-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Jx8FV/UmGj3E/aepH0YwyfTL2HruV11Bh2ie0Uj0dVOgWlyjYFU3mc+0n6aTT4xK a1fpN6DfHjQ6xPHoj+PouA== 0000950135-02-000011.txt : 20020425 0000950135-02-000011.hdr.sgml : 20020425 ACCESSION NUMBER: 0000950135-02-000011 CONFORMED SUBMISSION TYPE: S-6/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 20020102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MANUFACTURERS LIFE INS CO USA SEPARATE ACCOUNT N CENTRAL INDEX KEY: 0000813572 IRS NUMBER: 232030787 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-6/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-71312 FILM NUMBER: 02500032 BUSINESS ADDRESS: STREET 1: 200 BLOOR STREET EAST ST 10 STREET 2: TORONTO M4W 1EF CITY: ONTARIO CANADA STATE: A6 ZIP: 48304 BUSINESS PHONE: 4169266302 MAIL ADDRESS: STREET 1: P O BOX 600 CITY: BUFFALO STATE: NY ZIP: 14201-0600 FORMER COMPANY: FORMER CONFORMED NAME: SEPARATE ACCOUNT FOUR OF THE MANUFACTURERS LIFE INS CO OF AM DATE OF NAME CHANGE: 19920703 S-6/A 1 b41398a1s-6a.txt SEP ACCT N OF THE MANUFACTURERS LIFE INS CO USA As filed with the Securities and Exchange Commission on January 2, 2002 Registration No. 333-71312 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-6 FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 PRE-EFFECTIVE AMENDMENT NO. 1 SEPARATE ACCOUNT N OF THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) (Exact name of Registrant) THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) (Name of Depositor) 38500 Woodward Avenue Bloomfield Hills, Michigan 48304 (Address of Depositor's Principal Executive Offices) James D. Gallagher Secretary and General Counsel The Manufacturers Life Insurance Company (U.S.A.) 73 Tremont Street Boston, MA 02108 (Name and Address of Agent for Service) Copy to: J. Sumner Jones, Esq. Jones & Blouch L.L.P. 1025 Thomas Jefferson Street, NW Washington, DC 20007 Title of Securities Being Registered: Variable Life Insurance Contracts Approximate date of commencement of proposed public offering: As soon after the effective date of this registration statement as is practicable. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that the Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Separate Account N of The Manufacturers Life Insurance Company (U.S.A.) Registration Statement on Form S-6 Cross-Reference Sheet FORM N-8B-2
ITEM NO. CAPTION IN PROSPECTUS 1 Cover Page; General Information About Manufacturers (Separate Account N) 2 Cover Page; General Information About Manufacturers (Manufacturers (U.S.A.)) 3 * 4 Other Information (Distribution of the Policy) 5 General Information About Manufacturers Life (Separate Account N) 6 General Information About Manufacturers (Separate Account N) 7 * 8 * 9 Other Information (Litigation) 10 Death Benefits; Premium Payments; Charges and Deductions; Policy Value; Policy Loans; Policy Surrender and Partial Withdrawals; Lapse and Reinstatement; Other Provisions of the Policy; Other Information 11 General Information About Manufacturers (Manufacturers Investment Trust) 12 General Information About Manufacturers (Manufacturers Investment Trust) 13 Charges and Deductions 14 Issuing A Policy; Other Information (Responsibilities Assumed By Manufacturers Life) 15 Issuing A Policy 16 General Information About Manufacturers (Manufacturers Investment Trust) 17 Policy Surrender and Partial Withdrawals 18 General Information About Manufacturers 19 Other Information (Reports to Policyholders; Responsibilities Assumed By Manufacturers Life) 20 * 21 Policy Loans 22 *
23 * 24 Other Provisions of the Policy 25 General Information About Manufacturers (Manufacturers U.S.A.) 26 * 27 General Information About Manufacturers (Manufacturers U.S.A.); Other Information (Distribution of the Policy) 28 Other Information (Officers and Directors) 29 General Information About Manufacturers (Manufacturers U.S.A.) 30 * 31 * 32 * 33 * 34 * 35 * 36 * 37 * 38 Other Information (Distribution of the Policies; Responsibilities of Manufacturers Life) 39 Other Information (Distribution of the Policies) 40 * 41 Other Information (Distribution of the Policy) 42 Other Information (Distribution of the Policy) 43 * 44 Policy Values --Determination of Policy Value; Units and Unit Values) 45 * 46 Policy Surrender and Partial Withdrawals; Other Information -- Payment of Proceeds) 47 General Information About Manufacturers (Manufacturers Investment Trust) 48 * 49 * 50 General Information About Manufacturers
51 Issuing a Policy; Death Benefits; Premium Payments; Charges and Deductions; Policy Value; Policy Loans; Policy Surrender and Partial Withdrawals; Lapse and Reinstatement; Other Policy Provisions 52 Other Information (Substitution of Portfolio Shares) 53 General Information About Manufacturers Life (Separate Account N); Tax Treatment of the Policy 54 * 55 * 56 * 57 * 58 * 59 Financial Statements
* Omitted since answer is negative or item is not applicable. PART I INFORMATION REQUIRED IN PROSPECTUS PROSPECTUS SEPARATE ACCOUNT N OF THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) CORPORATE VUL A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY This prospectus describes Corporate VUL, a flexible premium variable universal life insurance policy (the "Policy") offered by The Manufacturers Life Insurance Company (U.S.A.) (the "Company," "Manulife USA," "we" or "us"). The Policy is designed for use by corporations and other employers to provide life insurance and to fund other employee benefits. The Policy is designed to provide lifetime insurance protection together with flexibility as to the timing and amount of premium payments, the investments underlying the Policy Value, and the amount of insurance coverage. The 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 life insured's death. The Policy will remain in force so long as the Net Cash Surrender Value is sufficient to cover charges assessed against the Policy. Policy Value may be accumulated on a fixed basis or vary with the investment performance of the sub-accounts of Manulife USA's Separate Account N (the "Separate Account") to which the policyholder 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 Fees". 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 SEC. PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE TRUST. THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The Manufacturers Life Insurance Company (U.S.A.) 38500 Woodward Avenue Bloomfield Hills, Michigan 48304 THE DATE OF THIS PROSPECTUS IS JANUARY 1, 2002. CVUL 01/2002 2
TABLE OF CONTENTS Coli 01/2002......................................................................................................2 Definitions.......................................................................................................5 Policy Summary....................................................................................................6 General........................................................................................................6 Death Benefits.................................................................................................6 Premiums.......................................................................................................6 Policy Value...................................................................................................6 Policy Loans...................................................................................................7 Surrender and Partial Withdrawals..............................................................................7 Lapse and Reinstatement........................................................................................7 Charges and Deductions.........................................................................................7 Investment Options and Investment Advisers.....................................................................7 Table of Charges and Deductions................................................................................8 Table of Investment Management Fees and Expenses...............................................................9 Management Other Total Trust............................................................................ Table of Investment Options and Investment Subadvisers........................................................11 General Information about Manulife (U.S.A.), the Separate Account, and the Trust.................................12 Manulife USA................................................................................................. The Separate Account..........................................................................................13 The Trust.....................................................................................................13 Investment Objectives of the Portfolios.......................................................................13 Issuing A Policy.................................................................................................18 Use of the Policy.............................................................................................18 Requirements..................................................................................................18 Temporary Insurance Agreement.................................................................................18 Underwriting..................................................................................................19 Right to Examine the Policy...................................................................................19 Death Benefits...................................................................................................19 Life Insurance Qualification..................................................................................19 Death Benefit Options.........................................................................................21 Changing the Face Amount......................................................................................21 Premium Payments.................................................................................................22 Initial Premiums..............................................................................................22 Subsequent Premiums...........................................................................................23 Maximum Premium Limitation....................................................................................23 Premium Allocation............................................................................................23 Charges and Deductions...........................................................................................23 Amount Deducted from Premiums.................................................................................23 Surrender Charges.............................................................................................23 Monthly Charges...............................................................................................24 Charges Assessed Against Assets of the Investment Accounts....................................................25 Charges for Transfers.........................................................................................25 Reduction in Charges..........................................................................................25 Company Tax Considerations....................................................................................25 Policy Value.....................................................................................................26 Determination of the Policy Value.............................................................................26 Units and Unit Values.........................................................................................26 Transfers of Policy Value.....................................................................................27 Policy Loans.....................................................................................................27 Maximum Loan..................................................................................................27 Effect of Policy Loan.........................................................................................27 Interest Charged on Policy Loans..............................................................................28 Loan Account..................................................................................................28 Policy Surrender and Partial Withdrawals.........................................................................28 Policy Surrender..............................................................................................28 Partial Withdrawals...........................................................................................28 Lapse and Reinstatement..........................................................................................29 Lapse.........................................................................................................29 Reinstatement.................................................................................................29
3 The General Account.............................................................................................. 29 Guaranteed Interest Account................................................................................... 29 Other Provisions of the Policy................................................................................... 30 Policyholder Rights........................................................................................... 30 Beneficiary................................................................................................... 30 Incontestability.............................................................................................. 30 Misstatement of Age or Sex.................................................................................... 30 Suicide Exclusion............................................................................................. 30 Supplementary Benefits........................................................................................ 31 Tax Treatment of the Policy...................................................................................... 31 Life Insurance Qualification.................................................................................. 31 Tax Treatment of Policy Benefits.............................................................................. 32 Alternate Minimum Tax......................................................................................... 35 Income Tax Reporting.......................................................................................... 35 Other Information................................................................................................ 35 Payment of Proceeds........................................................................................... 35 Reports to Policyholders...................................................................................... 35 Distribution of the Policies.................................................................................. 36 Responsibilities of MFC....................................................................................... 36 Voting Rights................................................................................................. 36 Substitution of Portfolio Shares.............................................................................. 37 Records and Accounts.......................................................................................... 37 State Regulations............................................................................................. 37 Litigation.................................................................................................... 37 Independent Auditors.......................................................................................... 37 Further Information........................................................................................... 37 Officers and Directors........................................................................................ 38 Death Benefit Schedule with Flexible Term Insurance Option....................................................... 39 Illustrations.................................................................................................... 39 Appendix A.......................................................................................................A-1 Appendix B - Audited Financial Statements.....................................................................B-1
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 DEFINITIONS Attained Age is the Issue Age of the life insured plus the number of completed Policy Years. Business Day is any day that the New York Stock Exchange is open for business. A Business Day ends at the close of regularly scheduled trading of the New York Stock Exchange (currently 4:00 p.m. Eastern Time) on that day. Case is a group of Policies covering individuals with common employment or other relationship, independent of the Policies. Cash Surrender Value is the Policy Value less the Surrender Charge and any outstanding monthly deductions due. Due Proof of Death Due Proof of Death is required upon the death of the insured. One of the following must be received at the Service Office: (a) A certified copy of a death certificate; (b) A certified copy of a decree of a court of competent jurisdiction as to the finding of death; or (c) Any other proof satisfactory to the Company. Effective Date is the date when the first monthly deductions are taken. The Effective Date is the later of: (a) the date the Company approves issuance of the Policy; and (b) the date the Company receives at least the initial premium. Guaranteed Interest Account is that part of the Policy Value which reflects the value the policyholder has in the general account of the Company. Home Office is the main office of the Company. Investment Account is that part of the Policy Value which reflects the value the policyholder has in one of the sub-accounts of the Separate Account. Issue Age is the life insured's age on the birthday closer to the Policy Date. Issue Date is the date the Company issued the Policy. The Issue Date is also the date from which the Suicide and Incontestability provisions of the Policy are measured. Loan Account is that part of the Policy Value which reflects policy loans and interest credited to the Policy Value in connection with such loans. 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. 5 Net Premium is the premium paid less the Premium Load. Policy Anniversary is the same date each year as 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 the date from which charges for the first monthly deduction are calculated and from which Policy Years, Policy Months, and Policy Anniversaries are determined. Policy Debt as of any date is the aggregate amount of policy loans, including borrowed and accrued interest, less any loan repayments. Policy Year is a period beginning on a Policy Anniversary and ending on the day immediately preceding the next Policy Anniversary Policy Value is the sum of the values in the Loan Account, the Guaranteed Interest Account, and the Investment Accounts. Service Office is McCamish Systems, L.L.C., 6425 Powers Ferry Road, Atlanta, Georgia 30339, or such other service center or address as the Company may hereafter specify to the policyholder by written notice. Target Premium is an amount used to measure the Surrender Charge under a Policy. The Target Premium is based on the Face Amount, as well as the insured's age at issue and sex, and is set forth in the Policy. POLICY SUMMARY GENERAL The Policy is a flexible premium 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 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 life 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 policyholder may change the death benefit option and increase or decrease the Face Amount. 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 policyholder'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 N. 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 policyholder has allocated premiums. The policyholder may obtain a portion of the Policy Value by taking a policy loan or a partial withdrawal, or by full surrender of the Policy. 6 POLICY LOANS The policyholder may borrow against the Cash Surrender Value of the Policy. Loan interest at a rate of 5.00% 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 policyholder 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 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 policyholder. 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 policyholder at any time within the five year period following lapse if 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 charges assessed monthly for cost of insurance and administration expenses, charges assessed daily against the assets invested in the Investment Account, and loads deducted from premiums paid. These charges are summarized in the Table of Charges and Deductions. 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 N. 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 the 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. The policyowner should discuss this matter with his or her 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 of each Portfolio for the Trust's last fiscal year are shown in the Table of Investment Management Fees and Expenses. These fees and expenses are described in detail in the accompanying Trust prospectus to which reference should be made. 7 TABLE OF CHARGES AND DEDUCTIONS Amount Deducted from Premiums 2.00% of the premium paid. Surrender Charges The Company will assess a Surrender Charge if, during the first 10 years following the Policy Date or the effective date of a Face Amount increase, the Policy is surrendered or lapses. The Surrender Charge is expressed as a percentage of total premiums paid from the Effective Date to the Policy Year shown. However, premiums paid in any year in excess of the Target Premium, and premiums paid after the fifth Policy Year are not included in the determination of total premiums paid. Percentages are as follows:
Policy Year Percentage Policy Year Percentage 1 10.00% 6 5.00% 2 7.50% 7 4.00% 3 5.00% 8 3.00% 4 5.00% 9 2.00% 5 5.00% 10+ 0.00%
The Target Premium is based on the Face Amount, as well as the insured's age at issue and sex, and is set forth in the Policy. A portion of the Surrender Charge may be assessed on a partial withdrawal or a decrease in the Face Amount. See "Charges and Deductions - Surrender Charges on a Partial Withdrawal" and "Death Benefits - Changing the Face Amount - Surrender Charges Assessed on a Decrease." Monthly Deductions The following charges will be deducted from Net Policy Value: An administration charge of $12. The cost of insurance charge. Any additional charges for supplementary benefits. Investment Account Charges A mortality and expense risk charge is assessed daily against the value of the Investment Account assets. This charge varies by Policy Year as follows:
Annual Mortality and Policy Years Expense Risk Charge 1-10 0.75% 11+ 0.40%
Loan Charges A fixed loan interest rate of 5.00%. Interest credited to amounts in the Loan Account will be equal to the 5.00% rate charged to the loan less the following Loan Spread:
Policy Years Loan Spread 1-10 1.00% 11-20 0.50% 21+ 0.25%
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 (as a percentage of Trust average net assets for the fiscal year ended December 31, 2000) (K)
TOTAL TRUST OTHER EXPENSES ANNUAL EXPENSES MANAGEMENT (AFTER EXPENSE (AFTER EXPENSE TRUST PORTFOLIO FEES CLASS A RULE 12b-1 FEE REIMBURSEMENT) REIMBURSEMENT) -------------------------------------------------------------------------------------------------------------------- Internet Technologies...... 1.000% 0.150% 0.130% 1.280% (E) Pacific Rim Emerging Markets 0.700% 0.150% 0.180% 1.030% Telecommunications......... 0.950% 0.150% 0.130% 1.230% (A) Science & Technology....... 0.916% (F) 0.150% 0.040% 1.106% International Small Cap.... 0.914% 0.150% 0.440% 1.504% Health Sciences............ 0.950% (F) 0.150% 0.130% 1.230% (A) Aggressive Growth.......... 0.850% 0.150% 0.070% 1.070% Emerging Small Company..... 0.896% 0.150% 0.050% 1.096% Small Company Blend........ 0.900% 0.150% 0.140% 1.190% Dynamic Growth............. 0.850% 0.150% 0.070% 1.070% (E) Mid Cap Growth............. 0.850% 0.150% 0.280% 1.280% (A) Mid Cap Opportunities...... 0.850% 0.150% 0.230% 1.230% (A) Mid Cap Stock.............. 0.775% 0.150% 0.075% 1.000% All Cap Growth............. 0.778% 0.150% 0.050% 0.978% Financial Services......... 0.800% 0.150% 0.090% 1.040% (A) Overseas................... 0.800% 0.150% 0.200% 1.150% International Stock........ 0.850% (F) 0.150% 0.180% 1.180% International Value........ 0.850% 0.150% 0.180% 1.180% Capital Appreciation....... 0.750% 0.150% 0.500% (H) 1.400% (H) Strategic Opportunities ... 0.700% 0.150% 0.050% 0.900% Quantitative Mid Cap....... 0.650% 0.150% 0.070% 0.870% (A) Global Equity.............. 0.750% 0.150% 0.120% 1.020% Strategic Growth........... 0.750% 0.150% 0.120% 1.020% (A) Growth..................... 0.683% 0.150% 0.050% 0.883% Large Cap Growth........... 0.750% 0.150% 0.065% 0.965% All Cap Value.............. 0.800% 0.150% 0.140% 1.090% (A) Capital Opportunities...... 0.750% 0.150% 0.160% 1.060% (A) Quantitative Equity........ 0.596% 0.150% 0.050% 0.796% Blue Chip Growth........... 0.713% (F) 0.150% 0.035% 0.898% Utilities.................. 0.750% 0.150% 0.270% 1.170% (A) Real Estate Securities..... 0.647% (A) 0.150% 0.060% 0.857% Small Company Value........ 0.900% (F) 0.150% 0.190% 1.240% Mid Cap Value.............. 0.800% 0.150% 0.160% 1.110% (A) Value...................... 0.650% 0.150% 0.060% 0.860% Tactical Allocation........ 0.750% 0.150% 0.430% 1.330% (E) Equity Index (I)........... 0.250% 0.000% 0.150% 0.400% Fundamental Value.......... 0.800% 0.150% 0.130% 1.080% (A) Growth & Income............ 0.524% 0.150% 0.040% 0.714% U.S. Large Cap Value....... 0.725% 0.150% 0.055% 0.930% Equity-Income.............. 0.725% (F) 0.150% 0.035% 0.910% Income & Value............. 0.650% 0.150% 0.060% 0.860% Balanced................... 0.554% (A) 0.150% 0.060% 0.764% High Yield................. 0.625% 0.150% 0.065% 0.840% Strategic Bond............. 0.625% 0.150% 0.095% 0.870% Global Bond................ 0.600% 0.150% 0.200% 0.950% Total Return............... 0.600% 0.150% 0.065% 0.815% Investment Quality Bond.... 0.500% 0.150% 0.080% 0.730% Diversified Bond........... 0.600% 0.150% 0.060% 0.810% U.S. Government Securities. 0.550% 0.150% 0.070% 0.770% Money Market............... 0.350% 0.150% 0.040% 0.540% Small Cap Index............ 0.375% 0.150% 0.075% (G) 0.600% (E)
9 International Index........ 0.400% 0.150% 0.050% (G) 0.600% (E) Mid Cap Index.............. 0.375% 0.150% 0.075% (G) 0.600% (E) Total Stock Market Index... 0.375% 0.150% 0.075% (G) 0.600% (E) 500 Index (J).............. 0.375% 0.150% 0.025% (G) 0.550% (E) Lifestyle Aggressive 1000 (D) 0.070% 0.000% 1.038% (B) 1.108% (C) Lifestyle Growth 820 (D)... 0.055% 0.000% 0.966% (B) 1.021% (C) Lifestyle Balanced 640 (D). 0.055% 0.000% 0.892% (B) 0.947% (C) Lifestyle Moderate 460 (D). 0.064% 0.000% 0.826% (B) 0.890% (C) Lifestyle Conservative 280 (D) 0.075% 0.000% 0.784% (B) 0.859% (C)
(A) Based on estimates to be made during the current fiscal year. (B) Reflects expenses of the Underlying Portfolios. (C) The investment adviser to the Trust, Manufacturers Securities Services, LLC ("MSS" or the "Adviser") has voluntarily agreed to pay certain expenses of each Lifestyle Trust as noted below. (For purposes of the expense reimbursement, total expenses of a Lifestyle Trust includes the advisory fee but excludes (a) the expenses of the Underlying Portfolios, (b) taxes, (c) portfolio brokerage, (d) interest, (e) litigation and (f) indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Trust's business.) If total expenses of a Lifestyle Trust (absent reimbursement) exceed 0.075%, the Adviser will reduce the advisory fee or reimburse expenses of that Lifestyle Trust by an amount such that total expenses of the Lifestyle Trust equal 0.075%. If the total expenses of the Lifestyle Trust (absent reimbursement) are equal to or less than 0.075%, then no expenses will be reimbursed by the Adviser. This voluntary expense reimbursement may be terminated at any time. If such expense reimbursement was not in effect, Total Trust Annual Expenses would be higher (based on current advisory fees and the Other Expenses of the Lifestyle Trusts for the fiscal year ended December 31, 2000) as noted in the chart below:
MANAGEMENT RULE 12b-1 OTHER TOTAL TRUST TRUST PORTFOLIO FEES FEES EXPENSES ANNUAL EXPENSES -------------------------------------------------------------------------------------------------- Lifestyle Aggressive 1000. 0.070% 0.000% 1.063% 1.133% Lifestyle Growth 820...... 0.055% 0.000% 0.976% 1.031% Lifestyle Balanced 640.... 0.055% 0.000% 0.902% 0.957% Lifestyle Moderate 460.... 0.064% 0.000% 0.851% 0.915% Lifestyle Conservative 280 0.075% 0.000% 0.816% 0.891%
(D) Each Lifestyle Trust will invest in shares of the Underlying Portfolios. Therefore, each Lifestyle Trust will bear its pro rata share of the fees and expenses incurred by the Underlying Portfolios in which it invests, and the investment return of each Lifestyle Trust will be net of the Underlying Portfolio expenses. Each Lifestyle Portfolio must bear its own expenses. However, the Adviser is currently paying certain of these expenses as described in footnote (C) above. (E) Annualized - For the period May 1, 2000 (commencement of operations) to December 31, 2000. (F) Effective June 1, 2000, the Adviser voluntarily agreed to waive a portion of its advisory fee for the Science & Technology Trust, Health Sciences Trust, Small Company Value Trust, Blue Chip Growth Trust , Equity-Income Trust, and the International Stock Trust. The fee reduction is based on the combined asset level of all six portfolios and the International Stock Trust. Once the combined assets exceed specified amounts, the fee reduction is increased. The percentage fee reduction for each asset level is as follows:
FEE REDUCTION COMBINED ASSET LEVELS (AS A PERCENTAGE OF THE ADVISORY FEE) First $750 million 0.00% Between $750 million and $1.5 billion 2.50% Between $1.5 billion and $3.0 billion 3.75% Over $3.0 billion 5.00%
The fee reductions are applied to the advisory fees of each of the six portfolios. This voluntary fee waiver may be terminated at any time by the adviser. As of September 30, 2001, the combined asset level for all six portfolios was approximately $3.396 billion resulting in a fee reduction of 3.408%. There is no guarantee that the combined asset level will remain at this amount. If the combined asset level were to decrease to a lower breakpoint, the fee reduction would decrease as well. (G) MSS has voluntarily agreed to pay expenses of each Index Trust (excluding the advisory fee) that exceed the following amounts: 0.050% in the case of the International Index Trust and 500 Index Trust and 0.075% in the case of the Small Cap Index Trust, the Mid Cap Index Trust and Total Stock Market Index Trust. If such expense reimbursement were not in effect, it is estimated that "Other Expenses" and "Total Trust Annual Expenses" would be 0.097% and 0.650%, respectively, for the International Index Trust, 0.125% and 0.650%, respectively, for the Small Cap Index Trust, and 10 0.164% and 0.690%, respectively, for the Mid Cap Index Trust and 0.090% and 0.620%, respectively, for the Total Stock Market Index Trust. It is estimated that the expense reimbursement will not be effective during the year end December 31, 2001 for the 500 Index Trust. The expense reimbursement may be terminated at any time by MSS. (H) Annualized - For period November 1, 2000 (commencement of operations) to December 31, 2000. For all portfolios except the Lifestyle Trusts, the Adviser reduces its advisory fee or reimburses the portfolio if the total of all expenses (excluding advisory fees, taxes, portfolio brokerage commissions, interest, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the portfolio's business) exceed certain annual rates. In the case of the Capital Appreciation Trust, the Adviser reimbursed the portfolio for certain expenses for the year ended December 31, 2000. If such expense reimbursement were not in effect, it is estimated that "Other Expenses" and "Total Trust Annual Expenses" would be 0.700% and 1.600%, respectively. These voluntary expense reimbursements may be terminated at any time. (I) 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 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 0.55%, and Other Expenses would have been 0.30%, of the average annual net assets of the Equity Index Trust. (J) For any policyowner who has allocated premiums to the 500 Index Trust, the Company will waive contract charges by an amount sufficient so that the total trust annual expenses for the 500 Index Trust will not exceed 0.40% per annum on an annualized basis. This waiver may be terminated at any time by the Company. (K) Effective January 1, 2002, the Trust implemented a Class A Rule 12b-1 plan while simultaneously reducing its advisory fees and implementing advisory fee breakpoints. The Trust Annual Expense chart reflects these changes. TABLE OF INVESTMENT OPTIONS AND INVESTMENT SUBADVISERS The Trust currently has twenty-five subadvisers who manage all of the portfolios, one of which subadvisers is Manufacturers Adviser Corporation ("MAC"). Both MSS and MAC are affiliates of ours.
SUBADVISER PORTFOLIO A I M Capital Management, Inc. All Cap Growth Trust Aggressive Growth Trust Brinson Advisors, Inc. Tactical Allocation Trust Capital Guardian Trust Company Small Company Blend Trust U.S. Large Cap Value Trust Income & Value Trust Diversified Bond Trust Cohen & Steers Capital Management, Inc. Real Estate Securities Trust Davis Select Advisers, L.P. Financial Services Trust Fundamental Value Trust The Dreyfus Corporation All Cap Value Trust Fidelity Management & Research Company Strategic Opportunities Trust (A) Large Cap Growth Trust Overseas Trust Founders Asset Management LLC International Small Cap Trust Franklin Advisers, Inc. Emerging Small Company Trust INVESCO Funds Group, Inc. Telecommunications Trust Mid Cap Growth Trust Janus Capital Corporation Dynamic Growth Trust Jennison Associates LLC Capital Appreciation Trust
11 Lord, Abbett & Co. Mid Cap Value Trust Manufacturers Adviser Corporation Pacific Rim Emerging Markets Trust Quantitative Equity Trust Quantitative Mid Cap Trust Equity Index Trust (C) Money Market Trust Index Trusts Lifestyle Trusts (B) Balanced Trust Massachusetts Financial Services Company Strategic Growth Trust Capital Opportunities Trust Utilities Trust Miller Anderson & Sherrerd, LLP Value Trust High Yield Trust Munder Capital Management Internet Technologies Trust Pacific Investment Management Company Global Bond Trust Total Return Trust Putnam Investment Management, L.L.C. Mid Cap Opportunities Trust Global Equity Trust Salomon Brothers Asset Management Inc U.S. Government Securities Trust Strategic Bond Trust SSgA Funds Management, Inc. Growth Trust Lifestyle Trusts (B) T. Rowe Price Associates, Inc. Science & Technology Trust Small Company Value Trust Health Sciences Trust Blue Chip Growth Trust Equity-Income Trust T. Rowe Price International, Inc. International Stock Trust Templeton Investment Counsel, Inc. International Value Trust Wellington Management Company, LLP Growth & Income Trust Investment Quality Bond Trust Mid Cap Stock Trust
----------------- (A) Formerly, the Mid Cap Blend Trust. (B) SSgA Funds Management, Inc. provides subadvisory consulting services to Manufacturers Adviser Corporation regarding management of the Lifestyle Trusts. (C) The Equity Index Trust is available for policies issued to clients (corporations and other entities) who as of May 1, 2000 have at least one currently effective variable life insurance policy with the Company. GENERAL INFORMATION ABOUT MANULIFE (USA) the Separate Account, and the Trust Manulife USA We are a stock life insurance company incorporated in Maine on August 20, 1955 by a special act of the Maine legislature and redomesticated under the laws of Michigan. We are a licensed life insurance company in the District of Columbia and all states of the United States except New York. Our ultimate parent is Manulife Financial Corporation ("MFC"), a publicly traded company, based in Toronto, Canada. MFC is the holding company of The Manufacturers Life Insurance Company and its subsidiaries, collectively known as Manulife Financial. The Manufacturers Life Insurance Company is one of the largest life insurance companies in North 12 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: Standard and Poor's Insurance Ratings Service: AA+ (for financial strength) A.M.Best Company: A++ (for financial strength) Fitch: AAA (for financial strength) Moody's Investors Service, Inc.: Aa2 (for financial strength)
These ratings, which are current as of the date of this prospectus and are subject to change, are assigned to Manulife USA as a measure of the Company's ability to honor the death benefit but not specifically to its products, the performance (return) of these products, the value of any investment in these products upon withdrawal or to individual securities held in any portfolio. THE SEPARATE ACCOUNT The Manufacturers Life Insurance Company of America ("ManAmerica") established its Separate Account Four (the "Separate Account") on March 17, 1987 as a separate account under Pennsylvania law. Since December 9, 1992, it has been operated under Michigan law. On January 1, 2002, ManAmerica transferred substantially all of its assets and liabilities to Manulife USA As a result of this transaction, Manulife USA became the owner of all of ManAmerica's assets, including the assets of the Separate Account and assumed all of ManAmerica's obligations including those under the Policies. The ultimate parent of both ManAmerica and Manulife USA is Manulife Financial Corporation ("MFC"). The Separate Account holds assets that are segregated from all of Manulife USA's other assets. The Separate Account is currently used only to support variable life insurance policies. ASSETS OF THE SEPARATE ACCOUNT Manulife USA is the legal owner of the assets in the Separate Account. The income, gains, and losses of the Separate Account, whether or not realized, are, in accordance with applicable contracts, credited to or charged against the Account without regard to the other income, gains, or losses of Manulife USA Manulife USA will at all times maintain assets in the Separate Account with a total market value at least equal to the reserves and other liabilities relating to variable benefits under all policies participating in the Separate Account. These assets may not be charged with liabilities which arise from any other business Manulife USA conducts. However, all obligations under the variable life insurance policies are general corporate obligations of Manulife USA REGISTRATION The Separate Account is registered with the SEC under the Investment Company Act of 1940 ("1940 Act") as a unit investment trust. A unit investment trust is a type of investment company which invests its assets in specified securities, such as the shares of one or more investment companies, rather than in a portfolio of unspecified securities. Registration under the 1940 Act does not involve any supervision by the SEC of the management or investment policies or practices of the Separate Account. For state law purposes the Separate Account is treated as a part or division of Manulife USA THE TRUST Each sub-account of the Separate Account will purchase shares only of a particular Portfolio of the Trust. The Trust is registered under the 1940 Act as an open-end management investment company. Each of the Trust portfolios, except the Lifestyle Trusts and the Equity Index Trust, are subject to a Rule 12b-1 fee of .15% of a portfolio's Class A net assets. The Separate Account will purchase and redeem shares of the Portfolios at net asset value. Shares will be redeemed to the extent necessary for Manulife USA to provide benefits under the Policies, to transfer assets from one sub-account to another or to the general account as requested by policyholders, and for other purposes not inconsistent with the Policies. Any dividend or capital gain distribution received from a Portfolio with respect to the policies will be reinvested immediately at net asset value in shares of that Portfolio and retained as assets of the corresponding sub-account. The Trust shares are issued to fund benefits under both variable annuity contracts and variable life insurance policies issued by the Company or life insurance companies affiliated with the Company. Manulife USA will 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 13 contained in the accompanying Trust prospectus, which should be read together with this prospectus. ELIGIBLE PORTFOLIOS The Portfolios of the Trust available under the Policies are as follows: The INTERNET TECHNOLOGIES TRUST seeks long-term capital appreciation by investing the portfolio's assets primarily in companies engaged in Internet-related business (such businesses also include Intranet-related businesses). The PACIFIC RIM EMERGING MARKETS TRUST seeks long-term growth of capital by investing in a diversified portfolio that is comprised primarily of common stocks and equity-related securities of corporations domiciled in countries in the Pacific Rim region. The TELECOMMUNICATIONS TRUST seeks capital appreciation (with earning income as a secondary objective) by investing, under normal market conditions, primarily in equity securities of companies engaged in the telecommunications sector, that is, in the design, development, manufacture, distribution or sale of communications services and equipment and companies that are involved in supplying equipment or services to such companies. The SCIENCE & TECHNOLOGY TRUST seeks long-term growth of capital by investing at least 65% of the portfolio's total assets in common stocks of companies expected to benefit from the development, advancement, and use of science and technology. Current income is incidental to the portfolio's objective. The INTERNATIONAL SMALL CAP TRUST seeks capital appreciation by investing primarily in securities issued by foreign companies which have total market capitalization or annual revenues of $1 billion or less. These securities may represent companies in both established and emerging economies throughout the world. The HEALTH SCIENCES TRUST seeks long-term capital appreciation by investing, under normal market conditions, at least 65% of the portfolio's total assets in common stocks of companies engaged in the research, development, production, or distribution of products or services related to health care, medicine, or the life sciences (collectively termed "health sciences"). The AGGRESSIVE GROWTH TRUST seeks long-term capital appreciation by investing the portfolio's asset principally in common stocks, convertible bonds, convertible preferred stocks and warrants of companies which in the opinion of the subadviser are expected to achieve earnings growth over time at a rate in excess of 15% per year. Many of these companies are in the small and medium-sized category. The EMERGING SMALL COMPANY TRUST seeks long-term growth of capital by investing, under normal market conditions, at least 65% of the portfolio's total assets in common stock equity securities of companies with market capitalizations that approximately match the range of capitalization of the Russell 2000 Index ("small cap stocks") at the time of purchase. The SMALL COMPANY BLEND TRUST seeks long-term growth of capital and income by investing the portfolio's assets, under normal market conditions, primarily in equity and equity-related securities of companies with market capitalizations that approximately match the range of capitalization of the Russell 2000 Index at the time of purchase. The DYNAMIC GROWTH TRUST seeks long-term growth of capital by investing the portfolio's assets primarily in equity securities selected for their growth potential. Normally at least 50% of its equity assets are invested in medium-sized companies. The MID CAP GROWTH TRUST seeks capital appreciation by investing primarily in common stocks of mid-sized companies - those with market capitalizations between $2 billion and $15 billion at the time of purchase. The MID CAP OPPORTUNITIES TRUST seeks capital appreciation by investing, under normal market conditions, primarily in common stocks and other equity securities of U.S. companies, with a focus on growth stocks of mid size companies. The MID CAP STOCK TRUST seeks long-term growth of capital by investing primarily in equity securities with significant capital appreciation potential, with emphasis on medium-sized companies. The ALL CAP GROWTH TRUST seeks long-term capital appreciation by investing the portfolio's asset,s under normal market conditions, principally in common stocks of companies that are likely to benefit from new or innovative products, services or processes, as well as those that have experienced above average, long-term growth in earnings and have excellent prospects for future growth. The FINANCIAL SERVICES TRUST seeks growth of capital by investing primarily in common stocks of financial companies. During normal market conditions, at least 65% of the portfolio's assets are invested in companies that are principally engaged in 14 financial services. A company is "principally engaged" in financial services if it owns financial services-related assets constituting at least 50% of the value of its total assets, or if at least 50% of its revenues are derived from its provision of financial services. The OVERSEAS TRUST seeks growth of capital by investing, under normal market conditions, at least 65% of the portfolio's assets in foreign securities (including American Depositary Receipts (ADRs) and European Depositary Receipts (EDRs)). The portfolio expects to invest primarily in equity securities. The INTERNATIONAL STOCK TRUST seeks long-term growth of capital by investing primarily in common stocks of established, non-U.S. companies. The INTERNATIONAL VALUE TRUST seeks long-term growth of capital by investing, under normal market conditions, primarily in equity securities of companies located outside the U.S., including emerging markets. The CAPITAL APPRECIATION TRUST seeks long-term capital growth by investing at least 65% of its total assets in equity-related securities of companies that exceed $1 billion in market capitalization and that the subadviser believes have above-average growth prospectus. These companies are generally medium-to-large capitalization companies. The STRATEGIC OPPORTUNITIES TRUST (formerly, Mid Cap Blend Trust) seeks growth of capital by investing primarily in common stocks of U.S. issuers and securities convertible into or carrying the right to buy common stocks. The QUANTITATIVE MID CAP TRUST seeks long-term growth of capital by investing, under normal market conditions, at least 65% of the portfolio's total assets in U.S. mid-cap stocks, convertible preferred stocks, convertible bonds and warrants. The GLOBAL EQUITY TRUST seeks long-term capital appreciation by investing, under normal market conditions, at least 65% of the portfolio's total assets in equity securities of companies in at least three different countries, including the U.S. The portfolio may invest in companies of any size but emphasizes mid- and large-capitalization companies that the subadviser believes are undervalued. The STRATEGIC GROWTH TRUST seeks capital appreciation by investing, under normal market conditions, at least 65% of the portfolio's total assets in common stocks and related securities (such as preferred stocks, bonds, warrants or rights convertible into stock and depositary receipts for these securities) of companies which the subadviser believes offer superior prospects for growth. The GROWTH TRUST seeks long-term growth of capital by investing primarily in large capitalization growth securities (market capitalizations of approximately $1 billion or greater). The LARGE CAP GROWTH TRUST seeks long-term growth of capital by investing, under normal market conditions, at least 65% of the portfolio's assets in equity securities of companies with large market capitalizations. The ALL CAP VALUE TRUST seeks capital appreciation by investing, under normal market conditions, at least 65% of the portfolio's total assets in the stocks of value companies of any size. The CAPITAL OPPORTUNITIES TRUST seeks capital appreciation by investing, under normal market conditions, at least 65% of the portfolio's total assets in common stocks and related securities, such as preferred stock, convertible securities and depositary receipts. The portfolio focuses on companies which the subadviser believes have favorable growth prospects and attractive valuations based on current and expected earnings or cash flow. The QUANTITATIVE EQUITY TRUST seeks to achieve intermediate and long-term growth through capital appreciation and current income by investing in common stocks and other equity securities of well established companies with promising prospects for providing an above average rate of return. The BLUE CHIP GROWTH TRUST seeks to achieve long-term growth of capital (current income is a secondary objective) by investing at least 65% of the portfolio's total assets in the common stocks of large and medium-sized blue chip companies. Many of the stocks in the portfolio are expected to pay dividends. The UTILITIES TRUST seeks capital growth and current income (income above that available from a portfolio invested entirely in equity securities) by investing, under normal market conditions, at least 65% of the portfolio's total assets in equity and debt securities of domestic and foreign companies in the utilities industry. The REAL ESTATE SECURITIES TRUST seeks to achieve a combination of long-term capital appreciation and current income by investing, under normal market conditions, substantially (at least 65% of total assets) in equity securities of real estate companies, such as real estate investment trusts ("REITs"). The SMALL COMPANY VALUE TRUST seeks long-term growth of capital by investing, under normal market conditions, primarily in small companies whose common stocks are believed to be undervalued. Normally, the portfolio will invest at least 65% of 15 its total assets in companies with a market capitalization that do not exceed the maximum market capitalization of any security in the Russell 2000 Index at the time of purchase. The MID CAP VALUE TRUST seeks capital appreciation by investing, under normal market conditions, at least 65% of the portfolios total assets in equity securities which the subadviser believes to be undervalued in the marketplace. Normally, at least 65% of the portfolio's total assets will consist of investments in mid-sized companies, with market capitalizations of roughly $500 million to $10 billion. The VALUE TRUST seeks to realize an above-average total return over a market cycle of three to five years, consistent with reasonable risk, by investing primarily in common and preferred stocks, convertible securities, rights and warrants to purchase common stocks, ADRs and other equity securities of companies with equity capitalizations usually greater than $300 million. The 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 primarily in a diversified portfolio of investment grade corporate bonds and U.S. Government bonds with 16 intermediate to longer term maturities. The portfolio may also invest up to 20% of its assets in non-investment grade fixed income securities. The DIVERSIFIED BOND TRUST seeks high total return consistent with the conservation of capital by investing at least 75% of the portfolio's assets in fixed income securities. The U.S. GOVERNMENT SECURITIES TRUST seeks a high level of current income consistent with preservation of capital and maintenance of liquidity, by investing in debt obligations and mortgage-backed securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities and derivative securities such as collateralized mortgage obligations backed by such securities. The MONEY MARKET TRUST seeks maximum current income consistent with preservation of principal and liquidity by investing in high quality money market instruments with maturities of 397 days or less issued primarily by U. S. entities. The SMALL CAP INDEX TRUST seeks to approximate the aggregate total return of a small cap U.S. domestic equity market index by attempting to track the performance of the Russell 2000 Index.* The INTERNATIONAL INDEX TRUST seeks to approximate the aggregate total return of a foreign equity market index by attempting to track the performance of the Morgan Stanley European Australian Far East Free Index (the "MSCI EAFE Index").* The MID CAP INDEX TRUST seeks to approximate the aggregate total return of a mid cap U.S. domestic equity market index by attempting to track the performance of the S&P Mid Cap 400 Index.* The TOTAL STOCK MARKET INDEX seeks to approximate the aggregate total return of a broad U.S. domestic equity market index by attempting to track the performance of the Wilshire 5000 Equity Index.* The 500 INDEX TRUST seeks to approximate the aggregate total return of a broad U.S. domestic equity market index by attempting to track the performance of the S&P 500 Composite Stock Price Index.* The LIFESTYLE AGGRESSIVE 1000 TRUST seeks to provide long-term growth of capital (current income is not a consideration) by investing 100% of the Lifestyle Trust's assets in other portfolios of the Trust ("Underlying Portfolios") which invest primarily in equity securities. The LIFESTYLE GROWTH 820 TRUST seeks to provide long-term growth of capital with consideration also given to current income by investing approximately 20% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 80% of its assets in Underlying Portfolios which invest primarily in equity securities. The LIFESTYLE BALANCED 640 TRUST seeks to provide a balance between a high level of current income and growth of capital with a greater emphasis given to capital growth by investing approximately 40% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 60% of its assets in Underlying Portfolios which invest primarily in equity securities. The LIFESTYLE MODERATE 460 TRUST seeks to provide a balance between a high level of current income and growth of capital with a greater emphasis given to current income by investing approximately 60% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 40% of its assets in Underlying Portfolios which invest primarily in equity securities. The LIFESTYLE CONSERVATIVE 280 TRUST seeks to provide a high level of current income with some consideration also given to growth of capital by investing approximately 80% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 20% of its assets in Underlying Portfolios which invest primarily in equity securities. *"Standard & Poor's(R)," "S&P 500(R)," "Standard and Poor's 500(R)" and "Standard and Poor's 400(R)" are trademarks of The McGraw-Hill Companies, Inc. "Russell 2000(R)" is a trademark of Frank Russell Company. "Wilshire 5000(R)" is a trademark of Wilshire Associates. "Morgan Stanley European Australian Far East Free" and "EAFE(R)" are trademarks of Morgan Stanley & Co. Incorporated. None of the Index Trusts are sponsored, endorsed, managed, advised, sold or promoted by any of these companies, and none of these companies make any representation regarding the advisability of investing in the Trust. 17 ISSUING A POLICY USE OF THE POLICY The Policy is designed to provide to corporations and other entities life insurance coverage on their employees or other persons in whose lives they have an insurable interest. The Policy may be owned individually or by a corporation, trust, association, or similar entity. The Policy may be used for such purposes as funding non-qualified executive deferred compensation or salary continuation plans, as a means of funding death benefit liabilities incurred under executive retirement plans, or as a source for funding cash flow obligations under such plans. REQUIREMENTS To purchase a Policy, an applicant must submit a completed application. A Policy will not be issued until the underwriting process has been completed to the Company's satisfaction. Policies may be issued on a basis which does not distinguish between the insured's sex and/or smoking status, with prior approval from the Company. A Policy will only be issued on the lives of insureds from ages 20 through 80. Each Policy is issued with a Policy Date, an Effective Date and an Issue Date. The Policy Date is the date coverage takes effect under the Policy and the date from which the first monthly deductions are calculated and from which Policy Years, Policy Months and Policy Anniversaries are determined. The Effective Date is the date the Company approves issuance of the Policy and the date the Company receives at least the minimum initial premium. The Issue Date is the date from which the Suicide and Incontestability provisions of the Policy are measured. If an application accepted by the Company is not accompanied by a check for the initial premium and no request to backdate the Policy has been made: (i) the Policy Date and the Effective Date will be the date the Company receives the check at its service office, and (ii) the Issue Date will be the date the Company issues the Policy. The initial premium must be received within 60 days after the Issue Date, and the life insured must be in good health on the date the initial premium is received. If the premium is not paid or if the application is rejected, the Policy will be canceled and any partial premiums paid will be returned to the applicant. 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 Trust. As of the Effective Date, the premiums paid plus interest credited, net of the premium load, will be allocated among the Investment Accounts and/or Guaranteed Interest Account in accordance with the policyholder's instructions unless such amount is first allocated to the Money Market Trust for the duration of the Right to Examine period. MINIMUM INITIAL FACE AMOUNT Manulife USA will issue a Policy only if it has a Face Amount of at least $50,000. 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. TEMPORARY INSURANCE AGREEMENT In accordance with the Company's underwriting practices, temporary insurance coverage may be provided under the terms of a Temporary Insurance Agreement. Generally, temporary life insurance may not exceed $1,000,000 and may not be in effect for more than 90 days. This temporary insurance coverage will be issued on a conditional receipt basis, which means that any benefits under such temporary coverage will only be paid if the life insured meets the Company's usual and customary underwriting standards for the coverage applied for. UNDERWRITING The policies are offered on three underwriting bases, which vary by the amount of information required of the prospective insured. These bases are: short form underwriting, simplified underwriting, and regular (medical) underwriting. These are described in more 18 detail below. Regardless of which underwriting procedure is used, 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. SHORT FORM UNDERWRITING Generally, the availability of short form underwriting depends on the characteristics of the Case, such as the number of lives to be insured and the amounts of insurance. Under Short Form underwriting, a proposed Insured is required to answer qualifying questions in the application, but is not required to submit to a medical or paramedical exam. Short form underwriting is generally available only up to issue age 65. SIMPLIFIED UNDERWRITING Like short form underwriting the availability of simplified underwriting depends on the characteristics of the Case. Under Simplified Underwriting, the proposed insured is required to respond satisfactorily to certain health questions in the application. Medical records, such as "Attending Physician's Statements" (APS's) are generally required. In some instances, a blood test may also be required. REGULAR UNDERWRITING If the requirements for short form or simplified underwriting are not satisfied, the Company will require satisfactory evidence of insurability. This may include medical exams and other information. 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 the policyholder has a longer time. The Policy can be mailed or delivered to the Manulife USA agent who sold it or to the Service Office. Immediately on 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: (a) the difference between payments made and amounts allocated to the Separate Account and the Guaranteed Interest Account; plus (b) the value of the amount allocated to the Separate Account and the Guaranteed Interest Account as of the date the returned Policy is received by the Company; minus (c) any partial withdrawals made and policy loans taken. Some state laws require the refund of all premiums paid, without adjustment for the investment gains and losses of the Separate Account. In these states, all Net Premiums will be allocated to the Money Market Trust during the right to examine period, and the policyholder will receive a refund of all payments made less any partial withdrawals and policy loans taken. If a policyholder 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 cancelled, the Policy Value and the surrender charges will be recalculated to the amounts they would have been had the increase not taken place. A policyholder 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. DEATH BENEFITS If the Policy is in force at the time of the life insured's death, the Company will pay an insurance benefit upon receipt of Due Proof of Death. 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 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. LIFE INSURANCE QUALIFICATION A Policy must satisfy either of two tests to qualify as a life insurance contract for purposes of Section 7702 of the Internal Revenue Code of 1986, as amended. At the time of application, the policyholder may choose a Policy which uses either the Cash Value Accumulation Test or the Guideline Premium Test. The test cannot be changed once the Policy is issued. 19 CASH VALUE ACCUMULATION TEST Under the Cash Value Accumulation Test ("CVA Test"), the Policy's death benefit must be at least equal to the Minimum Death Benefit. There is no restriction on the amount of premiums that may be paid into a Policy. However, the Company reserves the right to require satisfactory evidence of insurability before accepting any premium that would increase the net amount at risk under the Policy. GUIDELINE PREMIUM TEST The Guideline Premium Test ("GLP 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). However, the Minimum Death Benefit Percentages are lower than those required under the Cash Value Accumulation Test. 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. 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 policyholder to take a partial withdrawal. In addition, these changes could reduce the future premium limitations. MINIMUM DEATH BENEFIT Both the Cash Value Accumulation Test ("CVA Test") and the Guideline Premium Test ("GLP Test") require a life insurance policy to meet minimum ratios of life insurance coverage to policy value. This is achieved by ensuring that the death benefit is at all times at least equal to the Minimum Death Benefit. The Minimum Death Benefit on any date is defined as the Policy Value on that date times the applicable Minimum Death Benefit Percentage for the Attained Age of the life insured. The Minimum Death Benefit Percentages for each test are shown in the Table of Minimum Death Benefit Percentages. TABLE OF MINIMUM DEATH BENEFIT PERCENTAGES
