for determining whether a Policy
is a MEC are complex. In general, however, the determination of whether a Policy
will be a MEC after a material change generally depends upon the relationship
among the death benefit of the Policy at the time of such change, the Policy
Value at the time of the change, and the additional premiums paid into the
Policy during the seven years starting with the date on which the material
change occurs.
Reductions in Face Amount
If there is a reduction in benefits during any the first seven Policy Years, the
seven-pay premium limit is recalculated as if the policy had been originally
issued at the reduced benefit level. Failure to comply would result in
classification as a MEC regardless of any efforts by the Company to provide a
payment schedule that will not violate the seven pay test.
Exchanges
A life insurance contract received in exchange for a MEC will also be treated as
a MEC.
Processing of Premiums
If a premium which would cause the Policy to become a MEC is received within 23
days of the next Policy Anniversary, the Company will not apply the portion of
the premium which would cause MEC status ("excess premium") to the Policy when
received. The excess premium will be placed in a suspense account until the next
anniversary date, at which point the excess premium, along with interest, earned
on the excess premium at a rate of 3.5% from the date the premium was received,
will be applied to the Policy. (Any amount that would still be excess premium on
the next anniversary will be refunded to the policyowner.) The policyowner will
be advised of this action and will be offered the opportunity to have the
premium credited as of the original date received or to have the premium
returned. If the policyowner does not respond, the premium and interest will be
applied to the Policy as of the next anniversary.
If a premium which would cause the Policy to become a MEC is received more than
23 days prior to the next Policy Anniversary, the Company will refund any excess
premium to the policyowner. The portion of the premium which is not excess will
be applied as of the date received. The policyowner will be advised of this
action and will be offered the opportunity to return the premium and have it
credited to the account as of the original date received.
If in connection with the application or issue of the Policy, the policyowner
acknowledges that the policy is or will become a MEC, excess premiums that would
cause MEC status will be credited to the account as of the original date
received.
Multiple Policies
All MEC's that are issued by a Company (or its affiliates) to the same
policyowner during any calendar year are treated as one MEC for purposes of
determining the amount includible in gross income under Section 72(e) of the
Code.
Policy Split Options
This option permits a Policy to be split into two other individual Policies upon
the occurrence of a divorce of the lives insured or certain changes in federal
estate tax law. The purchase and exercise of the policy split option could have
adverse tax consequences. For example, it is not clear whether a policy split
will be treated as a nontaxable exchange under Sections 1031 through 1043 of the
Code. If a policy split is not treated as a nontaxable exchange, a split could
result in the recognition of taxable income in an amount up to any gain in the
Policy at the time of the split. It is also not clear whether the cost of the
policy split option, which is deducted monthly from Policy Value, will be
treated as a taxable distribution. Before purchasing the policy split option or
exercising rights provided by the policy split option, please consult with a
competent tax adviser regarding the possible consequences.
39
POLICY LOAN INTEREST
Generally, personal interest paid on any loan under a Policy which is owned by
an individual is not deductible. For policies purchased on or after January 1,
1996, interest on any loan under a Policy owned by a taxpayer and covering the
life of any individual who is an officer or employee of or is financially
interested in the business carried on by the taxpayer will not be tax deductible
unless the employee is a key person within the meaning of Section 264 of the
Code. A deduction will not be permitted for interest on a loan under a Policy
held on the life of a key person to the extent the aggregate of such loans with
respect to contracts covering the key person exceed $50,000. The number of
employees who can qualify as key persons depends in part on the size of the
employer but cannot exceed 20 individuals.
Furthermore, if a non-natural person owns a Policy, or is the direct or indirect
beneficiary under a Policy, section 264(f) of the Code disallows a pro-rata
portion of the taxpayer's interest expense allocable to unborrowed Policy cash
values attributable to insurance held on the lives of individuals who are not
20% (or more) owners of the taxpayer-entity, officers, employees, or former
employees of the taxpayer.
The portion of the interest expense that is allocable to unborrowed Policy cash
values is an amount that bears the same ratio to that interest expense as the
taxpayer's average unborrowed Policy cash values under such life insurance
policies bear to the sum of such average unborrowed Policy cash values and the
average adjusted bases for all other assets of the taxpayer.
If the policyowner is an individual, and if the taxpayer is a business and is
not the policyowner, but is the direct or indirect beneficiary under the Policy,
then the amount of unborrowed cash value of the Policy taken into account in
computing the portion of the taxpayer's interest expense allocable to unborrowed
Policy cash values cannot exceed the benefit to which the taxpayer is directly
or indirectly entitled under the Policy.
POLICY EXCHANGES
A policyowner generally will not recognize gain upon the exchange of a Policy
for another life insurance policy covering the same lives insured and issued by
the Company or another insurance company, except to the extent that the
policyowner receives cash in the exchange or is relieved of Policy indebtedness
as a result of the exchange. The receipt of cash or forgiveness of indebtedness
is treated as "boot" which is taxable up to the amount of the gain in the
policy. In no event will the gain recognized exceed the amount by which the
Policy Value (including any unpaid loans) exceeds the policyowner's Investment
in the Policy.
OTHER TRANSACTIONS
A transfer of the Policy, a change in the owner, a change in the 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 Insured may in certain circumstances be includible in taxable income to the
extent that the Death Benefit exceeds the prior consideration paid for the
transfer and any premiums or other amounts subsequently paid by the transferee.
Further, in such a case, if the consideration received exceeds the transferor's
Investment in the Policy, the difference will be taxed to the transferor as
ordinary income.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership or receipt of Policy proceeds depend on the individual
circumstances of each policyowner and beneficiary.
ALTERNATIVE MINIMUM TAX
Corporate owners may be subject to Alternative Minimum Tax on the annual
increases in Cash Surrender Values and on the Death Benefit proceeds.
INCOME TAX REPORTING
In certain employer-sponsored life insurance arrangements, including equity
split dollar arrangements, participants may be required to report for income tax
purposes, one or more of the following:
- the value each year of the life insurance protection provided;
- an amount equal to any employer-paid premiums;
- an amount equal to imputed interest on a deemed employer loan; or
- some or all of the amount by which the current value exceeds the
employer's interest in the Policy.
40
Participants should consult with their tax adviser to determine the tax
consequences of these arrangements.
OTHER INFORMATION
PAYMENT OF PROCEEDS
As long as the Policy is in force, Manulife USA will ordinarily pay any policy
loans, surrenders, partial withdrawals or insurance benefit within seven days
after receipt at its Service Office of all the documents required for such a
payment. The Company may delay for up to six months the payment from the Fixed
Account of any policy loans, surrenders, partial withdrawals, or insurance
benefit. In the case of any such payments from any Investment Account, the
Company may delay payment during any period during which (i) the New York Stock
Exchange is closed for trading (except for normal weekend and holiday closings),
(ii) trading on the New York Stock Exchange is restricted, (iii) an emergency
exists as a result of which disposal of securities held in the Separate Account
is not reasonably practicable or it is not reasonably practicable to determine
the value of the Separate Account's net assets or (iv) the SEC, by order, so
permits for the protection of security holders; provided that applicable rules
and regulations of the SEC shall govern as to whether the conditions described
in (ii) and (iii) exist.
REPORTS TO POLICYOWNERS
Within 30 days after each Policy Anniversary, Manulife USA will send the
policyowner a statement showing, among other things:
- - the amount of death benefit;
- - the Policy Value and its allocation among the Investment Accounts, the
Fixed Account and the Loan Account;
- - the value of the units in each Investment Account to which the Policy Value
is allocated;
- - the Policy Debt and any loan interest charged since the last report;
- - the premiums paid and other Policy transactions made during the period
since the last report; and
- - any other information required by law.
Each policyowner will also be sent an annual and a semi-annual report for the
Trust which will include a list of the securities held in each Portfolio as
required by the 1940 Act.
DISTRIBUTION OF THE POLICIES
Manulife Financial Securities, LLC ("Manulife Financial Securities"), an
indirect wholly-owned subsidiary of MFC, will act as the principal underwriter
of, and continuously offer, the Policies pursuant to a Distribution Agreement
with Manulife USA. Manulife Financial Securities is registered as a
broker-dealer under the Securities Exchange Act of 1934 and is a member of the
National Association of Securities Dealers. Manulife Financial Securities is
located at 73 Tremont Street, Boston, MA 02108 and is organized as a Delaware
limited liability company. The managing member of Manulife Financial Securities
is Manulife USA. The Policies will be sold by registered representatives of
either Manulife Financial Securities or other broker-dealers having distribution
agreements with Manulife Financial Securities who are also authorized by state
insurance departments to do so. The Policies will be sold in all states of the
United States except New York.
A registered representative will receive commissions not to exceed 115% of
premiums in the first year, and 2% of all premiums paid from the second to the
tenth policy years. Representatives who meet certain productivity standards with
regard to the sale of the Policies and certain other policies issued by Manulife
USA or Manufacturers Life will be eligible for additional compensation.
RESPONSIBILITIES OF MANUFACTURERS LIFE
Manufacturers Life and Manulife USA, have entered into an agreement with
Manulife Financial Securities pursuant to which Manufacturers Life or Manulife
USA, on behalf of Manulife Financial Securities will pay the sales commissions
in respect of the Policies and certain other policies issued by Manulife USA,
prepare and maintain all books and records required to be prepared and
maintained by Manulife Financial Securities with respect to the policies and
such other policies, and send all confirmations required to be sent by Manulife
Financial Securities with respect to the Policies and such other policies.
Manulife Financial Securities will promptly reimburse Manufacturers Life or
Manulife USA for all sales commissions paid by Manufacturers Life or Manulife
USA and will pay Manufacturers Life or Manulife USA for its other services under
the agreement in such amounts and at such times as agreed to by the parties.
MFC has also entered into a Service Agreement with Manulife USA pursuant to
which MFC will provide to Manulife USA with issue,
41
administrative, general services and recordkeeping functions on behalf of
Manulife USA with respect to all of its insurance policies including the
Policies.
Finally, Manulife USA may, from time to time in its sole discretion, enter into
one or more reinsurance agreements with other life insurance companies under
which policies issued by it may be reinsured, such that its total amount at risk
under a policy would be limited for the life of an insured.
VOTING RIGHTS
As stated previously, all of the assets held in each sub-account of the Separate
Account will be invested in shares of a particular Portfolio of the Trust.
Manulife USA is the legal owner of those shares and as such has the right to
vote upon certain matters that are required by the 1940 Act to be approved or
ratified by the shareholders of a mutual fund and to vote upon any other matters
that may be voted upon at a shareholders' meeting. However, Manulife USA will
vote shares held in the sub-accounts in accordance with instructions received
from policyowners having an interest in such sub-accounts. Shares held in each
sub-account for which no timely instructions from policyowners are received,
including shares not attributable to the Policies, will be voted by Manulife USA
in the same proportion as those shares in that sub-account for which
instructions are received. Should the applicable federal securities laws or
regulations change so as to permit Manulife USA to vote shares held in the
Separate Account in its own right, it may elect to do so.
The number of shares in each sub-account for which instructions may be given by
a policyowner is determined by dividing the portion of the Policy Value derived
from participation in that sub-account, if any, by the value of one share of the
corresponding Portfolio. The number will be determined as of a date chosen by
Manulife USA, but not more than 90 days before the shareholders' meeting.
Fractional votes are counted. Voting instructions will be solicited in writing
at least 14 days prior to the meeting.
Manulife USA may, if required by state officials, disregard voting instructions
if such instructions would require shares to be voted so as to cause a change in
the sub-classification or investment policies of one or more of the Portfolios,
or to approve or disapprove an investment management contract. In addition, the
Company itself may disregard voting instructions that would require changes in
the investment policies or investment adviser, provided that Manulife USA
reasonably disapproves such changes in accordance with applicable federal
regulations. If Manulife USA does disregard voting instructions, it will advise
policyowners of that action and its reasons for such action in the next
communication to policyowners.
SUBSTITUTION OF PORTFOLIO SHARES
It is possible that in the judgment of the management of Manulife USA, one or
more of the Portfolios may become unsuitable for investment by the Separate
Account because of a change in investment policy or a change in the applicable
laws or regulations, because the shares are no longer available for investment,
or for some other reason. In that event, Manulife USA may seek to substitute the
shares of another Portfolio or of an entirely different mutual fund. Before this
can be done, the approval of the SEC. and one or more state insurance
departments may be required.
Manulife USA also reserves the right (i) to combine other separate accounts with
the Separate Account, (ii) to create new separate accounts, (iii) to establish
additional sub-accounts within the Separate Account to invest in additional
portfolios of the Trust or another management investment company, (iv) to
eliminate existing sub-accounts and to stop accepting new allocations and
transfers into the corresponding portfolio, (v) to combine sub-accounts or to
transfer assets in one sub-account to another sub-account or (vi) to transfer
assets from the Separate Account to another separate account and from another
separate account to the Separate Account. The Company also reserves the right to
operate the Separate Account as a management investment company or other form
permitted by law, and to de-register the Separate Account under the 1940 Act.
Any such change would be made only if permissible under applicable federal and
state law.
RECORDS AND ACCOUNTS
The Service Office will perform administrative functions, such as decreases,
increases, surrenders and partial withdrawals, and fund transfers on behalf of
the Company.
All records and accounts relating to the Separate Account and the Portfolios
will be maintained by the Company. All financial transactions will be handled by
the Company. All reports required to be made and information required to be
given will be provided by the Company.
STATE REGULATIONS
Manulife USA is subject to the regulation and supervision by the Michigan
Department of Insurance, which periodically examines its financial condition and
operations. It is also subject to the insurance laws and regulations of all
jurisdictions in which it is authorized to do business. The Policies have been
filed with insurance officials, and meet all standards set by law, in each
jurisdiction where they are sold.
Manulife USA is required to submit annual statements of its operations,
including financial statements, to the insurance departments
42
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 A of The Manufacturers Life Insurance Company (U.S.A.) (formerly known
as Separate Account Three of The Manufacturers Life Insurance Company of
America) at December 31, 2001, and for each of the two years in the period ended
December 31, 2001, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given on the authority of such firm as experts in accounting and
auditing.
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 S.E.C. relating to the offering described in this prospectus. This
prospectus does not include all the information set forth in the registration
statement. The omitted information may be obtained from the SEC's principal
office in Washington D.C. upon payment of the prescribed fee. The Commission
also maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission which is located at http://www.sec.gov.
For further information you may also contact Manulife USA's Home Office, the
address and telephone number of which are on the first page of the prospectus.
OFFICERS AND DIRECTORS
POSITION WITH
NAME MANULIFE USA PRINCIPAL OCCUPATION
- ---- ------------ --------------------
James Boyle President, U.S. President, U.S. Annuities, Manulife USA, January 2002
(43)** Annuities, to present; Senior Vice President, U.S. Annuities, The
Director 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. President, President, U.S. Individual Insurance, Manulife USA,
Cook (47)** U.S. Insurance; January 2002 to present; Senior Vice President, U.S.
Director Individual Insurance, Manulife USA, January 1999 to
DECEMBER 2001; Senior Vice President, The
Manufacturers Life Insurance Company, January 1999 to
present; Vice President, Product Management, The
Manufacturers Life Insurance Company, January 1996 to
December 1998; Sales and Marketing Director, The
Manufacturers Life Insurance Company, 1994 to 1995.
Peter Vice President, Vice President, Finance, Manulife USA, December 1999
Copestake Finance to present; Vice President & Treasurer, The
(46)*** Manufacturers Life Insurance Company, November 1999 to
present; Vice President, Asset Liability
Management, Canadian Imperial Bank of Commerce
(CIBC), 1991 to 1999; Director, Capital
43
POSITION WITH
NAME MANULIFE USA PRINCIPAL OCCUPATION
- ---- ------------ --------------------
Management, Bank of Montreal, 1986-1990;
Inspector General of Banks, Department of
Finance, 1980-1985.
John D. Chairman and President, Manulife USA, January 1999 to date;
DesPrez III President Executive Vice President, U.S. Operations, The
(45)** 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. Vice Vice President, Secretary & General Counsel,
Gallagher President, Manulife USA, January 1996 to present; Vice President,
(47)** Secretary and Chief Legal Officer & Government Relations, U.S.
General 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 Executive Vice Executive Vice President & Chief Investments Officer,
Guloien President and Manulife USA, June 2001 to present; Executive Vice
(45)*** Chief Investment 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.
Geoffrey Guy Director Executive Vice President and Chief Actuary, The
(54)*** Manufacturers Life Insurance Company, February 2000 to
present; Senior Vice President and Chief
Actuary, The Manufacturers Life Insurance
Company, 1996 to 2000; Vice President and Chief
Actuary, The Manufacturers Life Insurance
Company, 1993 to 1996; Vice President and Chief
Financial Officer, U.S. Operations, The
Manufacturers Life Insurance Company, 1987 to
1993.
John Lyon Vice President Vice President & Chief Financial Officer, Investments,
(49) *** and Chief Manulife USA, June 2001 to present; Vice President &
Financial Chief Financial Officer, Investments, The
Officer, Manufacturers Life Insurance Company; April 2001 to
Investments; present; Vice President, Business Development, The
Director Manufacturers Life Insurance Company, 1995-2001;
Assistant Vice President, Business Development,
The Manufacturers Life Insurance Company,
1994-1995; Director/Manager, Corporate Finance,
The Manufacturers Life Insurance Company,
1992-1994.
Steven President, President, Reinsurance, Manulife USA, January 2001 to
Mannik Reinsurance; present; Senior Vice President, Reinsurance
(43)*** Director 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.
44
POSITION WITH
NAME MANULIFE USA PRINCIPAL OCCUPATION
- ---- ------------ --------------------
James President, U.S. President, U.S. Pensions, Manulife USA, January 2002
O'Malley Pensions; to present, Senior Vice President, U.S. Pensions,
(55)*** Director Manulife USA, January 1999 to December present; Senior
Vice President, U.S. Pensions, The Manufacturers
Life Insurance Company, January 1999 to present;
Vice President, Systems New Business Pensions,
The Manufacturers Life Insurance Company, 1984
to December 1998.
Rex Director Member, Dykema Gossett, PLLC, 1982 to present; Vice
Schlaybaugh, Chairman, Oxford Automotive, Inc. 1997 to present
Jr.(52)****
John Ostler Executive Vice Executive Vice President and Chief Financial Officer,
(49)*** President and Manulife USA, January 2002 to present; Vice President
Chief Financial and Chief Financial Officer, Manulife USA, October 1,
Officer 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 Senior Vice Senior Vice President, Investments, Manulife USA, June
Thomson President, 2001 to present; Senior Vice President, Investments,
(47)*** 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.
Denis Turner Senior Vice Senior Vice President and Treasurer, Manulife USA,
(45)*** President and January 2002 to present; Vice President and Treasurer,
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.
OPTIONAL BENEFITS
OPTIONAL TERM RIDER
The Policy may be issued with an optional term insurance rider (the "Term
Rider"). The benefit of the term rider is that the cost of insurance rates will
always be less than or equal to the cost of insurance rates on the Policy.
HOWEVER, UNLIKE THE DEATH BENEFIT UNDER THE POLICY, THE DEATH BENEFIT UNDER THE
TERM RIDER IS NOT PROTECTED BY THE NO LAPSE GUARANTEE AFTER THE SECOND POLICY
YEAR AND TERMINATES AT AGE 100.
ILLUSTRATIONS
The tables set forth in Appendix A illustrate the way in which a Policy's Death
Benefit, Policy Value, and Cash Surrender Value could vary over an extended
period of time
45
APPENDIX A
DEFINITIONS
ADDITIONAL RATING
is an increase to the Cost of Insurance Rate for any of the Lives Insured who do
not meet, at a minimum, the Company's underwriting requirements for the standard
Risk Classification.
