-----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, WeXc5Qh4GaghwlPG4sIRoESM5qbOxHSGQmzzt73RibFAw3nGqnOqtCLd0SY0Tart dK8ge9ZBM5y+wly18E+VRA== 0000950135-02-005569.txt : 20021216 0000950135-02-005569.hdr.sgml : 20021216 20021216171154 ACCESSION NUMBER: 0000950135-02-005569 CONFORMED SUBMISSION TYPE: S-6 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20021216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MANUFACTURERS LIFE INS CO USA SEPARATE ACCOUNT N CENTRAL INDEX KEY: 0000813572 IRS NUMBER: 232030787 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-6 SEC ACT: 1933 Act SEC FILE NUMBER: 333-101885 FILM NUMBER: 02859115 BUSINESS ADDRESS: STREET 1: 200 BLOOR STREET EAST ST 10 STREET 2: TORONTO M4W 1EF CITY: ONTARIO CANADA STATE: A6 ZIP: 48304 BUSINESS PHONE: 4169266302 MAIL ADDRESS: STREET 1: P O BOX 600 CITY: BUFFALO STATE: NY ZIP: 14201-0600 FORMER COMPANY: FORMER CONFORMED NAME: SEPARATE ACCOUNT FOUR OF THE MANUFACTURERS LIFE INS CO OF AM DATE OF NAME CHANGE: 19920703 S-6 1 b44883clsv6.txt SEPARATE ACCOUNT N OF MANULIFE (USA) As filed with the Securities and Exchange Commission on December 16, 2002 Registration No. 333-100567 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-6 FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2 [PRE-EFFECTIVE AMENDMENT NO. 1] SEPARATE ACCOUNT N OF THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) (Exact name of Registrant) THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) (Name of Depositor) 38500 Woodward Avenue Bloomfield Hills, Michigan 48304 (Address of Depositor's Principal Executive Offices) James D. Gallagher Secretary and General Counsel The Manufacturers Life Insurance Company (U.S.A.) 73 Tremont Street Boston, MA 02108 (Name and Address of Agent for Service) Copy to: J. Sumner Jones, Esq. Jones & Blouch L.L.P. 1025 Thomas Jefferson Street, NW Washington, DC 20007 Title of Securities Being Registered: Variable Life Insurance Contracts Approximate date of commencement of proposed public offering: As soon after the effective date of this registration statement as is practicable. The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that the Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Separate Account N of The Manufacturers Life Insurance Company (U.S.A.) Registration Statement on Form S-6 Cross-Reference Sheet FORM N-8B-2 ITEM NO. CAPTION IN PROSPECTUS 1 Cover Page; General Information About Manufacturers (Separate Account N) 2 Cover Page; General Information About Manufacturers (Manufacturers (U.S.A.)) 3 * 4 Other Information (Distribution of the Policy) 5 General Information About Manufacturers Life (Separate Account N) 6 General Information About Manufacturers (Separate Account N) 7 * 8 * 9 Other Information (Litigation) 10 Death Benefits; Premium Payments; Charges and Deductions; Policy Value; Policy Loans; Policy Surrender and Partial Withdrawals; Lapse and Reinstatement; Other Provisions of the Policy; Other Information 11 General Information About Manufacturers (Manufacturers Investment Trust) 12 General Information About Manufacturers (Manufacturers Investment Trust) 13 Charges and Deductions 14 Issuing A Policy; Other Information (Responsibilities Assumed By Manufacturers Life) 15 Issuing A Policy 16 General Information About Manufacturers (Manufacturers Investment Trust) 17 Policy Surrender and Partial Withdrawals 18 General Information About Manufacturers 19 Other Information (Reports to Policyholders; Responsibilities Assumed By Manufacturers Life) 20 * 21 Policy Loans 22 * 23 ** 24 Other Provisions of the Policy 25 General Information About Manufacturers (Manufacturers U.S.A.) 26 * 27 General Information About Manufacturers (Manufacturers U.S.A.); Other Information (Distribution of the Policy) 28 Other Information (Officers and Directors) 29 General Information About Manufacturers (Manufacturers U.S.A.) 30 * 31 * 32 * 33 * 34 * 35 ** 36 * 37 * 38 Other Information (Distribution of the Policies; Responsibilities of Manufacturers Life) 39 Other Information (Distribution of the Policies) 40 * 41 Other Information (Distribution of the Policy) 42 Other Information (Distribution of the Policy) 43 * 44 Policy Values -- Determination of Policy Value; Units and Unit Values) 45 * 46 Policy Surrender and Partial Withdrawals; Other Information -- Payment of Proceeds) 47 General Information About Manufacturers (Manufacturers Investment Trust) 48 * 49 * 50 General Information About Manufacturers 51 Issuing a Policy; Death Benefits; Premium Payments; Charges and Deductions; Policy Value; Policy Loans; Policy Surrender and Partial Withdrawals; Lapse and Reinstatement; Other Policy Provisions 52 Other Information (Substitution of Portfolio Shares) 53 General Information About Manufacturers Life (Separate Account N); Tax Treatment of the Policy 54 * 55 * 56 * 57 * 58 * 59 Financial Statements * Omitted since answer is negative or item is not applicable. PART I INFORMATION REQUIRED IN PROSPECTUS PROSPECTUS SEPARATE ACCOUNT N OF THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) VENTURE CORPORATE VUL A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY This prospectus describes Venture Corporate VUL, a flexible premium variable universal life insurance policy (the "Policy") offered by The Manufacturers Life Insurance Company (U.S.A.) (the "Company," "Manulife USA," "we" or "us") to individuals, corporations, trusts, associations, or similar entities (the "applicant", "policyholder" or "you"). The Policy is designed for use by corporations and other employers to provide life insurance and to fund other employee benefits. The Policy is designed to provide lifetime insurance protection together with flexibility as to the timing and amount of premium payments, the investments underlying the Policy Value, and the amount of insurance coverage. The insurance benefit is payable at the life insured's death to the Policy's beneficiary. The Policy also provides a Net Cash Surrender Value available to you by surrendering the Policy or by taking policy loans and partial withdrawals. The Policy will remain in force so long as the Net Cash Surrender Value is sufficient to cover charges assessed against the Policy. Policy Value may be accumulated on a fixed basis or vary with the investment performance of the sub-accounts of Manulife USA's Separate Account N (the "Separate Account") to which you allocate net premiums. The assets of each sub-account will be used to purchase Series I shares (formerly referred to as "Class A shares") of a particular investment portfolio (a "Portfolio") of Manufacturers Investment Trust (the "Trust"). The accompanying prospectus for the Trust, and the corresponding statement of additional information, describe the investment objectives of the Portfolios. Other sub-accounts and Portfolios may be added in the future. THIS POLICY IS NOT SUITABLE FOR SHORT-TERM INVESTMENT PURPOSES. PROSPECTIVE PURCHASERS SHOULD NOTE THAT IT MAY NOT BE ADVISABLE TO PURCHASE A POLICY AS A REPLACEMENT FOR EXISTING INSURANCE. The Securities and Exchange Commission (the "SEC") maintains a web site (http://www.sec.gov) that contains material incorporated by reference and other information regarding registrants that file electronically with the SEC. PLEASE READ THIS PROSPECTUS CAREFULLY AND KEEP IT FOR FUTURE REFERENCE. IT IS VALID ONLY WHEN ACCOMPANIED BY A CURRENT PROSPECTUS FOR THE TRUST. THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The Manufacturers Life Insurance Company (U.S.A.) 38500 Woodward Avenue Bloomfield Hills, Michigan 48304 THE DATE OF THIS PROSPECTUS IS [_____], 2002. CVUL [___/2003] 2 TABLE OF CONTENTS Policy Summary.................................................................................5 General.....................................................................................5 Death Benefits..............................................................................5 Premiums....................................................................................5 Policy Value................................................................................5 Policy Loans................................................................................5 Surrender and Partial Withdrawals...........................................................5 Lapse and Reinstatement.....................................................................5 Charges and Deductions......................................................................6 Investment Options and Investment Advisers..................................................6 Table of Charges and Deductions.............................................................7 Table of Investment Management Fees and Expenses............................................7 Table of Investment Options and Investment Subadvisers.....................................10 General Information about Manulife USA, the Separate Account and the Trust...................12 Manulife USA...............................................................................12 The Separate Account.......................................................................12 The Trust..................................................................................13 Investment Objectives of the Portfolios....................................................13 Issuing A Policy..............................................................................17 Use of the Policy..........................................................................17 Requirements...............................................................................17 Temporary Insurance Agreement..............................................................18 Underwriting...............................................................................18 Right to Examine the Policy................................................................18 Death Benefits................................................................................19 Life Insurance Qualification...............................................................19 Death Benefit Options......................................................................22 Changing the Death Benefit Option..........................................................23 Changing the Face Amount and Scheduled Death Benefits......................................23 Premium Payments..............................................................................25 Initial Premiums...........................................................................25 Subsequent Premiums........................................................................26 Premium Limitations........................................................................26 Premium Allocation.........................................................................26 Charges and Deductions........................................................................26 Premium Load...............................................................................26 Sales Load or Surrender Charge.............................................................27 Monthly Deductions.........................................................................28 Asset Based Risk Charge Deducted from Investment Accounts..................................28 Reduction in Charges and Enhanced Surrender Values.........................................29 Company Tax Considerations.................................................................29 Policy Value..................................................................................29 Determination of the Policy Value..........................................................29 Units and Unit Values......................................................................29 Transfers of Policy Value..................................................................30 Policy Loans..................................................................................30 Interest Charged on Loans..................................................................31 Loan Account...............................................................................31 Policy Surrender and Partial Withdrawals......................................................31 Policy Surrender...........................................................................31 Partial Withdrawals........................................................................31 Lapse and Reinstatement.......................................................................32 Lapse......................................................................................32 Reinstatement..............................................................................32 The General Account...........................................................................32 Fixed Account..............................................................................32 Other Provisions of the Policy................................................................33 Policyholder Rights........................................................................33 Beneficiary................................................................................33
Incontestability...........................................................................33 Misstatement of Age or Sex.................................................................33 Suicide Exclusion..........................................................................33 Supplementary Benefits.....................................................................33 Tax Treatment of the Policy...................................................................33 Life Insurance Qualification...............................................................34 Tax Treatment of Policy Benefits...........................................................35 Alternate Minimum Tax......................................................................38 Income Tax Reporting.......................................................................38 Other Information.............................................................................38 Payment of Proceeds........................................................................38 Reports to Policyholders...................................................................38 Distribution of the Policies...............................................................38 Responsibilities of MFC....................................................................39 Voting Rights..............................................................................39 Substitution of Portfolio Shares...........................................................39 Records and Accounts.......................................................................40 State Regulations..........................................................................40 Litigation.................................................................................40 Independent Auditors.......................................................................40 FINANCIAL STATEMENTS.......................................................................40 Further Information........................................................................40 Officers and Directors.....................................................................41 APPENDIX A - DEFINITIONS.................................................................... Appendix B - Illustrations................................................................. Appendix C Audited Financial Statements.....................................................
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE PROSPECTUS OF MANUFACTURERS INVESTMENT TRUST, OR THE STATEMENT OF ADDITIONAL INFORMATION OF MANUFACTURERS INVESTMENT TRUST. THE PURPOSE OF THIS VARIABLE LIFE INSURANCE POLICY IS TO PROVIDE INSURANCE PROTECTION FOR THE BENEFICIARY NAMED THEREIN. NO CLAIM IS MADE THAT THIS VARIABLE LIFE INSURANCE POLICY IS IN ANY WAY SIMILAR OR COMPARABLE TO A SYSTEMATIC INVESTMENT PLAN OF A MUTUAL FUND. Examine this prospectus carefully. The Policy Summary will briefly describe the Policy. More detailed information will be found further in the prospectus. POLICY SUMMARY GENERAL The Policy is a flexible premium variable universal life insurance policy. This summary provides a general description of the important features of the Policy. It is not comprehensive and is qualified in its entirety by the more detailed information contained in this prospectus. Unless otherwise stated or implied by the context, the discussions in this prospectus assume that the Policy has not gone into default, there is no outstanding Policy Debt and the Death Benefit is not determined by the Minimum Death Benefit percentage. The Policy's provisions may vary in some states. The terms of the Policy and any endorsements or riders will supersede the disclosure in this prospectus. DEATH BENEFITS The Policy provides a Death Benefit in the event of the death of the life insured while the Policy is in force. The basic Death Benefit amount is the Face Amount, which is provided for the lifetime of the life insured with no maturity or expiration date. There may be other amounts added to the Death Benefit as described below. FLEXIBLE TERM INSURANCE OPTION You may add a flexible term insurance option rider (the "FTIO Rider") to the Policy to provide additional term life insurance coverage on the life insured. Cost of insurance rates are less than or equal to those of the Policy and no Sales Loads or Surrender Charges will apply. However, unlike the Face Amount of the Policy, the FTIO Rider will terminate at the life insured's Attained Age 100. The FTIO Rider also offers the flexibility to schedule varying Death Benefit amounts on future dates (the "Scheduled Death Benefits"). DEATH BENEFIT OPTIONS There are two Death Benefit Options. Option 1 provides a Death Benefit equal to the Face Amount of the Policy or the Scheduled Death Benefits of the FTIO Rider or, if greater, the Minimum Death Benefit. Option 2 provides a Death Benefit equal to the Face Amount or the Scheduled Death Benefits, plus the Policy Value or, if greater, the Minimum Death Benefit. You may change the Death Benefit Option and increase or decrease the Face Amount and Scheduled Death Benefits. PREMIUMS Premium payments may be made at any time prior to Attained Age 100 and in any amount, subject to certain limitations (see "Premium Payments - Premium Limitations") Net Premiums will be allocated to one or more of the Investment Options described below. You may change allocations and make transfers among the accounts subject to limitations described below. POLICY VALUE The Policy Value is the accumulation of premiums paid, less charges and deductions we take for expenses and cost of insurance, plus or minus the investment returns of the accounts to which the Policy Value has been allocated. You may obtain a portion of the Policy Value by taking a policy loan or a partial withdrawal or by full surrender of the Policy. POLICY LOANS You may borrow against the Net Cash Surrender Value of the Policy. Loan interest will accrue daily and be payable in arrears on each Policy Anniversary. The Policy Debt will be deducted from amounts payable at the life insured's death or upon surrender. SURRENDER AND PARTIAL WITHDRAWALS You may make a partial withdrawal of Policy Value. It may result in a decrease in the Face Amount and Scheduled Death Benefits and assessment of a portion of the Surrender Charges. You may surrender the Policy for its Net Cash Surrender Value at any time. LAPSE AND REINSTATEMENT A Policy will lapse and terminate without value when the Net Cash Surrender Value is insufficient to pay the next monthly deduction and a grace period of 61 days expires without an adequate premium payment from you. You may reinstate a lapsed Policy within five years following lapse if the Policy was not surrendered for its Net Cash Surrender Value. Evidence of insurability is required, along with a premium payment described under "Reinstatement." The Policy differs in two important ways from a conventional life insurance policy. First, failure to make planned premium payments will not itself cause the Policy to lapse. Second, the Policy can lapse even if planned premiums have been paid. 5 CHARGES AND DEDUCTIONS We assess charges and deductions in connection with the Policy, in the form of monthly deductions for the cost of insurance and administrative expenses, charges assessed daily against amounts in the Investment Account and loads deducted from premiums paid. See the Table of Charges and Deductions. SALES LOAD OR SURRENDER CHARGE COVERAGE You may choose Coverage Amounts with one of two alternative charge structures representing different ways to cover a portion of our marketing and distribution costs. Generally, Policy benefits will be approximately equal in present value under either alternative. However, there is no guarantee each alternative will perform the same in all circumstances. Therefore, you should obtain individualized illustrations for both charge structures. Sales Load coverage features a load deducted immediately from premiums paid and no Surrender Charges. Surrender Charge coverage features no added sales load with surrender charges assessed upon early surrender, lapse, partial withdrawal or coverage decrease. Current cost of insurance charges in early years are higher for Surrender Charge coverage. REDUCTION IN CHARGES AND ENHANCEMENT OF SURRENDER VALUES The Policy is designed for employers and other sponsoring organizations that may purchases multiple policies as a Case. The size or nature of the Case may result in expected savings of sales, underwriting, administrative or other costs. If so, we expect to offer reductions of Policy charges and enhancements of surrender value. We may change the nature and amount of reductions and enhancements available from time to time. They will be determined in a way that is not unfairly discriminatory to policyholders. INVESTMENT OPTIONS AND INVESTMENT ADVISERS The Policy Value is allocated to Manulife USA's general account or to one or more of the sub-accounts of Manulife USA's Separate Account N. Each sub-account invests in Series I shares of a corresponding Portfolio of the Trust. The Trust receives investment advisory services from Manufacturers Securities Services, LLC ("MSS"), a registered investment adviser under the Investment Advisers Act of 1940. The Trust also employs subadvisers. The Table of Investment Options and Investment Subadvisers shows the subadvisers that provide investment subadvisory services to the Portfolios. Allocating Policy Value to one or a small number of investment options, other than the Lifestyle Trusts, should not be considered a balanced investment strategy. In particular, allocating amounts to a small number of investment options that concentrate their investments in a particular business or market sector will increase the risk that the Policy Value will be volatile, since these investment options may react similarly to business or market specific events. This risk historically has been and may continue to be particularly high in such sectors as technology related businesses, including Internet related businesses, small cap securities and foreign securities. We do not provide advice on investment allocations and you should discuss this matter with your financial adviser. INVESTMENT MANAGEMENT FEES AND EXPENSES The Separate Account purchases shares of the Portfolios at net asset value, after deduction of investment management fees and other expenses. The fees and expenses of each Portfolio for the Trust's last fiscal year are shown in the Table of Investment Management Fees and Expenses. These fees and expenses are described in detail in the accompanying Trust prospectus. 6 TABLE OF CHARGES AND DEDUCTIONS Premium Load A charge not to exceed 2.00% is deducted from each premium payment. Currently, we charge 0% in Policy Years 11 and higher Sales Load (Not applicable to Coverage Amounts to which a Surrender Charge applies) A charge is deducted from each premium amount attributed to a Coverage Amount that is subject to a Sales Load as indicated in the Policy. Currently, we charge the percentages below which are guarantee never to be exceeded:
Coverage Year Percentage Coverage Year Percentage - ------------- ---------- ------------- ---------- 1 8.0% 4 2.0% 2 6.0% 5 1.0% 3 3.0% 6+ 0.0%
Surrender Charge (Not applicable to Coverage Amounts to which a Sales Load applies) A charge is assessed (a) upon termination or reduction of any Coverage Amount that is subject to a Surrender Charge, (b) upon Policy surrender or lapse,(c) upon a partial withdrawal in excess of the Free Withdrawal Amount or (d) upon a Face Amount decrease. Surrender Charges are percentages of the sum of all premium payments attributed to a Coverage Amount in to which a Sales Load applies) the first 5 Coverage Years. Currently, we charge the percentages below which are guaranteed never to be exceeded:
Coverage Year Percentage Coverage Year Percentage - ------------- ---------- ------------- ---------- 1 5.0% 6 1.5% 2 4.0% 7 1.0% 3 3.0% 8 1.0% 4 2.5% 9 0.5% 5 2.0% 10+ 0.0%
Administration Charge A monthly charge not to exceed $12 is deducted from Net Policy Value. Currently, we charge $12. Cost of Insurance Charge A monthly charge is deducted from the Net Policy Value, equal to the cost of insurance rate for that Coverage Year multiplied by the net amount at risk (as defined in "Charges and Deductions - Cost of Insurance Charge"). Guaranteed maximum cost of insurance rates are stated in the Policy. The guaranteed rates are based on the 1980 Commissioners Standard Ordinary Sex Distinct (unless unisex rates are required by law) and Aggregate Ultimate Mortality Tables.. Asset Based Risk Charge A charge is deducted daily from amounts in Investment Accounts at a rate not to exceed 0.0013699% (equal to an annual rate of 0.50%). Currently we charge the following rates:
Policy Years Daily Rate Annual Rate - ------------ ---------- ----------- 1-10 0.0013699% 0.50% 11+ 0.0006849% 0.25%
Loan Interest Charges The excess of loan interest charged over loan interest credited is a charge against Net Policy Value. The maximum Loan interest is charged at a fixed rate of 4%. Loan interest is credited to the Loan Account at rate not less than 3.25% so the loan interest credited differential will not be greater than 0.75%. Currently we credit 3.75% in Policy Years 11 and higher for a loan interest credited differential of 0.25%. Supplementary Benefits - FTIO Rider A monthly Cost of Insurance Charge is deducted based on the FTIO Rider Term Insurance Benefit. This charge is calculated the same manner as the Policy's Cost of Insurance Charges, described above. The current cost of insurance rates are generally less than or equal to those of the Policy and the guaranteed are the same. No other loads or charges apply to this Rider. 7 TABLE OF INVESTMENT MANAGEMENT FEES AND EXPENSES TRUST ANNUAL EXPENSES (SERIES I SHARES (as a percentage of Trust average net assets for the fiscal year ended December 31, 2001)(A)
TOTAL TRUST SERIES I OTHER EXPENSES ANNUAL EXPENSES MANAGEMENT RULE 12B-1 (AFTER EXPENSE (AFTER EXPENSE TRUST PORTFOLIO FEES FEES REIMBURSEMENT) REIMBURSEMENT) - --------------- ---------- ------------- --------------- --------------- Internet Technologies 1.000% 0.150% 0.110% 1.26% Pacific Rim Emerging Markets 0.700% 0.150% 0.380% 1.23% Telecommunications 0.950% 0.150% 0.340% 1.44%(B) Science & Technology 0.916%(E) 0.150% 0.060% 1.13% International Small Cap 0.950% 0.150% 0.500% 1.60% Health Sciences 0.942%(E) 0.150% 0.350% 1.44%(B) Aggressive Growth 0.850% 0.150% 0.070% 1.07% Emerging Small Company 0.900% 0.150% 0.070% 1.12% Small Company Blend 0.900% 0.150% 0.120% 1.17% Dynamic Growth 0.850% 0.150% 0.080% 1.08% Mid Cap Growth 0.850% 0.150% 0.390% 1.39%(B) Mid Cap Opportunities 0.850% 0.150% 0.440% 1.44%(B) Mid Cap Stock 0.775% 0.150% 0.080% 1.00% All Cap Growth 0.785% 0.150% 0.060% 0.99% Financial Services 0.800% 0.150% 0.260% 1.21%(B) Overseas 0.800% 0.150% 0.150% 1.10% International Stock 0.838%(E) 0.150% 0.170% 1.16% International Value 0.850% 0.150% 0.150% 1.15% Capital Appreciation 0.750% 0.150% 0.300% 1.20% Strategic Opportunities 0.700% 0.150% 0.060% 0.91% Quantitative Mid Cap 0.650% 0.150% 0.100% 0.90%(B) Global Equity 0.750% 0.150% 0.110% 1.01% Strategic Growth 0.750% 0.150% 0.200% 1.10%(B) All Cap Core 0.697% 0.150% 0.060% 0.91% Large Cap Growth 0.750% 0.150% 0.080% 0.98% All Cap Value 0.800% 0.150% 0.470% 1.42%(B) Capital Opportunities 0.750% 0.150% 0.500%(G) 1.40%(B)(G) Quantitative Equity 0.599% 0.150% 0.060% 0.81% Blue Chip Growth 0.702%(E) 0.150% 0.060% 0.91% Utilities 0.750% 0.150% 0.500%(G) 1.40%(B)(G) Real Estate Securities 0.645% 0.150% 0.070% 0.87% Small Company Value 0.891%(E) 0.150% 0.110% 1.15% Mid Cap Value 0.800% 0.150% 0.200% 1.15%(B) Value 0.642% 0.150% 0.060% 0.85% Tactical Allocation 0.750% 0.150% 0.400% 1.30% Equity Index(H) 0.250% 0.000% 0.150% 0.400% Fundamental Value 0.798% 0.150% 0.120% 1.07%(B) Growth & Income 0.529% 0.150% 0.050% 0.73% U.S. Large Cap Value 0.725% 0.150% 0.050% 0.93% Equity-Income 0.711%(E) 0.150% 0.050% 0.91% Income & Value 0.650% 0.150% 0.070% 0.87% Balanced 0.563% 0.150% 0.100% 0.81% High Yield 0.625% 0.150% 0.060% 0.84% Strategic Bond 0.625% 0.150% 0.080% 0.86% Global Bond 0.600% 0.150% 0.220% 0.97% Total Return 0.600% 0.150% 0.060% 0.81% Investment Quality Bond 0.500% 0.150% 0.090% 0.74% Diversified Bond 0.600% 0.150% 0.070% 0.82% U.S. Government Securities 0.550% 0.150% 0.060% 0.76%
8 Money Market 0.350% 0.150% 0.050% 0.55%
TOTAL TRUST OTHER EXPENSES ANNUAL EXPENSES MANAGEMENT SERIES I RULE (AFTER EXPENSE (AFTER EXPENSE TRUST PORTFOLIO FEES 12B-1 FEES REIMBURSEMENT) REIMBURSEMENT) - --------------- ---------- -------------- --------------- --------------- Small Cap Index(F) 0.375% 0.150% 0.075% 0.60% International Index(F) 0.400% 0.150% 0.050% 0.60% Mid Cap Index(F) 0.375% 0.150% 0.075% 0.60% Total Stock Market Index(F) 0.375% 0.150% 0.060% 0.59% 500 Index(I)(F) 0.375% 0.150% 0.050% 0.57% Lifestyle Aggressive 1000 0.065% 0.000% 1.081% 1.146%(C),(D) Lifestyle Growth 820 0.054% 0.000% 0.998% 1.052%(C),(D) Lifestyle Balanced 640 0.054% 0.000% 0.914% 0.968%(C),(D) Lifestyle Moderate 460 0.062% 0.000% 0.823% 0.885%(C),(D) Lifestyle Conservative 280 0.069% 0.000% 0.790% 0.859%(C),(D)
(A) Effective January 1, 2002, the Trust implemented a Series I Rule 12b-1 plan while simultaneously reducing its advisory fees and implementing advisory fee breakpoints. The Trust Annual Expense chart reflects these changes. (B) Annualized; For the period April 30, 2001 (commencement of operations) to December 31, 2001. (C) The investment adviser to the Trust, Manufacturers Securities Services, LLC ("MSS" or the "Adviser") has voluntarily agreed to pay certain expenses of each Lifestyle Trust as noted below. (For purposes of the expense reimbursement, total expenses of a Lifestyle Trust includes the advisory fee but excludes (a) the expenses of the Underlying Portfolios, (b) taxes, (c) portfolio brokerage, (d) interest, (e) litigation and (f) indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Trust's business.) If total expenses of a Lifestyle Trust (absent reimbursement) exceed 0.075%, the Adviser will reduce the advisory fee or reimburse expenses of that Lifestyle Trust by an amount such that total expenses of the Lifestyle Trust equal 0.075%. If the total expenses of the Lifestyle Trust (absent reimbursement) are equal to or less than 0.075%, then no expenses will be reimbursed by the Adviser. This voluntary expense reimbursement may be terminated at any time. If such expense reimbursement was not in effect, Total Trust Annual Expenses would be higher (based on current advisory fees and the Other Expenses of the Lifestyle Trusts for the fiscal year ended December 31, 2001) as noted in the chart below:
TOTAL TRUST RULE OTHER ANNUAL TRUST PORTFOLIO MANAGEMENT FEES 12B-1 FEES EXPENSES EXPENSES - --------------- --------------- ---------- -------- ------------ Lifestyle Aggressive 1000 0.065% 0.000% 1.106% 1.171% Lifestyle Growth 820 0.054% 0.000% 1.013% 1.067% Lifestyle Balanced 640 0.054% 0.000% 0.929% 0.983% Lifestyle Moderate 460 0.062% 0.000% 0.848% 0.910% Lifestyle Conservative 280 0.069% 0.000% 0.815% 0.844%
(D) Each Lifestyle Trust will invest in shares of the Underlying Portfolios. Therefore, each Lifestyle Trust will bear its pro rata share of the fees and expenses incurred by the Underlying Portfolios in which it invests, and the investment return of each Lifestyle Trust will be net of the Underlying Portfolio expenses. Each Lifestyle Portfolio must bear its own expenses. However, the Adviser is currently paying certain of these expenses as described in footnote(C) above. (E) Effective June 1, 2000, the Adviser voluntarily agreed to waive a portion of its advisory fee for the Science & Technology Trust, Health Sciences Trust, Small Company Value Trust, the Blue Chip Growth Trust, the Equity-Income Trust and the International Stock Trust. Once the combined assets exceed specified amounts, the fee reduction is increased. The percentage fee reduction for each asset level is as follows:
FEE REDUCTION COMBINED ASSET LEVELS (AS A PERCENTAGE OF THE ADVISORY FEE) - --------------------- ------------------------------------- First $750 million 0.00% Between $750 million and $1.5 billion 5.00% Between $1.5 billion and $3.0 billion 7.50% Over $3.0 billion 10.00%
9 The fee reductions are applied to the advisory fees of each of the six portfolios. (However, in the case of the Small Company Value Trust, the fee reduction will be reduced by 0.05% of the $500 million in net assets.) This voluntary fee waiver may be terminated at any time by the adviser. As of December 31, 2001, the combined asset level for all six portfolios was approximately $4.097 billion resulting in a fee reduction of 5.00%. There is no guarantee that the combined asset level will remain at this amount. If the combined asset level were to decrease to a lower breakpoint, the fee reduction would decrease as well. (F) MSS has voluntarily agreed to pay expenses of each Index Trust (excluding the advisory fee) that exceed the following amounts: 0.050% in the case of the International Index Trust and 500 Index Trust and 0.075% in the case of the Small Cap Index Trust, the Mid Cap Index Trust and Total Stock Market Index Trust. For Series I shares, if such expense reimbursement were not in effect, it is estimated that "Other Expenses" and "Total Trust Annual Expenses" would be 0.07% and 0.62%, respectively, for the International Index Trust, 0.075% and 0.60%, respectively, for the Small Cap Index Trust, and 0.075% and 0.60%, respectively, for the Mid Cap Index Trust and 0.060% and 0.59%, respectively, for the Total Stock Market Index Trust. It is estimated that the expense reimbursement will not be effective during the year end December 31, 2002 for the 500 Index Trust. The expense reimbursement may be terminated at any time by MSS. (G) For all portfolios except the Lifestyle Trusts, the Adviser reduces its advisory fee or reimburses the portfolio if the total of all expenses (excluding advisory fees, taxes, portfolio brokerage commissions, interest, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the portfolio's business) exceed certain annual rates. In the case of the Capital Opportunities and Utilities Trusts, the Adviser reimbursed the portfolios for certain expenses for the year ended December 31, 2001. For Series I shares, if such expense reimbursement were not in effect, it is estimated that "Other Expenses" and "Total Trust Annual Expenses" would be 0.560% and 1.46%, respectively, for the Capital Opportunities Trust and 0.610% and 1.51%, respectively for the Utilities Trust. These voluntary expense reimbursements may be terminated at any time. (H) The Equity Index Trust is available only to Policies issued to Cases with at least one Manulife USA variable life insurance policy applied for prior to May 1, 2000 and still in force. A Policy with allocations to the Equity Index Trust may not also allocate to the 500 Index Trust. Under the Advisory Agreement, MSS has agreed to reduce its advisory fee or reimburse the Equity Index Trust if the total of all expenses (excluding advisory fees, taxes, portfolio brokerage commissions, interest, litigation and indemnification expenses and other extraordinary expenses not incurred in the ordinary course of the Trust's business) exceeds an annual rate of 0.15% of the average annual net assets of the Equity Index Trust. The expense limitation may be terminated at any time by MSS. If this expense reimbursement had not been in effect, Total Trust Annual Expenses would have been 0.41%, and Other Expenses would have been 0.16%, of the average annual net assets of the Equity Index Trust. (I) For any Policy with premiums allocated to the 500 Index Trust, we will waive Policy charges by an amount sufficient so that the total trust annual expenses for the 500 Index Trust will not exceed 0.40% per annum on an annualized basis. This waiver may be terminated at any time by us. TABLE OF INVESTMENT OPTIONS AND INVESTMENT SUBADVISERS The Trust currently has the following subadvisers who manage the portfolios of the Trust which are investment options for this Policy, one of which is MFC Global Investment Management (U.S.A.) Limited. Both MSS and MFC Global Investment Management (U.S.A.) Limited are affiliates of ours.
SUBADVISER PORTFOLIO - ---------- --------- A I M Capital Management, Inc. All Cap Growth Trust Aggressive Growth Trust Capital Guardian Trust Company Small Company Blend Trust U.S. Large Cap Value Trust Income & Value Trust Diversified Bond Trust Davis Select Advisors. Financial Services Trust Fundamental Value Trust Deutsche Asset Management, Inc. Real Estate Securities Trust Dynamic Growth Trust All Cap Core Trust Lifestyle Trusts(A) Deutsche Asset Management International Stock Trust Investment Services Ltd.] The Dreyfus Corporation All Cap Value Trust Fidelity Management & Research Company Strategic Opportunities Trust(A) Large Cap Growth Trust Overseas Trust
10 Founders Asset Management LLC International Small Cap Trust Franklin Advisers, Inc. Emerging Small Company Trust INVESCO Funds Group, Inc. Telecommunications Trust Mid Cap Growth Trust Jennison Associates LLC Capital Appreciation Trust SUBADVISER PORTFOLIO Lord, Abbett & Co. Mid Cap Value Trust MFC Global Investment Management (U.S.A.) Limited Pacific Rim Emerging Markets Trust Quantitative Equity Trust Quantitative Mid Cap Trust Equity Index Trust(B) Money Market Trust Index Trusts Lifestyle Trusts(A) Balanced Trust Massachusetts Financial Services Company Strategic Growth Trust Capital Opportunities Trust Utilities Trust Miller Anderson(C) Value Trust High Yield Trust Munder Capital Management Internet Technologies Trust Pacific Investment Management Company Global Bond Trust Total Return Trust Putnam Investment Management, L.L.C. Mid Cap Opportunities Trust Global Equity Trust Salomon Brothers Asset Management Inc U.S. Government Securities Trust Strategic Bond Trust T. Rowe Price Associates, Inc. Science & Technology Trust Small Company Value Trust Health Sciences Trust Blue Chip Growth Trust Equity-Income Trust Templeton Investment Counsel, Inc. International Value Trust UBS Global Asset Management Tactical Allocation Trust Wellington Management Company, LLP Growth & Income Trust Investment Quality Bond Trust Mid Cap Stock Trust
(A) Deutsche Asset Management, Inc. provides subadvisory consulting services to MFC Global Investment Management (U.S.A.) Limited regarding management of the Lifestyle Trusts. (B) The Equity Index Trust is available to Policies issued to Cases with at least one Manulife USA variable life insurance policy I force with an application dated prior to May 1, 2000. A Policy with premiums allocated to the Equity Index Trust may not also allocate premiums to the 500 Index Trust. 11 (C) Morgan Stanley Investment Management Inc. ("MSIM") is the subadviser to the Value Trust and the High Yield Trust. MSIM does business in certain instances (including its role as the subadviser to the Value Trust and the High Yield Trust) using the name "Miller Anderson". Prior to May 1, 2002, Morgan Stanley Investments LP, and affiliate of MSIM, (formerly, Miller Anderson & Sherrerd LLP) was the subadviser to the Value Trust and High Yield Trust. GENERAL INFORMATION ABOUT MANULIFE USA, THE SEPARATE ACCOUNT AND THE TRUST MANULIFE USA We are a stock life insurance company incorporated in Maine on August 20, 1955 by a special act of the Maine legislature and redomesticated under the laws of Michigan. We are a licensed life insurance company in the District of Columbia and all states of the United States except New York. Our ultimate parent is Manulife Financial Corporation ("MFC"), a publicly traded company, based in Toronto, Canada. MFC is the holding company of The Manufacturers Life Insurance Company and its subsidiaries, collectively known as Manulife Financial. The Manufacturers Life Insurance Company is one of the largest life insurance companies in North America and ranks among the 60 largest life insurers in the world as measured by assets. However, neither Manufacturers Life nor any of its affiliated companies guarantees the investment performance of the Separate Account. RATINGS The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company (U.S.A.) have received the following ratings from independent rating agencies: A++ A.M. Best Superior companies have a very strong ability to meet their obligations; 1st category of 16 AA+ Fitch Very strong capacity to meet policyholder and contract obligations; 2nd category of 22. AA+ Standard & Poor's Very strong financial security characteristics; 2nd category of 21 Aa2 Moody's Excellent in financial strength; 3rd category of 21 These ratings, which are current as of the date of this prospectus and are subject to change, are assigned to Manulife USA as a measure of our ability to honor the death benefit but not specifically to its products, the performance (return) of these products, the value of any investment in these products upon withdrawal or to individual securities held in any portfolio. THE SEPARATE ACCOUNT The Manufacturers Life Insurance Company of America ("ManAmerica") established its Separate Account Four (the "Separate Account") on March 17, 1987 as a separate account under Pennsylvania law. Since December 9, 1992, it has been operated under Michigan law. On January 1, 2002, ManAmerica transferred substantially all of its assets and liabilities to Manulife USA. As a result of this transaction, Manulife USA became the owner of all of ManAmerica's assets, including the assets of the Separate Account and assumed all of ManAmerica's obligations including those under the Policies. As a result of the transaction Separate Account Four of ManAmerica has been renamed to Separate Account N of Manulife USA. The ultimate parent of both ManAmerica and Manulife USA is MFC. The Separate Account holds assets that are segregated from all of Manulife USA's other assets. The Separate Account is currently used only to support variable life insurance policies. ASSETS OF THE SEPARATE ACCOUNT Manulife USA is the legal owner of the assets in the Separate Account. The income, gains, and losses of the Separate Account, whether or not realized, are, in accordance with applicable contracts, credited to or charged against the Account without regard to the other income, gains, or losses of Manulife USA. We will at all times maintain assets in the Separate Account with a total market value at least equal to the reserves and other liabilities relating to variable benefits under all policies participating in the Separate Account. These assets may not be charged with liabilities that arise from any other business we conduct. However, all obligations under the variable life insurance policies are general corporate obligations of Manulife USA. REGISTRATION The Separate Account is registered with the SEC under the Investment Company Act of 1940 ("1940 Act") as a unit investment trust. A unit investment trust is a type of investment company that invests its assets in specified securities, such as the shares of one or more investment companies, rather than in a portfolio of unspecified securities. Registration under the 1940 Act does not involve any supervision by the SEC of the management or investment policies or practices of the Separate Account. For state law purposes the Separate Account is treated as a part or division of Manulife USA. 12 THE TRUST Each sub-account of the Separate Account will purchase shares only of Series I (formerly referred to as Class A) of a particular Portfolio of the Trust. The Trust is registered under the 1940 Act as an open-end management investment company. Each of the Trust portfolios, except the Lifestyle Trusts and the Equity Index Trust, are subject to a Rule 12b-1 fee of .15% of a portfolio's Series I net assets. The Separate Account will purchase and redeem shares of the Portfolios at net asset value. Shares will be redeemed to the extent necessary for Manulife USA to provide benefits under the Policies, to transfer assets from one sub-account to another or to the general account as requested by policyholders, and for other purposes not inconsistent with the Policies. Any dividend or capital gain distribution received from a Portfolio with respect to the policies will be reinvested immediately at net asset value in shares of that Portfolio and retained as assets of the corresponding sub-account. The Trust shares are issued to fund benefits under both variable annuity contracts and variable life insurance policies issued by Manulife USA or life insurance companies affiliated with us. We will also purchase shares through our general account for certain limited purposes including initial portfolio seed money. For a description of the procedures for handling potential conflicts of interest arising from the funding of such benefits see the accompanying Trust prospectus. INVESTMENT OBJECTIVES OF THE PORTFOLIOS The investment objectives and certain policies of the Portfolios currently available to policyholders through corresponding sub-accounts are set forth below. There is, of course, no assurance that these objectives will be met. A full description of the Trust, its investment objectives, policies and restrictions, the risks associated therewith, its expenses, and other aspects of its operation is contained in the accompanying Trust prospectus, which should be read together with this prospectus. ELIGIBLE PORTFOLIOS The Portfolios of the Trust available under the Policies are as follows: The INTERNET TECHNOLOGIES TRUST seeks long-term capital appreciation by investing the portfolio's assets primarily in companies engaged in Internet-related business (such businesses also include Intranet-related businesses). The PACIFIC RIM EMERGING MARKETS TRUST seeks long-term growth of capital by investing in a diversified portfolio that is comprised primarily of common stocks and equity-related securities of corporations domiciled in countries in the Pacific Rim region. The TELECOMMUNICATIONS TRUST seeks capital appreciation (with earning income as a secondary objective) by investing, under normal market conditions, primarily in equity securities of companies engaged in the telecommunications sector, that is, in the design, development, manufacture, distribution or sale of communications services and equipment and companies that are involved in supplying equipment or services to such companies. The SCIENCE & TECHNOLOGY TRUST seeks long-term growth of capital by investing, under normal market condition, at least 80% of its net assets (plus any borrowings for investment purposes) in common stocks of companies expected to benefit from the development, advancement, and use of science and technology. Current income is incidental to the portfolio's objective. The INTERNATIONAL SMALL CAP TRUST seeks capital appreciation by investing primarily in securities issued by foreign companies which have total market capitalization or annual revenues of $1.5 billion or less. These securities may represent companies in both established and emerging economies throughout the world. The HEALTH SCIENCES TRUST seeks long-term capital appreciation by investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in common stocks of companies engaged in the research, development, production, or distribution of products or services related to health care, medicine, or the life sciences (collectively termed "health sciences"). The AGGRESSIVE GROWTH TRUST seeks long-term capital appreciation by investing the portfolio's asset principally in common stocks, convertible bonds, convertible preferred stocks and warrants of companies which in the opinion of the subadviser are expected to achieve earnings growth over time at a rate in excess of 15% per year. Many of these companies are in the small and medium-sized category. The EMERGING SMALL COMPANY TRUST seeks long-term growth of capital by investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in common stock equity securities of companies with market capitalizations that approximately match the range of capitalization of the Russell 2000 Growth Index* ("small cap stocks") at the time of purchase. 13 The SMALL COMPANY BLEND TRUST seeks long-term growth of capital and income by investing the portfolio's assets, under normal market conditions, primarily in equity and equity-related securities of companies with market capitalizations that approximately match the range of capitalization of the Russell 2000 Index at the time of purchase. The DYNAMIC GROWTH TRUST seeks long-term growth of capital by investing the portfolio's assets primarily in stocks and other equity securities of medium-sized U.S. companies with strong growth potential. The MID CAP GROWTH TRUST seeks capital appreciation by investing primarily in common stocks of mid-sized companies - those with market capitalizations between $2.5 billion and $15 billion at the time of purchase. The MID CAP OPPORTUNITIES TRUST seeks capital appreciation by investing, under normal market conditions, primarily in common stocks and other equity securities of U.S. mid-size companies. The MID CAP STOCK TRUST seeks long-term growth of capital by investing primarily in equity securities of mid-size companies with significant capital appreciation potential. The ALL CAP GROWTH TRUST seeks long-term capital appreciation by investing the portfolio's assets, under normal market conditions, principally in common stocks of companies that are likely to benefit from new or innovative products, services or processes, as well as those that have experienced above average, long-term growth in earnings and have excellent prospects for future growth. The FINANCIAL SERVICES TRUST seeks growth of capital by investing primarily in common stocks of financial companies. During normal market conditions, at least 65% (80% after July 31, 2002) of the portfolio's net assets (plus any borrowings for investment purposes) are invested in companies that are principally engaged in financial services. A company is "principally engaged" in financial services if it owns financial services-related assets constituting at least 50% of the value of its total assets, or if at least 50% of its revenues are derived from its provision of financial services. The OVERSEAS TRUST seeks growth of capital by investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in foreign securities (including American Depositary Receipts (ADRs) and European Depositary Receipts (EDRs)). The portfolio expects to invest primarily in equity securities. The INTERNATIONAL STOCK TRUST seeks long-term growth of capital by investing primarily in stocks and other securities with equity characteristics of companies located in the developed countries that make up the MSCI EAFE Index. The INTERNATIONAL VALUE TRUST seeks long-term growth of capital by investing, under normal market conditions, primarily in equity securities of companies located outside the U.S., including emerging markets. The CAPITAL APPRECIATION TRUST seeks long-term capital growth by investing at least 65% of its total assets in equity-related securities of companies that exceed $1 billion in market capitalization and that the subadviser believes have above-average growth prospectus. These companies are generally medium-to-large capitalization companies. The STRATEGIC OPPORTUNITIES TRUST (formerly, Mid Cap Blend Trust) seeks growth of capital by investing primarily in common stocks of U.S. issuers and securities convertible into or carrying the right to buy common stocks. The QUANTITATIVE MID CAP TRUST seeks long-term growth of capital by investing, under normal market conditions, at least 80% of its total assets (plus any borrowings for investment purposes) in U.S. mid-cap stocks, convertible preferred stocks, convertible bonds and warrants. The GLOBAL EQUITY TRUST seeks long-term capital appreciation by investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of companies in at least three different countries, including the U.S. The portfolio may invest in companies of any size but emphasizes mid- and large-capitalization companies that the subadviser believes are undervalued. The STRATEGIC GROWTH TRUST seeks capital appreciation by investing, under normal market conditions, at least 65% of the portfolio's total assets in common stocks and related securities (such as preferred stocks, bonds, warrants or rights convertible into stock and depositary receipts for these securities) of companies which the subadviser believes offer superior prospects for growth. The ALL CAP CORE TRUST (formerly, Growth Trust) seeks long-term growth of capital by investing primarily in common stocks and other equity securities within all asset classes (small, mid and large cap) primarily those within the Russell 3000 Index. The LARGE CAP GROWTH TRUST seeks long-term growth of capital by investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of companies with large market capitalizations. 14 The ALL CAP VALUE TRUST seeks capital appreciation by investing, under normal market conditions, at least 65% of the portfolio's total assets in the stocks of value companies of any size. The CAPITAL OPPORTUNITIES TRUST seeks capital appreciation by investing, under normal market conditions, at least 65% of the portfolio's total assets in common stocks and related securities, such as preferred stock, convertible securities and depositary receipts. The portfolio focuses on companies which the subadviser believes have favorable growth prospects and attractive valuations based on current and expected earnings or cash flow. The QUANTITATIVE EQUITY TRUST seeks to achieve intermediate and long-term growth through capital appreciation and current income by investing in common stocks and other equity securities of well established companies with promising prospects for providing an above average rate of return. The BLUE CHIP GROWTH TRUST seeks to achieve long-term growth of capital (current income is a secondary objective) by investing at least 65% of the portfolio's total assets in the common stocks of large and medium-sized blue chip companies. Many of the stocks in the portfolio are expected to pay dividends. The UTILITIES TRUST seeks capital growth and current income (income above that available from a portfolio invested entirely in equity securities) by investing, under normal market conditions, at least 80% of the portfolio's net assets (plus any borrowings for investment purposes) in equity and debt securities of domestic and foreign companies in the utilities industry. The REAL ESTATE SECURITIES TRUST seeks to achieve a combination of long-term capital appreciation and current income by investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of real estate investment trusts ("REITS") and real estate companies. The SMALL COMPANY VALUE TRUST seeks long-term growth of capital by investing, under normal market conditions, primarily in small companies whose common stocks are believed to be undervalued. Under normal market conditions, the portfolio will invest at least 80% of its net assets (plus any borrowings for investment purposes) in companies with a market capitalization that do not exceed the maximum market capitalization of any security in the Russell 2000 Index at the time of purchase. The MID CAP VALUE TRUST seeks capital appreciation by investing, under normal market conditions, at least 80% of the portfolio's net assets (plus any borrowings for investment purposes) in mid-sized companies, with market capitalizations of roughly $500 million to $10 billion. The VALUE TRUST seeks to realize an above-average total return over a market cycle of three to five years, consistent with reasonable risk, by investing primarily in common and preferred stocks, convertible securities, rights and warrants to purchase common stocks, ADRs and other equity securities of companies with equity capitalizations usually greater than $300 million. The EQUITY INDEX TRUST seeks to achieve investment results which approximate the aggregate total return of publicly traded common stocks which are included in the Standard & Poor's 500 Composite Stock Price Index. (The Equity Index Trust is available only to Policies issued to Cases with at least one Manulife USA variable life insurance policy in force with an application dated prior to May 1, 2000. A Policy with premiums allocated to the Equity Index Trust may not also allocate premiums to the 500 Index Trust.) The TACTICAL ALLOCATION TRUST seeks total return, consisting of long-term capital appreciation and current income, by allocating the portfolio's assets between (i) a stock portion that is designed to track the performance of the S&P 500 Composite Stock Price Index, and (ii) a fixed income portion that consists of either five-year U.S. Treasury notes or U.S. Treasury bills with remaining maturities of 30 days. The FUNDAMENTAL VALUE TRUST seeks growth of capital by investing, under normal market conditions, primarily in common stocks of U.S. companies with market capitalizations of at least $5 billion that the subadviser believes are undervalued. The portfolio may also invest in U.S. companies with smaller capitalizations. The GROWTH & INCOME TRUST seeks long-term growth of capital and income, consistent with prudent investment risk, by investing primarily in a diversified portfolio of common stocks of U.S. issuers which the subadviser believes are of high quality. The U.S. LARGE CAP VALUE TRUST seeks long-term growth of capital and income by investing the portfolio's assets, under normal market conditions, primarily in equity and equity-related securities of companies with market capitalization greater than $500 million. The EQUITY-INCOME TRUST seeks to provide substantial dividend income and also long-term capital appreciation by investing primarily in dividend-paying common stocks, particularly of established companies with favorable prospects for both increasing dividends and capital appreciation. 15 The INCOME & VALUE TRUST seeks the balanced accomplishment of (a) conservation of principal and (b) long-term growth of capital and income by investing the portfolio's assets in both equity and fixed-income securities. The subadviser has full discretion to determine the allocation between equity and fixed income securities. The BALANCED TRUST seeks current income and capital appreciation by investing the portfolio's assets in a balanced portfolio of (i) equity securities and (ii) fixed income securities. The HIGH YIELD TRUST seeks to realize an above-average total return over a market cycle of three to five years, consistent with reasonable risk, by investing primarily in high yield debt securities, including corporate bonds and other fixed-income securities. The STRATEGIC BOND TRUST seeks a high level of total return consistent with preservation of capital by giving its subadviser broad discretion to deploy the portfolio's assets among certain segments of the fixed income market as the subadviser believes will best contribute to achievement of the portfolio's investment objective. The GLOBAL BOND TRUST seeks to realize maximum total return, consistent with preservation of capital and prudent investment management by investing the portfolio's asset primarily in fixed income securities denominated in major foreign currencies, baskets of foreign currencies (such as the ECU), and the U.S. dollar. The TOTAL RETURN TRUST seeks to realize maximum total return, consistent with preservation of capital and prudent investment management by investing, under normal market conditions, at least 65% of the portfolio's assets in a diversified portfolio of fixed income securities of varying maturities. The average portfolio duration will normally vary within a three- to six-year time frame based on the subadviser's forecast for interest rates. The INVESTMENT QUALITY BOND TRUST seeks a high level of current income consistent with the maintenance of principal and liquidity, by investing in a diversified portfolio of investment grade bonds and tends to focus its investment on corporate bonds and U.S. Government bonds with intermediate to longer term maturities. The portfolio may also invest up to 20% of its assets in non-investment grade fixed income securities. The DIVERSIFIED BOND TRUST seeks high total return consistent with the conservation of capital by investing, under normal market conditions, at least 80% of the portfolio's net assets (plus any borrowings for investment purposes) in fixed income securities. The U.S. GOVERNMENT SECURITIES TRUST seeks a high level of current income consistent with preservation of capital and maintenance of liquidity, by investing in debt obligations and mortgage-backed securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities and derivative securities such as collateralized mortgage obligations backed by such securities. The MONEY MARKET TRUST seeks maximum current income consistent with preservation of principal and liquidity by investing in high quality money market instruments with maturities of 397 days or less issued primarily by U. S. entities. The SMALL CAP INDEX TRUST seeks to approximate the aggregate total return of a small cap U.S. domestic equity market index by attempting to track the performance of the Russell 2000 Index.