-----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, NCNHYQ39u5E/FAOP3IA8Pe/OZutH/zscC/H5I8chaTPSYiwYs7x3C/QO7pKETJ/I wgt0/T+BT259XX3F100pBw== 0000950135-02-002261.txt : 20020430 0000950135-02-002261.hdr.sgml : 20020430 ACCESSION NUMBER: 0000950135-02-002261 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20020430 EFFECTIVENESS DATE: 20020430 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: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 333-71312 FILM NUMBER: 02625561 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 485BPOS 1 b42711mae485bpos.txt SEPARATE ACCOUNT N As filed with the Securities and Exchange Commission on April 29, 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 POST-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 It is proposed that this filing will become effective: ___ immediately upon filing pursuant to paragraph (b) of Rule 485 _x_ on May 1, 2002 pursuant to paragraph (b) of Rule 485 ___ 60 days after filing pursuant to paragraph (a)(1) of Rule 485 ___ on May 1, 2002 pursuant to paragraph (a)(1) of Rule 485 __ 75 days after filing pursuant to paragraph (a)(2) of Rule 485 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 Series I shares (formerly referred to as "Class A Shares") of a particular investment portfolio (a "Portfolio") of Manufacturers Investment Trust (the "Trust"). The accompanying prospectus for the Trust, and the corresponding statement of additional information, describe the investment objectives of the Portfolios. 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 MAY 1, 2002. 2 TABLE OF CONTENTS Definitions................................................................ Policy Summary............................................................. General................................................................. Death Benefits.......................................................... Premiums................................................................ Policy Value............................................................ Policy Loans............................................................ Surrender and Partial Withdrawals....................................... Lapse and Reinstatement................................................. Charges and Deductions.................................................. Investment Options and Investment Advisers.............................. Table of Charges and Deductions......................................... Table of Investment Management Fees and Expenses........................ Table of Investment Options and Investment Subadvisers.................. General Information about Manufacturers.................................... Manulife USA............................................................ The Separate Account.................................................... The Trust............................................................... Investment Objectives of the Portfolios................................. Issuing A Policy........................................................... Use of the Policy....................................................... Requirements............................................................ Temporary Insurance Agreement........................................... Underwriting............................................................ Right to Examine the Policy............................................. Death Benefits............................................................. Life Insurance Qualification............................................ Death Benefit Options................................................... Changing the Face Amount................................................ Premium Payments........................................................... Initial Premiums........................................................ Subsequent Premiums..................................................... Maximum Premium Limitation.............................................. Premium Allocation...................................................... Charges and Deductions..................................................... Amount Deducted from Premiums........................................... Surrender Charges....................................................... Monthly Charges......................................................... Charges Assessed Against Assets of the Investment Accounts.............. Charges for Transfers................................................... Reduction in Charges.................................................... Company Tax Considerations.............................................. Policy Value............................................................... Determination of the Policy Value....................................... Units and Unit Values................................................... Transfers of Policy Value............................................... Policy Loans............................................................... Maximum Loan............................................................ Effect of Policy Loan................................................... Interest Charged on Policy Loans........................................ Loan Account............................................................ Policy Surrender and Partial Withdrawals................................... Policy Surrender........................................................ Partial Withdrawals..................................................... Lapse and Reinstatement.................................................... Lapse................................................................... Reinstatement........................................................... The General Account........................................................ Guaranteed Interest Account.............................................
3 Other Provisions of the Policy............................................. Policyholder Rights..................................................... Beneficiary............................................................. Incontestability........................................................ Misstatement of Age or Sex.............................................. Suicide Exclusion....................................................... Supplementary Benefits.................................................. Tax Treatment of the Policy................................................ Life Insurance Qualification............................................ Tax Treatment of Policy Benefits........................................ Alternate Minimum Tax................................................... Income Tax Reporting.................................................... Other Information.......................................................... Payment of Proceeds..................................................... Reports to Policyholders................................................ Distribution of the Policies............................................ Responsibilities of MFC................................................. Voting Rights........................................................... Substitution of Portfolio Shares........................................ Records and Accounts.................................................... State Regulations....................................................... Litigation.............................................................. Independent Auditors.................................................... Further Information..................................................... Officers and Directors.................................................. Death Benefit Schedule with Flexible Term Insurance Option................. Appendix A................................................................. A-1 Illustrations.............................................................. A-1 Assumptions............................................................. 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 Series I shares (formerly referred to as "Class A shares") of a corresponding Portfolio 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. TABLE OF INVESTMENT MANAGEMENT FEES AND EXPENSES 8 TRUST ANNUAL EXPENSES (Series I Shares (Formerly referred to as "Class A Shares") (as a percentage of Trust average net assets for the fiscal year ended December 31, 2001)(A)
TOTAL TRUST Series I OTHER EXPENSES ANNUAL EXPENSES MANAGEMENT RULE 12b- (AFTER EXPENSE (AFTER EXPENSE TRUST PORTFOLIO FEES 1 Fees REIMBURSEMENT) REIMBURSEMENT) Internet Technologies 1.000% 0.150% 0.110% 1.26% Pacific Rim Emerging Markets 0.700% 0.150% 0.380% 1.23% Telecommunications 0.950% 0.150% 0.340% 1.44%(B) Science & Technology 0.916%(E) 0.150% 0.060% 1.13% International Small Cap 0.950% 0.150% 0.500% 1.60% Health Sciences 0.942%(E) 0.150% 0.350% 1.44%(B) Aggressive Growth 0.850% 0.150% 0.070% 1.07% Emerging Small Company 0.900% 0.150% 0.070% 1.12% Small Company Blend 0.900% 0.150% 0.120% 1.17% Dynamic Growth 0.850% 0.150% 0.080% 1.08% Mid Cap Growth 0.850% 0.150% 0.390% 1.39%(B) Mid Cap Opportunities 0.850% 0.150% 0.440% 1.44%(B) Mid Cap Stock 0.775% 0.150% 0.080% 1.00% All Cap Growth 0.785% 0.150% 0.060% 0.99% Financial Services 0.800% 0.150% 0.260% 1.21%(B) Overseas 0.800% 0.150% 0.150% 1.10% International Stock 0.838%(E) 0.150% 0.170% 1.16% International Value 0.850% 0.150% 0.150% 1.15% Capital Appreciation 0.750% 0.150% 0.300% 1.20% Strategic Opportunities 0.700% 0.150% 0.060% 0.91% Quantitative Mid Cap 0.650% 0.150% 0.100% 0.90%(B) Global Equity 0.750% 0.150% 0.110% 1.01% Strategic Growth 0.750% 0.150% 0.200% 1.10%(B) Growth 0.697% 0.150% 0.060% 0.91% Large Cap Growth 0.750% 0.150% 0.080% 0.98% All Cap Value 0.800% 0.150% 0.470% 1.42%(B) Capital Opportunities 0.750% 0.150% 0.500%(G) 1.40%(B)(G) Quantitative Equity 0.599% 0.150% 0.060% 0.81% Blue Chip Growth 0.702%(E) 0.150% 0.060% 0.91% Utilities 0.750% 0.150% 0.500%(G) 1.40%(B)(G) Real Estate Securities 0.645% 0.150% 0.070% 0.87% Small Company Value 0.891%(E) 0.150% 0.110% 1.15% Mid Cap Value 0.800% 0.150% 0.200% 1.15%(B) Value 0.642% 0.150% 0.060% 0.85% Tactical Allocation 0.750% 0.150% 0.400% 1.30% Equity Index (H) 0.250% 0.000% 0.150% 0.400% Fundamental Value 0.798% 0.150% 0.120% 1.07%(B) Growth & Income 0.529% 0.150% 0.050% 0.73% U.S. Large Cap Value 0.725% 0.150% 0.050% 0.93% Equity-Income 0.711%(E) 0.150% 0.050% 0.91% Income & Value 0.650% 0.150% 0.070% 0.87% Balanced 0.563% 0.150% 0.100% 0.81% High Yield 0.625% 0.150% 0.060% 0.84% Strategic Bond 0.625% 0.150% 0.080% 0.86% Global Bond 0.600% 0.150% 0.220% 0.97%
Total Trust Series I Other Expenses Annual Expenses Management Rule 12b-1 (After Expense (After Expense Trust Portfolio Fees Fees Reimbursement) Reimbursement) Total Return 0.600% 0.150% 0.060% 0.81% Investment Quality Bond 0.500% 0.150% 0.090% 0.74%
9 Diversified Bond 0.600% 0.150% 0.070% 0.82% U.S. Government Securities 0.550% 0.150% 0.060% 0.76% Money Market 0.350% 0.150% 0.050% 0.55% Small Cap Index(F) 0.375% 0.150% 0.075% 0.60% International Index(F) 0.400% 0.150% 0.050% 0.60% Mid Cap Index(F) 0.375% 0.150% 0.075% 0.60% Total Stock Market Index(F) 0.375% 0.150% 0.060% 0.59% 500 Index I(F) 0.375% 0.150% 0.050% 0.57% Lifestyle Aggressive 1000 0.065% 0.000% 0.010% 0.075%(C)(D) Lifestyle Growth 820 0.054% 0.000% 0.021% 0.075%(C)(D) Lifestyle Balanced 640 0.054% 0.000% 0.021% 0.075%(C)(D) Lifestyle Moderate 460 0.062% 0.000% 0.013% 0.075%(C)(D) Lifestyle Conservative 280 0.069% 0.000% 0.006% 0.075%(C)(D)
(A) Effective January 1, 2002, the Trust implemented a Series I Rule 12b-1 plan while simultaneously reducing its advisory fees and implementing advisory fee breakpoints. The Trust Annual Expense chart reflects these changes. (B) Annualized; For the period April 30, 2001 (commencement of operations) to December 31, 2001. (C) The investment adviser to the Trust, Manufacturers Securities Services, LLC ("MSS" or the "Adviser") has voluntarily agreed to pay certain expenses of each Lifestyle Trust as noted below. (For purposes of the expense reimbursement, total expenses of a Lifestyle Trust includes the advisory fee but excludes (a) the expenses of the Underlying Portfolios, (b) taxes, (c) portfolio brokerage, (d) interest, (e) litigation and (f) indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Trust's business.) If total expenses of a Lifestyle Trust (absent reimbursement) exceed 0.075%, the Adviser will reduce the advisory fee or reimburse expenses of that Lifestyle Trust by an amount such that total expenses of the Lifestyle Trust equal 0.075%. If the total expenses of the Lifestyle Trust (absent reimbursement) are equal to or less than 0.075%, then no expenses will be reimbursed by the Adviser. This voluntary expense reimbursement may be terminated at any time. If such expense reimbursement was not in effect, Total Trust Annual Expenses would be higher (based on current advisory fees and the Other Expenses of the Lifestyle Trusts for the fiscal year ended December 31, 2001) as noted in the chart below:
TOTAL TRUST MANAGEMENT RULE OTHER ANNUAL TRUST PORTFOLIO FEES 12b-1 FEES EXPENSES EXPENSES Lifestyle Aggressive 1000 0.065% 0.000% 1.081% 1.146% Lifestyle Growth 820 0.054% 0.000% 0.998% 1.052% Lifestyle Balanced 640 0.054% 0.000% 0.914% 0.968% Lifestyle Moderate 460 0.062% 0.000% 0.823% 0.885% Lifestyle Conservative 280 0.069% 0.000% 0.790% 0.859%
(D) Each Lifestyle Trust will invest in shares of the Underlying Portfolios. Therefore, each Lifestyle Trust will bear its pro rata share of the fees and expenses incurred by the Underlying Portfolios in which it invests, and the investment return of each Lifestyle Trust will be net of the Underlying Portfolio expenses. Each Lifestyle Portfolio must bear its own expenses. However, the Adviser is currently paying certain of these expenses as described in footnote (C) above. (E) Effective June 1, 2000, the Adviser voluntarily agreed to waive a portion of its advisory fee for the Science & Technology Trust, Health Sciences Trust, Small Company Value Trust, the Blue Chip Growth Trust, the Equity-Income Trust and the International Stock Trust. Once the combined assets exceed specified amounts, the fee reduction is increased. The percentage fee reduction for each asset level is as follows: 10
FEE REDUCTION COMBINED ASSET LEVELS (AS A PERCENTAGE OF THE ADVISORY FEE) First $750 million 0.00% Between $750 million and $1.5 billion 5.00% Between $1.5 billion and $3.0 billion 7.50% Over $3.0 billion 10.00%
The fee reductions are applied to the advisory fees of each of the six portfolios. However, in the case of the Small Company Value Trust, the fee reduction will be reduced by 0.05% of the first $500 million in net assets.) This voluntary fee waiver may be terminated at any time by the adviser. As of December 31, 2001, the combined asset level for all six portfolios was approximately $4.097 billion resulting in a fee reduction of 5.00%. There is no guarantee that the combined asset level will remain at this amount. If the combined asset level were to decrease to a lower breakpoint, the fee reduction would decrease as well. (F) MSS has voluntarily agreed to pay expenses of each Index Trust (excluding the advisory fee) that exceed the following amounts: 0.050% in the case of the International Index Trust and 500 Index Trust and 0.075% in the case of the Small Cap Index Trust, the Mid Cap Index Trust and Total Stock Market Index Trust. For Series I shares, if such expense reimbursement were not in effect, it is estimated that "Other Expenses" and "Total Trust Annual Expenses" would be 0.07% and 0.62%, respectively, for the International Index Trust, 0.075% and 0.60%, respectively, for the Small Cap Index Trust, and 0.075% and 0.60%, respectively, for the Mid Cap Index Trust and 0.060% and 0.59%, respectively, for the Total Stock Market Index Trust. It is estimated that the expense reimbursement will not be effective during the year end December 31, 2002 for the 500 Index Trust. The expense reimbursement may be terminated at any time by MSS. (G) For all portfolios except the Lifestyle Trusts, the Adviser reduces its advisory fee or reimburses the portfolio if the total of all expenses (excluding advisory fees, taxes, portfolio brokerage commissions, interest, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the portfolio's business) exceed certain annual rates. In the case of the Capital Opportunities and Utilities Trusts, the Adviser reimbursed the portfolios for certain expenses for the year ended December 31, 2001. For Series I shares, if such expense reimbursement were not in effect, it is estimated that "Other Expenses" and "Total Trust Annual Expenses" would be 0.560% and 1.46%, respectively, for the Capital Opportunities Trust and 0.610% and 1.51%, respectively for the Utilities Trust. These voluntary expense reimbursements may be terminated at any time. (H) The Equity Index Trust is available only 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 0.41%, and Other Expenses would have been 0.16%, of the average annual net assets of the Equity Index Trust. (I) 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. TABLE OF INVESTMENT OPTIONS AND INVESTMENT SUBADVISERS The Trust currently has the following subadvisers who manage the portfolios of the Trust which are investment options for this Policy, one of which is Manufacturers Adviser Corporation ("MAC"). Both MSS and MAC are affiliates of ours.
SUBADVISER PORTFOLIO A I M Capital Management, Inc. All Cap Growth Trust Aggressive Growth Trust Capital Guardian Trust Company Small Company Blend Trust U.S. Large Cap Value Trust Income & Value Trust Diversified Bond Trust Cohen & Steers Capital Management, Inc. Real Estate Securities Trust Davis Select Advisors. Financial Services Trust Fundamental Value Trust The Dreyfus Corporation All Cap Value Trust
11 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
Subadviser Portfolio Janus Capital Corporation Dynamic Growth Trust Jennison Associates LLC Capital Appreciation Trust Lord, Abbett & Co. Mid Cap Value Trust Manufacturers Adviser Corporation Pacific Rim Emerging Markets Trust Quantitative 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 SSg(A) 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 UBS Global Asset Management Tactical Allocation Trust (formerly, Brinson Advisors, Inc.)
12 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 MANUFACTURERS MANULIFE USA We are a stock life insurance company incorporated in Maine on August 20, 1955 by a special act of the Maine legislature and redomesticated under the laws of Michigan. We are a licensed life insurance company in the District of Columbia and all states of the United States except New York. Our ultimate parent is Manulife Financial Corporation ("MFC"), a publicly traded company, based in Toronto, Canada. MFC is the holding company of The Manufacturers Life Insurance Company and its subsidiaries, collectively known as Manulife Financial. The Manufacturers Life Insurance Company is one of the largest life insurance companies in North America and ranks among the 60 largest life insurers in the world as measured by assets. However, neither Manufacturers Life nor any of its affiliated companies guarantees the investment performance of the Separate Account. RATINGS The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company (U.S.A.) have received the following ratings from independent rating agencies: A++ A.M. Best Superior companies have a very strong ability to meet their obligations; 1st category of 16 AAA Fitch Exceptionally strong capacity to meet policyholder and contract obligations; 1st category of 24 AA+ Standard & Poor's Very strong financial security characteristics; 2nd category of 21 Aa2 Moody's Excellent in financial strength; 3rd category of 21 These ratings, which are current as of the date of this prospectus and are subject to change, are assigned to Manulife USA as a measure of the Company's ability to honor the death benefit 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 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. 13 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 Series I (formerly referred to as Class A) of a particular Portfolio of the Trust. The Trust is registered under the 1940 Act as an open-end management investment company. Each of the Trust portfolios, except the Lifestyle Trusts and the Equity Index Trust, are subject to a Rule 12b-1 fee of .15% of a portfolio's Series I net assets. The Separate Account will purchase and redeem shares of the Portfolios at net asset value. Shares will be redeemed to the extent necessary for Manulife USA to provide benefits under the Policies, to transfer assets from one sub-account to another or to the general account as requested by policyholders, and for other purposes not inconsistent with the Policies. Any dividend or capital gain distribution received from a Portfolio with respect to the policies will be reinvested immediately at net asset value in shares of that Portfolio and retained as assets of the corresponding sub-account. The Trust shares are issued to fund benefits under both variable annuity contracts and variable life insurance policies issued by 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 contained in the accompanying Trust prospectus, which should be read together with this prospectus. ELIGIBLE PORTFOLIOS The Portfolios of the Trust available under the Policies are as follows: The INTERNET TECHNOLOGIES TRUST seeks long-term capital appreciation by investing the portfolio's assets primarily in companies engaged in Internet-related business (such businesses also include Intranet-related businesses). The PACIFIC RIM EMERGING MARKETS TRUST seeks long-term growth of capital by investing in a diversified portfolio that is comprised primarily of common stocks and equity-related securities of corporations domiciled in countries in the Pacific Rim region. The TELECOMMUNICATIONS TRUST seeks capital appreciation (with earning income as a secondary objective) by investing, under normal market conditions, primarily in equity securities of companies engaged in the telecommunications sector, that is, in the design, development, manufacture, distribution or sale of communications services and equipment and companies that are involved in supplying equipment or services to such companies. The SCIENCE & TECHNOLOGY TRUST seeks long-term growth of capital by investing, under normal market condition, at least 80% of its net assets (plus any borrowings for investment purposes) in common stocks of companies expected to benefit from the development, advancement, and use of science and technology. Current income is incidental to the portfolio's objective. The INTERNATIONAL SMALL CAP TRUST seeks capital appreciation by investing primarily in securities issued by foreign companies which have total market capitalization or annual revenues of $1.5 billion or less. These securities may represent companies in both established and emerging economies throughout the world. The HEALTH SCIENCES TRUST seeks long-term capital appreciation by investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in common stocks of companies engaged in the research, development, production, or distribution of products or services related to health care, medicine, or the life sciences (collectively termed "health sciences"). The AGGRESSIVE GROWTH TRUST seeks long-term capital appreciation by investing the portfolio's asset principally in common stocks, convertible bonds, convertible preferred stocks and warrants of companies which in the opinion of the subadviser are 14 expected to achieve earnings growth over time at a rate in excess of 15% per year. Many of these companies are in the small and medium-sized category. The EMERGING SMALL COMPANY TRUST seeks long-term growth of capital by investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in common stock equity securities of companies with market capitalizations that approximately match the range of capitalization of the Russell 2000 Growth Index* ("small cap stocks") at the time of purchase. The SMALL COMPANY BLEND TRUST seeks long-term growth of capital and income by investing the portfolio's assets, under normal market conditions, primarily in equity and equity-related securities of companies with market capitalizations that approximately match the range of capitalization of the Russell 2000 Index at the time of purchase. The DYNAMIC GROWTH TRUST seeks long-term growth of capital by investing the portfolio's assets primarily in equity securities selected for their growth potential. Normally at least 50% of its equity assets are invested in medium-sized companies. The MID CAP GROWTH TRUST seeks capital appreciation by investing primarily in common stocks of mid-sized companies - those with market capitalizations between $2.5 billion and $15 billion at the time of purchase. The MID CAP OPPORTUNITIES TRUST seeks capital appreciation by investing, under normal market conditions, primarily in common stocks and other equity securities of U.S. mid-size companies. The MID CAP STOCK TRUST seeks long-term growth of capital by investing primarily in equity securities of mid-size companies with significant capital appreciation potential. The ALL CAP GROWTH TRUST seeks long-term capital appreciation by investing the portfolio's assets, under normal market conditions, principally in common stocks of companies that are likely to benefit from new or innovative products, services or processes, as well as those that have experienced above average, long-term growth in earnings and have excellent prospects for future growth. The FINANCIAL SERVICES TRUST seeks growth of capital by investing primarily in common stocks of financial companies. During normal market conditions, at least 65% (80% after July 31, 2002) of the portfolio's net assets (plus any borrowings for investment purposes) are invested in companies that are principally engaged in financial services. A company is "principally engaged" in financial services if it owns financial services-related assets constituting at least 50% of the value of its total assets, or if at least 50% of its revenues are derived from its provision of financial services. The OVERSEAS TRUST seeks growth of capital by investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in foreign securities (including American Depositary Receipts (ADRs) and European Depositary Receipts (EDRs)). The portfolio expects to invest primarily in equity securities. The INTERNATIONAL STOCK TRUST seeks long-term growth of capital by investing primarily in common stocks of established, non-U.S. companies. The INTERNATIONAL VALUE TRUST seeks long-term growth of capital by investing, under normal market conditions, primarily in equity securities of companies located outside the U.S., including emerging markets. The CAPITAL APPRECIATION TRUST seeks long-term capital growth by investing at least 65% of its total assets in equity-related securities of companies that exceed $1 billion in market capitalization and that the subadviser believes have above-average growth prospectus. These companies are generally medium-to-large capitalization companies. The STRATEGIC OPPORTUNITIES TRUST (formerly, Mid Cap Blend Trust) seeks growth of capital by investing primarily in common stocks of U.S. issuers and securities convertible into or carrying the right to buy common stocks. The QUANTITATIVE MID CAP TRUST seeks long-term growth of capital by investing, under normal market conditions, at least 80% of its total assets (plus any borrowings for investment purposes) in U.S. mid-cap stocks, convertible preferred stocks, convertible bonds and warrants. The GLOBAL EQUITY TRUST seeks long-term capital appreciation by investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of companies in at least three different countries, including the U.S. The portfolio may invest in companies of any size but emphasizes mid- and large-capitalization companies that the subadviser believes are undervalued. 15 The STRATEGIC GROWTH TRUST seeks capital appreciation by investing, under normal market conditions, at least 65% of the portfolio's total assets in common stocks and related securities (such as preferred stocks, bonds, warrants or rights convertible into stock and depositary receipts for these securities) of companies which the subadviser believes offer superior prospects for growth. The GROWTH TRUST seeks long-term growth of capital by investing primarily in large capitalization growth securities (market capitalizations of approximately $1 billion or greater). The LARGE CAP GROWTH TRUST seeks long-term growth of capital by investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of companies with large market capitalizations. The ALL CAP VALUE TRUST seeks capital appreciation by investing, under normal market conditions, at least 65% of the portfolio's total assets in the stocks of value companies of any size. The CAPITAL OPPORTUNITIES TRUST seeks capital appreciation by investing, under normal market conditions, at least 65% of the portfolio's total assets in common stocks and related securities, such as preferred stock, convertible securities and depositary receipts. The portfolio focuses on companies which the subadviser believes have favorable growth prospects and attractive valuations based on current and expected earnings or cash flow. The QUANTITATIVE EQUITY TRUST seeks to achieve intermediate and long-term growth through capital appreciation and current income by investing in common stocks and other equity securities of well established companies with promising prospects for providing an above average rate of return. The BLUE CHIP GROWTH TRUST seeks to achieve long-term growth of capital (current income is a secondary objective) by investing at least 65% of the portfolio's total assets in the common stocks of large and medium-sized blue chip companies. Many of the stocks in the portfolio are expected to pay dividends. The UTILITIES TRUST seeks capital growth and current income (income above that available from a portfolio invested entirely in equity securities) by investing, under normal market conditions, at least 80% of the portfolio's net assets (plus any borrowings for investment purposes) in equity and debt securities of domestic and foreign companies in the utilities industry. The REAL ESTATE SECURITIES TRUST seeks to achieve a combination of long-term capital appreciation and current income by investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in securities of real estate companies. The SMALL COMPANY VALUE TRUST seeks long-term growth of capital by investing, under normal market conditions, primarily in small companies whose common stocks are believed to be undervalued. Under normal market conditions, the portfolio will invest at least 80% of its net assets (plus any borrowings for investment purposes) in companies with a market capitalization that do not exceed the maximum market capitalization of any security in the Russell 2000 Index at the time of purchase. The MID CAP VALUE TRUST seeks capital appreciation by investing, under normal market conditions, at least 80% of the portfolio's net assets (plus any borrowings for investment purposes) 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. 