AGE
on any date is each of the Lives Insured's age on their birthday closest to the
policy date.
ATTAINED AGE
is the Age plus the number of whole years that have elapsed since the Policy
Date.
BUSINESS DAY
is any day that the New York Stock Exchange is open for trading. The net asset
value of the underlying shares of a Sub-Account will be determined as of the end
of each Business Day. The Company will deem each Business Day to end at the
close of regularly scheduled trading of the New York Stock Exchange (currently
4:00 p.m. Eastern Time) on that day.
CASH SURRENDER VALUE
is the Policy Value less the Surrender Charge and any outstanding Monthly
Deductions due.
EFFECTIVE DATE
is the date the underwriters approve issuance of the policy. If the policy is
approved without the initial premium, the Effective Date will be the date the
Company receives at least the minimum initial premium at our Service Office. In
either case, the COMPANY WILL take the first Monthly Deduction on the Effective
Date.
FIXED ACCOUNT
is that part of the Policy Value which reflects the value the policyowner has in
the general account of the Company.
GROSS WITHDRAWAL
is the amount of partial Net Cash Surrender Value the policyowner requests plus
any Surrender Charge applicable to the withdrawal.
INVESTMENT ACCOUNT
is that part of the Policy Value which reflects the value the policyowner has in
one of the sub-accounts of the Separate Account.
ISSUE DATE
is the date the Company issued the Policy. The Issue Date is also the date from
which the Suicide and Validity provisions of the Policy are measured.
LIFE INSURED
is the last-to-die of the Lives Insured.
LIVES INSURED
are the persons whose lives are insured under this policy. References to the
youngest of the Lives Insured means the youngest person insured under this
policy when it is first issued.
LOAN ACCOUNT
is that part of the Policy Value which reflects the value transferred from the
Fixed Account or the Investment Accounts as collateral for a policy loan.
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.
A-1
NET PREMIUM
is the gross premium paid less any amounts deducted from the premium. It is the
amount of premium allocated to the Fixed Account and/or Investment Accounts.
A-2
NO-LAPSE GUARANTEE
When the Policy is in the No-Lapse Guarantee Period, as long as the No-Lapse
Guarantee Cumulative Premium Test is met, the Policy will not lapse, even when
the Net Cash Surrender Value falls to or below zero.
NO-LAPSE GUARANTEE PERIOD
is the period, set at issue, during which the No-Lapse Guarantee is provided.
The No-Lapse Guarantee period is fixed (a) for issue ages up to age 70 (of the
older insured), at the first to occur of 20 years and age 75, or (b) at 5 years
for issue ages from 71 to 90 (of the older insured), depending upon applicable
state law requirements. Certain states may have a shorter guarantee period. (The
No Lapse Guarantee Period for a particular Policy is stated in the Policy.)
NO-LAPSE GUARANTEE PREMIUM
is set at issue and is recalculated whenever there is a policy change.
NO-LAPSE GUARANTEE CUMULATIVE PREMIUM
is the minimum amount due to satisfy the No-Lapse Guarantee Cumulative Premium
Test. This amount will change if any of the following changes occur under the
Policy:
- - the face amount of insurance changes.
- - a Supplementary Benefit is added, changed or terminated.
- - the risk classification of any of the Lives Insured changes because of a
change in smoking status.
- - a temporary Additional Rating is added (due to a face amount increase), or
terminated.
- - the Death Benefit Option Changes.
NO-LAPSE GUARANTEE CUMULATIVE PREMIUM TEST
is a test that is satisfied if the sum of all premiums paid, less any gross
partial withdrawals and less any Policy Debt, is greater than or equal to the
sum of the monthly No-Lapse Guarantee Premiums due since the Policy Date.
POLICY DATE
is the date coverage takes effect under the Policy, provided the Company
receives the minimum initial premium at its Service Office, and is the date from
which charges for the first monthly deduction are calculated, and the date from
which Policy Years, Policy Months, and Policy Anniversaries are determined.
POLICY DEBT
as of any date equals (a) plus (b) plus (c) minus (d), where:
(a) is the total amount of loans borrowed as of such date;
(b) is the total amount of any unpaid loan interest charges which have
been borrowed against the policy on a Policy Anniversary;
(c) is any interest charges accrued from the last Policy Anniversary to
the current date; and
(d) is the total amount of loan repayments as of such date.
POLICY VALUE
is the sum of the values in the Loan Account, the Fixed Account, and the
Investment Accounts.
SERVICE OFFICE ADDRESS
is 200 Bloor Street East, Toronto, Ontario, Canada M4W 1E5.
SURRENDER CHARGE PERIOD
is the period following the Issue Date or following any increase in Face Amount
during which the Company will assess surrender charges. Surrender charges will
apply during this period if the policy terminates due to default, if the
policyowner surrenders the policy or makes a partial withdrawal.
WRITTEN REQUEST
is the policyowner's request to the Company which must be in a form satisfactory
to the Company, signed and dated by the policyowner, and received at the Service
Office.
A-3
APPENDIX B
SAMPLE ILLUSTRATIONS OF POLICY VALUES, CASH SURRENDER VALUES AND DEATH BENEFITS
The following tables have been prepared to help show how values under the Policy
change with investment performance. The tables include both Policy Values and
Cash Surrender Values as well as Death Benefits. The Policy Value is the sum of
the values in the Investment Accounts, as the tables assume no values in the
Fixed Account or Loan Account. The Cash Surrender Value is the Policy Value less
any applicable surrender charges. The tables illustrate how Policy Values and
Cash Surrender Values, which reflect all applicable charges and deductions, and
Death Benefits of the Policy on an insured of given age would vary over time if
the return on the assets of the Portfolios was a uniform, gross, after-tax,
annual rate of 0%, 6% or 12%. The Policy Values, Death Benefits and Cash
Surrender Values would be different from those shown if the returns averaged 0%,
6% or 12%, but fluctuated over and under those averages throughout the years.
The charges reflected in the tables include those for deductions from premiums,
surrender charges, and monthly deductions.
The amounts shown for the Policy Value, Death Benefit and Cash Surrender Value
as of each Policy Year reflect the fact that the net investment return on the
assets held in the sub-accounts is lower than the gross, after-tax return. This
is because the expenses and fees borne by Manufacturers Investment Trust are
deducted from the gross return. The illustrations reflect an average of those
Portfolios' current expenses (excluding those of the Equity Index Trust), which
is approximately 0.937% per annum. The gross annual rates of return of 0%, 6%
and 12% correspond to approximate net annual rates of return of -0.937%, 5.063%
and 11.063%. The illustrations reflect the current expense reimbursements in
effect for the Lifestyle Trusts and the Index Trusts. In the absence of such
expense reimbursements, the average of the Portfolio's current expenses would
have been 1.019% per annum and the gross annual rates of return of 0%, 6% and
12% would have corresponded to approximate net annual rates of return of
- -1.019%, 4.981% and 10.981%. The expense reimbursements for certain of the
Trusts (as described in the "Trust Annual Expenses" table) are expected to
remain in effect during the fiscal year ended December 31, 2002. Were the
expense reimbursements to terminate, the average of the Portfolios' current
expenses would be higher and the approximate net annual rates of return would be
lower.
The tables assume that no premiums have been allocated to the Fixed Account,
that planned premiums are paid on the Policy Anniversary and that no transfers,
partial withdrawals, Policy loans, changes in death benefit options or changes
in face amount have been made. The tables reflect the fact that no charges for
federal, state or local taxes are currently made against the Separate Account.
If such a charge is made in the future, it would take a higher gross rate of
return to produce after-tax returns of 0%, 6% and 12% than it does now.
There are two tables shown for each combination of age and death benefit option
for a Policy issued to a male non-smoker:
20 Year No Lapse Guarantee
- - one based on current cost of insurance charges assessed by the Company and
reflecting a 20 year no lapse guarantee
- - one based on the maximum cost of insurance charges based on the 1980
Commissioners Smoker Distinct Mortality Tables and reflecting a 20 year no
lapse guarantee.
(Illustrations do not include optional riders that may be available.
Current cost of insurance charges are not guaranteed and may be changed. Upon
request, Manulife USA will furnish a comparable illustration based on the
proposed life insured's issue age, sex (unless unisex rates are required by law,
or are requested) and risk classes, any additional ratings and the death benefit
option, face amount and planned premium requested. Illustrations for smokers
would show less favorable results than the illustrations shown below.
From time to time, in advertisements or sales literature for the Policies that
quote performance data of one or more of the Portfolios, the Company may include
Cash Surrender Values and Death Benefit figures computed using the same
methodology as that used in the following illustrations, but with the average
annual total return of the Portfolio for which performance data is shown in the
advertisement replacing the hypothetical rates of return shown in the following
tables. This information may be shown in the form of graphs, charts, tables and
examples.
The Policies have been offered to the public only since approximately ________.
However, total return data may be advertised for as long a period of time as the
underlying Portfolio has been in existence. The results for any period prior to
the Policies' being offered would be calculated as if the Policies had been
offered during that period of time, with all charges assumed to be those
applicable to the Policies.
B-1
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$7,500 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------------ ---------------------- -----------------------
ACCUMULATED CASH CASH CASH
END OF POLICY PREMIUMS POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR (1) (2) VALUE VALUE (3) BENEFIT VALUE VALUE (3) BENEFIT VALUE VALUE(3) BENEFIT
1 7,875 5,185 0 500,000 5,529 0 500,000 5,873 0 500,000
2 16,144 11,262 2,617 500,000 12,303 3,658 500,000 13,385 4,740 500,000
3 24,826 17,166 9,124 500,000 19,289 11,247 500,000 21,581 13,539 500,000
4 33,942 22,890 15,552 500,000 26,486 19,148 500,000 30,519 23,181 500,000
5 43,514 28,438 21,804 500,000 33,901 27,266 500,000 40,270 33,636 500,000
6 53,565 33,812 27,781 500,000 41,542 35,511 500,000 50,916 44,885 500,000
7 64,118 39,010 33,682 500,000 49,412 44,085 500,000 62,538 57,210 500,000
8 75,199 44,029 39,405 500,000 57,517 52,893 500,000 75,229 70,605 500,000
9 86,834 48,885 44,864 500,000 65,875 61,854 500,000 89,108 85,087 500,000
10 99,051 53,555 50,237 500,000 74,474 71,157 500,000 104,270 100,953 500,000
15 69,931 79,297 79,297 500,000 127,577 127,577 500,000 211,751 211,751 500,000
20 260,394 105,263 105,263 500,000 200,429 200,429 500,000 405,383 405,383 500,000
25 375,851 125,532 125,532 500,000 291,578 291,578 500,000 734,600 734,600 786,022
30 523,206 137,764 137,764 500,000 408,299 408,299 500,000 1,289,978 1,289,978 1,354,477
35 711,272 131,969 131,969 500,000 562,009 562,009 590,110 2,220,484 2,220,484 2,331,509
40 951,298 84,260 84,260 500,000 755,315 755,315 793,081 3,765,170 3,765,170 3,953,429
45 1,257,639 0 (4) 0 (4) 0 (4) 997,805 997,805 1,007,783 6,332,687 6,332,687 6,396,014
50 1,648,615 1,320,900 1,320,900 1,320,900 10,753,204 10,753,204 10,753,204
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the basic No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the basic No Lapse Guarantee will keep the Policy in
force until the end of the first 20 Policy Years.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
B-2
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 1
$7,500 ANNUAL PLANNED PREMIUM
ASSUMING MAXIMUM CHARGES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- ------------------------------
ACCUMULATED CASH CASH CASH
END OF POLICY PREMIUMS POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR (1) (2) VALUE VALUE (3) BENEFIT VALUE VALUE (3) BENEFIT VALUE VALUE(3) BENEFIT
1 7,875 5,185 0 500,000 5,529 0 500,000 5,873 0 500,000
2 16,144 11,262 2,617 500,000 12,303 3,658 500,000 13,385 4,740 500,000
3 24,826 17,166 9,124 500,000 19,289 11,247 500,000 21,581 13,539 500,000
4 33,942 22,890 15,552 500,000 26,486 19,148 500,000 30,519 23,181 500,000
5 43,514 28,428 21,793 500,000 33,890 27,256 500,000 40,259 33,625 500,000
6 53,565 33,769 27,737 500,000 41,497 35,466 500,000 50,870 44,838 500,000
7 64,118 38,903 33,575 500,000 49,301 43,973 500,000 62,422 57,094 500,000
8 75,199 43,819 39,194 500,000 57,294 52,670 500,000 74,996 70,372 500,000
9 86,834 48,501 44,480 500,000 65,467 61,446 500,000 88,678 84,657 500,000
10 99,051 52,934 49,616 500,000 73,807 70,490 500,000 103,562 100,245 500,000
15 69,931 75,671 75,671 500,000 123,607 123,607 500,000 207,574 207,574 500,000
20 260,394 89,243 89,243 500,000 182,075 182,075 500,000 385,488 385,488 500,000
25 375,851 78,387 78,387 500,000 240,130 240,130 500,000 685,298 685,298 733,269
30 523,206 11,277 11,277 500,000 288,592 288,592 500,000 1,179,027 1,179,027 1,237,979
35 711,272 0 (4) 0 (4) 0 (4) 314,267 314,267 500,000 1,971,089 1,971,089 2,069,643
40 951,298 275,995 275,995 500,000 3,209,419 3,209,419 3,369,890
45 1,257,639 0 (4) 0(4) 0 (4) 5,211,969 5,211,969 5,264,088
50 1,648,615 8,727,724 8,727,724 8,727,724
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the basic No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the basic No Lapse Guarantee will keep the Policy in
force until the end of the first 20 Policy Years.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized
that the hypothetical investment returns are illustrative only and should
not be deemed a representation of past or future results. Actual investment
returns may be more or less than those shown and will depend on a number of
factors, including the investment allocation made by the policyowner, and
the investment returns for the funds of Manufacturers Investment Trust. The
policy value, cash surrender value and death benefit for a policy would be
different from those shown if actual rates of investment return averaged
the rate shown above over a period of years, but also fluctuated above or
below that average for individual policy years. No representations can be
made that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.
B-3
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$8,200 ANNUAL PLANNED PREMIUM
ASSUMING CURRENT CHARGES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
----------------------- ----------------------- ------------------------------
ACCUMULATED CASH CASH CASH
END OF POLICY PREMIUMS POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR (1) (2) VALUE VALUE (3) BENEFIT VALUE VALUE (3) BENEFIT VALUE VALUE(3) BENEFIT
1 8,610 5,767 0 505,767 6,146 0 506,146 6,526 0 506,526
2 17,651 12,413 3,768 512,413 13,560 4,915 513,560 14,753 6,108 514,753
3 27,143 18,872 10,830 518,872 21,208 13,166 521,208 23,730 15,689 523,730
4 37,110 25,135 17,796 525,135 29,087 21,749 529,087 33,520 26,182 533,520
5 47,576 31,204 24,570 531,204 37,203 30,569 537,203 44,199 37,565 544,199
6 58,564 37,083 31,052 537,083 45,564 39,533 545,564 55,851 49,820 555,851
7 70,103 42,765 37,438 542,765 54,170 48,842 554,170 68,562 63,234 568,562
8 82,218 48,249 43,625 548,249 63,023 58,398 563,023 82,426 77,802 582,426
9 94,939 53,548 49,527 553,548 72,141 68,120 572,141 97,568 93,547 597,568
10 108,296 58,636 55,318 558,636 81,506 78,188 581,506 114,079 110,762 614,079
15 185,791 86,469 86,469 586,469 138,837 138,837 638,837 230,080 230,080 730,080
20 284,698 113,837 113,837 613,837 215,615 215,615 715,615 434,380 434,380 934,380
25 410,930 133,492 133,492 633,492 306,470 306,470 806,470 771,072 771,072 1,271,072
30 572,038 141,793 141,793 641,793 410,736 410,736 910,736 1,326,180 1,326,180 1,826,180
35 777,658 125,154 125,154 625,154 516,295 516,295 1,016,295 2,232,524 2,232,524 2,732,524
40 1,040,086 58,167 58,167 558,167 592,685 592,685 1,092,685 3,696,685 3,696,685 4,196,685
45 1,375,018 0 (4) 0 (4) 0 (4) 536,033 536,033 1,036,033 5,995,585 5,995,585 6,495,585
50 1,802,486 197,907 197,907 697,907 9,572,671 9,572,671 10,072,671
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the basic No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the basic No Lapse Guarantee will keep the Policy in
force until the end of the first 20 Policy Years.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.
B-4
FLEXIBLE PREMIUM SURVIVORSHIP VARIABLE LIFE INSURANCE POLICY
MALE NON-SMOKER ISSUE AGE 55 (STANDARD) AND
FEMALE NON-SMOKER ISSUE AGE 50 (STANDARD)
$500,000 FACE AMOUNT DEATH BENEFIT OPTION 2
$8,200 ANNUAL PLANNED PREMIUM
ASSUMING MAXIMUM CHARGES
0% HYPOTHETICAL 6% HYPOTHETICAL 12% HYPOTHETICAL
GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN GROSS INVESTMENT RETURN
------------------------------ ---------------------- -----------------------
ACCUMULATED CASH CASH CASH
END OF POLICY PREMIUMS POLICY SURRENDER DEATH POLICY SURRENDER DEATH POLICY SURRENDER DEATH
YEAR (1) (2) VALUE VALUE (3) BENEFIT VALUE VALUE (3) BENEFIT VALUE VALUE(3) BENEFIT
1 8,610 5,767 0 505,767 6,146 0 506,146 6,526 0 506,526
2 17,651 12,413 3,768 512,413 13,560 4,915 513,560 14,753 6,108 514,753
3 27,143 18,872 10,830 518,872 21,208 13,166 521,208 23,730 15,689 523,730
4 37,110 25,135 17,796 525,135 29,087 21,749 529,087 33,520 26,182 533,520
5 47,576 31,193 24,559 531,193 37,192 30,557 537,192 44,187 37,553 544,187
6 58,564 37,036 31,005 537,036 45,515 39,484 545,515 55,800 49,769 555,800
7 70,103 42,650 37,322 542,650 54,047 48,720 554,047 68,432 63,104 568,432
8 82,218 48,019 43,395 548,019 62,775 58,151 562,775 82,159 77,535 582,159
9 94,939 53,127 49,106 553,127 71,681 67,660 571,681 97,066 93,045 597,066
10 108,296 57,949 54,631 557,949 80,745 77,427 580,745 113,236 109,919 613,236
15 185,791 82,292 82,292 582,292 133,918 133,918 633,918 224,243 224,243 724,243
20 284,698 94,955 94,955 594,955 191,153 191,153 691,153 401,129 401,129 901,129
25 410,930 78,047 78,047 578,047 230,390 230,390 730,390 657,960 657,960 1,157,960
30 572,038 3,279 3,279 503,279 212,377 212,377 712,377 1,008,220 1,008,220 1,508,220
35 777,658 0 (4) 0 (4) 0 (4) 72,804 72,804 572,804 1,457,045 1,457,045 1,957,045
40 1,040,086 0 (4) 0 (4) 0 (4) 1,996,926 1,996,926 2,496,926
45 1,375,018 2,593,410 2,593,410 3,093,410
50 1,802,486 2,636,527 2,636,527 3,136,527
(1) All values shown are as of the end of the policy year indicated, have been
rounded to the nearest dollar, and assume that (a) premiums paid after the
initial premium are received on the policy anniversary, (b) no policy loan
has been made, (c) no partial withdrawal of the Cash Surrender Value has
been made and (d) no premiums have been allocated to the Fixed Account.