* The INTERNATIONAL INDEX TRUST seeks to approximate the aggregate total return of a foreign equity market index by attempting to track the performance of the Morgan Stanley European Australian Far East Free Index (the "MSCI EAFE Index").* The MID CAP INDEX TRUST seeks to approximate the aggregate total return of a mid cap U.S. domestic equity market index by attempting to track the performance of the S&P Mid Cap 400 Index.* The TOTAL STOCK MARKET INDEX seeks to approximate the aggregate total return of a broad U.S. domestic equity market index by attempting to track the performance of the Wilshire 5000 Equity Index.* The 500 INDEX TRUST seeks to approximate the aggregate total return of a broad U.S. domestic equity market index by attempting to track the performance of the S&P 500 Composite Stock Price Index.* The LIFESTYLE AGGRESSIVE 1000 TRUST seeks to provide long-term growth of capital (current income is not a consideration) by investing 100% of the Lifestyle Trust's assets in other portfolios of the Trust ("Underlying Portfolios") which invest primarily in equity securities. The LIFESTYLE GROWTH 820 TRUST seeks to provide long-term growth of capital with consideration also given to current income by investing approximately 20% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 80% of its assets in Underlying Portfolios which invest primarily in equity securities. 16 The LIFESTYLE BALANCED 640 TRUST seeks to provide a balance between a high level of current income and growth of capital with a greater emphasis given to capital growth by investing approximately 40% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 60% of its assets in Underlying Portfolios which invest primarily in equity securities. The LIFESTYLE MODERATE 460 TRUST seeks to provide a balance between a high level of current income and growth of capital with a greater emphasis given to current income by investing approximately 60% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 40% of its assets in Underlying Portfolios which invest primarily in equity securities. The LIFESTYLE CONSERVATIVE 280 TRUST seeks to provide a high level of current income with some consideration also given to growth of capital by investing approximately 80% of the Lifestyle Trust's assets in Underlying Portfolios which invest primarily in fixed income securities and approximately 20% of its assets in Underlying Portfolios which invest primarily in equity securities. *"Standard & Poor's(R)," "S&P 500(R)," "Standard and Poor's 500(R)" and "Standard and Poor's 400(R)" are trademarks of The McGraw-Hill Companies, Inc. "Russell 2000(R)" and "Russell 2000(R) Growth" is a trademark of Frank Russell Company. "Wilshire 5000(R)" is a trademark of Wilshire Associates. "Morgan Stanley European Australian Far East Free" and "EAFE(R)" are trademarks of Morgan Stanley & Co. Incorporated. None of the Index Trusts are sponsored, endorsed, managed, advised, sold or promoted by any of these companies, and none of these companies make any representation regarding the advisability of investing in the Trust. ISSUING A POLICY USE OF THE POLICY The Policy is designed to provide employers or other organizations with life insurance coverage on employees or other individuals in whose lives they have an insurable interest. The Policy may be owned by an individual or a corporation, trust, association, or similar entity. The Policy may be used for such purposes as funding non-qualified executive deferred compensation or salary continuation liabilities or death benefit liabilities of executive retirement plans, or as a source for funding cash flow obligations under such plans. REQUIREMENTS To purchase a Policy, an applicant must submit a completed application. A Policy will not be issued until the underwriting process is completed to our satisfaction and we approve issuance of the Policy. Policies may be issued on a basis that does not distinguish between the life insured's sex and/or smoking status, with prior approval from us. A Policy will only be issued on the lives of insureds from Issue Ages 20 through 80. Each Policy has a Policy Date, an Effective Date and an Issue Date. The Policy Date is the date from which the first monthly deductions are calculated and from which Policy Years, Policy Months and Policy Anniversaries are measured. The Policy Date is also the effective date of the initial Coverage Amount. The Policy Date is the same date as the Effective Date unless the Policy is backdated (see "Backdating a Policy"). The Effective Date is the date we become obligated under the Policy and when the first monthly deductions are taken. It is the later of the date we approve issuance of the Policy and the date we receive at least the Minimum Initial Premium. The Issue Date is the date from which the Suicide and Incontestability provisions of the Policy are measured. If we approve issuance of a Policy before we receive the Minimum Initial Premium then the Effective Date will be later than the Issue Date. The Minimum Initial Premium must be received by us within 60 days after the Issue Date and the life insured must be in good health on the Effective Date. If the Minimum Initial Premium is not paid or if the application is rejected, the Policy will be canceled and any premiums paid will be returned to the applicant. Net Premiums received prior to the Effective Date will be credited with interest at the rate of return earned on amounts allocated to the Money Market Trust. On the Effective Date, Net Premiums received plus any interest credited will be allocated to Investment Accounts and the Fixed Account according to your instructions, unless first allocated to the Money Market Trust for the duration of the right to examine period (see "Right to Examine the Policy"). MINIMUM FACE AMOUNT AND SCHEDULED DEATH BENEFIT The minimum Face Amount is $50,000 unless the FTIO Rider is added to the Policy. With an FTIO Rider, the minimum Face Amount is $25,000 and the minimum Scheduled Death Benefit is $50,000 at all times. 17 BACKDATING A POLICY You may request that we backdate the Policy by assigning a Policy Date earlier than the Effective Date. We will not backdate the Policy to a date earlier than that allowed by state law, which is generally three months to one year prior to the date of application for the Policy. Monthly deductions will be made for the period the Policy Date is backdated. TEMPORARY INSURANCE AGREEMENT Temporary insurance coverage may be provided under the terms of a Temporary Insurance Agreement, subject to our underwriting practices. Generally, temporary life insurance may not exceed $1,000,000 and may not be in effect for more than 90 days. It is issued on a conditional receipt basis, which means that benefits would only be paid if the life insured met our usual and customary underwriting standards for the coverage applied for. UNDERWRITING The policies are offered on three underwriting classes that require different types and amounts of information from the applicant and prospective life insured. Current cost of insurance charges in early Policy Years will vary by the type of underwriting and charges will generally be lower where underwriting information is more extensive. Under any of the underwriting bases, the acceptance of an application is subject to our underwriting rules and we may request additional information or reject an application for any reason. SHORT FORM UNDERWRITING The proposed life insured must answer qualifying questions in the application but is not required to provide detailed medical history, submit records or undergo examinations or tests unless requested to do so by us. Availability of Short Form underwriting depends on characteristics of the Case, such as the number of lives to be insured, the amounts of insurance and other factors, and it is generally available only up to Issue Age 65. SIMPLIFIED UNDERWRITING The proposed life insured must satisfactorily answer certain health questions in the application and may be required to submit existing medical records, but requirements to undergo examinations and tests are minimized. Availability of Simplified underwriting and the nature of the requirements will depend on characteristics of the Case and the proposed lives to be insured. REGULAR (MEDICAL) UNDERWRITING Where Short Form or Simplified underwriting is unavailable we require satisfactory evidence of insurability under our regular underwriting guidelines for individual applicants. This may include medical exams and other information. A proposed life insured who fails to qualify for a standard risk classification may be eligible to be insured with an additional substandard rating. RIGHT TO EXAMINE THE POLICY A Policy may be returned for a refund within 10 days after you receive it. Some states provide a longer period of time for this right, which will be stated in the Policy if applicable. The Policy can be mailed or delivered to the Manulife USA agent who sold it or to the Service Office. Immediately upon such delivery or mailing, the Policy shall be deemed void from the beginning. Within seven days after receipt of the returned Policy at the Service Office we will refund an amount equal to: (a) the difference between premiums received and amounts allocated to Investment Accounts and the Fixed Account; plus (b) the value of amounts in the Investment Accounts and the Fixed Account on the date we receive the returned Policy; minus (c) any partial withdrawals and policy loans. Some state laws require the refund of premiums paid without adjustment for investment gains and losses of the Separate Account. In these states, all Net Premiums will be allocated to the Money Market Trust during the right to examine period and the refund amount will be equal to all premiums received less any partial withdrawals and policy loans. If you request a Face Amount increase that results in new Surrender Charges or sales loads, you will have the same rights described above to cancel the increase. If cancelled, the Policy Value and Surrender Charges will be recalculated to be as they would have been had the increase not taken place. You may request a refund of all or any portion of premiums paid during this right to examine period, and the Policy Value and Surrender Charges or sales loads will be recalculated to be as they would have been had the premiums not been paid. We reserve the right to delay the refund of any premium paid by check until the check has cleared. 18 DEATH BENEFITS If the Policy is in force at the time of the life insured's death we will pay an insurance benefit to the beneficiary. The Policy may remain in force for the life insured's entire lifetime and there is no specified maturity or expiration date. Insurance benefits are only payable when we receive due proof of death at the Service Office, in the form of either a certified copy of the death certificate, a certified copy of a decree of a court of competent jurisdiction as to the finding of death or other proof satisfactory to us. The amount of the insurance benefit payable will be the Death Benefit on the date of death, as described below, less any Policy Debt and outstanding monthly deductions on the date of death. The insurance benefit will be paid in one lump sum unless another form of settlement is agreed to by the beneficiary and us. If the insurance benefit is paid in one sum, we will pay interest from the date of death to the date of payment. If the life insured should die after our receipt of a request for surrender, no insurance benefit will be payable, and we will pay only the Net Cash Surrender Value. LIFE INSURANCE QUALIFICATION A Policy must satisfy either of two tests to qualify as a life insurance contract as defined in Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code"). You must apply for a Policy that uses either the Cash Value Accumulation Test ("CVA Test") or the Guideline Premium Test ("GP Test") and the test cannot be changed once the Policy is issued. CASH VALUE ACCUMULATION TEST The CVA Test requires the Death Benefit at any time to be at least a certain ratio of the Policy Value, based on prescribed calculations. The Minimum Death Benefit provision described below will ensure that the CVA Test is met. There is no restriction on the amount of premiums you may pay, but we will require you to provide satisfactory evidence of insurability before we accept an amount of premium that would increase the Death Benefit by more than the increase in Policy Value. GUIDELINE PREMIUM TEST The GP Test limits the amount of premiums you may pay into the Policy, given its Death Benefit, based on prescribed calculations. In addition, the GP Test requires the Death Benefit at any time to be at least a prescribed ratio of the Policy Value. These prescribed multiples are generally lower than those calculated under the CVA Test. The Minimum Death Benefit provision described below will ensure that this second requirement is met. Changes to the Policy or FTIO Rider, such as changes in Face Amount, Scheduled Death Benefit, Death Benefit Option or partial withdrawals, may affect the premium limits under the GP Test. Some changes will reduce future premium limits and may cause premiums already paid to exceed the new limits and force you to make a partial withdrawal. MINIMUM DEATH BENEFIT Both the CVA Test and the GP Test require the Death Benefit to be at least a prescribed ratio of the policy value at all times. The Policy's Minimum Death Benefit ensures that these requirements are met by providing that the Death Benefit shall be at least equal to the Policy Value multiplied by the applicable Minimum Death Benefit Percentage for the Attained Age of the life insured. Tables of Minimum Death Benefit Percentages appear on the following page. FLEXIBLE TERM INSURANCE OPTION RIDER You may add a flexible term insurance option rider (the "FTIO Rider") to the Policy to provide additional death benefit coverage on the life insured. The FTIO Rider provides flexible term life insurance to Attained Age 100 with cost of insurance charges less than or equal to those of the Policy. The Rider will terminate at the earlier of Attained Age 100, the date the Policy lapses or surrenders, and your request to cancel the FTIO Rider. You may schedule the death benefit amounts that will apply at specified times (the "Scheduled Death Benefits"). Scheduled Death Benefits may be constant or varying from time to time. The Death Benefit Schedule will be shown in the Policy. The Term Insurance Benefit of the FTIO Rider is equal to (a) minus (b) but not less than zero where: (a) the Scheduled Death Benefit for the Policy Month, and (b) the Face Amount of the Policy or, if greater, the Policy's Minimum Death Benefit Even if the Term Insurance Benefit may be zero in a Policy Month, the Rider will not terminate. 19 EXAMPLE. A POLICY IS PURCHASED FOR AN EXECUTIVE AS PART OF AN EMPLOYEE BENEFIT PLAN. THE DEATH BENEFIT PROVIDED BY THE POLICY IS TO BE EQUAL TO THE EXECUTIVE'S SALARY OF $100,000 INCREASING AT 5% PER YEAR THROUGH AGE 64. ASSUMING THE EXECUTIVE IS CURRENTLY 55, THE POLICY WILL BE ISSUED WITH A DEATH BENEFIT SCHEDULE AS FOLLOWS:
POLICY SCHEDULED POLICY SCHEDULED YEAR DEATH BENEFIT YEAR DEATH BENEFIT - ------ ------------- ------ ------------- 1 100,000 6 127,628 2 105,000 7 134,010 3 110,250 8 140,710 4 115,763 9 147,746 5 121,551 10+ 155,133
THE FLEXIBLE TERM INSURANCE OPTION RIDER AMOUNT WILL CHANGE EACH YEAR AS NECESSARY TO PROVIDE THE BENEFITS SHOWN IN THE SCHEDULE, AS FOLLOWS:
FLEXIBLE TERM POLICY TOTAL FACE INSURANCE YEAR DEATH BENEFIT AMOUNT AMOUNT - ------ ------------- ------ --------- 1 100,000 100000 0 2 105,000 100000 5,000 3 110,250 100000 10,250 4 115,763 100000 15,763 5 121,551 100000 21,551 6 127,628 100000 27,628 7 134,010 100000 34,010 8 140,710 100000 40,710 9 147,746 100000 47,746 10 155,133 100000 55,133
20 TABLE OF MINIMUM DEATH BENEFIT PERCENTAGES
GP TEST CVA TEST GP TEST CVA TEST ------- -------- ------- -------- AGE PERCENT MALE FEMALE UNISEX AGE PERCENT MALE FEMALE UNISEX - --- ------- ---- ------ ------ --- ------- ---- ------ ------ 20 250% 653% 779% 674% 60 130% 192% 221% 197% 21 250% 634% 754% 654% 61 128% 187% 214% 192% 22 250% 615% 730% 635% 62 126% 182% 208% 187% 23 250% 597% 706% 616% 63 124% 178% 203% 183% 24 250% 580% 684% 598% 64 122% 174% 197% 178% 25 250% 562% 662% 579% 65 120% 170% 192% 174% 26 250% 545% 640% 561% 66 119% 166% 187% 170% 27 250% 528% 619% 544% 67 118% 162% 182% 166% 28 250% 511% 599% 526% 68 117% 159% 177% 162% 29 250% 494% 580% 509% 69 116% 155% 173% 159% 30 250% 479% 561% 493% 70 115% 152% 169% 156% 31 250% 463% 542% 477% 71 113% 149% 164% 152% 32 250% 448% 525% 461% 72 111% 146% 160% 149% 33 250% 433% 507% 446% 73 109% 144% 156% 146% 34 250% 419% 491% 432% 74 107% 141% 153% 144% 35 250% 406% 475% 418% 75 105% 139% 149% 141% 36 250% 392% 459% 404% 76 105% 136% 146% 139% 37 250% 380% 444% 391% 77 105% 134% 143% 136% 38 250% 367% 430% 378% 78 105% 132% 140% 134% 39 250% 356% 416% 366% 79 105% 130% 138% 132% 40 250% 344% 403% 355% 80 105% 129% 135% 130% 41 243% 333% 390% 343% 81 105% 127% 133% 128% 42 236% 323% 378% 333% 82 105% 125% 130% 127% 43 229% 313% 366% 322% 83 105% 124% 128% 125% 44 222% 303% 355% 312% 84 105% 122% 126% 123% 45 215% 294% 344% 303% 85 105% 121% 124% 122% 46 209% 285% 333% 294% 86 105% 120% 123% 121% 47 203% 277% 323% 285% 87 105% 119% 121% 119% 48 197% 268% 313% 276% 88 105% 118% 119% 118% 49 191% 260% 304% 268% 89 105% 116% 118% 117% 50 185% 253% 295% 260% 90 105% 116% 117% 116% 51 178% 245% 286% 253% 91 104% 115% 115% 115% 52 171% 238% 278% 245% 92 103% 114% 114% 114% 53 164% 232% 270% 238% 93 102% 112% 113% 113% 54 157% 225% 262% 232% 94 101% 111% 112% 111% 55 150% 219% 254% 225% 95 100% 110% 110% 110% 56 146% 213% 247% 219% 96 100% 109% 109% 109% 57 142% 207% 240% 213% 97 100% 107% 107% 107% 58 138% 202% 233% 208% 98 100% 106% 106% 106% 59 134% 197% 227% 202% 99 100% 105% 105% 105% 100 + 100% 100% 100% 100%
21 DEATH BENEFIT OPTIONS You may choose either of two Death Benefit Options: DEATH BENEFIT OPTION 1 The Death Benefit on any date is: (a) the Face Amount of the Policy or, if greater, the Minimum Death Benefit, plus (b) the Term Insurance Benefit of the FTIO Rider. DEATH BENEFIT OPTION 2 The Death Benefit on any date is: (a) the Face Amount plus the Policy Value or, if greater, the Minimum Death Benefit, plus (b) the Term Insurance Benefit of the FTIO Rider. CHANGING THE DEATH BENEFIT OPTION You may change the Death Benefit Option at any time. The change will take effect at the beginning of the next Policy Month at least 30 days after your written request is received at the Service Office. We reserve the right to limit changes that could cause the Policy to fail to qualify as life insurance for tax purposes. A change in the Death Benefit Option will result in a change in the Face Amount and Scheduled Death Benefits to avoid any change in the amount of Death Benefit, as follows: CHANGE FROM OPTION 1 TO OPTION 2 The new Face Amount will be: the Face Amount prior to the change less the Policy Value on the date of the change . The Scheduled Death benefit amounts for dates on or after the date of the change will be: the amounts scheduled prior to the change less the Policy value on the date of the change. Coverage Amounts will be reduced or eliminated in the order that they are listed in the Policy until the total decrease in Coverage Amounts equals the decrease in Face Amount. Surrender Charges will not be assessed for reductions that are solely due to a change in the Death Benefit Option. Example. A policy is issued with a Face amount of $100,000, Death Benefit Option 1, and the following schedule: POLICY SCHEDULED YEAR DEATH BENEFIT 1 100,000 2 125,000 3 150,000 4 175,000 5+ 200,000 The Death Benefit Option is changed to Option 2 at the beginning of Policy Year 3. If the Policy Value at the time of the change is $10,000, then the Face Amount after the change will be $90,000, (the Face Amount prior to the change less the Policy Value) and the Death Benefit Schedule after the change will become: POLICY SCHEDULED YEAR DEATH BENEFIT 3 140,000 4 165,000 22 5+ 190,000 Change from Option 2 to Option 1 The new Face Amount will be: the Face Amount prior to the change plus the Policy Value on the date of the change (but the new Face Amount will be no greater than the Scheduled Death Benefit on the date of the change.) The resulting Face Amount increase amount will be added to the first Coverage Amount listed in the Policy. However, the Annual Premium Target for this Coverage Amount will not be increased and new Surrender Charges or Sales Loads will not apply, for an increase solely due to a change in the Death Benefit Option. Example. A policy is issued with a Face amount of $100,000, Death Benefit Option 2, and the following schedule: YEAR DEATH BENEFIT 1 100,000 2 125,000 3 150,000 4 175,000 5+ 200,000 The Death Benefit Option is changed to Option 1 at the beginning of Policy Year 3. If the Policy Value at the time of the change is $10,000, then the face amount after the change will be $110,000 (the Face Amount prior to the change plus the Policy Value), and the Death Benefit Schedule after the change will become: POLICY SCHEDULED YEAR DEATH BENEFIT 3 160,000 4 185,000 5+ 210,000 CHANGING THE FACE AMOUNT AND SCHEDULED DEATH BENEFITS At any time, you may request an increase or decrease to the Face Amount or any Scheduled Death Benefits effective on or after the date of change. We reserve the right to limit changes that could cause the Policy to fail to qualify as life insurance for tax purposes. INCREASES IN FACE AMOUNT AND SCHEDULED DEATH BENEFITS Increases in Face Amount and Scheduled Death Benefits are subject to the following conditions: 1. Increases in face amount and scheduled death benefits will require satisfactory evidence of the life insured's insurability. 2. Increases will take effect at the beginning of the next Policy Month after we approve the request. 3. We may refuse a requested increase that would not meet our requirements for new policy issues at the time due to the life insured's attained age or other factors. 4. If the Face Amount is increased (other than as required by a Death Benefit Option change) then all Scheduled Death Benefits effective on or after the date of the change will be increased by the amount of the Face Amount increase. NEW CHARGES FOR A FACE AMOUNT INCREASE Coverage Amounts equal to the amount of the increase will be added to the Policy as follows: 23 First, Coverage Amounts that were reduced or eliminated by a prior Face Amount decrease will be restored. Second, if needed, a new Coverage Amount will be added to the Policy with an Annual Premium Target and new Surrender Charges or Sales Loads. Any new Coverage Amount will be based on the life insured's Attained Age and other relevant factors on the effective date of the increase. Premiums paid on or after the increase may be attributed to the new Coverage Amount and result in Surrender Charges or Sales Loads (see "Charges and Deductions - Attribution of Premiums"). DECREASES IN FACE AMOUNT AND SCHEDULED DEATH BENEFITS Decreases in Face Amount and Scheduled Death Benefits are subject to the following conditions: 1. Decreases in Face Amount and Scheduled Death Benefits will take effect at the beginning of the next Policy Month which is 30 days after your written request is received at the Service Office. 2. If the Face Amount is decreased then all Scheduled Death Benefits effective on or after the date of the change will be decreased by the same amount. 3. If at any time the Scheduled Death Benefit decreases to less than the Face Amount, the Face Amount will be decreased to be equal to the Scheduled Death Benefit at that time. 4. 4. Coverage Amounts equal to the amount of the Face Amount decrease will be reduced or eliminated in the reverse order that they are listed in the Policy. Surrender Charges may be assessed (see "Charges and Deductions - Sales Load or Surrender Charge"). DECREASES IN FACE AMOUNT UNDER DEATH BENEFIT OPTION 1 DUE TO A PARTIAL WITHDRAWAL If Death Benefit Option 1 is in effect when a partial withdrawal is made, the Face Amount will be decreased by an amount equal to : (a) minus (b) but not less than zero, where: (a) is the partial withdrawal amount plus any applicable Surrender Charge and (b) is the excess, if any, of the Policy's Minimum Death Benefit over its Face Amount, immediately prior to the partial withdrawal. Decreases in Face Amount under Death Benefit Option 1 due to a Partial Withdrawal are subject to the following conditions: 1. Coverage Amounts equal to the amount of the Face Amount decrease will be reduced or eliminated in the reverse order that they are listed in the Policy. 2. All Scheduled Death Benefits effective on or after the date of the partial withdrawal will be decreased by the amount of the Face Amount decrease, unless you request otherwise and we approve. 3. A Face Amount decrease due to a partial withdrawal will not incur any Surrender Charge in addition to that applicable to the partial withdrawal (see "Charges and Deductions - Sales Load or Surrender Charge"). Example for Face Increases and Decreases A Policy is issued with the Sales Load Option, a Face Amount of $100,000, Death Benefit Option 1, and a Death Benefit Schedule as follows: POLICY SCHEDULED YEAR DEATH BENEFIT 1 100,000 2 125,000 24 3 150,000 4 175,000 5+ 200,000 Assume the following Policy activity:
Activity Effect on Policy In Policy Year 2, the Face Amount is reduced to $80,000. The initial Coverage Amount is reduced to $80,000. The Death Benefit Schedule is changed to the following: POLICY SCHEDULED YEAR DEATH BENEFIT 2 105,000 3 130,000 4 155,000 5+ 180,000 In Policy Year 3, the Face Amount is The initial Coverage Amount (which increased to $120,000 earlier was reduced to $80,000) is restored to its original level of $100,000. A new Coverage Amount for $20,000 is added to the Policy. This new Coverage Amount will have its own Annual Premium Target, and if applicable, its own Sales Load or Surrender Charges. A portion of the future premiums paid will be attributed to this coverage amount to determine the amount of the Sales Load or Surrender Charge. The Death Benefit Schedule is changed to the following: POLICY SCHEDULED YEAR DEATH BENEFIT 3 170,000 4 195,000 5+ 220,000 In Policy Year 4, a Partial The Face Amount is reduced to $90,000. Withdrawal OF $30,000 IS MADE. The most recent Coverage Amount of $20,000 is reduced to $0, and the initial Coverage Amount is reduced to $90,000. The Death Benefit Schedule is changed to the following: POLICY SCHEDULED YEAR DEATH BENEFIT 4 165,000 5 190,000
PREMIUM PAYMENTS INITIAL PREMIUMS No premiums will be accepted prior to receipt of a completed application by us. All premiums received prior to the Effective Date of the Policy will be held in the general account and credited with interest from the date of receipt at the rate of return earned on amounts allocated to the Money Market Trust. No insurance will take effect before we approve the application and receive at least the Minimum Initial Premium. 25 On the Effective Date, the Net Premiums paid plus interest credited will be allocated among the Investment Accounts or the Fixed Account in accordance with your instructions, unless first allocated to the Money Market Trust for the duration of the right to examine period (see "Right to Examine the Policy"). SUBSEQUENT PREMIUMS After the payment of the initial premium, premiums may be paid at any time during the lifetime of the life insured prior to Attained Age 100 and in any amount subject to the premium limitations described below. A Policy will be issued with a planned premium, which is based on the amount of premium you wish to pay. We will send you notices of your planned premium at the payment interval you select. However, you are under no obligation to make the planned premium payment. Payment of premiums will not guarantee that the Policy will stay in force and failure to pay premiums will not necessarily cause the Policy to lapse. The Policy will remain in force so long as the Net Cash Surrender Value is sufficient to cover Policy charges. PREMIUM LIMITATIONS If the Policy is issued under the GP Test, the total of all premiums paid may not exceed the then-current maximum premium limitations established by federal income tax law for the Policy to qualify as life insurance. The GP Test premium limits are stated in the Policy. If a premium is received which would result in total premiums exceeding the applicable GP Test limit, we will only accept that portion of the premium that will not exceed the limit. Any premium in excess of that amount will be returned. If the Policy is issued under the CVA Test, there is no restriction on the amount of premiums that may be paid into a Policy, but you must provide satisfactory evidence of insurability before we accept any premium that would increase the Death Benefit by an amount greater than the increase in Policy Value. PREMIUM ALLOCATION You may allocate premiums to the Fixed Account and Investment Accounts. Allocations may be made as percentages that are between zero and 100% that sum to exactly 100%. Alternatively, you may allocate a premium in dollar amounts that sum to exactly the Net Premium amount. You may change premium allocations at any time and the change will take effect on the date a request for change satisfactory to us is received at the Service Office. CHARGES AND DEDUCTIONS PREMIUM LOAD We will deduct a Premium Load as a percentage of each premium payment that is guaranteed never to exceed 2%. Currently, we waive this load in Policy Years 11 and later and charge 0%. The charge is intended to cover a portion of the aggregate amount of various taxes and fees we pay to federal, state and local governments. It is not based on the actual premium tax rate of your state of residence or any other specific tax. SALES LOAD OR SURRENDER CHARGE Each Coverage Amount listed in the Policy is designated as having either a Sales Load or Surrender Charge. One or the other of these charges will apply to a Coverage Amount, but not both. This designation cannot be changed after a Coverage Amount is effective and, currently, the same alternative must apply to all Coverage Amounts. Generally, Policy benefits will be approximately equal in present value under either alternative. However, there is no guarantee each alternative will perform the same in all circumstances. Therefore, you should obtain individualized illustrations for both charge structures. Current cost of insurance rates in early Policy Years will be higher for the Surrender Charge alternative. The Sales Load or Surrender Charge is intended to cover a portion of our costs of marketing and distributing the policies. ATTRIBUTION OF PREMIUMS An Annual Premium Target is associated with each Coverage Amount. Annual Premium Targets are based on the Coverage Amount and the life insured's Attained Age, sex and smoking status on the effective date of the Coverage Amount. The Annual Premium Targets are listed with the Coverage Amounts in the Policy. Premium payments will be attributed to Coverage Amounts that have been in effect for less than 5 years. Attribution will begin with the first applicable Coverage Amount that is listed in the Policy. The sum of all premium amounts attributed to a Coverage Amount in a Coverage Year is limited to the Annual Premium Target shown in the Policy. Premium amounts that exceed the Annual Premium Target will be attributed to the next listed Coverage Amount, up to its own Annual Premium Target. Attribution will continue in this manner until either the entire premium is attributed to Coverage Amounts or the Annual Premium Target is exceeded for all applicable Coverage Amounts. 26 SALES LOAD We deduct a Sales Load from all premium amounts attributed to a Coverage Amount designated as having a Sales Load. The Sales Load is a percentage of premiums guaranteed never to exceed the percentages below. Currently we are charging these percentages.
Coverage Year Percentage Coverage Year Percentage 1 8% 4 2% 2 6% 5 1% 3 3% 6+ 0%
SURRENDER CHARGE We will deduct a Surrender Charge from the Net Policy Value upon elimination or reduction of a Coverage Amount designated as having a Surrender Charge during the first 9 Coverage Years. Coverage Amounts may be eliminated or reduced and a Surrender Charge assessed due to: - surrender of the Policy for its Net Cash Surrender Value, - a partial withdrawal which exceeds the Free Partial Withdrawal Amount, - a Face Amount decrease that is not solely due to a Death Benefit Option change, or - lapse of the Policy. The Surrender Charge for an applicable Coverage Amount is a percentage of the sum of all premiums attributed to it since its effective date. Surrender Charge percentages are guaranteed never to exceed those below. Currently, we are charging these percentages:
Coverage Year Percentage Coverage Year Percentage 1 5.0% 6 1.5% 2 4.0% 7 1.0% 3 3.0% 8 1.0% 4 2.5% 9 0.5% 5 2.0% 10+ 0.0%
Although the Surrender Charge percentages remain level or decrease as the Coverage Year increases, the total dollar amount of Surrender Charges may increase, as the total premium paid increases. Premiums paid in any Coverage Year in excess of the Annual Premium Target and premiums paid after the fifth Coverage Year may not add to the Surrender Charge, so the timing of premium payments may affect the amount of the Surrender Charge. Depending upon circumstances such as premiums paid and performance of the underlying investment options, there may be a Policy Value but no Cash Surrender Value available due to the existence of the Surrender Charge. Unless otherwise allowed by us and specified by you, Surrender Charges will be allocated among the Investment Accounts and the Fixed Account in the same proportion as the Policy Value in each Account bears to the Net Policy Value. SURRENDER CHARGES ON A PARTIAL WITHDRAWAL We will assess a portion of the Surrender Charge if you take a partial withdrawal that exceeds the Free Withdrawal Amount. The Free Withdrawal Amount is 10% of the Net Cash Surrender Value at the time of the withdrawal less the amount of any partial withdrawals already taken in the same Policy Year. The portion of the Policy's total Surrender Charge that will be assessed is the ratio of (a) to (b), where (a) is the amount being withdrawn in excess of the Free Withdrawal Amount and (b) is the Net Cash Surrender Value immediately prior to the withdrawal. The remaining Surrender Charges for all Coverage Amounts will be reduced in the same proportion that the Surrender Charge assessed bears to the Policy's total Surrender Charge immediately prior to the partial withdrawal. SURRENDER CHARGES ON A FACE AMOUNT DECREASE We will assess a portion of the Surrender Charge upon a Face Amount decrease that is not required due to a Death Benefit Option change or partial withdrawal. For each Coverage Amount that is reduced or eliminated as a result of the decrease, we will assess a portion of any applicable Surrender Charge. The proportion of the Surrender Charge that is assessed will be the ratio of amount by which the Coverage Amount is reduced to the Coverage Amount prior to reduction. The remaining Surrender Charges for affected Coverage Amounts will be reduced by the same ratio. 27 MONTHLY DEDUCTIONS On the Policy Date and at the beginning of each Policy Month prior to Attained Age 100, a deduction is due from the Net Policy Value to cover certain charges described below. Monthly deductions due prior to the Policy's Effective Date will be taken on the Effective Date. Unless otherwise allowed by us and specified by you, the monthly deduction will be allocated among the Investment Accounts and the Fixed Account in the same proportion as the Policy Value in each Account bears to the Net Policy Value. ADMINISTRATION CHARGE Currently we deduct a charge of $12 per Policy Month, which is guaranteed never to be exceeded. This charge is intended to cover certain administrative expenses associated with the Policy, including maintaining policy records, collecting premiums and processing death claims, surrender and withdrawal requests and various changes permitted under a Policy. COST OF INSURANCE CHARGE A monthly charge for the cost of insurance is determined by multiplying a cost of insurance rate by the net amount at risk at the beginning of each Policy Month. A net amount at risk is equal to the greater of zero, or (a) minus (b), where (a) is the applicable death benefit amount on the first day of the month, divided by 1.0024663; and (b) is the Policy Value attributed to that death benefit amount on the first day of the month. Cost of insurance rates and net amounts at risk are determined separately for each Coverage Amount and for the excess of the Death Benefit over the Face Amount (the Face Amount is the sum of the Coverage Amounts). ATTRIBUTION OF POLICY VALUE FOR NET AMOUNTS AT RISK To determine the net amounts at risk, the Policy Value will be attributed to Coverage Amounts in the order listed in the Policy. The amount of Policy Value attributed to a Coverage Amount will be limited to the amount that results in zero net amount at risk, and any excess Policy Value will then be attributed to the next listed Coverage Amount. Attribution will continue in this manner until either the entire Policy Value is attributed or the end of the list of Coverage Amounts is reached. Any remaining Policy Value will then be attributed to the excess of the Death Benefit over the Face Amount. CURRENT COST OF INSURANCE RATES Cost of insurance rates are determined separately for each Coverage Amount and the excess of the Death Benefit over the Face Amount. There are different current cost of insurance rate bases for: Coverage Amounts having Sales Loads, Coverage Amounts having Surrender Charges, and The excess of the Death Benefit over the Face Amount, including any Term Insurance Benefit under the FTIO Rider. The cost of insurance rate in a specific Policy Month for an applicable death benefit amount will depend on: - the cost of insurance rate basis for the applicable death benefit amount, - the life insured's Attained Age, sex (unless unisex rates are required by law) and smoking status on the effective date of the applicable death benefit amount, - the underwriting class of the applicable death benefit amount, - the Coverage Year, or Policy Year for the excess of the Death Benefit over the Face Amount, - any extra charges for substandard ratings, as stated in the Policy. Cost of insurance rates will generally increase with the life insured's age and the Coverage Year. Cost of insurance rates reflect our expectation as to future mortality experience. They are also intended to cover our general costs of providing the Policy, to the extent that these costs are not covered by other charges. Current cost of insurance rates may be changed by us on a basis that does not unfairly discriminate within the class of lives insured. GUARANTEED MAXIMUM COST OF INSURANCE RATES In no event will the cost of insurance rates we charge exceed the guaranteed maximum rates set forth in the Policy, except to the extent that an extra charge is imposed for a substandard rating. The guaranteed rates are the 1980 Commissioners Standard Ordinary Sex Distinct (unless unisex rates are required by law) ANB Aggregate Ultimate Mortality Tables ASSET BASED RISK CHARGE DEDUCTED FROM INVESTMENT ACCOUNTS We assess a daily charge against amounts in the Investment Accounts. This charge is intended to compensate us for insurance risks we assume under the Policy, such as benefit payments and expenses that are higher than we expected. We will realize a gain from this charge to the extent it is not needed to provide benefits and pay expenses under the Policy. 28 The charge is a percentage of amounts in the Investment Accounts, which will reduce Unit Values of the sub-accounts. The charge is guaranteed never to exceed 0.0013699% (a annual rate of 0.50%). Currently, we charge the following rates:
Policy Year Daily Asset Based Risk Charge Annual Rate 1-10 0.0013699% 0.50% 11+ 0.0006849% 0.25%
REDUCTION IN CHARGES AND ENHANCED SURRENDER VALUES The Policy is designed for employers and other sponsoring organizations that may purchase multiple policies as a Case. The size or nature of the Case may result in expected savings of sales, underwriting, administrative or other costs. If so, we expect to offer reductions of Policy charges and enhancements of surrender value. Eligibility for reductions and enhancements and the amounts available will be determined by a number of factors, including the number of lives to be insured, the total premiums expected to be paid, total assets under management for the policyholder, the nature of the relationship among the lives insured, the purpose for which the policies are being purchased, expected persistency of the individual policies, and any other circumstances which we believe to be relevant to the expected reduction of our expenses. Some of reductions and enhancements may be guaranteed and others may be subject to restrictions or to withdrawal or modification, on a uniform Case basis. We may change the nature and amount of reductions and enhancements available from time to time. Reductions and enhancements will be determined in a way that is not unfairly discriminatory to policyholders. COMPANY TAX CONSIDERATIONS Currently, we make no specific charge to the Separate Account for any federal, state, or local taxes that we incur that may be attributable to such Account or to the Policy. We reserve the right in the future to make a charge for any such tax or other economic burden resulting from the application of tax laws that we determines to be attributable to the Separate Account or to the Policy. POLICY VALUE DETERMINATION OF THE POLICY VALUE A Policy has a Policy Value, a portion of which is available to you by making a policy loan or partial withdrawal, or upon surrender of the Policy. The Policy Value may also affect the amount of the Death Benefit. The Policy Value at any time is equal to the sum of the values in the Investment Accounts, the Fixed Account, and the Loan Account. INVESTMENT ACCOUNTS An Investment Account is established under each Policy for each sub-account of the Separate Account to which net premiums or transfer amounts have been allocated. Each Investment Account under a Policy measures the interest of the Policy in the corresponding sub-account. The value of the Investment Account established for a particular sub-account is equal to the number of units of that sub-account credited to the Policy times the value of such units. FIXED ACCOUNT Amounts in the Fixed Account do not vary with the investment performance of any sub-account. Instead, these amounts are credited with interest at a rate determined by Manulife USA. See "The General Account - Fixed Account". LOAN ACCOUNT Amounts borrowed from the Policy are transferred to the Loan Account. Amounts in the Loan Account do not vary with the investment performance of any sub-account. Instead, these amounts are credited with interest at a rate determined by Manulife USA that is lower than the loan interest rate charged on Policy Debt. See "Policy Loans - Loan Account". UNITS AND UNIT VALUES CREDITING AND CANCELING UNITS Units of a particular sub-account are credited to a Policy when net premiums are allocated to that sub-account or amounts are transferred to that sub-account. Units of a sub-account are cancelled whenever amounts are deducted, transferred or withdrawn from the sub-account. The number of units credited or cancelled for a specific transaction is based on the dollar amount of the transaction divided by the value of the unit on the Business Day on which the transaction occurs. The number of units credited with respect to a premium payment will be based on the applicable unit values for the Business Day on which the premium is received at the Service Office, except for any premiums received before the Effective Date. For premiums received before the Effective Date, the values will be determined on the Effective Date. 29 Units are valued at the end of each Business Day. When an order involving the crediting or canceling of units is received after the end of a Business Day, or on a day that is not a Business Day, the order will be processed on the basis of unit values determined on the next Business Day. Similarly, any determination of Policy Value, Investment Account value or Death Benefit to be made on a day that is not a Business Day will be made on the next Business Day. UNIT VALUES The value of a unit of each sub-account was initially fixed at $10.00. For each subsequent Business Day the unit value for that sub-account is determined by multiplying the unit value for the immediately preceding Business Day by the net investment factor for the that sub-account on such subsequent Business Day. The net investment factor for a sub-account on any Business Day is equal to (a) divided by (b) minus (c), where: (a) is the net asset value of the underlying Portfolio shares held by that sub-account as of the end of such Business Day before any policy transaction are made on that day; (b) is the net asset value of the underlying Portfolio shares held by that sub-account as of the end of the immediately preceding Business Day after all policy transaction were made for that day; and (c) is a charge not exceeding the daily mortality and expense risk charge shown in the "Charges and Deductions - Asset Based Risk Charge Deducted from Investment Accounts" section. The value of a unit may increase, decrease, or remain the same, depending on the investment performance of a sub-account from one Business Day to the next. TRANSFERS OF POLICY VALUE At any time, you may transfer Policy Value from one sub-account to another or to the Fixed Account. We reserve the right to impose limitations on transfers, including limiting the number of transfers and amounts transferred in a period of time in accordance with applicable law. We would impose such transfer limitations in a manner that does not unfairly discriminate between individual policy owners. Transfers may also be delayed when any of the events described under items (i) through (iii) in "Payment of Proceeds" occur. In addition, transfer privileges are subject to any restrictions that may be imposed by the Trust. In addition, we reserve the right to defer the transfer privilege at any time when we are unable to purchase of redeem shares of the Trust. The Policy is not designed for professional market timing organizations or other entities or persons engaging in programmed, frequent or large exchanges (collectively, "market timers") to speculate on short-term movements in the market since such activity may be disruptive to the Trust portfolios and increase their transaction costs. Therefore, in order to prevent excessive use of the transfer privilege, we reserve the right to impose specific limitations with respect to market timers, including restricting exchanges by market timer to certain variable investment options. Any action take by us pursuant to this provision will be preceded by written notice to the affected policy owner. TRANSFER REQUESTS Transfer requests may be made in writing in a format satisfactory to us. From time to time we may offer you alternate means of communicating transfer requests to us, such as electronic mail, the Internet or telephone. We will use reasonable procedures to confirm that instructions received by alternate means are genuine and we will not be liable for following instructions we have reasonably determined to be genuine. LIMITATIONS ON TRANSFERS FROM THE FIXED ACCOUNT The maximum amount that may be transferred from the Fixed Account in any Policy Year is 25% of the Fixed Account Value at the previous Policy Anniversary. Any transfer that involves a transfer out of the Fixed Account may not involve a transfer to the Investment Account for the Money Market Trust. We may allow greater amounts to be transferred from the Fixed Account if a systematic plan of withdrawals is agreed to in advance. For example, we will allow the transfer of 20%, 25%, 33%, 50% and 100% of the remaining balance in the Fixed Account in five successive years provided we agree in advance in writing and that no amounts are transferred into the Fixed Account during the 5 year period. POLICY LOANS At any time while the Policy is in force, you may borrow against the Policy Value. The Policy is the only security for the loan. Policy loans may have tax consequences. See "Tax Treatment of Policy Benefits - Policy Loan Interest." A policy loan will affect future Policy Values, since the portion of the Policy Value in the Loan Account will receive the loan interest credited rate rather than varying with the performance of the underlying Portfolios or increasing at the Fixed Account interest credited rate. A policy loan may cause a Policy to be more susceptible to lapse since it reduces the Net Cash Surrender Value from which 30 monthly deductions are taken. A policy loan causes the amount payable upon death of the life insured to be reduced by the amount of outstanding Policy Debt. MAXIMUM LOAN The amount of any loan cannot exceed the amount that would cause the Policy Debt to equal the Policy's Cash Surrender Value less the monthly deductions due from the date of the loan to the to the next Policy Anniversary. INTEREST CHARGED ON LOANS Interest on the Policy Debt will accrue daily and be payable annually on the Policy Anniversary. The rate of interest charged will be an effective annual rate of 4%. LOAN ACCOUNT When a loan is made, an amount equal to the loan will be deducted from the Investment Accounts or the Fixed Account and transferred to the Loan Account. You may designate how this amount is allocated among the Accounts. If you give no instructions, the amount transferred will be allocated among the Investment Accounts and the Fixed Account in the same proportion as the Policy Value in each Account bears to the Net Policy Value. A transfer from an Investment Account will result in the cancellation of units of the underlying sub-account equal in value to the amount transferred from the Investment Account. However, since the Loan Account is part of the Policy Value, transfers made in connection with a loan will not change the Policy Value. INTEREST CREDITED TO THE LOAN ACCOUNT Policy Value in the Loan Account will earn interest at an effective annual rate guaranteed to be at least 3.25%. We may declare a current interest rate that is greater than this, subject to change at any time. The excess of the loan interest charged rate (4%) over the loan interest credited rates will result in a net charge against the Policy Value with respect to any Policy Debt. Currently we credit loan interest rates which vary by Policy Year as follows:
Policy Years Current Loan Excess Loan Interest Interest Charged Rate Credited Rates 1-10 3.25% 0.75% 11+ 3.75% 0.25%
LOAN ACCOUNT ADJUSTMENTS On the first day of each Policy Month the difference between the Loan Account and the Policy Debt is transferred to the Loan Account from the Investment Accounts or the Fixed Account. The amount transferred will be allocated to the Investment Accounts and the Fixed Account in the same proportion as the Policy Value in each Account bears to the Net Policy Value. LOAN REPAYMENTS Policy Debt may be repaid, in whole or in part, at any time prior to the death of the life insured while the Policy is in force. A loan repayment amount will be credited to the Loan Account and transferred to the Fixed Account or the Investment Accounts in the same proportion as the Policy Value in each Account bears to the Net Policy Value. Amounts paid to us not specifically designated in writing as loan repayments will be treated as premiums. POLICY SURRENDER AND PARTIAL WITHDRAWALS POLICY SURRENDER A Policy may be surrendered for its Net Cash Surrender Value at any time while the life insured is living. The Net Cash Surrender Value is equal to the Policy Value less any Surrender Charges, monthly deductions due and Policy Debt. The Net Cash Surrender Value will be determined at the end of the Business Day on which we receive the Policy and a written request for surrender at the Service Office. When a Policy is surrendered, the insurance coverage and all other benefits under the Policy will terminate. PARTIAL WITHDRAWALS You may make a partial withdrawal of the Net Cash Surrender Value at any time. You may designate how the withdrawal amount is allocated among the Investment Account and the Fixed Account. If you give no instructions, the withdrawal amount will be allocated among the Accounts in the same proportion as the Policy Value in each Account bears to the Net Policy Value. 31 Surrender Charges may be assessed on a Partial Withdrawal. See "Charges and Deductions - Surrender Charges." The Death Benefit may be reduced as a result of a Partial Withdrawal. See "Death Benefits - Decreases in Face Amount under Death Benefit Option 1 due to a Partial Withdrawal"). LAPSE AND REINSTATEMENT LAPSE A Policy will go into default if at the beginning of a Policy Month if the Net Cash Surrender Value would go below zero after deducting the monthly deduction then due. A lapse could have adverse tax consequences as described under "Tax Treatment of the Policy - Tax Treatment of Policy Benefits - Surrender or Lapse." We will notify you of the default and will allow you a 61-day grace period in which to make a premium payment sufficient to bring the Policy out of default. The required payment will be equal to the amount necessary to bring the Net Cash Surrender Value to zero, if it was less than zero on the date of default, plus the monthly deductions due at the date of default and payable at the beginning of each of the two Policy Months thereafter, plus any applicable premium load. If the required payment is not received by the end of the grace period, the Policy will terminate with no value. DEATH DURING GRACE PERIOD If the life insured should die during the grace period, the Policy Value used in the calculation of the Death Benefit will be the Policy Value on the date of default and the insurance benefit will be reduced by any outstanding monthly deductions due at the time of death. REINSTATEMENT You may reinstate a Policy that has terminated after going into default at any time within the five-year period following the date of termination subject to the following conditions: (a) The Policy must not have been surrendered for its Net Cash Surrender Value; (b) Evidence of the life insured's insurability satisfactory to us must be provided; and (c) A premium equal to the payment required during the grace period following default to keep the Policy in force is paid. THE GENERAL ACCOUNT The general account of Manulife USA consists of all assets owned by us other than those in the Separate Account and other separate accounts of the Company. Subject to applicable law, we have sole discretion over investment of the assets of the general account. By virtue of exclusionary provisions, interests in the general account of Manulife USA have not been registered under the Securities Act of 1933 and the general account has not been registered as an investment company under the Investment Company Act of 1940. Accordingly, neither the general account nor any interests therein are subject to the provisions of these acts, and as a result the staff of the SEC has not reviewed the disclosures in this prospectus relating to the general account. Disclosures regarding the general account may, however, be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of statements made in a prospectus. FIXED ACCOUNT You may allocate net premiums to the Fixed Account or transfer all or a portion of the Policy Value to the Fixed Account from the Investment Accounts. Manulife USA will hold the reserves required for any portion of the Policy Value allocated to the Fixed Account in our general account. Transfers from the Fixed Account to the Investment Accounts are subject to restrictions. POLICY VALUE IN THE FIXED ACCOUNT The Policy Value in the Fixed Account is equal to: (a) the portion of the net premiums allocated to it; plus (b) any amounts transferred to it; plus (c) interest credited to it; less (d) any charges deducted from it; less (e) any partial withdrawals from it; less (f) any amounts transferred from it. INTEREST ON THE FIXED ACCOUNT An allocation of Policy Value to the Fixed Account does not entitle you to share in the investment experience of the general account. Instead, we guarantee that the Policy Value in the Fixed Account will accrue interest daily at an effective annual rate of at least 3%, without regard to the actual investment experience of the general account. We may declare a current interest rate in excess of the guaranteed rate, subject to change at any time. 32 OTHER PROVISIONS OF THE POLICY POLICYHOLDER RIGHTS Unless otherwise restricted by a separate agreement, you may: - - Vary the premiums paid under the Policy. - - Change the Death Benefit Option. - - Change the premium allocation for future premiums. - - Transfer amounts between sub-accounts. - - Take loans and/or partial withdrawals. - - Surrender the contract. - - Transfer ownership to a new owner. - - Name a contingent owner that will automatically become owner if you die before the life insured. - - Change or revoke a contingent owner. - - Change or revoke a beneficiary. ASSIGNMENT OF RIGHTS We will not be bound by an assignment until we receive a copy of the assignment at the Service Office. We assume no responsibility for the validity or effects of any assignment. BENEFICIARY You may appoint one or more beneficiaries of the Policy by naming them in the application. Beneficiaries may be appointed in three classes - primary, secondary, and final. Beneficiaries may also be revocable or irrevocable. Unless an irrevocable designation has been elected, you may change the beneficiary during the life insured's lifetime by giving written notice in a form satisfactory to us. If the life insured dies and there is no surviving beneficiary, you, or your estate if you are the life insured, will be the beneficiary. If a beneficiary dies before the seventh day after the death of the life insured, we will pay the insurance benefit as if the beneficiary had died before the life insured. INCONTESTABILITY We will not contest the validity of a Policy after it has been in force during the life insured's lifetime for two years from the Issue Date stated in the Policy, nor will we contest the validity of an increase in Face Amount after it has been in force during the life insured's lifetime for two years. If a Policy has been reinstated, we can contest any misrepresentation of a fact material to the reinstatement for a period of two years after the reinstatement date. MISSTATEMENT OF AGE OR SEX If the life insured's stated age or sex or both in the Policy are incorrect, we will change the Face Amount so that the Death Benefit will be that which the most recent monthly charge for the cost of insurance would have purchased for the correct age and sex. SUICIDE EXCLUSION If the life insured, whether sane or insane, dies by suicide within two years from the Issue Date stated in The Policy (or within the maximum period permitted by the state in which the Policy was delivered, if less than two years), we will pay only the premiums paid less any partial withdrawals and any Policy Debt. If the life insured should die by suicide within two years after a Face Amount increase, the Death Benefit for the increase will be limited to the monthly deductions for the increase. At our discretion, this provision may be waived, such as policies purchased in conjunction with certain existing benefit plans. SUPPLEMENTARY BENEFITS Subject to certain requirements, one or more supplementary benefits may be added to a Policy, including the FTIO Rider (see "Death Benefits - Flexible Term Insurance Option Rider") and, in the case of a Policy owned by a corporation or other similar entity, a benefit permitting a change in the life insured (a taxable event). More detailed information concerning this supplementary benefit may be obtained from us. There is no cost for any supplementary benefit currently offered by us, with the exception of FTIO Rider (see "Charges and Deductions - Monthly Deductions"). TAX TREATMENT OF THE POLICY The following summary provides a general description of the federal income tax considerations associated with the Policy and does not purport to be complete or to cover all situations. This discussion is not intended as tax advice. Counsel or other competent tax advisers should be consulted for more complete information. This discussion is based upon our understanding of the present federal income tax laws as they are currently interpreted by the Internal Revenue Service (the "Service"). No representation is made as to the likelihood of continuation of the present federal income tax laws nor of the current interpretations by the Service. MANULIFE USA DOES NOT MAKE ANY GUARANTEE REGARDING THE TAX STATUS OF ANY POLICY OR ANY TRANSACTION REGARDING THE POLICY. 