0001193125-05-143708.txt : 20151006
0001193125-05-143708.hdr.sgml : 20151006
20050718153613
ACCESSION NUMBER: 0001193125-05-143708
CONFORMED SUBMISSION TYPE: N-6
PUBLIC DOCUMENT COUNT: 2
FILED AS OF DATE: 20050718
DATE AS OF CHANGE: 20120905
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: JOHN HANCOCK LIFE INSURANCE CO (USA) SEPARATE ACCOUNT N
CENTRAL INDEX KEY: 0000813572
IRS NUMBER: 232030787
STATE OF INCORPORATION: MI
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: N-6
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-126668
FILM NUMBER: 05959414
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: MANUFACTURERS LIFE INS CO USA SEPARATE ACCOUNT N
DATE OF NAME CHANGE: 20020411
FORMER COMPANY:
FORMER CONFORMED NAME: SEPARATE ACCOUNT FOUR OF THE MANUFACTURERS LIFE INS CO OF AM
DATE OF NAME CHANGE: 19920703
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: JOHN HANCOCK LIFE INSURANCE CO (USA) SEPARATE ACCOUNT N
CENTRAL INDEX KEY: 0000813572
IRS NUMBER: 232030787
STATE OF INCORPORATION: MI
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: N-6
SEC ACT: 1940 Act
SEC FILE NUMBER: 811-05130
FILM NUMBER: 05959415
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: MANUFACTURERS LIFE INS CO USA SEPARATE ACCOUNT N
DATE OF NAME CHANGE: 20020411
FORMER COMPANY:
FORMER CONFORMED NAME: SEPARATE ACCOUNT FOUR OF THE MANUFACTURERS LIFE INS CO OF AM
DATE OF NAME CHANGE: 19920703
N-6
1
dn6.txt
JOHN HANCOCK ACCOUNT N CVUL 05
As filed with the Securities and Exchange Commission on July 18, 2005
Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-6
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 5
JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
(formerly, The Manufacturers Life Insurance Company (U.S.A.) Separate Account N)
(Exact name of Registrant)
JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.)
(formerly, 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)
Depositor's Telephone Number: 617-663-3000
James C. Hoodlet, Esq.
John Hancock Life Insurance Company (U.S.A.)
U.S. Protection-Law
John Hancock Place
Boston, MA 02210
(Name and Address of Agent for Service)
Copy to:
THOMAS C. LAUERMAN, Esq.
Foley & Lardner
3000 K Street, N.W.
Washington, D.C. 20007
It is proposed that this filing will become effective as soon as practicable
after the effective date of the Registration Statement.
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 this 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.
Prospectus dated September , 2005
----
for interests in
Separate Account N
Interests are made available under
CORPORATE VUL
a flexible premium variable universal life insurance policy issued by
JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.)
("John Hancock USA")
The policy provides a fixed account with fixed rates of return declared by
John Hancock USA and the following investment accounts:
Science & Technology American Growth Quantitative Value
Pacific Rim U.S. Global Leaders Growth American Growth-Income
Health Sciences Quantitative All Cap Equity-Income
Emerging Growth All Cap Core American Blue Chip Income and Growth
Small Cap Growth Large Cap Growth Income & Value
Emerging Small Company Total Stock Market Index Managed
Small Cap Blue Chip Growth PIMCO VIT All Asset
Small Cap Index U.S. Large Cap Global Allocation
Small Company Core Equity High Yield
Dynamic Growth Strategic Value U.S. High Yield Bond
Mid Cap Stock Large Cap Value Strategic Bond
Natural Resources Classic Value Strategic Income
All Cap Growth Utilities Global Bond
Strategic Opportunities Real Estate Securities Investment Quality Bond
Financial Services Small Cap Opportunities Total Return
International Opportunities Small Cap Value Real Return Bond
International Stock Small Company Value Bond Index B
International Small Cap Special Value Core Bond
International Equity Index B Mid Value Active Bond
Overseas Equity Mid Cap Value U.S. Government Securities
American International Value Short-Term Bond
International Value All Cap Value Money Market B
Quantitative Mid Cap Growth & Income II Lifestyle Aggressive 1000
Mid Cap Index 500 Index B Lifestyle Growth 820
Mid Cap Core Fundamental Value Lifestyle Balanced 640
Global Growth & Income Lifestyle Moderate 460
Capital Appreciation Large Cap Lifestyle Conservative 280
* * * * * * * * * * * *
Please note that the SEC has not approved or disapproved these securities,
or determined if this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
GUIDE TO THIS PROSPECTUS
This prospectus is arranged in the following way:
. Starting on the next page is a Table of Contents for this prospectus.
. The section after the Table of Contents is called "Summary of Benefits
and Risks". It contains a summary of the benefits available under the
policy and of the principal risks of purchasing the policy. You should
read this section before reading any other section of this prospectus.
. Behind the Summary of Benefits and Risks section is a section called
"Fee Tables" that describes the fees and expenses you will pay when
buying, owning and surrendering the policy.
. Behind the Fee Tables section is a section called "Detailed
Information". This section gives more details about the policy. It may
repeat certain information contained in the Summary of Benefits and
Risks section in order to put the more detailed information in proper
context.
. Finally, on the back cover of this prospectus is information
concerning the Statement of Additional Information (the "SAI") and how
the SAI, personalized illustrations and other information can be
obtained.
After this prospectus ends, you will find all applicable state-specific
supplements. After the supplements, if any, the prospectuses for the underlying
portfolios begin. See the section of this prospectus entitled "The Investment
Accounts" for a brief description of the portfolios.
2
TABLE OF CONTENTS
Page No.
--------
SUMMARY OF BENEFITS AND RISKS ....................................... 4
The Nature of the Policy ............................................ 4
Summary of Policy Benefits .......................................... 4
Death Benefit .................................................... 4
Surrender of the Policy .......................................... 4
Withdrawals ...................................................... 4
Policy Loans ..................................................... 4
Optional Supplementary Benefit Riders ............................ 5
Investment Options ............................................... 5
Summary of Policy Risks ............................................. 5
Lapse Risk ....................................................... 5
Investment Risk .................................................. 5
Transfer Risk .................................................... 5
Early Surrender Risk ............................................. 5
Market Timing Risk ............................................... 5
Tax Risks ........................................................ 6
FEE TABLES .......................................................... 7
DETAILED INFORMATION ................................................ 12
Your Investment Options ............................................. 12
Description of John Hancock USA ..................................... 21
Description of Separate Account N ................................... 22
The Fixed Account ................................................... 22
The Death Benefit ................................................... 23
Limitations on payment of death benefit .......................... 23
Base Face Amount vs. Supplemental Face Amount .................... 23
The minimum death benefit ........................................ 23
When the insured person reaches 100 .............................. 24
Requesting an increase in coverage ............................... 24
Requesting a decrease in coverage ................................ 24
Change of death benefit option ................................... 25
Tax consequences of coverage changes ............................. 25
Your beneficiary ................................................. 25
Ways in which we pay out policy proceeds ......................... 25
Changing a payment option ........................................ 25
Tax impact of payment option chosen .............................. 25
Premiums ............................................................ 25
Planned Premiums ................................................. 25
Minimum initial premium .......................................... 26
Maximum premium payments ......................................... 26
Processing premium payments ...................................... 26
Ways to pay premiums ............................................. 26
Lapse and reinstatement ............................................. 26
Lapse ............................................................ 26
Death during grace period ........................................ 27
Reinstatement .................................................... 27
The Policy Value .................................................... 27
Allocation of future premium payments ............................ 27
Transfers of existing policy value ............................... 27
Surrender and Withdrawals ........................................... 28
Surrender ........................................................ 28
Withdrawals ...................................................... 29
Policy loans ........................................................ 29
Repayment of policy loans ........................................ 29
Effects of policy loans .......................................... 29
Description of Charges at the Policy Level .......................... 30
Deduction from premium payments .................................. 30
Deductions from policy value ..................................... 30
Additional information about how certain policy charges work ..... 31
Sales expenses and related charges ............................... 31
Method of deduction .............................................. 31
Reduced charges for eligible classes ............................. 31
Other charges we could impose in the future ...................... 31
Description of Charges at the Portfolio Level ....................... 31
Other Policy Benefits, Rights and Limitations ....................... 32
Optional supplementary benefit riders you can add ................ 32
Variations in policy terms ....................................... 32
Procedures for issuance of a policy .............................. 32
Commencement of insurance coverage ............................... 32
Backdating ....................................................... 33
Temporary coverage prior to policy delivery ...................... 33
Monthly deduction dates .......................................... 33
Changes that we can make as to your policy ....................... 33
The owner of the policy .......................................... 33
Policy cancellation right ........................................ 34
Reports that you will receive .................................... 34
Assigning your policy ............................................ 34
When we pay policy proceeds ...................................... 34
General .......................................................... 34
Delay to challenge coverage ...................................... 34
Delay for check clearance ........................................ 34
Delay of separate account proceeds ............................... 35
Delay of general account surrender proceeds ...................... 35
How you communicate with us ...................................... 35
General Rules .................................................... 35
Telephone, Facsimile and Internet Transactions ................... 35
Distribution of Policies ......................................... 36
Tax considerations .................................................. 37
General .......................................................... 37
Policy proceeds .................................................. 37
Other policy distributions ....................................... 37
Diversification rules and ownership of the Account ............... 38
7-pay premium limit .............................................. 38
Corporate and H.R. 10 plans ...................................... 39
Financial statements reference ...................................... 39
Registration statement filed with the SEC ........................... 39
Independent Registered Public Accounting Firm ....................... 39
3
SUMMARY OF BENEFITS AND RISKS
The Nature of the Policy
The policy's primary purpose is to provide lifetime protection against
economic loss due to the death of the insured person. The policy is unsuitable
as a short-term savings vehicle because of the substantial policy-level charges.
We are obligated to pay all amounts promised under the policy. The value of the
amount you have invested under the policy may increase or decrease daily based
upon the investment results of the investment accounts that you choose. The
amount we pay to the policy's beneficiary upon the death of the insured person
(we call this the "death benefit") may be similarly affected. That's why the
policy is referred to as a "variable" life insurance policy. We call the
investments you make in the policy "premiums" or "premium payments". The amount
we require as your first premium depends upon the specifics of your policy and
the insured person. Except as noted in the "Detailed Information" section of
this prospectus, you can make any other premium payments you wish at any time.
That's why the policy is called a "flexible premium" policy.
Summary of Policy Benefits
Death Benefit
When the insured person dies, we will pay the death benefit minus any
outstanding loans. There are two ways of calculating the death benefit (Option 1
and Option 2). You choose which one you want in the application. The two death
benefit options are:
. Option 1 - The death benefit will equal the greater of (1) the Total
Face Amount, or (2) the minimum death benefit (as described under "The
minimum death benefit" provision in the "Detailed Information" section
of this prospectus).
. Option 2 - The death benefit will equal the greater of (1) the Total
Face Amout plus the policy value on the date of death, or (2) the
minimum death benefit.
Surrender of the Policy
You may surrender the policy in full at any time. If you do, we will pay
you the policy value less any outstanding policy debt. This is called your "net
cash surrender value". You must return your policy when you request a surrender.
If you have not taken a loan on your policy, the "policy value" of your
policy will, on any given date, be equal to:
. the amount you invested,
. plus or minus the investment experience of the investment options
you've chosen,
. minus all charges we deduct, and
. minus all withdrawals you have made.
If you take a loan on your policy, your policy value will be computed
somewhat differently. See "Effects of policy loans".
Withdrawals
After the first policy year, you may make a withdrawal of part of your
surrender value. Generally, each withdrawal must be at least $500. There is a
fee (usually $25) for each withdrawal. Your policy value is automatically
reduced by the amount of the withdrawal and the charge. We reserve the right to
refuse a withdrawal if it would reduce the net cash surrender value or the Total
Face Amount below certain minimum amounts.
Policy Loans
You may borrow from your policy at any time by completing the appropriate
form. Generally, the minimum amount of each loan is $500. The maximum amount you
can borrow is determined by a formula (see the section entitled "Policy Loans"
for the formula). Interest is charged on each loan. You can pay the interest or
allow it to become part of the outstanding loan balance. You can repay all or
part of a loan at any time. If there is an outstanding loan when the insured
person dies, it will be deducted from the death benefit. Outstanding loans also
permanently affect the calculation of your policy value.
4
Optional Supplementary Benefit Riders
When you apply for the policy, you can request any of the optional
supplementary benefit riders that we make available. Availability of riders
varies from state to state. Charges for most riders will be deducted monthly
from the policy value.
Investment Options
The policy offers a number of investment options, as listed on the cover of
this prospectus. There is an option that provides a fixed rate of return. Such
an option is referred to in this prospectus as a "fixed account". The rest of
the options have returns that vary depending upon the investment results of
underlying portfolios. These options are referred to in this prospectus as
"investment accounts". The fixed account and the investment accounts are
sometimes collectively referred to in this prospectus as the "accounts". The
investment accounts cover a broad spectrum of investment styles and strategies.
Although the portfolios of the Series Funds that underly those investment
accounts operate like publicly traded mutual funds, there are important
differences between the investment accounts and publicly-traded mutual funds. On
the plus side, you can transfer money from one investment account to another
without tax liability. Moreover, any dividends and capital gains distributed by
each underlying portfolio are automatically reinvested and reflected in the
portfolio's value and create no taxable event for you. On the negative side, if
and when policy earnings are distributed (generally as a result of a surrender
or withdrawal), they will be treated as ordinary income instead of as capital
gains. Also, you must keep in mind that you are purchasing an insurance policy
and you will be assessed charges at the policy level as well as at the fund
level. Such policy level charges, in aggregate, are significant and will reduce
the investment performance of your investment accounts.
Summary of Policy Risks
Lapse Risk
If the policy value is insufficient to pay the charges when due, your
policy can terminate (i.e. "lapse"). This can happen because you haven't paid
enough premiums or because the investment performance of the investment accounts
you've chosen has been poor or because of a combination of both factors. You'll
be given a "grace period" within which to make additional premium payments to
keep the policy in effect. If lapse occurs, you'll be given the opportunity to
reinstate the policy by making the required premium payments and satisfying
certain other conditions.
Since withdrawals reduce your policy value, withdrawals increase the risk
of lapse. Policy loans also increase the risk of lapse.
Investment Risk
As mentioned above, the investment performance of any investment account
may be good or bad. Your policy value will rise or fall based on the investment
performance of the investment accounts you've chosen. Some investment accounts
are riskier than others. These risks (and potential rewards) are discussed in
detail in the attached prospectuses of the underlying portfolios.
Transfer Risk
There is a risk that you will not be able to transfer your policy value
from one investment account to another because of limitations on the dollar
amount or frequency of transfers you can make. The limitation on transfers out
of the fixed account are more restrictive than those that apply to transfers out
of investment accounts.
Early Surrender Risk
Depending on the amount of premium paid and the policy value at the time
you are considering surrender, there may be little or no surrender value payable
to you if the policy is surrendered.
Market Timing Risk
Investment accounts in variable life insurance products can be a prime
target for abusive transfer activity because these products value their
investment accounts on a daily basis and allow transfers among investment
accounts without immediate tax consequences. As a result, some investors may
seek to frequently transfer into and out of investment accounts in reaction to
market news or to exploit a perceived pricing inefficiency. Whatever the reason,
long-term investors in an investment account can be harmed by frequent transfer
activity since such activity may expose the investment account's underlying
5
portfolio to increased portfolio transaction costs and/or disrupt the portfolio
manager's ability to effectively manage the portfolio's investments in
accordance with the portfolio's investment objectives and policies, both of
which may result in dilution with respect to interests held for long-term
investment.
To discourage disruptive frequent trading activity, we impose restrictions
on transfers (see "Transfers of existing policy value") and reserve the right to
change, suspend or terminate telephone, facsimile and internet transaction
privileges (see "How you communicate with us"). In addition, we reserve the
right to take other actions at any time to restrict trading, including, but not
limited to: (i) restricting the number of transfers made during a defined
period, (ii) restricting the dollar amount of transfers, and (iii) restricting
transfers into and out of certain investment accounts. We also reserve the right
to defer a transfer at any time we are unable to purchase or redeem shares of
the underlying portfolio.
While we seek to identify and prevent disruptive frequent trading activity,
it may not always be possible to do so. Therefore, no assurance can be given
that the restrictions we impose will be successful in preventing all disruptive
frequent trading and avoiding harm to long-term investors.
Tax Risks
In order for you to receive the tax benefits accorded life insurance under
the Internal Revenue Code, your policy must comply with certain requirements of
the Code. We will monitor your policy for compliance with these requirements,
but a policy might fail to qualify as life insurance in spite of our monitoring.
If this were to occur, you would be subject to income tax on the income credited
to your policy for the period of disqualification and all subsequent periods.
The tax laws also contain a so-called "7 pay limit" that limits the amount of
premium that can be paid in relation to the policy's death benefit. If the limit
is violated, the policy will be treated as a "modified endowment", which can
have adverse tax consequences. There are also certain Treasury Department rules
referred to as the "investor control rules" that determine whether you would be
treated as the "owner" of the assets underlying your policy. If that were
determined to be the case, you would be taxed on any income or gains those
assets generate. In other words, you would lose the value of the so-called
"inside build-up" that is a major benefit of life insurance.
In general, you will be taxed on the amount of distributions that exceed
the premiums paid under the policy. Any taxable distribution will be treated as
ordinary income (rather than as capital gains) for tax purposes.
There is also a tax risk associated with policy loans. Although no part of
a loan is treated as income to you when the loan is made, surrender or lapse of
the policy would result in the loan being treated as a distribution at the time
of lapse or surrender. This could result in a considerable tax bill. Under
certain circumstances involving large amounts of outstanding loans and an
insured person of advanced age, you might find yourself having to choose between
high premium requirements to keep your policy from lapsing and a significant tax
burden if you allow the lapse to occur.
Tax consequences of ownership or receipt of policy proceeds under federal,
state and local estate, inheritance, gift and other tax laws can vary greatly
depending upon the circumstances of each owner or beneficiary. There can also be
unfavorable tax consequences on such things as the change of policy ownership or
assignment of ownership interests. For these and all the other reasons mentioned
above, we recommend you consult with a qualified tax adviser before buying the
policy and before exercising certain rights under the policy.
6
FEE TABLES
This section contains five tables that describe all of the fees and
expenses that you will pay when buying and owning the policy. In the first three
tables, certain entries show the minimum charge, the maximum charge and the
charge for a representative insured person. Other entries show only the maximum
charge we can assess and are labeled as such. Except where necessary to show a
rate greater than zero, all rates shown in the tables have been rounded to two
decimal places as required by prospectus disclosure rules. Consequently, the
actual rates charged may be slightly higher or lower than those shown in the
tables.
The first table below describes the fees and expenses that you will pay at
the time that you pay a premium, withdraw policy value, surrender the policy,
lapse the policy or transfer policy value between investment accounts.
----------------------------------------------------------------------------------------------------------
Transaction Fees
----------------------------------------------------------------------------------------------------------
Charge When Charge is Deducted Amount Deducted
----------------------------------------------------------------------------------------------------------
Maximum premium charge Upon payment of premium 7% of each premium paid
----------------------------------------------------------------------------------------------------------
Maximum withdrawal fee Upon making a withdrawal The lesser of 2% of the withdrawal
amount or $25
----------------------------------------------------------------------------------------------------------
Maximum transfer fee Upon each transfer into or out of an $25 (currently $0)/(1)/
investment account beyond an annual limit of
not less than 12
----------------------------------------------------------------------------------------------------------
/(1)/ This charge is not currently imposed, but we reserve the right to do so in
the policy.
The next two tables describe the charges and expenses that you will pay
periodically during the time you own the policy. These tables do not include
fees and expenses paid at the portfolio level. Except for the policy loan
interest rate, all of the charges shown in the tables are deducted from your
policy value. The second table is devoted only to optional supplementary rider
benefits.
------------------------------------------------------------------------------------------------------------------------
Periodic Charges Other Than Fund Operating Expenses
------------------------------------------------------------------------------------------------------------------------
Amount Deducted
When Charge is -----------------------------------------------------------------
Charge Deducted Guaranteed Rate Current Rate
------------------------------------------------------------------------------------------------------------------------
Cost of insurance
charge:/(1)/ Monthly
Minimum charge $0.02 per $1,000 of NAR $0.02 per $1,000 of NAR
Maximum charge $83.33 per $1,000 of NAR $83.33 per $1,000 of NAR
Charge for representative $0.20 per $1,000 of NAR $0.10 per $1,000 of NAR
insured person
------------------------------------------------------------------------------------------------------------------------
Face Amount charge:/(2)/ Monthly for 10 policy
years from the Policy
Date
Minimum charge $0.02 per $1,000 of Base Face $0.02 per $1,000 of Base Face
Amount Amount
Maximum charge $1.47 per $1,000 of Base Face $1.47 per $1,000 of Base Face
Amount Amount
Charge for representative $0.14 per $1,000 of Base Face $0.14 per $1,000 of Base Face
insured person Amount Amount
------------------------------------------------------------------------------------------------------------------------
Administrative charge Monthly $12 $12
------------------------------------------------------------------------------------------------------------------------
Asset-based risk charge/(3)/ Monthly 0.08% of policy value in policy 0.08% of policy value in policy
years 1-10 years 1-10
0.02% of policy value in policy 0.00% of policy value in policy
year 11 and thereafter year 11 and thereafter
------------------------------------------------------------------------------------------------------------------------
Maximum policy loan interest Accrues daily 3.75% 3.75%
rate/(4)/ Payable annually
------------------------------------------------------------------------------------------------------------------------
/(1)/ The insurance charge is determined by multiplying the amount of insurance
for which we are at risk (the net amount at risk or "NAR") by the
applicable cost of insurance rate. The rates vary widely depending upon the
length of time the policy has been in effect, the
7
insurance risk characteristics of the insured person and (generally) the
gender of the insured person. The "minimum" rate shown in the table is the
rate in the first policy year for a policy issued to cover a 5 year old
female preferred underwriting risk. The "maximum" rate shown in the table
at both guaranteed and current rates is the rate in the first policy year
for a policy issued to cover a 90 year old male substandard smoker
underwriting risk. This includes the so-called "extra mortality charge".
The "representative insured person" referred to in the table is a 45 year
old male standard non-smoker underwriting risk with a policy in the first
policy year. The charges shown in the table may not be particularly
relevant to your current situation. For more information about cost of
insurance rates, talk to your John Hancock USA representative.
/(2)/ This charge is determined by multiplying the Base Face Amount at issue by
the applicable rate. The rates vary by the sex and issue age of the insured
person. The "minimum" rate shown in the table is for a 0 year old female.
The "maximum" rate shown in the table is for a 90 year old male. The
"representative insured person" referred to in the table is a 45 year old
male.
/(3)/ This charge only applies to that portion of policy value held in the
investment accounts. The charge determined does not apply to any fixed
account.
/(4)/ 3.75% is the maximum effective annual interest rate we can charge and
applies only during policy years 1-10. The effective annual interest rate
is 3.0% thereafter (although we reserve the right to increase the rate
after the tenth policy year to as much as 3.25%). The amount of any loan is
transferred from the accounts to a special loan account which earns
interest at an effective annual rate of 3.0%. Therefore, the cost of a loan
is the difference between the loan interest we charge and the interest we
credit to the special loan account.
----------------------------------------------------------------------------------------------------
Rider Charges
----------------------------------------------------------------------------------------------------
When Charge is
Charge Deducted Amount Deducted
----------------------------------------------------------------------------------------------------
Enhanced Cash Value Rider Upon payment of premium 0.5% of premium, up to the Limiting Premium
stated in the Policy Specifications page of
the policy, paid in the first 7 policy years
----------------------------------------------------------------------------------------------------
The next table describes the minimum and maximum portfolio level fees and
expenses charged by any of the portfolios underlying a variable investment
option offered through this prospectus, expressed as a percentage of average net
assets (rounded to two decimal places). These expenses are deducted from
portfolio assets.
-----------------------------------------------------------------------------------
Total Annual Portfolio Operating Expenses Minimum Maximum
-----------------------------------------------------------------------------------
Range of expenses, including management fees, distribution and/
or service (12b-1) fees, and other expenses 0.50% 1.62%
-----------------------------------------------------------------------------------
The next table describes the fees and expenses for each class of shares of
each portfolio underlying a variable investment option offered through this
prospectus. None of the portfolios charge a sales load or surrender fee. The
fees and expenses do not reflect the fees and expenses of any variable insurance
contract or qualified plan which may use the portfolio as its underlying
investment medium. Except for the American International, American Growth,
American Growth-Income, American Blue Chip Income and Growth and PIMCO VIT All
Asset portfolios, all of the portfolios shown in the table are NAV class shares
that are not subject to Rule 12b-1 fees. These NAV class shares commenced
operations on April 29, 2005. The expense ratios shown in the table for the NAV
class shares of a portfolio are estimates for the current fiscal year. In those
cases where a portfolio had a Series I class of shares in operation during 2004,
the NAV class estimates are based upon the expense ratios of the portfolio's
Series I shares for the year ended December 31, 2004 (adjusted to reflect the
absence of a Rule 12b-1 fee applicable to the NAV shares). In the case of the
American International, American Growth, American Growth-Income, American Blue
Chip Income and Growth, and PIMCO VIT All Asset portfolios, the expense ratios
are based upon the portfolio's actual expenses for the year ended December 31,
2004.
Portfolio Annual Expenses
(as a percentage of portfolio average net assets, rounded to two decimal places)
Management Other Total
Portfolio Fees 12b-1 Fees Expenses Annual Expenses
--------- ---------- ---------- -------- ---------------
Science & Technology ............ 1.04%/A/ N/A 0.07% 1.11%
Pacific Rim ..................... 0.80% N/A 0.28% 1.08%
Health Sciences ................. 1.05%/A/ N/A 0.11% 1.16%
Emerging Growth ................. 0.80% N/A 0.07% 0.87%
Small Cap Growth ................ 1.08% N/A 0.07% 1.15%
Emerging Small Company .......... 1.00% N/A 0.06% 1.06%
Small Cap ....................... 0.85% N/A 0.07% 0.92%
8
Management Other Total
Portfolio Fees 12b-1 Fees Expenses Annual Expenses
--------- ---------- ---------- -------- ---------------
Small Cap Index ........................ 0.49% N/A 0.03% 0.52%
Small Company .......................... 1.05% N/A 0.57% 1.62%/C/
Dynamic Growth ......................... 0.95% N/A 0.07% 1.02%
Mid Cap Stock .......................... 0.86% N/A 0.05% 0.91%
Natural Resources ...................... 1.01% N/A 0.07% 1.08%
All Cap Growth ......................... 0.89% N/A 0.06% 0.95%
Strategic Opportunities ................ 0.80% N/A 0.07% 0.87%
Financial Services/F/ .................. 0.88%/F/ N/A 0.08% 0.96%
International Opportunities ............ 1.00% N/A 0.20% 1.20%
International Stock .................... 0.95% N/A 0.16% 1.11%
International Small Cap ................ 1.00% N/A 0.19% 1.19%
International Equity Index B /G/ ....... 0.55% N/A 0.04% 0.59%
Overseas Equity ........................ 1.05% N/A 0.09% 1.14%
American International /E/ ............. 0.54% 0.60% 0.08% 1.22%
International Value .................... 0.87%/D/ N/A 0.15% 1.02%
Quantitative Mid Cap ................... 0.75% N/A 0.09% 0.84%
Mid Cap Index .......................... 0.49% N/A 0.03% 0.52%
Mid Cap Core ........................... 0.90% N/A 0.16% 1.06%
Global ................................. 0.85%/D/ N/A 0.15% 1.00%
Capital Appreciation ................... 0.85% N/A 0.07% 0.92%
American Growth /E/ .................... 0.35% 0.60% 0.03% 0.98%
U.S. Global Leaders Growth ............. 0.71% N/A 0.73% 1.44%/C/
Quantitative All Cap ................... 0.71% N/A 0.05% 0.76%
All Cap Core ........................... 0.80% N/A 0.07% 0.87%
Large Cap Growth ....................... 0.85% N/A 0.06% 0.91%
Total Stock Market Index ............... 0.49% N/A 0.03% 0.52%
Blue Chip Growth ....................... 0.82%/A/ N/A 0.04% 0.86%
U.S. Large Cap ......................... 0.82% N/A 0.06% 0.88%
Core Equity ............................ 0.85% N/A 0.06% 0.91%
Strategic Value ........................ 0.85% N/A 0.09% 0.94%
Large Cap Value ........................ 0.85% N/A 0.13% 0.98%
Classic Value .......................... 0.87% N/A 0.56% 1.43%/C/
Utilities .............................. 0.85% N/A 0.25% 1.10%
Real Estate Securities ................. 0.70% N/A 0.05% 0.75%
Small Cap Opportunities ................ 1.00% N/A 0.08% 1.08%
Small Cap Value ........................ 1.08% N/A 0.08% 1.16%
Small Company Value .................... 1.04%/A/ N/A 0.01% 1.05%
Special Value .......................... 1.00% N/A 0.28% 1.28%
Mid Value .............................. 1.01%/A/ N/A 0.07% 1.08%
Mid Cap Value .......................... 0.87% N/A 0.05% 0.92%
Value .................................. 0.74% N/A 0.06% 0.80%
All Cap Value .......................... 0.84% N/A 0.06% 0.90%
Growth & Income II ..................... 0.68% N/A 0.03% 0.71%
500 Index B /G/ ........................ 0.47% N/A 0.03% 0.50%
Fundamental Value/F/ ................... 0.84%/F/ N/A 0.05% 0.89%
Growth & Income ........................ 0.65% N/A 0.04% 0.69%
Large Cap .............................. 0.85% N/A 0.15% 1.00%
Quantitative Value ..................... 0.70% N/A 0.08% 0.78%
American Growth-Income /E/ ............. 0.29% 0.60% 0.03% 0.92%
9
Management Other Total
Portfolio Fees 12b-1 Fees Expenses Annual Expenses
--------- ---------- ---------- -------- ---------------
Equity-Income .............................. 0.81%/A/ N/A 0.05% 0.86%
American Blue Chip Income and Growth /E/ ... 0.45% 0.60% 0.05% 1.10%
Income & Value ............................. 0.79% N/A 0.04% 0.83%
Managed .................................... 0.73% N/A 0.04% 0.77%
PIMCO VIT All Asset Portfolio .............. 0.20% 0.25% 1.08% 1.53%/H/
Global Allocation .......................... 0.85% N/A 0.20% 1.05%
High Yield ................................. 0.68% N/A 0.07% 0.75%
U.S. High Yield Bond ....................... 0.75% N/A 0.21% 0.96%
Strategic Bond ............................. 0.70% N/A 0.08% 0.78%
Strategic Income ........................... 0.73% N/A 0.46% 1.19%
Global Bond ................................ 0.70% N/A 0.10% 0.80%
Investment Quality Bond .................... 0.60% N/A 0.09% 0.69%
Total Return ............................... 0.70% N/A 0.05% 0.75%
Real Return Bond ........................... 0.70% N/A 0.07% 0.77%
Bond Index B /G/ ........................... 0.47% N/A 0.03% 0.50%
Core Bond .................................. 0.69% N/A 0.21% 0.90%
Active Bond ................................ 0.61% N/A 0.04% 0.65%
U.S. Government Securities ................. 0.62% N/A 0.07% 0.69%
Short-Term Bond ............................ 0.58% N/A 0.05% 0.63%
Money Market B /G/ ......................... 0.49% N/A 0.04% 0.53%
Lifestyle Aggressive 1000/B/ ............... 0.05% N/A 1.02% 1.07%
Lifestyle Growth 820/B/ .................... 0.05% N/A 0.95% 1.00%
Lifestyle Balanced 640/B/ .................. 0.05% N/A 0.90% 0.95%
Lifestyle Moderate 460/B/ .................. 0.05% N/A 0.87% 0.92%
Lifestyle Conservative 280/B/ .............. 0.05% N/A 0.79% 0.84%
/A/ The Adviser has voluntarily agreed to waive a portion of its advisory fee
for the Science & Technology, Health Sciences, the Blue Chip Growth and the
Equity-Income portfolios. The waiver is based on the combined assets of these
portfolios and the Small Company Value portfolio. Once these combined assets
exceed specified amounts, the fee reduction is increased.
The fee reductions are applied to the advisory fees of each of the four
portfolios. This voluntary fee waiver may be terminated at any time by the
Adviser. If such advisory fee waiver were reflected, it is estimated that the
advisory fees for these portfolios would have been as follows:
Science & Technology ....................... 1.01%
Health Sciences ............................ 1.02%
Blue Chip Growth ........................... 0.79%
Equity-Income .............................. 0.78%
Mid Value .................................. 0.98%
Small Company Value ........................ 1.01%
/B/ Each of the Lifestyle Trusts may invest in all the other Trust portfolios
except the American Growth Trust, the American International Trust, the American
Blue Chip Income and Growth Trust and the American Growth-Income Trust.
"Other Expenses" reflects the expenses of the underlying portfolios as well as
the expenses of the Lifestyle Trust. The Adviser is currently paying a portion
of the expenses of each Lifestyle Trust. The expenses above do not reflect this
expense reimbursement.
If such expense reimbursement were reflected, it is estimated that "Other
Expenses" and "Total Annual Expenses" would be:
Other Total
Expenses Annual Expenses
-------- ---------------
Lifestyle Aggressive 1000 ....... 1.01% 1.06%
Lifestyle Growth 820 ............ 0.94% 0.99%
Lifestyle Balanced 640 .......... 0.89% 0.94%
Lifestyle Moderate 460 .......... 0.86% 0.91%
Lifestyle Conservative 280 ...... 0.78% 0.83%
This voluntary expense reimbursement may be terminated at any time.
10
/C/ For certain portfolios, the Adviser reduces its advisory fee or reimburses
the portfolio if the total of all expenses (excluding advisory fees, Rule 12b-1
fees, transfer agency fees, blue sky 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 Small Company, U.S.
Global Leaders Growth, and Classic Value portfolios, the Adviser reimbursed the
portfolio for certain expenses for the year ended December 31, 2004. If such
expense reimbursement were reflected, it is estimated that "Other Expenses" and
"Total Trust Annual Expenses" would be:
Total
Other Expenses Annual Expenses
-------------- ---------------
Small Company ................... 0.49% 1.54%
U.S. Global Leaders Growth ...... 0.50% 1.21%
Classic Value ................... 0.50% 1.37%
These voluntary expense reimbursements may be terminated at any time.
/D/ Effective December 9, 2003, due to a decrease in the subadvisory fees for
the Global and International Value portfolios, the Adviser voluntarily agreed to
waive its advisory fees so that the amount retained by the Adviser after payment
of the subadvisory fees for each such portfolio does not exceed 0.35% of the
portfolio's average net assets. For the year ended December 31, 2004, the
effective annual advisory fee for the Global and International Value portfolios
was 0.80% and 0.80%, respectively. These advisory fee waivers may be rescinded
at any time.
/E/ Reflects the aggregate annual operating expenses of Series I of each
portfolio and its corresponding master fund of the American Fund Insurance
Series. In the case of the American Growth, American International, American
Blue Income and Growth, and American Growth-Income portfolio, during the year
ended December 31, 2004, Capital Research Management Company (the adviser to the
American Growth, American International, American Blue Income and Growth, and
American Growth-Income portfolios) voluntarily reduced investment advisory fees
to rate provided by amended agreement effective April 1, 2004. If such fee
waiver had been reflected, the advisory fee would be 0.34%, 0.53%, 0.44%, 0.28%
and Total Trust Annual Expenses would be 0.97%, 1.21%, 1.09%, and 0.91%.
/F/ The Adviser has voluntarily agreed to reduce its advisory fee for the
Financial Services and Fundamental Value portfolios to the amounts shown below.
These advisory fee waivers may be terminated at any time.
Between $50 million Excess Over
Portfolio First $50 million* and $500 million* $500 million*
--------- ------------------ ------------------- -------------
Financial Services ......... 0.85% 0.80% 0.75%
Fundamental Value .......... 0.85% 0.80% 0.75%
* as a percentage of average annual net assets.
If such advisory fee waiver were reflected, it is estimated that the advisory
fees for these portfolios would have been as follows:
Financial Services ................ 0.83%
Fundamental Value ................. 0.79%
/G/ The Trust sells these portfolios only to certain variable life insurance and
variable annuity separate accounts of John Hancock Life Insurance Company and
its affiliates. Each portfolio is subject to an expense cap pursuant to an
agreement between the Trust and the Adviser. The fees in the table reflect such
expense cap. The expense cap is as follows: the Adviser has agreed to waive its
advisory fee (or, if necessary, reimburse expenses of the portfolio) in an
amount so that the rate of the portfolio's "Annual Operating Expenses" does not
exceed the rate noted in the table under "Total Annual Expenses." The rates
noted in the table for each portfolio reflect a fee waiver (or expense
reimbursement) equal to 0.25% of the portfolio's average net assets. A
portfolio's "Annual Operating Expenses" includes all of its operating expenses
including advisory fees and Rule 12b-1 fees, but excludes taxes, brokerage
commissions, interest, litigation and indemnification expenses and extraordinary
expenses of the portfolio not incurred in the ordinary course of the portfolio's
business. Under the Agreement, the Adviser's obligation to provide the expense
cap with respect to a particular portfolio terminates only if the Trust, without
the prior written consent of the Adviser, sells shares of the portfolio to (or
has shares of the portfolio held by) any person other than the variable life
insurance or variable annuity insurance separate accounts of John Hancock Life
Insurance Company or any of its affiliates that are specified in the agreement.
/H/ The PIMCO VIT All Asset Portfolio may invest in any of a number of
underlying funds offered by the PIMCO Funds (the "PIMS Funds"). Underlying PIMS
Fund expenses for the portfolio are estimated based upon an allocation of the
portfolio's assets among the underlying PIMS Funds and upon the total annual
operating expenses of the Institutional Class shares of these underlying PIMS
Funds. Underlying PIMS Fund expenses will vary with changes in the expenses of
the underlying PIMS Funds, as well as allocation of the portfolio's assets, and
may be higher or lower than those shown above. The underlying PIMS Fund net
operating expenses for the most recent fiscal year range from 0.32% to 0.85%.
PIMCO has contractually agreed, for the portfolio's current fiscal year, to
reduce its Advisory Fee to the extent that the underlying PIMS Fund Expenses
attributable to Advisory and Administrative Fees exceed 0.60%. PIMCO may recoup
these waivers in future periods, not exceeding three years, provided total
expenses, including each recoupment, do not exceed the annual expense limit.
11
DETAILED INFORMATION
This section of the prospectus provides additional detailed information
that is not contained in the Summary of Benefits and Risks section.
Your Investment Options
The assets of each sub-account of the Account (except those invested in the
American Growth, American International, American Blue Chip Income and Growth,
American Growth-Income and PIMCO All Asset portfolios) are invested in the NAV
shares of a corresponding investment portfolio of the John Hancock Trust (the
"Trust"). The Trust is registered under the 1940 Act as an open-end management
investment company. John Hancock Investment Management Services, LLC ("JHIMS
LLC") (formerly, Manufacturers Securities Services, LLC) provides investment
advisory services to the Trust and receives investment management fees for doing
so. JHIMS LLC pays a portion of its investment management fees to sub-investment
advisors that actually manage the portfolio assets. These sub-investment
managers are the entities identified in the table below as "Portfolio Managers".
Our affiliates own JHIMS LLC and, therefore, we indirectly benefit from any
investment management fees JHIMS LLC retains.
Each of the American Growth, American International, American Growth-Income
and American Blue Chip Income and Growth subaccounts invests in Series I shares
of the corresponding investment portfolio of the Trust and are subject to a
0.60% Rule 12b-1 fee.
The PIMCO VIT All Asset portfolio is a series of the PIMCO Variable
Insurance Trust (the "PIMCO Trust") which is registered under the 1940 Act as an
open-end management investment company. The assets of the PIMCO VIT All Asset
subaccount are invested in Class M shares of the PIMCO VIT All Asset portfolio
which is subject to a 0.25% Rule 12b-1 fee. The PIMCO Trust receives investment
advisory services from Pacific Investment Management Company LLC ("PIMCO") and
pays investment management fees to PIMCO.
In this prospectus, the Trust and the PIMCO Trust are each referred to as a
"Series Fund" and are collectively referred to as the "Series Funds". In this
prospectus the various series of the Series Funds are referred to as "funds" or
"portfolios". In the prospectuses for the Series Funds, the series may be
referred to by other terms such as "trusts" or "series".
The portfolios pay us or certain of our affiliates compensation for some of
the distribution, administrative, shareholder support, marketing and other
services we or our affiliates provide to the portfolios. The amount of this
compensation is based on a percentage of the assets of the portfolios
attributable to the variable insurance products that we and our affiliates
issue. These percentages may differ from portfolio to portfolio and among
classes of shares within a portfolio. In a few cases, the compensation is
derived from the Rule 12b-1 fees which are deducted from a portfolio's assets
for the services we or our affiliates provide to that portfolio. In addition,
compensation payments of up to 0.45% of assets may be made by a portfolio's
investment advisors or its affiliates. We pay American Funds Distributors, Inc.,
the principal underwriter for the American Fund Insurance Series, a percentage
of some or all of the amounts allocated to the "American" portfolios of the
Trust for the marketing support services it provides (see "Distribution of
Policies"). None of these compensation payments, however, result in any charge
to you in addition to what is shown in the Fee Tables.
The following table contains a general description of the portfolios that
underlie the investment accounts we make available under the policy. You can
find a full description of each portfolio, including the investment objectives,
policies and restrictions of, and the risks relating to investment in the
portfolio, in the prospectus for that portfolio. You should read the portfolio's
prospectus carefully before investing in the corresponding investment account.
-------------------------------------------------------------------------------------------------------------
Portfolio Portfolio Manager Investment Description
-------------------------------------------------------------------------------------------------------------
Science & Technology T. Rowe Price Associates, Inc. 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.
-------------------------------------------------------------------------------------------------------------
12
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Portfolio Portfolio Manager Investment Description
-------------------------------------------------------------------------------------------------------------
Pacific Rim MFC Global Investment Seeks long-term growth of capital by investing in
Management (U.S.A.) Limited a diversified portfolio that is comprised
primarily of common stocks and equity-related
securities of corporations domiciled in countries
in the Pacific Rim region.
-------------------------------------------------------------------------------------------------------------
Health Sciences T. Rowe Price Associates, Inc. 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").
-------------------------------------------------------------------------------------------------------------
Emerging Growth MFC Global Investment Seeks superior long-term rates of return through
Management (U.S.A.) Limited capital appreciation by investing, under normal
circumstances, primarily in high quality
securities and convertible instruments of
small-cap U.S. companies.
-------------------------------------------------------------------------------------------------------------
Small Cap Growth Wellington Management Company, Seeks long-term capital appreciation by investing,
LLP under normal market conditions, primarily in
small-cap companies that are believed to offer
above average potential for growth in revenues and
earnings.
-------------------------------------------------------------------------------------------------------------
Emerging Small Company Franklin Advisers, Inc. 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.
-------------------------------------------------------------------------------------------------------------
Small Cap Independence Investment LLC Seeks maximum capital appreciation consistent with
reasonable risk to principal by investing, under
normal market conditions, at least 80% of its net
assets in equity securities of companies whose
market capitalization is under $2 billion.
-------------------------------------------------------------------------------------------------------------
Small Cap Index MFC Global Investment Seeks to approximate the aggregate total return of
Management (U.S.A.) Limited a small cap U.S. domestic equity market index by
attempting to track the performance of the Russell
2000 Index.
-------------------------------------------------------------------------------------------------------------
Small Company American Century Investment Seeks long-term capital growth by investing, under
Management, Inc. normal market conditions, primarily in equity
securities of smaller- capitalization U.S.
companies. The subadviser uses quantitative,
computer-driven models to construct the portfolio
of stocks for the Small Company Trust.
-------------------------------------------------------------------------------------------------------------
Dynamic Growth Deutsche Asset Management Inc. Seeks long-term growth of capital by investing in
stocks and other equity securities of medium-sized
U.S. companies with strong growth potential.
-------------------------------------------------------------------------------------------------------------
Mid Cap Stock Wellington Management Company, Seeks long-term growth of capital by investing
LLP primarily in equity securities of mid-size
companies with significant capital appreciation
potential.