(2) Assumes net interest of 5% compounded annually.
(3) Provided the basic No Lapse Guarantee Cumulative Premium Test has been and
continues to be met, the basic No Lapse Guarantee will keep the Policy in
force until the end of the first 20 Policy Years.
(4) In the absence of additional premium payments, the Policy will lapse.
The policy value, cash surrender value and the death benefit will differ if
premiums are paid in different amounts or frequencies. It is emphasized that the
hypothetical investment returns are illustrative only and should not be deemed a
representation of past or future results. Actual investment returns may be more
or less than those shown and will depend on a number of factors, including the
investment allocation made by the policyowner, and the investment returns for
the funds of Manufacturers Investment Trust. The policy value, cash surrender
value and death benefit for a policy would be different from those shown if
actual rates of investment return averaged the rate shown above over a period of
years, but also fluctuated above or below that average for individual policy
years. No representations can be made that these hypothetical rates of return
can be achieved for any one year or sustained over any period of time.]
B-5
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
Audited Financial Statements
Years ended December 31, 2001 and 2000 with Report of Independent Auditors
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
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............................................... 27
Report of Independent Auditors
To the Contract Owners of
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
We have audited the accompanying statement of assets and contract owners'
equity of The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
(formerly known as The Manufacturers Life Insurance Company of America Separate
Account Three) 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 A 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 (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
Statement of Assets and Contract Owners' Equity
December 31, 2001
ASSETS
Investments at fair value:
Sub-Accounts:
Aggressive Growth Trust - 532,356 shares (cost $9,835,157) $ 7,037,748
All Cap Growth Trust - 1,163,381 shares (cost $24,961,264) 17,159,871
All Cap Value Trust - 33,816 shares (cost $398,844) 426,415
Balanced Trust - 2,280,977 shares (cost $39,858,805) 30,975,672
Blue Chip Growth Trust - 2,282,080 shares (cost $43,520,512) 36,125,334
Capital Appreciation Trust - 33,502 shares (cost $298,031) 299,845
Capital Opportunities Trust - 33,938 shares (cost $356,890) 363,137
Core Value Trust - 4,174 shares (cost $46,738) 49,540
Diversified Bond Trust - 626,887 shares (cost $6,515,635) 6,638,730
Dynamic Growth Trust - 415,250 shares (cost $2,945,188) 1,976,588
Emerging Small Company Trust - 2,695,522 shares (cost $69,953,394) 70,245,302
Equity Income Trust - 2,083,938 shares (cost $33,288,979) 31,529,986
Equity Index Trust - 4,636,699 shares (cost $74,970,564) 64,913,790
Financial Services Trust - 27,015 shares (cost $306,789) 314,189
Fundamental Value Trust - 174,799 shares (cost $2,044,734) 2,050,391
Global Bond Trust - 110,606 shares (cost $1,272,585) 1,269,754
Global Equity Trust - 824,245 shares (cost $11,675,591) 10,715,183
Global Equity Select Trust - 1,073 shares (cost $11,678) 13,095
Growth Trust - 1,043,823 shares (cost $22,146,475) 14,561,330
Growth and Income Trust - 2,162,744 shares (cost $58,321,088) 51,711,198
Health Sciences Trust - 75,141 shares (cost $971,934) 1,017,414
High Grade Bond Trust - 12,710 shares (cost $164,193) 158,625
High Yield Trust - 624,660 shares (cost $6,570,619) 6,171,637
Income and Value Trust - 816,935 shares (cost $9,088,622) 8,275,552
International Equity Select Trust - 969 shares (cost $11,429) 11,647
International Index Trust - 91,077 shares (cost $857,102) 775,973
International Small Cap Trust - 394,972 shares (cost $4,452,287) 4,463,179
International Stock Trust - 2,325,427 shares (cost $24,585,263) 22,300,841
International Value Trust - 310,830 shares (cost $3,208,402) 3,276,153
Internet Technologies Trust - 218,501 shares (cost $1,333,582) 828,119
Investment Quality Bond Trust - 2,502,484 shares (cost $29,095,224) 29,654,435
Large Cap Growth Trust - 1,526,714 shares (cost $20,535,042) 15,099,204
Lifestyle Aggressive 1000 Trust - 513,652 shares (cost $6,402,873) 5,311,159
Lifestyle Balanced 640 Trust - 1,184,854 shares (cost $15,164,099) 14,004,976
Lifestyle Conservative 280 Trust - 34,821 shares (cost $446,446) 450,589
Lifestyle Growth 820 Trust - 2,307,669 shares (cost $29,916,023) 25,961,272
Lifestyle Moderate 460 Trust - 199,584 shares (cost $2,548,853) 2,416,964
2
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
Statement of Assets and Contract Owners' Equity
December 31, 2001
ASSETS (CONTINUED)
Investments at fair value:
Sub-Accounts:
Mid Cap Growth Trust - 52,743 shares (cost $555,878) $ 552,215
Mid Cap Index Trust - 195,050 shares (cost $2,467,406) 2,500,541
Mid Cap Opportunities Trust - 55,599 shares (cost $536,731) 588,792
Mid Cap Stock Trust - 330,092 shares (cost $3,511,792) 3,555,087
Mid Cap Value Trust - 130,612 shares (cost $1,630,371) 1,705,795
Money Market Trust - 8,395,582 shares (cost $83,955,822) 83,955,822
Overseas Trust - 738,507 shares (cost $6,284,861) 6,321,622
Pacific Rim Emerging Markets Trust - 1,142,903 shares (cost $8,151,386) 7,600,304
Quantitative Equity Trust - 3,044,000 shares (cost $68,119,891) 52,356,792
Quantitative Mid Cap Trust - 22,937 shares (cost $223,237) 233,954
Real Estate Securities Trust - 1,527,185 shares (cost $23,871,452) 23,701,906
Science and Technology Trust - 1,685,974 shares (cost $40,385,596) 21,631,041
Select Growth Trust - 2,599 shares (cost $28,545) 30,872
Small Cap Index Trust - 213,313 shares (cost $2,411,914) 2,406,173
Small Company Blend Trust - 363,471 shares (cost $3,820,492) 3,990,916
Small Company Value Trust - 426,133 shares (cost $5,521,216) 5,880,631
Small Mid Cap Trust - 1,906 shares (cost $20,977) 22,773
Small Mid Cap Growth Trust - 612 shares (cost $6,755) 6,810
Strategic Bond Trust - 548,490 shares (cost $5,936,756) 5,890,786
Strategic Growth Trust - 58,133 shares (cost $641,673) 640,623
Strategic Opportunities Trust - 2,473,091 shares (cost $43,977,722) 31,259,873
Tactical Allocation Trust - 45,146 shares (cost $531,262) 453,266
Telecommunications Trust - 8,021 shares (cost $64,405) 63,603
Total Return Trust - 520,519 shares (cost $7,159,981) 7,224,802
Total Stock Market Index Trust - 231,803 shares (cost $2,327,017) 2,269,349
U.S. Government Securities Trust - 621,247 shares (cost $8,323,333) 8,523,508
U.S. Large Cap Value Trust - 899,112 shares (cost $11,515,723) 11,337,798
Utilities Trust - 10,013 shares (cost $108,179) 93,121
Value Trust - 877,581 shares (cost $13,436,645) 14,453,761
500 Index Trust - 1,376,837 shares (cost $14,220,359) 13,506,774
------------
Total assets $801,314,147
============
CONTRACT OWNERS' EQUITY
Variable life contracts $801,314,147
============
See accompanying notes.
3
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
Statements of Operations and Changes in Contract Owners' Equity
SUB-ACCOUNT
---------------------------------------------------------------------------
AGGRESSIVE GROWTH TRUST ALL CAP GROWTH TRUST
--------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00
------------ ------------ ------------ ------------
Income:
Net investment income during the year $ -- $ -- $ 998,403 $ 1,203,584
Realized gain (loss) during the year (276,574) 781,308 (510,682) 1,755,854
Unrealized appreciation (depreciation)
during the year (1,883,802) (1,388,722) (5,318,988) (5,835,143)
------------ ------------ ------------ ------------
Net increase (decrease) in assets from
operations (2,160,376) (607,414) (4,831,267) (2,875,705)
------------ ------------ ------------ ------------
Changes from principal transactions:
Transfer of net premiums 2,281,980 2,881,144 3,956,889 5,299,576
Transfer on terminations (523,329) (306,391) (1,517,045) (1,097,397)
Transfer on policy loans (10,538) (53,389) (29,837) (261,519)
Net interfund transfers 45,823 3,030,368 628,230 3,919,834
------------ ------------ ------------ ------------
Net increase (decrease) in assets from
principal transactions 1,793,936 5,551,732 3,038,237 7,860,494
------------ ------------ ------------ ------------
Total increase (decrease) in assets (366,440) 4,944,318 (1,793,030) 4,984,789
Assets beginning of year 7,404,188 2,459,870 18,952,901 13,968,112
------------ ------------ ------------ ------------
Assets end of year $ 7,037,748 $ 7,404,188 $ 17,159,871 $ 18,952,901
============ ============ ============ ============
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
See accompanying notes.
4
SUB-ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------
ALL CAP VALUE CAPITAL APPRECIATION
TRUST BALANCED TRUST BLUE CHIP 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*
- ------------ ------------ ------------ ------------ ------------ ------------
$ 75 $ 713,899 $ 1,922,658 $ 2,422,196 $ 1,256,181 $ --
(953) (899,745) 720,883 (52,580) 1,099,991 (3,268)
27,571 (3,301,218) (6,253,446) (7,668,299) (3,834,145) 1,814
- ------------ ------------ ------------ ------------ ------------ ------------
26,693 (3,487,064) (3,609,905) (5,298,683) (1,477,973) (1,454)
- ------------ ------------ ------------ ------------ ------------ ------------
95,130 3,553,693 4,618,303 9,261,206 10,092,471 120,978
(7,785) (3,771,443) (5,579,871) (3,366,434) (2,477,865) (6,905)
-- 16,306 (296,021) (24,895) (326,876) --
312,377 (910,650) (4,910,092) 526,751 3,417,891 187,226
- ------------ ------------ ------------ ------------ ------------ ------------
399,722 (1,112,094) (6,167,681) 6,396,628 10,705,621 301,299
- ------------ ------------ ------------ ------------ ------------ ------------
426,415 (4,599,158) (9,777,586) 1,097,945 9,227,648 299,845
-- 35,574,830 45,352,416 35,027,389 25,799,741 --
- ------------ ------------ ------------ ------------ ------------ ------------
$ 426,415 $ 30,975,672 $ 35,574,830 $ 36,125,334 $ 35,027,389 $ 299,845
============ ============ ============ ============ ============ ============
5
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
-----------------------------------------------------------------------
CAPITAL OPPORTUNITIES CORE VALUE
TRUST TRUST DIVERSIFIED BOND TRUST
-----------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/01* DEC. 31/01** DEC. 31/01 DEC. 31/00
----------- ----------- ----------- -----------
Income:
Net investment income during the year $ -- $ 123 $ 228,405 $ 236,515
Realized gain (loss) during the year (3,137) 46 (51,790) (34,002)
Unrealized appreciation (depreciation)
during the year 6,247 2,802 124,248 45,990
----------- ----------- ----------- -----------
Net increase (decrease) in assets from
operations 3,110 2,971 300,863 248,503
----------- ----------- ----------- -----------
Changes from principal transactions:
Transfer of net premiums 111,183 2,313 1,625,526 815,715
Transfer on terminations 2,937 (830) (338,697) (127,254)
Transfer on policy loans -- -- (18,695) (39,836)
Net interfund transfers 245,907 45,086 1,805,608 623,649
----------- ----------- ----------- -----------
Net increase (decrease) in assets from
principal transactions 360,027 46,569 3,073,742 1,272,274
----------- ----------- ----------- -----------
Total increase (decrease) in assets 363,137 49,540 3,374,605 1,520,777
Assets beginning of year -- -- 3,264,125 1,743,348
----------- ----------- ----------- -----------
Assets end of year $ 363,137 $ 49,540 $ 6,638,730 $ 3,264,125
=========== =========== =========== ===========
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
** Reflects the period from commencement of operations July 16, 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
- ---------------------------------------------------------------------------------------------------------------------------
EMERGING SMALL
DYNAMIC GROWTH TRUST 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
- ------------- ------------- ------------- ------------- ------------- -------------
$ 2,669 $ -- $ 2,989,181 $ 10,861,111 $ 3,013,469 $ 2,760,281
(362,746) (34,245) 523,643 6,301,844 165,555 (80,630)
(438,379) (530,220) (24,618,446) (20,697,016) (2,788,075) 150,879
- ------------- ------------- ------------- ------------- ------------- -------------
(798,456) (564,465) (21,105,622) (3,534,061) 390,949 2,830,530
- ------------- ------------- ------------- ------------- ------------- -------------
690,350 1,038,582 8,226,969 10,324,298 4,698,752 3,349,523
(127,695) (116,055) (7,911,365) (11,469,437) (2,328,113) (1,273,761)
(28,461) (44,428) (330,245) (1,229,828) (50,148) (53,101)
759,188 1,168,028 (2,344,218) (2,950,927) 2,870,548 (900,697)
- ------------- ------------- ------------- ------------- ------------- -------------
1,293,382 2,046,127 (2,358,859) (5,325,894) 5,191,039 1,121,964
- ------------- ------------- ------------- ------------- ------------- -------------
494,926 1,481,662 (23,464,481) (8,859,955) 5,581,988 3,952,494
1,481,662 -- 93,709,783 102,569,738 25,947,998 21,995,504
- ------------- ------------- ------------- ------------- ------------- -------------
$ 1,976,588 $ 1,481,662 $ 70,245,302 $ 93,709,783 $ 31,529,986 $ 25,947,998
============= ============= ============= ============= ============= =============
7
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
---------------------------------------------------------------------------
FINANCIAL SERVICES FUNDAMENTAL
EQUITY INDEX TRUST TRUST VALUE TRUST
---------------------------------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01* DEC. 31/01*
------------ ------------ ------------ ------------
Income:
Net investment income during the year $ 1,793,940 $ 221,869 $ 86 $ --
Realized gain (loss) during the year 319,126 2,696,756 (4,404) (4,158)
Unrealized appreciation (depreciation)
during the year (11,632,054) (10,555,450) 7,400 5,656
------------ ------------ ------------ ------------
Net increase (decrease) in assets from
operations (9,518,988) (7,636,825) 3,082 1,498
------------ ------------ ------------ ------------
Changes from principal transactions:
Transfer of net premiums 10,090,870 15,766,592 77,874 347,214
Transfer on terminations (6,060,140) (6,954,587) (8,872) (41,760)
Transfer on policy loans (122,471) (248,765) (746) (2,237)
Net interfund transfers (3,841,934) (1,523,237) 242,851 1,745,676
------------ ------------ ------------ ------------
Net increase (decrease) in assets from
principal transactions 66,325 7,040,003 311,107 2,048,893
------------ ------------ ------------ ------------
Total increase (decrease) in assets (9,452,663) (596,822) 314,189 2,050,391
Assets beginning of year 74,366,453 74,963,275 -- --
------------ ------------ ------------ ------------
Assets end of year $ 64,913,790 $ 74,366,453 $ 314,189 $ 2,050,391
============ ============ ============ ============
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
** Reflects the period from commencement of operations July 16, 2001 through
December 31, 2001.
See accompanying notes.
8
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------
GLOBAL EQUITY
GLOBAL BOND TRUST GLOBAL EQUITY TRUST SELECT 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**
- ------------ ------------ ------------ ------------ ------------
$ -- $ 18,358 $ 1,777,032 $ 1,026,287 $ --
(3,942) (7,326) (1,809,979) (631,106) 32
1,055 4,720 (1,826,021) 740,951 1,417
- ------------ ------------ ------------ ------------ ------------
(2,887) 15,752 (1,858,968) 1,136,132 1,449
- ------------ ------------ ------------ ------------ ------------
513,599 220,199 2,464,096 2,106,572 --
(75,372) (33,905) (1,351,234) (515,552) (343)
(121) (2,085) (21,958) (14,792) --
100,923 (39,466) 305,763 1,068,265 11,989
- ------------ ------------ ------------ ------------ ------------
539,029 144,743 1,396,667 2,644,493 11,646
- ------------ ------------ ------------ ------------ ------------
536,142 160,495 (462,301) 3,780,625 13,095
733,612 573,117 11,177,484 7,396,859 --
- ------------ ------------ ------------ ------------ ------------
$ 1,269,754 $ 733,612 $ 10,715,183 $ 11,177,484 $ 13,095
============ ============ ============ ============ ============
9
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
---------------------------------------------------------------------------
GROWTH TRUST GROWTH AND INCOME TRUST
--------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00
------------ ------------ ------------ ------------
Income:
Net investment income during the year $ -- $ 1,603,161 $ 2,743,694 $ 3,025,404
Realized gain (loss) during the year (1,453,148) 695,686 551,538 985,560
Unrealized appreciation (depreciation)
during the year (2,298,076) (8,128,839) (9,504,160) (7,885,806)
------------ ------------ ------------ ------------
Net increase (decrease) in assets from
operations (3,751,224) (5,829,992) (6,208,928) (3,874,842)
------------ ------------ ------------ ------------
Changes from principal transactions:
Transfer of net premiums 4,107,592 6,069,409 9,769,331 11,665,612
Transfer on terminations (1,766,097) (1,297,222) (4,241,463) (3,632,508)
Transfer on policy loans (20,212) (120,470) (138,888) (666,144)
Net interfund transfers (491,472) 3,009,403 34,361 1,931,597
------------ ------------ ------------ ------------
Net increase (decrease) in assets from
principal transactions 1,829,811 7,661,120 5,423,341 9,298,557
------------ ------------ ------------ ------------
Total increase (decrease) in assets (1,921,413) 1,831,128 (785,587) 5,423,715
Assets beginning of year 16,482,743 14,651,615 52,496,785 47,073,070
------------ ------------ ------------ ------------
Assets end of year $ 14,561,330 $ 16,482,743 $ 51,711,198 $ 52,496,785
============ ============ ============ ============
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
** Reflects the period from commencement of operations July 16, 2001 through
December 31, 2001.
See accompanying notes.