33 The Policy may be used in various arrangements, including non-qualified deferred compensation or salary continuation plans, split dollar insurance plans, executive bonus plans, retiree medical benefit plans and others. The tax consequences of such plans may vary depending on the particular facts and circumstances of each individual arrangement. Therefore, if the use of the Policy in any such arrangement, the value of which depends in part on the tax consequences, is contemplated, a qualified tax adviser should be consulted for advice on the tax attributes of the particular arrangement. Manulife USA is taxed as a life insurance company. Because the operations of the Separate Account are a part of, and are taxed with, our operations, the Separate Account is not separately taxed as a "regulated investment company" under the Code. Under existing Federal income tax laws, we are not taxed on the investment income and capital gains of the Separate Account, but we may be eligible for certain tax credits or deductions relating to foreign taxes paid and dividends received by Trust portfolios. Our use of these tax credits or deductions will not adversely affect or benefit the Separate Account. We do not anticipate that it will be taxed on the income and gains of the Separate Account in the future, but if we are, we may impose a corresponding charge against the Separate Account. LIFE INSURANCE QUALIFICATION There are several requirements that must be met for a Policy to be considered a Life Insurance Contract under the Internal Revenue Code, and thereby to enjoy the tax benefits of such a contract: 1. The Policy must satisfy the definition of life insurance under Section 7702 of the Code. 2. The investments of the Separate Account must be "adequately diversified" in accordance with Section 817(h) of the Code and Treasury Regulations. 3. The Policy must be a valid life insurance contract under applicable state law. 4. The policyholder must not possess "incidents of ownership" in the assets of the Separate Account. These four items are discussed in detail below. DEFINITION OF LIFE INSURANCE Section 7702 of the Code sets forth a definition of a life insurance contract for federal tax purposes. For a Policy to be a life insurance contract, it must satisfy either the Cash Value Accumulation Test or the Guideline Premium Test. By limiting cash value at any time to the net single premium that would be required in order to fund future benefits under the contract, the Cash Value Accumulation Test in effect requires a minimum death benefit for a given Policy Value. The Guideline Premium Test also requires a minimum death benefit, but in addition limits the total premiums that can be paid into a Policy for a given amount of death benefit. With respect to a Policy which is issued on the basis of a standard rate class, we believe (largely in reliance on IRS Notice 88-128 and the proposed mortality charge regulations under Section 7702, issued on July 5, 1991) that such a Policy should meet the Section 7702 definition of a life insurance contract. With respect to a Policy that is issued on a substandard basis (i.e., a rate class involving higher-than-standard mortality risk), there is less guidance, in particular as to how mortality and other expense requirements of Section 7702 are to be applied in determining whether such a Policy meets the Section 7702 definition of a life insurance contract. Thus it is not clear whether or not such a Policy would satisfy Section 7702, particularly if the policyholder pays the full amount of premiums permitted under the Policy. The Secretary of the Treasury (the "Treasury") is authorized to prescribe regulations implementing Section 7702. However, while proposed regulations and other interim guidance have been issued, final regulations have not been adopted and guidance as to how Section 7702 is to be applied is limited. If a Policy were determined not to be a life insurance contract for purposes of Section 7702, such a Policy would not provide the tax advantages normally provided by a life insurance policy. If it is subsequently determined that a Policy does not satisfy Section 7702, we may take whatever steps are appropriate and reasonable to attempt to cause such a Policy to comply with Section 7702. For these reasons, we reserve the right to restrict Policy transactions as necessary to attempt to qualify it as a life insurance contract under Section 7702. DIVERSIFICATION Section 817(h) of the Code requires that the investments of the Separate Account be "adequately diversified" in accordance with Treasury regulations in order for the Policy to qualify as a life insurance contract under Section 7702 of the Code (discussed above). The Separate Account, through the Trust, intends to comply with the diversification requirements prescribed in Treas. Reg. Sec. 1.817-5, which affect how the Trust's assets are to be invested. We believe that the Separate Account will thus meet the diversification requirement, and we will monitor continued compliance with the requirement. 34 STATE LAW A Policy must qualify as a valid life insurance contract under applicable state laws. State regulations require that the policyholder have appropriate insurable interest in the life insured. Failure to establish an insurable interest may result in the Policy not qualifying as a life insurance contract for federal tax purposes. INVESTOR CONTROL In certain circumstances, owners of variable life insurance policies may be considered the owners, for federal income tax purposes, of the assets of the separate account used to support their policies. In those circumstances, income and gains from the separate account assets would be includible in the variable policyholder's gross income. The IRS has stated in published rulings that a variable policyholder will be considered the owner of separate account assets if the policyholder possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. The Treasury Department has also announced, in connection with the issuance of regulations concerning diversification, that those regulations "do not provide guidance concerning the circumstances in which investor control of the investments of a segregated asset account may cause the investor (i.e., the policyholder), rather than the insurance company, to be treated as the owner of the assets in the account." This announcement also stated that guidance would be issued by way of regulations or rulings on the "extent to which policyholders may direct their investments to particular sub-accounts without being treated as owners of the underlying assets". As of the date of this prospectus, no such guidance has been issued. The ownership rights under the Policy are similar to, but different in certain respects from, those described by the IRS in rulings in which it was determined that policyholders were not owners of separate account assets. For example, the Policy has many more portfolios to which policyholders may allocate premium payments and Policy Values than were available in the policies described in the rulings. These differences could result in an owner being treated as the owner of a pro-rata portion of the assets of the Separate Account. In addition, we do not know what standards will be set forth, if any, in the regulations or rulings which the Treasury Department has stated it expects to issue. We therefore reserve the right to modify the Policy as necessary to attempt to prevent an owner from being considered the owner of a pro rata share of the assets of the Separate Account. TAX TREATMENT OF POLICY BENEFITS The following discussion assumes that the Policy will qualify as a life insurance contract for federal income tax purposes. We believe that the proceeds and cash value increases of a Policy should be treated in a manner consistent with a fixed-benefit life insurance policy for federal income tax purposes. Depending on the circumstances, the exchange of a Policy, a change in the Policy's Death Benefit Option, a policy loan, partial withdrawal, surrender, change in ownership, the addition of an accelerated death benefit rider, or an assignment of the Policy may have federal income tax consequences. In addition, federal, state and local transfer, and other tax consequences of ownership or receipt of Policy proceeds depend on the circumstances of each policyholder or beneficiary. DEATH BENEFIT The death benefit under the Policy should be generally excludible from the gross income of the beneficiary under Section 101(a)(1) of the Code. A transfer of the Policy for valuable consideration, however, may cause a portion of the death benefit to be taxable (See "Other Transactions" below). CASH VALUES Generally, the policyholder will not be deemed to be in constructive receipt of the Policy Value until there is a distribution. This includes additions attributable to interest, dividends, appreciation or gains realized on transfers among sub-accounts. INVESTMENT IN THE POLICY Investment in the Policy means: (a) the aggregate amount of any premiums or other consideration paid for the Policy; minus (b) the aggregate amount, other than loan amounts, received under the Policy which has been excluded from the gross income of the policyholder (except that the amount of any loan from, or secured by, a Policy that is a Modified Endowment Contract or "MEC," to the extent such amount has been excluded from gross income, will be disregarded); plus (c) the amount of any loan from, or secured by a Policy that is a MEC to the extent that such amount has been included in the gross income of the policyholder. The repayment of a policy loan, or the payment of interest on a loan, does not affect the Investment in the Policy. 35 SURRENDER OR LAPSE Upon a complete surrender or lapse of a Policy or when benefits are paid at a policy's maturity date, if the amount received plus the amount of Policy Debt exceeds the total investment in the Policy, the excess will generally be treated as ordinary income subject to tax. If, at the time of lapse, a Policy has a loan, the loan is extinguished and the amount of the loan is a deemed payment to the policyholder. If the amount of this deemed payment exceeds the investment in the contract, the excess is taxable income and is subject to Internal Revenue Service reporting requirements. DISTRIBUTIONS The tax consequences of distributions from, and loans taken from or secured by, a Policy depend on whether the Policy is classified as a MEC. DISTRIBUTIONS FROM NON-MECS A distribution from a non-MEC is generally treated as a tax-free recovery by the policyholder of the Investment in the Policy to the extent of such Investment in the Policy, and as a distribution of taxable income only to the extent the distribution exceeds the Investment in the Policy. Loans from, or secured by, a non-MEC are not treated as distributions. Instead, such loans are treated as indebtedness of the policyholder. Force Outs An exception to this general rule occurs in the case of a decrease in the Policy's death benefit or any other change that reduces benefits under the Policy in the first 15 years after the Policy is issued and that results in a cash distribution to the policyholder in order for the Policy to continue to comply with the Section 7702 definitional limits. Such a cash distribution will be taxed in whole or in part as ordinary income (to the extent of any gain in the Policy) under rules prescribed in Section 7702. Changes include partial withdrawals and death benefit option changes. DISTRIBUTIONS FROM MECS Policies classified as MECs will be subject to the following tax rules: (a) First, all partial withdrawals from such a Policy are treated as ordinary income subject to tax up to the amount equal to the excess (if any) of the Policy Value immediately before the distribution over the Investment in the Policy at such time. (b) Second, loans taken from or secured by such a Policy and assignments and pledges of any part of its value are treated as partial withdrawals from the Policy and taxed accordingly. Past-due loan interest that is added to the loan amount is treated as a loan. (c) Third, a 10% additional income tax is imposed on the portion of any distribution (including distributions on surrender) from, or loan taken from or secured by, such a Policy that is included in income except where the distribution or loan: (i) is made on or after the policyholder attains age 59 1/2; (ii) is attributable to the policyholder becoming disabled; or (iii) is part of a series of substantially equal periodic payments for the life (or life expectancy) of the policyholder or the joint lives (or joint life expectancies) of the policyholder and the policyholder's beneficiary. These exceptions are not likely to apply in situations where the Policy is not owned by an individual. Definition of Modified Endowment Contracts Section 7702A establishes a class of life insurance contracts designated as "Modified Endowment Contracts," which applies to Policies entered into or materially changed after June 20, 1988. In general, a Policy will be a Modified Endowment Contract if the accumulated premiums paid at any time during the first seven policy years exceed the "seven-pay premium limit". The seven-pay premium limit on any date is equal to the sum of the net level premiums that would have been paid on or before such date if the Policy provided for paid-up future benefits after the payment of seven level annual premiums (the "seven-pay premium"). The rules relating to whether a Policy will be treated as a MEC are extremely complex and cannot be adequately described in the limited confines of this summary. Therefore, a current or prospective policyholder should consult with a competent adviser to determine whether a transaction will cause the Policy to be treated as a MEC. Material Changes A Policy that is not a MEC may become a MEC if it is "materially changed". If there is a material change to the Policy, the seven year testing period for MEC status is restarted. The material change rules for determining whether a Policy is a MEC are complex. In general, however, the determination of whether a Policy will be a MEC after a material change depends upon the relationship among 36 the death benefit of the Policy at the time of such change, the Policy Value at the time of the change, and the additional premiums paid into the Policy during the seven years starting with the date on which the material change occurs. Reductions in Face Amount If there is a reduction in benefits during the first seven policy years, the seven-pay premium limit is recalculated as if the Policy had been originally issued at the reduced benefit level. Failure to comply would result in classification as a MEC regardless of any efforts by us to provide a payment schedule that will not violate the seven pay test. Exchanges A life insurance contract received in exchange for a MEC will also be treated as a MEC. Processing of Premiums If a premium, which would cause the Policy to become a MEC, is received within 23 days of the next Policy Anniversary, we will not apply the portion of the premium which would cause MEC status ("excess premium") to the Policy when received. The excess premium will be placed in a suspense account until the next Policy Anniversary, at which point the excess premium, along with interest, earned on the excess premium at a rate of 3.5% from the date the premium was received, will be applied to the Policy. (Any amount that would still be excess premium will be refunded to the policyholder). The policyholder will be advised of this action and will be offered the opportunity to have the premium credited as of the original date received or to have the premium returned. (If the policyholder does not respond, the premium and interest will be applied as described above). If a premium, which would cause the Policy to become a MEC, is received more than 23 days prior to the next Policy Anniversary, we will refund any excess premium to the policyholder. The portion of the premium which is not excess will be applied as of the date received. The policyholder will be advised of this action and will be offered the opportunity to return the premium and have it credited to the account as of the original date received. Multiple Policies All MEC's that are issued by a Company (or its affiliates) to the same policyholder during any calendar year are treated as one MEC for purposes of determining the amount includible in gross income under Section 72(e) of the Code. POLICY LOAN INTEREST Generally, personal interest paid on any loan under a Policy which is owned by an individual is not deductible. For policies purchased on or after January 1, 1996, interest on any loan under a Policy owned by a taxpayer and covering the life of any individual who is an officer or employee of or is financially interested in the business carried on by the taxpayer will not be tax deductible unless the employee is a key person within the meaning of Section 264 of the Code. A deduction will not be permitted for interest on a loan under a Policy held on the life of a key person to the extent the aggregate of such loans with respect to contracts covering the key person exceed $50,000. The number of employees who can qualify as key persons depends in part on the size of the employer but cannot exceed 20 individuals. Furthermore, if a non-natural person owns a Policy, or is the direct or indirect beneficiary under a Policy, section 264(f) of the Code disallows a pro-rata portion of the taxpayer's interest expense allocable to unborrowed Policy cash values attributable to insurance held on the lives of individuals who are not 20% (or more) owners of the taxpayer-entity, officers, employees, or former employees of the taxpayer. The portion of the interest expense that is allocable to unborrowed Policy cash values is an amount that bears the same ratio to that interest expense as the taxpayer's average unborrowed Policy cash values under such life insurance policies issued after June 8, 1997 bear to the sum of such average unborrowed cash values and the average adjusted bases for all other assets of the taxpayer. If the policyholder is an individual, and if the taxpayer is a business and is not the policyholder, but is the direct or indirect beneficiary under the Policy, then the amount of unborrowed cash value of the Policy taken into account in computing the portion of the taxpayer's interest expense allocable to unborrowed Policy cash values cannot exceed the benefit to which the taxpayer is directly or indirectly entitled under the Policy. POLICY EXCHANGES A policyholder generally will not recognize gain upon the exchange of a Policy for another life insurance policy covering the same life insured and issued by us or another insurance company, except to the extent that the policyholder receives cash in the exchange or is relieved of Policy indebtedness as a result of the exchange. In no event will the gain recognized exceed the amount by which the Policy Value (including any unpaid loans) exceeds the policyholder's Investment in the Policy. 37 OTHER TRANSACTIONS A transfer of the Policy, a change in the owner, a change in the life insured, a change in the beneficiary, and certain other changes to the Policy, as well as particular uses of the Policy (including use in a so called "split-dollar" arrangement) may have tax consequences depending upon the particular circumstances and should not be undertaken prior to consulting with a qualified tax adviser. For instance, if the owner transfers the Policy or designates a new owner in return for valuable consideration (or, in some cases, if the transferor is relieved of a liability as a result of the transfer), then the Death Benefit payable upon the death of the life insured may in certain circumstances be includible in taxable income to the extent that the Death Benefit exceeds the prior consideration paid for the transfer and any premiums or other amounts subsequently paid by the transferee. Further, in such a case, if the consideration received exceeds the transferor's Investment in the Policy, the difference will be taxed to the transferor as ordinary income. Federal estate and state and local estate, inheritance and other tax consequences of ownership or receipt of Policy proceeds depend on the individual circumstances of each policyholder and beneficiary. ALTERNATE MINIMUM TAX Corporate owners may be subject to Alternate Minimum Tax on the annual increases in Cash Surrender Values and on the Death Benefit proceeds. INCOME TAX REPORTING In certain employer-sponsored life insurance arrangements, including equity split-dollar arrangements, participants may be required to report for income tax purposes, one or more of the following: (a) the value each year of the life insurance protection provided; (b) an amount equal to any employer-paid premiums; (c) income equal to imputed interest on deemed employer loan; or (d) some or all of the amount by which the current value exceeds the employer's interest in the Policy. Participants should consult with their tax adviser to determine the tax consequences of these arrangements. OTHER INFORMATION PAYMENT OF PROCEEDS As long as the Policy is in force, we will ordinarily pay any policy loans, surrenders, partial withdrawals or insurance benefit within seven days after receipt at the Service Office of all the documents required for such a payment. We may delay the payment of any policy loans, surrenders, partial withdrawals, or insurance benefit that depends on Fixed Account values for up to six months or in the case of any Investment Account for any period during which (i) the New York Stock Exchange is closed for trading (except for normal weekend and holiday closings), (ii) trading on the New York Stock Exchange is restricted (iii) an emergency exists as a result of which disposal of securities held in the Separate Account is not reasonably practicable or it is not reasonably practicable to determine the value of the Separate Account's net assets or (iv) the SEC, by order, so permits for the protection of security holders; provided that applicable rules and regulations of the SEC shall govern as to whether the conditions described in (2) and (3) exist. REPORTS TO POLICYHOLDERS Within 30 days after each Policy Anniversary, we will send you a statement showing, among other things: - the amount of Death Benefit; - the Policy Value and its allocation among the Investment Accounts, the Fixed Account and the Loan Account; - the value of the units in each Investment Account to which the Policy Value is allocated; - the Policy Debt and any loan interest charged since the last report; - the premiums paid and other Policy transactions made during the period since the last report; and - any other information required by law. You will also be sent an annual and a semi-annual report for the Trust, which will include a list of the securities, held in each Portfolio as required by the 1940 Act. DISTRIBUTION OF THE POLICIES Manulife Financial Securities LLC ("Manulife Securities"), an indirect wholly owned subsidiary of MFC, will act as the principal underwriter of, and continuously offer, the Policies pursuant to a Distribution Agreement with Manulife USA. Manulife Securities is registered as a broker-dealer under the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers. Manulife Securities is located at 73 Tremont Street, Boston, MA 02108 and is organized as a Delaware limited liability company. The managing member of Manulife Securities is Manulife USA. The Policies will be sold by registered representatives of 38 either Manulife Securities or other broker-dealers having distribution agreements with Manulife Securities who are authorized by state insurance departments to do so. The Policies will be sold in all states of the United States except New York. A registered representative will receive commissions not to exceed 25% of premiums paid up to the Annual Premium Target, and 5% of premiums paid in excess of the Annual Premium Target in Policy Years 1 through 5, commissions of 5% of premiums paid in Policy Years 6 and later, and after the fifth Policy Anniversary 0.20% of the Policy Value per year. Representatives who meet certain productivity standards with regard to the sale of the Policies and certain other policies issued by Manulife USA or Manufacturers Life will be eligible for additional compensation. RESPONSIBILITIES OF MFC MFC entered into an agreement with Manulife Securities pursuant to which MFC, on behalf of Manulife Securities will pay the sales commissions in respect of the Policies and certain other policies issued by Manulife USA, prepare and maintain all books and records required to be prepared and maintained by Manulife Securities with respect to the Policies and such other policies, and send all confirmations required to be sent by Manulife Securities with respect to the Policies and such other policies. Manulife Securities will promptly reimburse MFC for all sales commissions paid by MFC and will pay MFC for its other services under the agreement in such amounts and at such times as agreed to by the parties. MFC has also entered into a Service Agreement with Manulife USA pursuant to which MFC will provide to Manulife USA with issue, administrative, general services and recordkeeping functions on behalf of Manulife USA with respect to all of its insurance policies including the Policies. VOTING RIGHTS As stated previously, all of the assets held in each sub-account of the Separate Account will be invested in shares of a particular Portfolio of the Trust. Manulife USA is the legal owner of those shares and as such has the right to vote upon certain matters that are required by the 1940 Act to be approved or ratified by the shareholders of a mutual fund and to vote upon any other matters that may be voted upon at a shareholders' meeting. However, Manulife USA will vote shares held in the sub-accounts in accordance with instructions received from policyholders having an interest in such sub-accounts. Shares held in each sub-account for which no timely instructions from policyholders are received, including shares not attributable to the Policies, will be voted by Manulife USA in the same proportion as those shares in that sub-account for which instructions are received. Should the applicable federal securities laws or regulations change so as to permit Manulife USA to vote shares held in the Separate Account in its own right, it may elect to do so. The number of shares in each sub-account for which instructions may be given by a policyholder is determined by dividing the portion of the Policy Value derived from participation in that sub-account, if any, by the value of one share of the corresponding Portfolio. The number will be determined as of a date chosen by Manulife USA, but not more than 90 days before the shareholders' meeting. Fractional votes are counted. Voting instructions will be solicited in writing at least 14 days prior to the meeting. Manulife USA may, if required by state officials, disregard voting instructions if such instructions would require shares to be voted so as to cause a change in the sub-classification or investment policies of one or more of the Portfolios, or to approve or disapprove an investment management contract. In addition, we may disregard voting instructions that would require changes in the investment policies or investment adviser, provided that we reasonably disapprove such changes in accordance with applicable federal regulations. If Manulife USA does disregard voting instructions, it will advise policyholders of that action and its reasons for such action in the next communication to policyholders. SUBSTITUTION OF PORTFOLIO SHARES It is possible that in the judgment of the management of Manulife USA, one or more of the Portfolios may become unsuitable for investment by the Separate Account because of a change in investment policy or a change in the applicable laws or regulations, because the shares are no longer available for investment, or for some other reason. In that event, Manulife USA may seek to substitute the shares of another Portfolio or of an entirely different mutual fund. Before this can be done, the approval of the SEC and one or more state insurance departments may be required. Manulife USA also reserves the right (i) to combine other separate accounts with the Separate Account, (ii) to create new separate accounts, (iii) to establish additional sub-accounts within the Separate Account to invest in additional portfolios of the Trust or another management investment company, (iv) to eliminate existing sub-accounts and to stop accepting new allocations and transfers into the corresponding portfolio, (v) to combine sub-accounts or to transfer assets in one sub-account to another sub-account or (vi) to transfer assets from the Separate Account to another separate account and from another separate account to the Separate Account. We also reserve the right to operate the Separate Account as a management investment company or other form permitted by law, and to de-register the Separate Account under the 1940 Act. Any such change would be made only if permissible under applicable federal and state law. 39 RECORDS AND ACCOUNTS The Service Office is responsible for performing all administrative functions, such as decreases, increases, surrender and partial withdrawals, and fund transfers although certain of these functions may be delegated to McCamish Systems, L.L.C., 6425 Powers Ferry Road, Atlanta, Georgia 30339. All records and accounts relating to the Separate Account and the Portfolios will be maintained by us. All financial transactions will be handled by us. All reports required to be made and information required to be given will be provided the Company or by McCamish Systems on behalf of us. STATE REGULATIONS Manulife USA is subject to the regulation and supervision by the Michigan Department of Insurance, which periodically examines its financial condition and operations. It is also subject to the insurance laws and regulations of all jurisdictions in which it is authorized to do business. The Policies have been filed with insurance officials, and meet all standards set by law, in each jurisdiction where they are sold. Manulife USA is required to submit annual statements of its operations, including financial statements, to the insurance departments of the various jurisdictions in which it does business for the purposes of determining solvency and compliance with local insurance laws and regulations. LITIGATION No litigation is pending that would have a material effect upon the Separate Account or the Trust. INDEPENDENT AUDITORS The consolidated financial statements of The Manufacturers Life Insurance Company (U.S.A.) at December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001 and the financial statements of Separate Account N of The Manufacturers Life Insurance Company (U.S.A.) (formerly known as Separate Account Four of The Manufacturers Life Insurance Company of America) at December 31, 2001, and for each of the two years in the period ended December 31, 2001, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing. FINANCIAL STATEMENTS The most current financial statements of The Manufacturers Life Insurance Company (U.S.A.) ("ManUSA") are those as of December 31, 2001. ManUSA does not customarily issue U.S. GAAP financial statements more often than annually and believes that any incremental benefit to prospective policyowners that may result from issuing and delivery more current financial statements, though unaudited, does not justify the additional cost that would be incurred. In addition, ManUSA represents that there have been no adverse changes in the financial condition or operations of the company between December 31, 2001 and the date of this prospectus. FURTHER INFORMATION A registration statement under the Securities Act of 1933 has been filed with the SEC relating to the offering described in this prospectus. This prospectus does not include all the information set forth in the registration statement. The omitted information may be obtained from the SEC's principal office in Washington D.C. upon payment of the prescribed fee. The SEC also maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC which is located at http://www.sec.gov. For further information you may also contact Manulife USA's home office, the address and telephone number of which are on the first page of the prospectus. 40 OFFICERS AND DIRECTORS
POSITION WITH NAME MANULIFE USA PRINCIPAL OCCUPATION - ---- ------------ -------------------- James Boyle (43)** President, President, U.S. Annuities, Manulife USA, January 2002 to present; Senior Vice U.S. Annuities, Director President, U.S. Annuities, The Manufacturers Life Insurance Company, July 1999 to present; President, The Manufacturers Life Insurance Company of North America, July 1999 to December 2001; Vice President, Institutional Markets, Manulife Financial, May 1998 to June 1999; Vice President, Administration of U.S. Annuities, Manulife Financial, September 1996 to May 1998; Vice President, Treasurer and Chief Administrative Officer, North American Funds, June 1994 to September 1996. Robert A. Cook President, President, U.S. Individual Insurance, Manulife USA, January 2002 to present; (47)** U.S. Insurance; Director Senior Vice President, U.S. Individual Insurance, Manulife USA, January 1999 to December 2001; Senior Vice President, The Manufacturers Life Insurance Company, January 1999 to present; Vice President, Product Management, The Manufacturers Life Insurance Company, January 1996 to December 1998; Sales and Marketing Director, The Manufacturers Life Insurance Company, 1994 to 1995. Peter Copestake Vice President, Finance Vice President, Finance, Manulife USA, December 1999 to present; Vice President (46)*** & Treasurer, The Manufacturers Life Insurance Company, November 1999 to present; Vice President, Asset Liability Management, Canadian Imperial Bank of Commerce (CIBC), 1991 to 1999; Director, Capital Management, Bank of Montreal, 1986-1990; Inspector General of Banks, Department of Finance, 1980-1985. John D. DesPrez Chairman and President President, Manulife USA, January 1999 to date; Executive Vice President, U.S. III (45)** Operations, The Manufacturers Life Insurance Company, January 1999 to present; Senior Vice President, U.S. Annuities, The Manufacturers Life Insurance Company, September 1996 to December 1998; President of The Manufacturers Life Insurance Company of North America, September 1996 to December, 1998; Vice President, Mutual Funds, North American Security Life Insurance Company, January 1995 to September 1996. James D. Gallagher Vice President, Vice President, Secretary & General Counsel, Manulife USA, January 1996 to (47)** Secretary and General present; Vice President, Chief Legal Officer & Government Relations, U.S. Counsel Operations, The Manufacturers Life Insurance Company, January 1996 to present; President, The Manufacturers Life Insurance Company of New York, August 1999 to present; Vice President, Secretary and General Counsel, The Manufacturers Life Insurance Company of America, January 1997 to present; Secretary and General Counsel, Manufacturers Adviser Corporation, January 1997 to present; Vice President, Secretary and General Counsel, The Manufacturers Life Insurance Company of North America, 1994 to December 2001. Donald Guloien Executive Vice President Executive Vice President & Chief Investments Officer, Manulife USA, June 2001 (45)*** and Chief Investment to present; Executive Vice President & Chief Investment Officer, The Officer Manufacturers Life Insurance Company, March 2001 to present; Executive Vice President, Business Development, The Manufacturers Life Insurance Company, January 1999 to March 2001; Senior Vice President, Business Development, The Manufacturers Life Insurance Company, 1994 to December 1998.
41
POSITION WITH NAME MANULIFE USA PRINCIPAL OCCUPATION - ---- ------------ -------------------- Geoffrey Guy Director Executive Vice President and Chief Actuary, The Manufacturers Life Insurance (54)*** Company, February 2000 to present; Senior Vice President and Chief Actuary, The Manufacturers Life Insurance Company, 1996 to 2000; Vice President and Chief Actuary, The Manufacturers Life Insurance Company, 1993 to 1996; Vice President and Chief Financial Officer, U.S. Operations, The Manufacturers Life Insurance Company, 1987 to 1993. John Lyon Vice President and Vice President & Chief Financial Officer, Investments, Manulife USA, June 2001 (49) *** Chief Financial to present; Vice President & Chief Financial Officer, Investments, The Officer, Investments; Manufacturers Life Insurance Company; April 2001 to present; Vice President, Director Business Development, The Manufacturers Life Insurance Company, 1995-2001; Assistant Vice President, Business Development, The Manufacturers Life Insurance Company, 1994-1995; Director/Manager, Corporate Finance, The Manufacturers Life Insurance Company, 1992-1994. Steven Mannik President, Reinsurance; President, Reinsurance, Manulife USA, January 2001 to present; Senior Vice (43)*** Director President, Reinsurance Operations, The Manufacturers Life Insurance Company, June 2001 to present; President, Manulife Reinsurance Corporation (U.S.A.), June, 2001 to December 2001; Vice President, Business Development, The Manufacturers Life Insurance Company, 1999 to June 2001; Principal, Towers Perrin, 1988 to 1999. James O'Malley President, President, U.S. Pensions, Manulife USA, January 2002 to present, Senior Vice (55)*** U.S. Pensions; Director President, U.S. Pensions, Manulife USA, January 1999 to December present; Senior Vice President, U.S. Pensions, The Manufacturers Life Insurance Company, January 1999 to present; Vice President, Systems New Business Pensions, The Manufacturers Life Insurance Company, 1984 to December 1998. Rex Schlaybaugh, Director Member, Dykema Gossett, PLLC, 1982 to present; Vice Chairman, Oxford Jr. (52)**** Automotive, Inc. 1997 to present John Ostler Executive Vice Executive Vice President and Chief Financial Officer, Manulife USA, January (48)*** President and Chief 2002 to present; Vice President and Chief Financial Officer, Manulife USA, Financial Officer October 1, 2000 to present; Vice President and Chief Financial Officer, U.S. Operations, The Manufacturers Life Insurance Company, October 1, 2000 to present; Vice President and Corporate Actuary, The Manufacturers Life Insurance Company, March 1998 to September 2000; Vice President & CFO U.S. Individual Insurance, The Manufacturers Life Insurance Company, 1992 to March 1998; Vice President, U.S. Insurance Products, The Manufacturers Life Insurance Company, 1990 - 1992; Assistant Vice President & Pricing Actuary, US Insurance, The Manufacturers Life Insurance Company, 1988-1990. Warren Thomson Senior Vice President, Senior Vice President, Investments, Manulife USA, June 2001 to present; Senior (47)*** Investments Vice President, Investments, The Manufacturers Life Insurance Company, May 2001 to Present; President, Norfolk Capital Partners Inc. 2000 - May 2001; Managing Director, Public Sector Finance, New Capital Group Inc. 1995-2000; Tax Partner, Coopers & Lybrand Chartered Accounts, 1994-1995; Taxation Vice President, The Manufacturers Life Insurance Company, 1987-1994.
42
POSITION WITH NAME MANULIFE USA PRINCIPAL OCCUPATION - ---- ------------ -------------------- Denis Turner Senior Vice President Senior Vice President and Treasurer, Manulife USA, January 2002 to present; (45)*** and Treasurer Vice President and Treasurer, Manulife USA, May 1999 to December 2001; Vice President and Chief Accountant, U.S. Operations, The Manufacturers Life Insurance Company, May 1999 to present; Vice President and Treasurer, The Manufacturers Life Insurance Company of America, May 1999 to present; Assistant Vice President, Financial Operations, Reinsurance Division, The Manufacturers Life Insurance Company, February 1998 to April 1999; Assistant Vice President & Controller, Reinsurance Division, The Manufacturers Life Insurance Company, November 1995, to January 1998, Assistant Vice President, Corporate Controllers, The Manufacturers Life Insurance Company, January 1989 to October 1995.
**Principal business address is Manulife Financial, 73 Tremont Street, Boston, MA 02108. ***Principal business address is Manulife Financial, 200 Bloor Street East, Toronto, Ontario Canada M4W 1E5. ****Principal business address is Dykema Gossett, 800 Michigan National Tower, Lansing, Michigan 48933. 43 Appendix A Definitions Annual Premium Target is an amount set forth in the Policy that limits the amount of premium attributable to a Coverage Amount in Surrender Charge or Sales Load calculations. Attained Age is the Issue Age of the life insured plus the number of completed Policy Years. Business Day is any day that the New York Stock Exchange is open for business. A Business Day ends at the close of regularly scheduled trading of the New York Stock Exchange (currently 4:00 p.m. Eastern Time) on that day. Case is a group of Policies insuring individual lives with common employment or other relationship, independent of the Policies. Cash Surrender Value is the Policy Value less the Surrender Charge and any outstanding monthly deductions due. Coverage Amount is an amount of insurance coverage under the Policy with a distinct effective date. The Face Amount of the Policy at any time is the sum of the Coverage Amounts in effect. Coverage Year is a one-year period beginning on a Coverage Amount's effective date and on each anniversary of this date. For Coverage Amounts in effect on the Policy's Effective Date, the Coverage Year is the same as the Policy Year. Fixed Account is the part of the Policy Value that reflects the value you have in our general account. Investment Account is the part of the Policy Value that reflects the value you have in one of the sub-accounts of the Separate Account. Issue Age is the life insured's age on the birthday closer to the Policy Date. Loan Account is the part of the Policy Value that reflects policy loans and interest credited to the Policy Value in connection with such loans. Minimum Initial Premium is the sum of the Monthly Deductions due for the first 3 Policy Months plus the Premium Charges deductible from this amount. Net Cash Surrender Value is the Cash Surrender Value less the Policy Debt. Net Policy Value is the Policy Value less the value in the Loan Account. Net Premium is the premium paid less the Premium Load and Sales Load. 44 Policy Date, Policy Anniversary, Policy Month and Policy Year Policy Date is the date from which the first Monthly Deductions are calculated and from which Policy Years, Policy Months, and Policy Anniversaries are measured. Policy Debt on any date is the aggregate amount of policy loans, including borrowed and accrued interest, less any loan repayments. Policy Value is the sum of the values in the Loan Account, the Fixed Account, and the Investment Accounts. Service Office is 200 Bloor Street East, Toronto, Ontario, Canada M4W 1E5, or such other address as we specify to you by written notice. 45 APPENDIX B ILLUSTRATIONS The following tables illustrate the way in which a Policy's Death Benefit, Policy Value, and Cash Surrender Value could vary over an extended period of time. ASSUMPTIONS - - Hypothetical gross annual investment returns for the Portfolios (i.e., investment income and capital gains and losses, realized or unrealized) equivalent to constant gross annual rates of 0%, 6%, and 12% over the periods indicated. - - A life insured who is a male, Issue Age 45, non-smoker. Short Form Underwriting was used. - - A Face Amount of $365,000 and Death Benefit Option 1 in all Policy Years. - - Payment of an annual premium of $20,000 on the first day of each of the first seven Policy Years. - - All policy values are allocated to the Investment Accounts for the entire period shown. - - There are no partial withdrawals or policy loans. - - Tables 1, 2, and 3 assumes a Surrender Charge - - Tables 4, 5, and 6 assume a Sales Load. - - The Cash Value Accumulation Test is used. - - All currently applicable charges and deductions are assessed against the Policy, i.e. a Premium Load, Sales Load or Surrender Charge, monthly Cost of Insurance Charge and Administration Charge and an Asset Based Risk Charge deducted daily from Investment Accounts. The first set of columns in each table, under the heading "Current Charges", assumes rates of charges and deductions that we currently expect to charge. The second set of columns, under the heading "Guaranteed Charges", assumes maximum rates of charges and deductions. - - The amounts shown in the Tables also take into account the Portfolios' investment management fees and other expenses, which are assumed to be at an annual rate of .971% of the average daily net assets of the portfolio. The Death Benefits, Policy Values, and Cash Surrender Values would be different from those shown if the returns averaged 0%, 6%, and 12%, but fluctuated over and under those averages throughout the years. The values would also be different depending on the allocation of the Policy Value among the Portfolios, if the actual rates of return averaged 0%, 6%, or 12%, but the rates of each Portfolio varied above and below such averages. The gross annual rates of returns correspond to net annual rates of return according to the table below:
Gross Rate of Return Policy Year 0.00% 6.00% 12.00% ----------- ----- ----- ------ Net Rate 1-10 -1.46% 4.45% 10.36% of Return 11+ -1.26% 4.66% 10.59%
Current Cost of Insurance are below the guaranteed rates in many instances and may be changed. The Premium Load rate and Asset Based Risk Charge rate we currently expect to charge in Policy Years 11 and later are below the guaranteed rates and may be changed. The illustrations reflect the expense reimbursement in effect for the Science & Technology, International Stock, Blue Chip Growth, Health Sciences Trust, Small Company Value Trust, Equity-Income and Lifestyle Trusts and the expense limitations in effect for the Capital Opportunities Trust, the Utilities Trust and the Index Trusts and the waiver of Policy charges in effect for the 500 Index Trust. In the absence of such expense reimbursement and expense limitation, the average of the Portfolios' current expenses would have been ..977% per annum and the gross annual rates of return of 0%, 6% and 12% would have corresponded to approximate net annual rates of return of -1.47%, 4.44% and 10.36% for Policy Years 1-10 and 1.27%, 4.65% and 10.58% for Policy Years 11 and after. The expense reimbursement for the Life-style Trusts and the expense limitation for the Equity Index Trust remained in effect during the fiscal year ended December 31, 2001 and are expected to remain in effect during the fiscal year ending December 31, 2002. Were the expense reimbursement and expense limitation to terminate, the average of the Portfolios' current expenses would be higher and the approximate net annual rates of return would be lower. A-46 Upon request, the Company will furnish a comparable illustration based on the proposed life insured's Issue Age, sex and risk class, any additional ratings and the death benefit option, Face Amount, Death Benefit Schedule (if applicable), and planned premium requested. Illustrations for smokers would show less favorable results than the illustration shown in this prospectus. From time to time, in advertisements or sales literature for the Policies that quote performance data of one or more of the Portfolios, the Company may include cash surrender values and death benefit figures computed or using the same methodology as that used in the following illustrations, but with the average annual total return of the Portfolio for which performance data is shown in the advertisement replacing the hypothetical rates of return shown in the following tables. The Policies were first sold to the public [ON____________]. However, total return data may be advertised for as long a period of time as the underlying Portfolio has been in existence. The results for any period prior to the Policies being offered would be calculated as if the Policies had been offered during that period of time, with all charges assumed to be the same as for the first full year the Policies were offered. A-47 Table 1 - Surrender Charge - Short Form Underwriting Hypothetical Gross Investment Return of 0.00%
Current Charges --------------- Premium Policy plus less Less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr - ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------ 1 20,000 21,000 0 19,600 144 1,430 -274 17,752 1,000 16,752 365,000 2 20,000 43,050 17,752 19,600 144 1,487 -533 35,189 1,600 33,589 365,000 3 20,000 66,203 35,189 19,600 144 1,550 -787 52,307 1,800 50,507 365,000 4 20,000 90,513 52,307 19,600 144 1,609 -1,037 69,117 2,000 67,117 365,000 5 20,000 116,038 69,117 19,600 144 1,631 -1,283 85,659 2,000 83,659 365,000 6 20,000 142,840 85,659 19,600 144 1,684 -1,524 101,907 1,500 100,407 365,000 7 20,000 170,982 101,907 19,600 144 1,691 -1,761 117,911 1,000 116,911 365,000 8 0 179,531 117,911 0 144 1,844 -1,708 114,215 1,000 113,215 365,000 9 0 188,508 114,215 0 144 2,032 -1,652 110,387 500 109,887 365,000 10 0 197,933 110,387 0 144 2,248 -1,594 106,400 0 106,400 365,000 11 0 207,830 106,400 0 144 2,400 -1,223 102,633 0 102,633 365,000 12 0 218,221 102,633 0 144 2,445 -1,179 98,866 0 98,866 365,000 13 0 229,132 98,866 0 144 2,219 -1,136 95,366 0 95,366 365,000 14 0 240,589 95,366 0 144 1,988 -1,097 92,137 0 92,137 365,000 15 0 252,619 92,137 0 144 1,804 -1,061 89,129 0 89,129 365,000 16 0 265,249 89,129 0 144 1,774 -1,026 86,185 0 86,185 365,000 17 0 278,512 86,185 0 144 1,877 -991 83,173 0 83,173 365,000 18 0 292,438 83,173 0 144 2,088 -954 79,987 0 79,987 365,000 19 0 307,059 79,987 0 144 2,417 -915 76,511 0 76,511 365,000 20 0 322,412 76,511 0 144 2,781 -872 72,713 0 72,713 365,000 25 0 411,489 54,786 0 144 4,851 -606 49,185 0 49,185 365,000 30 0 525,176 19,678 0 144 9,479 -169 9,886 0 9,886 365,000
Guaranteed Charges ------------------ Premium Policy plus less Less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr - ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------ 1 20,000 21,000 0 19,600 144 1,571 -273 17,612 1,000 16,612 365,000 2 20,000 43,050 17,612 19,600 144 1,614 -530 34,924 1,600 33,324 365,000 3 20,000 66,203 34,924 19,600 144 1,653 -783 51,944 1,800 50,144 365,000 4 20,000 90,513 51,944 19,600 144 1,687 -1,031 68,683 2,000 66,683 365,000 5 20,000 116,038 68,683 19,600 144 1,722 -1,275 85,141 2,000 83,141 365,000 6 20,000 142,840 85,141 19,600 144 1,751 -1,516 101,331 1,500 99,831 365,000 7 20,000 170,982 101,331 19,600 144 1,787 -1,752 117,247 1,000 116,247 365,000 8 0 179,531 117,247 0 144 1,979 -1,697 113,428 1,000 112,428 365,000 9 0 188,508 113,428 0 144 2,199 -1,639 109,445 500 108,945 365,000 10 0 197,933 109,445 0 144 2,453 -1,579 105,269 0 105,269 365,000 11 0 207,830 105,269 0 144 2,731 -1,516 100,878 0 100,878 365,000 12 0 218,221 100,878 0 144 3,041 -1,449 96,244 0 96,244 365,000 13 0 229,132 96,244 0 144 3,374 -1,379 91,348 0 91,348 365,000 14 0 240,589 91,348 0 144 3,739 -1,304 86,160 0 86,160 365,000 15 0 252,619 86,160 0 144 4,143 -1,225 80,648 0 80,648 365,000 16 0 265,249 80,648 0 144 4,602 -1,141 74,762 0 74,762 365,000 17 0 278,512 74,762 0 144 5,126 -1,051 68,441 0 68,441 365,000 18 0 292,438 68,441 0 144 5,734 -954 61,609 0 61,609 365,000 19 0 307,059 61,609 0 144 6,442 -848 54,175 0 54,175 365,000 20 0 322,412 54,175 0 144 7,258 -733 46,039 0 46,039 365,000 25 0 411,489 4,378 0 36 3,263 -8 0 0 0 0 30 0 525,176 0 0 0 0 0 0 0 0 0
- - The policy value, cash surrender value, and the death benefit will differ if premiums are paid in different amounts or frequencies. - - It is emphasized that the hypothetical investment returns are illustrative only, and should not be deemed a representation of past or future results. Actual investment returns may be more or less than those shown and will depend on a number of factors, including the investment allocation made by the policyholder, and the investment return for the portfolios of Manufacturers Investment Trust. - - The policy value, cash surrender value and death benefit would be different from those shown if actual rates of investment return averaged the rate shown above over a period of years, but also fluctuated above or below that average for individual policy years. - - No representations can be made that any hypothetical rate of return can be achieved for any one year or other period of time. A-1 Table 2 - Surrender Charge - Short Form Underwriting Hypothetical Gross Investment Return of 6.00%
Current Charges --------------- Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr - ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------ 1 20,000 0 0 19,600 144 1,428 835 18,863 1,000 17,863 365,000 2 20,000 18,863 18,863 19,600 144 1,477 1,673 38,515 1,600 36,915 365,000 3 20,000 38,515 38,515 19,600 144 1,526 2,547 58,992 1,800 57,192 365,000 4 20,000 58,992 58,992 19,600 144 1,561 3,457 80,344 2,000 78,344 365,000 5 20,000 80,344 80,344 19,600 144 1,549 4,408 102,659 2,000 100,659 365,000 6 20,000 102,659 102,659 19,600 144 1,553 5,401 125,963 1,500 124,463 365,000 7 20,000 125,963 125,963 19,600 144 1,500 6,440 150,359 1,000 149,359 368,378 8 0 150,359 150,359 0 144 1,577 6,651 155,288 1,000 154,288 369,586 9 0 155,288 155,288 0 144 1,680 6,868 160,333 500 159,833 371,973 10 0 160,333 160,333 0 144 1,787 7,090 165,493 0 165,493 372,358 11 0 165,493 165,493 0 144 1,842 7,837 171,343 0 171,343 375,241 12 0 171,343 171,343 0 144 1,813 8,116 177,502 0 177,502 378,079 13 0 177,502 177,502 0 144 1,594 8,415 184,180 0 184,180 381,252 14 0 184,180 184,180 0 144 1,390 8,739 191,384 0 191,384 386,596 15 0 191,384 191,384 0 144 1,231 9,086 199,095 0 199,095 392,218 16 0 199,095 199,095 0 144 1,178 9,455 207,228 0 207,228 397,878 17 0 207,228 207,228 0 144 1,210 9,842 215,716 0 215,716 403,388 18 0 215,716 215,716 0 144 1,309 10,244 224,507 0 224,507 408,602 19 0 224,507 224,507 0 144 1,481 10,658 233,540 0 233,540 415,701 20 0 233,540 233,540 0 144 1,663 11,084 242,817 0 242,817 422,502 25 0 283,090 283,090 0 144 2,478 13,425 293,894 0 293,894 455,535 30 0 339,681 339,681 0 144 3,894 16,086 351,729 0 351,729 495,938
Guaranteed Charges ------------------ Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr - ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------ 1 20,000 21,000 0 19,600 144 1,569 831 18,718 1,000 17,718 365,000 2 20,000 43,050 18,718 19,600 144 1,603 1,664 38,235 1,600 36,635 365,000 3 20,000 66,203 38,235 19,600 144 1,627 2,532 58,595 1,800 56,795 365,000 4 20,000 90,513 58,595 19,600 144 1,637 3,438 79,852 2,000 77,852 365,000 5 20,000 116,038 79,852 19,600 144 1,636 4,384 102,056 2,000 100,056 365,000 6 20,000 142,840 102,056 19,600 144 1,616 5,373 125,269 1,500 123,769 365,000 7 20,000 170,982 125,269 19,600 144 1,585 6,407 149,547 1,000 148,547 366,390 8 0 179,531 149,547 0 144 1,692 6,612 154,324 1,000 153,324 367,290 9 0 188,508 154,324 0 144 1,813 6,822 159,188 500 158,688 369,317 10 0 197,933 159,188 0 144 1,944 7,035 164,136 0 164,136 369,306 11 0 207,830 164,136 0 144 2,081 7,252 169,163 0 169,163 370,467 12 0 218,221 169,163 0 144 2,224 7,473 174,268 0 174,268 371,190 13 0 229,132 174,268 0 144 2,362 7,697 179,458 0 179,458 371,479 14 0 240,589 179,458 0 144 2,514 7,924 184,725 0 184,725 373,144 15 0 252,619 184,725 0 144 2,669 8,155 190,066 0 190,066 374,430 16 0 265,249 190,066 0 144 2,834 8,389 195,478 0 195,478 375,317 17 0 278,512 195,478 0 144 3,005 8,626 200,955 0 200,955 375,785 18 0 292,438 200,955 0 144 3,184 8,865 206,492 0 206,492 375,815 19 0 307,059 206,492 0 144 3,414 9,106 212,040 0 212,040 377,431 20 0 322,412 212,040 0 144 3,653 9,347 217,590 0 217,590 378,607 25 0 411,489 239,864 0 144 4,789 10,559 245,489 0 245,489 380,508 30 0 525,176 267,453 0 144 6,383 11,749 272,675 0 272,675 384,471
- - The policy value, cash surrender value, and the death benefit will differ if premiums are paid in different amounts or frequencies. - - It is emphasized that the hypothetical investment returns are illustrative only, and should not be deemed a representation of past or future results. Actual investment returns may be more or less than those shown and will depend on a number of factors, including the investment allocation made by the policyholder, and the investment return for the portfolios of Manufacturers Investment Trust. - - The policy value, cash surrender value and death benefit would be different from those shown if actual rates of investment return averaged the rate shown above over a period of years, but also fluctuated above or below that average for individual policy years. - - No representations can be made that any hypothetical rate of return can be achieved for any one year or other period of time. A-2 Table 3 - Surrender Charge - Short Form Underwriting Hypothetical Gross Investment Return of 12.00%
Current Charges --------------- Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr - ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------ 1 20,000 21,000 0 19,600 144 1,426 1,944 19,975 1,000 18,975 365,000 2 20,000 43,050 19,975 19,600 144 1,467 4,012 41,976 1,600 40,376 365,000 3 20,000 66,203 41,976 19,600 144 1,500 6,290 66,222 1,800 64,422 365,000 4 20,000 90,513 66,222 19,600 144 1,509 8,803 92,973 2,000 90,973 365,000 5 20,000 116,038 92,973 19,600 144 1,456 11,578 122,551 2,000 120,551 365,000 6 20,000 142,840 122,551 19,600 144 1,437 14,645 155,214 1,500 153,714 392,691 7 20,000 170,982 155,214 19,600 144 1,647 18,019 191,042 1,000 190,042 468,053 8 0 179,531 191,042 0 144 1,828 19,691 208,761 1,000 207,761 496,851 9 0 188,508 208,761 0 144 2,109 21,512 228,019 500 227,519 529,005 10 0 197,933 228,019 0 144 2,385 23,493 248,984 0 248,984 560,213 11 0 207,830 248,984 0 144 2,614 26,476 272,702 0 272,702 597,217 12 0 218,221 272,702 0 144 2,718 29,008 298,847 0 298,847 636,545 13 0 229,132 298,847 0 144 2,598 31,811 327,917 0 327,917 678,788 14 0 240,589 327,917 0 144 2,334 34,935 360,374 0 360,374 727,955 15 0 252,619 360,374 0 144 2,203 38,415 396,441 0 396,441 780,989 16 0 265,249 396,441 0 144 2,221 42,271 436,348 0 436,348 837,788 17 0 278,512 436,348 0 144 2,425 46,529 480,307 0 480,307 898,174 18 0 292,438 480,307 0 144 2,845 51,207 528,525 0 528,525 961,916 19 0 307,059 528,525 0 144 3,429 56,332 581,285 0 581,285 1,034,686 20 0 322,412 581,285 0 144 4,128 61,936 638,948 0 638,948 1,111,770 25 0 411,489 929,377 0 144 8,444 98,926 1,019,716 0 1,019,716 1,580,559 30 0 525,176 1,470,499 0 144 17,351 156,305 1,609,309 0 1,609,309 2,269,125
Guaranteed Charges ------------------ Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr - ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------ 1 20,000 21,000 0 19,600 144 1,567 1,937 19,826 1,000 18,826 365,000 2 20,000 43,050 19,826 19,600 144 1,592 3,990 41,679 1,600 40,079 365,000 3 20,000 66,203 41,679 19,600 144 1,600 6,254 65,789 1,800 63,989 365,000 4 20,000 90,513 65,789 19,600 144 1,582 8,754 92,417 2,000 90,417 365,000 5 20,000 116,038 92,417 19,600 144 1,538 11,516 121,851 2,000 119,851 365,000 6 20,000 142,840 121,851 19,600 144 1,513 14,569 154,362 1,500 152,862 390,536 7 20,000 170,982 154,362 19,600 144 1,909 17,917 189,826 1,000 188,826 465,074 8 0 179,531 189,826 0 144 2,161 19,547 207,068 1,000 206,068 492,821 9 0 188,508 207,068 0 144 2,467 21,317 225,774 500 225,274 523,796 10 0 197,933 225,774 0 144 2,795 23,238 246,074 0 246,074 553,666 11 0 207,830 246,074 0 144 3,175 25,321 268,076 0 268,076 587,086 12 0 218,221 268,076 0 144 3,594 27,578 291,916 0 291,916 621,781 13 0 229,132 291,916 0 144 4,038 30,025 317,759 0 317,759 657,762 14 0 240,589 317,759 0 144 4,557 32,675 345,733 0 345,733 698,381 15 0 252,619 345,733 0 144 5,123 35,543 376,009 0 376,009 740,737 16 0 265,249 376,009 0 144 5,751 38,646 408,760 0 408,760 784,819 17 0 278,512 408,760 0 144 6,447 42,003 444,172 0 444,172 830,601 18 0 292,438 444,172 0 144 7,221 45,630 482,437 0 482,437 878,035 19 0 307,059 482,437 0 144 8,184 49,543 523,652 0 523,652 932,100 20 0 322,412 523,652 0 144 9,256 53,756 568,008 0 568,008 988,334 25 0 411,489 781,717 0 144 16,014 80,132 845,691 0 845,691 1,310,821 30 0 525,176 1,150,271 0 144 28,166 117,663 1,239,624 0 1,239,624 1,747,869
- - The policy value, cash surrender value, and the death benefit will differ if premiums are paid in different amounts or frequencies. - - It is emphasized that the hypothetical investment returns are illustrative only, and should not be deemed a representation of past or future results. Actual investment returns may be more or less than those shown and will depend on a number of factors, including the investment allocation made by the policyholder, and the investment return for the portfolios of Manufacturers Investment Trust. - - The policy value, cash surrender value and death benefit would be different from those shown if actual rates of investment return averaged the rate shown above over a period of years, but also fluctuated above or below that average for individual policy years. - - No representations can be made that any hypothetical rate of return can be achieved for any one year or other period of time. A-3 Table 4 - Sales Load - Short Form Underwriting Hypothetical Gross Investment Return of 0.00%