16 The U.S. LARGE CAP VALUE TRUST seeks long-term growth of capital and income by investing the portfolio's assets, under normal market conditions, primarily in equity and equity-related securities of companies with market capitalization greater than $500 million. The EQUITY-INCOME TRUST seeks to provide substantial dividend income and also long-term capital appreciation by investing primarily in dividend-paying common stocks, particularly of established companies with favorable prospects for both increasing dividends and capital appreciation. The INCOME & VALUE TRUST seeks the balanced accomplishment of (a) conservation of principal and (b) long-term growth of capital and income by investing the portfolio's assets in both equity and fixed-income securities. The subadviser has full discretion to determine the allocation between equity and fixed income securities. The BALANCED TRUST seeks current income and capital appreciation by investing the portfolio's assets in a balanced portfolio of (i) equity securities and (ii) fixed income securities. The HIGH YIELD TRUST seeks to realize an above-average total return over a market cycle of three to five years, consistent with reasonable risk, by investing primarily in high yield debt securities, including corporate bonds and other fixed-income securities. The STRATEGIC BOND TRUST seeks a high level of total return consistent with preservation of capital by giving its subadviser broad discretion to deploy the portfolio's assets among certain segments of the fixed income market as the subadviser believes will best contribute to achievement of the portfolio's investment objective. The GLOBAL BOND TRUST seeks to realize maximum total return, consistent with preservation of capital and prudent investment management by investing the portfolio's asset primarily in fixed income securities denominated in major foreign currencies, baskets of foreign currencies (such as the ECU), and the U.S. dollar. The TOTAL RETURN TRUST seeks to realize maximum total return, consistent with preservation of capital and prudent investment management by investing, under normal market conditions, at least 65% of the portfolio's assets in a diversified portfolio of fixed income securities of varying maturities. The average portfolio duration will normally vary within a three- to six-year time frame based on the subadviser's forecast for interest rates. The INVESTMENT QUALITY BOND TRUST seeks a high level of current income consistent with the maintenance of principal and liquidity, by investing in a diversified portfolio of investment grade bonds and tends to focus its investment on corporate bonds and U.S. Government bonds with intermediate to longer term maturities. The portfolio may also invest up to 20% of its assets in non-investment grade fixed income securities. The DIVERSIFIED BOND TRUST seeks high total return consistent with the conservation of capital by investing, under normal market conditions, at least 80% of the portfolio's net assets (plus any borrowings for investment purposes) in fixed income securities. The U.S. GOVERNMENT SECURITIES TRUST seeks a high level of current income consistent with preservation of capital and maintenance of liquidity, by investing in debt obligations and mortgage-backed securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities and derivative securities such as collateralized mortgage obligations backed by such securities. The MONEY MARKET TRUST seeks maximum current income consistent with preservation of principal and liquidity by investing in high quality money market instruments with maturities of 397 days or less issued primarily by U. S. entities. The SMALL CAP INDEX TRUST seeks to approximate the aggregate total return of a small cap U.S. domestic equity market index by attempting to track the performance of the Russell 2000 Index.* The INTERNATIONAL INDEX TRUST seeks to approximate the aggregate total return of a foreign equity market index by attempting to track the performance of the Morgan Stanley European Australian Far East Free Index (the "MSCI EAFE Index").* The MID CAP INDEX TRUST seeks to approximate the aggregate total return of a mid cap U.S. domestic equity market index by attempting to track the performance of the S&P Mid Cap 400 Index.* The TOTAL STOCK MARKET INDEX seeks to approximate the aggregate total return of a broad U.S. domestic equity market index by attempting to track the performance of the Wilshire 5000 Equity Index.* 17 The 500 INDEX TRUST seeks to approximate the aggregate total return of a broad U.S. domestic equity market index by attempting to track the performance of the S&P 500 Composite Stock Price Index.* The LIFESTYLE AGGRESSIVE 1000 TRUST seeks to provide long-term growth of capital (current income is not a consideration) by investing 100% of the Lifestyle Trust's assets in other portfolios of the Trust ("Underlying Portfolios") which invest primarily in equity securities. The LIFESTYLE GROWTH 820 TRUST seeks to provide long-term growth of capital with consideration also given to current income by investing approximately 20% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 80% of its assets in Underlying Portfolios which invest primarily in equity securities. The LIFESTYLE BALANCED 640 TRUST seeks to provide a balance between a high level of current income and growth of capital with a greater emphasis given to capital growth by investing approximately 40% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 60% of its assets in Underlying Portfolios which invest primarily in equity securities. The LIFESTYLE MODERATE 460 TRUST seeks to provide a balance between a high level of current income and growth of capital with a greater emphasis given to current income by investing approximately 60% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 40% of its assets in Underlying Portfolios which invest primarily in equity securities. The LIFESTYLE CONSERVATIVE 280 TRUST seeks to provide a high level of current income with some consideration also given to growth of capital by investing approximately 80% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 20% of its assets in Underlying Portfolios which invest primarily in equity securities. *"Standard & Poor's(R)," "S&P 500(R)," "Standard and Poor's 500(R)" and "Standard and Poor's 400(R)" are trademarks of The McGraw-Hill Companies, Inc. "Russell 2000(R)" and "Russell 2000(R) Growth" is a trademark of Frank Russell Company. "Wilshire 5000(R)" is a trademark of Wilshire Associates. "Morgan Stanley European Australian Far East Free" and "EAFE(R)" are trademarks of Morgan Stanley & Co. Incorporated. None of the Index Trusts are sponsored, endorsed, managed, advised, sold or promoted by any of these companies, and none of these companies make any representation regarding the advisability of investing in the Trust. ISSUING A POLICY 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 distinquish 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. 18 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 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 19 (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 (the "Code"). 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. 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. 20 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% 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. 21 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 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 22 (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 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. 23 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% 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. 24 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: (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: 25
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. 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 26 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. 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 27 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%. 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. 28 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 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. 29 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. 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. 30 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. 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 POLICY. The Policy may be used in various arrangements, including non-qualified deferred compensation or salary continuation plans, split dollar insurance plans, executive bonus plans, retiree medical benefit plans and others. The tax consequences of such plans may vary depending on the particular facts and circumstances of each individual arrangement. Therefore, if the use of the Policy in any such arrangement, the value of which depends in part on the tax consequences, is contemplated, a qualified tax adviser should be consulted for advice on the tax attributes of the particular arrangement. 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 Code. 31 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 Section 7702 is to be applied is limited. If a Policy were determined not to be a life insurance contract for purposes of Section 7702, such a Policy would not provide the tax advantages normally provided by a life insurance policy. If it is subsequently determined that a Policy does not satisfy Section 7702, the Company may take whatever steps are appropriate and reasonable to attempt to cause such a Policy to comply with Section 7702. For these reasons, the Company reserves the right to restrict Policy transactions as necessary to attempt to qualify it as a life insurance contract under Section 7702. DIVERSIFICATION Section 817(h) of the Code requires that the investments of the Separate Account be "adequately diversified" in accordance with Treasury regulations in order for the Policy to qualify as a life insurance contract under Section 7702 of the Code (discussed above). The Separate Account, through the Trust, intends to comply with the diversification requirements prescribed in Treas. Reg. Sec. 1.817-5, which affect how the Trust's assets are to be invested. The Company believes that the Separate Account will thus meet the diversification requirement, and the Company will monitor continued compliance with the requirement. STATE LAW A Policy must qualify as a valid life insurance contract under applicable state laws. State regulations require that the policyholder have appropriate insurable interest in the life insured. Failure to establish an insurable interest may result in the Policy not qualifying as a life insurance contract for federal tax purposes. INVESTOR CONTROL In certain circumstances, owners of variable life insurance Policies may be considered the owners, for federal income tax purposes, of the assets of the separate account used to support their policies. In those circumstances, income and gains from the separate account assets would be includible in the variable policyholder's gross income. The IRS has stated in published rulings that a variable policyholder will be considered the owner of separate account assets if the policyholder possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. The Treasury Department has also announced, in connection with the issuance of regulations concerning diversification, that those regulations "do not provide guidance concerning the circumstances in which investor control of the investments of a segregated asset account may cause the investor (i.e., the policyholder), rather than the insurance company, to be treated as the owner of the assets in the account." This announcement also stated that guidance would be issued by way of regulations or rulings on the "extent to which policyholders may direct their investments to particular sub-accounts without being treated as owners of the underlying assets". As of the date of this prospectus, no such guidance has been issued. The ownership rights under the Policy are similar to, but different in certain respects from, those described by the IRS in rulings in which it was determined that policyholders were not owners of separate account assets. For example, the Policy has many more 32 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 generally excludible from the gross income of the beneficiary under Section 101(a)(1) of the Code. A transfer of the Policy for valuable consideration, however, may cause a portion of the death benefit to be taxable (See "Other Transactions" below). CASH VALUES Generally, the policyholder will not be deemed to be in constructive receipt of the Policy Value until there is a distribution. This includes additions attributable to interest, dividends, appreciation or gains realized on transfers among sub-accounts. INVESTMENT IN THE POLICY Investment in the Policy means: (a) the aggregate amount of any premiums or other consideration paid for the Policy; minus (b) the aggregate amount, other than loan amounts, received under the Policy which has been excluded from the gross income of the policyholder (except that the amount of any loan from, or secured by, a Policy that is a Modified Endowment Contract or "MEC," to the extent such amount has been excluded from gross income, will be disregarded); plus (c) the amount of any loan from, or secured by a Policy that is a MEC to the extent that such amount has been included in the gross income of the policyholder. The repayment of a policy loan, or the payment of interest on a loan, does not affect the Investment in the Policy. SURRENDER OR LAPSE Upon a complete surrender or lapse of a Policy or when benefits are paid at a Policy's maturity date, if the amount received plus the amount of Policy Debt exceeds the total investment in the Policy, the excess will generally be treated as ordinary income subject to tax. If, at the time of lapse, a Policy has a loan, the loan is extinguished and the amount of the loan is a deemed payment to the policyholder. If the amount of this deemed payment exceeds the investment in the contract, the excess is taxable income and is subject to Internal Revenue Service reporting requirements. DISTRIBUTIONS The tax consequences of distributions from, and loans taken from or secured by, a Policy depend on whether the Policy is classified as a MEC. DISTRIBUTIONS FROM NON-MECs A distribution from a non-MEC is generally treated as a tax-free recovery by the policyholder of the Investment in the Policy to the extent of such Investment in the Policy, and as a distribution of taxable income only to the extent the distribution exceeds the Investment in the Policy. Loans from, or secured by, a non-MEC are not treated as distributions. Instead, such loans are treated as indebtedness of the policyholder. 33 Force Outs An exception to this general rule occurs in the case of a decrease in the Policy's death benefit or any other change that reduces benefits under the Policy in the first 15 years after the Policy is issued and that results in a cash distribution to the policyholder in order for the Policy to continue to comply with the Section 7702 definitional limits. Such a cash distribution will be taxed in whole or in part as ordinary income (to the extent of any gain in the Policy) under rules prescribed in Section 7702. Changes include partial withdrawals and death benefit option changes. DISTRIBUTIONS FROM MECs Policies classified as MECs will be subject to the following tax rules: (a) First, all partial withdrawals from such a Policy are treated as ordinary income subject to tax up to the amount equal to the excess (if any) of the Policy Value immediately before the distribution over the Investment in the Policy at such time. (b) Second, loans taken from or secured by such a Policy and assignments and pledges of any part of its value are treated as partial withdrawals from the Policy and taxed accordingly. Past-due loan interest that is added to the loan amount is treated as a loan. (c) Third, a 10% additional income tax is imposed on the portion of any distribution (including distributions on surrender) from, or loan taken from or secured by, such a policy that is included in income except where the distribution or loan: (i) is made on or after the policyholder attains age 59 1/2; (ii) is attributable to the policyholder becoming disabled; or (iii) is part of a series of substantially equal periodic payments for the life (or life expectancy) of the policyholder or the joint lives (or joint life expectancies) of the policyholder and the policyholder's beneficiary. These exceptions are not likely to apply in situations where the Policy is not owned by an individual. Definition of Modified Endowment Contracts Section 7702A establishes a class of life insurance contracts designated as "Modified Endowment Contracts," which applies to Policies entered into or materially changed after June 20, 1988. In general, a Policy will be a Modified Endowment Contract if the accumulated premiums paid at any time during the first seven policy years exceed the "seven-pay premium limit". The seven-pay premium limit on any date is equal to the sum of the net level premiums that would have been paid on or before such date if the policy provided for paid-up future benefits after the payment of seven level annual premiums (the "seven-pay premium"). The rules relating to whether a Policy will be treated as a MEC are extremely complex and cannot be adequately described in the limited confines of this summary. Therefore, a current or prospective policyholder should consult with a competent adviser to determine whether a transaction will cause the Policy to be treated as a MEC. Material Changes A policy that is not a MEC may become a MEC if it is "materially changed". If there is a material change to the policy, the seven year testing period for MEC status is restarted. The material change rules for determining whether a Policy is a MEC are complex. In general, however, the determination of whether a Policy will be a MEC after a material change depends upon the relationship among the death benefit of the Policy at the time of such change, the Policy Value at the time of the change, and the additional premiums paid into the Policy during the seven years starting with the date on which the material change occurs. Reductions in Face Amount If there is a reduction in benefits during the first seven policy years, the seven-pay premium limit is recalculated as if the policy had been originally issued at the reduced benefit level. Failure to comply would result in classification as a MEC regardless of any efforts by the Company to provide a payment schedule that will not violate the seven pay test. Exchanges A life insurance contract received in exchange for a MEC will also be treated as a MEC. Processing of Premiums If a premium , which would cause the Policy to become a MEC, is received within 23 days of the next Policy Anniversary, the Company will not apply the portion of the premium which would cause MEC status ("excess premium") to the Policy when received. The excess premium will be placed in a suspense account until the next anniversary date, at which point the excess premium, along with interest, earned on the excess premium at a rate of 3.5% from the date the premium was received, will be applied to the Policy. (Any amount that would still be excess premium on the next anniversary will be refunded to the 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 34 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 , which would cause the Policy to become a MEC, is received more than 23 days prior to the next Policy Anniversary, the Company will refund any excess premium to the policyholder. The portion of the premium which is not excess will be applied as of the date received. The policyholder will be advised of this action and will be offered the opportunity to return the premium and have it credited to the account as of the original date received. Multiple Policies All MEC's that are issued by a Company (or its affiliates) to the same policyholder during any calendar year are treated as one MEC for purposes of determining the amount includible in gross income under Section 72(e) of the Code. POLICY LOAN INTEREST Generally, personal interest paid on any loan under a Policy which is owned by an individual is not deductible. For policies purchased on or after January 1, 1996, interest on any loan under a Policy owned by a taxpayer and covering the life of any individual who is an officer or employee of or is financially interested in the business carried on by the taxpayer will not be tax deductible unless the employee is a key person within the meaning of Section 264 of the Code. A deduction will not be permitted for interest on a loan under a Policy held on the life of a key person to the extent the aggregate of such loans with respect to contracts covering the key person exceed $50,000. The number of employees who can qualify as key persons depends in part on the size of the employer but cannot exceed 20 individuals. Furthermore, if a non-natural person owns a Policy, or is the direct or indirect beneficiary under a Policy, section 264(f) of the Code disallows a pro-rata portion of the taxpayer's interest expense allocable to unborrowed Policy cash values attributable to insurance held on the lives of individuals who are not 20% (or more) owners of the taxpayer-entity, officers, employees, or former employees of the taxpayer. The portion of the interest expense that is allocable to unborrowed Policy cash values is an amount that bears the same ratio to that interest expense as the taxpayer's average unborrowed Policy cash values under such life insurance policies issued after June 8, 1997 bear to the sum of such average unborrowed cash values and the average adjusted bases for all other assets of the taxpayer. If the Policyholder is an individual, and if the taxpayer is a business and is not the Policyholder, but is the direct or indirect beneficiary under the Policy, then the amount of unborrowed cash value of the Policy taken into account in computing the portion of the taxpayer's interest expense allocable to unborrowed Policy cash values cannot exceed the benefit to which the taxpayer is directly or indirectly entitled under the Policy. POLICY EXCHANGES A policyholder generally will not recognize gain upon the exchange of a Policy for another life insurance policy covering the same life insured and issued by 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. 35 INCOME TAX REPORTING In certain employer-sponsored life insurance arrangements, including equity split-dollar arrangements, participants may be required to report for income tax purposes, one or more of the following: (a) the value each year of the life insurance protection provided; (b) an amount equal to any employer-paid premiums; (c) income equal to imputed interest on deemed employer loan; or (d) some or all of the amount by which the current value exceeds the employer's interest in the Policy. Participants should consult with their tax adviser to determine the tax consequences of these arrangements. OTHER INFORMATION PAYMENT OF PROCEEDS As long as the Policy is in force, 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; - - 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 Financial Securities"), an indirect wholly-owned subsidiary of MFC, will act as the principal underwriter of, and continuously offer, the Policies pursuant to a Distribution Agreement with Manulife USA. Manulife 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 Financial Securities is Manulife USA. The Policies will be sold by registered representatives of either Manulife Securities or other broker-dealers having distribution agreements with Manulife Financial Securities who are also authorized by state insurance departments to do so. The Policies will be sold in all states of the United States except New York. A registered representative will receive commissions not to exceed 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 36 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 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. 37 Manulife USA is required to submit annual statements of its operations, including financial statements, to the insurance departments of the various jurisdictions in which it does business for the purposes of determining solvency and compliance with local insurance laws and regulations. LITIGATION No litigation is pending that would have a material effect upon the Separate Account or the Trust. INDEPENDENT AUDITORS The consolidated financial statements of The Manufacturers Life Insurance Company (U.S.A.) at December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001 and the financial statements of Separate Account Four of The Manufacturers Life Insurance Company of America at December 31, 2001 and for each of the two years in the period ended December 31, 2001, appearing in this Prospectus and Registration Statement, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing. 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. OFFICERS AND DIRECTORS Updated Chart
POSITION WITH NAME MANULIFE USA PRINCIPAL OCCUPATION James Boyle (43)** President, President , U.S. Annuities, Manulife USA, January 2002 to present; Senior Vice U.S. Annuities, Director President, U.S. Annuities, The Manufacturers Life Insurance Company, July 1999 to present; President, The Manufacturers Life Insurance Company of North America, July 1999 to December 2001; Vice President, Institutional Markets, Manulife Financial, May 1998 to June 1999; Vice President, Administration of U.S. Annuities, Manulife Financial, September 1996 to May 1998; Vice President, Treasurer and Chief Administrative Officer, North American Funds, June 1994 to September 1996. Robert A. Cook President, President, U.S. Individual Insurance, Manulife USA, January 2002 to present; (47)** U.S. Insurance; Director Senior Vice President, U.S. Individual Insurance, Manulife USA, January 1999 to December 2001; Senior Vice President, The Manufacturers Life Insurance Company, January 1999 to present; Vice President, Product Management, The Manufacturers Life Insurance Company, January 1996 to December 1998; Sales and Marketing Director, The Manufacturers Life Insurance Company, 1994 to 1995. Peter Copestake Vice President, Finance Vice President, Finance, Manulife USA, December 1999 to present; Vice President (46)*** & Treasurer, The Manufacturers Life Insurance Company, November 1999 to present; Vice President, Asset Liability Management, Canadian Imperial Bank of Commerce (CIBC), 1991 to 1999; Director, Capital Management, Bank of Montreal, 1986-1990; Inspector General of Banks, Department of Finance, 1980-1985. John D. DesPrez Chairman and President President, Manulife USA, January 1999 to date; Executive Vice President, U.S. III (45)** Operations, The Manufacturers Life Insurance Company, January 1999 to present; Senior Vice President, U.S. Annuities, The Manufacturers
38
POSITION WITH NAME MANULIFE USA PRINCIPAL OCCUPATION Life Insurance Company, September 1996 to December 1998; President of The Manufacturers Life Insurance Company of North America, September 1996 to December, 1998; Vice President, Mutual Funds, North American Security Life Insurance Company , January 1995 to September 1996. James D. Vice President, Vice President, Secretary & General Counsel, Manulife USA, January 1996 to present; Gallagher (47)** Secretary and General Vice President, Chief Legal Officer & Government Relations, U.S. Operations, The Counsel Manufacturers Life Insurance Company, January 1996 to present; President, The Manufacturers Life Insurance Company of New York, August 1999 to present; Vice President, Secretary and General Counsel, The Manufacturers Life Insurance Company of America, January 1997 to present; Secretary and General Counsel, Manufacturers Adviser Corporation, January 1997 to present; Vice President, Secretary and General Counsel, The Manufacturers Life Insurance Company of North America, 1994 to December 2001. Donald Guloien Executive Vice Executive Vice President & Chief Investments Officer, Manulife USA, June 2001 (45)*** President and Chief to present; Executive Vice President & Chief Investment Officer, The Officer Investment Manufacturers Life Insurance Company, March 2001 to present; Executive Vice President, Business Development, The Manufacturers Life Insurance Company, January 1999 to March 2001; Senior Vice President, Business Development, The Manufacturers Life Insurance Company, 1994 to December 1998. Geoffrey Guy Director Executive Vice President and Chief Actuary, The Manufacturers Life Insurance (54)*** Company, February 2000 to present; Senior Vice President and Chief Actuary, The Manufacturers Life Insurance Company, 1996 to 2000; Vice President and Chief Actuary, The Manufacturers Life Insurance Company, 1993 to 1996; Vice President and Chief Financial Officer, U.S. Operations, The Manufacturers Life Insurance Company, 1987 to 1993. John Lyon Vice President and Vice President & Chief Financial Officer, Investments, Manulife USA, June 2001 (49) *** Chief Financial to present; Vice President & Chief Financial Officer, Investments, The Officer, Investments; Manufacturers Life Insurance Company; April 2001 to present; Vice President, Director Business Development, The Manufacturers Life Insurance Company, 1995-2001; Assistant Vice President, Business Development, The Manufacturers Life Insurance Company, 1994-1995; Director/Manager, Corporate Finance, The Manufacturers Life Insurance Company, 1992-1994. Steven Mannik President, Reinsurance; President, Reinsurance, Manulife USA, January 2001 to present; Senior Vice (43)*** Director President, Reinsurance Operations, The Manufacturers Life Insurance Company, June 2001 to present; President, Manulife Reinsurance Corporation (U.S.A.), June, 2001 to December 2001; Vice President, Business Development, The Manufacturers Life Insurance Company, 1999 to June 2001; Principal, Towers Perrin, 1988 to 1999. James O'Malley President, President, U.S. Pensions, Manulife USA, January 2002 to present, Senior Vice (55)*** U.S. Pensions; President, U.S. Pensions, Manulife USA, January 1999 to December present; Director Senior Vice President, U.S. Pensions, The Manufacturers Life Insurance Company, January 1999 to present; Vice President, Systems New Business Pensions, The Manufacturers Life Insurance Company, 1984 to December 1998. Rex Schlaybaugh, Director Member, Dykema Gossett, PLLC, 1982 to present ; Vice Chairman, Oxford Jr. (52)**** Automotive, Inc. 1997 to present
39
POSITION WITH NAME MANULIFE USA PRINCIPAL OCCUPATION John Ostler Executive Vice Executive Vice President and Chief Financial Officer, Manulife USA, January 2002 to (48)*** President and Chief present; Vice President and Chief Financial Officer, Manulife USA, October 1, 2000 Financial Officer to present; Vice President and Chief Financial Officer, U.S. Operations, The Manufacturers Life Insurance Company, October 1, 2000 to present; Vice President and Corporate Actuary, The Manufacturers Life Insurance Company, March 1998 to September 2000; Vice President & CFO U.S. Individual Insurance, The Manufacturers Life Insurance Company, 1992 to March 1998; Vice President, U.S. Insurance Products, The Manufacturers Life Insurance Company, 1990 - 1992; Assistant Vice President & Pricing Actuary, US Insurance, The Manufacturers Life Insurance Company, 1988-1990. Warren Thomson Senior Vice President, Senior Vice President, Investments, Manulife USA, June 2001 to present; Senior (47)*** Investments Vice President, Investments, The Manufacturers Life Insurance Company, May 2001 to Present; President, Norfolk Capital Partners Inc. 2000 - May 2001; Managing Director, Public Sector Finance, New Capital Group Inc. 1995-2000; Tax Partner, Coopers & Lybrand Chartered Accounts, 1994-1995; Taxation Vice President, The Manufacturers Life Insurance Company, 1987-1994. Denis Turner Senior Vice President Senior Vice President and Treasurer, Manulife USA, January 2002 to present; (45)*** and Treasurer Vice President and Treasurer, Manulife USA, May 1999 to December 2001; Vice President and Chief Accountant, U.S. Operations, The Manufacturers Life Insurance Company, May 1999 to present; Vice President and Treasurer, The Manufacturers Life Insurance Company of America, May 1999 to present; Assistant Vice President, Financial Operations, Reinsurance Division, The Manufacturers Life Insurance Company, February 1998 to April 1999; Assistant Vice President & Controller, Reinsurance Division, The Manufacturers Life Insurance Company, November 1995, to January 1998, Assistant Vice President, Corporate Controllers, The Manufacturers Life Insurance Company, January 1989 to October 1995.