GLP TEST CVA TEST GLP TEST CVA TEST AGE PERCENT MALE FEMALE AGE PERCENT MALE FEMALE --- ------- ---- ------ --- ------- ---- ------ 20 250% 653% 779% 60 130% 192% 221% 21 250% 634% 754% 61 128% 187% 214% 22 250% 615% 730% 62 126% 182% 208% 23 250% 597% 706% 63 124% 178% 203% 24 250% 580% 684% 64 122% 174% 197% 25 250% 562% 662% 65 120% 170% 192% 26 250% 545% 640% 66 119% 166% 187% 27 250% 528% 619% 67 118% 162% 182% 28 250% 511% 599% 68 117% 159% 177% 29 250% 494% 580% 69 116% 155% 173% 30 250% 479% 561% 70 115% 152% 169% 31 250% 463% 542% 71 113% 149% 164% 32 250% 448% 525% 72 111% 146% 160% 33 250% 433% 507% 73 109% 144% 156% 34 250% 419% 491% 74 107% 141% 153% 35 250% 406% 475% 75 105% 139% 149% 36 250% 392% 459% 76 105% 136% 146% 37 250% 380% 444% 77 105% 134% 143% 38 250% 367% 430% 78 105% 132% 140% 39 250% 356% 416% 79 105% 130% 138% 40 250% 344% 403% 80 105% 129% 135% 41 243% 333% 390% 81 105% 127% 133% 42 236% 323% 378% 82 105% 125% 130%
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GLP TEST CVA TEST GLP TEST CVA TEST AGE PERCENT MALE FEMALE AGE PERCENT MALE FEMALE --- ------- ---- ------ --- ------- ---- ------ 43 229% 313% 366% 83 105% 124% 128% 44 222% 303% 355% 84 105% 122% 126% 45 215% 294% 344% 85 105% 121% 124% 46 209% 285% 333% 86 105% 120% 123% 47 203% 277% 323% 87 105% 119% 121% 48 197% 268% 313% 88 105% 118% 119% 49 191% 260% 304% 89 105% 116% 118% 50 185% 253% 295% 90 105% 116% 117% 51 178% 245% 286% 91 104% 115% 115% 52 171% 238% 278% 92 103% 114% 114% 53 164% 232% 270% 93 102% 112% 113% 54 157% 225% 262% 94 101% 111% 112% 55 150% 219% 254% 95 100% 110% 110% 56 146% 213% 247% 96 100% 109% 109% 57 142% 207% 240% 97 100% 107% 107% 58 138% 202% 233% 98 100% 106% 106% 59 134% 197% 227% 99 100% 105% 105%
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. The change will occur on the first day of the next Policy month which is 30 days 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 on 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 on the date of the change. No new Surrender Charges will apply to an increase in Face Amount solely due to a change in the death benefit option. CHANGING THE FACE AMOUNT Subject to the limitations stated in this Prospectus, a policyholder 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 are subject to satisfactory evidence of insurability. An increase will become effective at the beginning of the Policy month following the date Manulife USA approves the requested increase. The Company reserves the right to refuse a 21 requested increase if the life insured's Attained Age at the effective date of the increase would be greater than the maximum Issue Age for new Policies at that time. NEW SURRENDER CHARGES FOR AN INCREASE An increase in Face Amount will result in the Policy's being subject to new Surrender Charges. The new Surrender Charges will be computed as if a new Policy were being purchased for the increase in Face Amount. For purposes of determining the new Surrender Charges a portion of the premiums paid on or subsequent to the increase will be deemed to be premiums attributable to the increase. The portion attributable to the increase in any Policy Year will be the amount of premiums in excess of the sum of the Target Premiums for the (i) initial Face Amount during the first five Policy Years and (ii) all prior increases that are in effect at the time of the increase in Face Amount and have been in effect for less than five years. 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. There will be no new Surrender Charges associated with these increases, since Surrender Charges will have already been assessed at the time of the prior decrease. DECREASE IN FACE AMOUNT A written request from a policyholder for a decrease in the Face Amount must be received by Manulife USA at least 30 days prior to the first day of a policy month for the change to take effect on the first day of that policy month. 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. SURRENDER CHARGES ASSESSED ON A DECREASE A portion of a Policy's Surrender Charge will be deducted from the Policy Value on a decrease in Face Amount. Since Surrender Charges are determined separately for the initial Face Amount and each Face Amount Increase, the portion of the Surrender Charges to be deducted with respect to each level of insurance coverage will be determined separately. The portion of the Surrender Charge deducted with respect to a level of coverage will be equal to: (a) the amount of the decrease; divided by (b) the amount of the coverage prior to the decrease; multiplied by (c) the Surrender Charge for the coverage. The charges will be allocated among the Investment Accounts and the Guaranteed Interest Account in the same proportion as the Policy Value in each bears to the Net Policy Value. Whenever a portion of the surrender charges are deducted as a result of a decrease in Face Amount, 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 prior to the decrease in Face Amount. 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. On the Effective Date, the Net Premiums paid plus interest credited will be allocated among the Investment Accounts or the Guaranteed Interest Account in accordance with the policyholder's instructions. All Net Premiums received on or after the Effective Date will be allocated among Investment Accounts or the Guaranteed Interest Account as of the date the premiums were received at the Service Office. Monthly deductions are due on the Policy Date and at the beginning of each policy month thereafter. However, if due prior to the Effective Date, they will be taken on the Effective Date instead of the dates they were due. EXCEPTION FOR CERTAIN STATES Some state laws require the refund of all premiums paid, without adjustment for gains and losses of the Separate Account, if a Policy is returned during the right to examine period. In these states, all Net Premiums will be allocated to the Money Market Trust during 22 the right to examine period. At the end of this period, the Policy Value in the Money Market Trust will be allocated among the Investment Accounts or the Guaranteed Interest Account. The Policy will state if a return of premiums is required. SUBSEQUENT PREMIUMS After the payment of the initial premium, premiums may be paid at any time and in any amount during the lifetime of the life insured, 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 policyholder wishes to pay. Manulife USA will send notices to the policyholder setting forth the planned premium at the payment interval selected by the policyholder. However, the policyholder is under no obligation to make the indicated payment. 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. MAXIMUM PREMIUM LIMITATION If the Policy is issued under the Guideline Premium Test, in no event may the total of all premiums paid exceed the then-current maximum premium limitations established by federal income tax law for a Policy to qualify as life insurance. If, at any time, a premium is paid which would result in total premiums exceeding the above maximum premium limitation, the Company will only accept that portion of the premium which will make the total premiums equal to the maximum. Any part of the premium in excess of that amount will be returned and no further premiums will be accepted until allowed by the then-current maximum premium limitation. The maximum premium limitations are set forth in the Policy. PREMIUM ALLOCATION Premiums may be allocated to either the Guaranteed Interest Account for accumulation at a rate of interest equal to at least 4% or to one or more of the Investment Accounts for investment in the Portfolio shares held by the corresponding sub-account of the Separate Account. Allocations among the Investment Accounts and the Guaranteed Interest 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. Alternatively, a policyholder may specify the allocation of a specific premium payment in dollar amounts, so long as the total allocation among the Investment Accounts equals the Net Premium paid. A policyholder 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 PREMIUMS Manulife USA deducts an amount from each premium payment equal to 2.00% of the premium. Premium Loads are deducted in order to cover federal, state and local taxes on premium payments. SURRENDER CHARGES The Company will deduct a Surrender Charge if during the first 10 years following the Policy Date, or the effective date of a Face Amount increase: - - the Policy is surrendered for its Net Cash Surrender Value, - - a partial withdrawal is made in excess of the Free Partial Withdrawal Amount, - - the Face Amount is decreased, or - - the Policy lapses. The Surrender Charge is expressed as a percentage of the total premiums paid from the Effective Date. However, premiums paid in any Policy Year in excess of the Target Premium, and premiums paid after the fifth Policy Year, are not counted in the determination of total premiums paid. Therefore, the timing of premium payments may affect the amount of the Surrender Charge. The percentages vary by Policy Year as follows:
Policy Year Percentage 1 10.00% 2 7.50% 3 5.00% 4 5.00%
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Policy Year Percentage 5 5.00% 6 5.00% 7 4.00% 8 3.00% 9 2.00% 10+ 0.00%
Although the percentages remain level or decrease as the Policy Year increases, the total dollar amount of Surrender Charges may increase, as the total premium paid increases. The Target Premium is based on the Face Amount, as well as the insured's age at issue and sex, and is set forth in the Policy. Depending upon the circumstances, including the 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 Free Withdrawal Amount to the Net Cash Surrender Value of the Policy immediately prior to the withdrawal. The Surrender Charges will be deducted on a pro-rata basis from each of the Investment Accounts and the Guaranteed Interest Account. If the amount in the accounts are 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. FREE WITHDRAWAL AMOUNT The Free Withdrawal Amount is equal to 10% of the Net Cash Surrender Value at the time of the withdrawal. In determining what, if any, portion of a partial withdrawal is in excess of the Free Withdrawal 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 Policy Value to cover certain charges in connection with the Policy until the insured reaches age 100. 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 charge for any supplementary benefits added to the Policy. Unless otherwise allowed by the Company and specified by the policyholder, the monthly deduction will be allocated among the Investment Accounts and the Guaranteed Interest 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 $12 per policy month, which is guaranteed not to increase. 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 a Policy. COST OF INSURANCE CHARGE The monthly charge for the cost of insurance is determined by multiplying the applicable cost of insurance rate times the net amount at risk at the beginning of each policy month. The cost of insurance rate 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 of the increases. The net amount at risk is equal to the greater of zero, or the result of (a)minus (b) where: 24 (a) is the death benefit as of the first day of the month, divided by 1.0032737; and (b) is the Policy Value as of the first day of the month. The cost of insurance rate is based upon the following factors: - - the issue age, sex (unless unisex rates are required by law) and smoking status of the life insured; - - the underwriting class of the Policy; - - the number of years since issue or since an increase in Face Amount; - - the amount of the Death Benefit in excess of the Face Amount; and - - any extra charges for additional ratings indicated in the Policy. Cost of insurance rates will generally increase with the life insured's age. The cost of insurance rates reflect the Company's expectations as to future mortality experience. The rates may be changed 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 rate exceed the guaranteed rates set forth in the Policy except to the extent that an extra charge is imposed because of an additional rating applicable to the life insured. The guaranteed rates are based on the 1980 Commissioners Standard Ordinary Mortality Tables. CHARGES FOR SUPPLEMENTARY BENEFITS If the Policy includes Supplementary Benefits, a charge will be made applicable to such Supplementary Benefit. CHARGES ASSESSED AGAINST ASSETS OF THE INVESTMENT ACCOUNTS A daily charge is assessed against amounts in the Investment Accounts equal to a percentage of the value of the Investment Account. 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:
Equivalent Annual Daily Mortality and Mortality and Expense Policy Year Expense Risk Charge Risk Charge 1-10 0.000020625% 0.75% 11+ 0.000010981% 0.40%
CHARGES FOR TRANSFERS A charge of $25 will be imposed on each transfer in excess of twelve in a policy year. REDUCTION IN CHARGES The Policy is available for purchase by corporations and other groups or sponsoring organizations for multiple life sales. 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 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 policyholder, 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 policyholders. 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. 25 POLICY VALUE DETERMINATION OF THE POLICY VALUE A Policy has a Policy Value, a portion of which is available to the policyholder 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 Guaranteed Interest 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. GUARANTEED INTEREST ACCOUNT Amounts in the Guaranteed Interest 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 Guaranteed Interest Account, see "The General Account - Guaranteed Interest 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 cancelled whenever amounts are deducted, transferred or withdrawn from the sub-account. The number of units credited or cancelled for a specific transaction is based on the dollar amount of the transaction divided by the value of the unit on the Business Day on which the transaction occurs. The number of units credited with respect to a premium payment will be based on the applicable unit values for the Business Day on which the premium is received at the Service Office, except for any premiums received before the Effective Date. For premiums received before the Effective Date, the values will be determined on the Effective Date. 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. For each subsequent Business Day the unit value for that sub-account is determined by multiplying the unit value for the immediately preceding Business Day by the net investment factor for the that sub-account on such subsequent Business Day. The net investment factor for a sub-account on any Business Day is equal to (a) divided by (b) minus (c), where: (a) is the net asset value of the underlying Portfolio shares held by that sub-account as of the end of such Business Day before any policy transaction are made on that day; (b) is the net asset value of the underlying Portfolio shares held by that sub-account as of the end of the immediately preceding Business Day after all policy transaction were made for that day; and (c) is a charge not exceeding the daily mortality and expense risk charge shown in the "Charges and Deductions - Charges Assessed Against Assets of the Investment Accounts" section. The value of a unit may increase, decrease, or remain the same, depending on the investment performance of a sub-account from one Business Day to the next. 26 Due to the fact that the daily mortality and expense risk charge varies by Policy Years, two unit values will be calculated for each sub-account commencing 10 years after the effective date of the first Policy. TRANSFERS OF POLICY VALUE At any time, a policyholder may transfer Policy Value from one sub-account to another or to the Guaranteed Interest Account. Transfer requests must be in writing in a format satisfactory to the Company, or by telephone if a currently valid telephone transfer authorization form is on file. These transfer privileges are subject to the Company's consent. 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. TRANSFER CHARGES A policyholder 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 allocated among the Investment Accounts and the Guaranteed Interest Account in the same proportion as the amount transferred from each bears to the total amount transferred. 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, discussed below, do not count against the number of free transfers permitted per Policy Year. TRANSFERS INVOLVING GUARANTEED INTEREST ACCOUNT The maximum amount that may be transferred from the Guaranteed Interest Account in any one policy year is the greater of $500 or 25% of the Guaranteed Interest Account Value at the previous Policy Anniversary. Any transfer which involves a transfer out of the Guaranteed Interest 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. POLICY LOANS At any time while this Policy is in force, a policyholder may borrow against the Policy Value of the Policy. The Policy serves as the only security for the loan. Policy loans may have tax consequences, see "Tax Treatment of Policy Benefits - Policy Loan Interest." MAXIMUM LOAN The amount of any loan cannot exceed the amount which would cause the Policy Debt to equal the Loan Value of the Policy on the date of the loan. LOAN VALUE The Loan Value is equal to the Policy's 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 Guaranteed Interest 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." Finally, a policy loan will affect the amount payable on the death of the life insured, since the death benefit is reduced by the Policy Debt at the date of death in arriving at the insurance benefit. INTEREST CHARGED ON POLICY LOANS Interest on the Policy Debt will accrue daily and be payable annually on the Policy Anniversary. The rate of interest charged will be an effective annual rate of 5.00%. 27 LOAN ACCOUNT When a loan is made, an amount equal to the loan will be deducted from the Investment Accounts or the Guaranteed Interest Account and transferred to the Loan Account. The policyholder 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 Guaranteed Interest Account bears to the Net Policy Value. A transfer from an Investment Account will result in the cancellation of units of the underlying sub-account equal in value to the amount transferred from the Investment Account. However, since the Loan Account is part of the Policy Value, transfers made in connection with a loan will not change the Policy Value. INTEREST CREDITED TO THE LOAN ACCOUNT Interest will be credited to amounts in the Loan Account at an effective annual rate of at least 4.00%. The actual rate credited is equal to the rate of interest charged on the policy loan less the Loan Spread. The Loan Spread varies by policy year as follows:
Policy Year Loan Spread 1-10 1.00% 11-20 0.50% 21+ 0.25%
LOAN ACCOUNT ADJUSTMENTS On the first day of each policy month the difference between the Loan Account and the Policy Debt is transferred to the Loan Account from the Investment Accounts or the Guaranteed Interest Account. Amounts transferred from the Loan Account will be allocated to the Investment Accounts and the Guaranteed Interest Account in the same proportion as the value in each Investment Account and the Guaranteed Interest Account bears to the Net Policy Value. LOAN REPAYMENTS Policy Debt may be repaid in whole or in part at any time prior to the death of the life insured, provided that the Policy is in force. When a repayment is made, the amount is credited to the Loan Account and transferred to the Guaranteed Interest Account or the Investment Accounts. Loan repayments will be allocated to the Guaranteed Interest Account and each Investment Account in the same proportion as the value in each Investment Account and the Guaranteed Interest Account bears to the Net Policy Value. 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. The Net Cash Surrender Value will be determined at 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 policyholder may make a partial withdrawal of the Net Cash Surrender Value. The policyholder may specify the portion of the withdrawal to be taken from each Investment Account and the Guaranteed Interest 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. Reductions in Face Amount resulting from partial withdrawals will not incur any Surrender Charges above the Surrender Charges applicable to the withdrawal. 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 28 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 A Policy will go into default if at the beginning of any policy month the Policy's Net Cash Surrender Value would go below zero 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 policyholder of the default and will allow a 61 day grace period in which the policyholder 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. 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 policyholder 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) The Policy must not have been surrendered for its Net Cash Surrender Value; (b) Evidence of the life insured's insurability satisfactory to Manulife USA is furnished to the Company; and (c) A premium equal to the payment required during the grace period following default to keep the Policy in force is paid to the Company. THE GENERAL ACCOUNT The general account of Manulife USA consists of all assets owned by the Company other than those in the Separate Account and other separate accounts of the Company. Subject to applicable law, Manulife USA has sole discretion over the investment of the assets of the general account. By virtue of exclusionary provisions, interests in the general account of Manulife USA have not been registered under the Securities Act of 1933 and the general account has not been registered as an investment company under the Investment Company Act of 1940. Accordingly, neither the general account nor any interests therein are subject to the provisions of these acts, and as a result the staff of the SEC. has not reviewed the disclosures in this prospectus relating to the general account. Disclosures regarding the general account may, however, be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of statements made in a prospectus. GUARANTEED INTEREST ACCOUNT A policyholder may elect to allocate net premiums to the Guaranteed Interest Account or to transfer all or a portion of the Policy Value to the Guaranteed Interest Account from the Investment Accounts. Manulife USA will hold the reserves required for any portion of the Policy Value allocated to the Guaranteed Interest Account in its general account. Transfers from the Guaranteed Interest Account to the Investment Accounts are subject to restrictions. POLICY VALUE IN THE GUARANTEED INTEREST ACCOUNT The Policy Value in the Guaranteed Interest 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. 29 INTEREST ON THE GUARANTEED INTEREST ACCOUNT An allocation of Policy Value to the Guaranteed Interest Account does not entitle the policyholder to share in the investment experience of the general account. Instead, Manulife USA guarantees that the Policy Value in the Guaranteed Interest Account will accrue interest daily at an effective annual rate of at least 4%, without regard to the actual investment experience of the general account. Consequently, if a policyholder 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 POLICYHOLDER RIGHTS Unless otherwise restricted by a separate agreement, the policyholder 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 policyholder 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 policyholder 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 policyholder during the life insured's lifetime by giving written notice to the Company in a form satisfactory to us. If the life insured dies and there is no surviving beneficiary, the policyholder, or the policyholder's estate if the policyholder is the life insured, will be the beneficiary. If a beneficiary dies before the seventh day after the death of the life insured, the Company will pay the insurance benefit as if the beneficiary had died before the life insured. INCONTESTABILITY Manulife USA will not contest the validity of a Policy after it has been in force during the life insured's lifetime for two years from the Issue Date. It will not contest the validity of an increase in Face Amount, after such increase or addition has been in force during the life insured's lifetime for two years. If a Policy has been reinstated and been in force for less than two years from the reinstatement date, the Company can contest any misrepresentation of a fact material to the reinstatement. MISSTATEMENT OF AGE OR SEX If the life insured's stated age or sex or both in the Policy are incorrect, Manulife USA will change the Face Amount so that the death benefit will be that which the most recent monthly charge for the cost of insurance would have purchased for the correct age and sex. SUICIDE EXCLUSION If the life insured, whether sane or insane, dies by suicide within two years from the Issue Date (or within the maximum period permitted by the state in which the Policy was delivered, if less than two years), Manulife USA will pay only the premiums paid less any partial withdrawals and any Policy Debt. If the life insured should die by suicide within two years after a Face Amount increase, the death benefit for the increase will be limited to the monthly deductions for the increase. At the discretion of the Company, this provision may be waived under some circumstances, such as policies purchased in conjunction with certain existing benefit plans. 30 SUPPLEMENTARY BENEFITS Subject to certain requirements, one or more supplementary benefits may be added to a Policy, including, in the case of a Policy owned by a corporation or other similar entity, a benefit permitting a change in the life insured (a taxable event). More detailed information concerning 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. 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 or 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 Policyholder must not possess "incidents of ownership" in the assets of the Separate Account. These four items are discussed in detail below. DEFINITION OF LIFE INSURANCE Section 7702 of the Code sets forth a definition of a life insurance contract for federal tax purposes. For a Policy to be a life insurance contract, it must satisfy either the Cash Value Accumulation Test or the Guideline Premium Test. By limiting cash value at any time to the net single premium that would be required in order to fund future benefits under the contract, the Cash Value Accumulation Test in effect requires a minimum death benefit for a given Policy Value. The Guideline Premium Test also requires a minimum death benefit, but in addition limits the total premiums that can be paid into a Policy for a given amount of death benefit. With respect to a Policy which is issued on the basis of a standard rate class, 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 policyholder pays the full amount of premiums permitted under the Policy. The Secretary of the Treasury (the "Treasury") is authorized to prescribe regulations implementing Section 7702. However, while proposed regulations and other interim guidance have been issued, final regulations have not been adopted and guidance as to how 31 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 State regulations require that the policyholder have appropriate insurable interest in the life insured. Failure to establish an insurable interest may result in the Policy not qualifying as a life insurance contract for federal tax purposes. INVESTOR CONTROL In certain circumstances, owners of variable life insurance Policies may be considered the owners, for federal income tax purposes, of the assets of the separate account used to support their policies. In those circumstances, income and gains from the separate account assets would be includible in the variable policyholder's gross income. The IRS has stated in published rulings that a variable policyholder will be considered the owner of separate account assets if the policyholder possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. The Treasury Department has also announced, in connection with the issuance of regulations concerning diversification, that those regulations "do not provide guidance concerning the circumstances in which investor control of the investments of a segregated asset account may cause the investor (i.e., the policyholder), rather than the insurance company, to be treated as the owner of the assets in the account." This announcement also stated that guidance would be issued by way of regulations or rulings on the "extent to which policyholders may direct their investments to particular sub-accounts without being treated as owners of the underlying assets". As of the date of this prospectus, no such guidance has been issued. The ownership rights under the Policy are similar to, but different in certain respects from, those described by the IRS in rulings in which it was determined that policyholders were not owners of separate account assets. For example, the Policy has many more portfolios to which 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 policyholder 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 policyholder will not be deemed to be in constructive receipt of the Policy Value until there is a distribution. This includes additions attributable to interest, dividends, appreciation or gains realized on transfers among sub-accounts. INVESTMENT IN THE POLICY Investment in the Policy means: 32 (a) the aggregate amount of any premiums or other consideration paid for a Policy; minus (b) the aggregate amount, other than loan amounts, received under the Policy which has been excluded from the gross income of the policyholder (except that the amount of any loan from, or secured by, a Policy that is a Modified Endowment Contract or "MEC," to the extent such amount has been excluded from gross income, will be disregarded); plus (c) the amount of any loan from, or secured by a Policy that is a MEC to the extent that such amount has been included in the gross income of the policyholder. The repayment of a policy loan, or the payment of interest on a loan, does not affect the Investment in the Policy. SURRENDER OR LAPSE Upon a complete surrender or lapse of a Policy or when benefits are paid at a Policy's maturity date, if the amount received plus the amount of Policy Debt exceeds the total investment in the Policy, the excess will generally be treated as ordinary income subject to tax. If, at the time of lapse, a Policy has a loan, the loan is extinguished and the amount of the loan is a deemed payment to the policyholder. If the amount of this deemed payment exceeds the investment in the contract, the excess is taxable income and is subject to Internal Revenue Service reporting requirements. DISTRIBUTIONS The tax consequences of distributions from, and loans taken from or secured by, a Policy depend on whether the Policy is classified as a MEC. DISTRIBUTIONS FROM NON-MEC'S A distribution from a non-MEC is generally treated as a tax-free recovery by the policyholder of the Investment in the Policy to the extent of such Investment in the Policy, and as a distribution of taxable income only to the extent the distribution exceeds the Investment in the Policy. Loans from, or secured by, a non-MEC are not treated as distributions. Instead, such loans are treated as indebtedness of the policyholder. Force Outs An exception to this general rule occurs in the case of a decrease in the Policy's death benefit or any other change that reduces benefits under the Policy in the first 15 years after the Policy is issued and that results in a cash distribution to the policyholder in order for the Policy to continue to comply with the Section 7702 definitional limits. Such a cash distribution will be taxed in whole or in part as ordinary income (to the extent of any gain in the Policy) under rules prescribed in Section 7702. Changes include partial withdrawals and death benefit option changes. DISTRIBUTIONS FROM MEC'S Policies classified as MEC's will be subject to the following tax rules: (a) First, all partial withdrawals from such a Policy are treated as ordinary income subject to tax up to the amount equal to the excess (if any) of the Policy Value immediately before the distribution over the Investment in the Policy at such time. (b) Second, loans taken from or secured by such a Policy and assignments and pledges of any part of its value are treated as partial withdrawals from the Policy and taxed accordingly. Past-due loan interest that is added to the loan amount is treated as a loan. (c) Third, a 10% additional income tax is imposed on the portion of any distribution (including distributions on surrender) from, or loan taken from or secured by, such a policy that is included in income except where the distribution or loan: (i) is made on or after the policyholder attains age 59 1/2; (ii) is attributable to the policyholder becoming disabled; or (iii) is part of a series of substantially equal periodic payments for the life (or life expectancy) of the policyholder or the joint lives (or joint life expectancies) of the policyholder and the policyholder's beneficiary. These exceptions are not likely to apply in situations where the Policy is not owned by an individual. Definition of Modified Endowment Contracts Section 7702A establishes a class of life insurance contracts designated as "Modified Endowment Contracts," which applies to Policies entered into or materially changed after June 20, 1988. In general, a Policy will be a Modified Endowment Contract if the accumulated premiums paid at any time during the first seven policy years exceed the "seven-pay premium limit". The seven-pay premium limit on any date is equal to the sum of the net level 33 premiums that would have been paid on or before such date if the policy provided for paid-up future benefits after the payment of seven level annual premiums (the "seven-pay premium"). The rules relating to whether a Policy will be treated as a MEC are extremely complex and cannot be adequately described in the limited confines of this summary. Therefore, a current or prospective policyholder should consult with a competent adviser to determine whether a transaction will cause the Policy to be treated as a MEC. Material Changes A policy that is not a MEC may become a MEC if it is "materially changed". If there is a material change to the policy, the seven year testing period for MEC status is restarted. The material change rules for determining whether a Policy is a MEC are complex. In general, however, the determination of whether a Policy will be a MEC after a material change generally depends upon the relationship among the death benefit of the Policy at the time of such change, the Policy Value at the time of the change, and the additional premiums paid into the Policy during the seven years starting with the date on which the material change occurs. Reductions in Face Amount If there is a reduction in benefits during the first seven policy years, the seven-pay premium limit is recalculated as if the policy had been originally issued at the reduced benefit level. Failure to comply would result in classification as a MEC regardless of any efforts by the Company to provide a payment schedule that will not violate the seven pay test. Exchanges A life insurance contract received in exchange for a MEC will also be treated as a MEC. Processing of Premiums If a premium is received which would cause the Policy to become a MEC within 23 days of the next Policy Anniversary, the Company will not apply the portion of the premium which would cause MEC status ("excess premium") to the Policy when received. The excess premium will be placed in a suspense account until the next anniversary date, at which point the excess premium, along with interest, earned on the excess premium at a rate of 3.5% from the date the premium was received, will be applied to the Policy. (Any amount that would still be excess premium on the next anniversary will be refunded to the policyholder). The policyholder will be advised of this action and will be offered the opportunity to have the premium credited as of the original date received or to have the premium returned. If the policyholder does not respond, the premium and interest will be applied to the Policy as of the first day of the next anniversary. If a premium is received which would cause the Policy to become a MEC more than 23 days prior to the next Policy Anniversary, the Company will refund any excess premium to the policyholder. The portion of the premium which is not excess will be applied as of the date received. The policyholder will be advised of this action and will be offered the opportunity to return the premium and have it credited to the account as of the original date received. Multiple Policies All MEC's that are issued by a Company (or its affiliates) to the same policyholder during any calendar year are treated as one MEC for purposes of determining the amount includible in gross income under Section 72(e) of the Code. POLICY LOAN INTEREST Generally, personal interest paid on any loan under a Policy which is owned by an individual is not deductible. For policies purchased on or after January 1, 1996, interest on any loan under a Policy owned by a taxpayer and covering the life of any individual who is an officer or employee of or is financially interested in the business carried on by the taxpayer will not be tax deductible unless the employee is a key person within the meaning of Section 264 of the Code. A deduction will not be permitted for interest on a loan under a Policy held on the life of a key person to the extent the aggregate of such loans with respect to contracts covering the key person exceed $50,000. The number of employees who can qualify as key persons depends in part on the size of the employer but cannot exceed 20 individuals. Furthermore, if a non-natural person owns a Policy, or is the direct or indirect beneficiary under a Policy, section 264(f) of the Code disallows a pro-rata portion of the taxpayer's interest expense allocable to unborrowed Policy cash values attributable to insurance held on the lives of individuals who are not 20% (or more) owners of the taxpayer-entity, officers, employees, or former employees of the taxpayer. The portion of the interest expense that is allocable to unborrowed Policy cash values is an amount that bears the same ratio to that interest expense as the taxpayer's average unborrowed Policy cash values under such life insurance policies bear to the average adjusted bases for all assets of the taxpayer. 34 If the Policyholder is an individual, and if the taxpayer is a business and is not the Policyholder, but is the direct or indirect beneficiary under the Policy, then the amount of unborrowed cash value of the Policy taken into account in computing the portion of the taxpayer's interest expense allocable to unborrowed Policy cash values cannot exceed the benefit to which the taxpayer is directly or indirectly entitled under the Policy. POLICY EXCHANGES A policyholder generally will not recognize gain upon the exchange of a Policy for another life insurance policy covering the same life insured and issued by the Company or another insurance company, except to the extent that the policyholder receives cash in the exchange or is relieved of Policy indebtedness as a result of the exchange. In no event will the gain recognized exceed the amount by which the Policy Value (including any unpaid loans) exceeds the policyholder's Investment in the Policy. OTHER TRANSACTIONS A transfer of the Policy, a change in the owner, a change in the life insured, a change in the beneficiary, and certain other changes to the Policy, as well as particular uses of the Policy (including use in a so called "split-dollar" arrangement) may have tax consequences depending upon the particular circumstances and should not be undertaken prior to consulting with a qualified tax adviser. For instance, if the owner transfers the Policy or designates a new owner in return for valuable consideration (or, in some cases, if the transferor is relieved of a liability as a result of the transfer), then the Death Benefit payable upon the death of the Insured may in certain circumstances be includible in taxable income to the extent that the Death Benefit exceeds the prior consideration paid for the transfer and any premiums or other amounts subsequently paid by the transferee. Further, in such a case, if the consideration received exceeds the transferor's Investment in the Policy, the difference will be taxed to the transferor as ordinary income. Federal estate and state and local estate, inheritance and other tax consequences of ownership or receipt of Policy proceeds depend on the individual circumstances of each policyholder and beneficiary. ALTERNATE MINIMUM TAX Corporate owners may be subject to Alternate Minimum Tax on the annual increases in Cash Surrender Values and on the Death Benefit proceeds. INCOME TAX REPORTING In certain employer-sponsored life insurance arrangements, including equity-split dollar arrangements, participants may be required to report for income tax purposes, one or more of the following: (a) the value each year of the life insurance protection provided; (b) an amount equal to any employer-paid premiums; or (c) some or all of the amount by which the current value exceeds the employer's interest in the Policy. Participants should consult with their tax adviser to determine the tax consequences of these arrangements. OTHER INFORMATION PAYMENT OF PROCEEDS As long as the Policy is in force, Manulife USA will ordinarily pay any policy loans, surrenders, partial withdrawals or insurance benefit within seven days after receipt at its Service Office of all the documents required for such a payment. The Company may delay the payment of any policy loans, surrenders, partial withdrawals, or insurance benefit that depends on Guaranteed Interest Account values for up to six months or in the case of any Investment Account for any period during which (i) the New York Stock Exchange is closed for trading (except for normal weekend and holiday closings), (ii) trading on the New York Stock Exchange is restricted (iii) an emergency exists as a result of which disposal of securities held in the Separate Account is not reasonably practicable or it is not reasonably practicable to determine the value of the Separate Account's net assets or (iv) the SEC, by order, so permits for the protection of security holders; provided that applicable rules and regulations of the SEC shall govern as to whether the conditions described in (2) and (3) exist. REPORTS TO POLICYHOLDERS Within 30 days after each Policy Anniversary, Manulife USA will send the policyholder a statement showing, among other things: - - the amount of death benefit; - - the Policy Value and its allocation among the Investment Accounts, the Guaranteed Interest 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; 35 - - the premiums paid and other Policy transactions made during the period since the last report; and - - any other information required by law. Each policyholder 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 Services"), an indirect wholly-owned subsidiary of MFC, will act as the principal underwriter of, and continuously offer, the Policies pursuant to a Distribution Agreement with Manulife USA Manulife Securities is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers. Manulife Securities. is located at 73 Tremont Street, Boston, MA 02108 and is organized as a Delaware limited liability company. The managing member of Manulife Services is Manulife USA The Policies will be sold by registered representatives of either Manulife Securities or other broker-dealers having distribution agreements with Manulife Services 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 15% of premiums paid up to the Target Premium, and 2.5% of premiums paid in excess of the Target Premium in Policy Years 1 through 5, commissions of 2.5% of premiums paid in Policy Years 6 and later, and after the fifth anniversary 0.20% of the Policy Value per year. Representatives who meet certain productivity standards with regard to the sale of the Policies and certain other policies issued by Manulife USA or Manufacturers Life will be eligible for additional compensation. RESPONSIBILITIES OF MFC MFC entered into an agreement with Manulife Securities pursuant to which MFC, on behalf of Manulife Securities will pay the sales commissions in respect of the Policies and certain other policies issued by Manulife USA, prepare and maintain all books and records required to be prepared and maintained by Manulife Securities with respect to the Policies and such other policies, and send all confirmations required to be sent by Manulife Securities with respect to the Policies and such other policies. Manulife Securities will promptly reimburse MFC for all sales commissions paid by MFC and will pay MFC for its other services under the agreement in such amounts and at such times as agreed to by the parties. MFC has also entered into a Service Agreement with Manulife USA pursuant to which MFC will provide to Manulife USA with issue, administrative, general services and recordkeeping functions on behalf of Manulife USA with respect to all of its insurance policies including the Policies. VOTING RIGHTS As stated previously, all of the assets held in each sub-account of the Separate Account will be invested in shares of a particular Portfolio of the Trust. Manulife USA is the legal owner of those shares and as such has the right to vote upon certain matters that are required by the 1940 Act to be approved or ratified by the shareholders of a mutual fund and to vote upon any other matters that may be voted upon at a shareholders' meeting. However, Manulife USA will vote shares held in the sub-accounts in accordance with instructions received from policyholders having an interest in such sub-accounts. Shares held in each sub-account for which no timely instructions from policyholders are received, including shares not attributable to the Policies, will be voted by Manulife USA in the same proportion as those shares in that sub-account for which instructions are received. Should the applicable federal securities laws or regulations change so as to permit Manulife USA to vote shares held in the Separate Account in its own right, it may elect to do so. The number of shares in each sub-account for which instructions may be given by a policyholder is determined by dividing the portion of the Policy Value derived from participation in that sub-account, if any, by the value of one share of the corresponding Portfolio. The number will be determined as of a date chosen by Manulife USA, but not more than 90 days before the shareholders' meeting. Fractional votes are counted. Voting instructions will be solicited in writing at least 14 days prior to the meeting. Manulife USA may, if required by state officials, disregard voting instructions if such instructions would require shares to be voted so as to cause a change in the sub-classification or investment policies of one or more of the Portfolios, or to approve or disapprove an investment management contract. In addition, the Company itself may disregard voting instructions that would require changes in the investment policies or investment adviser, provided that the Company reasonably disapproves such changes in accordance with applicable federal regulations. If Manulife USA does disregard voting instructions, it will advise policyholders of that action and its reasons for such action in the next communication to policyholders. SUBSTITUTION OF PORTFOLIO SHARES It is possible that in the judgment of the management of Manulife USA, one or more of the Portfolios may become unsuitable for investment by the Separate Account because of a change in investment policy or a change in the applicable laws or regulations, because the shares are no longer available for investment, or for some other reason. In that event, Manulife USA may seek to 36 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 McCamish Systems, L.L.C., 6425 Powers Ferry Road, Atlanta, Georgia 30339, will act as a Transfer Agent on behalf of Manulife USA as it relates to the Policies described in this Prospectus. In the role of a Transfer Agent, McCamish Systems 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 McCamish Systems on behalf of the Company. STATE REGULATIONS Manulife USA is subject to the regulation and supervision by the Michigan Department of Insurance, which periodically examines its financial condition and operations. It is also subject to the insurance laws and regulations of all jurisdictions in which it is authorized to do business. The Policies have been filed with insurance officials, and meet all standards set by law, in each jurisdiction where they are sold. Manulife USA is required to submit annual statements of its operations, including financial statements, to the insurance departments of the various jurisdictions in which it does business for the purposes of determining solvency and compliance with local insurance laws and regulations. LITIGATION No litigation is pending that would have a material effect upon the Separate Account or the Trust. INDEPENDENT AUDITORS The consolidated financial statements of The Manufacturers Life Insurance Company (U.S.A.) at December 31, 2000 and 1999, and for each of the three years in the period ended December 31, 2000 and the financial statements of Separate Account Four of The Manufacturers Life Insurance Company of America at December 31, 2000 and 1999, and for each of the two years in the period ended December 31, 2000, appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing. FURTHER INFORMATION A registration statement under the Securities Act of 1933 has been filed with the SEC relating to the offering described in this prospectus. This prospectus does not include all the information set forth in the registration statement. The omitted information may be obtained from the SEC's principal office in Washington D.C. upon payment of the prescribed fee. The SEC also maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC which is located at http://www.sec.gov. For further information you may also contact Manulife USA's Home Office, the address and telephone number of which are on the first page of the prospectus. 37 OFFICERS AND DIRECTORS
POSITION WITH MANULIFE USA NAME PRINCIPAL OCCUPATION James Boyle Director President of U.S. Annuities, Manulife Financial, July (42)** 1999 to present; Vice President, Institutional Markets, Manulife Financial, May 1998 to June 1999; Vice President, Administration of U.S. Annuities, Manulife Financial, September 1996 to May 1998; Vice President, Treasurer and Chief Administrative Officer, North American Funds, June 1994 to September 1996. Robert A. Senior Vice Senior Vice President, U.S. Individual Insurance, The Cook (45)** President, U.S. Manufacturers Life Insurance Company, January 1999 to Insurance; present; Vice President, Product Management, The Director Manufacturers Life Insurance Company, January 1996 to December 1998; Sales and Marketing Director, The Manufacturers Life Insurance Company, 1994 to 1995. Peter Vice President, Vice President & Treasurer, The Manufacturers Life Copestake Finance Insurance Company, November 1999 to present; Vice (45)*** President, Asset Liability Management, Canadian Imperial Bank of Commerce (CIBC), 1991 to 1999; Director, Capital Management, Bank of Montreal, 1986-1990; Inspector General of Banks, Department of Finance, 1980-1985. John D. Chairman and Executive Vice President, U.S. Operation, The DesPrez President Manufacturers Life Insurance Company, January 1999 to III(44)** date; Senior Vice President, U.S. Annuities, The Manufacturers Life Insurance Company, September 1996 to December 1998; President of The Manufacturers Life Insurance Company of North America, September 1996 to December, 1998; Vice President, Mutual Funds, North American Security Life Insurance Company , January 1995 to September 1996. James D. Vice President, Vice President, US Law and Government Relations, U.S. Gallagher Secretary and Operations, The Manufacturers Life Insurance Company, (45)** General Counsel January 1996 to present; President, The Manufacturers Life Insurance Company of New York, August 1999 to present, Vice President, Secretary and General Counsel, The Manufacturers Life Insurance Company of America, January 1997 to present; Secretary and General Counsel, Manufacturers Adviser Corporation, January 1997 to present; Vice President, Secretary and General Counsel, The Manufacturers Life Insurance Company of North America, 1994 to present. Donald Executive Vice Executive Vice President & Chief Investment Officer, Guloien President and The Manufacturers Life Insurance Company, March 2001 (44)*** Chief Investment to Present; Executive Vice President, Business Officer Development, The Manufacturers Life Insurance Company, January 1999 to March 2001; Senior Vice President, Business Development, The Manufacturers Life Insurance Company, 1994 to December 1998. Geoffrey Guy Director Executive Vice President and Chief Actuary, The (53)*** Manufacturers Life Insurance Company, February 2000 to present; Senior Vice President and Chief Actuary, The Manufacturers Life Insurance Company, 1996 to 2000; Vice President and Chief Actuary, The Manufacturers Life Insurance Company, 1993 to 1996; Vice President and Chief Financial Officer, U.S. Operations, The Manufacturers Life Insurance Company, 1987 to 1993. John Lyon Vice President Vice President & Chief Financial Officer, Investments, (48) *** and Chief The Manufacturers Life Insurance Company; April 2001 Financial to Present; Vice President, Business Development, Officer, The Manufacturers Life Insurance Company, 1995-2001; Investments; Assistant Vice President, Business Development, The Director Manufacturers Life Insurance Company, 1994-1995; Director/Manager, Corporate Finance, The Manufacturers Life Insurance Company, 1992-1994. James Senior Vice Senior Vice President, U.S. Pensions, The O'Malley President, U.S. Manufacturers Life Insurance Company, January 1999 to (54)*** Group Pension; present; Vice President, Systems New Business Director Pensions, The Manufacturers Life Insurance Company, 1984 to December 1998.