Current Charges --------------- Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr - ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------ 1 20,000 21,000 0 18,000 144 653 -257 16,946 0 16,946 365,000 2 20,000 43,050 16,946 18,400 144 775 -509 33,918 0 33,918 365,000 3 20,000 66,203 33,918 19,000 144 902 -765 51,107 0 51,107 365,000 4 20,000 90,513 51,107 19,200 144 991 -1,019 68,154 0 68,154 365,000 5 20,000 116,038 68,154 19,400 144 1,063 -1,270 85,077 0 85,077 365,000 6 20,000 142,840 85,077 19,600 144 1,180 -1,519 101,834 0 101,834 365,000 7 20,000 170,982 101,834 19,600 144 1,310 -1,763 118,217 0 118,217 365,000 8 0 179,531 118,217 0 144 1,517 -1,715 114,841 0 114,841 365,000 9 0 188,508 114,841 0 144 1,773 -1,663 111,260 0 111,260 365,000 10 0 197,933 111,260 0 144 2,016 -1,609 107,491 0 107,491 365,000 11 0 207,830 107,491 0 144 2,160 -1,237 103,950 0 103,950 365,000 12 0 218,221 103,950 0 144 2,262 -1,195 100,348 0 100,348 365,000 13 0 229,132 100,348 0 144 2,153 -1,154 96,898 0 96,898 365,000 14 0 240,589 96,898 0 144 1,928 -1,115 93,711 0 93,711 365,000 15 0 252,619 93,711 0 144 1,794 -1,079 90,694 0 90,694 365,000 16 0 265,249 90,694 0 144 1,764 -1,044 87,742 0 87,742 365,000 17 0 278,512 87,742 0 144 1,867 -1,009 84,723 0 84,723 365,000 18 0 292,438 84,723 0 144 2,076 -972 81,530 0 81,530 365,000 19 0 307,059 81,530 0 144 2,404 -933 78,049 0 78,049 365,000 20 0 322,412 78,049 0 144 2,766 -890 74,248 0 74,248 365,000 25 0 411,489 56,322 0 144 4,827 -624 50,727 0 50,727 365,000 30 0 525,176 21,276 0 144 9,436 -187 11,509 0 11,509 365,000
Guaranteed Charges ------------------ Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr - ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------ 1 20,000 21,000 0 18,000 144 1,579 -249 16,028 0 16,028 365,000 2 20,000 43,050 16,028 18,400 144 1,627 -489 32,168 0 32,168 365,000 3 20,000 66,203 32,168 19,000 144 1,671 -733 48,619 0 48,619 365,000 4 20,000 90,513 48,619 19,200 144 1,708 -976 64,991 0 64,991 365,000 5 20,000 116,038 64,991 19,400 144 1,746 -1,218 81,282 0 81,282 365,000 6 20,000 142,840 81,282 19,600 144 1,776 -1,459 97,503 0 97,503 365,000 7 20,000 170,982 97,503 19,600 144 1,815 -1,696 113,447 0 113,447 365,000 8 0 179,531 113,447 0 144 2,009 -1,641 109,653 0 109,653 365,000 9 0 188,508 109,653 0 144 2,232 -1,584 105,694 0 105,694 365,000 10 0 197,933 105,694 0 144 2,489 -1,524 101,537 0 101,537 365,000 11 0 207,830 101,537 0 144 2,770 -1,461 97,162 0 97,162 365,000 12 0 218,221 97,162 0 144 3,084 -1,394 92,540 0 92,540 365,000 13 0 229,132 92,540 0 144 3,420 -1,324 87,652 0 87,652 365,000 14 0 240,589 87,652 0 144 3,789 -1,250 82,469 0 82,469 365,000 15 0 252,619 82,469 0 144 4,197 -1,171 76,957 0 76,957 365,000 16 0 265,249 76,957 0 144 4,661 -1,087 71,065 0 71,065 365,000 17 0 278,512 71,065 0 144 5,191 -996 64,734 0 64,734 365,000 18 0 292,438 64,734 0 144 5,805 -899 57,886 0 57,886 365,000 19 0 307,059 57,886 0 144 6,521 -793 50,427 0 50,427 365,000 20 0 322,412 50,427 0 144 7,345 -678 42,260 0 42,260 365,000 25 0 411,489 374 0 0 0 0 0 0 0 0 30 0 525,176 0 0 0 0 0 0 0 0 0
- - The policy value, cash surrender value, and the death benefit will differ if premiums are paid in different amounts or frequencies. - - It is emphasized that the hypothetical investment returns are illustrative only, and should not be deemed a representation of past or future results. Actual investment returns may be more or less than those shown and will depend on a number of factors, including the investment allocation made by the policyholder, and the investment return for the portfolios of Manufacturers Investment Trust. - - The policy value, cash surrender value and death benefit would be different from those shown if actual rates of investment return averaged the rate shown above over a period of years, but also fluctuated above or below that average for individual policy years. - - No representations can be made that any hypothetical rate of return can be achieved for any one year or other period of time. A-4 Table 5 - Sales Load - Short Form Underwriting Hypothetical Gross Investment Return of 6.00%
Current Charges - ----------------------------------------------------------------------------------------------------------------------- Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr - ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------ 1 20,000 21,000 0 18,000 144 652 782 17,986 0 17,986 365,000 2 20,000 43,050 17,986 18,400 144 770 1,598 37,070 0 37,070 365,000 3 20,000 66,203 37,070 19,000 144 889 2,471 57,508 0 57,508 365,000 4 20,000 90,513 57,508 19,200 144 962 3,388 78,989 0 78,989 365,000 5 20,000 116,038 78,989 19,400 144 1,012 4,352 101,585 0 101,585 365,000 6 20,000 142,840 101,585 19,600 144 1,091 5,364 125,315 0 125,315 365,000 7 20,000 170,982 125,315 19,600 144 1,164 6,419 150,026 0 150,026 367,563 8 0 179,531 150,026 0 144 1,302 6,643 155,223 0 155,223 369,431 9 0 188,508 155,223 0 144 1,472 6,870 160,478 0 160,478 372,309 10 0 197,933 160,478 0 144 1,611 7,101 165,824 0 165,824 373,103 11 0 207,830 165,824 0 144 1,671 7,857 171,866 0 171,866 376,386 12 0 218,221 171,866 0 144 1,695 8,144 178,171 0 178,171 379,504 13 0 229,132 178,171 0 144 1,562 8,448 184,913 0 184,913 382,770 14 0 240,589 184,913 0 144 1,363 8,774 192,180 0 192,180 388,204 15 0 252,619 192,180 0 144 1,236 9,124 199,925 0 199,925 393,852 16 0 265,249 199,925 0 144 1,182 9,494 208,093 0 208,093 399,539 17 0 278,512 208,093 0 144 1,215 9,883 216,618 0 216,618 405,075 18 0 292,438 216,618 0 144 1,314 10,287 225,446 0 225,446 410,313 19 0 307,059 225,446 0 144 1,486 10,703 234,519 0 234,519 417,444 20 0 322,412 234,519 0 144 1,670 11,131 243,836 0 243,836 424,275 25 0 411,489 284,279 0 144 2,488 13,481 295,128 0 295,128 457,448 30 0 525,176 341,106 0 144 3,911 16,154 353,205 0 353,205 498,019
Guaranteed Charges - ----------------------------------------------------------------------------------------------------------------------- Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr - ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------ 1 20,000 21,000 0 18,000 144 1,577 760 17,039 0 17,039 365,000 2 20,000 43,050 17,039 18,400 144 1,618 1,535 35,213 0 35,213 365,000 3 20,000 66,203 35,213 19,000 144 1,647 2,370 54,792 0 54,792 365,000 4 20,000 90,513 54,792 19,200 144 1,661 3,250 75,437 0 75,437 365,000 5 20,000 116,038 75,437 19,400 144 1,666 4,178 97,205 0 97,205 365,000 6 20,000 142,840 97,205 19,600 144 1,649 5,156 120,168 0 120,168 365,000 7 20,000 170,982 120,168 19,600 144 1,623 6,179 144,180 0 144,180 365,000 8 0 179,531 144,180 0 144 1,734 6,372 148,674 0 148,674 365,000 9 0 188,508 148,674 0 144 1,858 6,569 153,241 0 153,241 365,000 10 0 197,933 153,241 0 144 1,996 6,769 157,871 0 157,871 365,000 11 0 207,830 157,871 0 144 2,137 6,972 162,562 0 162,562 365,000 12 0 218,221 162,562 0 144 2,285 7,177 167,310 0 167,310 365,000 13 0 229,132 167,310 0 144 2,431 7,385 172,121 0 172,121 365,000 14 0 240,589 172,121 0 144 2,579 7,596 176,993 0 176,993 365,000 15 0 252,619 176,993 0 144 2,731 7,809 181,928 0 181,928 365,000 16 0 265,249 181,928 0 144 2,893 8,025 186,915 0 186,915 365,000 17 0 278,512 186,915 0 144 3,068 8,242 191,946 0 191,946 365,000 18 0 292,438 191,946 0 144 3,260 8,462 197,004 0 197,004 365,000 19 0 307,059 197,004 0 144 3,471 8,682 202,070 0 202,070 365,000 20 0 322,412 202,070 0 144 3,697 8,902 207,132 0 207,132 365,000 25 0 411,489 227,214 0 144 4,870 9,993 232,192 0 232,192 365,000 30 0 525,176 251,401 0 144 6,442 11,031 255,846 0 255,846 365,000
- - The policy value, cash surrender value, and the death benefit will differ if premiums are paid in different amounts or frequencies. - - It is emphasized that the hypothetical investment returns are illustrative only, and should not be deemed a representation of past or future results. Actual investment returns may be more or less than those shown and will depend on a number of factors, including the investment allocation made by the policyholder, and the investment return for the portfolios of Manufacturers Investment Trust. - - The policy value, cash surrender value and death benefit would be different from those shown if actual rates of investment return averaged the rate shown above over a period of years, but also fluctuated above or below that average for individual policy years. - - No representations can be made that any hypothetical rate of return can be achieved for any one year or other period of time. A-5 Table 6 - Sales Load - Short Form Underwriting Hypothetical Gross Investment Return of 12.00%
Current Charges --------------- Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr - ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------ 1 20,000 21,000 0 18,000 144 651 1,821 19,026 0 19,026 365,000 2 20,000 43,050 19,026 18,400 144 765 3,828 40,345 0 40,345 365,000 3 20,000 66,203 40,345 19,000 144 875 6,094 64,420 0 64,420 365,000 4 20,000 90,513 64,420 19,200 144 931 8,606 91,152 0 91,152 365,000 5 20,000 116,038 91,152 19,400 144 953 11,396 120,851 0 120,851 365,000 6 20,000 142,840 120,851 19,600 144 1,013 14,492 153,786 0 153,786 389,078 7 20,000 170,982 153,786 19,600 144 1,354 17,887 189,774 0 189,774 464,948 8 0 179,531 189,774 0 144 1,603 19,572 207,599 0 207,599 494,086 9 0 188,508 207,599 0 144 1,952 21,400 226,903 0 226,903 526,416 10 0 197,933 226,903 0 144 2,264 23,384 247,880 0 247,880 557,730 11 0 207,830 247,880 0 144 2,511 26,364 271,589 0 271,589 594,780 12 0 218,221 271,589 0 144 2,656 28,892 297,681 0 297,681 634,060 13 0 229,132 297,681 0 144 2,578 31,688 326,647 0 326,647 676,159 14 0 240,589 326,647 0 144 2,322 34,800 358,981 0 358,981 725,141 15 0 252,619 358,981 0 144 2,195 38,266 394,908 0 394,908 777,970 16 0 265,249 394,908 0 144 2,213 42,108 434,660 0 434,660 834,547 17 0 278,512 434,660 0 144 2,416 46,349 478,449 0 478,449 894,699 18 0 292,438 478,449 0 144 2,834 51,009 526,480 0 526,480 958,194 19 0 307,059 526,480 0 144 3,415 56,114 579,034 0 579,034 1,030,681 20 0 322,412 579,034 0 144 4,112 61,696 636,474 0 636,474 1,107,465 25 0 411,489 925,776 0 144 8,411 98,543 1,015,764 0 1,015,764 1,574,434 30 0 525,176 1,464,797 0 144 17,284 155,699 1,603,068 0 1,603,068 2,260,326
Guaranteed Charges ------------------ Premium Policy plus less less plus Policy Net Cash Death Pol Annual Accum Value Net Admin Cost Invest Value Surr Surrender Benefit Year Premium at 5% Beg Yr Premium Fees of Ins Earning End Yr Charge Value End Yr - ---- ------- ----- ------ ------- ---- ------ ------- ------ ------ ----- ------ 1 20,000 21,000 0 18,000 144 1,574 1,770 18,052 0 18,052 365,000 2 20,000 43,050 18,052 18,400 144 1,608 3,681 38,381 0 38,381 365,000 3 20,000 66,203 38,381 19,000 144 1,622 5,849 61,464 0 61,464 365,000 4 20,000 90,513 61,464 19,200 144 1,610 8,262 87,172 0 87,172 365,000 5 20,000 116,038 87,172 19,400 144 1,574 10,949 115,804 0 115,804 365,000 6 20,000 142,840 115,804 19,600 144 1,503 13,941 147,699 0 147,699 373,677 7 20,000 170,982 147,699 19,600 144 1,836 17,230 182,549 0 182,549 447,245 8 0 179,531 182,549 0 144 2,078 18,797 199,124 0 199,124 473,915 9 0 188,508 199,124 0 144 2,372 20,499 217,107 0 217,107 503,688 10 0 197,933 217,107 0 144 2,687 22,346 236,621 0 236,621 532,398 11 0 207,830 236,621 0 144 3,053 24,348 257,772 0 257,772 564,521 12 0 218,221 257,772 0 144 3,456 26,518 280,691 0 280,691 597,871 13 0 229,132 280,691 0 144 3,882 28,870 305,534 0 305,534 632,456 14 0 240,589 305,534 0 144 4,382 31,417 332,426 0 332,426 671,500 15 0 252,619 332,426 0 144 4,926 34,175 361,531 0 361,531 712,215 16 0 265,249 361,531 0 144 5,530 37,158 393,015 0 393,015 754,588 17 0 278,512 393,015 0 144 6,198 40,384 427,057 0 427,057 798,596 18 0 292,438 427,057 0 144 6,943 43,872 463,842 0 463,842 844,192 19 0 307,059 463,842 0 144 7,869 47,633 503,462 0 503,462 896,163 20 0 322,412 503,462 0 144 8,899 51,683 546,103 0 546,103 950,219 25 0 411,489 751,543 0 144 15,396 77,038 813,042 0 813,042 1,260,215 30 0 525,176 1,105,837 0 144 27,078 113,117 1,191,733 0 1,191,733 1,680,343
- - The policy value, cash surrender value, and the death benefit will differ if premiums are paid in different amounts or frequencies. - - It is emphasized that the hypothetical investment returns are illustrative only, and should not be deemed a representation of past or future results. Actual investment returns may be more or less than those shown and will depend on a number of factors, including the investment allocation made by the policyholder, and the investment return for the portfolios of Manufacturers Investment Trust. - - The policy value, cash surrender value and death benefit would be different from those shown if actual rates of investment return averaged the rate shown above over a period of years, but also fluctuated above or below that average for individual policy years. - - No representations can be made that any hypothetical rate of return can be achieved for any one year or other period of time. A-6 APPENDIX C: FINANCIAL STATEMENTS B-1 THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) AUDITED CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 [MANULIFE FINANCIAL LOGO] THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) AUDITED CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 CONTENTS REPORT OF INDEPENDENT AUDITORS...............................................1 AUDITED CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS.............................................2 CONSOLIDATED STATEMENTS OF INCOME.......................................3 CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS...............4 CONSOLIDATED STATEMENTS OF CASH FLOWS...................................5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..............................6 REPORT OF INDEPENDENT AUDITORS THE BOARD OF DIRECTORS THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) We have audited the accompanying consolidated balance sheets of The Manufacturers Life Insurance Company (U.S.A.) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, changes in capital and surplus, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Manufacturers Life Insurance Company (U.S.A.) and subsidiaries at December 31, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States. As discussed in Note 2 to the financial statements, in 2001, the Company changed its accounting for certain investments. /s/ ERNST & YOUNG LLP Philadelphia, Pennsylvania March 22, 2002 1 THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) CONSOLIDATED BALANCE SHEETS
As at December 31 ($ millions) ASSETS 2001 2000 - ---------------------------------------------------------------------------------------------------------------------- INVESTMENTS: Securities available-for-sale, at fair value: Fixed-maturity (amortized cost: 2001 $9,656 ; 2000 $9,580) $ 10,108 $ 9,797 Equity (cost: 2001 $889 ; 2000 $707) 845 852 Mortgage loans 1,675 1,539 Real estate 969 986 Policy loans 2,226 1,998 Short-term investments 539 715 - ---------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENTS $ 16,362 $ 15,887 - ---------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents $ 109 $ 98 Deferred acquisition costs 2,302 2,066 Deferred income taxes 79 125 Due from affiliates 508 511 Amounts recoverable from reinsurers 767 572 Other assets 641 757 Separate account assets 30,217 29,681 - ---------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 50,985 $ 49,697 ====================================================================================================================== LIABILITIES, CAPITAL AND SURPLUS - ---------------------------------------------------------------------------------------------------------------------- LIABILITIES: Policyholder liabilities and accruals $ 17,415 $ 16,240 Note payable 200 200 Due to affiliate 250 250 Other liabilities 601 778 Separate account liabilities 30,217 29,681 - ---------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES $ 48,683 $ 47,149 ====================================================================================================================== CAPITAL AND SURPLUS: Capital stock $ 5 $ 5 Retained earnings 2,176 2,260 Accumulated other comprehensive income 121 283 - ---------------------------------------------------------------------------------------------------------------------- TOTAL CAPITAL AND SURPLUS $ 2,302 $ 2,548 - ---------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES, CAPITAL AND SURPLUS $ 50,985 $ 49,697 ======================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 2 THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------ REVENUE: Premiums $ 794 $ 814 $ 881 Fee income 903 958 746 Net investment income 1,115 1,135 1,121 Realized investment gains 35 137 27 Other 12 -- 5 - ------------------------------------------------------------------------------------------------------------------------ TOTAL REVENUE $2,859 $ 3,044 $ 2,780 - ------------------------------------------------------------------------------------------------------------------------ BENEFITS AND EXPENSES: Policyholder benefits and claims $1,567 $ 1,535 $ 1,429 Operating expenses and commissions 600 617 494 Amortization of deferred acquisition costs 277 180 40 Interest expense 30 19 8 Policyholder dividends 348 339 323 Minority interest expense -- 16 16 - ------------------------------------------------------------------------------------------------------------------------ TOTAL BENEFITS AND EXPENSES $2,822 $ 2,706 $ 2,310 - ------------------------------------------------------------------------------------------------------------------------ INCOME BEFORE INCOME TAXES 37 338 470 - ------------------------------------------------------------------------------------------------------------------------ INCOME TAX (BENEFIT) EXPENSE (4) 90 177 - ------------------------------------------------------------------------------------------------------------------------ NET INCOME $ 41 $ 248 $ 293 ========================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 3 THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
ACCUMULATED OTHER TOTAL FOR THE YEARS ENDED DECEMBER 31 CAPITAL RETAINED COMPREHENSIVE CAPITAL AND ($ millions) STOCK EARNINGS INCOME (LOSS) SURPLUS - ----------------------------------------------------------------------------------------------------------------- BALANCE AT JANUARY 1, 1999 $ 5 $1,697 $ 149 $ 1,851 Comprehensive income -- 293 (21) 272 - ----------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1999 $ 5 $1,990 $ 128 $ 2,123 - ----------------------------------------------------------------------------------------------------------------- Comprehensive income -- 248 155 403 Contributed surplus -- 22 -- 22 - ----------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2000 $ 5 $2,260 $ 283 $ 2,548 Comprehensive income -- 41 (162) (121) Dividend to shareholder -- (125) -- (125) - ----------------------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2001 $ 5 $2,176 $ 121 $ 2,302 =================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 4 THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2001 2000 1999 - ----------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net Income $ 41 $ 248 $ 293 Adjustments to reconcile net income to net cash provided by operating activities: Additions to policyholder liabilities and accruals 442 330 404 Deferred acquisition costs (538) (590) (463) Amortization of deferred acquisition costs 277 180 40 Amounts recoverable from reinsurers (91) 23 334 Realized investment gains (35) (137) (27) Decreases to deferred income taxes 60 34 194 Amounts due from affiliates 3 259 22 Other assets and liabilities, net (38) (244) 258 Other, net 3 (62) 58 - ----------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities $ 124 $ 41 $ 1,113 - ----------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Fixed-maturity securities sold, matured or repaid $ 9,976 $ 6,584 $ 4,302 Fixed-maturity securities purchased (10,031) (6,792) (4,763) Equity securities sold 412 1,185 303 Equity securities purchased (587) (1,012) (349) Mortgage loans advanced (334) (187) (148) Mortgage loans repaid 200 274 314 Real estate sold 42 101 54 Real estate purchased (29) (58) (219) Policy loans advanced, net (228) (155) (133) Short-term investments 176 (431) (251) Separate account seed money -- -- 32 Other investments, net (26) 196 (355) - ----------------------------------------------------------------------------------------------------------------- Net cash used in investing activities $ (429) $ (295) $ (1,213) - ----------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Deposits and interest credited to policyholder account balances $ 1,934 $ 1,336 $ 1,263 Withdrawals from policyholder account balances (1,532) (1,579) (987) Amounts due to affiliates 150 250 -- Principal repayment of amounts due to affiliates (150) -- -- Net reinsurance recoverable (payable) 39 87 (158) Dividend to shareholder (125) -- -- Borrowed funds -- 107 50 - ----------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities $ 316 $ 201 $ 168 - ----------------------------------------------------------------------------------------------------------------- CASH: Increase (decrease) during the year 11 (53) 68 Balance, beginning of year 98 151 83 - ----------------------------------------------------------------------------------------------------------------- BALANCE, END OF YEAR $ 109 $ 98 $ 151 =================================================================================================================
The accompanying notes are an integral part of these consolidated financial statements. 5 THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2001 (IN MILLIONS OF DOLLARS) 1. ORGANIZATION The Manufacturers Life Insurance Company (U.S.A.) ("ManUSA") is an indirectly wholly-owned subsidiary of Manulife Financial Corporation, a Canadian-based publicly traded company. Manulife Financial Corporation ("MFC") and its subsidiaries are collectively known as "Manulife Financial". ManUSA and its subsidiaries, collectively known as the "Company", operate in the life insurance industry, offering a broad range of insurance and wealth management related products. These products are offered both on an individual and group basis and are marketed primarily in the United States. In December of 2000 through an issuance of shares, the Company acquired the remaining 21.6% minority interest in Manulife-Wood Logan Holding Co. Inc ("MWLH"), a subsidiary of the Company, from MRL Holding, LLC ("MRL-LLC"), an affiliated company. As this was a related party transaction, the purchase was accounted for at MRL-LLC's carrying value and no goodwill was generated. 2. SIGNIFICANT ACCOUNTING POLICIES a) BASIS OF PRESENTATION The accompanying consolidated financial statements of ManUSA have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and include accounts and operations, after intercompany eliminations, of ManUSA and its subsidiaries. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates. b) RECENT ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires the purchase method of accounting to be used for all future business combinations. SFAS No. 142 eliminates the practice of amortizing goodwill through periodic charges to earnings and establishes a new methodology for recognizing and measuring goodwill and other intangible assets. Under this new accounting standard, the Company will cease goodwill amortization effective January 1, 2002. The Company is currently considering the other provisions of the new standard. The impact of adopting these two standards on the Company's financial statements is not expected to be material. 6 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EITF Issue No. 99-20 ("EITF 99-20"), "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets", applies to all securities, purchased or retained, which represent beneficial interests in securitized assets, unless they meet certain exception criteria. Such securities include many collateralized mortgage, bond, debt and loan obligations, mortgage-backed securities, and asset-backed securities. EITF 99-20 significantly changes the method of assessing "other than temporary impairments" and for recognizing interest income. A decline in fair value below the "amortized cost" basis is considered to be an other than temporary impairment whenever there is an adverse change in the amount or timing of cash flows to be received, regardless of the resulting yield, unless the decrease is solely a result of changes in market interest rates. Interest income is based on prospective estimates of future cash flows. EITF 99-20 was effective for fiscal quarters beginning after March 15, 2001. We reviewed all applicable securities held by the Company since April 1, 2001 and deemed the impact of this new accounting clarification as immaterial. c) INVESTMENTS The Company classifies all of its fixed-maturity and equity securities as available-for-sale and records these securities at fair value. The cost of fixed-maturity securities is adjusted for the amortization of premiums and accretion of discounts, which are calculated using the effective interest method. For the mortgage-backed bond portion of the fixed-maturity securities portfolio, the Company recognizes amortization using a constant effective yield based on anticipated prepayments and the estimated economic life of the securities. When actual prepayments differ significantly from anticipated prepayments, the effective yield is recalculated to reflect actual payments to date and anticipated future payments. The net investment in the security is adjusted to the amount that would have existed had the new effective yield been applied since the acquisition of the security. That adjustment is included in net investment income. Realized gains and losses on sales of securities classified as available-for-sale are recognized in net income using the specific-identification method. Temporary changes in the fair value of securities available-for-sale are reflected directly in accumulated other comprehensive income after adjustments for deferred taxes, deferred acquisition costs, policyholder liabilities and unearned revenue liability. Mortgage loans are reported at unpaid principal balances, net of a provision for losses. The provision for losses is established for mortgage loans both on a specific as well as on an aggregate basis. Mortgage loans are considered to be impaired when the Company has determined that it is probable that all amounts due under contractual terms will not be collected. Impaired loans are reported at the lower of unpaid principal or fair value of the underlying collateral. Real estate held for investment is carried at cost, less accumulated depreciation and provisions for impairment and write-downs, if applicable. Real estate held for sale is carried at the lower of cost or market value where changes in estimates of market value are recognized as realized gains or losses in the income statement. Policy loans are reported at aggregate unpaid balances, which approximates fair value. 7 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Short-term investments, which include investments with maturities of less than one year and greater than ninety days as at the date of acquisition, are reported at amortized cost which approximates fair value. d) CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with an original maturity date of three months or less to be cash equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates fair value. e) DEFERRED ACQUISITION COSTS ("DAC") Commissions and other expenses, which vary with and are primarily related to the production of new business, are deferred to the extent recoverable from future gross profits and included as an asset. The portion of DAC associated with variable annuity and variable life insurance contracts, universal life insurance contracts, investment contracts, and participating life insurance contracts is charged to expense in relation to the estimated gross profits of those contracts. This amortization is adjusted retrospectively when current gross profits or estimates of future gross profits are revised. Certain changes in assumptions regarding the variable annuity product line were made which refined the amortization pattern. DAC associated with all other insurance contracts is amortized over the premium-paying period of the related policies. Assuming the unrealized gains or losses on securities had been realized at year-end, DAC is adjusted for the impact on current and estimated future gross profits. The impact of any such adjustments is included in net unrealized gains (losses) in accumulated other comprehensive income. DAC is reviewed annually to determine recoverability from future income and if not recoverable, is immediately expensed. f) POLICYHOLDER LIABILITIES AND ACCRUALS Policyholder liabilities for traditional non-participating life insurance policies and for accident and health policies are computed using the net level premium method. The calculations are based upon estimates as to future mortality, morbidity, persistency, maintenance expenses, and interest rate yields that were applicable in the year of issue. The assumptions include a provision for the risk of adverse deviation. For payout annuities in loss recognition, policyholder liabilities are computed using estimates of expected mortality, expenses, and investment yields as determined at the time these contracts first moved into loss recognition. Payout annuity reserves are adjusted for the impact of net unrealized gains associated with the underlying assets. For variable annuity and variable life contracts, universal life insurance contracts, and investment contracts with no substantial mortality or morbidity risk, policyholder liabilities equal the policyholder account values. Account values are increased for deposits received and interest credited and are reduced by withdrawals, mortality charges, and administrative expenses charged to the policyholders. 8 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) For traditional participating life insurance policies, policyholder liabilities are computed using the net level premium reserve for death and endowment policy benefits. Mortality and interest assumptions are the same as the non-forfeiture benefit assumptions at the time the policy was issued. Interest rate assumptions used in the calculation of the liabilities for traditional participating life insurance policies range from 2.5% to 7.0%. As of December 31, 2001, participating insurance expressed as a percentage of insurance in force is 69.1%. For participating policies inforce as of September 23, 1999, the demutualization of The Manufacturers Life Insurance Company ("MLT"), an indirect parent, separate sub-accounts were established within the participating accounts of the Company. These sub-accounts permit this participating business to be operated as separate "closed block" of business. As at December 31, 2001, $7,441 (2000 - $7,048) of both assets and actuarial liabilities related to the participating policyholders' account are included in the closed block. ManUSA's Board of Directors approves the amount of policyholder dividends to be paid annually. The aggregate amount of policyholder dividends is calculated based on actual interest, mortality, morbidity and expense experience for the year, and on management's judgment as to the appropriate level of equity to be retained by the Company. The carrying value of this liability approximates the earned amount and fair value as at December 31, 2001. g) SEPARATE ACCOUNTS Separate account assets and liabilities represent funds that are separately administered, principally for investment contracts related to group pension business as well as for variable annuity and variable life contracts, and for which the contract holder, rather than the Company, bears the investment risk. Separate account contract holders have no claim against the assets of the general account of the Company. Separate account assets are recorded at market value. Operations of the separate accounts are not included in the accompanying financial statements. However, fees charged on separate account policyholder funds are included in revenue of the Company. h) REVENUE RECOGNITION Premiums on long-duration life insurance contracts are recognized as revenue when due. Premiums on short-duration contracts are earned over the related contract period. Net premiums on limited-payment contracts are recognized as revenue and the difference between the gross premium received and the net premium is deferred and recognized in income based on either a constant relationship to insurance in force or the present value of annuity benefits, depending on the product type. Fee income from annuity contracts, pension contracts, and insurance contracts consist of charges for mortality, expense, surrender and administration that have been assessed against the policyholder account balances. To the extent such charges compensate the Company for future services, they are deferred and recognized in income over the period earned using the same assumptions as those associated with the amortization of DAC. Interest on fixed-maturity securities and performing mortgage loans is recorded as income when earned and is adjusted for any amortization of premiums or discounts. Interest on restructured mortgage loans is recorded as income based on the rate to be paid; interest on delinquent mortgage loans is recorded as income on a cash basis. Dividends are recorded as income on ex-dividend dates. 9 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) i) POLICYHOLDER BENEFITS AND CLAIMS Benefits for variable annuity and variable life contracts, for universal life insurance contracts, and for investment pension contracts include interest credited to policyholder account values and benefit claims incurred during the period in excess of policyholder account values. j) REINSURANCE The Company routinely utilizes reinsurance transactions to minimize exposure to large risks. Life reinsurance is accomplished through various plans including yearly renewable term, co-insurance, and modified co-insurance. Reinsurance premiums, policy charges for cost of insurance, and claims are accounted for on a basis consistent with that used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums, fees, and claims are reported net of reinsured amounts. The amount recoverable from reinsures and pertaining to policyholder liabilities is presented as a separate asset on the balance sheet. For those claims paid and covered by a reinsurance treaty, a reinsurance receivable has been included as part of other assets. k) INCOME TAX Income taxes have been provided for in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that likely will be in effect when the differences are expected to reverse. The measurement of deferred tax assets is reduced by a valuation allowance if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. ManUSA joins its direct parent, Manulife Reinsurance Corporation (U.S.A.) ("MRC"), its indirect parent, The Manufacturers Investment Corporation ("MIC"), and its subsidiary, The Manufacturers Life Insurance Company of America ("MLA"), in filing a U.S. consolidated income tax return as a life insurance group under the provisions of the Internal Revenue Service. A separate life insurance group for certain of ManUSA's subsidiaries is also in place. In accordance with the income tax-sharing agreements, the Company's income tax provision (or benefit) is computed as if ManUSA and the companies within the two groups filed separate income tax returns. Tax benefits from operating losses are provided at the U.S. statutory rate plus any tax credits attributable, provided the consolidated group utilizes such benefits currently. l) FOREIGN EXCHANGE The balance sheet and statement of income of the Company's foreign operations as well as non-U.S. dollar investments are translated into U.S. dollars using exchange rates in effect at the balance sheet date and average exchange rates prevailing during the respective periods. Translation adjustments are included in accumulated other comprehensive income. 10 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) m) DERIVATIVES The Company adopted the Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by Statement of Financial Accounting Standards No. 138, on January 1, 2001. As a result, all derivative instruments are reported on the Consolidated Balance Sheet at their fair value, with changes in fair value recorded in income or equity, depending on the nature of the derivative instrument. Changes in the fair value of derivatives not designated as hedges are recognized in current period earnings. There was no cumulative transition adjustment at the time of adoption. For fair value hedges, the Company is hedging changes in the fair value of assets, liabilities or firm commitments with changes in fair values of the derivative instruments. Both sets of changes are recorded through income. For cash flow hedges, the Company is hedging the variability of cash flows related to forecasted transactions. The effective portion of changes in the fair value of cash flow hedges is recorded in other comprehensive income and reclassified into income in the same period or periods during which the hedged transaction affects earnings. The Company estimates that deferred net losses of $4 after tax, included in other comprehensive income as at December 31, 2001, will be reclassified into earnings within the next twelve months. Cash flow hedges include hedges of certain forecasted transactions of varying periods up to a maximum of 40 years. n) RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current year presentation. 3. INVESTMENTS AND INVESTMENT INCOME a) FIXED-MATURITY AND EQUITY SECURITIES At December 31, 2001, all fixed-maturity and equity securities have been classified as available-for-sale and reported at fair value. The amortized cost and fair value is summarized as follows:
GROSS GROSS AMORTIZED COST UNREALIZED UNREALIZED FAIR VALUE AS AT DECEMBER 31 GAINS LOSSES ($ millions) 2001 2000 2001 2000 2001 2000 2001 2000 ---------------------------------------------------------------------------------------------------------- FIXED-MATURITY SECURITIES: U.S. government $1,963 $1,240 $65 $103 $ (9) $ -- $ 2,019 $1,343 Foreign governments 1,290 1,730 169 204 (2) -- 1,457 1,934 Corporate 5,728 5,561 297 111 (98) (215) 5,927 5,457 Asset - backed 675 1,049 32 21 (2) (7) 705 1,063 ---------------------------------------------------------------------------------------------------------- TOTAL FIXED-MATURITY SECURITIES 9,656 9,580 563 439 (111) (222) 10,108 9,797 ---------------------------------------------------------------------------------------------------------- EQUITY SECURITIES $ 889 $ 707 $ 93 $210 $ (137) $(65) $ 845 $ 852 ----------------------------------------------------------------------------------------------------------
Proceeds from sales of fixed-maturity securities during 2001 were $10,063 (2000 - $6,584 and 1999 - $4,302). Gross gains and losses of $225 and $98 respectively, were realized on those sales (2000 - $71 and $242 respectively, 1999 - $49 and $167 respectively). 11 3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED) Proceeds from the sale of equity securities during 2001 were $412 (2000 - $1,185 and 1999 - $303). Gross gains and losses of $20 and $31 respectively, were realized on those sales (2000 - $319 and $60 respectively, 1999 - $84 and $39 respectively). The contractual maturities of fixed-maturity securities at December 31, 2001 are shown below.
AS AT DECEMBER 31, 2001 ($ millions) AMORTIZED COST FAIR VALUE - ---------------------------------------------------------------------------------------------------- Fixed-maturity securities, excluding mortgage-backed securities: One year or less $ 230 $ 242 Greater than 1; up to 5 years 1,310 1,342 Greater than 5; up to 10 years 2,930 3,022 Due after 10 years 4,511 4,797 Asset - backed securities 675 705 - ---------------------------------------------------------------------------------------------------- TOTAL FIXED-MATURITY SECURITIES $ 9,656 $ 10,108 - ----------------------------------------------------------------------------------------------------
Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties. Corporate requirements and investment strategies may result in the sale of investments before maturity. b) MORTGAGE LOANS Mortgage loans are reported at amortized cost, net of a provision for losses. The impaired mortgage loans and the related allowance for mortgage loan losses were as follows:
AS AT DECEMBER 31 ($ millions) 2001 2000 - ----------------------------------------------------------------------- IMPAIRED LOANS $ 79 $ 80 - ----------------------------------------------------------------------- Allowance, January 1 $ 51 $ 57 Deductions (1) (6) - ----------------------------------------------------------------------- ALLOWANCE, DECEMBER 31 $ 50 $ 51 - -----------------------------------------------------------------------
c) INVESTMENT INCOME Income by type of investment was as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2001 2000 1999 - ----------------------------------------------------------------------- Fixed-maturity securities $ 698 $ 727 $ 726 Equity securities 42 60 18 Mortgage loans 128 126 149 Investment real estate 81 95 71 Other investments 200 184 195 - ----------------------------------------------------------------------- Gross investment income 1,149 1,192 1,159 Investment expenses (34) (57) (38) - ----------------------------------------------------------------------- NET INVESTMENT INCOME $ 1,115 $ 1,135 $ 1,121 - -----------------------------------------------------------------------
12 3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED) d) SIGNIFICANT EQUITY INTERESTS ManUSA holds a 27.7% (2000 - 22.4%) indirect interest in Flex Leasing I, LLC and a 19.6% direct interest in Flex Leasing II, LLC. These investments are accounted for using the equity method whereby ManUSA would recognize its proportionate share of the respective investee's net income or loss. As at December 31, 2001, the sum of total assets for both these investees was $396 (2000 - $392), with total liabilities amounting to $295 (2000 - $288). For the year ended December 31, 2001, total net loss for both these investees amounted to $4 (2000 - net income of $1). 4. COMPREHENSIVE INCOME a) Total comprehensive income was as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2001 2000 1999 - ----------------------------------------------------------------------------------------- NET INCOME $ 41 $ 248 $ 293 - ----------------------------------------------------------------------------------------- OTHER COMPREHENSIVE (LOSS) INCOME, NET OF INCOME TAX: Unrealized holding (losses) gains arising during the year (146) 69 (4) Foreign currency translation (13) (3) 1 Less: Reclassification adjustment for realized gains and losses included in net income 3 (89) 18 - ----------------------------------------------------------------------------------------- Other comprehensive (loss) income (162) 155 (21) - ----------------------------------------------------------------------------------------- COMPREHENSIVE (LOSS) INCOME $(121) $ 403 $ 272 =========================================================================================
Other comprehensive (loss) income is reported net of tax (benefit) expense of ($81), $87, and $30 for 2001, 2000 and 1999, respectively. 13 4. COMPREHENSIVE INCOME (CONTINUED) Accumulated other comprehensive income is comprised of the following:
AS AT DECEMBER 31 ($ millions) 2001 2000 - ------------------------------------------------------------- UNREALIZED GAINS : Beginning balance $ 290 $ 132 Current period change (149) 158 - ------------------------------------------------------------- Ending balance $ 141 $ 290 - ------------------------------------------------------------- FOREIGN CURRENCY: Beginning balance $ (7) $ (4) Current period change (13) (3) - ------------------------------------------------------------- Ending balance $ (20) $ (7) - ------------------------------------------------------------- ACCUMULATED OTHER COMPREHENSIVE INCOME $ 121 $ 283 =============================================================
b) UNREALIZED GAINS (LOSSES) ON SECURITIES AVAILABLE-FOR-SALE Net unrealized gains (losses) on fixed-maturity and equity securities included in other comprehensive income were as follows:
AS AT DECEMBER 31 ($ millions) 2001 2000 - ------------------------------------------------------------------------------ Gross unrealized gains $ 656 $ 648 Gross unrealized losses (248) (286) DAC and other amounts required to satisfy policyholder liabilities (191) 39 Deferred income taxes (76) (111) - ------------------------------------------------------------------------------ NET UNREALIZED GAINS ON SECURITIES AVAILABLE-FOR-SALE $ 141 $ 290 ==============================================================================
5. DEFERRED ACQUISITION COSTS The components of the change in DAC were as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2001 2000 - ----------------------------------------------------------------------- Balance, January 1 $ 2,066 $ 1,631 Capitalization 538 590 Amortization (277) (180) Effect of net unrealized gains on securities available-for-sale (25) 25 ======================================================================= BALANCE, DECEMBER 31 $ 2,302 $ 2,066 =======================================================================
14 6. INCOME TAXES The components of income tax (benefit) expense were as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2001 2000 1999 - ----------------------------------------------------------------- Current (benefit) expense $ (64) $ 56 $ (17) Deferred expense 60 34 194 - ----------------------------------------------------------------- TOTAL (BENEFIT) EXPENSE $ (4) $ 90 $ 177 =================================================================
Income before federal income taxes differs from taxable income principally due to tax-exempt investment income; dividends received tax deductions, differences in the treatment of policy acquisition costs, and differences in reserves for policy and contract liabilities for tax and financial reporting purposes. The Company's deferred income tax asset (liability), which results from tax affecting the differences between financial statement values and tax values of assets and liabilities at each balance sheet date, relates to the following:
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2001 2000 1999 - ------------------------------------------------------------------------------------ DEFERRED TAX ASSETS: Differences in computing policy reserves $682 $630 $635 Investments 1 -- -- Policyholder dividends payable 13 11 9 Net capital loss -- 6 -- Net operating loss 87 41 -- Other deferred tax assets 37 19 -- - ------------------------------------------------------------------------------------ Deferred tax assets $820 $707 $644 - ------------------------------------------------------------------------------------ DEFERRED TAX LIABILITIES: Deferred acquisition costs $412 $340 $244 Unrealized gains on securities available-for-sale 163 140 189 Premiums receivable 16 13 14 Investments 112 47 14 Other deferred tax liabilities 38 42 32 - ------------------------------------------------------------------------------------ Deferred tax liabilities $741 $582 $493 - ------------------------------------------------------------------------------------ NET DEFERRED TAX ASSETS $ 79 $125 $151 ====================================================================================
15 6. INCOME TAXES (CONTINUED) The Company files a consolidated federal income tax return for all its subsidiaries except for The Manufacturers Life Insurance Company of North America ("MNA") and The Manufacturers Life Insurance Company of New York ("MNY"). MNA and MNY file a separate consolidated federal income tax return. ManUSA and its subsidiaries file separate state income tax returns. The method of allocation among the companies is subject to a written tax sharing agreement under which the tax liability is allocated to each member on a pro rata basis based on the relationship that the member's tax liability (computed on a separate return basis) bears to the tax liability of the consolidated group. The tax charge to each of the respective companies will not be more than that which each company would have paid on a separate return basis. Settlements of taxes are made through an increase or reduction to the payable to parent, subsidiaries or affiliates. Such settlements occur on a periodic basis. At December 31, 2001, the Company has operating loss carry forwards of $249 that will begin to expire in 2011. 7. NOTE PAYABLE On December 29, 1997, the Company issued a surplus debenture for $200 plus interest at 7.93% per annum to MIC. The surplus debenture matures on February 1, 2022. Except in the event of insolvency or wind-up of the Company, the instrument may not be redeemed by the Company during the period of five years from date of issue without the approval of the Office of the Superintendent of Financial Institutions of Canada. Interest accrued and expensed was $16 for each of 2001, 2000, and 1999. Interest paid was $16, $9, and $16 for 2001, 2000, and 1999, respectively. 8. CAPITAL AND SURPLUS Capital Stock is comprised of the following:
AS AT DECEMBER 31 ($ millions) 2001 2000 - --------------------------------------------------------------------- AUTHORIZED: 50,000,000 Preferred shares, Par value $1.00 -- -- 50,000,000 Common shares, Par value $1.00 - --------------------------------------------------------------------- ISSUED AND OUTSTANDING: 100,000 Preferred shares 4,728,934 Common shares (2000 - 4,711,772 ) 5 5 =====================================================================
Pursuant to an agreement dated December 31, 2000, ManUSA purchased from MRL-LLC all of MRL-LLC's 21.6% interest in MWLH. In exchange, ManUSA transferred 167,268 of its common shares to MRL-LLC and forgave a promissory note owed by MRL-LLC amounting to $52 plus accrued interest. The result was a $22 addition to the Company's contributed surplus. As well, the agreement permitted the use of estimates in determining the value of shares exchanged until a final valuation of the respective companies was performed. This valuation was completed in 2001 resulting in an additional 17,162 shares transferred from ManUSA to MRL-LLC. There was no addition to the Company's contributed surplus. ManUSA and its life insurance subsidiaries are subject to statutory limitations on the payment of dividends. Dividend payments in excess of prescribed limits cannot be paid without the prior approval of U.S. insurance regulatory authorities. 16 8. CAPITAL AND SURPLUS (CONTINUED) Net income (loss) and capital and surplus, as determined in accordance with statutory accounting principles for ManUSA and its life insurance subsidiaries were as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2001 2000 1999 - --------------------------------------------------------------------------------------------------- THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.): Net income $ 55 $ 200 $ 132 Net capital and surplus 1,280 1,384 1,560 THE MANUFACTURERS LIFE INSURANCE COMPANY OF NORTH AMERICA: Net loss $ (117) $ (59) $ (3) Net capital and surplus 212 152 171 THE MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA: Net (loss) income $ (20) $ (19) $ 6 Net capital and surplus 100 120 137 THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK: Net (loss) income $ (26) $ (3) $ 1 Net capital and surplus 34 61 64 ===================================================================================================
In March 1998, the National Association of Insurance Commissioners adopted codified statutory accounting principles ("Codification") effective January 1, 2001. Codification changes prescribed statutory accounting practices and results in changes to the accounting practices that the Company's life insurance subsidiaries use to prepare their statutory-basis financial statements. The states of domicile of these subsidiaries adopted Codification as the prescribed basis of accounting on which insurers must report their statutory-basis results. The cumulative effect of changes in accounting principles adopted to conform to the requirements of Codification was reported as an increase to surplus in the statutory-basis financial statement of the respective life insurance subsidiaries. In total, statutory-basis surplus of the life insurance entities within the Company increased by $175. As a result of demutualization of MLI, an indirect parent, there are regulatory restrictions on the amounts of profit that can be transferred to shareholders. These restrictions generally take the form of a fixed percentage of the policyholder dividends. The transfers are governed by the terms of MLI's Plan of Demutualization. 9. EMPLOYEE BENEFITS a) EMPLOYEE RETIREMENT PLAN The Company sponsors a non-contributory pension plan entitled "The Manulife Financial U.S. Cash Balance Plan" ("the Plan"). Pension benefits are provided to participants of the Plan after three years of vesting service with the Company and are a function of the length of service together with final average earnings. The normal form of payment under the Plan is a life annuity, payable at the normal retirement age of 65, and is actuarially equivalent to the cash balance account. Various optional forms of payment are available including a lump sum. Early retirement benefits are actuarially equivalent to the cash balance account, but are subsidized for participants who were age 45 with 5 or more years vesting service with the Company as at July 1, 1998 and who terminate employment after attaining age 50 and have completed 10 years of service. 17 9. EMPLOYEE BENEFITS (CONTINUED) Cash balance accounts are credited annually with contribution credits and semi-annually with interest credits. Future contribution credits under the Plan vary based on service. Interest credits are a function of the 1-year U.S. Treasury Bond rate plus 0.50%, but no less than 5.25% per year. Actuarial valuation of accumulated plan benefits are based on projected salaries, an assumed discount rate, and best estimates of investment yields on plan assets, mortality of participants, employee termination, and ages at retirement. Pension costs that relate to current service are funded as they accrue and are charged to earnings of the Company in the current period. Vested benefits are fully funded. Experience gains and losses are amortized into income of the Company over the estimated average remaining service lives of the participants. No contributions were made during the current or prior year because the Plan was subject to the full funding limitation under the Internal Revenue Code. The Company also sponsors an unfunded supplemental cash balance plan entitled "The Manulife Financial U.S. Supplemental Cash Balance Plan" ("the Supplemental Plan"). This non-qualified plan provides defined pension benefits in excess of limits imposed by law. The Internal Revenue Code does not restrict compensation nor does it limit benefits. Benefits under the Supplemental Plan are provided to participants who terminate after three years of service. The default form of payment under this plan is a lump sum, although participants may elect to receive payment in the form of an annuity provided that such an election is made within the time period prescribed in the Supplemental Plan. If an annuity form of payment is elected, the amount payable is equal to the actuarial equivalent of the participant's balance under the Supplemental Plan, using the factors and assumptions for determining immediate annuity amounts applicable to the participant under the Plan. Cash balance contribution credits vary by service, and interest credits are a function of the 1-year U.S. Treasury Bond rate plus 0.50%, but no less than 5.25% per year. The annual contribution credits are made in respect of the participant's compensation that is in excess of the limit in the Internal Revenue Code. Together, these contributions serve to restore to the participant the benefit that he / she would have been entitled to under the Plan's benefit formula but for the limitation in Internal Revenue Code. At December 31, 2001, the projected benefit obligation to the participants of both the Plan and the Supplemental Plan was $78, which was based on an assumed interest rate of 7.25%. The fair value of the Plan assets totaled $72. b) 401(k) PLAN The Company sponsors a defined contribution 401(k) Savings Plan which is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). The Company contributed $1 for each of 2001, 2000, and 1999, respectively. 18 9. EMPLOYEE BENEFITS (CONTINUED) c) DEFERRED COMPENSATION PLAN The Company has deferred compensation incentive plans open to all branch managers and qualified agents. There are no stock option plans involving stock of ManUSA. d) POSTRETIREMENT BENEFIT PLAN In addition to the retirement plans, the Company sponsors a postretirement benefit plan that provides retiree medical and life insurance benefits to those who have attained age 50 and have 10 or more years of service with the Company. This plan provides medical coverage for retirees and spouses under age 65. When the retirees or the covered spouses reach age 65, Medicare provides primary coverage and this plan provides secondary coverage. This plan is contributory with the amount of contribution based on the service of the employees as at the time of retirement. This plan provides the retiree with a life insurance benefit of 100% of the salary just prior to retirement. The amount is reduced to 65% on the first of January following retirement, and is further reduced to 30% at age 70. The Company accounts for its retiree benefit plan using the accrual method. At December 31, 2001, the benefit obligation of the postretirement benefit plan was $21, which was based on an assumed interest rate of 7.25%. This plan is unfunded. 19 9. EMPLOYEE BENEFITS (CONTINUED) e) FINANCIAL INFORMATION REGARDING THE EMPLOYEE RETIREMENT PLAN AND THE POSTRETIREMENT BENEFIT PLAN Information applicable to the Employee Retirement Plan and the Postretirement Benefit Plan as estimated by a consulting actuary for the December 31 year-end is as follows:
EMPLOYEE POSTRETIREMENT RETIREMENT BENEFIT AS OF DECEMBER 31 PLAN PLAN ------------------------------------- (in millions) 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------------------ CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $(74) $(68) $(18) $(17) Service cost (3) (2) (1) (1) Interest cost (5) (5) (1) (1) Amendments -- (1) -- -- Actuarial gain (loss) (1) (3) (1) -- Benefits paid 5 5 1 1 - ------------------------------------------------------------------------------------------------------------ Benefits obligation at end of year $(78) $(74) $(20) $(18) - ------------------------------------------------------------------------------------------------------------ CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year $ 81 $ 87 $ -- $ -- Actual return on plan assets (6) (2) -- -- Employer contribution 2 1 1 1 Benefits paid (5) (5) (1) (1) - ------------------------------------------------------------------------------------------------------------ Fair value of plan assets at end of year $ 72 $ 81 $ -- $ -- - ------------------------------------------------------------------------------------------------------------ Funded status $ (6) $ 7 $(21) $(18) Unrecognized transition asset (6) (9) -- -- Unrecognized actuarial loss (gain) 30 16 (12) (15) Unrecognized prior service cost (recovery) 3 3 -- -- - ------------------------------------------------------------------------------------------------------------ Net amount recognized $ 21 $ 17 $(33) $(33) - ------------------------------------------------------------------------------------------------------------ Amounts recognized in statement of financial position consist of: Prepaid benefit cost $ 38 $ 34 $ -- $ -- Accrued benefit liability (22) (21) (33) (33) Intangible asset 1 1 -- -- Accumulated other comprehensive income 4 4 -- -- - ------------------------------------------------------------------------------------------------------------ Net amount recognized $ 21 $ 18 $(33) $(33) - ------------------------------------------------------------------------------------------------------------
EMPLOYEE POSTRETIREMENT RETIREMENT BENEFIT PLAN PLAN ---------------------------------------------- AS OF DECEMBER 31 2001 2000 2001 2000 - ------------------------------------------------------------------------------------- WEIGHTED AVERAGE ASSUMPTIONS Discount rate 7.25% 7.25% 7.25% 7.25% Expected return on plan assets 9.00% 8.50% n/a n/a Rate of compensation increase 5.00% 5.00% 5.00% 5.00%
20 9. EMPLOYEE BENEFITS (CONTINUED) On December 31, 2001, the accrued postretirement benefit cost was $21. The postretirement benefit obligation for eligible active employees was $3. The amount of the postretirement benefit obligation for ineligible active employees was $6. For measurement purposes as of December 31, 2001, a 7.5% and 9.5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2002 for pre-65 and post-65 coverages, respectively. These rates were assumed to decrease gradually to 5.0% in 2007 and 2011, respectively, and remain at that level thereafter.