** Principal business address is Manulife Financial, 73 Tremont Street, Boston, MA 02108. *** Principal business address is Manulife Financial, 200 Bloor Street East, Toronto, Ontario Canada M4W 1E5. **** Principal business address is Dykema Gossett, 800 Michigan National Tower, Lansing, Michigan 48933. 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 Amount. In this case, the Face Amount will be reduced to the Scheduled Annual Death Benefit. If a decrease in Face Amount is 40 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. 41 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 0.937% 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 -1.527% 4.382% 10.290% of Return 11+ -1.230% 4.697% 10.623%
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 1.019% per annum and the gross annual rates of return of 0%, 6% and 12% would have corresponded to approximate net annual rates of return of -1.608%, 4.296% and 10.200% for Policy Years 1-10 and -1.311%, 4.611% and 10.532% for Policy Years 11 and after. The expense reimbursement for the Life-style Trusts and the expense limitation for the Equity Index Trust remained in effect during the fiscal year ended December 31, 2001 and are expected to remain in effect during the fiscal year ending December 31, 2002. Were the expense reimbursement and expense limitation to terminate, the average of the Portfolios' current expenses would be higher and the approximate net annual rates of return would be lower. A-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 -292 18,403 2,000 16,403 365,000 2 20,000 43,050 18,403 19,600 144 1,015 -571 36,273 3,000 33,273 365,000 3 20,000 66,203 36,273 19,600 144 1,235 -842 53,653 3,000 50,653 365,000 4 20,000 90,513 53,653 19,600 144 1,316 -1,107 70,686 4,000 66,686 365,000 5 20,000 116,038 70,686 19,600 144 1,346 -1,366 87,430 5,000 82,430 365,000 6 20,000 142,840 87,430 19,600 144 1,391 -1,622 103,873 5,000 98,873 365,000 7 20,000 170,982 103,873 19,600 144 1,428 -1,872 120,028 4,000 116,028 365,000 8 0 179,531 120,028 0 144 1,579 -1,819 116,487 3,000 113,487 365,000 9 0 188,508 116,487 0 144 1,769 -1,763 112,811 2,000 110,811 365,000 10 0 197,933 112,811 0 144 2,005 -1,705 108,957 0 108,957 365,000 11 0 207,830 108,957 0 144 2,050 -1,325 105,438 0 105,438 365,000 12 0 218,221 105,438 0 144 2,056 -1,282 101,956 0 101,956 365,000 13 0 229,132 101,956 0 144 2,010 -1,240 98,562 0 98,562 365,000 14 0 240,589 98,562 0 144 1,828 -1,199 95,391 0 95,391 365,000 15 0 252,619 95,391 0 144 1,492 -1,162 92,593 0 92,593 365,000 16 0 265,249 92,593 0 144 1,652 -1,127 89,670 0 89,670 365,000 17 0 278,512 89,670 0 144 1,822 -1,090 86,614 0 86,614 365,000 18 0 292,438 86,614 0 144 2,013 -1,051 83,406 0 83,406 365,000 19 0 307,059 83,406 0 144 2,206 -1,010 80,046 0 80,046 365,000 20 0 322,412 80,046 0 144 2,411 -967 76,524 0 76,524 365,000 25 0 411,489 59,849 0 144 4,286 -707 54,713 0 54,713 365,000 30 0 525,176 28,031 0 144 8,306 -289 19,292 0 19,292 365,000
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 -313 17,573 2,000 15,573 365,000 2 20,000 43,050 17,573 19,600 144 1,612 -607 34,810 3,000 31,810 365,000 3 20,000 66,203 34,810 19,600 144 1,653 -895 51,718 3,000 48,718 365,000 4 20,000 90,513 51,718 19,600 144 1,687 -1,178 68,309 4,000 64,309 365,000 5 20,000 116,038 68,309 19,600 144 1,723 -1,456 84,586 5,000 79,586 365,000 6 20,000 142,840 84,586 19,600 144 1,753 -1,729 100,560 5,000 95,560 365,000 7 20,000 170,982 100,560 19,600 144 1,792 -1,996 116,228 4,000 112,228 365,000 8 0 179,531 116,228 0 144 1,986 -1,928 112,170 3,000 109,170 365,000 9 0 188,508 112,170 0 144 2,209 -1,858 107,959 2,000 105,959 365,000 10 0 197,933 107,959 0 144 2,465 -1,785 103,565 0 103,565 365,000 11 0 207,830 103,565 0 144 2,745 -1,356 99,320 0 99,320 365,000 12 0 218,221 99,320 0 144 3,055 -1,297 94,825 0 94,825 365,000 13 0 229,132 94,825 0 144 3,387 -1,235 90,059 0 90,059 365,000 14 0 240,589 90,059 0 144 3,752 -1,169 84,994 0 84,994 365,000 15 0 252,619 84,994 0 144 4,155 -1,099 79,597 0 79,597 365,000 16 0 265,249 79,597 0 144 4,613 -1,024 73,817 0 73,817 365,000 17 0 278,512 73,817 0 144 5,136 -943 67,593 0 67,593 365,000 18 0 292,438 67,593 0 144 5,744 -856 60,850 0 60,850 365,000 19 0 307,059 60,850 0 144 6,451 -761 53,493 0 53,493 365,000 20 0 322,412 53,493 0 144 7,266 -658 45,426 0 45,426 365,000 25 0 411,489 3,905 0 36 3,264 -6 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 19,600 144 760 837 19,533 2,000 17,533 365,000 2 20,000 43,050 19,533 19,600 144 1,008 1,687 39,668 3,000 36,668 365,000 3 20,000 66,203 39,668 19,600 144 1,215 2,565 60,475 3,000 57,475 365,000 4 20,000 90,513 60,475 19,600 144 1,276 3,475 82,129 4,000 78,129 365,000 5 20,000 116,038 82,129 19,600 144 1,277 4,424 104,733 5,000 99,733 365,000 6 20,000 142,840 104,733 19,600 144 1,281 5,414 128,322 5,000 123,322 365,000 7 20,000 170,982 128,322 19,600 144 1,273 6,448 152,953 4,000 148,953 374,736 8 0 179,531 152,953 0 144 1,358 6,666 158,117 3,000 155,117 376,319 9 0 188,508 158,117 0 144 1,474 6,890 163,389 2,000 161,389 379,064 10 0 197,933 163,389 0 144 1,606 7,118 168,757 0 168,757 379,704 11 0 207,830 168,757 0 144 1,585 7,882 174,910 0 174,910 383,053 12 0 218,221 174,910 0 144 1,535 8,172 181,403 0 181,403 386,389 13 0 229,132 181,403 0 144 1,449 8,480 188,289 0 188,289 389,759 14 0 240,589 188,289 0 144 1,283 8,807 195,670 0 195,670 395,253 15 0 252,619 195,670 0 144 1,030 9,160 203,656 0 203,656 401,203 16 0 265,249 203,656 0 144 1,113 9,533 211,932 0 211,932 406,909 17 0 278,512 211,932 0 144 1,200 9,920 220,508 0 220,508 412,350 18 0 292,438 220,508 0 144 1,294 10,320 229,391 0 229,391 417,491 19 0 307,059 229,391 0 144 1,404 10,735 238,577 0 238,577 424,668 20 0 322,412 238,577 0 144 1,522 11,163 248,074 0 248,074 431,650 25 0 411,489 289,099 0 144 2,370 13,515 300,100 0 300,100 465,155 30 0 525,176 346,666 0 144 3,810 16,182 358,894 0 358,894 506,041
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 1,568 789 18,677 2,000 16,677 365,000 2 20,000 43,050 18,677 19,600 144 1,602 1,577 38,108 3,000 35,108 365,000 3 20,000 66,203 38,108 19,600 144 1,627 2,397 58,335 3,000 55,335 365,000 4 20,000 90,513 58,335 19,600 144 1,637 3,252 79,405 4,000 75,405 365,000 5 20,000 116,038 79,405 19,600 144 1,638 4,141 101,365 5,000 96,365 365,000 6 20,000 142,840 101,365 19,600 144 1,619 5,069 124,271 5,000 119,271 365,000 7 20,000 170,982 124,271 19,600 144 1,591 6,038 148,173 4,000 144,173 365,000 8 0 179,531 148,173 0 144 1,701 6,217 152,546 3,000 149,546 365,000 9 0 188,508 152,546 0 144 1,823 6,399 156,978 2,000 154,978 365,000 10 0 197,933 156,978 0 144 1,958 6,583 161,459 0 161,459 365,000 11 0 207,830 161,459 0 144 2,094 7,358 166,579 0 166,579 365,000 12 0 218,221 166,579 0 144 2,233 7,590 171,791 0 171,791 365,915 13 0 229,132 171,791 0 144 2,369 7,826 177,104 0 177,104 366,605 14 0 240,589 177,104 0 144 2,510 8,066 182,516 0 182,516 368,682 15 0 252,619 182,516 0 144 2,657 8,311 188,026 0 188,026 370,411 16 0 265,249 188,026 0 144 2,815 8,560 193,627 0 193,627 371,764 17 0 278,512 193,627 0 144 2,982 8,813 199,314 0 199,314 372,718 18 0 292,438 199,314 0 144 3,161 9,070 205,080 0 205,080 373,245 19 0 307,059 205,080 0 144 3,386 9,330 210,879 0 210,879 375,364 20 0 322,412 210,879 0 144 3,628 9,590 216,696 0 216,696 377,052 25 0 411,489 240,202 0 144 4,788 10,908 246,178 0 246,178 381,576 30 0 525,176 269,711 0 144 6,423 12,222 275,366 0 275,366 388,267
- - 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 1,967 20,664 2,000 18,664 365,000 2 20,000 43,050 20,664 19,600 144 1,002 4,080 43,199 3,000 40,199 365,000 3 20,000 66,203 43,199 19,600 144 1,194 6,389 67,850 3,000 64,850 365,000 4 20,000 90,513 67,850 19,600 144 1,232 8,923 94,997 4,000 90,997 365,000 5 20,000 116,038 94,997 19,600 144 1,197 11,718 124,974 5,000 119,974 365,000 6 20,000 142,840 124,974 19,600 144 1,200 14,804 158,034 5,000 153,034 399,825 7 20,000 170,982 158,034 19,600 144 1,359 18,197 194,328 4,000 190,328 476,102 8 0 179,531 194,328 0 144 1,469 19,909 212,624 3,000 209,624 506,044 9 0 188,508 212,624 0 144 1,608 21,784 232,655 2,000 230,655 539,761 10 0 197,933 232,655 0 144 1,755 23,837 254,593 0 254,593 572,835 11 0 207,830 254,593 0 144 1,773 26,937 279,614 0 279,614 612,354 12 0 218,221 279,614 0 144 1,773 29,595 307,292 0 307,292 654,532 13 0 229,132 307,292 0 144 1,760 32,536 337,925 0 337,925 699,505 14 0 240,589 337,925 0 144 1,699 35,794 371,876 0 371,876 751,189 15 0 252,619 371,876 0 144 1,627 39,405 409,509 0 409,509 806,734 16 0 265,249 409,509 0 144 1,957 43,385 450,793 0 450,793 865,522 17 0 278,512 450,793 0 144 2,340 47,749 496,058 0 496,058 927,629 18 0 292,438 496,058 0 144 2,790 52,532 545,656 0 545,656 993,094 19 0 307,059 545,656 0 144 3,358 57,769 599,924 0 599,924 1,067,864 20 0 322,412 599,924 0 144 4,009 63,498 659,269 0 659,269 1,147,128 25 0 411,489 957,483 0 144 8,384 101,237 1,050,192 0 1,050,192 1,627,798 30 0 525,176 1,512,656 0 144 17,183 159,721 1,655,051 0 1,655,051 2,333,621
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 1,892 19,782 2,000 17,782 365,000 2 20,000 43,050 19,782 19,600 144 1,591 3,893 41,540 3,000 38,540 365,000 3 20,000 66,203 41,540 19,600 144 1,600 6,095 65,492 3,000 62,492 365,000 4 20,000 90,513 65,492 19,600 144 1,582 8,521 91,886 4,000 87,886 365,000 5 20,000 116,038 91,886 19,600 144 1,540 11,195 120,997 5,000 115,997 365,000 6 20,000 142,840 120,997 19,600 144 1,505 14,145 153,093 5,000 148,093 387,326 7 20,000 170,982 153,093 19,600 144 1,891 17,375 188,033 4,000 184,033 460,682 8 0 179,531 188,033 0 144 2,136 18,915 204,668 3,000 201,668 487,110 9 0 188,508 204,668 0 144 2,432 20,583 222,675 2,000 220,675 516,605 10 0 197,933 222,675 0 144 2,749 22,389 242,170 0 242,170 544,883 11 0 207,830 242,170 0 144 3,122 25,276 264,181 0 264,181 578,555 12 0 218,221 264,181 0 144 3,539 27,567 288,065 0 288,065 613,578 13 0 229,132 288,065 0 144 3,981 30,053 313,994 0 313,994 649,967 14 0 240,589 313,994 0 144 4,499 32,750 342,101 0 342,101 691,044 15 0 252,619 342,101 0 144 5,064 35,674 372,567 0 372,567 733,956 16 0 265,249 372,567 0 144 5,692 38,841 405,572 0 405,572 778,698 17 0 278,512 405,572 0 144 6,389 42,272 441,311 0 441,311 825,251 18 0 292,438 441,311 0 144 7,166 45,986 479,987 0 479,987 873,576 19 0 307,059 479,987 0 144 8,132 49,998 521,709 0 521,709 928,642 20 0 322,412 521,709 0 144 9,210 54,325 566,680 0 566,680 986,023 25 0 411,489 784,214 0 144 16,039 81,541 849,572 0 849,572 1,316,837 30 0 525,176 1,162,037 0 144 28,393 120,573 1,254,073 0 1,254,073 1,768,243
- - 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 -291 18,292 2,000 16,292 365,000 2 20,000 43,050 18,292 19,600 144 1,059 -569 36,121 3,000 33,121 365,000 3 20,000 66,203 36,121 19,600 144 1,272 -839 53,465 3,000 50,465 365,000 4 20,000 90,513 53,465 19,600 144 1,489 -1,102 70,330 4,000 66,330 365,000 5 20,000 116,038 70,330 19,600 144 1,655 -1,358 86,772 5,000 81,772 365,000 6 20,000 142,840 86,772 19,600 144 1,691 -1,609 102,928 5,000 97,928 365,000 7 20,000 170,982 102,928 19,600 144 1,682 -1,856 118,845 4,000 114,845 365,000 8 0 179,531 118,845 0 144 1,818 -1,799 115,085 3,000 112,085 365,000 9 0 188,508 115,085 0 144 2,002 -1,740 111,199 2,000 109,199 365,000 10 0 197,933 111,199 0 144 2,217 -1,679 107,160 0 107,160 365,000 11 0 207,830 107,160 0 144 2,254 -1,302 103,460 0 103,460 365,000 12 0 218,221 103,460 0 144 2,242 -1,257 99,818 0 99,818 365,000 13 0 229,132 99,818 0 144 2,187 -1,212 96,275 0 96,275 365,000 14 0 240,589 96,275 0 144 2,012 -1,170 92,950 0 92,950 365,000 15 0 252,619 92,950 0 144 1,695 -1,131 89,979 0 89,979 365,000 16 0 265,249 89,979 0 144 1,840 -1,093 86,902 0 86,902 365,000 17 0 278,512 86,902 0 144 2,001 -1,054 83,702 0 83,702 365,000 18 0 292,438 83,702 0 144 2,170 -1,014 80,375 0 80,375 365,000 19 0 307,059 80,375 0 144 2,329 -972 76,929 0 76,929 365,000 20 0 322,412 76,929 0 144 2,496 -929 73,361 0 73,361 365,000 25 0 411,489 56,706 0 144 4,330 -668 51,565 0 51,565 365,000 30 0 525,176 24,803 0 144 8,385 -248 16,026 0 16,026 365,000
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 -313 17,573 2,000 15,573 365,000 2 20,000 43,050 17,573 19,600 144 1,612 -607 34,810 3,000 31,810 365,000 3 20,000 66,203 34,810 19,600 144 1,653 -895 51,718 3,000 48,718 365,000 4 20,000 90,513 51,718 19,600 144 1,687 -1,178 68,309 4,000 64,309 365,000 5 20,000 116,038 68,309 19,600 144 1,723 -1,456 84,586 5,000 79,586 365,000 6 20,000 142,840 84,586 19,600 144 1,753 -1,729 100,560 5,000 95,560 365,000 7 20,000 170,982 100,560 19,600 144 1,792 -1,996 116,228 4,000 112,228 365,000 8 0 179,531 116,228 0 144 1,986 -1,928 112,170 3,000 109,170 365,000 9 0 188,508 112,170 0 144 2,209 -1,858 107,959 2,000 105,959 365,000 10 0 197,933 107,959 0 144 2,465 -1,785 103,565 0 103,565 365,000 11 0 207,830 103,565 0 144 2,745 -1,356 99,320 0 99,320 365,000 12 0 218,221 99,320 0 144 3,055 -1,297 94,825 0 94,825 365,000 13 0 229,132 94,825 0 144 3,387 -1,235 90,059 0 90,059 365,000 14 0 240,589 90,059 0 144 3,752 -1,169 84,994 0 84,994 365,000 15 0 252,619 84,994 0 144 4,155 -1,099 79,597 0 79,597 365,000 16 0 265,249 79,597 0 144 4,613 -1,024 73,817 0 73,817 365,000 17 0 278,512 73,817 0 144 5,136 -943 67,593 0 67,593 365,000 18 0 292,438 67,593 0 144 5,744 -856 60,850 0 60,850 365,000 19 0 307,059 60,850 0 144 6,451 -761 53,493 0 53,493 365,000 20 0 322,412 53,493 0 144 7,266 -658 45,426 0 45,426 365,000 25 0 411,489 3,905 0 36 3,264 -6 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 19,600 144 872 826 19,410 2,000 17,410 365,000 2 20,000 43,050 19,410 19,600 144 1,052 1,663 39,478 3,000 36,478 365,000 3 20,000 66,203 39,478 19,600 144 1,252 2,529 60,211 3,000 57,211 365,000 4 20,000 90,513 60,211 19,600 144 1,444 3,423 81,646 4,000 77,646 365,000 5 20,000 116,038 81,646 19,600 144 1,571 4,350 103,880 5,000 98,880 365,000 6 20,000 142,840 103,880 19,600 144 1,558 5,314 127,092 5,000 122,092 365,000 7 20,000 170,982 127,092 19,600 144 1,494 6,322 151,375 4,000 147,375 370,870 8 0 179,531 151,375 0 144 1,557 6,523 156,198 3,000 153,198 371,752 9 0 188,508 156,198 0 144 1,656 6,730 161,128 2,000 159,128 373,818 10 0 197,933 161,128 0 144 1,762 6,942 166,164 0 166,164 373,869 11 0 207,830 166,164 0 144 1,727 7,681 171,974 0 171,974 376,624 12 0 218,221 171,974 0 144 1,657 7,953 178,126 0 178,126 379,409 13 0 229,132 178,126 0 144 1,558 8,241 184,666 0 184,666 382,258 14 0 240,589 184,666 0 144 1,392 8,550 191,680 0 191,680 387,193 15 0 252,619 191,680 0 144 1,145 8,882 199,272 0 199,272 392,567 16 0 265,249 199,272 0 144 1,210 9,233 207,151 0 207,151 397,731 17 0 278,512 207,151 0 144 1,282 9,598 215,324 0 215,324 402,656 18 0 292,438 215,324 0 144 1,353 9,976 223,804 0 223,804 407,323 19 0 307,059 223,804 0 144 1,431 10,369 232,597 0 232,597 414,023 20 0 322,412 232,597 0 144 1,516 10,776 241,713 0 241,713 420,580 25 0 411,489 281,218 0 144 2,291 13,018 291,801 0 291,801 452,292 30 0 525,176 336,552 0 144 3,672 15,557 348,293 0 348,293 491,092
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 1,568 780 18,669 2,000 16,669 365,000 2 20,000 43,050 18,669 19,600 144 1,602 1,560 38,082 3,000 35,082 365,000 3 20,000 66,203 38,082 19,600 144 1,627 2,370 58,281 3,000 55,281 365,000 4 20,000 90,513 58,281 19,600 144 1,637 3,214 79,314 4,000 75,314 365,000 5 20,000 116,038 79,314 19,600 144 1,639 4,093 101,224 5,000 96,224 365,000 6 20,000 142,840 101,224 19,600 144 1,620 5,009 124,068 5,000 119,068 365,000 7 20,000 170,982 124,068 19,600 144 1,593 5,964 147,895 4,000 143,895 365,000 8 0 179,531 147,895 0 144 1,703 6,138 152,185 3,000 149,185 365,000 9 0 188,508 152,185 0 144 1,826 6,314 156,529 2,000 154,529 365,000 10 0 197,933 156,529 0 144 1,962 6,493 160,916 0 160,916 365,000 11 0 207,830 160,916 0 144 2,101 7,259 165,930 0 165,930 365,000 12 0 218,221 165,930 0 144 2,241 7,484 171,029 0 171,029 365,000 13 0 229,132 171,029 0 144 2,378 7,712 176,219 0 176,219 365,000 14 0 240,589 176,219 0 144 2,518 7,945 181,502 0 181,502 366,634 15 0 252,619 181,502 0 144 2,662 8,181 186,878 0 186,878 368,149 16 0 265,249 186,878 0 144 2,816 8,422 192,340 0 192,340 369,293 17 0 278,512 192,340 0 144 2,981 8,666 197,881 0 197,881 370,038 18 0 292,438 197,881 0 144 3,157 8,914 203,494 0 203,494 370,359 19 0 307,059 203,494 0 144 3,370 9,164 209,144 0 209,144 372,276 20 0 322,412 209,144 0 144 3,600 9,416 214,815 0 214,815 373,778 25 0 411,489 237,692 0 144 4,737 10,686 243,497 0 243,497 377,420 30 0 525,176 266,298 0 144 6,340 11,947 271,760 0 271,760 383,182
- - 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 1,961 20,547 2,000 18,547 365,000 2 20,000 43,050 20,547 19,600 144 1,045 4,066 43,024 3,000 40,024 365,000 3 20,000 66,203 43,024 19,600 144 1,230 6,369 67,618 3,000 64,618 365,000 4 20,000 90,513 67,618 19,600 144 1,394 8,890 94,570 4,000 90,570 365,000 5 20,000 116,038 94,570 19,600 144 1,474 11,659 124,212 5,000 119,212 365,000 6 20,000 142,840 124,212 19,600 144 1,455 14,711 156,924 5,000 151,924 397,017 7 20,000 170,982 156,924 19,600 144 1,616 18,069 192,833 4,000 188,833 472,440 8 0 179,531 192,833 0 144 1,714 19,741 210,715 3,000 207,715 501,503 9 0 188,508 210,715 0 144 1,854 21,574 230,292 2,000 228,292 534,276 10 0 197,933 230,292 0 144 1,991 23,581 251,737 0 251,737 566,409 11 0 207,830 251,737 0 144 2,004 26,621 276,210 0 276,210 604,900 12 0 218,221 276,210 0 144 1,993 29,221 303,295 0 303,295 646,018 13 0 229,132 303,295 0 144 1,969 32,100 333,281 0 333,281 689,892 14 0 240,589 333,281 0 144 1,902 35,290 366,525 0 366,525 740,381 15 0 252,619 366,525 0 144 1,807 38,827 403,401 0 403,401 794,700 16 0 265,249 403,401 0 144 2,127 42,726 443,857 0 443,857 852,205 17 0 278,512 443,857 0 144 2,500 47,003 488,216 0 488,216 912,963 18 0 292,438 488,216 0 144 2,930 51,691 536,833 0 536,833 977,036 19 0 307,059 536,833 0 144 3,439 56,828 590,078 0 590,078 1,050,339 20 0 322,412 590,078 0 144 4,035 62,451 648,349 0 648,349 1,128,128 25 0 411,489 941,612 0 144 8,245 99,559 1,032,783 0 1,032,783 1,600,813 30 0 525,176 1,487,568 0 144 16,898 157,072 1,627,598 0 1,627,598 2,294,914
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 1,892 19,782 2,000 17,782 365,000 2 20,000 43,050 19,782 19,600 144 1,591 3,893 41,540 3,000 38,540 365,000 3 20,000 66,203 41,540 19,600 144 1,600 6,095 65,492 3,000 62,492 365,000 4 20,000 90,513 65,492 19,600 144 1,582 8,521 91,886 4,000 87,886 365,000 5 20,000 116,038 91,886 19,600 144 1,540 11,195 120,997 5,000 115,997 365,000 6 20,000 142,840 120,997 19,600 144 1,505 14,145 153,093 5,000 148,093 387,326 7 20,000 170,982 153,093 19,600 144 1,891 17,375 188,033 4,000 184,033 460,682 8 0 179,531 188,033 0 144 2,136 18,915 204,668 3,000 201,668 487,110 9 0 188,508 204,668 0 144 2,432 20,583 222,675 2,000 220,675 516,605 10 0 197,933 222,675 0 144 2,749 22,389 242,170 0 242,170 544,883 11 0 207,830 242,170 0 144 3,122 25,276 264,181 0 264,181 578,555 12 0 218,221 264,181 0 144 3,539 27,567 288,065 0 288,065 613,578 13 0 229,132 288,065 0 144 3,981 30,053 313,994 0 313,994 649,967 14 0 240,589 313,994 0 144 4,499 32,750 342,101 0 342,101 691,044 15 0 252,619 342,101 0 144 5,064 35,674 372,567 0 372,567 733,956 16 0 265,249 372,567 0 144 5,692 38,841 405,572 0 405,572 778,698 17 0 278,512 405,572 0 144 6,389 42,272 441,311 0 441,311 825,251 18 0 292,438 441,311 0 144 7,166 45,986 479,987 0 479,987 873,576 19 0 307,059 479,987 0 144 8,132 49,998 521,709 0 521,709 928,642 20 0 322,412 521,709 0 144 9,210 54,325 566,680 0 566,680 986,023 25 0 411,489 784,214 0 144 16,039 81,541 849,572 0 849,572 1,316,837 30 0 525,176 1,162,037 0 144 28,393 120,573 1,254,073 0 1,254,073 1,768,243
- - 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 Audited Financial Statements Years ended December 31, 2001 and 2000 with Report of Independent Auditors The Manufacturers Life Insurance Company of America Separate Account Four Audited Financial Statements Years ended December 31, 2001 and 2000 CONTENTS Report of Independent Auditors.............................................. 1 Audited Financial Statements Statement of Assets and Contract Owners' Equity............................. 2 Statements of Operations and Changes in Contract Owners' Equity............. 4 Notes to Financial Statements............................................... 28
Report of Independent Auditors To the Contract Owners of The Manufacturers Life Insurance Company of America Separate Account Four We have audited the accompanying statement of assets and contract owners' equity of The Manufacturers Life Insurance Company of America Separate Account Four as of December 31, 2001 and the related statements of operations and changes in contract owners' equity for each of the periods presented herein. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Manufacturers Life Insurance Company of America Separate Account Four at December 31, 2001, and the results of its operations and the changes in its contract owners' equity for each of the periods presented herein, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Philadelphia, Pennsylvania February 1, 2002 1 The Manufacturers Life Insurance Company of America Separate Account Four Statement of Assets and Contract Owners' Equity December 31, 2001 ASSETS Investments at fair value: Sub-Accounts: Aggressive Growth Trust - 386,808 shares (cost $6,328,895) $ 5,113,597 All Cap Growth Trust - 690,486 shares (cost $12,297,360) 10,184,673 All Cap Value Trust - 1,189 shares (cost $13,765) 14,993 Balanced Trust - 2,326,158 shares (cost $40,441,491) 31,589,231 Blue Chip Growth Trust - 2,287,045 shares (cost $41,792,842) 36,203,915 Capital Appreciation Trust - 4,125 shares (cost $34,491) 36,920 Capital Opportunities Trust - 9,041 shares (cost $95,770) 96,738 Diversified Bond Trust - 694,517 shares (cost $7,194,754) 7,354,939 Dynamic Growth Trust - 101,599 shares (cost $562,039) 483,613 Emerging Small Company Trust - 2,422,821 shares (cost $63,525,234) 63,138,723 Equity Income Trust - 1,003,947 shares (cost $15,291,972) 15,189,718 Equity Index Trust - 2,719,033 shares (cost $43,570,921) 38,066,462 Financial Services Trust - 8,343 shares (cost $99,286) 97,034 Fundamental Value Trust - 21,246 shares (cost $251,275) 249,216 Global Bond Trust - 135,000 shares (cost $1,564,259) 1,549,796 Global Equity Trust - 241,605 shares (cost $3,659,938) 3,140,867 Growth Trust - 896,070 shares (cost $16,851,535) 12,500,179 Growth and Income Trust - 1,121,979 shares (cost $30,767,466) 26,826,511 Health Sciences Trust - 11,149 shares (cost $141,500) 150,957 High Yield Trust - 504,044 shares (cost $5,499,318) 4,979,952 Income and Value Trust - 973,086 shares (cost $9,766,277) 9,857,366 International Index Trust - 23,136 shares (cost $225,165) 197,118 International Small Cap Trust - 208,484 shares (cost $2,999,214) 2,355,865 International Stock Trust - 1,333,849 shares (cost $15,899,439) 12,791,612 International Value Trust - 204,439 shares (cost $2,339,354) 2,154,783 Internet Technologies Trust - 32,132 shares (cost $151,037) 121,782 Investment Quality Bond Trust - 1,741,260 shares (cost $20,338,818) 20,633,935 Large Cap Growth Trust - 750,645 shares (cost $9,054,560) 7,423,884 Lifestyle Aggressive 1000 Trust - 62,302 shares (cost $758,704) 644,205 Lifestyle Balanced 640 Trust - 512,591 shares (cost $6,368,184) 6,058,824 Lifestyle Conservative 280 Trust - 289,659 shares (cost $3,668,226) 3,748,192 Lifestyle Growth 820 Trust - 116,988 shares (cost $1,513,947) 1,316,120 Lifestyle Moderate 460 Trust - 67,474 shares (cost $814,360) 817,107 Mid Cap Growth Trust - 17,588 shares (cost $183,201) 184,149 Mid Cap Index Trust - 82,123 shares (cost $979,348) 1,052,814 Mid Cap Opportunities Trust - 561 shares (cost $5,414) 5,945 Mid Cap Stock Trust - 70,834 shares (cost $726,889) 762,884 Mid Cap Value Trust - 10,264 shares (cost $129,337) 134,052 Money Market Trust - 4,081,789 shares (cost $40,817,893) 40,817,893 Overseas Trust - 357,202 shares (cost $3,637,393) 3,057,649 Pacific Rim Emerging Markets Trust - 601,405 shares (cost $4,771,826) 3,999,341 Quantitative Equity Trust - 1,926,285 shares (cost $43,451,109) 33,132,109 Real Estate Securities Trust - 1,276,367 shares (cost $20,144,142) 19,809,218 Science and Technology Trust - 2,314,164 shares (cost $44,277,830) 29,690,730 Small Cap Index Trust - 60,914 shares (cost $683,916) 687,114 Small Company Blend Trust - 289,502 shares (cost $3,075,230) 3,178,735 Small Company Value Trust - 387,669 shares (cost $4,910,100) 5,349,826 Strategic Bond Trust - 265,862 shares (cost $2,821,008) 2,855,362 Strategic Growth Trust - 68,667 shares (cost $713,778) 756,713 Strategic Opportunities Trust - 775,796 shares (cost $11,435,961) 9,806,062
2 The Manufacturers Life Insurance Company of America Separate Account Four Statement of Assets and Contract Owners' Equity December 31, 2001 ASSETS (CONTINUED) Investments at fair value: Sub-Accounts: Tactical Allocation Trust - 8,228 shares (cost $82,477) $ 82,609 Telecommunications Trust - 3,280 shares (cost $29,957) 26,007 Total Return Trust - 1,495,346 shares (cost $20,200,102) 20,755,404 Total Stock Market Index Trust - 311,559 shares (cost $3,090,804) 3,050,162 U.S. Government Securities Trust - 728,328 shares (cost $9,865,108) 9,992,662 U.S. Large Cap Value Trust - 277,970 shares (cost $3,544,430) 3,505,205 Utilities Trust - 5,387 shares (cost $58,804) 50,102 Value Trust - 727,644 shares (cost $11,416,562) 11,984,303 500 Index Trust - 94,297 shares (cost $955,534) 925,055 ------------ Total assets $530,740,932 ============ CONTRACT OWNERS' EQUITY Variable universal life contracts $530,740,932 ============
See accompanying notes. 3 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity
SUB-ACCOUNT --------------------------------------------------------------------- AGGRESSIVE GROWTH ALL CAP GROWTH TRUST TRUST --------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 --------------------------------------------------------------------- Income: Dividends $ - $ - $ 489,935 $ 494,609 Expenses: Mortality and expense risks, and administrative charges 30,923 19,680 58,611 52,700 --------------------------------------------------------------------- Net investment income (loss) during the year (30,923) (19,680) 431,324 441,909 Net realized gain (loss) during the year (1,009,845) 445,778 (1,957,906) 719,966 Unrealized appreciation (depreciation) during the year (447,976) (1,051,671) (782,386) (2,675,835) --------------------------------------------------------------------- Net increase (decrease) in assets from operations (1,488,744) (625,573) (2,308,968) (1,513,960) --------------------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 1,994,041 2,017,555 4,577,444 2,987,565 Transfer on terminations (351,908) (153,979) (691,667) (565,315) Transfer on policy loans (14,639) (1,889) (6,541) (36,214) Net interfund transfers (399,032) 3,035,625 (179,674) 2,348,259 --------------------------------------------------------------------- Net increase (decrease) in assets from principal transactions 1,228,462 4,897,312 3,699,562 4,734,295 --------------------------------------------------------------------- Total increase (decrease) in assets (260,282) 4,271,739 1,390,594 3,220,335 Assets beginning of year 5,373,879 1,102,140 8,794,079 5,573,744 --------------------------------------------------------------------- Assets end of year $ 5,113,597 $ 5,373,879 $ 10,184,673 $ 8,794,079 =====================================================================
* Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. See accompanying notes. 4
SUB-ACCOUNT - ----------------------------------------------------------------------------------------------------------- CAPITAL ALL CAP VALUE BLUE CHIP APPRECIATION TRUST BALANCED TRUST GROWTH TRUST TRUST - ----------------------------------------------------------------------------------------------------------- PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/01* DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 DEC. 31/01* - ----------------------------------------------------------------------------------------------------------- $ 3 $ 824,561 $ 2,142,690 $ 2,891,977 $ 1,437,390 $ - 33 231,900 306,448 223,162 225,515 72 - ----------------------------------------------------------------------------------------------------------- (30) 592,661 1,836,242 2,668,815 1,211,875 (72) (55) (1,536,239) 1,164,938 (3,938,059) 2,219,612 (38) 1,228 (3,408,713) (7,426,525) (5,557,194) (5,137,526) 2,429 - ----------------------------------------------------------------------------------------------------------- 1,143 (4,352,291) (4,425,345) (6,826,438) (1,706,039) 2,319 - ----------------------------------------------------------------------------------------------------------- 7,951 3,910,908 5,624,260 10,181,726 13,245,945 742 (2,313) (4,011,328) (5,659,955) (2,506,721) (1,872,424) (613) -- 177,394 (208,941) (94,393) 13 -- 8,212 (4,924,849) (7,469,583) (3,947,656) (3,545,368) 34,472 - ----------------------------------------------------------------------------------------------------------- 13,850 (4,847,875) (7,714,219) 3,632,956 7,828,166 34,601 - ----------------------------------------------------------------------------------------------------------- 14,993 (9,200,166) (12,139,564) (3,193,482) 6,122,127 36,920 -- 40,789,397 52,928,961 39,397,397 33,275,270 -- - ----------------------------------------------------------------------------------------------------------- $ 14,993 $ 31,589,231 $ 40,789,397 $ 36,203,915 $ 39,397,397 $ 36,920 ===========================================================================================================
5 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT ----------------------------------------------- CAPITAL OPPORTUNITIES TRUST DIVERSIFIED BOND TRUST ----------------------------------------------- PERIOD ENDED YEAR ENDED YEAR ENDED DEC. 31/01* DEC. 31/01 DEC. 31/00 ----------------------------------------------- Income: Dividends $ -- $ 171,518 $ 128,166 Expenses: Mortality and expense risks, and administrative charges 38 33,185 13,735 ----------------------------------------------- Net investment income (loss) during the year (38) 138,333 114,431 Net realized gain (loss) during the year (6) 208,420 (85,540) Unrealized appreciation (depreciation) during the year 968 (22,621) 229,671 ----------------------------------------------- Net increase (decrease) in assets from operations 924 324,132 258,562 ----------------------------------------------- Changes from principal transactions: Transfer of net premiums 70,779 2,249,690 1,199,817 Transfer on terminations 8 (373,603) (244,178) Transfer on policy loans -- 4,226 (55,670) Net interfund transfers 25,027 1,492,097 1,131,179 ----------------------------------------------- Net increase (decrease) in assets from principal transactions 95,814 3,372,410 2,031,148 ----------------------------------------------- Total increase (decrease) in assets 96,738 3,696,542 2,289,710 Assets beginning of year -- 3,658,397 1,368,687 ----------------------------------------------- Assets end of year $ 96,738 $ 7,354,939 $ 3,658,397 ===============================================
* Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. ** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 6
SUB-ACCOUNT - ----------------------------------------------------------------------------------------------------------- DYNAMIC GROWTH TRUST EMERGING SMALL COMPANY TRUST EQUITY INCOME TRUST - ----------------------------------------------------------------------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00** DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 - ----------------------------------------------------------------------------------------------------------- $ 1,375 $ -- $ 2,633,803 $ 8,896,969 $ 1,021,642 $ 1,215,240 3,105 1,202 404,110 594,318 70,343 52,959 - ----------------------------------------------------------------------------------------------------------- (1,730) (1,202) 2,229,693 8,302,651 951,299 1,162,281 (232,608) (126,482) (1,598,919) 7,060,851 (379,962) (999,933) 25,490 (103,916) (18,801,456) (19,474,370) (471,797) 598,947 - ----------------------------------------------------------------------------------------------------------- (208,848) (231,600) (18,170,682) (4,110,868) 99,540 761,295 - ----------------------------------------------------------------------------------------------------------- 330,311 91,367 8,684,233 10,826,056 3,588,138 3,091,072 (14,841) (13,110) (6,650,831) (10,744,665) (1,052,237) (1,003,040) -- -- 56,171 (877,506) (12,159) 1,625 106,745 423,589 (1,296,935) 1,815,857 4,709,257 (4,746,166) - ----------------------------------------------------------------------------------------------------------- 422,215 501,846 792,638 1,019,742 7,232,999 (2,656,509) - ----------------------------------------------------------------------------------------------------------- 213,367 270,246 (17,378,044) (3,091,126) 7,332,539 (1,895,214) 270,246 -- 80,516,767 83,607,893 7,857,179 9,752,393 - ----------------------------------------------------------------------------------------------------------- $ 483,613 $ 270,246 $ 63,138,723 $ 80,516,767 $ 15,189,718 $ 7,857,179 ===========================================================================================================
7 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT --------------------------------------------------------------------- FINANCIAL FUNDAMENTAL EQUITY INDEX TRUST SERVICES TRUST VALUE TRUST --------------------------------------------------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01* DEC. 31/01* --------------------------------------------------------------------- Income: Dividends $ 949,563 $ 117,514 $ 27 $ -- Expenses: Mortality and expense risks, and administrative charges 226,505 258,059 224 629 --------------------------------------------------------------------- Net investment income (loss) during the year 723,058 (140,545) (197) (629) Net realized gain (loss) during the year (2,185,633) 3,003,549 (365) (864) Unrealized appreciation (depreciation) during the year (3,730,659) (7,096,700) (2,252) (2,058) --------------------------------------------------------------------- Net increase (decrease) in assets from operations (5,193,234) (4,233,696) (2,814) (3,551) --------------------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 10,652,620 16,333,867 7,461 6,839 Transfer on terminations (2,620,619) (2,849,902) (4,231) (10,780) Transfer on policy loans 4,330 (154,116) (7) (22) Net interfund transfers (4,523,947) (7,052,953) 96,625 256,730 --------------------------------------------------------------------- Net increase (decrease) in assets from principal transactions 3,512,384 6,276,896 99,848 252,767 --------------------------------------------------------------------- Total increase (decrease) in assets (1,680,850) 2,043,200 97,034 249,216 Assets beginning of year 39,747,312 37,704,112 -- -- --------------------------------------------------------------------- Assets end of year $ 38,066,462 $ 39,747,312 $ 97,034 $ 249,216 =====================================================================
* Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. See accompanying notes. 8
SUB-ACCOUNT - ----------------------------------------------------------------------------------------------------------- GLOBAL BOND TRUST GLOBAL EQUITY TRUST GROWTH TRUST - ----------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 - ----------------------------------------------------------------------------------------------------------- $ -- $ 10,543 $ 507,908 $ 327,718 $ -- $ 1,357,936 3,839 3,171 21,029 19,023 81,450 97,447 - ----------------------------------------------------------------------------------------------------------- (3,839) 7,372 486,879 308,695 (81,450) 1,260,489 (3,286) (30,994) (372,435) (199,982) (4,937,416) 594,711 (12,426) 2,851 (770,710) 234,915 1,754,564 (7,421,452) - ----------------------------------------------------------------------------------------------------------- (19,551) (20,771) (656,266) 343,628 (3,264,302) (5,566,252) - ----------------------------------------------------------------------------------------------------------- 285,976 139,169 765,943 1,194,857 5,168,717 7,922,560 (27,911) (34,333) (263,724) (226,935) (941,752) (1,151,699) (4,217) (10,712) (1,252) (40,108) (24,960) (59,763) 916,262 2,695 (238,659) (910,286) (3,675,443) 6,325,216 - ----------------------------------------------------------------------------------------------------------- 1,170,110 96,819 262,308 17,528 526,562 13,036,314 - ----------------------------------------------------------------------------------------------------------- 1,150,559 76,048 (393,958) 361,156 (2,737,740) 7,470,062 399,237 323,189 3,534,825 3,173,669 15,237,919 7,767,857 - ----------------------------------------------------------------------------------------------------------- $ 1,549,796 $ 399,237 $ 3,140,867 $ 3,534,825 $ 12,500,179 $ 15,237,919 ===========================================================================================================
9 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT -------------------------------------------------- GROWTH AND INCOME HEALTH SCIENCES TRUST TRUST -------------------------------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01* -------------------------------------------------- Income: Dividends $ 1,481,575 $ 1,677,174 $ -- Expenses: Mortality and expense risks, and administrative charges 163,695 178,922 299 -------------------------------------------------- Net investment income (loss) during the year 1,317,880 1,498,252 (299) Net realized gain (loss) during the year (1,909,561) 2,196,121 (131) Unrealized appreciation (depreciation) during the year (2,671,541) (5,943,252) 9,457 -------------------------------------------------- Net increase (decrease) in assets from operations (3,263,222) (2,248,879) 9,027 -------------------------------------------------- Changes from principal transactions: Transfer of net premiums 7,197,987 7,793,636 44,675 Transfer on terminations (2,783,042) (3,678,743) (4,643) Transfer on policy loans (56,065) (14,763) (8) Net interfund transfers (1,383,997) (4,080,097) 101,906 -------------------------------------------------- Net increase (decrease) in assets from principal transactions 2,974,883 20,033 141,930 -------------------------------------------------- Total increase (decrease) in assets (288,339) (2,228,846) 150,957 Assets beginning of year 27,114,850 29,343,696 -- -------------------------------------------------- Assets end of year $ 26,826,511 $ 27,114,850 $ 150,957 ==================================================
*Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. ** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 10
SUB-ACCOUNT - ----------------------------------------------------------------------------------------------------- INCOME & VALUE INTERNATIONAL INDEX HIGH YIELD TRUST TRUST TRUST - ----------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00** - ----------------------------------------------------------------------------------------------------- $ 364,655 $ 13,566 $ 313,451 $ 952,189 $ 2,308 $ 624 24,364 25,447 47,256 31,429 1,201 85 - ----------------------------------------------------------------------------------------------------- 340,291 (11,881) 266,195 920,760 1,107 539 (426,272) (127,211) (559,898) (302,448) 19,590 (309) (124,780) (253,583) 489,673 (418,733) (25,006) (3,041) - ----------------------------------------------------------------------------------------------------- (210,761) (392,675) 195,970 199,579 (4,309) (2,811) - ----------------------------------------------------------------------------------------------------- 1,463,073 1,396,133 2,927,089 2,354,495 41,657 3,789 (318,463) (236,289) (507,821) (379,895) 1,461 (599) (12,792) (11,335) (2,345) (80,612) -- -- 18,333 (172,527) 998,546 710,007 113,831 44,099 - ----------------------------------------------------------------------------------------------------- 1,150,151 975,982 3,415,469 2,603,995 156,949 47,289 - ----------------------------------------------------------------------------------------------------- 939,390 583,307 3,611,439 2,803,574 152,640 44,478 4,040,562 3,457,255 6,245,927 3,442,353 44,478 -- - ----------------------------------------------------------------------------------------------------- $ 4,979,952 $ 4,040,562 $ 9,857,366 $ 6,245,927 $ 197,118 $ 44,478 =====================================================================================================
11 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT --------------------------------------------------------------------- INTERNATIONAL SMALL CAP INTERNATIONAL STOCK TRUST TRUST --------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 --------------------------------------------------------------------- Income: Dividends $ -- $ 694,416 $ 724,688 $ 84,131 Expenses: Mortality and expense risks, and administrative charges 19,248 23,770 85,559 110,826 --------------------------------------------------------------------- Net investment income (loss) during the year (19,248) 670,646 639,129 (26,695) Net realized gain (loss) during the year (2,445,760) (138,612) (2,874,694) 571,024 Unrealized appreciation (depreciation) during the year 1,133,243 (2,406,462) (1,742,352) (3,695,939) --------------------------------------------------------------------- Net increase (decrease) in assets from operations (1,331,765) (1,874,428) (3,977,917) (3,151,610) --------------------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 1,124,796 1,799,696 3,455,803 5,040,119 Transfer on terminations (291,278) (347,872) (1,140,441) (1,565,059) Transfer on policy loans (2,399) (2,578) 18,665 22,239 Net interfund transfers (1,382,848) 2,678,076 (3,182,024) 720,414 --------------------------------------------------------------------- Net increase (decrease) in assets from principal transactions (551,729) 4,127,322 (847,997) 4,217,713 --------------------------------------------------------------------- Total increase (decrease) in assets (1,883,494) 2,252,894 (4,825,914) 1,066,103 Assets beginning of year 4,239,359 1,986,465 17,617,526 16,551,423 --------------------------------------------------------------------- Assets end of year $ 2,355,865 $ 4,239,359 $ 12,791,612 $ 17,617,526 =====================================================================
** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 12
SUB-ACCOUNT - ----------------------------------------------------------------------------------------------------------- INTERNATIONAL VALUE INTERNET TECHNOLOGIES INVESTMENT QUALITY BOND TRUST TRUST TRUST - ----------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00** DEC. 31/01 DEC. 31/00 - ----------------------------------------------------------------------------------------------------------- $ 51,943 $ 17,130 $ -- $ -- $ 1,038,232 $ 1,309,195 12,480 15,330 534 707 117,157 109,903 - ----------------------------------------------------------------------------------------------------------- 39,463 1,800 (534) (707) 921,075 1,199,292 (136,918) (106,248) (105,359) (62,279) 56,285 (240,339) (109,824) (114,496) 57,990 (87,244) 120,363 437,793 - ----------------------------------------------------------------------------------------------------------- (207,279) (218,944) (47,903) (150,230) 1,097,723 1,396,746 - ----------------------------------------------------------------------------------------------------------- 767,659 1,289,123 39,504 69,573 2,162,620 2,734,616 (91,002) (134,761) (51,889) (805) (1,810,385) (2,078,469) (2,127) 7,727 38,672 (40,607) (59,787) 27,427 (156,513) 406,659 11,323 254,144 2,956,184 (4,994,725) - ----------------------------------------------------------------------------------------------------------- 518,017 1,568,748 37,610 282,305 3,248,632 (4,311,151) - ----------------------------------------------------------------------------------------------------------- 310,738 1,349,804 (10,293) 132,075 4,346,355 (2,914,405) 1,844,045 494,241 132,075 -- 16,287,580 19,201,985 - ----------------------------------------------------------------------------------------------------------- $ 2,154,783 $ 1,844,045 $ 121,782 $ 132,075 $ 20,633,935 $ 16,287,580 ===========================================================================================================
13 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT ----------------------------------------------------------------- LARGE CAP GROWTH LIFESTYLE AGGRESSIVE 1000 TRUST TRUST ----------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 ----------------------------------------------------------------- Income: Dividends $ 295,174 $ 933,644 $ 48,963 $ 37,648 Expenses: Mortality and expense risks, and administrative charges 46,931 42,374 4,132 4,794 ----------------------------------------------------------------- Net investment income (loss) during the year 248,243 891,270 44,831 32,854 Net realized gain (loss) during the year (1,527,720) 236,149 (22,918) 14,597 Unrealized appreciation (depreciation) during the year (209,087) (2,285,423) (125,118) (84,082) ----------------------------------------------------------------- Net increase (decrease) in assets from operations (1,488,564) (1,158,004) (103,205) (36,631) ----------------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 2,254,611 3,140,695 231,142 71,415 Transfer on terminations (668,625) (990,185) (81,277) (84,132) Transfer on policy loans (8,444) (60,521) (33,421) (692) Net interfund transfers 151,119 286,718 (42,839) (82,072) ----------------------------------------------------------------- Net increase (decrease) in assets from principal transactions 1,728,661 2,376,707 73,605 (95,481) ----------------------------------------------------------------- Total increase (decrease) in assets 240,097 1,218,703 (29,600) (132,112) Assets beginning of year 7,183,787 5,965,084 673,805 805,917 ----------------------------------------------------------------- Assets end of year $ 7,423,884 $ 7,183,787 $ 644,205 $ 673,805 =================================================================
See accompanying notes. 14
SUB-ACCOUNT - ----------------------------------------------------------------------------------------------------- LIFESTYLE BALANCED 640 LIFESTYLE CONSERVATIVE 280 LIFESTYLE GROWTH 820 TRUST TRUST TRUST - ----------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 - ----------------------------------------------------------------------------------------------------- $ 331,915 $ 89,487 $ 18,155 $ 29,153 $ 138,327 $ 149,038 29,162 14,134 8,121 2,482 10,035 11,827 - ----------------------------------------------------------------------------------------------------- 302,753 75,353 10,034 26,671 128,292 137,211 (136,989) 51,498 4,995 (10,067) (137,729) 46,233 (249,686) (151,961) 66,747 5,241 (157,193) (248,793) - ----------------------------------------------------------------------------------------------------- (83,922) (25,110) 81,776 21,845 (166,630) (65,349) - ----------------------------------------------------------------------------------------------------- 371,326 2,347,394 187,412 31,809 677,808 600,657 (362,681) (156,204) (138,365) (102,927) (251,621) (179,618) 348 (51,653) 57,345 (56,838) (18,770) (27,215) 2,286,328 167,632 3,266,336 (92,469) (434,872) (756,569) - ----------------------------------------------------------------------------------------------------- 2,295,321 2,307,169 3,372,728 (220,425) (27,455) (362,745) - ----------------------------------------------------------------------------------------------------- 2,211,399 2,282,059 3,454,504 (198,580) (194,085) (428,094) 3,847,425 1,565,366 293,688 492,268 1,510,205 1,938,299 - ----------------------------------------------------------------------------------------------------- $ 6,058,824 $ 3,847,425 $ 3,748,192 $ 293,688 $ 1,316,120 $ 1,510,205 =====================================================================================================
15 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT --------------------------------------------- MID CAP GROWTH LIFESTYLE MODERATE 460 TRUST TRUST --------------------------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01* --------------------------------------------- Income: Dividends $ 45,549 $ 5,907 $ -- Expenses: Mortality and expense risks, and administrative charges 4,531 917 280 --------------------------------------------- Net investment income (loss) during the year 41,018 4,990 (280) Net realized gain (loss) during the year (48,000) 1,296 (668) Unrealized appreciation (depreciation) during the year 3,455 (4,375) 948 --------------------------------------------- Net increase (decrease) in assets from operations (3,527) 1,911 -- --------------------------------------------- Changes from principal transactions: Transfer of net premiums 299,371 391,104 2,160 Transfer on terminations (27,261) (34,414) (5,328) Transfer on policy loans (1,577) 1,146 (13) Net interfund transfers 255,068 (425,840) 187,330 --------------------------------------------- Net increase (decrease) in assets from principal transactions 525,601 (68,004) 184,149 --------------------------------------------- Total increase (decrease) in assets 522,074 (66,093) 184,149 Assets beginning of year 295,033 361,126 -- --------------------------------------------- Assets end of year $ 817,107 $ 295,033 $ 184,149 =============================================
* Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. ** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes 16
SUB-ACCOUNT - ------------------------------------------------------------------------------------------ MID CAP OPPORTUNITIES MID CAP INDEX TRUST TRUST MID CAP STOCK TRUST - ------------------------------------------------------------------------------------------ YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00** DEC. 31/01* DEC. 31/01 DEC. 31/00 - ------------------------------------------------------------------------------------------ $ 6,646 $ 4,817 $ - $ - $ - 2,477 252 9 3,662 2,347 - ------------------------------------------------------------------------------------------ 4,169 4,565 (9) (3,662) (2,347) (8,484) 167 (86) (45,762) (13,526) 79,350 (5,883) 531 40,189 (2,643) - ------------------------------------------------------------------------------------------ 75,035 (1,151) 436 (9,235) (18,516) - ------------------------------------------------------------------------------------------ 165,037 3,514 11,097 290,579 106,206 (15,787) (1,484) (299) (46,475) (21,708) -- -- -- (775) (223) 583,037 244,613 (5,289) 148,323 133,861 - ------------------------------------------------------------------------------------------ 732,287 246,643 5,509 391,652 218,136 - ------------------------------------------------------------------------------------------ 807,322 245,492 5,945 382,417 199,620 245,492 -- -- 380,467 180,847 - ------------------------------------------------------------------------------------------ $ 1,052,814 $ 245,492 $ 5,945 $ 762,884 $ 380,467 ==========================================================================================