-------------------------------------------------------------------------------------------------------------
Natural Resources Wellington Management Company, Seeks long-term total return by investing, under
LLP normal market conditions, primarily in equity and
equity-related securities of natural
resource-related companies worldwide.
-------------------------------------------------------------------------------------------------------------
13
-------------------------------------------------------------------------------------------------------------
Portfolio Portfolio Manager Investment Description
-------------------------------------------------------------------------------------------------------------
All Cap Growth AIM Capital Management, Inc. 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.
-------------------------------------------------------------------------------------------------------------
Strategic Fidelity Management & Research Seeks growth of capital by investing primarily in
Opportunities Company common stocks. Investments may include securities
of domestic and foreign issuers, and growth or
value stocks or a combination of both.
-------------------------------------------------------------------------------------------------------------
Financial Services Davis Advisors Seeks growth of capital by investing primarily in
common stocks of financial companies. During
normal market conditions, at least 80% 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.
-------------------------------------------------------------------------------------------------------------
International Marisco Capital Management, LLC Seeks long-term growth of capital by investing,
Opportunities under normal market conditions, at least 65% of
its assets in common stocks of foreign companies
that are selected for their long-term growth
potential. The portfolio may invest in companies
of any size throughout the world. The portfolio
normally invests in issuers from at least three
different countries not including the U.S. The
portfolio may invest in common stocks of companies
operating in emerging markets.
-------------------------------------------------------------------------------------------------------------
International Stock Deutsche Asset Management Seeks long-term growth of capital by investing in
Investment Services Ltd. stocks and other securities with equity
characteristics of companies located in the
developed countries that make up the MSCI EAFE
Index.
-------------------------------------------------------------------------------------------------------------
International Small Templeton Investment Counsel, Seeks capital appreciation by investing primarily
Cap Inc. in the common stock of companies located outside
the U.S. which have total stock market
capitalization or annual revenues of $1.5 billion
or less ("small company securities").
-------------------------------------------------------------------------------------------------------------
International Equity SSgA Funds Management, Inc. Seeks to track the performance of a broad-based
Index B equity index of foreign companies primarily in
developed countries and, to a lesser extent, in
emerging market countries by investing, under
normal market conditions, at least 80% of its
assets in securities listed in the Morgan Stanley
Capital International All Country World Excluding
U.S. Index.
-------------------------------------------------------------------------------------------------------------
Overseas Equity Capital Guardian Trust Company Seeks long-term capital appreciation by investing,
under normal market conditions, at least 80% of
its assets in equity securities of companies
outside the U.S. in a diversified mix of large
established and medium-sized foreign companies
located primarily in developed countries and, to a
lesser extent, in emerging markets.
-------------------------------------------------------------------------------------------------------------
American International Capital Research Management Invests all of its assets in Class 2 shares of the
Company International Fund, a series of American Fund
Insurance Series. The International Fund invests
primarily in common stocks of companies located
outside the United States.
-------------------------------------------------------------------------------------------------------------
14
-------------------------------------------------------------------------------------------------------------
Portfolio Portfolio Manager Investment Description
-------------------------------------------------------------------------------------------------------------
International Value Templeton Investment Seeks long-term growth of capital by investing,
Counsel, Inc. under normal market conditions, primarily in
equity securities of companies located outside the
U.S., including emerging markets.
-------------------------------------------------------------------------------------------------------------
Quantitative Mid Cap MFC Global Investment Seeks long-term growth of capital by investing,
Management (U.S.A.) Limited 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.
-------------------------------------------------------------------------------------------------------------
Mid Cap Index MFC Global Investment Seeks to approximate the aggregate total return of
Management (U.S.A.) Limited a mid cap U.S. domestic equity market index by
attempting to track the performance of the S&P Mid
Cap 400 Index*.
-------------------------------------------------------------------------------------------------------------
Mid Cap Core AIM Capital Management, Inc. Seeks long-term growth of capital by investing,
normally, at least 80% of its assets in equity
securities, including convertible securities, of
mid-capitalization companies.
-------------------------------------------------------------------------------------------------------------
Global Templeton Global Advisors Seeks long-term capital appreciation by
Limited investing, under normal market conditions, at
least 80% of its net assets (plus any borrowings
for investment purposes) in equity securities of
companies located anywhere in the world,
including emerging markets.
-------------------------------------------------------------------------------------------------------------
Capital Appreciation Jennison Associates LLC 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 prospects.
These companies are generally medium-to-large
capitalization companies.
-------------------------------------------------------------------------------------------------------------
American Growth Capital Research Management Invests all of its assets in Class 2 shares of the
Company Growth Fund, a series of American Fund Insurance
Series. The Growth Fund invests primarily in
common stocks of companies that appear to offer
superior opportunities for growth of capital.
-------------------------------------------------------------------------------------------------------------
U.S. Global Leaders Sustainable Growth Advisers, Seeks long-term growth of capital by investing,
Growth L.P. under normal market conditions, primarily in
common stocks of "U.S. Global Leaders."
-------------------------------------------------------------------------------------------------------------
Quantitative All Cap MFC Global Investment Seeks long-term growth of capital by investing,
Management (U.S.A.) Limited under normal circumstances, primarily in equity
securities of U.S. companies. The portfolio will
generally focus on equity securities of U.S.
companies across the three market capitalization
ranges of large, mid and small.
-------------------------------------------------------------------------------------------------------------
All Cap Core Deutsche Asset Management Seeks long-term growth of capital by investing
Inc. primarily in common stocks and other equity
securities within all asset classes (small, mid
and large cap) primarily those within the Russell
3000 Index.
-------------------------------------------------------------------------------------------------------------
Large Cap Growth Fidelity Management & Seeks long-term growth of capital by investing,
Research Company 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.
-------------------------------------------------------------------------------------------------------------
Total Stock Market MFC Global Investment Seeks to approximate the aggregate total return
Index Management (U.S.A.) Limited of a broad U.S. domestic equity market index by
attempting to track the performance of the
Wilshire 5000 Equity Index*.
-------------------------------------------------------------------------------------------------------------
15
-------------------------------------------------------------------------------------------------------------
Portfolio Portfolio Manager Investment Description
-------------------------------------------------------------------------------------------------------------
Blue Chip Growth T. Rowe Price Associates, Inc. Seeks to achieve long-term growth of capital
(current income is a secondary objective) by
investing, under normal market conditions, at
least 80% of the portfolio's total assets in the
common stocks of large and medium- sized blue chip
growth companies. Many of the stocks in the
portfolio are expected to pay dividends.
-------------------------------------------------------------------------------------------------------------
U.S. Large Cap Capital Guardian Trust Company 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.
-------------------------------------------------------------------------------------------------------------
Core Equity Legg Mason Funds Management, Seeks long-term capital growth by investing, under
Inc. normal market conditions, primarily in equity
securities that, in the subadviser's opinion,
offer the potential for capital growth. The
subadviser Seeks to purchase securities at large
discounts to the subadviser's assessment of their
intrinsic value.
-------------------------------------------------------------------------------------------------------------
Strategic Value Massachusetts Financial Seeks capital appreciation by investing, under
Services Company normal market conditions, at least 65% of its net
assets in common stocks and related securities of
companies which the subadviser believes are
undervalued in the market relative to their long
term potential.
-------------------------------------------------------------------------------------------------------------
Large Cap Value Mercury Advisors Seeks long-term growth of capital by investing,
under normal market conditions, primarily in a
diversified portfolio of equity securities of
large cap companies located in the U.S.
-------------------------------------------------------------------------------------------------------------
Classic Value Pzena Investment Management, Seeks long-term growth of capital by investing,
LLC under normal market conditions, at least 80% of
its net assets in domestic equity securities.
-------------------------------------------------------------------------------------------------------------
Utilities Massachusetts Financial Seeks capital growth and current income (income
Services Company 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.
-------------------------------------------------------------------------------------------------------------
Real Estate Securities Deutsche Asset Management Inc. 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.
-------------------------------------------------------------------------------------------------------------
Small Cap Munder Capital Management Seeks long-term capital appreciation by investing,
Opportunities under normal circumstances, at least 80% of its
assets in equity securities of companies with
market capitalizations within the range of the
companies in the Russell 2000 Index.
-------------------------------------------------------------------------------------------------------------
Small Cap Value Wellington Management Seeks long-term capital appreciation by investing,
Company, LLP under normal market conditions, at least 80% of
its assets in small-cap companies that are
believed to be undervalued by various measures and
offer good prospects for capital appreciation.
-------------------------------------------------------------------------------------------------------------
16
-------------------------------------------------------------------------------------------------------------
Portfolio Portfolio Manager Investment Description
-------------------------------------------------------------------------------------------------------------
Small Company Value T. Rowe Price Associates, Inc. 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.
-------------------------------------------------------------------------------------------------------------
Special Value Salomon Brothers Asset Seeks long-term capital growth by investing, under
Management Inc. normal circumstances, at least 80% of its net
assets in common stocks and other equity
securities of companies whose market
capitalization at the time of investment is no
greater than the market capitalization of
companies in the Russell 2000 Value Index.
-------------------------------------------------------------------------------------------------------------
Mid Value T. Rowe Price Associates, Inc. Seeks long-term capital appreciation by investing,
under normal market conditions, primarily in a
diversified mix of common stocks of mid size U.S.
companies that are believed to be undervalued by
various measures and offer good prospects for
capital appreciation.
-------------------------------------------------------------------------------------------------------------
Mid Cap Value Lord, Abbett & Co 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 capitalization of roughly $500 million to
$10 billion.
-------------------------------------------------------------------------------------------------------------
Value Van Kampen 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 equity securities of companies with
capitalizations similar to the market
capitalization of companies in the Russell Midcap
Value Index.
-------------------------------------------------------------------------------------------------------------
All Cap Value Lord, Abbett & Co Seeks capital appreciation by investing in equity
securities of U.S. and multinational companies in
all capitalization ranges that the subadviser
believes are undervalued.
-------------------------------------------------------------------------------------------------------------
Growth & Income II Independence Investment LLC Seeks income and long-term capital appreciation by
investing, under normal market conditions,
primarily in a diversified mix of common stocks of
large U.S. companies.
-------------------------------------------------------------------------------------------------------------
500 Index B MFC Global Investment Seeks to approximate the aggregate total return of
Management (U.S.A.) Limited a broad U.S. domestic equity market index
investing, under normal market conditions, at
least 80% of its net assets (plus any borrowings
for investment purposes) in (a) the common stocks
that are included in the S & P 500 Index and (b)
securities (which may or may not be included in
the S & P 500 Index) that MFC Global (U.S.A.)
believes as a group will behave in a manner
similar to the index.
-------------------------------------------------------------------------------------------------------------
Fundamental Value Davis Advisors 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.
-------------------------------------------------------------------------------------------------------------
Growth & Income Wellington Management Company, Seeks long-term growth of capital and income,
LLP consistent with prudent investment risk, by
investing primarily in a diversified portfolio of
com & shy; mon stocks of U.S. issuers which the
subadviser believes are of high quality.
-------------------------------------------------------------------------------------------------------------
17
-------------------------------------------------------------------------------------------------------------
Portfolio Portfolio Manager Investment Description
-------------------------------------------------------------------------------------------------------------
Large Cap UBS Global Asset Management Seeks to maximize total return, consisting of
capital appreciation and current income by
investing, under normal circumstances, at least
80% of its net assets (plus borrowings for
investment purposes, if any) in equity securities
of U.S. large capitalization companies.
-------------------------------------------------------------------------------------------------------------
Quantitative Value MFC Global Investment Seeks long-term capital appreciation by investing
Management (U.S.A.) Limited primarily in large-cap U.S. securities with the
potential for long-term growth of capital.
-------------------------------------------------------------------------------------------------------------
American Growth - Capital Research Management Invests all of its assets in Class 2 shares of the
Income Company Growth-Income Fund, a series of American Fund
Insurance Series. The Growth-Income Fund invests
primarily in common stocks or other securities
which demonstrate the potential for appreciation
and/or dividends.
-------------------------------------------------------------------------------------------------------------
Equity-Income T. Rowe Price Associates, Inc. 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.
-------------------------------------------------------------------------------------------------------------
American Blue Chip Capital Research Management Income Invests all of its assets in Class 2 shares
Income and Growth Company of the Blue Chip Income and Growth Fund, a series
of American Fund Insurance Series. The Blue Chip
Income and Growth Fund invests primarily in common
stocks of larger, more established companies based
in the U.S. with market capitalizations of $4
billion and above.
-------------------------------------------------------------------------------------------------------------
Income & Value Capital Guardian Trust Company 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.
-------------------------------------------------------------------------------------------------------------
Managed Independence Investment LLC Seeks income and long-term capital appreciation by
Capital Guardian Trust Company investing primarily in a diversified mix of: (a)
Declaration Management & common stocks of large and mid sized U.S.
Research LLC companies, and (b) bonds with an overall
intermediate term average maturity.
-------------------------------------------------------------------------------------------------------------
PIMCO VIT All Asset Pacific Investment Management Invests primarily in a diversified mix of: (a)
(only Class M is Company common stocks of large and mid sized U.S.
available for sale) companies, and (b) bonds with an overall
intermediate term average maturity.
-------------------------------------------------------------------------------------------------------------
Global Allocation UBS Global Asset Management Seeks total return, consisting of long-term
capital appreciation and current income, by
investing in equity and fixed income securities of
issuers located within and outside the U.S.
-------------------------------------------------------------------------------------------------------------
High Yield Salomon Brothers Asset Seeks to realize an above-average total return
Management Inc. 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.
-------------------------------------------------------------------------------------------------------------
U.S. High Yield Bond Wells Fargo Fund Management, Seeks total return with a high level of current
LLC income by investing, under normal market
conditions, primarily in below investment-grade
debt securities (sometimes referred to as "junk
bonds" or high yield securities). The portfolio
also invests in corporate debt securities and may
buy preferred and other convertible securities and
bank loans.
-------------------------------------------------------------------------------------------------------------
18
-------------------------------------------------------------------------------------------------------------
Portfolio Portfolio Manager Investment Description
-------------------------------------------------------------------------------------------------------------
Strategic Bond Salomon Brothers Asset Seeks a high level of total return consistent with
Management Inc. 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.
-------------------------------------------------------------------------------------------------------------
Strategic Income John Hancock Advisers, LLC Seeks a high level of current income by investing,
under normal market conditions, primarily in
foreign government and corporate debt securities
from developed and emerging markets; U.S.
Government and agency securities; and U.S. high
yield bonds.
-------------------------------------------------------------------------------------------------------------
Global Bond Pacific Investment Management Seeks to realize maximum total return, consistent
Company with preservation of capital and prudent
investment management by investing the portfolio's
assets primarily in fixed income securities
denominated in major foreign currencies, baskets
of foreign currencies (such as the ECU), and the
U.S. dollar.
-------------------------------------------------------------------------------------------------------------
Investment Quality Wellington Management Company, Seeks a high level of current income consistent
Bond LLP 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.
-------------------------------------------------------------------------------------------------------------
Total Return Pacific Investment Management Seeks to realize maximum total return, consistent
Company 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.
-------------------------------------------------------------------------------------------------------------
Real Return Bond Pacific Investment Management Seeks maximum return, consistent with preservation
Company of capital and prudent investment management by
investing, under normal market conditions, at
least 80% of its net assets in inflation-indexed
bonds of varying maturities issued by the U.S. and
non-U.S. governments and by corporations.
-------------------------------------------------------------------------------------------------------------
Bond Index B Declaration Management & Seeks to track the performance of the Lehman
Research Brothers Aggregate Index (which represents the
U.S. investment grade bond market) by investing,
under normal market conditions, at least 80% of
its assets in securities listed in the Lehman
Index.
-------------------------------------------------------------------------------------------------------------
Core Bond Wells Fargo Fund Management, Seeks total return consisting of income and
LLC capital appreciation by investing, under normal
market conditions, in a broad range of
investment-grade debt securities. The subadviser
invests in debt securities that the subadviser
believes offer attractive yields and are
undervalued relative to issues of similar credit
quality and interest rate sensitivity. From time
to time, the portfolio may also invest in unrated
bonds that the subadviser believes are comparable
to investment-grade debt securities. Under normal
circumstances, the subadviser expects to maintain
an overall effective duration range between 4 and
5 1/2 years.
-------------------------------------------------------------------------------------------------------------
19
-------------------------------------------------------------------------------------------------------------
Portfolio Portfolio Manager Investment Description
-------------------------------------------------------------------------------------------------------------
Active Bond Declaration Management & Seeks income and capital appreciation by investing
Research LLC John Hancock at least 80% of its assets in a diversified mix of
Advisers, LLC debt securities and instruments.
-------------------------------------------------------------------------------------------------------------
U.S. Government Salomon Brothers Asset Seeks a high level of current income consistent
Securities Management Inc. 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.
-------------------------------------------------------------------------------------------------------------
Short-Term Bond Declaration Management & Seeks income and capital appreciation by investing
Research LLC at least 80% of its assets in a diversified mix of
debt securities and instruments.
-------------------------------------------------------------------------------------------------------------
Money Market B MFC Global Investment Seeks to obtain maximum current income consistent
Management (U.S.A.) Limited with preservation of principal and liquidity by
investing in high quality, U.S. Dollar denominated
money market instruments.
-------------------------------------------------------------------------------------------------------------
Lifestyle Aggressive MFC Global Investment Seeks to provide long-term growth of capital
1000 Management (U.S.A.) Limited (current income is not a consideration) by
Deutsche Asset Management Inc. investing 100% of the Lifestyle Trust's assets in
other portfolios of the Trust ("Underlying
Portfolios") which invest primarily in equity
securities.
-------------------------------------------------------------------------------------------------------------
Lifestyle Growth 820 MFC Global Investment Seeks to provide long-term growth of capital with
Management (U.S.A.) Limited consideration also given to current income by
Deutsche Asset Management Inc. 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.
-------------------------------------------------------------------------------------------------------------
Lifestyle Balanced 640 MFC Global Investment Seeks to provide a balance between a high level of
Management (U.S.A.) Limited current income and growth of capital with a
Deutsche Asset Management Inc. 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.
-------------------------------------------------------------------------------------------------------------
Lifestyle Moderate 460 MFC Global Investment Seeks to provide a balance between a high level of
Management (U.S.A.) Limited current income and growth of capital with a
Deutsche Asset Management Inc. 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.
-------------------------------------------------------------------------------------------------------------
Lifestyle Conservative MFC Global Investment Seeks to provide a high level of current income
280 Management (U.S.A.) Limited with some consideration also given to growth of
Deutsche Asset Management Inc. 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 "S&P Mid Cap 400 (R)" are trademarks of The McGraw-Hill
Companies, Inc. "Russell 2000 (R)," "Russell 2000 (R) Growth" and
"Russell 3000 (R)" are trademarks of Frank Russell Company. "Wilshire 5000
(R)" is a trademark of Wilshire Associates. "MSCI All Country World ex US
Index" 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.
20
You bear the investment risk of any portfolio you choose as an investment
account for your contract. A full description of each portfolio, including the
investment objectives, policies and restrictions of, and the risks relating to
investments in, each portfolio is contained in the portfolio prospectuses. The
portfolio prospectuses should be read carefully before allocating purchase
payments to a subaccount.
If the shares of a portfolio are no longer available for investment or in
our judgment investment in a portfolio becomes inappropriate, we may eliminate
the shares of a portfolio and substitute shares of another portfolio of the
Trust or another open-end registered investment company. Substitution may be
made with respect to both existing investments and the investment of future
purchase payments. However, we will make no such substitution without first
notifying you and obtaining approval of state regulators and the SEC (to the
extent required by applicable law).
We will purchase and redeem Series Fund shares for the Account at their net
asset value without any sales or redemption charges. Shares of a Series Fund
represent an interest in one of the funds of the Series Fund which corresponds
to a subaccount of the Account. Any dividend or capital gains distributions
received by the Account will be reinvested in shares of that same fund at their
net asset value as of the dates paid.
On each business day, shares of each fund are purchased or redeemed by us
for each subaccount based on, among other things, the amount of net premiums
allocated to the subaccount, distributions reinvested, and transfers to, from
and among subaccounts, all to be effected as of that date. Such purchases and
redemptions are effected at each fund's net asset value per share determined for
that same date. A "business day" is any date on which the New York Stock
Exchange is open for trading. We compute policy values for each business day as
of the close of that day (usually 4:00 p.m. Eastern Time).
We will vote shares of the portfolios held in the Account at the
shareholder meetings according to voting instructions received from persons
having the voting interest under the contracts. We will determine the number of
portfolio shares for which voting instructions may be given not more than 90
days prior to the meeting. Proxy material will be distributed to each person
having the voting interest under the contract together with appropriate forms
for giving voting instructions. We will vote all portfolio shares that we hold
(including our own shares and those we hold in the Account for contract owners)
in proportion to the instructions so received.
We determine the number of a portfolio's shares held in a subaccount
attributable to each owner by dividing the amount of a policy's account value
held in the subaccount by the net asset value of one share in the portfolio.
Fractional votes will be counted. We determine the number of shares as to which
the owner may give instructions as of the record date for a Series Fund's
meeting. Owners of policies may give instructions regarding the election of the
Board of Trustees or Board of Directors of a Series Fund, ratification of the
selection of independent auditors, approval of Series Fund investment advisory
agreements and other matters requiring a shareholder vote. We will furnish
owners with information and forms to enable owners to give voting instructions.
However, we may, as permitted by the SEC's rules, disregard voting instructions
in certain limited circumstances where compliance with such instructions could
cause us to violate requirements of insurance regulatory authorities. You will
receive a summary of such action and the reasons for it in the next semi-annual
report to owners.
The voting privileges described above reflect our understanding of
applicable Federal securities law requirements. To the extent that applicable
law, regulations or interpretations change to eliminate or restrict the need for
such voting privileges, we reserve the right to proceed in accordance with any
such revised requirements. We also reserve the right, subject to compliance with
applicable law, including approval of owners if so required, (1) to transfer
assets determined by John Hancock USA to be associated with the class of
policies to which your policy belongs from the Account to another separate
account or subaccount, (2) to operate the Account as a "management-type
investment company" under the 1940 Act, or in any other form permitted by law,
the investment adviser of which would be John Hancock USA, (3) to deregister the
Account under the 1940 Act, (4) to substitute for the fund shares held by a
subaccount any other investment permitted by law, and (5) to take any action
necessary to comply with or obtain any exemptions from the 1940 Act. Any such
change will be made only if, in our judgement, the change would best serve the
interests of owners of policies in your policy class or would be appropriate in
carrying out the purposes of such policies. We would notify owners of any of the
foregoing changes and, to the extent legally required, obtain approval of
affected owners and any regulatory body prior thereto. Such notice and approval,
however, may not be legally required in all cases.
Description of John Hancock 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
21
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 John Hancock USA and its
subsidiaries. John Hancock USA 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 John Hancock USA nor any of its affiliated
companies guarantees the investment performance of the Account.
We 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 as a measure of our ability to honor any
guarantees provided by the policy and any applicable optional riders, but do not
specifically relate 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.
Description of Separate Account N
The investment accounts shown on page 1 are in fact subaccounts of Separate
Account N (the "Account"), a separate account established under Pennsylvania law
and operated by us under Michigan law. The Account meets the definition of
"separate account" under the Federal securities laws and is registered as a unit
investment trust under the Investment Company Act of 1940 ("1940 Act"). Such
registration does not involve supervision by the Securities and Exchange
Commission ("SEC") of the management of the Account or of us.
The Account's assets are our property. Each policy provides that amounts we
hold in the Account pursuant to the policies cannot be reached by any other
persons who may have claims against us and can't be used to pay any indebtedness
of John Hancock USA other than those arising out of policies that use the
Account.
New subaccounts may be added and made available to policy owners from time
to time. Existing subaccounts may be modified or deleted at any time.
The Fixed Account
Our obligations under any fixed account are backed by our general account
assets. Our general account consists of assets owned by us other than those in
the Account and in other separate accounts that we may establish. Subject to
applicable law, we have sole discretion over the investment of assets of the
general account and policy owners do not share in the investment experience of,
or have any preferential claim on, those assets. Instead, we guarantee that the
policy value allocated to any fixed account will accrue interest daily at an
effective annual rate that we determine without regard to the actual investment
experience of the general account. We currently offer only one fixed account -
the standard fixed account. The effective annual rate we declare for the
standard fixed account will never be less than 3%. We reserve the right to offer
one or more additional fixed accounts with characteristics that differ from
those of the current fixed account, but we are under no obligation to do so.
Because of exemptive and exclusionary provisions, interests in our fixed
account have not been and will not be registered under the Securities Act of
1933 and our general account has not been registered as an investment company
under the 1940 Act. Accordingly, neither the general account nor any interests
therein are subject to the provisions of these acts, and we have been advised
that the staff of the SEC has not reviewed the disclosure in this prospectus
relating to any fixed account. Disclosure regarding fixed accounts may, however,
be subject to certain generally-applicable provisions of the Federal securities
laws relating to accuracy and completeness of statements made in prospectuses.
22
The Death Benefit
In your application for the policy, you will tell us how much life
insurance coverage you want on the life of the insured person. This is called
the "Total Face Amount". Total Face Amount is composed of the Base Face Amount
and any Supplemental Face Amount you elect. The amount of Supplemental Face
Amount you can have generally cannot exceed 900% of the Base Face Amount. There
are a number of factors you should consider in determining whether to elect
coverage in the form of Base Face Amount or in the form of Supplemental Face
Amount. These factors are discussed under "Base Face Amount vs. Supplemental
Face Amount" below.
When the insured person dies, we will pay the death benefit minus any
outstanding loans. There are two ways of calculating the death benefit. You must
choose which one you want in the application. The two death benefit options are:
. Option 1 - The death benefit will equal the greater of (1) the Total
Face Amount, or (2) the minimum death benefit (as described below).
. Option 2 - The death benefit will equal the greater of (1) the Total
Face Amount plus the policy value on the date of death, or (2) the
minimum death benefit.
For the same premium payments, the death benefit under Option 2 will tend
to be higher than the death benefit under Option 1. On the other hand, the
monthly insurance charge will be higher under Option 2 to compensate us for the
additional insurance risk. Because of that, the policy value will tend to be
higher under Option 1 than under Option 2 for the same premium payments.
Limitations on payment of death benefit
If the insured person commits suicide within certain time periods, the
amount of death benefit we pay will be limited as described in the policy. Also,
if an application misstated the age or gender of the insured person, we will
adjust the amount of any death benefit as described in the policy.
Base Face Amount vs. Supplemental Face Amount
As noted above, you should consider a number of factors in determining
whether to elect coverage in the form of Base Face Amount or in the form of
Supplemental Face Amount.
For the same amount of premiums paid, the amount of the face amount charge
deducted from policy value and the amount of compensation paid to the selling
insurance agent will generally be less if coverage is included as Supplemental
Face Amount, rather than as Base Face Amount. On the other hand, the amount of
any Supplemental Face Amount included in the calculation of the death benefit at
and after the policy anniversary nearest the insured person's 100th birthday
will be limited to the lesser of the current Supplemental Face Amount or the
policy value.
If your priority is to reduce your face amount charges, you may wish to
maximize the proportion of the Supplemental Face Amount. However, if your
priority is to maximize the death benefit when the insured person reaches 100,
then you may wish to maximize the proportion of the Base Face Amount.
Any decision you make to modify the amount of Total Face Amount coverage
after issue can have significant tax consequences (see "Tax considerations").
The minimum death benefit
In order for a policy to qualify as life insurance under Federal tax law,
there has to be a minimum amount of insurance in relation to policy value. There
are two tests that can be applied under Federal tax law - the "guideline premium
test" and the "cash value accumulation test". When you elect the death benefit
option, you must also elect which test you wish to have applied. Once elected,
the test cannot be changed without our approval. Under the guideline premium
test, we compute the minimum death benefit each business day by multiplying the
policy value and any enhanced cash value, if applicable, on that date by the
death benefit factor applicable on that date. In this case, the factors are
derived by applying the guideline premium test. Factors for some ages are shown
in the table below:
23
--------------------------------------------
Attained Age Applicable Factor
------------ -----------------
40 and under ........... 250%
45 ..................... 215%
50 ..................... 185%
55 ..................... 150%
60 ..................... 130%
65 ..................... 120%
70 ..................... 115%
75 ..................... 105%
90 ..................... 105%
95 and above ........... 100%
--------------------------------------------
A table showing the factor for each age will appear in the policy.
Under the cash value accumulation test, we compute the minimum death
benefit each business day by multiplying the policy value (and any benefit under
the enhanced cash value rider, if applicable) on that date by the death benefit
factor applicable on that date. In this case, the factors are derived by
applying the cash value accumulation test. The factor decreases as attained age
increases. A table showing the factor for each age will appear in the policy.
As noted above, you have to elect which test will be applied when you elect
the death benefit option. The cash value accumulation test may be preferable if
you want an increasing death benefit in later policy years and/or want to fund
the policy at the "7 pay" limit for the full 7 years (see "Tax considerations").
The guideline premium test may be preferable if you want the policy value under
the policy to increase without increasing the death benefit as quickly as might
otherwise be required.
To the extent that the calculation of the minimum death benefit under the
selected life insurance qualification test causes the death benefit to exceed
our limits, we reserve the right to return premiums or distribute a portion of
the policy value so that the resulting amount of insurance is maintained within
our limits. Alternatively, if we should decide to accept the additional amount
of insurance, we may require additional evidence of insurability.
When the insured person reaches 100
At and after the policy anniversary nearest the insured person's 100th
birthday, the following will occur:
. Any Supplemental Face Amount will be limited (see "Base Face Amount
vs. Supplemental Face Amount").
. We will stop deducting any monthly deductions.
. We will stop accepting any premium payments.
Requesting an increase in coverage
After the first policy year, you may request an unscheduled increase in the
Supplemental Face Amount at any time, subject to the maximum limit stated in
the policy. Generally, each such increase must be at least $50,000. However, you
will have to provide us with evidence that the insured person still meets our
requirements for issuing insurance coverage. An approved increase will take
effect on the policy anniversary on or next following the date we approve the
request.
Requesting a decrease in coverage
After the first policy year, we may approve a reduction in the Base Face
Amount or the Supplemental Face Amount, but only if:
. the remaining Total Face Amount will be at least $100,000,
. the remaining Base Face Amount will be at least $50,000, and
. the remaining Total Face Amount will at least equal the minimum
required by the tax laws to maintain the policy's life insurance
status.
An approved decrease will take effect on the monthly deduction date on or
next following the date we approve the request. We reserve the right to require
that the Supplemental Face Amount be fully depleted before the Base Face Amount
can be reduced.
24
Change of death benefit option
The death benefit option may be changed from Option 2 to Option 1 after the
first policy year. We reserve the right to limit a request for a change if the
change would cause the policy to fail to qualify as life insurance for tax
purposes. We will not allow a change in death benefit option if it would cause
the Total Face Amount to decrease below $100,000.
A change in the death benefit option from Option 2 to Option 1 will result
in a change in the policy's Total Face Amount, in order to avoid any change in
the amount of the death benefit. The new Total Face Amount will be equal to the
Total Face Amount prior to the change plus the policy value as of the date of
the change. The change will take effect on the monthly deduction date on or next
following the date the written request for the change is received at our Service
Office.
If you change the death benefit option, the Federal tax law test
("guideline premium test" or "cash value accumulation test") that you elected at
issue will continue to apply. Please read "The minimum death benefit" for more
information about these Federal tax laws tests.
Tax consequences of coverage changes
A change in the death benefit option or Total Face Amount will often change
the policy's limits under the life insurance qualification test that you
elected. To avoid having the policy cease to qualify as life insurance for tax
purposes, we reserve the right to (i) refuse or limit a change in the death
benefit option or Total Face Amount and (ii) change the Guideline Single Premium
or Guideline Level Premium, as applicable. Please read "Tax considerations" to
learn about possible tax consequences of changing your insurance coverage under
the policy.
Your beneficiary
You name your beneficiary when you apply for the policy. The beneficiary is
entitled to the proceeds we pay following the insured person's death. You may
change the beneficiary during the insured person's lifetime. Such a change
requires the consent of any named irrevocable beneficiary. A new beneficiary
designation is effective as of the date you sign it, but will not affect any
payments we make before we receive it. If no beneficiary is living when the
insured person dies, we will pay the insurance proceeds to the owner or the
owner's estate.
Ways in which we pay out policy proceeds
You may choose to receive proceeds from the policy as a single sum. This
includes proceeds that become payable because of death or surrender.
Alternatively, you can elect to have proceeds of $1,000 or more applied to any
of the other payment options we may offer at the time. You cannot choose an
option if the monthly payments under the option would be less than $50. We will
issue a supplementary agreement when the proceeds are applied to any alternative
payment option. That agreement will spell out the terms of the option in full.
If no alternative payment option has been chosen, proceeds will be paid as a
single sum.
Changing a payment option
You can change the payment option at any time before the proceeds are
payable. If you haven't made a choice, the payee of the proceeds has a
prescribed period in which he or she can make that choice.
Tax impact of payment option chosen
There may be tax consequences to you or your beneficiary depending upon
which payment option is chosen. You should consult with a qualified tax adviser
before making that choice.
Premiums
Planned Premiums
The Policy Specifications page of your policy will show the "Planned
Premium" for the policy. You choose this amount in the policy application. You
will also choose how often to pay premiums - annually, semi-annually, quarterly
or monthly. The premium reminder notice we send you is based on the amount and
period you choose. However, payment of Planned Premiums is not necessarily
required. You need only invest enough to keep the policy in force (see "Lapse
and reinstatement").
25
Minimum initial premium
The minimum initial premium is set forth in the Policy Specifications page
of your policy. After the payment of the initial premium, premiums may be paid
at any time and in any amount until the insured person's attained age 100,
subject to the limitations on premium amount described below.
Maximum premium payments
Federal tax law limits the amount of premium payments you can make relative
to the amount of your policy's insurance coverage. We will not knowingly accept
any amount by which a premium payment exceeds this limit. If you exceed certain
other limits, the law may impose a penalty on amounts you take out of your
policy. More discussion of these tax law requirements is provided under "Tax
considerations". Also, we may refuse to accept any amount of an additional
premium if:
. that amount of premium would cause the Maximum Annual Premium limit in
the policy to be exceeded, or
. that amount of premium would increase over investment risk, or
. that amount of premium would increase over insurance risk exposure,
and the insured person doesn't provide us with adequate evidence that
he or she continues to meet our requirements for issuing insurance.
In no event, however, will we refuse to accept any premium necessary to
prevent the policy from terminating.
Processing premium payments
No premiums will be accepted prior to our receipt of a completed
application at our Service Office. All premiums received on or after the Issue
Date, but prior to the Allocation Date, will be held in the Money Market B
investment account. The "Allocation Date" of the policy is the 10th day after
the Issue Date. The Issue Date is shown on the Policy Specifications page of the
policy. On the Allocation Date, the Net Premiums paid plus interest credited, if
any, will be allocated among the investment accounts or the fixed account in
accordance with the policy owner's instructions. The "Net Premium" is the
premium paid less the premium charge we deduct from it.
Any Net Premium received on or after the Allocation Date will be allocated
among investment accounts or the fixed account as of the business day on or next
following the date the premium is received at the Service Office. Monthly
deductions are normally due on the Policy Date and at the beginning of each
policy month thereafter. However, if the monthly deductions are due prior to the
Contract Completion Date, they will be deducted from policy value on the
Contract Completion Date instead of the dates they were due (see "Procedures for
issuance of a policy" for the definition of "Contract Completion Date").
Payment of premiums will not guarantee that the policy will stay in force.
Conversely, failure to pay premiums will not necessarily cause the policy to
lapse.
Ways to pay premiums
If you pay premiums by check or money order, they must be drawn on a U.S.
bank in U.S. dollars and made payable to "John Hancock". We will not accept
credit card checks. We will not accept starter or third party checks if they
fail to satisfy our administrative requirements. Premiums after the first must
be sent to the John Hancock USA Service Office at the appropriate address shown
on the back cover of this prospectus. We will also accept premiums by wire or by
exchange from another insurance company.
Lapse and reinstatement
Lapse
A policy will go into default if at the beginning of any policy month the
policy's net cash surrender value would be zero or below after deducting the
monthly deductions then due. Therefore, a policy could lapse eventually if
increases in policy value (prior to deduction of policy charges) are not
sufficient to cover policy charges. A lapse could have adverse tax consequences
as described under "Tax considerations". We will notify you of the default and
will allow a 61 day grace period in which you may make a premium payment
sufficient to bring the policy out of default. The required payment will be
equal to the amount necessary to bring the net cash surrender value to zero, if
it was less than zero on the date of default, plus the monthly deductions due at
the date of default and payable at the beginning of each of the two policy
months thereafter, plus
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any applicable premium charge. If the required payment is not received by the
end of the grace period, the policy will terminate (i.e., "lapse") with no
value.
Death during grace period
If the insured person should die during the grace period, the policy value
used in the calculation of the death benefit will be the policy value as of the
date of default and the insurance benefit will be reduced by any outstanding
monthly deductions due at the time of death.
Reinstatement
You can reinstate a policy that has gone into default and terminated at any
time within 21 days following the date of termination without furnishing
evidence of insurability, subject to the following conditions:
(a) The insured person's risk classification is standard or preferred, and
(b) The insured person's attained age is less than 46.
By making a written request, you can reinstate a policy that has gone into
default and terminated at any time within the three-year period following the
date of termination subject to the following conditions:
(a) You must provide to us evidence of the insured person's insurability
that is satisfactory to us; and
(b) You must pay a premium equal to the amount that was required to bring
the policy out of default immediately prior to termination, plus the
amount needed to keep the policy in force to the next scheduled date
for payment of the Planned Premium.
If the reinstatement is approved, the date of reinstatement will be the
later of the date we approve your request or the date the required payment is
received at our Service Office. The policy value on the date of reinstatement,
prior to the crediting of any Net Premium paid in connection with the
reinstatement, will be equal to the policy value on the date the policy
terminated. Any policy debt not paid upon termination of a policy will be
reinstated if the policy is reinstated.
The Policy Value
From each premium payment you make, we deduct the premium charge described
under "Deduction from premium payments". We invest the rest (known as the "Net
Premium") in the accounts (fixed or investment) you've elected. Special
investment rules apply to premiums processed prior to the Allocation Date. (See
"Processing premium payments").
Over time, the amount you've invested in any investment account will
increase or decrease the same as if you had invested the same amount directly in
the corresponding underlying portfolio and had reinvested all portfolio's
dividends and distributions in additional portfolio shares; except that we will
deduct certain additional charges which will reduce your policy value. We
describe these charges under "Description of Charges at the Policy Level".
The amount you've invested in the fixed account will earn interest at the
rates we declare from time to time. For the fixed account, we guarantee that
this rate will be at least 3%. If you want to know what the current declared
rate is for the fixed account, just call or write to us. Amounts you invest in
the fixed account will not be subject to the asset-based risk charge described
under "Deductions from policy value". Otherwise, the policy level charges
applicable to the fixed account are the same as those applicable to the
investment accounts. We reserve the right to offer one or more additional fixed
accounts with characteristics that differ from those of the current fixed
account, but we are under no obligation to do so.
Allocation of future premium payments
At any time, you may change the accounts (fixed or investment) in which
future premium payments will be invested. You make the original allocation in
the application for the policy. The percentages you select must be in whole
numbers and must total 100%.
Transfers of existing policy value
You may also transfer your existing policy value from one account (fixed or
investment) to another. To do so, you must tell us how much to transfer, either
as a whole number percentage or as a specific dollar amount. A confirmation of
each
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transfer will be sent to you. Without our approval, the maximum amount you may
transfer to or from any account in any policy year is $1,000,000.
The policies are not designed for professional market timing organizations
or other persons or entities that use programmed or frequent transfers among
investment accounts. As a consequence, we have reserved the right to impose
limits on the number and frequency of transfers into and out of investment
accounts and to impose a fee of up to $25 for any transfer beyond an annual
limit (which will not be less than 12). No transfer fee will be imposed on any
transfer from an investment account into a fixed account if the transfer occurs
during the following periods:
. within 18 months after the policy's Issue Date, or
. within 60 days after the later of the effective date of a material
change in the investment objectives of any investment account or the
date you are notified of the change.
Subject to the restrictions set forth below, you may transfer existing policy
value into or out of investment accounts. Transfers out of a fixed account are
subject to additional limitations noted below.
Our current practice is to restrict transfers into or out of investment
accounts to two per calendar month (except with respect to those policies
described in the following paragraph). For purposes of this restriction,
transfers made during the period from the opening of a business day (usually
9:00 a.m. Eastern Time) to the close of that business day (usually 4:00 p.m.
Eastern Time) are considered one transfer. You may, however, transfer to the
Money Market B investment account even if the two transfer per month limit has
been reached, but only if 100% of the account value in all investment accounts
is transferred to the Money Market B investment account. If such a transfer to
the Money Market B investment account is made, then, for the 30 calendar day
period after such transfer, no transfers from the Money Market B investment
account to any other investment accounts (variable or fixed) may be made. If
your policy offers a dollar cost averaging or automatic asset allocation
rebalancing program, any transfers pursuant to such program are not considered
transfers subject to these restrictions on frequent trading. The restrictions
described in this paragraph will be applied uniformly to all policy owners
subject to the restrictions.
Policies such as yours may be purchased by a corporation or other entity as
a means to informally finance the liabilities created by an employee benefit
plan, and to this end the entity may aggregately manage the policies purchased
to match its liabilities under the plan. Policies sold under these circumstances
are subject to special transfer restrictions. In lieu of the two transfers per
month restriction, we will allow the policy owner under these circumstances to
rebalance the investment options in its policies within the following limits:
(i) during the 10 calendar day period after any policy values are transferred
from one investment account into a second investment account, the values can
only be transferred out of the second investment account if they are transferred
into the Money Market B investment account; and (ii) any policy values that
would otherwise not be transferable by application of the 10 day limit described
above and that are transferred into the Money Market B investment account may
not be transferred out of the Money Market B investment account into any other
accounts (fixed or investment) for 30 calendar days. The restrictions described
in this paragraph will be applied uniformly to all policy owners subject to the
restrictions.
The most you can transfer at any one time out of the fixed account is the
greater of (i) the fixed account maximum transfer amount of $2,000, or (ii) the
fixed account maximum transfer percentage of 25% multiplied by the amount of the
fixed account on the immediately preceding policy anniversary. Any transfer
which involves a transfer out of the fixed account may not involve a transfer to
the Money Market B investment account.
We reserve the right to impose a minimum amount limit on transfers out of
the fixed account. We also reserve the right to impose different restrictions on
any additional fixed account that we may offer in the future.
Surrender and Withdrawals
Surrender
You may surrender your policy in full at any time. If you do, we will pay
you the policy value less any policy loans. This is called your "net cash
surrender value." You must return your policy when you request a surrender. We
will process surrenders on the day we receive the surrender request (unless such
day is not a business day, in which case we will process surrenders as of the
business day next following the date of the receipt).
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Withdrawals
After the first policy year, you may make a withdrawal of part of your net
cash surrender value once in each policy month. Generally, each withdrawal must
be at least $500. There is a withdrawal fee for each withdrawal of $25 (or 2% of
the withdrawal, if less). We will automatically reduce the policy value of your
policy by the amount of the withdrawal fee. Unless otherwise specified by you,
each account (fixed and investment) will be reduced in the same proportion as
the policy value is then allocated among them. We will not permit a withdrawal
if it would cause your net cash surrender value to fall below 3 months' worth of
monthly deductions (see "Deductions from policy value"). We also reserve the
right to refuse any withdrawal that would cause the policy's Total Face Amount
to fall below $100,000 or the Base Face Amount to fall below $50,000.
Because it reduces the policy value, any withdrawal will reduce your death
benefit under either Option 1 or Option 2 (see "The Death Benefit"). Under
Option 1, such a withdrawal may also reduce the Total Face Amount. This will
happen only if the minimum death benefit under Option 1 is equal to or less than
the Total Face Amount. Any such reduction in the Total Face Amount will be
implemented by first reducing any Supplemental Face Amount then in effect. The
Base Face Amount will be reduced only after the Supplemental Face Amount has
been reduced to zero. If such a reduction in Total Face Amount would cause the
policy to fail the Internal Revenue Code's definition of life insurance, we will
not permit the withdrawal.