10
SUB-ACCOUNT
- ---------------------------------------------------------------------------------------------------------------
HEALTH SCIENCES HIGH GRADE
TRUST BOND TRUST HIGH YIELD TRUST INCOME AND VALUE TRUST
- ---------------------------------------------------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/01* DEC. 31/01** DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00
- ----------- ----------- ----------- ----------- ----------- -----------
$ -- $ 5,145 $ 499,808 $ 14,646 $ 315,493 $ 1,092,315
(530) 36 (929,040) (62,640) (145,567) (16,392)
45,481 (5,568) 126,462 (346,754) (68,156) (833,733)
- ----------- ----------- ----------- ----------- ----------- -----------
44,951 (387) (302,770) (394,748) 101,770 242,190
- ----------- ----------- ----------- ----------- ----------- -----------
328,733 85,889 1,141,776 1,336,937 1,711,255 1,131,379
(7,534) (3,708) (337,768) (275,933) (688,096) (459,846)
(746) -- (16,667) (56,383) 3,689 (15,719)
652,010 76,831 1,071,298 182,737 1,164,672 329,751
- ----------- ----------- ----------- ----------- ----------- -----------
972,463 159,012 1,858,639 1,187,358 2,191,520 985,565
- ----------- ----------- ----------- ----------- ----------- -----------
1,017,414 158,625 1,555,869 792,610 2,293,290 1,227,755
-- -- 4,615,768 3,823,158 5,982,262 4,754,507
- ----------- ----------- ----------- ----------- ----------- -----------
$ 1,017,414 $ 158,625 $ 6,171,637 $ 4,615,768 $ 8,275,552 $ 5,982,262
=========== =========== =========== =========== =========== ===========
11
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
-----------------------------------------------------
INTERNATIONAL EQUITY
SELECT TRUST INTERNATIONAL INDEX TRUST
-----------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED
DEC. 31/01** DEC. 31/01 DEC. 31/00***
--------- --------- ---------
Income:
Net investment income during the year $ -- $ 8,893 $ 2,220
Realized gain (loss) during the year -- (29,221) (982)
Unrealized appreciation (depreciation)
during the year 218 (74,519) (6,610)
--------- --------- ---------
Net increase (decrease) in assets from
operations 218 (94,847) (5,372)
--------- --------- ---------
Changes from principal transactions:
Transfer of net premiums 1,388 494,384 125,117
Transfer on terminations (91) (40,269) (5,611)
Transfer on policy loans -- (2,092) (6,792)
Net interfund transfers 10,132 259,859 51,596
--------- --------- ---------
Net increase (decrease) in assets from
principal transactions 11,429 711,882 164,310
--------- --------- ---------
Total increase (decrease) in assets 11,647 617,035 158,938
Assets beginning of year -- 158,938 --
--------- --------- ---------
Assets end of year $ 11,647 $ 775,973 $ 158,938
========= ========= =========
** Reflects the period from commencement of operations July 16, 2001 through
December 31, 2001.
*** Reflects the period from commencement of operations May 2, 2000 through
December 31, 2000.
See accompanying notes.
12
SUB-ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------
INTERNATIONAL SMALL CAP TRUST INTERNATIONAL STOCK TRUST INTERNATIONAL VALUE 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
- ------------ ------------ ------------ ------------ ------------ ------------
$ -- $ 1,275,987 $ 1,090,518 $ 141,854 $ 54,398 $ 4,865
(3,288,079) (941,463) (7,216,325) 1,979,909 (210,611) (24,646)
1,314,459 (2,864,772) 365,926 (7,021,945) 34,326 (339)
- ------------ ------------ ------------ ------------ ------------ ------------
(1,973,620) (2,530,248) (5,759,881) (4,900,182) (121,887) (20,120)
- ------------ ------------ ------------ ------------ ------------ ------------
1,084,447 2,151,313 3,898,723 4,769,383 950,753 970,793
(413,237) (399,289) (2,219,458) (2,042,903) (169,012) (57,439)
(14,848) (227,364) 1,343 (319,996) 577 (6,340)
(844,387) 2,099,442 (282,829) 306,879 1,002,770 268,631
- ------------ ------------ ------------ ------------ ------------ ------------
(188,025) 3,624,102 1,397,779 2,713,363 1,785,088 1,175,645
- ------------ ------------ ------------ ------------ ------------ ------------
(2,161,645) 1,093,854 (4,362,102) (2,186,819) 1,663,201 1,155,525
6,624,824 5,530,970 26,662,943 28,849,762 1,612,952 457,427
- ------------ ------------ ------------ ------------ ------------ ------------
$ 4,463,179 $ 6,624,824 $ 22,300,841 $ 26,662,943 $ 3,276,153 $ 1,612,952
============ ============ ============ ============ ============ ============
13
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
---------------------------------------------------------------------------
INTERNET TECHNOLOGIES INVESTMENT QUALITY BOND
TRUST TRUST
--------------------------------- ---------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/01 DEC. 31/00*** DEC. 31/01 DEC. 31/00
------------ ------------ ------------ ------------
Income:
Net investment income during the year $ -- $ -- $ 1,683,400 $ 1,764,230
Realized gain (loss) during the year (208,650) (156) (24,658) (65,106)
Unrealized appreciation (depreciation)
during the year (88,889) (416,574) 313,096 543,010
------------ ------------ ------------ ------------
Net increase (decrease) in assets from
operations (297,539) (416,730) 1,971,838 2,242,134
------------ ------------ ------------ ------------
Changes from principal transactions:
Transfer of net premiums 546,771 613,893 3,770,528 3,717,837
Transfer on terminations (79,753) (49,773) (3,002,758) (2,138,923)
Transfer on policy loans (24,220) (4,746) 81,759 (183,365)
Net interfund transfers 38,743 501,473 266,094 (247,524)
------------ ------------ ------------ ------------
Net increase (decrease) in assets from
principal transactions 481,541 1,060,847 1,115,623 1,148,025
------------ ------------ ------------ ------------
Total increase (decrease) in assets 184,002 644,117 3,087,461 3,390,159
Assets beginning of year 644,117 -- 26,566,974 23,176,815
------------ ------------ ------------ ------------
Assets end of year $ 828,119 $ 644,117 $ 29,654,435 $ 26,566,974
============ ============ ============ ============
*** Reflects the period from commencement of operations May 2, 2000 through
December 31, 2000.
See accompanying notes.
14
SUB-ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------
LARGE CAP GROWTH LIFESTYLE AGGRESSIVE 1000 LIFESTYLE BALANCED 640
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
- ------------ ------------ ------------ ------------ ------------ ------------
$ 543,947 $ 1,441,638 $ 388,350 $ 216,326 $ 840,004 $ 569,650
(336,972) 21,675 (133,768) (9,437) (20,180) 86,155
(2,863,856) (3,593,685) (953,443) (443,010) (1,277,862) (472,949)
---------- ---------- -------- -------- ---------- --------
(2,656,881) (2,130,372) (698,861) (236,121) (458,038) 182,856
---------- ---------- -------- -------- -------- -------
4,635,266 4,930,460 1,704,419 1,402,412 4,382,335 3,308,556
(1,385,959) (935,574) (497,645) (465,958) (1,205,129) (883,442)
(28,148) (149,564) (10,477) (1,220) (34,338) (122,975)
1,438,904 4,710,968 162,573 (2,198) 1,404,753 (805,706)
--------- --------- ------- ------- --------- --------
4,660,063 8,556,290 1,358,870 933,036 4,547,621 1,496,433
--------- --------- --------- ------- --------- ---------
2,003,182 6,425,918 660,009 696,915 4,089,583 1,679,289
13,096,022 6,670,104 4,651,150 3,954,235 9,915,393 8,236,104
- ------------ ------------ ------------ ------------ ------------ ------------
$ 15,099,204 $ 13,096,022 $ 5,311,159 $ 4,651,150 $ 14,004,976 $ 9,915,393
============ ============ ============ ============ ============ ============
15
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
---------------------------------------------------------------------------
LIFESTYLE CONSERVATIVE 280 LIFESTYLE GROWTH 820
TRUST TRUST
--------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00
------------ ------------ ------------ ------------
Income:
Net investment income during the year $ 7,507 $ 13,788 $ 2,133,146 $ 1,673,771
Realized gain (loss) during the year (2,326) (844) (779,392) 79,771
Unrealized appreciation (depreciation)
during the year 3,395 2,739 (3,528,898) (2,474,203)
------------ ------------ ------------ ------------
Net increase (decrease) in assets from
operations 8,576 15,683 (2,175,144) (720,661)
------------ ------------ ------------ ------------
Changes from principal transactions:
Transfer of net premiums 374,546 30,443 7,605,366 5,916,596
Transfer on terminations (27,728) (9,144) (4,069,271) (2,038,161)
Transfer on policy loans -- -- 256,322 (134,239)
Net interfund transfers (127,414) 70,433 522,569 127,472
------------ ------------ ------------ ------------
Net increase (decrease) in assets from
principal transactions 219,404 91,732 4,314,986 3,871,668
------------ ------------ ------------ ------------
Total increase (decrease) in assets 227,980 107,415 2,139,842 3,151,007
Assets beginning of year 222,609 115,194 23,821,430 20,670,423
------------ ------------ ------------ ------------
Assets end of year $ 450,589 $ 222,609 $ 25,961,272 $ 23,821,430
============ ============ ============ ============
* 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
- ---------------------------------------------------------------------------------------------------------------
LIFESTYLE MODERATE 460 MID CAP MID CAP OPPORTUNITIES
TRUST GROWTH TRUST MID CAP INDEX TRUST TRUST
- ---------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01* DEC. 31/01 DEC. 31/00*** DEC. 31/01*
- ----------- ----------- ----------- ----------- ----------- -----------
$ 110,107 $ 164,841 $ -- $ 15,781 $ 9,975 $ --
(36,040) (8,201) (7,118) (80,613) 2,568 (1,753)
(89,626) (93,118) (3,663) 38,888 (5,753) 52,061
- ----------- ----------- ----------- ----------- ----------- -----------
(15,559) 63,522 (10,781) (25,944) 6,790 50,308
- ----------- ----------- ----------- ----------- ----------- -----------
828,356 499,839 141,446 563,684 62,405 62,205
(146,711) (278,844) (10,451) (70,740) (18,904) (6,427)
68,632 (4,505) (1,491) (4,490) -- --
91,509 34,843 433,492 1,487,325 500,415 482,706
- ----------- ----------- ----------- ----------- ----------- -----------
841,786 251,333 562,996 1,975,779 543,916 538,484
- ----------- ----------- ----------- ----------- ----------- -----------
826,227 314,855 552,215 1,949,835 550,706 588,792
1,590,737 1,275,882 -- 550,706 -- --
- ----------- ----------- ----------- ----------- ----------- -----------
$ 2,416,964 $ 1,590,737 $ 552,215 $ 2,500,541 $ 550,706 $ 588,792
=========== =========== =========== =========== =========== ===========
17
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
------------------------------------------------------------------------------------
MID CAP
MID CAP STOCK TRUST VALUE TRUST MONEY MARKET TRUST
------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01* DEC. 31/01 DEC. 31/00
------------ ------------ ------------ ------------ ------------
Income:
Net investment income during the year $ -- $ -- $ 3,568 $ 2,437,207 $ 2,837,122
Realized gain (loss) during the year (182,164) 4,809 (203) -- --
Unrealized appreciation (depreciation)
during the year 118,888 (82,824) 75,425 -- --
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in assets from
operations (63,276) (78,015) 78,790 2,437,207 2,837,122
------------ ------------ ------------ ------------ ------------
Changes from principal transactions:
Transfer of net premiums 1,002,409 1,209,637 258,014 65,123,257 60,929,701
Transfer on terminations (187,920) (70,213) (26,156) (10,140,660) (7,374,966)
Transfer on policy loans (10,150) (1,970) -- (3,343,393) (602,642)
Net interfund transfers 1,070,600 497,797 1,395,147 (34,019,575) (37,492,208)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in assets from
principal transactions 1,874,939 1,635,251 1,627,005 17,619,629 15,459,885
------------ ------------ ------------ ------------ ------------
Total increase (decrease) in assets 1,811,663 1,557,236 1,705,795 20,056,836 18,297,007
Assets beginning of year 1,743,424 186,188 -- 63,898,986 45,601,979
------------ ------------ ------------ ------------ ------------
Assets end of year $ 3,555,087 $ 1,743,424 $ 1,705,795 $ 83,955,822 $ 63,898,986
============ ============ ============ ============ ============
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
See accompanying notes.
18
SUB-ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------
PACIFIC RIM
OVERSEAS TRUST EMERGING 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
- ------------ ------------ ------------ ------------ ------------ ------------
$ 592,006 $ 410,096 $ 32,951 $ 37,735 $ 8,592,412 $ 8,207,833
(2,314,964) (743,314) (2,930,761) 1,142,246 160,429 3,373,479
310,847 (806,861) 1,175,536 (3,893,747) (24,331,381) (7,729,114)
- ------------ ------------ ------------ ------------ ------------ ------------
(1,412,111) (1,140,079) (1,722,274) (2,713,766) (15,578,540) 3,852,198
- ------------ ------------ ------------ ------------ ------------ ------------
1,448,316 2,507,305 1,289,621 1,890,887 8,102,224 8,153,108
(455,736) (284,281) (685,431) (692,836) (5,795,856) (8,068,279)
(34,360) (199,359) (12,847) (93,909) (608,974) (437,721)
(150,626) 1,670,197 (518,291) 349,025 (298,597) 1,180,710
- ------------ ------------ ------------ ------------ ------------ ------------
807,594 3,693,862 73,052 1,453,167 1,398,797 827,818
- ------------ ------------ ------------ ------------ ------------ ------------
(604,517) 2,553,783 (1,649,222) (1,260,599) (14,179,743) 4,680,016
6,926,139 4,372,356 9,249,526 10,510,125 66,536,535 61,856,519
- ------------ ------------ ------------ ------------ ------------ ------------
$ 6,321,622 $ 6,926,139 $ 7,600,304 $ 9,249,526 $ 52,356,792 $ 66,536,535
============ ============ ============ ============ ============ ============
19
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
------------------------------------------------------------------------------------
QUANTITATIVE SCIENCE AND
MID CAP TRUST REAL ESTATE SECURITIES TRUST TECHNOLOGY TRUST
------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/01* DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00
------------ ------------ ------------ ------------ ------------
Income:
Net investment income during the year $ -- $ 746,285 $ 725,501 $ 1,203,870 $ 875,644
Realized gain (loss) during the year (395) (395,929) (368,039) (8,654,548) 4,226,679
Unrealized appreciation (depreciation)
during the year 10,718 290,049 4,345,939 (5,654,641) (19,928,665)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in assets from
operations 10,323 640,405 4,703,401 (13,105,319) (14,826,342)
------------ ------------ ------------ ------------ ------------
Changes from principal transactions:
Transfer of net premiums 163,892 2,755,868 2,709,003 6,810,840 11,215,089
Transfer on terminations (800) (3,131,725) (1,866,577) (2,006,086) (2,826,592)
Transfer on policy loans -- (157,802) (245,678) (163,297) (405,481)
Net interfund transfers 60,539 99,125 (847,081) 798,743 9,680,246
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in assets from
principal transactions 223,631 (434,534) (250,333) 5,440,200 17,663,262
------------ ------------ ------------ ------------ ------------
Total increase (decrease) in assets 233,954 205,871 4,453,068 (7,665,119) 2,836,920
Assets beginning of year -- 23,496,035 19,042,967 29,296,160 26,459,240
------------ ------------ ------------ ------------ ------------
Assets end of year $ 233,954 $ 23,701,906 $ 23,496,035 $ 21,631,041 $ 29,296,160
============ ============ ============ ============ ============
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
** Reflects the period from commencement of operations July 16, 2001 through
December 31, 2001.
*** Reflects the period from commencement of operations May 2, 2000 through
December 31, 2000.
See accompanying notes.
20
SUB-ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------------
SELECT SMALL COMPANY BLEND SMALL COMPANY VALUE
GROWTH TRUST SMALL CAP INDEX TRUST TRUST TRUST
- -----------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/01** DEC. 31/01 DEC. 31/00*** DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00
- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ -- $ 37,973 $ 5,143 $ 11,383 $ 166,689 $ 7,567 $ 2,245
34 (108,835) (1,758) (642,184) (184,160) 24,674 93,029
2,328 4,431 (10,171) 732,967 (603,705) 211,763 48,360
- ----------- ----------- ----------- ----------- ----------- ----------- -----------
2,362 (66,431) (6,786) 102,166 (621,176) 244,004 143,634
- ----------- ----------- ----------- ----------- ----------- ----------- -----------
-- 695,528 94,350 953,171 1,152,722 1,403,524 747,241
(365) (58,515) (6,716) (213,793) (46,909) (454,034) (104,932)
-- (2,104) (3,396) (3,343) (27,509) (89,164) (9,018)
28,875 1,682,151 78,092 1,358,981 954,977 1,656,901 1,241,872
- ----------- ----------- ----------- ----------- ----------- ----------- -----------
28,510 2,317,060 162,330 2,095,016 2,033,281 2,517,227 1,875,163
- ----------- ----------- ----------- ----------- ----------- ----------- -----------
30,872 2,250,629 155,544 2,197,182 1,412,105 2,761,231 2,018,797
-- 155,544 -- 1,793,734 381,629 3,119,400 1,100,603
- ----------- ----------- ----------- ----------- ----------- ----------- -----------
$ 30,872 $ 2,406,173 $ 155,544 $ 3,990,916 $ 1,793,734 $ 5,880,631 $ 3,119,400
=========== =========== =========== =========== =========== =========== ===========
21
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
----------------------------------------------------------------------------
SMALL MID SMALL MID CAP
CAP TRUST GROWTH TRUST STRATEGIC BOND TRUST
----------------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/01** DEC. 31/01** DEC. 31/01 DEC. 31/00
----------- ----------- ----------- -----------
Income:
Net investment income during the year $ 1 $ -- $ 394,888 $ 286,876
Realized gain (loss) during the year 18 -- (81,265) (66,380)
Unrealized appreciation (depreciation)
during the year 1,796 55 15,518 61,320
----------- ----------- ----------- -----------
Net increase (decrease) in assets from
operations 1,815 55 329,141 281,816
----------- ----------- ----------- -----------
Changes from principal transactions:
Transfer of net premiums 925 -- 1,083,745 1,165,949
Transfer on terminations (399) -- (553,860) (235,557)
Transfer on policy loans -- -- (21,625) (45,301)
Net interfund transfers 20,432 6,755 100,755 304,387
----------- ----------- ----------- -----------
Net increase (decrease) in assets from
principal transactions 20,958 6,755 609,015 1,189,478
----------- ----------- ----------- -----------
Total increase (decrease) in assets 22,773 6,810 938,156 1,471,294
Assets beginning of year -- -- 4,952,630 3,481,336
----------- ----------- ----------- -----------
Assets end of year $ 22,773 $ 6,810 $ 5,890,786 $ 4,952,630
=========== =========== =========== ===========
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
** Reflects the period from commencement of operations July 16, 2001 through
December 31, 2001.
*** Reflects the period from commencement of operations May 2, 2000 through
December 31, 2000.
See accompanying notes.