17 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT -------------------------------------------------------- MID CAP VALUE TRUST MONEY MARKET TRUST -------------------------------------------------------- PERIOD ENDED YEAR ENDED YEAR ENDED DEC. 31/01* DEC. 31/01 DEC. 31/00 -------------------------------------------------------- Income: Dividends $ 300 $ 1,406,181 $ 1,932,420 Expenses: Mortality and expense risks, and administrative charges 354 247,839 212,370 -------------------------------------------------------- Net investment income (loss) during the year (54) 1,158,342 1,720,050 Net realized gain (loss) during the year (121) -- -- Unrealized appreciation (depreciation) during the year 4,715 -- -- -------------------------------------------------------- Net increase (decrease) in assets from operations 4,540 1,158,342 1,720,050 -------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 4,757 15,914,531 19,729,086 Transfer on terminations (6,299) (4,138,780) (6,012,717) Transfer on policy loans -- 59,448 204,008 Net interfund transfers 131,054 (12,495,921) (3,132,123) -------------------------------------------------------- Net increase (decrease) in assets from principal transactions 129,512 (660,722) 10,788,254 -------------------------------------------------------- Total increase (decrease) in assets 134,052 497,620 12,508,304 Assets beginning of year -- 40,320,273 27,811,969 -------------------------------------------------------- Assets end of year $ 134,052 $ 40,817,893 $ 40,320,273 ========================================================
* Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. See accompanying notes. 18
SUB-ACCOUNT - ---------------------------------------------------------------------------------------------------------------------------- PACIFIC RIM EMERGING OVERSEAS TRUST MARKETS TRUST QUANTITATIVE EQUITY TRUST - ---------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 - ---------------------------------------------------------------------------------------------------------------------------- $ 280,476 $ 118,152 $ 17,876 $ 20,741 $ 5,763,630 $ 5,932,623 19,262 12,911 28,589 35,497 245,827 309,403 - ---------------------------------------------------------------------------------------------------------------------------- 261,214 105,241 (10,713) (14,756) 5,517,803 5,623,220 (947,613) (59,142) (544,084) (85,747) 3,969 2,793,944 (133,134) (565,259) (363,220) (1,449,,544) (16,124,132) (5,866,904) - ---------------------------------------------------------------------------------------------------------------------------- (819,533) (519,160) (918,017) (1,550,047) (10,602,360) 2,550,260 - ---------------------------------------------------------------------------------------------------------------------------- 1,825,852 2,381,221 893,495 1,893,650 3,856,667 3,739,616 (172,669) (239,365) (370,974) (669,458) (4,824,890) (4,929,423) (1,045) (2,019) 9,636 (17,017) (204,485) (344,939) (707,543) 753,735 (753,963) 19,115 (1,271,560) (605,234) - ---------------------------------------------------------------------------------------------------------------------------- 944,595 2,893,572 (221,806) 1,226,290 (2,444,268) (2,139,980) - ---------------------------------------------------------------------------------------------------------------------------- 125,062 2,374,412 (1,139,823) (323,757) (13,046,628) 410,280 2,932,587 558,175 5,139,164 5,462,921 46,178,737 45,768,457 - ---------------------------------------------------------------------------------------------------------------------------- $ 3,057,649 $ 2,932,587 $ 3,999,341 $ 5,139,164 $ 33,132,109 $ 46,178,737 ============================================================================================================================
19 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT -------------------------------------------------------------------------------- REAL ESTATE SECURITIES SCIENCE & TECHNOLOGY TRUST TRUST -------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 ------------------------------------------------------------------------------ Income: Dividends $ 565,952 $ 548,910 $ 2,074,187 $ 1,118,209 Expenses: Mortality and expense risks, and administrative charges 114,582 96,131 208,115 308,316 ------------------------------------------------------------------------------ Net investment income (loss) during the year 451,370 452,779 1,866,072 809,893 Net realized gain (loss) during the year 15,488 (373,361) (23,439,867) 6,027,471 Unrealized appreciation (depreciation) during the year 23,813 3,308,154 799,159 (27,894,294) ------------------------------------------------------------------------------ Net increase (decrease) in assets from operations 490,671 3,387,572 (20,774,636) (21,056,930) ------------------------------------------------------------------------------ Changes from principal transactions: Transfer of net premiums 2,354,244 1,902,266 15,791,038 23,717,592 Transfer on terminations (2,137,436) (1,529,570) (2,038,794) (3,000,348) Transfer on policy loans (128,228) (152,860) 7,147 (129,110) Net interfund transfers 2,063,609 (473,949) (5,452,439) 7,234,394 -------------------------------------------------------------------------------- Net increase (decrease) in assets from principal transactions 2,152,189 (254,113) 8,306,952 27,822,528 ------------------------------------------------------------------------------ Total increase (decrease) in assets 2,642,860 3,133,459 (12,467,684) 6,765,598 Assets beginning of year 17,166,358 14,032,899 42,158,414 35,392,816 ------------------------------------------------------------------------------ Assets end of year $ 19,809,218 $ 17,166,358 $ 29,690,730 $ 42,158,414 ================================================================================
** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 20
SUB-ACCOUNT - --------------------------------------------------------------------------------------------------------------------- SMALL CAP INDEX SMALL COMPANY BLEND SMALL COMPANY VALUE TRUST TRUST TRUST - --------------------------------------------------------------------------------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00** DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 - --------------------------------------------------------------------------------------------------------------------- $ 10,858 $ 1,534 $ 9,171 $ 133,872 $ 6,135 $ 2,007 1,175 58 14,376 5,510 21,354 11,945 - --------------------------------------------------------------------------------------------------------------------- 9,683 1,476 (5,205) 128,362 (15,219) (9,938) (22,401) 75 (529,157) 24,165 56,062 64,625 5,971 (2,773) 632,730 (568,390) 255,780 82,411 - --------------------------------------------------------------------------------------------------------------------- (6,747) (1,222) 98,368 (415,863) 296,623 137,098 - --------------------------------------------------------------------------------------------------------------------- 108,743 4,377 979,340 661,522 1,135,468 1,025,807 (5,551) (373) (102,979) (31,361) (194,581) (79,835) (630) -- (1,125) (10,610) (10,873) (11,079) 547,601 40,916 870,424 894,978 1,662,081 262,214 - --------------------------------------------------------------------------------------------------------------------- 650,163 44,920 1,745,660 1,514,529 2,592,095 1,197,107 - --------------------------------------------------------------------------------------------------------------------- 643,416 43,698 1,844,028 1,098,666 2,888,718 1,334,205 43,698 -- 1,334,707 236,041 2,461,108 1,126,903 - --------------------------------------------------------------------------------------------------------------------- $ 687,114 $ 43,698 $ 3,178,735 $ 1,334,707 $ 5,349,826 $ 2,461,108 =====================================================================================================================
21 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT ------------------------------------------------------ STRATEGIC STRATEGIC BOND TRUST GROWTH TRUST ------------------------------------------------------ YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01* ------------------------------------------------------ Income: Dividends $ 80,052 $ 85,997 $ - Expenses: Mortality and expense risks, and administrative charges 11,568 6,711 1,198 ------------------------------------------------------ Net investment income (loss) during the year 68,484 79,286 (1,198) Net realized gain (loss) during the year (24,852) (41,693) (1,048) Unrealized appreciation (depreciation) during the year 36,476 28,826 42,935 ------------------------------------------------------ Net increase (decrease) in assets from operations 80,108 66,419 40,689 ------------------------------------------------------ Changes from principal transactions: Transfer of net premiums 270,389 134,439 14,734 Transfer on terminations (93,614) (42,241) 7,320 Transfer on policy loans (51,468) (3,131) -- Net interfund transfers 1,620,314 (404,574) 693,970 ------------------------------------------------------ Net increase (decrease) in assets from principal transactions 1,745,621 (315,507) 716,024 ------------------------------------------------------ Total increase (decrease) in assets 1,825,729 (249,088) 756,713 Assets beginning of year 1,029,633 1,278,721 -- ------------------------------------------------------ Assets end of year $ 2,855,362 $ 1,029,633 $ 756,713 =====================================================
* Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. See accompanying notes. 22
SUB-ACCOUNT - -------------------------------------------------------------------------- TACTICAL TELECOMMUNICATIONS STRATEGIC OPPORTUNITIES TRUST ALLOCATION TRUST TRUST - -------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/01* - -------------------------------------------------------------------------- $ 2,218,057 $ 1,408,900 $ 537 $ -- 92,932 81,796 185 70 - -------------------------------------------------------------------------- 2,125,125 1,327,104 352 (70) (5,224,037) (242,930) (10,966) (55) (449,024) (2,200,855) 132 (3,950) - -------------------------------------------------------------------------- (3,547,936) (1,116,681) (10,482) (4,075) - -------------------------------------------------------------------------- 5,381,675 3,657,647 12,503 55 (992,898) (2,369,868) (1,918) (249) 23,131 (79,984) -- -- (5,638,761) 5,347,608 82,506 30,276 - -------------------------------------------------------------------------- (1,226,853) 6,555,403 93,091 30,082 - -------------------------------------------------------------------------- (4,774,789) 5,438,722 82,609 26,007 14,580,851 9,142,129 -- -- - -------------------------------------------------------------------------- $ 9,806,062 $ 14,580,851 $ 82,609 $ 26,007 ==========================================================================
23 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT ------------------------------------------------------------------------------ TOTAL STOCK MARKET TOTAL RETURN TRUST INDEX TRUST ------------------------------------------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00** ------------------------------------------------------------------------------ Income: Dividends $ 234,318 $ 27,495 $ 24,546 $ 12,374 Expenses: Mortality and expense risks, and administrative charges 61,535 15,109 13,278 2,888 ------------------------------------------------------------------------------ Net investment income (loss) during the year 172,783 12,386 11,268 9,486 Net realized gain (loss) during the year 196,395 22,935 (318,709) (1,756) Unrealized appreciation (depreciation) during the year 277,899 277,035 99,910 (140,552) ------------------------------------------------------------------------------ Net increase (decrease) in assets from operations 647,077 312,356 (207,531) (132,822) ------------------------------------------------------------------------------ Changes from principal transactions: Transfer of net premiums 3,312,061 1,516,546 336,664 2,071 Transfer on terminations (359,550) (75,925) (100,895) (24,855) Transfer on policy loans (51,927) -- -- -- Net interfund transfers 12,577,035 2,577,623 1,698,661 1,478,869 ------------------------------------------------------------------------------ Net increase (decrease) in assets from principal transactions 15,477,619 4,018,244 1,934,430 1,456,085 ------------------------------------------------------------------------------ Total increase (decrease) in assets 16,124,696 4,330,600 1,726,899 1,323,263 Assets beginning of year 4,630,708 300,108 1,323,263 -- ------------------------------------------------------------------------------ Assets end of year $ 20,755,404 $ 4,630,708 $ 3,050,162 $ 1,323,263 ==============================================================================
* Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. ** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 24
SUB-ACCOUNT - ------------------------------------------------------------------------------------------------ U.S. GOVERNMENT SECURITIES U.S. LARGE CAP VALUE TRUST TRUST UTILITIES TRUST - ------------------------------------------------------------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 DEC. 31/01* - ------------------------------------------------------------------------------------------------ $ 290,455 $ 162,231 $ 21,133 $ 7,307 $ 251 38,775 14,820 16,581 9,544 147 - ------------------------------------------------------------------------------------------------ 251,680 147,411 4,552 (2,237) 104 45,200 (46,024) (120,809) 67,805 (90) 28,056 123,103 (57,196) (30,733) (8,702) - ------------------------------------------------------------------------------------------------ 324,936 224,490 (173,453) 34,835 (8,688) - ------------------------------------------------------------------------------------------------ 1,522,630 491,787 1,960,789 659,231 394 (445,162) (463,269) (208,867) (95,636) (478) (27,403) (31,242) (5,424) 14,332 -- 6,043,832 (179,509) (126,044) 19,431 58,874 - ------------------------------------------------------------------------------------------------ 7,093,897 (182,233) 1,620,454 597,358 58,790 - ------------------------------------------------------------------------------------------------ 7,418,833 42,257 1,447,001 632,193 50,102 2,573,829 2,531,572 2,058,204 1,426,011 -- - ------------------------------------------------------------------------------------------------ $ 9,992,662 $ 2,573,829 $ 3,505,205 $ 2,058,204 $ 50,102 ================================================================================================
25 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT --------------------------------------------------------------------------- VALUE TRUST 500 INDEX TRUST --------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00** --------------------------------------------------------------------------- Income: Dividends $ 225,855 $ - $ 6,837 $ 512 Expenses: Mortality and expense risks, and administrative charges 52,453 24,109 2,267 397 --------------------------------------------------------------------------- Net investment income (loss) during the year 173,402 (24,109) 4,570 115 Net realized gain (loss) during the year 398,422 (100,839) (38,573) (2,289) Unrealized appreciation (depreciation) during the year (253,028) 1,097,226 (13,693) (16,787) --------------------------------------------------------------------------- Net increase (decrease) in assets from operations 318,796 972,278 (47,696) (18,961) --------------------------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 2,580,365 1,034,204 381,978 266,299 Transfer on terminations (540,089) (224,326) (35,458) (6,826) Transfer on policy loans 1,379 3,564 2,238 (21,009) Net interfund transfers 4,910,592 (394,919) 375,732 28,758 --------------------------------------------------------------------------- Net increase (decrease) in assets from principal transactions 6,952,247 418,523 724,490 267,222 --------------------------------------------------------------------------- Total increase (decrease) in assets 7,271,043 1,390,801 676,794 248,261 Assets beginning of year 4,713,260 3,322,459 248,261 -- --------------------------------------------------------------------------- Assets end of year $ 11,984,303 $ 4,713,260 $ 925,055 $ 248,261 ===========================================================================
** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 26
TOTAL - ------------------------------------- YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00 - ------------------------------------- $ 27,590,700 $ 33,640,178 3,162,753 3,367,318 - ------------------------------------- 24,427,947 30,272,860 (58,758,141) 23,929,759 (50,836,713) (98,403,823) - ------------------------------------- (85,166,907) (44,201,204) - ------------------------------------- 134,837,297 156,665,425 (44,885,104) (54,308,095) (379,191) (2,312,875) (131,156) (132,679) - ------------------------------------- 89,441,846 99,911,776 - ------------------------------------- 4,274,939 55,710,572 526,465,993 470,755,421 - ------------------------------------- $ 530,740,932 $ 526,465,993 =====================================
27 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements December 31, 2001 1. ORGANIZATION The Manufacturers Life Insurance Company of America Separate Account Four (the Account) is a separate account established by the Manufacturers Life Insurance Company of America (the Company). The Account operates as a Unit Investment Trust under the Investment Company Act of 1940, as amended and invests in fifty-nine investment sub-accounts. Each investment sub-account invests solely in shares of a particular Manufacturers Investment Trust (Trust) portfolio. The Trust is an open-end management investment company, commonly known as a mutual fund, which is not offered to the public but sold only to insurance companies and their separate accounts as the underlying investment medium for variable contracts. The Account is a funding vehicle for allocation of net premiums under variable universal life insurance contracts (the Contracts) issued by the Company. The Account was established by the Company, a life insurance company organized in 1983 under Michigan law. The Company is an indirect, wholly owned subsidiary of The Manufacturers Life Insurance Company (Manulife Financial), a Canadian life insurance company. The Trust is registered under the Investment Company Act of 1940 as an open-end management investment company. The Company is required to maintain assets in the Account with a total fair value at least equal to the reserves and other liabilities relating to the variable benefits under all Contracts participating in the Account. These assets may not be charged with liabilities which arise from any other business the Company conducts. However, all obligations under the variable contracts are general corporate obligations of the Company. Additional assets are held in the Company's general account to cover the contingency that the guaranteed minimum death benefit might exceed the death benefit which would have been payable in the absence of such guarantee. As the result of portfolio changes, the following sub-accounts of the Account have been renamed as follows:
PREVIOUS NAME NEW NAME EFFECTIVE DATE ------------- -------- -------------- Mid Cap Blend Trust Strategic Opportunities Trust May 1, 2001 Mid Cap Growth Trust All Cap Growth Trust May 2, 2000
28 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 1. ORGANIZATION (CONTINUED) The following sub-accounts of the Account were added as investment options for variable universal life insurance contract holders of the Company:
COMMENCEMENT OF OPERATIONS OF THE SUB-ACCOUNTS ----------------------------- All Cap Value Trust May 1, 2001 Capital Appreciation Trust May 1, 2001 Capital Opportunities Trust May 1, 2001 Dynamic Growth Trust May 2, 2000 Financial Services Trust May 1, 2001 Fundamental Value Trust May 1, 2001 Health Sciences Trust May 1, 2001 International Index Trust May 2, 2000 Internet Technologies Trust May 2, 2000 Mid Cap Growth Trust May 1, 2001 Mid Cap Index Trust May 2, 2000 Mid Cap Opportunities Trust May 1, 2001 Mid Cap Value Trust May 1, 2001 Quantitative Mid Cap Trust May 1, 2001 Small Cap Index Trust May 2, 2000 Strategic Growth Trust May 1, 2001 Tactical Allocation Trust May 2, 2000 Telecommunications Trust May 1, 2001 Total Stock Market Index Trust May 2, 2000 Utilities Trust May 1, 2001 500 Index Trust May 2, 2000
2. SIGNIFICANT ACCOUNTING POLICIES Investments of each sub-account are made in the portfolios of the Trust and are valued at the reported net asset values of such portfolios, which value their investment securities at fair value. Transactions are recorded on the trade date. Income from dividends is recorded on the ex-dividend date. Realized gains and losses on the sales of investments are computed on the basis of the identified cost of the investment sold. 29 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In addition to the Account, a contract holder may also allocate funds to the Fixed Account, which is part of the Company's general account. Because of exemptive and exclusionary provisions, interests in the Fixed Account have not been registered under the Securities Act of 1933, and the Company's general account has not been registered as an investment company under the Investment Company Act of 1940. The operations of the Account are included in the federal income tax return of the Company, which is taxed as a life insurance company under the provisions of the Internal Revenue Code (the Code). Under the current provisions of the Code, the Company does not expect to incur federal income taxes on the earnings of the Account to the extent the earnings are credited under the Contracts. Based on this, no charge is being made currently to the Account for federal income taxes. The Company will review periodically the status of such decision based on changes in the tax law. Such a charge may be made in future years for any federal income taxes that would be attributable to the Contract. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that could affect the amounts reported herein. Actual results could differ from these estimates. 3. MORTALITY AND EXPENSE RISKS CHARGE The Company deducts from the assets of the Account a daily charge equivalent to annual rates between 0.40% and 0.65% of the average net value of the Account's assets for the assumption of mortality and expense risks. 4. CONTRACT CHARGES The Company deducts certain charges from gross premium before placing the remaining net premiums in the sub-account. In the event of a surrender, surrender charges may be made by the Company to cover sales expenses and administrative expenses associated with underwriting the policy issue. Each month a deduction consisting of an administration charge, a charge for cost of insurance and charges for supplementary benefits is deducted from the policy value. 30 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 5. PURCHASES AND SALES OF INVESTMENTS The cost of purchases and proceeds from sales of investments for the year ended December 31, 2001 were as follows:
PURCHASES SALES ----------- ----------- SUB-ACCOUNTS: Aggressive Growth Trust $ 3,476,333 $ 2,278,794 All Cap Growth Trust 8,557,561 4,426,675 All Cap Value Trust 17,954 4,134 Balanced Trust 5,412,161 9,667,374 Blue Chip Growth Trust 27,727,010 21,425,240 Capital Appreciation Trust 35,214 686 Capital Opportunities Trust 96,004 228 Diversified Bond Trust 7,558,684 4,047,942 Dynamic Growth Trust 2,218,605 1,798,120 Emerging Small Company Trust 23,371,135 20,348,803 Equity Income Trust 13,276,662 5,092,364 Equity Index Trust 25,891,942 21,656,500 Financial Services Trust 103,084 3,433 Fundamental Value Trust 260,391 8,252 Global Bond Trust 1,505,061 338,789 Global Equity Trust 2,611,134 1,861,947 Growth Trust 7,265,891 6,820,780 Growth and Income Trust 16,732,414 12,439,650 Health Sciences Trust 193,105 51,474 High Yield Trust 5,629,141 4,138,699 Income and Value Trust 6,406,743 2,725,079 International Index Trust 721,269 563,213 International Small Cap Trust 2,135,572 2,706,549 International Stock Trust 13,418,704 13,627,572 International Value Trust 1,411,246 853,766 Internet Technologies Trust 134,003 96,926 Investment Quality Bond Trust 12,324,781 8,155,072 Large Cap Growth Trust 6,334,949 4,358,046 Lifestyle Aggressive 1000 Trust 493,571 375,134 Lifestyle Balanced 640 Trust 4,438,892 1,840,818 Lifestyle Conservative 280 Trust 3,714,338 331,577
31 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 5. PURCHASES AND SALES OF INVESTMENTS (CONTINUED)
PURCHASES SALES ------------ ----------- SUB-ACCOUNTS: Lifestyle Growth 820 Trust 913,972 813,135 Lifestyle Moderate 460 Trust 1,459,250 892,632 Mid Cap Growth Trust 187,775 3,905 Mid Cap Index Trust 1,140,189 403,732 Mid Cap Opportunities Trust 11,046 5,547 Mid Cap Stock Trust 687,344 299,354 Mid Cap Value Trust 132,548 3,091 Money Market Trust 38,325,899 37,828,278 Overseas Trust 3,127,126 1,921,319 Pacific Rim Emerging Markets Trust 2,490,761 2,723,280 Quantitative Equity Trust 10,379,755 7,306,218 Real Estate Securities Trust 7,861,522 5,257,963 Science and Technology Trust 40,958,367 30,785,343 Small Cap Index Trust 1,253,948 594,102 Small Company Blend Trust 2,746,849 1,006,394 Small Company Value Trust 5,076,953 2,500,077 Strategic Bond Trust 3,192,856 1,378,752 Strategic Growth Trust 721,856 7,031 Strategic Opportunities Trust 10,265,811 9,367,539 Tactical Allocation Trust 194,305 100,862 Telecommunications Trust 30,305 293 Total Return Trust 19,663,644 4,013,242 Total Stock Market Index 3,023,461 1,077,764 U.S. Government Securities Trust 9,743,314 2,397,739 U.S. Large Cap Value Trust 4,875,742 3,250,737 Utilities Trust 59,519 625 Value Trust 10,864,772 3,739,123 500 Index Trust 871,169 142,109 ------------ ------------ Total $383,733,612 $269,863,832 ============ ============