Policy loans
You may borrow from your policy at any time by completing a form
satisfactory to us or, if the telephone/internet transaction authorization form
has been completed, by telephone or e-mail. The maximum amount you can borrow is
the amount determined as follows:
. We first determine the net cash surrender value of your policy.
. We then subtract an amount equal to 12 times the monthly deductions
then being deducted from policy value.
. We then multiply the resulting amount by 0.75% in policy years 1
through 10 and 0% thereafter (although we reserve the right to
increase the percentage after the tenth policy year to as much as
.25%).
. We then subtract the third item above from the second item above.
The minimum amount of each loan is $500. The interest charged on any loan
is an effective annual rate of 3.75% in the first 10 policy years and 3.0%
thereafter. However, we reserve the right to increase the percentage after the
tenth policy year to as much as 3.25%. Accrued interest will be added to the
loan daily and will bear interest at the same rate as the original loan amount.
Unless otherwise specified by you, the amount of the loan is deducted from the
accounts (fixed and investment) in the same proportion as the policy value is
then allocated among them. The amount of the loan is then placed in a special
loan account. This special loan account will earn interest at an effective
annual rate of 3.0%. However, if we determine that a loan will be treated as a
taxable distribution because of the differential between the loan interest rate
and the rate being credited on the special loan account, we reserve the right to
increase the rate charge on the loan to a rate that would, in our reasonable
judgement, result in the transaction being treated as a loan under Federal tax
law. We process policy loans as of the business day on or next following the day
we receive the loan request.
Repayment of policy loans
You can repay all or part of a loan at any time. Each repayment will be
allocated among the accounts as follows:
. The same proportionate part of the loan as was borrowed from any fixed
account will be repaid to that fixed account.
. The remainder of the repayment will be allocated among the accounts in
the same way a new premium payment would be allocated (unless
otherwise specified by you).
If you want a payment to be used as a loan repayment, you must include
instructions to that effect. Otherwise, all payments will be assumed to be
premium payments. We process loan repayments as of the day we receive the
repayment.
Effects of policy loans
The policy value, the net cash surrender value, and any death benefit are
permanently affected by any loan, whether or not it is repaid in whole or in
part. This is because the amount of the loan is deducted from the accounts and
placed in a special loan account. The accounts and the special loan account will
generally have different rates of investment return.
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The amount of the outstanding loan (which includes accrued and unpaid
interest) is subtracted from the amount otherwise payable when the policy
proceeds become payable.
Taking out a loan on the policy increases the risk that the policy may
lapse because of the difference between the interest rate charged on the loan
and the interest rate credited to the special loan account. Also, whenever the
outstanding loan equals or exceeds your policy value after the insured person
reaches age 100, the policy will terminate 31 days after we have mailed notice
of termination to you (and to any assignee of record at such assignee's last
known address) specifying the amount that must be paid to avoid termination,
unless a repayment of at least the amount specified is made within that period.
Policy loans may also result in adverse tax consequences under certain
circumstances (see "Tax considerations").
Description of Charges at the Policy Level
Deduction from premium payments
. Premium charge - A charge to (i) help cover our sales costs, (ii)
cover state premium taxes we currently expect to pay, on average, and
(iii) cover the increased Federal income tax burden that we currently
expect will result from receipt of premiums. The current charge is
1.5% of each premium paid for the first 5 policy years and 2%
thereafter, although we reserve the right to increase the percentage
to as high as 7%.
Deductions from policy value
. Administrative charge - A monthly charge to help cover our
administrative costs. This is a flat dollar charge of up to $12.
. Face Amount charge - A monthly charge for the first ten policy years
to primarily help cover sales costs. To determine the charge we
multiply the amount of Base Face Amount by a rate which varies by the
insured person's sex, age and risk classification at issue.
. Cost of insurance charge - A monthly charge for the cost of insurance.
To determine the charge, we multiply the net amount of insurance for
which we are then at risk by a cost of insurance rate. The rate is
derived from an actuarial table. The table in your policy will show
the maximum cost of insurance rates. The cost of insurance rates that
we currently apply are generally less than the maximum rates. The
current rates will never be more than the maximum rates shown in the
policy. The table of rates we use will depend on the insurance risk
characteristics and (usually) gender of the insured person, the Total
Face Amount and the length of time the policy has been in effect.
Regardless of the table used, cost of insurance rates generally
increase each year that you own your policy, as the insured person's
attained age increases. (The insured person's "attained age" on any
date is his or her age on the birthday nearest that date.) For Death
Benefit Option 1, the net amount at risk is equal to the greater of
zero, or the result of (a) minus (b) where:
(a) is the death benefit as of the first day of the policy
month, divided by 1.0024663; and
(b) is the policy value as of the first day of the policy month
after the deduction of all other monthly deductions.
Since the net amount at risk for Death Benefit Option 1 is based on a
formula that includes as factors the death benefit and the policy
value, the net amount at risk is affected by the investment
performance of the investment accounts chosen, payment of premiums and
charges assessed.
The cost of insurance rate and net amount at risk will be determined
separately for the initial Total Face Amount and for each increase in
Total Face Amount. In determining the net amount at risk, if there
have been increases in Total Face Amount, the policy value shall first
reduce the initial Total Face Amount. If the policy value exceeds the
initial Total Face Amount, then such excess shall reduce the
additional increases in Total Face Amount resulting from the
increases, in the order the increases occurred.
For Death Benefit Option 2, the net amount at risk is equal to the
Total Face Amount of insurance.
. Additional mortality charge - A monthly charge specified in your
policy for additional mortality risk if the insured person is subject
to certain types of special insurance risk.
. Asset-based risk charge - A monthly charge to help cover sales,
administrative and other costs. The charge is a percentage of that
portion of your policy value allocated to investment accounts. This
charge does not apply to the current fixed account.
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. Supplementary benefits charges - Monthly charges for any supplementary
insurance benefits added to the policy by means of a rider.
. Withdrawal fee - A fee for each withdrawal of policy value to
compensate us for the administrative expenses of processing the
withdrawal. The charge is equal to the lesser of $25 or 2% of the
withdrawal amount.
Additional information about how certain policy charges work
Sales expenses and related charges
The premium charges help to compensate us for the cost of selling our
policies. (See "Description of Charges at the Policy Level".) The amount of the
charges in any policy year does not specifically correspond to sales expenses
for that year. We expect to recover our total sales expenses over the life of
the policies. To the extent that the premium charges do not cover total sales
expenses, the sales expenses may be recovered from other sources, including
gains from the asset-based risk charge and other gains with respect to the
policies, or from our general assets. Similarly, administrative expenses not
fully recovered by the administrative charge may also be recovered from such
other sources.
Method of deduction
We deduct the monthly deductions described in the Fee Tables section from
your policy's accounts (fixed and investment) in proportion to the amount of
policy value you have in each, unless otherwise specified by you.
Reduced charges for eligible classes
The charges otherwise applicable may be reduced with respect to policies
issued to a class of associated individuals or to a trustee, employer or similar
entity where we anticipate that the sales to the members of the class will
result in lower than normal sales or administrative expenses, lower taxes or
lower risks to us. We will make these reductions in accordance with our rules in
effect at the time of the application for a policy. The factors we consider in
determining the eligibility of a particular group for reduced charges, and the
level of the reduction, are as follows: the nature of the association and its
organizational framework; the method by which sales will be made to the members
of the class; the facility with which premiums will be collected from the
associated individuals and the association's capabilities with respect to
administrative tasks; the anticipated lapse and surrender rates of the policies;
the size of the class of associated individuals and the number of years it has
been in existence; the aggregate amount of premiums paid; and any other such
circumstances which result in a reduction in sales or administrative expenses,
lower taxes or lower risks. Any reduction in charges will be reasonable and will
apply uniformly to all prospective policy purchasers in the class and will not
unfairly discriminate against any owner.
Other charges we could impose in the future
Except for a portion of the premium charge, we currently make no charge for
our Federal income taxes. However, if we incur, or expect to incur, income taxes
attributable to any subaccount of the Account or this class of policies in
future years, we reserve the right to make a charge for such taxes. Any such
charge would reduce what you earn on any affected investment accounts. However,
we expect that no such charge will be necessary.
We also reserve the right to increase the premium charge in order to
correspond with changes in the state premium tax levels or in the Federal income
tax treatment of the deferred acquisition costs for this type of policy.
Under current laws, we may incur state and local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant.
If there is a material change in applicable state or local tax laws, we may make
charges for such taxes.
Description of Charges at the Portfolio Level
The portfolios must pay investment management fees and other operating
expenses. These fees and expenses (shown in the tables of portfolio annual
expenses under "Fee Tables") are different for each portfolio and reduce the
investment return of each portfolio. Therefore, they also indirectly reduce the
return you will earn on any investment accounts you select. We may also receive
payments from a Series Fund or its affiliates at an annual rate of up to
approximately 0.45% of the average net assets that holders of our variable life
insurance policies and other products have invested in that portfolio. Any such
payments do not, however, result in any charge to you in addition to what is
shown in the tables. Expenses of the portfolios are not fixed or specified under
the terms of the policy, and those expenses may vary from year to year.
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Other Policy Benefits, Rights and Limitations
Optional supplementary benefit riders you can add
When you apply for a policy, you can request any of the optional
supplementary benefit riders that we then make available. Availability of any
rider, the benefits it provides and the charges for it may vary by state. Our
rules and procedures will govern eligibility for any rider and, in some cases,
the configuration of the actual rider benefits. Each rider contains specific
details that you should review before you decide to choose the rider. Charges
for most riders will be deducted from the policy value. We may change these
charges (or the rates that determine them), but not above any applicable maximum
amount stated in the Policy Specifications page of your policy. We may add to,
delete from or modify the list of optional supplementary benefit riders.
. Enhanced Cash Value Rider - This rider provides for payment of an
additional benefit to the policy owner upon surrender of the policy in
the first seven policy years. The enhanced cash value rider benefit is
calculated as a percentage of the cumulative premiums paid to date
(or the "Limiting Premium" shown in the Policy Specifications page of
your policy, if less), minus any withdrawals and policy debt. The
percentage sarts at 11% and reduces to 0% in the eighth policy year.
The enhanced cash value rider is only available if: (i) notice of
surrender is received at our Service Office prior to the death of the
insured person, (ii) such surrender is not the result of an exchange
under Section 1035 of the Internal Revenue Code, and (iii) the rider
has not terminated pursuant to its premiums. This rider does not
increase the available loan value of the policy.
Variations in policy terms
Insurance laws and regulations apply to us in every state in which our
policies are sold. As a result, various terms and conditions of your insurance
coverage may vary from the terms and conditions described in this prospectus,
depending upon where you reside. These variations will be reflected in your
policy or in endorsements attached to your policy.
We may vary the charges and other terms of our policies where special
circumstances result in sales or administrative expenses, mortality risks or
other risks that are different from those normally associated with the policies.
These include the type of variations discussed under "Reduced charges for
eligible classes". No variation in any charge will exceed any maximum stated in
this prospectus with respect to that charge.
Any variation discussed above will be made only in accordance with uniform
rules that we adopt and that we apply fairly to our customers.
Procedures for issuance of a policy
Generally, the policy is available with a minimum Total Face Amount at
issue of $100,000 and a minimum Base Face Amount at issue of $50,000. At the
time of issue, the insured person must have an attained age of no more than 90.
All insured persons must meet certain health and other insurance risk criteria
called "underwriting standards".
Policies issued in Montana or in connection with certain employee plans
will not directly reflect the sex of the insured person in either the premium
rates or the charges or values under the policy.
Commencement of insurance coverage
After you apply for a policy, it can sometimes take up to several weeks for
us to gather and evaluate all the information we need to decide whether to issue
a policy to you and, if so, what the insured person's rate classification should
be. After we approve an application for a policy and assign an appropriate
insurance rate classification, we will prepare the policy for delivery. We will
not pay a death benefit under a policy unless the policy is in effect when the
insured person dies (except for the circumstances described under "Temporary
coverage prior to policy delivery" below).
The policy will take effect only if all of the following conditions are
satisfied:
. The policy is delivered to and received by the applicant.
. The minimum initial premium is received by us.
. The insured person is living and there has been no deterioration in
the insurability of the insured person since the date of the
application.
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The date all of the above conditions are satisfied is referred to in this
prospectus as the "Contract Completion Date". If all of the above conditions are
satisfied, the policy will take effect on the date shown in the policy as the
"Policy Date". That is the date on which we begin to deduct monthly charges.
Policy months, policy years and policy anniversaries are all measured from the
Policy Date.
Backdating
Under limited circumstances, we may backdate a policy, upon request, by
assigning a Policy Date earlier than the date the application is signed.
However, in no event will a policy be backdated earlier than the earliest date
allowed by state law, which is generally three months to one year prior to the
date of application for the policy. The most common reasons for backdating are
to preserve a younger age at issue for the insured person or to retain a common
monthly deduction date in certain corporate-owned life insurance cases involving
multiple policies issued over time. If used to preserve age, backdating will
result in lower insurance charges. However, monthly deductions will begin
earlier than would otherwise be the case. Monthly deductions for the period the
Policy Date is backdated will actually be deducted from policy value on the
Contract Completion Date.
Temporary coverage prior to policy delivery
If a specified amount of premium is paid with the application for a policy
and other conditions are met, we will provide temporary term life insurance
coverage on the insured person for a period prior to the time coverage under the
policy takes effect. Such temporary term coverage will be subject to the terms
and conditions described in the Temporary Life Insurance Agreement and Receipt
attached to the application for the policy, including conditions to coverage and
limits on amount and duration of coverage.
Monthly deduction dates
Each charge that we deduct monthly is assessed against your policy value at
the close of business on the Policy Date and at the close of the first day in
each subsequent policy month.
Changes that we can make as to your policy
We reserve the right to make any changes in the policy necessary to ensure
the policy is within the definition of life insurance under the Federal tax laws
and is in compliance with any changes in Federal or state tax laws.
In our policies, we reserve the right to make certain changes if they would
serve the best interests of policy owners or would be appropriate in carrying
out the purposes of the policies. Such changes include the following:
. Changes necessary to comply with or obtain or continue exemptions
under the Federal securities laws
. Combining or removing fixed accounts or investment accounts
. Changes in the form of organization of any separate account
Any such changes will be made only to the extent permitted by applicable
laws and only in the manner permitted by such laws. When required by law, we
will obtain your approval of the changes and the approval of any appropriate
regulatory authority.
The owner of the policy
Who owns the policy? That's up to the person who applies for the policy.
The owner of the policy is the person who can exercise most of the rights under
the policy, such as the right to choose the accounts in which to invest or the
right to surrender the policy. In many cases, the person buying the policy is
also the person who will be the owner. However, the application for a policy can
name another person or entity (such as a trust) as owner. Whenever we've used
the term "you" in this prospectus, we've assumed that the reader is the person
who has whatever right or privilege is being discussed. There may be tax
consequences if the owner and the insured person are different, so you should
discuss this issue with your tax adviser.
While the insured person is alive, you will have a number of options under
the policy. Here are some major ones:
. Determine when and how much you invest in the various acounts in which
to invest
. Borrow or withdraw amounts you have in the accounts
. Change the beneficiary who will receive the death benefit
33
. Change the amount of insurance
. Turn in (i.e., "surrender") the policy for the full amount of its net
cash surrender value
. Choose the form in which we will pay out the death benefit or other
proceeds
It is possible to name so-called "joint owners" of the policy. If more than
one person owns a policy, all owners must join in most requests to exercise
rights under the policy.
Policy cancellation right
You have the right to cancel your policy within 10 days after you receive
it (the period may be longer in some states). This is often referred to as the
"free look" period. To cancel your policy, simply deliver or mail the policy to:
. John Hancock USA at one of the addresses shown on the back cover of
this prospectus, or
. the John Hancock USA representative who delivered the policy to you.
The date of cancellation will be the date of such mailing or delivery. In
most states, you will receive a refund of any premiums you've paid. In some
states, the refund will be your policy value on the date of cancellation.
Reports that you will receive
At least annually, we will send you a statement setting forth at least the
following information as of the end of the most recent reporting period: the
amount of the death benefit, the portion of the policy value in the fixed
account and in each investment account, premiums received and charges deducted
from premiums since the last report, any outstanding policy loan (and interest
charged for the preceding policy year), and any further information required by
law. Moreover, you also will receive confirmations of premium payments,
transfers among accounts, policy loans, partial withdrawals and certain other
policy transactions.
Semiannually we will send you a report containing the financial statements
of the portfolios, including a list of securities held in each portfolio.
Assigning your policy
You may assign your rights in the policy to someone else as collateral for
a loan or for some other reason. Assignments do not require the consent of any
revocable beneficiary. A copy of the assignment must be forwarded to us. We are
not responsible for any payment we make or any action we take before we receive
a copy of the assignment at our Service Office. Nor are we responsible for the
validity of the assignment or its efficacy in meeting your objectives. An
absolute assignment is a change of ownership. All collateral assignees of record
must usually consent to any surrender, withdrawal or loan from the policy.
When we pay policy proceeds
General
We will ordinarily pay any death benefit, withdrawal, surrender value or
loan within 7 days after we receive the last required form or request (and, with
respect to the death benefit, any other documentation that may be required). If
we don't have information about the desired manner of payment within 7 days
after the date we receive documentation of the insured person's death, we will
pay the proceeds as a single sum.
Delay to challenge coverage
We may challenge the validity of your insurance policy based on any
material misstatements made to us in the application for the policy. We cannot
make such a challenge, however, beyond certain time limits that are specified in
the policy.
Delay for check clearance
We reserve the right to defer payment of that portion of your policy value
that is attributable to a premium payment made by check for a reasonable period
of time (not to exceed 15 days) to allow the check to clear the banking system.
34
Delay of separate account proceeds
We reserve the right to defer payment of any death benefit, loan or other
distribution that is derived from an investment account if (1) the New York
Stock Exchange is closed (other than customary weekend and holiday closings) or
trading on the New York Stock Exchange is restricted; (2) an emergency exists,
as a result of which disposal of securities is not reasonably practicable or it
is not reasonably practicable to fairly determine the policy value; or (3) the
SEC by order permits the delay for the protection of owners. Transfers and
allocations of policy value among the investment accounts may also be postponed
under these circumstances. If we need to defer calculation of separate account
values for any of the foregoing reasons, all delayed transactions will be
processed at the next values that we do compute.
Delay of general account surrender proceeds
State laws allow us to defer payment of any portion of the net cash
surrender value derived from any fixed account for up to 6 months. These laws
were enacted many years ago to help insurance companies in the event of a
liquidity crisis.
How you communicate with us
General Rules
You should mail or express all checks and money orders for premium payments
and loan repayments to the John Hancock USA Service Office at the appropriate
address shown on the back cover.
Under our current rules, certain requests must be made in writing and be
signed and dated by you. They include the following:
. surrenders or withdrawals
. change of death benefit option
. increase or decrease in Face Amount
. change of beneficiary
. election of payment option for policy proceeds
. tax withholding elections
. election of telephone/internet transaction privilege.
The following requests may be made either in writing (signed and dated by
you) or by telephone, fax or e-mail if a special form is completed (see
"Telephone, Facsimile and Internet Transactions" below):
. loans
. transfers of policy value among accounts
. change of allocation among accounts for new premium payments
You should mail or express all written requests to our Service Office at
the appropriate address shown on the back cover. You should also send notice of
the insured person's death and related documentation to our Service Office. We
do not consider that we've "received" any communication until such time as it
has arrived at the proper place and in the proper and complete form.
We have special forms that should be used for a number of the requests
mentioned above. You can obtain these forms from our Service Office or your John
Hancock USA representative. Each communication to us must include your name,
your policy number and the name of the insured person. We cannot process any
request that doesn't include this required information. Any communication that
arrives after the close of our business day, or on a day that is not a business
day, will be considered "received" by us on the next following business day. Our
business day currently closes at 4:00 p.m. Eastern Time, but special
circumstances (such as suspension of trading on a major exchange) may dictate an
earlier closing time.
Telephone, Facsimile and Internet Transactions
If you complete a special authorization form, you can request loans,
transfers among accounts and changes of allocation among accounts simply by
telephoning us at 1-800-521-1234 or by faxing us at 1-617-572-7008 or by
e-mailing us at an address we will provide. Any fax or internet request should
include your name, daytime telephone number, policy number and, in the case of
transfers and changes of allocation, the names of the accounts involved. We will
honor telephone and
35
internet instructions from anyone who provides the correct identifying
information, so there is a risk of loss to you if this service is used by an
unauthorized person. However, you will receive written confirmation of all
telephone/internet transactions. There is also a risk that you will be unable to
place your request due to equipment malfunction or heavy phone line or internet
usage. If this occurs, you should submit your request in writing.
If you authorize telephone or internet transactions, you will be liable for
any loss, expense or cost arising out of any unauthorized or fraudulent
telephone or internet instructions which we reasonably believe to be genuine,
unless such loss, expense or cost is the result of our mistake or negligence. We
employ procedures which provide safeguards against the execution of unauthorized
transactions which are reasonably designed to confirm that instructions received
by telephone or internet are genuine. These procedures include requiring
personal identification, the use of a unique password for internet
authorization, recording of telephone calls, and providing written confirmation
to the owner. If we do not employ reasonable procedures to confirm that
instructions communicated by telephone or internet are genuine, we may be liable
for any loss due to unauthorized or fraudulent instructions.
As stated earlier in this prospectus, the policies are not designed for
professional market timing organizations or other persons or entities that use
programmed or frequent transfers among investment options. To discourage
disruptive frequent trading, we have imposed certain transfer restrictions (see
"Transfers of existing policy value"). In addition, we also reserve the right to
change our telephone, facsimile and internet transaction privileges outlined in
this section at any time, and to suspend or terminate any or all of those
privileges with respect to any owners who we feel are abusing the privileges to
the detriment of other owners.
Distribution of Policies
John Hancock Distributors LLC ("JH Distributors"), a Delaware limited
liability company that we control, is the principal distributor of the policies
and the principal underwriter of the securities offered through this prospectus
and of other annuity and life insurance products we and our affiliates offer. JH
Distributors also acts as the principal underwriter of the John Hancock Trust,
whose securities are used to fund certain investment accounts under the policies
and under other annuity and life insurance products we offer.
JH Distributors' principal address is 200 Bloor Street East, Toronto,
Canada M4W 1E5 and it also maintains offices with us at 601 Congress Street,
Boston, Massachusetts 02210. JH Distributors is a broker-dealer registered under
the Securities Exchange Act of 1934 (the "1934 Act") and is a member of the
National Association of Securities Dealers, Inc. (the "NASD").
We offer the policies for sale through individuals who are licensed as
insurance agents and who are registered representatives of broker-dealers that
have entered into selling agreements with JH Distributors. These broker-dealers
may include our affiliates Essex National Securities, Inc. and Signator
Investors, Inc.
Through JH Distributors, John Hancock USA pays compensation to
broker-dealers for the promotion and sale of the policies. The registered
representative through whom your policy is sold will be compensated pursuant to
the registered representative's own arrangement with his or her broker-dealer.
Compensation to broker-dealers for the promotion and sale of the policies is not
paid directly by policyowners but will be recouped through the fees and charges
imposed under the policy. (See "Description of Charges at the Policy Level".)
A limited number of broker-dealers may also be paid commissions or
overrides to "wholesale" the policies; that is, to provide marketing support and
training services to the broker-dealer firms that do the actual selling. We may
also provide compensation to a limited number of broker-dealers for providing
ongoing service in relation to policies that have already been purchased.
Standard Compensation. The compensation JH Distributors may pay to
broker-dealers may vary depending on the selling agreement, but compensation
(inclusive of wholesaler overrides and expense allowances) paid to
broker-dealers for sale of the policies (not including riders) is not expected
to exceed 32% of target commissionable premium, and 4% of premium in excess of
target, paid in the first policy year, 9% of commissionable premium paid in
years 2-5, and 6% of commissionable premium paid in years 6-10.
Additional Compensation and Revenue Sharing. To the extent permitted by SEC
and NASD rules and other applicable laws and regulations, selling broker-dealers
may receive, directly or indirectly, additional payments in the form of cash,
other compensation or reimbursement. These additional compensation or
reimbursement arrangements may include, for example, payments in connection with
the firm's "due diligence" examination of the policies, payments for providing
conferences or seminars, sales or training programs for invited registered
representatives and other employees, payment for travel expenses,
36
including lodging, incurred by registered representatives and other employees
for such seminars or training programs, seminars for public, advertising and
sales campaigns regarding the policies, payments to assist a firm in connection
with its systems, operations and marketing expenses and/or other events or
activities sponsored by the firms. Subject to applicable NASD rules and other
applicable laws and regulations, JH Distributors and its affiliates may
contribute to, as well as sponsor, various educational programs, sales contests,
and/or other promotions in which participating firms and their sales persons may
receive prizes such as merchandise, cash or other rewards.
These arrangements will not be offered to all firms, and the terms of such
arrangements may differ between firms. We provide additional information on
special compensation or reimbursement arrangements involving selling firms and
other financial institutions in the Statement of Additional Information, which
is available upon request. Any such compensation, which may be significant at
times, will not result in any additional direct charge to you by us.
Differential Compensation. Compensation negotiated and paid by JH
Distributors pursuant to a selling agreement with a broker-dealer may differ
from compensation levels that the broker-dealer receives for selling other
variable policies or contracts. These compensation arrangements may give us
benefits such as greater access to registered representatives. In addition,
under their own arrangements, broker-dealer firms may pay a portion of any
amounts received under standard or additional compensation or revenue sharing
arrangements to their registered representatives. As a result, registered
representatives may be motivated to sell the policies of one issuer over another
issuer, or one product over another product. You should contact your registered
representative for more information on compensation arrangements in connection
with your purchase of a policy.
Tax considerations
This description of federal income tax consequences is only a brief summary
and is not intended as tax advice. Tax consequences will vary based on your own
particular circumstances, and for further information you should consult a
qualified tax advisor. Federal, state and local tax laws, regulations and
interpretations can change from time to time. As a result, the tax consequences
to you and the beneficiary may be altered, in some cases retroactively.
General
Generally, death benefits paid under policies such as yours are not subject
to income tax. Earnings on your policy value are not subject to income tax as
long as we don't pay them out to you. If we do pay out any amount of your policy
value upon surrender or withdrawal, all or part of that distribution should
generally be treated as a return of the premiums you've paid and should not be
subject to income tax. Amounts you borrow are generally not taxable to you.
However, some of the tax rules change if your policy is found to be a
"modified endowment contract". This can happen if you've paid more than a
certain amount of premiums that is prescribed by the tax laws. Additional taxes
and penalties may be payable for policy distributions of any kind under a
modified endowment contract.
Policy proceeds
We believe the policy will receive the same Federal income and estate tax
treatment as fixed benefit life insurance policies. Section 7702 of the Internal
Revenue Code (the "Code") defines a life insurance contract for federal tax
purposes. If certain standards are met at issue and over the life of the policy,
the policy will satisfy that definition. We will monitor compliance with these
standards.
If the policy complies with Section 7702, we believe the death benefit
proceeds under the policy will be excludable from the beneficiary's gross income
under Section 101 of the Code.
Other policy distributions
Increases in policy value as a result of interest or investment experience
will not be subject to federal income tax unless and until values are actually
received through distributions. In general, the owner will be taxed on the
amount of distributions that exceed the premiums paid under the policy. But
under certain circumstances within the first 15 policy years, the owner may be
taxed on a distribution even if total withdrawals do not exceed total premiums
paid. Any taxable distribution will be ordinary income to the owner (rather than
capital gains).
Distributions for tax purposes can include amounts received upon surrender
or withdrawals. You may also be deemed to have received a distribution for tax
purposes if you assign all or part of your policy rights or change your policy's
ownership.
37
We also believe that, except as noted below, loans received under the
policy will be treated as indebtedness of an owner and that no part of any loan
will constitute income to the owner. However, if the policy terminates for any
reason, the amount of any outstanding loan that was not previously considered
income will be treated as if it had been distributed to the owner upon such
termination. This could result in a considerable tax bill. Under certain
circumstances involving large amounts of outstanding loans and an insured person
of advanced age, you might find yourself having to choose between high premium
requirements to keep your policy from lapsing and a significant tax burden if
you allow the lapse to occur.
It is possible that, despite our monitoring, a policy might fail to qualify
as a life insurance contract under Section 7702 of the Code. This could happen,
for example, if we inadvertently failed to return to you any premium payments
that were in excess of permitted amounts, or if any of the portfolios failed to
meet certain investment diversification or other requirements of the Code. If
this were to occur, you would be subject to income tax on the income credited to
the policy for the period of the disqualification and for subsequent periods.
Tax consequences of ownership or receipt of policy proceeds under Federal,
state and local estate, inheritance, gift and other tax laws depend on the
circumstances of each owner or beneficiary.
Because there may be unfavorable tax consequences (including recognition of
taxable income and the loss of income tax-free treatment for any death benefit
payable to the beneficiary), you should consult a qualified tax adviser prior to
changing the policy's ownership or making any assignment of ownership interests.
Diversification rules and ownership of the Account
Your policy will not qualify for the tax benefit of a life insurance
contract unless the Account follows certain rules requiring diversification of
investments underlying the policy. In addition, the rules require that the
policy owner not have "investment control" over the underlying assets.
The Treasury Department explained in its temporary regulations regarding
diversification that such regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor, rather than the insurance company, to be treated
as the owner of the assets in the account". As the variable policy owner, you
will be treated as the owner of Account assets if you have the ability to
exercise investment control over them. If you are found to have such ability,
you will be taxed on any income or gains the assets generate. Although the
Treasury Department announced several years ago that it would provide further
guidance on this issue, it had not yet done so as of the date of this
prospectus.
The ownership rights under your policy are similar to, but different in
certain respects from, those described in Internal Revenue Service rulings in
which it was determined that policyholders were not owners of separate account
assets. Since you have greater flexibility in allocating premiums and policy
values than was the case in those rulings, it is possible that you would be
treated as the owner of your policy's proportionate share of the assets of the
Account.
We do not know what will be in future Treasury Department regulations or
other guidance. We cannot guarantee that the portfolios will be able to operate
as currently described in the Series Funds' prospectuses, or that a Series Fund
will not have to change any portfolio's investment objectives or policies. We
have reserved the right to modify your policy if we believe it will prevent you
from being considered the owner of your policy's proportionate share of the
assets of the Account, but we are under no obligation to do so.
7-pay premium limit
At the time of policy issuance, we will determine whether the Planned
Premium schedule will exceed the 7-pay limit discussed below. If so, our
standard procedures prohibit issuance of the policy unless you sign a form
acknowledging that fact.
The 7-pay limit is the total of net level premiums that would have been
payable at any time for a comparable fixed policy to be fully "paid-up" after
the payment of 7 equal annual premiums. "Paid-up" means that no further premiums
would be required to continue the coverage in force until maturity, based on
certain prescribed assumptions. If the total premiums paid at any time during
the first 7 policy years exceed the 7-pay limit, the policy will be treated as a
"modified endowment contract", which can have adverse tax consequences.
The owner will be taxed on distributions and loans from a "modified
endowment contract" to the extent of any income (gain) to the owner (on an
income-first basis). The distributions and loans affected will be those made on
or after, and within
38
the two year period prior to, the time the policy becomes a modified endowment
contract. Additionally, a 10% penalty tax may be imposed on taxable portions of
such distributions or loans that are made before the owner attains age 591/2.
Furthermore, any time there is a "material change" in a policy (generally
the result of such things as an increase in the Total Face Amount, the addition
of certain other policy benefits after issue, a change in death benefit option,
or reinstatement of a lapsed policy), the policy will have a new 7-pay limit as
if it were a newly-issued policy. If a prescribed portion of the policy's then
policy value, plus all other premiums paid within 7 years after the material
change, at any time exceed the new 7-pay limit, the policy will become a
modified endowment contract.
Moreover, if benefits under a policy are reduced (such as a reduction in
the Total Face Amount or death benefit or the reduction or cancellation of
certain rider benefits) during the 7 years in which a 7-pay test is being
applied, the 7-pay limit will generally be recalculated based on the reduced
benefits. If the premiums paid to date are greater than the recalculated 7-pay
limit, the policy will become a modified endowment contract.
All modified endowment contracts issued by the same insurer (or its
affiliates) to the owner during any calendar year generally are required to be
treated as one contract for the purpose of applying the modified endowment
contract rules. A policy received in exchange for a modified endowment contract
will itself also be a modified endowment. You should consult your tax advisor if
you have questions regarding the possible impact of the 7-pay limit on your
policy.
Corporate and H.R. 10 plans
The policy may be acquired in connection with the funding of retirement
plans satisfying the qualification requirements of Section 401 of the Code. If
so, the Code provisions relating to such plans and life insurance benefits
thereunder should be carefully scrutinized. We are not responsible for
compliance with the terms of any such plan or with the requirements of
applicable provisions of the Code.
Financial statements reference
The financial statements of John Hancock USA and the Account can be found
in the Statement of Additional Information. The financial statements of John
Hancock USA should be distinguished from the financial statements of the Account
and should be considered only as bearing upon the ability of John Hancock USA to
meet its obligations under the policies.
Registration statement filed with the SEC
This prospectus omits certain information contained in the Registration
Statement which has been filed with the SEC. More details may be obtained from
the SEC upon payment of the prescribed fee.
Independent Registered Public Accounting Firm
Ernst & Young LLP, Independent Registered Public Accounting Firm, have
audited the consolidated financial statements of John Hancock USA (formerly, The
Manufacturers Life Insurance Company (U.S.A.)) at December 31, 2004 and 2003,
and for each of the three years in the period ended December 31, 2004, and the
financial statements of the Account at December 31, 2004 and for each of the
periods indicated therein, as set forth in their reports. We've included these
financial statements in the Statement of Additional Information, which also is a
part of the registration statement that contains this prospectus, and elsewhere
in the registration statement in reliance on Ernst & Young LLP's reports, given
on their authority as experts in accounting and auditing.
39
In addition to this prospectus, John Hancock USA has filed with the
Securities and Exchange Commission (the "SEC") a Statement of Additional
Information (the "SAI") which contains additional information about John Hancock
USA and the Account. The SAI and personalized illustrations of death benefits,
policy values and surrender values are available, without charge, upon request.
You may obtain the personalized illustrations from your John Hancock USA
representative. The SAI may be obtained by contacting the John Hancock USA
Service Office. You should also contact the John Hancock USA Service Office to
request any other information about your policy or to make any inquiries about
its operation.
SERVICE OFFICE
Express Delivery Mail Delivery
197 Clarendon Street P.O. Box 192
Boston, MA 02117 Boston, MA 02117
Phone: Fax:
1-800-521-1234 1-617-572-7008
Information about the Account (including the SAI) can be reviewed and
copied at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the Public Reference Room may be obtained by calling the SEC at
202-942-8090. Reports and other information about the Account are available on
the SEC's Internet website at http://www.sec.gov. Copies of such information may
be obtained, upon payment of a duplicating fee, by writing the Public Reference
Section of the SEC at 450 Fifth Street, NW, Washington, DC 20549-0102.
Investment Company Act File No. 811-5130
Statement of Additional Information
dated , 2005
John Hancock Life Insurance Company (U.S.A.)
Separate Account N
of
John Hancock Life Insurance Company (U.S.A.)
FLEXIBLE PREMIUM
VARIABLE LIFE INSURANCE POLICY
This Statement of Additional Information is not a Prospectus. It contains
information in addition to that described in the Prospectus and should be read
in conjunction with the Prospectus. The Prospectus may be obtained by writing
to John Hancock Life Insurance Company (U.S.A.) at the mailing address of the
Service Office, 200 Bloor Street East, Toronto, Ontario, Canada M4W 1E5 or
telephoning (800) 387-2747.
TABLE OF CONTENTS
GENERAL INFORMATION AND HISTORY.................. 2
SERVICES......................................... 2
Independent Registered Public Accounting Firm. 2
Principal Underwriter/Distributor............. 2
ADDITIONAL INFORMATION ABOUT CHARGES............. 3
Reduction in Charges.......................... 3
AUDITED FINANCIAL STATEMENTS..................... F-1
GENERAL INFORMATION AND HISTORY
John Hancock Life Insurance Company (U.S.A.) Separate Account N (the
"Separate Account") (formerly, The Manufacturers Life Insurance Company
(U.S.A.) Separate Account N) is a separate investment account of John Hancock
Life Insurance Company (U.S.A.) ("we," "us," "the Company", "John Hancock USA")
(formerly, The Manufacturers Life Insurance Company (U.S.A.)). We are a stock
life insurance company incorporated in Maine on August 20, 1955 by a special
act of the Maine legislature and redomesticated under the laws of Michigan. We
are a licensed life insurance company in the District of Columbia and all
states of the United States except New York. Our ultimate parent is Manulife
Financial Corporation ("MFC"), a publicly traded company, based in Toronto,
Canada. MFC is the holding company of The Manufacturers Life Insurance Company
("Manufacturers Life") and its subsidiaries, collectively known as Manulife
Financial.
The Separate Account has been established under Michigan law as a separate
account of John Hancock USA. The Separate Account holds assets that are
segregated from all of John Hancock USA's other assets. The Separate Account is
currently used only to support variable life insurance policies.
Our financial statements which are included in this Statement of Additional
Information should be considered only as bearing on our ability to meet our
obligations under the contracts. They should not be considered as bearing on
the investment performance of the assets held in the Separate Account.
SERVICES
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The consolidated financial statements of John Hancock Life Insurance Company
(U.S.A.) at December 31, 2004 and 2003, and for each of the three years in the
period ended December 31, 2004, and the financial statements of Separate
Account N of John Hancock Life Insurance Company (U.S.A.) at December 31, 2004,
and for each of the two years in the periods ended December 31, 2004 and 2003,
appearing in this Statement of Additional Information of the Registration
Statement have been audited by Ernst & Young LLP, Independent Registered Public
Accounting Firm, 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.
PRINCIPAL UNDERWRITER/DISTRIBUTOR
John Hancock Distributors, LLC ("JH Distributors"), a Delaware limited
liability company that we control, is the principal distributor of the policies
and the principal underwriter of the securities offered through this
prospectus. JH Distributors acts as the principal distributor of a number of
other annuity and life insurance products we and our affiliates offer. JH
Distributors also acts as the principal underwriter of the John Hancock Trust,
whose securities are used to fund certain variable investment options under the
policies and under other annuity and life insurance products we offer.
JH Distributors' principal address is 200 Bloor Street East, Toronto, Canada
M4W 1E5 and it also maintains offices with us at 601 Congress Street, Boston,
Massachusetts 02210. JH Distributors is a broker-dealer registered under the
Securities Act of 1934 (the "1934 Act") and is a member of the National
Association of Securities Dealers, Inc. (the "NASD").
We offer the policies for sale through individuals who are licensed as
insurance agents and who are registered representatives of broker-dealers that
have entered into selling agreements with JH Distributors. These broker-dealers
include our affiliates Essex National Securities, Inc. and Signator Investors,
Inc.
The aggregate dollar amount of underwriting commissions paid to JH
Distributors in 2004, 2003 and 2002 was $403,619,081, $293,120,491, and
$275,138,774, respectively. JH Distributors did not retain any of these amounts
during such periods.
Through JH Distributors, John Hancock USA pays compensation to
broker-dealers for the promotion and sale of the policies. The compensation JH
Distributors may pay to broker-dealers may vary depending on the selling
agreement, but compensation (inclusive of wholesaler overrides and expense
allowances) paid to broker-dealers for sale of the policies (not including
riders) is not expected to exceed % of the target premium paid in policy year
1, % of target premium in
2
years 2-5, and % of the target premium paid in years 6 and after.
Compensation on any premium paid in excess of target premium in any year will
not exceed %. The amount and timing of this compensation may differ among
broker-dealers, but would not be expected to materially exceed the foregoing
schedules on a present value basis.
The registered representative through whom your policy is sold will be
compensated pursuant to the registered representative's own arrangement with
his or her broker-dealer. Compensation to broker-dealers for the promotion and
sale of the policies is not paid directly by policyowners but will be recouped
through the fees and charges imposed under the policy.
Additional compensation and revenue sharing arrangements may be offered to
certain broker-dealer firms. The terms of such arrangements may differ among
broker-dealer firms we select based on various factors. In general, the
arrangements involve three types of payments or any combination thereof:
. Fixed dollar payments: The amount of these payments varies widely. JH
Distributors may, for example, make one or more payments in connection
with a firm's conferences, seminars or training programs, seminars for
the public, advertising and sales campaigns regarding the policies, to
assist a firm in connection with its systems, operations and marketing
expenses, or for other activities of a selling firm or wholesaler. JH
Distributors may make these payments upon the initiation of a
relationship with a firm, and at any time thereafter.
. Payments based upon sales: These payments are based upon a percentage of
the total amount of money received, or anticipated to be received, for
sales through a firm of some or all of the insurance products that we
and/or our affiliates offer. JH Distributors makes these payments on a
periodic basis.
. Payments based upon "assets under management." These payments are based
upon a percentage of the policy value of some or all of our (and/or our
affiliates') insurance products that were sold through the firm. JH
Distributors makes these payments on a periodic basis.
Signator Investors, Inc. and Essex National Securities, Inc. may pay their
respective registered representatives additional cash incentives in the form of
bonus payments, expense payments, employment benefits or the waiver of overhead
costs or expenses in connection with the sale of the policies that they would
not receive in connection with the sale of policies issued by unaffiliated
companies. Certain unaffiliated financial institutions such as banks may also
receive compensation in connection with the sale of our policies sold by
registered representatives of Essex National Securities, Inc. on bank premises.
ADDITIONAL INFORMATION ABOUT CHARGES
A Policy will not be issued until the underwriting process has been
completed to the Company's satisfaction. The underwriting process generally
includes the obtaining of information concerning your age, medical history,
occupation and other personal information . This information is then used to
determine the cost of insurance charge.
REDUCTION IN CHARGES
The Policy is available for purchase by corporations and other groups or
sponsoring organizations. Group or sponsored arrangements may include reduction
or elimination of withdrawal charges and deductions for employees, officers,
directors, agents and immediate family members of the foregoing. John Hancock
USA reserves the right to reduce any of the Policy's charges on certain cases
where it is expected that the amount or nature of such cases will result in
savings of sales, underwriting, administrative, commissions or other costs.
Eligibility for these reductions and the amount of reductions will be
determined by a number of factors, including the number of lives to be insured,
the total premiums expected to be paid, total assets under management for the
policyowner, the nature of the relationship among the insured individuals, the
purpose for which the policies are being purchased, expected persistency of the
individual policies, and any other circumstances which John Hancock USA
believes to be relevant to the expected reduction of its expenses. Some of
these reductions may be guaranteed and others may be subject to withdrawal or
modification, on a uniform case basis. Reductions in charges will not be
unfairly discriminatory to any policyowners. John Hancock USA may modify from
time to time, on a uniform basis, both the amounts of reductions and the
criteria for qualification.
3
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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 ("the Company")
as of December 31, 2004 and 2003, 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, 2004. 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 the standards of the Public Company
Accounting Oversight Board (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. We were not engaged to
perform an audit of the Company's internal control over financial reporting.
Our audit included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting.
Accordingly, we do not express such opinion. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and 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,
2004 and 2003, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended December 31, 2004 in
conformity with U.S. generally accepted accounting principles.
As discussed in Note 2 to the financial statements, in 2004 the Company changed
its method of accounting for certain nontraditional long duration contracts and
for separate accounts.