EMPLOYEE POSTRETIREMENT RETIREMENT BENEFIT PLAN PLAN AS OF DECEMBER 31 ---------------------------------- (in millions) 2001 2000 2001 2000 - ------------------------------------------------------------------------------------ COMPONENTS OF NET PERIODIC (BENEFIT) COST FOR PLAN SPONSOR Service cost $ 3 $ 2 $ 1 $ 1 Interest cost 5 5 1 1 Expected return on plan assets (7) (7) -- -- Amortization of net transition obligation (2) (2) -- -- Recognized actuarial loss (gain) -- -- (1) (1) - ------------------------------------------------------------------------------------ NET PERIODIC (BENEFIT) COST $(1) $(2) $ 1 $ 1 ====================================================================================
The projected benefit obligation in excess of plan assets, the accumulated benefit obligation in excess of plan assets, and the fair value of plan assets for the Supplemental Plan were $23, $22, and $0 respectively as of December 31, 2001 and $22, $21, and $0 respectively as of December 31, 2000. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects on 2001 values:
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT (in millions) INCREASE DECREASE - ------------------------------------------------------------------------------------------- Effect on total of service and interest cost components $ -- $ -- Effect on postretirement benefit obligation $ 3 $ (2) - -------------------------------------------------------------------------------------------
21 10. DERIVATIVE FINANCIAL INSTRUMENTS The Company uses a variety of off-balance sheet derivative financial instruments as part of its efforts to manage exposures to foreign currency, interest rate, and other market risks arising from its on-balance sheet financial instruments. These instruments include interest rate exchange agreements, cross currency swaps, and foreign currency forward contracts. The Company enters into interest rate exchange agreements to reduce and manage interest rate risk associated with outstanding non-U.S. dollar denominated debt. These instruments are regarded as fair value hedges. The Company uses cross currency swaps to reduce both foreign exchange and interest rate risk and to alter exposures arising from mismatches between assets and liabilities. Since the interest payments are in different currencies, there are no netting arrangements between counter-parties. These instruments are regarded as fair value hedges. The Company uses foreign currency forward contracts to hedge some of the foreign exchange risk, as it generates revenue and holds assets in U.S. dollars, but incurs a significant portion of its maintenance and acquisition expenses in Canadian dollars. A foreign currency forward contract obligates the Company to deliver a specified amount of currency on a future date at a specified exchange rate. The value of the foreign exchange forward contracts at any given point fluctuates according to the underlying level of exchange rate and interest rate differentials. These instruments are regarded as cash flow hedges. These instruments are designated and effective as hedges, as there is a high correlation between changes in market value of the derivative and the underlying hedged item at inception and over the life of the hedge. The Company's exposure to credit risk is the risk of loss from a counterparty failing to perform according to the terms of the contract. That exposure includes settlement risk (i.e., the risk that the counterparty defaults after the Company has delivered funds or securities under terms of the contract) that would result in a loss and replacement cost risk (i.e. the cost to replace the contract at current market rates should the counterparty default prior to the settlement date). To limit exposure associated with counterparty nonperformance on interest rate exchange agreements, the Company enters into master netting agreements with its counterparties. Outstanding derivative instruments with off-balance sheet risks are as follows:
NOTIONAL OR CONTRACT AMOUNTS CARRYING VALUE FAIR VALUE AS AT DECEMBER 31 ------- -------------- ---------- ($ millions) 2001 2000 2001 2000 2001 2000 - ----------------------------------------------------------------------------------------------------------- Interest rate & currency swaps & floors $1,098 $1,008 $ 2 $ 5 $ 2 $ 5 Interest rate option written 22 22 (1) -- (1) -- Equity Contracts 37 68 -- (1) -- (1) Currency forwards 851 1,125 (10) 5 (10) 5 - ----------------------------------------------------------------------------------------------------------- TOTAL DERIVATIVES $2,008 $2,223 $ (9) $ 9 $ (9) $ 9 ===========================================================================================================
22 10. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED) Fair value of off-balance sheet derivative financial instruments reflect the estimated amounts that the Company would receive or pay to terminate the contract at the balance sheet date, including the current unrealized gains (losses) on the instruments. Fair values of the agreements were based on estimates obtained from the individual counter parties. 11. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values and the estimated fair values of the Company's financial instruments at December 31, 2001 were as follows:
($ millions) CARRYING VALUE FAIR VALUE - -------------------------------------------------------------------------- ASSETS: Fixed-maturity and equity securities $10,953 $10,953 Mortgage loans 1,675 1,783 Policy loans 2,226 2,226 Separate account assets 30,217 30,217 LIABILITIES: Insurance investment contracts $ 1,699 $ 1,698 Derivative financial instruments 9 9 Separate account liabilities 30,217 30,217 - --------------------------------------------------------------------------
The following methods and assumptions were used to estimate the fair values of the above financial instruments: FIXED-MATURITY AND EQUITY SECURITIES: Fair values of fixed-maturity and equity securities were based on quoted market prices where available. Where no quoted market price was available, fair values were estimated using values obtained from independent pricing services or, in the case of private placements, by discounting expected future cash flows using a current market rate applicable to yield, credit quality, and average life of the investments. MORTGAGE LOANS: Fair value of mortgage loans was estimated using discounted cash flows and took into account the contractual maturities and discount rates, which were based on current market rates for similar maturity ranges and adjusted for risk due to the property type. POLICY LOANS: Carrying values approximate fair values. DERIVATIVE FINANCIAL INSTRUMENTS: Fair values of derivative financial instruments were based on estimates obtained from the individual counterparties. INSURANCE INVESTMENT CONTRACTS: Fair value of insurance investment contracts, which do not subject the Company to significant mortality or morbidity risks, was estimated using cash flows discounted at market rates. SEPARATE ACCOUNT ASSETS AND LIABILITIES: The carrying amounts in the balance sheet for separate account assets and liabilities approximate their fair value. Fair value was determined by applying the above outlined methodology to the relevant assets underlying the respective separate accounts. 23 12. RELATED PARTY TRANSACTIONS The Company has formal service agreements with MFC, which can be terminated by either party upon two months notice. Under the various agreements, the Company will pay direct operating expenses incurred by MFC on behalf of the Company. Services provided under the agreements include legal, actuarial, investment, data processing, accounting and certain other administrative services. Costs incurred under the agreements were $216 in 2001. Prior to 2001, the agreements were with MLI. Costs incurred under these agreements were $243 and $194 for 2000 and 1999, respectively. MFC also provides a claims paying guarantee to certain U.S. policyholders. On September 23, 1997, the Company entered into a reinsurance agreement with Manulife Reinsurance Limited ("MRL"), an affiliated life insurance company domiciled in Bermuda, to reinsure a closed block of participating life insurance business. As there was limited transfer of mortality risk between the Company and MRL, the agreement was classified as financial reinsurance and given deposit-type accounting treatment. Title to the assets supporting this block of business was transferred to MRL under the terms of the agreement. Included in amounts due from affiliates is $506 (2000 - $568) representing the receivable from MRL for the transferred assets. The Company loaned $20 to MRL pursuant to a promissory note dated September 29, 2000. The loan is due on September 29, 2005 with interest calculated at 7.30% per annum, payable quarterly starting December 15, 2000. Pursuant to a promissory note dated June 12, 2000, the Company loaned $7 to MRL. Principal and accrued interest are payable on June 12, 2003. Interest on the loan calculated at 7.65% is payable semi-annually starting August 1, 2000. Pursuant to a grid promissory note and a credit agreement dated December 19, 2000, the Company received a loan of $250 ($375 Canadian) from an affiliate, Manulife Hungary Holdings KFT ("MHH"). The maturity date with respect to any advances is set at 365 days after the date of the advancement. Interest on the loan is calculated at the fluctuating rate to be equivalent to LIBOR plus 25 basis points and is payable quarterly starting March 28, 2001. The loan has been renewed until December 19, 2002. On August 7, 2001, the Company repaid $100 ($150 Canadian) of this loan. Pursuant to a grid promissory note and a credit agreement dated August 7, 2001, MNA received a loan of $100 ($150 Canadian) from MHH. The maturity date with respect to any advances is set at 365 days after the date of the advancement. Interest on the loan is calculated at the fluctuating rate to be equivalent to LIBOR plus 32.5 basis points and is payable quarterly starting December 28, 2001. Pursuant to a grid promissory note dated May 11, 2001, the Company loaned $20 to MRL. Principal and accrued interest are payable on May 11, 2006. Interest on the load is calculated at an annual rate of interest equal to LIBOR plus 60 basis points annually starting June 15, 2001. 24 13. REINSURANCE In the normal course of business, the Company assumes and cedes reinsurance as a party to several reinsurance treaties with major unrelated insurance companies. The Company remains liable for amounts ceded in the event that reinsurers do not meet their obligations. The effects of reinsurance on premiums with unrelated insurance companies were as follows:
FOR THE YEARS ENDED DECEMBER 31 ($ millions) 2001 2000 1999 - ------------------------------------------------------------------ Direct premiums $ 969 $ 963 $ 976 Reinsurance assumed 14 14 12 Reinsurance ceded (189) (163) (107) - ------------------------------------------------------------------ TOTAL PREMIUMS $ 794 $ 814 $ 881 - ------------------------------------------------------------------
Reinsurance recoveries on ceded reinsurance contracts were $204, $187, and $33 during 2001, 2000 and 1999, respectively. 14. CONTINGENCIES & COMMITMENTS The Company and its subsidiaries are subject to legal actions arising in the ordinary course of business. These legal actions are not expected to have a material adverse effect on the consolidated financial position of the Company. During the year, the Company entered into an office ground lease agreement, which expires on September 20, 2096. The terms of the lease provide for adjustments in future periods with the minimum aggregate rental commitments for the next five years as follows: $0 for 2002 and 2003, and $2 for 2004 and thereafter. There was no other material operating leases in existence as at the end of 2001. 15. SUBSEQUENT EVENT Effective on January 1, 2002, all of the operations of MRC and all of the operations of MNA were merged with and into the operations of ManUSA. On the same day, all of the inforce operations of MLA were transferred to the Company by way of an assumption reinsurance agreement and dividend declarations. As a result of this reorganization, products previously sold and administered under the name of MRC, MNA, and MLA are now offered and administered under the name of ManUSA. Under the new organizational structure, surplus of the Company would increase by approximately $369. Also on January 1, 2002, the operations of Manulife-Wood Logan Holding Co., Inc., Manulife Wood Logan, Inc., and Manulife Holding Corporation, all subsidiaries of ManUSA, were liquidated into the Company. 25 MANUFACTURERS LIFE INSURANCE COMPANY OF AMERICA SEPARATE ACCOUNT FOUR Audited Financial Statements Years ended December 31, 2001 and 2000 with Report of Independent Auditors The Manufacturers Life Insurance Company of America Separate Account Four Audited Financial Statements Years ended December 31, 2001 and 2000 CONTENTS Report of Independent Auditors.............................................. 1 Audited Financial Statements Statement of Assets and Contract Owners' Equity............................. 2 Statements of Operations and Changes in Contract Owners' Equity............. 4 Notes to Financial Statements............................................... 28
Report of Independent Auditors To the Contract Owners of The Manufacturers Life Insurance Company of America Separate Account Four We have audited the accompanying statement of assets and contract owners' equity of The Manufacturers Life Insurance Company of America Separate Account Four as of December 31, 2001 and the related statements of operations and changes in contract owners' equity for each of the periods presented herein. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Manufacturers Life Insurance Company of America Separate Account Four at December 31, 2001, and the results of its operations and the changes in its contract owners' equity for each of the periods presented herein, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP Philadelphia, Pennsylvania February 1, 2002 1 The Manufacturers Life Insurance Company of America Separate Account Four Statement of Assets and Contract Owners' Equity December 31, 2001 ASSETS Investments at fair value: Sub-Accounts: Aggressive Growth Trust - 386,808 shares (cost $6,328,895) $ 5,113,597 All Cap Growth Trust - 690,486 shares (cost $12,297,360) 10,184,673 All Cap Value Trust - 1,189 shares (cost $13,765) 14,993 Balanced Trust - 2,326,158 shares (cost $40,441,491) 31,589,231 Blue Chip Growth Trust - 2,287,045 shares (cost $41,792,842) 36,203,915 Capital Appreciation Trust - 4,125 shares (cost $34,491) 36,920 Capital Opportunities Trust - 9,041 shares (cost $95,770) 96,738 Diversified Bond Trust - 694,517 shares (cost $7,194,754) 7,354,939 Dynamic Growth Trust - 101,599 shares (cost $562,039) 483,613 Emerging Small Company Trust - 2,422,821 shares (cost $63,525,234) 63,138,723 Equity Income Trust - 1,003,947 shares (cost $15,291,972) 15,189,718 Equity Index Trust - 2,719,033 shares (cost $43,570,921) 38,066,462 Financial Services Trust - 8,343 shares (cost $99,286) 97,034 Fundamental Value Trust - 21,246 shares (cost $251,275) 249,216 Global Bond Trust - 135,000 shares (cost $1,564,259) 1,549,796 Global Equity Trust - 241,605 shares (cost $3,659,938) 3,140,867 Growth Trust - 896,070 shares (cost $16,851,535) 12,500,179 Growth and Income Trust - 1,121,979 shares (cost $30,767,466) 26,826,511 Health Sciences Trust - 11,149 shares (cost $141,500) 150,957 High Yield Trust - 504,044 shares (cost $5,499,318) 4,979,952 Income and Value Trust - 973,086 shares (cost $9,766,277) 9,857,366 International Index Trust - 23,136 shares (cost $225,165) 197,118 International Small Cap Trust - 208,484 shares (cost $2,999,214) 2,355,865 International Stock Trust - 1,333,849 shares (cost $15,899,439) 12,791,612 International Value Trust - 204,439 shares (cost $2,339,354) 2,154,783 Internet Technologies Trust - 32,132 shares (cost $151,037) 121,782 Investment Quality Bond Trust - 1,741,260 shares (cost $20,338,818) 20,633,935 Large Cap Growth Trust - 750,645 shares (cost $9,054,560) 7,423,884 Lifestyle Aggressive 1000 Trust - 62,302 shares (cost $758,704) 644,205 Lifestyle Balanced 640 Trust - 512,591 shares (cost $6,368,184) 6,058,824 Lifestyle Conservative 280 Trust - 289,659 shares (cost $3,668,226) 3,748,192 Lifestyle Growth 820 Trust - 116,988 shares (cost $1,513,947) 1,316,120 Lifestyle Moderate 460 Trust - 67,474 shares (cost $814,360) 817,107 Mid Cap Growth Trust - 17,588 shares (cost $183,201) 184,149 Mid Cap Index Trust - 82,123 shares (cost $979,348) 1,052,814 Mid Cap Opportunities Trust - 561 shares (cost $5,414) 5,945 Mid Cap Stock Trust - 70,834 shares (cost $726,889) 762,884 Mid Cap Value Trust - 10,264 shares (cost $129,337) 134,052 Money Market Trust - 4,081,789 shares (cost $40,817,893) 40,817,893 Overseas Trust - 357,202 shares (cost $3,637,393) 3,057,649 Pacific Rim Emerging Markets Trust - 601,405 shares (cost $4,771,826) 3,999,341 Quantitative Equity Trust - 1,926,285 shares (cost $43,451,109) 33,132,109 Real Estate Securities Trust - 1,276,367 shares (cost $20,144,142) 19,809,218 Science and Technology Trust - 2,314,164 shares (cost $44,277,830) 29,690,730 Small Cap Index Trust - 60,914 shares (cost $683,916) 687,114 Small Company Blend Trust - 289,502 shares (cost $3,075,230) 3,178,735 Small Company Value Trust - 387,669 shares (cost $4,910,100) 5,349,826 Strategic Bond Trust - 265,862 shares (cost $2,821,008) 2,855,362 Strategic Growth Trust - 68,667 shares (cost $713,778) 756,713 Strategic Opportunities Trust - 775,796 shares (cost $11,435,961) 9,806,062
2 The Manufacturers Life Insurance Company of America Separate Account Four Statement of Assets and Contract Owners' Equity December 31, 2001 ASSETS (CONTINUED) Investments at fair value: Sub-Accounts: Tactical Allocation Trust - 8,228 shares (cost $82,477) $ 82,609 Telecommunications Trust - 3,280 shares (cost $29,957) 26,007 Total Return Trust - 1,495,346 shares (cost $20,200,102) 20,755,404 Total Stock Market Index Trust - 311,559 shares (cost $3,090,804) 3,050,162 U.S. Government Securities Trust - 728,328 shares (cost $9,865,108) 9,992,662 U.S. Large Cap Value Trust - 277,970 shares (cost $3,544,430) 3,505,205 Utilities Trust - 5,387 shares (cost $58,804) 50,102 Value Trust - 727,644 shares (cost $11,416,562) 11,984,303 500 Index Trust - 94,297 shares (cost $955,534) 925,055 ------------ Total assets $530,740,932 ============ CONTRACT OWNERS' EQUITY Variable universal life contracts $530,740,932 ============
See accompanying notes. 3 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity
SUB-ACCOUNT --------------------------------------------------------------------- AGGRESSIVE GROWTH ALL CAP GROWTH TRUST TRUST --------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 --------------------------------------------------------------------- Income: Dividends $ - $ - $ 489,935 $ 494,609 Expenses: Mortality and expense risks, and administrative charges 30,923 19,680 58,611 52,700 --------------------------------------------------------------------- Net investment income (loss) during the year (30,923) (19,680) 431,324 441,909 Net realized gain (loss) during the year (1,009,845) 445,778 (1,957,906) 719,966 Unrealized appreciation (depreciation) during the year (447,976) (1,051,671) (782,386) (2,675,835) --------------------------------------------------------------------- Net increase (decrease) in assets from operations (1,488,744) (625,573) (2,308,968) (1,513,960) --------------------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 1,994,041 2,017,555 4,577,444 2,987,565 Transfer on terminations (351,908) (153,979) (691,667) (565,315) Transfer on policy loans (14,639) (1,889) (6,541) (36,214) Net interfund transfers (399,032) 3,035,625 (179,674) 2,348,259 --------------------------------------------------------------------- Net increase (decrease) in assets from principal transactions 1,228,462 4,897,312 3,699,562 4,734,295 --------------------------------------------------------------------- Total increase (decrease) in assets (260,282) 4,271,739 1,390,594 3,220,335 Assets beginning of year 5,373,879 1,102,140 8,794,079 5,573,744 --------------------------------------------------------------------- Assets end of year $ 5,113,597 $ 5,373,879 $ 10,184,673 $ 8,794,079 =====================================================================
* Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. See accompanying notes. 4
SUB-ACCOUNT - ----------------------------------------------------------------------------------------------------------- CAPITAL ALL CAP VALUE BLUE CHIP APPRECIATION TRUST BALANCED TRUST GROWTH TRUST TRUST - ----------------------------------------------------------------------------------------------------------- PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/01* DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 DEC. 31/01* - ----------------------------------------------------------------------------------------------------------- $ 3 $ 824,561 $ 2,142,690 $ 2,891,977 $ 1,437,390 $ - 33 231,900 306,448 223,162 225,515 72 - ----------------------------------------------------------------------------------------------------------- (30) 592,661 1,836,242 2,668,815 1,211,875 (72) (55) (1,536,239) 1,164,938 (3,938,059) 2,219,612 (38) 1,228 (3,408,713) (7,426,525) (5,557,194) (5,137,526) 2,429 - ----------------------------------------------------------------------------------------------------------- 1,143 (4,352,291) (4,425,345) (6,826,438) (1,706,039) 2,319 - ----------------------------------------------------------------------------------------------------------- 7,951 3,910,908 5,624,260 10,181,726 13,245,945 742 (2,313) (4,011,328) (5,659,955) (2,506,721) (1,872,424) (613) -- 177,394 (208,941) (94,393) 13 -- 8,212 (4,924,849) (7,469,583) (3,947,656) (3,545,368) 34,472 - ----------------------------------------------------------------------------------------------------------- 13,850 (4,847,875) (7,714,219) 3,632,956 7,828,166 34,601 - ----------------------------------------------------------------------------------------------------------- 14,993 (9,200,166) (12,139,564) (3,193,482) 6,122,127 36,920 -- 40,789,397 52,928,961 39,397,397 33,275,270 -- - ----------------------------------------------------------------------------------------------------------- $ 14,993 $ 31,589,231 $ 40,789,397 $ 36,203,915 $ 39,397,397 $ 36,920 ===========================================================================================================
5 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT ----------------------------------------------- CAPITAL OPPORTUNITIES TRUST DIVERSIFIED BOND TRUST ----------------------------------------------- PERIOD ENDED YEAR ENDED YEAR ENDED DEC. 31/01* DEC. 31/01 DEC. 31/00 ----------------------------------------------- Income: Dividends $ -- $ 171,518 $ 128,166 Expenses: Mortality and expense risks, and administrative charges 38 33,185 13,735 ----------------------------------------------- Net investment income (loss) during the year (38) 138,333 114,431 Net realized gain (loss) during the year (6) 208,420 (85,540) Unrealized appreciation (depreciation) during the year 968 (22,621) 229,671 ----------------------------------------------- Net increase (decrease) in assets from operations 924 324,132 258,562 ----------------------------------------------- Changes from principal transactions: Transfer of net premiums 70,779 2,249,690 1,199,817 Transfer on terminations 8 (373,603) (244,178) Transfer on policy loans -- 4,226 (55,670) Net interfund transfers 25,027 1,492,097 1,131,179 ----------------------------------------------- Net increase (decrease) in assets from principal transactions 95,814 3,372,410 2,031,148 ----------------------------------------------- Total increase (decrease) in assets 96,738 3,696,542 2,289,710 Assets beginning of year -- 3,658,397 1,368,687 ----------------------------------------------- Assets end of year $ 96,738 $ 7,354,939 $ 3,658,397 ===============================================
* Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. ** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 6
SUB-ACCOUNT - ----------------------------------------------------------------------------------------------------------- DYNAMIC GROWTH TRUST EMERGING SMALL COMPANY TRUST EQUITY INCOME TRUST - ----------------------------------------------------------------------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00** DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 - ----------------------------------------------------------------------------------------------------------- $ 1,375 $ -- $ 2,633,803 $ 8,896,969 $ 1,021,642 $ 1,215,240 3,105 1,202 404,110 594,318 70,343 52,959 - ----------------------------------------------------------------------------------------------------------- (1,730) (1,202) 2,229,693 8,302,651 951,299 1,162,281 (232,608) (126,482) (1,598,919) 7,060,851 (379,962) (999,933) 25,490 (103,916) (18,801,456) (19,474,370) (471,797) 598,947 - ----------------------------------------------------------------------------------------------------------- (208,848) (231,600) (18,170,682) (4,110,868) 99,540 761,295 - ----------------------------------------------------------------------------------------------------------- 330,311 91,367 8,684,233 10,826,056 3,588,138 3,091,072 (14,841) (13,110) (6,650,831) (10,744,665) (1,052,237) (1,003,040) -- -- 56,171 (877,506) (12,159) 1,625 106,745 423,589 (1,296,935) 1,815,857 4,709,257 (4,746,166) - ----------------------------------------------------------------------------------------------------------- 422,215 501,846 792,638 1,019,742 7,232,999 (2,656,509) - ----------------------------------------------------------------------------------------------------------- 213,367 270,246 (17,378,044) (3,091,126) 7,332,539 (1,895,214) 270,246 -- 80,516,767 83,607,893 7,857,179 9,752,393 - ----------------------------------------------------------------------------------------------------------- $ 483,613 $ 270,246 $ 63,138,723 $ 80,516,767 $ 15,189,718 $ 7,857,179 ===========================================================================================================
7 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT --------------------------------------------------------------------- FINANCIAL FUNDAMENTAL EQUITY INDEX TRUST SERVICES TRUST VALUE TRUST --------------------------------------------------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01* DEC. 31/01* --------------------------------------------------------------------- Income: Dividends $ 949,563 $ 117,514 $ 27 $ -- Expenses: Mortality and expense risks, and administrative charges 226,505 258,059 224 629 --------------------------------------------------------------------- Net investment income (loss) during the year 723,058 (140,545) (197) (629) Net realized gain (loss) during the year (2,185,633) 3,003,549 (365) (864) Unrealized appreciation (depreciation) during the year (3,730,659) (7,096,700) (2,252) (2,058) --------------------------------------------------------------------- Net increase (decrease) in assets from operations (5,193,234) (4,233,696) (2,814) (3,551) --------------------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 10,652,620 16,333,867 7,461 6,839 Transfer on terminations (2,620,619) (2,849,902) (4,231) (10,780) Transfer on policy loans 4,330 (154,116) (7) (22) Net interfund transfers (4,523,947) (7,052,953) 96,625 256,730 --------------------------------------------------------------------- Net increase (decrease) in assets from principal transactions 3,512,384 6,276,896 99,848 252,767 --------------------------------------------------------------------- Total increase (decrease) in assets (1,680,850) 2,043,200 97,034 249,216 Assets beginning of year 39,747,312 37,704,112 -- -- --------------------------------------------------------------------- Assets end of year $ 38,066,462 $ 39,747,312 $ 97,034 $ 249,216 =====================================================================
* Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. See accompanying notes. 8
SUB-ACCOUNT - ----------------------------------------------------------------------------------------------------------- GLOBAL BOND TRUST GLOBAL EQUITY TRUST GROWTH TRUST - ----------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 - ----------------------------------------------------------------------------------------------------------- $ -- $ 10,543 $ 507,908 $ 327,718 $ -- $ 1,357,936 3,839 3,171 21,029 19,023 81,450 97,447 - ----------------------------------------------------------------------------------------------------------- (3,839) 7,372 486,879 308,695 (81,450) 1,260,489 (3,286) (30,994) (372,435) (199,982) (4,937,416) 594,711 (12,426) 2,851 (770,710) 234,915 1,754,564 (7,421,452) - ----------------------------------------------------------------------------------------------------------- (19,551) (20,771) (656,266) 343,628 (3,264,302) (5,566,252) - ----------------------------------------------------------------------------------------------------------- 285,976 139,169 765,943 1,194,857 5,168,717 7,922,560 (27,911) (34,333) (263,724) (226,935) (941,752) (1,151,699) (4,217) (10,712) (1,252) (40,108) (24,960) (59,763) 916,262 2,695 (238,659) (910,286) (3,675,443) 6,325,216 - ----------------------------------------------------------------------------------------------------------- 1,170,110 96,819 262,308 17,528 526,562 13,036,314 - ----------------------------------------------------------------------------------------------------------- 1,150,559 76,048 (393,958) 361,156 (2,737,740) 7,470,062 399,237 323,189 3,534,825 3,173,669 15,237,919 7,767,857 - ----------------------------------------------------------------------------------------------------------- $ 1,549,796 $ 399,237 $ 3,140,867 $ 3,534,825 $ 12,500,179 $ 15,237,919 ===========================================================================================================
9 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT -------------------------------------------------- GROWTH AND INCOME HEALTH SCIENCES TRUST TRUST -------------------------------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01* -------------------------------------------------- Income: Dividends $ 1,481,575 $ 1,677,174 $ -- Expenses: Mortality and expense risks, and administrative charges 163,695 178,922 299 -------------------------------------------------- Net investment income (loss) during the year 1,317,880 1,498,252 (299) Net realized gain (loss) during the year (1,909,561) 2,196,121 (131) Unrealized appreciation (depreciation) during the year (2,671,541) (5,943,252) 9,457 -------------------------------------------------- Net increase (decrease) in assets from operations (3,263,222) (2,248,879) 9,027 -------------------------------------------------- Changes from principal transactions: Transfer of net premiums 7,197,987 7,793,636 44,675 Transfer on terminations (2,783,042) (3,678,743) (4,643) Transfer on policy loans (56,065) (14,763) (8) Net interfund transfers (1,383,997) (4,080,097) 101,906 -------------------------------------------------- Net increase (decrease) in assets from principal transactions 2,974,883 20,033 141,930 -------------------------------------------------- Total increase (decrease) in assets (288,339) (2,228,846) 150,957 Assets beginning of year 27,114,850 29,343,696 -- -------------------------------------------------- Assets end of year $ 26,826,511 $ 27,114,850 $ 150,957 ==================================================
*Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. ** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 10
SUB-ACCOUNT - ----------------------------------------------------------------------------------------------------- INCOME & VALUE INTERNATIONAL INDEX HIGH YIELD TRUST TRUST TRUST - ----------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00** - ----------------------------------------------------------------------------------------------------- $ 364,655 $ 13,566 $ 313,451 $ 952,189 $ 2,308 $ 624 24,364 25,447 47,256 31,429 1,201 85 - ----------------------------------------------------------------------------------------------------- 340,291 (11,881) 266,195 920,760 1,107 539 (426,272) (127,211) (559,898) (302,448) 19,590 (309) (124,780) (253,583) 489,673 (418,733) (25,006) (3,041) - ----------------------------------------------------------------------------------------------------- (210,761) (392,675) 195,970 199,579 (4,309) (2,811) - ----------------------------------------------------------------------------------------------------- 1,463,073 1,396,133 2,927,089 2,354,495 41,657 3,789 (318,463) (236,289) (507,821) (379,895) 1,461 (599) (12,792) (11,335) (2,345) (80,612) -- -- 18,333 (172,527) 998,546 710,007 113,831 44,099 - ----------------------------------------------------------------------------------------------------- 1,150,151 975,982 3,415,469 2,603,995 156,949 47,289 - ----------------------------------------------------------------------------------------------------- 939,390 583,307 3,611,439 2,803,574 152,640 44,478 4,040,562 3,457,255 6,245,927 3,442,353 44,478 -- - ----------------------------------------------------------------------------------------------------- $ 4,979,952 $ 4,040,562 $ 9,857,366 $ 6,245,927 $ 197,118 $ 44,478 =====================================================================================================
11 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT --------------------------------------------------------------------- INTERNATIONAL SMALL CAP INTERNATIONAL STOCK TRUST TRUST --------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 --------------------------------------------------------------------- Income: Dividends $ -- $ 694,416 $ 724,688 $ 84,131 Expenses: Mortality and expense risks, and administrative charges 19,248 23,770 85,559 110,826 --------------------------------------------------------------------- Net investment income (loss) during the year (19,248) 670,646 639,129 (26,695) Net realized gain (loss) during the year (2,445,760) (138,612) (2,874,694) 571,024 Unrealized appreciation (depreciation) during the year 1,133,243 (2,406,462) (1,742,352) (3,695,939) --------------------------------------------------------------------- Net increase (decrease) in assets from operations (1,331,765) (1,874,428) (3,977,917) (3,151,610) --------------------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 1,124,796 1,799,696 3,455,803 5,040,119 Transfer on terminations (291,278) (347,872) (1,140,441) (1,565,059) Transfer on policy loans (2,399) (2,578) 18,665 22,239 Net interfund transfers (1,382,848) 2,678,076 (3,182,024) 720,414 --------------------------------------------------------------------- Net increase (decrease) in assets from principal transactions (551,729) 4,127,322 (847,997) 4,217,713 --------------------------------------------------------------------- Total increase (decrease) in assets (1,883,494) 2,252,894 (4,825,914) 1,066,103 Assets beginning of year 4,239,359 1,986,465 17,617,526 16,551,423 --------------------------------------------------------------------- Assets end of year $ 2,355,865 $ 4,239,359 $ 12,791,612 $ 17,617,526 =====================================================================
** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 12
SUB-ACCOUNT - ----------------------------------------------------------------------------------------------------------- INTERNATIONAL VALUE INTERNET TECHNOLOGIES INVESTMENT QUALITY BOND TRUST TRUST TRUST - ----------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00** DEC. 31/01 DEC. 31/00 - ----------------------------------------------------------------------------------------------------------- $ 51,943 $ 17,130 $ -- $ -- $ 1,038,232 $ 1,309,195 12,480 15,330 534 707 117,157 109,903 - ----------------------------------------------------------------------------------------------------------- 39,463 1,800 (534) (707) 921,075 1,199,292 (136,918) (106,248) (105,359) (62,279) 56,285 (240,339) (109,824) (114,496) 57,990 (87,244) 120,363 437,793 - ----------------------------------------------------------------------------------------------------------- (207,279) (218,944) (47,903) (150,230) 1,097,723 1,396,746 - ----------------------------------------------------------------------------------------------------------- 767,659 1,289,123 39,504 69,573 2,162,620 2,734,616 (91,002) (134,761) (51,889) (805) (1,810,385) (2,078,469) (2,127) 7,727 38,672 (40,607) (59,787) 27,427 (156,513) 406,659 11,323 254,144 2,956,184 (4,994,725) - ----------------------------------------------------------------------------------------------------------- 518,017 1,568,748 37,610 282,305 3,248,632 (4,311,151) - ----------------------------------------------------------------------------------------------------------- 310,738 1,349,804 (10,293) 132,075 4,346,355 (2,914,405) 1,844,045 494,241 132,075 -- 16,287,580 19,201,985 - ----------------------------------------------------------------------------------------------------------- $ 2,154,783 $ 1,844,045 $ 121,782 $ 132,075 $ 20,633,935 $ 16,287,580 ===========================================================================================================
13 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT ----------------------------------------------------------------- LARGE CAP GROWTH LIFESTYLE AGGRESSIVE 1000 TRUST TRUST ----------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 ----------------------------------------------------------------- Income: Dividends $ 295,174 $ 933,644 $ 48,963 $ 37,648 Expenses: Mortality and expense risks, and administrative charges 46,931 42,374 4,132 4,794 ----------------------------------------------------------------- Net investment income (loss) during the year 248,243 891,270 44,831 32,854 Net realized gain (loss) during the year (1,527,720) 236,149 (22,918) 14,597 Unrealized appreciation (depreciation) during the year (209,087) (2,285,423) (125,118) (84,082) ----------------------------------------------------------------- Net increase (decrease) in assets from operations (1,488,564) (1,158,004) (103,205) (36,631) ----------------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 2,254,611 3,140,695 231,142 71,415 Transfer on terminations (668,625) (990,185) (81,277) (84,132) Transfer on policy loans (8,444) (60,521) (33,421) (692) Net interfund transfers 151,119 286,718 (42,839) (82,072) ----------------------------------------------------------------- Net increase (decrease) in assets from principal transactions 1,728,661 2,376,707 73,605 (95,481) ----------------------------------------------------------------- Total increase (decrease) in assets 240,097 1,218,703 (29,600) (132,112) Assets beginning of year 7,183,787 5,965,084 673,805 805,917 ----------------------------------------------------------------- Assets end of year $ 7,423,884 $ 7,183,787 $ 644,205 $ 673,805 =================================================================
See accompanying notes. 14
SUB-ACCOUNT - ----------------------------------------------------------------------------------------------------- LIFESTYLE BALANCED 640 LIFESTYLE CONSERVATIVE 280 LIFESTYLE GROWTH 820 TRUST TRUST TRUST - ----------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 - ----------------------------------------------------------------------------------------------------- $ 331,915 $ 89,487 $ 18,155 $ 29,153 $ 138,327 $ 149,038 29,162 14,134 8,121 2,482 10,035 11,827 - ----------------------------------------------------------------------------------------------------- 302,753 75,353 10,034 26,671 128,292 137,211 (136,989) 51,498 4,995 (10,067) (137,729) 46,233 (249,686) (151,961) 66,747 5,241 (157,193) (248,793) - ----------------------------------------------------------------------------------------------------- (83,922) (25,110) 81,776 21,845 (166,630) (65,349) - ----------------------------------------------------------------------------------------------------- 371,326 2,347,394 187,412 31,809 677,808 600,657 (362,681) (156,204) (138,365) (102,927) (251,621) (179,618) 348 (51,653) 57,345 (56,838) (18,770) (27,215) 2,286,328 167,632 3,266,336 (92,469) (434,872) (756,569) - ----------------------------------------------------------------------------------------------------- 2,295,321 2,307,169 3,372,728 (220,425) (27,455) (362,745) - ----------------------------------------------------------------------------------------------------- 2,211,399 2,282,059 3,454,504 (198,580) (194,085) (428,094) 3,847,425 1,565,366 293,688 492,268 1,510,205 1,938,299 - ----------------------------------------------------------------------------------------------------- $ 6,058,824 $ 3,847,425 $ 3,748,192 $ 293,688 $ 1,316,120 $ 1,510,205 =====================================================================================================
15 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT --------------------------------------------- MID CAP GROWTH LIFESTYLE MODERATE 460 TRUST TRUST --------------------------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01* --------------------------------------------- Income: Dividends $ 45,549 $ 5,907 $ -- Expenses: Mortality and expense risks, and administrative charges 4,531 917 280 --------------------------------------------- Net investment income (loss) during the year 41,018 4,990 (280) Net realized gain (loss) during the year (48,000) 1,296 (668) Unrealized appreciation (depreciation) during the year 3,455 (4,375) 948 --------------------------------------------- Net increase (decrease) in assets from operations (3,527) 1,911 -- --------------------------------------------- Changes from principal transactions: Transfer of net premiums 299,371 391,104 2,160 Transfer on terminations (27,261) (34,414) (5,328) Transfer on policy loans (1,577) 1,146 (13) Net interfund transfers 255,068 (425,840) 187,330 --------------------------------------------- Net increase (decrease) in assets from principal transactions 525,601 (68,004) 184,149 --------------------------------------------- Total increase (decrease) in assets 522,074 (66,093) 184,149 Assets beginning of year 295,033 361,126 -- --------------------------------------------- Assets end of year $ 817,107 $ 295,033 $ 184,149 =============================================
* Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. ** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes 16
SUB-ACCOUNT - ------------------------------------------------------------------------------------------ MID CAP OPPORTUNITIES MID CAP INDEX TRUST TRUST MID CAP STOCK TRUST - ------------------------------------------------------------------------------------------ YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00** DEC. 31/01* DEC. 31/01 DEC. 31/00 - ------------------------------------------------------------------------------------------ $ 6,646 $ 4,817 $ - $ - $ - 2,477 252 9 3,662 2,347 - ------------------------------------------------------------------------------------------ 4,169 4,565 (9) (3,662) (2,347) (8,484) 167 (86) (45,762) (13,526) 79,350 (5,883) 531 40,189 (2,643) - ------------------------------------------------------------------------------------------ 75,035 (1,151) 436 (9,235) (18,516) - ------------------------------------------------------------------------------------------ 165,037 3,514 11,097 290,579 106,206 (15,787) (1,484) (299) (46,475) (21,708) -- -- -- (775) (223) 583,037 244,613 (5,289) 148,323 133,861 - ------------------------------------------------------------------------------------------ 732,287 246,643 5,509 391,652 218,136 - ------------------------------------------------------------------------------------------ 807,322 245,492 5,945 382,417 199,620 245,492 -- -- 380,467 180,847 - ------------------------------------------------------------------------------------------ $ 1,052,814 $ 245,492 $ 5,945 $ 762,884 $ 380,467 ==========================================================================================
17 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT -------------------------------------------------------- MID CAP VALUE TRUST MONEY MARKET TRUST -------------------------------------------------------- PERIOD ENDED YEAR ENDED YEAR ENDED DEC. 31/01* DEC. 31/01 DEC. 31/00 -------------------------------------------------------- Income: Dividends $ 300 $ 1,406,181 $ 1,932,420 Expenses: Mortality and expense risks, and administrative charges 354 247,839 212,370 -------------------------------------------------------- Net investment income (loss) during the year (54) 1,158,342 1,720,050 Net realized gain (loss) during the year (121) -- -- Unrealized appreciation (depreciation) during the year 4,715 -- -- -------------------------------------------------------- Net increase (decrease) in assets from operations 4,540 1,158,342 1,720,050 -------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 4,757 15,914,531 19,729,086 Transfer on terminations (6,299) (4,138,780) (6,012,717) Transfer on policy loans -- 59,448 204,008 Net interfund transfers 131,054 (12,495,921) (3,132,123) -------------------------------------------------------- Net increase (decrease) in assets from principal transactions 129,512 (660,722) 10,788,254 -------------------------------------------------------- Total increase (decrease) in assets 134,052 497,620 12,508,304 Assets beginning of year -- 40,320,273 27,811,969 -------------------------------------------------------- Assets end of year $ 134,052 $ 40,817,893 $ 40,320,273 ========================================================
* Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. See accompanying notes. 18
SUB-ACCOUNT - ---------------------------------------------------------------------------------------------------------------------------- PACIFIC RIM EMERGING OVERSEAS TRUST MARKETS TRUST QUANTITATIVE EQUITY TRUST - ---------------------------------------------------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 - ---------------------------------------------------------------------------------------------------------------------------- $ 280,476 $ 118,152 $ 17,876 $ 20,741 $ 5,763,630 $ 5,932,623 19,262 12,911 28,589 35,497 245,827 309,403 - ---------------------------------------------------------------------------------------------------------------------------- 261,214 105,241 (10,713) (14,756) 5,517,803 5,623,220 (947,613) (59,142) (544,084) (85,747) 3,969 2,793,944 (133,134) (565,259) (363,220) (1,449,,544) (16,124,132) (5,866,904) - ---------------------------------------------------------------------------------------------------------------------------- (819,533) (519,160) (918,017) (1,550,047) (10,602,360) 2,550,260 - ---------------------------------------------------------------------------------------------------------------------------- 1,825,852 2,381,221 893,495 1,893,650 3,856,667 3,739,616 (172,669) (239,365) (370,974) (669,458) (4,824,890) (4,929,423) (1,045) (2,019) 9,636 (17,017) (204,485) (344,939) (707,543) 753,735 (753,963) 19,115 (1,271,560) (605,234) - ---------------------------------------------------------------------------------------------------------------------------- 944,595 2,893,572 (221,806) 1,226,290 (2,444,268) (2,139,980) - ---------------------------------------------------------------------------------------------------------------------------- 125,062 2,374,412 (1,139,823) (323,757) (13,046,628) 410,280 2,932,587 558,175 5,139,164 5,462,921 46,178,737 45,768,457 - ---------------------------------------------------------------------------------------------------------------------------- $ 3,057,649 $ 2,932,587 $ 3,999,341 $ 5,139,164 $ 33,132,109 $ 46,178,737 ============================================================================================================================
19 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT -------------------------------------------------------------------------------- REAL ESTATE SECURITIES SCIENCE & TECHNOLOGY TRUST TRUST -------------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 ------------------------------------------------------------------------------ Income: Dividends $ 565,952 $ 548,910 $ 2,074,187 $ 1,118,209 Expenses: Mortality and expense risks, and administrative charges 114,582 96,131 208,115 308,316 ------------------------------------------------------------------------------ Net investment income (loss) during the year 451,370 452,779 1,866,072 809,893 Net realized gain (loss) during the year 15,488 (373,361) (23,439,867) 6,027,471 Unrealized appreciation (depreciation) during the year 23,813 3,308,154 799,159 (27,894,294) ------------------------------------------------------------------------------ Net increase (decrease) in assets from operations 490,671 3,387,572 (20,774,636) (21,056,930) ------------------------------------------------------------------------------ Changes from principal transactions: Transfer of net premiums 2,354,244 1,902,266 15,791,038 23,717,592 Transfer on terminations (2,137,436) (1,529,570) (2,038,794) (3,000,348) Transfer on policy loans (128,228) (152,860) 7,147 (129,110) Net interfund transfers 2,063,609 (473,949) (5,452,439) 7,234,394 -------------------------------------------------------------------------------- Net increase (decrease) in assets from principal transactions 2,152,189 (254,113) 8,306,952 27,822,528 ------------------------------------------------------------------------------ Total increase (decrease) in assets 2,642,860 3,133,459 (12,467,684) 6,765,598 Assets beginning of year 17,166,358 14,032,899 42,158,414 35,392,816 ------------------------------------------------------------------------------ Assets end of year $ 19,809,218 $ 17,166,358 $ 29,690,730 $ 42,158,414 ================================================================================
** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 20
SUB-ACCOUNT - --------------------------------------------------------------------------------------------------------------------- SMALL CAP INDEX SMALL COMPANY BLEND SMALL COMPANY VALUE TRUST TRUST TRUST - --------------------------------------------------------------------------------------------------------------------- YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00** DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 - --------------------------------------------------------------------------------------------------------------------- $ 10,858 $ 1,534 $ 9,171 $ 133,872 $ 6,135 $ 2,007 1,175 58 14,376 5,510 21,354 11,945 - --------------------------------------------------------------------------------------------------------------------- 9,683 1,476 (5,205) 128,362 (15,219) (9,938) (22,401) 75 (529,157) 24,165 56,062 64,625 5,971 (2,773) 632,730 (568,390) 255,780 82,411 - --------------------------------------------------------------------------------------------------------------------- (6,747) (1,222) 98,368 (415,863) 296,623 137,098 - --------------------------------------------------------------------------------------------------------------------- 108,743 4,377 979,340 661,522 1,135,468 1,025,807 (5,551) (373) (102,979) (31,361) (194,581) (79,835) (630) -- (1,125) (10,610) (10,873) (11,079) 547,601 40,916 870,424 894,978 1,662,081 262,214 - --------------------------------------------------------------------------------------------------------------------- 650,163 44,920 1,745,660 1,514,529 2,592,095 1,197,107 - --------------------------------------------------------------------------------------------------------------------- 643,416 43,698 1,844,028 1,098,666 2,888,718 1,334,205 43,698 -- 1,334,707 236,041 2,461,108 1,126,903 - --------------------------------------------------------------------------------------------------------------------- $ 687,114 $ 43,698 $ 3,178,735 $ 1,334,707 $ 5,349,826 $ 2,461,108 =====================================================================================================================
21 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT ------------------------------------------------------ STRATEGIC STRATEGIC BOND TRUST GROWTH TRUST ------------------------------------------------------ YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01* ------------------------------------------------------ Income: Dividends $ 80,052 $ 85,997 $ - Expenses: Mortality and expense risks, and administrative charges 11,568 6,711 1,198 ------------------------------------------------------ Net investment income (loss) during the year 68,484 79,286 (1,198) Net realized gain (loss) during the year (24,852) (41,693) (1,048) Unrealized appreciation (depreciation) during the year 36,476 28,826 42,935 ------------------------------------------------------ Net increase (decrease) in assets from operations 80,108 66,419 40,689 ------------------------------------------------------ Changes from principal transactions: Transfer of net premiums 270,389 134,439 14,734 Transfer on terminations (93,614) (42,241) 7,320 Transfer on policy loans (51,468) (3,131) -- Net interfund transfers 1,620,314 (404,574) 693,970 ------------------------------------------------------ Net increase (decrease) in assets from principal transactions 1,745,621 (315,507) 716,024 ------------------------------------------------------ Total increase (decrease) in assets 1,825,729 (249,088) 756,713 Assets beginning of year 1,029,633 1,278,721 -- ------------------------------------------------------ Assets end of year $ 2,855,362 $ 1,029,633 $ 756,713 =====================================================
* Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. See accompanying notes. 22
SUB-ACCOUNT - -------------------------------------------------------------------------- TACTICAL TELECOMMUNICATIONS STRATEGIC OPPORTUNITIES TRUST ALLOCATION TRUST TRUST - -------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/01* - -------------------------------------------------------------------------- $ 2,218,057 $ 1,408,900 $ 537 $ -- 92,932 81,796 185 70 - -------------------------------------------------------------------------- 2,125,125 1,327,104 352 (70) (5,224,037) (242,930) (10,966) (55) (449,024) (2,200,855) 132 (3,950) - -------------------------------------------------------------------------- (3,547,936) (1,116,681) (10,482) (4,075) - -------------------------------------------------------------------------- 5,381,675 3,657,647 12,503 55 (992,898) (2,369,868) (1,918) (249) 23,131 (79,984) -- -- (5,638,761) 5,347,608 82,506 30,276 - -------------------------------------------------------------------------- (1,226,853) 6,555,403 93,091 30,082 - -------------------------------------------------------------------------- (4,774,789) 5,438,722 82,609 26,007 14,580,851 9,142,129 -- -- - -------------------------------------------------------------------------- $ 9,806,062 $ 14,580,851 $ 82,609 $ 26,007 ==========================================================================
23 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT ------------------------------------------------------------------------------ TOTAL STOCK MARKET TOTAL RETURN TRUST INDEX TRUST ------------------------------------------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00** ------------------------------------------------------------------------------ Income: Dividends $ 234,318 $ 27,495 $ 24,546 $ 12,374 Expenses: Mortality and expense risks, and administrative charges 61,535 15,109 13,278 2,888 ------------------------------------------------------------------------------ Net investment income (loss) during the year 172,783 12,386 11,268 9,486 Net realized gain (loss) during the year 196,395 22,935 (318,709) (1,756) Unrealized appreciation (depreciation) during the year 277,899 277,035 99,910 (140,552) ------------------------------------------------------------------------------ Net increase (decrease) in assets from operations 647,077 312,356 (207,531) (132,822) ------------------------------------------------------------------------------ Changes from principal transactions: Transfer of net premiums 3,312,061 1,516,546 336,664 2,071 Transfer on terminations (359,550) (75,925) (100,895) (24,855) Transfer on policy loans (51,927) -- -- -- Net interfund transfers 12,577,035 2,577,623 1,698,661 1,478,869 ------------------------------------------------------------------------------ Net increase (decrease) in assets from principal transactions 15,477,619 4,018,244 1,934,430 1,456,085 ------------------------------------------------------------------------------ Total increase (decrease) in assets 16,124,696 4,330,600 1,726,899 1,323,263 Assets beginning of year 4,630,708 300,108 1,323,263 -- ------------------------------------------------------------------------------ Assets end of year $ 20,755,404 $ 4,630,708 $ 3,050,162 $ 1,323,263 ==============================================================================
* Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. ** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 24
SUB-ACCOUNT - ------------------------------------------------------------------------------------------------ U.S. GOVERNMENT SECURITIES U.S. LARGE CAP VALUE TRUST TRUST UTILITIES TRUST - ------------------------------------------------------------------------------------------------ YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00 DEC. 31/01* - ------------------------------------------------------------------------------------------------ $ 290,455 $ 162,231 $ 21,133 $ 7,307 $ 251 38,775 14,820 16,581 9,544 147 - ------------------------------------------------------------------------------------------------ 251,680 147,411 4,552 (2,237) 104 45,200 (46,024) (120,809) 67,805 (90) 28,056 123,103 (57,196) (30,733) (8,702) - ------------------------------------------------------------------------------------------------ 324,936 224,490 (173,453) 34,835 (8,688) - ------------------------------------------------------------------------------------------------ 1,522,630 491,787 1,960,789 659,231 394 (445,162) (463,269) (208,867) (95,636) (478) (27,403) (31,242) (5,424) 14,332 -- 6,043,832 (179,509) (126,044) 19,431 58,874 - ------------------------------------------------------------------------------------------------ 7,093,897 (182,233) 1,620,454 597,358 58,790 - ------------------------------------------------------------------------------------------------ 7,418,833 42,257 1,447,001 632,193 50,102 2,573,829 2,531,572 2,058,204 1,426,011 -- - ------------------------------------------------------------------------------------------------ $ 9,992,662 $ 2,573,829 $ 3,505,205 $ 2,058,204 $ 50,102 ================================================================================================
25 The Manufacturers Life Insurance Company of America Separate Account Four Statements of Operations and Changes in Contract Owners' Equity (continued)
SUB-ACCOUNT --------------------------------------------------------------------------- VALUE TRUST 500 INDEX TRUST --------------------------------------------------------------------------- YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED DEC. 31/01 DEC. 31/00 DEC. 31/01 DEC. 31/00** --------------------------------------------------------------------------- Income: Dividends $ 225,855 $ - $ 6,837 $ 512 Expenses: Mortality and expense risks, and administrative charges 52,453 24,109 2,267 397 --------------------------------------------------------------------------- Net investment income (loss) during the year 173,402 (24,109) 4,570 115 Net realized gain (loss) during the year 398,422 (100,839) (38,573) (2,289) Unrealized appreciation (depreciation) during the year (253,028) 1,097,226 (13,693) (16,787) --------------------------------------------------------------------------- Net increase (decrease) in assets from operations 318,796 972,278 (47,696) (18,961) --------------------------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 2,580,365 1,034,204 381,978 266,299 Transfer on terminations (540,089) (224,326) (35,458) (6,826) Transfer on policy loans 1,379 3,564 2,238 (21,009) Net interfund transfers 4,910,592 (394,919) 375,732 28,758 --------------------------------------------------------------------------- Net increase (decrease) in assets from principal transactions 6,952,247 418,523 724,490 267,222 --------------------------------------------------------------------------- Total increase (decrease) in assets 7,271,043 1,390,801 676,794 248,261 Assets beginning of year 4,713,260 3,322,459 248,261 -- --------------------------------------------------------------------------- Assets end of year $ 11,984,303 $ 4,713,260 $ 925,055 $ 248,261 ===========================================================================
** Reflects the period from commencement of operations May 2, 2000 through December 31, 2000. See accompanying notes. 26
TOTAL - ------------------------------------- YEAR ENDED YEAR ENDED DEC. 31/01 DEC. 31/00 - ------------------------------------- $ 27,590,700 $ 33,640,178 3,162,753 3,367,318 - ------------------------------------- 24,427,947 30,272,860 (58,758,141) 23,929,759 (50,836,713) (98,403,823) - ------------------------------------- (85,166,907) (44,201,204) - ------------------------------------- 134,837,297 156,665,425 (44,885,104) (54,308,095) (379,191) (2,312,875) (131,156) (132,679) - ------------------------------------- 89,441,846 99,911,776 - ------------------------------------- 4,274,939 55,710,572 526,465,993 470,755,421 - ------------------------------------- $ 530,740,932 $ 526,465,993 =====================================
27 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements December 31, 2001 1. ORGANIZATION The Manufacturers Life Insurance Company of America Separate Account Four (the Account) is a separate account established by the Manufacturers Life Insurance Company of America (the Company). The Account operates as a Unit Investment Trust under the Investment Company Act of 1940, as amended and invests in fifty-nine investment sub-accounts. Each investment sub-account invests solely in shares of a particular Manufacturers Investment Trust (Trust) portfolio. The Trust is an open-end management investment company, commonly known as a mutual fund, which is not offered to the public but sold only to insurance companies and their separate accounts as the underlying investment medium for variable contracts. The Account is a funding vehicle for allocation of net premiums under variable universal life insurance contracts (the Contracts) issued by the Company. The Account was established by the Company, a life insurance company organized in 1983 under Michigan law. The Company is an indirect, wholly owned subsidiary of The Manufacturers Life Insurance Company (Manulife Financial), a Canadian life insurance company. The Trust is registered under the Investment Company Act of 1940 as an open-end management investment company. The Company is required to maintain assets in the Account with a total fair value at least equal to the reserves and other liabilities relating to the variable benefits under all Contracts participating in the Account. These assets may not be charged with liabilities which arise from any other business the Company conducts. However, all obligations under the variable contracts are general corporate obligations of the Company. Additional assets are held in the Company's general account to cover the contingency that the guaranteed minimum death benefit might exceed the death benefit which would have been payable in the absence of such guarantee. As the result of portfolio changes, the following sub-accounts of the Account have been renamed as follows:
PREVIOUS NAME NEW NAME EFFECTIVE DATE ------------- -------- -------------- Mid Cap Blend Trust Strategic Opportunities Trust May 1, 2001 Mid Cap Growth Trust All Cap Growth Trust May 2, 2000
28 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 1. ORGANIZATION (CONTINUED) The following sub-accounts of the Account were added as investment options for variable universal life insurance contract holders of the Company:
COMMENCEMENT OF OPERATIONS OF THE SUB-ACCOUNTS ----------------------------- All Cap Value Trust May 1, 2001 Capital Appreciation Trust May 1, 2001 Capital Opportunities Trust May 1, 2001 Dynamic Growth Trust May 2, 2000 Financial Services Trust May 1, 2001 Fundamental Value Trust May 1, 2001 Health Sciences Trust May 1, 2001 International Index Trust May 2, 2000 Internet Technologies Trust May 2, 2000 Mid Cap Growth Trust May 1, 2001 Mid Cap Index Trust May 2, 2000 Mid Cap Opportunities Trust May 1, 2001 Mid Cap Value Trust May 1, 2001 Quantitative Mid Cap Trust May 1, 2001 Small Cap Index Trust May 2, 2000 Strategic Growth Trust May 1, 2001 Tactical Allocation Trust May 2, 2000 Telecommunications Trust May 1, 2001 Total Stock Market Index Trust May 2, 2000 Utilities Trust May 1, 2001 500 Index Trust May 2, 2000
2. SIGNIFICANT ACCOUNTING POLICIES Investments of each sub-account are made in the portfolios of the Trust and are valued at the reported net asset values of such portfolios, which value their investment securities at fair value. Transactions are recorded on the trade date. Income from dividends is recorded on the ex-dividend date. Realized gains and losses on the sales of investments are computed on the basis of the identified cost of the investment sold. 29 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In addition to the Account, a contract holder may also allocate funds to the Fixed Account, which is part of the Company's general account. Because of exemptive and exclusionary provisions, interests in the Fixed Account have not been registered under the Securities Act of 1933, and the Company's general account has not been registered as an investment company under the Investment Company Act of 1940. The operations of the Account are included in the federal income tax return of the Company, which is taxed as a life insurance company under the provisions of the Internal Revenue Code (the Code). Under the current provisions of the Code, the Company does not expect to incur federal income taxes on the earnings of the Account to the extent the earnings are credited under the Contracts. Based on this, no charge is being made currently to the Account for federal income taxes. The Company will review periodically the status of such decision based on changes in the tax law. Such a charge may be made in future years for any federal income taxes that would be attributable to the Contract. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that could affect the amounts reported herein. Actual results could differ from these estimates. 3. MORTALITY AND EXPENSE RISKS CHARGE The Company deducts from the assets of the Account a daily charge equivalent to annual rates between 0.40% and 0.65% of the average net value of the Account's assets for the assumption of mortality and expense risks. 4. CONTRACT CHARGES The Company deducts certain charges from gross premium before placing the remaining net premiums in the sub-account. In the event of a surrender, surrender charges may be made by the Company to cover sales expenses and administrative expenses associated with underwriting the policy issue. Each month a deduction consisting of an administration charge, a charge for cost of insurance and charges for supplementary benefits is deducted from the policy value. 30 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 5. PURCHASES AND SALES OF INVESTMENTS The cost of purchases and proceeds from sales of investments for the year ended December 31, 2001 were as follows:
PURCHASES SALES ----------- ----------- SUB-ACCOUNTS: Aggressive Growth Trust $ 3,476,333 $ 2,278,794 All Cap Growth Trust 8,557,561 4,426,675 All Cap Value Trust 17,954 4,134 Balanced Trust 5,412,161 9,667,374 Blue Chip Growth Trust 27,727,010 21,425,240 Capital Appreciation Trust 35,214 686 Capital Opportunities Trust 96,004 228 Diversified Bond Trust 7,558,684 4,047,942 Dynamic Growth Trust 2,218,605 1,798,120 Emerging Small Company Trust 23,371,135 20,348,803 Equity Income Trust 13,276,662 5,092,364 Equity Index Trust 25,891,942 21,656,500 Financial Services Trust 103,084 3,433 Fundamental Value Trust 260,391 8,252 Global Bond Trust 1,505,061 338,789 Global Equity Trust 2,611,134 1,861,947 Growth Trust 7,265,891 6,820,780 Growth and Income Trust 16,732,414 12,439,650 Health Sciences Trust 193,105 51,474 High Yield Trust 5,629,141 4,138,699 Income and Value Trust 6,406,743 2,725,079 International Index Trust 721,269 563,213 International Small Cap Trust 2,135,572 2,706,549 International Stock Trust 13,418,704 13,627,572 International Value Trust 1,411,246 853,766 Internet Technologies Trust 134,003 96,926 Investment Quality Bond Trust 12,324,781 8,155,072 Large Cap Growth Trust 6,334,949 4,358,046 Lifestyle Aggressive 1000 Trust 493,571 375,134 Lifestyle Balanced 640 Trust 4,438,892 1,840,818 Lifestyle Conservative 280 Trust 3,714,338 331,577
31 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 5. PURCHASES AND SALES OF INVESTMENTS (CONTINUED)
PURCHASES SALES ------------ ----------- SUB-ACCOUNTS: Lifestyle Growth 820 Trust 913,972 813,135 Lifestyle Moderate 460 Trust 1,459,250 892,632 Mid Cap Growth Trust 187,775 3,905 Mid Cap Index Trust 1,140,189 403,732 Mid Cap Opportunities Trust 11,046 5,547 Mid Cap Stock Trust 687,344 299,354 Mid Cap Value Trust 132,548 3,091 Money Market Trust 38,325,899 37,828,278 Overseas Trust 3,127,126 1,921,319 Pacific Rim Emerging Markets Trust 2,490,761 2,723,280 Quantitative Equity Trust 10,379,755 7,306,218 Real Estate Securities Trust 7,861,522 5,257,963 Science and Technology Trust 40,958,367 30,785,343 Small Cap Index Trust 1,253,948 594,102 Small Company Blend Trust 2,746,849 1,006,394 Small Company Value Trust 5,076,953 2,500,077 Strategic Bond Trust 3,192,856 1,378,752 Strategic Growth Trust 721,856 7,031 Strategic Opportunities Trust 10,265,811 9,367,539 Tactical Allocation Trust 194,305 100,862 Telecommunications Trust 30,305 293 Total Return Trust 19,663,644 4,013,242 Total Stock Market Index 3,023,461 1,077,764 U.S. Government Securities Trust 9,743,314 2,397,739 U.S. Large Cap Value Trust 4,875,742 3,250,737 Utilities Trust 59,519 625 Value Trust 10,864,772 3,739,123 500 Index Trust 871,169 142,109 ------------ ------------ Total $383,733,612 $269,863,832 ============ ============
32 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 6. FINANCIAL HIGHLIGHTS The Manufacturers Life Insurance Company of America Separate Account Four is a funding vehicle for a number of variable universal life insurance products which have unique combinations of features and fees that are charged against the contract owner's account balance. Differences in the fee structures result in a variety of unit values, expense ratios and total returns. The following table was developed by determining which products offered by the Company have the lowest and highest total return. Only product designs within each sub-account that had units outstanding during the respective periods were considered when determining the lowest and highest total return. The summary may not reflect the minimum and maximum contract charges offered by the Company as contract owners may not have selected all available and applicable contract options as discussed in Note 3.