38
POSITION WITH MANULIFE USA NAME PRINCIPAL OCCUPATION Rex Director Member, Dykema Gossett, PLLC, 1982 to present Schlaybaugh, Jr. (51)**** John Ostler Vice President Vice President and Chief Financial Officer, U.S. (47)** and Chief Operations, The Manufacturers Life Insurance Company, Financial Officer 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, The Manufacturers Thomson President, Life Insurance Company, May 2001 to Present; (46)*** Investments President, Norfolk Capital Partners Inc. 2000 - May 2001; Managing Director, Public Sector Finance, New Capital Group Inc. 1995-2000; Tax Partner, Coopers & Lybrand Chartered Accounts, 1994-1995; Taxation Vice President, The Manufacturers Life Insurance Company, 1987-1994. Denis Turner Vice President Vice President and Chief Accountant, U.S. Division, (44)*** and Treasurer The Manufacturers Life Insurance Company, May 1999 to present; Vice President and Treasurer, The Manufacturers Life Insurance Company of America, May 1999 to present; Assistant Vice President, Financial Operations, Reinsurance Division, The Manufacturers Life Insurance Company, February 1998 to April 1999; Assistant Vice President & Controller, Reinsurance Division, The Manufacturers Life Insurance Company, November 1995, to January 1998, Assistant Vice President, Corporate Controllers, The Manufacturers Life Insurance Company, January 1989 to October 1995.
** Principal business address is Manulife Financial, 73 Tremont Street, Boston, MA 02108. *** Principal business address is Manulife Financial, 200 Bloor Street, Toronto, Ontario Canada M4W 1E5. **** Principal business address is Dykema Gossett, 800 Michigan National Tower, Lansing, Michigan 48933. DEATH BENEFIT SCHEDULE WITH FLEXIBLE TERM INSURANCE OPTION A Policy can be issued with a schedule of death benefits which may vary by Policy Year. The entire schedule is called the Death Benefit Schedule. The Death Benefit Schedule will provide flexible term insurance to age 100. The amount of death benefit shown in the Death Benefit Schedule for any Policy Year is called the Scheduled Annual Death Benefit for that Policy Year. Any amount of Scheduled Annual Death Benefit over and above the death benefit provided by the Policy will be provided by Flexible Term Insurance (the "Rider"). The combined death benefit of the Policy and Rider may be the Scheduled Annual Death Benefit alone (similar to Death Benefit Option 1), or the Scheduled Annual Death Benefit plus the Policy Value (similar to Death Benefit Option 2). A Policy may be combined with the Rider to result in an initial Scheduled Annual Death Benefit equal to the same Face Amount that could be acquired under the Policy alone. Depending upon the amount of premium paid into the Policy, combining the Policy and the Rider may result in a surrender charge for the Policy that is lower than the surrender charge provided under the Policy alone. In addition, current cost of insurance rates for the Rider are less than those for the Policy in the first fifteen Policy years, but greater than the rates for the Policy in Policy Year 16 and later. A policyholder may, upon written request, change the Death Benefit Schedule. A written request for a change which results in a decrease to the Scheduled Annual Death Benefit must be received at least 30 days prior to the first day of a policy month for the change to take effect as of that policy month. A written request for a change which results in an increase to the Scheduled Annual Death Benefit in any Policy Year will take effect at the beginning of the month following the date the Company approves the request. Increases in the Death Benefit Schedule are subject to evidence of insurability satisfactory to the Company, A requested decrease in the Schedule will require a decrease in the Policy's Face Amount if the new Death Benefit Schedule in any year is less than the Face 39 Amount. In this case, the Face Amount will be reduced to the Scheduled Annual Death Benefit. If a decrease in Face Amount is required, Surrender Charges will be assessed as provided under "Decrease in Face Amount - Surrender Charges Assessed on a Decrease". If the policyholder changes the Death Benefit Option of the Policy from Death Benefit Option 2 to Death Benefit Option 1 and if the Face Amount of the Policy after the change would be greater than the Scheduled Annual Death Benefit in effect at the time of the change, then the Face Amount after the change will be equal to the Scheduled Annual Death Benefit. If the Face Amount of the Policy is increased then the Scheduled Annual Death Benefit for all Policy Years after and including the effective date of the change will be increased by the same amount. If the Face Amount of the Policy is decreased then the Scheduled Annual Death Benefit for all Policy Years after and including the effective date of the change will be decreased by the same amount. This provision does not apply to increases or decreases in Face Amount due to a change in the Death Benefit Option. If in any Policy Year, the Face Amount is greater than the Scheduled Annual Death Benefit for that Policy Year, the Face Amount will be reduced to be equal to the Scheduled Annual Death Benefit. If the Face Amount is decreased, Surrender Charges will be assessed as provided under "Decrease in Face Amount - Surrender Charges Assessed on a Decrease." Year to year changes within the Death Benefit Schedule, as well as a change in the Death Benefit Schedule itself, may also have an effect on the maximum amount of premium that a policyholder may pay into a Policy. The Company will inform you of any such change. The Company reserves the right to limit a change in the Death Benefit Schedule so as to prevent the Policy from failing to qualify as life insurance for tax purposes. The Rider is subject to the same Incontestability, Misstatement of Age or Sex, and Suicide Exclusion provisions as the Policy. The Rider terminates on the termination date of the Policy. The policyholder may, however, terminate the Rider prior to the termination date of the Policy by sending the Company a written request to terminate the Rider. The Rider will then terminate at the end of the month in which the Company receives the request. 40 APPENDIX A ILLUSTRATIONS The following tables illustrate the way in which a Policy's Death Benefit, Policy Value, and Cash Surrender Value could vary over an extended period of time. ASSUMPTIONS - - Hypothetical gross annual investment returns for the Portfolios (i.e., investment income and capital gains and losses, realized or unrealized) equivalent to constant gross annual rates of 0%, 6%, and 12% over the periods indicated. - - An Insured who is a male, Issue Age 45, non-smoker. - - A Face Amount of $365,000 in all Policy Years. - - Payment of an annual premium of $20,000 each year for the first seven Policy Years. Premiums are paid on the Policy Anniversary. - - All Premiums are allocated to and remain in the Variable Account for the entire period shown. - - There are no transfers, partial withdrawals, or policy loans. - - Tables 1, 2, and 3 assume regular underwriting. Tables 4, 5, and 6 assume short form underwriting. - - The Cash Value Accumulation Test is used. - - The illustrations assume all charges currently assessed against the Policy, including monthly cost of insurance charges and administrative charges and mortality and expense risk charges. The first set of columns in each table, under the heading "Current Charges", assumes cost of insurance rates currently expected to be charged. The second set of columns, under the heading "Guaranteed Charges", assumes maximum cost of insurance rates. - - The amounts shown in the Tables also take into account the Portfolios' advisory fees and operating expenses, which are assumed to be at an annual rate of 0.968% of the average daily net assets of the portfolio. The Death Benefits, Policy Values, and Cash Surrender Values would be different from those shown if the returns averaged 0%, 6%, and 12%, but fluctuated over and under those averages throughout the years. The values would also be different depending on the allocation of a Policy's total Policy Value among the sub-accounts, if the actual rates of return averaged 0%, 6%, or 12%, but the rates of each Portfolio varied above and below such averages. The gross annual rates of returns correspond to net annual rates of return according to the table below:
Gross Rate of Return Policy Year 0.00% 6.00% 12.00% ------------------------------------------------------------- Net Rate 1-10 -1.558% 4.349% 10.256% of Return 11+ -1.260% 4.664% 10.589%
Current cost of insurance charges are not guaranteed and may be changed. The illustrations reflect the expense reimbursement in effect for the Science & Technology, International Stock, Blue Chip Growth, Health Sciences Trust, Small Company Value Trust, Equity-Income and Lifestyle Trusts and the expense limitations in effect for the Capital Appreciation and Index Trusts. In the absence of such expense reimbursement and expense limitation, the average of the Portfolios' current expenses would have been 0.981% 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 -1.719%, 4.178% and 10.075% for Policy Years 1-10 and -1.372%, 4.546% and 10.463% for Policy Years 11 and after. The expense reimbursement for the Life-style Trusts and the expense limitation for the Equity Index Trust remained in effect during the fiscal year ended December 31, 2000 and are expected to remain in effect during the fiscal year ending December 31, 2001. Were the expense reimbursement and expense limitation to terminate, the average of the Portfolios' current expenses would be higher and the approximate net annual rates of return would be lower. A-1 Upon request, the Company will furnish a comparable illustration based on the proposed life insured's Issue Age, sex and risk class, any additional ratings and the death benefit option, Face Amount, Death Benefit Schedule (if applicable), and planned premium requested. Illustrations for smokers would show less favorable results than the illustration shown in this prospectus. From time to time, in advertisements or sales literature for the Policies that quote performance data of one or more of the Portfolios, the Company may include cash surrender values and death benefit figures computed or using the same methodology as that used in the following illustrations, but with the average annual total return of the Portfolio for which performance data is shown in the advertisement replacing the hypothetical rates of return shown in the following tables. The Policies were first sold to the public on September 11, 1998. However, total return data may be advertised for as long a period of time as the underlying Portfolio has been in existence. The results for any period prior to the Policies being offered would be calculated as if the Policies had been offered during that period of time, with all charges assumed to be the same as for the first full year the Policies were offered. A-2 Table 1 - Regular Underwriting Hypothetical Gross Investment Return of 0.00%
Current Charges - ------------------------------------------------------------------------------------------------------------------------------------ Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 761 -298 18,397 2,000 16,397 365,000 2 20,000 43,050 18,397 19,600 144 1,015 -582 36,256 3,000 33,256 365,000 3 20,000 66,203 36,256 19,600 144 1,235 -858 53,619 3,000 50,619 365,000 4 20,000 90,513 53,619 19,600 144 1,317 -1,128 70,630 4,000 66,630 365,000 5 20,000 116,038 70,630 19,600 144 1,346 -1,393 87,347 5,000 82,347 365,000 6 20,000 142,840 87,347 19,600 144 1,392 -1,653 103,759 5,000 98,759 365,000 7 20,000 170,982 103,759 19,600 144 1,429 -1,908 119,877 4,000 115,877 365,000 8 0 179,531 119,877 0 144 1,580 -1,853 116,301 3,000 113,301 365,000 9 0 188,508 116,301 0 144 1,770 -1,795 112,591 2,000 110,591 365,000 10 0 197,933 112,591 0 144 2,007 -1,736 108,705 0 108,705 365,000 11 0 207,830 108,705 0 144 2,052 -1,355 105,154 0 105,154 365,000 12 0 218,221 105,154 0 144 2,058 -1,310 101,641 0 101,641 365,000 13 0 229,132 101,641 0 144 2,013 -1,266 98,218 0 98,218 365,000 14 0 240,589 98,218 0 144 1,830 -1,225 95,019 0 95,019 365,000 15 0 252,619 95,019 0 144 1,494 -1,186 92,195 0 92,195 365,000 16 0 265,249 92,195 0 144 1,654 -1,150 89,247 0 89,247 365,000 17 0 278,512 89,247 0 144 1,825 -1,111 86,166 0 86,166 365,000 18 0 292,438 86,166 0 144 2,016 -1,071 82,934 0 82,934 365,000 19 0 307,059 82,934 0 144 2,210 -1,029 79,551 0 79,551 365,000 20 0 322,412 79,551 0 144 2,415 -985 76,007 0 76,007 365,000 25 0 411,489 59,251 0 144 4,295 -717 54,096 0 54,096 365,000 30 0 525,176 27,347 0 144 8,323 -287 18,593 0 18,59 365,000
Guaranteed Charges - ------------------------------------------------------------------------------------------------------------------------------------ Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 1,570 -319 17,567 2,000 15,567 365,000 2 20,000 43,050 17,567 19,600 144 1,613 -618 34,793 3,000 31,793 365,00 3 20,000 66,203 34,793 19,600 144 1,653 -911 51,685 3,000 48,685 365,000 4 20,000 90,513 51,685 19,600 144 1,687 -1,199 68,255 4,000 64,255 365,000 5 20,000 116,038 68,255 19,600 144 1,723 -1,482 84,506 5,000 79,506 365,000 6 20,000 142,840 84,506 19,600 144 1,754 -1,759 100,449 5,000 95,449 365,000 7 20,000 170,982 100,449 19,600 144 1,793 -2,030 116,082 4,000 112,082 365,000 8 0 179,531 116,082 0 144 1,987 -1,961 111,991 3,000 108,991 365,000 9 0 188,508 111,991 0 144 2,210 -1,889 107,747 2,000 105,747 365,000 10 0 197,933 107,747 0 144 2,467 -1,814 103,322 0 103,322 365,000 11 0 207,830 103,322 0 144 2,748 -1,383 99,046 0 99,046 365,000 12 0 218,221 99,046 0 144 3,058 -1,323 94,521 0 94,521 365,000 13 0 229,132 94,521 0 144 3,391 -1,259 89,728 0 89,728 365,000 14 0 240,589 89,728 0 144 3,757 -1,191 84,636 0 84,636 365,000 15 0 252,619 84,636 0 144 4,160 -1,119 79,213 0 79,213 365,000 16 0 265,249 79,213 0 144 4,619 -1,042 73,408 0 73,408 365,000 17 0 278,512 73,408 0 144 5,144 -959 67,161 0 67,161 365,000 18 0 292,438 67,161 0 144 5,752 -870 60,395 0 60,395 365,000 19 0 307,059 60,395 0 144 6,461 -773 53,018 0 53,018 365,000 20 0 322,412 53,018 0 144 7,277 -666 44,930 0 44,930 365,000 25 0 411,489 3,345 0 36 3,269 -4 0 0 0 0 30 0 525,176 0 0 0 0 0 0 0 0 0
- - The policy value, cash surrender value, and the death benefit will differ if premiums are paid in different amounts or frequencies. - - It is emphasized that the hypothetical investment returns are illustrative only, and should not be deemed a representation of past or future results. Actual investment returns may be more or less than those shown and will depend on a number of factors, including the investment allocation made by the policyholder, and the investment return for the portfolios of manufacturers investment trust. - - The policy value, cash surrender value and death benefit for a policy would be different from those shown if actual rates of investment return averaged the rate shown above over a period of years, but also fluctuated above or below that average for individual policy years. - - No representations can be made that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. A-3 Table 2 - Regular Underwriting Hypothetical Gross Investment Return of 6.00%
Current Charges - ------------------------------------------------------------------------------------------------------------------------------------ Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 760 831 19,527 2,000 17,527 365,000 2 20,000 43,050 19,527 19,600 144 1,008 1,675 39,650 3,000 36,650 365,000 3 20,000 66,203 39,650 19,600 144 1,215 2,545 60,436 3,000 57,436 365,000 4 20,000 90,513 60,436 19,600 144 1,276 3,448 82,063 4,000 78,063 365,000 5 20,000 116,038 82,063 19,600 144 1,277 4,388 104,630 5,000 99,630 365,000 6 20,000 142,840 104,630 19,600 144 1,281 5,370 128,175 5,000 123,175 365,000 7 20,000 170,982 128,175 19,600 144 1,273 6,394 152,752 4,000 148,752 374,242 8 0 179,531 152,752 0 144 1,358 6,608 157,858 3,000 154,858 375,703 9 0 188,508 157,858 0 144 1,473 6,828 163,069 2,000 161,069 378,320 10 0 197,933 163,069 0 144 1,605 7,051 168,371 0 168,371 378,834 11 0 207,830 168,371 0 144 1,584 7,810 174,452 0 174,452 382,050 12 0 218,221 174,452 0 144 1,534 8,095 180,868 0 180,868 385,250 13 0 229,132 180,868 0 144 1,448 8,396 187,672 0 187,672 388,482 14 0 240,589 187,672 0 144 1,281 8,718 194,965 0 194,965 393,829 15 0 252,619 194,965 0 144 1,027 9,064 202,857 0 202,857 399,629 16 0 265,249 202,857 0 144 1,111 9,430 211,033 0 211,033 405,184 17 0 278,512 211,033 0 144 1,196 9,809 219,503 0 219,503 410,470 18 0 292,438 219,503 0 144 1,289 10,202 228,272 0 228,272 415,455 19 0 307,059 228,272 0 144 1,397 10,608 237,339 0 237,339 422,464 20 0 322,412 237,339 0 144 1,513 11,028 246,711 0 246,711 429,276 25 0 411,489 287,160 0 144 2,350 13,331 297,997 0 297,997 461,896 30 0 525,176 343,828 0 144 3,771 15,939 355,852 0 355,852 501,751
Guaranteed Charges - ------------------------------------------------------------------------------------------------------------------------------------ Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 1,568 783 18,671 2,000 16,671 365,000 2 20,000 43,050 18,671 19,600 144 1,602 1,565 38,090 3,000 35,090 365,000 3 20,000 66,203 38,090 19,600 144 1,627 2,378 58,297 3,000 55,297 365,000 4 20,000 90,513 58,297 19,600 144 1,637 3,225 79,341 4,000 75,341 365,000 5 20,000 116,038 79,341 19,600 144 1,638 4,107 101,266 5,000 96,266 365,000 6 20,000 142,840 101,266 19,600 144 1,620 5,027 124,128 5,000 119,128 365,000 7 20,000 170,982 124,128 19,600 144 1,592 5,985 147,977 4,000 143,977 365,000 8 0 179,531 147,977 0 144 1,702 6,161 152,292 3,000 149,292 365,000 9 0 188,508 152,292 0 144 1,825 6,339 156,662 2,000 154,662 365,000 10 0 197,933 156,662 0 144 1,961 6,519 161,076 0 161,076 365,000 11 0 207,830 161,076 0 144 2,099 7,289 166,122 0 166,122 365,000 12 0 218,221 166,122 0 144 2,239 7,515 171,254 0 171,254 365,000 13 0 229,132 171,254 0 144 2,375 7,746 176,480 0 176,480 365,314 14 0 240,589 176,480 0 144 2,515 7,981 181,802 0 181,802 367,239 15 0 252,619 181,802 0 144 2,660 8,220 187,218 0 187,218 368,819 16 0 265,249 187,218 0 144 2,815 8,463 192,722 0 192,722 370,026 17 0 278,512 192,722 0 144 2,980 8,710 198,307 0 198,307 370,835 18 0 292,438 198,307 0 144 3,157 8,960 203,966 0 203,966 371,219 19 0 307,059 203,966 0 144 3,373 9,213 209,662 0 209,662 373,199 20 0 322,412 209,662 0 144 3,607 9,467 215,378 0 215,378 374,758 25 0 411,489 238,441 0 144 4,752 10,751 244,296 0 244,296 378,659 30 0 525,176 267,313 0 144 6,365 12,028 272,832 0 272,832 384,693
- - The policy value, cash surrender value, and the death benefit will differ if premiums are paid in different amounts or frequencies. - - It is emphasized that the hypothetical investment returns are illustrative only, and should not be deemed a representation of past or future results. Actual investment returns may be more or less than those shown and will depend on a number of factors, including the investment allocation made by the policyholder, and the investment return for the portfolios of manufacturers investment trust. - - The policy value, cash surrender value and death benefit for a policy would be different from those shown if actual rates of investment return averaged the rate shown above over a period of years, but also fluctuated above or below that average for individual policy years. - - No representations can be made that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. A-4 Table 3 - Regular Underwriting Hypothetical Gross Investment Return of 12.00%
Current Charges - ------------------------------------------------------------------------------------------------------------------------------------ Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 759 1,961 20,658 2,000 18,658 365,000 2 20,000 43,050 20,658 19,600 144 1,002 4,066 43,178 3,000 40,178 365,000 3 20,000 66,203 43,178 19,600 144 1,194 6,365 67,806 3,000 64,806 365,000 4 20,000 90,513 67,806 19,600 144 1,232 8,889 94,918 4,000 90,918 365,000 5 20,000 116,038 94,918 19,600 144 1,198 11,671 124,848 5,000 119,848 365,000 6 20,000 142,840 124,848 19,600 144 1,199 14,741 157,846 5,000 152,846 399,350 7 20,000 170,982 157,846 19,600 144 1,358 18,117 194,060 4,000 190,060 475,448 8 0 179,531 194,060 0 144 1,468 19,815 212,264 3,000 209,264 505,188 9 0 188,508 212,264 0 144 1,607 21,674 232,187 2,000 230,187 538,674 10 0 197,933 232,187 0 144 1,754 23,710 253,999 0 253,999 571,497 11 0 207,830 253,999 0 144 1,771 26,787 278,871 0 278,871 610,727 12 0 218,221 278,871 0 144 1,771 29,421 306,377 0 306,377 652,583 13 0 229,132 306,377 0 144 1,757 32,335 336,810 0 336,810 697,197 14 0 240,589 336,810 0 144 1,696 35,561 370,531 0 370,531 748,473 15 0 252,619 370,531 0 144 1,621 39,136 407,902 0 407,902 803,567 16 0 265,249 407,902 0 144 1,949 43,075 448,884 0 448,884 861,857 17 0 278,512 448,884 0 144 2,329 47,393 493,804 0 493,804 923,413 18 0 292,438 493,804 0 144 2,777 52,125 543,007 0 543,007 988,273 19 0 307,059 543,007 0 144 3,341 57,303 596,826 0 596,826 1,062,350 20 0 322,412 596,826 0 144 3,988 62,966 655,660 0 655,660 1,140,849 25 0 411,489 951,058 0 144 8,326 100,233 1,042,821 0 1,042,821 1,616,372 30 0 525,176 1,500,172 0 144 17,039 157,892 1,640,882 0 1,640,882 2,313,643
Guaranteed Charges - ------------------------------------------------------------------------------------------------------------------------------------ Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 1,566 1,886 19,776 2,000 17,776 365,000 2 20,000 43,050 19,776 19,600 144 1,592 3,879 41,520 3,000 38,520 365,000 3 20,000 66,203 41,520 19,600 144 1,600 6,073 65,449 3,000 62,449 365,000 4 20,000 90,513 65,449 19,600 144 1,583 8,488 91,810 4,000 87,810 365,000 5 20,000 116,038 91,810 19,600 144 1,541 11,150 120,875 5,000 115,875 365,000 6 20,000 142,840 120,875 19,600 144 1,504 14,085 152,912 5,000 147,912 386,866 7 20,000 170,982 152,912 19,600 144 1,888 17,298 187,777 4,000 183,777 460,054 8 0 179,531 187,777 0 144 2,132 18,825 204,326 3,000 201,326 486,295 9 0 188,508 204,326 0 144 2,428 20,479 222,233 2,000 220,233 515,581 10 0 197,933 222,233 0 144 2,744 22,269 241,614 0 241,614 543,633 11 0 207,830 241,614 0 144 3,114 25,136 263,492 0 263,492 577,048 12 0 218,221 263,492 0 144 3,529 27,406 287,225 0 287,225 611,790 13 0 229,132 287,225 0 144 3,968 29,868 312,981 0 312,981 647,870 14 0 240,589 312,981 0 144 4,484 32,538 340,891 0 340,891 688,601 15 0 252,619 340,891 0 144 5,045 35,432 371,134 0 371,134 731,133 16 0 265,249 371,134 0 144 5,670 38,566 403,886 0 403,886 775,461 17 0 278,512 403,886 0 144 6,362 41,960 439,340 0 439,340 821,565 18 0 292,438 439,340 0 144 7,133 45,632 477,694 0 477,694 869,403 19 0 307,059 477,694 0 144 8,092 49,597 519,055 0 519,055 923,918 20 0 322,412 519,055 0 144 9,161 53,872 563,622 0 563,622 980,702 25 0 411,489 779,012 0 144 15,930 80,736 843,674 0 843,674 1,307,695 30 0 525,176 1,152,535 0 144 28,157 119,197 1,243,431 0 1,243,431 1,753,238
- - The policy value, cash surrender value, and the death benefit will differ if premiums are paid in different amounts or frequencies. - - It is emphasized that the hypothetical investment returns are illustrative only, and should not be deemed a representation of past or future results. Actual investment returns may be more or less than those shown and will depend on a number of factors, including the investment allocation made by the policyholder, and the investment return for the portfolios of manufacturers investment trust. - - The policy value, cash surrender value and death benefit for a policy would be different from those shown if actual rates of investment return averaged the rate shown above over a period of years, but also fluctuated above or below that average for individual policy years. - - No representations can be made that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. A-5 Table 4 - Short Form Underwriting Hypothetical Gross Investment Return of 0.00%
Current Charges - ------------------------------------------------------------------------------------------------------------------------------------ Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 873 -297 18,286 2,000 16,286 365,000 2 20,000 43,050 18,286 19,600 144 1,059 -580 36,104 3,000 33,104 365,000 3 20,000 66,203 36,104 19,600 144 1,273 -856 53,431 3,000 50,431 365,000 4 20,000 90,513 53,431 19,600 144 1,489 -1,124 70,274 4,000 66,274 365,000 5 20,000 116,038 70,274 19,600 144 1,656 -1,385 86,690 5,000 81,690 365,000 6 20,000 142,840 86,690 19,600 144 1,692 -1,640 102,814 5,000 97,814 365,000 7 20,000 170,982 102,814 19,600 144 1,683 -1,891 118,696 4,000 114,696 365,000 8 0 179,531 118,696 0 144 1,819 -1,832 114,900 3,000 111,900 365,000 9 0 188,508 114,900 0 144 2,004 -1,772 110,981 2,000 108,981 365,000 10 0 197,933 110,981 0 144 2,219 -1,709 106,909 0 106,909 365,000 11 0 207,830 106,909 0 144 2,256 -1,331 103,178 0 103,178 365,000 12 0 218,221 103,178 0 144 2,244 -1,284 99,505 0 99,505 365,000 13 0 229,132 99,505 0 144 2,189 -1,238 95,934 0 95,934 365,000 14 0 240,589 95,934 0 144 2,014 -1,194 92,581 0 92,581 365,000 15 0 252,619 92,581 0 144 1,698 -1,154 89,585 0 89,585 365,000 16 0 265,249 89,585 0 144 1,843 -1,116 86,483 0 86,483 365,000 17 0 278,512 86,483 0 144 2,004 -1,075 83,259 0 83,259 365,000 18 0 292,438 83,259 0 144 2,173 -1,034 79,908 0 79,908 365,000 19 0 307,059 79,908 0 144 2,333 -990 76,441 0 76,441 365,000 20 0 322,412 76,441 0 144 2,501 -945 72,851 0 72,851 365,000 25 0 411,489 56,120 0 144 4,338 -677 50,961 0 50,961 365,000 30 0 525,176 24,136 0 144 8,402 -246 15,344 0 15,344 365,000
Guaranteed Charges - ------------------------------------------------------------------------------------------------------------------------------------ Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 1,570 -319 17,567 2,000 15,567 365,000 2 20,000 43,050 17,567 19,600 144 1,613 -618 34,793 3,000 31,793 365,000 3 20,000 66,203 34,793 19,600 144 1,653 -911 51,685 3,000 48,685 365,000 4 20,000 90,513 51,685 19,600 144 1,687 -1,199 68,255 4,000 64,255 365,000 5 20,000 116,038 68,255 19,600 144 1,723 -1,482 84,506 5,000 79,506 365,000 6 20,000 142,840 84,506 19,600 144 1,754 -1,759 100,449 5,000 95,449 365,000 7 20,000 170,982 100,449 19,600 144 1,793 -2,030 116,082 4,000 112,082 365,000 8 0 179,531 116,082 0 144 1,987 -1,961 111,991 3,000 108,991 365,000 9 0 188,508 111,991 0 144 2,210 -1,889 107,747 2,000 105,747 365,000 10 0 197,933 107,747 0 144 2,467 -1,814 103,322 0 103,322 365,000 11 0 207,830 103,322 0 144 2,748 -1,383 99,046 0 99,046 365,000 12 0 218,221 99,046 0 144 3,058 -1,323 94,521 0 94,521 365,000 13 0 229,132 94,521 0 144 3,391 -1,259 89,728 0 89,728 365,000 14 0 240,589 89,728 0 144 3,757 -1,191 84,636 0 84,636 365,000 15 0 252,619 84,636 0 144 4,160 -1,119 79,213 0 79,213 365,000 16 0 265,249 79,213 0 144 4,619 -1,042 73,408 0 73,408 365,000 17 0 278,512 73,408 0 144 5,144 -959 67,161 0 67,161 365,000 18 0 292,438 67,161 0 144 5,752 -870 60,395 0 60,395 365,000 19 0 307,059 60,395 0 144 6,461 -773 53,018 0 53,018 365,000 20 0 322,412 53,018 0 144 7,277 -666 44,930 0 44,930 365,000 25 0 411,489 3,345 0 36 3,269 -4 0 0 0 0 30 0 525,176 0 0 0 0 0 0 0 0 0
- - The policy value, cash surrender value, and the death benefit will differ if premiums are paid in different amounts or frequencies. - - It is emphasized that the hypothetical investment returns are illustrative only, and should not be deemed a representation of past or future results. Actual investment returns may be more or less than those shown and will depend on a number of factors, including the investment allocation made by the policyholder, and the investment return for the portfolios of manufacturers investment trust. - - The policy value, cash surrender value and death benefit 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. A-6 Table 5 - Short Form Underwriting Hypothetical Gross Investment Return of 6.00%
Current Charges - ------------------------------------------------------------------------------------------------------------------------------------ Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 872 829 19,413 2,000 17,413 365,000 2 20,000 43,050 19,413 19,600 144 1,052 1,669 39,486 3,000 36,486 365,000 3 20,000 66,203 39,486 19,600 144 1,252 2,537 60,227 3,000 57,227 365,000 4 20,000 90,513 60,227 19,600 144 1,444 3,435 81,673 4,000 77,673 365,000 5 20,000 116,038 81,673 19,600 144 1,571 4,364 103,923 5,000 98,923 365,000 6 20,000 142,840 103,923 19,600 144 1,558 5,332 127,153 5,000 122,153 365,000 7 20,000 170,982 127,153 19,600 144 1,494 6,344 151,460 4,000 147,460 371,076 8 0 179,531 151,460 0 144 1,557 6,548 156,306 3,000 153,306 372,009 9 0 188,508 156,306 0 144 1,656 6,756 161,262 2,000 159,262 374,129 10 0 197,933 161,262 0 144 1,762 6,969 166,326 0 166,326 374,233 11 0 207,830 166,326 0 144 1,727 7,711 172,165 0 172,165 377,042 12 0 218,221 172,165 0 144 1,657 7,985 178,349 0 178,349 379,884 13 0 229,132 178,349 0 144 1,559 8,276 184,922 0 184,922 382,789 14 0 240,589 184,922 0 144 1,393 8,587 191,972 0 191,972 387,784 15 0 252,619 191,972 0 144 1,146 8,922 199,604 0 199,604 393,219 16 0 265,249 199,604 0 144 1,212 9,276 207,524 0 207,524 398,445 17 0 278,512 207,524 0 144 1,283 9,643 215,740 0 215,740 403,433 18 0 292,438 215,740 0 144 1,355 10,025 224,266 0 224,266 408,164 19 0 307,059 224,266 0 144 1,434 10,421 233,109 0 233,109 414,933 20 0 322,412 233,109 0 144 1,520 10,831 242,275 0 242,275 421,559 25 0 411,489 282,017 0 144 2,299 13,093 292,667 0 292,667 453,634 30 0 525,176 337,719 0 144 3,688 15,656 349,542 0 349,542 492,855
Guaranteed Charges - ------------------------------------------------------------------------------------------------------------------------------------ Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 1,568 783 18,671 2,000 16,671 365,000 2 20,000 43,050 18,671 19,600 144 1,602 1,565 38,090 3,000 35,090 365,000 3 20,000 66,203 38,090 19,600 144 1,627 2,378 58,297 3,000 55,297 365,000 4 20,000 90,513 58,297 19,600 144 1,637 3,225 79,341 4,000 75,341 365,000 5 20,000 116,038 79,341 19,600 144 1,638 4,107 101,266 5,000 96,266 365,000 6 20,000 142,840 101,266 19,600 144 1,620 5,027 124,128 5,000 119,128 365,000 7 20,000 170,982 124,128 19,600 144 1,592 5,985 147,977 4,000 143,977 365,000 8 0 179,531 147,977 0 144 1,702 6,161 152,292 3,000 149,292 365,000 9 0 188,508 152,292 0 144 1,825 6,339 156,662 2,000 154,662 365,000 10 0 197,933 156,662 0 144 1,961 6,519 161,076 0 161,076 365,000 11 0 207,830 161,076 0 144 2,099 7,289 166,122 0 166,122 365,000 12 0 218,221 166,122 0 144 2,239 7,515 171,254 0 171,254 365,000 13 0 229,132 171,254 0 144 2,375 7,746 176,480 0 176,480 365,314 14 0 240,589 176,480 0 144 2,515 7,981 181,802 0 181,802 367,239 15 0 252,619 181,802 0 144 2,660 8,220 187,218 0 187,218 368,819 16 0 265,249 187,218 0 144 2,815 8,463 192,722 0 192,722 370,026 17 0 278,512 192,722 0 144 2,980 8,710 198,307 0 198,307 370,835 18 0 292,438 198,307 0 144 3,157 8,960 203,966 0 203,966 371,219 19 0 307,059 203,966 0 144 3,373 9,213 209,662 0 209,662 373,199 20 0 322,412 209,662 0 144 3,607 9,467 215,378 0 215,378 374,758 25 0 411,489 238,441 0 144 4,752 10,751 244,296 0 244,296 378,659 30 0 525,176 267,313 0 144 6,365 12,028 272,832 0 272,832 384,693
- - The policy value, cash surrender value, and the death benefit will differ if premiums are paid in different amounts or frequencies. - - It is emphasized that the hypothetical investment returns are illustrative only, and should not be deemed a representation of past or future results. Actual investment returns may be more or less than those shown and will depend on a number of factors, including the investment allocation made by the policyholder, and the investment return for the portfolios of manufacturers investment trust. - - The policy value, cash surrender value and death benefit 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. A-7 Table 6 - Short Form Underwriting Hypothetical Gross Investment Return of 12.00%
Current Charges - ------------------------------------------------------------------------------------------------------------------------------------ Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 870 1,955 20,540 2,000 18,540 365,000 2 20,000 43,050 20,540 19,600 144 1,045 4,052 43,003 3,000 40,003 365,000 3 20,000 66,203 43,003 19,600 144 1,231 6,345 67,574 3,000 64,574 365,000 4 20,000 90,513 67,574 19,600 144 1,394 8,856 94,492 4,000 90,492 365,000 5 20,000 116,038 94,492 19,600 144 1,474 11,612 124,086 5,000 119,086 365,000 6 20,000 142,840 124,086 19,600 144 1,455 14,649 156,737 5,000 151,737 396,544 7 20,000 170,982 156,737 19,600 144 1,615 17,989 192,567 4,000 188,567 471,789 8 0 179,531 192,567 0 144 1,713 19,649 210,358 3,000 207,358 500,652 9 0 188,508 210,358 0 144 1,853 21,466 229,827 2,000 227,827 533,199 10 0 197,933 229,827 0 144 1,989 23,455 251,149 0 251,149 565,085 11 0 207,830 251,149 0 144 2,002 26,473 275,476 0 275,476 603,291 12 0 218,221 275,476 0 144 1,991 29,049 302,391 0 302,391 644,092 13 0 229,132 302,391 0 144 1,966 31,901 332,181 0 332,181 687,615 14 0 240,589 332,181 0 144 1,898 35,059 365,199 0 365,199 737,701 15 0 252,619 365,199 0 144 1,801 38,562 401,816 0 401,816 791,577 16 0 265,249 401,816 0 144 2,118 42,421 441,975 0 441,975 848,592 17 0 278,512 441,975 0 144 2,489 46,653 485,994 0 485,994 908,809 18 0 292,438 485,994 0 144 2,916 51,290 534,224 0 534,224 972,288 19 0 307,059 534,224 0 144 3,421 56,369 587,028 0 587,028 1,044,909 20 0 322,412 587,028 0 144 4,014 61,927 644,797 0 644,797 1,121,947 25 0 411,489 935,289 0 144 8,188 98,571 1,025,528 0 1,025,528 1,589,569 30 0 525,176 1,475,284 0 144 16,756 155,272 1,613,656 0 1,613,656 2,275,256
Guaranteed Charges - ------------------------------------------------------------------------------------------------------------------------------------ Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr 1 20,000 21,000 0 19,600 144 1,566 1,886 19,776 2,000 17,776 365,000 2 20,000 43,050 19,776 19,600 144 1,592 3,879 41,520 3,000 38,520 365,000 3 20,000 66,203 41,520 19,600 144 1,600 6,073 65,449 3,000 62,449 365,000 4 20,000 90,513 65,449 19,600 144 1,583 8,488 91,810 4,000 87,810 365,000 5 20,000 116,038 91,810 19,600 144 1,541 11,150 120,875 5,000 115,875 365,000 6 20,000 142,840 120,875 19,600 144 1,504 14,085 152,912 5,000 147,912 386,866 7 20,000 170,982 152,912 19,600 144 1,888 17,298 187,777 4,000 183,777 460,054 8 0 179,531 187,777 0 144 2,132 18,825 204,326 3,000 201,326 486,295 9 0 188,508 204,326 0 144 2,428 20,479 222,233 2,000 220,233 515,581 10 0 197,933 222,233 0 144 2,744 22,269 241,614 0 241,614 543,633 11 0 207,830 241,614 0 144 3,114 25,136 263,492 0 263,492 577,048 12 0 218,221 263,492 0 144 3,529 27,406 287,225 0 287,225 611,790 13 0 229,132 287,225 0 144 3,968 29,868 312,981 0 312,981 647,870 14 0 240,589 312,981 0 144 4,484 32,538 340,891 0 340,891 688,601 15 0 252,619 340,891 0 144 5,045 35,432 371,134 0 371,134 731,133 16 0 265,249 371,134 0 144 5,670 38,566 403,886 0 403,886 775,461 17 0 278,512 403,886 0 144 6,362 41,960 439,340 0 439,340 821,565 18 0 292,438 439,340 0 144 7,133 45,632 477,694 0 477,694 869,403 19 0 307,059 477,694 0 144 8,092 49,597 519,055 0 519,055 923,918 20 0 322,412 519,055 0 144 9,161 53,872 563,622 0 563,622 980,702 25 0 411,489 779,012 0 144 15,930 80,736 843,674 0 843,674 1,307,695 30 0 525,176 1,152,535 0 144 28,157 119,197 1,243,431 0 1,243,431 1,753,238
- - The policy value, cash surrender value, and the death benefit will differ if premiums are paid in different amounts or frequencies. - - It is emphasized that the hypothetical investment returns are illustrative only, and should not be deemed a representation of past or future results. Actual investment returns may be more or less than those shown and will depend on a number of factors, including the investment allocation made by the policyholder, and the investment return for the portfolios of manufacturers investment trust. - - The policy value, cash surrender value and death benefit 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. - - No representations can be made that these hypothetical rates of return can be achieved for any one year or sustained over any period of time. A-8 Appendix B FINANCIAL STATEMENTS MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA SEPARATE ACCOUNT FOUR Financial Statements Nine months ended September 30, 2001 (unaudited) with December 31, 2000 comparative (audited) The Manufacturers Life Insurance Company of America Separate Account Four Financial Statements Nine months ended September 30, 2001 (unaudited) with December 31, 2000 comparative (audited) CONTENTS Financial Statements Statement of Assets and Contract Owners' Equity...............................1 Statements of Operations and Changes in Contract Owners' Equity...............3 Notes to Financial Statements................................................25 The Manufacturers Life Insurance Company of America Separate Account Four Statement of Assets and Contract Owners' Equity September 30, 2001 (Unaudited) The Manufacturers Life Insurance Company of America ASSETS Investments at market value: Sub-Accounts: Aggressive Growth Trust - 370,450 shares (cost $6,414,433) $ 4,293,517 All Cap Growth Trust - 757,170 shares (cost $14,331,711) 9,449,477 All Cap Value Trust - 940 shares (cost $11,001) 10,038 Balanced Trust - 2,356,572 shares (cost $41,011,019) 29,904,898 Blue Chip Growth Trust - 2,303,334 shares (cost $42,895,932) 32,108,476 Capital Appreciation Trust - 4,104 shares (cost $34,389) 31,557 Capital Opportunities Trust - 832 shares (cost $9,397) 7,599 Diversified Bond Trust - 594,774 shares (cost $6,111,052) 6,286,765 Dynamic Growth Trust - 118,303 shares (cost $813,373) 493,323 Emerging Small Company Trust - 2,440,853 shares (cost $64,421,136) 50,842,973 Equity Income Trust - 932,247 shares (cost $14,396,303) 13,098,069 Equity Index Trust - 2,701,627 shares (cost $43,897,603) 34,229,612 Financial Services Trust - 7,369 shares (cost $88,395) 78,036 Fundamental Value Trust - 20,833 shares (cost $247,146) 220,415 Global Bond Trust - 39,711 shares (cost $446,202) 468,195 Global Equity Trust - 269,814 shares (cost $4,332,393) 3,210,784 Growth Trust - 887,202 shares (cost $17,834,218) 10,823,868 Growth and Income Trust - 1,124,362 shares (cost $31,284,661) 24,454,869 Health Services Trust - 6,965 shares (cost $88,566) 83,647 High Yield Trust - 496,724 shares (cost $5,535,450) 4,743,719 Income and Value Trust - 920,558 shares (cost $9,397,459) 8,321,846 International Index Trust - 16,010 shares (cost $166,840) 130,162 International Small Cap Trust - 256,006 shares (cost $4,191,643) 2,560,063 International Stock Trust - 1,274,312 shares (cost $15,691,227) 11,213,942 International Value Trust - 201,424 shares (cost $2,407,714) 1,879,288 Internet Technologies Trust - 21,555 shares (cost $135,527) 59,708 Investment Quality Bond Trust - 1,654,080 shares (cost $19,285,262) 19,617,391 Large Cap Growth Trust - 765,004 shares (cost $9,660,323) 6,808,533 Lifestyle Aggressive 1000 Trust - 59,448 shares (cost $734,575) 542,164 Lifestyle Balanced 640 Trust - 511,679 shares (cost $6,391,499) 5,643,823 Lifestyle Conservative 280 Trust - 278,163 shares (cost $3,518,912) 3,529,891 Lifestyle Growth 820 Trust - 144,049 shares (cost $1,888,963) 1,462,101 Lifestyle Moderate 460 Trust - 92,374 shares (cost $1,139,883) 1,072,457 Mid Cap Growth Trust - 6,893 shares (cost $77,157) 56,105 Mid Cap Index Trust - 34,079 shares (cost $435,476) 373,506 Mid Cap Opportunities Trust - 582 shares (cost $5,585) 4,923 Mid Cap Stock Trust - 71,515 shares (cost $746,876) 637,912 Mid Cap Value Trust - 9,668 shares (cost $121,762) 111,759 Money Market Trust - 3,810,703 shares (cost $38,107,029) 38,107,029 Overseas Trust - 402,057 shares (cost $4,397,162) 3,188,311 Pacific Rim Emerging Markets Trust - 690,974 shares (cost $5,707,242) 4,056,015 Quantitative Equity Trust - 1,970,803 shares (cost $44,333,089) 30,429,193 Real Estate Securities Trust - 1,236,877 shares (cost $19,621,260) 18,602,629 Science and Technology Trust - 2,401,613 shares (cost $50,001,446) 22,791,309 Small Cap Index Trust - 12,838 shares (cost $145,603) 121,828 Small Company Blend Trust - 290,112 shares (cost $3,316,060) 2,509,467 Small Company Value Trust - 326,433 shares (cost $4,179,487) 3,907,403 Strategic Bond Trust - 199,128 shares (cost $2,108,921) 2,116,730 Strategic Growth Trust - 14,509 shares (cost $164,704) 133,922 Strategic Opportunities Trust - 866,862 shares (cost $13,776,854) 9,310,097
1 Separate Account Four Statement of Assets and Contract Owners' Equity September 30, 2001 (Unaudited) ASSETS (CONTINUED) Investments at market value: Sub-Accounts: Tactical Allocation Trust - 497 shares (cost $5,102) $ 4,557 Telecommunications Trust - 3,198 shares (cost $29,296) 21,173 Total Return Trust - 1,098,941 shares (cost $14,672,613) 15,275,285 Total Stock Market Index Trust - 293,377 shares (cost $3,146,814) 2,581,715 U.S. Government Securities Trust - 544,510 shares (cost $7,321,132) 7,497,903 U.S. Large Cap Value Trust - 279,055 shares (cost $3,610,975) 3,002,629 Utilities Trust - 5,381 shares (cost $58,808) 49,936 Value Trust - 610,381 shares (cost $9,604,996) 9,082,470 500 Index Trust - 70,150 shares (cost $746,980) 627,143 ------------ Total assets $462,282,155 ============ CONTRACT OWNERS' EQUITY Variable life contracts $462,282,155 ============