Boston, Massachusetts
March 25, 2005
F-1
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31
-----------------
2004 2003
------- -------
($US MILLIONS)
ASSETS
Investments (Note 3):
Securities available-for-sale, at fair value:
Fixed-maturity (amortized cost: 2004 $10,396; 2003 $9,827) $11,188 $10,653
Equity (cost: 2004 $382; 2003 $401)....................... 466 475
Mortgage loans............................................ 2,367 2,187
Real estate................................................ 1,450 1,259
Policy loans............................................... 2,681 2,532
Short-term investments..................................... 436 564
------- -------
Total Investments......................................... 18,588 17,670
Cash and cash equivalents.................................. 1,482 972
Deferred acquisition costs (Note 5)........................ 3,448 2,939
Deferred sales inducements (Note 5)........................ 228 215
Due from affiliates........................................ 2,350 2,330
Amounts recoverable from reinsurers........................ 968 1,140
Other assets (Goodwill: 2004 -- $62; 2003 -- $62).......... 1,101 717
Separate account assets.................................... 57,103 43,694
------- -------
Total Assets.............................................. $85,268 $69,677
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
AS AT DECEMBER 31
-----------------
2004 2003
------- -------
($US MILLIONS)
LIABILITIES, CAPITAL AND SURPLUS
Liabilities:
Policyholder liabilities and accruals.......... $21,427 $20,428
Net deferred tax liabilities (Note 6).......... 569 426
Due to affiliate............................... 420 289
Other liabilities.............................. 1,830 1,265
Separate account liabilities................... 57,103 43,694
------- -------
Total Liabilities............................. 81,349 66,102
Capital and Surplus:
Capital stock (Note 8)......................... 5 5
Retained earnings.............................. 3,086 2,777
Accumulated other comprehensive income (Note 4) 828 793
Total Capital and Surplus..................... 3,919 3,575
------- -------
Total Liabilities, Capital and Surplus........ $85,268 $69,677
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31
------------------------------
2004 2003 2002
------ ------ ------
($US MILLIONS)
REVENUE:
Premiums............................................................... $ 943 $ 955 $1,002
Fee income............................................................. 1,369 1,107 930
Net investment income.................................................. 1,148 1,174 1,157
Net realized investment gains (losses) (Note 13)....................... 285 160 (222)
Other (Note 13)........................................................ 5 5 4
------ ------ ------
Total revenue......................................................... 3,750 3,401 2,871
BENEFITS AND EXPENSES:
Policyholder benefits and claims....................................... 1,687 1,829 1,606
Operating expenses and commissions..................................... 715 654 575
Amortization of deferred acquisition costs............................. 358 227 92
Interest expense....................................................... 22 46 42
Policyholder dividends................................................. 389 377 370
------ ------ ------
Total benefits and expenses........................................... 3,171 3,133 2,685
------ ------ ------
Operating income before income taxes and change in accounting principle 579 268 186
------ ------ ------
Income tax expense..................................................... 168 77 31
------ ------ ------
Income after income taxes and before change in accounting principle.... 411 191 155
------ ------ ------
Change in accounting principle......................................... 48 -- --
------ ------ ------
Net income............................................................. $ 459 $ 191 $ 155
====== ====== ======
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND SURPLUS
FOR THE YEARS ENDED DECEMBER 31
-----------------------------------------
ACCUMULATED
OTHER TOTAL
CAPITAL RETAINED COMPREHENSIVE CAPITAL AND
STOCK EARNINGS INCOME SURPLUS
- ------- -------- ------------- -----------
($US MILLIONS)
Balance, December 31, 2001 $ 5 $2,511 $153 $2,669
Comprehensive income...... -- 155 358 513
--- ------ ---- ------
Balance, December 31, 2002 $ 5 $2,666 $511 $3,182
=== ====== ==== ======
Comprehensive income...... -- 191 282 473
Dividend to shareholder... -- (80) -- (80)
--- ------ ---- ------
Balance, December 31, 2003 $ 5 $2,777 $793 $3,575
=== ====== ==== ======
Comprehensive income...... -- 459 35 494
Dividend to shareholder... -- (150) -- (150)
--- ------ ---- ------
Balance, December 31, 2004 $ 5 $3,086 $828 $3,919
=== ====== ==== ======
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
- ------------------------------
2004 2003 2002
- ------- ------- -------
($US MILLIONS)
Operating activities:
Operating cash inflows:
Premiums....................................................... $ 940 $ 972 $ 1,018
Fee income..................................................... 1,369 1,168 981
Net investment income.......................................... 1,154 1,229 1,153
Other.......................................................... 5 11 4
------- ------- -------
Total operating cash inflows................................. 3,468 3,380 3,156
Operating cash outflows:
Benefit payments............................................... 1,166 1,495 1,480
Insurance expenses and taxes................................... 1,656 1,237 1,180
Dividends paid to policyholders................................ 389 373 358
Change in other assets and other liabilities................... (130) (288) (422)
------- ------- -------
Total operating cash outflows................................ 3,081 2,817 2,596
------- ------- -------
Net cash provided by operating activities.................... 387 563 560
Investing activities:
Fixed-maturity securities sold, matured or repaid.............. 9,218 11,223 8,634
Fixed-maturity securities purchased............................ (9,277) (9,715) (9,082)
Equity securities sold......................................... 209 530 34
Equity securities purchased.................................... (159) (166) (214)
Mortgage loans advanced........................................ (481) (564) (432)
Mortgage loans repaid.......................................... 335 307 186
Real estate sold............................................... 3 -- 1
Real estate purchased.......................................... (212) (197) (60)
Policy loans advanced, net..................................... (149) (163) (143)
Short-term investments, net.................................... (170) (262) (41)
Other investments, net......................................... -- 10 (4)
------- ------- -------
Net cash (used in) provided by investing activities.......... (683) 1,003 (1,121)
Financing activities:
Deposits and interest credited to policyholder account balances 1,836 1,877 1,778
Withdrawals from policyholder account balances................. (1,327) (1,392) (1,342)
Unearned revenue............................................... 120 85 168
Amounts due (from) to affiliates, net.......................... 155 (1,516) 101
Principal repayment of amounts due to affiliates and parent.... -- (416) (211)
Net reinsurance recoverable.................................... 172 132 243
Dividend paid to shareholder................................... (150) (80) --
Repaid funds................................................... -- (2) (2)
------- ------- -------
Net cash provided by (used in) financing activities............ 806 (1,312) 735
Increase in cash and cash equivalents during the year.......... 510 254 174
------- ------- -------
Cash and cash equivalents at beginning of year................. 972 718 544
------- ------- -------
Balance, end of year........................................... $ 1,482 $ 972 $ 718
======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31
------------------------------
2004 2003 2002
- ----- ----- -----
($US MILLIONS)
Reconciliation of net income to net cash provided by operating activities:
Net income........................................................................ $ 459 $ 191 $ 155
Adjustments to reconcile net income to net cash provided by operating activities
Net realized (gains) losses..................................................... (285) (160) 222
Net depreciation, amortization of bond premium or discount and other investment
related items................................................................. 3 55 (5)
Addition to policyholder liabilities and accruals............................... 517 417 104
Deferral of acquisition costs................................................... (901) (648) (567)
Amortization of deferred acquisition costs...................................... 358 227 92
Increase in deferred tax liability, net......................................... 128 143 83
Interest expense................................................................ 22 46 42
Policyholder dividends.......................................................... 4 4 12
Change in accounting principle.................................................. (48) -- --
Change in other assets and other liabilities.................................... 130 288 422
----- ----- -----
Net cash provided by operating activities......................................... $ 387 $ 563 $ 560
===== ===== =====
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
1. ORGANIZATION AND BASIS OF PRESENTATION
The Manufacturers Life Insurance Company (U.S.A.) ("ManUSA") is an indirect,
wholly-owned subsidiary of Manulife Financial Corporation ("MFC"), a
Canadian-based publicly traded company. MFC and its subsidiaries are
collectively known as "Manulife Financial".
As a result of the merger between MFC and John Hancock Financial Services Inc.,
ManUSA changed its name to John Hancock Life Insurance Company (U.S.A.)
effective January 1, 2005.
ManUSA and its subsidiaries, collectively known as the "Company", operate in
the life insurance industry, offering a broad range of individual insurance,
reinsurance, individual wealth management and group wealth management related
products. These products are marketed primarily in the United States.
2. SIGNIFICANT ACCOUNTING POLICIES
a) Recent Accounting Standards
Financial Accounting Standards Board (FASB) Derivative Implementation Group
Statement of Financial Accounting Standards (SFAS) 133 Implementation Issue No.
36 -- "Embedded Derivatives: Bifurcation of a Debt Instrument that Incorporates
Both Interest Rate Risk and Credit Rate Risk Exposures that are Unrelated or
only Partially Related to the Creditworthiness of the Issuer of that
Instrument" ("DIG B36")
In April 2003, the FASB's Derivative Implementation Group released DIG B36,
which addresses whether SFAS No. 133 requires bifurcation of a debt instrument
into a debt host contract and an embedded derivative if the debt instrument
incorporates both interest rate risk and credit risk exposures that are
unrelated or only partially related to the creditworthiness of the issuer of
that instrument. Under DIG B36, modified coinsurance and coinsurance with funds
withheld reinsurance agreements as well as other types of receivables and
payables where interest is determined by reference to a pool of fixed maturity
assets or a total return debt index are examples of arrangements containing
embedded derivatives requiring bifurcation. The Company's adoption of this
guidance effective January 1, 2004 did not have a material impact on the
consolidated financial position, results of operations, or cash flows.
Statement of Position 03-1 -- "Accounting and Reporting by Insurance
Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate
Accounts" ("SOP 03-1")
In July 2003, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued SOP 03-1. SOP 03-1 provides
guidance on a number of topics including separate account presentation,
interests in separate accounts, gains and losses on the transfer of assets from
the general account to a separate account, liability valuation, returns based
on a contractually referenced pool of assets or index, accounting for contracts
that contain death or other insurance benefit features, accounting for
reinsurance and other similar contracts, accounting for annuitization
guarantees, and sales inducements to contract holders. SOP 03-1 was effective
for the Company's consolidated financial statements on January 1, 2004.
These consolidated financial statements reflect the adoption of SOP 03-1 and
resulted in the following adjustments:
AS AT JANUARY 1, 2004
---------------------
ASSETS
Increase in deferred acquisition costs...................... $ 14
LIABILITIES
Decrease in policyholder liabilities and accruals........... (62)
Increase in unearned revenue liability...................... 2
Increase in deferred income tax liabilities................. 26
TWELVE MONTHS ENDED
DECEMBER 31, 2004
---------------------
CUMULATIVE EFFECT OF ACCOUNTING CHANGE RECORDED IN NET INCOME $ 48
F-8
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
SFAS No. 123 (revised 2004) -- Share Based Payment
In December 2004, FASB issued SFAS No. 123 (revised 2004), "Share Based
Payment" (SFAS 123(R)), which is a revision of SFAS No. 123, "Accounting for
Stock-Based Compensation". SFAS No. 123(R) supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and amends SFAS No. 95, "Statement
of Cash Flows". Generally, the approach in SFAS No. 123(R) is similar to the
approach described in SFAS No. 123. However, SFAS No. 123(R) requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the statements of income based on their fair values. Pro
forma disclosure is no longer an alternative.
The Company adopted the fair-value based method of accounting for share-based
payments effective January 1, 2003 using the prospective method described in
SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure". The Company uses the Black-Scholes option-pricing model to
estimate the value of stock options of its parent granted to its employees and
expects to continue to use this model upon anticipated adoption of SFAS No.
123(R), on July 1, 2005.
Because SFAS No. 123(R) must be applied not only to new awards but to
previously granted awards that are not fully vested on the effective date, and
because the Company adopted SFAS No. 123 using the prospective transition
method (which applied only to awards granted, modified or settled after the
adoption date), compensation cost for some previously granted awards that were
not recognized under SFAS No. 123 will be recognized under SFAS No. 123(R).
However, had the Company adopted SFAS No. 123(R) in prior periods, the impact
of that standard would have been immaterial to the financial statements.
FASB Staff Position 106-2-- Accounting and Disclosure Requirements Related to
the Medicare Prescription Drug, Improvement and Modernization Act of 2003
In May 2004, the FASB issued FASB Staff Position 106-2-- "Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug Improvement
and Modernization Act of 2003" (FSP 106-2). In accordance with FSP 106-2, the
Company recorded a $1 decrease in net periodic post-retirement benefit costs
for the period January to December, 2004.
On December 8, 2003, President George W. Bush signed into law the bill
referenced above, which expands Medicare, primarily by adding a prescription
drug benefit for Medicare-eligible retirees starting in 2006. The Medicare
Prescription Drug Improvement and Modernization Act of 2003 (the Act) provides
for special tax-free subsidies to employers that offer plans with qualifying
drug coverages beginning in 2006. There are two broad groups of retirees
receiving employer-subsidized prescription drug benefits at the Company. The
first group, those who retired prior to January 1, 1992, receives a subsidy of
between 90% and 100% of total cost. Since this subsidy level will clearly meet
the criteria for qualifying drug coverage, the Company anticipates that the
benefits it pays after 2005 for pre-1992 retirees will be lower as a result of
the new Medicare provisions and has reflected that reduction in the other
post-retirement benefit plan liability. With respect to the second group, those
who retired on or after January 1, 1992, the employer subsidy on prescription
drug benefits is capped and currently provides as low as 25% of the total cost.
Since final authoritative accounting guidance has not yet been issued on
determining whether a benefit meets the actuarial criteria for qualifying drug
coverage, the Company has deferred recognition as permitted by FSP 106-2 for
this group. The final accounting guidance could require changes to previously
reported information.
FASB Interpretation 46 (revised December 2003)-- Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51
In December, 2003, the FASB re-issued Interpretation 46, "Consolidation of
Variable Interest Entities, an Interpretation of ARB No.51", ("FIN 46R") which
clarifies the consolidation accounting guidance of Accounting Research Bulletin
No.51, "Consolidated Financial Statements," ("ARB 51") to certain entities for
which controlling financial interest are not measurable by reference to
ownership of the equity of the entity. Such entities are known as variable
interest entities ("VIEs").
F-9
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Controlling financial interests of a VIE are defined as exposure of a party to
the VIE to a majority of either the expected variable losses or expected
variable returns of the VIE, or both. Such party is the primary beneficiary of
the VIE and FIN 46R requires the primary beneficiary of a VIE to consolidate
the VIE. FIN46R also requires certain disclosures for significant relationships
with VIEs, whether or not consolidation accounting is either used or
anticipated.
In the event additional liabilities are recognized as a result of consolidating
any VIEs with which the Company is involved, these additional liabilities would
not represent additional claims on the general assets of the Company; rather,
they would represent claims against additional assets recognized as a result of
consolidating VIEs. Conversely, in the event additional assets recognized as a
result of consolidating VIEs, these additional assets would not represent
additional funds which the Company could use to satisfy claims against its
general assets, rather they would be used only to settle additional liabilities
recognized as a result of consolidating the VIEs.
This interpretation was effective in 2003 for VIEs created after January 31,
2003 and on January 1, 2004 for all other VIEs. The Company has determined that
no VIEs are required to be consolidated under the new guidance.
b) 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. Realized gains and losses on sales of
securities classified as available-for-sale are recognized in income using the
specific-identification method. A decline in the value of a specific security
that is considered other-than-temporary results in a write-down of the cost
basis of the security and a charge to income in the period of recognition.
Unrealized gains and losses, other than unrealized losses that are considered
to be other-than-temporary, are reflected directly in accumulated other
comprehensive income after adjustments for deferred income taxes, deferred
acquisition costs, policyholder liabilities and unearned revenue liability. In
evaluating whether a decline in fair value is other than temporary, the Company
considers various factors, including the time and extent to which the fair
value has been less than cost, the financial condition and near term prospects
of the issuer and whether the debtor is current on contractually obligated
interest and principal payments.
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 consolidated statements of income.
Policy loans are reported at aggregate unpaid balances, which approximates fair
value.
Short-term investments, which include investments with maturities of less than
one year and greater than ninety days at the date of acquisition, are reported
at amortized cost which approximates fair value.
F-10
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
c) Derivatives
All derivative instruments are reported on the Consolidated Balance Sheets at
their fair value, with changes in fair value recorded in income or equity,
depending on the nature of the derivative instrument. Changes in the fair value
of derivatives not designated as hedges are recognized in current period
earnings.
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. Changes in the fair value of derivatives are recorded
in income, and changes in the fair value of hedged items are recorded in income
to the extent the hedge is effective. 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 initially
recorded in other comprehensive income and is subsequently reflected into
income in the same period or periods during which the hedged transaction
affects earnings. The Company estimates that deferred net gains of $17 after
tax, included in other comprehensive income as at December 31, 2004, 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.
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. DAC associated
with all other insurance and reinsurance 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 gross profits and any unrecoverable portion is immediately expensed.
f) Policyholder Liabilities and Accruals
Policyholder liabilities for traditional non-participating life insurance
policies, reinsurance 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 realized gains
associated with the underlying assets.
F-11
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.
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 7.8%. As of December
31, 2004, participating insurance expressed as a percentage of gross actuarial
reserves and account value was 46.5%.
For those participating policies in force as of September 23, 1999 and as a
result of the demutualization of The Manufacturers Life Insurance Company
("MLI"), 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 a separate "closed block" of business.
As of December 31, 2004, $9,527 (2003 - $9,315) of policyholder liabilities and
accruals related to the participating policyholders' account were 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 of December 31, 2004.
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
consolidated 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 and reinsurance 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
consists 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 the ex-dividend
date.
F-12
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
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 reinsurers and pertaining to policyholder
liabilities is presented as a separate asset on the consolidated balance
sheets. For those claims paid and covered by a reinsurance treaty, a
reinsurance receivable has been included as part of other assets.
k) Stock-Based Compensation
Certain of ManUSA's employees are provided compensation in the form of stock
options, deferred share units and restricted share units in MFC, the indirect
parent of the Company. Effective January 1, 2003, MFC prospectively changed its
accounting policy for employee stock options from the intrinsic value method to
the fair value method for awards granted on or after January 1, 2002. As a
result, the fair value of the stock options granted by MFC to the Company's
employees is recorded by the Company over the vesting periods. The fair value
of the deferred share units granted by MFC to ManUSA employees is recognized in
the accounts of ManUSA over the vesting periods of the units. The intrinsic
fair value of the restricted share units granted by MFC to ManUSA employees is
recognized in the accounts of ManUSA over the vesting periods of the units. The
stock-based compensation is a legal obligation of MFC, but in accordance with
U.S. generally accepted accounting principles, is recorded in the accounts of
ManUSA.
l) Income Taxes
Income taxes have been provided for in accordance with SFAS 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 indirect parent, Manulife Holdings (Delaware) LLC. and its
subsidiaries, with the exception of The Manufacturers Life Insurance Company of
New York ("MNY"), in filing a U.S. consolidated income tax return. MNY files a
separate federal income tax return.
In accordance with the income tax-sharing agreements in effect for the
applicable tax years, the Company's income tax provision (or benefit) is
computed as if ManUSA and the companies filed separate income tax returns. 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 other liabilities. Such
settlements occur on a periodic basis in accordance with the tax sharing
agreement. 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.
F-13
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
m) Foreign Exchange Translation
The consolidated balance sheets of the Company's foreign operations and the
Company's non-U.S. dollar investments are translated into U.S. dollars using
exchange rates in effect at the consolidated balance sheet date. The
consolidated statements of income of the Company's foreign operations are
translated into U.S. dollars using average exchange rates prevailing during the
respective periods. Translation adjustments are included in accumulated other
comprehensive income.
n) Comparative Figures
Certain of the prior year's figures have been reclassified to conform to the
current year's presentation.
o) Use of Estimates
The accompanying consolidated financial statements of the Company have been
prepared in accordance with accounting principles generally accepted in the
United States ("GAAP") which require 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.
The Company made adjustments to the amortized costs of its fixed-maturities and
equity securities by recognizing $8 (2003 --$53; 2002 -- $177) in other than
temporary impairments in the investment portfolio, net of the related DAC and
unearned revenue liability unlocking. In 2002, three items led to a combined
net positive income effect from DAC and unearned revenue liability unlocking of
$139. The latter changes included positive impacts from an extension of the DAC
amortization period on its participating line of business, and improved
mortality assumptions on its participating and universal life businesses, and a
negative impact from equity market performance below historical assumptions on
its variable annuity business.
3. INVESTMENTS AND INVESTMENT INCOME
a) Fixed-Maturity and Equity Securities
At December 31, 2004, 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 UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------- --------- ---------- ---------------
AS OF DECEMBER 31 2004 2003 2004 2003 2004 2003 2004 2003
----------------- ------- ------ ---- ---- ---- ---- ------- -------
FIXED-MATURITY SECURITIES:
U.S. government................ $ 3,308 $2,536 $111 $ 64 $ (8) $(18) $ 3,411 $ 2,582
Foreign governments............ 1,063 1,108 203 202 -- (3) 1,266 1,307
Corporate...................... 5,882 5,933 494 589 (14) (23) 6,362 6,499
Asset-backed................... 143 250 7 18 (1) (3) 149 265
------- ------ ---- ---- ---- ---- ------- -------
Total fixed-maturity securities $10,396 $9,827 $815 $873 $(23) $(47) $11,188 $10,653
======= ====== ==== ==== ==== ==== ======= =======
Equity securities.............. $ 382 $ 401 $ 91 $ 83 $ (7) $ (9) $ 466 $ 475
======= ====== ==== ==== ==== ==== ======= =======
Proceeds from sales of fixed-maturity securities during 2004 were $8,860 (2003
-- $10,986; 2002 -- $8,481). Gross gains and losses of $252 and $123
respectively, were realized on those sales (2003 -- $251 and $122 respectively;
2002 -- $218 and $154 respectively). In addition during 2004,
other-than-temporary impairments of nil (2003 -- $10; 2002 -- $109) were
recognized in income.
F-14
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
3. INVESTMENTS AND INVESTMENT INCOME -- (CONTINUED)
Proceeds from the sale of equity securities during 2004 were $209 (2003 --
$530; 2002 -- $34). Gross gains and losses of $35 and $28 respectively, were
realized on those sales (2003 -- $181 and $147 respectively; 2002 -- $48 and
$84 respectively). In addition during 2004, other-than-temporary impairments of
$10 (2003 -- $51; 2002 -- $135) were recognized in income.
The cost amounts for both fixed-maturity securities and equity securities are
net of the other-than-temporary impairment charges.
At December 31, 2004, there were 114 (2003 -- 323) fixed-income securities that
have a gross unrealized loss of $23 (2003 -- $47) of which the single largest
unrealized loss was $2 (2003 -- $7). The Company anticipates that these fixed
income securities will perform in accordance with their contractual terms and
currently has the ability and intent to hold these fixed-income securities
until they recover or mature.
At December 31, 2004, there were 69 (2003 -- 78) equity securities that have a
gross unrealized loss of $7 (2003 -- $9) of which the single largest unrealized
loss was $2 (2003 -- $2). The Company anticipates that these equity securities
will recover in value.
The contractual maturities of fixed-maturity securities at December 31, 2004
are shown below:
AMORTIZED FAIR
AS OF DECEMBER 31, 2004 COST VALUE
----------------------- --------- -------
FIXED-MATURITY SECURITIES, EXCLUDING MORTGAGE-BACKED SECURITIES:
One year or less................................................ $ 335 $ 347
Greater than 1; up to 5 years................................... 1,639 1,686
Greater than 5; up to 10 years.................................. 2,868 3,023
Due after 10 years.............................................. 5,411 5,983
Asset - backed securities....................................... 143 149
------- -------
Total fixed-maturity securities.............................. $10,396 $11,188
======= =======
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 allowances for mortgage loan losses
were as follows:
AS OF DECEMBER 31 2004 2003
----------------- ---- ----
Impaired loans........ $ 83 $90
==== ===
Allowance, January 1.. $ 31 $36
Deductions............ (23) (5)
---- ---
Allowance, December 31 $ 8 $31
==== ===
All impaired mortgage loans have been provided for and no interest is accrued
on impaired loans.
F-15
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
3. INVESTMENTS AND INVESTMENT INCOME -- (CONTINUED)
c) Investment Income
Income by type of investment was as follows:
FOR THE YEARS ENDED DECEMBER 31
------------------------------
2004 2003 2002
------ ------ ------
Fixed-maturity securities $ 692 $ 737 $ 729
Equity securities........ 16 12 11
Mortgage loans........... 155 149 139
Investment real estate... 86 86 88
Other investments........ 230 228 228
------ ------ ------
Gross investment income.. 1,179 1,212 1,195
Investment expenses...... (31) (38) (38)
------ ------ ------
Net investment income.... $1,148 $1,174 $1,157
====== ====== ======
d) Significant Equity Interests
ManUSA holds a 27.7% indirect interest in Flex Leasing I, LLC ("Flex I") which
is accounted for using the equity method whereby ManUSA recognizes its
proportionate share of the investee's net income or loss. In 2003, ManUSA sold
its 19.6% direct interest in Flex II, LLC, which also had been accounted for
using the equity method, for a realized gain of $1.
As of December 31, 2004, the total assets for Flex I were $290 (2003 -- $296
for Flex I; 2002 -- $306 for Flex I and $87 for Flex II), with total
liabilities amounting to $230 (2003 -- $237 for Flex I; 2002 -- $248 for Flex I
and $77 for Flex II). For the year ended December 31, 2004, total net loss
amounted to $3 (2003 -- $5 for Flex I; 2002 -- $3 for Flex I and $4 for Flex
II).
e) Securities Lending
The Company engages in securities lending to generate additional income.
Certain securities from its portfolio are loaned to other institutions for
certain periods of time. Collateral, which exceeds the market value of the
loaned securities, is lodged by the borrower with the Company and retained by
the Company until the underlying security has been returned to the Company. The
collateral is reported in cash and other liabilities. The market value of the
loaned securities is monitored on a daily basis with additional collateral
obtained or refunded as the market value fluctuates. As of December 31, 2004,
the Company has loaned securities (which are included in invested assets) with
a carrying value and market value of approximately $2,579 and $2,645
respectively (2003 -- $667 and $642 respectively).
F-16
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
4. COMPREHENSIVE INCOME
a) Total comprehensive income was as follows:
FOR THE YEARS ENDED DECEMBER 31
-------------------------------
2004 2003 2002
---- ---- ----
NET INCOME..................................................................... $459 $191 $155
OTHER COMPREHENSIVE INCOME, NET OF DAC, DEFERRED INCOME TAXES AND
OTHER AMOUNTS REQUIRED TO SATISFY POLICYHOLDER LIABILITIES:
Unrealized holding gains arising during the year.............................. 118 209 269
Minimum pension asset (liability)............................................. (1) 24 (25)
Foreign currency translation.................................................. 57 131 44
Less:
Reclassification adjustment for realized gains (losses) included in net income 139 82 (70)
---- ---- ----
Other comprehensive income..................................................... 35 282 358
---- ---- ----
Comprehensive income........................................................... $494 $473 $513
==== ==== ====
Other comprehensive income is reported net of tax (benefit) expense of $(11),
$81, and $169 for 2004, 2003 and 2002, respectively.
b) Accumulated other comprehensive income is comprised of the following:
AS OF DECEMBER 31 2004 2003
----------------- ---- ----
UNREALIZED GAINS :
Beginning balance.................... $640 $512
Current period change................ (21) 128
---- ----
Ending balance....................... $619 $640
---- ----
MINIMUM PENSION LIABILITY:
Beginning balance.................... $ (3) $(28)
Current period change................ (1) 25
---- ----
Ending balance....................... $ (4) $ (3)
---- ----
FOREIGN CURRENCY:
Beginning balance.................... $156 $ 27
Current period change................ 57 129
---- ----
Ending balance....................... $213 $156
---- ----
Accumulated other comprehensive income $828 $793
==== ====
F-17
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
4. COMPREHENSIVE INCOME -- (CONTINUED)
c) Unrealized Gains on Securities Available-for-Sale
Net unrealized gains on fixed-maturity and equity securities included in other
comprehensive income were as follows:
AS AT DECEMBER 31 2004 2003
----------------- ------ ------
Gross unrealized gains............................................ $1,355 $1,385
Gross unrealized losses........................................... (56) (56)
DAC and other amounts required to satisfy policyholder liabilities (349) (345)
Deferred income taxes............................................. (331) (344)
------ ------
Net unrealized gains on securities available-for-sale............. $ 619 $ 640
====== ======
5. DEFERRED ACQUISITION COSTS ("DAC") AND DEFERRED SALES INDUCEMENTS ("DSI")
The components of the change in DAC/DSI were as follows:
FOR THE YEARS ENDED
DECEMBER 31
------------------
2004 2003
------ ------
Balance, January 1............................................. $3,154 $2,731
Capitalization................................................. 847 651
Amortization................................................... (358) (227)
Change in accounting principle (Note 2 a)...................... 14 --
Effect of net unrealized gains on securities available-for-sale 19 (1)
------ ------
Balance, December 31........................................... $3,676 $3,154
====== ======
6. INCOME TAXES
The components of income tax expense were as follows:
FOR THE YEARS ENDED
DECEMBER 31
------------------
2004 2003 2002
---- ---- ----
Current expense (benefit) $ 40 $(66) $(52)
Deferred expense......... 128 143 83
---- ---- ----
Total expense............ $168 $ 77 $ 31
==== ==== ====
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 deferred acquisition costs, and differences in reserves for
policy and contract liabilities for tax and financial reporting purposes.
F-18
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
6. INCOME TAXES -- (CONTINUED)
Deferred income tax assets (liabilities), result from tax affecting the
differences between financial statement values and tax values of assets and
liabilities at each consolidated balance sheet date. The Company's deferred
income tax assets (liabilities) were as follows:
FOR THE YEARS ENDED
DECEMBER 31
------------------
2004 2003
------ ------
DEFERRED TAX ASSETS:
Differences in computing policy reserves......... $ 704 $ 598
Investments...................................... -- 1
Policyholder dividends payable................... -- 11
Net operating loss............................... 69 178
Other deferred tax assets........................ 113 34
------ ------
Deferred tax assets............................. 886 822
------ ------
DEFERRED TAX LIABILITIES:
Deferred acquisition costs....................... 735 672
Unrealized gains on securities available-for-sale 465 472
Premiums receivable.............................. 23 25
Investments...................................... 229 58
Other deferred tax liabilities................... 3 21
------ ------
Deferred tax liabilities........................ 1,455 1,248
------ ------
Net deferred tax liabilities.................... $ (569) $ (426)
====== ======
At December 31, 2004, the Company has operating loss carry forwards of $198
that will begin to expire in 2016, and $4 of tax credits with no expiry
limitation. At December 31, 2003 and December 31, 2002, the Company had
operating loss carry forwards of $508 and $612, respectively, and $3.4 and
$1.4, respectively, of tax credits.
7. NOTES PAYABLE TO PARENT
On December 29, 1997, the Company issued two surplus debentures for $240
bearing interest at 7.93% per annum to Manufacturers Investment Corporation
("MIC").
On April 1, 1998, the Company issued two additional surplus debentures for $150
bearing interest at 8.10% per annum to MIC. During 2002, a partial principal
repayment of $20 on one of the debentures was made.
On December 31, 2003, with the approval of the Michigan Division of Insurance
by letter dated December 23, 2003, the Company repaid the total remaining
principal of $370 to MIC plus accrued interest of $12. Total interest paid was
$31 and $32 for 2003 and 2002, respectively. No amount was owed to MIC as of
December 31, 2004.
F-19
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
8. CAPITAL AND SURPLUS
Capital stock is comprised of the following:
2004 2003
---- ----
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..................... $ 5 $ 5
ManUSA and its life insurance subsidiaries are subject to statutory limitations
on the payment of dividends. Dividend payments in excess of prescribed limits
cannot be paid without the prior approval of U.S. insurance regulatory
authorities.
Net income (loss) and net capital and surplus, as determined in accordance with
statutory accounting principles for ManUSA and its life insurance subsidiaries
were as follows:
US STATUTORY BASIS
------------------
FOR THE YEARS ENDED DECEMBER 31 2004 2003 2002
------------------------------- ------ ---- ------
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.):
Net income (loss)................................... $ 304 $289 $ (396)
Net capital and surplus............................. 1,165 954 1,078
THE MANUFACTURERS LIFE INSURANCE COMPANY OF NEW YORK:
Net income (loss)................................... $ 21 $ 2 $ (26)
Net capital and surplus............................. 51 52 52
As a result of the demutualization of MLI there are regulatory restrictions on
the amounts of participating 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.
As at December 31, 2004, assets in the amount of $6.7 (2003 -- $6.7) were on
deposit with government authorities or trustees as required by law.
9. PENSION AND OTHER POST-EMPLOYMENT BENEFITS
a) Employee Retirement Plans
The Company sponsors a non-contributory pension plan entitled "The Manulife
Financial U.S. Cash Balance Plan" (the "Plan").
Pension benefits are provided to participants of the Plan after three years of
vesting service with the Company and are a function of the length of service
together with final average earnings. The normal form of payment under the Plan
is a life annuity, payable at the normal retirement age of 65, and is
actuarially equivalent to the cash balance account. Various optional forms of
payment are available including a lump sum. Early retirement benefits are
actuarially equivalent to the cash balance account, but are subsidized for
participants who were age 45 with five or more years vesting service with the
Company as of July 1, 1998 and who terminate employment after attaining age 50
and have completed 10 years of service.
F-20
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
9. PENSION AND OTHER POST-EMPLOYMENT BENEFITS -- (CONTINUED)
Cash balance accounts under the Plan are credited annually with contribution
credits and semi-annually with interest credits. Future contribution credits
will vary based on service. Interest credits are based on the greater of
one-year U.S. Treasury Constant Maturity Bond yields or 5.25% per annum.
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 to income
of the Company over the estimated average remaining service lives of the plan
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.
At December 31, 2004, the projected benefit obligation to the participants of
the Plan was $78 (2003 -- $76), which was based on an assumed interest rate of
5.75% (2003 -- 6.0%). The fair value of the Plan assets totaled $74 (2003 --
$71).
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. Compensation is not limited and benefits are not
restricted by the Internal Revenue Code.
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 for the Supplemental Plan vary with service,
and interest credits are based on the greater of one-year U.S. Treasury
Constant Maturity Bond yields or 5.25% per annum. The annual contribution
credits are made in respect of the participant's compensation that is in excess
of the limit set by 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 except for the pay and benefit
limitations in the Internal Revenue Code.
At December 31, 2004, the projected benefit obligation to the participants of
the Supplemental Plan was $28 (2003 -- $26), which was based on an assumed
interest rate of 5.75% (2003 -- 6.0%).
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. The Company contributed $2 in 2004 (2003 -- $2).
c) Post-retirement Benefit Plan
In addition to the retirement plans, the Company sponsors a post-retirement
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 primary 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. It also provides the employee with a
life insurance benefit of 100% of the salary just prior to retirement up to a
maximum of $150,000. This life insurance benefit is reduced to 65% on the first
of January following retirement, and is further reduced to 30% at age 70.
F-21
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
9. PENSION AND OTHER POST-EMPLOYMENT BENEFITS -- (CONTINUED)
The Company accounts for its retiree benefit plan using the accrual method. At
December 31, 2004, the benefit obligation of the postretirement benefit plan
was $30 (2003 -- $29), which was based on an assumed interest rate of 5.75%
(2003 -- 6.0%). This plan is unfunded. Post-retirement benefit plan expenses
for 2004 were $3 (2003 -- $2).
d) Financial Information regarding the Employee Retirement Plans and the
Post-retirement Benefit Plan
Pension plans based in the United States require annual valuations, with the
most recent valuations performed as at January 1, 2004.
Information applicable to the Employee Retirement Plans and the Post-retirement
Benefit Plan as estimated by a consulting actuary for the December 31 year-ends
is as follows:
POST-
EMPLOYEE RETIREMENT
RETIREMENT BENEFIT
PLANS PLAN
------------ ----------
AS OF DECEMBER 31 2004 2003 2004 2003
----------------- ----- ----- ---- ----
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year...................... $(102) $ (90) $(29) $(23)
Service cost................................................. (5) (5) (1) (1)
Interest cost................................................ (6) (6) (2) (2)
Actuarial loss............................................... -- (8) (1) (4)
Impact of Medicare........................................... N/A N/A 1 --
Benefits paid................................................ 7 7 2 1
----- ----- ---- ----
Benefit obligation at end of year............................ $(106) $(102) $(30) $(29)
----- ----- ---- ----
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year............... $ 71 $ 60 $ -- $ --
Actual return on plan assets................................. 9 16 -- --
Employer contribution........................................ 1 2 1 1
Benefits paid................................................ (7) (7) (1) (1)
----- ----- ---- ----
Fair value of plan assets at end of year..................... $ 74 $ 71 $ -- $ --
----- ----- ---- ----
Funded status................................................ $ (32) $ (31) $(30) $(29)
Unrecognized transition asset................................ -- (1) -- --
Unrecognized actuarial loss (gain)........................... 45 50 (6) (6)
Unrecognized prior service cost.............................. 3 3 -- --
----- ----- ---- ----
Net amount recognized........................................ $ 16 $ 21 $(36) $(35)
----- ----- ---- ----
Amounts recognized in consolidated balance sheets consist of:
Prepaid benefit cost........................................ $ 36 $ 39 $ -- $ --
Accrued benefit liability................................... (26) (24) (37) (35)
Intangible asset............................................ 1 1 -- --
Accumulated other comprehensive income...................... 6 5 -- --
----- ----- ---- ----
Net amount recognized........................................ $ 17 $ 21 $(37) $(35)
===== ===== ==== ====
F-22
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
9. PENSION AND OTHER POST-EMPLOYMENT BENEFITS -- (CONTINUED)
EMPLOYEE POST-RETIREMENT
RETIREMENT BENEFIT
PLANS PLAN
---------- --------------
AS OF DECEMBER 31 2004 2003 2004 2003
----------------- ---- ---- ---- ----
WEIGHTED AVERAGE ASSUMPTIONS
Discount rate................. 5.75% 6.00% 5.75% 6.00%
Expected return on plan assets 8.25% 8.25% N/A N/A
Rate of compensation increase. 4.00% 5.00% 4.00% 5.00%
Cost-of-living increase....... 3.00% 3.00% N/A N/A
On December 31, 2004, the accrued post-retirement benefit plan obligation was
$30. The post-retirement benefit obligation for eligible active employees was
$5. The amount of the post-retirement benefit obligation for ineligible active
employees was $11. For measurement purposes as of December 31, 2004, a 10.5%
annual rate of increase in the per capita cost of covered health care benefits
was assumed for 2004 for both pre-65 and post-65 coverages. This rate was
assumed to decrease gradually to 5% in 2016 and will remain at that level
thereafter.
EMPLOYEE POST-RETIREMENT
RETIREMENT BENEFIT
PLANS PLAN
-------- --------------
AS OF DECEMBER 31 2004 2003 2004 2003
----------------- ---- ---- ---- ----
COMPONENTS OF NET PERIODIC BENEFIT COST FOR PLAN SPONSOR
Service cost............................................ $ 5 $ 5 $ 1 $ 1
Interest cost........................................... 6 6 2 2
Expected return on plan assets.......................... (6) (7) -- --
Amortization of net transition obligation............... (1) (3) -- --
Recognized actuarial loss (gain)........................ 3 2 -- (1)
--- --- --- ---
NET PERIODIC BENEFIT COST............................... $ 7 $ 3 $ 3 $ 2
=== === === ===
For the pension plans with accumulated benefit obligations in excess of plan
assets, the projected benefit obligation, the accumulated benefit obligation,
and the fair value of plan assets were $28, $26, and nil respectively as of
December 31, 2004 and $26, $24, and nil respectively as of December 31, 2003.
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 2004 reported
expenses:
ONE-PERCENTAGE- ONE-PERCENTAGE-POINT
POINT INCREASE DECREASE
--------------- --------------------
Effect on total of service and interest cost components $1 $(1)
Effect on post-retirement benefit obligation........... $5 $(4)
F-23
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
9. PENSION AND OTHER POST-EMPLOYMENT BENEFITS -- (CONTINUED)
No contributions are anticipated during the next 5 years and the expected
benefit payments for the next 5 years are as follows:
EXPECTED PENSION &
OTHER BENEFIT PAYMENTS
----------------------
2005 $8
2006 $8
2007 $8
2008 $9
2009 $9
e) Plan Assets
The weighted average assets for the Company's U.S. Cash Balance Plan at
December 31, 2004, and December 31, 2003, by asset category are as follows:
PLAN ASSETS
----------
AS OF DECEMBER 31 2004 2003
----------------- ---- ----
Equity securities 63% 66%
Debt securities.. 33% 29%
Real estate...... 4% 5%
Other............ 0% 0%
--- ---
Total............ 100% 100%
=== ===
The primary objective is to maximize the long-term investment return while
maintaining an acceptable variability of pension expense without undue risk of
loss or impairment. The range of target allocation percentages include a 40% to
80% range for equity securities with a target allocation of 67% and a range of
20% to 60% for debt securities with a target allocation of 33%. In addition,
while there is no set target allocation, real estate is also included as an
investment vehicle. To the extent an asset class exceeds its maximum
allocation, the Company shall determine appropriate steps, as it deems
necessary, to rebalance the asset class. To the extent that any portion of the
assets is managed by one or more fund managers, each manager will employ
security selection and asset mix strategies to try to add value to the returns
that would otherwise be earned by the alternative of passively managing the
fund assets.
OVERALL GUIDELINES
. No more than 5% of the market value of the total assets can be invested
in any one company's securities.
. No more than 5% of a corporation's outstanding issues in a given security
class may be purchased.
. No more than 25% of the market value of the portfolio can be invested in
one industry sector unless authorized by the U.S. Retirement Committee
(managers may employ any acceptable industry classification approach).
This restriction does not apply to investments made in U.S. Government
securities.
. Futures, covered options or any other derivative investments may be used
for hedging or defensive purposes only. Use of these investments to
leverage the portfolio is prohibited.
. Investments in securities of the investment manager, custodian or any
other security which would be considered a non-exempt prohibited
transaction or a self-dealing transaction under the employee Retirement
Income Security Act are prohibited.
F-24
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
9. PENSION AND OTHER POST-EMPLOYMENT BENEFITS -- (CONTINUED)
. Each fund manager will maintain a fully invested (5% or less in cash
equivalents) portfolio according to the mandate mutually agreed to by the
fund manager and the U.S. Retirement Committee. Any exceptions to this
must be agreed to in writing by the U.S. Retirement Committee.
10. STOCK BASED COMPENSATION
There are no stock based compensation plans involving stock of ManUSA. However,
employees of ManUSA participate in the Executive Stock Option Plan of MFC (the
"ESOP"). Under this plan, stock options are periodically granted to selected
individuals. The stock options provide the holder with the right to purchase
common shares at an exchange price equal to the closing market price of MFC's
common shares on the Toronto Stock Exchange on the business day immediately
preceding the date the options were granted. The options vest over a period not
exceeding four years and expire not more than 10 years from the grant date. A
total of 36,800,000 MFC common shares have been reserved for issuances under
the ESOP.
Details of outstanding options relating to the employees of ManUSA are as
follows:
FOR THE YEARS ENDED DECEMBER 31
-----------------------------------------
2004 2003
-------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
NUMBER OF EXERCISE NUMBER OF EXERCISE
OPTIONS PRICE OPTIONS PRICE
(THOUSANDS) (CDN.) (THOUSANDS) (CDN.)
----------- -------- ----------- --------
Outstanding, January 1........ 2,235 $38.82 2,110 $40.37
Granted....................... 378 48.53 275 36.38
Exercised..................... (95) 38.79 (7) 39.02
Forfeited/Cancelled........... (13) 43.13 (143) 41.27
----- ------ ----- ------
Outstanding, December 31...... 2,505 $40.26 2,235 $38.82
----- ------ ----- ------
Exercisable, as of December 31 1,595 $40.04 1,264 $38.86
===== ====== ===== ======
The exercise price of stock options outstanding range from Cdn. $14.17 to Cdn.
$55.4 and have a weighted average contractual remaining life of 5.1 years.
The weighted average fair value of each option granted by MFC in 2004 has been
estimated at Cdn. $11.33 (2003 -- Cdn. $10.75) using the Black-Scholes
option-pricing model. The pricing model uses the following weighted average
assumptions: risk-free interest rate of 3.7% (2003 -- 4.8%), dividend yield of
1.8% (2003 -- 1.8%), expected volatility of 22.5% (2003 --25%) and expected
life of six years (2003 -- seven years).
Effective January 1, 2003, MFC changed its accounting policy on a prospective
basis for stock options granted to employees on or after January 1, 2002, from
the intrinsic value method to the fair value method. As a result, the Company
recorded in its accounts an additional compensation expense of $1 for the year
ended December 31, 2003.
In 2000, MFC also granted deferred share units (the "DSUs") to certain
employees in the ESOP. The DSUs vest over a four-year period and each unit
entitles the holder to receive one common share of MFC on retirement or
termination of employment. The DSUs attract dividends in the form of additional
DSUs at the same rate as dividends on the common shares of MFC. No DSUs were
granted during 2004 and 2003. The number of DSUs outstanding was 173,237 as at
December 31, 2004 (2003 -- 170,209). ManUSA recorded compensation expense of $2
related to DSUs granted by MFC to its employees (2003 -- $1; 2002 -- $1).