FOR THE YEAR ENDED AS AT DECEMBER 31, 2001 DECEMBER 31, 2001 --------------------------------------------------------------------------------------------- EXPENSE INVESTMENT RATIO** TOTAL RETURN*** UNIT NET INCOME LOWEST TO LOWEST TO HIGHEST UNITS VALUE ASSETS RATIO* HIGHEST GAIN (LOSS) --------------------------------------------------------------------------------------------- SUB-ACCOUNTS: Aggressive Growth Trust 388,103 $10.82 to $14.91 $ 5,113,597 -- .55% to .65% (26.46%) to (26.39%) All Cap Growth Trust 604,579 9.71 to 18.73 10,184,673 -- .45 to .65 (24.27) to (24.11) All Cap Value Trust+ 1,194 12.56 14,993 0.04% .65 0.46 Balanced Trust 1,197,589 9.85 to 26.49 31,589,231 2.19 .40 to .65 (10.78) to (10.55) Blue Chip Growth Trust 1,996,442 10.60 to 19.85 36,203,915 -- .40 to .65 (15.16) to (14.95) Capital Appreciation Trust+ 3,341 11.05 36,920 -- .65 (11.60) Capital Opportunities Trust+ 9,069 10.65 to 10.67 96,738 -- .45 to .65 (14.77) to (14.67) Diversified Bond Trust 507,459 14.49 to 14.89 7,354,939 5.48 .45 to .65 6.38 to 6.61 Dynamic Growth Trust 102,477 4.72 to 4.73 483,613 0.17 .55 to .65 (40.63) to (40.57) Emerging Small Company Trust 1,065,694 11.69 to 79.51 63,138,723 -- .40 to .65 (22.75) to 22.55 Equity Income Trust 840,766 13.50 to 18.38 15,189,718 1.64 .40 to .65 0.63 to 0.89 Equity Index Trust 2,189,228 10.18 to 18.26 38,066,462 1.03 .40 to .65 (12.83) to (12.61) Financial Services Trust+ 8,377 11.58 97,034 0.08 .65 (7.34) Fundamental Value Trust+ 21,338 11.68 249,216 -- .65 (6.57) Global Bond Trust 118,128 12.45 to 13.16 1,549,796 -- .55 to .65 (0.12) to (0.03) Global Equity Trust 206,811 11.79 to 15.50 3,140,867 2.45 .55 to .65 (16.63) to (16.55) Growth Trust 955,887 7.75 to 14.12 12,500,179 -- .55 to .65 (21.88) to (21.80) Growth and Income Trust 1,605,126 10.44 to 18.66 26,826,511 0.41 .40 to .65 (11.85) to (11.63) Health Sciences Trust+ 11,197 13.48 150,957 -- .65 (7.85) High Yield Trust 395,816 10.82 to 12.87 4,979,952 9.19 .40 to .65 (6.09) to (5.85) Income and Value Trust 649,395 13.27 to 15.86 9,857,366 2.68 .40 to .65 0.33 to 0.58 International Index Trust 22,786 8.65 197,118 1.22 .65 (22.91) International Small Cap Trust 215,989 7.73 to 12.36 2,355,865 -- .55 to .65 (31.55) to (31.48) International Stock Trust 1,135,448 9.22 to 11.33 12,791,612 0.20 .40 to .65 (22.05) to (21.85) International Value Trust 200,221 10.74 to 11.12 2,154,783 1.02 .40 to .65 (10.56) to (10.33) Internet Technologies Trust 32,484 3.75 to 3.76 121,782 -- .55 to .65 (46.45) to (46.38) Investment Quality Bond Trust 1,255,012 14.38 to 16.56 20,633,935 5.47 .40 to .65 6.63 to 6.90 Large Cap Growth Trust 583,261 9.39 to 13.17 7,423,884 -- .40 to .65 (18.35) to (18.14) Lifestyle Aggressive 1000 Trust 47,093 13.68 644,205 0.37 .65 (14.23) Lifestyle Balanced 640 Trust 385,225 12.53 to 15.90 6,058,824 2.55 .45 to .65 (5.40) to (5.21)
33 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 6. FINANCIAL HIGHLIGHTS (CONT'D)
--------------------------------------------------------------------------------------------- EXPENSE INVESTMENT RATIO** TOTAL RETURN*** UNIT NET INCOME LOWEST TO LOWEST TO HIGHEST UNITS VALUE ASSETS RATIO* HIGHEST GAIN (LOSS) --------------------------------------------------------------------------------------------- SUB-ACCOUNTS: Lifestyle Conservative 280 Trust 220,989 13.81 to 16.98 3,748,192 3.89 .55 to .65 2.56 to 2.66 Lifestyle Growth 820 Trust 87,349 11.62 to 15.11 1,316,120 1.40 .45 to .65 (9.63) to (9.44) Lifestyle Moderate 460 Trust 53,694 12.98 to 16.41 817,107 3.30 .55 to .65 (1.74) to (1.63) Mid Cap Growth Trust+ 17,665 10.42 184,149 -- .65 (16.61) Mid Cap Index Trust 80,845 13.02 to 13.04 1,052,814 0.85 .55 to .65 (2.38) to (2.27) Mid Cap Opportunities Trust+ 564 10.54 5,945 -- .65 (15.65) Mid Cap Stock Trust 72,047 10.59 to 11.19 762,884 -- .55 to .65 (11.57) to (11.48) Mid Cap Value Trust+ 10,285 13.03 134,052 0.74 .65 4.27 Money Market Trust 2,216,771 13.63 to 18.91 40,817,893 3.59 .40 to .65 2.91 to 3.17 Overseas Trust 296,994 9.12 to 11.80 3,057,649 0.27 .55 to .65 (21.61) to (21.53) Pacific Rim Emerging Markets Trust 569,972 6.94 to 8.48 3,999,341 0.41 .55 to .65 (19.10) to (19.03) Quantitative Equity Trust 707,953 10.59 to 51.01 33,132,109 0.30 .45 to .65 (23.45) to (23.30) Real Estate Securities Trust 495,247 15.99 to 40.88 19,809,218 3.75 .40 to .65 2.48 to 2.74 Science and Technology Trust 2,589,114 5.75 to 15.15 29,690,730 -- .40 to .65 (41.63) to (41.49) Small Cap Index Trust 58,468 11.75 to 11.77 687,114 1.85 .55 to .65 0.85 to 0.94 Small Company Blend Trust 259,656 10.89 to 12.39 3,178,735 -- .55 to .65 (2.94) to (2.84) Small Company Value Trust 521,854 10.15 to 15.03 5,349,826 0.17 .40 to .65 5.85 to 6.11 Strategic Bond Trust 183,559 14.17 to 15.62 2,855,362 7.96 .55 to .65 5.55 to 5.66 Strategic Growth Trust+ 68,964 10.97 756,713 -- .65 (12.22) Strategic Opportunities Trust 706,044 10.77 to 14.47 9,806,062 0.50 .55 to .65 (15.81) to (15.72) Tactical Allocation Trust 7,967 10.37 82,609 0.11 .65 (13.95) Telecommunications Trust+ 3,294 7.90 26,007 -- .65 (36.83) Total Return Trust 1,419,177 14.60 to 14.65 20,755,404 3.59 .40 to .65 7.58 to 7.85 Total Stock Market Index Trust 309,502 9.85 to 9.87 3,050,162 0.92 .55 to .65 (11.99) to (11.90) U.S. Government Securities Trust 719,661 13.61 to 14.52 9,992,662 4.75 .45 to .65 6.33 to 6.55 U.S. Large Cap Value Trust 277,574 12.61 to 12.66 3,505,205 0.38 .45 to .65 (3.18) to (2.98) Utilities Trust+ 5,383 9.31 50,102 1.05 .65 (25.55) Value Trust 700,592 15.42 to 17.26 11,984,303 0.53 .40 to .65 2.75 to 3.00 500 Index Trust 94,218 9.80 to 9.85 925,055 0.84 .40 to .65 (12.93) to (12.71)
* These ratios represent the dividends, excluding distributions of capital gains, distributed by the Trust portfolio, net of management fees and expenses assessed by the fund manager, divided by the average net assets of the respective Trust portfolio which approximates the ratio of dividends, excluding distribution of capital gains, received by the sub-account of the Account, net of management fees and expenses assessed by the fund manager, divided by the average unit value. These ratios exclude those expenses, such as mortality and expense charges, that result in direct reduction in the unit values. The recognition of investment income by the sub-account is affected by the timing of the declaration of dividends by the underlying Trust portfolio in which the sub-accounts invest. ** These ratios represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges, for the period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying Trust portfolio are excluded. 34 The Manufacturers Life Insurance Company of America Separate Account Four Notes to Financial Statements (continued) 6. FINANCIAL HIGHLIGHTS (CONT'D) *** These ratios represent the total return for the period indicated, including changes in the value of the underlying Trust portfolio, and reflect deductions for all items included in the expense ratio. The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented. Investment options with a date notation indicate the effective date of that investment option in the separate account. The total return is calculated for the period indicated or from the effective date through the end of the reporting period. + Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. 7. RELATED PARTY TRANSACTIONS ManEquity, Inc., a registered broker-dealer and indirect wholly owned subsidiary of Manulife Financial, acts as the principal underwriter of the Contracts pursuant to a Distribution Agreement with Manufacturers Life of America. Registered representatives of either ManEquity, Inc. or other broker-dealers having distribution agreements with ManEquity, Inc. who are also authorized as variable life insurance agents under applicable state insurance laws sell the Contracts. Registered representatives are compensated on a commission basis. The Company has a formal service agreement with its affiliates, Manulife Financial and The Manufacturers Life Insurance Company (U.S.A.) ("Manulife U.S.A."), which can be terminated by either party upon two months notice. Under this Agreement, the Company pays for legal, actuarial, investment and certain other administrative services. 8. SUBSEQUENT EVENT Effective January 1, 2002, the Company transferred all of its variable business to Manulife U.S.A. via an assumption reinsurance agreement. As a result, products originally sold and administered under the name of the Company will be offered and administered under the name of Manulife U.S.A. As such and effective January 1, 2002, the account will be known as The Manufacturers Life Insurance Company U.S.A. Separate Account N. Also, effective January 1, 2002, ManEquity, Inc. was merged into Manulife Financial Securities LLC. Manulife Financial Securities LLC, a subsidiary of Manulife U.S.A., will carry on the business of ManEquity, Inc. 35 THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N Financial Statements Nine months ended September 30, 2002 (Unaudited) with December 31, 2001 comparatives The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Financial Statements Nine months ended September 30, 2002 (Unaudited) with December 31, 2001 comparatives CONTENTS Financial Statements Statement of Assets and Contract Owners' Equity ...............................1 Statements of Operations and Changes in Contract Owners' Equity ...............3 Notes to Financial Statements ................................................28
The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Statement of Assets and Contract Owners' Equity September 30, 2002 (Unaudited) ASSETS Investments at fair value: Sub-Accounts: Aggressive Growth Trust - 422,846 shares (cost $5,695,896) $ 3,974,750 All Cap Growth Trust - 683,394 shares (cost $9,403,409) 7,237,144 All Cap Value Trust - 20,256 shares (cost $218,776) 160,426 Balanced Trust - 2,146,698 shares (cost $36,439,486) 22,948,198 Blue Chip Growth Trust - 2,380,966 shares (cost $35,288,383) 26,547,774 Capital Appreciation Trust - 39,785 shares (cost $275,583) 239,508 Capital Opportunities Trust - 30,623 shares (cost $272,901) 219,258 Diversified Bond Trust - 782,682 shares (cost $8,204,324) 8,296,424 Dynamic Growth Trust - 171,247 shares (cost $730,560) 577,103 Emerging Small Company Trust - 2,348,397 shares (cost $56,952,353) 38,560,676 Equity-Income Trust - 1,696,425 shares (cost $23,526,710) 19,644,606 Equity Index Trust - 2,558,733 shares (cost $32,893,612) 25,408,217 Financial Services Trust - 34,971 shares (cost $384,010) 312,290 Fundamental Value Trust - 35,713 shares (cost $391,467) 330,343 Global Bond Trust - 190,771 shares (cost $2,374,155) 2,504,822 Global Equity Trust - 357,350 shares (cost $4,343,496) 3,487,735 Growth Trust - 861,720 shares (cost $11,454,998) 8,306,984 Growth & Income Trust - 1,200,105 shares (cost $26,919,846) 19,105,668 Health Sciences Trust - 158,016 shares (cost $1,700,642) 1,529,590 High Yield Trust - 732,987 shares (cost $6,691,765) 5,973,843 Income & Value Trust - 1,287,329 shares (cost $11,812,413) 9,732,208 International Index Trust - 31,453 shares (cost $268,739) 209,793 International Small Cap Trust - 308,411 shares (cost $3,530,533) 2,871,305 International Stock Trust - 1,497,390 shares (cost $14,421,815) 10,691,363 International Value Trust - 385,685 shares (cost $3,956,852) 3,077,764 Internet Technologies Trust - 16,470 shares (cost $43,605) 31,457 Investment Quality Bond Trust - 2,036,855 shares (cost $23,844,504) 24,625,581 Large Cap Growth Trust - 1,002,498 shares (cost $9,833,705) 7,207,964 Lifestyle Aggressive 1000 Trust - 56,828 shares (cost $682,482) 430,757 Lifestyle Balanced 640 Trust - 787,292 shares (cost $8,891,446) 7,644,610 Lifestyle Conservative 280 Trust - 284,143 shares (cost $3,588,915) 3,509,169 Lifestyle Growth 820 Trust - 150,485 shares (cost $1,722,597) 1,304,702 Lifestyle Moderate 460 Trust - 81,985 shares (cost $964,715) 885,443 Mid Cap Growth Trust - 43,768 shares (cost $399,303) 290,180 Mid Cap Index Trust - 138,257 shares (cost $1,687,675) 1,422,666 Mid Cap Opportunities Trust - 8,181 shares (cost $63,053) 57,511 Mid Cap Stock Trust - 197,082 shares (cost $1,941,105) 1,527,383 Mid Cap Value Trust - 287,451 shares (cost $3,517,228) 3,173,461 Money Market Trust - 4,462,309 shares (cost $44,623,094) 44,623,094 Overseas Trust - 500,034 shares (cost $4,376,089) 3,255,220 Pacific Rim Emerging Markets Trust - 502,131 shares (cost $4,003,748) 2,952,529 Quantitative Equity Trust - 1,736,261 shares (cost $38,438,365) 19,741,284 Quantitative Mid Cap Trust - 893 shares (cost $7,623) 7,023 Real Estate Securities Trust - 1,437,200 shares (cost $22,994,653) 22,391,582 Science and Technology Trust - 2,500,223 shares (cost $29,456,490) 15,901,421 Small Cap Index Trust - 244,708 shares (cost $2,565,065) 2,050,653 Small Company Blend Trust - 489,700 shares (cost $4,889,659) 3,755,997
1 The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Statement of Assets and Contract Owners' Equity September 30, 2002 (Unaudited) ASSETS (CONTINUED) Investments at fair value: Sub-Accounts: Small Company Value Trust - 846,060 shares (cost $11,157,965) $ 10,245,789 Strategic Bond Trust - 352,105 shares (cost $3,659,940) 3,679,492 Strategic Growth Trust - 115,191 shares (cost $924,358) 817,859 Strategic Opportunities Trust - 1,103,221 shares (cost $13,387,800) 8,252,095 Tactical Allocation Trust - 1,164 shares (cost $11,257) 8,309 Telecommunications Trust - 3,957 shares (cost $19,259) 15,037 Total Return Trust - 2,538,742 shares (cost $35,103,427) 35,694,711 Total Stock Market Index Trust - 489,551 shares (cost $4,464,440) 3,505,185 U.S. Government Securities Trust - 1,174,241 shares (cost $16,086,739) 16,509,823 U.S. Large Cap Value Trust - 260,180 shares (cost $2,901,251) 2,164,697 Utilities Trust - 1,338 shares (cost $9,534) 8,723 Value Trust - 763,753 shares (cost $11,718,415) 8,676,230 500 Index Trust - 294,168 shares (cost $2,396,363) 2,062,115 ------------ Total assets $480,377,544 ============ CONTRACT OWNERS' EQUITY Variable life contracts $480,377,544 ============
See accompanying notes. 2 The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (Unaudited)
SUB-ACCOUNT ------------------------------------------------------------------- AGGRESSIVE GROWTH TRUST ALL CAP GROWTH TRUST ------------------------------------------------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01 ------------------------------------------------------------------- Income: Dividends $ -- $ -- $ -- $ 489,935 Expenses: Mortality and expense risks, and administrative charges 22,451 30,923 42,819 58,611 ------------------------------------------------------------------- Net investment income (loss) during the period (22,451) (30,923) (42,819) 431,324 Net realized gain (loss) during the period (1,163,147) (1,009,845) (2,739,241) (1,957,906) Unrealized appreciation (depreciation) during the period (505,848) (447,976) (53,577) (782,386) ------------------------------------------------------------------- Net increase (decrease) in assets from operations (1,691,446) (1,488,744) (2,835,637) (2,308,968) ------------------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 992,522 1,994,041 2,377,921 4,577,444 Transfer on terminations (337,171) (351,908) (339,294) (691,667) Transfer on policy loans 3,205 (14,639) 6,290 (6,541) Net interfund transfers (105,957) (399,032) (2,156,809) (179,674) ------------------------------------------------------------------- Net increase (decrease) in assets from principal transactions 552,599 1,228,462 (111,892) 3,699,562 ------------------------------------------------------------------- Total increase (decrease) in assets (1,138,847) (260,282) (2,947,529) 1,390,594 Assets beginning of year 5,113,597 5,373,879 10,184,673 8,794,079 ------------------------------------------------------------------- Assets end of period $ 3,974,750 $ 5,113,597 $ 7,237,144 $ 10,184,673 ===================================================================
* Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. See accompanying notes. 3
SUB-ACCOUNT - -------------------------------------------------------------------------------------------------------- ALL CAP VALUE TRUST BALANCED TRUST BLUE CHIP GROWTH TRUST - -------------------------------------------------------------------------------------------------------- PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/02 DEC. 31/01* SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01 - -------------------------------------------------------------------------------------------------------- $ 16 $ 3 $ 678,287 $ 824,561 $ -- $ 2,891,977 1,671 33 132,287 231,900 143,949 223,162 - -------------------------------------------------------------------------------------------------------- (1,655) (30) 546,000 592,661 (143,949) 2,668,815 (145,121) (55) (1,791,996) (1,536,239) (8,066,690) (3,938,059) (59,578) 1,228 (4,639,027) (3,408,713) (3,151,682) (5,557,194) - -------------------------------------------------------------------------------------------------------- (206,354) 1,143 (5,885,023) (4,352,291) (11,362,321) (6,826,438) - -------------------------------------------------------------------------------------------------------- 49,189 7,951 1,821,150 3,910,908 6,434,090 10,181,726 (16,192) (2,313) (2,871,796) (4,011,328) (3,037,186) (2,506,721) 5 -- 36,437 177,394 (12,618) (94,393) 318,785 8,212 (1,741,801) (4,924,849) (1,678,106) (3,947,656) - -------------------------------------------------------------------------------------------------------- 351,787 13,850 (2,756,010) (4,847,875) 1,706,180 3,632,956 - -------------------------------------------------------------------------------------------------------- 145,433 14,993 (8,641,033) (9,200,166) (9,656,141) (3,193,482) 14,993 -- 31,589,231 40,789,397 36,203,915 39,397,397 - -------------------------------------------------------------------------------------------------------- $ 160,426 $14,993 $ 22,948,198 $ 31,589,231 $ 26,547,774 $ 36,203,915 ========================================================================================================
4 The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (Unaudited) (continued)
SUB-ACCOUNT ------------------------------------------------------------- CAPITAL APPRECIATION TRUST CAPITAL OPPORTUNITIES TRUST ------------------------------------------------------------- PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED SEPT. 30/02 DEC. 31/01* SEPT. 30/02 DEC. 31/01* ------------------------------------------------------------- Income: Dividends $ -- $ -- $ -- $ -- Expenses: Mortality and expense risks, and administrative charges 389 72 447 38 ------------------------------------------------------------- Net investment income (loss) during the period (389) (72) (447) (38) Net realized gain (loss) during the period 2,704 (38) (1,387) (6) Unrealized appreciation (depreciation) during the period (38,505) 2,429 (54,611) 968 ------------------------------------------------------------- Net increase (decrease) in assets from operations (36,190) 2,319 (56,445) 924 ------------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 19,697 742 151,756 70,779 Transfer on terminations (20,192) (613) (8,197) 8 Transfer on policy loans -- -- (7,598) -- Net interfund transfers 239,273 34,472 43,004 25,027 ------------------------------------------------------------- Net increase (decrease) in assets from principal transactions 238,778 34,601 178,965 95,814 ------------------------------------------------------------- Total increase (decrease) in assets 202,588 36,920 122,520 96,738 Assets beginning of year 36,920 -- 96,738 -- ------------------------------------------------------------- Assets end of period $ 239,508 $ 36,920 $ 219,258 $ 96,738 =============================================================
* Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. See accompanying notes. 5
SUB-ACCOUNT - ------------------------------------------------------------------------------------------------ DIVERSIFIED BOND TRUST DYNAMIC GROWTH TRUST EMERGING SMALL COMPANY TRUST - ------------------------------------------------------------------------------------------------ PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01 - ------------------------------------------------------------------------------------------------ $ 249,195 $ 171,518 $ -- $ 1,375 $ -- $ 2,633,803 29,717 33,185 2,277 3,105 247,778 404,110 - ------------------------------------------------------------------------------------------------ 219,478 138,333 (2,277) (1,730) (247,778) 2,229,693 137,045 208,420 (96,078) (232,608) (5,277,816) (1,598,919) (68,085) (22,621) (75,030) 25,490 (18,005,167) (18,801,456) - ------------------------------------------------------------------------------------------------ 288,438 324,132 (173,385) (208,848) (23,530,761) (18,170,682) - ------------------------------------------------------------------------------------------------ 2,281,115 2,249,690 458,813 330,311 5,042,473 8,684,233 (295,433) (373,603) (19,534) (14,841) (4,529,214) (6,650,831) 42,947 4,226 -- -- 48,242 56,171 (1,375,582) 1,492,097 (172,404) 106,745 (1,608,787) (1,296,935) - ------------------------------------------------------------------------------------------------ 653,047 3,372,410 266,875 422,215 (1,047,286) 792,638 - ------------------------------------------------------------------------------------------------ 941,485 3,696,542 93,490 213,367 (24,578,047) (17,378,044) 7,354,939 3,658,397 483,613 270,246 63,138,723 80,516,767 - ------------------------------------------------------------------------------------------------ $ 8,296,424 $7,354,939 $ 577,103 $ 483,613 $ 38,560,676 $ 63,138,723 ================================================================================================
6 The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (Unaudited) (continued)
SUB-ACCOUNT -------------------------------------------------------------------- EQUITY-INCOME TRUST EQUITY INDEX TRUST -------------------------------------------------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01 -------------------------------------------------------------------- Income: Dividends $ 744,284 $ 1,021,642 $ 371,813 $ 949,563 Expenses: Mortality and expense risks, and administrative charges 83,040 70,343 149,912 226,505 -------------------------------------------------------------------- Net investment income (loss) during the period 661,244 951,299 221,901 723,058 Net realized gain (loss) during the period (1,577,802) (379,962) (8,972,926) (2,185,633) Unrealized appreciation (depreciation) during the period (3,779,850) (471,797) (1,980,935) (3,730,659) -------------------------------------------------------------------- Net increase (decrease) in assets from operations (4,696,408) 99,540 (10,731,960) (5,193,234) -------------------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 5,978,385 3,588,138 5,883,353 10,652,620 Transfer on terminations (893,793) (1,052,237) (3,940,027) (2,620,619) Transfer on policy loans (618) (12,159) (79,113) 4,330 Net interfund transfers 4,067,322 4,709,257 (3,790,498) (4,523,947) -------------------------------------------------------------------- Net increase (decrease) in assets from principal transactions 9,151,296 7,232,999 (1,926,285) 3,512,384 -------------------------------------------------------------------- Total increase (decrease) in assets 4,454,888 7,332,539 (12,658,245) (1,680,850) Assets beginning of year 15,189,718 7,857,179 38,066,462 39,747,312 -------------------------------------------------------------------- Assets end of period $ 19,644,606 $ 15,189,718 $ 25,408,217 $ 38,066,462 ====================================================================
* Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. See accompanying notes. 7
SUB-ACCOUNT - -------------------------------------------------------------------------------------- FINANCIAL SERVICES TRUST FUNDAMENTAL VALUE TRUST GLOBAL BOND TRUST - -------------------------------------------------------------------------------------- PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED SEPT. 30/02 DEC. 31/01* SEPT. 30/02 DEC. 31/01* SEPT. 30/02 DEC. 31/01 - -------------------------------------------------------------------------------------- $ 6 $ 27 $ 260 $ -- $ -- $ -- 1,115 224 1,347 629 6,380 3,839 - -------------------------------------------------------------------------------------- (1,109) (197) (1,087) (629) (6,380) (3,839) (7,370) (365) (18,800) (864) 20,592 (3,286) (69,468) (2,252) (59,066) (2,058) 145,129 (12,426) - -------------------------------------------------------------------------------------- (77,947) (2,814) (78,953) (3,551) 159,341 (19,551) - -------------------------------------------------------------------------------------- 211,064 7,461 44,688 6,839 760,512 285,976 (18,206) (4,231) (31,404) (10,780) (32,936) (27,911) -- (7) -- (22) 1,162 (4,217) 100,345 96,625 146,796 256,730 66,947 916,262 - -------------------------------------------------------------------------------------- 293,203 99,848 160,080 252,767 795,685 1,170,110 - -------------------------------------------------------------------------------------- 215,256 97,034 81,127 249,216 955,026 1,150,559 97,034 -- 249,216 -- 1,549,796 399,237 - -------------------------------------------------------------------------------------- $312,290 $97,034 $330,343 $249,216 $2,504,822 $1,549,796 ======================================================================================
8 The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (Unaudited) (continued)
SUB-ACCOUNT ---------------------------------------------------------------- GLOBAL EQUITY TRUST GROWTH TRUST ---------------------------------------------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01 ---------------------------------------------------------------- Income: Dividends $ 38,442 $ 507,908 $ -- $ -- Expenses: Mortality and expense risks, and administrative charges 15,314 21,029 51,090 81,450 ---------------------------------------------------------------- Net investment income (loss) during the period 23,128 486,879 (51,090) (81,450) Net realized gain (loss) during the period (578,661) (372,435) (5,048,798) (4,937,416) Unrealized appreciation (depreciation) during the period (336,689) (770,710) 1,203,343 1,754,564 ---------------------------------------------------------------- Net increase (decrease) in assets from operations (892,222) (656,266) (3,896,545) (3,264,302) ---------------------------------------------------------------- Changes from principal transactions: Transfer of net premiums 455,919 765,943 2,162,062 5,168,717 Transfer on terminations (296,565) (263,724) (629,824) (941,752) Transfer on policy loans (6,997) (1,252) (14,502) (24,960) Net interfund transfers 1,086,733 (238,659) (1,814,386) (3,675,443) ---------------------------------------------------------------- Net increase (decrease) in assets from principal transactions 1,239,090 262,308 (296,650) 526,562 ---------------------------------------------------------------- Total increase (decrease) in assets 346,868 (393,958) (4,193,195) (2,737,740) Assets beginning of year 3,140,867 3,534,825 12,500,179 15,237,919 ---------------------------------------------------------------- Assets end of period $3,487,735 $3,140,867 $ 8,306,984 $ 12,500,179 ================================================================
* Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. See accompanying notes. 9
SUB-ACCOUNT - ------------------------------------------------------------------------------------------------ GROWTH & INCOME TRUST HEALTH SCIENCES TRUST HIGH YIELD TRUST - ------------------------------------------------------------------------------------------------ PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01* SEPT. 30/02 DEC. 31/01 - ------------------------------------------------------------------------------------------------ $ 1,028,738 $ 1,481,575 $ 2,415 $ -- $ 454,868 $ 364,655 108,820 163,695 4,754 299 26,234 24,364 - ------------------------------------------------------------------------------------------------ 919,918 1,317,880 (2,339) (299) 428,634 340,291 (5,710,904) (1,909,561) (155,736) (131) (918,716) (426,272) (3,873,223) (2,671,541) (180,508) 9,457 (198,556) (124,780) - ------------------------------------------------------------------------------------------------ (8,664,209) (3,263,222) (338,583) 9,027 (688,638) (210,761) - ------------------------------------------------------------------------------------------------ 4,053,380 7,197,987 975,267 44,675 1,415,142 1,463,073 (1,574,063) (2,783,042) (70,097) (4,643) (293,525) (318,463) (24,656) (56,065) (259) (8) 14,868 (12,792) (1,511,295) (1,383,997) 812,305 101,906 546,044 18,333 - ------------------------------------------------------------------------------------------------ 943,366 2,974,883 1,717,216 141,930 1,682,529 1,150,151 - ------------------------------------------------------------------------------------------------ (7,720,843) (288,339) 1,378,633 150,957 993,891 939,390 26,826,511 27,114,850 150,957 -- 4,979,952 4,040,562 - ------------------------------------------------------------------------------------------------ $ 19,105,668 $ 26,826,511 $1,529,590 $150,957 $5,973,843 $4,979,952 ================================================================================================
10 The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (Unaudited) (continued)
SUB-ACCOUNT -------------------------------------------------------------- INCOME & VALUE TRUST INTERNATIONAL INDEX TRUST ---------------------------- ---------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01 ----------- ----------- ----------- ----------- Income: Dividends $ 219,396 $ 313,451 $ 3 $ 2,308 Expenses: Mortality and expense risks, and administrative charges 47,582 47,256 1,047 1,201 ----------- ----------- ----------- ----------- Net investment income (loss) during the period 171,814 266,195 (1,044) 1,107 Net realized gain (loss) during the period (1,001,802) (559,898) (22,619) 19,590 Unrealized appreciation (depreciation) during the period (2,171,294) 489,673 (30,899) (25,006) ----------- ----------- ----------- ----------- Net increase (decrease) in assets from operations (3,001,282) 195,970 (54,562) (4,309) ----------- ----------- ----------- ----------- Changes from principal transactions: Transfer of net premiums 2,845,960 2,927,089 74,390 41,657 Transfer on terminations (458,882) (507,821) (9,074) 1,461 Transfer on policy loans 4,091 (2,345) -- -- Net interfund transfers 484,955 998,546 1,921 113,831 ----------- ----------- ----------- ----------- Net increase (decrease) in assets from principal transactions 2,876,124 3,415,469 67,237 156,949 ----------- ----------- ----------- ----------- Total increase (decrease) in assets (125,158) 3,611,439 12,675 152,640 Assets beginning of year 9,857,366 6,245,927 197,118 44,478 ----------- ----------- ----------- ----------- Assets end of period $ 9,732,208 $ 9,857,366 $ 209,793 $ 197,118 =========== =========== =========== ===========
See accompanying notes. 11
SUB-ACCOUNT - ------------------------------------------------------------------------------------------------------ INTERNATIONAL SMALL CAP TRUST INTERNATIONAL STOCK TRUST INTERNATIONAL VALUE TRUST - ------------------------------ ------------------------------ ------------------------------ PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01 - ------------ ------------ ------------ ------------ ------------ ------------ $ -- $ -- $ 55,435 $ 724,688 $ 22,818 $ 51,943 13,966 19,248 53,181 85,559 15,075 12,480 - ------------ ------------ ------------ ------------ ------------ ------------ (13,966) (19,248) 2,254 639,129 7,743 39,463 (598,851) (2,445,760) (3,055,356) (2,874,694) (220,066) (136,918) (15,879) 1,133,243 (622,625) (1,742,352) (694,518) (109,824) - ------------ ------------ ------------ ------------ ------------ ------------ (628,696) (1,331,765) (3,675,727) (3,977,917) (906,841) (207,279) - ------------ ------------ ------------ ------------ ------------ ------------ 471,795 1,124,796 2,545,094 3,455,803 902,294 767,659 (184,343) (291,278) (631,628) (1,140,441) (129,113) (91,002) 4,647 (2,399) 1,077 18,665 (20) (2,127) 852,037 (1,382,848) (339,065) (3,182,024) 1,056,661 (156,513) - ------------ ------------ ------------ ------------ ------------ ------------ 1,144,136 (551,729) 1,575,478 (847,997) 1,829,822 518,017 - ------------ ------------ ------------ ------------ ------------ ------------ 515,440 (1,883,494) (2,100,249) (4,825,914) 922,981 310,738 2,355,865 4,239,359 12,791,612 17,617,526 2,154,783 1,844,045 - ------------ ------------ ------------ ------------ ------------ ------------ $ 2,871,305 $ 2,355,865 $ 10,691,363 $ 12,791,612 $ 3,077,764 $ 2,154,783 ============ ============ ============ ============ ============ ============
12 The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (Unaudited) (continued)
SUB-ACCOUNT ------------------------------------------------------------------ INTERNET TECHNOLOGIES INVESTMENT QUALITY BOND TRUST TRUST ------------------------------ ------------------------------ PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01 ------------ ------------ ------------ ------------ Income: Dividends $ -- $ -- $ 1,189,894 $ 1,038,232 Expenses: Mortality and expense risks, and administrative charges 232 534 110,634 117,157 ------------ ------------ ------------ ------------ Net investment income (loss) during the period (232) (534) 1,079,260 921,075 Net realized gain (loss) during the period (49,718) (105,359) 50,397 56,285 Unrealized appreciation (depreciation) during the period 17,107 57,990 485,960 120,363 ------------ ------------ ------------ ------------ Net increase (decrease) in assets from operations (32,843) (47,903) 1,615,617 1,097,723 ------------ ------------ ------------ ------------ Changes from principal transactions: Transfer of net premiums 111,472 39,504 3,616,217 2,162,620 Transfer on terminations (3,973) (51,889) (2,016,536) (1,810,385) Transfer on policy loans 1,049 38,672 5,628 (59,787) Net interfund transfers (166,030) 11,323 770,720 2,956,184 ------------ ------------ ------------ ------------ Net increase (decrease) in assets from principal transactions (57,482) 37,610 2,376,029 3,248,632 ------------ ------------ ------------ ------------ Total increase (decrease) in assets (90,325) (10,293) 3,991,646 4,346,355 Assets beginning of year 121,782 132,075 20,633,935 16,287,580 ------------ ------------ ------------ ------------ Assets end of period $ 31,457 $ 121,782 $ 24,625,581 $ 20,633,935 ============ ============ ============ ============
See accompanying notes. 13
SUB-ACCOUNT - ------------------------------------------------------------------------------------------------ LIFESTYLE AGGRESSIVE LIFESTYLE BALANCED LARGE CAP GROWTH TRUST 1000 TRUST 640 TRUST - ---------------------------- ---------------------------- ---------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01 - ----------- ----------- ----------- ----------- ----------- ----------- $ 23,587 $ 295,174 $ 4,221 $ 48,963 $ 279,111 $ 331,915 34,247 46,931 2,640 4,132 37,151 29,162 - ----------- ----------- ----------- ----------- ----------- ----------- (10,660) 248,243 1,581 44,831 241,960 302,753 (1,293,105) (1,527,720) (20,435) (22,918) (672,996) (136,989) (995,065) (209,087) (137,227) (125,118) (937,476) (249,686) - ----------- ----------- ----------- ----------- ----------- ----------- (2,298,830) (1,488,564) (156,081) (103,205) (1,368,512) (83,922) - ----------- ----------- ----------- ----------- ----------- ----------- 1,984,597 2,254,611 67,694 231,142 3,702,268 371,326 (474,572) (668,625) (117,469) (81,277) (979,357) (362,681) 78 (8,444) 31,639 (33,421) 3,663 348 572,807 151,119 (39,231) (42,839) 227,724 2,286,328 - ----------- ----------- ----------- ----------- ----------- ----------- 2,082,910 1,728,661 (57,367) 73,605 2,954,298 2,295,321 - ----------- ----------- ----------- ----------- ----------- ----------- (215,920) 240,097 (213,448) (29,600) 1,585,786 2,211,399 7,423,884 7,183,787 644,205 673,805 6,058,824 3,847,425 - ----------- ----------- ----------- ----------- ----------- ----------- $ 7,207,964 $ 7,423,884 $ 430,757 $ 644,205 $ 7,644,610 $ 6,058,824 =========== =========== =========== =========== =========== ===========
14 The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (Unaudited) (continued)
SUB-ACCOUNT -------------------------------------------------------------- LIFESTYLE CONSERVATIVE LIFESTYLE GROWTH 280 TRUST 820 TRUST ---------------------------- ---------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01 ----------- ----------- ----------- ----------- Income: Dividends $ 106,248 $ 18,155 $ 25,843 $ 138,327 Expenses: Mortality and expense risks, and administrative charges 15,624 8,121 6,124 10,035 ----------- ----------- ----------- ----------- Net investment income (loss) during the period 90,624 10,034 19,719 128,292 Net realized gain (loss) during the period 11,160 4,995 (115,710) (137,729) Unrealized appreciation (depreciation) during the period (159,712) 66,747 (220,068) (157,193) ----------- ----------- ----------- ----------- Net increase (decrease) in assets from operations (57,928) 81,776 (316,059) (166,630) ----------- ----------- ----------- ----------- Changes from principal transactions: Transfer of net premiums 961,681 187,412 506,830 677,808 Transfer on terminations (66,531) (138,365) (195,643) (251,621) Transfer on policy loans -- 57,345 11,839 (18,770) Net interfund transfers (1,076,245) 3,266,336 (18,385) (434,872) ----------- ----------- ----------- ----------- Net increase (decrease) in assets from principal transactions (181,095) 3,372,728 304,641 (27,455) ----------- ----------- ----------- ----------- Total increase (decrease) in assets (239,023) 3,454,504 (11,418) (194,085) Assets beginning of year 3,748,192 293,688 1,316,120 1,510,205 ----------- ----------- ----------- ----------- Assets end of period $ 3,509,169 $ 3,748,192 $ 1,304,702 $ 1,316,120 =========== =========== =========== ===========
* Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. See accompanying notes. 15
SUB-ACCOUNT - ------------------------------------------------------------------------------------------------ LIFESTYLE MODERATE 460 TRUST MID CAP GROWTH TRUST MID CAP INDEX TRUST - ---------------------------- ---------------------------- ---------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01* SEPT. 30/02 DEC. 31/01 - ----------- ----------- ----------- ----------- ----------- ----------- $ 22,961 $ 45,549 $ -- $ -- $ 54 $ 6,646 3,610 4,531 1,295 280 5,672 2,477 - ----------- ----------- ----------- ----------- ----------- ----------- 19,351 41,018 (1,295) (280) (5,618) 4,169 (10,575) (48,000) (25,898) (668) (7,573) (8,484) (82,019) 3,455 (110,071) 948 (338,476) 79,350 - ----------- ----------- ----------- ----------- ----------- ----------- (73,243) (3,527) (137,264) -- (351,667) 75,035 - ----------- ----------- ----------- ----------- ----------- ----------- 251,577 299,371 181,830 2,160 443,550 165,037 (32,711) (27,261) (17,347) (5,328) (40,256) (15,787) (1,639) (1,577) -- (13) -- -- (75,648) 255,068 78,812 187,330 318,225 583,037 - ----------- ----------- ----------- ----------- ----------- ----------- 141,579 525,601 243,295 184,149 721,519 732,287 - ----------- ----------- ----------- ----------- ----------- ----------- 68,336 522,074 106,031 184,149 369,852 807,322 817,107 295,033 184,149 -- 1,052,814 245,492 - ----------- ----------- ----------- ----------- ----------- ----------- $ 885,443 $ 817,107 $ 290,180 $ 184,149 $ 1,422,666 $ 1,052,814 =========== =========== =========== =========== =========== ===========
16 The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (Unaudited) (continued)
SUB-ACCOUNT -------------------------------------------------------------- MID CAP OPPORTUNITIES TRUST MID CAP STOCK TRUST ---------------------------- ---------------------------- PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED SEPT. 30/02 DEC. 31/01* SEPT. 30/02 DEC. 31/01 ----------- ----------- ----------- ----------- Income: Dividends $ -- $ -- $ -- $ -- Expenses: Mortality and expense risks, and administrative charges 332 9 7,215 3,662 ----------- ----------- ----------- ----------- Net investment income (loss) during the period (332) (9) (7,215) (3,662) Net realized gain (loss) during the period (24,433) (86) (79,484) (45,762) Unrealized appreciation (depreciation) during the period (6,073) 531 (449,717) 40,189 ----------- ----------- ----------- ----------- Net increase (decrease) in assets from operations (30,838) 436 (536,416) (9,235) ----------- ----------- ----------- ----------- Changes from principal transactions: Transfer of net premiums 68,096 11,097 245,551 290,579 Transfer on terminations (16,248) (299) (69,071) (46,475) Transfer on policy loans -- -- 76 (775) Net interfund transfers 30,556 (5,289) 1,124,359 148,323 ----------- ----------- ----------- ----------- Net increase (decrease) in assets from principal transactions 82,404 5,509 1,300,915 391,652 ----------- ----------- ----------- ----------- Total increase (decrease) in assets 51,566 5,945 764,499 382,417 Assets beginning of year 5,945 -- 762,884 380,467 ----------- ----------- ----------- ----------- Assets end of period $ 57,511 $ 5,945 $ 1,527,383 $ 762,884 =========== =========== =========== ===========
* Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. See accompanying notes. 17
SUB-ACCOUNT - ------------------------------------------------------------------------------------------------------ MID CAP VALUE TRUST MONEY MARKET TRUST OVERSEAS TRUST - ------------------------------ ------------------------------ ------------------------------ PERIOD ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/02 DEC. 31/01* SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01 - ------------ ------------ ------------ ------------ ------------ ------------ $ -- $ 300 $ 359,467 $ 1,406,181 $ 18,535 $ 280,476 7,747 354 178,858 247,839 15,747 19,262 - ------------ ------------ ------------ ------------ ------------ ------------ (7,747) (54) 180,609 1,158,342 2,788 261,214 (15,420) (121) -- -- (402,609) (947,613) (348,483) 4,715 -- -- (541,125) (133,134) - ------------ ------------ ------------ ------------ ------------ ------------ (371,650) 4,540 180,609 1,158,342 (940,946) (819,533) - ------------ ------------ ------------ ------------ ------------ ------------ 667,956 4,757 19,804,266 15,914,531 521,887 1,825,852 (97,613) (6,299) (3,100,767) (4,138,780) (241,275) (172,669) (8,480) -- 434 59,448 (18,373) (1,045) 2,849,196 131,054 (13,079,341) (12,495,921) 876,278 (707,543) - ------------ ------------ ------------ ------------ ------------ ------------ 3,411,059 129,512 3,624,592 (660,722) 1,138,517 944,595 - ------------ ------------ ------------ ------------ ------------ ------------ 3,039,409 134,052 3,805,201 497,620 197,571 125,062 134,052 -- 40,817,893 40,320,273 3,057,649 2,932,587 - ------------ ------------ ------------ ------------ ------------ ------------ $ 3,173,461 $ 134,052 $ 44,623,094 $ 40,817,893 $ 3,255,220 $ 3,057,649 ============ ============ ============ ============ ============ ============
18 The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (Unaudited) (continued)
SUB-ACCOUNT ------------------------------------------------------------------ PACIFIC RIM EMERGING MARKETS TRUST QUANTITATIVE EQUITY TRUST ------------------------------ ------------------------------ PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01 ------------ ------------ ------------ ------------ Income: Dividends $ 4,494 $ 17,876 $ 74,512 $ 5,763,630 Expenses: Mortality and expense risks, and administrative charges 18,846 28,589 128,452 245,827 ------------ ------------ ------------ ------------ Net investment income (loss) during the period (14,352) (10,713) (53,940) 5,517,803 Net realized gain (loss) during the period (111,679) (544,084) (2,020,857) 3,969 Unrealized appreciation (depreciation) during the period (278,733) (363,220) (8,378,081) (16,124,132) ------------ ------------ ------------ ------------ Net increase (decrease) in assets from operations (404,764) (918,017) (10,452,878) (10,602,360) ------------ ------------ ------------ ------------ Changes from principal transactions: Transfer of net premiums 373,874 893,495 2,263,481 3,856,667 Transfer on terminations (216,356) (370,974) (2,418,269) (4,824,890) Transfer on policy loans 8,851 9,636 45,761 (204,485) Net interfund transfers (808,417) (753,963) (2,828,920) (1,271,560) ------------ ------------ ------------ ------------ Net increase (decrease) in assets from principal transactions (642,048) (221,806) (2,937,947) (2,444,268) ------------ ------------ ------------ ------------ Total increase (decrease) in assets (1,046,812) (1,139,823) (13,390,825) (13,046,628) Assets beginning of year 3,999,341 5,139,164 33,132,109 46,178,737 ------------ ------------ ------------ ------------ Assets end of period $ 2,952,529 $ 3,999,341 $ 19,741,284 $ 33,132,109 ============ ============ ============ ============
See accompanying notes. 19
SUB-ACCOUNT - ------------------------------------------------------------------------------------ QUANTITATIVE REAL ESTATE SECURITIES SCIENCE AND TECHNOLOGY MID CAP TRUST TRUST TRUST - ------------ ------------------------------ ------------------------------ PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/02 SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01 - ------------ ------------ ------------ ------------ ------------ $ -- $ 679,289 $ 565,952 $ -- $ 2,074,187 17 100,857 114,582 109,348 208,115 - ------------ ------------ ------------ ------------ ------------ (17) 578,432 451,370 (109,348) 1,866,072 (808) 150,979 15,488 (17,260,711) (23,439,867) (601) (268,147) 23,813 1,032,032 799,159 - ------------ ------------ ------------ ------------ ------------ (1,426) 461,264 490,671 (16,338,027) (20,774,636) - ------------ ------------ ------------ ------------ ------------ 50,544 2,931,495 2,354,244 5,987,627 15,791,038 (1,402) (1,392,334) (2,137,436) (1,969,273) (2,038,794) -- 15,387 (128,228) 43,116 7,147 (40,693) 566,552 2,063,609 (1,512,752) (5,452,439) - ------------ ------------ ------------ ------------ ------------ 8,449 2,121,100 2,152,189 2,548,718 8,306,952 - ------------ ------------ ------------ ------------ ------------ 7,023 2,582,364 2,642,860 (13,789,309) (12,467,684) -- 19,809,218 17,166,358 29,690,730 42,158,414 - ------------ ------------ ------------ ------------ ------------ $ 7,023 $ 22,391,582 $ 19,809,218 $ 15,901,421 $ 29,690,730 ============ ============ ============ ============ ============
20 The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (Unaudited) (continued)
SUB-ACCOUNT -------------------------------------------------------------- SMALL COMPANY BLEND SMALL CAP INDEX TRUST TRUST ---------------------------- ---------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01 ----------- ----------- ----------- ----------- Income: Dividends $ -- $ 10,858 $ 7,812 $ 9,171 Expenses: Mortality and expense risks, and administrative charges 7,150 1,175 18,849 14,376 ----------- ----------- ----------- ----------- Net investment income (loss) during the period (7,150) 9,683 (11,037) (5,205) Net realized gain (loss) during the period (154,686) (22,401) (226,386) (529,157) Unrealized appreciation (depreciation) during the period (517,610) 5,971 (1,237,168) 632,730 ----------- ----------- ----------- ----------- Net increase (decrease) in assets from operations (679,446) (6,747) (1,474,591) 98,368 ----------- ----------- ----------- ----------- Changes from principal transactions: Transfer of net premiums 916,936 108,743 759,828 979,340 Transfer on terminations (42,258) (5,551) 33,082 (102,979) Transfer on policy loans 681 (630) 1,424 (1,125) Net interfund transfers 1,167,626 547,601 1,257,519 870,424 ----------- ----------- ----------- ----------- Net increase (decrease) in assets from principal transactions 2,042,985 650,163 2,051,853 1,745,660 ----------- ----------- ----------- ----------- Total increase (decrease) in assets 1,363,539 643,416 577,262 1,844,028 Assets beginning of year 687,114 43,698 3,178,735 1,334,707 ----------- ----------- ----------- ----------- Assets end of period $ 2,050,653 $ 687,114 $ 3,755,997 $ 3,178,735 =========== =========== =========== ===========
* Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. See accompanying notes. 21
SUB-ACCOUNT - ------------------------------------------------------------------------------------------------------ SMALL COMPANY VALUE TRUST STRATEGIC BOND TRUST STRATEGIC GROWTH TRUST - ------------------------------ ------------------------------ ------------------------------ PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01* - ------------ ------------ ------------ ------------ ------------ ------------ $ 52,194 $ 6,135 $ 160,273 $ 80,052 $ -- $ -- 37,287 21,354 14,212 11,568 3,160 1,198 - ------------ ------------ ------------ ------------ ------------ ------------ 14,907 (15,219) 146,061 68,484 (3,160) (1,198) (67,420) 56,062 (24,940) (24,852) (173,558) (1,048) (1,351,902) 255,780 (14,802) 36,476 (149,433) 42,935 - ------------ ------------ ------------ ------------ ------------ ------------ (1,404,415) 296,623 106,319 80,108 (326,151) 40,689 - ------------ ------------ ------------ ------------ ------------ ------------ 2,230,991 1,135,468 694,008 270,389 384,475 14,734 (332,145) (194,581) (170,875) (93,614) (78,709) 7,320 (9,334) (10,873) (5,348) (51,468) -- -- 4,410,866 1,662,081 200,026 1,620,314 81,531 693,970 - ------------ ------------ ------------ ------------ ------------ ------------ 6,300,378 2,592,095 717,811 1,745,621 387,297 716,024 - ------------ ------------ ------------ ------------ ------------ ------------ 4,895,963 2,888,718 824,130 1,825,729 61,146 756,713 5,349,826 2,461,108 2,855,362 1,029,633 756,713 -- - ------------ ------------ ------------ ------------ ------------ ------------ $ 10,245,789 $ 5,349,826 $ 3,679,492 $ 2,855,362 $ 817,859 $ 756,713 ============ ============ ============ ============ ============ ============
22 The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (Unaudited) (continued)
SUB-ACCOUNT -------------------------------------------------------------- STRATEGIC OPPORTUNITIES TRUST TACTICAL ALLOCATION TRUST ----------------------------- ---------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED SEPT. 30/02 DEC. 31/01 SEPT. 30/02 DEC. 31/01 ----------- ---------- ----------- ---------- Income: Dividends $ -- $ 2,218,057 $ -- $ 537 Expenses: Mortality and expense risks, and administrative charges 48,817 92,932 259 185 ----------- ----------- --------- --------- Net investment income (loss) during the period (48,817) 2,125,125 (259) 352 Net realized gain (loss) during the period (1,803,103) (5,224,037) (6,422) (10,966) Unrealized appreciation (depreciation) during the period (3,505,806) (449,024) (3,080) 132 ----------- ----------- --------- --------- Net increase (decrease) in assets from operations (5,357,726) (3,547,936) (9,761) (10,482) ----------- ----------- --------- --------- Changes from principal transactions: Transfer of net premiums 2,084,583 5,381,675 11,640 12,503 Transfer on terminations (559,506) (992,898) (616) (1,918) Transfer on policy loans (32,104) 23,131 -- -- Net interfund transfers 2,310,786 (5,638,761) (75,563) 82,506 ----------- ----------- --------- --------- Net increase (decrease) in assets from principal transactions 3,803,759 (1,226,853) (64,539) 93,091 ----------- ----------- --------- --------- Total increase (decrease) in assets (1,553,967) (4,774,789) (74,300) 82,609 Assets beginning of year 9,806,062 14,580,851 82,609 -- ----------- ----------- --------- --------- Assets end of period $ 8,252,095 $ 9,806,062 $ 8,309 $ 82,609 =========== =========== ========= =========
* Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. See accompanying notes. 23
Sub-Account -------------------------------------------------------------------------------------------------------------- Total Stock Market Telecommunications Trust Total Return Trust Index Trust --------------------------------- --------------------------------- --------------------------------- Period Ended Period Ended Period Ended Year Ended Period Ended Year Ended Sept. 30/02 Dec. 31/01* Sept. 30/02 Dec. 31/01 Sept. 30/02 Dec. 31/01 ----------- ------------ ------------ ------------ ----------- ------------ $ -- $ -- $ 1,306,870 $ 234,318 $ -- $ 24,546 192 70 113,425 61,535 15,767 13,278 ------------ ------------ ------------ ------------ ------------- ----------- (192) (70) 1,193,445 172,783 (15,767) 11,268 (32,201) (55) 469,243 196,395 (165,300) (318,709) (273) (3,950) 35,982 277,899 (918,614) 99,910 ------------ ------------ ------------ ------------ ------------- ----------- (32,666) (4,075) 1,698,670 647,077 (1,099,681) (207,531) ------------ ------------ ------------ ------------ ------------- ----------- 79,296 55 6,796,890 3,312,061 1,660,146 336,664 (3,990) (249) (1,109,745) (359,550) (101,134) (100,895) -- -- 55,590 (51,927) -- -- (53,610) 30,276 7,497,902 12,577,035 (4,308) 1,698,661 ------------ ------------ ------------ ------------ ------------- ----------- 21,696 30,082 13,240,637 15,477,619 1,554,704 1,934,430 ------------ ------------ ------------ ------------ ------------- ----------- (10,970) 26,007 14,939,307 16,124,696 455,023 1,726,899 26,007 -- 20,755,404 4,630,708 3,050,162 1,323,263 ------------ ------------ ------------ ------------ ------------- ----------- $ 15,037 $ 26,007 $ 35,694,711 $ 20,755,404 $ 3,505,185 $ 3,050,162 ============ ============ ============ ============ ============= ===========
24 The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (Unaudited) (continued)
Sub-Account - -------------------------------------------------------------------------------------------------------------- U.S. Government U.S. Large Cap Securities Trust Value Trust --------------------------- ---------------------------- Period Ended Year Ended Period Ended Year Ended Sept. 30/02 Dec. 31/01 Sept. 30/02 Dec. 31/01 ----------- ---------- ----------- ---------- Income: Dividends $ 437,328 $ 290,455 $ 10,471 $ 21,133 Expenses: Mortality and expense risks, and administrative charges 53,012 38,775 14,413 16,581 ----------- ----------- ---------- --------- Net investment income (loss) during the period 384,316 251,680 (3,942) 4,552 Net realized gain (loss) during the period 136,113 45,200 (586,816) (120,809) Unrealized appreciation (depreciation) during the period 295,531 28,056 (697,328) (57,196) ----------- ----------- ---------- --------- Net increase (decrease) in assets from operations 815,960 324,936 1,288,086) (173,453) ----------- ----------- ---------- --------- Changes from principal transactions: Transfer of net premiums 4,475,026 1,522,630 928,572 1,960,789 Transfer on terminations (662,339) (445,162) (38,109) (208,867) Transfer on policy loans 53,232 (27,403) 1,175 (5,424) Net interfund transfers 1,835,282 6,043,832 (944,060) (126,044) ----------- ----------- ---------- --------- Net increase (decrease) in assets from principal transactions 5,701,201 7,093,897 (52,422) 1,620,454 ----------- ----------- ---------- --------- Total increase (decrease) in assets 6,517,161 7,418,833 (1,340,508) 1,447,001 Assets beginning of year 9,992,662 2,573,829 3,505,205 2,058,204 ----------- ----------- ---------- --------- Assets end of period $16,509,823 $ 9,992,662 $ 2,164,697 $3,505,205 =========== =========== ========== =========
* Reflects the period from commencement of operations May 1, 2001 through December 31, 2001. See accompanying notes. 25
Sub-Account ---------------------------------------------------------------------------------------------------------- Utilities Trust Value Trust 500 Index Trust ------------------------------- -------------------------------- ----------------------------- Period Ended Period Ended Period Ended Year Ended Period Ended Year Ended Sept. 30/02 Dec. 31/01* Sept. 30/02 Dec. 31/01 Sept. 30/02 Dec. 31/01 ------------ ------------ ------------ ------------ ------------ ------------ $ 2 $ 251 $ 247,450 $ 225,855 $ 34 $ 6,837 206 147 57,623 52,453 5,372 2,267 ------------ ------------ ------------ ------------ ------------ ------------ (204) 104 189,827 173,402 (5,338) 4,570 (16,851) (90) (654,050) 398,422 (244,942) (38,573) 7,891 (8,702) (3,609,925) (253,028) (303,769) (13,693) ------------ ------------ ------------ ------------ ------------ ------------ (9,164) (8,688) (4,074,148) 318,796 (554,049) (47,696) ------------ ------------ ------------ ------------ ------------ ------------ 17,481 394 2,453,726 2,580,365 1,336,167 381,978 (1,103) (478) (1,462,746) (540,089) 497,279 (35,458) -- -- (27,309) 1,379 706 2,238 (48,593) 58,874 (197,596) 4,910,592 (143,043) 375,732 ------------ ------------ ------------ ------------ ------------ ------------ (32,215) 58,790 766,075 6,952,247 1,691,109 724,490 ------------ ------------ ------------ ------------ ------------ ------------ (41,379) 50,102 (3,308,073) 7,271,043 1,137,060 676,794 50,102 -- 11,984,303 4,713,260 925,055 248,261 ------------ ------------ ------------ ------------ ------------ ------------ $ 8,723 $ 50,102 $ 8,676,230 $ 11,984,303 $ 2,062,115 $ 925,055 ============ ============ ============ ============ ============ ============
26 The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Statements of Operations and Changes in Contract Owners' Equity (Unaudited) (continued)
Total -------------------------------- Period Ended Year Ended Sept. 30/02 Dec. 31/01 ------------- ------------- Income: Dividends $ 8,876,626 $ 27,590,700 Expenses: Mortality and expense risks, and administrative charges 2,377,034 3,162,753 ------------- ------------- Net investment income (loss) during the period 6,499,592 24,427,947 Net realized gain (loss) during the period (72,460,336) (58,758,141) Unrealized appreciation (depreciation) during the period (63,002,429) (50,836,713) ------------- ------------- Net increase (decrease) in assets from operations (128,963,173) (85,166,907) ------------- ------------- Changes from principal transactions: Transfer of net premiums 117,980,289 134,837,297 Transfer on terminations (38,167,606) (44,885,104) Transfer on policy loans 194,332 (379,191) Net interfund transfers (1,407,230) (131,156) ------------- ------------- Net increase (decrease) in assets from principal transactions 78,599,785 89,441,846 ------------- ------------- Total increase (decrease) in assets (50,363,388) 4,274,939 Assets beginning of year 530,740,932 526,465,993 ------------- ------------- Assets end of period $ 480,377,544 $ 530,740,932 ============= =============
See accompanying notes. 27 The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements September 30, 2002 (Unaudited) 1. ORGANIZATION The Manufacturers Life Insurance Company (U.S.A.) Separate Account N (the "Account") is a separate account administered and sponsored by The Manufacturers Life Insurance Company (U.S.A.) ("ManUSA" or the "Company"). The Account operates as a Unit Investment Trust under the Investment Company Act of 1940, as amended (the "Act") and has sixty investment sub-accounts. Each investment sub-account invests solely in shares of a particular Manufacturers Investment Trust (the "Trust") portfolio. The Trust is registered under the Act as an open-end management investment company, commonly known as a mutual fund, which does not transact with the general public. Instead, the Trust deals exclusively with insurance companies by providing the investment medium for variable contracts. The Account is a funding vehicle for the allocation of net premiums under variable universal life insurance contracts (the "Contracts") issued by the Company. The Account was established by The Manufacturers Life Insurance Company of America ("MLA"), a life insurance company organized in 1983 under Michigan law. Effective January 1, 2002, MLA transferred all of its variable business to ManUSA via an assumption reinsurance agreement and as a result, products originally sold and administered under the name of MLA are now offered and administered under the name of ManUSA. Accordingly and effective January 1, 2002, the Account changed its name to The Manufacturers Life Insurance Company (U.S.A.) Separate Account N from The Manufacturers Life Insurance Company of America Separate Account Four. The Company is a stock life insurance company incorporated under the laws of Michigan in 1979. Both the Company and MLA are indirect, wholly owned subsidiaries of Manulife Financial Corporation ("MFC"), a Canadian based publicly traded life insurance company. The Company is required to maintain assets in the Account with a total fair value at least equal to the reserves and other liabilities relating to the variable benefits under all Contracts participating in the Account. These assets may not be charged with liabilities which arise from any other business the Company conducts. However, all obligations under the variable contracts are general corporate obligations of the Company. Additional assets are held in the Company's general account to cover the contingency that the guaranteed minimum death benefit might exceed the death benefit which would have been payable in the absence of such guarantee. 28 The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 1. ORGANIZATION (CONTINUED) As the result of portfolio changes, the following sub-account of the Account has been renamed as follows:
PREVIOUS NAME NEW NAME EFFECTIVE DATE - ------------------- ----------------------------- -------------- Mid Cap Blend Trust Strategic Opportunities Trust May 1, 2001
The following sub-accounts of the Account were added as investment options for variable universal life insurance contract holders of the Company:
COMMENCEMENT OF OPERATIONS OF THE SUB-ACCOUNTS ----------------------------- All Cap Value Trust May 1, 2001 Capital Appreciation Trust May 1, 2001 Capital Opportunities Trust May 1, 2001 Financial Services Trust May 1, 2001 Fundamental Value Trust May 1, 2001 Health Sciences Trust May 1, 2001 Mid Cap Growth Trust May 1, 2001 Mid Cap Opportunities Trust May 1, 2001 Mid Cap Value Trust May 1, 2001 Quantitative Mid Cap Trust May 1, 2001 Strategic Growth Trust May 1, 2001 Telecommunications Trust May 1, 2001 Utilities Trust May 1, 2001
2. SIGNIFICANT ACCOUNTING POLICIES Investments of each sub-account consist of shares in the respective portfolios of the Trust. These shares are stated at fair value and are calculated using the fair value of the investment securities underlying each Trust portfolio. Transactions are recorded on the trade date. Income from dividends is recorded on the ex-dividend date. Realized gains and losses on the sale of investments are computed on the basis of the specifically identified cost of the investment sold. 29 The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) In addition to the Account, a contract holder may also allocate funds to the fixed account contained within the Company's general account. Because of exemptive and exclusionary provisions, interests in the fixed account have not been registered under the Securities Act of 1933 and the Company's general account has not been registered as an investment company under the Act. The operations of the Account are included in the federal income tax return of the Company, which is taxed as a life insurance company under the provisions of the Internal Revenue Code (the "Code"). Under the current provisions of the Code, the Company does not expect to incur federal income taxes on the earnings of the Account to the extent the earnings are credited under the Contracts. Based on this, no charge is being made currently to the Account for federal income taxes. The Company will periodically reassess this position taking into account changes in the tax law. Such a charge may be made in future years for any federal income taxes that would be attributable to the Contract. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported herein. Actual results could differ from these estimates. 3. MORTALITY AND EXPENSE RISKS CHARGE The Company deducts from the assets of the Account a daily charge equivalent to annual rates between 0.40% and 0.65% of the average net value of the Account's assets for the assumption of mortality and expense risks. 4. CONTRACT CHARGES The Company deducts certain charges from gross premium before placing the remaining net premiums in the sub-account. In the event of a surrender, surrender charges may be made by the Company to cover sales expenses and administrative expenses associated with underwriting the policy issue. Each month a deduction consisting of an administration charge, a charge for cost of insurance and a charge for supplementary benefits is deducted from the policy value. 30 The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 5. PURCHASES AND SALES The cost of purchases and proceeds from sales of investments for the nine month period ended September 30, 2002 were as follows:
PURCHASES SALES -------------------------------- SUB-ACCOUNTS: Aggressive Growth Trust $ 3,774,009 $ 3,243,860 All Cap Growth Trust 6,064,502 6,219,213 All Cap Value Trust 872,937 522,805 Balanced Trust 4,132,934 6,342,943 Blue Chip Growth Trust 29,929,447 28,367,215 Capital Appreciation Trust 335,530 97,142 Capital Opportunities Trust 202,068 23,551 Diversified Bond Trust 13,640,470 12,767,946 Dynamic Growth Trust 591,912 327,314 Emerging Small Company Trust 17,273,296 18,568,360 Equity-Income Trust 23,723,668 13,911,129 Equity Index Trust 25,681,144 27,385,528 Financial Services Trust 396,452 104,357 Fundamental Value Trust 359,117 200,124 Global Bond Trust 2,667,431 1,878,126 Global Equity Trust 3,507,305 2,245,087 Growth Trust 6,203,676 6,551,415 Growth & Income Trust 18,604,672 16,741,387 Health Sciences Trust 2,484,068 769,190 High Yield Trust 7,114,600 5,003,436 Income & Value Trust 9,240,699 6,192,761 International Index Trust 173,962 107,770 International Small Cap Trust 2,840,856 1,710,686 International Stock Trust 15,510,267 13,932,535 International Value Trust 2,830,187 992,622 Internet Technologies Trust 135,167 192,881 Investment Quality Bond Trust 9,508,708 6,053,420 Large Cap Growth Trust 5,676,387 3,604,136 Lifestyle Aggressive 1000 Trust 100,244 156,031 Lifestyle Balanced 640 Trust 5,924,507 2,728,250 Lifestyle Conservative 280 Trust 2,471,033 2,561,503 Lifestyle Growth 820 Trust 939,847 615,487 Lifestyle Moderate 460 Trust 532,968 372,038 Mid Cap Growth Trust 397,668 155,668 Mid Cap Index Trust 1,329,805 613,904 Mid Cap Opportunities Trust 509,918 427,846 Mid Cap Stock Trust 1,880,442 586,742 Mid Cap Value Trust 5,036,224 1,632,913 Money Market Trust 54,739,503 50,934,303 Overseas Trust 2,341,271 1,199,966 Pacific Rim Emerging Markets Trust 1,578,390 2,234,789 Quantitative Equity Trust 2,860,232 5,852,120 Quantitative Mid Cap Trust 55,159 46,728 Real Estate Securities Trust 14,560,426 11,860,895 Science and Technology Trust 19,532,863 17,093,493 Small Cap Index Trust 3,229,207 1,193,372 Small Company Blend Trust 4,419,651 2,378,837
31 The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 5. Purchases and Sales (continued)
Purchases Sales ---------------------------------- Sub-Accounts: Small Company Value Trust $ 15,732,899 $ 9,417,613 Strategic Bond Trust 5,663,419 4,799,547 Strategic Growth Trust 2,611,093 2,226,955 Strategic Opportunities Trust 7,217,853 3,462,910 Tactical Allocation Trust 216,875 281,673 Telecommunications Trust 153,987 132,485 Total Return Trust 42,281,657 27,847,575 Total Stock Market Index Trust 2,519,322 980,385 U.S. Government Securities Trust 15,888,459 9,802,941 U.S. Large Cap Value Trust 4,199,644 4,256,007 Utilities Trust 72,522 104,941 Value Trust 8,599,953 7,644,049 500 Index Trust 4,706,046 3,020,275 ------------ -------------- $445,778,558 $ 360,679,180 ============ ==============
6. Financial Highlights The Account is a funding vehicle for a number of variable universal life insurance products which have unique combinations of features and fees that are charged against the contract owner's account balance. Differences in the fee structures result in a variety of unit values, expense ratios and total returns. The following table was developed by determining which products offered by the Company have the lowest and highest total return. Only product designs within each sub-account that had units outstanding during period were considered when determining the lowest and highest total return. The summary may not reflect the minimum and maximum contract charges offered by the Company as contract owners may not have selected all available and applicable contract options as discussed in note 3. 32 The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 6. Financial Highlights (continued)
For the period ended As at September 30, 2002 September 30, 2002 -------------------------------------------------------------------------------------------- Expense Investment Ratio** Total Return*** Unit Net Income lowest to lowest to highest Units Value Assets Ratio* highest Gain(Loss) ------------------------------------------------------------------------------------------ Sub-Accounts: Aggressive Growth Trust 430,627 $7.66 to $10.59 $ 3,974,750 - .45% to .65% (29.24%) to (29.13%) All Cap Growth Trust 589,156 6.94 to 13.40 7,237,144 - .45 to .65 (28.55) to (28.45) All Cap Value Trust 20,436 7.85 to 7.87 160,426 - .45 to .65 (37.50) to (37.40) Balanced Trust 1,085,768 7.91 to 21.29 22,948,198 2.46% .40 to .65 (19.80) to (19.65) Blue Chip Growth Trust 2,107,837 7.43 to 13.94 26,547,774 - .40 to .65 (29.91) to (29.77) Capital Appreciation Trust 32,345 7.41 to 7.74 239,508 - .45 to .65 (33.07) to (32.96) Capital Opportunities Trust 30,823 7.09 to 7.11 219,258 - .45 to .65 (33.41) to (33.31) Diversified Bond Trust 536,875 15.11 to 15.55 8,296,424 3.92 .45 to .65 4.23 to 4.39 Dynamic Growth Trust 173,474 3.33 to 4.72 577,103 - .45 to .65 (29.55) to (29.42) Emerging Small Company Trust 1,127,174 7.34 to 49.95 38,560,676 - .40 to .65 (37.30) to (37.18) Equity-Income Trust 1,394,858 10.70 to 14.58 19,644,606 1.26 .40 to .65 (20.81) to (20.67) Equity Index Trust 2,067,789 7.26 to 13.04 25,408,217 1.10 .40 to .65 (28.71) to (28.57) Financial Services Trust 35,231 8.85 to 8.88 312,290 - .45 to .65 (23.58) to (23.47) Fundamental Value Trust 35,989 9.17 to 9.20 330,343 0.09 .45 to. 65 (21.45) to (21.34) Global Bond Trust 169,784 14.18 to 15.03 2,504,822 - .45 to .65 13.82 to 13.99 Global Equity Trust 317,741 8.92 to 11.76 3,487,735 1.18 .45 to .65 (24.38) to (24.27) Growth Trust 930,852 5.33 to 9.75 8,306,984 - .45 to .65 (31.23) to (31.13) Growth & Income Trust 1,701,670 7.20 to 12.88 19,105,668 0.60 .40 to .65 (31.10) to (30.97) Health Sciences Trust 158,921 9.61 to 9.64 1,529,590 - .45 to .65 (28.70) to (28.59) High Yield Trust 533,895 9.64 to 11.48 5,973,843 7.73 .40 to .65 (10.94) to (10.75) Income &Value Trust 852,323 10.05 to 11.98 9,732,208 2.10 .40 to .65 (24.35) to (24.20) International Index Trust 31,123 6.76 to 6.74 209,793 - .45 to .65 (22.10) to (21.97) International Small Cap Trust 343,594 6.34 to 10.17 2,871,305 - .45 to .65 (18.01) to (17.89) International Stock Trust 1,285,371 6.86 to 8.45 10,691,363 0.43 .40 to .65 (25.61) to (25.47) International Value Trust 377,385 8.15 to 8.45 3,077,764 0.71 .40 to .65 (24.13) to (23.99) Internet Technologies Trust 16,701 1.88 to 1.89 31,457 - .45 to .65 (49.83) to (49.75) Investment Quality Bond Trust 1,397,771 15.44 to 17.80 24,625,581 5.20 .40 to .65 7.27 to 7.48 Large Cap Growth Trust 794,262 6.82 to 9.60 7,207,964 0.32 .40 to .65 (27.44) to (27.31) Lifestyle Aggressive 1000 Trust 42,852 10.05 to 10.09 430,757 0.78 .45 to .65 (26.53) to (26.41) Lifestyle Balanced 640 Trust 572,046 10.56 to 13.45 7,644,610 3.46 .45 to .65 (15.53) to (15.41) Lifestyle Conservative 280 Trust 213,388 13.59 to 16.74 3,506,169 3.25 .45 to .65 (1.71) to (1.56) Lifestyle Growth 820 Trust 112,396 9.10 to 11.84 1,304,702 2.02 .45 to .65 (21.78) to (21.65) Lifestyle Moderate 460 Trust 59,074 11.93 to 15.08 885,443 3.01 .55 to .65 (8.12) to (8.05) Mid Cap Growth Trust 44,125 6.57 to 6.59 290,180 - .45 to .65 (36.99) to (36.89) Mid Cap Index Trust 136,716 10.40 to 10.44 1,422,666 - .45 to .65 (20.12) to (20.00) Mid Cap Opportunities Trust 8,237 6.97 to 6.98 57,511 - .45 to .65 (33.94) to (33.84) Mid Cap Stock Trust 201,333 7.58 to 8.02 1,527,383 - .40 to .65 (28.39) to (28.26) Mid Cap Value Trust 289,243 10.96 to 10.99 3,173,461 - .45 to .65 (15.87) to (15.75) Money Market Trust 2,426,451 13.69 to 19.03 44,623,094 0.91 .40 to .65 0.43 to 0.60 Overseas Trust 365,578 6.94 to 9.01 3,255,220 0.52 .45 to .65 (23.93) to (23.81) Pacific Rim Emerging Markets Trust 454,414 6.11 to 6.94 2,952,529 0.11 .45 to .65 (11.90) to (11.77) Quantitative Equity Trust 665,754 6.99 to 33.69 19,741,283 0.28 .45 to .65 (34.05) to (33.95) Quantitative Mid Cap Trust 899 7.79 to 7.81 7,023 - .45 to .65 (23.32) to (23.20) Real Estate Securities Trust 559,024 16.49 to 42.19 22,391,582 3.13 .40 to .65 3.01 to 3.20 Science and Technology Trust 2,885,167 2.84 to 7.49 15,901,421 - .40 to .65 (50.67) to (50.58) Small Cap Index Trust 235,635 8.69 to 8.72 2,050,653 - .40 to .65 (26.07) to (25.93)
33 The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 6. Financial Highlights (continued)
For the period ended As at September 30, 2002 September 30, 2002 ------------------------------------------------------------------------------------------------ Expense Investment Ratio** Total Return*** Unit Net Income lowest to lowest to highest Units Value Assets Ratio* highest Gain(Loss) ---------------------------------------------------------------------------------------------- Sub-Accounts: Small Company Blend Trust 442,615 $7.59 to $8.65 $ 3,755,997 0.20% .45% to .65% (30.37%) to (30.26%) Small Company Value Trust 1,122,778 8.92 to 13.22 10,245,789 0.27 .40 to .65 (12.11) to (11.95) Strategic Bond Trust 229,157 14.76 to 16.31 3,679,492 5.33 .45 to .65 4.05 to 4.20 Strategic Growth Trust 116,023 7.04 to 7.06 817,859 - .40 to .65 (35.88) to (35.77) Strategic Opportunities Trust 1,029,656 6.35 to 8.55 8,252,095 - .45 to .65 (41.11) to (41.03) Tactical Allocation Trust 1,132 7.34 to 7.36 8,309 - .45 to .65 (29.23) to (29.12) Telecommunications Trust 3,983 3.77 to 3.78 15,037 - .45 to .65 (52.32) to (52.24) Total Return Trust 2,297,165 15.51 to 15.57 35,694,711 2.89 .40 to .65 6.19 to 6.38 Total Stock Market Index Trust 488,577 7.17 to 7.20 3,505,185 - .45 to .65 (27.21) to (27.11) U.S. Government Securities Trust 1,120,994 14.46 to 15.44 16,509,823 3.68 .40 to .65 6.26 to 6.46 U.S. Large Cap Value Trust 260,192 8.31 to 8.36 2,164,697 0.33 .40 to .65 (34.17) to (34.05) Utilities Trust 1,340 6.49 to 6.51 8,723 - .45 to .65 (30.23) to (30.13) Value Trust 727,013 10.78 to 12.10 8,676,230 0.80 .40 to .65 (30.13) to (30.00) 500 Index Trust 294,240 6.97 to 7.03 2,062,115 - .40 to .65 (28.80) to (28.67)
* These ratios represent the dividends, excluding distributions of capital gains, received by the sub-account from the underlying Trust portfolio, net of management fees assessed by the Trust portfolio adviser, divided by the average net assets of the sub-account. These ratios exclude those expenses, such as mortality and expense charges, that result in direct reduction in unit values. The recognition of investment income by the sub-account is affected by the timing of the declaration of dividends by the underlying Trust portfolio in which the sub-accounts invest. It is the practice of the Trust, for income tax reasons, to declare dividends in April for investment income received in the previous calendar year for all sub-accounts of the Trust except the Money Market Trust which declares and reinvests dividends on a daily basis. Any dividend distribution received from a sub-account of the Trust is reinvested immediately, at net asset value, in shares of that sub-account and retained as assets of the corresponding sub-account so that the unit value of the sub-account is not affected by the declaration and reinvestment of dividends. ** These ratios represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges, for the period indicated. The ratios include only those expenses that result in a direct reduction in unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying Trust portfolio are excluded. \ *** These ratios represent the total return for the period indicated, including changes in the value of the underlying Trust portfolio, and reflect deductions for all items included in the expense ratio. The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented. 34 The Manufacturers Life Insurance Company (U.S.A.) Separate Account N Notes to Financial Statements (continued) 7. RELATED PARTY TRANSACTIONS Manulife Financial Securities LLC, a registered broker-dealer and wholly owned subsidiary of ManUSA, acts as the principal underwriter of the Contracts pursuant to a distribution agreement with the Company. Registered representatives of either Manulife Financial Securities LLC or other broker-dealers having distribution agreements with Manulife Financial Securities LLC who are also authorized as variable life insurance agents under applicable state insurance laws sell the Contracts. Registered representatives are compensated on a commission basis. These underwriting and distribution services had been performed by ManEquity, Inc. before it was merged into Manulife Financial Securities LLC on January 1, 2002. ManEquity, Inc. was also an indirect wholly owned subsidiary of MFC. The Company has a formal service agreement with its ultimate parent company, MFC, which can be terminated by either party upon two months notice. Under this agreement, the Company pays for legal, actuarial, investment and certain other administrative services. 8. SUBSEQUENT EVENT As the result of portfolio changes, the following sub-account of the Account will be renamed as follows: PREVIOUS NAME NEW NAME EFFECTIVE DATE - ------------- ------------------ ----------------- Growth Trust All Cap Core Trust November 25, 2002 35 PART 2 OTHER INFORMATION PART II. OTHER INFORMATION Representation of Insurer Pursuant to Section 26 of the Investment Company Act of 1940 The Manufacturers Life Insurance Company (U.S.A.) hereby represents that the fees and charges deducted under the policies issued pursuant to this registration statement in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the Company. CONTENTS OF REGISTRATION STATEMENT This registration statement comprises the following papers and documents: The facing sheet; Cross-Reference Sheet; The Prospectus, consisting of 48 pages; Representation of Insurer Pursuant to Section 26 of the Investment Company Act of 1940 The signatures; Written consents of the following persons: A. Opinion and Consent of James D. Gallagher, Attorney - FILED HEREWITH B. Ernst & Young LLP - FILED HEREWITH C. Opinion and Consent of Actuary - FILED BY HEREWITH The following exhibits are filed as part of this Registration Statement: 1. Copies of all exhibits required by paragraph A of the instructions as to exhibits in Form N-8B-2 are set forth below under designations based on such instructions: A(1) Resolutions of Board of Directors of The Manufacturers Life Insurance Company (U.S.A.) establishing Separate Account N - Incorporated by reference to Exhibit A(1) to the pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-71312 filed January 2, 2002. A(3)(a)(i) Form of Distribution Agreement. Incorporated by reference to Exhibit A(3)(a)(i) to the registration statement on Form S-6, file number 333-66303 filed October 29, 1998 (the "SVUL Registration Statement"). A(3)(a)(ii) Form of Amendment to Distribution Agreement. Incorporated by reference to Exhibit A(3)(a)(ii) to the SVUL Registration Statement. A(3)(a)(iii) Form of Amendment to Distribution Agreement. Incorporated by reference to Exhibit A(3)(a)(iii) to the SVUL Registration Statement. A(3)(b) Form of broker-dealer agreement. Incorporated by reference to exhibit A(3)(b) to the initial registration statement on Form S-6, File Number 333-70950, filed October 4, 2001 A(5)(a) Form of Flexible Premium Variable Life Insurance Policy - FILED HEREWITH. A(6)(a) Restated Articles of Redomestication of The Manufacturers Life Insurance Company (U.S.A.) - Incorporated by reference to Exhibit A(6) to the registration statement filed July 20, 2000 (File No. 333-41814) (the "Initial Registration Statement") A(6)(b) By-Laws of The Manufacturers Life Insurance Company (U.S.A.) - Incorporated by reference to Exhibit A(6)(b) to the Initial Registration Statement. A(8)(a)(i) Form of Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated June 1, 1988. Incorporated by reference to Exhibit A(8)(a)(i) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(8)(a)(ii) Form of Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated December 31, 1992. Incorporated by reference to Exhibit A(8)(a)(ii) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(8)(a)(iii) Form of Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated May 31, 1993. Incorporated by reference to Exhibit A(8)(a)(iii) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(8)(a)(iv) Form of Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated June 30, 1993. Incorporated by reference to Exhibit A(8)(a)(iv) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(8)(a)(v) Form of Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated December 31, 1996. Incorporated by reference to Exhibit A(8)(a)(v) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(8)(a)(vi) Form of Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated May 31, 1998. Incorporated by reference to Exhibit A(8)(a)(vi) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(8)(a)(vii) Form of Amendment to Service Agreement between The Manufacturers Life Insurance Company and The Manufacturers Life Insurance Company of America dated December 31, 1998. Incorporated by reference to Exhibit A(8)(a)(vii) to post-effective amendment No. 11 to the registration statement on Form N-4, file number 33-57018 filed March 1, 1999. A(8)(b) Form of Stoploss Reinsurance Agreement. Incorporated by reference to Exhibit A(8)(b) to the SVUL Registration Statement. A(8)(c)(i) Form of Service Agreement. Incorporated by reference to Exhibit A(8)(c)(i) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(8)(c)(ii) Form of Amendment to Service Agreement. Incorporated by reference to Exhibit A(8)(c)(ii) to pre-effective amendment no. 1 to the registration statement on Form S-6, file number 333-51293 filed August 28, 1998. A(10)(a)(i) Form of Application for Flexible Premium Variable Life Insurance Policy. Incorporated by reference to Exhibit A(10) to pre- effective amendment no. 1 to the registration statement on Form S-6, file number 33-51293, filed August 28, 1998. A(10)(b) Form of Assumption Reinsurance Agreement with The Manufacturers Life Insurance Company (U.S.A.) and The Manufacturers Life Insurance Company of America, incorporated by reference to the initial registration statement on for S-6, file number 333-70950, filed October 4, 2001 2. Consents of the following: A. Opinion and consent of James D. Gallagher, Esq., Secretary and General Counsel of The Manufacturers Life Insurance Company of America - FILED HEREWITH B. B. Opinion and consent of Brian Koop, Actuary, of The Manufacturers Life Insurance Company of America - FILED HEREWITH C. Consent of Ernst & Young LLP- FILED HEREWITH 3. No financial statements are omitted from the prospectus pursuant to instruction 1(b) or (c) of Part I. 4. Not applicable. 6. Memorandum Regarding Issuance, Face Amount Increase, Redemption and Transfer Procedures for the Policies. - FILED HEREWITH 7. Powers of Attorney (i) (Robert A. Cook, John DesPrez III, Geoffrey Guy, James O'Malley, Joseph J. Pietroski, Rex Schlaybaugh) incorporated by reference to exhibit 7 to initial registration statement on Form S-6, file number 333-41814 filed July 20, 2000 on behalf of The Manufacturers Life Insurance Company (U.S.A.) (ii) Powers of Attorney (John Ostler) incorporated by reference to exhibit 7(ii) of the initial registration statement on Form S-6, file number 333-70950, filed October 4, 2001 (iii) Powers of Attorney (Jim Boyle, John Lyon incorporated by reference to exhibit 7(iii) of the initial registration statement on Form S-6, file number 333-70950, filed October 4, 2001 (iv) Power of Attorney (Steven Mannik) - Incorporated by reference to exhibit 7(iv) of post-effective amendment no. 1 on Form S-6, filed number 71312 8. Undertakings Article XII of the Restated Articles of Redomestication of The Manufacturers Life Insurance Company (U.S.A.) provides as follows: No director of this Corporation shall be personally liable to the Corporation or its shareholders or policyholders for monetary damages for breach of the director's fiduciary duty, provided that the foregoing shall not eliminate or limit the liability of a director for any of the following: i) a breach of the director's duty or loyalty to the Corporation or its shareholders or policyholders; ii) acts or omissions not in good faith or that involve intentional misconduct or knowing violation of law; iii) a violation of Sections 5036, 5276 or 5280 of the Michigan Insurance Code, being MCLA 500.5036, 500.5276 and 500.5280; iv) a transaction from which the director derived an improper personal benefit; or v) an act or omission occurring on or before the date of filing of these Articles of Incorporation. If the Michigan Insurance Code is hereafter amended to authorize the further elimination or limitation of the liability of directors. then the liability of a director of the Corporation, in addition to the limitation on personal liability contained herein, shall be eliminated or limited to the fullest extent permitted by the Michigan Insurance Code as so amended. No amendment or repeal of this Article XII shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to the effective date of any such amendment or repeal. Notwithstanding the foregoing, Registrant hereby makes the following undertaking pursuant to Rule 484 under the Securities Act of 1933: Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has caused this amendment to the Registration Statement to be signed on its behalf in the City of Boston, Massachusetts, on this 16th day of December, 2002. SEPARATE ACCOUNT N OF THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) (Registrant) By: THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) (Depositor) By: /s/John D. DesPrez III ---------------------- John D. DesPrez III President Pursuant to the requirements of the Securities Act of 1933, the Depositor has duly caused this Registration Statement to be signed by the undersigned on the 16th day of December, 2002 in the City of Boston, Massachusetts. THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) By: /s/John D. DesPrez III ---------------------- John D. DesPrez III President SIGNATURES Pursuant to the requirements of the Securities Act of 1933, this amended Registration Statement has been signed by the following persons in the capacities indicated on this 16th day of December, 2002.
Signature Title * Chairman and President - ----------------------------- (Principal Executive Officer) John D. DesPrez III * Executive Vice President and - ----------------------------- (Chief Financial Officer) John Ostler * Director - ----------------------------- James Boyle * Director - ----------------------------- Robert A. Cook * Director - ----------------------------- Geoffrey Guy * Director - ----------------------------- James O'Malley * Director - ----------------------------- Steve Mannik * Director - ----------------------------- John Lyon * Director - ----------------------------- Rex Schlaybaugh, Jr. */s/James D. Gallagher --------------------- JAMES D. GALLAGHER Pursuant to Power of Attorney
333-____ New COLI Dec 2002 EXHIBIT INDEX Item No. Description A(5)(A) FORM OF FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY 2. Consents of the following: A. Opinion and consent of James D. Gallagher, Esq., Secretary and General Counsel of the Manufacturers Life Insurance Company of America B. B. Opinion and consent of Brian Koop, Actuary, of The Manufacturers Life Insurance Company of America C. Consent of Ernst & Young LLP 6. Memorandum Regarding Issuance, Face Amount Increase, Redemption and Transfer Procedures for the Policies. EX-99.A(5)(A) 3 b44883clexv99wax5yxay.txt FORM OF FLEXIBLE PREMIUM VARIABLE LIFE INSUR. POL. - -------------------------------------------------------------------------------- LIFE INSURED JOHN M DOE POLICY NUMBER 12 345 678 - -------------------------------------------------------------------------------- FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY. ADJUSTABLE DEATH BENEFIT. FLEXIBLE PREMIUMS PAYABLE TO ATTAINED AGE 100 DURING THE LIFE INSURED'S LIFETIME. CASH SURRENDER VALUES AND BENEFITS FOR A PORTION OF THE POLICY VALUES ALLOCATED TO AN INVESTMENT ACCOUNT REFLECT THE INVESTMENT EXPERIENCE OF THE UNDERLYING SUB-ACCOUNTS. INVESTMENT OPTIONS ARE DESCRIBED IN THE POLICY VALUE COMPOSITION AND THE INVESTMENT OPTIONS PROVISIONS. NON-PARTICIPATING (NOT ELIGIBLE FOR DIVIDENDS). - -------------------------------------------------------------------------------- In this policy "you" and "your" refer to the owner of the policy. "We", "us" and "our" refer to The Manufacturers Life Insurance Company (U.S.A.). If the life insured dies while the policy is in force, we will pay the Insurance Benefit to the beneficiary, subject to the provisions of the policy. The life insured and the beneficiary are named in the Policy Information section of this policy and in the application for this policy, a copy of which is attached to this policy. The death benefit is described in the Insurance Benefit provision. YOUR NET PREMIUMS ARE ADDED TO YOUR POLICY VALUE. YOU MAY ALLOCATE THEM TO ONE OR MORE OF THE INVESTMENT ACCOUNTS AND TO THE FIXED ACCOUNT. THE PORTION OF YOUR POLICY VALUE THAT IS IN AN INVESTMENT ACCOUNT WILL VARY FROM DAY TO DAY. THE AMOUNT IS NOT GUARANTEED; IT MAY INCREASE OR DECREASE, DEPENDING ON THE INVESTMENT EXPERIENCE OF THE UNDERLYING SUB-ACCOUNTS FOR THE INVESTMENT ACCOUNTS THAT YOU HAVE CHOSEN. THE PORTION OF YOUR POLICY VALUE THAT IS IN THE FIXED ACCOUNT WILL ACCUMULATE, AFTER DEDUCTIONS, AT RATES OF INTEREST WE DETERMINE. SUCH RATES WILL NOT BE LESS THAN 3% A YEAR. THE AMOUNT OF THE INSURANCE BENEFIT, OR THE DURATION OF THE INSURANCE COVERAGE, OR BOTH, MAY BE VARIABLE OR FIXED AS DESCRIBED IN THE INSURANCE BENEFIT PROVISION. READ YOUR POLICY CAREFULLY. IT IS A CONTRACT BETWEEN YOU AND US. RIGHT TO RETURN POLICY. IF FOR ANY REASON YOU ARE NOT SATISFIED WITH YOUR POLICY, YOU MAY RETURN IT FOR CANCELLATION WITHIN TEN DAYS AFTER RECEIVING IT BY DELIVERING OR MAILING IT TO US OR TO THE AGENT WHO SOLD IT. WE WILL REFUND IN FULL THE PAYMENT MADE. THE POLICY WILL BE VOID FROM THE BEGINNING. - -------------------------------------------------------------------------------- THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) A STOCK COMPANY /s/ John DesPrez III /s/ James D. Gallagher [LOGO] MANULIFE FINANCIAL President Secretary - -------------------------------------------------------------------------------- V0697mi TABLE OF CONTENTS Page Policy Information......................................................... 3 Table Of Guaranteed Maximum Cost Of Insurance Rates........................ 4 Definitions................................................................ 5 Qualification As Life Insurance............................................ 6 Payment Of Premiums........................................................ 6 Insurance Benefit.......................................................... 7 Policy Value............................................................... 7 Policy Value Composition................................................... 8 Separate Account and Sub-Accounts.......................................... 9 Investment Options......................................................... 10 Policy Loan Conditions..................................................... 11 Changing The Death Benefit Option or Face Amount........................... 11 Surrender For Cash......................................................... 13 Right To Postpone Payment Of Benefits...................................... 14 Termination................................................................ 14 Reinstatement.............................................................. 15 Right to Cancel Increases.................................................. 15 Age And Sex................................................................ 15 Suicide.................................................................... 15 Beneficiary................................................................ 15 Ownership And Assignment................................................... 16 Protection Against Creditors............................................... 16 Currency And Place Of Payment.............................................. 16 Contract................................................................... 16 Validity................................................................... 16 Non-participating.......................................................... 17 How Values Are Computed.................................................... 17 Annual Statement........................................................... 17 Tax Considerations......................................................... 17 A copy of the application, any endorsements and any Supplementary Benefits, follow page 17. Page 2 POLICY INFORMATION LIFE INSURED JOHN M. DOE POLICY NUMBER 12 345 678 ISSUE AGE 35 POLICY DATE AUG. 1, 2002 ISSUE DATE AUG. 1, 2002 OWNER JOHN M. DOE BENEFICIARY AS DESIGNATED IN THE APPLICATION OR SUBSEQUENTLY CHANGED PLAN FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE, NON-PARTICIPATING FACE AMOUNT $50,000 DEATH BENEFIT OPTION 1 SEX MALE PLANNED PREMIUM $1,000 PREMIUM MODE ANNUALLY BEGINNING ON AUG. 1, 2002 RISK CLASSIFICATION NON-SMOKER ADDITIONAL RATING NOT APPLICABLE THIS POLICY PROVIDES LIFE INSURANCE COVERAGE FOR THE LIFETIME OF THE LIFE INSURED IF SUFFICIENT PREMIUMS ARE PAID. PREMIUM PAYMENTS IN ADDITION TO THE PLANNED PREMIUM SHOWN MAY NEED TO BE MADE TO KEEP THIS POLICY AND COVERAGE IN FORCE. PAGE 3.0 POLICY INFORMATION (CONTINUED) -- POLICY 12 345 678 TABLE OF VALUES INITIAL ALLOCATION DATE AUG. 1, 2002 LIFE INSURANCE QUALIFICATION TEST GUIDELINE PREMIUM TEST GUIDELINE SINGLE PREMIUM $10,888.73 GUIDELINE LEVEL PREMIUM $ 925.10 MAXIMUM FIXED ACCOUNT 25% OF THE FIXED ACCOUNT VALUE AS TRANSFER AMOUNT OF THE PREVIOUS POLICY ANNIVERSARY IN ANY POLICY YEAR. DEATH BENEFIT DISCOUNT FACTOR 1.0024663 FIXED ACCOUNT MINIMUM ANNUAL RATE 3.00% LOAN INTEREST CREDITED MINIMUM 3.25% ANNUAL RATE LOAN INTEREST CHARGED RATE 4.00% MAXIMUM LOAN INTEREST CREDITED 0.75% DIFFERENTIAL FREE WITHDRAWAL PERCENTAGE 10.00% [THIS PAGE APPLIES WHEN THE GUIDELINE PREMIUM TEST IS ELECTED] PAGE 3.1 POLICY INFORMATION (CONTINUED) -- POLICY 12 345 678 TABLE OF VALUES INITIAL ALLOCATION DATE AUG. 1, 2002 LIFE INSURANCE QUALIFICATION TEST CASH VALUE ACCUMULATION TEST MAXIMUM FIXED ACCOUNT 25% OF THE FIXED ACCOUNT VALUE AS OF THE TRANSFER AMOUNT PREVIOUS POLICY ANNIVERSARY IN ANY POLICY YEAR. DEATH BENEFIT DISCOUNT FACTOR 1.0024663 FIXED ACCOUNT MINIMUM ANNUAL RATE 3.00% LOAN INTEREST CREDITED MINIMUM 3.25% ANNUAL RATE LOAN INTEREST CHARGED RATE 4.00% MAXIMUM LOAN INTEREST CREDITED 0.75% DIFFERENTIAL FREE WITHDRAWAL PERCENTAGE 10.00% [THIS PAGE APPLIES WHEN THE CASH VALUE ACCUMULATION TEST IS ELECTED] PAGE 3.1 POLICY INFORMATION (CONTINUED) - POLICY 12 345 678 TABLE OF EXPENSE CHARGES SALES LOAD THE SALES LOAD IS A PERCENTAGE OF CERTAIN PREMIUMS PAID. SEE THE TABLE OF COVERAGES ON PAGE 3.2A, AND THE PAYMENT OF PREMIUMS AND CHANGING THE DEATH BENEFIT OPTION OR FACE AMOUNT PROVISION FOR DETAILS. THE PERCENTAGES WILL NOT EXCEED THE FOLLOWING: COVERAGE COVERAGE YEAR PERCENTAGE YEAR PERCENTAGE 1 8.0% 4 2.0% 2 6.0% 5 1.0% 3 3.0% 6+ 0.0% PREMIUM LOAD A CHARGE NOT TO EXCEED 2.00% OF EACH PREMIUM PAYMENT. ADMINISTRATION CHARGE A MONTHLY CHARGE NOT TO EXCEED $12.00. SURRENDER CHARGE A SURRENDER CHARGE, AS A PERCENTAGE OF CERTAIN PREMIUMS PAID, WILL BE DEDUCTED FROM YOUR POLICY VALUE UNDER CERTAIN CONDITIONS. SEE THE TABLE OF COVERAGES ON PAGE 3.2A, AND THE POLICY VALUE, CHANGING THE DEATH BENEFIT OPTION OR FACE AMOUNT, AND SURRENDER FOR CASH PROVISIONS FOR DETAILS. THE PERCENTAGES WILL NOT EXCEED THE FOLLOWING: COVERAGE COVERAGE YEAR PERCENTAGE YEAR PERCENTAGE 1 5.00% 6 1.50% 2 4.00% 7 1.00% 3 3.00% 8 1.00% 4 2.50% 9 0.50% 5 2.00% 10+ 0.00% ASSET-BASED A DAILY CHARGE NOT TO EXCEED 0.0013699% DEDUCTED FROM RISK CHARGE EACH INVESTMENT ACCOUNT (ANNUAL EQUIVALENT RATE IS 0.50%). PAGE 3.2 POLICY INFORMATION (CONTINUED) - POLICY 12 345 678 TABLE OF COVERAGES (SALES LOAD AND SURRENDER CHARGE) For purposes of determining the Sales Load and Surrender Charge, the initial Face Amount and subsequent increases in Face Amount are designated as Coverage Amounts with a corresponding Sales Load Factor and/or Surrender Charge Factor. See the Payment Of Premiums and Surrender For Cash provisions for details. Premiums received will be attributed to the first Coverage Amount shown below that has been in effect for less than 5 years on the date the premium is received. The total premium attributed to a Coverage Amount in any Coverage Year will not exceed the Annual Premium Target shown below for that Coverage Amount. Any amount of premium that exceeds the Annual Premium Target for a Coverage Amount will be attributed to the next Coverage Amount listed that has been in effect for less than 5 years, up to the Annual Premium Target for that Coverage Amount. Each premium received will be attributed in this manner until either all of the premium is attributed to a Coverage Amount, or until the Annual Premium Target for all applicable Coverage Amounts has been exceeded.
COVERAGE ANNUAL SALES SURRENDER EFFECTIVE COVERAGE PREMIUM LOAD CHARGE DATE AMOUNT TARGET FACTOR FACTOR August 1, 2002 $50,000.00 $1,393.50 1.00 1.00
Page 3.2.A POLICY INFORMATION (CONTINUED) - POLICY 12 345 678 TABLE OF MINIMUM DEATH BENEFIT FACTORS
LIFE LIFE INSURED'S MINIMUM INSURED'S MINIMUM ATTAINED DEATH BENEFIT ATTAINED DEATH BENEFIT AGE FACTOR AGE FACTOR 20 2.50 60 1.30 21 2.50 61 1.28 22 2.50 62 1.26 23 2.50 63 1.24 24 2.50 64 1.22 25 2.50 65 1.20 26 2.50 66 1.19 27 2.50 67 1.18 28 2.50 68 1.17 29 2.50 69 1.16 30 2.50 70 1.15 31 2.50 71 1.13 32 2.50 72 1.11 33 2.50 73 1.09 34 2.50 74 1.07 35 2.50 75 1.05 36 2.50 76 1.05 37 2.50 77 1.05 38 2.50 78 1.05 39 2.50 79 1.05 40 2.50 80 1.05 41 2.43 81 1.05 42 2.36 82 1.05 43 2.29 83 1.05 44 2.22 84 1.05 45 2.15 85 1.05 46 2.09 86 1.05 47 2.03 87 1.05 48 1.97 88 1.05 49 1.91 89 1.05 50 1.85 90 1.05 51 1.78 91 1.04 52 1.71 92 1.03 53 1.64 93 1.02 54 1.57 94 1.01 55 1.50 95 1.00 56 1.46 96 1.00 57 1.42 97 1.00 58 1.38 98 1.00 59 1.34 99 and over 1.00
[THIS PAGE APPLIES WHEN THE GUIDELINE PREMIUM TEST IS ELECTED] PAGE 3.3 POLICY INFORMATION (CONTINUED) - POLICY 12 345 678 TABLE OF MINIMUM DEATH BENEFIT FACTORS MALE
LIFE LIFE INSURED'S MINIMUM INSURED'S MINIMUM ATTAINED DEATH BENEFIT ATTAINED DEATH BENEFIT AGE FACTOR AGE FACTOR 20 6.53 61 1.87 21 6.34 62 1.82 22 6.15 63 1.78 23 5.97 64 1.74 24 5.80 65 1.70 25 5.62 66 1.66 26 5.45 67 1.62 27 5.28 68 1.59 28 5.11 69 1.55 29 4.94 70 1.52 30 4.79 71 1.49 31 4.63 72 1.46 32 4.48 73 1.44 33 4.33 74 1.41 34 4.19 75 1.39 35 4.06 76 1.36 36 3.92 77 1.34 37 3.80 78 1.32 38 3.67 79 1.30 39 3.56 80 1.29 40 3.44 81 1.27 41 3.33 82 1.25 42 3.23 83 1.24 43 3.13 84 1.22 44 3.03 85 1.21 45 2.94 86 1.20 46 2.85 87 1.19 47 2.77 88 1.18 48 2.68 89 1.16 49 2.60 90 1.16 50 2.53 91 1.15 51 2.45 92 1.14 52 2.38 93 1.12 53 2.32 94 1.11 54 2.25 95 1.10 55 2.19 96 1.09 56 2.13 97 1.07 57 2.07 98 1.06 58 2.02 99 1.05 59 1.97 100 and over 1.00 60 1.92
[THIS PAGE APPLIES WHEN THE CASH VALUE ACCUMULATION TEST IS ELECTED] PAGE 3.3 POLICY INFORMATION (CONTINUED) - POLICY 12 345 678 TABLE OF MINIMUM DEATH BENEFIT FACTORS FEMALE
LIFE LIFE INSURED'S MINIMUM INSURED'S MINIMUM ATTAINED DEATH BENEFIT ATTAINED DEATH BENEFIT AGE FACTOR AGE FACTOR 20 7.79 61 2.14 21 7.54 62 2.08 22 7.30 63 2.03 23 7.06 64 1.97 24 6.84 65 1.92 25 6.62 66 1.87 26 6.40 67 1.82 27 6.19 68 1.77 28 5.99 69 1.73 29 5.80 70 1.69 30 5.61 71 1.64 31 5.42 72 1.60 32 5.25 73 1.56 33 5.07 74 1.53 34 4.91 75 1.49 35 4.75 76 1.46 36 4.59 77 1.43 37 4.44 78 1.40 38 4.30 79 1.38 39 4.16 80 1.35 40 4.03 81 1.33 41 3.90 82 1.30 42 3.78 83 1.28 43 3.66 84 1.26 44 3.55 85 1.24 45 3.44 86 1.23 46 3.33 87 1.21 47 3.23 88 1.19 48 3.13 89 1.18 49 3.04 90 1.17 50 2.95 91 1.15 51 2.86 92 1.14 52 2.78 93 1.13 53 2.70 94 1.12 54 2.62 95 1.10 55 2.54 96 1.09 56 2.47 97 1.07 57 2.40 98 1.06 58 2.33 99 1.05 59 2.27 100 and over 1.00 60 2.21
[THIS PAGE APPLIES WHEN THE CASH VALUE ACCUMULATION TEST IS ELECTED] PAGE 3.3 POLICY INFORMATION (CONTINUED) - POLICY 12 345 678 TABLE OF MINIMUM DEATH BENEFIT FACTORS UNISEX
LIFE LIFE INSURED'S MINIMUM INSURED'S MINIMUM ATTAINED DEATH BENEFIT ATTAINED DEATH BENEFIT AGE FACTOR AGE FACTOR 20 6.74 61 1.92 21 6.54 62 1.87 22 6.35 63 1.83 23 6.16 64 1.78 24 5.98 65 1.74 25 5.79 66 1.70 26 5.61 67 1.66 27 5.44 68 1.62 28 5.26 69 1.59 29 5.09 70 1.56 30 4.93 71 1.52 31 4.77 72 1.49 32 4.61 73 1.46 33 4.46 74 1.44 34 4.32 75 1.41 35 4.18 76 1.39 36 4.04 77 1.36 37 3.91 78 1.34 38 3.78 79 1.32 39 3.66 80 1.30 40 3.55 81 1.28 41 3.43 82 1.27 42 3.33 83 1.25 43 3.22 84 1.23 44 3.12 85 1.22 45 3.03 86 1.21 46 2.94 87 1.19 47 2.85 88 1.18 48 2.76 89 1.17 49 2.68 90 1.16 50 2.60 91 1.15 51 2.53 92 1.14 52 2.45 93 1.13 53 2.38 94 1.11 54 2.32 95 1.10 55 2.25 96 1.09 56 2.19 97 1.07 57 2.13 98 1.06 58 2.08 99 1.05 59 2.02 100 and over 1.00 60 1.97
[THIS PAGE APPLIES WHEN THE CASH VALUE ACCUMULATION TEST IS ELECTED] PAGE 3.3 POLICY INFORMATION (CONTINUED) -- POLICY 12 345 678 SUPPLEMENTARY BENEFIT BENEFIT FLEXIBLE TERM INSURANCE OPTION LIFE INSURED JOHN M. DOE AGE AT EFFECTIVE DATE 35 EFFECTIVE DATE AUG. 1, 2002 BENEFICIARY AS DESIGNATED IN THE APPLICATION OR SUBSEQUENTLY CHANGED INITIAL TERM INSURANCE BENEFIT $10,000 DEATH BENEFIT SCHEDULE SEE NEXT PAGE SEX MALE RISK CLASSIFICATION NON-SMOKER ADDITIONAL RATING NOT APPLICABLE
PAGE 3.4 POLICY INFORMATION (CONTINUED) -- POLICY 12 345 678 DEATH BENEFIT SCHEDULE
POLICY SCHEDULED POLICY SCHEDULED YEAR DEATH BENEFIT YEAR DEATH BENEFIT - ------ ------------- ------ ------------- 1 $ 60,000 34 $100,000 2 $ 70,000 35 $100,000 3 $ 80,000 36 $100,000 4 $ 90,000 37 $100,000 5 $100,000 38 $100,000 6 $100,000 39 $100,000 7 $100,000 40 $100,000 8 $100,000 41 $100,000 9 $100,000 42 $100,000 10 $100,000 43 $100,000 11 $100,000 44 $100,000 12 $100,000 45 $100,000 13 $100,000 46 $100,000 14 $100,000 47 $100,000 15 $100,000 48 $100,000 16 $100,000 49 $100,000 17 $100,000 50 $100,000 18 $100,000 51 $100,000 19 $100,000 52 $100,000 20 $100,000 53 $100,000 21 $100,000 54 $100,000 22 $100,000 55 $100,000 23 $100,000 56 $100,000 24 $100,000 57 $100,000 25 $100,000 58 $100,000 26 $100,000 59 $100,000 27 $100,000 60 $100,000 28 $100,000 61 $100,000 29 $100,000 62 $100,000 30 $100,000 63 $100,000 31 $100,000 64 $100,000 32 $100,000 65 $100,000 33 $100,000
PAGE 3.5 TABLE OF GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES PER $1,000 OF NET AMOUNT AT RISK MALE
LIFE LIFE LIFE INSURED'S INSURED'S INSURED'S ATTAINED MONTHLY ATTAINED MONTHLY ATTAINED MONTHLY AGE RATE AGE RATE AGE RATE $ $ $ 20 0.1583 47 0.4433 74 4.8491 21 0.1591 48 0.4783 75 5.3491 22 0.1575 49 0.5175 76 5.8775 23 0.1550 50 0.5591 77 6.4266 24 0.1516 51 0.6083 78 6.9916 25 0.1475 52 0.6633 79 7.5875 26 0.1441 53 0.7258 80 8.2366 27 0.1425 54 0.7966 81 8.9566 28 0.1416 55 0.8725 82 9.7708 29 0.1425 56 0.9550 83 10.6883 30 0.1441 57 1.0408 84 11.6875 31 0.1483 58 1.1325 85 12.7458 32 0.1525 59 1.2308 86 13.8408 33 0.1591 60 1.3400 87 14.9625 34 0.1666 61 1.4616 88 16.1058 35 0.1758 62 1.5991 89 17.2741 36 0.1866 63 1.7550 90 18.4808 37 0.2000 64 1.9283 91 19.7483 38 0.2150 65 2.1183 92 21.1208 39 0.2325 66 2.3208 93 22.6758 40 0.2516 67 2.5366 94 24.6583 41 0.2741 68 2.7658 95 27.4966 42 0.2966 69 3.0141 96 32.0458 43 0.3225 70 3.2925 97 40.0166 44 0.3491 71 3.6083 98 54.8316 45 0.3791 72 3.9708 99 83.3333 46 0.4100 73 4.3866
The above rates will be adjusted for any Additional Rating shown in the Policy Information section. Page 4 TABLE OF GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES PER $1,000 OF NET AMOUNT AT RISK FEMALE
LIFE LIFE LIFE INSURED'S MONTHLY INSURED'S MONTHLY INSURED'S MONTHLY ATTAINED RATE ATTAINED RATE ATTAINED RATE AGE $ AGE $ AGE $ 20 0.0875 47 0.3375 74 2.8275 21 0.0891 48 0.3608 75 3.1866 22 0.0908 49 0.3858 76 3.5808 23 0.0925 50 0.4133 77 4.0033 24 0.0950 51 0.4425 78 4.4541 25 0.0966 52 0.4750 79 4.9458 26 0.0991 53 0.5125 80 5.4991 27 0.1016 54 0.5508 81 6.1333 28 0.1050 55 0.5908 82 6.8666 29 0.1083 56 0.6308 83 7.7108 30 0.1125 57 0.6691 84 8.6508 31 0.1166 58 0.7058 85 9.6750 32 0.1208 59 0.7450 86 10.7741 33 0.1250 60 0.7891 87 11.9433 34 0.1316 61 0.8441 88 13.1816 35 0.1375 62 0.9133 89 14.4950 36 0.1466 63 1.0016 90 15.8958 37 0.1575 64 1.1041 91 17.4058 38 0.1700 65 1.2158 92 19.0675 39 0.1850 66 1.3333 93 20.9591 40 0.2016 67 1.4525 94 23.2758 41 0.2200 68 1.5700 95 26.4433 42 0.2391 69 1.6966 96 31.3116 43 0.2575 70 1.8425 97 39.5808 44 0.2766 71 2.0191 98 54.6541 45 0.2966 72 2.2391 99 83.3333 46 0.3166 73 2.5091
The above rates will be adjusted for any Additional Rating shown in the Policy Information section. Page 4 TABLE OF GUARANTEED MAXIMUM MONTHLY COST OF INSURANCE RATES PER $1,000 OF NET AMOUNT AT RISK UNISEX
LIFE LIFE LIFE INSURED'S INSURED'S INSURED'S ATTAINED MONTHLY ATTAINED MONTHLY ATTAINED MONTHLY AGE RATE AGE RATE AGE RATE $ $ $ 20 0.1450 47 0.4225 74 4.3641 21 0.1458 48 0.4541 75 4.8200 22 0.1441 49 0.4908 76 5.3041 23 0.1425 50 0.5300 77 5.8083 24 0.1408 51 0.5750 78 6.3291 25 0.1375 52 0.6250 79 6.8808 26 0.1358 53 0.6825 80 7.4858 27 0.1341 54 0.7466 81 8.1616 28 0.1341 55 0.8150 82 8.9316 29 0.1358 56 0.8891 83 9.8041 30 0.1375 57 0.9650 84 10.7583 31 0.1416 58 1.0450 85 11.7816 32 0.1458 59 1.1308 86 12.8475 33 0.1525 60 1.2266 87 13.9575 34 0.1591 61 1.3333 88 15.1033 35 0.1683 62 1.4558 89 16.2950 36 0.1783 63 1.5966 90 17.5441 37 0.1916 64 1.7541 91 18.8758 38 0.2058 65 1.9258 92 20.3441 39 0.2233 66 2.1075 93 22.0033 40 0.2416 67 2.3008 94 24.1133 41 0.2633 68 2.5025 95 27.0741 42 0.2850 69 2.7216 96 31.7475 43 0.3100 70 2.9658 97 39.8075 44 0.3341 71 3.2458 98 54.7816 45 0.3625 72 3.5700 99 83.3333 46 0.3916 73 3.9441
The above rates will be adjusted for any Additional Rating shown in the Policy Information section. Page 4 DEFINITIONS THE FOLLOWING TERMS HAVE SPECIFIC MEANINGS IN YOUR POLICY. PLEASE REFER TO THESE DEFINITIONS AS YOU READ YOUR POLICY. ADDITIONAL RATING is an adjustment to the Cost of Insurance that is applied when a life insured does not meet, at a minimum, our underwriting requirements for the standard Risk Classification. ATTAINED AGE is the Issue Age plus the number of completed Policy Years the policy has been in force since the Policy Date. BUSINESS DAY is any day that the New York Stock Exchange is open for business. The net asset value of the underlying shares of a Sub-Account will be determined at the end of each Business Day. We will deem each Business Day to end at the close of regularly scheduled trading of the New York Stock Exchange (currently 4:00 p.m. Eastern Time) on that day. CASH SURRENDER VALUE equals the Policy Value less any Surrender Charge and less any outstanding Monthly Deductions due. COVERAGE AMOUNT is an amount of insurance shown in the Table of Coverages in the Policy Information section. The sum of the Coverage Amounts will equal the Face Amount. COVERAGE YEAR for a Coverage Amount on any day is equal to one plus the number of complete years from the Coverage Effective Date shown in the Table of Coverages in the Policy Information section. EFFECTIVE DATE is the date we become obligated under this policy and when we take the first Monthly Deductions. It is the later of the date our underwriters approve issuance of this policy, or the date we receive at least the initial premium at our Service Office. FIXED ACCOUNT is that part of the Policy Value which reflects the value you have in our general account. INVESTMENT ACCOUNT is that part of the Policy Value which reflects the value you have in one of our Sub-Accounts. ISSUE AGE is the life insured's age on the birthday closer to the Policy Date. LOAN ACCOUNT is that part of the Policy Value that reflects the value you have transferred from the Fixed Account or the Investment Accounts as collateral for a policy loan. MONEY MARKET TRUST is an investment account of the Manufacturers Investment Trust. However, if a corresponding investment account of another investment company is used instead for this policy, then this term refers to such other investment account. NET CASH SURRENDER VALUE equals the Cash Surrender Value less the Policy Debt. NET POLICY VALUE equals the Policy Value less the value in the Loan Account. NET PREMIUM is the gross premium less any Sales Load and less any Premium Load. It is the amount of premium allocated to the Fixed Account and/or Investment Accounts. POLICY DATE is the date from which charges for the first Monthly Deductions are calculated. The Policy Date is shown in the Policy Information section of this policy. POLICY DEBT as of any date equals (a) plus (b) plus (c), minus (d), where: (a) is the total amount of loans borrowed as of such date; (b) is the total amount of any unpaid loan interest charges borrowed against the policy on a Policy Anniversary; (c) is any interest charges accrued from the last Policy Anniversary to the current date; and (d) is the total amount of loan repayments as of such date. POLICY VALUE equals the sum of the values in the Loan Account, the Fixed Account, and the Investment Accounts. POLICY YEARS, POLICY MONTHS AND POLICY ANNIVERSARIES are determined from the Policy Date. SEPARATE ACCOUNT refers to Separate Account N of The Manufacturers Life Insurance Company (U.S.A.). (continued) Page 5 DEFINITIONS (continued) SERVICE OFFICE is the office that we designate to service this policy. SUB-ACCOUNT refers to one of the sub-accounts of the Separate Account. SURRENDER CHARGE PERIOD is the period following issuance of the policy or following any increase in Face Amount during which we will assess surrender charges. Surrender charges will apply during this period, if you surrender or lapse the policy, decrease the Face Amount or make a partial withdrawal. Surrender charges will apply only to Coverage Amounts shown on Page 3.2A with a Surrender Charge Factor. WRITTEN REQUEST must be in a form satisfactory to us, signed and dated by you, and filed at our Service Office. QUALIFICATION AS LIFE INSURANCE It is the intent that this policy be considered as life insurance for tax purposes under Section 7702 of the Internal Revenue Code of 1986, or any other equivalent section of the Code. To ensure that the policy qualifies as life insurance, one of the following tests will apply to the policy. The test you elected is shown in the Policy Information section. Your election cannot be changed after issue. We reserve the right to refuse any premium payments that would cause the policy to fail the test you elected. GUIDELINE PREMIUM TEST. Under this test, the sum of the premiums paid into the policy may not at any time exceed the guideline premium limitation as of such time. The guideline premium limitation, is as of any date, the greater of: (a) the Guideline Single Premium; or (b) the sum of the Guideline Level Premiums to such date. If you elected this test, the Guideline Single Premium and the Guideline Level Premium are shown in the Policy Information section. CASH VALUE ACCUMULATION TEST. Under this test, the net single premium must always be greater than the Policy Value. The net single premium is the one payment that would be needed on a specific date to provide the Death Benefit and any Supplementary Benefits under this policy. It is computed using the same mortality table and interest rate specified under the How Values Are Computed provision. PAYMENT OF PREMIUMS No insurance will take effect under this policy before we approve the application and receive the initial premium. The initial premium is due as of the Policy Date. It is the sum of (a) plus (b) plus (c), where: (a) is the Monthly Deductions due for the first 3 Policy Months; (b) is the Premium Load percentage times (a) above; and (c) if a Sales Load is applicable, the amount of (a) above up to the Annual Premium Target, times the Sales Load percentage for the Coverage Year. You can pay subsequent premiums at any time at our Service Office, and in any amount subject to the limitations of the life insurance qualification test you elect. Any excess premium will be refunded immediately. On request, we will give you a receipt signed by one of our officers. You may pay premiums until the life insured reaches Attained Age 100, at which time Monthly Deductions will cease and no further premiums may be paid. We reserve the right to request that you provide us with satisfactory evidence of insurability if a premium payment would result in an increase in the Death Benefit, which is greater than the increase in Policy Value. PREMIUM LOAD. When you pay a premium, we will deduct a Premium Load before the Net Premium is added to your Policy Value. The Premium Load is shown in the Policy Information Section. We may also deduct a Sales Load from the premium. See the Sales Load section below. (continued) Page 6 PAYMENT OF PREMIUMS (continued) SALES LOAD. When you pay a premium, we may deduct a Sales Load before the Net Premium is added to your Policy Value. To determine the Sales Load we will first attribute the premium to one or more of the Coverage Amounts as described in the Table of Coverages in the Policy Information section. The Sales Load for a Coverage Amount is equal to (a) times (b) times (c); where: (a) is the premium attributed to the Coverage Amount as described on Page 3.2A; (b) is the Sales Load Factor for the Coverage Amount as shown on Page 3.2A; (c) is the Sales Load Percentage for the Coverage Year, as shown in the Policy Information section. The total Sales Load for the premium is equal to the sum of the Sales Loads for each Coverage Amount. INSURANCE BENEFIT If the life insured dies while the policy is in force, we will pay the Insurance Benefit to the beneficiary on receiving any due proof of death, subject to the Age and Sex, Suicide, and the Validity provisions. If the life insured dies after we receive a Written Request from you to surrender the policy, there will be no Insurance Benefit. We will pay the amount payable under the Surrender for Cash provision instead. If the life insured dies during the grace period, the Insurance Benefit payable will be the same as defined below with the following modifications: (a) we will reduce the Insurance Benefit by any outstanding Monthly Deductions due; and (b) in calculating the Death Benefit, we will use the Policy Value as of the default date. INSURANCE BENEFIT. The Insurance Benefit payable is: (a) the Death Benefit as described below; plus (b) any amounts payable under any Supplementary Benefits that are part of the policy; less (c) the value of the Policy Debt as of the date of death. DEATH BENEFIT. The Death Benefit will depend upon whether Option 1 or Option 2 is in effect as of the date of death. Under Option 1, the Death Benefit will be the greater of the Minimum Death Benefit and the Face Amount as of the date of death. Under Option 2, the Death Benefit will be the greater of the Minimum Death Benefit and the sum of (a) and (b), where: (a) is the Face Amount as of the date of death; and (b) is the Policy Value as of the date of death. The Death Benefit after the life insured's Attained Age 100 is the same as defined in this Death Benefit section. MINIMUM DEATH BENEFIT. To ensure that the policy continues to qualify as life insurance under the Internal Revenue Code, the Death Benefit will never be less than the Minimum Death Benefit. The Minimum Death Benefit is equal to the Policy Value on the date of death multiplied by the Minimum Death Benefit Factor for the Attained Age of the life insured. The Minimum Death Benefit Factors are shown in the Table of Minimum Death Benefit Factors in the Policy Information section. INTEREST. We will pay the Insurance Benefit in one lump sum with interest calculated from the date of the life insured's death to the date of payment. The rate will be at least the minimum required by the law of the state in which this policy was delivered. If the state does not specify the interest rate, we will use the rate for insurance benefits left on deposit with us. POLICY VALUE NET PREMIUMS ADDED. As of the Business Day we receive your premium payments at our Service Office, we add your Net Premium to your Policy Value. We will do this before we take any deductions due on that Business Day. For premiums received prior to the Effective Date, your Net Premiums plus any interest credited will be added to your Policy Value as of the Business Day coincident with or next following the Effective Date. Any premium received prior to the Effective Date of the policy will be credited with interest from the date of receipt. Interest will be credited at the rate of return then being earned on allocations to the Money Market Trust. (continued) Page 7 POLICY VALUE (continued) MONTHLY DEDUCTIONS. A deduction is due from your policy as of the beginning of each Policy Month to cover monthly administration charges and the cost to provide the insurance coverage. We will take the deductions as of the date they are due. However, if at issue your Policy Date is set to an earlier date for purposes of determining Issue Age, any Monthly Deductions due from the Policy Date up to the Effective Date will be taken as of the Effective Date. Unless otherwise agreed to by us, we will take Monthly Deductions from the Fixed Account and the Investment Accounts in the same proportion that the Policy Value in each of these accounts bears to the Net Policy Value immediately prior to the deduction. Monthly Deductions are due until the life insured reaches Attained Age 100. The Monthly Deduction for any Policy Month is the sum of the following amounts determined as of the beginning of that month: (a) The Administrative Charge shown in the Table of Expense Charges in the Policy Information section; (b) The monthly cost of any Supplementary Benefits that are a part of this policy, as determined in accordance with such Supplementary Benefits; and (c) The monthly Cost of Insurance for the life insured. COST OF INSURANCE. The Cost of Insurance for a specific Policy Month is the rate for the Cost of Insurance for that month, as described below, multiplied by the net amount at risk. 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 the Death Benefit Discount Factor shown in the Policy Information section; and (b) is the Policy Value as of the first day of the month. The rates for the Cost of Insurance, as of the Policy Date and subsequently for each increase in Face Amount, are based on the life insured's Issue Age, Sex and Risk Classification, the duration that the coverage has been in force and the Sales Load Factor and Surrender Charge Factor applicable to the Coverage Amount(s) in force. We will determine Cost of Insurance Rates from time to time, on a basis which does not discriminate unfairly within any class of lives insured. The Cost of Insurance calculation will reflect any Additional Rating shown in the Policy Information section. The Cost of Insurance Rates will never be more than those shown in the Table of Maximum Cost of Insurance Rates on page 4 plus any Additional Rating. SURRENDER CHARGE. For Coverage Amounts designated with a Surrender Charge Factor on Page 3.2A, we deduct a Surrender Charge from your Policy Value if during the Surrender Charge Period: (a) you surrender the policy for its Net Cash Surrender Value; (b) you make a partial withdrawal of the Net Cash Surrender Value above the Free Withdrawal Amount; (c) you reduce the Face Amount; or (d) this policy goes into default and terminates at the end of a Grace Period. See the Surrender for Cash provision and the Table of Coverages on Page 3.2A for details. POLICY VALUE COMPOSITION Your Policy Value at any time is equal to the sum of the values you have in the Loan Account, the Fixed Account, and the Investment Accounts. LOAN ACCOUNT VALUE. The amount you have in the Loan Account at any time equals: (a) amounts transferred to it for loans or borrowed loan interest; plus (b) interest credited to it; less (c) amounts transferred from it for loan repayment. For details of the Loan Account see the Policy Loan Conditions provision. (continued) Page 8 POLICY VALUE COMPOSITION (continued) FIXED ACCOUNT VALUE. The amount you have in the Fixed Account at any time equals: (a) Net Premiums allocated to it; plus (b) amounts transferred to it; plus (c) interest credited to it; less (d) amounts deducted from it; less (e) amounts transferred from it; less (f) amounts withdrawn from it. Interest will be credited to amounts in the Fixed Account, at an effective annual rate of no less than the Fixed Account Minimum Annual Rate shown in the Policy Information section. The actual rates will be set by us from time to time. For all transactions, interest is calculated from the date of the transaction. INVESTMENT ACCOUNTS VALUE. The amount you have in an Investment Account at any time equals the number of units in that Investment Account multiplied by the unit value of the corresponding Sub-Account at that time. The number of units in an Investment Account at any time equals (a) minus (b), where: (a) is the number of units credited to the Investment Account because of: (1) Net Premiums allocated to it; and (2) amounts transferred to it; and (b) is the number of units canceled from the Investment Account because of: (1) amounts deducted from it; (2) amounts transferred from it; and (3) amounts withdrawn from it. The number of units credited or canceled for a given transaction is equal to the dollar amount of the transaction, divided by the unit value on the Business Day of the transaction. See the Unit Value Calculation section of the Separate Account and Sub-Accounts provision for details on how unit values are determined. SEPARATE ACCOUNT AND SUB-ACCOUNTS The Separate Account is authorized to invest in the shares of Manufacturers Investment Trust or another management investment company. Each Sub-Account of the Separate Account purchases shares of a corresponding Fund of Manufacturers Investment Trust or another management investment company. FUND SUBSTITUTION. A Fund might, in our judgment, become unsuitable for investment by a Sub-Account. This might happen because of a change of investment policy; or a change in the applicable laws or regulations; or because the shares are no longer available for investment; or for some other reason. If a Fund becomes unsuitable for investment, we have the right to substitute another Fund or another management investment company. Before doing this, we would first seek, where required, approval from the Securities and Exchange Commission and the Insurance Commissioner of the state in which this policy is delivered. To the extent permitted by applicable federal and state law, we also have the right, without your approval, to: (a) create new separate accounts; (b) combine any two or more separate accounts including the Separate Account; (c) make available additional Sub-Accounts investing in additional Funds of Manufacturers Investment Trust or another management investment company; (d) eliminate existing Sub-Accounts and stop accepting new allocations and transfers into the corresponding Fund; (e) operate the Separate Account as a management investment company under the Investment Company Act of 1940 or in any other form permitted by law; (f) de-register the Separate Account under the Investment Company Act of 1940; (g) transfer assets between the Separate Account and other separate accounts; and (h) transfer assets in one Sub-Account to another Sub-Account (continued) Page 9 SEPARATE ACCOUNT AND SUB-ACCOUNTS (continued) The investment objectives of a Sub-Account within the Separate Account will not be changed materially without first filing the change with the Insurance Commissioner of our state of domicile. We will inform you of any changes deemed to be material. UNIT VALUE CALCULATION. We will determine the unit values for each Sub-Account as of the end of each Business Day. When we need to determine a Policy Value or an amount after the end of a Business Day, or on a day that is not a Business Day, we will do so as of the next Business Day. The unit value for each Sub-Account was established at $10 for the first Business Day that an amount was allocated, or transferred to the particular Sub-Account. For any subsequent Business Day, the unit value for that Sub-Account is obtained by multiplying the unit value for the immediately preceding Business Day by the net investment factor for the particular Sub-Account on such subsequent Business Day. NET INVESTMENT FACTOR. 