See accompanying notes. 2 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
SUB-ACCOUNT ----------- AGGRESSIVE GROWTH ALL CAP GROWTH ----------------- -------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00 ----------- ---------- ----------- ---------- Income: Dividends $ -- $ -- $ 489,935 $ 494,609 Expenses: Mortality and expense risks, and administrative charges 23,484 19,680 42,496 52,700 ----------- ----------- ----------- ----------- Net investment income (loss) during the period (23,484) (19,680) 447,439 441,909 Net realized gain (loss) during the period (715,050) 445,778 (782,667) 719,966 Unrealized appreciation (depreciation) during the period (1,353,594) (1,051,671) (3,551,932) (2,675,835) ----------- ----------- ----------- ----------- Net increase (decrease) in assets from operations (2,092,128) (625,573) (3,887,160) (1,513,960) ----------- ----------- ----------- ----------- Changes from principal transactions: Transfer of net premiums 1,647,712 2,017,555 3,999,766 2,987,565 Transfer on terminations (297,073) (153,979) (478,511) (565,315) Transfer on policy loans (16,723) (1,889) (16,906) (36,214) Net interfund transfers (322,150) 3,035,625 1,038,209 2,348,259 ----------- ----------- ----------- ----------- Net increase (decrease) in assets from principal transactions 1,011,766 4,897,312 4,542,558 4,734,295 ----------- ----------- ----------- ----------- Total increase (decrease) in assets (1,080,362) 4,271,739 655,398 3,220,335 Assets beginning of year 5,373,879 1,102,140 8,794,079 5,573,744 ----------- ----------- ----------- ----------- Assets end of period $ 4,293,517 $ 5,373,879 $ 9,449,477 $ 8,794,079 =========== =========== =========== ===========
* Reflects the period from commencement of operations May 1, 2001 through September 30, 2001. See accompanying notes. 3
SUB-ACCOUNT ----------- ALL CAP CAPITAL VALUE BALANCED BLUE CHIP GROWTH APPRECIATION ----- -------- ---------------- ------------ PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED SEPT. 30/01* SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00 SEPT. 30/01* - ------------ ----------- ---------- ----------- ---------- ------------ $ -- $ 824,561 $ 2,142,690 $ 2,891,977 $ 1,437,390 $ -- 12 180,203 306,448 171,619 225,515 13 - ------------------------------------------------------------------------------------------------------------------ (12) 644,358 1,836,242 2,720,358 1,211,875 (13) (23) (1,375,110) 1,164,938 (3,014,053) 2,219,612 (13) (964) (5,662,574) (7,426,525) (10,755,723) (5,137,526) (2,831) - ------------------------------------------------------------------------------------------------------------------ (999) (6,393,326) (4,425,345) (11,049,418) (1,706,039) (2,857) - ------------------------------------------------------------------------------------------------------------------ 4,140 3,249,443 5,624,260 8,885,261 13,245,945 -- (1,135) (3,097,986) (5,659,955) (2,100,073) (1,872,424) (58) -- 132,012 (208,941) (31,634) 13 -- 8,032 (4,774,642) (7,469,583) (2,993,057) (3,545,368) 34,472 - ------------------------------------------------------------------------------------------------------------------ 11,037 (4,491,173) (7,714,219) 3,760,497 7,828,166 34,414 - ------------------------------------------------------------------------------------------------------------------ 10,038 (10,884,499) (12,139,564) (7,288,921) 6,122,127 31,557 -- 40,789,397 52,928,961 39,397,397 33,275,270 -- - ------------------------------------------------------------------------------------------------------------------ $10,038 $ 29,904,898 $ 40,789,397 $ 32,108,476 $ 39,397,397 $31,557 ==================================================================================================================
4 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (Unaudited) (continued)
SUB-ACCOUNT ----------- CAPITAL OPPORTUNITIES DIVERSIFIED BOND ------------- ---------------- PERIOD ENDED PERIOD ENDED YEAR ENDED SEPT. 30/01* SEPT. 30/01 DEC. 31/00 ------------ ----------- ---------- Income: Dividends $ - $ 171,518 $ 128,166 Expenses: Mortality and expense risks, and administrative charges 9 21,560 13,735 --------------------------------------------- Net investment income (loss) during the period (9) 149,958 114,431 Net realized gain (loss) during the period (6) 186,216 (85,540) Unrealized appreciation (depreciation) during the period (1,798) (7,093) 229,671 --------------------------------------------- Net increase (decrease) in assets from operations (1,813) 329,081 258,562 --------------------------------------------- Changes from principal transactions: Transfer of net premiums -- 1,755,559 1,199,817 Transfer on terminations (46) (232,265) (244,178) Transfer on policy loans -- (52,853) (55,670) Net interfund transfers 9,458 828,846 1,131,179 --------------------------------------------- Net increase (decrease) in assets from principal transactions 9,412 2,299,287 2,031,148 --------------------------------------------- Total increase (decrease) in assets 7,599 2,628,368 2,289,710 Assets beginning of year -- 3,658,397 1,368,687 --------------------------------------------- Assets end of period $ 7,599 $6,286,765 $3,658,397 =============================================
* Reflects the period from commencement of operations May 1, 2001 through September 30, 2001. ** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 5
SUB-ACCOUNT ----------- DYNAMIC GROWTH EMERGING SMALL COMPANY EQUITY INCOME -------------- ---------------------- ------------- PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/01 DEC. 31/00** SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00 ----------- ------------ ----------- ---------- ----------- ---------- $ 1,375 $ -- $ 2,633,803 $ 8,896,969 $ 1,021,642 $ 1,215,240 2,366 1,202 311,480 594,318 48,179 52,959 - ------------------------------------------------------------------------------------------------------------- (991) (1,202) 2,322,323 8,302,651 973,463 1,162,281 (58,538) (126,482) (1,103,505) 7,060,851 (254,621) (999,933) (216,134) (103,916) (31,993,109) (19,474,370) (1,667,777) 598,947 - ------------------------------------------------------------------------------------------------------------- (275,663) (231,600) (30,774,291) (4,110,868) (948,935) 761,295 - ------------------------------------------------------------------------------------------------------------- 224,724 91,367 6,768,766 10,826,056 2,695,534 3,091,072 (4,940) (13,110) (5,207,476) (10,744,665) (858,470) (1,003,040) -- -- 38,120 (877,506) (12,219) 1,625 278,956 423,589 (498,913) 1,815,857 4,364,980 (4,746,166) - ------------------------------------------------------------------------------------------------------------- 498,740 501,846 1,100,497 1,019,742 6,189,825 (2,656,509) - ------------------------------------------------------------------------------------------------------------- 223,077 270,246 (29,673,794) (3,091,126) 5,240,890 (1,895,214) 270,246 -- 80,516,767 83,607,893 7,857,179 9,752,393 - ------------------------------------------------------------------------------------------------------------- $ 493,323 $ 270,246 $ 50,842,973 $ 80,516,767 $ 13,098,069 $ 7,857,179 =============================================================================================================
6 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (Unaudited) (continued)
SUB-ACCOUNT ----------- FINANCIAL EQUITY INDEX SERVICES ------------ -------- PERIOD ENDED YEAR ENDED PERIOD ENDED SEPT. 30/01 DEC. 31/00 SEPT. 30/01* ----------- ---------- ------------ Income: Dividends $ 949,563 $ 117,514 $ -- Expenses: Mortality and expense risks, and administrative charges 169,728 258,059 86 ------------ ------------ -------- Net investment income (loss) during the period 779,835 (140,545) (86) Net realized gain (loss) during the period (1,667,247) 3,003,549 (94) Unrealized appreciation (depreciation) during the period (7,894,191) (7,096,700) (10,360) ------------ ------------ -------- Net increase (decrease) in assets from operations (8,781,603) (4,233,696) (10,540) ------------ ------------ -------- Changes from principal transactions: Transfer of net premiums 9,402,253 16,333,867 587 Transfer on terminations (1,886,937) (2,849,902) (1,124) Transfer on policy loans (6,368) (154,116) -- Net interfund transfers (4,245,045) (7,052,953) 89,113 ------------ ------------ -------- Net increase (decrease) in assets from principal transactions 3,263,903 6,276,896 88,576 ------------ ------------ -------- Total increase (decrease) in assets (5,517,700) 2,043,200 78,036 Assets beginning of year 39,747,312 37,704,112 -- ------------ ------------ -------- Assets end of period $ 34,229,612 $ 39,747,312 $ 78,036 ============ ============ ========
* Reflects the period from commencement of operations May 1, 2001 through September 30, 2001. See accompanying notes. 7
SUB-ACCOUNT ----------- FUNDAMENTAL VALUE GLOBAL BOND GLOBAL EQUITY GROWTH ----- ----------- ------------- ------ PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/01* SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00 - ------------ ----------- ---------- ----------- ---------- ----------- ---------- $ -- $ -- $ 10,543 $ 507,908 $ 327,718 $ -- $ 1,357,936 237 2,229 3,171 16,077 19,023 61,351 97,447 - ----------------------------------------------------------------------------------------------------------------------- (237) (2,229) 7,372 491,831 308,695 (61,351) 1,260,489 (171) (3,449) (30,994) (39,471) (199,982) (3,870,972) 594,711 (26,731) 24,029 2,851 (1,373,247) 234,915 (904,429) (7,421,452) - ----------------------------------------------------------------------------------------------------------------------- (27,139) 18,351 (20,771) (920,887) 343,628 (4,836,752) (5,566,252) - ----------------------------------------------------------------------------------------------------------------------- 2,776 249,822 139,169 596,649 1,194,857 4,569,408 7,922,560 (2,533) (18,552) (34,333) (201,018) (226,935) (684,031) (1,151,699) -- (3,375) (10,712) (1,937) (40,108) (28,874) (59,763) 247,311 (177,288) 2,695 203,152 (910,286) (3,433,802) 6,325,216 - ----------------------------------------------------------------------------------------------------------------------- 247,554 50,607 96,819 596,846 17,528 422,701 13,036,314 - ----------------------------------------------------------------------------------------------------------------------- 220,415 68,958 76,048 (324,041) 361,156 (4,414,051) 7,470,062 -- 399,237 323,189 3,534,825 3,173,669 15,237,919 7,767,857 - ----------------------------------------------------------------------------------------------------------------------- $220,415 $ 468,195 $399,237 $ 3,210,784 $3,534,825 $ 10,823,868 $ 15,237,919 =======================================================================================================================
8 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (Unaudited) (continued)
SUB-ACCOUNT ----------- HEALTH GROWTH AND INCOME SCIENCES ----------------- -------- PERIOD ENDED YEAR ENDED PERIOD ENDED SEPT. 30/01 DEC. 31/00 SEPT. 30/01* ----------- ---------- ------------ Income: Dividends $ 1,481,575 $ 1,677,174 $ -- Expenses: Mortality and expense risks, and administrative charges 123,543 178,922 90 ------------------------------------------------ Net investment income (loss) during the period 1,358,032 1,498,252 (90) Net realized gain (loss) during the period (1,417,760) 2,196,121 (54) Unrealized appreciation (depreciation) during the period (5,560,378) (5,943,252) (4,919) ------------------------------------------------ Net increase (decrease) in assets from operations (5,620,106) (2,248,879) (5,063) ------------------------------------------------ Changes from principal transactions: Transfer of net premiums 6,021,196 7,793,636 20,270 Transfer on terminations (2,227,656) (3,678,743) (948) Transfer on policy loans (36,375) (14,763) -- Net interfund transfers (797,040) (4,080,097) 69,388 ------------------------------------------------ Net increase (decrease) in assets from principal transactions 2,960,125 20,033 88,710 Total increase (decrease) in assets (2,659,981) (2,228,846) 83,647 Assets beginning of year 27,114,850 29,343,696 -- ------------------------------------------------ Assets end of period $ 24,454,869 $ 27,114,850 $83,647 ================================================
* Reflects the period from commencement of operations May 1, 2001 through September 30, 2001. ** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 9
SUB-ACCOUNT ----------- HIGH YIELD INCOME & VALUE INTERNATIONAL INDEX ---------- -------------- ------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00** ----------- ---------- ----------- ---------- ----------- ------------ $ 364,655 $ 13,566 $ 313,451 $ 952,189 $ 44 $ 624 16,842 25,447 32,432 31,429 927 85 - ------------------------------------------------------------------------------------------------- 347,813 (11,881) 281,019 920,760 (883) 539 (326,082) (127,211) (399,936) (302,448) 22,036 (309) (397,145) (253,583) (677,029) (418,733) (33,637) (3,041) - ------------------------------------------------------------------------------------------------- (375,414) (392,675) (795,946) 199,579 (12,484) (2,811) - ------------------------------------------------------------------------------------------------- 1,259,195 1,396,133 2,255,150 2,354,495 17,543 3,789 (206,026) (236,289) (415,177) (379,895) 3,830 (599) (11,589) (11,335) (8,196) (80,612) -- -- 36,991 (172,527) 1,040,088 710,007 76,795 44,099 - ------------------------------------------------------------------------------------------------- 1,078,571 975,982 2,871,865 2,603,995 98,168 47,289 - ------------------------------------------------------------------------------------------------- 703,157 583,307 2,075,919 2,803,574 85,684 44,478 4,040,562 3,457,255 6,245,927 3,442,353 44,478 -- - ------------------------------------------------------------------------------------------------- $4,743,719 $4,040,562 $8,321,846 $6,245,927 $130,162 $44,478 =================================================================================================
10 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (Unaudited) (continued)
SUB-ACCOUNT ----------- INTERNATIONAL SMALL CAP INTERNATIONAL STOCK ----------------------- ------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00 ----------- ---------- ----------- ---------- Income: Dividends $ -- $ 694,416 $ 724,688 $ 84,131 Expenses: Mortality and expense risks, and administrative charges 15,703 23,770 67,638 110,826 ------------------------------------------------------------------ Net investment income (loss) during the period (15,703) 670,646 657,050 (26,695) Net realized gain (loss) during the period (1,719,239) (138,612) (2,531,535) 571,024 Unrealized appreciation (depreciation) during the period 145,012 (2,406,462) (3,111,810) (3,695,939) ------------------------------------------------------------------ Net increase (decrease) in assets from operations (1,589,930) (1,874,428) (4,986,295) (3,151,610) ------------------------------------------------------------------ Changes from principal transactions: Transfer of net premiums 925,625 1,799,696 2,917,539 5,040,119 Transfer on terminations (252,522) (347,872) (938,597) (1,565,059) Transfer on policy loans (1,002) (2,578) 15,550 22,239 Net interfund transfers (761,467) 2,678,076 (3,411,781) 720,414 ------------------------------------------------------------------ Net increase (decrease) in assets from principal transactions (89,366) 4,127,322 (1,417,289) 4,217,713 ------------------------------------------------------------------ Total increase (decrease) in assets (1,679,296) 2,252,894 (6,403,584) 1,066,103 Assets beginning of year 4,239,359 1,986,465 17,617,526 16,551,423 ------------------------------------------------------------------ Assets end of period $ 2,560,063 $ 4,239,359 $ 11,213,942 $17,617,526 ==================================================================
** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 11
SUB-ACCOUNT ----------- INTERNATIONAL VALUE INTERNET TECHNOLOGIES INVESTMENT QUALITY BOND ------------------- --------------------- ----------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00** SEPT. 30/01 DEC. 31/00 ----------- ---------- ----------- ------------ ----------- ---------- $ 51,943 $ 17,130 $ -- $ -- $ 1,038,232 $ 1,309,195 9,136 15,330 392 707 82,904 109,903 - ---------------------------------------------------------------------------------------------------------- 42,807 1,800 (392) (707) 955,328 1,199,292 (42,872) (106,248) (79,050) (62,279) 47,679 (240,339) (453,680) (114,496) 11,426 (87,244) 157,376 437,793 - ---------------------------------------------------------------------------------------------------------- (453,745) (218,944) (68,016) (150,230) 1,160,383 1,396,746 - ---------------------------------------------------------------------------------------------------------- 603,972 1,289,123 34,263 69,573 1,783,747 2,734,616 (69,743) (134,761) (46,597) (805) (1,260,018) (2,078,469) (2,127) 7,727 38,323 (40,607) (40,320) 27,427 (43,114) 406,659 (30,340) 254,144 1,686,019 (4,994,725) - ---------------------------------------------------------------------------------------------------------- 488,988 1,568,748 (4,351) 282,305 2,169,428 (4,311,151) - ---------------------------------------------------------------------------------------------------------- 35,243 1,349,804 (72,367) 132,075 3,329,811 (2,914,405) 1,844,045 494,241 132,075 -- 16,287,580 19,201,985 - ---------------------------------------------------------------------------------------------------------- $1,879,288 $1,844,045 $ 59,708 $ 132,075 $19,617,391 $16,287,580 ==========================================================================================================
12 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (Unaudited) (continued)
SUB-ACCOUNT ----------- LARGE CAP GROWTH LIFESTYLE AGGRESSIVE 1000 ---------------- ------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00 ----------- ---------- ----------- ---------- Income: Dividends $ 295,174 $ 933,644 $ 48,963 $ 37,648 Expenses: Mortality and expense risks, and administrative charges 35,064 42,374 3,169 4,794 --------------------------------------------------------------- Net investment income (loss) during the period 260,110 891,270 45,794 32,854 Net realized gain (loss) during the period (1,031,853) 236,149 (17,247) 14,597 Unrealized appreciation (depreciation) during the period (1,430,201) (2,285,423) (203,030) (84,082) --------------------------------------------------------------- Net increase (decrease) in assets from operations (2,201,944) (1,158,004) (174,483) (36,631) --------------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 1,976,040 3,140,695 174,849 71,415 Transfer on terminations (568,872) (990,185) (72,113) (84,132) Transfer on policy loans (7,859) (60,521) (32,555) (692) Net interfund transfers 427,381 286,718 (27,339) (82,072) --------------------------------------------------------------- Net increase (decrease) in assets from principal transactions 1,826,690 2,376,707 42,842 (95,481) --------------------------------------------------------------- Total increase (decrease) in assets (375,254) 1,218,703 (131,641) (132,112) Assets beginning of year 7,183,787 5,965,084 673,805 805,917 --------------------------------------------------------------- Assets end of period $ 6,808,533 $ 7,183,787 $ 542,164 $ 673,805 ===============================================================
See accompanying notes. 13
SUB-ACCOUNT ----------- LIFESTYLE BALANCED 640 LIFESTYLE CONSERVATIVE 280 LIFESTYLE GROWTH 820 ---------------------- -------------------------- -------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00 ----------- ---------- ----------- ---------- ----------- ---------- $ 331,915 $ 89,487 $ 14,490 $ 29,153 $ 138,327 $ 149,038 19,253 14,134 1,883 2,482 7,652 11,827 - ---------------------------------------------------------------------------------------------- 312,662 75,353 12,607 26,671 130,675 137,211 (99,286) 51,498 2,210 (10,067) (60,724) 46,233 (688,002) (151,961) (2,240) 5,241 (386,227) (248,793) - ---------------------------------------------------------------------------------------------- (474,626) (25,110) 12,577 21,845 (316,276) (65,349) 290,106 2,347,394 47,116 31,809 557,895 600,657 (253,812) (156,204) (15,980) (102,927) (155,060) (179,618) 292 (51,653) (719) (56,838) (18,841) (27,215) 2,234,438 167,632 3,193,209 (92,469) (115,822) (756,569) - ---------------------------------------------------------------------------------------------- 2,271,024 2,307,169 3,223,626 (220,425) 268,172 (362,745) - ---------------------------------------------------------------------------------------------- 1,796,398 2,282,059 3,236,203 (198,580) (48,104) (428,094) 3,847,425 1,565,366 293,688 492,268 1,510,205 1,938,299 - ---------------------------------------------------------------------------------------------- $5,643,823 $3,847,425 $3,529,891 $ 293,688 $1,462,101 $1,510,205 ==============================================================================================
14 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (Unaudited) (continued)
SUB-ACCOUNT ------------------------------------------------ MID CAP LIFESTYLE MODERATE 460 GROWTH ------------------------------------------------ PERIOD ENDED YEAR ENDED PERIOD ENDED SEPT. 30/01 DEC. 31/00 SEPT. 30/01* ------------------------------------------------ Income: Dividends $ 45,109 $ 5,907 $ -- Expenses: Mortality and expense risks, and administrative charges 3,132 917 80 ----------- --------- -------- Net investment income (loss) during the period 41,977 4,990 (80) Net realized gain (loss) during the period (17,094) 1,296 (101) Unrealized appreciation (depreciation) during the period (66,717) (4,375) (21,052) ----------- --------- -------- Net increase (decrease) in assets from operations (41,834) 1,911 (21,233) ----------- --------- -------- Changes from principal transactions: Transfer of net premiums 243,850 391,104 566 Transfer on terminations (18,003) (34,414) (871) Transfer on policy loans (1,577) 1,146 -- Net interfund transfers 594,988 (425,840) 77,643 ----------- --------- -------- Net increase (decrease) in assets from principal transactions 819,258 (68,004) 77,338 ----------- --------- -------- Total increase (decrease) in assets 777,424 (66,093) 56,105 Assets beginning of year 295,033 361,126 -- ----------- --------- -------- Assets end of period $ 1,072,457 $ 295,033 $ 56,105 =========== ========= ========
* Reflects the period from commencement of operations May 1, 2001 through September 30, 2001. ** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 15
SUB-ACCOUNT - ---------------------------------------------------------------------------------------------------------------------- MID CAP MID CAP MID CAP INDEX OPPORTUNITIES MID CAP STOCK VALUE - ---------------------------------------------------------------------------------------------------------------------- PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED SEPT. 30/01 DEC. 31/00** SEPT. 30/01* SEPT. 30/01 DEC. 31/00 SEPT. 30/01* - ---------------------------------------------------------------------------------------------------------------------- $ 10 $ 4,817 $ -- $ -- $ -- $ -- 991 252 2 2,498 2,347 150 - --------- --------- ------- --------- --------- --------- (981) 4,565 (2) (2,498) (2,347) (150) (16,636) 167 (1) (32,150) (13,526) (122) (56,086) (5,883) (662) (104,770) (2,643) (10,003) - --------- --------- ------- --------- --------- --------- (73,703) (1,151) (665) (139,418) (18,516) (10,275) - --------- --------- ------- --------- --------- --------- 139,862 3,514 5,649 258,538 106,206 2,369 (8,372) (1,484) (61) (33,959) (21,708) (4,852) -- -- -- (816) (223) -- 70,227 244,613 -- 173,100 133,861 124,517 - --------- --------- ------- --------- --------- --------- 201,717 246,643 5,588 396,863 218,136 122,034 - --------- --------- ------- --------- --------- --------- 128,014 245,492 4,923 257,445 199,620 111,759 245,492 -- -- 380,467 180,847 -- - --------- --------- ------- --------- --------- --------- $ 373,506 $ 245,492 $ 4,923 $ 637,912 $ 380,467 $ 111,759 ========= ========= ======= ========= ========= =========
16 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (Unaudited) (continued)
SUB-ACCOUNT ---------------------------------------------------------------------------- MONEY MARKET OVERSEAS ---------------------------------------------------------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00 ---------------------------------------------------------------------------- Income: Dividends $ 1,220,745 $ 1,932,420 $ 280,476 $ 118,152 Expenses: Mortality and expense risks, and administrative charges 188,806 212,370 14,663 12,911 ------------ ------------ ----------- ----------- Net investment income (loss) during the period 1,031,939 1,720,050 265,813 105,241 Net realized gain (loss) during the period -- -- (549,957) (59,142) Unrealized appreciation (depreciation) during the period -- -- (762,241) (565,259) ------------ ------------ ----------- ----------- Net increase (decrease) in assets from operations 1,031,939 1,720,050 (1,046,385) (519,160) ------------ ------------ ----------- ----------- Changes from principal transactions: Transfer of net premiums 8,283,912 19,729,086 1,648,099 2,381,221 Transfer on terminations (3,361,867) (6,012,717) (132,228) (239,365) Transfer on policy loans 60,341 204,008 (2,421) (2,019) Net interfund transfers (8,227,569) (3,132,123) (211,341) 753,735 ------------ ------------ ----------- ----------- Net increase (decrease) in assets from principal transactions (3,245,183) 10,788,254 1,302,109 2,893,572 ------------ ------------ ----------- ----------- Total increase (decrease) in assets (2,213,244) 12,508,304 255,724 2,374,412 Assets beginning of year 40,320,273 27,811,969 2,932,587 558,175 ------------ ------------ ----------- ----------- Assets end of period $ 38,107,029 $ 40,320,273 $ 3,188,311 $ 2,932,587 ============ ============ =========== ===========
See accompanying notes. 17
SUB-ACCOUNT - --------------------------------------------------------------------------------------------------------------------- PACIFIC RIM QUANTITATIVE EQUITY REAL ESTATE SECURITIES - --------------------------------------------------------------------------------------------------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00 - --------------------------------------------------------------------------------------------------------------------- $ 17,876 $ 20,741 $ 5,763,630 $ 5,932,623 $ 565,952 $ 548,910 21,955 35,497 191,695 309,403 83,908 96,131 - ----------- ----------- ------------ ------------ ------------ ------------ (4,079) (14,756) 5,571,935 5,623,220 482,044 452,779 (175,742) (85,747) 162,435 2,793,944 75,776 (373,361) (1,241,962) (1,449,544) (19,709,029) (5,866,904) (659,894) 3,308,154 - ----------- ----------- ------------ ------------ ------------ ------------ (1,421,783) (1,550,047) (13,974,659) 2,550,260 (102,074) 3,387,572 - ----------- ----------- ------------ ------------ ------------ ------------ 734,875 1,893,650 3,042,479 3,739,616 1,914,346 1,902,266 (321,157) (669,458) (3,682,900) (4,929,423) (1,543,522) (1,529,570) 6,134 (17,017) (190,597) (344,939) (95,582) (152,860) (81,218) 19,115 (943,867) (605,234) 1,263,103 (473,949) - ----------- ----------- ------------ ------------ ------------ ------------ 338,634 1,226,290 (1,774,885) (2,139,980) 1,538,345 (254,113) - ----------- ----------- ------------ ------------ ------------ ------------ (1,083,149) (323,757) (15,749,544) 410,280 1,436,271 3,133,459 5,139,164 5,462,921 46,178,737 45,768,457 17,166,358 14,032,899 - ----------- ----------- ------------ ------------ ------------ ------------ $ 4,056,015 $ 5,139,164 $ 30,429,193 $ 46,178,737 $ 18,602,629 $ 17,166,358 =========== =========== ============ ============ ============ ============
18 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (Unaudited) (continued)
SUB-ACCOUNT ---------------------------------------------------------------------- SCIENCE & TECHNOLOGY SMALL CAP INDEX ---------------------------------------------------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00** ---------------------------------------------------------------------- Income: Dividends $ 2,074,187 $ 1,118,209 $ -- $ 1,534 Expenses: Mortality and expense risks, and administrative charges 166,429 308,316 722 58 ------------ ------------ --------- -------- Net investment income (loss) during the period 1,907,758 809,893 (722) 1,476 Net realized gain (loss) during the period (18,330,986) 6,027,471 (21,435) 75 Unrealized appreciation (depreciation) during the period (11,823,877) (27,894,294) (21,001) (2,773) ------------ ------------ --------- -------- Net increase (decrease) in assets from operations (28,247,105) (21,056,930) (43,158) (1,222) ------------ ------------ --------- -------- Changes from principal transactions: Transfer of net premiums 13,889,354 23,717,592 79,040 4,377 Transfer on terminations (1,643,996) (3,000,348) (2,732) (373) Transfer on policy loans (17,268) (129,110) (1,237) -- Net interfund transfers (3,348,090) 7,234,394 46,217 40,916 ------------ ------------ --------- -------- Net increase (decrease) in assets from principal transactions 8,880,000 27,822,528 121,288 44,920 ------------ ------------ --------- -------- Total increase (decrease) in assets (19,367,105) 6,765,598 78,130 43,698 Assets beginning of year 42,158,414 35,392,816 43,698 -- ------------ ------------ --------- -------- Assets end of period $ 22,791,309 $ 42,158,414 $ 121,828 $ 43,698 ============ ============ ========= ========
** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 19
SUB-ACCOUNT - ---------------------------------------------------------------------------------------------------------------- SMALL COMPANY BLEND SMALL COMPANY VALUE STRATEGIC BOND - ---------------------------------------------------------------------------------------------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00 - ---------------------------------------------------------------------------------------------------------------- $ 9,171 $ 133,872 $ 6,135 $ 2,007 $ 80,052 $ 85,997 9,527 5,510 13,852 11,945 7,087 6,711 - ----------- ----------- ----------- ----------- ----------- ----------- (356) 128,362 (7,717) (9,938) 72,965 79,286 (308,531) 24,165 92,841 64,625 (22,681) (41,693) (277,369) (568,390) (456,030) 82,411 9,931 28,826 - ----------- ----------- ----------- ----------- ----------- ----------- (586,256) (415,863) (370,906) 137,098 60,215 66,419 - ----------- ----------- ----------- ----------- ----------- ----------- 841,229 661,522 939,327 1,025,807 207,415 134,439 (68,421) (31,361) (99,555) (79,835) (66,625) (42,241) 187 (10,610) (10,874) (11,079) (54,821) (3,131) 988,021 894,978 988,303 262,214 940,913 (404,574) - ----------- ----------- ----------- ----------- ----------- ----------- 1,761,016 1,514,529 1,817,201 1,197,107 1,026,882 (315,507) - ----------- ----------- ----------- ----------- ----------- ----------- 1,174,760 1,098,666 1,446,295 1,334,205 1,087,097 (249,088) 1,334,707 236,041 2,461,108 1,126,903 1,029,633 1,278,721 - ----------- ----------- ----------- ----------- ----------- ----------- $ 2,509,467 $ 1,334,707 $ 3,907,403 $ 2,461,108 $ 2,116,730 $ 1,029,633 =========== =========== =========== =========== =========== ===========
20 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (Unaudited) (continued)
SUB-ACCOUNT ----------------------------------------------------------------------- STRATEGIC TACTICAL GROWTH STRATEGIC OPPORTUNITIES ALLOCATION ----------------------------------------------------------------------- PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED SEPT. 30/01* SEPT. 30/01 DEC. 31/00 SEPT. 30/01* ----------------------------------------------------------------------- Income: Dividends $ -- $ 2,218,057 $ 1,408,900 $ 18 Expenses: Mortality and expense risks, and administrative charges 143 76,423 81,796 161 --------- ------------ ------------ -------- Net investment income (loss) during the period (143) 2,141,634 1,327,104 (143) Net realized gain (loss) during the period (119) (4,072,695) (242,930) (11,004) Unrealized appreciation (depreciation) during the period (30,782) (3,285,881) (2,200,855) (545) --------- ------------ ------------ -------- Net increase (decrease) in assets from operations (31,044) (5,216,942) (1,116,681) (11,692) --------- ------------ ------------ -------- Changes from principal transactions: Transfer of net premiums 7,132 4,789,502 3,657,647 6,017 Transfer on terminations (1,409) (835,777) (2,369,868) (1,835) Transfer on policy loans -- 10,473 (79,984) -- Net interfund transfers 159,243 (4,018,010) 5,347,608 12,067 --------- ------------ ------------ -------- Net increase (decrease) in assets from principal transactions 164,966 (53,812) 6,555,403 16,249 --------- ------------ ------------ -------- Total increase (decrease) in assets 133,922 (5,270,754) 5,438,722 4,557 Assets beginning of year -- 14,580,851 9,142,129 -- --------- ------------ ------------ -------- Assets end of period $ 133,922 $ 9,310,097 $ 14,580,851 $ 4,557 ========= ============ ============ ========
* Reflects the period from commencement of operations May 1, 2001 through September 30, 2001. ** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 21
SUB-ACCOUNT - ------------------------------------------------------------------------------------------ TELE- COMMUNICATIONS TOTAL RETURN TOTAL STOCK MARKET INDEX - ------------------------------------------------------------------------------------------ PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED SEPT. 30/01* SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00** - ------------------------------------------------------------------------------------------ $ -- $ 234,318 $ 27,495 $ -- $ 12,374 30 33,495 15,109 8,586 2,888 - -------- ------------ ----------- ----------- ----------- (30) 200,823 12,386 (8,586) 9,486 (21) 184,783 22,935 (58,115) (1,756) (8,124) 325,269 277,035 (424,548) (140,552) - -------- ------------ ----------- ----------- ----------- (8,175) 710,875 312,356 (491,249) (132,822) - -------- ------------ ----------- ----------- ----------- -- 2,076,116 1,516,546 216,391 2,071 (89) (179,013) (75,925) (70,284) (24,855) -- (51,927) -- -- -- 29,437 8,088,526 2,577,623 1,603,594 1,478,869 - -------- ------------ ----------- ----------- ----------- 29,348 9,933,702 4,018,244 1,749,701 1,456,085 - -------- ------------ ----------- ----------- ----------- 21,173 10,644,577 4,330,600 1,258,452 1,323,263 -- 4,630,708 300,108 1,323,263 -- - -------- ------------ ----------- ----------- ----------- $ 21,173 $ 15,275,285 $ 4,630,708 $ 2,581,715 $ 1,323,263 ======== ============ =========== =========== ===========
22 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (Unaudited) (continued)
SUB-ACCOUNT ------------------------------------------------------------------------ U.S. GOVERNMENT SECURITIES U.S. LARGE CAP VALUE ------------------------------------------------------------------------ PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00 ------------------------------------------------------------------------ Income: Dividends $ 290,455 $ 162,231 $ 21,133 $ 7,307 Expenses: Mortality and expense risks, and administrative charges 24,393 14,820 11,973 9,544 ----------- ----------- ----------- ----------- Net investment income (loss) during the period 266,062 147,411 9,160 (2,237) Net realized gain (loss) during the period 36,821 (46,024) (30,603) 67,805 Unrealized appreciation (depreciation) during the period 77,274 123,103 (626,316) (30,733) ----------- ----------- ----------- ----------- Net increase (decrease) in assets from operations 380,157 224,490 (647,759) 34,835 ----------- ----------- ----------- ----------- Changes from principal transactions: Transfer of net premiums 1,212,440 491,787 1,792,317 659,231 Transfer on terminations (312,552) (463,269) (157,909) (95,636) Transfer on policy loans (53,803) (31,242) (5,191) 14,332 Net interfund transfers 3,697,832 (179,509) (37,033) 19,431 ----------- ----------- ----------- ----------- Net increase (decrease) in assets from principal transactions 4,543,917 (182,233) 1,592,184 597,358 ----------- ----------- ----------- ----------- Total increase (decrease) in assets 4,924,074 42,257 944,425 632,193 Assets beginning of year 2,573,829 2,531,572 2,058,204 1,426,011 ----------- ----------- ----------- ----------- Assets end of period $ 7,497,903 $ 2,573,829 $ 3,002,629 $ 2,058,204 =========== =========== =========== ===========
* Reflects the period from commencement of operations May 1, 2001 through September 30, 2001. ** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 23
SUB-ACCOUNT - ------------------------------------------------------------------------------------- UTILITIES VALUE 500 INDEX TOTAL - --------------------------------------------------------------------------------------------------------------------------------- PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED SEPT. 30/01* SEPT. 30/01 DEC. 31/00 SEPT. 30/01 DEC. 31/00** SEPT. 30/01 DEC. 31/00 - --------------------------------------------------------------------------------------------------------------------------------- $ -- $ 225,855 $ -- $ 7 $ 512 $ 27,348,925 $ 33,640,178 65 34,292 24,109 1,355 397 2,364,170 3,367,318 - -------- ----------- ----------- --------- --------- ------------- ------------- (65) 191,563 (24,109) (1,348) 115 24,984,755 30,272,860 (30) 391,169 (100,839) (8,623) (2,289) (43,065,308) 23,929,759 (8,871) (1,343,295) 1,097,226 (103,051) (16,787) (118,662,574) (98,403,823) - -------- ----------- ----------- --------- --------- ------------- ------------- (8,966) (760,563) 972,278 (113,022) (18,961) (136,743,127) (44,201,204) - -------- ----------- ----------- --------- --------- ------------- ------------- 225 2,171,794 1,034,204 228,256 266,299 107,668,006 156,665,425 (197) (340,787) (224,326) (26,826) (6,826) (34,467,318) (54,308,095) -- (696) 3,564 1,573 (21,009) (514,277) (2,312,875) 58,874 3,299,462 (394,919) 288,901 28,758 (127,122) (132,679) - -------- ----------- ----------- --------- --------- ------------- ------------- 58,902 5,129,773 418,523 491,904 267,222 72,559,289 99,911,776 - -------- ----------- ----------- --------- --------- ------------- ------------- 49,936 4,369,210 1,390,801 378,882 248,261 (64,183,838) 55,710,572 -- 4,713,260 3,322,459 248,261 -- 526,465,993 470,755,421 - -------- ----------- ----------- --------- --------- ------------- ------------- $ 49,936 $ 9,082,470 $ 4,713,260 $ 627,143 $ 248,261 $ 462,282,155 $ 526,465,993 ======== =========== =========== ========= ========= ============= =============
24 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements September 30, 2001 (Unaudited) 1. ORGANIZATION The Manufacturers Life Insurance Company of America Separate Account Four (the Account) is a separate account established by the Manufacturers Life Insurance Company of America (the Company). The Account operates as a Unit Investment Trust under the Investment Company Act of 1940, as amended and invests in sixty sub-accounts of Manufacturers Investment Trust (the Trust). The Account is a funding vehicle for allocation of net premiums under variable universal life insurance contracts (the Contracts) issued by the Company. The Account was established by the Company, a life insurance company organized in 1983 under Michigan law. The Company is an indirect, wholly-owned subsidiary of The Manufacturers Life Insurance Company (Manulife Financial), a Canadian life insurance company. Each investment sub-account invests solely in shares of a particular portfolio of the Trust. The Trust is registered under the Investment Company Act of 1940 as an open-end management investment company. The Company is required to maintain assets in the Account with a total market value at least equal to the reserves and other liabilities relating to the variable benefits under all contracts participating in the Account. These assets may not be charged with liabilities which arise from any other business the Company conducts. However, all obligations under the variable contracts are general corporate obligations of the Company. Additional assets are held in the Company's general account to cover the contingency that the guaranteed minimum death benefit might exceed the death benefit which would have been payable in the absence of such guarantee. As the result of portfolio changes, the following sub-accounts of the Account have been replaced with new sub-accounts as follows:
PREVIOUS FUND NEW FUND EFFECTIVE DATE ------------- -------- -------------- Mid Cap Blend Trust Strategic Opportunities Trust May 1, 2001 Mid Cap Growth Trust All Cap Growth Trust May 2, 2000
25 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 1. ORGANIZATION (CONTINUED) The following sub-accounts of the Account were added as investment options for variable universal life insurance contract holders of the Company:
COMMENCEMENT OF OPERATIONS OF THE SUB-ACCOUNTS ----------------------------- All Cap Value Trust May 1, 2001 Capital Appreciation Trust May 1, 2001 Capital Opportunities Trust May 1, 2001 Dynamic Growth Trust May 2, 2000 Financial Services Trust May 1, 2001 Fundamental Value Trust May 1, 2001 Health Sciences Trust May 1, 2001 International Index Trust May 2, 2000 Internet Technologies Trust May 2, 2000 Mid Cap Growth Trust May 1, 2001 Mid Cap Index Trust May 2, 2000 Mid Cap Opportunities Trust May 1, 2001 Mid Cap Value Trust May 1, 2001 Quantitative Mid Cap Trust May 1, 2001 Small Cap Index Trust May 2, 2000 Strategic Growth Trust May 1, 2001 Tactical Allocation Trust May 2, 2000 Telecommunications Trust May 1, 2001 Total Stock Market Index Trust May 2, 2000 Utilities Trust May 1, 2001 500 Index Trust May 2, 2000
2. SIGNIFICANT ACCOUNTING POLICIES Investments are made in the portfolios of the Trust and are valued at the reported net asset value of such portfolios. Transactions are recorded on the trade date. Income from dividends is recorded on the ex-dividend date. Realized gains and losses on the sales of investments are computed on the basis of the identified cost of the investment sold. 26 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In addition to the Account, a contract holder may also allocate funds to the Fixed Account, which is part of the Company's general account. Because of exemptive and exclusionary provisions, interests in the Fixed Account have not been registered under the Securities Act of 1933, and the Company's general account has not been registered as an investment company under the Investment Company Act of 1940. The operations of the Account are included in the federal income tax return of the Company, which is taxed as a life insurance company under the provisions of the Internal Revenue Code (the Code). Under the current provisions of the Code, the Company does not expect to incur federal income taxes on the earnings of the Account to the extent the earnings are credited under the contracts. Based on this, no charge is being made currently to the Account for federal income taxes. The Company will review periodically the status of such decision based on changes in the tax law. Such a charge may be made in future years for any federal income taxes that would be attributable to the contract. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that could affect the amounts reported the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein. 3. MORTALITY AND EXPENSE RISKS CHARGE Manufacturers Life of America deducts from the assets of the Account a daily charge equivalent to annual rates between 0.40% and 0.65% of the average net value of the Account's assets for mortality and expense risks. 4. PREMIUM DEDUCTIONS Manufacturers Life of America deducts certain charges for state, local, and federal taxes from the gross premium before placing the remaining net premiums in the sub-accounts. 27 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 5. PURCHASES AND SALES OF INVESTMENTS The following table shows aggregate cost of shares purchased and proceeds from shares sold of each Trust portfolio for the period ended September 30, 2001:
PURCHASES SALES ------------ ------------ Aggressive Growth Trust $ 2,783,253 $ 1,794,972 All Cap Growth Trust 7,790,560 2,800,562 All Cap Value Trust 12,172 1,148 Balanced Trust 5,110,698 8,957,513 Blue Chip Growth Trust 25,488,038 19,007,184 Capital Appreciation Trust 34,472 71 Capital Opportunities Trust 9,458 56 Diversified Bond Trust 5,672,058 3,222,813 Dynamic Growth Trust 2,112,932 1,615,183 Emerging Small Company Trust 21,340,717 17,917,896 Equity Income Trust 10,771,571 3,608,283 Equity Index Trust 23,911,403 19,867,665 Financial Services Trust 89,259 770 Fundamental Value Trust 248,717 1,400 Global Bond Trust 361,072 312,695 Global Equity Trust 2,093,135 1,004,456 Growth Trust 5,997,371 5,636,020 Growth and Income Trust 14,820,880 10,502,723 Health Services Trust 89,450 829 High Yield Trust 5,041,010 3,614,626 Income and Value Trust 5,007,560 1,854,677 International Index Trust 632,561 535,276 International Small Cap Trust 1,785,078 1,890,147 International Stock Trust 11,949,451 12,709,691 International Value Trust 1,022,743 490,949 Internet Technologies Trust 79,595 84,338 Investment Quality Bond Trust 10,375,163 7,250,406 Large Cap Growth Trust 5,671,364 3,584,565 Lifestyle Aggressive 1000 Trust 433,378 344,742 Lifestyle Balanced 640 Trust 4,235,952 1,652,266 Lifestyle Conservative 280 Trust 3,407,250 171,018 Lifestyle Growth 820 Trust 782,559 383,710 Lifestyle Moderate 460 Trust 1,255,048 393,813
28 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 5. PURCHASES AND SALES OF INVESTMENTS (CONTINUED)
PURCHASES SALES ------------ ------------ Mid Cap Growth Trust 77,827 570 Mid Cap Index Trust 501,887 301,150 Mid Cap Opportunities Trust 5,598 13 Mid Cap Stock Trust 640,813 246,448 Mid Cap Value Trust 123,974 2,090 Money Market Trust 27,914,145 30,127,388 Overseas Trust 2,828,728 1,260,807 Pacific Rim Emerging Markets Trust 1,836,452 1,501,896 Quantitative Equity Trust 9,469,927 5,672,877 Real Estate Securities Trust 6,466,802 4,446,413 Science and Technology Trust 37,063,591 26,275,833 Small Cap Index Trust 690,835 570,268 Small Company Blend Trust 2,338,295 577,636 Small Company Value Trust 3,563,374 1,753,889 Strategic Bond Trust 2,375,763 1,275,916 Strategic Growth Trust 165,606 783 Strategic Opportunities Trust 9,108,514 7,020,691 Tactical Allocation Trust 112,886 96,780 Telecommunications Trust 29,437 120 Total Return Trust 13,956,190 3,821,666 Total Stock Market Index Trust 2,014,904 273,789 U.S. Government Securities Trust 6,649,287 1,839,308 U.S. Large Cap Value Trust 4,130,758 2,529,414 Utilities Trust 59,099 262 Value Trust 8,703,247 3,381,911 500 Index Trust 533,535 42,980 ------------ ------------ Total $321,777,402 $224,233,361 ============ ============
29 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 6. UNIT VALUES A summary of the accumulation unit values at September 30, 2001 and at December 31, 2000 and the accumulation units and dollar value outstanding at September 30, 2001 for the variable universal life contracts are as follows:
2000 2001 ---------------------------------------------------------------- UNIT VALUE UNIT VALUE UNITS DOLLARS ---------------------------------------------------------------- Aggressive Growth Trust: Individual and Corporate Variable Life Type L Contracts $ 20.28 $ 13.09 226,726 $ 2,969,016 Corporate Variable Life Type K Contracts 14.69 9.50 139,475 1,324,501 ----------- 4,293,517 All Cap Growth Trust: Individual and Corporate Variable Life Type L Contracts 24.68 15.84 539,575 8,548,556 Corporate Variable Life Type K Contracts 12.81 8.23 109,514 900,921 ----------- 9,449,477 All Cap Value Trust: Individual and Corporate Variable Life Type L Contracts -- 10.65 942 10,038 Balanced Trust: Individual and Corporate Variable Life Type L Contracts 29.62 24.74 1,169,028 28,917,275 Corporate Variable Life Type K Contracts 11.03 9.22 3,383 31,186 Corporate Variable Life Type I Contracts -- 24.78 38,593 956,437 ----------- 29,904,898 Blue Chip Growth Trust: Individual and Corporate Variable Life Type L Contracts 23.33 17.46 1,191,851 20,811,038 Corporate Variable Life Type K Contracts 12.48 9.34 357,111 3,337,098 Corporate Variable Life Type I Contracts -- 17.49 455,027 7,960,340 ----------- 32,108,476 Capital Appreciation Trust: Individual and Corporate Variable Life Type L Contracts -- 9.51 3,318 31,557 Capital Opportunities Trust: Individual and Corporate Variable Life Type L Contracts -- 9.11 835 7,599
30 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 6. UNIT VALUES (CONTINUED)
2000 2001 ---------------------------------------------------------------- UNIT VALUE UNIT VALUE UNITS DOLLARS ---------------------------------------------------------------- Diversified Bond Trust: Individual and Corporate Variable Life Type L Contracts 13.97 14.86 353,205 5,248,827 Corporate Variable Life Type K Contracts 13.61 14.48 71,666 1,037,938 ---------- 6,286,765 Dynamic Growth Trust: Individual and Corporate Variable Life Type L Contracts 7.95 4.14 101,020 418,166 Corporate Variable Life Type K Contracts 7.95 4.15 18,131 75,157 ---------- 493,323 Emerging Small Company Trust: Individual and Corporate Variable Life Type L Contracts 102.67 63.50 669,388 42,509,755 Corporate Variable Life Type K Contracts 15.12 9.36 283,758 2,655,315 Corporate Variable Life Type I Contracts -- 63.62 89,245 5,677,903 ---------- 50,842,973 Equity Income Trust: Individual and Corporate Variable Life Type L Contracts 18.21 17.05 580,810 9,903,002 Corporate Variable Life Type K Contracts 13.40 12.55 28,765 361,091 Corporate Variable Life Type I Contracts -- 17.08 165,891 2,833,976 ---------- 13,098,069 Equity Index Trust: Individual and Corporate Variable Life Type L Contracts 20.90 16.51 1,522,356 25,136,817 Corporate Variable Life Type K Contracts 11.67 9.23 232,102 2,142,000 Corporate Variable Life Type I Contracts -- 16.54 420,193 6,950,795 ---------- 34,229,612 Financial Services Trust: Individual and Corporate Variable Life Type L Contracts -- 10.56 7,388 78,036 Fundamental Value Trust: Individual and Corporate Variable Life Type L Contracts -- 10.55 20,889 220,415
31 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 6. UNIT VALUES (CONTINUED)
2000 2001 ---------------------------------------------------------------- UNIT VALUE UNIT VALUE UNITS DOLLARS ---------------------------------------------------------------- Global Bond Trust: Individual and Corporate Variable Life Type L Contracts 13.18 13.54 29,404 398,087 Corporate Variable Life Type K Contracts 12.45 12.80 5,477 70,108 ---------- 468,195 Global Equity Trust: Individual and Corporate Variable Life Type L Contracts 18.59 14.21 215,459 3,061,962 Corporate Variable Life Type K Contracts 14.13 10.81 13,772 148,822 ---------- 3,210,784 Growth Trust: Individual and Corporate Variable Life Type L Contracts 18.08 12.37 783,876 9,697,772 Corporate Variable Life Type K Contracts 9.91 6.79 165,900 1,126,096 ---------- 10,823,868 Growth and Income Trust: Individual and Corporate Variable Life Type L Contracts 21.11 16.96 1,018,955 17,279,387 Corporate Variable Life Type K Contracts 11.84 9.51 309,055 2,939,990 Corporate Variable Life Type I Contracts -- 16.99 249,312 4,235,492 ---------- 24,454,869 Health Services Trust: Individual and Corporate Variable Life Type L Contracts -- 11.98 6,983 83,647 High Yield Trust: Individual and Corporate Variable Life Type L Contracts 13.67 12.43 258,264 3,209,892 Corporate Variable Life Type K Contracts 11.51 10.47 55,514 581,348 Corporate Variable Life Type I Contracts -- 12.45 76,502 952,479 ---------- 4,743,719 Income and Value Trust: Individual and Corporate Variable Life Type L Contracts 15.77 14.14 473,553 6,697,194 Corporate Variable Life Type K Contracts 13.21 11.86 137,023 1,624,652 ---------- 8,321,846
32 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 6. UNIT VALUES (CONTINUED)
2000 2001 ----------------------------------------------------------------- UNIT VALUE UNIT VALUE UNITS DOLLARS ----------------------------------------------------------------- International Index Trust: Individual and Corporate Variable Life Type L Contracts 11.22 8.17 15,927 130,162 International Small Cap Trust: Individual and Corporate Variable Life Type L Contracts 18.06 10.96 194,656 2,132,824 Corporate Variable Life Type K Contracts 11.28 6.85 62,371 427,239 ---------- 2,560,063 International Stock Trust: Individual and Corporate Variable Life Type L Contracts 14.50 10.39 664,188 6,901,445 Corporate Variable Life Type K Contracts 11.81 8.47 26,967 228,393 Corporate Variable Life Type I Contracts -- 10.41 392,306 4,084,104 ---------- 11,213,942 International Value Trust: Individual and Corporate Variable Life Type L Contracts 12.01 9.53 190,922 1,818,643 Corporate Variable Life Type K Contracts 12.42 9.86 6,150 60,645 ---------- 1,879,288 Internet Technologies Trust: Individual and Corporate Variable Life Type L Contracts 7.00 2.74 21,754 59,708 Corporate Variable Life Type K Contracts 7.00 -- -- -- ---------- 59,708 Investment Quality Bond Trust: Individual and Corporate Variable Life Type L Contracts 15.50 16.57 1,155,979 19,153,757 Corporate Variable Life Type K Contracts 13.48 14.42 32,160 463,634 ---------- 19,617,391 Large Cap Growth Trust: Individual and Corporate Variable Life Type L Contracts 16.13 11.87 521,815 6,195,623 Corporate Variable Life Type K Contracts 11.49 8.47 72,396 612,910 ---------- 6,808,533
33 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 6. UNIT VALUES (CONTINUED)
2000 2001 ------------------------------------------------------------ UNIT VALUE UNIT VALUE UNITS DOLLARS ------------------------------------------------------------ Lifestyle Aggressive 1000 Trust: Individual and Corporate Variable Life Type L Contracts 15.95 12.08 44,862 542,164 Lifestyle Balanced 640 Trust: Individual and Corporate Variable Life Type L Contracts 16.78 14.84 365,146 5,417,718 Corporate Variable Life Type K Contracts 13.24 11.71 19,302 226,105 --------- 5,643,823 Lifestyle Conservative 280 Trust: Individual and Corporate Variable Life Type L Contracts 16.55 16.66 211,146 3,517,564 Corporate Variable Life Type K Contracts -- 13.55 910 12,327 --------- 3,529,891 Lifestyle Growth 820 Trust: Individual and Corporate Variable Life Type L Contracts 16.69 13.63 101,719 1,386,480 Corporate Variable Life Type K Contracts 12.85 10.50 7,201 75,621 --------- 1,462,101 Lifestyle Moderate 460 Trust: Individual and Corporate Variable Life Type L Contracts 16.70 15.75 62,697 987,514 Corporate Variable Life Type K Contracts 13.20 12.45 6,820 84,943 --------- 1,072,457 Mid Cap Growth Trust: Individual and Corporate Variable Life Type L Contracts -- 8.12 6,911 56,105 Mid Cap Index Trust: Individual and Corporate Variable Life Type L Contracts 13.34 11.08 27,357 303,104 Corporate Variable Life Type K Contracts -- 11.09 6,345 70,402 --------- 373,506 Mid Cap Opportunities Trust: Individual and Corporate Variable Life Type L Contracts -- 8.44 583 4,923
34 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 6. UNIT VALUES (CONTINUED)
2000 2001 ---------------------------------------------------------------- UNIT VALUE UNIT VALUE UNITS DOLLARS ---------------------------------------------------------------- Mid Cap Stock Trust: Individual and Corporate Variable Life Type L Contracts 11.97 8.78 72,290 634,844 Corporate Variable Life Type K Contracts -- 9.28 331 3,068 ---------- 637,912 Mid Cap Value Trust: Individual and Corporate Variable Life Type L Contracts -- 11.53 9,693 111,759 Money Market Trust: Individual and Corporate Variable Life Type L Contracts 18.33 18.80 1,687,029 31,722,189 Corporate Variable Life Type K Contracts 13.23 13.58 166,311 2,259,408 Corporate Variable Life Type I Contracts -- 18.84 218,973 4,125,432 ---------- 38,107,029 Overseas Trust: Individual and Corporate Variable Life Type L Contracts 15.05 10.95 147,659 1,616,450 Corporate Variable Life Type K Contracts 11.62 8.46 185,765 1,571,861 ---------- 3,188,311 Pacific Rim Emerging Markets Trust: Individual and Corporate Variable Life Type L Contracts 8.58 6.14 626,979 3,847,406 Corporate Variable Life Type K Contracts 10.47 7.50 27,826 208,609 ---------- 4,056,015 Quantitative Equity Trust: Individual and Corporate Variable Life Type L Contracts 66.50 45.77 653,926 29,931,661 Corporate Variable Life Type K Contracts 13.81 9.52 52,285 497,532 ---------- 30,429,193
35 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 6. UNIT VALUES (CONTINUED)
2000 2001 ----------------------------------------------------------------- UNIT VALUE UNIT VALUE UNITS DOLLARS ----------------------------------------------------------------- Real Estate Securities Trust: Individual and Corporate Variable Life Type L Contracts 39.79 39.58 417,993 16,543,721 Corporate Variable Life Type K Contracts 15.59 15.52 10,599 164,518 Corporate Variable Life Type I Contracts -- 39.66 47,772 1,894,390 ---------- 18,602,629 Science and Technology Trust: Individual and Corporate Variable Life Type L Contracts 25.89 11.19 1,317,449 14,749,530 Corporate Variable Life Type K Contracts 9.84 4.26 978,909 4,168,261 Corporate Variable Life Type I Contracts -- 11.22 345,370 3,873,518 ---------- 22,791,309 Small Cap Index Trust: Individual and Corporate Variable Life Type L Contracts 11.65 9.75 12,498 121,828 Small Company Blend Trust: Individual and Corporate Variable Life Type L Contracts 12.76 9.77 229,061 2,238,785 Corporate Variable Life Type K Contracts 11.21 8.59 31,493 270,682 ---------- 2,509,467 Small Company Value Trust: Individual and Corporate Variable Life Type L Contracts 9.59 8.82 379,413 3,346,231 Corporate Variable Life Type K Contracts 14.19 13.06 7,965 104,010 Corporate Variable Life Type I Contracts -- 8.83 51,743 457,162 ---------- 3,907,403 Strategic Bond Trust: Individual and Corporate Variable Life Type L Contracts 14.79 15.49 132,026 2,044,221 Corporate Variable Life Type K Contracts -- 14.04 5,163 72,509 ---------- 2,116,730 Strategic Growth Trust: Individual and Corporate Variable Life Type L Contracts -- 9.21 14,548 133,922
36 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 6. UNIT VALUES (CONTINUED)
2000 2001 ---------------------------------------------------------- UNIT VALUE UNIT VALUE UNITS DOLLARS ---------------------------------------------------------- Strategic Opportunities Trust: Individual and Corporate Variable Life Type L Contracts 17.19 12.32 681,216 8,389,729 Individual Variable Life Type K Contracts 12.78 9.17 100,414 920,368 ---------- 9,310,097 Tactical Allocation Trust: Individual and Corporate Variable Life Type L Contracts -- 9.42 484 4,557 Telecommunications Trust: Individual and Corporate Variable Life Type L Contracts -- 6.60 3,207 21,173 Total Return Trust: Individual and Corporate Variable Life Type L Contracts 13.57 14.65 461,288 6,756,713 Corporate Variable Life Type K Contracts 13.60 14.69 436,546 6,412,625 Corporate Variable Life Type I Contracts -- 14.67 143,516 2,105,947 ---------- 15,275,285 Total Stock Market Index Trust: Individual and Corporate Variable Life Type L Contracts 11.20 8.80 285,410 2,512,141 Corporate Variable Life Type K Contracts -- 8.81 7,894 69,574 ---------- 2,581,715 U.S. Government Securities Trust: Individual and Corporate Variable Life Type L Contracts 12.80 13.68 340,103 4,652,734 Corporate Variable Life Type K Contracts 13.64 14.59 194,990 2,845,169 ---------- 7,497,903 U.S. Large Cap Value Trust: Individual and Corporate Variable Life Type L Contracts 13.06 10.80 166,624 1,800,270 Corporate Variable Life Type K Contracts 13.01 10.78 111,578 1,202,359 ---------- 3,002,629
37 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 6. UNIT VALUES (CONTINUED)
2000 2001 --------------------------------------------------------------- UNIT VALUE UNIT VALUE UNITS DOLLARS --------------------------------------------------------------- Utilities Trust: Individual and Corporate Variable Life Type L Contracts -- 9.26 5,395 49,936 Value Trust: Individual and Corporate Variable Life Type L Contracts 16.80 15.62 530,475 8,286,837 Corporate Variable Life Type K Contracts 14.99 13.95 57,037 795,633 ------------ 9,082,470 500 Index Trust: Individual Variable Life Contracts 11.26 8.88 33,258 295,275 Corporate Variable Life Type L Contracts 11.26 8.90 6,466 57,534 Corporate Variable Life Type K Contracts 11.28 8.91 30,787 274,334 ------------ 627,143 ------------ Total $462,282,155 ============
7. RELATED PARTY TRANSACTIONS ManEquity, Inc., a registered broker-dealer and indirect wholly owned subsidiary of Manulife Financial, acts as the principal underwriter of the Contracts pursuant to a Distribution Agreement with 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. 38 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 7. 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 USA"), which can be terminated by either party upon two months notice. Under this Agreement, the Company pays for legal, actuarial, investment and certain other administrative services. 8. SUBSEQUENT EVENT Subject to the approval of state and federal regulators and effective for January 1, 2002, it is the intention to transfer all of the Company's Variable business to Manulife USA via an assumption reinsurance agreement. As a result, products currently sold and administered under the name of the Company will be offered and administered under the name of Manulife USA 39 MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA SEPARATE ACCOUNT FOUR Audited Financial Statements Years ended December 31, 2000 and 1999 with Report of Independent Auditors The Manufacturers Life Insurance Company of America Separate Account Four Audited Financial Statements Years ended December 31, 2000 and 1999 CONTENTS Report of Independent Auditors............................................. 1 Audited Financial Statements Statement of Assets and Contract Owners' Equity............................ 2 Statements of Operations and Changes in Contract Owners' Equity............ 3 Notes to Financial Statements.............................................. 23 Report of Independent Auditors To the Contract Owners of The Manufacturers Life Insurance Company of America Separate Account Four We have audited the accompanying statement of assets and contract owners' equity of The Manufacturers Life Insurance Company of America Separate Account Four as of December 31, 2000 and the related statements of operations and changes in contract owners' equity for each of the periods presented therein. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Manufacturers Life Insurance Company of America Separate Account Four at December 31, 2000, and the results of its operations and the changes in its contract owners' equity for each of the periods presented therein, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP February 2, 2001 1 The Manufacturers Life Insurance Company of America Separate Account Four Statement of Assets and Contract Owners' Equity December 31, 2000 ASSETS Investments at market value: Sub-Accounts: Aggressive Growth Trust - 300,889 shares (cost $6,141,202) $ 5,373,879 All Cap Growth Trust - 425,863 shares (cost $10,124,381) 8,794,079 Balanced Trust - 2,638,383 shares (cost $46,232,944) 40,789,397 Blue Chip Growth Trust - 1,957,148 shares (cost $39,429,130) 39,397,397 Diversified Bond Trust - 349,417 shares (cost $3,475,591) 3,658,397 Dynamic Growth Trust - 33,865 shares (cost $374,162) 270,246 Emerging Small Company Trust - 2,299,165 shares (cost $62,101,820) 80,516,767 Equity Income Trust - 466,855 shares (cost $7,487,637) 7,857,179 Equity Index Trust - 2,423,616 shares (cost $41,521,112) 39,747,312 Global Bond Trust - 34,960 shares (cost $401,273) 399,237 Global Equity Trust - 191,279 shares (cost $3,283,186) 3,534,825 Growth Trust - 859,958 shares (cost $21,343,839) 15,237,919 Growth and Income Trust - 950,065 shares (cost $28,384,264) 27,114,850 High Yield Trust - 346,829 shares (cost $4,435,148) 4,040,562 Income and Value Trust - 591,470 shares (cost $6,644,511) 6,245,927 International Index Trust - 4,003 shares (cost $47,519) 44,478 International Small Cap Trust - 258,498 shares (cost $6,015,951) 4,239,359 International Stock Trust - 1,375,295 shares (cost $18,983,001) 17,617,526 International Value Trust - 152,906 shares (cost $1,918,792) 1,844,045 Internet Technologies Trust - 18,787 shares (cost $219,319) 132,075 Investment Quality Bond Trust - 1,387,357 shares (cost $16,112,826) 16,287,580 Large Cap Growth Trust - 571,048 shares (cost $8,605,377) 7,183,787 Lifestyle Aggressive 1000 Trust - 51,475 shares (cost $663,185) 673,805 Lifestyle Balanced 640 Trust - 284,152 shares (cost $3,907,099) 3,847,425 Lifestyle Conservative 280 Trust - 22,283 shares (cost $280,470) 293,688 Lifestyle Growth 820 Trust - 111,045 shares (cost $1,550,839) 1,510,205 Lifestyle Moderate 460 Trust - 22,677 shares (cost $295,742) 295,033 Mid Cap Blend Trust - 832,240 shares (cost $15,761,726) 14,580,851 Mid Cap Index Trust - 18,697 shares (cost $251,375) 245,492 Mid Cap Stock Trust - 31,443 shares (cost $384,662) 380,467 Money Market Trust - 4,032,028 shares (cost $40,320,273) 40,320,273 Overseas Trust - 246,229 shares (cost $3,379,198) 2,932,587 Pacific Rim Emerging Markets Trust - 626,727 shares (cost $5,548,428) 5,139,164 Quantitative Equity Trust - 1,758,520 shares (cost $40,373,604) 46,178,737 Real Estate Securities Trust - 1,102,528 shares (cost $17,525,095) 17,166,358 Science and Technology Trust - 1,814,045 shares (cost $57,544,674) 42,158,414 Small Cap Index Trust - 3,870 shares (cost $46,471) 43,698 Small Company Blend Trust - 118,011 shares (cost $1,863,933) 1,334,707 Small Company Value Trust - 189,607 shares (cost $2,277,161) 2,461,108 Strategic Bond Trust - 94,202 shares (cost $1,031,755) 1,029,633 Total Return Trust - 346,092 shares (cost $4,353,305) 4,630,708 Total Stock Market Index Trust - 118,784 shares (cost $1,463,815) 1,323,263 U.S. Government Securities Trust - 189,671 shares (cost $2,474,332) 2,573,829 U.S. Large Cap Value Trust - 157,235 shares (cost $2,040,234) 2,058,204 Value Trust - 285,999 shares (cost $3,892,491) 4,713,260 500 Index Trust - 22,008 shares (cost $265,047) 248,261 ------------ Total assets $526,465,993 ============ CONTRACT OWNERS' EQUITY Variable life contracts $526,465,993 ============
See accompanying notes. 2 The Manufacturers Life Insurance Company of America Separate Account Four Statement of Operations and Changes in Contract Owners' Equity Years ended December 31, 2000 and 1999
SUB-ACCOUNT ------------------------------------------------------------------------ AGGRESSIVE GROWTH ALL CAP GROWTH ------------------------------------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99 ------------------------------------------------------------------------ Income: Dividends $ -- $ -- $ 494,609 $ 424,170 Expenses: Mortality and expense risks, and administrative charges 19,680 4,009 52,700 23,442 ----------- ----------- ----------- ----------- Net investment income (loss) during the year (19,680) (4,009) 441,909 400,728 Net realized gain (loss) during the year 445,778 4,279 719,966 279,819 Unrealized appreciation (depreciation) during the year (1,051,671) 231,555 (2,675,835) 903,615 ----------- ----------- ----------- ----------- Net increase (decrease) in assets from operations (625,573) 231,825 (1,513,960) 1,584,162 ----------- ----------- ----------- ----------- Changes from principal transactions: Transfer of net premiums 2,017,555 264,328 2,987,565 800,199 Transfer on terminations (153,979) (53,536) (565,315) (141,560) Transfer on policy loans (1,889) 1,030 (36,214) (23,845) Net interfund transfers 3,035,625 165,704 2,348,259 883,131 ----------- ----------- ----------- ----------- Net increase (decrease) in assets from principal transactions 4,897,312 377,526 4,734,295 1,517,925 ----------- ----------- ----------- ----------- Total increase (decrease) in assets 4,271,739 609,351 3,220,335 3,102,087 Assets beginning of year 1,102,140 492,789 5,573,744 2,471,657 ----------- ----------- ----------- ----------- Assets end of year $ 5,373,879 $ 1,102,140 $ 8,794,079 $ 5,573,744 =========== =========== =========== ===========
See accompanying notes. 3
SUB-ACCOUNT - --------------------------------------------------------------------------------------------------- BALANCED BLUE CHIP GROWTH CAPITAL GROWTH BOND - --------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99 DEC. 31/99 - --------------------------------------------------------------------------------------------------- $ 2,142,690 $ 3,948,555 $ 1,437,390 $ 852,462 $ 1,127,241 306,448 372,889 225,515 152,654 33,753 - ------------ ------------ ------------ ------------ ------------ 1,836,242 3,575,666 1,211,875 699,808 1,093,488 1,164,938 1,671,479 2,219,612 955,115 (44,948) (7,426,525) (6,565,173) (5,137,526) 2,787,049 (1,237,887) - ------------ ------------ ------------ ------------ ------------ (4,425,345) (1,318,028) (1,706,039) 4,441,972 (189,347) - ------------ ------------ ------------ ------------ ------------ 5,624,260 7,828,360 13,245,945 10,118,553 923,685 (5,659,955) (5,350,233) (1,872,424) (1,220,684) (419,351) (208,941) (437,651) 13 (90,784) (41,697) (7,469,583) (6,044,490) (3,545,368) 5,500,388 (15,989,477) - ------------ ------------ ------------ ------------ ------------ (7,714,219) (4,004,014) 7,828,166 14,307,473 (15,526,840) - ------------ ------------ ------------ ------------ ------------ (12,139,564) (5,322,042) 6,122,127 18,749,445 (15,716,187) 52,928,961 58,251,003 33,275,270 14,525,825 15,716,187 - ------------ ------------ ------------ ------------ ------------ $ 40,789,397 $ 52,928,961 $ 39,397,397 $ 33,275,270 $ -- ============ ============ ============ ============ ============
4 The Manufacturers Life Insurance Company of America Separate Account Four Statement of Operations and Changes in Contract Owners' Equity Years ended December 31, 2000 and 1999
SUB-ACCOUNT --------------------------------------------------- DIVERSIFIED BOND DYNAMIC GROWTH --------------------------------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/00 DEC. 31/99 DEC. 31/00** --------------------------------------------------- Income: Dividends $ 128,166 $ 102,127 $ -- Expenses: Mortality and expense risks, and administrative charges 13,735 6,973 1,202 ----------- ----------- --------- Net investment income (loss) during the year 114,431 95,154 (1,202) Net realized gain (loss) during the year (85,540) (11,663) (126,482) Unrealized appreciation (depreciation) during the year 229,671 (79,430) (103,916) ----------- ----------- --------- Net increase (decrease) in assets from operations 258,562 4,061 (231,600) ----------- ----------- --------- Changes from principal transactions: Transfer of net premiums 1,199,817 404,943 91,367 Transfer on terminations (244,178) (24,590) (13,110) Transfer on policy loans (55,670) -- -- Net interfund transfers 1,131,179 98,839 423,589 Net increase (decrease) in assets from principal transactions 2,031,148 479,192 501,846 ----------- ----------- --------- Total increase (decrease) in assets 2,289,710 483,253 270,246 Assets beginning of year 1,368,687 885,434 -- ----------- ----------- --------- Assets end of year $ 3,658,397 $ 1,368,687 $ 270,246 =========== =========== =========
** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 5
SUB-ACCOUNT - -------------------------------------------------------------------------------------------------------------------- EMERGING SMALL COMPANY EQUITY INCOME EQUITY INDEX - -------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99 - -------------------------------------------------------------------------------------------------------------------- $ 8,896,969 $ 803,802 $ 1,215,240 $ 781,192 $ 117,514 $ 909,767 594,318 379,062 52,959 64,646 258,059 186,998 - ------------ ------------ ----------- ----------- ------------ ------------ 8,302,651 424,740 1,162,281 716,546 (140,545) 722,769 7,060,851 4,060,457 (999,933) 345,133 3,003,549 1,279,721 (19,474,370) 31,619,181 598,947 (675,079) (7,096,700) 3,317,397 - ------------ ------------ ----------- ----------- ------------ ------------ (4,110,868) 36,104,378 761,295 386,600 (4,233,696) 5,319,887 10,826,056 7,671,430 3,091,072 3,340,138 16,333,867 11,677,308 (10,744,665) (5,786,669) (1,003,040) (883,815) (2,849,902) (1,432,735) (877,506) (593,870) 1,625 (74,633) (154,116) (55,679) 1,815,857 (12,504,266) (4,746,166) (2,322,477) (7,052,953) 4,026,837 - ------------ ------------ ----------- ----------- ------------ ------------ 1,019,742 (11,213,375) (2,656,509) 59,213 6,276,896 14,215,731 - ------------ ------------ ----------- ----------- ------------ ------------ (3,091,126) 24,891,003 (1,895,214) 445,813 2,043,200 19,535,618 83,607,893 58,716,890 9,752,393 9,306,580 37,704,112 18,168,494 - ------------ ------------ ----------- ----------- ------------ ------------ $ 80,516,767 $ 83,607,893 $ 7,857,179 $ 9,752,393 $ 39,747,312 $ 37,704,112 ============ ============ =========== =========== ============ ============
6 The Manufacturers Life Insurance Company of America Separate Account Four Statement of Operations and Changes in Contract Owners' Equity Years ended December 31, 2000 and 1999
SUB-ACCOUNT -------------------------------------------------------------------- GLOBAL BOND GLOBAL EQUITY -------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99 -------------------------------------------------------------------- Income: Dividends $ 10,543 $ 3,386 $ 327,718 $ 170,310 Expenses: Mortality and expense risks, and administrative charges 3,171 872 19,023 14,066 --------- --------- ----------- ----------- Net investment income (loss) during the year 7,372 2,514 308,695 156,244 Net realized gain (loss) during the year (30,994) (8,982) (199,982) (98,806) Unrealized appreciation (depreciation) during the year 2,851 (5,265) 234,915 21,590 --------- --------- ----------- ----------- Net increase (decrease) in assets from operations (20,771) (11,733) 343,628 79,028 --------- --------- ----------- ----------- Changes from principal transactions: Transfer of net premiums 139,169 13,248 1,194,857 850,651 Transfer on terminations (34,333) (5,238) (226,935) (126,551) Transfer on policy loans (10,712) (292) (40,108) (30,830) Net interfund transfers 2,695 284,481 (910,286) 998,353 --------- --------- ----------- ----------- Net increase (decrease) in assets from principal transactions 96,819 292,199 17,528 1,691,623 --------- --------- ----------- ----------- Total increase (decrease) in assets 76,048 280,466 361,156 1,770,651 Assets beginning of year 323,189 42,723 3,173,669 1,403,018 --------- --------- ----------- ----------- Assets end of year $ 399,237 $ 323,189 $ 3,534,825 $ 3,173,669 ========= ========= =========== ===========
See accompanying notes. 7
SUB-ACCOUNT - ------------------------------------------------------------------------------------------------------------------- GROWTH GROWTH AND INCOME HIGH YIELD - ------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99 DEC. 31/99 DEC. 31/99 - ------------------------------------------------------------------------------------------------------------------- $ 1,357,936 $ 180,570 $ 1,677,174 $ 683,192 $ 13,566 $ 274,823 97,447 31,123 178,922 148,390 25,447 17,262 - ------------ ----------- ------------ ------------ ----------- ----------- 1,260,489 149,447 1,498,252 534,802 (11,881) 257,561 594,711 454,764 2,196,121 1,008,826 (127,211) (46,236) (7,421,452) 1,040,751 (5,943,252) 2,180,310 (253,583) (7,289) - ------------ ----------- ------------ ------------ ----------- ----------- (5,566,252) 1,644,962 (2,248,879) 3,723,938 (392,675) 204,036 - ------------ ----------- ------------ ------------ ----------- ----------- 7,922,560 1,712,932 7,793,636 5,660,404 1,396,133 1,554,579 (1,151,699) (270,861) (3,678,743) (1,211,402) (236,289) (148,261) (59,763) (22,232) (14,763) (206,558) (11,335) (12,933) 6,325,216 1,991,577 (4,080,097) 5,001,996 (172,527) (199,115) - ------------ ----------- ------------ ------------ ----------- ----------- 13,036,314 3,411,416 20,033 9,244,440 975,982 1,194,270 - ------------ ----------- ------------ ------------ ----------- ----------- 7,470,062 5,056,378 (2,228,846) 12,968,378 583,307 1,398,306 7,767,857 2,711,479 29,343,696 16,375,318 3,457,255 2,058,949 - ------------ ----------- ------------ ------------ ----------- ----------- $ 15,237,919 $ 7,767,857 $ 27,114,850 $ 29,343,696 $ 4,040,562 $ 3,457,255 ============ =========== ============ ============ =========== ===========
8 The Manufacturers Life Insurance Company of America Separate Account Four Statement of Operations and Changes in Contract Owners' Equity Years ended December 31, 2000 and 1999
SUB-ACCOUNT ------------------------------------------------------ INCOME AND VALUE INTERNATIONAL INDEX ------------------------------------------------------ YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/00 DEC. 31/99 DEC. 31/00** ------------------------------------------------------ Income: Dividends $ 952,189 $ 344,990 $ 624 Expenses: Mortality and expense risks, and administrative charges 31,429 20,857 85 ----------- ----------- -------- Net investment income (loss) during the year 920,760 324,133 539 Net realized gain (loss) during the year (302,448) (3,448) (309) Unrealized appreciation (depreciation) during the year (418,733) (88,733) (3,041) ----------- ----------- -------- Net increase (decrease) in assets from operations 199,579 231,952 (2,811) ----------- ----------- -------- Changes from principal transactions: Transfer of net premiums 2,354,495 1,201,432 3,789 Transfer on terminations (379,895) (426,670) (599) Transfer on policy loans (80,612) 9,522 -- Net interfund transfers 710,007 (220,174) 44,099 ----------- ----------- -------- Net increase (decrease) in assets from principal transactions 2,603,995 564,110 47,289 ----------- ----------- -------- Total increase (decrease) in assets 2,803,574 796,062 44,478 Assets beginning of year 3,442,353 2,646,291 -- ----------- ----------- -------- Assets end of year $ 6,245,927 $ 3,442,353 $ 44,478 =========== =========== ========
** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 9
SUB-ACCOUNT - ----------------------------------------------------------------------------------------------------------------- INTERNATIONAL SMALL CAP INTERNATIONAL STOCK INTERNATIONAL VALUE - ----------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99* - ----------------------------------------------------------------------------------------------------------------- $ 694,416 $ 3,477 $ 84,131 $ 1,366,973 $ 17,130 $ -- 23,770 7,349 110,826 79,622 15,330 885 - ----------- ----------- ------------ ------------ ----------- --------- 670,646 (3,872) (26,695) 1,287,351 1,800 (885) (138,612) 136,316 571,024 647,233 (106,248) (11,916) (2,406,462) 667,674 (3,695,939) 1,684,577 (114,496) 39,749 - ----------- ----------- ------------ ------------ ----------- --------- (1,874,428) 800,118 (3,151,610) 3,619,161 (218,944) 26,948 - ----------- ----------- ------------ ------------ ----------- --------- 1,799,696 187,515 5,040,119 4,383,338 1,289,123 40,220 (347,872) (90,713) (1,565,059) (745,024) (134,761) (7,916) (2,578) (9,869) 22,239 (71,835) 7,727 (7,407) 2,678,076 (39,003) 720,414 (1,436,262) 406,659 442,396 - ----------- ----------- ------------ ------------ ----------- --------- 4,127,322 47,930 4,217,713 2,130,217 1,568,748 467,293 - ----------- ----------- ------------ ------------ ----------- --------- 2,252,894 848,048 1,066,103 5,749,378 1,349,804 494,241 1,986,465 1,138,417 16,551,423 10,802,045 494,241 -- - ----------- ----------- ------------ ------------ ----------- --------- $ 4,239,359 $ 1,986,465 $ 17,617,526 $ 16,551,423 $ 1,844,045 $ 494,241 =========== =========== ============ ============ =========== =========
10 The Manufacturers Life Insurance Company of America Separate Account Four Statement of Operations and Changes in Contract Owners' Equity Years ended December 31, 2000 and 1999
SUB-ACCOUNT ----------------------------------------------------- INTERNET TECHNOLOGIES INVESTMENT QUALITY BOND ----------------------------------------------------- PERIOD ENDED YEAR ENDED YEAR ENDED DEC. 31/00** DEC. 31/00 DEC. 31/99 ----------------------------------------------------- Income: Dividends $ -- $ 1,309,195 $ 218,156 Expenses: Mortality and expense risks, and administrative charges 707 109,903 95,809 --------- ------------ ------------ Net investment income (loss) during the year (707) 1,199,292 122,347 Net realized gain (loss) during the year (62,279) (240,339) (132,850) Unrealized appreciation (depreciation) during the year (87,244) 437,793 (339,279) --------- ------------ ------------ Net increase (decrease) in assets from operations (150,230) 1,396,746 (349,782) --------- ------------ ------------ Changes from principal transactions: Transfer of net premiums 69,573 2,734,616 3,725,347 Transfer on terminations (805) (2,078,469) (1,167,642) Transfer on policy loans (40,607) 27,427 (56,091) Net interfund transfers 254,144 (4,994,725) 14,066,025 --------- ------------ ------------ Net increase (decrease) in assets from principal transactions 282,305 (4,311,151) 16,567,639 --------- ------------ ------------ Total increase (decrease) in assets 132,075 (2,914,405) 16,217,857 Assets beginning of year -- 19,201,985 2,984,128 --------- ------------ ------------ Assets end of year $ 132,075 $ 16,287,580 $ 19,201,985 ========= ============ ============
** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 11
SUB-ACCOUNT - ------------------------------------------------------------------------------------------------------------ LARGE CAP GROWTH LIFESTYLE AGGRESSIVE 1000 LIFESTYLE BALANCED 640 - ------------------------------------------------------------------------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99 - ------------------------------------------------------------------------------------------------------------ $ 933,644 $ 321,797 $ 37,648 $ 40,136 $ 89,487 $ 60,854 42,374 25,655 4,794 4,878 14,134 7,273 - ----------- ----------- --------- --------- ----------- ----------- 891,270 296,142 32,854 35,258 75,353 53,581 236,149 20,062 14,597 (11,996) 51,498 (7,766) (2,285,423) 741,348 (84,082) 75,477 (151,961) 88,932 - ----------- ----------- --------- --------- ----------- ----------- (1,158,004) 1,057,552 (36,631) 98,739 (25,110) 134,747 - ----------- ----------- --------- --------- ----------- ----------- 3,140,695 1,078,127 71,415 73,879 2,347,394 752,004 (990,185) (247,991) (84,132) (53,935) (156,204) (104,617) (60,521) (13,546) (692) (4,406) (51,653) (221) 286,718 1,383,164 (82,072) (29,882) 167,632 (337,941) - ----------- ----------- --------- --------- ----------- ----------- 2,376,707 2,199,754 (95,481) (14,344) 2,307,169 309,225 - ----------- ----------- --------- --------- ----------- ----------- 1,218,703 3,257,306 (132,112) 84,395 2,282,059 443,972 5,965,084 2,707,778 805,917 721,522 1,565,366 1,121,394 - ----------- ----------- --------- --------- ----------- ----------- $ 7,183,787 $ 5,965,084 $ 673,805 $ 805,917 $ 3,847,425 $ 1,565,366 =========== =========== ========= ========= =========== ===========