F-25
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
10. STOCK BASED COMPENSATION -- (CONTINUED)
Effective January 1, 2001, MFC established the Global Share Ownership Plan (the
"GSOP") in which ManUSA employees can participate. Under this plan, qualifying
employees of ManUSA can choose to have up to 5% of their annual base earnings
applied toward the purchase of common shares of MFC. Subject to certain
conditions, MFC will match 50% of the employee's eligible contributions. The
MFC contributions vest immediately. All contributions will be used by the
plan's trustee to purchase common shares in the open market. Amounts matched by
MFC in respect of ManUSA employees are charged and expensed to ManUSA via the
service agreement between ManUSA and MFC.
The Company also has deferred compensation incentive plans open to all branch
managers and qualified agents.
During the first quarter of 2003, MFC established a new Restricted Share Unit
("RSU") plan. RSUs represent phantom common shares of MFC that entitle a
participant to receive payment equal to the market value of the same number of
common shares at the time the RSUs vest. RSUs vest and are paid out in 34
months and the related compensation expense is recognized over the period based
on changes in the fair value of MFC's stock. At December 31, 2004 there were
252,149 RSU's outstanding for eligible employees (2003 -- 222,269). The Company
recorded a compensation expense related to RSUs of $3 for the year ended
December 31, 2004 (2003 -- $1).
11. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses a variety of 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 and future
commitments. 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 individual assets and liabilities. These
interest rate exchange agreements consist primarily of interest rate swap
agreements and interest rate floors and are regarded as fair value hedges.
The Company uses cross currency swaps to reduce both foreign exchange and
interest rate risk associated with outstanding non-U.S. dollar denominated
debt. These instruments are regarded as fair value hedges.
These instruments are designated and effective as hedges, as there is a high
correlation between changes in market value or cash flow of the derivative and
the underlying hedged item at inception and over the life of the hedge.
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 obliges 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.
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) 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.
F-26
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
11. DERIVATIVE FINANCIAL INSTRUMENTS -- (CONTINUED)
Outstanding derivative instruments were as follows:
NOTIONAL OR CONTRACT
AMOUNTS CARRYING VALUE FAIR VALUE
-------------------- ------------- ----------
AS OF DECEMBER 31 2004 2003 2004 2003 2004 2003
----------------- ------ ------ ---- ---- ---- ----
Interest rate and currency swaps and floors $1,491 $ 830 $(41) $(34) $(41) $(34)
Interest rate option written............... 12 12 (1) (1) (1) (1)
Equity contracts........................... 3 9 -- -- -- --
Currency forwards.......................... 356 276 25 25 25 25
------ ------ ---- ---- ---- ----
Total derivatives.......................... $1,862 $1,127 $(17) $(10) $(17) $(10)
====== ====== ==== ==== ==== ====
Fair value of derivative financial instruments reflect the estimated amounts
that the Company would receive or pay to terminate the contract at the
consolidated 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.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
Thecarrying values and the estimated fair values of the Company's financial
instruments at December 31 were as follows:
CARRYING VALUE FAIR VALUE
--------------- ---------------
AS OF DECEMBER 31 2004 2003 2004 2003
----------------- ------- ------- ------- -------
ASSETS:
Fixed-maturity and equity securities $11,654 $11,128 $11,654 $11,128
Mortgage loans...................... 2,367 2,187 2,516 2,419
Policy loans........................ 2,681 2,532 2,681 2,532
Short-term investments.............. 436 564 436 564
LIABILITIES:
Insurance investment contracts...... 2,337 2,365 2,309 2,333
Derivative financial instruments.... 17 10 17 10
The following methods and assumptions were used to estimate the fair values of
the above financial instruments:
Fixed-maturity and equity securities: Fair values of fixed-maturity and equity
securities were based on quoted market prices where available. Where no quoted
market price was available, fair values were estimated using values obtained
from independent pricing services or, in the case of fixed-maturity private
placements, by discounting expected future cash flows using a current market
rate applicable to yield, credit quality, and average life of the investments.
Mortgage loans: Fair value of mortgage loans was estimated using discounted
cash flows and took into account the contractual maturities and discount rates,
which were based on current market rates for similar maturity ranges and
adjusted for risk due to the property type.
Policy loans: Carrying values approximate fair values.
Insurance investment contracts: Fair value of insurance investment contracts,
which do not subject the Company to significant mortality or morbidity risks,
were estimated using cash flows discounted at market rates.
F-27
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
12. FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
Derivative financial instruments: Fair values of derivative financial
instruments were based on estimates obtained from the individual counterparties.
Separate account assets and liabilities: The carrying values in the
consolidated balance sheets 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.
13. 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 $281 in 2004 (2003 -- $254; 2002 -- $277).
MFC also provides a claims paying guarantee to certain U.S. policyholders.
On December 20, 2002, the Company entered into a reinsurance agreement with
Manulife Reinsurance Limited (Bermuda) (MRL), a sister company to reinsure a
block of variable annuity business. The contract reinsures all risks, however,
the primary risk reinsured is investment and lapse risk with only limited
coverage of mortality risk. Accordingly, the contract was classified as
financial reinsurance and given deposit-type accounting treatment. Under the
terms of the agreement, the Company received a ceding commission of $169 in
2004 (2003 -- $123; 2002 -- $168), which is classified as unearned revenue and
reported in other liabilities. The amount is being amortized to income as
payments are made to MRL. The balance of this unearned revenue as of December
31, 2004 was $374.
On September 23, 1997, the Company entered into a reinsurance agreement with
MRL to reinsure a closed block of participating life insurance business. On
December 31, 2003, the Company recaptured the reinsurance agreement. 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. As a result of the early termination of the treaty, the
company paid MRL a termination fee of $21, which was reported as a reduction of
other revenue in 2003.
On December 31, 2003, the Company entered into a reinsurance agreement with an
affiliate, Manulife Reinsurers Bermuda Limited (MRBL), to reinsure 90% of the
non-reinsured risk of the closed block of participating life insurance
business. As approximately 90% of the mortality risk is covered under
previously existing contracts with third party reinsurers and the resulting
limited mortality risk inherent in the new contract with MRBL, it was
classified as financial reinsurance and given deposit-type accounting
treatment. Title to the assets supporting this block of business was
transferred to MRBL under the terms of the agreement. Included in amounts due
from affiliates is $2,371 (2003 -- $2,223) representing the receivable from
MRBL for the transferred assets, which are accounted for in a similar manner as
invested assets available-for-sale.
Pursuant to a promissory note, issued pursuant to a Credit Agreement of the
same date, the Company received a loan of $250 (Cdn. $375) from an affiliate,
Manulife Hungary Holdings KFT ("MHHL"). The principal outstanding is $74 (Cdn.
$96) both on December 31, 2004 and 2003. The maturity date with respect to any
borrowing is 365 days following the date of the advance of a loan, however, the
loan is normally renegotiated at each year-end. Interest is calculated at a
fluctuating rate equivalent to a 3-month LIBOR plus 39 basis points in 2003 (32
basis points in 2002) and is payable quarterly. On December 30, 2002, the
Company repaid $177 (Cdn. $279) of the principal balance outstanding. By an
agreement dated August 9, 2004 effected on September 2, 2004, the Cdn $96 of
the principal outstanding was converted to U.S. $74.
F-28
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
13. RELATED PARTY TRANSACTIONS -- (CONTINUED)
On December 29, 2001, ManUSA entered into a one-year agreement with MLI to swap
Cdn. $375 at a three-month Banker's Acceptance note plus 31.34 basis points for
U.S. $240 at 3-month LIBOR plus 32.5 basis points. There was no gain or loss on
the maturity of the swap. On December 29, 2002, ManUSA entered into a one-year
agreement with MLI to swap Cdn. $96 at a three-month Banker's Acceptance note
plus 32 basis points for U.S. $61 at a three-month LIBOR plus 25 basis points.
There was no gain or loss on the maturity of the swap. Effective December 28,
2003, the Company entered into a one-year agreement with MLI to swap Cdn. $96
at a three-month Banker's Acceptance note plus 39 basis points for U.S. $71 at
a three-month LIBOR plus 25 basis points. The Company terminated this swap
agreement on the same day the loan with MHHL was converted to U.S. dollars.
Pursuant to a promissory note issued by the Company, the Company borrowed $4
from MHHL. The maturity date with respect to any borrowing is 365 days after
the date of the advance of a loan. Interest on the loan is calculated at a
fluctuating rate equal to a 3-month LIBOR plus 25 basis points and is payable
quarterly starting March 28, 2001. The rate was 2.8% at December 31, 2004.
Pursuant to a promissory note dated May 7, 1999, ENNAL Inc., a wholly owned
non-life subsidiary of the Company, loaned $83 (Cdn. $125) to MLI. Interest is
calculated at a rate of 5.6% per annum and is payable annually on December 15.
The principal balance was collected on December 15, 2003, resulting in a
foreign exchange gain of $10, which was recorded as a realized investment gain.
As at December 31, 2004, the Company had one (2003 -- two) inter-company loan
to MRL with a carrying value of $18 (2003 -- $19). The loan matures on May 11,
2006 and bears interest at a 3-month LIBOR plus 60 basis points. The rate at
December 31, 2004 was 3.09%.
The Company has a liquidity pool in which affiliates can invest their excess
cash. Terms of operation and participation in the liquidity pool are set out in
the Liquidity Pool and Loan Facility Agreement effective May 28, 2004. The
maximum aggregate amount that the Company can accept in the liquidity pool is
$600. By acting as the group's banker the Company can earn a spread over the
amount it pays its affiliates and this aggregation and resulting economies of
scale allows the affiliates to improve the investment return on their excess
cash. Interest payable on the funds will be reset daily to the one-month U.S.
Dollar London Inter-Bank Bid ("LIBID").
The following table exhibits the affiliates and their participation in the
Company's liquidity pool:
AFFILIATE 2004 2003
--------- ---- ----
Manulife Investment Corporation ("MIC").... $ 51 $ 34
Manulife Reinsurance Ltd ("MRL")........... 65 71
Manulife Reinsurance (Bermuda) Ltd ("MRBL") 67 50
MRBL Reinsurance Trust..................... 155 58
Manulife Hungary Holdings KFT ("MHHL")..... 4 --
---- ----
Total...................................... $342 $213
==== ====
The amounts are included in due to affiliates.
14. REINSURANCE
In the normal course of business, the Company assumes and cedes reinsurance as
a party to several reinsurance treaties with major unrelated insurance
companies. The Company remains liable for amounts ceded in the event that
reinsurers do not meet their obligations.
F-29
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
14. REINSURANCE -- (CONTINUED)
Reinsurance premiums were included in premium revenue as follows:
FOR THE YEARS ENDED DECEMBER 31 2004 2003 2002
------------------------------- ----- ------ ------
Direct premiums.......... $ 900 $1,011 $1,011
Reinsurance assumed...... 335 309 323
Reinsurance ceded........ (292) (365) (332)
----- ------ ------
Total premiums........... $ 943 $ 955 $1,002
===== ====== ======
Reinsurance recoveries on ceded reinsurance contracts were $281, $309 and $311
during 2004, 2003 and 2002, respectively.
15. CERTAIN SEPARATE ACCOUNTS
The Company issues variable annuity contracts through its separate accounts for
which investment income and investment gains and losses accrue directly to, and
investment risk is borne by, the contract holder. All contracts contain certain
guarantees, which are discussed more fully below. The company also has an
immaterial amount of variable life insurance contracts in force, which will not
be discussed further.
During 2004 and 2003, there were losses on transfers of assets from the general
account to the separate accounts of $1. The assets supporting the variable
portion of the variable annuity contracts are carried at fair value and
reported as summary total separate account assets with an equivalent summary
total reported for liabilities. Amounts assessed against the contractholders
for mortality, administrative, and other services are included in revenue and
changes in liabilities for minimum guarantees are included in policyholder
benefits in the Company's Consolidated Statements of Income. Separate account
net investment income, net investment gains and losses, and the related
liability changes are offset within the same line items in the Company's
Consolidated Statements of Income.
The deposits related to the variable life insurance contracts are invested in
separate accounts and the Company guarantees a specified death benefit if
certain specified premiums are paid by the policyholder, regardless of separate
account performance.
The variable annuity contracts are issued through separate accounts and the
Company contractually guarantees to the contract holder either (a) a return of
no less than total deposits made to the contract less any partial withdrawals,
(b) total deposits made to the contract less any partial withdrawals plus a
minimum return, or (c) the highest contract value on a specified anniversary
date minus any withdrawals following the contract anniversary. Business issued
after December 31, 2002 has a proportional partial withdrawal benefit instead
of a dollar-for-dollar relationship.
Variable annuity policyholders can also elect guarantees that provide either a
minimum benefit payable in the event of death or annuitization or a minimum
partial withdrawal amount during the accumulation period.
Reinsurance has been utilized to mitigate risk related to guaranteed minimum
death benefits and guaranteed minimum income benefits.
F-30
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
15. CERTAIN SEPARATE ACCOUNTS -- (CONTINUED)
At December 31, 2004 and December 31, 2003, the Company had the following
variable contracts with guarantees:
AS AT DECEMBER 31 2004 2003
----------------- ------- -------
RETURN OF NET DEPOSITS
Account value................................. $ 4,093 $ 2,004
Net amount at risk -- gross................... $ 11 $ 15
Net amount at risk -- net..................... $ 2 $ 10
RETURN OF NET DEPOSITS PLUS A MINIMUM RETURN
Account value................................. $ 896 $ 838
Net amount at risk -- gross................... $ 178 $ 201
Net amount at risk -- net..................... $ 1 $ 1
Guaranteed minimum return rate................ 5% 5%
HIGHEST ANNIVERSARY ACCOUNT VALUE MINUS WITHDRAWALS POST-ANNIVERSARY
Account value.................................. $22,637 $18,690
Net amount at risk -- gross.................... $ 2,275 $ 3,039
Net amount at risk -- net...................... $ 90 $ 262
GUARANTEED MINIMUM INCOME BENEFIT
Account value.................................. $11,420 $ 9,252
Net amount at risk -- gross.................... $ 1,277 $ 1,348
Net amount at risk -- net...................... $ 21 $ 18
GUARANTEED MINIMUM WITHDRAWAL BENEFIT
Account value.................................. $ 3,187 $ 9
Net amount at risk -- gross.................... -- --
Net amount at risk -- net...................... -- --
(Note that the Company's variable annuity contracts with guarantees may offer
more than one type of guarantee in each contract; therefore, the amounts listed
are not mutually exclusive.) For guarantees of amounts in the event of death,
the net amount at risk is defined as the current guaranteed minimum death
benefit in excess of the current account balance at the consolidated balance
sheet date. For guarantees of amounts at annuitization, the net amount at risk
is defined as the excess of the current annuitization income base over the
current account value. For guarantees of partial withdrawal amounts, the net
amount at risk is defined as the current guaranteed withdrawal amount minus the
current account value. The table above shows the net amount at risk both gross
and net of reinsurance.
For purposes of modeling risk, account balances of variable contracts with
guarantees have been allocated to Separate Account mutual funds with the
following characteristics (in units of $1 billion), as of December 31, 2004 and
December 31, 2003, respectively:
DECEMBER 31, DECEMBER 31,
ASSET CLASS INDEX 2004 2003
----------- ----- ------------ ------------
Large Cap Equity S&P 500 9.65 7.22
High Quality Bond Ibbottson US Intermediate Term Gov't Bond 1.93 4.62
High Yield Bond Ibbottson Domestic High Yield Bond 0.72 0.66
Balanced 60% Large Cap Equity, 40% High Quality Bond 8.58 4.44
Small Cap Equity Ibbottson US Small Cap Stock 4.02 3.50
International Equity MSCI EAFE 1.18 0.85
Global Equity MSCI World 0.38 0.35
Real Estate NAREIT 0.35 0.24
F-31
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004 AND 2003
($US MILLIONS)
15. CERTAIN SEPARATE ACCOUNTS -- (CONTINUED)
The reserves roll forward for the separate accounts as at December 31, 2004 is
shown below (in units of millions):
GUARANTEED
GUARANTEED GUARANTEED MINIMUM
MINIMUM MINIMUM WITHDRAWAL
DEATH BENEFIT INCOME BENEFIT BENEFIT
(GMDB) (GMIB) (GMWB) TOTALS
------------- -------------- ---------- ------
Balance at January 1, 2004...... $ 66 $136 -- $202
Incurred Guarantee Benefits..... (42) -- -- (42)
Other Reserve Changes........... 48 (15) $(24) 9
---- ---- ---- ----
Balance at December 31, 2004.... 72 121 (24) 169
Reinsurance Recoverable......... 32 194 -- 226
---- ---- ---- ----
Net Balance at December 31, 2004 $ 40 $(73) $(24) $(57)
==== ==== ==== ====
The gross reserve for both GMDB and GMIB are determined using SOP 03-1 whereas
the gross reserve for GMWB is determined according to SFAS 133. The Company
regularly evaluates estimates used and adjusts the additional liability
balance, with a related charge or credit to benefit expense, if actual
experience or other evidence suggests that earlier assumptions should be
revised. The following assumptions and methodology were used to determine the
above amounts:
. Data used included 1,000 stochastically generated investment performance
scenarios. For SFAS 133 purposes, risk neutral scenarios have been used.
. Mean return and volatility assumptions have been determined for each of
the asset classes noted above.
. Annuity mortality was assumed to be 90% of the Annuity 2000 table.
. Annuity lapse rates vary by contract type and duration and range from 1
percent to 45 percent.
. Partial withdrawal rates are approximately 4% per year.
. The discount rate is 7.0% in the SOP 03-1 calculations and 4.8% for SFAS
133 calculations.
16. CONTINGENCIES AND 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.
On December 31, 2004, the Company had outstanding commitments involving three
mortgage applications in the United States for a total $28 to be disbursed in
2005.
During 2001, the Company entered into an office ground lease agreement, which
expires on September 20, 2096. The terms of the lease agreement provide for
adjustments in future periods. The minimum aggregate rental commitments on the
ground lease together with other rental office space commitments for the next
five years are as follows: $11 for 2005, and $11 for 2006 and thereafter. There
were no other material operating leases in existence at the end of 2004.
17. SUBSEQUENT EVENTS
On September 14, 2004, the Board of Directors of the Company resolved to
discontinue its branch operations in Taiwan and proceed with negotiations to
sell the in-force business of its Taiwan branch to an affiliate, Manulife
(International) Limited, a life insurance company incorporated in Bermuda. The
sale was completed on January 1, 2005 and resulted in assets of $234 and
liabilities of $185 being transferred to MLI for a cash consideration of $24.
F-32
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Contract Owners of
The Manufacturers Life Insurance Company (U.S.A.) Separate Account N
We have audited the accompanying statement of assets and contract owners'
equity of The Manufacturers Life Insurance Company (U.S.A.) Separate Account N
(comprising of the 500 Index Trust, Aggressive Growth Trust, All Asset
Portfolio, All Cap Core Trust, All Cap Growth Trust, All Cap Value Trust,
American Blue Chip Income & Growth Trust, American Growth Trust, American
Growth-Income Trust, American International Trust, Balanced Trust, Blue Chip
Growth Trust, Capital Appreciation Trust, Diversified Bond Trust, Dynamic
Growth Trust, Emerging Growth Trust, Emerging Small Company Trust,
Equity-Income Trust, Equity Index Trust, Financial Services Trust, Fundamental
Value Trust, Global Trust, Global Allocation Trust, Global Bond Trust, Growth &
Income Trust, Health Sciences Trust, High Yield Trust, Income & Value Trust,
International Equity Index Fund, International Index Trust, International Small
Cap Trust, International Stock Trust, International Value Trust, Investment
Quality Bond Trust, Large Cap Growth Trust, Large Cap Value Trust, Lifestyle
Aggressive 1000 Trust, Lifestyle Balanced 640 Trust, Lifestyle Conservative 280
Trust, Lifestyle Growth 820 Trust, Lifestyle Moderate 460 Trust, Mid Cap Core
Trust, Mid Cap Index Trust, Mid Cap Stock Trust, Mid Cap Value Trust, Money
Market Trust, Natural Resources Trust, Overseas Trust, Pacific Rim Trust,
Quantitative All Cap Trust, Quantitative Equity Trust, Quantitative Mid Cap
Trust, Real Estate Securities Trust, Real Return Bond Trust, Science &
Technology Trust, Small Cap Index Trust, Small Cap Opportunities Trust, Small
Company Trust, Small Company Blend Trust, Small Company Value Trust, Special
Value Trust, Strategic Bond Trust, Strategic Growth Trust, Strategic Income
Trust, Strategic Opportunities Trust, Strategic Value Trust, Total Return
Trust, Total Stock Market Index Trust, U.S. Government Securities Trust, U.S.
Large Cap Trust, Utilities Trust, and Value Trust sub-accounts) of The
Manufacturers Life Insurance Company (U.S.A.) as of December 31, 2004, and the
related statements of operations and changes in contract owners' equity for
each of the two years in the period then ended. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of the Account's internal control over financial reporting.
Our audits included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purposes of expressing an opinion of the
effectiveness of the Account's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the sub-accounts of
The Manufacturers Life Insurance Company (U.S.A.) Separate Account N at
December 31, 2004, and the results of their operations and the changes in their
contract owners' equity for each of the two years in the period then ended, in
conformity with U.S. generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
March 18, 2005
F-33
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
STATEMENT OF ASSETS AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 2004
ASSETS
Investments at fair value:
Sub-accounts invested in Manufacturers Investment Trust Portfolios:
500 Index Trust -- 699,263 shares (cost $6,751,733)....................... $ 7,356,251
Aggressive Growth Trust -- 398,728 shares (cost $5,277,336)............... 5,785,540
All Cap Core Trust -- 189,233 shares (cost $2,527,335).................... 3,006,912
All Cap Growth Trust -- 510,575 shares (cost $6,986,673).................. 7,837,329
All Cap Value Trust -- 109,827 shares (cost $1,392,732)................... 1,596,891
American Blue Chip Income & Growth Trust -- 21,470 shares (cost $326,367). 362,839
American Growth Trust -- 478,116 shares (cost $7,358,028)................. 8,261,844
American Growth-Income Trust -- 104,460 shares (cost $1,651,593).......... 1,775,824
American International Trust -- 87,912 shares (cost $1,520,713)........... 1,702,860
Balanced Trust............................................................ --
Blue Chip Growth Trust -- 1,920,123 shares (cost $28,010,854)............. 32,373,276
Capital Appreciation Trust -- 111,804 shares (cost $861,577).............. 982,755
Diversified Bond Trust -- 713,867 shares (cost $7,611,162)................ 7,709,761
Dynamic Growth Trust -- 534,167 shares (cost $2,329,024).................. 2,585,369
Emerging Growth Trust -- 3,730 shares (cost $56,612)...................... 61,397
Emerging Small Company Trust -- 1,760,254 shares (cost $47,338,560)....... 50,607,293
Equity-Income Trust -- 2,157,328 shares (cost $31,774,504)................ 36,760,871
Equity Index Trust -- 1,830,520 shares (cost $23,083,833)................. 27,164,917
Financial Services Trust -- 23,002 shares (cost $268,966)................. 322,026
Fundamental Value Trust -- 166,623 shares (cost $2,104,863)............... 2,356,047
Global Trust -- 276,454 shares (cost $3,614,842).......................... 4,088,754
Global Allocation Trust -- 18,278 shares (cost $184,312).................. 197,769
Global Bond Trust -- 265,874 shares (cost $3,933,329)..................... 4,323,117
Growth & Income Trust -- 701,844 shares (cost $14,344,904)................ 16,191,548
Health Sciences Trust -- 225,422 shares (cost $3,175,016)................. 3,480,512
High Yield Trust -- 1,128,682 shares (cost $11,062,428)................... 11,862,447
Income & Value Trust -- 2,713,976 shares (cost $28,055,742)............... 29,826,597
International Index Trust................................................. --
International Small Cap Trust -- 269,123 shares (cost $4,038,811)......... 4,744,645
International Stock Trust -- 1,203,310 shares (cost $10,622,084).......... 13,368,772
International Value Trust -- 553,931 shares (cost $7,070,369)............. 8,198,182
Investment Quality Bond Trust -- 1,824,805 shares (cost $22,541,555)...... 22,645,826
Large Cap Growth Trust -- 727,040 shares (cost $6,738,430)................ 7,321,297
Large Cap Value Trust -- 76,418 shares (cost $1,366,735).................. 1,435,901
Lifestyle Aggressive 1000 Trust -- 404,549 shares (cost $4,483,215)....... 5,093,275
Lifestyle Balanced 640 Trust -- 1,308,132 shares (cost $15,743,939)....... 18,039,138
Lifestyle Conservative 280 Trust -- 387,631 shares (cost $5,295,311)...... 5,504,364
Lifestyle Growth 820 Trust -- 576,247 shares (cost $6,723,798)............ 7,721,710
Lifestyle Moderate 460 Trust -- 249,837 shares (cost $3,185,678).......... 3,447,752
Mid Cap Core Trust -- 33,838 shares (cost $538,740)....................... 587,434
Mid Cap Index Trust -- 416,238 shares (cost $6,230,101)................... 6,984,470
Mid Cap Stock Trust -- 1,157,971 shares (cost $15,369,164)................ 16,362,126
Mid Cap Value Trust -- 748,929 shares (cost $11,438,007).................. 13,585,575
Money Market Trust -- 4,036,184 shares (cost $40,361,843)................. 40,361,843
Natural Resources Trust -- 89,428 shares (cost $1,753,404)................ 1,963,833
See accompanying notes.
F-34
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
STATEMENT OF ASSETS AND CONTRACT OWNERS' EQUITY -- (CONTINUED)
DECEMBER 31, 2004
ASSETS
Investments at fair value:
Sub-accounts invested in Manufacturers Investment Trust Portfolios:
Overseas Trust -- 564,355 shares (cost $5,372,760)......................... $ 6,016,023
Pacific Rim Trust -- 614,350 shares (cost $4,955,052)...................... 5,836,323
Quantitative All Cap Trust -- 175 shares (cost $2,788)..................... 2,916
Quantitative Equity Trust.................................................. --
Quantitative Mid Cap Trust -- 30,525 shares (cost $335,671)................ 394,385
Real Estate Securities Trust -- 1,433,712 shares (cost $27,666,242)........ 38,437,806
Real Return Bond Trust -- 113,202 shares (cost $1,515,122)................. 1,584,831
Science & Technology Trust -- 2,621,258 shares (cost $28,733,484).......... 30,223,103
Small Cap Index Trust -- 472,081 shares (cost $6,301,799).................. 7,067,046
Small Cap Opportunities Trust -- 75,188 shares (cost $1,462,907)........... 1,625,557
Small Company Trust........................................................ --
Small Company Blend Trust -- 132,945 shares (cost $1,396,657).............. 1,624,586
Small Company Value Trust -- 1,152,974 shares (cost $20,226,956)........... 24,396,927
Special Value Trust -- 12,067 shares (cost $190,180)....................... 225,420
Strategic Bond Trust -- 400,134 shares (cost $4,635,583)................... 4,821,612
Strategic Growth Trust -- 96,966 shares (cost $928,153..................... 1,039,479
Strategic Income Trust -- 2,250 shares (cost $29,848)...................... 30,167
Strategic Opportunities Trust -- 432,959 shares (cost $4,110,923).......... 4,732,242
Strategic Value Trust -- 70,644 shares (cost $737,194)..................... 832,892
Total Return Trust -- 3,485,820 shares (cost $48,938,618).................. 49,394,073
Total Stock Market Index Trust -- 232,561 shares (cost $2,331,365)......... 2,572,128
U.S. Government Securities Trust -- 591,944 shares (cost $8,173,830)....... 8,245,778
U.S. Large Cap Trust -- 1,631,197 shares (cost $20,926,239)................ 22,836,763
Utilities Trust -- 40,518 shares (cost $423,193)........................... 489,462
Value Trust -- 1,161,005 shares (cost $21,130,568)......................... 22,720,877
Sub-account invested in John Hancock Variable Series I Trust (VST) Portfolio:
International Equity Index Fund -- 46,061 shares (cost $663,505)........... 752,181
Sub-account invested in PIMCO Variable Investment Trust (VIT) Portfolio:
All Asset Portfolio -- 6,680 shares (cost $78,299)......................... 77,490
------------
Total assets.................................................................. $681,926,956
============
CONTRACT OWNERS' EQUITY
Variable universal life insurance contracts................................... $681,926,956
============
See accompanying notes.
F-35
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
SUB-ACCOUNT
------------------------------------------------------------
ALL ASSET
500 INDEX TRUST AGGRESSIVE GROWTH TRUST PORTFOLIO
---------------------- ----------------------- ------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03 DEC. 31/04##
---------- ---------- ----------- ---------- ------------
Income:
Dividends.............................................. $ 52,648 $ 29,256 $ -- $ -- $ 1,982
Expenses:
Mortality and expense risks, and administrative charges 21,044 13,256 31,136 25,747 44
---------- ---------- ----------- ---------- -------
Net investment income (loss) during the year............ 31,604 16,000 (31,136) (25,747) 1,938
Net realized gain (loss) during the year................ 768,477 106,471 773,190 (526,951) 76
Unrealized appreciation (depreciation) during the year.. (82,506) 846,742 (329,750) 1,839,047 (809)
---------- ---------- ----------- ---------- -------
Net increase (decrease) in assets from operations....... 717,575 969,213 412,304 1,286,349 1,205
---------- ---------- ----------- ---------- -------
Changes from principal transactions:
Transfer of net premiums............................... 2,838,073 1,151,910 1,437,207 557,429 133
Transfer on terminations............................... (784,921) (242,686) (1,333,689) (965,558) (885)
Transfer on policy loans............................... (244) (16,417) (669) (1,649) --
Net interfund transfers................................ (987,143) 861,391 296,229 34,722 77,037
---------- ---------- ----------- ---------- -------
Net increase (decrease) in assets from
principal transactions................................ 1,065,765 1,754,198 399,078 (375,056) 76,285
---------- ---------- ----------- ---------- -------
Total increase (decrease) in assets..................... 1,783,340 2,723,411 811,382 911,293 77,490
Assets beginning of year................................ 5,572,911 2,849,500 4,974,158 4,062,865 --
---------- ---------- ----------- ---------- -------
Assets end of year...................................... $7,356,251 $5,572,911 $ 5,785,540 $4,974,158 $77,490
========== ========== =========== ========== =======
SUB-ACCOUNT
--------------------------------------------------
ALL CAP CORE TRUST ALL CAP GROWTH TRUST
------------------------ ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03
----------- ----------- ----------- -----------
Income:
Dividends.............................................. $ 16,936 $ -- $ -- $ --
Expenses:
Mortality and expense risks, and administrative charges 19,777 28,834 45,204 48,145
----------- ----------- ----------- -----------
Net investment income (loss) during the year............ (2,841) (28,834) (45,204) (48,145)
Net realized gain (loss) during the year................ 636,601 (93,111) 809,620 (437,237)
Unrealized appreciation (depreciation) during the year.. (176,408) 1,436,253 (292,493) 2,518,315
----------- ----------- ----------- -----------
Net increase (decrease) in assets from operations....... 457,352 1,314,308 471,923 2,032,933
----------- ----------- ----------- -----------
Changes from principal transactions:
Transfer of net premiums............................... 579,317 876,646 1,392,163 1,985,180
Transfer on terminations............................... (799,360) (1,891,000) (796,257) (2,983,291)
Transfer on policy loans............................... 398 28,365 (15,642) (9,110)
Net interfund transfers................................ (1,881,123) (1,573,393) (1,419,052) (607,373)
----------- ----------- ----------- -----------
Net increase (decrease) in assets from
principal transactions................................ (2,100,768) (2,559,382) (838,788) (1,614,594)
----------- ----------- ----------- -----------
Total increase (decrease) in assets..................... (1,643,416) (1,245,074) (366,865) 418,339
Assets beginning of year................................ 4,650,328 5,895,402 8,204,194 7,785,855
----------- ----------- ----------- -----------
Assets end of year...................................... $ 3,006,912 $ 4,650,328 $ 7,837,329 $ 8,204,194
=========== =========== =========== ===========
## Reflects the period from commencement of operations on May 3, 2004 through
December 31, 2004.
See accompanying notes.
F-36
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY -- (CONTINUED)
SUB-ACCOUNT
---------------------------------------------
AMERICAN BLUE CHIP
ALL CAP VALUE TRUST INCOME & GROWTH TRUST
--------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03+
---------- ---------- ---------- ------------
Income:
Dividends.............................................. $ 3,931 $ 95 $ -- $ --
Expenses:
Mortality and expense risks, and administrative charges 6,352 1,489 1,742 348
---------- -------- -------- --------
Net investment income (loss) during the year............ (2,421) (1,394) (1,742) (348)
Net realized gain (loss) during the year................ 33,935 2,247 11,500 296
Unrealized appreciation (depreciation) during the year.. 147,520 69,288 18,709 17,763
---------- -------- -------- --------
Net increase (decrease) in assets from operations....... 179,034 70,141 28,467 17,711
---------- -------- -------- --------
Changes from principal transactions:
Transfer of net premiums............................... 319,423 55,795 128,999 1,770
Transfer on terminations............................... (84,084) (15,953) (61,777) (2,842)
Transfer on policy loans............................... -- -- -- --
Net interfund transfers................................ 661,583 233,043 61,782 188,729
---------- -------- -------- --------
Net increase (decrease) in assets from
principal transactions................................ 896,922 272,885 129,004 187,657
---------- -------- -------- --------
Total increase (decrease) in assets..................... 1,075,956 343,026 157,471 205,368
Assets beginning of year................................ 520,935 177,909 205,368 --
---------- -------- -------- --------
Assets end of year...................................... $1,596,891 $520,935 $362,839 $205,368
========== ======== ======== ========
SUB-ACCOUNT
----------------------------------------------------
AMERICAN GROWTH TRUST AMERICAN GROWTH-INCOME TRUST
----------------------- ---------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03+ DEC. 31/04 DEC. 31/03+
---------- ------------ ---------- ------------
Income:
Dividends.............................................. $ 824 $ -- $ 5,197 $ --
Expenses:
Mortality and expense risks, and administrative charges 21,522 1,636 6,748 88
---------- ---------- ---------- -------
Net investment income (loss) during the year............ (20,698) (1,636) (1,551) (88)
Net realized gain (loss) during the year................ 75,532 508 8,690 90
Unrealized appreciation (depreciation) during the year.. 828,549 75,267 119,999 4,232
---------- ---------- ---------- -------
Net increase (decrease) in assets from operations....... 883,383 74,139 127,138 4,234
---------- ---------- ---------- -------
Changes from principal transactions:
Transfer of net premiums............................... 1,111,161 3,565 603,377 2,153
Transfer on terminations............................... (293,984) (12,488) (128,761) (1,298)
Transfer on policy loans............................... (2,122) -- (1,392) --
Net interfund transfers................................ 5,092,730 1,405,460 1,126,472 43,901
---------- ---------- ---------- -------
Net increase (decrease) in assets from
principal transactions................................ 5,907,785 1,396,537 1,599,696 44,756
---------- ---------- ---------- -------
Total increase (decrease) in assets..................... 6,791,168 1,470,676 1,726,834 48,990
Assets beginning of year................................ 1,470,676 -- 48,990 --
---------- ---------- ---------- -------
Assets end of year...................................... $8,261,844 $1,470,676 $1,775,824 $48,990
========== ========== ========== =======
+ Reflects the period from commencement of operations on July 9, 2003 through
December 31, 2003.
See accompanying notes.
F-37
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY -- (CONTINUED)
SUB-ACCOUNT
--------------------------------------------------
AMERICAN
INTERNATIONAL TRUST BALANCED TRUST
----------------------- -------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03+ DEC. 31/04X DEC. 31/03
---------- ------------ ------------ -----------
Income:
Dividends.............................................. $ 11,168 $ -- $ 521,928 $ 581,430
Expenses:
Mortality and expense risks, and administrative charges 3,669 243 47,490 148,268
---------- -------- ------------ -----------
Net investment income (loss) during the year............ 7,499 (243) 474,438 433,162
Net realized gain (loss) during the year................ 7,949 772 (8,069,837) (1,679,793)
Unrealized appreciation (depreciation) during the year.. 165,634 16,512 7,482,627 4,153,530
---------- -------- ------------ -----------
Net increase (decrease) in assets from operations....... 181,082 17,041 (112,772) 2,906,899
---------- -------- ------------ -----------
Changes from principal transactions:
Transfer of net premiums............................... 303,456 1,908 496,880 1,927,224
Transfer on terminations............................... (51,291) (2,216) (1,264,303) (4,389,247)
Transfer on policy loans............................... -- -- 31,175 79,372
Net interfund transfers................................ 1,150,634 102,246 (21,681,958) (1,881,128)
---------- -------- ------------ -----------
Net increase (decrease) in assets from
principal transactions................................ 1,402,799 101,938 (22,418,206) (4,263,779)
---------- -------- ------------ -----------
Total increase (decrease) in assets..................... 1,583,881 118,979 (22,530,978) (1,356,880)
Assets beginning of year................................ 118,979 -- 22,530,978 23,887,858
---------- -------- ------------ -----------
Assets end of year...................................... $1,702,860 $118,979 $ -- $22,530,978
========== ======== ============ ===========
SUB-ACCOUNT
---------------------------------------------------
BLUE CHIP GROWTH TRUST CAPITAL APPRECIATION TRUST
------------------------ -------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03
----------- ----------- ---------- ----------
Income:
Dividends.............................................. $ 35,790 $ 12,366 $ -- $ --
Expenses:
Mortality and expense risks, and administrative charges 161,502 151,369 4,962 3,538
----------- ----------- ---------- ----------
Net investment income (loss) during the year............ (125,712) (139,003) (4,962) (3,538)
Net realized gain (loss) during the year................ 2,932,130 (2,760,298) 133,071 3,419
Unrealized appreciation (depreciation) during the year.. (258,615) 9,996,426 (30,875) 169,019
----------- ----------- ---------- ----------
Net increase (decrease) in assets from operations....... 2,547,803 7,097,125 97,234 168,900
----------- ----------- ---------- ----------
Changes from principal transactions:
Transfer of net premiums............................... 5,344,335 3,739,819 258,563 121,616
Transfer on terminations............................... (7,195,400) (7,571,724) (129,212) (29,055)
Transfer on policy loans............................... (43,386) 9,348 -- --
Net interfund transfers................................ (3,098,715) 5,173,107 (484,737) 787,108
----------- ----------- ---------- ----------
Net increase (decrease) in assets from
principal transactions................................ (4,993,166) 1,350,550 (355,386) 879,669
----------- ----------- ---------- ----------
Total increase (decrease) in assets..................... (2,445,363) 8,447,675 (258,152) 1,048,569
Assets beginning of year................................ 34,818,639 26,370,964 1,240,907 192,338
----------- ----------- ---------- ----------
Assets end of year...................................... $32,373,276 $34,818,639 $ 982,755 $1,240,907
=========== =========== ========== ==========
+ Reflects the period from commencement of operations on July 9, 2003 through
December 31, 2003.
x Terminated as an investment option and funds transferred to Income & Value
Trust on May 3, 2004.
See accompanying notes.
F-38
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY -- (CONTINUED)
SUB-ACCOUNT
-----------------------------------------------
DIVERSIFIED BOND TRUST DYNAMIC GROWTH TRUST
----------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03
---------- ----------- ---------- ----------
Income:
Dividends.............................................. $ 323,733 $ 435,668 $ -- $ --
Expenses:
Mortality and expense risks, and administrative charges 43,498 49,468 12,196 8,596
---------- ----------- ---------- ----------
Net investment income (loss) during the year............ 280,235 386,200 (12,196) (8,596)
Net realized gain (loss) during the year................ (26,615) 80,327 311,045 (197)
Unrealized appreciation (depreciation) during the year.. (14,499) (129,077) (81,740) 469,750
---------- ----------- ---------- ----------
Net increase (decrease) in assets from operations....... 239,121 337,450 217,109 460,957
---------- ----------- ---------- ----------
Changes from principal transactions:
Transfer of net premiums............................... 730,276 1,329,104 927,165 371,454
Transfer on terminations............................... (786,184) (2,075,985) (345,255) (174,319)
Transfer on policy loans............................... (659) (7,653) (789) (1,041)
Net interfund transfers................................ (320,949) 487,589 (706,652) 1,105,918
---------- ----------- ---------- ----------
Net increase (decrease) in assets from
principal transactions................................ (377,516) (266,945) (125,531) 1,302,012
---------- ----------- ---------- ----------
Total increase (decrease) in assets..................... (138,395) 70,505 91,578 1,762,969
Assets beginning of year................................ 7,848,156 7,777,651 2,493,791 730,822
---------- ----------- ---------- ----------
Assets end of year...................................... $7,709,761 $ 7,848,156 $2,585,369 $2,493,791
========== =========== ========== ==========
SUB-ACCOUNT
---------------------------------------------------
EMERGING GROWTH TRUST EMERGING SMALL COMPANY TRUST
----------------------- ---------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03^ DEC. 31/04 DEC. 31/03
---------- ------------ ----------- -----------
Income:
Dividends.............................................. $ 7,018 $ 8,360 $ -- $ --
Expenses:
Mortality and expense risks, and administrative charges 1,147 291 289,281 273,350
--------- -------- ----------- -----------
Net investment income (loss) during the year............ 5,871 8,069 (289,281) (273,350)
Net realized gain (loss) during the year................ (8,126) 1,219 3,849,168 802,928
Unrealized appreciation (depreciation) during the year.. 3,645 1,140 1,520,033 14,562,578
--------- -------- ----------- -----------
Net increase (decrease) in assets from operations....... 1,390 10,428 5,079,920 15,092,156
--------- -------- ----------- -----------
Changes from principal transactions:
Transfer of net premiums............................... 69,543 4,752 6,059,223 4,191,176
Transfer on terminations............................... (8,760) 5,351 (8,505,902) (9,511,719)
Transfer on policy loans............................... -- -- 4,168 111,566
Net interfund transfers................................ (224,156) 202,849 (3,032,745) (622,011)
--------- -------- ----------- -----------
Net increase (decrease) in assets from
principal transactions................................ (163,373) 212,952 (5,475,256) (5,830,988)
--------- -------- ----------- -----------
Total increase (decrease) in assets..................... (161,983) 223,380 (395,336) 9,261,168
Assets beginning of year................................ 223,380 -- 51,002,629 41,741,461
--------- -------- ----------- -----------
Assets end of year...................................... $ 61,397 $223,380 $50,607,293 $51,002,629
========= ======== =========== ===========
^ Reflects the period from commencement of operations on May 5, 2003 through
December 31, 2003.
See accompanying notes.