32 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 6. FINANCIAL HIGHLIGHTS The Manufacturers Life Insurance Company of America Separate Account Four is a funding vehicle for a number of variable universal life insurance products which have unique combinations of features and fees that are charged against the contract owner's account balance. Differences in the fee structures result in a variety of unit values, expense ratios and total returns. The following table was developed by determining which products offered by the Company have the lowest and highest total return. Only product designs within each sub-account that had units outstanding during the respective periods were considered when determining the lowest and highest total return. The summary may not reflect the minimum and maximum contract charges offered by the Company as contract owners may not have selected all available and applicable contract options as discussed in Note 3.
FOR THE YEAR ENDED AS AT DECEMBER 31, 2001 DECEMBER 31, 2001 --------------------------------------------------------------------------------------------- EXPENSE INVESTMENT RATIO** TOTAL RETURN*** UNIT NET INCOME LOWEST TO LOWEST TO HIGHEST UNITS VALUE ASSETS RATIO* HIGHEST GAIN (LOSS) --------------------------------------------------------------------------------------------- SUB-ACCOUNTS: Aggressive Growth Trust 388,103 $10.82 to $14.91 $ 5,113,597 -- .55% to .65% (26.46%) to (26.39%) All Cap Growth Trust 604,579 9.71 to 18.73 10,184,673 -- .45 to .65 (24.27) to (24.11) All Cap Value Trust+ 1,194 12.56 14,993 0.04% .65 0.46 Balanced Trust 1,197,589 9.85 to 26.49 31,589,231 2.19 .40 to .65 (10.78) to (10.55) Blue Chip Growth Trust 1,996,442 10.60 to 19.85 36,203,915 -- .40 to .65 (15.16) to (14.95) Capital Appreciation Trust+ 3,341 11.05 36,920 -- .65 (11.60) Capital Opportunities Trust+ 9,069 10.65 to 10.67 96,738 -- .45 to .65 (14.77) to (14.67) Diversified Bond Trust 507,459 14.49 to 14.89 7,354,939 5.48 .45 to .65 6.38 to 6.61 Dynamic Growth Trust 102,477 4.72 to 4.73 483,613 0.17 .55 to .65 (40.63) to (40.57) Emerging Small Company Trust 1,065,694 11.69 to 79.51 63,138,723 -- .40 to .65 (22.75) to 22.55 Equity Income Trust 840,766 13.50 to 18.38 15,189,718 1.64 .40 to .65 0.63 to 0.89 Equity Index Trust 2,189,228 10.18 to 18.26 38,066,462 1.03 .40 to .65 (12.83) to (12.61) Financial Services Trust+ 8,377 11.58 97,034 0.08 .65 (7.34) Fundamental Value Trust+ 21,338 11.68 249,216 -- .65 (6.57) Global Bond Trust 118,128 12.45 to 13.16 1,549,796 -- .55 to .65 (0.12) to (0.03) Global Equity Trust 206,811 11.79 to 15.50 3,140,867 2.45 .55 to .65 (16.63) to (16.55) Growth Trust 955,887 7.75 to 14.12 12,500,179 -- .55 to .65 (21.88) to (21.80) Growth and Income Trust 1,605,126 10.44 to 18.66 26,826,511 0.41 .40 to .65 (11.85) to (11.63) Health Sciences Trust+ 11,197 13.48 150,957 -- .65 (7.85) High Yield Trust 395,816 10.82 to 12.87 4,979,952 9.19 .40 to .65 (6.09) to (5.85) Income and Value Trust 649,395 13.27 to 15.86 9,857,366 2.68 .40 to .65 0.33 to 0.58 International Index Trust 22,786 8.65 197,118 1.22 .65 (22.91) International Small Cap Trust 215,989 7.73 to 12.36 2,355,865 -- .55 to .65 (31.55) to (31.48) International Stock Trust 1,135,448 9.22 to 11.33 12,791,612 0.20 .40 to .65 (22.05) to (21.85) International Value Trust 200,221 10.74 to 11.12 2,154,783 1.02 .40 to .65 (10.56) to (10.33) Internet Technologies Trust 32,484 3.75 to 3.76 121,782 -- .55 to .65 (46.45) to (46.38) Investment Quality Bond Trust 1,255,012 14.38 to 16.56 20,633,935 5.47 .40 to .65 6.63 to 6.90 Large Cap Growth Trust 583,261 9.39 to 13.17 7,423,884 -- .40 to .65 (18.35) to (18.14) Lifestyle Aggressive 1000 Trust 47,093 13.68 644,205 0.37 .65 (14.23) Lifestyle Balanced 640 Trust 385,225 12.53 to 15.90 6,058,824 2.55 .45 to .65 (5.40) to (5.21)
33 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 6. FINANCIAL HIGHLIGHTS (CONT'D)
--------------------------------------------------------------------------------------------- EXPENSE INVESTMENT RATIO** TOTAL RETURN*** UNIT NET INCOME LOWEST TO LOWEST TO HIGHEST UNITS VALUE ASSETS RATIO* HIGHEST GAIN (LOSS) --------------------------------------------------------------------------------------------- SUB-ACCOUNTS: Lifestyle Conservative 280 Trust 220,989 13.81 to 16.98 3,748,192 3.89 .55 to .65 2.56 to 2.66 Lifestyle Growth 820 Trust 87,349 11.62 to 15.11 1,316,120 1.40 .45 to .65 (9.63) to (9.44) Lifestyle Moderate 460 Trust 53,694 12.98 to 16.41 817,107 3.30 .55 to .65 (1.74) to (1.63) Mid Cap Growth Trust+ 17,665 10.42 184,149 -- .65 (16.61) Mid Cap Index Trust 80,845 13.02 to 13.04 1,052,814 0.85 .55 to .65 (2.38) to (2.27) Mid Cap Opportunities Trust+ 564 10.54 5,945 -- .65 (15.65) Mid Cap Stock Trust 72,047 10.59 to 11.19 762,884 -- .55 to .65 (11.57) to (11.48) Mid Cap Value Trust+ 10,285 13.03 134,052 0.74 .65 4.27 Money Market Trust 2,216,771 13.63 to 18.91 40,817,893 3.59 .40 to .65 2.91 to 3.17 Overseas Trust 296,994 9.12 to 11.80 3,057,649 0.27 .55 to .65 (21.61) to (21.53) Pacific Rim Emerging Markets Trust 569,972 6.94 to 8.48 3,999,341 0.41 .55 to .65 (19.10) to (19.03) Quantitative Equity Trust 707,953 10.59 to 51.01 33,132,109 0.30 .45 to .65 (23.45) to (23.30) Real Estate Securities Trust 495,247 15.99 to 40.88 19,809,218 3.75 .40 to .65 2.48 to 2.74 Science and Technology Trust 2,589,114 5.75 to 15.15 29,690,730 -- .40 to .65 (41.63) to (41.49) Small Cap Index Trust 58,468 11.75 to 11.77 687,114 1.85 .55 to .65 0.85 to 0.94 Small Company Blend Trust 259,656 10.89 to 12.39 3,178,735 -- .55 to .65 (2.94) to (2.84) Small Company Value Trust 521,854 10.15 to 15.03 5,349,826 0.17 .40 to .65 5.85 to 6.11 Strategic Bond Trust 183,559 14.17 to 15.62 2,855,362 7.96 .55 to .65 5.55 to 5.66 Strategic Growth Trust+ 68,964 10.97 756,713 -- .65 (12.22) Strategic Opportunities Trust 706,044 10.77 to 14.47 9,806,062 0.50 .55 to .65 (15.81) to (15.72) Tactical Allocation Trust 7,967 10.37 82,609 0.11 .65 (13.95) Telecommunications Trust+ 3,294 7.90 26,007 -- .65 (36.83) Total Return Trust 1,419,177 14.60 to 14.65 20,755,404 3.59 .40 to .65 7.58 to 7.85 Total Stock Market Index Trust 309,502 9.85 to 9.87 3,050,162 0.92 .55 to .65 (11.99) to (11.90) U.S. Government Securities Trust 719,661 13.61 to 14.52 9,992,662 4.75 .45 to .65 6.33 to 6.55 U.S. Large Cap Value Trust 277,574 12.61 to 12.66 3,505,205 0.38 .45 to .65 (3.18) to (2.98) Utilities Trust+ 5,383 9.31 50,102 1.05 .65 (25.55) Value Trust 700,592 15.42 to 17.26 11,984,303 0.53 .40 to .65 2.75 to 3.00 500 Index Trust 94,218 9.80 to 9.85 925,055 0.84 .40 to .65 (12.93) to (12.71)
* These ratios represent the dividends, excluding distributions of capital gains, distributed by the Trust portfolio, net of management fees and expenses assessed by the fund manager, divided by the average net assets of the respective Trust portfolio which approximates the ratio of dividends, excluding distribution of capital gains, received by the sub-account of the Account, net of management fees and expenses assessed by the fund manager, divided by the average unit value. These ratios exclude those expenses, such as mortality and expense charges, that result in direct reduction in the unit values. The recognition of investment income by the sub-account is affected by the timing of the declaration of dividends by the underlying Trust portfolio in which the sub-accounts invest. ** These ratios represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges, for the period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying Trust portfolio are excluded. 34 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 6. FINANCIAL HIGHLIGHTS (CONT'D) *** These ratios represent the total return for the period indicated, including changes in the value of the underlying Trust portfolio, and reflect deductions for all items included in the expense ratio. The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented. Investment options with a date notation indicate the effective date of that investment option in the separate account. The total return is calculated for the period indicated or from the effective date through the end of the reporting period. + Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. 7. RELATED PARTY TRANSACTIONS ManEquity, Inc., a registered broker-dealer and indirect wholly owned subsidiary of Manulife Financial, acts as the principal underwriter of the Contracts pursuant to a Distribution Agreement with Manufacturers Life of America. Registered representatives of either ManEquity, Inc. or other broker-dealers having distribution agreements with ManEquity, Inc. who are also authorized as variable life insurance agents under applicable state insurance laws sell the Contracts. Registered representatives are compensated on a commission basis. The Company has a formal service agreement with its affiliates, Manulife Financial and The Manufacturers Life Insurance Company (U.S.A.) ("Manulife U.S.A."), which can be terminated by either party upon two months notice. Under this Agreement, the Company pays for legal, actuarial, investment and certain other administrative services. 8. SUBSEQUENT EVENT Effective January 1, 2002, the Company transferred all of its variable business to Manulife U.S.A. via an assumption reinsurance agreement. As a result, products originally sold and administered under the name of the Company will be offered and administered under the name of Manulife U.S.A. As such and effective January 1, 2002, the account will be known as The Manufacturers Life Insurance Company U.S.A. Separate Account N. Also, effective January 1, 2002, ManEquity, Inc. was merged into Manulife Financial Securities LLC. Manulife Financial Securities LLC, a subsidiary of Manulife U.S.A., will carry on the business of ManEquity, Inc. 35 THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) AUDITED CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 [MANULIFE FINANCIAL LOGO] THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) AUDITED CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 CONTENTS REPORT OF INDEPENDENT AUDITORS...............................................1 AUDITED CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS.............................................2 CONSOLIDATED STATEMENTS OF INCOME.......................................3 CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS...............4 CONSOLIDATED STATEMENTS OF CASH FLOWS...................................5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..............................6 REPORT OF INDEPENDENT AUDITORS THE BOARD OF DIRECTORS THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) We have audited the accompanying consolidated balance sheets of The Manufacturers Life Insurance Company (U.S.A.) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, changes in capital and surplus, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Manufacturers Life Insurance Company (U.S.A.) and subsidiaries at December 31, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States. As discussed in Note 2 to the financial statements, in 2001, the Company changed its accounting for certain investments. /s/ ERNST & YOUNG LLP Philadelphia, Pennsylvania March 22, 2002 1 THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) CONSOLIDATED BALANCE SHEETS
As at December 31 ($ millions) ASSETS 2001 2000 - ---------------------------------------------------------------------------------------------------------------------- INVESTMENTS: Securities available-for-sale, at fair value: Fixed-maturity (amortized cost: 2001 $9,656 ; 2000 $9,580) $ 10,108 $ 9,797 Equity (cost: 2001 $889 ; 2000 $707) 845 852 Mortgage loans 1,675 1,539 Real estate 969 986 Policy loans 2,226 1,998 Short-term investments 539 715 - ---------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS $ 16,362 $ 15,887 - ---------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents $ 109 $ 98 Deferred acquisition costs 2,302 2,066 Deferred income taxes 79 125 Due from affiliates 508 511 Amounts recoverable from reinsurers 767 572 Other assets 641 757 Separate account assets 30,217 29,681 - ---------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 50,985 $ 49,697 ====================================================================================================================== LIABILITIES, CAPITAL AND SURPLUS - ---------------------------------------------------------------------------------------------------------------------- LIABILITIES: Policyholder liabilities and accruals $ 17,415 $ 16,240 Note payable 200 200 Due to affiliate 250 250 Other liabilities 601 778 Separate account liabilities 30,217 29,681 - ---------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES $ 48,683 $ 47,149 ====================================================================================================================== CAPITAL AND SURPLUS: Capital stock $ 5 $ 5 Retained earnings 2,176 2,260 Accumulated other comprehensive income 121 283 - ---------------------------------------------------------------------------------------------------------------------- TOTAL CAPITAL AND SURPLUS $ 2,302 $ 2,548 - ---------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES, CAPITAL AND SURPLUS $ 50,985 $ 49,697 ======================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 2 THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------ REVENUE: Premiums $ 794 $ 814 $ 881 Fee income 903 958 746 Net investment income 1,115 1,135 1,121 Realized investment gains 35 137 27 Other 12 -- 5 - ------------------------------------------------------------------------------------------------------------------------ TOTAL REVENUE $2,859 $ 3,044 $ 2,780 - ------------------------------------------------------------------------------------------------------------------------ BENEFITS AND EXPENSES: Policyholder benefits and claims $1,567 $ 1,535 $ 1,429 Operating expenses and commissions 600 617 494 Amortization of deferred acquisition costs 277 180 40 Interest expense 30 19 8 Policyholder dividends 348 339 323 Minority interest expense -- 16 16 - ------------------------------------------------------------------------------------------------------------------------ TOTAL BENEFITS AND EXPENSES $2,822 $ 2,706 $ 2,310 - ------------------------------------------------------------------------------------------------------------------------ INCOME BEFORE INCOME TAXES 37 338 470 - ------------------------------------------------------------------------------------------------------------------------ INCOME TAX (BENEFIT) EXPENSE (4) 90 177 - ------------------------------------------------------------------------------------------------------------------------ NET INCOME $ 41 $ 248 $ 293 ========================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 3 THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
ACCUMULATED OTHER TOTAL FOR THE YEARS ENDED DECEMBER 31 CAPITAL RETAINED COMPREHENSIVE CAPITAL AND ($ millions) STOCK EARNINGS INCOME (LOSS) SURPLUS - ----------------------------------------------------------------------------------------------------------------- BALANCE AT JANUARY 1, 1999 $ 5 $1,697 $ 149 $ 1,851 Comprehensive income -- 293 (21) 272 - ----------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1999 $ 5 $1,990 $ 128 $ 2,123 - ----------------------------------------------------------------------------------------------------------------- Comprehensive income -- 248 155 403 Contributed surplus -- 22 -- 22 - ----------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2000 $ 5 $2,260 $ 283 $ 2,548 Comprehensive income -- 41 (162) (121) Dividend to shareholder -- (125) -- (125) - ----------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2001 $ 5 $2,176 $ 121 $ 2,302 =================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 4 THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net Income $ 41 $ 248 $ 293 Adjustments to reconcile net income to net cash provided by operating activities: Additions to policyholder liabilities and accruals 442 330 404 Deferred acquisition costs (538) (590) (463) Amortization of deferred acquisition costs 277 180 40 Amounts recoverable from reinsurers (91) 23 334 Realized investment gains (35) (137) (27) Decreases to deferred income taxes 60 34 194 Amounts due from affiliates 3 259 22 Other assets and liabilities, net (38) (244) 258 Other, net 3 (62) 58 - ----------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities $ 124 $ 41 $ 1,113 - ----------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Fixed-maturity securities sold, matured or repaid $ 9,976 $ 6,584 $ 4,302 Fixed-maturity securities purchased (10,031) (6,792) (4,763) Equity securities sold 412 1,185 303 Equity securities purchased (587) (1,012) (349) Mortgage loans advanced (334) (187) (148) Mortgage loans repaid 200 274 314 Real estate sold 42 101 54 Real estate purchased (29) (58) (219) Policy loans advanced, net (228) (155) (133) Short-term investments 176 (431) (251) Separate account seed money -- -- 32 Other investments, net (26) 196 (355) - ----------------------------------------------------------------------------------------------------------------- Net cash used in investing activities $ (429) $ (295) $ (1,213) - ----------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Deposits and interest credited to policyholder account balances $ 1,934 $ 1,336 $ 1,263 Withdrawals from policyholder account balances (1,532) (1,579) (987) Amounts due to affiliates 150 250 -- Principal repayment of amounts due to affiliates (150) -- -- Net reinsurance recoverable (payable) 39 87 (158) Dividend to shareholder (125) -- -- Borrowed funds -- 107 50 - ----------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities $ 316 $ 201 $ 168 - ----------------------------------------------------------------------------------------------------------------- CASH: Increase (decrease) during the year 11 (53) 68 Balance, beginning of year 98 151 83 - ----------------------------------------------------------------------------------------------------------------- BALANCE, END OF YEAR $ 109 $ 98 $ 151 =================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 5 THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 (IN MILLIONS OF DOLLARS) 1. ORGANIZATION The Manufacturers Life Insurance Company (U.S.A.) ("ManUSA") is an indirectly wholly-owned subsidiary of Manulife Financial Corporation, a Canadian-based publicly traded company. Manulife Financial Corporation ("MFC") and its subsidiaries are collectively known as "Manulife Financial". ManUSA and its subsidiaries, collectively known as the "Company", operate in the life insurance industry, offering a broad range of insurance and wealth management related products. These products are offered both on an individual and group basis and are marketed primarily in the United States. In December of 2000 through an issuance of shares, the Company acquired the remaining 21.6% minority interest in Manulife-Wood Logan Holding Co. Inc ("MWLH"), a subsidiary of the Company, from MRL Holding, LLC ("MRL-LLC"), an affiliated company. As this was a related party transaction, the purchase was accounted for at MRL-LLC's carrying value and no goodwill was generated. 2. SIGNIFICANT ACCOUNTING POLICIES a) BASIS OF PRESENTATION The accompanying consolidated financial statements of ManUSA have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and include accounts and operations, after intercompany eliminations, of ManUSA and its subsidiaries. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates. b) RECENT ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires the purchase method of accounting to be used for all future business combinations. SFAS No. 142 eliminates the practice of amortizing goodwill through periodic charges to earnings and establishes a new methodology for recognizing and measuring goodwill and other intangible assets. Under this new accounting standard, the Company will cease goodwill amortization effective January 1, 2002. The Company is currently considering the other provisions of the new standard. The impact of adopting these two standards on the Company's financial statements is not expected to be material. 6 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EITF Issue No. 99-20 ("EITF 99-20"), "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets", applies to all securities, purchased or retained, which represent beneficial interests in securitized assets, unless they meet certain exception criteria. Such securities include many collateralized mortgage, bond, debt and loan obligations, mortgage-backed securities, and asset-backed securities. EITF 99-20 significantly changes the method of assessing "other than temporary impairments" and for recognizing interest income. A decline in fair value below the "amortized cost" basis is considered to be an other than temporary impairment whenever there is an adverse change in the amount or timing of cash flows to be received, regardless of the resulting yield, unless the decrease is solely a result of changes in market interest rates. Interest income is based on prospective estimates of future cash flows. EITF 99-20 was effective for fiscal quarters beginning after March 15, 2001. We reviewed all applicable securities held by the Company since April 1, 2001 and deemed the impact of this new accounting clarification as immaterial. c) INVESTMENTS The Company classifies all of its fixed-maturity and equity securities as available-for-sale and records these securities at fair value. The cost of fixed-maturity securities is adjusted for the amortization of premiums and accretion of discounts, which are calculated using the effective interest method. For the mortgage-backed bond portion of the fixed-maturity securities portfolio, the Company recognizes amortization using a constant effective yield based on anticipated prepayments and the estimated economic life of the securities. When actual prepayments differ significantly from anticipated prepayments, the effective yield is recalculated to reflect actual payments to date and anticipated future payments. The net investment in the security is adjusted to the amount that would have existed had the new effective yield been applied since the acquisition of the security. That adjustment is included in net investment income. Realized gains and losses on sales of securities classified as available-for-sale are recognized in net income using the specific-identification method. Temporary changes in the fair value of securities available-for-sale are reflected directly in accumulated other comprehensive income after adjustments for deferred taxes, deferred acquisition costs, policyholder liabilities and unearned revenue liability. Mortgage loans are reported at unpaid principal balances, net of a provision for losses. The provision for losses is established for mortgage loans both on a specific as well as on an aggregate basis. Mortgage loans are considered to be impaired when the Company has determined that it is probable that all amounts due under contractual terms will not be collected. Impaired loans are reported at the lower of unpaid principal or fair value of the underlying collateral. Real estate held for investment is carried at cost, less accumulated depreciation and provisions for impairment and write-downs, if applicable. Real estate held for sale is carried at the lower of cost or market value where changes in estimates of market value are recognized as realized gains or losses in the income statement. Policy loans are reported at aggregate unpaid balances, which approximates fair value. 7 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Short-term investments, which include investments with maturities of less than one year and greater than ninety days as at the date of acquisition, are reported at amortized cost which approximates fair value. d) CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with an original maturity date of three months or less to be cash equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates fair value. e) DEFERRED ACQUISITION COSTS ("DAC") Commissions and other expenses, which vary with and are primarily related to the production of new business, are deferred to the extent recoverable from future gross profits and included as an asset. The portion of DAC associated with variable annuity and variable life insurance contracts, universal life insurance contracts, investment contracts, and participating life insurance contracts is charged to expense in relation to the estimated gross profits of those contracts. This amortization is adjusted retrospectively when current gross profits or estimates of future gross profits are revised. Certain changes in assumptions regarding the variable annuity product line were made which refined the amortization pattern. DAC associated with all other insurance contracts is amortized over the premium-paying period of the related policies. Assuming the unrealized gains or losses on securities had been realized at year-end, DAC is adjusted for the impact on current and estimated future gross profits. The impact of any such adjustments is included in net unrealized gains (losses) in accumulated other comprehensive income. DAC is reviewed annually to determine recoverability from future income and if not recoverable, is immediately expensed. f) POLICYHOLDER LIABILITIES AND ACCRUALS Policyholder liabilities for traditional non-participating life insurance policies and for accident and health policies are computed using the net level premium method. The calculations are based upon estimates as to future mortality, morbidity, persistency, maintenance expenses, and interest rate yields that were applicable in the year of issue. The assumptions include a provision for the risk of adverse deviation. For payout annuities in loss recognition, policyholder liabilities are computed using estimates of expected mortality, expenses, and investment yields as determined at the time these contracts first moved into loss recognition. Payout annuity reserves are adjusted for the impact of net unrealized gains associated with the underlying assets. For variable annuity and variable life contracts, universal life insurance contracts, and investment contracts with no substantial mortality or morbidity risk, policyholder liabilities equal the policyholder account values. Account values are increased for deposits received and interest credited and are reduced by withdrawals, mortality charges, and administrative expenses charged to the policyholders. 