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 Fund shares held by that Sub-Account as of the end of such Business Day before any policy transactions are made on that day; (b) is the net asset value of the underlying Fund shares held by that Sub-Account as of the end of the immediately preceding Business Day after all policy transactions were made for that day; and (c) is a charge not exceeding the daily Asset-Based Risk Charge shown in the Table of Expense Charges in the Policy Information section. We reserve the right to adjust the above formula for any taxes determined by us to be attributable to the operations of the Sub-Account. SEPARATE ACCOUNT ASSETS. The assets held in each Sub-Account are used to support the Policy Values of Single and Flexible Premium Variable Life Insurance policies. The Separate Account will be used to fund only variable life insurance benefits. Income, gains and losses of the Separate Account are credited to, or charged against, the applicable Sub-Accounts without regard to our other income, gains and losses. The assets of the Separate Account are our property. The part of the assets that is equal to the Investment Account values in respect of all Single and Flexible Premium Variable Life Insurance policies will not be charged with liabilities from any other business we conduct. We can transfer any Separate Account assets in excess of those Investment Account values to our general account. INVESTMENT OPTIONS ALLOCATIONS. Net Premiums may be allocated to the Fixed Account or any of the Investment Accounts. You specified the initial premium allocation in your application for this policy, a copy of which is attached to this policy. Unless these allocation percentages are changed, they will continue to apply to subsequent premium payments. Allocation percentages must be greater than or equal to zero and less than or equal to 100, and the sum of the allocation percentages must equal 100. You may change the allocation percentages by Written Request to our Service Office. The change will take effect on the date we receive it at our Service Office. Premiums received prior to the Initial Allocation Date, shown in the Policy Information section, will initially be invested in the Money Market Trust, on the later of the Effective Date or the Business Day they are received by us. On the Initial Allocation Date, the amount in the Money Market Trust will be transferred to the Fixed Account and the Investment Accounts according to your initial premium allocation. TRANSFERS. After the Initial Allocation Date, by Written Request, you may transfer portions of your Policy Value among the Investment Accounts and the Fixed Account. Transfers involving the Fixed Account are subject to the following restrictions: (a) the maximum amount that can be transferred out of the Fixed Account in any Policy Year is limited to the Maximum Fixed Account Transfer Amount shown in the Policy Information section; and (b) any transfer which involves a transfer out of the Fixed Account may not involve a transfer to the Investment Account for the Money Market Trust. (continued) Page 10 INVESTMENT OPTIONS (continued) We reserve the right to impose limitations on transfers involving Investment Accounts, including limiting the number of transfers and amounts transferred in a period of time, if we determine such transfer activity would disadvantage other policy owners by interfering with investment objectives of a Fund. We would impose such transfer limitations in a manner which does not unfairly discriminate between individual policy owners. POLICY LOAN CONDITIONS At any time while this policy is in force and has a loan value, you can get a loan by Written Request. We will require a loan agreement from you as the policy is the only security for the loan. AVAILABLE LOAN VALUE. The available loan value on any date is the Net Cash Surrender Value, less the Monthly Deductions due to the next Policy Anniversary. LOAN ACCOUNT. When you take out a loan, or when loan interest charges are borrowed, we will do a transfer from the Fixed Account and/or one or more of the Investment Accounts into the Loan Account. You may tell us how much of the amount to be transferred to the Loan Account you wish to allocate to your value in the Fixed Account and each of the Investment Accounts. If you do not tell us, we will allocate the amounts to be transferred in the same proportion that your value in the Fixed Account and the Investment Accounts bears to the Net Policy Value. When an amount to be transferred is allocated to an Investment Account, we will redeem units of that Investment Account sufficient in value to cover the allocated amount. These transfers do not count as a transfer for the purposes of the Transfers section of the Investments Options provision. LOAN INTEREST CHARGED. Interest will accrue daily on loans. In the event that you do not pay the Loan Interest Charged in any Policy Year, it will be borrowed against the policy and added to the Policy Debt in arrears as of the Policy Anniversary. We will allocate the amount borrowed for interest payment in the same proportion that your value in the Fixed Account and the Investment Accounts bears to the Net Policy Value as of the Policy Anniversary. The rate of interest charged is fixed at the effective annual Loan Interest Charged Rate shown in the Policy Information section. LOAN INTEREST CREDITED. Interest will accrue daily to amounts in the Loan Account at an effective annual rate of no less than the Loan Interest Credited Minimum Annual Rate shown in the Policy Information section. The difference between the rate at which interest is credited to the Loan Account and the rate at which it is being charged to the Policy Debt is called the Loan Interest Credited Differential. The Maximum Loan Interest Credited Differential is shown in the Policy Information section. LOAN REPAYMENT. You may repay the Policy Debt in whole or in part at any time prior to the death of the life insured, and while the policy is in force. When you repay a loan, we will transfer an amount equal to the amount paid from the Loan Account to the Fixed Account and/or the Investment Accounts. The amount transferred will be allocated to the Fixed Account and the Investment Accounts in the same proportion that the Policy Value in each of these accounts bears to the Net Policy Value. While a loan exists, we will treat the amounts you pay as premiums unless you request in writing that they be treated as loan repayments. CHANGING THE DEATH BENEFIT OPTION OR FACE AMOUNT You may change your Death Benefit Option or your Face Amount by Written Request. CHANGE FROM DEATH BENEFIT OPTION 1 TO OPTION 2. The Face Amount after the change from Option 1 to Option 2 will be (a) minus (b), where: (a) is the Face Amount immediately before the change; and (b) is the Policy Value as of the effective date of the change. A Face Amount decrease caused by this change will result in a corresponding decrease in Coverage Amounts shown in the Table of Coverages. The decrease will be applied to the Coverage Amounts in the same order as shown in the Table of Coverages. A Surrender Charge will not be deducted from the Policy Value due to the decrease in Face Amount. (continued) Page 11 CHANGING THE DEATH BENEFIT OPTION OR FACE AMOUNT (continued) CHANGE FROM DEATH BENEFIT OPTION 2 TO OPTION 1. The Face Amount after the change from Option 2 to Option 1 will be (a) plus (b), where: (a) is the Face Amount immediately before the change; and (b) is the Policy Value as of the effective date of the change. A Face Amount increase caused by this change will result in a corresponding increase in the first Coverage Amount shown in the Table of Coverages. We will not increase the Surrender Charge because of the increase in the Face Amount of insurance resulting from this change. DECREASE IN FACE AMOUNT. Unless otherwise agreed to by us, a decrease in Face Amount will cause a corresponding decrease in Coverage Amounts in the reverse order shown in the Table of Coverages in the Policy Information section. If you decrease the initial Face Amount or a prior increase in Face Amount during the Surrender Charge Period, we will deduct a Surrender Charge from the Policy Value for the applicable Coverage Amount. See the Decreases in Face Amount Section of the Surrender For Cash provision for details. INCREASE IN FACE AMOUNT. For an increase in the Face Amount of insurance, you must provide us with evidence of insurability on the life insured that is satisfactory to us. We reserve the right to refuse increases if the life insured's Attained Age at the effective date of the increase is greater than the maximum issue age for new policies at that time. If, at the time of the increase, there have been prior decreases in Face Amount such that the current Face Amount is less than the previous highest Face Amount, then these prior decreases will be increased first. The insurance coverage eliminated by the decrease of the oldest Face Amount will be deemed to be restored first. Corresponding changes will occur to the Coverage Amounts in the Table of Coverages in the same order. Previously reduced or eliminated Coverage Amounts will be restored in order of the oldest Coverage Amount first. There will be no new Surrender Charges associated with increases of this type. After all prior decreases have been increased, a new Face Amount coverage will be added. A corresponding Coverage Amount will be added to the Table of Coverages. There will be a new Annual Premium Target and a new set of Surrender Charge and Sales Load Factors associated with this new Coverage Amount. We will inform you of these changes at the time of the addition of the new Coverage Amount. There is no additional premium necessarily required with an increase in Coverage Amount, however any new Surrender Charge may require an additional premium payment to avoid the policy going into default. A portion of premiums paid concurrent with and subsequent to the addition of the new Coverage Amount will be deemed attributable to such Coverage Amount for Sales Load and Surrender Charge purposes. See the Table of Coverages in the Policy Information section for the premiums attributable to the new Coverage Amount. EFFECTIVE DATE OF CHANGES. Changes may be made only on the first day of a Policy Month. A Written Request for a change in Death Benefit Option or decrease in the Face Amount 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. Increases in the Face Amount will take effect at the beginning of the Policy Month following the date we approve the request. EFFECT ON LIFE INSURANCE QUALIFICATION TESTS. A change in Death Benefit Option or Face Amount will often change the policy's limits under the Life Insurance Qualification Test that you elected. As applicable, the Guideline Single Premium and the Guideline Level Premium or the net single premium under the Cash Value Accumulation Tests may be changed. We will inform you of any such change. We reserve the right to refuse or limit any request for a change if the change would cause the policy to fail to qualify as life insurance for tax purposes. Page 12 SURRENDER FOR CASH You may surrender this policy for its Net Cash Surrender Value at any time prior to the death of the life insured. We will determine the Net Cash Surrender Value as of the end of the Business Day on which we receive the policy and your Written Request for surrender at our Service Office. We will pay you the Net Cash Surrender Value. After the date of surrender, no insurance will be in force. SURRENDER CHARGE. If you surrender this policy for its Net Cash Surrender Value, or if it terminates at the end of a Grace Period during the Surrender Charge Period, we will deduct a Surrender Charge from the Policy Value. The amount of the surrender charge for a Coverage Amount is equal to (a) times (b) times (c); where: (a) is the total premiums attributed to the Coverage Amount since the Coverage Effective Date as described on Page 3.2A; (b) is the Surrender Charge Factor for the Coverage Amount as shown on Page 3.2A; (c) is the Surrender Charge Percentage for the Coverage Year, as shown in the Policy Information section. The total Surrender Charge for the policy is equal to the sum of the Surrender Charges for each Coverage Amount. DECREASES IN FACE AMOUNT. If the Face Amount is reduced during a Surrender Charge Period, we will deduct from the Policy Value a pro-rata Surrender Charge for reduced or eliminated Coverage Amounts, to which Surrender Charges apply. Such deduction will be allocated to the Fixed Account and the Investment Account in the same proportion as the Policy Value in each of these accounts bears to the Net Policy Value. The pro-rata Surrender Charge will equal the sum of the pro-rata Surrender Charges for each Coverage Amount affected by the decrease. The pro-rata Surrender Charge for a Coverage Amount will equal (a) divided by (b), multiplied by (c), where: (a) is the amount of the decrease in the Coverage Amount; (b) is the amount of the corresponding Coverage Amount, prior to the decrease; and (c) is the Surrender Charge for the corresponding Coverage Amount, immediately prior to the decrease. When a pro-rata Surrender Charge is taken, the remaining Surrender Charge will be reduced to reflect the charges taken. Decreases in Face Amount caused by: (a) a change from Death Benefit Option 1 to Option 2, or (b) a partial Net Cash Surrender Value withdrawal when Death Benefit Option 1 is in effect, are exempt from this provision and will not incur the pro-rata Surrender Charge described above. PARTIAL NET CASH SURRENDER VALUE WITHDRAWAL. While there is a Net Cash Surrender Value for this policy, you may request a partial Net Cash Surrender Value withdrawal. The partial Net Cash Surrender Value withdrawal will be done as of the end of the Business Day on which we receive your Written Request. You may specify the accounts from which we should make the Partial Net Cash Surrender Value withdrawal. If we do not receive such instructions, we will make the withdrawal in the same proportion that the value in the Fixed Account and the Investment Accounts bears to the Net Policy Value. FREE WITHDRAWAL AMOUNT. The Free Withdrawal Amount at any date is equal to (a) multiplied by (b) minus (c) where: (a) is the Free Withdrawal Percentage shown in the Policy Information section; (b) is the Net Cash Surrender Value on the date of the partial Net Cash Surrender Value withdrawal; and (c) is the sum of all previous partial Net Cash Surrender Value withdrawals taken during the current Policy Year. (continued) Page 13 SURRENDER FOR CASH (continued) PRO-RATA SURRENDER CHARGE. If a partial Net Cash Surrender Value withdrawal is above the Free Withdrawal Amount, we will deduct from the Policy Value a pro-rata Surrender Charge during a Surrender Charge Period. We will not deduct any Surrender Charge from the Policy Value if the sum of partial Net Cash Surrender Value withdrawals in any Policy Year is below the Free Withdrawal Amount. The pro-rata Surrender Charge is equal to the sum of the pro-rata Surrender Changes for each Coverage Amount to which Surrender Charges apply. The pro-rata Surrender Charge for a Coverage Amount will equal (a) divided by (b), multiplied by (c), where: (a) is the amount of partial Net Cash Surrender Value withdrawal above the Free Withdrawal Amount; (b) is the Net Cash Surrender Value prior to the withdrawal; and (c) is the Surrender Charge for the corresponding Coverage Amount immediately prior to the withdrawal. When a pro-rata Surrender Charge is taken, the remaining Surrender Charge will be reduced to reflect the charges taken. If Death Benefit Option 1 is in effect at the time of the withdrawal, then the Face Amount will be reduced by: (a) the amount of the withdrawal plus the pro-rata Surrender Charge, if at the time of the withdrawal the Death Benefit equals the Face Amount; otherwise (b) the amount, if any, by which the withdrawal plus the pro-rata Surrender Charge exceeds the difference between the Death Benefit and the Face Amount. A decrease in Face Amount caused by this change will reduce the Face Amount provided by each Coverage Amount in the reverse order shown in the Table of Coverages in the Policy Information section. RIGHT TO POSTPONE PAYMENT OF BENEFITS Except when used to pay premiums, we reserve the right to postpone the payment of Net Cash Surrender Values, partial Net Cash Surrender Value withdrawals, policy loans and the portion of Insurance Benefit that depends on Investment Account values, for any period during which: (a) the New York Stock Exchange (Exchange) is closed for trading (other than customary week-end and holiday closings), or trading on the Exchange is otherwise restricted; (b) an emergency exists as defined by the Securities and Exchange Commission (SEC), or the SEC requires that trading be restricted; or (c) the SEC permits a delay for the protection of policyholders. We also reserve the right to postpone payments for up to six months if such payments are based on values that do not depend on the investment performance of the Sub-Accounts. In addition, we may deny transfers under the circumstances stated in (a), (b) and (c) above, and in the Transfers section of the Investment Options provision. TERMINATION DEFAULT. This policy will go into default if at the beginning of any Policy Month, the Net Cash Surrender Value would go below zero after we take Monthly Deductions that are due. GRACE PERIOD. We will allow 61 days from the date that the policy goes into default, for you to pay the amount that is required to bring the policy out of default. At least 30 days prior to the termination of coverage, we will send a notice to your last known address, specifying the amount you must pay to bring the policy out of default. The amount is equal to (a) plus (b) plus (c) plus (d); where: (a) is the amount necessary to bring the Net Cash Surrender Value to zero if it is less than zero at the date of default; (b) is the Monthly Deductions due, plus the next two Monthly Deductions; (c) is the Premium Load; and (d) is any applicable Sales Load. (continued) Page 14 TERMINATION (continued) TERMINATION DATE. This policy terminates on the earliest of the following dates: (a) at the end of the grace period for which you have not paid any amount that is due; (b) on the date you surrender the policy for its Net Cash Surrender Value; or (c) on the date the life insured dies. If you surrender the policy for its Net Cash Surrender Value, as in (b) above, we will pay you the Net Cash Surrender Value as of the date of termination. REINSTATEMENT You can reinstate this policy only if it terminated at the end of a grace period in which you did not make a required payment. You can reinstate the policy if you: (a) make a Written Request for reinstatement within five years after your policy terminates; (b) provide us with written evidence of the life insured's insurability that is satisfactory to us; and (c) pay a premium equal to the amount that was required during the 61-day grace period following default; plus the amount required to carry your policy to the next scheduled date for payment of the Planned Premium. If we approve your request, (a) the reinstatement date will be the later of the date we approve your request or the date we receive the required payment at our Service Office; (b) any Surrender Charge will be reinstated to the amount at the date of default; (c) any remaining Surrender Charge Period will be reinstated to what it was at the date of default; (d) the Policy Value on the date of reinstatement, prior to the crediting of any Net Premium paid on the reinstatement, will be equal to the Policy Value on the date the policy terminated; and (e) any outstanding Policy Debt will be equal to the amount at termination of the policy. If you do not pay this amount it will be reinstated. No interest is credited to the Policy Value or charged to the Policy Debt during the period of lapse. RIGHT TO CANCEL INCREASES If you request an increase in Face Amount which results in a new Surrender Charge or Sales Load, you have the same rights to cancel the increase as described under the Right to Return Policy. If canceled, the Policy Value and the Surrender Charge or Sales Load will be recalculated to the amounts they would have been, had the increase not taken place. AGE AND SEX If the life insured's age or sex was misstated in the application, we will change the Face Amount. The new Face Amount will be determined so that the Death Benefit will be that which the most recent Cost of Insurance deduction would have purchased for the correct age and sex. SUICIDE If the life insured dies by suicide, whether sane or insane, within two years after the Issue Date, we will pay only the premiums paid, less any partial Net Cash Surrender Value withdrawals, less the amount of the Policy Debt. If the life insured dies by suicide, whether sane or insane, within two years after the date an increase in Face Amount takes effect, the Death Benefit for that increase will be limited to the Monthly Deductions for the increase. We reserve the right under this provision to obtain evidence of the manner and cause of death. BENEFICIARY The following four sections will apply unless there is a beneficiary appointment in force which provides otherwise. BENEFICIARY CLASSIFICATION. You can appoint beneficiaries for any Insurance Benefit in three classes; primary, secondary, and final. Beneficiaries in the same class will share equally in any Insurance Benefit payable to them. (continued) Page 15 BENEFICIARY (continued) PAYMENT TO BENEFICIARIES. We will pay the Insurance Benefit: (a) to any primary beneficiaries who are alive when the life insured dies; or (b) if no primary beneficiary is then alive, to any secondary beneficiaries who are then alive; or (c) if no primary or secondary beneficiary is then alive, to any final beneficiaries who are then alive. CHANGE OF BENEFICIARY. Until the life insured's death you can change the beneficiary by Written Request, unless you make an irrevocable designation. We are not responsible if the change does not achieve your purpose. DEATH OF BENEFICIARY. If no beneficiary is alive when the life insured dies, the Insurance Benefit will belong to you; or to your estate if you are the life insured. If a beneficiary dies before the seventh day after the death of the life insured, we will pay the Insurance Benefit as if the beneficiary had died before the life insured. OWNERSHIP AND ASSIGNMENT Until the life insured's death, without the consent of any beneficiary, except an irrevocable beneficiary, you as owner can: (a) receive any amount payable under your policy; (b) exercise all rights and privileges granted by your policy; and (c) assign the policy. An assignment does not bind us until we receive it at our Service Office. We are not responsible for its validity or its effects. It should be filed with us in duplicate. We will return a copy. TRUSTEE OWNER. Should the owner be a trustee, payment to the trustee(s) of any amount to which the trustee(s) is (are) entitled under the policy, either by death or otherwise, will fully discharge us from all liability under the policy to the extent of the amount so paid. SUCCESSOR OWNER. Upon the owner's death during the lifetime of the life insured, a named successor owner will, if then living, have all the owner's rights and interest in the policy. During the life insured's lifetime the owner, without the consent of any beneficiary or any successor owner, can cancel or change the designation of successor owner from time to time by agreement in writing with us. PROTECTION AGAINST CREDITORS If permitted by state law, all payments shall be exempt from the payee's debts and contracts of the owners and beneficiaries, and from seizure by court order. CURRENCY AND PLACE OF PAYMENT All payments to or by us will be in U.S. currency. We will make payments from our Service Office. We may require proof that the person claiming any payment is entitled to it. CONTRACT The policy and application form your whole contract. A copy of the application is attached to the policy and deemed a part of it. We will not be bound by any statement that is not in the application or the policy. Only our President or one of our Vice-Presidents can agree to amend or modify the policy or waive any of its provisions. Any change must be in writing. Statements made by you or the life insured are representations, not warranties, unless fraud is involved. We will not use any statement by you or the life insured to deny a claim, unless it is written in the application. VALIDITY We have the right to contest the validity of this policy base on material misstatements made in the initial application or an application for policy change that requires evidence of insurability. However, we cannot contest the validity of your policy after it has been in force during the lifetime of the life insured for two years from the Issue Date. We cannot contest the validity of an increase in Face Amount or an addition of a Supplementary Benefit after such increase or addition has been in force during the lifetime of the life insured for two year from the date of such increase or addition. (continued) Page 16 VALIDITY (continued) We can contest after two years if the policy has been reinstated and has been in force during the lifetime of the life insured for less than two years from the reinstatement date. If this is the case, we can only contest the validity in respect of any fact material to the reinstatement that was misrepresented. NON-PARTICIPATING Your policy is non-participating. It does not earn dividends. HOW VALUES ARE COMPUTED We provide Cash Surrender Values that are at least equal to those required by law. A detailed statement of the method of computing the values of this policy has been filed with the Insurance Department of the State in which this policy is delivered. We use the 1980 Commissioners Standard Ordinary Sex Distinct ANB Aggregate Ultimate Mortality Tables in determining Guaranteed Maximum Cost of Insurance Rates. We base reserves on the 1980 Commissioners Standard Ordinary Ultimate Sex Distinct, Smoker/Non-Smoker Mortality Table. Values relating to amounts in the Fixed Account are computed using the same rate as the Fixed Account Minimum Annual Rate shown in the Policy Information section. ANNUAL STATEMENT Within 30 days after each Policy Anniversary, we will send you a report showing: (a) the Death Benefit; (b) the Policy Value; (c) the current allocation of money in the Fixed Account, the Loan Account and each of the Investment Accounts; (d) the value of the units in each chosen Investment Account; (e) any Policy Debt balance and loan interest charged since the last report; (f) the premiums paid and policy transactions for the year; and (g) any further information required by law. TAX CONSIDERATIONS It is the intent of this policy to be considered as life insurance for tax purposes. The Death Benefit is designed to comply with Section 7702 of the Internal Revenue Code of 1986 or any other equivalent section of the Code. We do not give tax advice and this provision should not be construed to mean that the Death Benefit and Policy Value will be exempt from the future actions of any tax authority. Page 17 ENDORSEMENT UNISEX This endorsement is included and made a part of the policy to which it is attached. It takes effect on the Policy Date. In order to provide insurance on a unisex basis, all references in this policy to the sex of the life insured are hereby withdrawn. This policy is further amended as described below. AFFECTED PROVISION AMENDMENT Age and Sex Reference to the life insured's sex does not apply. No change will be made because of a misstatement of sex. How Values are Computed The 1980 Commissioners Standard Ordinary Unisex ANB Aggregate Table B is used for determining the minimum Cash Surrender Values and the Guaranteed Maximum Cost of Insurance Rates. THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) /s/ John DesPrez III PRESIDENT SUPPLEMENTARY BENEFIT FLEXIBLE TERM INSURANCE OPTION TERM LIFE INSURANCE This benefit is a part of your policy. The effective date is the same as the Effective Date of your policy. The amount of the Insurance Benefit may vary as described below. The insurance provided will be flexible term insurance to Attained Age 100. DEFINITIONS DEATH BENEFIT SCHEDULE is the schedule of death benefits defined in the Policy Information section of your policy. SCHEDULE DEATH BENEFIT is the amount defined in the Death Benefit Schedule for the time period specified in the schedule. TERM INSURANCE BENEFIT is the amount payable under this Supplementary Benefit. INSURANCE BENEFIT If the life insured dies while the benefit is in force, we will pay the Term Insurance Benefit on receiving due proof of death, subject to the Age and Sex, Suicide, and the Validity provisions. If the life insured dies after we receive your request for surrender of the policy, there will be no Term Insurance Benefit. The life insured for this benefit is the same as the life insured for the policy to which this benefit is attached. TERM INSURANCE BENEFIT. The Term Insurance Benefit is determined on the first day of each Policy Month. It is equal to (a) minus (b), but not less than zero, where: (a) is the Scheduled Death Benefit in effect for the Policy Month; and (b) is the then current Face Amount, or, if the Death Benefit of the Policy is determined by the Policy's Minimum Death Benefit provision, the Minimum Death Benefit. It is possible that the Term Insurance Benefit could be zero for a Policy Month. However, this will not terminate the rider. BENEFIT COST The monthly cost of the benefit is one of the Monthly Deductions under the policy. The monthly cost is equal to (a) multiplied by (b) where: (a) is the monthly Cost of Insurance rate; and (b) is the Term Insurance Benefit divided by the Death Benefit Discount Factor shown in the Policy Information section of your policy. The rates for the Cost of Insurance are based on the life insured's Issue Age, Sex and Risk Classification, and the duration that the benefit has been in force. We will determine monthly Cost of Insurance rates from time to time, on a basis which does not discriminate unfairly within any class of insureds. The monthly cost of the benefit will reflect any Additional Rating shown for this benefit in the Policy Information section of your policy. The monthly Cost of Insurance rates will never be more than those shown in the Table of Maximum Cost of Insurance Rates on page 4 of your policy, plus any Additional Rating shown in the Policy Information section. CHANGING THE DEATH BENEFIT SCHEDULE You may change your Death Benefit Schedule by Written Request, subject to the following: (a) satisfactory evidence of insurability is required before the Death Benefit Schedule may be increased; (b) changes may be made only on the first day of a Policy Month; (c) a Written Request for a change which results in only a decrease to the Death Benefit Schedule must be received at least 30 days prior to the first day of a Policy Month for the change to take affect as of that Policy Month; (d) a change which results in an increase to the Death Benefit Schedule will take effect at the beginning of the Policy Month following the date we approve the request; (continued) Page 1 FLEXIBLE TERM INSURANCE OPTION TERM LIFE INSURANCE (e) a decrease to the Death Benefit Schedule which results in a Scheduled Death Benefit less than the Face Amount at the time of the change will cause a decrease in the Face Amount. The Face Amount will be reduced to be equal to the Scheduled Death Benefit at the time of the decrease in the schedule. A corresponding reduction will occur to the Coverage Amounts in the Table of Coverages as described in your policy. Surrender Charges may also be assessed as described in your Policy. A change to the Death Benefit Schedule may cause a change in the maximum amount of premium that can be paid into the policy. We will inform you of any such change. We reserve the right to refuse or limit any request for a change if the change would cause the policy to fail to qualify as life insurance for tax purposes. POLICY CHANGES CHANGE FROM DEATH BENEFIT OPTION 1 TO OPTION 2. All Scheduled Death Benefits effective after and including the effective date of the change will be reduced by the amount of the Policy Value at the time of the change. CHANGE FROM DEATH BENEFIT OPTION 2 TO OPTION 1. If the Face Amount of the Policy after a change in Death Benefit Option would be greater than the Scheduled Death Benefit in effect at the time of the change, the Face Amount after the change will be set equal to the Scheduled Death Benefit. INCREASE OR DECREASE IN FACE AMOUNT. If the Face Amount of the policy is increased or decreased, a corresponding increase or decrease of the same amount will also be made to the Scheduled Death Benefit effective on or after the effective date of the change in Face Amount. This provision does not apply to increases or decreases in Face Amount due to a change in Death Benefit Option. FACE AMOUNT GREATER THAN SCHEDULED DEATH BENEFIT. If at any time, the Face Amount is greater than the Scheduled Death Benefit effective on such date, the Face Amount will be reduced to be equal to the Scheduled Death Benefit. Surrender Charges may be assessed as described in your Policy. A change in Face Amount occurring as a result of a policy change under this provision, will result in a corresponding change in Coverage Amounts shown in the Table of Coverages as described in your policy. BENEFICIARY The beneficiary will be as designated in the application for this benefit, unless changed as provided for in the policy. AGE AND SEX If the life insured's age or sex (if applicable) was misstated in the application, we will change the Death Benefit Schedule. The new Death Benefit Schedule will be determined so that the Death Benefit will be that which the most recent Cost of Insurance deduction would have purchased for the correct age and sex (if applicable). SUICIDE The suicide period for this benefit will be the same as for the policy to which it is attached, and it will start on the effective date of the benefit, or the effective date of an increase in amount as appropriate. If the life insured dies by suicide, whether sane or insane, during the suicide period, the Term Insurance Benefit will be limited to the monthly cost for the benefit, or the monthly cost for an increase to the Death Benefit Schedule as appropriate. Page 2 FLEXIBLE TERM INSURANCE OPTIONS TERM LIFE INSURANCE VALIDITY The validity period for this benefit will be the same as for the policy to which it is attached, and it will start on the effective date of the benefit, or the effective date of an increase to the Death Benefit Schedule as appropriate. GENERAL PROVISION This benefit is part of the policy to which it is attached. Except where the benefit provides otherwise, it is subject to all provisions of the policy. TERMINATION The benefit terminates on the earliest of the following dates: (a) the termination date of the policy; (b) the date the life insured reaches Attained Age 100; or (c) the Policy Month following the date we receive your Written Request for cancellation of this benefit. THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) /s/ John DesPrez III PRESIDENT Page 3 - -------------------------------------------------------------------------------- The Manufacturers Life Insurance Company (U.S.A.) A Stock Company 200 Bloor Street East, Toronto, Canada M4W 1E5 - -------------------------------------------------------------------------------- FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY. ADJUSTABLE DEATH BENEFIT. FLEXIBLE PREMIUMS PAYABLE TO ATTAINED AGE 100 DURING THE LIFE INSURED'S LIFETIME. CASH SURRENDER VALUES AND BENEFITS FOR A PORTION OF THE POLICY VALUES ALLOCATED TO AN INVESTMENT ACCOUNT REFLECT THE INVESTMENT EXPERIENCE OF THE UNDERLYING SUB-ACCOUNTS. INVESTMENT OPTIONS ARE DESCRIBED IN THE POLICY VALUE COMPOSITION AND THE INVESTMENT OPTIONS PROVISIONS. NON-PARTICIPATING (NOT ELIGIBLE FOR DIVIDENDS). - -------------------------------------------------------------------------------- IMPORTANT NOTICE To claim a benefit or request a change in your policy, contact our nearest representative. Or write to our Service Office at the address above. Please tell us promptly of any change in your address. WE STRONGLY URGE THAT, BEFORE YOU TAKE ANY ACTION TO REPLACE THIS OR ANY OTHER POLICY, YOU ASK THE ADVICE OF THE COMPANY THAT ISSUED THE POLICY. - -------------------------------------------------------------------------------- [MANULIFE FINANCIAL Logo] - -------------------------------------------------------------------------------- Manulife Financial and the block design are registered service marks and trademarks of The Manufacturers Life Insurance Company and are used by it and its affiliates including Manulife Financial Corporation. V0697mi EX-99.2(A) 4 b44883clexv99w2xay.txt OPINION & CONSENT OF JAMES D. GALLAGHER Exhibit 99.2(A) THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) 73 Tremont Street Boston, MA 02116 December 16, 2002 To whom it may concern, This opinion is written in reference to the flexible premium variable universal life insurance policy (the "Contracts") to be issued by The Manufacturers Life Insurance Company (U.S.A.), a Michigan corporation (the "Company"), with respect to the variable portion of which pre-effective Amendment No. 1 to a Registration Statement on Form S-6, File No. 333-100567 (the "Registration Statement") is being filed under the Securities Act of 1933, as amended (the "Act"). As Counsel to the Company, I have examined such records and documents and reviewed such question of law as I deemed necessary for purposes of this opinion. 1. The Company has been duly incorporated under the laws of the state of Michigan and is a validly existing corporation. 2. The Manufacturers Life Insurance Company (U.S.A.) Separate Account N, formerly known as The Manufacturers Life Insurance Company of America Separate Account 4 (the "Variable Account"), is a separate account of the Company and is duly created and validly existing pursuant to the Michigan Code, as amended. 3. The portion of the assets to be held in the Variable Account equal to the reserves and other liabilities under the Contracts is not chargeable with liabilities arising out of any other business the Company may conduct. 4. The Contracts, when issued in accordance with the prospectus contained in the effective Registration Statement and upon compliance with applicable local law, will be legal and binding obligations of the Company. I consent to the filing of this opinion with the Securities and Exchange Commission as an exhibit to the Registration Statement. Very truly yours, /s/James D. Gallagher James D. Gallagher Executive Vice President, Secretary and General Counsel EX-99.2(B) 5 b44883clexv99w2xby.txt OPINION & CONSENT OF BRIAN KOOP Exhibit 99.2(B) THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) 73 TREMONT STREET BOSTON, MA 02108 December 16, 2002 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 Re: Actuarial Opinion on Illustrations Contained in Pre-Effective Amendment No. 1 to a Registration Statement on Form S-6 (File No. 333-100567) (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 universal life insurance policy (the "Policy") that is offered and sold by The Manufacturers Life Insurance Company (U.S.A.). (1) The illustrations of death benefits, Policy values, cash surrender values, and surrender values used in this Amendment are consistent with the provisions of the Policy and the Company's administrative procedures. (2) The rate structure of the Policy has not been designed, and the assumptions for the illustrations (including sex, age, rating classification, and premium amount and payment schedule) have not been selected, so as to make the relationship between premiums and benefits, as shown in the illustrations, appear to be materially more favorable than for any other prospective purchaser with different assumption. (3) The particular illustrations shown based on commonly used rating classifications and 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 Pricing Actuary EX-99.2(C) 6 b44883clexv99w2xcy.txt CONSENT OF ERNST & YOUNG Exhibit 99.2(C) 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 N of The Manufacturers Life Insurance Company (U.S.A.), (formerly known as Separate Account Four of The Manufacturers Life Insurance Company of America) in Pre-Effective Amendment No. 1 to the Registration Statement No. 333-100567 on Form S-6 and related prospectus of Separate Account N of The Manufacturers Life Insurance Company (U.S.A.). /s/ ERNST & YOUNG LLP Philadelphia, Pennsylvania December 16, 2002 EX-99.6 7 b44883clexv99w6.txt DESCRIPTION PURCHASE, TRANSFER & REDEMPTION PROCED Exhibit 99.6 THE MANUFACTURERS INSURANCE COMPANY (U.S.A.) DESCRIPTION OF PURCHASE, TRANSFER AND REDEMPTION PROCEDURES This document sets forth, as required by Rule 6e-3(T)(b)(12)(ii), the administrative procedures that will be followed by The Manufacturers Insurance Company (U.S.A.) (the "Company") and any office the Company designates for the receipt of payments and processing of policyholder requests (the "Service Office") in connection with the issuance of its flexible premium variable universal life insurance contract described in this registration statement (1933 Act file no. 333-100567) (the "Policy"), the transfer of assets held thereunder, and the redemption by contract owners of their interests in said Policy. I. ISSUING A POLICY A. Premiums This Policy is a flexible premium variable universal life insurance contract. The Policy permits the policyholder to pay flexible premiums. After payment of the initial premium, premiums may be paid at any time prior to attained age 100 of the insured and in any amount subject to certain premium limitations. A Policy will be issued with a planned premium, which is based on the amount of premium the policyholder wished to pay. 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. B. Underwriting The Polices are offered on three underwriting classes, which vary by the amount of information required of the prospective insured. These are described in more detail below. Regardless of which underwriting class 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. 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 provide detailed medical history, submit records or undergo examinations or tests unless requested by us to do so. Short form underwriting is generally available only up to issue age 65. 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 and may be required to submit existing medical records, but requirements to undergo examinations and tests are minimized. 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 a substandard rating. C. Application To purchase a Policy, an applicant must submit a completed application. A Policy will not be issued until the underwriting process has been completed to the Company's satisfaction. Policies may be issued on a basis which does not distinguish between the insured's sex and/or smoking status, with prior approval from the Company. A Policy will only be issued on the lives of insureds from ages 20 through 80. Each Policy is issued with a Policy Date, an Effective Date and an Issue Date. The Policy Date is the date from which the first monthly deductions are calculated and from which Policy Years, Policy Months and Policy Anniversaries are measured. The Policy Date is also the effective date of the initial Coverage Amount. The Policy Date is the same date as the Effective Date unless the Policy is backdated. The Effective Date is the date the Company becomes obligated under the Policy and when the first monthly deductions are taken from the Policy Value. It is the later of the dates that the Company approves the issuance of the Policy and the date The Company receives the Minimum Initial Premium. The Issue Date is the date from which the suicide and incontestability provisions of the Policy are measured. If we approve issuance of a Policy before we receive the Minimum Initial Premium then the Effective Date will be later than the Issue Date. The Minimum Initial Premium must be received by us within 60 days after the Issue Date and the life insured must be in good health on the Effective Date. If the Minimum Initial Premium is not paid or if the application is rejected, the Policy will be canceled and any premiums paid will be returned to the applicant. Net Premiums received prior to the Effective Date will be credited with interest at the rate of return earned on amounts allocated to the Money Market Trust. On the Effective Date, Net Premiums received plus any interest credited will be allocated to Investment Accounts and the Fixed Account according to your instructions, unless first allocated to the Money Market Trust for the duration of the right to examine period. D. Minimum Initial Face Amount and Scheduled Death Benefit The Company will issue a Policy only if it has a Face Amount of at least $50,000, unless the Flex Term Insurance Option Rider ("FTIO Rider") is added to the Policy. With an FTIO Rider, the minimum Face Amount is $25,000 and the minimum Scheduled Death Benefit is $50,000 at all times E. Backdating a Policy A policyholder may request that the Company backdate the Policy by assigning a Policy Date earlier than the Effective Date. We will not backdate the Policy to a date earlier than that allowed by state law, which is generally three months to one year prior to the date of application for the Policy. Monthly deductions will be made for the period the Policy Date is backdated. Regardless of whether or not a policy is backdated, Net Premiums (premium paid less premium load) received prior to the Effective Date of a Policy will be credited with interest from the date of receipt at the rate of return then being earned on amounts allocated to the Money Market portfolio. As of the Effective Date, the premiums paid plus interest credited, net of the premium load, will be allocated among the Investment Accounts (as described below under ("Policy Value - Investment Accounts") and/or Guaranteed Interest Account in accordance with the policyholder's instructions unless such amount is first allocated to the Money Market portfolio for the duration of the Right to Examine period described below. F. Temporary Insurance 2 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. G. 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, which will be stated in the Policy if applicable. The Policy can be mailed or delivered to the Company's 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 Investment Accounts and the Fixed Accounts; plus (b) the value of the amounts in the Investment Accounts and the Fixed Account on the date the Company received the returned Policy; 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 be 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 right to examine period, and the Policy Value and the surrender charges will be recalculated to be 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. H. Premium Allocation The policyholder may allocate premiums to the Fixed Account and Investment Accounts. Allocations may be made as percentages that are between zero and 100% that sum to exactly 100%. Alternatively, the policyholder may allocate a premium in dollar amounts that sum to exactly the Net Premium amount. The policyholder may change premium allocations at any time and the change will take effect on the date a request for change satisfactory to us is received at the Service Office. II. DEATH BENEFIT OPTION CHANGES The death benefit option may be changed at any time and will take effect at the beginning of the next Policy month at least 30 days after a written request for a change is received at the Service 3 Office. The Company reserves the right to limit changes that could cause the Policy to fail to qualify as life insurance for tax purposes. A change in the death benefit option will result in a change in the Face Amount and Scheduled Death Benefits to avoid any change in the amount of the death benefit, as follows: Change from Option 1 to Option 2 The new Face Amount will be the Face Amount prior to the change less the Policy Value on the date of the change and the Scheduled Death benefit amounts for dates on or after the date of the change will be the amounts scheduled prior to the change less the Policy value on the date of the change. Coverage Amounts will be reduced or eliminated in the order that they are listed in the Policy until the total decrease in Coverage Amounts equals the decrease in Face Amount. Surrender Charges will not be assessed for reductions that are solely due to a change in the Death Benefit Option. Change from Option 2 to Option 1 The new Face Amount will be the Face Amount prior to the change plus the Policy Value on the date of the change, but the new Face Amount will be no greater than the Scheduled Death Benefit on the date of the change. The resulting Face Amount increase amount will be added to the first Coverage Amount listed in the Policy. However, the Annual Premium Target for this Coverage Amount will not be increased and new Surrender Charges or Sales Loads will not apply, for an increase solely due to a change in the Death Benefit Option. III. FACE AMOUNT AND SCHEDULED DEATH BENEFIT CHANGES At any time, the policyholder may request an increase or decrease to the Face Amount or any Scheduled Death Benefits effective on or after the date of change. We reserve the right to limit changes that could cause the Policy to fail to qualify as life insurance for tax purposes. A. Increase in Face Amount Increases in Face Amount and Scheduled Death Benefits will require satisfactory evidence of the life insured's insurability. Increases will take effect at the beginning of the next Policy Month after we approve the request. We may refuse a requested increase that would not meet our requirements for new policy issues at the time due to the life insured's attained age or other factors. If the Face Amount is increased other than as required by a Death Benefit Option change, then all Scheduled Death Benefits effective on or after the date of the change will be increased by the amount of the Face Amount increase. B. New Charges for a Face Amount Increase Coverage Amounts equal to the amount of the increase will be added to the Policy. First, Coverage Amounts that were reduced or eliminated by a prior Face Amount decrease will be restored, but without restoring Annual Premium Targets and Surrender Charges or Sales Loads. If needed, a new Coverage Amount will be added to the Policy with an Annual Premium Target and new Surrender Charges or Sales Loads based on the life insured's Attained Age and other relevant factors on the effective date of the increase. Premiums paid on or after the increase may be attributed to the new Coverage Amount and result in Surrender Charges or Sales Loads C. Decrease in Face Amount and Scheduled Death Benefits Decreases in Face Amount and Scheduled Death Benefits will take effect at the beginning of the next Policy Month which is 30 days after your written request is received at the Service Office. 4 If the Face Amount is decreased then all Scheduled Death Benefits effective on or after the date of the change will be decreased by the same amount. If at any time the Scheduled Death Benefit decreases to less than the Face Amount, the Face Amount will be decreased to be equal to the Scheduled Death Benefit at that time. Coverage Amounts equal to the amount of the Face Amount decrease will be reduced or eliminated in the reverse order that they are listed in the Policy. Surrender Charges may be assessed, as noted below. E. Surrender Charges Assessed on a Decrease We will assess a portion of the Surrender Charge upon a Face Amount decrease that is not required due to a Death Benefit Option change or partial withdrawal. For each Coverage Amount that is reduced or eliminated as a result of the decrease, we will assess a portion of any applicable Surrender Charge. The proportion of the Surrender Charge that is assessed will be the ratio of amount by which the Coverage Amount is reduced to the Coverage Amount prior to reduction. The remaining Surrender Charges for affected Coverage Amounts will be reduced by the same ratio. IV. POLICY VALUE A. 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 at any time is equal to the sum of the values in the Investment Accounts, the Fixed Account, and the Loan Account. B. 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. C. Fixed Account Amounts in the Fixed Account do not vary with the investment performance of any sub-account. Instead, these amounts are credited with interest at a rate determined by the Company. D. Loan Account Amounts borrowed from the Policy are transferred to the Loan Account. Amounts in the Loan Account do not vary with the investment performance of any sub-account. Instead, these amounts are credited with interest at a rate determined by the Company that is lower than the loan interest rate charged on Policy Debt. E. Units and Unit Values Crediting and Canceling Units Units of a particular sub-account are credited to a Policy when Net Premiums are allocated to that sub-account or amounts are transferred to that sub-account. Units of a sub-account are cancelled whenever amounts are deducted, transferred or withdrawn from the sub-account. The number of units credited or cancelled for a specific transaction is based on the dollar amount of the transaction divided by the value of the unit on the Business Day on which the transaction occurs. The number of units credited with respect to a premium payment will be based on the applicable unit values for the Business Day on which the premium is received at the Service 5 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 transactions 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. 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. V. TRANSFER OF POLICY VALUE A. General Transfers At any time, the policyholder may transfer Policy Value from one sub-account to another or to the Fixed Account. We reserve the right to impose limitations on transfers, including limiting the number of transfers and amounts transferred in a period of time in accordance with applicable law. We would impose such transfer limitations in a manner that does not unfairly discriminate between individual policy owners. In addition, transfer privileges are subject to any restrictions that may be imposed by the Trust. In addition, we reserve the right to defer the transfer privilege at any time when we are unable to purchase of redeem shares of the Trust. The Policy is not designed for professional market timing organizations or other entities or persons engaging in programmed, frequent or large exchanges (collectively, "market timers") to speculate on short-term movements in the market since such activity may be disruptive to the Trust portfolios and increase their transaction costs. Therefore, in order to prevent excessive use of the transfer privilege, we reserve the right to impose specific limitations with respect to market timers, including restricting exchanges by market timer to certain variable investment options. Any action taken by us pursuant to this provision will be preceded by written notice to the affected policy owner. Transfer requests may be made in writing in a format satisfactory to us. From time to time we may offer The policyholder alternate means of communicating transfer requests to us, such as electronic mail, the Internet or telephone. We will use reasonable procedures to confirm that instructions received by alternate means are genuine and we will not be liable for following instructions we have reasonably determined to be genuine. Limitation on Transfers From the Fixed Account The maximum amount that may be transferred from the Fixed Account in any Policy Year is 25% of the Fixed Account Value at the previous Policy Anniversary. Any transfer that involves a transfer out of the Fixed Account may not involve a transfer to the Investment Account for the Money Market Trust. We may allow greater amounts to be transferred from the Fixed Account if a systematic plan of withdrawals is agreed to in advance. For example, we will allow the transfer of 20%, 25%, 33%, 50% and 100% of the remaining balance in the Fixed Account in five successive years provided we agree in advance in writing and that no amounts are transferred into the Fixed Account during the 5 year period. 6 VI. POLICY SURRENDER AND PARTIAL WITHDRAWALS A. Policy Surrender A Policy may be surrendered for its Net Cash Surrender Value at any time while the life insured is living. The Net Cash Surrender Value is equal to the Policy Value less any Surrender Charges, monthly deductions due and Policy Debt. The Net Cash Surrender Value will be determined at the end of the Business Day on which the Company 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. A policyholder may make a partial withdrawal of the Net Cash Surrender Value at any time. The policyholder may specify how the withdrawal amount will be allocated among the Investment Account and the Fixed Account. In the absence of instructions, the withdrawal will be allocated among the Accounts in the same proportion as the Policy Value in each account bears to the Net Policy Value. If Death Benefit Option 1 is in effect when a partial withdrawal is made, the Face Amount will be decreased by an amount equal to the excess, if any, of (a) over (b), where (a) is the partial withdrawal amount plus any applicable Surrender Charge and (b) is the excess, if any, of the Policy's Minimum Death Benefit over its Face Amount, immediately prior to the partial withdrawal. Coverage Amounts equal to the amount of the Face Amount decrease will be reduced or eliminated in the reverse order that they are listed in the Policy. All Scheduled Death Benefits effective on or after the date of the partial withdrawal will be decreased by the amount of the Face Amount decrease, unless The policyholder request otherwise and we approve. A Face Amount decrease due to a partial withdrawal will not incur any Surrender Charge in addition to that applicable to the partial withdrawal. As long as the Policy is in force, we will ordinarily pay any policy loans, surrenders, partial withdrawals or insurance benefit within seven days after receipt at the Service Office of all the documents required for such a payment. We may delay the payment of any policy loans, surrenders, partial withdrawals, or insurance benefit that depend on Fixed Account values for up to six months or in the case of any Investment Account for any period during which (i) the New York Stock Exchange is closed for trading (except for normal weekend and holiday closings), (ii) trading on the New York Stock Exchange is restricted (iii) an emergency exists as a result of which disposal of securities held in the Separate Account is not reasonably practicable or it is not reasonably practicable to determine the value of the Separate Account's net assets or (iv) the SEC, by order, so permits for the protection of security holders; provided that applicable rules and regulations of the SEC shall govern as to whether the conditions described in (2) and (3) exist. B. Surrender Charges We will deduct a Surrender Charge from the Net Policy Value upon elimination or reduction of a Coverage Amount designated as having a Surrender Charge during the first 9 Coverage Years. Coverage Amounts may be eliminated or reduced and a Surrender Charge assessed due to: - surrender of the Policy for its Net Cash Surrender Value, - a partial withdrawal which exceeds the Free Partial Withdrawal Amount, - a Face Amount decrease that is not solely due to a Death Benefit Option change, or - lapse of the Policy. The Surrender Charge for an applicable Coverage Amount is a percentage of the sum of all premiums attributed to it since its effective date. Surrender Charge percentages are guaranteed never to exceed those below. Currently, we are charging these percentages: 7
Coverage Year Percentage Coverage Year Percentage ------------- ---------- ------------- ---------- 1 5.0% 6 1.5% 2 4.0% 7 1.0% 3 3.0% 8 1.0% 4 2.5% 9 0.5% 5 2.0% 10+ 0.0%
Although the Surrender Charge percentages remain level or decrease as the Coverage Year increases, the total dollar amount of Surrender Charges may increase, as the total premium paid increases. Premiums paid in any Coverage Year in excess of the Annual Premium Target and premiums paid after the fifth Coverage Year may not add to the Surrender Charge, so the timing of premium payments may affect the amount of the Surrender Charge. Depending upon circumstances such as premiums paid and performance of the underlying investment options, there may be a Policy Value but no Cash Surrender Value available due to the existence of the Surrender Charge. Unless otherwise allowed by us and specified by you, Surrender Charges will be allocated among the Investment Accounts and the Fixed Account in the same proportion as the Policy Value in each Account bears to the Net Policy Value. SURRENDER CHARGES ON A PARTIAL WITHDRAWAL We will assess a portion of the Surrender Charge if the policyholder take a partial withdrawal that exceeds the Free Withdrawal Amount. The Free Withdrawal Amount is 10% of the Net Cash Surrender Value at the time of the withdrawal less the amount of any partial withdrawals already taken in the same Policy Year. The portion of the Policy's total Surrender Charge that will be assessed is the ratio of (a) to (b), where (a) is the amount being withdrawn in excess of the Free Withdrawal Amount and (b) is the Net Cash Surrender Value immediately prior to the withdrawal. The remaining Surrender Charges for all Coverage Amounts will be reduced in the same proportion that the Surrender Charge assessed bears to the Policy's total Surrender Charge immediately prior to the partial withdrawal. VII. LAPSE AND REINSTATEMENT A. Lapse A Policy will go into default if at the beginning of a Policy Month if the Net Cash Surrender Value would go below zero after deducting the monthly deduction then due. A lapse could have adverse tax consequences as described under "Tax Treatment of the Policy - Tax Treatment of Policy Benefits - Surrender or Lapse." We will notify the policyholder of the default and will allow the policyholder a 61-day grace period in which to make a premium payment sufficient to bring the Policy out of default. The required payment will be equal to the amount necessary to bring the Net Cash Surrender Value to zero, if it was less than zero on the date of default, plus the monthly deductions due at the date of default and payable at the beginning of each of the two Policy Months thereafter, plus any applicable premium load. If the required payment is not received by the end of the grace period, the Policy will terminate with no value. 8 Death During Grace Period If the life insured should die during the grace period, the Policy Value used in the calculation of the Death Benefit will be the Policy Value on the date of default and the insurance benefit will be reduced by any outstanding monthly deductions due at the time of death. B. Reinstatement The policyholder may reinstate a Policy that has terminated after going into default at any time within the five-year period following the date of termination subject to the following conditions: (a) The Policy must not have been surrendered for its Net Cash Surrender Value; (b) Evidence of the life insured's insurability satisfactory to us must be provided; and (c) A premium equal to the payment required during the grace period following default to keep the Policy in force is paid. VIII. POLICY LOANS At any time while the Policy is in force, The policyholder may borrow against the Policy Value. The Policy is the only security for the loan. Policy loans may have tax consequences. A. Maximum Loan The amount of any loan cannot exceed the amount that would cause the Policy Debt to equal the Policy's Cash Surrender Value less the monthly deductions due to the next Policy Anniversary on the date of the loan. B. Loan Value The Loan Value is equal to the Policy's Cash Surrender Value less the monthly deductions due to the next Policy Anniversary. C. 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 4%. D. Loan Account When a loan is made, an amount equal to the loan will be deducted from the Investment Accounts or the Fixed Account and transferred to the Loan Account. The policyholder may designate how this amount is allocated among the Accounts. If the policyholder give no instructions, the amount transferred will be allocated among the Investment Accounts and the Fixed Account in the same proportion as the Policy Value in each Account bears to the Net Policy Value. A transfer from an Investment Account will result in the cancellation of units of the underlying sub-account equal in value to the amount transferred from the Investment Account. However, since the Loan Account is part of the Policy Value, transfers made in connection with a loan will not change the Policy Value. E. Interest Credited to the Loan Account Policy Value in the Loan Account will earn interest at an effective annual rate guaranteed to be at least 3.25%. We may declare a current interest rate that is greater than this, subject to change at any time. The excess of the loan interest charged rate (4%) over the loan interest credited rates will result in a net charge against the Policy Value with respect to any Policy Debt. Currently we credit loan interest rates which vary by Policy Year as follows:
Current Loan Interest Excess Loan Interest Policy Years Credited Rates Charged Rate - ------------ -------------- ------------ 1-10 3.25% 0.75% 11+ 3.75% 0.25%
9 F. Loan Account Adjustments On the first day of each Policy Month the difference between the Loan Account and the Policy Debt is transferred to the Loan Account from the Investment Accounts or the Fixed Account. The amount transferred will be allocated to the Investment Accounts and the Fixed Account in the same proportion as the Policy Value in each Account bears to the Net Policy Value. G. Loan Repayments Policy Debt may be repaid, in whole or in part, at any time prior to the death of the life insured while the Policy is in force. A loan repayment amount will be credited to the Loan Account and transferred to the Fixed Account or the Investment Accounts in the same proportion as the Policy Value in each Account bears to the Net Policy Value. Amounts paid to us not specifically designated in writing as loan repayments will be treated as premiums. 10 -----END PRIVACY-ENHANCED MESSAGE-----