F-39
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY -- (CONTINUED)
SUB-ACCOUNT
--------------------------------------------------
EQUITY-INCOME TRUST EQUITY INDEX TRUST
------------------------ ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03
----------- ----------- ----------- -----------
Income:
Dividends.............................................. $ 736,725 $ 779,423 $ 325,047 $ 336,279
Expenses:
Mortality and expense risks, and administrative charges 158,262 120,550 134,580 121,262
----------- ----------- ----------- -----------
Net investment income (loss) during the year............ 578,463 658,873 190,467 215,017
Net realized gain (loss) during the year................ 2,624,166 (625,000) 655,691 (1,465,131)
Unrealized appreciation (depreciation) during the year.. 1,200,893 5,411,380 1,401,575 6,639,431
----------- ----------- ----------- -----------
Net increase (decrease) in assets from operations....... 4,403,522 5,445,253 2,247,733 5,389,317
----------- ----------- ----------- -----------
Changes from principal transactions:
Transfer of net premiums............................... 6,036,727 4,308,031 3,123,608 2,875,947
Transfer on terminations............................... (3,547,654) (6,435,587) (3,493,461) (6,980,588)
Transfer on policy loans............................... (34,327) (30,575) 29,596 60,198
Net interfund transfers................................ 2,601,373 3,087,048 (364,568) 824,166
----------- ----------- ----------- -----------
Net increase (decrease) in assets from
principal transactions................................ 5,056,119 928,917 (704,825) (3,220,277)
----------- ----------- ----------- -----------
Total increase (decrease) in assets..................... 9,459,641 6,374,170 1,542,908 2,169,040
Assets beginning of year................................ 27,301,230 20,927,060 25,622,009 23,452,969
----------- ----------- ----------- -----------
Assets end of year...................................... $36,760,871 $27,301,230 $27,164,917 $25,622,009
=========== =========== =========== ===========
SUB-ACCOUNT
-----------------------------------------------
FINANCIAL SERVICES TRUST FUNDAMENTAL VALUE TRUST
----------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03
---------- ---------- ---------- ----------
Income:
Dividends.............................................. $ 1,238 $ 572 $ 8,830 $ 1,327
Expenses:
Mortality and expense risks, and administrative charges 1,852 1,762 9,976 4,461
--------- -------- ---------- ----------
Net investment income (loss) during the year............ (614) (1,190) (1,146) (3,134)
Net realized gain (loss) during the year................ 46,998 (16,607) 131,285 49,568
Unrealized appreciation (depreciation) during the year.. (23,386) 114,156 91,066 192,135
--------- -------- ---------- ----------
Net increase (decrease) in assets from operations....... 22,998 96,359 221,205 238,569
--------- -------- ---------- ----------
Changes from principal transactions:
Transfer of net premiums............................... 183,685 79,561 203,165 120,955
Transfer on terminations............................... (28,176) (30,566) (575,511) (59,219)
Transfer on policy loans............................... (20,973) -- (1,906) --
Net interfund transfers................................ (237,493) (56,477) 1,329,837 556,446
--------- -------- ---------- ----------
Net increase (decrease) in assets from
principal transactions................................ (102,957) (7,482) 955,585 618,182
--------- -------- ---------- ----------
Total increase (decrease) in assets..................... (79,959) 88,877 1,176,790 856,751
Assets beginning of year................................ 401,985 313,108 1,179,257 322,506
--------- -------- ---------- ----------
Assets end of year...................................... $ 322,026 $401,985 $2,356,047 $1,179,257
========= ======== ========== ==========
See accompanying notes.
F-40
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY -- (CONTINUED)
SUB-ACCOUNT
-----------------------------------------------
GLOBAL TRUST GLOBAL ALLOCATION TRUST
----------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03
---------- ----------- ---------- ----------
Income:
Dividends.............................................. $ 58,733 $ 38,256 $ 477 $ 149
Expenses:
Mortality and expense risks, and administrative charges 18,758 19,136 762 202
---------- ----------- -------- -------
Net investment income (loss) during the year............ 39,975 19,120 (285) (53)
Net realized gain (loss) during the year................ 315,391 (71,996) 11,680 (713)
Unrealized appreciation (depreciation) during the year.. 72,560 799,499 7,525 8,658
---------- ----------- -------- -------
Net increase (decrease) in assets from operations....... 427,926 746,623 18,920 7,892
---------- ----------- -------- -------
Changes from principal transactions:
Transfer of net premiums............................... 836,068 401,570 6,785 2,138
Transfer on terminations............................... (566,348) (1,328,917) (9,619) (1,015)
Transfer on policy loans............................... 35,604 (215) -- --
Net interfund transfers................................ 235,568 134,153 145,783 1,607
---------- ----------- -------- -------
Net increase (decrease) in assets from
principal transactions................................ 540,892 (793,409) 142,949 2,730
---------- ----------- -------- -------
Total increase (decrease) in assets..................... 968,818 (46,786) 161,869 10,622
Assets beginning of year................................ 3,119,936 3,166,722 35,900 25,278
---------- ----------- -------- -------
Assets end of year...................................... $4,088,754 $ 3,119,936 $197,769 $35,900
========== =========== ======== =======
SUB-ACCOUNT
-------------------------------------------------
GLOBAL BOND TRUST GROWTH & INCOME TRUST
----------------------- ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03
---------- ----------- ----------- -----------
Income:
Dividends.............................................. $ 118,864 $ 189,031 $ 148,138 $ 193,949
Expenses:
Mortality and expense risks, and administrative charges 18,347 25,555 94,342 107,660
---------- ----------- ----------- -----------
Net investment income (loss) during the year............ 100,517 163,476 53,796 86,289
Net realized gain (loss) during the year................ 151,288 399,426 527,508 (2,026,989)
Unrealized appreciation (depreciation) during the year.. 124,591 (7,054) 391,770 6,243,806
---------- ----------- ----------- -----------
Net increase (decrease) in assets from operations....... 376,396 555,848 973,074 4,303,106
---------- ----------- ----------- -----------
Changes from principal transactions:
Transfer of net premiums............................... 746,551 1,084,114 2,146,875 2,633,281
Transfer on terminations............................... (320,418) (1,279,409) (2,402,594) (4,336,102)
Transfer on policy loans............................... (4,866) (6,830) (17,384) 41,199
Net interfund transfers................................ 62,251 (1,487,323) (2,818,709) (3,490,042)
---------- ----------- ----------- -----------
Net increase (decrease) in assets from
principal transactions................................ 483,518 (1,689,448) (3,091,812) (5,151,664)
---------- ----------- ----------- -----------
Total increase (decrease) in assets..................... 859,914 (1,133,600) (2,118,738) (848,558)
Assets beginning of year................................ 3,463,203 4,596,803 18,310,286 19,158,844
---------- ----------- ----------- -----------
Assets end of year...................................... $4,323,117 $ 3,463,203 $16,191,548 $18,310,286
========== =========== =========== ===========
See accompanying notes.
F-41
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY -- (CONTINUED)
SUB-ACCOUNT
------------------------------------------------
HEALTH SCIENCES TRUST HIGH YIELD TRUST
---------------------- ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03
---------- ---------- ----------- -----------
Income:
Dividends.............................................. $ -- $ -- $ 562,418 $ 398,871
Expenses:
Mortality and expense risks, and administrative charges 17,169 11,505 61,547 46,685
---------- ---------- ----------- -----------
Net investment income (loss) during the year............ (17,169) (11,505) 500,871 352,186
Net realized gain (loss) during the year................ 362,830 207,104 771,889 48,670
Unrealized appreciation (depreciation) during the year.. (19,432) 447,695 (140,135) 1,283,048
---------- ---------- ----------- -----------
Net increase (decrease) in assets from operations....... 326,229 643,294 1,132,625 1,683,904
---------- ---------- ----------- -----------
Changes from principal transactions:
Transfer of net premiums............................... 980,132 528,036 2,234,125 1,773,559
Transfer on terminations............................... (564,535) (622,518) (1,525,900) (1,323,960)
Transfer on policy loans............................... (206) (982) (36,157) (7,894)
Net interfund transfers................................ 148,708 231,362 68,235 1,652,035
---------- ---------- ----------- -----------
Net increase (decrease) in assets from
principal transactions................................ 564,099 135,898 740,303 2,093,740
---------- ---------- ----------- -----------
Total increase (decrease) in assets..................... 890,328 779,192 1,872,928 3,777,644
Assets beginning of year................................ 2,590,184 1,810,992 9,989,519 6,211,875
---------- ---------- ----------- -----------
Assets end of year...................................... $3,480,512 $2,590,184 $11,862,447 $ 9,989,519
========== ========== =========== ===========
SUB-ACCOUNT
---------------------------------------------------------------
INTERNATIONAL
EQUITY INDEX
INCOME & VALUE TRUST FUND INTERNATIONAL INDEX TRUST
------------------------ ------------- -----------------------
YEAR ENDED YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04## DEC. 31/04XX DEC. 31/03
----------- ----------- ------------- ------------ ----------
Income:
Dividends.............................................. $ 109,406 $ 138,418 $ 3,519 $ 9,400 $ 16,517
Expenses:
Mortality and expense risks, and administrative charges 122,036 39,969 2,513 2,737 3,874
----------- ----------- -------- ----------- ----------
Net investment income (loss) during the year............ (12,630) 98,449 1,006 6,663 12,643
Net realized gain (loss) during the year................ 1,003,727 226,936 12,075 173,749 33,575
Unrealized appreciation (depreciation) during the year.. 962,213 1,318,770 88,675 (138,303) 179,741
----------- ----------- -------- ----------- ----------
Net increase (decrease) in assets from operations....... 1,953,310 1,644,155 101,756 42,109 225,959
----------- ----------- -------- ----------- ----------
Changes from principal transactions:
Transfer of net premiums............................... 4,231,922 1,057,600 87,138 91,593 144,241
Transfer on terminations............................... (6,483,566) (2,109,506) 45,385 (43,555) (23,061)
Transfer on policy loans............................... 45,331 44,380 -- (189) (12,972)
Net interfund transfers................................ 22,681,696 (736,594) 517,902 (1,365,388) 620,260
----------- ----------- -------- ----------- ----------
Net increase (decrease) in assets from
principal transactions................................ 20,475,383 (1,744,120) 650,425 (1,317,539) 728,468
----------- ----------- -------- ----------- ----------
Total increase (decrease) in assets..................... 22,428,693 (99,965) 752,181 (1,275,430) 954,427
Assets beginning of year................................ 7,397,904 7,497,869 -- 1,275,430 321,003
----------- ----------- -------- ----------- ----------
Assets end of year...................................... $29,826,597 $ 7,397,904 $752,181 $ -- $1,275,430
=========== =========== ======== =========== ==========
## Reflects the period from commencement of operations on May 3, 2004 through
December 31, 2004.
xx Terminated as an investment option and funds transferred to International
Equity Index Fund on June 18, 2004.
See accompanying notes.
F-42
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY -- (CONTINUED)
SUB-ACCOUNT
------------------------------------------------------
INTERNATIONAL SMALL CAP TRUST INTERNATIONAL STOCK TRUST
---------------------------- ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03
----------- ---------- ----------- -----------
Income:
Dividends.............................................. $ 5,349 $ -- $ 104,174 $ 53,315
Expenses:
Mortality and expense risks, and administrative charges 24,521 16,757 61,516 56,500
----------- ---------- ----------- -----------
Net investment income (loss) during the year............ (19,172) (16,757) 42,658 (3,185)
Net realized gain (loss) during the year................ 849,587 (45,297) 597,300 (1,563,858)
Unrealized appreciation (depreciation) during the year.. (88,192) 1,284,540 1,163,890 4,523,874
----------- ---------- ----------- -----------
Net increase (decrease) in assets from operations....... 742,223 1,222,486 1,803,848 2,956,831
----------- ---------- ----------- -----------
Changes from principal transactions:
Transfer of net premiums............................... 703,685 239,758 1,212,570 1,231,742
Transfer on terminations............................... (1,232,239) (911,199) (2,209,945) (1,761,081)
Transfer on policy loans............................... (3,762) (2,578) 54,950 25,019
Net interfund transfers................................ 1,125,617 (32,392) (41,676) (1,223,310)
----------- ---------- ----------- -----------
Net increase (decrease) in assets from
principal transactions................................ 593,301 (706,411) (984,101) (1,727,630)
----------- ---------- ----------- -----------
Total increase (decrease) in assets..................... 1,335,524 516,075 819,747 1,229,201
Assets beginning of year................................ 3,409,121 2,893,046 12,549,025 11,319,824
----------- ---------- ----------- -----------
Assets end of year...................................... $ 4,744,645 $3,409,121 $13,368,772 $12,549,025
=========== ========== =========== ===========
SUB-ACCOUNT
-------------------------------------------
INTERNET
INTERNATIONAL VALUE TRUST TECHNOLOGIES TRUST
------------------------ ------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/03^^
---------- ---------- ------------------
Income:
Dividends.............................................. $ 82,963 $ 20,561 $ --
Expenses:
Mortality and expense risks, and administrative charges 33,467 16,662 128
---------- ---------- ---------
Net investment income (loss) during the year............ 49,496 3,899 (128)
Net realized gain (loss) during the year................ 1,009,272 17,750 5,519
Unrealized appreciation (depreciation) during the year.. 188,729 1,138,503 3,653
---------- ---------- ---------
Net increase (decrease) in assets from operations....... 1,247,497 1,160,152 9,044
---------- ---------- ---------
Changes from principal transactions:
Transfer of net premiums............................... 2,116,710 718,723 107,810
Transfer on terminations............................... (366,105) (855,609) (1,028)
Transfer on policy loans............................... (36,098) (765) --
Net interfund transfers................................ (544,139) 2,779,470 (192,829)
---------- ---------- ---------
Net increase (decrease) in assets from
principal transactions................................ 1,170,368 2,641,819 (86,047)
---------- ---------- ---------
Total increase (decrease) in assets..................... 2,417,865 3,801,971 (77,003)
Assets beginning of year................................ 5,780,317 1,978,346 77,003
---------- ---------- ---------
Assets end of year...................................... $8,198,182 $5,780,317 $ --
========== ========== =========
^^ Terminated as an investment option and funds transferred to Science &
Technology Trust on May 2, 2003.
See accompanying notes.
F-43
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY -- (CONTINUED)
SUB-ACCOUNT
------------------------------------------------------
INVESTMENT QUALITY BOND TRUST LARGE CAP GROWTH TRUST
---------------------------- ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03
----------- ----------- ----------- -----------
Income:
Dividends.............................................. $ 1,366,393 $ 1,391,377 $ 23,846 $ 18,064
Expenses:
Mortality and expense risks, and administrative charges 146,253 162,838 43,751 37,618
----------- ----------- ----------- -----------
Net investment income (loss) during the year............ 1,220,140 1,228,539 (19,905) (19,554)
Net realized gain (loss) during the year................ 596,722 838,741 671,749 (1,139,465)
Unrealized appreciation (depreciation) during the year.. (893,139) (290,689) (345,841) 2,498,052
----------- ----------- ----------- -----------
Net increase (decrease) in assets from operations....... 923,723 1,776,591 306,003 1,339,033
----------- ----------- ----------- -----------
Changes from principal transactions:
Transfer of net premiums............................... 3,188,093 6,198,183 2,069,195 1,449,084
Transfer on terminations............................... (2,616,123) (8,156,887) (1,224,513) (3,534,941)
Transfer on policy loans............................... 41,763 15,717 (4,664) 27,272
Net interfund transfers................................ (1,052,994) (4,115,386) (966,924) 220,780
----------- ----------- ----------- -----------
Net increase (decrease) in assets from
principal transactions................................ (439,261) (6,058,373) (126,906) (1,837,805)
----------- ----------- ----------- -----------
Total increase (decrease) in assets..................... 484,462 (4,281,782) 179,097 (498,772)
Assets beginning of year................................ 22,161,364 26,443,146 7,142,200 7,640,972
----------- ----------- ----------- -----------
Assets end of year...................................... $22,645,826 $22,161,364 $ 7,321,297 $ 7,142,200
=========== =========== =========== ===========
SUB-ACCOUNT
-------------------------------------------------------
LARGE CAP VALUE TRUST LIFESTYLE AGGRESSIVE 1000 TRUST
----------------------- ------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03^ DEC. 31/04 DEC. 31/03
---------- ------------ ---------- ----------
Income:
Dividends.............................................. $ 14,149 $ 24,547 $ 35,968 $ 1,995
Expenses:
Mortality and expense risks, and administrative charges 3,267 1,405 29,388 3,580
---------- ---------- ---------- ----------
Net investment income (loss) during the year............ 10,882 23,142 6,580 (1,585)
Net realized gain (loss) during the year................ 80,283 395 47,473 (34,549)
Unrealized appreciation (depreciation) during the year.. 21,022 48,144 566,211 221,495
---------- ---------- ---------- ----------
Net increase (decrease) in assets from operations....... 112,187 71,681 620,264 185,361
---------- ---------- ---------- ----------
Changes from principal transactions:
Transfer of net premiums............................... 113,792 390 497,754 128,629
Transfer on terminations............................... (146,556) (10,124) (55,157) (46,619)
Transfer on policy loans............................... -- -- 594 2,445
Net interfund transfers................................ 33,531 1,261,000 2,991,538 356,308
---------- ---------- ---------- ----------
Net increase (decrease) in assets from
principal transactions................................ 767 1,251,266 3,434,729 440,763
---------- ---------- ---------- ----------
Total increase (decrease) in assets..................... 112,954 1,322,947 4,054,993 626,124
Assets beginning of year................................ 1,322,947 -- 1,038,282 412,158
---------- ---------- ---------- ----------
Assets end of year...................................... $1,435,901 $1,322,947 $5,093,275 $1,038,282
========== ========== ========== ==========
^ Reflects the period from commencement of operations on May 5, 2003 through
December 31, 2003.
See accompanying notes.
F-44
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY -- (CONTINUED)
SUB-ACCOUNT
------------------------------------------------------------
LIFESTYLE BALANCED 640 TRUST LIFESTYLE CONSERVATIVE 280 TRUST
--------------------------- -------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03
----------- ----------- ---------- ----------
Income:
Dividends.............................................. $ 328,587 $ 242,423 $ 243,215 $ 158,079
Expenses:
Mortality and expense risks, and administrative charges 96,243 63,840 35,051 27,789
----------- ----------- ---------- ----------
Net investment income (loss) during the year............ 232,344 178,583 208,164 130,290
Net realized gain (loss) during the year................ 1,185,242 (14,109) 334,023 27,293
Unrealized appreciation (depreciation) during the year.. 672,696 2,159,197 (119,281) 307,943
----------- ----------- ---------- ----------
Net increase (decrease) in assets from operations....... 2,090,282 2,323,671 422,906 465,526
----------- ----------- ---------- ----------
Changes from principal transactions:
Transfer of net premiums............................... 3,100,911 2,186,718 983,092 954,051
Transfer on terminations............................... (1,116,611) (678,814) (451,598) (265,373)
Transfer on policy loans............................... 590 2,666 (54) --
Net interfund transfers................................ 165,265 2,161,820 (475,564) 472,902
----------- ----------- ---------- ----------
Net increase (decrease) in assets from
principal transactions................................ 2,150,155 3,672,390 55,876 1,161,580
----------- ----------- ---------- ----------
Total increase (decrease) in assets..................... 4,240,437 5,996,061 478,782 1,627,106
Assets beginning of year................................ 13,798,701 7,802,640 5,025,582 3,398,476
----------- ----------- ---------- ----------
Assets end of year...................................... $18,039,138 $13,798,701 $5,504,364 $5,025,582
=========== =========== ========== ==========
SUB-ACCOUNT
------------------------------------------------------
LIFESTYLE GROWTH 820 TRUST LIFESTYLE MODERATE 460 TRUST
------------------------- ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03
---------- ---------- ---------- ----------
Income:
Dividends.............................................. $ 97,192 $ 20,359 $ 74,117 $ 35,860
Expenses:
Mortality and expense risks, and administrative charges 42,944 11,977 15,603 7,817
---------- ---------- ---------- ----------
Net investment income (loss) during the year............ 54,248 8,382 58,514 28,043
Net realized gain (loss) during the year................ 236,171 (96,705) 145,304 1,738
Unrealized appreciation (depreciation) during the year.. 596,713 622,363 104,246 189,081
---------- ---------- ---------- ----------
Net increase (decrease) in assets from operations....... 887,132 534,040 308,064 218,862
---------- ---------- ---------- ----------
Changes from principal transactions:
Transfer of net premiums............................... 792,513 452,200 914,609 589,804
Transfer on terminations............................... (404,024) (113,989) (218,578) (115,931)
Transfer on policy loans............................... (3,582) 40,089 14 (1,521)
Net interfund transfers................................ 3,574,472 789,189 624,400 223,584
---------- ---------- ---------- ----------
Net increase (decrease) in assets from
principal transactions................................ 3,959,379 1,167,489 1,320,445 695,936
---------- ---------- ---------- ----------
Total increase (decrease) in assets..................... 4,846,511 1,701,529 1,628,509 914,798
Assets beginning of year................................ 2,875,199 1,173,670 1,819,243 904,445
---------- ---------- ---------- ----------
Assets end of year...................................... $7,721,710 $2,875,199 $3,447,752 $1,819,243
========== ========== ========== ==========
See accompanying notes.
F-45
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY -- (CONTINUED)
SUB-ACCOUNT
-----------------------------------
MID CAP
MID CAP CORE TRUST GROWTH TRUST
---------------------- ------------
YEAR ENDED PERIOD ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03^ DEC. 31/03#
---------- ------------ ------------
Income:
Dividends.............................................. $ 2,449 $ -- $ --
Expenses:
Mortality and expense risks, and administrative charges 2,811 170 888
--------- ------- ---------
Net investment income (loss) during the year............ (362) (170) (888)
Net realized gain (loss) during the year................ 29,124 2,138 16,629
Unrealized appreciation (depreciation) during the year.. 44,290 4,404 30,881
--------- ------- ---------
Net increase (decrease) in assets from operations....... 73,052 6,372 46,622
--------- ------- ---------
Changes from principal transactions:
Transfer of net premiums............................... 241,312 1,648 87,818
Transfer on terminations............................... (153,727) (2,022) (9,500)
Transfer on policy loans............................... 1 -- --
Net interfund transfers................................ 380,453 40,345 (469,770)
--------- ------- ---------
Net increase (decrease) in assets from
principal transactions................................ 468,039 39,971 (391,452)
--------- ------- ---------
Total increase (decrease) in assets..................... 541,091 46,343 (344,830)
Assets beginning of year................................ 46,343 -- 344,830
--------- ------- ---------
Assets end of year...................................... $ 587,434 $46,343 $ --
========= ======= =========
SUB-ACCOUNT
------------------------------------------
MID CAP
MID CAP INDEX TRUST OPPORTUNITIES TRUST
---------------------- -------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/03#
---------- ---------- -------------------
Income:
Dividends.............................................. $ 20,885 $ -- $ --
Expenses:
Mortality and expense risks, and administrative charges 23,879 12,594 131
---------- ---------- --------
Net investment income (loss) during the year............ (2,994) (12,594) (131)
Net realized gain (loss) during the year................ 572,157 31,790 2,820
Unrealized appreciation (depreciation) during the year.. 255,962 654,807 2,954
---------- ---------- --------
Net increase (decrease) in assets from operations....... 825,125 674,003 5,643
---------- ---------- --------
Changes from principal transactions:
Transfer of net premiums............................... 883,375 497,096 19,401
Transfer on terminations............................... (560,507) (734,782) (936)
Transfer on policy loans............................... (130) (10,100) --
Net interfund transfers................................ 2,106,730 1,643,681 (96,089)
---------- ---------- --------
Net increase (decrease) in assets from
principal transactions................................ 2,429,468 1,395,895 (77,624)
---------- ---------- --------
Total increase (decrease) in assets..................... 3,254,593 2,069,898 (71,981)
Assets beginning of year................................ 3,729,877 1,659,979 71,981
---------- ---------- --------
Assets end of year...................................... $6,984,470 $3,729,877 $ --
========== ========== ========
# Terminated as an investment option and funds transferred to Dynamic Growth
Trust on May 2, 2003.
^ Reflects the period from commencement of operations on May 5, 2003 through
December 31, 2003.
See accompanying notes.
F-46
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY -- (CONTINUED)
SUB-ACCOUNT
------------------------------------------------
MID CAP STOCK TRUST MID CAP VALUE TRUST
----------------------- -----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03
----------- ---------- ----------- ----------
Income:
Dividends.............................................. $ -- $ -- $ 50,792 $ 17,250
Expenses:
Mortality and expense risks, and administrative charges 44,528 14,068 52,309 25,353
----------- ---------- ----------- ----------
Net investment income (loss) during the year............ (44,528) (14,068) (1,517) (8,103)
Net realized gain (loss) during the year................ 1,502,857 116,139 1,262,145 75,045
Unrealized appreciation (depreciation) during the year.. 401,043 754,718 1,027,584 1,106,386
----------- ---------- ----------- ----------
Net increase (decrease) in assets from operations....... 1,859,372 856,789 2,288,212 1,173,328
----------- ---------- ----------- ----------
Changes from principal transactions:
Transfer of net premiums............................... 4,622,286 389,218 4,154,000 1,102,546
Transfer on terminations............................... (1,117,415) (765,037) (1,401,796) (851,098)
Transfer on policy loans............................... (729) (37) 24,834 (29,157)
Net interfund transfers................................ 5,828,863 3,402,231 2,046,385 685,344
----------- ---------- ----------- ----------
Net increase (decrease) in assets from
principal transactions................................ 9,333,005 3,026,375 4,823,423 907,635
----------- ---------- ----------- ----------
Total increase (decrease) in assets..................... 11,192,377 3,883,164 7,111,635 2,080,963
Assets beginning of year................................ 5,169,749 1,286,585 6,473,940 4,392,977
----------- ---------- ----------- ----------
Assets end of year...................................... $16,362,126 $5,169,749 $13,585,575 $6,473,940
=========== ========== =========== ==========
SUB-ACCOUNT
---------------------------------------------------
MONEY MARKET TRUST NATURAL RESOURCES TRUST
-------------------------- -----------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03^
------------ ------------ ---------- ------------
Income:
Dividends.............................................. $ 341,955 $ 240,857 $ 15,891 $ --
Expenses:
Mortality and expense risks, and administrative charges 215,875 228,002 5,348 1,513
------------ ------------ ---------- ----------
Net investment income (loss) during the year............ 126,080 12,855 10,543 (1,513)
Net realized gain (loss) during the year................ -- -- 259,989 10,994
Unrealized appreciation (depreciation) during the year.. -- -- 13,369 197,060
------------ ------------ ---------- ----------
Net increase (decrease) in assets from operations....... 126,080 12,855 283,901 206,541
------------ ------------ ---------- ----------
Changes from principal transactions:
Transfer of net premiums............................... 28,529,902 20,256,826 275,431 16,460
Transfer on terminations............................... (7,713,967) (11,945,035) (50,167) (4,618)
Transfer on policy loans............................... (78,061) 14,487 -- --
Net interfund transfers................................ (19,391,094) (10,912,070) 337,104 899,181
------------ ------------ ---------- ----------
Net increase (decrease) in assets from
principal transactions................................ 1,346,780 (2,585,792) 562,368 911,023
------------ ------------ ---------- ----------
Total increase (decrease) in assets..................... 1,472,860 (2,572,937) 846,269 1,117,564
Assets beginning of year................................ 38,888,983 41,461,920 1,117,564 --
------------ ------------ ---------- ----------
Assets end of year...................................... $ 40,361,843 $ 38,888,983 $1,963,833 $1,117,564
============ ============ ========== ==========
^ Reflects the period from commencement of operations on May 5, 2003 through
December 31, 2003.
See accompanying notes.
F-47
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY -- (CONTINUED)
SUB-ACCOUNT
-----------------------------------------------
OVERSEAS TRUST PACIFIC RIM TRUST
----------------------- ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03
----------- ---------- ---------- ----------
Income:
Dividends.............................................. $ 21,159 $ 17,518 $ 20,768 $ 6,609
Expenses:
Mortality and expense risks, and administrative charges 33,125 22,247 29,895 21,704
----------- ---------- ---------- ----------
Net investment income (loss) during the year............ (11,966) (4,729) (9,127) (15,095)
Net realized gain (loss) during the year................ 1,033,768 (456,686) 536,710 (285,724)
Unrealized appreciation (depreciation) during the year.. (445,818) 1,925,765 257,716 1,533,102
----------- ---------- ---------- ----------
Net increase (decrease) in assets from operations....... 575,984 1,464,350 785,299 1,232,283
----------- ---------- ---------- ----------
Changes from principal transactions:
Transfer of net premiums............................... 1,245,662 553,899 617,822 430,123
Transfer on terminations............................... (1,498,451) (824,866) (905,314) (898,326)
Transfer on policy loans............................... (779) (7,849) 51,175 (18,354)
Net interfund transfers................................ 676,903 137,349 1,037,019 403,612
----------- ---------- ---------- ----------
Net increase (decrease) in assets from
principal transactions................................ 423,335 (141,467) 800,702 (82,945)
----------- ---------- ---------- ----------
Total increase (decrease) in assets..................... 999,319 1,322,883 1,586,001 1,149,338
Assets beginning of year................................ 5,016,704 3,693,821 4,250,322 3,100,984
----------- ---------- ---------- ----------
Assets end of year...................................... $ 6,016,023 $5,016,704 $5,836,323 $4,250,322
=========== ========== ========== ==========
SUB-ACCOUNT
------------------------------------------------------------------
QUANTITATIVE
ALL CAP TRUST QUANTITATIVE EQUITY TRUST QUANTITATIVE MID CAP TRUST
------------- ------------------------- -------------------------
PERIOD ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04## DEC. 31/04XX DEC. 31/03 DEC. 31/04 DEC. 31/03
------------- ------------ ----------- ---------- ----------
Income:
Dividends.............................................. $ 35 $ 198,602 $ 138,084 $ -- $ --
Expenses:
Mortality and expense risks, and administrative charges 7 43,130 129,789 2,073 325
-------- ------------ ----------- -------- --------
Net investment income (loss) during the year............ 28 155,472 8,295 (2,073) (325)
Net realized gain (loss) during the year................ 229 (7,943,133) (3,570,094) 12,163 68
Unrealized appreciation (depreciation) during the year.. 128 7,725,161 7,685,455 42,800 16,509
-------- ------------ ----------- -------- --------
Net increase (decrease) in assets from operations....... 385 (62,500) 4,123,656 52,890 16,252
-------- ------------ ----------- -------- --------
Changes from principal transactions:
Transfer of net premiums............................... 28,497 543,057 1,475,657 52,296 14,374
Transfer on terminations............................... (137) (1,119,875) (4,819,925) (41,619) (1,168)
Transfer on policy loans............................... -- (16,546) 172,419 -- --
Net interfund transfers................................ (25,829) (20,123,033) (1,362,746) 175,614 117,607
-------- ------------ ----------- -------- --------
Net increase (decrease) in assets from
principal transactions................................ 2,531 (20,716,397) (4,534,595) 186,291 130,813
-------- ------------ ----------- -------- --------
Total increase (decrease) in assets..................... 2,916 (20,778,897) (410,939) 239,181 147,065
Assets beginning of year................................ -- 20,778,897 21,189,836 155,204 8,139
-------- ------------ ----------- -------- --------
Assets end of year...................................... $ 2,916 $ -- $20,778,897 $394,385 $155,204
======== ============ =========== ======== ========
## Reflects the period from commencement of operations on May 3, 2004 through
December 31, 2004.
xx Terminated as an investment option and funds transferred to U.S. Large Cap
Trust on May 3, 2004.
See accompanying notes.
F-48
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY -- (CONTINUED)
SUB-ACCOUNT
----------------------------------------------------
REAL RETURN
REAL ESTATE SECURITIES TRUST BOND TRUST
--------------------------- -----------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03^
----------- ----------- ---------- ------------
Income:
Dividends.............................................. $ 685,716 $ 661,957 $ 22,216 $ --
Expenses:
Mortality and expense risks, and administrative charges 165,197 131,925 5,297 997
----------- ----------- ---------- --------
Net investment income (loss) during the year............ 520,519 530,032 16,919 (997)
Net realized gain (loss) during the year................ 2,771,624 449,817 (20,665) (74,490)
Unrealized appreciation (depreciation) during the year.. 5,105,174 6,210,400 67,108 2,601
----------- ----------- ---------- --------
Net increase (decrease) in assets from operations....... 8,397,317 7,190,249 63,362 (72,886)
----------- ----------- ---------- --------
Changes from principal transactions:
Transfer of net premiums............................... 4,537,256 2,228,246 212,754 54,956
Transfer on terminations............................... (2,562,745) (6,199,060) (202,894) (4,703)
Transfer on policy loans............................... 13,292 52,040 -- --
Net interfund transfers................................ 3,708,238 (1,275,479) 1,434,946 99,296
----------- ----------- ---------- --------
Net increase (decrease) in assets from
principal transactions................................ 5,696,041 (5,194,253) 1,444,806 149,549
----------- ----------- ---------- --------
Total increase (decrease) in assets..................... 14,093,358 1,995,996 1,508,168 76,663
Assets beginning of year................................ 24,344,448 22,348,452 76,663 --
----------- ----------- ---------- --------
Assets end of year...................................... $38,437,806 $24,344,448 $1,584,831 $ 76,663
=========== =========== ========== ========
SUB-ACCOUNT
------------------------------------------------
SCIENCE & TECHNOLOGY TRUST SMALL CAP INDEX TRUST
------------------------ ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03
----------- ----------- ---------- ----------
Income:
Dividends.............................................. $ -- $ -- $ 15,158 $ --
Expenses:
Mortality and expense risks, and administrative charges 126,572 113,576 23,199 11,128
----------- ----------- ---------- ----------
Net investment income (loss) during the year............ (126,572) (113,576) (8,041) (11,128)
Net realized gain (loss) during the year................ 3,685,252 (4,679,165) 211,250 262,856
Unrealized appreciation (depreciation) during the year.. (3,490,949) 13,048,189 540,967 530,917
----------- ----------- ---------- ----------
Net increase (decrease) in assets from operations....... 67,731 8,255,448 744,176 782,645
----------- ----------- ---------- ----------
Changes from principal transactions:
Transfer of net premiums............................... 7,760,063 3,182,954 1,169,609 280,924
Transfer on terminations............................... (4,236,763) (6,903,537) (166,933) (807,915)
Transfer on policy loans............................... (41,439) 16,197 (50,614) (10,257)
Net interfund transfers................................ 518,941 2,750,132 3,211,715 (171,607)
----------- ----------- ---------- ----------
Net increase (decrease) in assets from
principal transactions................................ 4,000,802 (954,254) 4,163,777 (708,855)
----------- ----------- ---------- ----------
Total increase (decrease) in assets..................... 4,068,533 7,301,194 4,907,953 73,790
Assets beginning of year................................ 26,154,570 18,853,376 2,159,093 2,085,303
----------- ----------- ---------- ----------
Assets end of year...................................... $30,223,103 $26,154,570 $7,067,046 $2,159,093
=========== =========== ========== ==========
^ Reflects the period from commencement of operations on May 5, 2003 through
December 31, 2003.
See accompanying notes.
F-49
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY -- (CONTINUED)
SUB-ACCOUNT
--------------------------------------------------------------
SMALL CAP OPPORTUNITIES SMALL COMPANY
TRUST TRUST SMALL COMPANY BLEND TRUST
----------------------- ------------- -----------------------
YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03^ DEC.31/04## DEC. 31/04 DEC. 31/03
---------- ------------ ------------- ----------- ----------
Income:
Dividends.............................................. $ 3,327 $ -- $-- $ -- $ --
Expenses:
Mortality and expense risks, and administrative charges 3,140 562 -- 14,623 16,798
---------- -------- --- ----------- ----------
Net investment income (loss) during the year............ 187 (562) -- (14,623) (16,798)
Net realized gain (loss) during the year................ 113,023 2,490 6 476,929 93,382
Unrealized appreciation (depreciation) during the year.. 108,537 54,113 -- (381,573) 864,915
---------- -------- --- ----------- ----------
Net increase (decrease) in assets from operations....... 221,747 56,041 6 80,733 941,499
---------- -------- --- ----------- ----------
Changes from principal transactions:
Transfer of net premiums............................... 127,192 38 -- 352,634 324,985
Transfer on terminations............................... (133,464) (2,168) (1) (676,647) (910,483)
Transfer on policy loans............................... -- -- -- (50,127) (4,508)
Net interfund transfers................................ 919,045 437,126 (5) (1,414,305) 627,411
---------- -------- --- ----------- ----------
Net increase (decrease) in assets from
principal transactions................................ 912,773 434,996 (6) (1,788,445) 37,405
---------- -------- --- ----------- ----------
Total increase (decrease) in assets..................... 1,134,520 491,037 -- (1,707,712) 978,904
Assets beginning of year................................ 491,037 -- -- 3,332,298 2,353,394
---------- -------- --- ----------- ----------
Assets end of year...................................... $1,625,557 $491,037 $-- $ 1,624,586 $3,332,298
========== ======== === =========== ==========
SUB-ACCOUNT
------------------------------------------------
SMALL COMPANY VALUE TRUST SPECIAL VALUE TRUST
------------------------ ----------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03^
----------- ----------- ---------- ------------
Income:
Dividends.............................................. $ 232,040 $ 69,143 $ 3,020 $ --
Expenses:
Mortality and expense risks, and administrative charges 94,855 65,205 839 120
----------- ----------- -------- --------
Net investment income (loss) during the year............ 137,185 3,938 2,181 (120)
Net realized gain (loss) during the year................ 2,282,749 1,063,081 2,877 4,496
Unrealized appreciation (depreciation) during the year.. 1,936,155 2,377,283 30,299 4,941
----------- ----------- -------- --------
Net increase (decrease) in assets from operations....... 4,356,089 3,444,302 35,357 9,317
----------- ----------- -------- --------
Changes from principal transactions:
Transfer of net premiums............................... 4,890,637 2,089,466 35,513 3,834
Transfer on terminations............................... (1,900,460) (3,631,767) (4,252) (307)
Transfer on policy loans............................... 11,035 (24,754) -- --
Net interfund transfers................................ 1,934,834 1,620,153 (7,234) 153,192
----------- ----------- -------- --------
Net increase (decrease) in assets from
principal transactions................................ 4,936,046 53,098 24,027 156,719
----------- ----------- -------- --------
Total increase (decrease) in assets..................... 9,292,135 3,497,400 59,384 166,036
Assets beginning of year................................ 15,104,792 11,607,392 166,036 --
----------- ----------- -------- --------
Assets end of year...................................... $24,396,927 $15,104,792 $225,420 $166,036
=========== =========== ======== ========
^ Reflects the period from commencement of operations on May 5, 2003 through
December 31, 2003.
## Reflects the period from commencement of operations on May 3, 2004 through
December 31, 2004.
See accompanying notes.
F-50
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY -- (CONTINUED)
SUB-ACCOUNT
----------------------------------------------------------------
STRATEGIC INCOME
STRATEGIC BOND TRUST STRATEGIC GROWTH TRUST TRUST
----------------------- ---------------------- ----------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03 DEC.31/04##
---------- ----------- ---------- ---------- ----------------
Income:
Dividends.............................................. $ 166,811 $ 241,276 $ -- $ -- $ 456
Expenses:
Mortality and expense risks, and administrative charges 24,149 21,353 7,897 6,379 30
---------- ----------- ---------- ---------- -------
Net investment income (loss) during the year............ 142,662 219,923 (7,897) (6,379) 426
Net realized gain (loss) during the year................ 60,033 240,936 219,720 71,825 6
Unrealized appreciation (depreciation) during the year.. 49,512 (3,352) (109,627) 229,165 320
---------- ----------- ---------- ---------- -------
Net increase (decrease) in assets from operations....... 252,207 457,507 102,196 294,611 752
---------- ----------- ---------- ---------- -------
Changes from principal transactions:
Transfer of net premiums............................... 1,203,396 598,512 236,481 361,182 --
Transfer on terminations............................... (280,031) (2,396,508) (933,642) (119,311) (284)
Transfer on policy loans............................... (3,858) (3,128) 100 (1,286) --
Net interfund transfers................................ 469,939 821,989 111,460 15,171 29,699
---------- ----------- ---------- ---------- -------
Net increase (decrease) in assets from
principal transactions................................ 1,389,446 (979,135) (585,601) 255,756 29,415
---------- ----------- ---------- ---------- -------
Total increase (decrease) in assets..................... 1,641,653 (521,628) (483,405) 550,367 30,167
Assets beginning of year................................ 3,179,959 3,701,587 1,522,884 972,517 --
---------- ----------- ---------- ---------- -------
Assets end of year...................................... $4,821,612 $ 3,179,959 $1,039,479 $1,522,884 $30,167
========== =========== ========== ========== =======
SUB-ACCOUNT
-----------------------------------------------------
STRATEGIC OPPORTUNITIES TRUST STRATEGIC VALUE TRUST
---------------------------- -----------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03
----------- ----------- ----------- ----------
Income:
Dividends.............................................. $ 4,691 $ -- $ 2,224 $ 54
Expenses:
Mortality and expense risks, and administrative charges 31,607 40,333 4,362 3,453
----------- ----------- ----------- ----------
Net investment income (loss) during the year............ (26,916) (40,333) (2,138) (3,399)
Net realized gain (loss) during the year................ 54,973 (1,585,789) 268,135 (11,796)
Unrealized appreciation (depreciation) during the year.. 540,794 3,153,829 (95,497) 222,087
----------- ----------- ----------- ----------
Net increase (decrease) in assets from operations....... 568,851 1,527,707 170,500 206,892
----------- ----------- ----------- ----------
Changes from principal transactions:
Transfer of net premiums............................... 813,794 838,526 195,688 164,886
Transfer on terminations............................... (779,773) (2,337,833) (38,725) (31,000)
Transfer on policy loans............................... 25,888 18,630 7,539 949
Net interfund transfers................................ (1,859,398) (1,292,218) (1,832,767) 1,722,162
----------- ----------- ----------- ----------
Net increase (decrease) in assets from
principal transactions................................ (1,799,489) (2,772,895) (1,668,265) 1,856,997
----------- ----------- ----------- ----------
Total increase (decrease) in assets..................... (1,230,638) (1,245,188) (1,497,765) 2,063,889
Assets beginning of year................................ 5,962,880 7,208,068 2,330,657 266,768
----------- ----------- ----------- ----------
Assets end of year...................................... $ 4,732,242 $ 5,962,880 $ 832,892 $2,330,657
=========== =========== =========== ==========
## Reflects the period from commencement of operations on May 3, 2004 through
December 31, 2004.
See accompanying notes.
F-51
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY -- (CONTINUED)
SUB-ACCOUNT
-------------------------------------------
TELECOMMUNICATIONS
TRUST TOTAL RETURN TRUST
------------------ ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/03^^ DEC. 31/04 DEC. 31/03
------------------ ----------- -----------
Income:
Dividends.............................................. $ -- $ 1,747,512 $ 2,532,370
Expenses:
Mortality and expense risks, and administrative charges 62 173,817 201,806
--------- ----------- -----------
Net investment income (loss) during the year............ (62) 1,573,695 2,330,564
Net realized gain (loss) during the year................ (3,358) (53,376) 311,416
Unrealized appreciation (depreciation) during the year.. 9,013 36,499 (855,374)
--------- ----------- -----------
Net increase (decrease) in assets from operations....... 5,593 1,556,818 1,786,606
--------- ----------- -----------
Changes from principal transactions:
Transfer of net premiums............................... 1,087 13,333,338 11,370,011
Transfer on terminations............................... (1,412) (3,157,466) (4,666,022)
Transfer on policy loans............................... -- (1,095) (23,990)
Net interfund transfers................................ (101,430) (980,814) (6,740,228)
--------- ----------- -----------
Net increase (decrease) in assets from
principal transactions................................ (101,755) 9,193,963 (60,229)
--------- ----------- -----------
Total increase (decrease) in assets..................... (96,162) 10,750,781 1,726,377
Assets beginning of year................................ 96,162 38,643,292 36,916,915
--------- ----------- -----------
Assets end of year...................................... $ -- $49,394,073 $38,643,292
========= =========== ===========
SUB-ACCOUNT
-------------------------------------------------
TOTAL STOCK MARKET U.S. GOVERNMENT
INDEX TRUST SECURITIES TRUST
----------------------- ------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03
----------- ---------- ----------- -----------
Income:
Dividends.............................................. $ 26,321 $ -- $ 235,364 $ 592,721
Expenses:
Mortality and expense risks, and administrative charges 21,037 14,950 37,676 82,229
----------- ---------- ----------- -----------
Net investment income (loss) during the year............ 5,284 (14,950) 197,688 510,492
Net realized gain (loss) during the year................ 441,641 157,008 (62,499) 32,960
Unrealized appreciation (depreciation) during the year.. (163,829) 529,222 29,793 (428,860)
----------- ---------- ----------- -----------
Net increase (decrease) in assets from operations....... 283,096 671,280 164,982 114,592
----------- ---------- ----------- -----------
Changes from principal transactions:
Transfer of net premiums............................... 739,392 996,099 2,316,495 5,091,881
Transfer on terminations............................... (618,492) (611,627) (1,509,148) (3,643,704)
Transfer on policy loans............................... (313) (108) (1,876) (19,060)
Net interfund transfers................................ (1,551,114) 1,266,868 (1,612,537) (8,718,791)
----------- ---------- ----------- -----------
Net increase (decrease) in assets from
principal transactions................................ (1,430,527) 1,651,232 (807,066) (7,289,674)
----------- ---------- ----------- -----------
Total increase (decrease) in assets..................... (1,147,431) 2,322,512 (642,084) (7,175,082)
Assets beginning of year................................ 3,719,559 1,397,047 8,887,862 16,062,944
----------- ---------- ----------- -----------
Assets end of year...................................... $ 2,572,128 $3,719,559 $ 8,245,778 $ 8,887,862
=========== ========== =========== ===========
^^ Terminated as an investment option and funds transferred to Science &
Technology Trust on May 2, 2003.