12 The Manufacturers Life Insurance Company of America Separate Account Four Statement of Operations and Changes in Contract Owners' Equity Years ended December 31, 2000 and 1999
SUB-ACCOUNT -------------------------------------------------------------------- LIFESTYLE CONSERVATIVE 280 LIFESTYLE GROWTH 820 -------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99 -------------------------------------------------------------------- Income: Dividends $ 29,153 $ 10,742 $ 149,038 $ 146,899 Expenses: Mortality and expense risks, and administrative charges 2,482 1,979 11,827 15,004 --------- --------- ----------- ----------- Net investment income (loss) during the year 26,671 8,763 137,211 131,895 Net realized gain (loss) during the year (10,067) 3,924 46,233 (73,346) Unrealized appreciation (depreciation) during the year 5,241 5,136 (248,793) 232,254 --------- --------- ----------- ----------- Net increase (decrease) in assets from operations 21,845 17,823 (65,349) 290,803 --------- --------- ----------- ----------- Changes from principal transactions: Transfer of net premiums 31,809 23,038 600,657 449,067 Transfer on terminations (102,927) (11,055) (179,618) (458,963) Transfer on policy loans (56,838) (160) (27,215) (78,888) Net interfund transfers (92,469) 382,542 (756,569) (1,234,984) --------- --------- ----------- ----------- Net increase (decrease) in assets from principal transactions (220,425) 394,365 (362,745) (1,323,768) --------- --------- ----------- ----------- Total increase (decrease) in assets (198,580) 412,188 (428,094) (1,032,965) Assets beginning of year 492,268 80,080 1,938,299 2,971,264 --------- --------- ----------- ----------- Assets end of year $ 293,688 $ 492,268 $ 1,510,205 $ 1,938,299 ========= ========= =========== ===========
** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 13
SUB-ACCOUNT - ----------------------------------------------------------------------------------------- LIFESTYLE MODERATE 460 MID CAP BLEND MID CAP INDEX - ----------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99 DEC. 31/00** - ----------------------------------------------------------------------------------------- $ 5,907 $ 2,368 $ 1,408,900 $ 945,696 $ 4,817 917 524 81,796 51,669 252 - --------- --------- ------------ ----------- --------- 4,990 1,844 1,327,104 894,027 4,565 1,296 11,079 (242,930) (60,193) 167 (4,375) 2,460 (2,200,855) 1,138,871 (5,883) - --------- --------- ------------ ----------- --------- 1,911 15,383 (1,116,681) 1,972,705 (1,151) - --------- --------- ------------ ----------- --------- 391,104 9,334 3,657,647 1,546,812 3,514 (34,414) (5,225) (2,369,868) (667,965) (1,484) 1,146 (1,053) (79,984) (87,722) -- (425,840) 309,004 5,347,608 (919,573) 244,613 - --------- --------- ------------ ----------- --------- (68,004) 312,060 6,555,403 (128,448) 246,643 - --------- --------- ------------ ----------- --------- (66,093) 327,443 5,438,722 1,844,257 245,492 361,126 33,683 9,142,129 7,297,872 -- - --------- --------- ------------ ----------- --------- $ 295,033 $ 361,126 $ 14,580,851 $ 9,142,129 $ 245,492 ========= ========= ============ =========== =========
14 The Manufacturers Life Insurance Company of America Separate Account Four Statement of Operations and Changes in Contract Owners' Equity Years ended December 31, 2000 and 1999
SUB-ACCOUNT ---------------------------------------------------------------------- MID CAP STOCK MONEY MARKET ---------------------------------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED DEC. 31/00 DEC. 31/99* DEC. 31/00 DEC. 31/99 ---------------------------------------------------------------------- Income: Dividends $ -- $ -- $ 1,932,420 $ 961,677 Expenses: Mortality and expense risks, and administrative charges 2,347 462 212,370 138,259 --------- --------- ------------ ------------ Net investment income (loss) during the year (2,347) (462) 1,720,050 823,418 Net realized gain (loss) during the year (13,526) 19 -- -- Unrealized appreciation (depreciation) during the year (2,643) (1,552) -- -- --------- --------- ------------ ------------ Net increase (decrease) in assets from operations (18,516) (1,995) 1,720,050 823,418 --------- --------- ------------ ------------ Changes from principal transactions: Transfer of net premiums 106,206 27,792 19,729,086 7,082,683 Transfer on terminations (21,708) (2,165) (6,012,717) (3,222,729) Transfer on policy loans (223) (38) 204,008 (836,807) Net interfund transfers 133,861 157,253 (3,132,123) 6,291,758 --------- --------- ------------ ------------ Net increase (decrease) in assets from principal transactions 218,136 182,842 10,788,254 9,314,905 --------- --------- ------------ ------------ Total increase (decrease) in assets 199,620 180,847 12,508,304 10,138,323 Assets beginning of year 180,847 -- 27,811,969 17,673,646 --------- --------- ------------ ------------ Assets end of year $ 380,467 $ 180,847 $ 40,320,273 $ 27,811,969 ========= ========= ============ ============
* Reflects the period from commencement of operations May 1, 1999 through December 31, 1999. See accompanying notes. 15
SUB-ACCOUNT - ---------------------------------------------------------------------------------------------------------------- OVERSEAS PACIFIC RIM EMERGING MARKETS QUANTITATIVE EQUITY - ---------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99 - ---------------------------------------------------------------------------------------------------------------- $ 118,152 $ -- $ 20,741 $ 91,583 $ 5,932,623 $ 3,879,881 12,911 2,131 35,497 21,588 309,403 274,779 - ----------- --------- ----------- ----------- ------------ ------------ 105,241 (2,131) (14,756) 69,995 5,623,220 3,605,102 (59,142) 4,626 (85,747) (303,549) 2,793,944 4,912,245 (565,259) 135,006 (1,449,544) 1,953,611 (5,866,904) (30,408) - ----------- --------- ----------- ----------- ------------ ------------ (519,160) 137,501 (1,550,047) 1,720,057 2,550,260 8,486,939 - ----------- --------- ----------- ----------- ------------ ------------ 2,381,221 96,022 1,893,650 569,478 3,739,616 3,232,515 (239,365) (33,807) (669,458) (362,876) (4,929,423) (4,266,534) (2,019) (2,559) (17,017) 3,238 (344,939) (385,967) 753,735 91,840 19,115 1,230,820 (605,234) (1,996,057) - ----------- --------- ----------- ----------- ------------ ------------ 2,893,572 151,496 1,226,290 1,440,660 (2,139,980) (3,416,043) - ----------- --------- ----------- ----------- ------------ ------------ 2,374,412 288,997 (323,757) 3,160,717 410,280 5,070,896 558,175 269,178 5,462,921 2,302,204 45,768,457 40,697,561 - ----------- --------- ----------- ----------- ------------ ------------ $ 2,932,587 $ 558,175 $ 5,139,164 $ 5,462,921 $ 46,178,737 $ 45,768,457 =========== ========= =========== =========== ============ ============
16 The Manufacturers Life Insurance Company of America Separate Account Four Statement of Operations and Changes in Contract Owners' Equity Years ended December 31, 2000 and 1999
SUB-ACCOUNT --------------------------------------------------------------------------- REAL ESTATE SECURITIES SCIENCE & TECHNOLOGY --------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99 --------------------------------------------------------------------------- Income: Dividends $ 548,910 $ 891,478 $ 1,118,209 $ 2,459,232 Expenses: Mortality and expense risks, and administrative charges 96,131 108,666 308,316 111,705 ------------ ------------ ------------ ------------ Net investment income (loss) during the year 452,779 782,812 809,893 2,347,527 Net realized gain (loss) during the year (373,361) (225,546) 6,027,471 1,200,045 Unrealized appreciation (depreciation) during the year 3,308,154 (2,009,468) (27,894,294) 10,833,388 ------------ ------------ ------------ ------------ Net increase (decrease) in assets from operations 3,387,572 (1,452,202) (21,056,930) 14,380,960 ------------ ------------ ------------ ------------ Changes from principal transactions: Transfer of net premiums 1,902,266 2,273,286 23,717,592 7,569,309 Transfer on terminations (1,529,570) (2,001,726) (3,000,348) (835,547) Transfer on policy loans (152,860) (97,819) (129,110) (128,372) Net interfund transfers (473,949) (3,836,514) 7,234,394 7,353,863 ------------ ------------ ------------ ------------ Net increase (decrease) in assets from principal transactions (254,113) (3,662,773) 27,822,528 13,959,253 ------------ ------------ ------------ ------------ Total increase (decrease) in assets 3,133,459 (5,114,975) 6,765,598 28,340,213 Assets beginning of year 14,032,899 19,147,874 35,392,816 7,052,603 ------------ ------------ ------------ ------------ Assets end of year $ 17,166,358 $ 14,032,899 $ 42,158,414 $ 35,392,816 ============ ============ ============ ============
* Reflects the period from commencement of operations May 1, 1999 through December 31, 1999. ** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 17
SUB-ACCOUNT - -------------------------------------------------------------------------------------- SMALL CAP INDEX SMALL COMPANY BLEND SMALL COMPANY VALUE - -------------------------------------------------------------------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED DEC. 31/00** DEC. 31/00 DEC. 31/99* DEC. 31/00 DEC. 31/99 - -------------------------------------------------------------------------------------- $ 1,534 $ 133,872 $ 4,498 $ 2,007 $ 248 58 5,510 530 11,945 4,096 -------- ----------- --------- ----------- ----------- 1,476 128,362 3,968 (9,938) (3,848) 75 24,165 960 64,625 34,012 (2,773) (568,390) 39,165 82,411 99,631 -------- ----------- --------- ----------- ----------- (1,222) (415,863) 44,093 137,098 129,795 -------- ----------- --------- ----------- ----------- 4,377 661,522 25,426 1,025,807 249,987 (373) (31,361) (2,182) (79,835) (30,096) -- (10,610) (41) (11,079) (6,213) 40,916 894,978 168,745 262,214 704,288 -------- ----------- --------- ----------- ----------- 44,920 1,514,529 191,948 1,197,107 917,966 -------- ----------- --------- ----------- ----------- 43,698 1,098,666 236,041 1,334,205 1,047,761 -- 236,041 -- 1,126,903 79,142 -------- ----------- --------- ----------- ----------- $ 43,698 $ 1,334,707 $ 236,041 $ 2,461,108 $ 1,126,903 ======== =========== ========= =========== ===========
18 The Manufacturers Life Insurance Company of America Separate Account Four Statement of Operations and Changes in Contract Owners' Equity Years ended December 31, 2000 and 1999
SUB-ACCOUNT ----------------------------------------------------------------------- STRATEGIC BOND TOTAL RETURN ----------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99* ----------------------------------------------------------------------- Income: Dividends $ 85,997 $ 70,133 $ 27,495 $ -- Expenses: Mortality and expense risks, and administrative charges 6,711 7,044 15,109 1,187 ----------- ----------- ----------- --------- Net investment income (loss) during the year 79,286 63,089 12,386 (1,187) Net realized gain (loss) during the year (41,693) (32,990) 22,935 4,906 Unrealized appreciation (depreciation) during the year 28,826 (11,082) 277,035 368 ----------- ----------- ----------- --------- Net increase (decrease) in assets from operations 66,419 19,017 312,356 4,087 ----------- ----------- ----------- --------- Changes from principal transactions: Transfer of net premiums 134,439 270,594 1,516,546 15,252 Transfer on terminations (42,241) (48,315) (75,925) (5,447) Transfer on policy loans (3,131) (7,840) -- -- Net interfund transfers (404,574) (217,962) 2,577,623 286,216 ----------- ----------- ----------- --------- Net increase (decrease) in assets from principal transactions (315,507) (3,523) 4,018,244 296,021 ----------- ----------- ----------- --------- Total increase (decrease) in assets (249,088) 15,494 4,330,600 300,108 Assets beginning of year 1,278,721 1,263,227 300,108 -- ----------- ----------- ----------- --------- Assets end of year $ 1,029,633 $ 1,278,721 $ 4,630,708 $ 300,108 =========== =========== =========== =========
* Reflects the period from commencement of operations May 1, 1999 through December 31, 1999. ** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 19
SUB-ACCOUNT - ----------------------------------------------------------------------------------------------- TOTAL STOCK MARKET INDEX U.S. GOVERNMENT SECURITIES U.S. LARGE CAP VALUE - ----------------------------------------------------------------------------------------------- PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/00** DEC. 31/00 DEC. 31/99 DEC. 31/00 DEC. 31/99* - ----------------------------------------------------------------------------------------------- $ 12,374 $ 162,231 $ 125,143 $ 7,307 $ -- 2,888 14,820 19,463 9,544 4,379 ----------- ----------- ----------- ----------- ----------- 9,486 147,411 105,680 (2,237) (4,379) (1,756) (46,024) (43,062) 67,805 (10,928) (140,552) 123,103 (86,051) (30,733) 48,703 ----------- ----------- ----------- ----------- ----------- (132,822) 224,490 (23,433) 34,835 33,396 ----------- ----------- ----------- ----------- ----------- 2,071 491,787 931,141 659,231 48,789 (24,855) (463,269) (111,231) (95,636) (37,726) -- (31,242) (1,783) 14,332 (15,190) 1,478,869 (179,509) (1,908,556) 19,431 1,396,742 ----------- ----------- ----------- ----------- ----------- 1,456,085 (182,233) (1,090,429) 597,358 1,392,615 ----------- ----------- ----------- ----------- ----------- 1,323,263 42,257 (1,113,862) 632,193 1,426,011 -- 2,531,572 3,645,434 1,426,011 -- ----------- ----------- ----------- ----------- ----------- $ 1,323,263 $ 2,573,829 $ 2,531,572 $ 2,058,204 $ 1,426,011 =========== =========== =========== =========== ===========
20 The Manufacturers Life Insurance Company of America Separate Account Four Statement of Operations and Changes in Contract Owners' Equity Years ended December 31, 2000 and 1999
SUB-ACCOUNT ---------------------------------------------------- VALUE WORLDWIDE GROWTH ---------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/00 DEC. 31/99 DEC. 31/99 ---------------------------------------------------- Income: Dividends $ -- $ 104,384 $ 6,399 Expenses: Mortality and expense risks, and administrative charges 24,109 29,270 1,502 ----------- ----------- --------- Net investment income (loss) during the year (24,109) 75,114 4,897 Net realized gain (loss) during the year (100,839) (107,245) 46,114 Unrealized appreciation (depreciation) during the year 1,097,226 25,016 (17,078) ----------- ----------- --------- Net increase (decrease) in assets from operations 972,278 (7,115) 33,933 ----------- ----------- --------- Changes from principal transactions: Transfer of net premiums 1,034,204 1,736,465 40,904 Transfer on terminations (224,326) (346,470) (13,226) Transfer on policy loans 3,564 1,434 (2,288) Net interfund transfers (394,919) (3,882,692) (568,190) ----------- ----------- --------- Net increase (decrease) in assets from principal transactions 418,523 (2,491,263) (542,800) ----------- ----------- --------- Total increase (decrease) in assets 1,390,801 (2,498,378) (508,867) Assets beginning of year 3,322,459 5,820,837 508,867 ----------- ----------- --------- Assets end of year $ 4,713,260 $ 3,322,459 $ -- =========== =========== =========
** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 21
SUB-ACCOUNT - --------------- 500 INDEX TOTAL - ----------------------------------------------------- PERIOD ENDED** YEAR ENDED YEAR ENDED DEC. 31/00 DEC. 31/00 DEC. 31/99 - ----------------------------------------------------- $ 512 $ 33,640,178 $ 22,318,341 397 3,367,318 2,472,704 - --------- ------------- ------------- 115 30,272,860 19,845,637 (2,289) 23,929,759 15,845,664 (16,787) (98,403,823) 48,759,040 - --------- ------------- ------------- (18,961) (44,201,204) 84,450,341 - --------- ------------- ------------- 266,299 156,665,425 90,460,514 (6,826) (54,308,095) (32,383,279) (21,009) (2,312,875) (3,391,895) 28,758 (132,679) (471,653) - --------- ------------- ------------- 267,222 99,911,776 54,213,687 - --------- ------------- ------------- 248,261 55,710,572 138,664,028 -- 470,755,421 332,091,393 - --------- ------------- ------------- $ 248,261 $ 526,465,993 $ 470,755,421 ========= ============= =============
22 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements December 31, 2000 1. ORGANIZATION The Manufacturers Life Insurance Company of America Separate Account Four (the Account) is a separate account established by the Manufacturers Life Insurance Company of America (the Company). The Account operates as a Unit Investment Trust under the Investment Company Act of 1940, as amended and invests in forty-seven sub-accounts of Manufacturers Investment Trust (the Trust). The Account is a funding vehicle for allocation of net premiums under variable universal life insurance contracts (the Contracts) issued by the Company. The Account was established by the Company, a life insurance company organized in 1983 under Michigan law. The Company is an indirect, wholly-owned subsidiary of The Manufacturers Life Insurance Company (Manulife Financial), a Canadian life insurance company. Each investment sub-account invests solely in shares of a particular portfolio of the Trust. The Trust is registered under the Investment Company Act of 1940 as an open-end management investment company. The Company is required to maintain assets in the Account with a total market value at least equal to the reserves and other liabilities relating to the variable benefits under all contracts participating in the Account. These assets may not be charged with liabilities which arise from any other business the Company conducts. However, all obligations under the variable contracts are general corporate obligations of the Company. Additional assets are held in the Company's general account to cover the contingency that the guaranteed minimum death benefit might exceed the death benefit which would have been payable in the absence of such guarantee. As the result of portfolio changes, effective May 2, 2000 the following sub-account of the Account has been replaced with a new fund as follows: PREVIOUS FUND NEW FUND -------------------------------------------------------- Mid Cap Growth Trust All Cap Growth Trust 23 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 1. ORGANIZATION (CONTINUED) The following sub-accounts of the Account were added as investment options for variable universal life insurance contract holders of Manufacturers Life of America:
COMMENCEMENT OF OPERATIONS OF THE SUB-ACCOUNTS -------------------------- Dynamic Growth Trust May 2, 2000 International Index Trust May 2, 2000 International Value Trust May 1, 1999 Internet Technologies Trust May 2, 2000 Mid Cap Index Trust May 2, 2000 Mid Cap Stock Trust May 1, 1999 Small Cap Index Trust May 2, 2000 Small Company Blend Trust May 1, 1999 Tactical Allocation Trust May 2, 2000 Total Return Trust May 1, 1999 Total Stock Market Index Trust May 2, 2000 U.S. Large Cap Value Trust May 1, 1999 500 Index Trust May 2, 2000
2. SIGNIFICANT ACCOUNTING POLICIES Investments are made in the portfolios of the Trust and are valued at the reported net asset value of such portfolios. Transactions are recorded on the trade date. Income from dividends is recorded on the ex-dividend date. Realized gains and losses on the sales of investments are computed on the basis of the identified cost of the investment sold. 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. 24 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The operations of the Account are included in the federal income tax return of the Company, which is taxed as a life insurance company under the provisions of the Internal Revenue Code (the Code). Under the current provisions of the Code, the Company does not expect to incur federal income taxes on the earnings of the Account to the extent the earnings are credited under the contracts. Based on this, no charge is being made currently to the Account for federal income taxes. The Company will review periodically the status of such decision based on changes in the tax law. Such a charge may be made in future years for any federal income taxes that would be attributable to the contract. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that could affect the amounts reported the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein. 3. MORTALITY AND EXPENSE RISKS CHARGE Manufacturers Life of America deducts from the assets of the Account a daily charge equivalent to annual rates between 0.55% and 0.65% of the average net value of the Account's assets for mortality and expense risks. 4. PREMIUM DEDUCTIONS Manufacturers Life of America deducts certain charges for state, local, and federal taxes from the gross premium before placing the remaining net premiums in the sub-accounts. 25 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 5. PURCHASES AND SALES OF INVESTMENTS The following table shows aggregate cost of shares purchased and proceeds from sales of each Trust portfolio for the year ended December 31, 2000:
PURCHASES SALES ------------ ------------ Aggressive Growth Trust $ 6,428,746 $ 1,551,114 All Cap Growth Trust 9,192,300 4,016,095 Balanced Trust 6,824,658 12,702,636 Blue Chip Growth Trust 18,580,712 9,540,671 Diversified Bond Trust 4,554,026 2,408,446 Dynamic Growth Trust 1,126,965 626,320 Emerging Small Company Trust 23,899,597 14,577,205 Equity Income Trust 5,431,388 6,925,615 Equity Index Trust 20,140,491 14,004,140 Global Bond Trust 2,388,773 2,284,583 Global Equity Trust 4,179,869 3,853,646 Growth Trust 20,139,091 5,842,289 Growth and Income Trust 11,835,900 10,317,615 High Yield Trust 3,382,871 2,418,772 Income and Value Trust 6,217,937 2,693,183 International Index Trust 54,150 6,322 International Small Cap Trust 7,957,320 3,159,351 International Stock Trust 8,024,708 3,833,689 International Value Trust 3,673,844 2,103,297 Internet Technologies Trust 465,812 184,214 Investment Quality Bond Trust 4,420,045 7,531,905 Large Cap Growth Trust 6,941,387 3,673,409 Lifestyle Aggressive 1000 Trust 203,518 266,146 Lifestyle Balanced 640 Trust 3,395,241 1,012,718 Lifestyle Conservative 280 Trust 474,669 668,423 Lifestyle Growth 820 Trust 821,426 1,046,960 Lifestyle Moderate 460 Trust 524,928 587,943 Mid Cap Blend Trust 13,718,703 5,836,197 Mid Cap Index Trust 273,801 22,593 Mid Cap Stock Trust 478,661 262,873 Money Market Trust 36,597,319 24,089,015
26 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 5. PURCHASES AND SALES OF INVESTMENTS (CONTINUED)
PURCHASES SALES ------------ ------------ Overseas Trust $ 3,680,450 $ 681,636 Pacific Rim Emerging Markets Trust 3,847,573 2,636,040 Quantitative Equity Trust 10,886,892 7,403,653 Real Estate Securities Trust 3,223,659 3,024,995 Science and Technology Trust 42,431,391 13,798,970 Small Cap Index Trust 62,244 15,847 Small Company Blend Trust 2,187,892 545,001 Small Company Value Trust 1,833,051 645,883 Strategic Bond Trust 858,766 1,094,988 Total Return Trust 5,086,140 1,055,509 Total Stock Market Index 1,497,859 32,288 U.S. Government Securities Trust 1,615,381 1,650,203 U.S. Large Cap Value Trust 2,383,141 1,788,020 Value Trust 2,629,563 2,235,149 500 Index Trust 418,895 151,560 ------------ ------------ Total $314,991,753 $184,807,127 ============ ============
6. UNIT VALUES A summary of the accumulation unit values at December 31, 2000 and 1999 and the accumulation units and dollar value outstanding at December 31, 2000 for the variable universal life contracts are as follows:
1999 2000 ------------------------------------------------------------------- UNIT VALUE UNIT VALUE UNITS DOLLARS ------------------------------------------------------------------- Aggressive Growth Trust: Individual Variable Life Type L Contracts $ 19.81 $ 20.28 198,853 $4,032,298 Corporate Variable Life Type K Contracts -- 14.69 91,301 1,341,581 ---------- 5,373,879
27 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 6. UNIT VALUES (CONTINUED)
1999 2000 ------------------------------------------------------------------------- UNIT VALUE UNIT VALUE UNITS DOLLARS ------------------------------------------------------------------------- All Cap Growth Trust: Individual Variable Life Type L Contracts $ 27.85 $ 24.68 339,322 $ 8,375,757 Corporate Variable Life Type K Contracts -- 12.81 32,663 418,322 8,794,079 ----------- Balanced Trust: Individual Variable Life Type L Contracts 32.88 29.62 1,375,338 40,736,519 Corporate Variable Life Type K Contracts -- 11.03 4,795 52,878 ----------- 40,789,397 Blue Chip Growth Trust: Individual Variable Life Type L Contracts 24.15 23.33 1,571,857 36,677,418 Corporate Variable Life Type K Contracts 12.90 12.48 217,979 2,719,979 ----------- 39,397,397 Diversified Bond Trust: Individual Variable Life Type L Contracts 12.75 13.97 160,579 2,243,401 Corporate Variable Life Type K Contracts 12.40 13.61 104,001 1,414,996 ----------- 3,658,397 Dynamic Growth Trust: Individual Variable Life Type L Contracts -- 7.95 22,876 181,774 Corporate Variable Life Type K Contracts -- 7.95 11,127 88,472 ----------- 270,246 Emerging Small Company Trust: Individual Variable Life Type L Contracts 107.98 102.67 774,559 79,526,051 Corporate Variable Life Type K Contracts -- 15.12 65,532 990,716 ----------- 80,516,767 Equity Income Trust: Individual Variable Life Type L Contracts 16.23 18.21 430,470 7,840,873 Corporate Variable Life Type K Contracts -- 13.40 1,217 16,306 ----------- 7,857,179 Equity Index Trust: Individual Variable Life Type L Contracts 23.18 20.90 1,798,688 37,584,072 Corporate Variable Life Type K Contracts 12.94 11.67 185,366 2,163,240 ----------- 39,747,312
28 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 6. UNIT VALUES (CONTINUED)
1999 2000 ------------------------------------------------------------------------- UNIT VALUE UNIT VALUE UNITS DOLLARS ------------------------------------------------------------------------- Global Bond Trust: Individual Variable Life Type L Contracts $ 13.04 $ 13.18 30,064 $ 396,180 Corporate Variable Life Type K Contracts -- 12.45 246 3,057 ----------- 399,237 Global Equity Trust: Individual Variable Life Type L Contracts 16.68 18.59 181,138 3,367,688 Corporate Variable Life Type K Contracts -- 14.13 11,832 167,137 ----------- 3,534,825 Growth Trust: Individual Variable Life Type L Contracts 25.02 18.08 772,053 13,956,563 Corporate Variable Life Type K Contracts -- 9.91 129,288 1,281,356 ----------- 15,237,919 Growth and Income Trust: Individual Variable Life Type L Contracts 22.88 21.11 1,251,734 26,429,434 Corporate Variable Life Type K Contracts 12.81 11.84 57,912 685,416 ----------- 27,114,850 High Yield Trust: Individual Variable Life Type L Contracts 15.11 13.67 281,021 3,841,408 Corporate Variable Life Type K Contracts 12.71 11.51 17,304 199,154 ----------- 4,040,562 Income and Value Trust: Individual Variable Life Type L Contracts 15.13 15.77 376,917 5,944,042 Corporate Variable Life Type K Contracts 12.66 13.21 22,852 301,885 ----------- 6,245,927 International Index Trust: Individual Variable Life Type L Contracts -- 11.22 3,964 44,478 International Small Cap Trust: Individual Variable Life Type L Contracts 25.65 18.06 223,637 4,038,198 Corporate Variable Life Type K Contracts -- 11.28 17,832 201,161 ----------- 4,239,359
29 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued)
1999 2000 ------------------------------------------------------------------------- UNIT VALUE UNIT VALUE UNITS DOLLARS ------------------------------------------------------------------------- International Stock Trust: Individual Variable Life Type L Contracts $ 17.50 $ 14.50 1,201,169 $17,419,755 Corporate Variable Life Type K Contracts -- 11.81 16,743 197,771 ----------- 17,617,526 International Value Trust: Individual Variable Life Type L Contracts 12.92 12.01 149,807 1,799,281 Corporate Variable Life Type K Contracts -- 12.42 3,603 44,764 ----------- 1,844,045 Internet Technologies Trust: Individual Variable Life Type L Contracts -- 7.00 18,568 129,976 Corporate Variable Life Type K Contracts -- 7.00 300 2,099 ----------- 132,075 Investment Quality Bond Trust: Individual Variable Life Type L Contracts 14.26 15.50 1,042,595 16,160,312 Corporate Variable Life Type K Contracts -- 13.48 9,444 127,268 ----------- 16,287,580 Large Cap Growth Trust: Individual Variable Life Type L Contracts 18.93 16.13 414,275 6,683,067 Corporate Variable Life Type K Contracts -- 11.49 43,563 500,720 ----------- 7,183,787 Lifestyle Aggressive 1000 Trust: Individual Variable Life Type K Contracts 16.92 15.95 42,247 673,805 Lifestyle Balanced 640 Trust: Individual Variable Life Type L Contracts 16.47 16.78 219,761 3,687,280 Corporate Variable Life Type K Contracts -- 13.24 12,099 160,145 ----------- 3,847,425 Lifestyle Conservative 280 Trust: Individual Variable Life Type L Contracts 15.47 16.55 17,741 293,688
30 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 6. Unit Values (continued)
1999 2000 ------------------------------------------------------------------------- UNIT VALUE UNIT VALUE UNITS DOLLARS ------------------------------------------------------------------------- Lifestyle Growth 820 Trust: Individual Variable Life Type L Contracts $ 17.32 $ 16.69 87,705 $ 1,463,745 Corporate Variable Life Type K Contracts -- 12.85 3,616 46,460 ----------- 1,510,205 Lifestyle Moderate 460 Trust: Individual Variable Life Type L Contracts 16.12 16.70 9,690 161,825 Corporate Variable Life Type K Contracts -- 13.20 10,095 133,208 ----------- 295,033 Mid-Cap Blend Trust: Individual Variable Life Type L Contracts 18.48 17.19 803,981 13,817,796 Corporate Variable Life Type K Contracts 13.73 12.78 59,700 763,055 ----------- 14,580,851 Mid Cap Index Trust: Individual Variable Life Type L Contracts -- 13.34 18,407 245,492 Mid Cap Stock Trust: Individual Variable Life Type L Contracts 12.55 11.97 31,783 380,467 Money Market Trust: Individual Variable Life Type L Contracts 17.43 18.33 1,742,733 31,946,831 Corporate Variable Life Type K Contracts 12.57 13.23 632,823 8,373,442 ----------- 40,320,273 Overseas Trust: Individual Variable Life Type L Contracts 18.64 15.05 99,085 1,491,124 Corporate Variable Life Type K Contracts 14.38 11.62 124,012 1,441,463 ----------- 2,932,587 Pacific Rim Emerging Markets Trust: Individual Variable Life Type L Contracts 11.42 8.58 577,244 4,952,181 Corporate Variable Life Type K Contracts -- 10.47 17,853 186,983 ----------- 5,139,164
31 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 6. Unit Values (continued)
1999 2000 ------------------------------------------------------------------------- UNIT VALUE UNIT VALUE UNITS DOLLARS ------------------------------------------------------------------------- Quantitative Equity Trust: Individual Variable Life Type L Contracts $ 62.97 $ 66.50 688,089 $45,758,095 Corporate Variable Life Type K Contracts -- 13.81 30,449 420,642 ----------- 46,178,737 Real Estate Securities Trust: Individual Variable Life Type L Contracts 31.86 39.79 430,066 17,111,430 Corporate Variable Life Type K Contracts -- 15.59 3,523 54,928 ----------- 17,166,358 Science and Technology Trust: Individual Variable Life Type L Contracts 39.51 25.89 1,488,326 38,529,162 Corporate Variable Life Type K Contracts 15.00 9.84 368,877 3,629,252 ----------- 42,158,414 Small Cap Index Trust: Individual Variable Life Type L Contracts -- 11.65 3,750 43,698 Small Company Blend Trust: Individual Variable Life Type L Contracts 16.00 12.76 95,417 1,217,642 Corporate Variable Life Type K Contracts -- 11.21 10,439 117,065 ----------- 1,334,707 Small Company Value Trust: Individual Variable Life Type L Contracts 9.11 9.59 251,772 2,414,592 Corporate Variable Life Type K Contracts -- 14.19 3,278 46,516 ----------- 2,461,108 Strategic Bond Trust: Individual Variable Life Type L Contracts 13.87 14.79 69,600 1,029,633 Total Return Trust: Individual Variable Life Type L Contracts 12.32 13.57 150,463 2,042,313 Corporate Variable Life Type K Contracts -- 13.60 190,299 2,588,395 ----------- 4,630,708
32 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 6. Unit Values (continued)
1999 2000 ------------------------------------------------------------------------- UNIT VALUE UNIT VALUE UNITS DOLLARS ------------------------------------------------------------------------- Total Stock Market Index Trust: Individual Variable Life Type L Contracts $ -- $ 11.20 118,184 $ 1,323,263 U.S. Government Securities Trust: Individual Variable Life Type L Contracts 11.62 12.80 172,286 2,204,750 Corporate Variable Life Type K Contracts -- 13.64 27,059 369,079 ------------ 2,573,829 U.S. Large Cap Value Trust: Individual Variable Life Type L Contracts 12.78 13.06 143,921 1,879,014 Corporate Variable Life Type K Contracts -- 13.01 13,771 179,190 ------------ 2,058,204 Value Trust: Individual Variable Life Type L Contracts 13.57 16.80 273,446 4,594,010 Corporate Variable Life Type K Contracts -- 14.99 7,955 119,250 ------------ 4,713,260 500 Index Trust: Individual Variable Life Type L Contracts -- 11.26 9,628 108,369 Corporate Variable Life Type K Contracts -- 11.28 12,407 139,892 ------------ 248,261 ------------ Total $526,465,993 ============
7. RELATED PARTY TRANSACTIONS ManEquity, Inc., a registered broker-dealer and indirect wholly-owned subsidiary of Manulife Financial, acts as the principal underwriter of the Contracts pursuant to a Distribution Agreement with Manufacturers Life of America. Registered representatives of either ManEquity, Inc. or other broker-dealers having distribution agreements with ManEquity, Inc. who are also authorized as variable life insurance agents under applicable state insurance laws, sell the Contracts. Registered representatives are compensated on a commission basis. 33 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 7. RELATED PARTY TRANSACTIONS (CONTINUED) Manufacturers Life of America has a formal service agreement with its affiliates, Manulife Financial and The Manufacturers Life Insurance Company (U.S.A.), which can be terminated by either party upon two months notice. Under this Agreement, Manufacturers Life of America pays for legal, actuarial, investment and certain other administrative services. 34 THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) AUDITED CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 PREPARED IN CONFORMITY WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES ================================================================================ [MANULIFE FINANCIAL LOGO] FINANCIAL STATEMENTS AND SCHEDULES THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 WITH REPORT OF INDEPENDENT AUDITORS CONTENTS Report of Independent Auditors............................................... 3 Audited Consolidated Financial Statements Consolidated Balance Sheets............................................. 4 Consolidated Statements of Income....................................... 5 Consolidated Statements of Changes in Capital and Surplus............... 6 Consolidated Statements of Cash Flows................................... 7 Notes to Consolidated Financial Statements................................... 8
REPORT OF INDEPENDENT AUDITORS THE BOARD OF DIRECTORS THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A) We have audited the accompanying consolidated balance sheets of The Manufacturers Life Insurance Company (U.S.A) as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in capital and surplus, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Manufacturers Life Insurance Company (U.S.A.) at December 31, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States. Philadelphia, Pennsylvania /s/ ERNST & YOUNG LLP March 23, 2001 3 The Manufacturers Life Insurance Company (U.S.A.) Consolidated Balance Sheets
As at December 31 ($ millions) ASSETS 2000 1999 - ----------------------------------------------------------------------------------------- INVESTMENTS: Securities available-for-sale, at fair value: Fixed-maturity (amortized cost: 2000 $9,580; 1999 $9,561) $ 9,797 $ 9,358 Equity (cost: 2000 $707; 1999 $622) 852 1,106 Mortgage loans 1,539 1,622 Real estate 986 1,027 Policy loans 1,998 1,843 Short-term investments 715 284 - ----------------------------------------------------------------------------------------- TOTAL INVESTMENTS $15,887 $15,240 - ----------------------------------------------------------------------------------------- Cash and cash equivalents $ 164 $ 131 Deferred acquisition costs 2,066 1,631 Deferred income taxes 125 151 Due from affiliates 261 504 Amount recoverable from reinsurers 572 679 Other assets 677 882 Separate account assets 29,681 27,329 - ----------------------------------------------------------------------------------------- TOTAL ASSETS $49,433 $46,547 ========================================================================================= LIABILITIES, CAPITAL AND SURPLUS - ----------------------------------------------------------------------------------------- LIABILITIES: Policyholder liabilities and accruals $16,240 $15,894 Note payable 200 200 Other liabilities 764 1,001 Separate account liabilities 29,681 27,329 - ----------------------------------------------------------------------------------------- TOTAL LIABILITIES $46,885 $44,424 ========================================================================================= CAPITAL AND SURPLUS: Capital stock $ 5 $ 5 Retained earnings 2,260 1,990 Accumulated other comprehensive income 283 128 - ----------------------------------------------------------------------------------------- TOTAL CAPITAL AND SURPLUS $ 2,548 $ 2,123 - ----------------------------------------------------------------------------------------- TOTAL LIABILITIES, CAPITAL AND SURPLUS $49,433 $46,547 =========================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 4 The Manufacturers Life Insurance Company (U.S.A.) Consolidated Statements of Income
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2000 1999 1998 - -------------------------------------------------------------------------------- REVENUE: Premiums $ 814 $ 881 $ 848 Fee income 958 746 584 Net investment income 1,135 1,121 1,100 Realized investment gains 137 27 51 Other -- 5 5 - -------------------------------------------------------------------------------- TOTAL REVENUE $ 3,044 $ 2,780 $ 2,588 - -------------------------------------------------------------------------------- BENEFITS AND EXPENSES: Policyholder benefits and claims $ 1,520 $ 1,412 $ 1,570 Operating expenses and commissions 617 494 389 Amortization of deferred acquisition costs 180 40 113 Interest expense 34 25 14 Policyholder dividends 339 323 265 Minority interest expense 16 16 15 - -------------------------------------------------------------------------------- TOTAL BENEFITS AND EXPENSES $ 2,706 $ 2,310 $ 2,366 - -------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 338 470 222 - -------------------------------------------------------------------------------- INCOME TAXES 90 177 82 - -------------------------------------------------------------------------------- NET INCOME $ 248 $ 293 $ 140 ================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 5 The Manufacturers Life Insurance Company (U.S.A.) Consolidated Statements of Changes in Capital And Surplus
ACCUMULATED OTHER TOTAL FOR THE YEARS ENDED DECEMBER 31 CAPITAL RETAINED COMPREHENSIVE CAPITAL AND ($ millions) STOCK EARNINGS INCOME (LOSS) SURPLUS - --------------------------------------------------------------------------------------------- BALANCE AT JANUARY 1, 1998 $ 5 $1,707 $ 128 $ 1,840 Comprehensive income -- 140 21 161 Dividend to shareholder -- (150) -- (150) - --------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1998 $ 5 $1,697 $ 149 $ 1,851 Comprehensive income -- 293 (21) 272 - --------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1999 $ 5 $1,990 $ 128 $ 2,123 - --------------------------------------------------------------------------------------------- Comprehensive income -- 248 155 403 Contributed surplus 22 22 - --------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2000 $ 5 $2,260 $ 283 $ 2,548 =============================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 6 The Manufacturers Life Insurance Company (U.S.A.) Consolidated Statements of Cash Flows