8 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) For traditional participating life insurance policies, policyholder liabilities are computed using the net level premium reserve for death and endowment policy benefits. Mortality and interest assumptions are the same as the non-forfeiture benefit assumptions at the time the policy was issued. Interest rate assumptions used in the calculation of the liabilities for traditional participating life insurance policies range from 2.5% to 7.0%. As of December 31, 2001, participating insurance expressed as a percentage of insurance in force is 69.1%. For participating policies inforce as of September 23, 1999, the demutualization of The Manufacturers Life Insurance Company ("MLT"), an indirect parent, separate sub-accounts were established within the participating accounts of the Company. These sub-accounts permit this participating business to be operated as separate "closed block" of business. As at December 31, 2001, $7,441 (2000 - $7,048) of both assets and actuarial liabilities related to the participating policyholders' account are included in the closed block. ManUSA's Board of Directors approves the amount of policyholder dividends to be paid annually. The aggregate amount of policyholder dividends is calculated based on actual interest, mortality, morbidity and expense experience for the year, and on management's judgment as to the appropriate level of equity to be retained by the Company. The carrying value of this liability approximates the earned amount and fair value as at December 31, 2001. g) SEPARATE ACCOUNTS Separate account assets and liabilities represent funds that are separately administered, principally for investment contracts related to group pension business as well as for variable annuity and variable life contracts, and for which the contract holder, rather than the Company, bears the investment risk. Separate account contract holders have no claim against the assets of the general account of the Company. Separate account assets are recorded at market value. Operations of the separate accounts are not included in the accompanying financial statements. However, fees charged on separate account policyholder funds are included in revenue of the Company. h) REVENUE RECOGNITION Premiums on long-duration life insurance contracts are recognized as revenue when due. Premiums on short-duration contracts are earned over the related contract period. Net premiums on limited-payment contracts are recognized as revenue and the difference between the gross premium received and the net premium is deferred and recognized in income based on either a constant relationship to insurance in force or the present value of annuity benefits, depending on the product type. Fee income from annuity contracts, pension contracts, and insurance contracts consist of charges for mortality, expense, surrender and administration that have been assessed against the policyholder account balances. To the extent such charges compensate the Company for future services, they are deferred and recognized in income over the period earned using the same assumptions as those associated with the amortization of DAC. Interest on fixed-maturity securities and performing mortgage loans is recorded as income when earned and is adjusted for any amortization of premiums or discounts. Interest on restructured mortgage loans is recorded as income based on the rate to be paid; interest on delinquent mortgage loans is recorded as income on a cash basis. Dividends are recorded as income on ex-dividend dates. 9 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) i) POLICYHOLDER BENEFITS AND CLAIMS Benefits for variable annuity and variable life contracts, for universal life insurance contracts, and for investment pension contracts include interest credited to policyholder account values and benefit claims incurred during the period in excess of policyholder account values. j) REINSURANCE The Company routinely utilizes reinsurance transactions to minimize exposure to large risks. Life reinsurance is accomplished through various plans including yearly renewable term, co-insurance, and modified co-insurance. Reinsurance premiums, policy charges for cost of insurance, and claims are accounted for on a basis consistent with that used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums, fees, and claims are reported net of reinsured amounts. The amount recoverable from reinsures and pertaining to policyholder liabilities is presented as a separate asset on the balance sheet. For those claims paid and covered by a reinsurance treaty, a reinsurance receivable has been included as part of other assets. k) INCOME TAX Income taxes have been provided for in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that likely will be in effect when the differences are expected to reverse. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. ManUSA joins its direct parent, Manulife Reinsurance Corporation (U.S.A.) ("MRC"), its indirect parent, The Manufacturers Investment Corporation ("MIC"), and its subsidiary, The Manufacturers Life Insurance Company of America ("MLA"), in filing a U.S. consolidated income tax return as a life insurance group under the provisions of the Internal Revenue Service. A separate life insurance group for certain of ManUSA's subsidiaries is also in place. In accordance with the income tax-sharing agreements, the Company's income tax provision (or benefit) is computed as if ManUSA and the companies within the two groups filed separate income tax returns. Tax benefits from operating losses are provided at the U.S. statutory rate plus any tax credits attributable, provided the consolidated group utilizes such benefits currently. l) FOREIGN EXCHANGE The balance sheet and statement of income of the Company's foreign operations as well as non-U.S. dollar investments are translated into U.S. dollars using exchange rates in effect at the balance sheet date and average exchange rates prevailing during the respective periods. Translation adjustments are included in accumulated other comprehensive income. 10 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) m) DERIVATIVES The Company adopted the Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by Statement of Financial Accounting Standards No. 138, on January 1, 2001. As a result, all derivative instruments are reported on the Consolidated Balance Sheet at their fair value, with changes in fair value recorded in income or equity, depending on the nature of the derivative instrument. Changes in the fair value of derivatives not designated as hedges are recognized in current period earnings. There was no cumulative transition adjustment at the time of adoption. For fair value hedges, the Company is hedging changes in the fair value of assets, liabilities or firm commitments with changes in fair values of the derivative instruments. Both sets of changes are recorded through income. For cash flow hedges, the Company is hedging the variability of cash flows related to forecasted transactions. The effective portion of changes in the fair value of cash flow hedges is recorded in other comprehensive income and reclassified into income in the same period or periods during which the hedged transaction affects earnings. The Company estimates that deferred net losses of $4 after tax, included in other comprehensive income as at December 31, 2001, will be reclassified into earnings within the next twelve months. Cash flow hedges include hedges of certain forecasted transactions of varying periods up to a maximum of 40 years. n) RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current year presentation. 3. INVESTMENTS AND INVESTMENT INCOME a) FIXED-MATURITY AND EQUITY SECURITIES At December 31, 2001, all fixed-maturity and equity securities have been classified as available-for-sale and reported at fair value. The amortized cost and fair value is summarized as follows:
GROSS GROSS AMORTIZED COST UNREALIZED UNREALIZED FAIR VALUE AS AT DECEMBER 31 GAINS LOSSES ($ millions) 2001 2000 2001 2000 2001 2000 2001 2000 ---------------------------------------------------------------------------------------------------------- FIXED-MATURITY SECURITIES: U.S. government $1,963 $1,240 $65 $103 $ (9) $ -- $ 2,019 $1,343 Foreign governments 1,290 1,730 169 204 (2) -- 1,457 1,934 Corporate 5,728 5,561 297 111 (98) (215) 5,927 5,457 Asset - backed 675 1,049 32 21 (2) (7) 705 1,063 ---------------------------------------------------------------------------------------------------------- TOTAL FIXED-MATURITY SECURITIES 9,656 9,580 563 439 (111) (222) 10,108 9,797 ---------------------------------------------------------------------------------------------------------- EQUITY SECURITIES $ 889 $ 707 $ 93 $210 $ (137) $(65) $ 845 $ 852 ----------------------------------------------------------------------------------------------------------
Proceeds from sales of fixed-maturity securities during 2001 were $10,063 (2000 - $6,584 and 1999 - $4,302). Gross gains and losses of $225 and $98 respectively, were realized on those sales (2000 - $71 and $242 respectively, 1999 - $49 and $167 respectively). 11 3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED) Proceeds from the sale of equity securities during 2001 were $412 (2000 - $1,185 and 1999 - $303). Gross gains and losses of $20 and $31 respectively, were realized on those sales (2000 - $319 and $60 respectively, 1999 - $84 and $39 respectively). The contractual maturities of fixed-maturity securities at December 31, 2001 are shown below.
AS AT DECEMBER 31, 2001 ($ millions) AMORTIZED COST FAIR VALUE - ---------------------------------------------------------------------------------------------------- Fixed-maturity securities, excluding mortgage-backed securities: One year or less $ 230 $ 242 Greater than 1; up to 5 years 1,310 1,342 Greater than 5; up to 10 years 2,930 3,022 Due after 10 years 4,511 4,797 Asset - backed securities 675 705 - ---------------------------------------------------------------------------------------------------- TOTAL FIXED-MATURITY SECURITIES $ 9,656 $ 10,108 - ----------------------------------------------------------------------------------------------------
Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties. Corporate requirements and investment strategies may result in the sale of investments before maturity. b) MORTGAGE LOANS Mortgage loans are reported at amortized cost, net of a provision for losses. The impaired mortgage loans and the related allowance for mortgage loan losses were as follows:
AS AT DECEMBER 31 ($ millions) 2001 2000 - ----------------------------------------------------------------------- IMPAIRED LOANS $ 79 $ 80 - ----------------------------------------------------------------------- Allowance, January 1 $ 51 $ 57 Deductions (1) (6) - ----------------------------------------------------------------------- ALLOWANCE, DECEMBER 31 $ 50 $ 51 - -----------------------------------------------------------------------
c) INVESTMENT INCOME Income by type of investment was as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2001 2000 1999 - ----------------------------------------------------------------------- Fixed-maturity securities $ 698 $ 727 $ 726 Equity securities 42 60 18 Mortgage loans 128 126 149 Investment real estate 81 95 71 Other investments 200 184 195 - ----------------------------------------------------------------------- Gross investment income 1,149 1,192 1,159 Investment expenses (34) (57) (38) - ----------------------------------------------------------------------- NET INVESTMENT INCOME $ 1,115 $ 1,135 $ 1,121 - -----------------------------------------------------------------------
12 3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED) d) SIGNIFICANT EQUITY INTERESTS ManUSA holds a 27.7% (2000 - 22.4%) indirect interest in Flex Leasing I, LLC and a 19.6% direct interest in Flex Leasing II, LLC. These investments are accounted for using the equity method whereby ManUSA would recognize its proportionate share of the respective investee's net income or loss. As at December 31, 2001, the sum of total assets for both these investees was $396 (2000 - $392), with total liabilities amounting to $295 (2000 - $288). For the year ended December 31, 2001, total net loss for both these investees amounted to $4 (2000 - net income of $1). 4. COMPREHENSIVE INCOME a) Total comprehensive income was as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2001 2000 1999 - ----------------------------------------------------------------------------------------- NET INCOME $ 41 $ 248 $ 293 - ----------------------------------------------------------------------------------------- OTHER COMPREHENSIVE (LOSS) INCOME, NET OF INCOME TAX: Unrealized holding (losses) gains arising during the year (146) 69 (4) Foreign currency translation (13) (3) 1 Less: Reclassification adjustment for realized gains and losses included in net income 3 (89) 18 - ----------------------------------------------------------------------------------------- Other comprehensive (loss) income (162) 155 (21) - ----------------------------------------------------------------------------------------- COMPREHENSIVE (LOSS) INCOME $(121) $ 403 $ 272 =========================================================================================
Other comprehensive (loss) income is reported net of tax (benefit) expense of ($81), $87, and $30 for 2001, 2000 and 1999, respectively. 13 4. COMPREHENSIVE INCOME (CONTINUED) Accumulated other comprehensive income is comprised of the following:
AS AT DECEMBER 31 ($ millions) 2001 2000 - ------------------------------------------------------------- UNREALIZED GAINS : Beginning balance $ 290 $ 132 Current period change (149) 158 - ------------------------------------------------------------- Ending balance $ 141 $ 290 - ------------------------------------------------------------- FOREIGN CURRENCY: Beginning balance $ (7) $ (4) Current period change (13) (3) - ------------------------------------------------------------- Ending balance $ (20) $ (7) - ------------------------------------------------------------- ACCUMULATED OTHER COMPREHENSIVE INCOME $ 121 $ 283 =============================================================
b) UNREALIZED GAINS (LOSSES) ON SECURITIES AVAILABLE-FOR-SALE Net unrealized gains (losses) on fixed-maturity and equity securities included in other comprehensive income were as follows:
AS AT DECEMBER 31 ($ millions) 2001 2000 - ------------------------------------------------------------------------------ Gross unrealized gains $ 656 $ 648 Gross unrealized losses (248) (286) DAC and other amounts required to satisfy policyholder liabilities (191) 39 Deferred income taxes (76) (111) - ------------------------------------------------------------------------------ NET UNREALIZED GAINS ON SECURITIES AVAILABLE-FOR-SALE $ 141 $ 290 ==============================================================================
5. DEFERRED ACQUISITION COSTS The components of the change in DAC were as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2001 2000 - ----------------------------------------------------------------------- Balance, January 1 $ 2,066 $ 1,631 Capitalization 538 590 Amortization (277) (180) Effect of net unrealized gains on securities available-for-sale (25) 25 ======================================================================= BALANCE, DECEMBER 31 $ 2,302 $ 2,066 =======================================================================
14 6. INCOME TAXES The components of income tax (benefit) expense were as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2001 2000 1999 - ----------------------------------------------------------------- Current (benefit) expense $ (64) $ 56 $ (17) Deferred expense 60 34 194 - ----------------------------------------------------------------- TOTAL (BENEFIT) EXPENSE $ (4) $ 90 $ 177 =================================================================
Income before federal income taxes differs from taxable income principally due to tax-exempt investment income; dividends received tax deductions, differences in the treatment of policy acquisition costs, and differences in reserves for policy and contract liabilities for tax and financial reporting purposes. The Company's deferred income tax asset (liability), which results from tax affecting the differences between financial statement values and tax values of assets and liabilities at each balance sheet date, relates to the following:
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2001 2000 1999 - ------------------------------------------------------------------------------------ DEFERRED TAX ASSETS: Differences in computing policy reserves $682 $630 $635 Investments 1 -- -- Policyholder dividends payable 13 11 9 Net capital loss -- 6 -- Net operating loss 87 41 -- Other deferred tax assets 37 19 -- - ------------------------------------------------------------------------------------ Deferred tax assets $820 $707 $644 - ------------------------------------------------------------------------------------ DEFERRED TAX LIABILITIES: Deferred acquisition costs $412 $340 $244 Unrealized gains on securities available-for-sale 163 140 189 Premiums receivable 16 13 14 Investments 112 47 14 Other deferred tax liabilities 38 42 32 - ------------------------------------------------------------------------------------ Deferred tax liabilities $741 $582 $493 - ------------------------------------------------------------------------------------ NET DEFERRED TAX ASSETS $ 79 $125 $151 ====================================================================================
15 6. INCOME TAXES (CONTINUED) The Company files a consolidated federal income tax return for all its subsidiaries except for The Manufacturers Life Insurance Company of North America ("MNA") and The Manufacturers Life Insurance Company of New York ("MNY"). MNA and MNY file a separate consolidated federal income tax return. ManUSA and its subsidiaries file separate state income tax returns. The method of allocation among the companies is subject to a written tax sharing agreement under which the tax liability is allocated to each member on a pro rata basis based on the relationship that the member's tax liability (computed on a separate return basis) bears to the tax liability of the consolidated group. The tax charge to each of the respective companies will not be more than that which each company would have paid on a separate return basis. Settlements of taxes are made through an increase or reduction to the payable to parent, subsidiaries or affiliates. Such settlements occur on a periodic basis. At December 31, 2001, the Company has operating loss carry forwards of $249 that will begin to expire in 2011. 7. NOTE PAYABLE On December 29, 1997, the Company issued a surplus debenture for $200 plus interest at 7.93% per annum to MIC. The surplus debenture matures on February 1, 2022. Except in the event of insolvency or wind-up of the Company, the instrument may not be redeemed by the Company during the period of five years from date of issue without the approval of the Office of the Superintendent of Financial Institutions of Canada. Interest accrued and expensed was $16 for each of 2001, 2000, and 1999. Interest paid was $16, $9, and $16 for 2001, 2000, and 1999, respectively. 8. CAPITAL AND SURPLUS Capital Stock is comprised of the following:
AS AT DECEMBER 31 ($ millions) 2001 2000 - --------------------------------------------------------------------- AUTHORIZED: 50,000,000 Preferred shares, Par value $1.00 -- -- 50,000,000 Common shares, Par value $1.00 - --------------------------------------------------------------------- ISSUED AND OUTSTANDING: 100,000 Preferred shares 4,728,934 Common shares (2000 - 4,711,772 ) 5 5 =====================================================================
Pursuant to an agreement dated December 31, 2000, ManUSA purchased from MRL-LLC all of MRL-LLC's 21.6% interest in MWLH. In exchange, ManUSA transferred 167,268 of its common shares to MRL-LLC and forgave a promissory note owed by MRL-LLC amounting to $52 plus accrued interest. The result was a $22 addition to the Company's contributed surplus. As well, the agreement permitted the use of estimates in determining the value of shares exchanged until a final valuation of the respective companies was performed. This valuation was completed in 2001 resulting in an additional 17,162 shares transferred from ManUSA to MRL-LLC. There was no addition to the Company's contributed surplus. ManUSA and its life insurance subsidiaries are subject to statutory limitations on the payment of dividends. Dividend payments in excess of prescribed limits cannot be paid without the prior approval of U.S. insurance regulatory authorities. 16 8. CAPITAL AND SURPLUS (CONTINUED) Net income (loss) and capital and surplus, as determined in accordance with statutory accounting principles for ManUSA and its life insurance subsidiaries were as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2001 2000 1999 - --------------------------------------------------------------------------------------------------- THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.): Net income $ 55 $ 200 $ 132 Net capital and surplus 1,280 1,384 1,560 THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA: Net loss $ (117) $ (59) $ (3) Net capital and surplus 212 152 171 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA: Net (loss) income $ (20) $ (19) $ 6 Net capital and surplus 100 120 137 THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK: Net (loss) income $ (26) $ (3) $ 1 Net capital and surplus 34 61 64 ===================================================================================================
In March 1998, the National Association of Insurance Commissioners adopted codified statutory accounting principles ("Codification") effective January 1, 2001. Codification changes prescribed statutory accounting practices and results in changes to the accounting practices that the Company's life insurance subsidiaries use to prepare their statutory-basis financial statements. The states of domicile of these subsidiaries adopted Codification as the prescribed basis of accounting on which insurers must report their statutory-basis results. The cumulative effect of changes in accounting principles adopted to conform to the requirements of Codification was reported as an increase to surplus in the statutory-basis financial statement of the respective life insurance subsidiaries. In total, statutory-basis surplus of the life insurance entities within the Company increased by $175. As a result of demutualization of MLI, an indirect parent, there are regulatory restrictions on the amounts of profit that can be transferred to shareholders. These restrictions generally take the form of a fixed percentage of the policyholder dividends. The transfers are governed by the terms of MLI's Plan of Demutualization. 9. EMPLOYEE BENEFITS a) EMPLOYEE RETIREMENT PLAN The Company sponsors a non-contributory pension plan entitled "The Manulife Financial U.S. Cash Balance Plan" ("the Plan"). Pension benefits are provided to participants of the Plan after three years of vesting service with the Company and are a function of the length of service together with final average earnings. The normal form of payment under the Plan is a life annuity, payable at the normal retirement age of 65, and is actuarially equivalent to the cash balance account. Various optional forms of payment are available including a lump sum. Early retirement benefits are actuarially equivalent to the cash balance account, but are subsidized for participants who were age 45 with 5 or more years vesting service with the Company as at July 1, 1998 and who terminate employment after attaining age 50 and have completed 10 years of service. 17 9. EMPLOYEE BENEFITS (CONTINUED) Cash balance accounts are credited annually with contribution credits and semi-annually with interest credits. Future contribution credits under the Plan vary based on service. Interest credits are a function of the 1-year U.S. Treasury Bond rate plus 0.50%, but no less than 5.25% per year. Actuarial valuation of accumulated plan benefits are based on projected salaries, an assumed discount rate, and best estimates of investment yields on plan assets, mortality of participants, employee termination, and ages at retirement. Pension costs that relate to current service are funded as they accrue and are charged to earnings of the Company in the current period. Vested benefits are fully funded. Experience gains and losses are amortized into income of the Company over the estimated average remaining service lives of the participants. No contributions were made during the current or prior year because the Plan was subject to the full funding limitation under the Internal Revenue Code. The Company also sponsors an unfunded supplemental cash balance plan entitled "The Manulife Financial U.S. Supplemental Cash Balance Plan" ("the Supplemental Plan"). This non-qualified plan provides defined pension benefits in excess of limits imposed by law. The Internal Revenue Code does not restrict compensation nor does it limit benefits. Benefits under the Supplemental Plan are provided to participants who terminate after three years of service. The default form of payment under this plan is a lump sum, although participants may elect to receive payment in the form of an annuity provided that such an election is made within the time period prescribed in the Supplemental Plan. If an annuity form of payment is elected, the amount payable is equal to the actuarial equivalent of the participant's balance under the Supplemental Plan, using the factors and assumptions for determining immediate annuity amounts applicable to the participant under the Plan. Cash balance contribution credits vary by service, and interest credits are a function of the 1-year U.S. Treasury Bond rate plus 0.50%, but no less than 5.25% per year. The annual contribution credits are made in respect of the participant's compensation that is in excess of the limit in the Internal Revenue Code. Together, these contributions serve to restore to the participant the benefit that he / she would have been entitled to under the Plan's benefit formula but for the limitation in Internal Revenue Code. At December 31, 2001, the projected benefit obligation to the participants of both the Plan and the Supplemental Plan was $78, which was based on an assumed interest rate of 7.25%. The fair value of the Plan assets totaled $72. b) 401(k) PLAN The Company sponsors a defined contribution 401(k) Savings Plan which is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). The Company contributed $1 for each of 2001, 2000, and 1999, respectively. 18 9. EMPLOYEE BENEFITS (CONTINUED) c) DEFERRED COMPENSATION PLAN The Company has deferred compensation incentive plans open to all branch managers and qualified agents. There are no stock option plans involving stock of ManUSA. d) POSTRETIREMENT BENEFIT PLAN In addition to the retirement plans, the Company sponsors a postretirement benefit plan that provides retiree medical and life insurance benefits to those who have attained age 50 and have 10 or more years of service with the Company. This plan provides medical coverage for retirees and spouses under age 65. When the retirees or the covered spouses reach age 65, Medicare provides primary coverage and this plan provides secondary coverage. This plan is contributory with the amount of contribution based on the service of the employees as at the time of retirement. This plan provides the retiree with a life insurance benefit of 100% of the salary just prior to retirement. The amount is reduced to 65% on the first of January following retirement, and is further reduced to 30% at age 70. The Company accounts for its retiree benefit plan using the accrual method. At December 31, 2001, the benefit obligation of the postretirement benefit plan was $21, which was based on an assumed interest rate of 7.25%. This plan is unfunded. 19 9. EMPLOYEE BENEFITS (CONTINUED) e) FINANCIAL INFORMATION REGARDING THE EMPLOYEE RETIREMENT PLAN AND THE POSTRETIREMENT BENEFIT PLAN Information applicable to the Employee Retirement Plan and the Postretirement Benefit Plan as estimated by a consulting actuary for the December 31 year-end is as follows:
EMPLOYEE POSTRETIREMENT RETIREMENT BENEFIT AS OF DECEMBER 31 PLAN PLAN ------------------------------------- (in millions) 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------------------ CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $(74) $(68) $(18) $(17) Service cost (3) (2) (1) (1) Interest cost (5) (5) (1) (1) Amendments -- (1) -- -- Actuarial gain (loss) (1) (3) (1) -- Benefits paid 5 5 1 1 - ------------------------------------------------------------------------------------------------------------ Benefits obligation at end of year $(78) $(74) $(20) $(18) - ------------------------------------------------------------------------------------------------------------ CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $ 81 $ 87 $ -- $ -- Actual return on plan assets (6) (2) -- -- Employer contribution 2 1 1 1 Benefits paid (5) (5) (1) (1) - ------------------------------------------------------------------------------------------------------------ Fair value of plan assets at end of year $ 72 $ 81 $ -- $ -- - ------------------------------------------------------------------------------------------------------------ Funded status $ (6) $ 7 $(21) $(18) Unrecognized transition asset (6) (9) -- -- Unrecognized actuarial loss (gain) 30 16 (12) (15) Unrecognized prior service cost (recovery) 3 3 -- -- - ------------------------------------------------------------------------------------------------------------ Net amount recognized $ 21 $ 17 $(33) $(33) - ------------------------------------------------------------------------------------------------------------ Amounts recognized in statement of financial position consist of: Prepaid benefit cost $ 38 $ 34 $ -- $ -- Accrued benefit liability (22) (21) (33) (33) Intangible asset 1 1 -- -- Accumulated other comprehensive income 4 4 -- -- - ------------------------------------------------------------------------------------------------------------ Net amount recognized $ 21 $ 18 $(33) $(33) - ------------------------------------------------------------------------------------------------------------
EMPLOYEE POSTRETIREMENT RETIREMENT BENEFIT PLAN PLAN ---------------------------------------------- AS OF DECEMBER 31 2001 2000 2001 2000 - ------------------------------------------------------------------------------------- WEIGHTED AVERAGE ASSUMPTIONS Discount rate 7.25% 7.25% 7.25% 7.25% Expected return on plan assets 9.00% 8.50% n/a n/a Rate of compensation increase 5.00% 5.00% 5.00% 5.00%
20 9. EMPLOYEE BENEFITS (CONTINUED) On December 31, 2001, the accrued postretirement benefit cost was $21. The postretirement benefit obligation for eligible active employees was $3. The amount of the postretirement benefit obligation for ineligible active employees was $6. For measurement purposes as of December 31, 2001, a 7.5% and 9.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2002 for pre-65 and post-65 coverages, respectively. These rates were assumed to decrease gradually to 5.0% in 2007 and 2011, respectively, and remain at that level thereafter.
EMPLOYEE POSTRETIREMENT RETIREMENT BENEFIT PLAN PLAN AS OF DECEMBER 31 ---------------------------------- (in millions) 2001 2000 2001 2000 - ------------------------------------------------------------------------------------ COMPONENTS OF NET PERIODIC (BENEFIT) COST FOR PLAN SPONSOR Service cost $ 3 $ 2 $ 1 $ 1 Interest cost 5 5 1 1 Expected return on plan assets (7) (7) -- -- Amortization of net transition obligation (2) (2) -- -- Recognized actuarial loss (gain) -- -- (1) (1) - ------------------------------------------------------------------------------------ NET PERIODIC (BENEFIT) COST $(1) $(2) $ 1 $ 1 ====================================================================================
The projected benefit obligation in excess of plan assets, the accumulated benefit obligation in excess of plan assets, and the fair value of plan assets for the Supplemental Plan were $23, $22, and $0 respectively as of December 31, 2001 and $22, $21, and $0 respectively as of December 31, 2000. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects on 2001 values:
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT (in millions) INCREASE DECREASE - ------------------------------------------------------------------------------------------- Effect on total of service and interest cost components $ -- $ -- Effect on postretirement benefit obligation $ 3 $ (2) - -------------------------------------------------------------------------------------------
21 10. DERIVATIVE FINANCIAL INSTRUMENTS The Company uses a variety of off-balance sheet derivative financial instruments as part of its efforts to manage exposures to foreign currency, interest rate, and other market risks arising from its on-balance sheet financial instruments. These instruments include interest rate exchange agreements, cross currency swaps, and foreign currency forward contracts. The Company enters into interest rate exchange agreements to reduce and manage interest rate risk associated with outstanding non-U.S. dollar denominated debt. These instruments are regarded as fair value hedges. The Company uses cross currency swaps to reduce both foreign exchange and interest rate risk and to alter exposures arising from mismatches between assets and liabilities. Since the interest payments are in different currencies, there are no netting arrangements between counter-parties. These instruments are regarded as fair value hedges. The Company uses foreign currency forward contracts to hedge some of the foreign exchange risk, as it generates revenue and holds assets in U.S. dollars, but incurs a significant portion of its maintenance and acquisition expenses in Canadian dollars. A foreign currency forward contract obligates the Company to deliver a specified amount of currency on a future date at a specified exchange rate. The value of the foreign exchange forward contracts at any given point fluctuates according to the underlying level of exchange rate and interest rate differentials. These instruments are regarded as cash flow hedges. These instruments are designated and effective as hedges, as there is a high correlation between changes in market value of the derivative and the underlying hedged item at inception and over the life of the hedge. The Company's exposure to credit risk is the risk of loss from a counterparty failing to perform according to the terms of the contract. That exposure includes settlement risk (i.e., the risk that the counterparty defaults after the Company has delivered funds or securities under terms of the contract) that would result in a loss and replacement cost risk (i.e. the cost to replace the contract at current market rates should the counterparty default prior to the settlement date). To limit exposure associated with counterparty nonperformance on interest rate exchange agreements, the Company enters into master netting agreements with its counterparties. Outstanding derivative instruments with off-balance sheet risks are as follows:
NOTIONAL OR CONTRACT AMOUNTS CARRYING VALUE FAIR VALUE AS AT DECEMBER 31 ------- -------------- ---------- ($ millions) 2001 2000 2001 2000 2001 2000 - ----------------------------------------------------------------------------------------------------------- Interest rate & currency swaps & floors $1,098 $1,008 $ 2 $ 5 $ 2 $ 5 Interest rate option written 22 22 (1) -- (1) -- Equity Contracts 37 68 -- (1) -- (1) Currency forwards 851 1,125 (10) 5 (10) 5 - ----------------------------------------------------------------------------------------------------------- TOTAL DERIVATIVES $2,008 $2,223 $ (9) $ 9 $ (9) $ 9 ===========================================================================================================
22 10. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED) Fair value of off-balance sheet derivative financial instruments reflect the estimated amounts that the Company would receive or pay to terminate the contract at the balance sheet date, including the current unrealized gains (losses) on the instruments. Fair values of the agreements were based on estimates obtained from the individual counter parties. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values and the estimated fair values of the Company's financial instruments at December 31, 2001 were as follows:
($ millions) CARRYING VALUE FAIR VALUE - -------------------------------------------------------------------------- ASSETS: Fixed-maturity and equity securities $10,953 $10,953 Mortgage loans 1,675 1,783 Policy loans 2,226 2,226 Separate account assets 30,217 30,217 LIABILITIES: Insurance investment contracts $ 1,699 $ 1,698 Derivative financial instruments 9 9 Separate account liabilities 30,217 30,217 - --------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair values of the above financial instruments: FIXED-MATURITY AND EQUITY SECURITIES: Fair values of fixed-maturity and equity securities were based on quoted market prices where available. Where no quoted market price was available, fair values were estimated using values obtained from independent pricing services or, in the case of private placements, by discounting expected future cash flows using a current market rate applicable to yield, credit quality, and average life of the investments. MORTGAGE LOANS: Fair value of mortgage loans was estimated using discounted cash flows and took into account the contractual maturities and discount rates, which were based on current market rates for similar maturity ranges and adjusted for risk due to the property type. POLICY LOANS: Carrying values approximate fair values. DERIVATIVE FINANCIAL INSTRUMENTS: Fair values of derivative financial instruments were based on estimates obtained from the individual counterparties. INSURANCE INVESTMENT CONTRACTS: Fair value of insurance investment contracts, which do not subject the Company to significant mortality or morbidity risks, was estimated using cash flows discounted at market rates. SEPARATE ACCOUNT ASSETS AND LIABILITIES: The carrying amounts in the balance sheet for separate account assets and liabilities approximate their fair value. Fair value was determined by applying the above outlined methodology to the relevant assets underlying the respective separate accounts. 23 12. RELATED PARTY TRANSACTIONS The Company has formal service agreements with MFC, which can be terminated by either party upon two months notice. Under the various agreements, the Company will pay direct operating expenses incurred by MFC on behalf of the Company. Services provided under the agreements include legal, actuarial, investment, data processing, accounting and certain other administrative services. Costs incurred under the agreements were $216 in 2001. Prior to 2001, the agreements were with MLI. Costs incurred under these agreements were $243 and $194 for 2000 and 1999, respectively. MFC also provides a claims paying guarantee to certain U.S. policyholders. On September 23, 1997, the Company entered into a reinsurance agreement with Manulife Reinsurance Limited ("MRL"), an affiliated life insurance company domiciled in Bermuda, to reinsure a closed block of participating life insurance business. As there was limited transfer of mortality risk between the Company and MRL, the agreement was classified as financial reinsurance and given deposit-type accounting treatment. Title to the assets supporting this block of business was transferred to MRL under the terms of the agreement. Included in amounts due from affiliates is $506 (2000 - $568) representing the receivable from MRL for the transferred assets. The Company loaned $20 to MRL pursuant to a promissory note dated September 29, 2000. The loan is due on September 29, 2005 with interest calculated at 7.30% per annum, payable quarterly starting December 15, 2000. Pursuant to a promissory note dated June 12, 2000, the Company loaned $7 to MRL. Principal and accrued interest are payable on June 12, 2003. Interest on the loan calculated at 7.65% is payable semi-annually starting August 1, 2000. Pursuant to a grid promissory note and a credit agreement dated December 19, 2000, the Company received a loan of $250 ($375 Canadian) from an affiliate, Manulife Hungary Holdings KFT ("MHH"). The maturity date with respect to any advances is set at 365 days after the date of the advancement. Interest on the loan is calculated at the fluctuating rate to be equivalent to LIBOR plus 25 basis points and is payable quarterly starting March 28, 2001. The loan has been renewed until December 19, 2002. On August 7, 2001, the Company repaid $100 ($150 Canadian) of this loan. Pursuant to a grid promissory note and a credit agreement dated August 7, 2001, MNA received a loan of $100 ($150 Canadian) from MHH. The maturity date with respect to any advances is set at 365 days after the date of the advancement. Interest on the loan is calculated at the fluctuating rate to be equivalent to LIBOR plus 32.5 basis points and is payable quarterly starting December 28, 2001. Pursuant to a grid promissory note dated May 11, 2001, the Company loaned $20 to MRL. Principal and accrued interest are payable on May 11, 2006. Interest on the load is calculated at an annual rate of interest equal to LIBOR plus 60 basis points annually starting June 15, 2001. 24 13. REINSURANCE In the normal course of business, the Company assumes and cedes reinsurance as a party to several reinsurance treaties with major unrelated insurance companies. The Company remains liable for amounts ceded in the event that reinsurers do not meet their obligations. The effects of reinsurance on premiums with unrelated insurance companies were as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2001 2000 1999 - ------------------------------------------------------------------ Direct premiums $ 969 $ 963 $ 976 Reinsurance assumed 14 14 12 Reinsurance ceded (189) (163) (107) - ------------------------------------------------------------------ TOTAL PREMIUMS $ 794 $ 814 $ 881 - ------------------------------------------------------------------
Reinsurance recoveries on ceded reinsurance contracts were $204, $187, and $33 during 2001, 2000 and 1999, respectively. 14. CONTINGENCIES & COMMITMENTS The Company and its subsidiaries are subject to legal actions arising in the ordinary course of business. These legal actions are not expected to have a material adverse effect on the consolidated financial position of the Company. During the year, the Company entered into an office ground lease agreement, which expires on September 20, 2096. The terms of the lease provide for adjustments in future periods with the minimum aggregate rental commitments for the next five years as follows: $0 for 2002 and 2003, and $2 for 2004 and thereafter. There was no other material operating leases in existence as at the end of 2001. 15. SUBSEQUENT EVENT Effective on January 1, 2002, all of the operations of MRC and all of the operations of MNA were merged with and into the operations of ManUSA. On the same day, all of the inforce operations of MLA were transferred to the Company by way of an assumption reinsurance agreement and dividend declarations. As a result of this reorganization, products previously sold and administered under the name of MRC, MNA, and MLA are now offered and administered under the name of ManUSA. Under the new organizational structure, surplus of the Company would increase by approximately $369. Also on January 1, 2002, the operations of Manulife-Wood Logan Holding Co., Inc., Manulife Wood Logan, Inc., and Manulife Holding Corporation, all subsidiaries of ManUSA, were liquidated into the Company. 25 Part 2 Other Information PART II. OTHER INFORMATION Representation of Insurer Pursuant to Section 26 of the Investment Company Act of 1940 The Manufacturers Life Insurance Company (U.S.A.) hereby represents that the fees and charges deducted under the policies issued pursuant to this registration statement in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the Company. CONTENTS OF REGISTRATION STATEMENT This registration statement comprises the following papers and documents: The facing sheet; Cross-Reference Sheet; The Prospectus, consisting of 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 - Incorporated by reference to Exhibit 2(a) of the COLI Registration Statement. 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 - Incorporated by reference to Exhibit A(1) to the pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-71312 filed January 2, 2002. A(3)(a)(i) Form of Distribution Agreement. Incorporated by reference to Exhibit A(3)(a)(i) to the registration statement on Form S-6, file number 333-66303 filed October 29, 1998 (the "SVUL Registration Statement"). A(3)(a)(ii) Form of Amendment to Distribution Agreement. Incorporated by reference to Exhibit A(3)(a)(ii) to the SVUL Registration Statement. A(3)(a)(iii) Form of Amendment to Distribution Agreement. Incorporated by reference to Exhibit A(3)(a)(iii) to the SVUL Registration Statement. A(3)(b) Form of broker-dealer agreement. Incorporated by reference to exhibit A(3)(b) to the initial registration statement on Form S-6, File Number 333-70950, filed October 4, 2001 A(5)(a) Form of Flexible Premium Variable Life Insurance Policy - 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 - Incorporated by reference to Exhibit 2(a) of the COLI Registration Statement. 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 (iv) Power of Attorney (Steven Mannik) - FILED HEREWITH 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 certifies that it meets all the requirements for effectiveness of this Amendment to the Registration Statement pursuant to Securities Act of 1933 Rule 485(b) and have caused this post-effective amendment to the Registration Statement to be signed on its behalf in the City of Boston, Massachusetts, on this 25th day of April, 2002. SEPARATE ACCOUNT N OF THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) (Registrant) By: THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) (Depositor) By: /s/John D. DesPrez III ---------------------- John D. DesPrez III President Pursuant to the requirements of the Securities Act of 1933, the Depositor has duly caused this post-effective amendment to the Registration Statement to be signed by the undersigned on the 25th day of April, 2002 in the City of Boston, Massachusetts. THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) By: /s/John D. DesPrez III ---------------------- John D. DesPrez III President SIGNATURES Pursuant to the requirements of the Securities Act of 1933, this post-effective amendment to the Registration Statement has been signed by the following persons in the capacities indicated on this 25th day of April, 2002.
Signature Title - --------- ----- /s/John D. DesPrez III Chairman and President - ---------------------- (Principal Executive Officer) John D. DesPrez III * Executive Vice President and - ---------------------- (Chief Financial Officer) John Ostler * Director - ---------------------- James Boyle * Director - ---------------------- Robert A. Cook * Director - ---------------------- Geoffrey Guy * Director - ---------------------- James O'Malley * Director - ---------------------- Steve Mannik * Director - ---------------------- John Lyon * Director - ---------------------- Rex Scaybaugh, Jr. */s/James D. Gallagher - ---------------------- JAMES D. GALLAGHER Pursuant to Power of Attorney
EXHIBIT INDEX
Item No. Description 2B Opinion and consent of Actuary, of the Manufacturers Life Insurance Company (U.S.A.) 2C Consent of Ernst & Young LLP 7(IV) Power of Attorney (Steven Mannik)
EX-99.2B 3 b42711maex99-2b.txt OPINION AND CONSENT OF ACTUARY April 25, 2002 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 Re: Actuarial Opinion on Illustrations Contained in Post-Effective Amendment No. 1 to a Registration Statement on Form S-6 (File No. 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 4 b42711maex99-2c.txt CONSENT OF ERNST & YOUNG LLP CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Independent Auditors" and to the use of our report dated March 22, 2002 accompanying the consolidated financial statements of The Manufacturers Life Insurance Company (U.S.A.) and to the use of our report dated February 1, 2002 accompanying the financial statements of Separate Account Four of The Manufacturers Life Insurance Company of America in Post-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 April 23, 2002 EX-99.7(IV) 5 b42711maex99-7iv.txt POWER OF ATTORNEY POWER OF ATTORNEY I, an undersigned Director of The Manufacturers Life Insurance Company of (U.S.A.) (the "Company"), do hereby constitute and appoint John D. DesPrez III, Robert A. Cook, James D. Gallagher, Stephen L. Rosen, or any of them, my true and lawful attorneys to sign or execute (i) registration statements and reports and other filings to be filed with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as amended (the "1933 Act") and/or the Investment Company Act of 1940, as amended (the "1940 Act") and (ii) reports and other filings to be filed with the SEC (or any other regulatory entity) pursuant to the Securities Exchange Act of 1934 (the "1934 Act") and to do any and all acts and things and to sign or execute any and all instruments for me, in my name, in the capacities indicated below, which said attorney, may deem necessary or advisable to enable the Company to comply with the 1933 Act, the 1940 Act and the 1934 Act, and any rules, regulations and requirements of the SEC, in connection with such registration statements, reports and filings made under the 1933 Act, the 1940 Act and the 1934 Act, including specifically, but without limitation, power and authority to sign or execute for me, in my name, and in the capacities indicated below, (i) any and all amendments (including post-effective amendments) to such registration statements and (ii) Form 10-Ks and Form 10-Qs filed under the 1934 Act; and I do hereby ratify and confirm all that the said attorneys, or any of them, shall do or cause to be done by virtue of this power of attorney. This Power of Attorney is intended to supersede any and all prior Power of Attorneys in connection with the above mentioned acts, and is effective on the date set forth below and remains in effect until revoked or revised. SIGNATURE TITLE DATE - --------- ----- ---- /s/ Steven Mannik Director February 25, 2002 - --------------------- ------------------ Steven Mannik -----END PRIVACY-ENHANCED MESSAGE-----