22
SUB-ACCOUNT
- ---------------------------------------------------------------------------------------------------------------------
STRATEGIC STRATEGIC OPPORTUNITIES TACTICAL ALLOCATION TELECOMMUNICATIONS
GROWTH TRUST TRUST TRUST TRUST
- ------------ --------------------------------- --------------------------------- ------------
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
DEC. 31/01* DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00*** DEC. 31/01*
- ------------ ------------ ------------ ------------ ------------ ------------
$ -- $ 4,829,644 $ 4,905,140 $ 3,024 $ 11,333 $ --
(6,143) (939,512) (440,187) (7,137) (20) (773)
(1,050) (9,296,726) (6,852,403) (53,200) (24,796) (802)
- ------------ ------------ ------------ ------------ ------------ ------------
(7,193) (5,406,594) (2,387,450) (57,313) (13,483) (1,575)
- ------------ ------------ ------------ ------------ ------------ ------------
132,161 6,338,370 5,698,436 168,737 270,846 10,085
(15,101) (3,388,636) (2,255,941) (42,733) (7,090) (1,870)
-- (108,983) (210,773) (5,586) (3,393) --
530,756 (32,555) 333,630 72,993 70,288 56,963
- ------------ ------------ ------------ ------------ ------------ ------------
647,816 2,808,196 3,565,352 193,411 330,651 65,178
- ------------ ------------ ------------ ------------ ------------ ------------
640,623 (2,598,398) 1,177,902 136,098 317,168 63,603
-- 33,858,271 32,680,369 317,168 -- --
- ------------ ------------ ------------ ------------ ------------ ------------
$ 640,623 $ 31,259,873 $ 33,858,271 $ 453,266 $ 317,168 $ 63,603
============ ============ ============ ============ ============ ============
23
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
-----------------------------------------------------------------------------
TOTAL STOCK
TOTAL RETURN TRUST MARKET INDEX TRUST
--------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00***
----------- ----------- ----------- -----------
Income:
Net investment income during the year $ 151,288 $ 29,836 $ 17,140 $ 2,748
Realized gain (loss) during the year 268,978 6,187 (100,210) (239)
Unrealized appreciation (depreciation)
during the year (81,071) 145,527 (34,713) (22,955)
----------- ----------- ----------- -----------
Net increase (decrease) in assets from
operations 339,195 181,550 (117,783) (20,446)
----------- ----------- ----------- -----------
Changes from principal transactions:
Transfer of net premiums 1,878,907 800,492 871,757 199,595
Transfer on terminations (306,084) (68,577) (125,929) (9,092)
Transfer on policy loans (732) (48,429) (11,062) --
Net interfund transfers 2,952,686 1,016,257 1,358,533 123,776
----------- ----------- ----------- -----------
Net increase (decrease) in assets from
principal transactions 4,524,777 1,699,743 2,093,299 314,279
----------- ----------- ----------- -----------
Total increase (decrease) in assets 4,863,972 1,881,293 1,975,516 293,833
Assets beginning of year 2,360,830 479,537 293,833 --
----------- ----------- ----------- -----------
Assets end of year $ 7,224,802 $ 2,360,830 $ 2,269,349 $ 293,833
=========== =========== =========== ===========
* 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 U.S. LARGE CAP VALUE UTILITIES
SECURITIES TRUST TRUST TRUST VALUE TRUST
- ------------------------------- ------------------------------- ------------ -------------------------------
YEAR ENDED 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. 31/01 DEC. 31/00
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 358,458 $ 319,991 $ 93,316 $ 30,478 $ 466 $ 393,971 $ --
6,248 (33,921) 22,912 2,018 (1,344) 245,518 (204,029)
76,680 189,826 (309,297) 35,510 (15,058) (370,126) 1,955,231
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
441,386 475,896 (193,069) 68,006 (15,936) 269,363 1,751,202
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
2,243,613 1,442,818 3,065,164 3,097,133 41,489 3,138,784 1,668,925
(522,634) (420,953) (705,239) (306,562) (3,751) (1,041,187) (372,336)
(29,512) 1,677 (5,200) (6,546) -- (100,503) (118,965)
1,043,244 (710,743) 1,630,192 2,799,989 71,319 3,077,899 1,097,532
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
2,734,711 312,799 3,984,917 5,584,014 109,057 5,074,993 2,275,156
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
3,176,097 788,695 3,791,848 5,652,020 93,121 5,344,356 4,026,358
5,347,411 4,558,716 7,545,950 1,893,930 -- 9,109,405 5,083,047
- ------------ ------------ ------------ ------------ ------------ ------------ ------------
$ 8,523,508 $ 5,347,411 $ 11,337,798 $ 7,545,950 $ 93,121 $ 14,453,761 $ 9,109,405
============ ============ ============ ============ ============ ============ ============
25
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT
----------------------------------
500 INDEX TRUST TOTAL
---------------------------------- ----------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/01 DEC. 31/00*** DEC. 31/01 DEC. 31/00
------------- ------------- ------------- -------------
Income:
Net investment income during the year $ 102,526 $ 11,246 $ 44,389,613 $ 51,387,171
Realized gain (loss) during the year (372,741) (16,940) (33,338,270) 22,080,244
Unrealized appreciation (depreciation)
during the year (439,691) (273,894) (115,320,231) (115,641,365)
------------- ------------- ------------- -------------
Net increase (decrease) in assets from
operations (709,906) (279,588) (104,268,888) (42,173,950)
------------- ------------- ------------- -------------
Changes from principal transactions:
Transfer of net premiums 6,226,392 3,899,444 211,514,608 214,068,040
Transfer on terminations (643,218) (203,952) (78,331,448) (70,163,910)
Transfer on policy loans (7,178) (18,727) (5,224,156) (7,067,602)
Net interfund transfers 3,290,126 1,953,381 (1,064,286) 275,952
------------- ------------- ------------- -------------
Net increase (decrease) in assets from
principal transactions 8,866,122 5,630,146 126,894,718 137,112,480
------------- ------------- ------------- -------------
Total increase (decrease) in assets 8,156,216 5,350,558 22,625,830 94,938,530
Assets beginning of year 5,350,558 -- 778,688,317 683,749,787
------------- ------------- ------------- -------------
Assets end of year $ 13,506,774 $ 5,350,558 $ 801,314,147 $ 778,688,317
============= ============= ============= =============
*** Reflects the period from commencement of operations May 2, 2000 through
December 31, 2000.
See accompanying notes.
26
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
Notes to Financial Statements
December 31, 2001
1. ORGANIZATION
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A (formerly
known as The Manufacturers Life Insurance Company of America Separate Account
Three) (the Account) is a separate account established by The Manufacturers
Life Insurance Company of America (the Company). The Account operates as a Unit
Investment Trust under the Investment Company Act of 1940, as amended and has
sixty-seven 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 single premium variable life and variable universal life insurance
contracts (the Contracts) issued by the Company. The Account was established by
the Company, a life insurance company organized in 1983 under Michigan law. The
Company is an indirect, wholly owned subsidiary of the Manufacturers Life
Insurance Company (Manulife Financial), a Canadian life insurance company. 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
27
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
Notes to Financial Statements (continued)
1. ORGANIZATION (CONTINUED)
The following sub-accounts of the Account were added as investment options for
variable life insurance contract holders of the Company:
Commencement of
Operations of the
Sub-accounts
-----------------
All Cap Value Trust May 1, 2001
Capital Appreciation Trust May 1, 2001
Capital Opportunities Trust May 1, 2001
Core Value Trust July 16, 2001
Dynamic Growth Trust May 2, 2000
Financial Services Trust May 1, 2001
Fundamental Value Trust May 1, 2001
Global Equity Select Trust July 16, 2001
Health Sciences Trust May 1, 2001
High Grade Bond Trust July 16, 2001
International Equity Select Trust July 16, 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
Select Growth Trust July 16, 2001
Small Cap Index Trust May 2, 2000
Small Mid Cap Trust July 16, 2001
Small Mid Cap Growth Trust July 16, 2001
Strategic Growth Trust May 1, 2001
Tactical Allocation Trust May 2, 2000
Telecommunications Trust May 1, 2001
Total Stock Market Index Trust May 2, 2000
Utilities Trust May 1, 2001
500 Index Trust May 2, 2000
28
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
Notes to Financial Statements (continued)
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.
In addition to the Account, a contract holder may also allocate funds to the
Fixed Account, which is part of the Company's general account. Because of
exemptive and exclusionary provisions, interests in the Fixed Account have not
been registered under the Securities Act of 1933, and the Company's general
account has not been registered as an investment company under the Investment
Company Act of 1940.
The operations of the Account are included in the federal income tax return of
the Company, which is taxed as a life insurance company under the provisions of
the Internal Revenue Code (the Code). Under the current provisions of the Code,
the Company does not expect to incur federal income taxes on the earnings of the
Account to the extent the earnings are credited under the Contracts. Based on
this, no charge is being made currently to the Account for federal income taxes.
The Company will review periodically the status of such decision based on
changes in the tax law. Such a charge may be made in future years for any
federal income taxes that would be attributable to the Contract.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported herein. Actual results could
differ from these estimates.
3. 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 administrative charge, a charge for cost of
insurance, a charge for mortality and expense risk and charges for supplementary
benefits is deducted from the policy value.
29
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
Notes to Financial Statements (continued)
4. PURCHASES AND SALES
The cost of purchases and proceeds from sales of investments for the period
ended December 31, 2001 were as follows:
PURCHASES SALES
------------ ------------
SUB-ACCOUNTS:
Aggressive Growth Trust $ 2,681,136 $ 887,200
All Cap Growth Trust 7,266,712 3,230,071
All Cap Value Trust 454,817 55,020
Balanced Trust 3,648,646 4,046,842
Blue Chip Growth Trust 12,120,297 3,301,472
Capital Appreciation Trust 316,209 14,910
Capital Opportunities Trust 376,180 16,154
Core Value Trust 47,258 566
Diversified Bond Trust 3,680,033 377,886
Dynamic Growth Trust 1,578,785 282,734
Emerging Small Company Trust 8,026,635 7,396,313
Equity Income Trust 10,963,854 2,759,345
Equity Index Trust 8,716,592 6,856,326
Financial Services Trust 374,872 63,678
Fundamental Value Trust 2,069,941 21,048
Global Bond Trust 634,623 95,593
Global Equity Trust 12,640,379 9,466,681
Global Equity Select Trust 11,989 342
Growth Trust 4,664,906 2,835,095
Growth & Income Trust 10,764,545 2,597,509
Health Sciences Trust 991,784 19,320
High Grade Bond Trust 167,307 3,150
High Yield Trust 6,058,178 3,699,731
Income and Value Trust 3,030,660 523,647
International Equity Select Trust 11,498 69
International Index Trust 816,546 95,771
International Small Cap Trust 17,320,080 17,508,105
International Stock Trust 20,859,129 18,370,833
International Value Trust 7,314,612 5,475,127
Internet Technologies Trust 618,828 137,288
Investment Quality Bond Trust 6,872,691 4,073,667
Large Cap Growth Trust 6,088,912 884,902
Lifestyle Aggressive 1000 Trust 2,106,322 359,102
Lifestyle Balanced 640 Trust 6,188,555 800,929
Lifestyle Conservative 280 Trust 528,250 301,340
Lifestyle Growth 820 Trust 9,549,083 3,100,950
Lifestyle Moderate 460 Trust 1,242,353 290,460
Mid Cap Growth Trust 586,214 23,217
Mid Cap Index Trust 3,418,427 1,426,866
Mid Cap Opportunities Trust 544,867 6,383
Mid Cap Stock Trust 2,348,462 473,523
Mid Cap Value Trust 1,716,049 85,475
Money Market Trust 119,942,122 99,885,286
Overseas Trust 25,659,528 24,259,928
Pacific Rim Emerging Markets Trust 8,586,849 8,480,845
Quantitative Equity Trust 16,537,979 6,546,771
30
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
Notes to Financial Statements (continued)
4. PURCHASES AND SALES (CONTINUED)
PURCHASES SALES
------------ ------------
SUB-ACCOUNTS:
Quantitative Mid Cap Trust 225,091 1,460
Real Estate Securities Trust 4,207,957 3,896,207
Science & Technology Trust 14,155,526 7,511,456
Select Growth Trust 28,752 241
Small Cap Index Trust 4,256,591 1,901,557
Small Company Blend Trust 3,581,541 1,475,142
Small Company Value Trust 4,242,622 1,717,828
Small Mid Cap Trust 21,227 268
Small Mid Cap Growth Trust 6,755 --
Strategic Bond Trust 1,886,854 882,951
Strategic Growth Trust 682,838 35,021
Strategic Opportunities Trust 10,656,061 3,018,221
Tactical Allocation Trust 231,107 34,673
Telecommunications Trust 66,501 1,323
Total Return Trust 7,406,206 2,730,142
Total Stock Market Index Trust 3,431,768 1,321,329
U.S. Government Securities Trust 5,051,630 1,958,461
U.S. Large Cap Value Trust 4,751,246 673,013
Utilities Trust 116,995 7,472
Value Trust 8,440,039 2,971,074
500 Index Trust 10,605,619 1,636,971
------------ ------------
Total $444,196,620 $272,833,181
============ ============
5. FINANCIAL HIGHLIGHTS
FOR THE YEAR ENDED
AT DECEMBER 31, 2001 DECEMBER 31, 2001
---------------------------------------------------------------------------------
INVESTMENT
UNIT NET INCOME TOTAL
UNITS VALUE ASSETS RATIO* RETURN**
---------------------------------------------------------------------------------
SUB-ACCOUNTS:
Aggressive Growth Trust 457,854 $ 15.37 $ 7,037,748 -- -25.98%
All Cap Growth Trust 890,563 19.27 17,159,871 -- -23.77%
All Cap Value Trust+ 33,810 12.61 426,415 0.04% 0.90%
Balanced Trust 1,289,838 24.01 30,975,672 2.19% -10.20%
Blue Chip Growth Trust 1,766,660 20.45 36,125,334 -- -14.61%
Capital Appreciation Trust+ 27,016 11.10 299,845 -- -11.21%
Capital Opportunities Trust+ 33,938 10.70 363,137 -- -14.40%
Core Value Trust++ 4,163 11.90 49,540 -- -4.81%
Diversified Bond Trust 429,951 15.44 6,638,730 5.48% 7.09%
Dynamic Growth Trust 414,500 4.77 1,976,588 0.17% -40.24%
Emerging Small Company Trust 1,260,898 55.71 70,245,302 -- -22.24%
Equity Income Trust 1,655,611 19.04 31,529,986 1.64% 1.29%
Equity Index Trust 3,430,166 18.92 64,913,790 1.03% -12.26%
Financial Services Trust+ 27,008 11.63 314,189 0.08% -6.93%
31
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
Notes to Financial Statements (continued)
5. FINANCIAL HIGHLIGHTS (CONT'D)
------------------------------------------------------------------------
INVESTMENT
UNIT NET INCOME TOTAL
UNITS VALUE ASSETS RATIO* RETURN**
------------------------------------------------------------------------
SUB-ACCOUNTS:
Fundamental Value Trust+ 174,799 11.73 2,050,391 -- -6.16%
Global Bond Trust 93,604 13.57 1,269,754 -- 0.53%
Global Equity Trust 670,651 15.98 10,715,183 2.45% -16.09%
Global Equity Select Trust++ 1,073 12.20 13,095 -- -2.40%
Growth Trust 1,000,241 14.56 14,561,330 -- -21.37%
Growth and Income Trust 2,674,526 19.33 51,711,198 0.41% -11.28%
Health Sciences Trust+ 75,141 13.54 1,017,414 -- 8.32%
High Grade Bond Trust++ 12,296 12.90 158,625 2.79% 3.21%
High Yield Trust 466,497 13.23 6,171,637 9.19% -5.47%
Income and Value Trust 503,442 16.44 8,275,552 2.68% 0.98%
International Equity Select Trust++ 969 12.02 11,647 -- -3.84%
International Index Trust 88,736 8.74 775,973 1.22% -22.41%
International Small Cap Trust 349,581 12.77 4,463,179 -- -31.10%
International Stock Trust 1,880,342 11.86 22,300,841 0.20% -21.53%
International Value Trust 299,711 10.93 3,276,153 1.02% -9.97%
Internet Technologies Trust 218,501 3.79 828,119 -- -46.09%
Investment Quality Bond Trust 1,740,743 17.04 29,654,435 5.47% 7.33%
Large Cap Growth Trust 1,103,220 13.69 15,099,204 -- -17.81%
Lifestyle Aggressive 1000 Trust 376,673 14.10 5,311,159 0.37% -13.67%
Lifestyle Balanced 640 Trust 855,914 16.36 14,004,976 2.55% -4.71%
Lifestyle Conservative 280 Trust 25,748 17.50 450,589 3.89% 3.30%
Lifestyle Growth 820 Trust 1,669,794 15.55 25,961,272 1.40% -8.97%
Lifestyle Moderate 460 Trust 142,884 16.92 2,416,964 3.30% -1.09%
Mid Cap Growth Trust+ 52,743 10.47 552,215 -- -16.24%
Mid Cap Index Trust 189,985 13.16 2,500,541 0.85% -1.73%
Mid Cap Opportunities Trust+ 55,599 10.59 588,792 -- -15.28%
Mid Cap Stock Trust 330,092 10.77 3,555,087 -- -10.99%
Mid Cap Value Trust+ 130,318 13.09 1,705,795 0.74% 4.72%
Money Market Trust 3,996,981 21.01 83,955,822 3.59% 3.59%
Overseas Trust 519,934 12.16 6,321,622 0.27% -21.10%
Pacific Rim Emerging Markets Trust 1,041,091 7.30 7,600,304 0.41% -18.58%
Quantitative Equity Trust 1,203,842 43.49 52,356,792 0.30% -22.95%
Quantitative Mid Cap Trust+ 22,937 10.20 233,954 -- -18.40%
Real Estate Securities Trust 603,342 39.28 23,701,906 3.75% 3.15%
Science and Technology Trust 1,388,634 15.58 21,631,041 -- -41.25%
Select Growth Trust++ 2,599 11.88 30,872 -- -4.96%
Small Cap Index Trust 202,574 11.88 2,406,173 1.85% 1.41%
Small Company Blend Trust 316,717 12.60 3,990,916 -- -2.30%
Small Company Value Trust 565,676 10.40 5,880,631 0.17% 6.54%
Small Mid Cap Trust++ 1,906 11.95 22,773 0.01% -4.40%
Small Mid Cap Growth Trust++ 612 11.13 6,810 -- -10.96%
Strategic Bond Trust 366,019 16.09 5,890,786 7.96% 6.25%
Strategic Growth Trust+ 58,133 11.02 640,623 -- -11.84%
Strategic Opportunities Trust 2,079,350 15.03 31,259,873 0.50% -15.25%
32
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
Notes to Financial Statements (continued)
5. FINANCIAL HIGHLIGHTS (CONT'D)
----------------------------------------------------------------------------
INVESTMENT
UNIT NET INCOME TOTAL
UNITS VALUE ASSETS RATIO* RETURN**
----------------------------------------------------------------------------
SUB-ACCOUNTS:
Tactical Allocation Trust 43,247 10.48 453,266 0.11% -13.39%
Telecommunications Trust+ 8,021 7.93 63,603 -- -36.56%
Total Return Trust 486,338 14.86 7,224,802 3.59% 8.28%
Total Stock Market Index Trust 227,808 9.96 2,269,349 0.92% -11.41%
U.S. Government Securities Trust 602,920 14.14 8,523,508 4.75% 7.03%
U.S. Large Cap Value Trust 881,525 12.86 11,337,798 0.38% -2.55%
Utilities Trust+ 9,963 9.35 93,121 1.05% -25.22%
Value Trust 812,349 17.79 14,453,761 0.53% 3.42%
500 Index Trust 1,363,591 9.91 13,506,774 0.84% -12.37%
* 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 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 total return for the period indicated,
including changes in the value of the underlying Trust portfolio.
There are no expenses of the Account that result in a direct reduction
to unit values. 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.
++ Reflects the period from commencement of operations July 16, 2001
through December 31, 2001.
6. RELATED PARTY TRANSACTIONS
ManEquity, Inc., a registered broker-dealer and indirect wholly owned subsidiary
of Manulife Financial, acts as the principal underwriter of the Contracts
pursuant to a Distribution Agreement with the Company. Registered
representatives of either ManEquity, Inc. or other broker-dealers having
distribution agreements with ManEquity, Inc. who are also authorized as variable
life insurance agents under applicable state insurance laws sell the Contracts.
Registered representatives are compensated on a commission basis.
33
The Manufacturers Life Insurance Company (U.S.A.)
Separate Account A (formerly known as The Manufacturers
Life Insurance Company of America Separate Account Three)
Notes to Financial Statements (continued)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company has a formal service agreement with its affiliates, Manulife
Financial and The Manufacturers Life Insurance Company (U.S.A.) ("Manulife
U.S.A."), which can be terminated by either party upon two months notice. Under
this Agreement, the Company pays for legal, actuarial, investment and certain
other administrative services.
7. SUBSEQUENT EVENT
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 A.
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.