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------ OPERATING ACTIVITIES: Net Income $ 248 $ 293 $ 140 Adjustments to reconcile net income to net cash provided by operating activities: Additions to policyholder liabilities and accruals 330 404 410 Deferred acquisition costs (590) (463) (286) Amounts recoverable from reinsurers 23 334 9 Amortization of deferred acquisition costs 180 40 113 Realized investment gains (137) (27) (51) Decreases (additions) to deferred income taxes 34 194 7 Amounts due from (to) affiliates 259 22 (126) Other assets and liabilities, net (158) 238 8 Other, net (62) 59 25 - ------------------------------------------------------------------------------------------------------ Net cash provided by operating activities $ 127 $ 1,094 $ 249 - ------------------------------------------------------------------------------------------------------ INVESTING ACTIVITIES: Fixed-maturity securities sold, matured or repaid $ 6,584 $ 4,302 $ 3,906 Fixed-maturity securities purchased (6,792) (4,763) (3,730) Equity securities sold 1,185 303 290 Equity securities purchased (1,012) (349) (284) Mortgage loans advanced (187) (148) (453) Mortgage loans repaid 274 314 274 Real estate sold 101 54 40 Real estate purchased (58) (219) (117) Policy loans advanced, net (155) (133) (145) Short-term investments (431) (251) 85 Separate account seed money -- 32 (2) Other investments, net 196 (355) 25 - ------------------------------------------------------------------------------------------------------ Net cash used in investing activities $ (295) $ (1,213) $ (111) - ------------------------------------------------------------------------------------------------------ FINANCING ACTIVITIES: Deposits and interest credited to policyholder account balances $ 1,336 $ 1,263 $ 668 Withdrawals from policyholder account balances (1,579) (987) (611) Amounts due to affiliates 250 -- -- Net reinsurance (payable) recoverable 87 (158) (86) Dividend to shareholder -- -- (150) Borrowed funds 107 50 -- - ------------------------------------------------------------------------------------------------------ Net cash provided by (used in) financing activities $ 201 $ 168 $ (179) - ------------------------------------------------------------------------------------------------------ CASH: Increase (decrease) during the year 33 49 (41) Balance, beginning of year 131 82 123 - ------------------------------------------------------------------------------------------------------ BALANCE, END OF YEAR $ 164 $ 131 $ 82 - ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements. 7 The Manufacturers Life Insurance Company (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 (IN MILLIONS OF DOLLARS) 1. ORGANIZATION The Manufacturers Life Insurance Company (U.S.A.) ("ManUSA") is an indirectly wholly-owned subsidiary of The Manufacturers Life Insurance Company ("Manufacturers Life"), which in turn is a wholly owned subsidiary of Manulife Financial Corporation, a Canadian-based publicly traded company. . Manulife Financial Corporation and its subsidiaries are collectively known as "Manulife Financial". ManUSA and its subsidiaries, collectively known as the "Company", operate in the life insurance industry, offering a broad range of insurance related products. These products are offered both on an individual and group basis and are marketed primarily in the United States. In June of 1999, the Company increased its ownership interest in its subsidiary, Manulife-Wood Logan Holding Co. Inc. ("MWL"), to 78.4% through the purchase of the 15% outside party interest. The purchase was at fair value and generated goodwill of $45.0, which is being amortized into income on a straight-line basis over 15 years. In December of 2000 and through an issue of shares, the Company acquired the remaining 21.6% minority interest in MWL from MRL Holding, LLC ("MRL-LLC"), an affiliated company. As this was a related party transaction, the purchase was accounted for at MRL-LLC's carrying value at the time of purchase and no goodwill was generated. 2. SIGNIFICANT ACCOUNTING POLICIES a) BASIS OF PRESENTATION The accompanying consolidated financial statements of ManUSA have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and include accounts and operations, after intercompany eliminations, of ManUSA and its subsidiaries. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates. b) RECENT ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. The statement also addresses contracts that contain embedded derivatives, such as certain insurance contracts. In July 1999, the FASB issued Statement No. 137, which delayed the effective date of SFAS No. 133 to fiscal 8 years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138 which made certain changes to the hedging provisions of SFAS No. 133, and is effective concurrent with SFAS No. 133. Effective January 1, 2001, all derivatives instruments will be reported on the Consolidated Balance Sheets at their fair value, with changes in fair value recorded in income or equity, depending on the nature of the derivative instrument. Changes in the fair value of derivatives that are not designated as hedges will be recognized in current period earnings. Based on the Company's derivative positions as at December 31, 2000, the Company estimates that there will be no material impact to the income statement upon adoption of this new accounting standard. As formal interpretations of this new standard continue to be issued by the FASB, the Company is continuing its analysis of insurance products in order to identify embedded derivatives that may require bifurcation under the statement. Any embedded derivatives identified and that require bifurcation will be marked to market through earnings c) INVESTMENTS The Company classifies all of its fixed-maturity and equity securities as available-for-sale and records these securities at fair value. Realized gains and losses on sales of securities classified as available-for-sale are recognized in net income using the specific identification method. Temporary changes in the fair value of securities available-for-sale are reflected directly in other comprehensive income after adjustments for deferred taxes, deferred acquisition costs, policyholder liabilities and unearned revenue liability. Discounts and premiums on investments are amortized using the effective interest method. Mortgage loans are reported at unpaid principal balances, net of a provision for losses. The provision for losses is established for mortgage loans which are considered to be impaired when the Company has determined that it is probable that all amounts due under contractual terms will not be collected. Impaired loans are reported at the lower of unpaid principal or fair value of the underlying collateral. Interest on fixed-maturity securities and performing mortgage loans is recorded as income when earned and is adjusted for any amortization of premiums or discount. Interest on restructured mortgage loans is recorded as income based on the rate to be paid; interest on delinquent mortgage loans is recorded as income on a cash basis. Dividends are recorded as income on ex-dividend dates. Real estate held for investment is carried at cost, less accumulated depreciation and provisions for impairment and write-downs, if applicable. Real estate held for sale is carried at the lower of cost or market value where changes in estimates of market value are recognized as realized gains or losses in the income statement. Policy loans are reported at aggregate unpaid balances, which approximate fair value. Short-term investments include investments with maturities of less than one year at the date of acquisition. 9 d) CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with an original maturity date of three months or less to be cash equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates fair value. e) DEFERRED ACQUISITION COSTS ("DAC") Commissions and other expenses, which vary with and are primarily related to the production of new business, are deferred to the extent recoverable from future gross profits and included as an asset. DAC associated with variable annuity and variable life insurance contracts, universal life insurance contracts, investment contracts, and participating life insurance contracts is charged to expense in relation to the estimated gross profits of those contracts. The amortization is adjusted retrospectively when current gross profits or estimates of future gross profits are revised. DAC associated with all other insurance contracts is charged to expense over the premium paying period of the related policies. DAC is adjusted for the impact on current and estimated future gross profits assuming the unrealized gains or losses on securities had been realized at year-end. The equity impact of any such adjustments is included in net unrealized gains (losses) in other comprehensive income. DAC is reviewed annually to determine recoverability from future income. To the extent that the DAC is assessed as not recoverable, it is immediately expensed. f) POLICYHOLDER LIABILITIES Policyholder liabilities for traditional non-participating life insurance policies are computed using the net level premium method. The calculations are based upon estimates as to future mortality, morbidity, persistency, maintenance expenses, and interest rate yields that were applicable in the year of issue. The assumptions include a provision for the risk of adverse deviation. For payout annuities in loss recognition, policyholder liabilities are computed using estimates of expected mortality, expenses, and investment yields as determined at the time these contracts first moved into loss recognition. Payout annuity reserves are adjusted for the impact of net unrealized gains associated with the underlying assets. For variable annuity and variable life contracts, universal life insurance contracts, and investment contracts with no substantial mortality or morbidity risk, policyholder liabilities equal the policyholder account values. Account values are increased for deposits received and interest credited and are reduced by withdrawals, mortality charges, and administrative expenses charged to the policyholders. Policy charges, which compensate the Company for future services, are deferred and recognized in income over the period earned, using the same assumptions used to amortize DAC. For traditional participating life insurance policies, policyholder liabilities are computed using the net level premium reserve for death and endowment policy benefits. Mortality and interest assumptions are the same as the non-forfeiture benefit assumptions at the time the policy was issued. Interest rate assumptions used in the calculation of the liabilities for traditional participating life insurance policies range from 2.5% to 7.0%. 10 As of December 31, 2000, participating insurance expressed as a percentage of insurance in force is 66.3%. The amount of policyholders' dividends to be paid is approved annually by Manulife Financial's Board of Directors. The aggregate amount of policyholders' dividends is calculated based on actual interest, mortality, morbidity and expense experience for the year, and on management's judgment as to the appropriate level of equity to be retained by the Company. The carrying value of this liability approximates the earned amount and fair value as at December 31, 2000. g) SEPARATE ACCOUNTS Separate account assets and liabilities represent funds that are separately administered, principally for investment contracts related to group pension business as well as for variable annuity and variable life contracts, and for which the contract holder, rather than the Company, bears the investment risk. Separate account contract holders have no claim against the assets of the general account of the Company. Separate account assets are recorded at market value. Operations of the separate accounts are not included in the accompanying financial statements. h) REVENUE RECOGNITION Premiums on long-duration life insurance contracts are recognized as revenue when due. Premiums on short-duration contracts are earned over the related contract period. Receipts on variable annuity and variable life contracts, universal life insurance contracts, and investment contracts are reported as deposits to account values as described in note 2(f) and not as premiums. Revenue from these policies consists of policy charges for the cost of insurance, expenses and surrender charges that have been assessed against the policyholder account values. Policy charges that are designed to compensate the Company for future services are deferred and recognized in income over the period benefited, using the same assumptions used to amortize DAC. Net premiums on limited-payment contracts are recognized as revenue and the difference between the gross premium received and the net premium is deferred and recognized in income based on either a constant relationship to insurance in force or the present value of annuity benefits, depending on the product type. Investment income is recorded as revenue when due. i) EXPENSES Expenses for variable annuity and variable life contracts, and for universal life insurance contracts include interest credited to policyholder account values and benefit claims incurred during the period in excess of policyholder account values. 11 j) REINSURANCE The Company routinely utilizes reinsurance transactions to minimize exposure to large risks. Life reinsurance is accomplished through various plans including yearly renewable term, co-insurance, and modified co-insurance. Reinsurance premiums, policy charges for cost of insurance, and claims are accounted for on a basis consistent with that used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums, fees, and claims are reported net of reinsured amounts. Amounts paid with respect to ceded reinsurance contracts are reported as reinsurance receivables in other assets. k) INCOME TAX Income taxes have been provided for in accordance with Statement of Financial Accounting Standards 109 ("SFAS 109"), "Accounting for Income Taxes." ManUSA joins its direct parent, Manulife Reinsurance Corporation (U.S.A.), its indirect parent, The Manufacturers Investment Corporation, and its subsidiary, The Manufacturers Life Insurance Company of America, in filing a U.S. consolidated income tax return as a life insurance group under the provisions of the Internal Revenue Service. A separate life insurance group for certain of ManUSA's subsidiaries is also in place. In accordance with the income tax-sharing agreements, the Company's income tax provision (or benefit) is computed as if ManUSA and the companies within the two groups filed separate income tax returns. Tax benefits from operating losses are provided at the U.S. statutory rate plus any tax credits attributable, provided the consolidated group utilizes such benefits currently. Deferred income taxes result from temporary differences between the tax basis of assets and liabilities, and their recorded amounts for financial reporting purposes. l) FOREIGN EXCHANGE The balance sheet and statement of income of the Company's foreign operations as well as non-U.S. dollar investments are translated into U.S. dollars using the current exchange and average exchange rates respectively. Translation adjustments are included in accumulated other comprehensive income (loss). m) DERIVATIVES The Company uses derivatives to manage exposures to foreign currency, interest rate and other market risks arising from its on-balance sheet financial instruments. These derivatives are designated and effective as hedges, as there is a high correlation between changes in market value of the derivative and the underlying hedged item at inception and over the life of the hedge. Realized and unrealized gains and losses on these derivatives are accounted for on the same basis as the underlying assets and liabilities. Realized and unrealized gains and losses on derivative transactions established as hedges but no longer considered hedges are included in income from the date at which they are no longer considered to be hedges. The Company also uses derivatives to manage foreign currency exposures associated with expected future policy maintenance and acquisition expenses relating to the current inforce block of business. These derivatives are designated as non-hedges. Realized and unrealized gains and losses on these derivatives are included in income. 12 Derivative income and expenses are included in investment income in the Consolidated Statements of Income. Cash flows relating to derivatives associated with invested assets and financial liabilities are included in the Consolidated Statements of Cash Flows on a basis consistent with the cash flows from the underlying invested assets and financial liabilities. Derivative assets and liabilities are included in other investments and other liabilities, respectively, with deferred realized net gains presented as such in the Consolidated Balance Sheets. 3. INVESTMENTS AND INVESTMENT INCOME a) FIXED-MATURITY AND EQUITY SECURITIES At December 31, 2000, all fixed-maturity and equity securities have been classified as available-for-sale and reported at fair value. The amortized cost and fair value is summarized as follows:
GROSS GROSS AMORTIZED COST UNREALIZED GAINS UNREALIZED LOSSES FAIR VALUE AS AT DECEMBER 31 ($ millions) 2000 1999 2000 1999 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------- Fixed-maturity securities: U.S. government $ 1,240 $ 1,440 $ 103 $ 23 $ -- $ (57) $ 1,343 $ 1,406 Foreign governments 1,730 1,677 204 81 -- (16) 1,934 1,742 Corporate 5,561 5,323 111 56 (215) (254) 5,457 5,125 Asset - backed 1,049 1,121 21 4 (7) (40) 1,063 1,085 - ------------------------------------------------------------------------------------------------------------------------------- TOTAL FIXED-MATURITY 9,580 9,561 439 164 (222) (367) 9,797 9,358 SECURITIES - ------------------------------------------------------------------------------------------------------------------------------- Equity securities $ 707 $ 622 $ 210 $ 524 $ (65) $ (40) $ 852 $ 1,106 - -------------------------------------------------------------------------------------------------------------------------------
Proceeds from sales of fixed-maturity securities during 2000 were $6,583.5 (1999 - $4,302.4 and 1998 - $3,906.1). Gross gains and losses of $70.7 and $241.9 respectively, were realized on those sales (1999 - $49.0 and $166.7 respectively, 1998 - $90.6 and $90.4 respectively). Proceeds from the sale of equity securities during 2000 were $1,185.2 (1999 - $303.3 and 1998 - $290.0). Gross gains and losses of $319.2 and $59.8 respectively, were realized on those sales (1999 - $84.0 and $38.7 respectively, 1998 - $47.4 and $45.0 respectively). 13 The contractual maturities of fixed-maturity securities at December 31, 2000 are shown below.
AS AT DECEMBER 31, 2000 ($ millions) AMORTIZED COST FAIR VALUE - ---------------------------------------------------------------------------------------------------- Fixed-maturity securities, excluding mortgage-backed securities: One year or less $ 230 $ 228 Greater than 1; up to 5 years 1,134 1,144 Greater than 5; up to 10 years 2,425 2,429 Due after 10 years 4,742 4,933 Asset - backed securities 1,049 1,063 - ---------------------------------------------------------------------------------------------------- TOTAL FIXED-MATURITY SECURITIES $ 9,580 $ 9,797 - ----------------------------------------------------------------------------------------------------
Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties. Corporate requirements and investment strategies may result in the sale of investments before maturity. b) MORTGAGE LOANS Mortgage loans are reported at amortized cost, net of a provision for losses. The impaired mortgage loans and the related allowance for mortgage loan losses were as follows:
AS AT DECEMBER 31 ($ millions) 2000 1999 - -------------------------------------------------------------------------------- IMPAIRED LOANS $ 80 $ 86 - -------------------------------------------------------------------------------- Allowance, January 1 $ 57 $106 Deductions (6) (49) - -------------------------------------------------------------------------------- ALLOWANCE, DECEMBER 31 $ 51 $ 57 - --------------------------------------------------------------------------------
c) INVESTMENT INCOME Income by type of investment was as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ MILLIONS) 2000 1999 1998 - -------------------------------------------------------------------------------- Fixed-maturity securities $ 727 $ 726 $ 729 Equity securities 60 18 16 Mortgage loans 126 149 156 Investment real estate 95 71 62 Other investments 184 195 164 - -------------------------------------------------------------------------------- Gross investment income 1,192 1,159 1,127 Investment expenses (57) (38) (27) - -------------------------------------------------------------------------------- NET INVESTMENT INCOME $ 1,135 $ 1,121 $ 1,100 - --------------------------------------------------------------------------------
14 4. COMPREHENSIVE INCOME a) COMPREHENSIVE INCOME Total comprehensive income was as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2000 1999 1998 - ------------------------------------------------------------------------------------------- NET INCOME $ 248 $ 293 $ 140 - ------------------------------------------------------------------------------------------- OTHER COMPREHENSIVE INCOME (LOSS), NET OF INCOME TAX: Unrealized holding gains (losses) arising during the year 73 (4) 54 Foreign currency translation (7) 1 -- Less: Reclassification adjustment for realized gains and losses Included in net income (89) 18 33 - ------------------------------------------------------------------------------------------- Other comprehensive income (loss) 155 (21) 21 - ------------------------------------------------------------------------------------------- COMPREHENSIVE INCOME $ 403 $ 272 $ 161 - -------------------------------------------------------------------------------------------
Other comprehensive income (loss) is reported net of tax (benefit) expense of ($87), $30, and $(11) for 2000, 1999, and 1998, respectively. Accumulated other comprehensive income is comprised of the following:
AS AT DECEMBER 31 ($ millions) 2000 1999 - -------------------------------------------------------------------------------- UNREALIZED GAINS : Beginning balance $ 132 $ 154 Current period change 158 (22) - -------------------------------------------------------------------------------- Ending balance $ 290 $ 132 - -------------------------------------------------------------------------------- FOREIGN CURRENCY: Beginning balance $ (4) $ (5) Current period change (3) 1 - -------------------------------------------------------------------------------- Ending balance $ (7) $ (4) - -------------------------------------------------------------------------------- ACCUMULATED OTHER COMPREHENSIVE INCOME $ 283 $ 128 ================================================================================
15 b) UNREALIZED GAINS (LOSSES) ON SECURITIES AVAILABLE-FOR-SALE Net unrealized gains (losses) on fixed-maturity and equity securities included in other comprehensive income were as follows:
AS AT DECEMBER 31 ($ millions) 2000 1999 - -------------------------------------------------------------------------------- Gross unrealized gains $ 688 $ 753 Gross unrealized losses (340) (439) DAC and other amounts required to satisfy policyholder 53 (117) liabilities Deferred income taxes (111) (65) - -------------------------------------------------------------------------------- NET UNREALIZED GAINS ON SECURITIES AVAILABLE-FOR-SALE $ 290 $ 32 - --------------------------------------------------------------------------------
5. DEFERRED ACQUISITION COSTS The components of the change in DAC were as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2000 1999 - -------------------------------------------------------------------------------- Balance, January 1 $ 1,631 $ 1,078 Capitalization 590 463 Accretion of interest 92 82 Amortization (272) (122) Effect of net unrealized gains on securities 25 130 available-for-sale Currency Translation -- -- - -------------------------------------------------------------------------------- BALANCE, DECEMBER 31 $ 2,066 $ 1,631 ================================================================================
6. INCOME TAXES The components of income tax expense (benefit) were as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2000 1999 1998 - -------------------------------------------------------------------------------- Current expense (benefit) $ 56 $ (17) $ 75 Deferred expense (benefit) 34 194 7 - -------------------------------------------------------------------------------- TOTAL EXPENSE $ 90 $ 177 $ 82 ================================================================================
Income before federal income taxes differs from taxable income principally due to tax-exempt investment income, dividends received tax deductions, differences in the treatment of policy acquisition costs, and differences in reserves for policy and contract liabilities for tax and financial reporting purposes. 16 Included in the current benefit for 2000 is a $28.9 one time reduction of tax expense for periods prior to 2000. This resulted from a new IRS technical memorandum clarifying the treatment of dividends received deduction for Separate Accounts. The tax benefit pertaining to 2000 earnings is $9.1. The Company's deferred income tax asset (liability), which results from tax effecting the differences between financial statement values and tax values of assets and liabilities at each balance sheet date, relates to the following:
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2000 1999 1999 - ----------------------------------------------------------------------------------------- DEFERRED TAX ASSETS: Differences in computing policy reserves $ 630 $ 635 $ 850 Investments -- -- 85 Policyholder dividends payable 11 9 11 Net capital loss 6 -- -- Net operating loss 41 -- -- Other deferred tax assets 19 -- 10 - ----------------------------------------------------------------------------------------- Deferred tax assets $ 707 $ 644 $ 956 - ----------------------------------------------------------------------------------------- DEFERRED TAX LIABILITIES: Deferred acquisition costs $ 340 $ 244 $ 103 Unrealized gains on securities available-for-sale 140 189 387 Premiums receivable 13 14 19 Investments 47 14 -- Other deferred tax liabilities 42 32 72 - ----------------------------------------------------------------------------------------- Deferred tax liabilities $ 582 $ 493 $ 581 - ----------------------------------------------------------------------------------------- NET DEFERRED TAX ASSETS $ 125 $ 151 $ 375 - -----------------------------------------------------------------------------------------
The Company files a consolidated federal income tax return. ManUSA and its subsidiaries file separate state income tax returns. The method of allocation among the companies is subject to a written tax sharing agreement under which the tax liability is allocated to each member on a pro rata basis based on the relationship that the member's tax liability (computed on a separate return basis) bears to the tax liability of the consolidated group. The tax charge to each of the respective companies will not be more than that company would have paid on a separate return basis. Settlements of taxes are made through an increase or reduction to the payable to parent, subsidiaries and affiliates, which is settled periodically. At December 31, 2000, the Company has operating loss carry forwards of $116 that will begin to expire in 2014, and capital loss carry forwards of $18 that are available for carry back. 17 7. NOTE PAYABLE On December 29, 1997, the Company issued a surplus debenture for $200,000 plus interest at 7.93% per annum to Manufacturers Investment Corporation ("MIC"), an indirect parent company. The surplus debenture matures on February 1, 2022. Except in the event of insolvency or winding-up of the Company, the instrument may not be redeemed by the Company during the period of five years from date of issue without the approval of the Office of the Superintendent of Financial Institutions of Canada. Interest accrued and expensed was $16 for each of 2000, 1999, and 1998. Interest paid was $9, $16, and $9 for 2000, 1999, and 1998, respectively. 8. CAPITAL AND SURPLUS Capital Stock is comprised of the following:
AS AT DECEMBER 31 ($ millions) 2000 1999 - -------------------------------------------------------------------------------- AUTHORIZED: 50,000,000 Preferred shares, Par value $1.00 - - 50,000,000 Common shares, Par value $1.00 - -------------------------------------------------------------------------------- ISSUED AND OUTSTANDING: 100,000 Preferred shares 4,711,772 Common shares (4,544,504 in 1999) 5 5 ================================================================================
Pursuant to an agreement dated December 31, 2000, ManUSA purchased from MRL-LLC all of MRL-LLC's 21.6% interest in Manulife Wood Logan Holdings. In exchange, ManUSA transferred 167,268 of its common shares to MRL-LLC and forgave a promissory note owed by MRL-LLC amounting to $52 plus accrued interest. The result was a $22 addition to the Company's contributed surplus. The agreement permits the use of estimates in determining the value of the shares exchanged until, at a mutually agreed upon date, a final valuation of the respective companies is performed. As a result of the valuation, there may be a future adjustment to the number of shares transferred. ManUSA and its life insurance subsidiaries are subject to statutory limitations on the payment of dividends. Dividend payments in excess of prescribed limits cannot be paid without the prior approval of U.S. insurance regulatory authorities. Net (loss) income and capital and surplus, as determined in accordance with statutory accounting principles for ManUSA and its life insurance subsidiaries were as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2000 1999 1998 - ------------------------------------------------------------------------------------------------ THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A): Net income $ 200 $ 132 $ 87 Net capital and surplus 1,384 1,560 1,305 THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA: Net (loss) income $ (59) $ (3) $ 28 Net capital and surplus 152 171 158 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA: Net (loss) income $ (19) $ 6 $ (24) Net capital and surplus 120 137 122 THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK: Net (loss) income (3) 1 (6) Net capital and surplus 61 64 63 - ------------------------------------------------------------------------------------------------
18 The National Association of Insurance Commissioners has revised the Accounting Practices and Procedure Manual in a process referred to as Codification effective for January 1, 2001. The revised manual has changed, to some extent, prescribed statutory accounting practices and will result in changes to the accounting practices that ManUSA and its life insurance subsidiaries use in preparing their statutory-basis financial statements. The cumulative effect of such changes will be reported as an adjustment to statutory-basis capital and surplus as of January 1, 2001. The effect of adopting these changes has not resulted in a significant reduction in the statutory-basis capital and surplus of ManUSA nor of its life insurance subsidiaries. As a result of the demutualization of Manufacturers Life, there are regulatory restrictions on the amounts of profit that can be transferred to shareholders. These restrictions generally take the form of a fixed percentage of the policyholder dividends. The transfers are governed by the terms of Manufacturers Life's Plan of Demutualization. 9. EMPLOYEE BENEFITS a) EMPLOYEE RETIREMENT PLAN The Company sponsors a non-contributory pension plan, the Cash Balance Plan ("the Plan"), which provides pension benefits based on length of service and final average earnings. Pension benefits are provided to those participants after three years of vesting service, and the normal retirement benefit is actuarially equivalent to the cash balance account at normal retirement date. The normal form of payment under the Plan is a life annuity, with various optional forms available. Vested benefits are fully funded; current pension costs are funded as they accrue. Actuarial valuation of accumulated plan benefits are based on projected salaries and best estimates of investment yields on plan assets, mortality of participants, employee termination and ages at retirement. Pension costs that relate to current service are charged to earnings in the current period. Experience gains and losses are amortized to income over the estimated average remaining service lives of the participants. No pension expense was recognized in 2000, 1999, or 1998 because the plan was subject to the full funding limitation under the Internal Revenue Code. At December 31, 2000, the projected benefit obligation of the plan based on an assumed interest rate of 7.25% was $52. The fair value of plan assets is $81. The Company also sponsors an unfunded supplemental cash balance plan ("the Supplemental Plan") for its executives. This non-qualified plan provides defined pension benefits in excess of limits imposed by the law to those retiring after age 50 with 10 or more years of vesting service. This plan covers the Company employees and selected executives. Pension benefits are provided to those who terminate after 5 years of vesting service, and the pension benefit is a final average benefit based on the executive's highest 5-year average earnings. Compensation is not limited, and benefits are not restricted by the Internal Revenue Code Section 415. Contribution credits vary by service, and interest credits are a function of the 1-year U.S. Treasury Bond rate plus 0.50%, but no less than 5.25% per year. These annual contribution credits are made in respect of the participant's compensation that is in excess of the limit in Internal Revenue Code Section 401(a)(17). In addition, a one-time contribution may be made for a participant if it is determined at the time of their termination of employment that the participant's pension benefit under the Plan is limited 19 by Internal Revenue Code Section 415. Together, these contributions serve to restore to the participant the benefit that he / she would have been entitled to under the Plan's benefit formula but for the limitation in Internal Revenue Code Sections 401(a)(17) and 415. Benefits under the Supplemental Plan are provided to participants after three years. The default form of payment under this plan is a lump sum although participants may elect to receive payment in the form of an annuity provided that such election is made within the time period prescribed in the plan. If an annuity form of payment is elected, the amount payable is equal to the actuarial equivalent of the participant's balance under the Supplemental Plan, using the factors and assumptions for determining immediate annuity amounts applicable to the participant under the Plan. At December 31, 2000, the projected benefit obligation to the participants of the Supplemental Plan was $22. This is based on an assumed interest rate of 7.25%. Prior to July 1, 1998, the Company also participated in an unfunded Supplemental Executive Retirement Plan ("Manulife SERP") sponsored by Manufacturers Life for executives. This was a non qualified plan that provided defined pension benefits in excess of limits imposed by the law to those retiring after age 50 with 10 or more years of vesting service. The Manulife SERP covered the Company's employees and selected executives of MNA. Pension benefits were provided to those who terminate after 5 years of vesting service, and the pension benefit is a final average benefit based on the executive's highest 5-year average earnings. Compensation is not limited, and benefits are not restricted by the Internal Revenue Code Section 415. b) 401(K) PLAN The Company sponsors a defined contribution 401(k) Savings Plan which is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). The Company contributed $1 for each of 2000, 1999, and 1998. c) DEFERRED COMPENSATION PLAN The Company has deferred compensation incentive plans open to all branch managers and qualified agents. There are no stock option plans involving stock of ManUSA. d) POSTRETIREMENT BENEFIT PLAN In addition to the retirement plans, the Company sponsors a postretirement benefit plan, which provides retiree medical and life insurance benefits to those who have attained age 55 with 10 or more years of service. The plan provides the medical coverage for retirees and spouses under age 65. Medicare provides primary coverage and the plan provides secondary coverage. There is no contribution for post-age 65 coverage and no contributions are required for retirees for life insurance coverage. The plan is unfunded. The Company accounts for its retiree benefit plan using the accrual method. The postretirement benefit cost for the year ended December 31, 2000 was $2. This amount includes the expected cost of postretirement benefits for newly eligible employees and for vested employees, interest cost, and gains and losses arising from differences between actuarial assumptions and actual experience. 20 e) FINANCIAL INFORMATION REGARDING THE EMPLOYEE RETIREMENT PLAN AND THE POSTRETIREMENT BENEFIT PLAN Information applicable to the Employee Retirement Plan and the Postretirement Benefit Plan, determined in accordance with GAAP as estimated by a consulting actuary for the December 31 year end of the respective plans, is as follows:
EMPLOYEE POSTRETIREMENT RETIREMENT BENEFIT PLAN PLAN AS OF DECEMBER 31 --------------------------------------------------- (in thousands) 2000 1999 2000 1999 - ----------------------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $(68,410) $(67,253) $(16,966) $(19,893) Service cost (2,202) (2,288) (482) (613) Interest cost (5,044) (4,575) (1,150) (1,082) Amendments (1,011) -- -- -- Actuarial gain (loss) (2,629) (854) 60 3,903 Benefits paid 5,497 6,560 658 719 - ----------------------------------------------------------------------------------------------- Benefits obligation at end of year $(73,799) $(68,410) $(17,880) $(16,966) - -----------------------------------------------------------------------------------------------
EMPLOYEE POSTRETIREMENT RETIREMENT BENEFIT PLAN PLAN AS OF DECEMBER 31 --------------------------------------------------- (in $thousands) 2000 1999 2000 1999 - --------------------------------------------------------------------------------------------------------- CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $ 86,777 $ 84,686 $ -- $ -- Actual return on plan assets (1,618) 7,428 -- -- Employer contribution 1,320 1,223 658 719 Benefits paid (5,497) (6,560) (658) (719) - --------------------------------------------------------------------------------------------------------- Fair value of plan assets at end of year $ 80,982 $ 86,777 $ -- $ -- - --------------------------------------------------------------------------------------------------------- Funded status $ 7,183 $ 18,367 $(17,880) $(16,966) Unrecognized transition obligation (asset) (8,455) (10,778) -- -- Unrecognized actuarial loss (gain) 15,580 4,303 (14,695) (15,621) Unrecognized prior service cost 3,187 2,437 -- -- - --------------------------------------------------------------------------------------------------------- Net amount recognized $ 17,495 $ 14,329 $(32,575) $(32,587) - --------------------------------------------------------------------------------------------------------- Amounts recognized in statement of financial position of the Company consist of: Prepaid benefit cost $ 34,082 $ 29,934 $ -- $ -- Accrued benefit liability (21,130) (20,741) (32,575) (32,587) Intangible asset 928 1,172 -- -- Accumulated other comprehensive income 3,615 3,964 -- -- - --------------------------------------------------------------------------------------------------------- Net amount recognized $ 17,495 $ 14,329 $(32,575) $(32,587) - --------------------------------------------------------------------------------------------------------- Other comprehensive income attributable to change $ (349) -- -- -- in additional minimum liability recognition - ---------------------------------------------------------------------------------------------------------
* Amount is net of retiree contributions. 21 e) FINANCIAL INFORMATION REGARDING THE EMPLOYEE RETIREMENT PLAN AND THE POSTRETIREMENT BENEFIT PLAN (CONTINUED)
EMPLOYEE POSTRETIREMENT RETIREMENT BENEFIT PLAN PLAN ----------------------------------------- AS OF DECEMBER 31 2000 1999 2000 1999 - -------------------------------------------------------------------------------- WEIGHTED AVERAGE ASSUMPTIONS Discount rate 7.25% 7.50% 7.25% 7.50% Expected return on plan assets 8.50% 8.50% n/a n/a Rate of compensation increase 5.00% 5.00% 5.00% 5.00%
On December 31, 2000, the accrued postretirement benefit cost was $18. The postretirement benefit obligation for eligible active employees was $2. The amount of the postretirement benefit obligation for ineligible active employees was $4. For measurement purposes as of December 31, 2000, an 8 % and 10 % annual rate of increase in the per capita cost of covered health care benefits was assumed for 2001 for pre-65 and post-65 coverages, respectively. These rates were assumed to decrease gradually to 5 % in 2006 and 2010, respectively, and remain at those levels thereafter.