See accompanying notes.
F-52
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY -- (CONTINUED)
SUB-ACCOUNT
---------------------------------------------
U.S. LARGE CAP TRUST UTILITIES TRUST
----------------------- --------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03
----------- ---------- ---------- ----------
Income:
Dividends.............................................. $ 14,756 $ 11,255 $ 1,176 $ 517
Expenses:
Mortality and expense risks, and administrative charges 102,018 16,490 1,321 549
----------- ---------- -------- --------
Net investment income (loss) during the year............ (87,262) (5,235) (145) (32)
Net realized gain (loss) during the year................ 680,254 147 20,291 16,180
Unrealized appreciation (depreciation) during the year.. 1,272,633 909,318 54,611 10,622
----------- ---------- -------- --------
Net increase (decrease) in assets from operations....... 1,865,625 904,230 74,757 26,770
----------- ---------- -------- --------
Changes from principal transactions:
Transfer of net premiums............................... 1,686,794 508,108 16,995 16,960
Transfer on terminations............................... (2,845,810) (741,038) (11,554) (10,969)
Transfer on policy loans............................... 36,588 (10,980) (21,107) --
Net interfund transfers................................ 18,447,265 464,452 308,920 60,075
----------- ---------- -------- --------
Net increase (decrease) in assets from
principal transactions................................ 17,324,837 220,542 293,254 66,066
----------- ---------- -------- --------
Total increase (decrease) in assets..................... 19,190,462 1,124,772 368,011 92,836
Assets beginning of year................................ 3,646,301 2,521,529 121,451 28,615
----------- ---------- -------- --------
Assets end of year...................................... $22,836,763 $3,646,301 $489,462 $121,451
=========== ========== ======== ========
SUB-ACCOUNT
------------------------
VALUE TRUST TOTAL
------------------------ ---------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/04 DEC. 31/03
----------- ----------- ------------ -------------
Income:
Dividends.............................................. $ 70,205 $ 102,883 $ 9,343,432 $ 9,759,041
Expenses:
Mortality and expense risks, and administrative charges 73,832 51,322 3,256,647 2,900,219
----------- ----------- ------------ -------------
Net investment income (loss) during the year............ (3,627) 51,561 6,086,785 6,858,822
Net realized gain (loss) during the year................ 2,389,598 (970,386) 25,595,639 (18,418,285)
Unrealized appreciation (depreciation) during the year.. (156,787) 3,645,093 29,602,062 115,810,369
----------- ----------- ------------ -------------
Net increase (decrease) in assets from operations....... 2,229,184 2,726,268 61,284,486 104,250,906
----------- ----------- ------------ -------------
Changes from principal transactions:
Transfer of net premiums............................... 6,364,526 1,158,162 146,386,789 99,703,509
Transfer on terminations............................... (1,959,091) (3,217,433) (88,708,576) (127,940,183)
Transfer on policy loans............................... 4,581 (2,852) (76,529) 495,736
Net interfund transfers................................ 3,381,928 2,658,046 1,335,829 (1,135,070)
----------- ----------- ------------ -------------
Net increase (decrease) in assets from
principal transactions................................ 7,791,944 595,923 58,937,513 (28,876,008)
----------- ----------- ------------ -------------
Total increase (decrease) in assets..................... 10,021,128 3,322,191 120,221,999 75,374,898
Assets beginning of year................................ 12,699,749 9,377,558 561,704,957 486,330,059
----------- ----------- ------------ -------------
Assets end of year...................................... $22,720,877 $12,699,749 $681,926,956 $ 561,704,957
=========== =========== ============ =============
See accompanying notes.
F-53
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
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 registered under the Investment
Company Act of 1940, as amended (the "Act") and has sixty-six active investment
sub-accounts that invest in shares of a particular Manufacturers Investment
Trust portfolio, one sub-account that invests in shares of a particular John
Hancock Variable Series 1 Trust portfolio and one sub-account that invests in
shares of a particular PIMCO Variable Investment Trust portfolio. Manufacturers
Investment Trust, John Hancock Variable Series I Trust and PIMCO Variable
Investment Trust (collectively the "Trusts") are registered under the Act as
open-end management investment companies, commonly known as mutual funds, which
do not transact with the general public. Instead, the Trusts deal primarily
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 Company is a stock life insurance company incorporated under the laws of
Michigan in 1979. The Company is a wholly owned subsidiary 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 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
were renamed as follows:
PREVIOUS NAME NEW NAME EFFECTIVE DATE
------------- -------- --------------
Capital Opportunities
Trust Strategic Value Trust May 1, 2003
Global Equity Trust Global Trust May 3, 2004
Pacific Rim Emerging
Markets Trust Pacific Rim Trust May 3, 2004
Tactical Allocation Trust Global Allocation Trust May 1, 2003
U.S. Large Cap Value
Trust U.S. Large Cap Trust May 1, 2003
Effective May 3, 2004 the following sub-accounts of the Account were terminated
as investment options and the funds were transferred to existing sub-account
funds as follows:
TERMINATED FUNDS TRANSFERRED TO
---------- --------------------
Balanced Trust Income & Value Trust
Quantitative Equity Trust U.S. Large Cap Trust
Effective June 18, 2004 the following sub-account of the Account was terminated
as an investment option and the funds were transferred to an existing
sub-account fund as follows:
TERMINATED FUNDS TRANSFERRED TO
---------- --------------------
International Index Trust International Equity
Index Fund
F-54
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
1. ORGANIZATION -- (CONTINUED)
Effective May 2, 2003 the following sub-accounts of the Account were terminated
as investment options and the funds were transferred to existing sub-account
funds as follows:
TERMINATED FUNDS TRANSFERRED TO
---------- --------------------
Internet Technologies Science & Technology
Trust Trust
Mid Cap Growth Trust Dynamic Growth Trust
Mid Cap Opportunities
Trust Dynamic Growth Trust
Telecommunications Trust Science & Technology
Trust
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 Asset Portfolio........................ May 3, 2004
American Blue Chip Income & Growth Trust... July 9, 2003
American Growth Trust...................... July 9, 2003
American Growth-Income Trust............... July 9, 2003
American International Trust............... July 9, 2003
Classic Value Trust(less than)............. May 3, 2004
Core Equity Trust(less than)............... May 3, 2004
Emerging Growth Trust...................... May 5, 2003
International Equity Index Fund............ May 3, 2004
Large Cap Value Trust...................... May 5, 2003
Mid Cap Core Trust......................... May 5, 2003
Natural Resources Trust.................... May 5, 2003
Quantitative All Cap Trust................. May 5, 2003
Quantitative Value Trust(less than)........ May 3, 2004
Real Return Bond Trust..................... May 5, 2003
Small Cap Opportunities Trust.............. May 5, 2003
Small Company Trust........................ May 3, 2004
Special Value Trust........................ May 5, 2003
Strategic Income Trust..................... May 3, 2004
U.S. Global Leaders Growth Trust(less than) May 3, 2004
(less than) Fund available in current year but no activity.
2. SIGNIFICANT ACCOUNTING POLICIES
Investments of each sub-account consist of shares in the respective portfolios
of the Trust. These shares are carried at fair value which is calculated using
the fair value of the investment securities underlying each Trust portfolio.
Transactions are recorded on the trade date. Income from dividends is recorded
on the ex-dividend date. Realized gains and losses on the sale of investments
are computed on the basis of the specifically identified cost of the investment
sold.
In addition to the Account, a contract holder may also allocate funds to the
fixed account contained within the Company's general account. Because of
exemptive and exclusionary provisions, interests in the fixed account have not
been registered under the Securities Act of 1933 and the Company's general
account has not been registered as an investment company under the Act. Net
interfund transfers include interfund transfers between separate and general
accounts.
F-55
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
The operations of the Account are included in the federal income tax return of
the Company, which is taxed as a life insurance company under the provisions of
the Internal Revenue Code (the "Code"). Under the current provisions of the
Code, the Company does not expect to incur federal income taxes on the earnings
of the Account to the extent the earnings are credited under the Contracts.
Based on this, no charge is being made currently to the Account for federal
income taxes. The Company will 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 Contracts.
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 those 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 premiums before placing the
remaining net premiums in the sub-account. In the event of a surrender by the
contract holder, surrender charges may be levied by the Company against the
contract value at the time of termination to cover sales and administrative
expenses associated with underwriting and issuing the Contract. Additionally,
each month a deduction consisting of an administration charge, a charge for
cost of insurance and charges for supplementary benefits is deducted from the
contract value. Contract charges are paid through the redemption of sub-account
units and are reflected as terminations.
5. PURCHASES AND SALES
The cost of purchases and proceeds from sales of investments for the year ended
December 31, 2004 were as follows:
SUB-ACCOUNTS: PURCHASES SALES
------------- ----------- -----------
500 Index Trust......................... $ 7,707,113 $ 6,609,744
Aggressive Growth Trust................. 5,172,959 4,805,015
All Asset Portfolio..................... 79,153 930
All Cap Core Trust...................... 2,303,494 4,407,102
All Cap Growth Trust.................... 4,767,345 5,651,337
All Cap Value Trust..................... 1,921,255 1,026,753
American Blue Chip Income & Growth Trust 349,471 222,209
American Growth Trust................... 8,544,244 2,657,156
American Growth-Income Trust............ 3,319,455 1,721,310
American International Trust............ 1,591,940 181,642
Balanced Trust.......................... 1,902,076 23,845,844
Blue Chip Growth Trust.................. 17,401,340 22,520,218
Capital Appreciation Trust.............. 642,443 1,002,790
Diversified Bond Trust.................. 4,764,045 4,861,327
F-56
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
5. PURCHASES AND SALES -- (CONTINUED)
SUB-ACCOUNTS: PURCHASES SALES
------------- ----------- -----------
Dynamic Growth Trust............ $ 2,880,157 $ 3,017,883
Emerging Growth Trust........... 468,334 625,836
Emerging Small Company Trust.... 13,650,177 19,414,714
Equity-Income Trust............. 23,601,953 17,967,371
Equity Index Trust.............. 11,284,801 11,799,159
Financial Services Trust........ 511,929 615,499
Fundamental Value Trust......... 2,676,262 1,721,822
Global Trust.................... 3,000,110 2,419,242
Global Allocation Trust......... 681,567 538,904
Global Bond Trust............... 4,327,218 3,743,184
Growth & Income Trust........... 8,406,962 11,444,978
Health Sciences Trust........... 4,418,881 3,871,951
High Yield Trust................ 9,641,643 8,400,469
Income & Value Trust............ 33,576,039 13,113,287
International Equity Index Fund. 1,339,642 688,211
International Index Trust....... 342,572 1,653,447
International Small Cap Trust... 4,672,116 4,097,987
International Stock Trust....... 4,011,839 4,953,282
International Value Trust....... 6,964,602 5,744,737
Investment Quality Bond Trust... 13,885,537 13,104,659
Large Cap Growth Trust.......... 7,179,883 7,326,695
Large Cap Value Trust........... 2,762,565 2,750,915
Lifestyle Aggressive 1000 Trust. 5,202,536 1,761,228
Lifestyle Balanced 640 Trust.... 11,634,510 9,252,010
Lifestyle Conservative 280 Trust 5,648,370 5,384,331
Lifestyle Growth 820 Trust...... 6,184,631 2,171,004
Lifestyle Moderate 460 Trust.... 3,246,059 1,867,098
Mid Cap Core Trust.............. 974,892 507,216
Mid Cap Index Trust............. 6,996,415 4,569,942
Mid Cap Stock Trust............. 21,908,916 12,620,439
Mid Cap Value Trust............. 10,693,410 5,871,504
Money Market Trust.............. 42,734,704 41,261,845
Natural Resources Trust......... 2,138,962 1,566,052
Overseas Trust.................. 5,054,697 4,643,327
Pacific Rim Trust............... 4,486,560 3,694,987
Quantitative All Cap Trust...... 28,544 25,985
Quantitative Equity Trust....... 2,948,416 23,509,340
Quantitative Mid Cap Trust...... 461,966 277,749
Real Estate Securities Trust.... 20,019,941 13,803,380
Real Return Bond Trust.......... 3,569,454 2,107,730
Science & Technology Trust...... 27,645,445 23,771,216
Small Cap Index Trust........... 8,174,202 4,018,466
Small Cap Opportunities Trust... 1,909,681 996,721
F-57
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
5. PURCHASES AND SALES -- (CONTINUED)
SUB-ACCOUNTS: PURCHASES SALES
------------- ------------ ------------
Small Company Trust............. $ 245 $ 251
Small Company Blend Trust....... 1,214,358 3,017,426
Small Company Value Trust....... 16,377,723 11,304,491
Special Value Trust............. 56,917 30,709
Strategic Bond Trust............ 5,716,082 4,183,975
Strategic Growth Trust.......... 1,152,319 1,745,816
Strategic Income Trust.......... 30,155 313
Strategic Opportunities Trust... 3,295,029 5,121,432
Strategic Value Trust........... 829,865 2,500,268
Total Return Trust.............. 47,478,149 36,710,491
Total Stock Market Index Trust.. 4,167,831 5,593,074
U.S. Government Securities Trust 9,621,505 10,230,881
U.S. Large Cap Trust............ 24,790,674 7,553,099
Utilities Trust................. 598,566 305,457
Value Trust..................... 25,135,528 17,347,211
------------ ------------
$552,878,379 $487,854,073
============ ============
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 the period were considered
when determining the lowest and highest total return. The summary may not
reflect the minimum and maximum mortality and expense risk charge offered by
the Company as contract owners may not have selected all available and
applicable contract options as discussed in note 3.
SUB-ACCOUNT
--------------------------------------------------------------------------
500 INDEX TRUST
--------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
--------------- ---------------- -------------------- --------------------
Units, beginning of year............. 575,198 375,317 94,218 22,035
Units issued......................... 773,654 501,063 688,915 86,705
Units redeemed....................... (659,394) (301,182) (407,816) (14,522)
--------------- ---------------- -------------------- --------------------
Units, end of year................... 689,458 575,198 375,317 94,218
=============== ================ ==================== ====================
Unit value, end of year.............. $10.51 - $10.72 $9.59 - $9.72 $7.54 - $7.61 $9.80 - $9.85
Assets, end of year.................. $7,356,251 $5,572,911 $2,849,500 $925,055
Investment income ratio/(1)/......... 0.81% 0.79% 0.00% 1.51%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.40% to 0.65%
Total return, lowest to highest/(3)/. 9.54% to 10.05% 27.19% to 27.69% (23.02%) to (22.71%) (12.93%) to (12.71%)
F-58
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
--------------------------------------------------------------------------
AGGRESSIVE GROWTH TRUST
--------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
--------------- ---------------- -------------------- --------------------
Units, beginning of year............. 387,460 417,367 388,103 290,154
Units issued......................... 399,144 321,514 416,070 253,473
Units redeemed....................... (363,344) (351,421) (386,806) (155,524)
--------------- ---------------- -------------------- --------------------
Units, end of year................... 423,260 387,460 417,367 388,103
=============== ================ ==================== ====================
Unit value, end of year.............. $16.05 - $16.24 $10.75 - $14.90 $8.07 - $11.16 $10.82 - $14.91
Assets, end of year.................. $5,785,540 $4,974,158 $4,062,865 $5,113,597
Investment income ratio/(1)/......... 0.00% 0.00% 0.00% 0.00%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% 0.55% to 0.65%
Total return, lowest to highest/(3)/. 8.55% to 8.88% 33.00% to 33.34% (25.45%) to (25.30%) (26.46%) to (26.39%)
SUB-ACCOUNT
-------------------
ALL ASSET PORTFOLIO
-------------------
PERIOD ENDED
DEC. 31/04##
-------------------
Units, beginning of year............. --
Units issued......................... 5,623
Units redeemed....................... (65)
-------
Units, end of year................... 5,558
=======
Unit value, end of year.............. $ 13.94
Assets, end of year.................. $77,490
Investment income ratio/(1)/......... 17.85%
Expense ratio, lowest to highest/(2)/ 0.65%
Total return, lowest to highest/(3)/. 11.53%
## Reflects the period from commencement of operations on May 3, 2004 through
December 31, 2004.
F-59
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
---------------------------------------------------------------------------
ALL CAP CORE TRUST
---------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- -------------------- --------------------
Units, beginning of year............ 384,083 632,910 955,887 901,341
Units issued........................ 162,081 396,838 744,586 586,549
Units redeemed...................... (353,320) (645,665) (1,067,563) (532,003)
---------------- ---------------- -------------------- --------------------
Units, end of year.................. 192,844 384,083 632,910 955,887
================ ================ ==================== ====================
Unit value, end of year............. $8.72 - $16.04 $7.54 - $13.81 $5.76 - $10.54 $7.75 - $14.12
Assets, end of year................. $3,006,912 $4,650,328 $5,895,402 $12,500,179
Investment income ratio/(1)/........ 0.50% 0.00% 0.00% 0.00%
Expense ratio, lowest to
highest/(2)/...................... 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.55% to 0.65%
Total return, lowest to highest/(3)/ 15.57% to 15.92% 30.71% to 31.02% (25.72%) to (25.57%) (21.88%) to (21.80%)
SUB-ACCOUNT
-------------------------------------------------------------------------
ALL CAP GROWTH TRUST
-------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
-------------- ---------------- -------------------- --------------------
Units, beginning of year............. 507,091 602,095 604,579 371,985
Units issued......................... 266,106 472,429 510,835 493,095
Units redeemed....................... (360,129) (567,433) (513,319) (260,501)
-------------- ---------------- -------------------- --------------------
Units, end of year................... 413,068 507,091 602,095 604,579
============== ================ ==================== ====================
Unit value, end of year.............. $9.94 - $19.31 $9.38 - $18.16 $7.30 - $14.11 $9.71 - $18.73
Assets, end of year.................. $7,837,329 $8,204,194 $7,785,855 $10,184,673
Investment income ratio/(1)/......... 0.00% 0.00% 0.00% 0.00%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% 0.45% to 0.65%
Total return, lowest to highest/(3)/. 5.83% to 6.14% 28.40% to 28.72% (24.90%) to (24.75%) (24.27%) to (24.11%)
F-60
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
-------------------------------------------------------------------
ALL CAP VALUE TRUST
-------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01*
---------------- ---------------- -------------------- ------------
Units, beginning of year............. 42,078 19,759 1,194 --
Units issued......................... 149,430 48,939 83,130 1,531
Units redeemed....................... (80,131) (26,620) (64,565) (337)
---------------- ---------------- -------------------- -------
Units, end of year................... 111,377 42,078 19,759 1,194
================ ================ ==================== =======
Unit value, end of year.............. $14.26 - $14.42 $12.38 - $12.44 $9.00 - $9.03 $12.56
Assets, end of year.................. $1,596,891 $520,935 $177,909 $14,993
Investment income ratio/(1)/......... 0.33% 0.04% 0.01% 0.03%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.45% to 0.65% 0.45% to 0.65% 0.65%
Total return, lowest to highest/(3)/. 15.20% to 15.55% 37.47% to 37.75% (28.30%) to (28.16%) 0.46%
* Reflects the period from commencement of operations on May 1, 2001 through
December 31, 2001.
SUB-ACCOUNT
--------------------------------
AMERICAN
BLUE CHIP INCOME & GROWTH TRUST
--------------------------------
YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03+
--------------- ----------------
Units, beginning of year............. 14,497 --
Units issued......................... 24,431 14,889
Units redeemed....................... (15,363) (392)
--------------- ----------------
Units, end of year................... 23,565 14,497
=============== ================
Unit value, end of year.............. $15.38 - $15.44 $14.17 - $14.18
Assets, end of year.................. $362,839 $205,368
Investment income ratio/(1)/......... 0.00% 0.00%
Expense ratio, lowest to highest/(2)/ 0.40% to 0.65% 0.45% to 0.65%
Total return, lowest to highest/(3)/. 8.61% to 8.87% 13.32% to 13.43%
+ Reflects the period from commencement of operations on July 9, 2003 through
December 31, 2003.
F-61
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
---------------------------------
AMERICAN GROWTH TRUST
---------------------------------
YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03+
---------------- ----------------
Units, beginning of year............. 106,170 --
Units issued......................... 615,014 107,375
Units redeemed....................... (186,720) (1,205)
---------------- ----------------
Units, end of year................... 534,464 106,170
================ ================
Unit value, end of year.............. $15.42 - $15.49 $13.84 - $13.86
Assets, end of year.................. $8,261,844 $1,470,676
Investment income ratio/(1)/......... 0.00% 0.00%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65%
Total return, lowest to highest/(3)/. 11.38% to 11.71% 10.75% to 10.88%
+ Reflects the period from commencement of operations on July 9, 2003 through
December 31, 2003.
SUB-ACCOUNT
----------------------------
AMERICAN GROWTH-INCOME TRUST
----------------------------
YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03+
--------------- ------------
Units, beginning of year............. 3,474 --
Units issued......................... 230,255 3,561
Units redeemed....................... (118,758) (87)
--------------- -------
Units, end of year................... 114,971 3,474
=============== =======
Unit value, end of year.............. $15.41 - $15.47 $14.10
Assets, end of year.................. $1,775,824 $48,990
Investment income ratio/(1)/......... 0.30% 0.00%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.65%
Total return, lowest to highest/(3)/. 9.24% to 9.57% 12.82%
+ Reflects the period from commencement of operations on July 9, 2003 through
December 31, 2003.
F-62
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
----------------------------------
AMERICAN INTERNATIONAL TRUST
----------------------------------
YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03+
---------------- ----------------
Units, beginning of year............. 7,859 --
Units issued......................... 98,310 8,484
Units redeemed....................... (11,181) (625)
---------------- ----------------
Units, end of year................... 94,988 7,859
================ ================
Unit value, end of year.............. $17.88 - $17.96 $15.14 - $15.15
Assets, end of year.................. $1,702,860 $118,979
Investment income ratio/(1)/......... 0.43% 0.00%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.45% to 0.65%
Total return, lowest to highest/(3)/. 18.11% to 18.47% 21.11% to 21.22%
+ Reflects the period from commencement of operations on July 9, 2003 through
December 31, 2003.
SUB-ACCOUNT
-----------------------------------------------------------------------------
BALANCED TRUST
-----------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04X DEC. 31/03 DEC. 31/02 DEC. 31/01
------------------ ---------------- -------------------- --------------------
Units, beginning of year............. 888,396 1,065,668 1,197,589 1,380,133
Units issued......................... 53,657 102,294 172,364 171,891
Units redeemed....................... (942,053) (279,566) (304,285) (354,435)
------------------ ---------------- -------------------- --------------------
Units, end of year................... -- 888,396 1,065,668 1,197,589
================== ================ ==================== ====================
Unit value, end of year.............. $9.48 - $25.58 $9.54 - $25.73 $8.39 - $22.60 $9.85 - $26.49
Assets, end of year.................. $-- $22,530,978 $23,887,858 $31,589,231
Investment income ratio/(1)/......... 2.40% 2.51% 2.55% 2.30%
Expense ratio, lowest to highest/(2)/ 0.40% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.40% to 0.65%
Total return, lowest to highest/(3)/. (0.64%) to (0.55%) 13.56% to 13.84% (14.92%) to (14.70%) (10.78%) to (10.55%)
x Terminated as an investment option and funds transferred to Income & Value
Trust on May 3, 2004.
F-63
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
--------------------------------------------------------------------------
BLUE CHIP GROWTH TRUST
--------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
--------------- ---------------- -------------------- --------------------
Units, beginning of year............. 2,092,515 1,902,374 1,996,442 1,789,836
Units issued......................... 958,632 1,470,531 2,117,890 1,329,733
Units redeemed....................... (1,383,294) (1,280,390) (2,211,958) (1,123,127)
--------------- ---------------- -------------------- --------------------
Units, end of year................... 1,667,853 2,092,515 1,902,374 1,996,442
=============== ================ ==================== ====================
Unit value, end of year.............. $11.12 - $20.96 $10.25 - $19.26 $7.98 - $14.97 $10.60 - $19.85
Assets, end of year.................. $32,373,276 $34,818,639 $26,370,964 $36,203,915
Investment income ratio/(1)/......... 0.11% 0.04% 0.00% 0.00%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.40% to 0.65%
Total return, lowest to highest/(3)/. 8.33% to 8.65% 28.33% to 28.65% (24.75%) to (24.56%) (15.16%) to (14.95%)
SUB-ACCOUNT
--------------------------------------------------------------------------
CAPITAL APPRECIATION TRUST
--------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01*
--------------- ---------------- -------------------- --------------------
Units, beginning of year............. 126,280 25,173 3,341 --
Units issued......................... 65,459 111,005 67,713 3,401
Units redeemed....................... (99,894) (9,898) (45,881) (60)
--------------- ---------------- -------------------- --------------------
Units, end of year................... 91,845 126,280 25,173 3,341
=============== ================ ==================== ====================
Unit value, end of year.............. $10.64 - $10.75 $9.80 - $9.85 $7.62 - $7.64 $11.05
Assets, end of year.................. $982,755 $1,240,907 $192,338 $36,920
Investment income ratio/(1)/......... 0.00% 0.00% 0.00% 0.00%
Expense ratio, lowest to highest/(2)/ 0.40% to 0.65% 0.45% to 0.65% 0.45% to 0.65% 0.65%
Total return, lowest to highest/(3)/. 8.61% to 8.88% 28.62% to 28.88% (31.07%) to (30.93%) (11.60%)
* Reflects the period from commencement of operations on May 1, 2001 through
December 31, 2001.
F-64
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
--------------------------------------------------------------------------
DIVERSIFIED BOND TRUST
--------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
--------------- ---------------- -------------------- --------------------
Units, beginning of year............. 475,744 489,585 507,459 264,580
Units issued......................... 265,904 449,319 1,003,740 513,683
Units redeemed....................... (291,024) (463,160) (1,021,614) (270,804)
--------------- ---------------- -------------------- --------------------
Units, end of year................... 450,624 475,744 489,585 507,459
=============== ================ ==================== ====================
Unit value, end of year.............. $16.66 - $17.25 $16.13 - $16.64 $15.51 - $15.95 $14.49 - $14.89
Assets, end of year.................. $7,709,761 $7,848,156 $7,777,651 $7,354,939
Investment income ratio/(1)/......... 4.27% 5.26% 3.61% 3.26%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% 0.45% to 0.65%
Total return, lowest to highest/(3)/. 3.18% to 3.48% 3.93% to 4.19% 6.90% to 7.12% 6.38% to 6.61%
SUB-ACCOUNT
--------------------------------------------------------------------------
DYNAMIC GROWTH TRUST
--------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
--------------- ---------------- -------------------- --------------------
Units, beginning of year............. 577,167 217,363 102,477 34,003
Units issued......................... 670,334 707,581 235,862 352,426
Units redeemed....................... (702,537) (347,777) (120,976) (283,952)
--------------- ---------------- -------------------- --------------------
Units, end of year................... 544,964 577,167 217,363 102,477
=============== ================ ==================== ====================
Unit value, end of year.............. $4.70 - $4.77 $4.30 - $4.34 $3.36 - $3.37 $4.72 - $4.73
Assets, end of year.................. $2,585,369 $2,493,791 $730,822 $483,613
Investment income ratio/(1)/......... 0.00% 0.00% 0.00% 0.28%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% 0.55% to 0.65%
Total return, lowest to highest/(3)/. 9.29% to 9.62 28.17% to 28.60% (28.83%) to (28.63%) (40.63%) to (40.57%)
F-65
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
--------------------------------
EMERGING GROWTH TRUST
--------------------------------
YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03^
--------------- ----------------
Units, beginning of year............. 13,715 --
Units issued......................... 27,399 15,745
Units redeemed....................... (37,573) (2,030)
--------------- ----------------
Units, end of year................... 3,541 13,715
=============== ================
Unit value, end of year.............. $17.29 - $17.35 $16.29 - $16.31
Assets, end of year.................. $61,397 $223,380
Investment income ratio/(1)/......... 0.00% 0.00%
Expense ratio, lowest to highest/(2)/ 0.45% to 0.65% 0.45% to 0.65%
Total return, lowest to highest/(3)/. 6.20% to 6.41% 30.28% to 30.45%
^ Reflects the period from commencement of operations on May 5, 2003 through
December 31, 2003.
SUB-ACCOUNT
---------------------------------------------------------------------------
EMERGING SMALL COMPANY TRUST
---------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- -------------------- --------------------
Units, beginning of year............. 911,363 1,056,757 1,065,694 840,091
Units issued......................... 273,287 380,894 544,611 525,737
Units redeemed....................... (497,248) (526,288) (553,548) (300,134)
---------------- ---------------- -------------------- --------------------
Units, end of year................... 687,402 911,363 1,056,757 1,065,694
================ ================ ==================== ====================
Unit value, end of year.............. $12.69 - $86.85 $11.44 - $78.03 $8.23 - $56.84 $11.69 - $79.51
Net assets, end of year.............. $50,607,293 $51,002,629 $41,741,461 $63,138,723
Investment income ratio/(1)/......... 0.00% 0.00% 0.00% 0.00%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.40% to 0.65%
Total return, lowest to highest/(3)/. 10.80% to 11.13% 38.83% to 39.17% (29.66%) to (29.49%) (22.75%) to (22.55%)
F-66
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
---------------------------------------------------------------------------
EQUITY-INCOME TRUST
---------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- -------------------- --------------------
Units, beginning of year............. 1,460,643 1,339,589 840,766 431,687
Units issued......................... 1,139,513 1,036,965 1,689,347 687,162
Units redeemed....................... (953,918) (915,911) (1,190,524) (278,083)
---------------- ---------------- -------------------- --------------------
Units, end of year................... 1,646,238 1,460,643 1,339,589 840,766
================ ================ ==================== ====================
Unit value, end of year.............. $16.60 - $22.75 $14.54 - $19.85 $11.64 - $15.87 $13.50 - $18.38
Assets, end of year.................. $36,760,871 $27,301,230 $20,927,060 $15,189,718
Investment income ratio/(1)/......... 1.22% 1.44% 1.22% 1.42%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.40% to 0.65%
Total return, lowest to highest/(3)/. 14.06% to 14.41% 24.76% to 25.07% (13.84%) to (13.63%) 0.63% to 0.89%
SUB-ACCOUNT
---------------------------------------------------------------------------
EQUITY INDEX TRUST
---------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- -------------------- --------------------
Units, beginning of year............. 1,545,993 1,769,922 2,189,228 1,984,054
Units issued......................... 673,240 954,968 2,193,979 1,366,361
Units redeemed....................... (684,864) (1,178,897) (2,613,285) (1,161,187)
---------------- ---------------- -------------------- --------------------
Units, end of year................... 1,534,369 1,545,993 1,769,922 2,189,228
================ ================ ==================== ====================
Unit value, end of year.............. $11.03 - $19.67 $10.04 - $18.06 $7.87 - $14.13 $10.18 - $18.26
Assets, end of year.................. $27,164,917 $25,622,009 $23,452,969 $38,066,462
Investment income ratio/(1)/......... 1.28% 1.52% 1.16% 1.00%
Expense ratio, lowest to highest/(2)/ 0.40% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.40% to 0.65%
Total return, lowest to highest/(3)/. 9.76% to 10.03% 27.46% to 27.78% (22.81%) to (22.61%) (12.83%) to (12.61%)
F-67
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
------------------------------------------------------------------
FINANCIAL SERVICES TRUST
------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01*
--------------- ---------------- -------------------- ------------
Units, beginning of year............. 31,948 33,067 8,377 --
Units issued......................... 39,967 13,233 42,607 8,668
Units redeemed....................... (48,578) (14,352) (17,917) (291)
--------------- ---------------- -------------------- -------
Units, end of year................... 23,337 31,948 33,067 8,377
=============== ================ ==================== =======
Unit value, end of year.............. $13.75 - $13.85 $12.54 - $12.61 $9.45 - $9.48 $11.58
Assets, end of year.................. $322,026 $401,985 $313,108 $97,034
Investment income ratio/(1)/......... 0.37% 0.17% 0.00% 0.05%
Expense ratio, lowest to highest/(2)/ 0.45% to 0.65% 0.45% to 0.65% 0.45% to 0.65% 0.65%
Total return, lowest to highest/(3)/. 9.66% to 9.87% 32.71% to 32.98% (18.41%) to (18.25%) (7.34%)
* Reflects the period from commencement of operations on May 1, 2001 through
December 31, 2001.
SUB-ACCOUNT
-------------------------------------------------------------------
FUNDAMENTAL VALUE TRUST
-------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01*
---------------- ---------------- -------------------- ------------
Units, beginning of year............. 93,865 33,158 21,338 --
Units issued......................... 205,077 173,788 35,752 22,014
Units redeemed....................... (130,546) (113,081) (23,932) (676)
---------------- ---------------- -------------------- --------
Units, end of year................... 168,396 93,865 33,158 21,338
================ ================ ==================== ========
Unit value, end of year.............. $13.93 - $14.08 $12.54 - $12.61 $9.72 - $9.75 $11.68
Assets, end of year.................. $2,356,047 $1,179,257 $322,506 $249,216
Investment income ratio/(1)/......... 0.48% 0.18% 0.09% 0.00%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.45% to 0.65% 0.45% to 0.65% 0.65%
Total return, lowest to highest/(3)/. 11.08% to 11.42% 28.99% to 29.25% (16.75%) to (16.58%) (6.57%)
* Reflects the period from commencement of operations on May 1, 2001 through
December 31, 2001.
F-68
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
---------------------------------------------------------------------------
GLOBAL TRUST
---------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- -------------------- --------------------
Units, beginning of year............. 220,709 272,877 206,811 192,970
Units issued......................... 178,596 315,226 360,226 133,113
Units redeemed....................... (172,542) (367,394) (294,160) (119,272)
---------------- ---------------- -------------------- --------------------
Units, end of year................... 226,763 220,709 272,877 206,811
================ ================ ==================== ====================
Unit value, end of year.............. $13.72 - $18.20 $12.02 - $15.89 $9.48 - $12.52 $11.79 - $15.50
Assets, end of year.................. $4,088,754 $3,119,936 $3,166,722 $3,140,867
Investment income ratio/(1)/......... 1.76% 1.19% 1.15% 2.22%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% 0.55% to 0.65%
Total return, lowest to highest/(3)/. 14.01% to 14.35% 26.63% to 26.95% (19.63%) to (19.47%) (16.63%) to (16.55%)
SUB-ACCOUNT
---------------------------------------------------------------------------
GLOBAL ALLOCATION TRUST
---------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- -------------------- --------------------
Units, beginning of year............. 3,613 3,195 7,967 --
Units issued......................... 66,928 844 23,360 18,137
Units redeemed....................... (52,774) (426) (28,132) (10,170)
---------------- ---------------- -------------------- --------------------
Units, end of year................... 17,767 3,613 3,195 7,967
================ ================ ==================== ====================
Unit value, end of year.............. $11.13 - $11.22 $9.94 $7.91 - $7.94 $10.37
Net assets, end of year.............. $197,769 $35,900 $25,278 $82,609
Investment income ratio/(1)/......... 0.40% 0.48% 0.00% 0.26%
Expense ratio, lowest to highest/(2)/ 0.45% to 0.65% 0.65% 0.45% to 0.65% 0.65%
Total return, lowest to highest/(3)/. 11.99% to 12.25% 25.61% (23.70%) to (23.55%) (13.95%)
F-69
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
--------------------------------------------------------------------------
GLOBAL BOND TRUST
--------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
--------------- ---------------- -------------------- --------------------
Units, beginning of year............. 196,659 297,639 118,128 30,310
Units issued......................... 233,486 389,164 348,049 113,867
Units redeemed....................... (212,013) (490,144) (168,538) (26,049)
--------------- ---------------- -------------------- --------------------
Units, end of year................... 218,132 196,659 297,639 118,128
=============== ================ ==================== ====================
Unit value, end of year.............. $18.71 - $19.96 $17.06 - $18.14 $14.87 - $15.77 $12.45 - $13.16
Assets, end of year.................. $4,323,117 $3,463,203 $4,596,803 $1,549,796
Investment income ratio/(1)/......... 3.41% 4.35% 0.00% 0.00%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% 0.55% to 0.65%
Total return, lowest to highest/(3)/. 9.53% to 9.85% 14.65% to 14.94% 19.35% to 19.59% (0.12%) to (0.03%)
SUB-ACCOUNT
--------------------------------------------------------------------------
GROWTH & INCOME TRUST
--------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
--------------- ---------------- -------------------- --------------------
Units, beginning of year............. 1,151,229 1,592,866 1,605,126 1,309,646
Units issued......................... 471,319 695,451 1,400,088 974,279
Units redeemed....................... (722,747) (1,137,088) (1,412,348) (678,799)
--------------- ---------------- -------------------- --------------------
Units, end of year................... 899,801 1,151,229 1,592,866 1,605,126
=============== ================ ==================== ====================
Unit value, end of year.............. $10.50 - $18.89 $9.89 - $17.73 $7.86 - $14.06 $10.44 - $18.66
Assets, end of year.................. $16,191,548 $18,310,286 $19,158,844 $26,826,511
Investment income ratio/(1)/......... 0.85% 1.02% 0.63% 0.41%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.40% to 0.65%
Total return, lowest to highest/(3)/. 6.08% to 6.39% 25.77% to 26.09% (24.82%) to (24.63%) (11.85%) to (11.63%)
F-70
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
-------------------------------------------------------------------
HEALTH SCIENCES TRUST
-------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01*
---------------- ---------------- -------------------- ------------
Units, beginning of year............. 195,742 185,557 11,197 --
Units issued......................... 312,678 257,208 260,559 15,145
Units redeemed....................... (279,604) (247,023) (86,199) (3,948)
---------------- ---------------- -------------------- --------
Units, end of year................... 228,816 195,742 185,557 11,197
================ ================ ==================== ========
Unit value, end of year.............. $15.11 - $15.28 $13.19 - $13.28 $9.75 - $9.78 $13.48
Assets, end of year.................. $3,480,512 $2,590,184 $1,810,992 $150,957
Investment income ratio/(1)/......... 0.00% 0.00% 0.00% 0.00%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% 0.65%
Total return, lowest to highest/(3)/. 14.57% to 14.91% 35.33% to 35.68% (27.71%) to (27.57%) (7.85%)
* Reflects the period from commencement of operations on May 1, 2001 through
December 31, 2001.
SUB-ACCOUNT
-----------------------------------------------------------------------
HIGH YIELD TRUST
-----------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- ------------------ ------------------
Units, beginning of year............. 699,961 536,644 395,816 298,325
Units issued......................... 615,089 565,735 687,272 403,067
Units redeemed....................... (567,692) (402,418) (546,444) (305,576)
---------------- ---------------- ------------------ ------------------
Units, end of year................... 747,358 699,961 536,644 395,816
================ ================ ================== ==================
Unit value, end of year.............. $13.69 - $16.40 $12.40 - $14.80 $10.02 - $11.94 $10.82 - $12.87
Assets, end of year.................. $11,862,447 $9,989,519 $6,211,875 $4,979,952
Investment income ratio/(1)/......... 4.99% 4.84% 7.65% 8.80%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.40% to 0.65%
Total return, lowest to highest/(3)/. 10.34% to 10.68% 23.65% to 23.94% (7.48%) to (7.23%) (6.09%) to (5.85%)
F-71
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
---------------------------------------------------------------------
INCOME & VALUE TRUST
---------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
--------------- ---------------- -------------------- ---------------
Units, beginning of year............. 465,991 605,848 649,395 399,769
Units issued......................... 2,010,940 357,985 747,671 426,269
Units redeemed....................... (797,206) (497,842) (791,218) (176,643)
--------------- ---------------- -------------------- ---------------
Units, end of year................... 1,679,725 465,991 605,848 649,395
=============== ================ ==================== ===============
Unit value, end of year.............. $14.94 - $18.01 $13.95 - $16.73 $11.09 - $13.28 $13.27 - $15.86
Assets, end of year.................. $29,826,597 $7,397,904 $7,497,869 $9,857,366
Investment income ratio/(1)/......... 0.53% 1.90% 2.11% 2.36%
Expense ratio, lowest to highest/(2)/ 0.30% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.40% to 0.65%
Total return, lowest to highest/(3)/. 6.94% to 7.33% 25.66% to 25.98% (16.48%) to (16.27%) 0.33% to 0.58%
SUB-ACCOUNT
--------------------
INTERNATIONAL EQUITY
INDEX FUND
--------------------
PERIOD ENDED
DEC. 31/04##
--------------------
Units, beginning of year............. --
Units issued......................... 103,970
Units redeemed....................... (52,958)
----------------
Units, end of year................... 51,012
================
Unit value, end of year.............. $14.74 - $14.77
Assets, end of year.................. $752,181
Investment income ratio/(1)/......... 0.58%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65%
Total return, lowest to highest/(3)/. 17.94% to 18.17%
## Reflects the period from commencement of operations on May 3, 2004 through
December 31, 2004.
F-72
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
-------------------------------------------------------------------------
INTERNATIONAL INDEX TRUST
-------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04(GREATER THAN) DEC. 31/03 DEC. 31/02 DEC. 31/01
------------------------ ---------------- -------------------- ----------
Units, beginning of year............. 136,084 45,074 22,786 3,964
Units issued......................... 34,759 180,935 40,213 74,324
Units redeemed....................... (170,843) (89,925) (17,925) (55,502)
-------------- ---------------- -------------------- --------
Units, end of year................... -- 136,084 45,074 22,786
============== ================ ==================== ========
Unit value, end of year.............. $9.65 - $9.73 $9.35 - $9.42 $7.12 - $7.15 $8.65
Assets, end of year.................. $0 $1,275,430 $321,003 $197,118
Investment income ratio/(1)/......... 1.00% 2.67% 1.93% 1.22%
Expense ratio, lowest to highest/(2)/ 0.40% to 0.65% 0.40% to 0.65% 0.45% to 0.65% 0.65%
Total return, lowest to highest/(3)/. 3.14% to 3.26% 31.34% to 31.68% (17.69%) to (17.51%) (22.91%)
(greater than) Terminated as an investment option and funds transferred to John
Hancock VST International Equity Index Fund on June 18, 2004.