34
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT A
Financial Statements
Nine months ended September 30, 2002 (Unaudited)
with December 31, 2001 comparatives
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
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.............................................. 26
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
Statement of Assets and Contract Owners' Equity
September 30, 2002 (Unaudited)
ASSETS
Investments at fair value:
Sub-Accounts:
Aggressive Growth Trust - 544,967 shares (cost $9,259,146) $ 5,122,692
All Cap Growth Trust - 1,096,099 shares (cost $21,645,787) 11,607,690
All Cap Value Trust - 79,257 shares (cost $907,052) 627,718
Balanced Trust - 2,059,438 shares (cost $35,260,558) 22,015,387
Blue Chip Growth Trust - 2,425,689 shares (cost $44,479,414) 27,046,428
Capital Appreciation Trust - 82,587 shares (cost $658,248) 497,172
Capital Opportunities Trust - 46,466 shares (cost $462,969) 332,696
Core Value Trust - 21,247 shares (cost $220,288) 191,009
Diversified Bond Trust - 1,200,361 shares (cost $12,540,081) 12,723,829
Dynamic Growth Trust - 444,918 shares (cost $2,387,775) 1,499,374
Emerging Small Company Trust - 2,512,233 shares (cost $65,163,338) 41,250,859
Equity-Income Trust - 2,564,579 shares (cost $40,209,958) 29,697,824
Equity Index Trust - 4,640,002 shares (cost $74,571,565) 46,075,220
Financial Services Trust - 50,317 shares (cost $556,265) 449,327
Fundamental Value Trust - 338,917 shares (cost $3,814,989) 3,134,980
Global Bond Trust - 216,419 shares (cost $2,623,300) 2,841,585
Global Equity Trust - 807,145 shares (cost $9,317,625) 7,877,740
Global Equity Select Trust - 2,486 shares (cost $29,032) 24,193
Growth Trust - 1,050,554 shares (cost $20,010,618) 10,127,336
Growth & Income Trust - 2,279,970 shares (cost $60,889,577) 36,297,117
Health Sciences Trust - 104,840 shares (cost $1,283,279) 1,014,847
High Grade Bond Trust - 19,976 shares (cost $258,766) 276,874
High Yield Trust - 661,554 shares (cost $5,984,514) 5,391,669
Income & Value Trust - 1,409,565 shares (cost $14,528,635) 10,656,309
International Equity Select Trust - 5,800 shares (cost $65,642) 56,899
International Index Trust - 132,971 shares (cost $1,118,951) 886,916
International Small Cap Trust - 414,631 shares (cost $4,066,187) 3,860,213
International Stock Trust - 2,280,272 shares (cost $18,583,616) 16,281,141
International Value Trust - 516,762 shares (cost $4,573,956) 4,123,764
Internet Technologies Trust - 169,215 shares (cost $526,888) 323,201
Investment Quality Bond Trust - 2,201,234 shares (cost $25,527,534) 26,612,921
Large Cap Growth Trust - 1,808,829 shares (cost $22,368,511) 13,005,482
Lifestyle Aggressive 1000 Trust - 580,195 shares (cost $6,774,765) 4,397,879
Lifestyle Balanced 640 Trust - 1,476,438 shares (cost $18,109,963) 14,336,209
Lifestyle Conservative 280 Trust - 110,543 shares (cost $1,402,750) 1,365,211
Lifestyle Growth 820 Trust - 2,640,016 shares (cost $32,769,004) 22,888,936
Lifestyle Moderate 460 Trust - 308,096 shares (cost $3,766,150) 3,327,433
1
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
Statement of Assets and Contract Owners' Equity
September 30, 2002 (Unaudited)
ASSETS (CONTINUED)
Investments at fair value:
Sub-Accounts:
Mid Cap Growth Trust - 197,419 shares (cost $1,474,436) $ 1,308,890
Mid Cap Index Trust - 225,039 shares (cost $2,827,164) 2,315,654
Mid Cap Opportunities Trust - 90,200 shares (cost $849,278) 634,105
Mid Cap Stock Trust - 319,535 shares (cost $3,173,837) 2,476,400
Mid Cap Value Trust - 406,560 shares (cost $5,162,037) 4,488,427
Money Market Trust - 9,969,363 shares (cost $99,693,626) 99,693,626
Overseas Trust - 743,735 shares (cost $5,075,952) 4,841,714
Pacific Rim Emerging Markets Trust - 1,054,804 shares (cost $7,185,507) 6,202,245
Quantitative Equity Trust - 2,769,899 shares (cost $62,726,920) 31,493,756
Quantitative Mid Cap Trust - 49,376 shares (cost $476,119) 388,094
Real Estate Securities Trust - 1,655,324 shares (cost $25,833,460) 25,789,950
Science and Technology Trust - 1,622,687 shares (cost $24,934,866) 10,320,288
Select Growth Trust - 21,006 shares (cost $190,106) 165,528
Small Cap Index Trust - 228,681 shares (cost $2,568,514) 1,916,348
Small Company Blend Trust - 387,099 shares (cost $4,004,570) 2,969,053
Small Company Value Trust - 624,951 shares (cost $8,685,723) 7,568,159
Small-Mid Cap Trust - 8,509 shares (cost $97,324) 83,641
Small-Mid Cap Growth Trust - 12,335 shares (cost $106,670) 96,093
Strategic Bond Trust - 629,792 shares (cost $6,685,207) 6,581,322
Strategic Growth Trust - 120,553 shares (cost $1,126,656) 855,928
Strategic Opportunities Trust - 2,503,003 shares (cost $41,806,357) 18,722,463
Tactical Allocation Trust - 58,505 shares (cost $622,697) 417,727
Telecommunications Trust - 31,455 shares (cost $184,559) 119,529
Total Return Trust - 869,970 shares (cost $11,962,709) 12,231,784
Total Stock Market Index Trust - 232,373 shares (cost $2,187,837) 1,663,791
U.S. Government Securities Trust - 1,276,387 shares (cost $17,288,105) 17,946,002
U.S. Large Cap Value Trust - 1,077,089 shares (cost $13,366,548) 8,961,383
Utilities Trust - 38,265 shares (cost $310,562) 249,489
Value Trust - 980,652 shares (cost $15,350,074) 11,140,208
500 Index Trust - 1,682,987 shares (cost $15,779,313) 11,797,738
------------
Total assets $681,685,415
============
CONTRACT OWNERS' EQUITY
Variable life contracts $681,685,415
============
See accompanying notes.
2
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
SUB-ACCOUNT
------------------------------------------------------------------
AGGRESSIVE GROWTH ALL CAP GROWTH
TRUST TRUST
------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01
------------------------------------------------------------------
Income:
Net investment income during the period $ -- $ -- $ -- $ 998,403
Realized gain (loss) during the period (751,933) (276,574) (2,504,145) (510,682)
Unrealized appreciation (depreciation)
during the period (1,339,045) (1,883,802) (2,236,705) (5,318,988)
------------------------------------------------------------------
Net increase (decrease) in assets from
operations (2,090,978) (2,160,376) (4,740,850) (4,831,267)
------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 1,125,574 2,281,980 1,660,764 3,956,889
Transfer on terminations (402,436) (523,329) (1,028,170) (1,517,045)
Transfer on policy loans (64,579) (10,538) (58,111) (29,837)
Net interfund transfers (482,637) 45,823 (1,385,814) 628,230
------------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 175,922 1,793,936 (811,331) 3,038,237
------------------------------------------------------------------
Total increase (decrease) in assets (1,915,056) (366,440) (5,552,181) (1,793,030)
Assets beginning of year 7,037,748 7,404,188 17,159,871 18,952,901
------------------------------------------------------------------
Assets end of period $ 5,122,692 $ 7,037,748 $ 11,607,690 $ 17,159,871
==================================================================
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
See accompanying notes.
3
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
ALL CAP VALUE BLUE CHIP GROWTH CAPITAL APPRECIATION
TRUST BALANCED TRUST TRUST TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED 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 SEPT. 30/02 DEC. 31/01*
- ------------------------------------------------------------------------------------------------------------------------------------
$ 19 $ 75 $ 650,234 $ 713,899 $ -- $ 2,422,196 $ -- $ --
(30,838) (953) (1,865,936) (899,745) (1,229,603) (52,580) (29,397) (3,268)
(306,905) 27,571 (4,362,037) (3,301,218) (10,037,808) (7,668,299) (162,890) 1,814
- ------------------------------------------------------------------------------------------------------------------------------------
(337,724) 26,693 (5,577,739) (3,487,064) (11,267,411) (5,298,683) (192,287) (1,454)
- ------------------------------------------------------------------------------------------------------------------------------------
262,187 95,130 2,698,651 3,553,693 4,789,845 9,261,206 229,190 120,978
(52,864) (7,785) (3,488,563) (3,771,443) (2,771,792) (3,366,434) (54,924) (6,905)
(2,586) -- (83,292) 16,306 (76,596) (24,895) -- --
332,290 312,377 (2,509,342) (910,650) 247,048 526,751 215,348 187,226
- ------------------------------------------------------------------------------------------------------------------------------------
539,027 399,722 (3,382,546) (1,112,094) 2,188,505 6,396,628 389,614 301,299
- ------------------------------------------------------------------------------------------------------------------------------------
201,303 426,415 (8,960,285) (4,599,158) (9,078,906) 1,097,945 197,327 299,845
426,415 -- 30,975,672 35,574,830 36,125,334 35,027,389 299,845 --
- ------------------------------------------------------------------------------------------------------------------------------------
$ 627,718 $ 426,415 $ 22,015,387 $ 30,975,672 $ 27,046,428 $ 36,125,334 $ 497,172 $ 299,845
====================================================================================================================================
4
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
---------------------------------------------------------------
CAPITAL OPPORTUNITIES
TRUST CORE VALUE TRUST
---------------------------------------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
SEPT. 30/02 DEC. 31/01* SEPT. 30/02 DEC. 31/01**
---------------------------------------------------------------
Income:
Net investment income during the period $ -- $ -- $ 8 $ 123
Realized gain (loss) during the period (7,416) (3,137) 160 46
Unrealized appreciation (depreciation)
during the period (136,519) 6,247 (32,081) 2,802
---------------------------------------------------------------
Net increase (decrease) in assets from
operations (143,935) 3,110 (31,913) 2,971
---------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 59,089 111,183 136,984 2,313
Transfer on terminations (18,057) 2,937 (11,286) (830)
Transfer on policy loans -- -- -- --
Net interfund transfers 72,462 245,907 47,684 45,086
---------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 113,494 360,027 173,382 46,569
---------------------------------------------------------------
Total increase (decrease) in assets (30,441) 363,137 141,469 49,540
Assets beginning of year 363,137 -- 49,540 --
---------------------------------------------------------------
Assets end of period $ 332,696 $ 363,137 $ 191,009 $ 49,540
===============================================================
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
** Reflects the period from commencement of operations July 16, 2001 through
December 31, 2001.
See accompanying notes.
5
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
EMERGING
DIVERSIFIED BOND TRUST DYNAMIC GROWTH TRUST SMALL COMPANY TRUST EQUITY-INCOME TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED 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 SEPT. 30/02 DEC. 31/01
- ------------------------------------------------------------------------------------------------------------------------------------
$ 526,225 $ 228,405 $ -- $ 2,669 $ -- $ 2,989,181 $ 1,349,315 $ 3,013,469
(45,761) (51,790) (671,544) (362,746) (498,823) 523,643 (320,538) 165,555
60,653 124,248 80,200 (438,379) (24,204,387) (24,618,446) (8,753,142) (2,788,075)
- ------------------------------------------------------------------------------------------------------------------------------------
541,117 300,863 (591,344) (798,456) (24,703,210) (21,105,622) (7,724,365) 390,949
- ------------------------------------------------------------------------------------------------------------------------------------
1,196,983 1,625,526 347,878 690,350 4,820,009 8,226,969 3,194,459 4,698,752
(1,248,901) (338,697) (103,139) (127,695) (5,882,620) (7,911,365) (2,162,846) (2,328,113)
(78,719) (18,695) (9,505) (28,461) (310,250) (330,245) (223,994) (50,148)
5,674,619 1,805,608 (121,104) 759,188 (2,918,372) (2,344,218) 5,084,584 2,870,548
- ------------------------------------------------------------------------------------------------------------------------------------
5,543,982 3,073,742 114,130 1,293,382 (4,291,233) (2,358,859) 5,892,203 5,191,039
- ------------------------------------------------------------------------------------------------------------------------------------
6,085,099 3,374,605 (477,214) 494,926 (28,994,443) (23,464,481) (1,832,162) 5,581,988
6,638,730 3,264,125 1,976,588 1,481,662 70,245,302 93,709,783 31,529,986 25,947,998
- ------------------------------------------------------------------------------------------------------------------------------------
$ 12,723,829 $ 6,638,730 $ 1,499,374 $ 1,976,588 $ 41,250,859 $ 70,245,302 $ 29,697,824 $ 31,529,986
====================================================================================================================================
6
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
---------------------------------------------------------------
FINANCIAL SERVICES
EQUITY INDEX TRUST TRUST
---------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01*
---------------------------------------------------------------
Income:
Net investment income during the period $ 647,555 $ 1,793,940 $ 10 $ 86
Realized gain (loss) during the period (965,096) 319,126 (14,294) (4,404)
Unrealized appreciation (depreciation)
during the period (18,439,571) (11,632,054) (114,337) 7,400
---------------------------------------------------------------
Net increase (decrease) in assets from
operations (18,757,112) (9,518,988) (128,621) 3,082
---------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 5,825,792 10,090,870 84,118 77,874
Transfer on terminations (5,669,882) (6,060,140) (38,696) (8,872)
Transfer on policy loans 805,611 (122,471) (551) (746)
Net interfund transfers (1,042,979) (3,841,934) 218,888 242,851
---------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions (81,458) 66,325 263,759 311,107
---------------------------------------------------------------
Total increase (decrease) in assets (18,838,570) (9,452,663) 135,138 314,189
Assets beginning of year 64,913,790 74,366,453 314,189 --
---------------------------------------------------------------
Assets end of period $ 46,075,220 $ 64,913,790 $ 449,327 $ 314,189
===============================================================
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
** Reflects the period from commencement of operations July 16, 2001 through
December 31, 2001.
See accompanying notes.
7
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
FUNDAMENTAL VALUE GLOBAL EQUITY SELECT
TRUST GLOBAL BOND TRUST GLOBAL EQUITY TRUST TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED 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 SEPT. 30/02 DEC. 31/01**
- ------------------------------------------------------------------------------------------------------------------------------------
$ 2,588 $ -- $ -- $ -- $ 127,745 $ 1,777,032 $ -- $ --
(54,658) (4,158) 28,677 (3,942) (2,123,954) (1,809,979) 93 32
(685,665) 5,656 221,115 1,055 (479,478) (1,826,021) (6,256) 1,417
- ------------------------------------------------------------------------------------------------------------------------------------
(737,735) 1,498 249,792 (2,887) (2,475,687) (1,858,968) (6,163) 1,449
- ------------------------------------------------------------------------------------------------------------------------------------
1,051,853 347,214 140,055 513,599 1,093,961 2,464,096 703 --
(143,251) (41,760) (126,904) (75,372) (774,723) (1,351,234) (1,884) (343)
(1,409) (2,237) (2,666) (121) (5,426) (21,958) -- --
915,131 1,745,676 1,311,554 100,923 (675,568) 305,763 18,442 11,989
- ------------------------------------------------------------------------------------------------------------------------------------
1,822,324 2,048,893 1,322,039 539,029 (361,756) 1,396,667 17,261 11,646
- ------------------------------------------------------------------------------------------------------------------------------------
1,084,589 2,050,391 1,571,831 536,142 (2,837,443) (462,301) 11,098 13,095
2,050,391 -- 1,269,754 733,612 10,715,183 11,177,484 13,095 --
- ------------------------------------------------------------------------------------------------------------------------------------
$ 3,134,980 $ 2,050,391 $ 2,841,585 $ 1,269,754 $ 7,877,740 $ 10,715,183 $ 24,193 $ 13,095
====================================================================================================================================
8
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
---------------------------------------------------------------
GROWTH & INCOME
GROWTH TRUST TRUST
---------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01
---------------------------------------------------------------
Income:
Net investment income during the period $ -- $ -- $ 1,898,492 $ 2,743,694
Realized gain (loss) during the period (2,142,268) (1,453,148) 28,726 551,538
Unrealized appreciation (depreciation)
during the period (2,298,137) (2,298,076) (17,982,571) (9,504,160)
---------------------------------------------------------------
Net increase (decrease) in assets from
operations (4,440,405) (3,751,224) (16,055,353) (6,208,928)
---------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 2,215,001 4,107,592 5,252,792 9,769,331
Transfer on terminations (1,166,183) (1,766,097) (3,273,552) (4,241,463)
Transfer on policy loans (133,611) (20,212) (158,388) (138,888)
Net interfund transfers (908,796) (491,472) (1,179,580) 34,361
---------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 6,411 1,829,811 641,272 5,423,341
---------------------------------------------------------------
Total increase (decrease) in assets (4,433,994) (1,921,413) (15,414,081) (785,587)
Assets beginning of year 14,561,330 16,482,743 51,711,198 52,496,785
---------------------------------------------------------------
Assets end of period $ 10,127,336 $ 14,561,330 $ 36,297,117 $ 51,711,198
===============================================================
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
** Reflects the period from commencement of operations July 16, 2001 through
December 31, 2001.
See accompanying notes.
9
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
HEALTH SCIENCES HIGH GRADE BOND INCOME & VALUE
TRUST TRUST HIGH YIELD TRUST TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED 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 SEPT. 30/02 DEC. 31/01
- ------------------------------------------------------------------------------------------------------------------------------------
$ 2,696 $ -- $ 11 $ 5,145 $ 478,585 $ 499,808 $ 245,476 $ 315,493
(48,810) (530) 58 36 (900,925) (929,040) (304,199) (145,567)
(313,915) 45,481 23,675 (5,568) (193,863) 126,462 (3,059,256) (68,156)
- ------------------------------------------------------------------------------------------------------------------------------------
(360,029) 44,951 23,744 (387) (616,203) (302,770) (3,117,979) 101,770
- ------------------------------------------------------------------------------------------------------------------------------------
182,480 328,733 87,941 85,889 1,052,205 1,141,776 1,624,756 1,711,255
(63,564) (7,534) (32,053) (3,708) (359,576) (337,768) (933,142) (688,096)
(3,464) (746) -- -- (49,225) (16,667) (8,513) 3,689
242,010 652,010 38,617 76,831 (807,169) 1,071,298 4,815,635 1,164,672
- ------------------------------------------------------------------------------------------------------------------------------------
357,462 972,463 94,505 159,012 (163,765) 1,858,639 5,498,736 2,191,520
- ------------------------------------------------------------------------------------------------------------------------------------
(2,567) 1,017,414 118,249 158,625 (779,968) 1,555,869 2,380,757 2,293,290
1,017,414 -- 158,625 -- 6,171,637 4,615,768 8,275,552 5,982,262
- ------------------------------------------------------------------------------------------------------------------------------------
$ 1,014,847 $ 1,017,414 $ 276,874 $ 158,625 $ 5,391,669 $ 6,171,637 $ 10,656,309 $ 8,275,552
====================================================================================================================================
10
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
---------------------------------------------------------------
INTERNATIONAL EQUITY INTERNATIONAL INDEX
SELECT TRUST TRUST
---------------------------------------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01** SEPT. 30/02 DEC. 31/01
---------------------------------------------------------------
Income:
Net investment income during the period $ -- $ -- $ 13 $ 8,893
Realized gain (loss) during the period (23) -- (83,489) (29,221)
Unrealized appreciation (depreciation)
during the period (8,961) 218 (150,906) (74,519)
---------------------------------------------------------------
Net increase (decrease) in assets from
operations (8,984) 218 (234,382) (94,847)
---------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 25,957 1,388 225,632 494,384
Transfer on terminations (5,135) (91) (85,096) (40,269)
Transfer on policy loans -- -- 484 (2,092)
Net interfund transfers 33,414 10,132 204,305 259,859
---------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 54,236 11,429 345,325 711,882
---------------------------------------------------------------
Total increase (decrease) in assets 45,252 11,647 110,943 617,035
Assets beginning of year 11,647 -- 775,973 158,938
---------------------------------------------------------------
Assets end of period $ 56,899 $ 11,647 $ 886,916 $ 775,973
===============================================================
** Reflects the period from commencement of operations July 16, 2001 through
December 31, 2001.