EMPLOYEE POSTRETIREMENT AS OF DECEMBER 31 RETIREMENT BENEFIT (IN THOUSANDS) PLAN PLAN ----------------------------------------------- 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------ COMPONENTS OF NET PERIODIC BENEFIT COST FOR PLAN SPONSOR Service cost $ 2,202 $ 2,288 $ 483 $ 613 Interest cost 5,044 4,575 1,150 1,082 Expected return on plan assets (7,181) (7,088) -- -- Amortization of net transition obligation (2,323) (2,323) -- -- Amortization of prior service cost 262 221 Recognized actuarial loss (gain) 150 343 (986) (892) - ------------------------------------------------------------------------------------------------------------ Net periodic (benefit) cost $ (1,846) $ (1,984) $ 647 $ 803 - ------------------------------------------------------------------------------------------------------------
The projected benefit obligation in excess of plan assets, the accumulated benefit obligation in excess of plan assets, and the fair value of plan assets for the Supplemental Plan were $22, $21, and $0 respectively, as of December 31, 2000 and $21, $22, and $0 respectively, as of December 31, 1999. The health care cost trend rate assumption has a significant effect on the amounts reported. A one-percentage-point change in assumed health care cost trend rates would have the following effects on 2000 values:
100 BASIS-POINT 100 BASIS-POINT (in thousands) INCREASE DECREASE - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Effect on total of service and interest cost components $ 275 $ (214) Effect on postretirement benefit obligation $ 2,521 $(2,036) - -----------------------------------------------------------------------------------------------
22 10. DERIVATIVE FINANCIAL INSTRUMENTS The Company uses a variety of off-balance sheet financial instruments as part of its efforts to manage exposures to foreign currency, interest rate and other market risks arising from its on-balance sheet financial instruments. Those instruments include interest rate exchange agreements and foreign currency forward contracts. The contract or notional amounts of those instruments reflect the extent of involvement in the various types of financial instruments. The Company's exposure to credit risk is the risk of loss from a counterparty failing to perform according to the terms of the contract. That exposure includes settlement risk (i.e., the risk that the counterparty defaults after the Company has delivered funds or securities under terms of the contract) that would result in an accounting loss and replacement cost risk (i.e. the cost to replace the contract at current market rates should the counterparty default prior to the settlement date). To limit exposure associated with counterparty nonperformance on interest rate exchange agreements, the Company enters into master netting agreements with its counterparties. INTEREST RATE EXCHANGE AGREEMENTS (SWAPS AND FLOORS) The Company enters into interest rate exchange agreements to reduce and manage interest rate risk associated with individual assets and liabilities, and its overall aggregate portfolio. These interest rate exchange agreements consist primarily of interest rate swap agreements and interest rate floors. The amounts to be received or paid pursuant to these agreements are accrued and recognized in the accompanying statements of operations through an adjustment to investment income, as appropriate, over the lives of the agreements. Gains or losses realized on closed or terminated agreements accounted for as hedges are deferred and amortized to investment income on a straight-line basis over the shorter of the lives of the agreements or the expected remaining lives of the underlying assets or liabilities. FOREIGN CURRENCY FORWARDS The Company uses foreign currency forward contracts to hedge some of the foreign exchange risk resulting from the fact that it generates revenue and holds assets in U.S. dollars, but incurs a significant portion of its maintenance expense in Canadian dollars. A foreign currency forward contract obligates the Company to deliver a specified amount of currency on a future date at a specified exchange rate. The value of the foreign exchange forward contracts at any given point fluctuates according to the underlying level of exchange rate and interest rate differentials. 23 Outstanding derivatives with off-balance sheet risks are as follows:
NOTIONAL OR AS AT DECEMBER 31 CONTRACT AMOUNTS CARRYING VALUE FAIR VALUE ($ millions) 2000 1999 2000 1999 2000 1999 - -------------------------------------------------------------------------------------------------------- Interest rate & currency swaps & floors $1,008 $ 869 $ 5 $ (2) $ 5 $ (2) Interest rate option written 22 22 -- -- -- -- Equity Contracts 68 -- (1) -- (1) -- Currency forwards 1,125 973 5 32 5 32 - -------------------------------------------------------------------------------------------------------- TOTAL DERIVATIVES $2,223 $1,864 $ 9 $ 30 $ 9 $ 30 ========================================================================================================
Fair value of off-balance sheet derivative financial instruments reflect the estimated amounts that the Company would receive or pay to terminate the contract at the balance sheet date, including the current unrealized gains (losses) on the instruments. Fair values of the agreements were based on estimates obtained from the individual counterparties. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values and the estimated fair values of the Company's financial instruments at December 31, 2000 were as follows:
($ millions) CARRYING VALUE FAIR VALUE - -------------------------------------------------------------------------------- ASSETS: Fixed-maturity and equity securities $ 10,649 $ 10,649 Mortgage loans 1,539 1,626 Policy loans 1,998 1,998 Derivative financial instruments 9 9 Separate account assets 29,681 29,681 LIABILITIES: Insurance investment contracts $ 1,550 $ 1,517 Separate account liabilities 29,681 29,681 - --------------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair values of the above financial instruments: FIXED-MATURITY AND EQUITY SECURITIES: Fair values of fixed-maturity and equity securities were based on quoted market prices, where available. Where no quoted market price was available, fair values were estimated using values obtained from independent pricing services or, in the case of private placements, by discounting expected future cash flows using a current market rate applicable to yield, credit quality, and average life of the investments. MORTGAGE LOANS: Fair value of mortgage loans was estimated using discounted cash flows and took into account the contractual maturities and discount rates which were based on current market rates for similar maturity ranges and adjusted for risk due to the property type. 24 POLICY LOANS: Carrying values approximate fair values. DERIVATIVE FINANCIAL INSTRUMENTS: Fair values of derivative financial instruments were based on estimates obtained from the individual counterparties. INSURANCE INVESTMENT CONTRACTS: Fair value of insurance investment contracts which do not subject the Company to significant mortality or morbidity risks was estimated using cash flows discounted at market rates. SEPARATE ACCOUNT ASSETS AND LIABILITIES: The carrying amounts in the balance sheet for separate account assets and liabilities approximate their fair value. 12. RELATED PARTY TRANSACTIONS The Company has formal service agreements with ManUSA's indirect parent, Manufacturers Life, which can be terminated by either party upon two months' notice. Under the various agreements, the Company will pay direct operating expenses incurred by Manulife Financial on behalf of the Company. Services provided under the agreements include legal, actuarial, investment, data processing, accounting and certain other administrative services. Costs incurred under the agreements were $243, $194, and $171 in 2000, 1999, and 1998, respectively. Manulife Financial provides a claims paying guarantee to most U.S. policyholders. On September 23, 1997, the Company entered into a reinsurance agreement with Manulife Reinsurance Limited ("MRL"), an affiliated life insurance company domiciled in Bermuda, to reinsure a closed block of participating life insurance business. As there was an insufficient transfer of mortality risk between the Company and MRL, the agreement was classified as financial reinsurance and given deposit-type accounting treatment. Title to the assets supporting this block of business was transferred to MRL under the terms of the agreement. Included in amounts due from affiliates is $568 (1999 - $562) representing the receivable from MRL for the transferred assets. The Company loaned $20 to MRL pursuant to a promissory note dated September 29, 2000. The loan is due on September 29, 2005 with interest calculated at 7.30% per annum, payable quarterly starting December 15, 2000. Pursuant to a promissory note dated June 12, 2000, the Company loaned $7 to MRL. Principal and accrued interest are payable on June 12, 2003. Interest on the loan calculated at 7.65% is payable semi-annually starting August 1, 2000. Pursuant to a promissory note and a credit agreement dated December 19, 2000, the Company received a loan of $250 ($375 Canadian) from an affiliate, Manulife Hungary Holdings KFT. The maturity date with respect to any advances is set at 365 days after the date of the advancement. Interest on the loan is calculated at the fluctuating rate to be equivalent to LIBOR plus 25 basis points and is payable quarterly starting March 28, 2001. 25 13. REINSURANCE In the normal course of business, the Company assumes and cedes reinsurance as a party to several reinsurance treaties with major unrelated insurance companies. The Company remains liable for amounts ceded in the event that reinsurers do not meet their obligations. The effects of reinsurance on premiums with unrelated insurance companies were as follows:
FOR THE YEARS ENDED DECEMBER 31 2000 1999 1998 ($ millions) - -------------------------------------------------------------------------------- Direct premiums $ 963 $ 976 $ 908 Reinsurance assumed 14 12 -- Reinsurance ceded (163) (107) (60) - -------------------------------------------------------------------------------- TOTAL PREMIUMS $ 814 $ 881 $ 848 - --------------------------------------------------------------------------------
Reinsurance recoveries on ceded reinsurance contracts were $186.9, $32.9, and $41.2 during 2000, 1999, and 1998, respectively. 14. CONTINGENCIES In 1999, the Company settled a class action lawsuit related to policies sold on a "vanishing premium" basis. As a result of the settlement, the Company has agreed to pay special enhancements for certain policies beginning on or after July 1, 1999. The present value of these payments has an expected value of $150. In addition, the Company will pay $50 to policyholders as part of a claims resolution process and has agreed, subject to certain conditions, to not reduce dividends for a period of 3 years and to maintain the program of voluntary enhancements that was previously implemented. The voluntary enhancements have an expected present value of $300. Management believes that these provisions are also adequate to address the remaining class actions and individual actions, including actions that may result from policyholders who have opted out of class settlement. However, there can be no assurance that these legal proceedings or any further litigation relating to life insurance pricing and sales practices will not have a material adverse effect on the Company's business, financial conditions or results of operation. The Company has provided for the estimated costs of settlement in these consolidated financial statements based on the terms of the settlement. The Company is subject to legal actions arising in the ordinary course of business. These legal actions are not expected to have a material adverse effect on the consolidated financial position of the Company. 26 THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 PREPARED IN CONFORMITY WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES ================================================================================ [MANULIFE FINANCIAL LOGO] THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) CONSOLIDATED BALANCE SHEETS
AS AT AS AT SEPTEMBER 30 DECEMBER 31 ASSETS ($ millions) 2001 2000 - -------------------------------------------------------------------------------------------------------- (UNAUDITED) INVESTMENTS Securities available-for-sale, at fair value Fixed-maturity (amortized cost: 2001 $9,568 ; 2000 $9,580) $ 10,085 $ 9,797 Equity (cost: 2001 $ 956 ; 2000 $707) 833 852 Mortgage loans 1,629 1,539 Real estate 964 986 Policy loans 2,171 1,998 Short-term investments 863 715 - -------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS $ 16,545 $ 15,887 - -------------------------------------------------------------------------------------------------------- Cash and cash equivalents $ 26 $ 164 Deferred acquisition costs 2,224 2,066 Deferred income taxes 144 125 Due from affiliates 276 261 Amounts recoverable from reinsurers 821 572 Other assets 583 677 Separate account assets 26,228 29,681 - -------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 46,847 $ 49,433 ======================================================================================================== LIABILITIES, CAPITAL AND SURPLUS ($ millions) - -------------------------------------------------------------------------------------------------------- LIABILITIES: Policyholder liabilities and accruals $ 17,331 $ 16,240 Note payable 200 200 Other liabilities 650 764 Separate account liabilities 26,228 29,681 - -------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES $ 44,409 $ 46,885 - -------------------------------------------------------------------------------------------------------- CAPITAL AND SURPLUS: Capital stock $ 5 $ 5 Retained earnings 2,345 2,260 Accumulated other comprehensive income 88 283 - -------------------------------------------------------------------------------------------------------- TOTAL CAPITAL AND SURPLUS $ 2,438 $ 2,548 - -------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES, CAPITAL AND SURPLUS $ 46,847 $ 49,433 ========================================================================================================
See accompanying notes. THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) Consolidated Statements of (Loss) Income (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ($ millions) 2001 2000 2001 2000 - -------------------------------------------------------------------------------------------------- REVENUE: Premiums $ 203 $ 196 $ 594 $ 613 Fee income 222 244 678 702 Net investment income 283 287 835 846 Realized investment gains (losses) 22 (24) 109 129 Other 1 2 3 -- - -------------------------------------------------------------------------------------------------- TOTAL REVENUE $ 731 $ 705 $2,219 $2,290 - -------------------------------------------------------------------------------------------------- BENEFITS AND EXPENSES: Policyholder benefits and claims $ 443 $ 393 $1,191 $1,249 Operating expenses and commissions 135 148 427 446 Amortization of deferred acquisition costs 89 52 204 97 Interest expense 7 4 23 13 Policyholder dividends 91 87 258 251 Minority interest expense -- 13 -- 19 - -------------------------------------------------------------------------------------------------- TOTAL BENEFITS AND EXPENSES $ 765 $ 697 $2,103 $2,075 - -------------------------------------------------------------------------------------------------- (LOSS) INCOME BEFORE INCOME TAX (RECOVERY) EXPENSE $ (34) $ 8 $ 116 $ 215 - -------------------------------------------------------------------------------------------------- INCOME TAX (RECOVERY) EXPENSE $ (14) $ (27) $ 31 $ 46 - -------------------------------------------------------------------------------------------------- NET (LOSS) INCOME $ (20) $ 35 $ 85 $ 169 - --------------------------------------------------------------------------------------------------
See accompanying notes. 2 THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS (UNAUDITED)
ACCUMULATED OTHER CAPITAL RETAINED COMPREHENSIVE TOTAL CAPITAL ($millions) STOCK EARNINGS INCOME AND SURPLUS - -------------------------------------------------------------------------------------- Balance at December 31, 2000 $ 5 $ 2,260 $ 283 $ 2,548 Comprehensive income -- 85 (195) (110) - -------------------------------------------------------------------------------------- BALANCE, SEPTEMBER 30, 2001 $ 5 $ 2,345 $ 88 $ 2,438 ======================================================================================
See accompanying notes. 3 THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30 ($ millions) 2001 2000 - ------------------------------------------------------------------------------------------------------------------------ OPERATING ACTIVITIES: Net income $ 85 $ 169 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Additions to policyholder liabilities and accruals 306 237 Deferred acquisition costs (390) (446) Amortization of deferred acquisition costs 204 97 Amounts recoverable from reinsurers (6) 72 Realized investment gains (109) (129) Decreases (additions) to deferred income taxes 40 (25) Amounts due from affiliates 34 367 Other assets and liabilities, net (173) (295) Other, net 87 50 - ------------------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) operating activities $ 78 $ 97 - ------------------------------------------------------------------------------------------------------------------------ INVESTING ACTIVITIES: Fixed-maturity securities sold, matured or repaid $ 7,511 $ 4,355 Fixed-maturity securities purchased (7,454) (4,682) Equity securities sold 180 692 Equity securities purchased (419) (458) Mortgage loans advanced (212) (104) Mortgage loans repaid 124 218 Real estate sold 42 50 Real estate purchased (20) (46) Policy loans advanced, net (173) (108) Short-term investments (147) (77) Other investments, net (18) 218 - ------------------------------------------------------------------------------------------------------------------------ Net cash (used in) provided by investing activities $ (586) $ 58 - ------------------------------------------------------------------------------------------------------------------------ FINANCING ACTIVITIES: Deposits and interest credited to policyholder account balances $ 1,401 $ 910 Withdrawals from policyholder account balances (1,064) (1,175) Net reinsurance recoverable 33 71 - ------------------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) financing activities $ 370 $ (194) - ------------------------------------------------------------------------------------------------------------------------ Decrease in cash and cash equivalents during the period $ (138) $ (39) Cash and cash equivalents at beginning of year 164 131 - ------------------------------------------------------------------------------------------------------------------------ BALANCE, END OF PERIOD $ 26 $ 92 ========================================================================================================================
See accompanying notes. 4 THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 (IN MILLIONS OF DOLLARS) (UNAUDITED) 1. ORGANIZATION The Manufacturers Life Insurance Company (U.S.A.) ("ManUSA") is an indirectly wholly-owned subsidiary of Manulife Financial Corporation, a Canadian-based publicly traded company. Manulife Financial Corporation and its subsidiaries are collectively known as "Manulife Financial". ManUSA and its subsidiaries, collectively known as the "Company", operate in the life insurance industry, offering a broad range of insurance related products. These products are offered both on an individual and group basis and are marketed primarily in the United States. In December of 2000 through an issue of shares, the Company acquired the remaining 21.6% minority interest in Manulife-Wood Logan Holding Co. Inc, a subsidiary of the Company, from MRL Holding, LLC ("MRL-LLC"), an affiliated company. As this was a related party transaction, the purchase was accounted for at MRL-LLC's carrying value and no goodwill was generated. 2. SIGNIFICANT ACCOUNTING POLICIES a) BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"), except that they do not contain complete notes. However, in the opinion of management, these statements include all normal recurring adjustments necessary for a fair presentation of the results. Operating results for the nine months ended September 30, 2001 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2001. Certain prior year amounts have been reclassified to conform to the current year presentation. b) RECENT ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires the purchase method of accounting to be used for all future business combinations. SFAS No. 142 eliminates the practice of amortizing goodwill through periodic charges to earnings and establishes a new methodology for recognizing and measuring goodwill and other intangible assets. Under this new accounting standard, the Company will cease goodwill amortization on January 1, 2002. Goodwill amortization for full year 2001 is not expected to be material and would have been approximately the same amount in 2002 under accounting standards currently in effect. The Company is currently considering the other provisions of the new standard. The impact of adopting these two standards on the Company's financial statements is not expected to be material. 5 3. DERIVATIVE FINANCIAL INSTRUMENTS Effective January 1, 2001 with the adoption of the Financial Accounting Standards Board Statement No. 133 - "Accounting for Derivative Instrument and Hedging Activities", and Statement No. 138 "Accounting for Certain Derivatives and Certain Hedging Activities", all derivative instruments are reported on the Consolidated Balance Sheets at their fair value, with changes in fair value recorded in income or equity, depending on the use of the derivative instrument. Changes in the fair value of derivatives that are not designated as hedges are recognized in current period earnings. The Company has entered into a reinsurance agreement with an unaffiliated reinsurer to reinsure the risk associated with the "Guaranteed Retirement Income Program", a rider offered on one of the variable annuity products sold. This rider is designed to protect the policyholder against adverse investment market movements. As a result, there is an embedded derivative within this agreement that has an estimated fair market value of $276 as at September 30, 2001, and is reflected in the Consolidated Balance Sheets as part of "Amounts recoverable from reinsurers". The related $276 estimated fair value of the obligation to the policyholder has been reflected in the Consolidated Balance Sheets as part of "Policyholder liabilities and accruals". There was no cumulative effect on surplus in the consolidated financial statements of the Company upon the adoption of these accounting statements. 4. COMPREHENSIVE INCOME Total comprehensive income was as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 COMPREHENSIVE INCOME (LOSS): ($ millions) 2001 2000 2001 2000 - ---------------------------------------------------------------------------------------------- NET (LOSS) INCOME $ (20) $ 35 $ 85 $ 169 - ---------------------------------------------------------------------------------------------- OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX: Unrealized holding gains (losses) arising during the period 5 (38) (111) (32) Foreign currency translation (16) -- (29) (5) Less: Reclassification adjustment for realized gains (losses) included in net (loss) income (1) (43) 55 75 - ---------------------------------------------------------------------------------------------- Other comprehensive income (loss) (10) 5 (195) (112) - ---------------------------------------------------------------------------------------------- COMPREHENSIVE INCOME (LOSS) $ (30) $ 40 $ (110) $ 57 ==============================================================================================
Other comprehensive loss is reported net of taxes payable (recoverable) of $3 and $3 for the three months and ($89) and ($58) for the nine months ended September 30, 2001 and 2000, respectively. 6 Accumulated other comprehensive income is comprised of the following:
AS AT AS AT ($ millions) SEPTEMBER 30, 2001 DECEMBER 31, 2000 - ----------------------------------------------------------------------------------- UNREALIZED GAINS : Beginning balance $ 290 $ 132 Current period change (166) 158 - ----------------------------------------------------------------------------------- Ending balance $ 124 $ 290 - ----------------------------------------------------------------------------------- FOREIGN CURRENCY: Beginning balance $ (7) $ (4) Current period change (29) (3) - ----------------------------------------------------------------------------------- Ending balance $ (36) $ (7) - ----------------------------------------------------------------------------------- ACCUMULATED OTHER COMPREHENSIVE INCOME $ 88 $ 283 ===================================================================================
5. CONTINGENCIES The Company has provided for the estimated costs of settlement in these consolidated financial statements based on the terms of the settlement. The Company and its subsidiaries are subject to legal actions arising in the ordinary course of business. These legal actions are not expected to have a material adverse effect on the consolidated financial position of the Company. 6. CODIFICATION In March 1998, the National Association of Insurance Commissioners adopted codified statutory accounting principles ("Codification") effective January 1, 2001. Codification changes prescribed statutory accounting practices and results in changes to the accounting practices that the Company's life insurance subsidiaries use to prepare their statutory-basis financial statements. The states of domicile of these subsidiaries adopted Codification as the prescribed basis of accounting on which insurers must report their statutory-basis results. The cumulative effect of changes in accounting principles adopted to conform to the requirements of Codification was reported as an increase to surplus in the statutory-basis financial statement of the respective life insurance subsidiaries. In total, statutory-basis surplus of the life insurance entities within the Company increased by $182. 7. SUBSEQUENT EVENT Subject to the approval of state and federal regulators and effective for January 1, 2002, it is the intention of management to merge all of the operations of The Manufacturers Reinsurance Corporation (U.S.A.) ("MRC"), the direct parent company of ManUSA, into the operations of ManUSA beginning on that date. As a result, products currently sold and administered under the name of MRC will be offered and administered under the name of ManUSA. 7 PART 2 OTHER INFORMATION PART II. OTHER INFORMATION Representation of Insurer Pursuant to Section 26 of the Investment Company Act of 1940 The Manufacturers Life Insurance Company (U.S.A.) hereby represents that the fees and charges deducted under the policies issued pursuant to this registration statement in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the Company. CONTENTS OF REGISTRATION STATEMENT This registration statement comprises the following papers and documents: The facing sheet; Cross-Reference Sheet; The Prospectus, consisting of 48 pages; Representation of Insurer Pursuant to Section 26 of the Investment Company Act of 1940 The signatures; Written consents of the following persons: A. Opinion and Consent of James D. Gallagher, Attorney - FILED HEREWITH B. Ernst & Young LLP - FILED HEREWITH C. Opinion and Consent of Actuary - FILED HEREWITH The following exhibits are filed as part of this Registration Statement: 1. Copies of all exhibits required by paragraph A of the instructions as to exhibits in Form N-8B-2 are set forth below under designations based on such instructions: A(1) Resolutions of Board of Directors of The Manufacturers Life Insurance Company (U.S.A.) establishing Separate Account N - FILED HEREWITH A(3)(a)(i) Form of Distribution Agreement. Incorporated by reference to Exhibit A(3)(a)(i) to the registration statement on Form S-6, file number 333-66303 filed October 29, 1998 (the "SVUL Registration Statement"). A(3)(a)(ii) Form of Amendment to Distribution Agreement. Incorporated by reference to Exhibit A(3)(a)(ii) to the SVUL Registration Statement. A(3)(a)(iii) Form of Amendment to Distribution Agreement. Incorporated by reference to Exhibit A(3)(a)(iii) to the SVUL Registration Statement. A(3)(b) 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 - Incorporated by reference to Exhibit A(5)(a) to the registration statement on Form S-6, file number 333-51293 filed April 29, 1998. A(6)(a) Restated Articles of Redomestication of The Manufacturers Life Insurance Company (U.S.A.) - Incorporated by reference to Exhibit A(6) to the registration statement filed July 20, 2000 (File No. 333-41814) (the "Initial Registration Statement") A(6)(b) By-Laws of The Manufacturers Life Insurance Company (U.S.A.) - Incorporated by reference to Exhibit A(6)(b) to the Initial Registration Statement. A(8)(a)(i) Form of Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated June 1, 1988. Incorporated by reference to Exhibit A(8)(a)(i) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(8)(a)(ii) Form of Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated December 31, 1992. Incorporated by reference to Exhibit A(8)(a)(ii) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(8)(a)(iii) Form of Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated May 31, 1993. Incorporated by reference to Exhibit A(8)(a)(iii) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(8)(a)(iv) Form of Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated June 30, 1993. Incorporated by reference to Exhibit A(8)(a)(iv) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(8)(a)(v) Form of Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated December 31, 1996. Incorporated by reference to Exhibit A(8)(a)(v) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(8)(a)(vi) Form of Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated May 31, 1998. Incorporated by reference to Exhibit A(8)(a)(vi) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(8)(a)(vii) Form of Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated December 31, 1998. Incorporated by reference to Exhibit A(8)(a)(vii) to post-effective amendment No. 11 to the registration statement on Form N-4, file number 33-57018 filed March 1, 1999. A(8)(b) Form of Stoploss Reinsurance Agreement. Incorporated by reference to Exhibit A(8)(b) to the SVUL Registration Statement. A(8)(c)(i) Form of Service Agreement. Incorporated by reference to Exhibit A(8)(c)(i) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(8)(c)(ii) Form of Amendment to Service Agreement. Incorporated by reference to Exhibit A(8)(c)(ii) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(10)(a)(i) Form of Application for Flexible Premium Variable Life Insurance Policy. Incorporated by reference to Exhibit A(10) to pre- effective amendment no. 1 to the registration statement on Form S-6, file number 33-51293, filed August 28, 1998. A(10)(b) Form of Assumption Reinsurance Agreement with The Manufacturers Life Insurance Company (U.S.A.) and The Manufacturers Life Insurance Company of America, incorporated by reference to the initial registration statement on for S-6, file number 333-70950, filed October 4, 2001 2. Consents of the following: A. Opinion and consent of James D. Gallagher, Esq., Secretary and General Counsel of The Manufacturers Life Insurance Company of America - FILED HEREWITH B. Opinion and consent of Brian Koop, Actuary, of The Manufacturers Life Insurance Company of America - FILED HEREWITH C. Consent of Ernst & Young LLP- FILED HEREWITH 3. No financial statements are omitted from the prospectus pursuant to instruction 1(b) or (c) of Part I. 4. Not applicable. 6. Memorandum Regarding Issuance, Face Amount Increase, Redemption and Transfer Procedures for the Policies. Incorporated by reference to Exhibit A(6) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. 7. Powers of Attorney (i) (Robert A. Cook, John DesPrez III, Geoffrey Guy, James O'Malley, Joseph J. Pietroski, Rex Schlaybaugh) incorporated by reference to exhibit 7 to initial registration statement on Form S-6, file number 333-41814 filed July 20, 2000 on behalf of The Manufacturers Life Insurance Company (U.S.A.) (ii) Powers of Attorney (John Ostler) incorporated by reference to exhibit 7(ii) of the initial registration statement on Form S-6, file number 333-70950, filed October 4, 2001 (iii) Powers of Attorney (Jim Boyle, John Lyon incorporated by reference to exhibit 7(iii) of the initial registration statement on Form S-6, file number 333-70950, filed October 4, 2001 8. Undertakings Article XII of the Restated Articles of Redomestication of The Manufacturers Life Insurance Company (U.S.A.) provides as follows: No director of this Corporation shall be personally liable to the Corporation or its shareholders or policyholders for monetary damages for breach of the director's fiduciary duty, provided that the foregoing shall not eliminate or limit the liability of a director for any of the following: i) a breach of the director's duty or loyalty to the Corporation or its shareholders or policyholders; ii) acts or omissions not in good faith or that involve intentional misconduct or knowing violation of law; iii) a violation of Sections 5036, 5276 or 5280 of the Michigan Insurance Code, being MCLA 500.5036, 500.5276 and 500.5280; iv) a transaction from which the director derived an improper personal benefit; or v) an act or omission occurring on or before the date of filing of these Articles of Incorporation. If the Michigan Insurance Code is hereafter amended to authorize the further elimination or limitation of the liability of directors. then the liability of a director of the Corporation, in addition to the limitation on personal liability contained herein, shall be eliminated or limited to the fullest extent permitted by the Michigan Insurance Code as so amended. No amendment or repeal of this Article XII shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to the effective date of any such amendment or repeal. Notwithstanding the foregoing, Registrant hereby makes the following undertaking pursuant to Rule 484 under the Securities Act of 1933: Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant and the Depositor and have caused this pre-effective amendment to the Registration Statement to be signed on their behalf in the City of Boston, Massachusetts, on this 1st day of January, 2002. SEPARATE ACCOUNT N OF THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) (Registrant) By: THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) (Depositor) By: /s/John D. DesPrez III ----------------------- John D. DesPrez III President THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) By: /s/John D. DesPrez III ----------------------- John D. DesPrez III President SIGNATURES Pursuant to the requirements of the Securities Act of 1933, this pre-effective amendment to the Registration Statement has been signed by the following persons in the capacities indicated on this 1st day of January, 2002. Signature Title - --------- ----- /s/John D. DesPrez III Chairman and President - ----------------------------- (Principal Executive Officer) John D. DesPrez III * Vice President and - ----------------------------- (Chief Financial Officer) John Ostler * Director - ----------------------------- James Boyle * Director - ----------------------------- Robert A. Cook * Director - ----------------------------- Geoffrey Guy * Director - ----------------------------- James O'Malley * Director - ----------------------------- John Lyon * Director - ----------------------------- Rex Schlaybaugh, Jr. */s/James D. Gallagher - ---------------------- JAMES D. GALLAGHER Pursuant to Power of Attorney EXHIBIT INDEX ITEM NO. DESCRIPTION 1A(1) Resolutions of Board of Directors of the Manufacturers Life Insurance Company (U.S.A.) establishing Separate Account N. 2A Opinion and consent of James D. Gallagher, Esq., Secretary and General Counsel of The Manufacturers Life Insurance Company (U.S.A.) 2B Opinion and consent of Actuary, of the Manufacturers Life Insurance Company (U.S.A.) 2C Consent of Ernst & Young LLP EX-99.1A(1) 3 b41398a1ex99-1a1.txt RESOLUTIONS OF BOARD OF DIRECTORS SEP ACCT N THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SECRETARY'S CERTIFICATE I, KWONG L. YIU, Assistant Secretary of THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) (the "Company"), a corporation existing under the laws of the State of Michigan, hereby certify that the following is a true copy of the Resolution adopted by the Company's Board of Directors at its meeting held on December 4th, 2001, and that the same has not been revoked or modified and remains in full force and effect as of the date of this Certificate. RESOLUTION TO ACCEPT TRANSFER MANAMERICA'S SEPARATE ACCOUNTS ON TRANSFER OF BUSINESS WHEREAS, to implement consolidation of the Company's U.S. subsidiaries, the Board of Directors has, by resolution dated March 7, 2001, authorized the Company to enter into an assumption reinsurance agreement (the "Agreement") for, among other things, the transfer to the Company of all of the business of its subsidiary, The Manufacturers Life Insurance Company of America ("ManAmerica") (the "Transfer"); and WHEREAS, ManAmerica has established and maintains the following separate accounts (the "Separate Accounts") to fund various variable life insurance and variable annuity contracts issued by ManAmerica (the "Contracts"): a. The Manufacturers Life Insurance Company of America Separate Account One, b. The Manufacturers Life Insurance Company of America Separate Account Two, c. The Manufacturers Life Insurance Company of America Separate Account Three, d. The Manufacturers Life Insurance Company of America Separate Account Four; e. The Manufacturers Life Insurance Company of America Separate Account A; WHEREAS, at the effective time of the Transfer (the "Effective Time") and pursuant to agreement between the Company and ManAmerica: each Separate Account will be transferred intact from ManAmerica to the Company; the Company will replace ManAmerica as the depositor for the Separate Accounts, assume legal ownership of all of the assets of the Separate Accounts and become responsible for ManAmerica's liabilities and obligations with respect to the Contracts then outstanding; and each contract owner of ManAmerica will become a contract owner of the Company; WHEREAS, after the Transfer, the Company intends to accept additional payments under the Contracts outstanding at the Effective Time and to continue offering new contracts through the Separate Accounts; and WHEREAS, at the Effective Time, the Company will succeed as the issuer of fixed annuity contracts which Man America had previously registered under the Securities Act of 1933, as amended (the "1933 Act"), and for which Man America maintains reserves in a non-unitized separate account; it is hereby RESOLVED THAT: 1. At the Effective Time, the Company shall and hereby agrees to accept the intact transfer to it of each Separate Account and, in that connection, to succeed ManAmerica as depositor of each Separate Account and as owner of the assets of each Separate Account, which will be maintained intact and not combined with the assets of any other separate account of the Company or any other entity in connection with the Transfer; 2. At the Effective Time, the Separate Accounts shall be renamed as follows: a. The Manufacturers Life Insurance Company of America Separate Account One shall be renamed The Manufacturers Life Insurance Company (U.S.A.) Separate Account L, b. The Manufacturers Life Insurance Company of America Separate Account Two shall be renamed The Manufacturers Life Insurance Company (U.S.A.) Separate Account M, c. The Manufacturers Life Insurance Company of America Separate Account Three shall be renamed The Manufacturers Life Insurance Company (U.S.A.) Separate Account A, and d. The Manufacturers Life Insurance Company of America Separate Account Four shall be renamed The Manufacturers Life Insurance Company (U.S.A.) Separate Account N, e. The Manufacturers Life Insurance Company of America Separate Account A shall be renamed The Manufacturers Life Insurance Company (U.S.A.) Separate Account O, provided, however, that the officers of the Company may, from time to time, change the designation of each Separate Account to such other designation(s) as they may deem necessary or appropriate; 3. The officers of the Company are hereby authorized and directed to take all such actions as they may deem necessary or appropriate (i) to amend the registration statement of each Separate Account as a unit investment trust under the Investment Company Act of 1940, as amended (the "1940 Act"), to cause the Company to succeed as the depositor of each Separate Account and (ii) to effect the transfer of the Separate Accounts and ManAmerica's non-unitized separate account to the Company in accordance with the terms and conditions of the Company's June 22, 2001 no-action request to the Securities and Exchange Commission ("SEC"), (attached hereto as Schedule A) as such terms and conditions may be amended or supplemented in any amendment to that request or any SEC Staff response thereto; 4. Premiums paid pursuant to the Contracts, including any new variable contracts offered through the Separate Accounts, shall be allocated to the various Separate Accounts and the sub-accounts thereof in accordance with the terms of such contracts for the purpose of providing benefits under the contracts. 5. Income, gains and losses, realized and unrealized, relating to each Separate Account and each sub-account shall be credited or charged to that Separate Account or sub-account without regard to the other gains or losses of the Company; 6. Each Separate Account shall not be chargeable with liabilities arising out of any other business of the Company and shall be held solely for the contract owners with variable contracts funded in that Separate Account to the extent provided in such contracts; 7. Each Separate Account shall be invested in a manner determined by the Company from time to time and in accordance with any restrictions contained in the variable contracts funded in that Separate Account; 8. The officers of the Company are hereby authorized and directed to make such application or applications for such exemptive or other orders under the 1940 Act, relating to the Company, its separate accounts, or the contracts funded in its separate accounts as they in their judgment may determine to be necessary or desirable; 9. The officers of the Company are hereby authorized and directed to take all such actions as they may deem necessary or appropriate to file or cause to be filed with the SEC in accordance with the provisions of the 1933 Act registration statements on behalf of the Company and the Separate Accounts with respect to the Contracts and registration statements on behalf of the Company with respect to fixed annuity contracts; 10. James D. Gallagher, Secretary and General Counsel of the Company, be, and he is hereby, constituted and appointed agent for service of process for the Company to receive notices and communications from the SEC with respect to such registration statements as may be filed on behalf of the Company and the Separate Accounts with respect to the Contracts and fixed annuity contracts and to exercise the powers given to such agent in the rules and regulations of the SEC under the 1933 Act; 11. The officers of the Company be, and they hereby are, authorized and directed to do or cause to be done all things necessary or desirable, as may be advised by counsel, to comply with or obtain exemptions from Federal and State laws and regulations that may be applicable to the issuance and sale of variable contracts by the Company; and 12. The officers of the Company be, and they are hereby, authorized and directed to perform all such acts and do all such things as may, in their judgment and discretion, be necessary or desirable to give full effect to these resolutions and to enable the Company to maintain the Separate Accounts and continue to issue variable contracts. GIVEN AND CERTIFIED, at the City of Toronto, Province of Ontario, with the Common Seal hereto affixed by the undersigned having custody of the same as Secretary of the Company, this 12th day of December, 2001. THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) By: /s/ Kwong L. Yiu ________________________________________ Assistant Secretary EX-99.2A 4 b41398a1ex99-2a.txt OPINION AND CONSENT OF JAMES D GALLAGHER The Manufacturers Life Insurance Company (U.S.A.) 73 Tremont Street Boston, MA 02108 January 1, 2002 To whom it may concern, This opinion is written in reference to the flexible premium variable universal life insurance policy (the "Policy") that will be offered and sold by The Manufacturers Life Insurance Company (U.S.A.) (the "Company") with respect to the variable portion for which the Registration Statement on Form S-6 (File No. 333-71312) (the "Registration Statement") is being filed under the Securities Act of 1933, as amended (the "Act"). As Counsel to the Company, I have examined such records and documents and reviewed such questions of law as I deemed necessary for purposes of this opinion. 1. The Company has been duly incorporated under the laws of the state of Michigan and is a validly existing corporation. 2. Separate Account N of The Manufacturers Life Insurance Company (U.S.A.) (the "Variable Life Account") is a separate account of the Company and is duly created and validly existing pursuant to The Insurance Code of 1956. 3. The portion of the assets to be held in the Variable Life Account equal to the reserves and other liabilities under the Policy is not chargeable with liabilities arising out of any other business the Company may conduct. 4. The Policy, when issued in accordance with the prospectus contained in the effective Registration Statement and upon compliance with applicable local law, will be legal and binding obligations of the Company. I consent to the filing of this opinion with the Securities and Exchange Commission as an exhibit to the amended Registration Statement on Form S-6. Very truly yours, /s/James D. Gallagher James D. Gallagher Vice President and General Counsel EX-99.2B 5 b41398a1ex99-2b.txt OPINION & CONSENT OF BRIAN KOOP ACTUARY December 30, 2001 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 Re: Actuarial Opinion on Illustrations Contained in Pre-Effective Amendment No. 1 to a Registration Statement on Form S-6 (File No. 333-71312) (the "Amendment") Dear Sirs: This opinion is furnished in connection with the above-referenced Amendment under the Securities Act of 1933, as amended, describing a flexible premium variable life insurance policy (the "Policy") that is offered and sold by The Manufacturers Life Insurance Company (U.S.A.). The hypothetical illustrations of death benefits, Policy values and surrender values used in this Amendment are consistent with the provisions of the Policy and the Company's administrative procedures. The rate structure of the Policy has not been designed so as to make the relationship between premiums and benefits, as shown in the illustrations, appear disproportionately more favorable to a prospective purchaser of the Policy for the age and risk class illustrated than for any other prospective purchaser. The particular illustrations shown are for a commonly used risk class and for premium amounts and ages appropriate to the markets in which the Policy is sold. I hereby consent to the use of this opinion as an exhibit to the Amendment. Sincerely, /s/ Brian Koop - -------------------------------- Brian Koop, FSA, MAAA Pricing Actuary EX-99.2C 6 b41398a1ex99-2c.txt CONSENT OF ERNST & YOUNG Consent of Ernst & Young LLP, Independent Auditors We consent to the reference to our firm under the caption "Independent Auditors" and to the use of our report dated March 23, 2001 accompanying the consolidated financial statements of The Manufacturers Life Insurance Company (U.S.A.) and to the use of our report dated February 2, 2001 accompanying the financial statements of Separate Account Four of The Manufacturers Life Insurance Company of America in Pre-Effective Amendment No. 1 to the Registration Statement No. 333-71312 on Form S-6 and related prospectus of Separate Account N of The Manufacturers Life Insurance Company (U.S.A.). /s/ ERNST & YOUNG LLP Philadelphia, Pennsylvania December 28, 2001 -----END PRIVACY-ENHANCED MESSAGE-----