See accompanying notes.
11
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL SMALL INTERNATIONAL STOCK INTERNATIONAL VALUE INTERNET TECHNOLOGIES
CAP TRUST TRUST TRUST TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED 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 SEPT. 30/02 DEC. 31/01
- ------------------------------------------------------------------------------------------------------------------------------------
$ -- $ -- $ 89,227 $ 1,090,518 $ 40,048 $ 54,398 $ -- $ --
(553,030) (3,288,079) (5,346,115) (7,216,325) (728,897) (210,611) (652,178) (208,650)
(216,867) 1,314,459 (18,052) 365,926 (517,943) 34,326 301,775 (88,889)
- ------------------------------------------------------------------------------------------------------------------------------------
(769,897) (1,973,620) (5,274,940) (5,759,881) (1,206,792) (121,887) (350,403) (297,539)
- ------------------------------------------------------------------------------------------------------------------------------------
587,632 1,084,447 2,397,948 3,898,723 971,824 950,753 110,626 546,771
(284,207) (413,237) (1,883,786) (2,219,458) (207,946) (169,012) (37,973) (79,753)
(39,708) (14,848) (14,266) 1,343 (38,823) 577 (1,967) (24,220)
(96,786) (844,387) (1,244,656) (282,829) 1,329,348 1,002,770 (225,201) 38,743
- ------------------------------------------------------------------------------------------------------------------------------------
166,931 (188,025) (744,760) 1,397,779 2,054,403 1,785,088 (154,515) 481,541
- ------------------------------------------------------------------------------------------------------------------------------------
(602,966) (2,161,645) (6,019,700) (4,362,102) 847,611 1,663,201 (504,918) 184,002
4,463,179 6,624,824 22,300,841 26,662,943 3,276,153 1,612,952 828,119 644,117
- ------------------------------------------------------------------------------------------------------------------------------------
$ 3,860,213 $ 4,463,179 $ 16,281,141 $ 22,300,841 $ 4,123,764 $ 3,276,153 $ 323,201 $ 828,119
====================================================================================================================================
12
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
---------------------------------------------------------------
INVESTMENT QUALITY BOND LARGE CAP GROWTH
TRUST TRUST
---------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01
---------------------------------------------------------------
Income:
Net investment income during the period $ 1,353,592 $ 1,683,400 $ 46,916 $ 543,947
Realized gain (loss) during the period 78,672 (24,658) (852,113) (336,972)
Unrealized appreciation (depreciation)
during the period 526,177 313,096 (3,927,191) (2,863,856)
---------------------------------------------------------------
Net increase (decrease) in assets from
operations 1,958,441 1,971,838 (4,732,388) (2,656,881)
---------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 1,979,220 3,770,528 2,824,107 4,635,266
Transfer on terminations (3,657,104) (3,002,758) (1,605,614) (1,385,959)
Transfer on policy loans (250,595) 81,759 (106,110) (28,148)
Net interfund transfers (3,071,476) 266,094 1,526,283 1,438,904
---------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions (4,999,955) 1,115,623 2,638,666 4,660,063
---------------------------------------------------------------
Total increase (decrease) in assets (3,041,514) 3,087,461 (2,093,722) 2,003,182
Assets beginning of year 29,654,435 26,566,974 15,099,204 13,096,022
---------------------------------------------------------------
Assets end of period $ 26,612,921 $ 29,654,435 $ 13,005,482 $ 15,099,204
===============================================================
See accompanying notes.
13
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
LIFESTYLE AGGRESSIVE 1000 LIFESTYLE BALANCED 640 LIFESTYLE CONSERVATIVE 280 LIFESTYLE GROWTH 820
TRUST TRUST TRUST TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED 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 SEPT. 30/02 DEC. 31/01
- ------------------------------------------------------------------------------------------------------------------------------------
$ 38,112 $ 388,350 $ 488,704 $ 840,004 $ 22,043 $ 7,507 $ 548,227 $ 2,133,146
(265,813) (133,768) (313,968) (20,180) (4,053) (2,326) (927,188) (779,392)
(1,285,172) (953,443) (2,614,631) (1,277,862) (41,681) 3,395 (5,925,318) (3,528,898)
- ------------------------------------------------------------------------------------------------------------------------------------
(1,512,873) (698,861) (2,439,895) (458,038) (23,691) 8,576 (6,304,279) (2,175,144)
- ------------------------------------------------------------------------------------------------------------------------------------
1,184,223 1,704,419 3,187,992 4,382,335 717,521 374,546 4,522,774 7,605,366
(421,787) (497,645) (1,175,319) (1,205,129) (95,154) (27,728) (1,816,336) (4,069,271)
405 (10,477) (121,423) (34,338) (7,864) -- (45,237) 256,322
(163,248) 162,573 879,878 1,404,753 323,810 (127,414) 570,742 522,569
- ------------------------------------------------------------------------------------------------------------------------------------
599,593 1,358,870 2,771,128 4,547,621 938,313 219,404 3,231,943 4,314,986
- ------------------------------------------------------------------------------------------------------------------------------------
(913,280) 660,009 331,233 4,089,583 914,622 227,980 (3,072,336) 2,139,842
5,311,159 4,651,150 14,004,976 9,915,393 450,589 222,609 25,961,272 23,821,430
- ------------------------------------------------------------------------------------------------------------------------------------
$ 4,397,879 $ 5,311,159 $ 14,336,209 $ 14,004,976 $ 1,365,211 $ 450,589 $ 22,888,936 $ 25,961,272
====================================================================================================================================
14
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
---------------------------------------------------------------
LIFESTYLE MODERATE 460 MID CAP GROWTH
TRUST TRUST
---------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01*
---------------------------------------------------------------
Income:
Net investment income during the period $ 96,600 $ 110,107 $ -- $ --
Realized gain (loss) during the period (24,164) (36,040) (263,296) (7,118)
Unrealized appreciation (depreciation)
during the period (306,828) (89,626) (161,882) (3,663)
---------------------------------------------------------------
Net increase (decrease) in assets from
operations (234,392) (15,559) (425,178) (10,781)
---------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 423,040 828,356 261,984 141,446
Transfer on terminations (155,881) (146,711) (58,183) (10,451)
Transfer on policy loans (51,353) 68,632 (885) (1,491)
Net interfund transfers 929,055 91,509 978,937 433,492
---------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 1,144,861 841,786 1,181,853 562,996
---------------------------------------------------------------
Total increase (decrease) in assets 910,469 826,227 756,675 552,215
Assets beginning of year 2,416,964 1,590,737 552,215 --
---------------------------------------------------------------
Assets end of period $ 3,327,433 $ 2,416,964 $ 1,308,890 $ 552,215
===============================================================
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
See accompanying notes.
15
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
MID CAP INDEX MID CAP OPPORTUNITIES MID CAP STOCK MID CAP VALUE
TRUST TRUST TRUST TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD 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 SEPT. 30/02 DEC. 31/01*
- ------------------------------------------------------------------------------------------------------------------------------------
$ 141 $ 15,781 $ -- $ -- $ -- $ -- $ -- $ 3,568
(82,531) (80,613) (33,245) (1,753) (213,100) (182,164) (7,005) (203)
(544,646) 38,888 (267,233) 52,061 (740,731) 118,888 (749,035) 75,425
- ------------------------------------------------------------------------------------------------------------------------------------
(627,036) (25,944) (300,478) 50,308 (953,831) (63,276) (756,040) 78,790
- ------------------------------------------------------------------------------------------------------------------------------------
459,763 563,684 188,309 62,205 506,737 1,002,409 1,024,683 258,014
(204,401) (70,740) (34,040) (6,427) (213,592) (187,920) (192,067) (26,156)
(15,660) (4,490) (2,588) -- (926) (10,150) (3,138) --
202,447 1,487,325 194,110 482,706 (417,075) 1,070,600 2,709,194 1,395,147
- ------------------------------------------------------------------------------------------------------------------------------------
442,149 1,975,779 345,791 538,484 (124,856) 1,874,939 3,538,672 1,627,005
- ------------------------------------------------------------------------------------------------------------------------------------
(184,887) 1,949,835 45,313 588,792 (1,078,687) 1,811,663 2,782,632 1,705,795
2,500,541 550,706 588,792 -- 3,555,087 1,743,424 1,705,795 --
- ------------------------------------------------------------------------------------------------------------------------------------
$ 2,315,654 $ 2,500,541 $ 634,105 $ 588,792 $ 2,476,400 $ 3,555,087 $ 4,488,427 $ 1,705,795
====================================================================================================================================
16
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
---------------------------------------------------------------
MONEY MARKET
TRUST OVERSEAS TRUST
---------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01
---------------------------------------------------------------
Income:
Net investment income during the period $ 799,754 $ 2,437,207 $ 37,812 $ 592,006
Realized gain (loss) during the period -- -- (1,030,699) (2,314,964)
Unrealized appreciation (depreciation)
during the period -- -- (270,999) 310,847
---------------------------------------------------------------
Net increase (decrease) in assets from
operations 799,754 2,437,207 (1,263,886) (1,412,111)
---------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 54,516,657 65,123,257 714,412 1,448,316
Transfer on terminations (8,632,825) (10,140,660) (378,912) (455,736)
Transfer on policy loans (2,947,854) (3,343,393) (40,616) (34,360)
Net interfund transfers (27,997,928) (34,019,575) (510,906) (150,626)
---------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 14,938,050 17,619,629 (216,022) 807,594
---------------------------------------------------------------
Total increase (decrease) in assets 15,737,804 20,056,836 (1,479,908) (604,517)
Assets beginning of year 83,955,822 63,898,986 6,321,622 6,926,139
---------------------------------------------------------------
Assets end of period $ 99,693,626 $ 83,955,822 $ 4,841,714 $ 6,321,622
===============================================================
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
See accompanying notes.
17
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
PACIFIC RIM QUANTITATIVE EQUITY QUANTITATIVE MID CAP REAL ESTATE SECURITIES
EMERGING MARKETS TRUST TRUST TRUST TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED 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* SEPT. 30/02 DEC. 31/01
- ------------------------------------------------------------------------------------------------------------------------------------
$ 9,477 $ 32,951 $ 122,979 $ 8,592,412 $ -- $ -- $ 838,368 $ 746,285
(391,400) (2,930,761) (1,449,419) 160,429 (596) (395) (184,181) (395,929)
(432,181) 1,175,536 (15,470,065) (24,331,381) (98,743) 10,718 126,036 290,049
- ------------------------------------------------------------------------------------------------------------------------------------
(814,104) (1,722,274) (16,796,505) (15,578,540) (99,339) 10,323 780,223 640,405
- ------------------------------------------------------------------------------------------------------------------------------------
703,541 1,289,621 3,700,848 8,102,224 90,506 163,892 2,227,546 2,755,868
(525,390) (685,431) (4,031,152) (5,795,856) (24,110) (800) (2,026,765) (3,131,725)
(12,052) (12,847) (216,006) (608,974) (2,586) -- (209,510) (157,802)
(750,054) (518,291) (3,520,221) (298,597) 189,669 60,539 1,316,550 99,125
- ------------------------------------------------------------------------------------------------------------------------------------
(583,955) 73,052 (4,066,531) 1,398,797 253,479 223,631 1,307,821 (434,534)
- ------------------------------------------------------------------------------------------------------------------------------------
(1,398,059) (1,649,222) (20,863,036) (14,179,743) 154,140 233,954 2,088,044 205,871
7,600,304 9,249,526 52,356,792 66,536,535 233,954 -- 23,701,906 23,496,035
- ------------------------------------------------------------------------------------------------------------------------------------
$ 6,202,245 $ 7,600,304 $ 31,493,756 $ 52,356,792 $ 388,094 $ 233,954 $ 25,789,950 $ 23,701,906
====================================================================================================================================
18
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
---------------------------------------------------------------
SCIENCE AND TECHNOLOGY
TRUST SELECT GROWTH TRUST
---------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01**
---------------------------------------------------------------
Income:
Net investment income during the period $ -- $ 1,203,870 $ 1 $ --
Realized gain (loss) during the period (14,961,607) (8,654,548) (56) 34
Unrealized appreciation (depreciation)
during the period 4,139,977 (5,654,641) (26,906) 2,328
---------------------------------------------------------------
Net increase (decrease) in assets from
operations (10,821,630) (13,105,319) (26,961) 2,362
---------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 3,294,131 6,810,840 135,290 --
Transfer on terminations (1,456,971) (2,006,086) (7,999) (365)
Transfer on policy loans (33,803) (163,297) -- --
Net interfund transfers (2,292,480) 798,743 34,326 28,875
---------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions (489,123) 5,440,200 161,617 28,510
---------------------------------------------------------------
Total increase (decrease) in assets (11,310,753) (7,665,119) 134,656 30,872
Assets beginning of year 21,631,041 29,296,160 30,872 --
---------------------------------------------------------------
Assets end of period $ 10,320,288 $ 21,631,041 $ 165,528 $ 30,872
===============================================================
** Reflects the period from commencement of operations July 16, 2001 through
December 31, 2001.
See accompanying notes.
19
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
SMALL COMPANY BLEND SMALL COMPANY VALUE
SMALL CAP INDEX TRUST TRUST TRUST SMALL-MID CAP TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED 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 SEPT. 30/02 DEC. 31/01**
- ------------------------------------------------------------------------------------------------------------------------------------
$ -- $ 37,973 $ 7,477 $ 11,383 $ 51,112 $ 7,567 $ -- $ 1
(28,264) (108,835) (110,589) (642,184) 153,207 24,674 420 18
(646,426) 4,431 (1,205,942) 732,967 (1,476,980) 211,763 (15,479) 1,796
- ------------------------------------------------------------------------------------------------------------------------------------
(674,690) (66,431) (1,309,054) 102,166 (1,272,661) 244,004 (15,059) 1,815
- ------------------------------------------------------------------------------------------------------------------------------------
385,946 695,528 508,909 953,171 1,319,842 1,403,524 30,665 925
(153,639) (58,515) (334,514) (213,793) (558,163) (454,034) (6,904) (399)
(12,542) (2,104) (4,736) (3,343) (12,166) (89,164) -- --
(34,900) 1,682,151 117,532 1,358,981 2,210,676 1,656,901 52,166 20,432
- ------------------------------------------------------------------------------------------------------------------------------------
184,865 2,317,060 287,191 2,095,016 2,960,189 2,517,227 75,927 20,958
- ------------------------------------------------------------------------------------------------------------------------------------
(489,825) 2,250,629 (1,021,863) 2,197,182 1,687,528 2,761,231 60,868 22,773
2,406,173 155,544 3,990,916 1,793,734 5,880,631 3,119,400 22,773 --
- ------------------------------------------------------------------------------------------------------------------------------------
$ 1,916,348 $ 2,406,173 $ 2,969,053 $ 3,990,916 $ 7,568,159 $ 5,880,631 $ 83,641 $ 22,773
====================================================================================================================================
20
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
--------------------------------------------------------------
SMALL-MID CAP GROWTH
TRUST STRATEGIC BOND TRUST
--------------------------------------------------------------
PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01** SEPT. 30/02 DEC. 31/01
--------------------------------------------------------------
Income:
Net investment income during the period $ -- $ -- $ 439,180 $ 394,888
Realized gain (loss) during the period (585) -- (107,544) (81,265)
Unrealized appreciation (depreciation)
during the period (10,632) 55 (57,916) 15,518
--------------------------------------------------------------
Net increase (decrease) in assets from
operations (11,217) 55 273,720 329,141
--------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 69,102 -- 594,660 1,083,745
Transfer on terminations (3,258) -- (547,483) (553,860)
Transfer on policy loans -- -- (80,202) (21,625)
Net interfund transfers 34,656 6,755 449,841 100,755
--------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 100,500 6,755 416,816 609,015
--------------------------------------------------------------
Total increase (decrease) in assets 89,283 6,810 690,536 938,156
Assets beginning of year 6,810 -- 5,890,786 4,952,630
--------------------------------------------------------------
Assets end of period $ 96,093 $ 6,810 $ 6,581,322 $ 5,890,786
==============================================================
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
** Reflects the period from commencement of operations July 16, 2001 through
December 31, 2001.
See accompanying notes.
21
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
STRATEGIC OPPORTUNITIES TACTICAL ALLOCATION TELECOMMUNICATIONS
STRATEGIC GROWTH TRUST TRUST TRUST TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED PERIOD ENDED 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 SEPT. 30/02 DEC. 31/01*
- ------------------------------------------------------------------------------------------------------------------------------------
$ -- $ -- $ -- $ 4,829,644 $ 12 $ 3,024 $ -- $ --
(59,925) (6,143) (2,557,244) (939,512) (47,008) (7,137) (23,687) (773)
(269,678) (1,050) (10,366,045) (9,296,726) (126,973) (53,200) (64,227) (802)
- ------------------------------------------------------------------------------------------------------------------------------------
(329,603) (7,193) (12,923,289) (5,406,594) (173,969) (57,313) (87,914) (1,575)
- ------------------------------------------------------------------------------------------------------------------------------------
347,125 132,161 3,065,583 6,338,370 105,951 168,737 75,947 10,085
(65,596) (15,101) (2,178,618) (3,388,636) (35,407) (42,733) (13,219) (1,870)
(107) -- 29,167 (108,983) (114) (5,586) (2,556) --
263,486 530,756 (530,253) (32,555) 68,000 72,993 83,668 56,963
- ------------------------------------------------------------------------------------------------------------------------------------
544,908 647,816 385,879 2,808,196 138,430 193,411 143,840 65,178
- ------------------------------------------------------------------------------------------------------------------------------------
215,305 640,623 (12,537,410) (2,598,398) (35,539) 136,098 55,926 63,603
640,623 -- 31,259,873 33,858,271 453,266 317,168 63,603 --
- ------------------------------------------------------------------------------------------------------------------------------------
$ 855,928 $ 640,623 $ 18,722,463 $ 31,259,873 $ 417,727 $ 453,266 $ 119,529 $ 63,603
====================================================================================================================================
22
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
---------------------------------------------------------------
TOTAL STOCK MARKET
TOTAL RETURN TRUST INDEX TRUST
---------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01
---------------------------------------------------------------
Income:
Net investment income during the period $ 417,872 $ 151,288 $ -- $ 17,140
Realized gain (loss) during the period 7,208 268,978 (192,540) (100,210)
Unrealized appreciation (depreciation)
during the period 204,254 (81,071) (466,378) (34,713)
---------------------------------------------------------------
Net increase (decrease) in assets from
operations 629,334 339,195 (658,918) (117,783)
---------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 1,534,348 1,878,907 395,318 871,757
Transfer on terminations (782,764) (306,084) (127,227) (125,929)
Transfer on policy loans (56,436) (732) (43,070) (11,062)
Net interfund transfers 3,682,500 2,952,686 (171,661) 1,358,533
---------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 4,377,648 4,524,777 53,360 2,093,299
---------------------------------------------------------------
Total increase (decrease) in assets 5,006,982 4,863,972 (605,558) 1,975,516
Assets beginning of year 7,224,802 2,360,830 2,269,349 293,833
---------------------------------------------------------------
Assets end of period $ 12,231,784 $ 7,224,802 $ 1,663,791 $ 2,269,349
===============================================================
* Reflects the period from commencement of operations May 1, 2001 through
December 31, 2001.
See accompanying notes.
23
SUB-ACCOUNT
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT U.S. LARGE CAP VALUE
SECURITIES TRUST TRUST UTILITIES TRUST VALUE TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED 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* SEPT. 30/02 DEC. 31/01
- ------------------------------------------------------------------------------------------------------------------------------------
$ 406,738 $ 358,458 $ 31,099 $ 93,316 $ 13 $ 466 $ 275,944 $ 393,971
34,084 6,248 (147,272) 22,912 (25,655) (1,344) 240,109 245,518
457,722 76,680 (4,227,240) (309,297) (46,015) (15,058) (5,226,982) (370,126)
- ------------------------------------------------------------------------------------------------------------------------------------
898,544 441,386 (4,343,413) (193,069) (71,657) (15,936) (4,710,929) 269,363
- ------------------------------------------------------------------------------------------------------------------------------------
1,496,149 2,243,613 2,141,833 3,065,164 69,956 41,489 1,638,656 3,138,784
(890,182) (522,634) (1,215,395) (705,239) (15,328) (3,751) (994,252) (1,041,187)
(114,885) (29,512) (60,938) (5,200) (2,595) -- (30,142) (100,503)
8,032,868 1,043,244 1,101,498 1,630,192 175,992 71,319 783,114 3,077,899
- ------------------------------------------------------------------------------------------------------------------------------------
8,523,950 2,734,711 1,966,998 3,984,917 228,025 109,057 1,397,376 5,074,993
- ------------------------------------------------------------------------------------------------------------------------------------
9,422,494 3,176,097 (2,376,415) 3,791,848 156,368 93,121 (3,313,553) 5,344,356
8,523,508 5,347,411 11,337,798 7,545,950 93,121 -- 14,453,761 9,109,405
- ------------------------------------------------------------------------------------------------------------------------------------
$ 17,946,002 $ 8,523,508 $ 8,961,383 $ 11,337,798 $ 249,489 $ 93,121 $ 11,140,208 $ 14,453,761
====================================================================================================================================
24
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
(continued)
SUB-ACCOUNT
-------------------------------------
500 INDEX TRUST TOTAL
------------------------------------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01
------------------------------------------------------------------------
Income:
Net investment income during the period $ 294 $ 102,526 $ 12,090,714 $ 44,389,613
Realized gain (loss) during the period (1,144,185) (372,741) (46,751,388) (33,338,270)
Unrealized appreciation (depreciation)
during the period (3,267,989) (439,691) (150,253,857) (115,320,231)
------------------------------------------------------------------------
Net increase (decrease) in assets from
operations (4,411,880) (709,906) (184,914,531) (104,268,888)
------------------------------------------------------------------------
Changes from principal transactions:
Transfer of net premiums 2,731,727 6,226,392 142,627,890 211,514,608
Transfer on terminations (1,090,337) (643,218) (68,039,039) (78,331,448)
Transfer on policy loans (109,164) (7,178) (5,127,841) (5,224,156)
Net interfund transfers 1,170,618 3,290,126 (4,175,211) (1,064,286)
------------------------------------------------------------------------
Net increase (decrease) in assets from
principal transactions 2,702,844 8,866,122 65,285,799 126,894,718
------------------------------------------------------------------------
Total increase (decrease) in assets (1,709,036) 8,156,216 (119,628,732) 22,625,830
Assets beginning of year 13,506,774 5,350,558 801,314,147 778,688,317
------------------------------------------------------------------------
Assets end of period $ 11,797,738 $ 13,506,774 $ 681,685,415 $ 801,314,147
========================================================================
See accompanying notes
25
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
Notes to Financial Statements
September 30, 2002 (Unaudited)
1. ORGANIZATION
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A (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-seven 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 single premium variable life and 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 A from The Manufacturers Life Insurance Company of
America Separate Account Three.
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.
26
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
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 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
Core Value Trust July 16, 2001
Financial Services Trust May 1, 2001
Fundamental Value Trust May 1, 2001
Global Equity Select Trust July 16, 2001
Health Sciences Trust May 1, 2001
High Grade Bond Trust July 16, 2001
International Equity Select Trust July 16, 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
Select Growth Trust July 16, 2001
Small-Mid Cap Trust July 16, 2001
Small-Mid Cap Growth Trust July 16, 2001
Strategic Growth Trust May 1, 2001
Telecommunications Trust May 1, 2001
Utilities Trust May 1, 2001
27
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
Notes to Financial Statements (continued)
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.
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. 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 administrative charge, a charge for cost of
insurance, a charge for mortality and expense risk, and charges for
supplementary benefits is deducted from the policy value.
28
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
Notes to Financial Statements (continued)
4. 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 $ 1,004,371 $ 828,449
All Cap Growth Trust 1,911,860 2,723,191
All Cap Value Trust 722,876 183,830
Balanced Trust 2,142,160 4,874,471
Blue Chip Growth Trust 5,136,080 2,947,575
Capital Appreciation Trust 479,309 89,694
Capital Opportunities Trust 139,470 25,976
Core Value Trust 181,166 7,776
Diversified Bond Trust 7,199,583 1,129,376
Dynamic Growth Trust 476,405 362,274
Emerging Small Company Trust 1,960,303 6,251,536
Equity-Income Trust 10,137,222 2,895,705
Equity Index Trust 5,686,282 5,120,185
Financial Services Trust 359,897 96,128
Fundamental Value Trust 2,221,278 396,366
Global Bond Trust 1,851,625 529,587
Global Equity Trust 10,345,553 10,579,566
Global Equity Select Trust 19,066 1,805
Growth Trust 2,316,341 2,309,931
Growth & Income Trust 5,733,612 3,193,849
Health Sciences Trust 628,396 268,240
High Grade Bond Trust 121,078 26,562
High Yield Trust 4,599,287 4,284,467
Income & Value Trust 6,460,579 716,367
International Equity Select Trust 58,065 3,830
International Index Trust 858,135 512,796
International Small Cap Trust 35,084,576 34,917,647
International Stock Trust 37,256,718 37,912,250
International Value Trust 29,855,337 27,760,886
Internet Technologies Trust 147,450 301,964
Investment Quality Bond Trust 6,073,644 9,720,007
Large Cap Growth Trust 3,930,506 1,244,924
Lifestyle Aggressive 1000 Trust 1,199,679 561,974
Lifestyle Balanced 640 Trust 4,729,794 1,469,962
Lifestyle Conservative 280 Trust 1,136,459 176,102
Lifestyle Growth 820 Trust 6,637,971 2,857,802
Lifestyle Moderate 460 Trust 1,387,676 146,215
Mid Cap Growth Trust 1,783,934 602,080
Mid Cap Index Trust 1,885,232 1,442,943
Mid Cap Opportunities Trust 813,561 467,769
Mid Cap Stock Trust 738,209 863,064
Mid Cap Value Trust 3,691,706 153,035
Money Market Trust 186,246,204 170,508,400
Overseas Trust 42,046,475 42,224,685
Pacific Rim Emerging Markets Trust 5,957,415 6,531,894
Quantitative Equity Trust 2,496,323 6,439,877
Quantitative Mid Cap Trust 283,043 29,564
29
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
Notes to Financial Statements (continued)
4. PURCHASES AND SALES (CONTINUED)
PURCHASES SALES
----------------------------
SUB-ACCOUNTS:
Real Estate Securities Trust $ 4,900,220 $ 2,754,031
Science and Technology Trust 6,413,976 6,903,099
Select Growth Trust 166,874 5,256
Small Cap Index Trust 1,902,921 1,718,056
Small Company Blend Trust 2,217,080 1,922,412
Small Company Value Trust 4,569,688 1,558,387
Small-Mid Cap Trust 81,247 5,320
Small-Mid Cap Growth Trust 103,126 2,626
Strategic Bond Trust 1,939,735 1,083,739
Strategic Growth Trust 810,500 265,592
Strategic Opportunities Trust 2,725,482 2,339,604
Tactical Allocation Trust 261,873 123,431
Telecommunications Trust 205,593 61,753
Total Return Trust 5,834,496 1,038,975
Total Stock Market Index Trust 990,216 936,856
U.S. Government Securities Trust 9,922,870 992,181
U.S. Large Cap Value Trust 2,943,587 945,490
Utilities Trust 320,958 92,921
Value Trust 3,510,352 1,837,032
500 Index Trust 6,078,136 3,374,997
------------ ------------
$502,030,841 $424,654,334
============ ============
5. FINANCIAL HIGHLIGHTS
FOR THE PERIOD ENDED
AT SEPTEMBER 30, 2002 SEPTEMBER 30, 2002
----------------------------------------------------------
INVESTMENT
UNIT NET INCOME TOTAL
UNITS VALUE ASSETS RATIO* RETURN**
----------------------------------------------------------
SUB-ACCOUNTS:
Aggressive Growth Trust 468,700 $10.93 $ 5,122,692 -- -28.90%
All Cap Growth Trust 839,059 13.83 11,607,690 -- -28.20%
All Cap Value Trust 79,242 7.92 627,718 -- -37.19%
Balanced Trust 1,137,544 19.35 22,015,387 2.43% -19.41%
Blue Chip Growth Trust 1,877,829 14.40 27,046,428 -- -29.56%
Capital Appreciation Trust 66,597 7.47 497,172 -- -32.74%
Capital Opportunities Trust 46,466 7.16 332,696 -- -33.08%
Core Value Trust 21,192 9.01 191,009 0.01% -24.25%
Diversified Bond Trust 786,740 16.17 12,723,829 4.81% 4.74%
Dynamic Growth Trust 444,117 3.38 1,499,374 -- -29.20%
Emerging Small Company Trust 1,175,161 35.10 41,250,859 -- -36.99%
Equity-Income Trust 1,959,731 15.15 29,697,824 1.27% -20.43%
Equity Index Trust 3,398,631 13.56 46,075,220 1.08% -28.36%
Financial Services Trust 50,302 8.93 449,327 -- -23.21%
Fundamental Value Trust 338,600 9.26 3,134,980 0.09% -21.07%
Global Bond Trust 183,153 15.51 2,841,585 -- 14.37%
Global Equity Trust 648,873 12.14 7,877,740 1.29% -24.01%
Global Equity Select Trust 2,486 9.73 24,193 -- -20.25%
Growth Trust 1,006,691 10.06 10,127,336 -- -30.90%
30
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
Notes to Financial Statements (continued)
5. FINANCIAL HIGHLIGHTS (CONTINUED)
FOR THE PERIOD ENDED
AT SEPTEMBER 30, 2002 SEPTEMBER 30, 2002
----------------------------------------------------------
INVESTMENT
UNIT NET INCOME TOTAL
UNITS VALUE ASSETS RATIO* RETURN**
----------------------------------------------------------
SUB-ACCOUNTS:
Growth & Income Trust 2,711,621 $13.39 $36,297,117 0.58 -30.77%
Health Sciences Trust 104,607 9.70 1,014,847 -- -28.35%
High Grade Bond Trust 19,324 14.33 276,874 0.01% 11.06%
High Yield Trust 455,343 11.84 5,391,669 8.04% -10.50%
Income & Value Trust 852,702 12.50 10,656,309 2.15% -23.98%
International Equity Select Trust 5,800 9.81 56,899 -- -18.39%
International Index Trust 129,553 6.85 886,916 -- -21.71%
International Small Cap Trust 366,981 10.52 3,860,213 -- -17.61%
International Stock Trust 1,836,400 8.87 16,281,141 0.42% -25.25%
International Value Trust 494,821 8.33 4,123,764 0.80% -23.76%
Internet Technologies Trust 169,215 1.91 323,201 -- -49.60%
Investment Quality Bond Trust 1,449,230 18.36 26,612,921 5.11% 7.80%
Large Cap Growth Trust 1,303,327 9.98 13,005,482 0.31% -27.09%
Lifestyle Aggressive 1000 Trust 422,419 10.41 4,397,879 0.74% -26.16%
Lifestyle Balanced 640 Trust 1,032,277 13.89 14,336,209 3.16% -15.12%
Lifestyle Conservative 280 Trust 78,980 17.29 1,365,211 2.12% -1.23%
Lifestyle Growth 820 Trust 1,872,805 12.22 22,888,936 2.06% -21.39%
Lifestyle Moderate 460 Trust 213,055 15.62 3,327,433 3.41% -7.67%
Mid Cap Growth Trust 197,419 6.63 1,308,890 -- -36.68%
Mid Cap Index Trust 219,184 10.56 2,315,654 0.01% -19.73%
Mid Cap Opportunities Trust 90,200 7.03 634,105 -- -33.62%
Mid Cap Stock Trust 319,535 7.75 2,476,400 -- -28.04%
Mid Cap Value Trust 405,643 11.07 4,488,427 -- -15.47%
Money Market Trust 4,703,268 21.20 99,693,626 0.91% 0.91%
Overseas Trust 520,916 9.29 4,841,714 0.58% -23.55%
Pacific Rim Emerging Markets Trust 959,762 6.46 6,202,245 0.12% -11.48%
Quantitative Equity Trust 1,092,645 28.82 31,493,756 0.28% -33.73%
Quantitative Mid Cap Trust 49,376 7.86 388,094 -- -22.94%
Real Estate Securities Trust 634,211 40.67 25,789,950 3.20% 3.51%
Science and Technology Trust 1,336,506 7.72 10,320,288 -- -50.43%
Select Growth Trust 21,005 7.88 165,528 -- -33.67%
Small Cap Index Trust 217,167 8.82 1,916,348 -- -25.71%
Small Company Blend Trust 336,722 8.82 2,969,053 0.20% -30.03%
Small Company Value Trust 824,357 9.18 7,568,159 0.27% -11.69%
Small-Mid Cap Trust 8,508 9.83 83,641 -- -17.74%
Small-Mid Cap Growth Trust 12,335 7.79 96,093 -- -30.01%
Strategic Bond Trust 391,102 16.83 6,581,322 6.85% 4.56%
Strategic Growth Trust 120,553 7.10 855,928 -- -35.57%
Strategic Opportunities Trust 2,104,499 8.90 18,722,463 -- -40.82%
Tactical Allocation Trust 56,044 7.45 417,727 -- -28.88%
Telecommunications Trust 31,455 3.80 119,529 -- -52.08%
Total Return Trust 771,628 15.85 12,231,784 2.62% 6.71%
Total Stock Market Index Trust 228,368 7.29 1,663,791 -- -26.86%
U.S. Government Securities Trust 1,188,853 15.09 17,946,002 3.23% 6.78%
U.S. Large Cap Value Trust 1,053,309 8.51 8,961,383 0.28% -33.85%
Utilities Trust 38,072 6.55 249,489 0.01% -29.89%
Value Trust 891,734 12.49 11,140,208 0.75% -29.79%
500 Index Trust 1,666,767 7.08 11,797,738 -- -28.54%
31
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
Notes to Financial Statements (continued)
5. FINANCIAL HIGHLIGHTS (CONTINUED)
* 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
reductions 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 total return for the period indicated,
including changes in the value of the underlying Trust portfolio. There
are no expenses of the Account that result in a direct reduction in unit
values. 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.
32
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
Notes to Financial Statements (continued)
6. 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.
33
The Manufacturers Life Insurance Company (U.S.A.) Separate Account A
Notes to Financial Statements (continued)
7. 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
34
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
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 52 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 HEREWITH
The following exhibits are filed as part of this Registration Statement:
1. Copies of all exhibits required by paragraph A of the instructions as to
exhibits in Form N-8B-2 are set forth below under designations based on such
instructions:
A(1) Resolutions of Board of Directors of The Manufacturers Life
Insurance Company (U.S.A.) establishing Separate Account A -
Incorporated by reference to Exhibit A(1) to the registration
statement on Form S-6, file number 333-71318 filed January 2,
2002 (the "January 2, 2002 Amendment").
A(3)(a)(i) Form of Distribution Agreement. Incorporated by reference to
Exhibit A(3)(a)(i) 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 post effective amendment no. 3 to the registration
statement on Form S-6, file number 33-77256, filed April 26,
1996.
A(10)(a)(ii) Form of Rider for Flexible Premium Variable Life Insurance
Policy Incorporated by reference to Exhibit A(10 to post
effective amendment no. 3 to the registration statement on
Form S-6, file number 333-66303, filed April 27, 2000.
A(10)(b) Form of Application Supplement for Flexible Premium Variable
Life Insurance Policy. Incorporated by reference to Exhibit
A(10)(a) to post effective amendment no. 5 to the registration
statement on Form S-6, file number 33-77256, filed December
23, 1996.
A(10)(c) Form of Assumption Reinsurance Agreement with The
Manufacturers Life Insurance Company (U.S.A.) and The
Manufacturers Life Insurance Company of America. Incorporated
by reference to Exhibit A(9)(a) to the initial registration
statement on Form 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 (U.S.A)
- FILED HEREWITH
B. Opinion and consent of Actuary, of The Manufacturers Life Insurance
Company (U.S.A.) - 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) Power 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 (Steve Mannik) - Incorporated by reference to
exhibit 7(iv) of post-effective amendment no. 1 to the registration
statement on Form S-6, file number 333-71318 filed January 2, 2002.
8. Undertakings
Article XII of the Restated Articles of Redomestication of The Manufacturers
Life Insurance Company (U.S.A.) provides as follows:
No director of this Corporation shall be personally liable to the Corporation or
its shareholders or policyholders for monetary damages for breach of the
director's fiduciary duty, provided that the foregoing shall not eliminate or
limit the liability of a director for any of the following:
i) a breach of the director's duty or loyalty to the Corporation or its
shareholders or policyholders;
ii) acts or omissions not in good faith or that involve intentional misconduct
or knowing violation of law;
iii) a violation of Sections 5036, 5276 or 5280 of the Michigan Insurance Code,
being MCLA 500.5036, 500.5276 and 500.5280;
iv) a transaction from which the director derived an improper personal
benefit; or
v) an act or omission occurring on or before the date of filing of these
Articles of Incorporation.
If the Michigan Insurance Code is hereafter amended to authorize the further
elimination or limitation of the liability of directors. then the liability of a
director of the Corporation, in addition to the limitation on personal liability
contained herein, shall be eliminated or limited to the fullest extent permitted
by the Michigan Insurance Code as so amended. No amendment or repeal of this
Article XII shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of such director occurring prior to the effective date of any such
amendment or repeal.
Notwithstanding the foregoing, Registrant hereby makes the following undertaking
pursuant to Rule 484 under the Securities Act of 1933:
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant 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 A OF
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
(Registrant)
By: THE MANUFACTURERS LIFE INSURANCE
COMPANY (U.S.A.)
(Depositor)
By: /s/John D. DesPrez III
----------------------
John D. DesPrez III
President
Pursuant to the requirements of the Securities Act of 1933, the
Depositor has duly caused this amendment to the 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
- ------------------------------------
John D. DesPrez III (Principal Executive Officer)
* Executive Vice President and
- ------------------------------------
John Ostler (Chief Financial Officer)
*
- ------------------------------------ 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-____ SVUL 2003
EXHIBIT INDEX
Item No. Description
(5)(a) Form of Flexible Premium Survivorship 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 (U.S.A)
B. Opinion and consent of Actuary, of The Manufacturers Life Insurance
Company (U.S.A.)
C. Consent of Ernst & Young LLP
6. Memorandum Regarding Issuance, Face Amount Increase, Redemption and Transfer
Procedures for the Policies.