SUB-ACCOUNT
---------------------------------------------------------------------------
INTERNATIONAL SMALL CAP TRUST
---------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- -------------------- --------------------
Units, beginning of year............. 261,096 345,552 215,989 241,469
Units issued......................... 297,698 143,552 344,659 183,007
Units redeemed....................... (304,434) (228,008) (215,096) (208,487)
---------------- ---------------- -------------------- --------------------
Units, end of year................... 254,360 261,096 345,552 215,989
================ ================ ==================== ====================
Unit value, end of year.............. $11.88 - $19.17 $9.86 - $15.86 $6.40 - $10.28 $7.73 - $12.36
Assets, end of year.................. $4,744,645 $3,409,121 $2,893,046 $2,355,865
Investment income ratio/(1)/......... 0.12% 0.00% 0.00% 0.00%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% 0.55% to 0.65%
Total return, lowest to highest/(3)/. 20.28% to 20.64% 53.94% to 54.34% (17.27%) to (17.10%) (31.55%) to (31.48%)
F-73
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
---------------------------------------------------------------------------
INTERNATIONAL STOCK TRUST
---------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- -------------------- --------------------
Units, beginning of year............. 1,106,364 1,306,287 1,135,448 1,217,912
Units issued......................... 334,186 431,223 1,749,658 987,073
Units redeemed....................... (423,854) (631,146) (1,578,819) (1,069,537)
---------------- ---------------- -------------------- --------------------
Units, end of year................... 1,016,696 1,106,364 1,306,287 1,135,448
================ ================ ==================== ====================
Unit value, end of year.............. $10.69 - $13.23 $9.30 - $11.47 $7.18 - $8.84 $9.22 - $11.33
Assets, end of year.................. $13,368,772 $12,549,025 $11,319,824 $12,791,612
Investment income ratio/(1)/......... 0.84% 0.49% 0.45% 0.21%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.40% to 0.65%
Total return, lowest to highest/(3)/. 14.84% to 15.19% 29.43% to 29.75% (22.19%) to (22.00%) (22.05%) to (21.85%)
SUB-ACCOUNT
---------------------------------------------------------------------------
INTERNATIONAL VALUE TRUST
---------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- -------------------- --------------------
Units, beginning of year............. 451,530 225,236 200,221 153,410
Units issued......................... 510,926 488,195 349,940 124,451
Units redeemed....................... (427,964) (261,901) (324,925) (77,640)
---------------- ---------------- -------------------- --------------------
Units, end of year................... 534,492 451,530 225,236 200,221
================ ================ ==================== ====================
Unit value, end of year.............. $15.24 - $15.83 $12.62 - $13.09 $8.77 - $9.09 $10.74 - $11.12
Assets, end of year.................. $8,198,182 $5,780,317 $1,978,346 $2,154,783
Investment income ratio/(1)/......... 1.28% 0.67% 0.71% 1.05%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.40% to 0.65%
Total return, lowest to highest/(3)/. 20.75% to 21.12% 43.91% to 44.28% (18.38%) to (18.16%) (10.56%) to (10.33%)
F-74
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
--------------------------------------------------------------------------
INVESTMENT QUALITY BOND TRUST
--------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
--------------- ---------------- -------------------- --------------------
Units, beginning of year............. 1,159,780 1,475,664 1,255,012 1,052,039
Units issued......................... 645,968 984,315 631,277 706,642
Units redeemed....................... (673,703) (1,300,199) (410,625) (503,669)
--------------- ---------------- -------------------- --------------------
Units, end of year................... 1,132,045 1,159,780 1,475,664 1,255,012
=============== ================ ==================== ====================
Unit value, end of year.............. $17.50 - $20.28 $16.79 - $19.39 $15.73 - $18.14 $14.38 - $16.56
Assets, end of year.................. $22,645,826 $22,161,364 $26,443,146 $20,633,935
Investment income ratio/(1)/......... 5.96% 5.40% 5.06% 5.69%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.40% to 0.65%
Total return, lowest to highest/(3)/. 4.13% to 4.45% 6.63% to 6.89% 9.22% to 9.50% 6.63% to 6.90%
SUB-ACCOUNT
--------------------------------------------------------------------------
LARGE CAP GROWTH TRUST
--------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
--------------- ---------------- -------------------- --------------------
Units, beginning of year............. 621,936 797,344 583,261 457,838
Units issued......................... 613,074 486,197 655,691 435,680
Units redeemed....................... (673,398) (661,605) (441,608) (310,257)
--------------- ---------------- -------------------- --------------------
Units, end of year................... 561,612 621,936 797,344 583,261
=============== ================ ==================== ====================
Unit value, end of year.............. $9.49 - $13.42 $8.99 - $12.67 $7.21 - $10.15 $9.39 - $13.17
Assets, end of year.................. $7,321,297 $7,142,200 $7,640,972 $7,423,884
Investment income ratio/(1)/......... 0.29% 0.28% 0.32% 0.00%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.40% to 0.65%
Total return, lowest to highest/(3)/. 5.49% to 5.80% 24.51% to 24.82% (23.33%) to (23.14%) (18.35%) to (18.14%)
F-75
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
---------------------------------
LARGE CAP VALUE TRUST
---------------------------------
YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03^
---------------- ----------------
Units, beginning of year............. 83,191 --
Units issued......................... 156,448 83,839
Units redeemed....................... (165,209) (648)
---------------- ----------------
Units, end of year................... 74,430 83,191
================ ================
Unit value, end of year.............. $19.23 - $19.32 $15.89 - $15.91
Assets, end of year.................. $1,435,901 $1,322,947
Investment income ratio/(1)/......... 1.43% 0.00%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65%
Total return, lowest to highest/(3)/. 21.02% to 21.38% 27.11% to 27.32%
^ Reflects the period from commencement of operations on May 5, 2003 through
December 31, 2003.
SUB-ACCOUNT
-----------------------------------------------------------------
LIFESTYLE AGGRESSIVE 1000 TRUST
-----------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- -------------------- ----------
Units, beginning of year............. 73,758 38,262 47,093 42,247
Units issued......................... 350,315 46,257 10,408 30,690
Units redeemed....................... (118,458) (10,761) (19,239) (25,844)
---------------- ---------------- -------------------- --------
Units, end of year................... 305,615 73,758 38,262 47,093
================ ================ ==================== ========
Unit value, end of year.............. $13.31 - $16.86 $11.53 - $14.53 $8.60 - $10.82 $13.68
Assets, end of year.................. $5,093,275 $1,038,282 $412,158 $644,205
Investment income ratio/(1)/......... 0.78% 0.35% 0.81% 4.05%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.45% to 0.65% 0.45% to 0.65% 0.65%
Total return, lowest to highest/(3)/. 15.30% to 15.66% 34.04% to 34.31% (21.23%) to (21.06%) (14.23%)
F-76
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
-------------------------------------------------------------------------
LIFESTYLE BALANCED 640 TRUST
-------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- -------------------- ------------------
Units, beginning of year............. 805,068 549,847 385,225 231,860
Units issued......................... 639,365 354,757 502,066 269,321
Units redeemed....................... (530,313) (99,536) (337,444) (115,956)
---------------- ---------------- -------------------- ------------------
Units, end of year................... 914,120 805,068 549,847 385,225
================ ================ ==================== ==================
Unit value, end of year.............. $15.62 - $19.96 $13.84 - $17.62 $11.22 - $14.27 $12.53 - $15.90
Assets, end of year.................. $18,039,138 $13,798,701 $7,802,640 $6,058,824
Investment income ratio/(1)/......... 2.05% 2.30% 3.49% 4.97%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.45% to 0.65%
Total return, lowest to highest/(3)/. 12.75% to 13.09% 23.17% to 23.48% (10.53%) to (10.32%) (5.40%) to (5.21%)
SUB-ACCOUNT
-------------------------------------------------------------------------
LIFESTYLE CONSERVATIVE 280 TRUST
-------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- -------------------- ------------------
Units, beginning of year............. 268,987 198,190 220,989 17,741
Units issued......................... 280,449 176,092 177,049 223,911
Units redeemed....................... (280,489) (105,295) (199,848) (20,663)
---------------- ---------------- -------------------- ------------------
Units, end of year................... 268,947 268,987 198,190 220,989
================ ================ ==================== ==================
Unit value, end of year.............. $16.74 - $20.76 $15.50 - $19.16 $13.97 - $17.22 $13.81 - $16.98
Assets, end of year.................. $5,504,364 $5,025,582 $3,398,476 $3,748,192
Investment income ratio/(1)/......... 3.76% 3.54% 3.26% 1.32%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% 0.55% to 0.65%
Total return, lowest to highest/(3)/. 7.88% to 8.21% 10.83% to 11.10% 1.06% to 1.26% 2.56% to 2.66%
F-77
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
-------------------------------------------------------------------------
LIFESTYLE GROWTH 820 TRUST
-------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- -------------------- ------------------
Units, beginning of year............. 178,824 93,184 87,349 91,321
Units issued......................... 368,911 120,911 76,636 52,084
Units redeemed....................... (130,127) (35,271) (70,801) (56,056)
---------------- ---------------- -------------------- ------------------
Units, end of year................... 417,608 178,824 93,184 87,349
================ ================ ==================== ==================
Unit value, end of year.............. $14.28 - $18.71 $12.53 - $16.33 $9.73 - $12.66 $11.62 - $15.11
Assets, end of year.................. $7,721,710 $2,875,199 $1,173,670 $1,316,120
Investment income ratio/(1)/......... 1.39% 1.02% 2.04% 5.20%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.45% to 0.65% 0.45% to 0.65% 0.45% to 0.65%
Total return, lowest to highest/(3)/. 13.85% to 14.19% 28.70% to 28.97% (16.39%) to (16.22%) (9.63%) to (9.44%)
SUB-ACCOUNT
-------------------------------------------------------------------------
LIFESTYLE MODERATE 460 TRUST
-------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- -------------------- ------------------
Units, beginning of year............. 105,262 58,209 53,694 19,785
Units issued......................... 170,447 136,503 41,924 90,551
Units redeemed....................... (104,939) (89,450) (37,409) (56,642)
---------------- ---------------- -------------------- ------------------
Units, end of year................... 170,770 105,262 58,209 53,694
================ ================ ==================== ==================
Unit value, end of year.............. $16.03 - $20.45 $14.51 - $18.45 $12.39 - $15.71 $12.98 - $16.41
Assets, end of year.................. $3,447,752 $1,819,243 $904,445 $817,107
Investment income ratio/(1)/......... 2.62% 2.75% 2.98% 6.33%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% 0.55% to 0.65%
Total return, lowest to highest/(3)/. 10.32% to 10.65% 17.06% to 17.35% (4.66%) to (4.47%) (1.74%) to (1.63%)
F-78
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
---------------------------------
MID CAP CORE TRUST
---------------------------------
YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03^
---------------- ----------------
Units, beginning of year............. 3,038 --
Units issued......................... 61,571 5,520
Units redeemed....................... (30,766) (2,482)
---------------- ----------------
Units, end of year................... 33,843 3,038
================ ================
Unit value, end of year.............. $17.33 - $17.40 $15.26 - $15.27
Assets, end of year.................. $587,434 $46,343
Investment income ratio/(1)/......... 0.00% 0.00%
Expense ratio, lowest to highest/(2)/ 0.40% to 0.65% 0.45% to 0.65%
Total return, lowest to highest/(3)/. 13.57% to 13.85% 22.04% to 22.19%
^ Reflects the period from commencement of operations on May 5, 2003 through
December 31, 2003.
SUB-ACCOUNT
-------------------------------------------------------------------------
MID CAP INDEX TRUST
-------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- -------------------- ------------------
Units, beginning of year............. 253,416 151,140 80,845 18,407
Units issued......................... 459,051 275,299 140,757 94,158
Units redeemed....................... (301,447) (173,023) (70,462) (31,720)
---------------- ---------------- -------------------- ------------------
Units, end of year................... 411,020 253,416 151,140 80,845
================ ================ ==================== ==================
Unit value, end of year.............. $16.88 - $17.09 $14.67 - $14.78 $10.97 - $11.02 $13.02 - $13.04
Assets, end of year.................. $6,984,470 $3,729,877 $1,659,979 $1,052,814
Investment income ratio/(1)/......... 0.34% 0.00% 0.67% 1.68%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% 0.55% to 0.65%
Total return, lowest to highest/(3)/. 15.08% to 15.43% 33.70% to 34.03% (15.71%) to (15.54%) (2.38%) to (2.27%)
F-79
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
---------------------------------------------------------------------------
MID CAP STOCK TRUST
---------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- -------------------- --------------------
Units, beginning of year............. 439,064 157,865 72,047 31,783
Units issued......................... 1,709,693 463,180 226,721 68,876
Units redeemed....................... (957,543) (181,981) (140,903) (28,612)
---------------- ---------------- -------------------- --------------------
Units, end of year................... 1,191,214 439,064 157,865 72,047
================ ================ ==================== ====================
Unit value, end of year.............. $13.62 - $14.44 $11.52 - $12.20 $8.14 - $8.62 $10.59 - $11.19
Assets, end of year.................. $16,362,126 $5,169,749 $1,286,585 $762,884
Investment income ratio/(1)/......... 0.00% 0.00% 0.00% 0.00%
Expense ratio, lowest to highest/(2)/ 0.30% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.55% to 0.65%
Total return, lowest to highest/(3)/. 18.26% to 18.68% 41.41% to 41.76% (23.07%) to (22.87%) (11.57%) to (11.48%)
SUB-ACCOUNT
---------------------------------------------------------------------------
MID CAP VALUE TRUST
---------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01*
---------------- ---------------- -------------------- --------------------
Units, beginning of year............. 445,032 376,737 10,285 --
Units issued......................... 675,227 383,482 701,062 10,527
Units redeemed....................... (366,758) (315,187) (334,610) (242)
---------------- ---------------- -------------------- --------------------
Units, end of year................... 753,501 445,032 376,737 10,285
================ ================ ==================== ====================
Unit value, end of year.............. $17.93 - $18.12 $14.50 - $14.59 $11.64 - $11.68 $13.03
Assets, end of year.................. $13,585,575 $6,473,940 $4,392,977 $134,052
Investment income ratio/(1)/......... 0.49% 0.36% 0.00% 0.37%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% 0.65%
Total return, lowest to highest/(3)/. 23.65% to 24.03% 24.54% to 24.86% (10.68%) to (10.51%) 4.27%
* Reflects the period from commencement of operations on May 1, 2001 through
December 31, 2001.
F-80
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
----------------------------------------------------------------
MONEY MARKET TRUST
----------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
--------------- ---------------- --------------- ---------------
Units, beginning of year............. 2,120,159 2,245,118 2,216,771 2,375,556
Units issued......................... 2,342,246 2,995,349 3,641,306 2,060,563
Units redeemed....................... (2,288,200) (3,120,308) (3,612,959) (2,219,348)
--------------- ---------------- --------------- ---------------
Units, end of year................... 2,174,205 2,120,159 2,245,118 2,216,771
=============== ================ =============== ===============
Unit value, end of year.............. $13.75 - $19.21 $13.71 - $19.09 $13.71 - $19.06 $13.63 - $18.91
Assets, end of year.................. $40,361,843 $38,888,983 $41,461,920 $40,817,893
Investment income ratio/(1)/......... 0.81% 0.58% 1.18% 3.59%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.40% to 0.65%
Total return, lowest to highest/(3)/. 0.15% to 0.46% (0.07%) to 0.17% 0.53% to 0.77% 2.91% to 3.17%
SUB-ACCOUNT
---------------------------------
NATURAL RESOURCES TRUST
---------------------------------
YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03^
---------------- ----------------
Units, beginning of year............. 62,308 --
Units issued......................... 108,859 66,429
Units redeemed....................... (82,809) (4,121)
---------------- ----------------
Units, end of year................... 88,358 62,308
================ ================
Unit value, end of year.............. $22.14 - $22.24 $17.92 - $17.95
Assets, end of year.................. $1,963,833 $1,117,564
Investment income ratio/(1)/......... 0.07% 0.00%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65%
Total return, lowest to highest/(3)/. 23.51% to 23.88% 43.39% to 43.63%
^ Reflects the period from commencement of operations on May 5, 2003 through
December 31, 2003.
F-81
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
---------------------------------------------------------------------------
OVERSEAS TRUST
---------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- -------------------- --------------------
Units, beginning of year............. 434,997 460,570 296,994 223,097
Units issued......................... 401,096 344,726 324,701 249,901
Units redeemed....................... (391,902) (370,299) (161,125) (176,004)
---------------- ---------------- -------------------- --------------------
Units, end of year................... 444,191 434,997 460,570 296,994
================ ================ ==================== ====================
Unit value, end of year.............. $11.33 - $14.79 $10.19 - $13.26 $7.13 - $9.24 $9.12 - $11.80
Assets, end of year.................. $6,016,023 $5,016,704 $3,693,821 $3,057,649
Investment income ratio/(1)/......... 0.37% 0.46% 0.52% 0.27%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% 0.55% to 0.65%
Total return, lowest to highest/(3)/. 11.07% to 11.40% 42.90% to 43.25% (21.95%) to (21.79%) (21.61%) to (21.53%)
SUB-ACCOUNT
---------------------------------------------------------------------------
PACIFIC RIM TRUST
---------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- -------------------- --------------------
Units, beginning of year............. 487,239 500,442 569,972 595,097
Units issued......................... 502,648 494,143 429,620 343,573
Units redeemed....................... (397,342) (507,346) (499,150) (368,698)
---------------- ---------------- -------------------- --------------------
Units, end of year................... 592,545 487,239 500,442 569,972
================ ================ ==================== ====================
Unit value, end of year.............. $9.79 - $9.91 $8.43 - $10.32 $6.03 - $7.38 $6.94 - $8.48
Assets, end of year.................. $5,836,323 $4,250,322 $3,100,984 $3,999,341
Investment income ratio/(1)/......... 0.65% 0.19% 0.12% 0.41%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% 0.55% to 0.65%
Total return, lowest to highest/(3)/. 16.14% to 16.50% 39.81% to 40.16% (13.09%) to (12.92%) (19.10%) to (19.03%)
F-82
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
----------------
QUANTITATIVE
ALL CAP TRUST
----------------
PERIOD ENDED
DEC. 31/04##
----------------
Units, beginning of year.......... --
Units issued...................... 1,784
Units redeemed.................... (1,620)
----------------
Units, end of year................ 164
================
Unit value, end of year........... $17.69 - $17.75
Assets, end of year............... $2,916
Investment income ratio*.......... 1.30%
Expense ratio, lowest to highest** 0.45% to 0.65%
Total return, lowest to highest*** 14.16% to 14.39%
## Reflects the period from commencement of operations on May 3, 2004 through
December 31, 2004.
SUB-ACCOUNT
--------------------------------------------------------------------------------
QUANTITATIVE EQUITY TRUST
--------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04(LESS THAN) DEC. 31/03 DEC. 31/02 DEC. 31/01
--------------------- ---------------- -------------------- --------------------
Units, beginning of year............. 538,573 704,257 707,953 718,538
Units issued......................... 61,041 184,033 243,025 126,527
Units redeemed....................... (599,614) (349,717) (246,721) (137,112)
------------------ ---------------- -------------------- --------------------
Units, end of year................... -- 538,573 704,257 707,953
================== ================ ==================== ====================
Unit value, end of year.............. $9.30 - $45.01 $9.34 - $45.17 $7.60 - $36.67 $10.59 - $51.01
Assets, end of year.................. $-- $20,778,897 $21,189,836 $33,132,109
Investment income ratio/(1)/......... 0.99% 0.68% 0.30% 0.29%
Expense ratio, lowest to highest/(2)/ 0.40% to 0.65% 0.40% to 0.65% 0.45% to 0.65% 0.45% to 0.65%
Total return, lowest to highest/(3)/. (0.45%) to (0.37%) 22.75% to 23.06% (28.25%) to (28.11%) (23.45%) to (23.30%)
(less than) Terminated as an investment option and funds transferred to U.S.
Large Cap Trust on May 3, 2004.
F-83
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
------------------------------------------------------
QUANTITATIVE MID CAP TRUST
------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02++
---------------- ---------------- --------------------
Units, beginning of year............. 14,437 1,039 --
Units issued......................... 41,021 27,939 6,248
Units redeemed....................... (24,255) (14,541) (5,209)
---------------- ---------------- --------------------
Units, end of year................... 31,203 14,437 1,039
================ ================ ====================
Unit value, end of year.............. $12.62 - $12.71 $10.74 - $10.80 $7.80 - $7.83
Assets, end of year.................. $394,385 $155,204 $8,139
Investment income ratio/(1)/......... 0.00% 0.00% 0.00%
Expense ratio, lowest to highest/(2)/ 0.45% to 0.65% 0.45% to 0.65% 0.45% to 0.65%
Total return, lowest to highest/(3)/. 17.44% to 17.67% 37.65% to 37.92% (23.15%) to (22.99%)
++ Fund available in prior year but no activity.
SUB-ACCOUNT
-----------------------------------------------------------------
REAL ESTATE SECURITIES TRUST
-----------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- --------------- ---------------
Units, beginning of year............. 445,289 572,990 495,247 433,589
Units issued......................... 359,425 190,483 458,746 197,124
Units redeemed....................... (293,205) (318,184) (381,003) (135,466)
---------------- ---------------- --------------- ---------------
Units, end of year................... 511,509 445,289 572,990 495,247
================ ================ =============== ===============
Unit value, end of year.............. $29.65 - $76.43 $22.58 - $57.88 $16.32 - $41.77 $15.99 - $40.88
Assets, end of year.................. $38,437,806 $24,344,448 $22,348,452 $19,809,218
Investment income ratio/(1)/......... 2.36% 2.98% 3.12% 3.12%
Expense ratio, lowest to highest/(2)/ 0.30% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.40% to 0.65%
Total return, lowest to highest/(3)/. 31.18% to 31.64% 38.24% to 38.59% 1.92% to 2.17% 2.48% to 2.74%
F-84
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
-------------------------------
REAL RETURN BOND TRUST
-------------------------------
YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03^
--------------- ---------------
Units, beginning of year............. 5,873 --
Units issued......................... 262,524 133,583
Units redeemed....................... (156,668) (127,710)
--------------- ---------------
Units, end of year................... 111,729 5,873
=============== ===============
Unit value, end of year.............. $14.14 - $14.22 $13.05 - $13.07
Assets, end of year.................. $1,584,831 $76,663
Investment income ratio/(1)/......... 0.49% 0.00%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.45% to 0.65%
Total return, lowest to highest/(3)/. 8.35% to 8.69% 4.43% to 4.57%
^ Reflects the period from commencement of operations on May 5, 2003 through
December 31, 2003.
SUB-ACCOUNT
-------------------------------------------------------------------------
SCIENCE & TECHNOLOGY TRUST
-------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
-------------- ---------------- -------------------- --------------------
Units, beginning of year............. 2,816,080 2,889,535 2,589,114 1,857,203
Units issued......................... 2,720,294 2,001,149 2,806,957 2,876,612
Units redeemed....................... (3,022,949) (2,074,604) (2,506,536) (2,144,701)
-------------- ---------------- -------------------- --------------------
Units, end of year................... 2,513,425 2,816,080 2,889,535 2,589,114
============== ================ ==================== ====================
Unit value, end of year.............. $5.08 - $13.50 $5.06 - $13.38 $3.39 - $8.94 $5.75 - $15.15
Assets, end of year.................. $30,223,103 $26,154,570 $18,853,376 $29,690,730
Investment income ratio/(1)/......... 0.00% 0.00% 0.00% 0.00%
Expense ratio, lowest to highest/(2)/ 0.30% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.40% to 0.65%
Total return, lowest to highest/(3)/. 0.22% to 0.58% 49.43% to 49.79% (41.15%) to (41.00%) (41.63%) to (41.49%)
F-85
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
----------------------------------------------------------------------
SMALL CAP INDEX TRUST
----------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- -------------------- ---------------
Units, beginning of year............. 162,048 226,973 58,468 3,750
Units issued......................... 586,135 280,118 325,076 104,968
Units redeemed....................... (294,215) (345,043) (156,571) (50,250)
---------------- ---------------- -------------------- ---------------
Units, end of year................... 453,968 162,048 226,973 58,468
================ ================ ==================== ===============
Unit value, end of year.............. $15.48 - $15.66 $13.28 - $13.38 $9.17 - $9.21 $11.75 - $11.77
Assets, end of year.................. $7,067,046 $2,159,093 $2,085,303 $687,114
Investment income ratio/(1)/......... 0.34% 0.00% 1.05% 5.76%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.55% to 0.65%
Total return, lowest to highest/(3)/. 16.56% to 16.92% 44.85% to 45.20% (21.98%) to (21.79%) 0.85% to 0.94%
SUB-ACCOUNT
---------------------------------
SMALL CAP OPPORTUNITIES TRUST
---------------------------------
YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03^
---------------- ----------------
Units, beginning of year............. 28,153 --
Units issued......................... 98,813 32,131
Units redeemed....................... (52,634) (3,978)
---------------- ----------------
Units, end of year................... 74,332 28,153
================ ================
Unit value, end of year.............. $21.77 - $21.88 $17.43 - $17.45
Assets, end of year.................. $1,625,557 $491,037
Investment income ratio/(1)/......... 0.03% 0.00%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65%
Total return, lowest to highest/(3)/. 24.96% to 25.34% 39.40% to 39.64%
^ Reflects the period from commencement of operations on May 5, 2003 through
December 31, 2003.
F-86
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
------------------------------------------------------------------------
SMALL COMPANY BLEND TRUST
------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
--------------- ---------------- -------------------- ------------------
Units, beginning of year............. 269,799 262,861 259,656 105,856
Units issued......................... 97,890 216,346 475,065 237,942
Units redeemed....................... (247,385) (209,408) (471,860) (84,142)
--------------- ---------------- -------------------- ------------------
Units, end of year................... 120,304 269,799 262,861 259,656
=============== ================ ==================== ==================
Unit value, end of year.............. $11.95 - $13.65 $11.21 - $12.79 $8.07 - $9.20 $10.89 - $12.39
Assets, end of year.................. $1,624,586 $3,332,298 $2,353,394 $3,178,735
Investment income ratio/(1)/......... 0.00% 0.00% 0.20% 0.00%
Expense ratio, lowest to highest/(2)/ 0.45% to 0.65% 0.45% to 0.65% 0.45% to 0.65% 0.55% to 0.65%
Total return, lowest to highest/(3)/. 6.51% to 6.71% 38.79% to 39.08% (26.04%) to (25.89%) (2.94%) to (2.84%)
SUB-ACCOUNT
--------------------------------------------------------------------
SMALL COMPANY VALUE TRUST
--------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- ------------------ ---------------
Units, beginning of year............. 1,151,115 1,194,763 521,854 255,050
Units issued......................... 1,166,644 1,030,795 1,822,893 529,457
Units redeemed....................... (791,942) (1,074,443) (1,149,984) (262,653)
---------------- ---------------- ------------------ ---------------
Units, end of year................... 1,525,817 1,151,115 1,194,763 521,854
================ ================ ================== ===============
Unit value, end of year.............. $15.67 - $23.28 $12.60 - $18.70 $9.49 - $14.07 $10.15 - $15.03
Assets, end of year.................. $24,396,927 $15,104,792 $11,607,392 $5,349,826
Investment income ratio/(1)/......... 0.15% 0.44% 0.25% 0.18%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.40% to 0.65%
Total return, lowest to highest/(3)/. 24.38% to 24.76% 32.81% to 33.12% (6.53%) to (6.30%) 5.85% to 6.11%
F-87
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
-----------------------------
SPECIAL VALUE TRUST
-----------------------------
YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03^
---------------- ------------
Units, beginning of year............. 10,527 --
Units issued......................... 3,178 20,755
Units redeemed....................... (1,756) (10,228)
---------------- --------
Units, end of year................... 11,949 10,527
================ ========
Unit value, end of year.............. $18.81 - $18.87 $15.77
Assets, end of year.................. $225,420 $166,036
Investment income ratio/(1)/......... 0.00% 0.00%
Expense ratio, lowest to highest/(2)/ 0.45% to 0.65% 0.45%
Total return, lowest to highest/(3)/. 19.40% to 19.65% 26.18%
^ Reflects the period from commencement of operations on May 5, 2003 through
December 31, 2003.
SUB-ACCOUNT
----------------------------------------------------------------
STRATEGIC BOND TRUST
----------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
--------------- ---------------- --------------- ---------------
Units, beginning of year............. 169,132 221,458 183,559 69,600
Units issued......................... 290,490 397,326 428,880 204,490
Units redeemed....................... (220,847) (449,652) (390,981) (90,531)
--------------- ---------------- --------------- ---------------
Units, end of year................... 238,775 169,132 221,458 183,559
=============== ================ =============== ===============
Unit value, end of year.............. $18.32 - $20.38 $17.27 - $19.15 $15.36 - $16.98 $14.17 - $15.62
Assets, end of year.................. $4,821,612 $3,179,959 $3,701,587 $2,855,362
Investment income ratio/(1)/......... 3.88% 6.69% 5.15% 4.49%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% 0.55% to 0.65%
Total return, lowest to highest/(3)/. 5.98% to 6.29% 12.38% to 12.66% 8.25% to 8.47% 5.55% to 5.66%
F-88
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
------------------------------------------------------------------
STRATEGIC GROWTH TRUST
------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01*
--------------- ---------------- -------------------- ------------
Units, beginning of year............. 153,437 123,666 68,964 --
Units issued......................... 117,728 109,988 335,268 69,524
Units redeemed....................... (172,448) (80,217) (280,566) (560)
--------------- ---------------- -------------------- --------
Units, end of year................... 98,717 153,437 123,666 68,964
=============== ================ ==================== ========
Unit value, end of year.............. $10.47 - $10.56 $9.89 - $9.95 $7.85 - $7.88 $10.97
Assets, end of year.................. $1,039,479 $1,522,884 $972,517 $756,713
Investment income ratio/(1)/......... 0.00% 0.00% 0.00% 0.00%
Expense ratio, lowest to highest/(2)/ 0.40% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.65%
Total return, lowest to highest/(3)/. 5.87% to 6.14% 26.04% to 26.35% (28.50%) to (28.33%) (12.22%)
* Reflects the period from commencement of operations on May 1, 2001 through
December 31, 2001.
SUB-ACCOUNT
----------------------
STRATEGIC INCOME TRUST
----------------------
PERIOD ENDED
DEC. 31/04##
----------------------
Units, beginning of year............. --
Units issued......................... 2,246
Units redeemed....................... (21)
---------------
Units, end of year................... 2,225
===============
Unit value, end of year.............. $13.56 - $13.57
Assets, end of year.................. $30,167
Investment income ratio/(1)/......... 6.19%
Expense ratio, lowest to highest/(2)/ 0.45% to 0.65%
Total return, lowest to highest/(3)/. 8.46% to 8.60%
## Reflects the period from commencement of operations on May 3, 2004 through
December 31, 2004.
F-89
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
---------------------------------------------------------------------------
STRATEGIC OPPORTUNITIES TRUST
---------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- -------------------- --------------------
Units, beginning of year............. 588,318 895,938 706,044 863,681
Units issued......................... 299,516 493,480 804,779 529,543
Units redeemed....................... (491,171) (801,100) (614,885) (687,180)
---------------- ---------------- -------------------- --------------------
Units, end of year................... 396,663 588,318 895,938 706,044
================ ================ ==================== ====================
Unit value, end of year.............. $9.17 - $12.43 $8.21 - $11.09 $6.56 - $8.84 $10.77 - $14.47
Assets, end of year.................. $4,732,242 $5,962,880 $7,208,068 $9,806,062
Investment income ratio/(1)/......... 0.09% 0.00% 0.00% 0.51%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% 0.55% to 0.65%
Total return, lowest to highest/(3)/. 11.58% to 11.93% 25.03% to 25.34% (39.16%) to (39.04%) (15.81%) to (15.72%)
SUB-ACCOUNT
---------------------------------------------------------------------------
STRATEGIC VALUE TRUST
---------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01*
---------------- ---------------- -------------------- --------------------
Units, beginning of year............. 235,464 34,516 9,069 --
Units issued......................... 79,793 211,670 29,192 9,089
Units redeemed....................... (243,643) (10,722) (3,745) (20)
---------------- ---------------- -------------------- --------------------
Units, end of year................... 71,614 235,464 34,516 9,069
================ ================ ==================== ====================
Unit value, end of year.............. $11.56 - $11.66 $9.86 - $9.93 $7.71 - $7.73 $10.65 - $10.67
Assets, end of year.................. $832,892 $2,330,657 $266,768 $96,738
Investment income ratio/(1)/......... 0.25% 0.01% 0.00% 0.00%
Expense ratio, lowest to highest/(2)/ 0.40% to 0.65% 0.40% to 0.65% 0.45% to 0.65% 0.45% to 0.65%
Total return, lowest to highest/(3)/. 17.23% to 17.52% 27.94% to 28.27% (27.66%) to (27.52%) (14.77%) to (14.67%)
* Reflects the period from commencement of operations on May 1, 2001 through
December 31, 2001.
F-90
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
---------------------------------------------------------------
TOTAL RETURN TRUST
---------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
--------------- --------------- --------------- ---------------
Units, beginning of year............. 2,319,152 2,315,832 1,419,177 340,762
Units issued......................... 2,668,560 1,537,006 3,545,219 1,361,346
Units redeemed....................... (2,153,777) (1,533,686) (2,648,564) (282,931)
--------------- --------------- --------------- ---------------
Units, end of year................... 2,833,935 2,319,152 2,315,832 1,419,177
=============== =============== =============== ===============
Unit value, end of year.............. $17.28 - $17.53 $16.57 - $16.70 $15.89 - $15.97 $14.60 - $14.65
Assets, end of year.................. $49,394,073 $38,643,292 $36,916,915 $20,755,404
Investment income ratio/(1)/......... 3.71% 2.77% 2.58% 2.22%
Expense ratio, lowest to highest/(2)/ 0.30% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.40% to 0.65%
Total return, lowest to highest/(3)/. 4.28% to 4.65% 4.32% to 4.60% 8.80% to 9.08% 7.58% to 7.85%
SUB-ACCOUNT
---------------------------------------------------------------------------
TOTAL STOCK MARKET INDEX TRUST
---------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- -------------------- --------------------
Units, beginning of year............. 371,604 181,207 309,502 118,184
Units issued......................... 405,051 467,766 327,720 302,834
Units redeemed....................... (545,752) (277,369) (456,015) (111,516)
---------------- ---------------- -------------------- --------------------
Units, end of year................... 230,903 371,604 181,207 309,502
================ ================ ==================== ====================
Unit value, end of year.............. $11.10 - $11.23 $9.99 - $10.07 $7.71 - $7.74 $9.85 - $9.87
Assets, end of year.................. $2,572,128 $3,719,559 $1,397,047 $3,050,162
Investment income ratio/(1)/......... 0.73% 0.00% 0.42% 1.20%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% 0.55% to 0.65%
Total return, lowest to highest/(3)/. 11.02% to 11.35% 29.69% to 30.02% (21.80%) to (21.65%) (11.99%) to (11.90%)
F-91
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES TRUST
------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
--------------- ---------------- -------------------- ------------------
Units, beginning of year............. 595,722 1,081,467 719,661 199,345
Units issued......................... 625,354 950,497 1,334,914 694,784
Units redeemed....................... (679,384) (1,436,242) (973,108) (174,468)
--------------- ---------------- -------------------- ------------------
Units, end of year................... 541,692 595,722 1,081,467 719,661
=============== ================ ==================== ==================
Unit value, end of year.............. $15.08 - $16.15 $14.76 - $15.78 $14.60 - $15.59 $13.61 - $14.52
Assets, end of year.................. $8,245,778 $8,887,862 $16,062,944 $9,992,662
Investment income ratio/(1)/......... 1.95% 4.00% 3.29% 4.63%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.45% to 0.65%
Total return, lowest to highest/(3)/. 2.21% to 2.54% 1.07% to 1.32% 7.30% to 7.56% 6.33% to 6.55%
SUB-ACCOUNT
------------------------------------------------------------------------
U.S. LARGE CAP TRUST
------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
--------------- ---------------- -------------------- ------------------
Units, beginning of year............. 284,605 268,376 277,574 157,692
Units issued......................... 1,930,714 230,093 443,269 379,250
Units redeemed....................... (575,288) (213,864) (452,467) (259,368)
--------------- ---------------- -------------------- ------------------
Units, end of year................... 1,640,031 284,605 268,376 277,574
=============== ================ ==================== ==================
Unit value, end of year.............. $13.91 - $14.07 $12.79 - $12.89 $9.38 - $9.44 $12.61 - $12.66
Assets, end of year.................. $22,836,763 $3,646,301 $2,521,529 $3,505,205
Investment income ratio/(1)/......... 0.09% 0.39% 0.36% 0.27%
Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.45% to 0.65%
Total return, lowest to highest/(3)/. 8.68% to 9.01% 36.17% to 36.52% (25.67%) to (25.49%) (3.18%) to (2.98%)
F-92
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
SUB-ACCOUNT
-------------------------------------------------------------------
UTILITIES TRUST
-------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED PERIOD ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01*
---------------- ---------------- -------------------- ------------
Units, beginning of year............. 12,829 4,043 5,383 --
Units issued......................... 57,841 34,544 12,660 5,433
Units redeemed....................... (30,453) (25,758) (14,000) (50)
---------------- ---------------- -------------------- --------
Units, end of year................... 40,217 12,829 4,043 5,383
================ ================ ==================== ========
Unit value, end of year.............. $12.15 - $12.26 $9.45 - $9.50 $7.07 - $7.09 $9.31
Assets, end of year.................. $489,462 $121,451 $28,615 $50,102
Investment income ratio/(1)/......... 0.54% 0.56% 0.01% 0.73%
Expense ratio, lowest to highest/(2)/ 0.40% to 0.65% 0.45% to 0.65% 0.45% to 0.65% 0.65%
Total return, lowest to highest/(3)/. 28.57% to 28.91% 33.64% to 33.93% (24.04%) to (23.89%) (25.55%)
* Reflects the period from commencement of operations on May 1, 2001 through
December 31, 2001.
SUB-ACCOUNT
----------------------------------------------------------------------
VALUE TRUST
----------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31/04 DEC. 31/03 DEC. 31/02 DEC. 31/01
---------------- ---------------- -------------------- ---------------
Units, beginning of year............. 720,769 715,767 700,592 281,401
Units issued......................... 1,280,008 639,080 622,576 639,311
Units redeemed....................... (920,018) (634,078) (607,401) (220,120)
---------------- ---------------- -------------------- ---------------
Units, end of year................... 1,080,759 720,769 715,767 700,592
================ ================ ==================== ===============
Unit value, end of year.............. $18.71 - $21.18 $16.33 - $18.39 $11.84 - $13.31 $15.42 - $17.26
Assets, end of year.................. $22,720,877 $12,699,749 $9,377,558 $11,984,303
Investment income ratio/(1)/......... 0.53% 1.23% 0.85% 0.53%
Expense ratio, lowest to highest/(2)/ 0.30% to 0.65% 0.40% to 0.65% 0.40% to 0.65% 0.40% to 0.65%
Total return, lowest to highest/(3)/. 14.43% to 14.83% 37.86% to 38.20% (23.31%) to (23.11%) 2.75% to 3.00%
/(1)/ 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 risk charges, that result in direct reductions
in unit values. The recognition of investment income by the sub-account is
affected by the timing of the declarations of dividends by the underlying
Trust portfolio in which the sub-accounts invest. It is the practice of the
Trusts, for income tax reasons, to declare dividends in April for investment
income received in the previous calendar year for all sub-accounts of the
Trusts except for the Money Market Trust which declares and reinvests
dividends on a daily basis. Any dividend distribution received from a
sub-account of the Trusts is reinvested immediately, at the 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.
/(2)/ These ratios represent the annualized contract expenses of the separate
account, consisting primarily of mortality and expense risk 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.
F-93
THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 2004
6. FINANCIAL HIGHLIGHTS -- (CONTINUED)
/(3)/ 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.
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. Contracts are sold by
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. Registered representatives are compensated on
a commission basis.
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
Effective January 1, 2005, the following name changes occurred:
PREVIOUS NAME NEW NAME
------------- --------
The Manufacturers Life Insurance John Hancock Life Insurance
Company (U.S.A.) Company (U.S.A.)
Manulife Financial Securities LLC John Hancock Distributors LLC
Manufacturers Investment Trust John Hancock Trust
The Manufacturers Life Insurance
Company John Hancock Life Insurance Company
F-94
PART C.
OTHER INFORMATION
Item 27. Exhibits
The following exhibits are filed as part of this Registration Statement:
(a) 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.
(b) Not Applicable
(c) (1) Form of Distribution Agreement. Incorporated by reference to
Exhibit A(3)(a)(i), (ii) and (iii) to the registration statement
on Form S-6, file number 333-66303 filed October 29, 1998 (the
"SVUL Registration Statement").
(2) Form of broker-dealer agreement - Incorporated by reference to
Exhibit A(3)(b)(i), to the initial registration statement on Form
S-6, file number 333-70950 filed October 4, 2001
(d) (1) Form of Specimen Flexible Premium Variable Life Insurance Policy
-- - Incorporated by reference to Exhibit A(5)(a) to
pre-effective amendment no. 1to the registration statement on
Form S-6, file number 333-100567 filed December 16, 2002.
(e) (1) Form of Specimen 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.
(f) (1) 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")
(2) By-Laws of The Manufacturers Life Insurance Company (U.S.A.) -
Incorporated by reference to Exhibit A(6)(b) to the Initial
Registration Statement.
(g) (1) Form of Assumption Reinsurance or Merger Agreement with The
Manufacturers Life Insurance Company (U.S.A.) and The
Manufacturers Life Insurance Company of America - Incorporated by
reference to Exhibit A(9)(a) to the initial registration
statement on Form S-6, file number 333-70950 filed October 4,
2001 ("the ManUSA Initial Registration Statement")
(h) Not Applicable
(i) (1) Form of Service Agreement between The Manufacturers Life
Insurance Company and The Manufacturers Life Insurance Company
(U.S.A.). Incorporated by reference to Exhibit A(8)(a)(i),(ii),
(iii), (iv), (v) and (vi) to pre-effective amendment no. 1 to the
registration statement on Form S-6, file number 333-51293 filed
August 28, 1998.
(2) Form of Amendment to Service Agreement between The Manufacturers
Life Insurance Company and The Manufacturers Life Insurance
Company (U.S.A.). 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.
(3) 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.
(4) 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.
(j) Memorandum Regarding Issuance, Face Amount Increase, Redemption and
Transfer Procedures for the Policies. Incorporated by reference to
Exhibit A(6) to pre-effective amendment no. 1 to the registration
statement on Form S-6, file number 333-100597 filed December 16, 2002.
(k) Opinion and consent of James D. Gallagher, Esq., Secretary and General
Counsel of The Manufacturers Life Insurance Company (U.S.A.) - -
Incorporated by reference to Exhibit 2 (a) to pre-effective amendment
no. 1 to the registration statement on Form S-6, file number
333-100597 filed December 16, 2002.
(l) Not Applicable
(m) Not Applicable
(n) Not Applicable
(n)(1) Not Applicable
(o) Not Applicable
(p) Not Applicable
(q) Not Applicable
Powers of Attorney
(i) Powers of Attorney (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 333- 71312.
(v) Power of Attorney (John D. DesPrez, Alison Alden, James R. Boyle, Marc
Costantini, James P. O'Malley, John R. Ostler, Rex Schlaybaugh, Jr.,
Diana Scott, Warren A. Thomson) - Filed Herewith
Item 28. Directors and Officers of the Depositor
---------------------------------------------------------------------------------------------------------
OFFICERS AND DIRECTORS OF JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.)
---------------------------------------------------------------------------------------------------------
Name and Principal Business Address Position with Depositor
---------------------------------------------------------------------------------------------------------
John D. DesPrez III* Director and Chairman of the Board of Directors,
President
---------------------------------------------------------------------------------------------------------
Alison Alden* Executive Vice President, Human Resources &
Communications, Director
---------------------------------------------------------------------------------------------------------
James Boyle* President, Individual Wealth Management, Director
---------------------------------------------------------------------------------------------------------
Robert A. Cook* President, U.S. Insurance; Director
---------------------------------------------------------------------------------------------------------
Peter Copestake** Senior Vice President, Treasurer
---------------------------------------------------------------------------------------------------------
James D. Gallagher* Executive Vice President, Secretary and General Counsel
---------------------------------------------------------------------------------------------------------
Donald Guloien** Senior Executive Vice President and Chief Investment Officer
---------------------------------------------------------------------------------------------------------
Norman Light** Senior Vice President and Chief Financial Officer, Investments
---------------------------------------------------------------------------------------------------------
Steven Mannik** President, Reinsurance
---------------------------------------------------------------------------------------------------------
James O'Malley** President, U.S. Group Pension; Director
---------------------------------------------------------------------------------------------------------
John Ostler** Director
---------------------------------------------------------------------------------------------------------
Rex Schlaybaugh, Jr.** Director
---------------------------------------------------------------------------------------------------------
Marc Costantini* Executive Vice President and Chief Financial Officer
---------------------------------------------------------------------------------------------------------
Warren Thomson** Executive Vice President, Investments, Director
---------------------------------------------------------------------------------------------------------
Diana Scott* Director, Executive Vice President & Chief
Administrative Officer
---------------------------------------------------------------------------------------------------------
Patrick S. Gill* Senior Vice President and Controller
---------------------------------------------------------------------------------------------------------
* Principal business office is 601 Congress Street, Boston, MA 02210
** Principal business office is 200 Bloor Street, Toronto, Canada M4W 1E5
Item 29. Persons Controlled by or Under Common Control with the Depositor or the
Registrant
John Hancock Life Insurance Company (U.S.A.)
Manulife Reinsurance Limited
Cavalier Cable, Inc.
The Manufacturers Life Insurance Company of America
John Hancock Investment Management Services, LLC
Manulife Reinsurance (Bermuda) Limited
Manulife Service Corporation
John Hancock Life Insurance Company of New York
Polymerix Corporation
Ennal, Inc.
John Hancock Distributors, LLC
Ironside Venture Partners I LLC
Ironside Venture Partners II LLC
Avon Long Term Care Leaders LLC
Flex Holding, LLC
Manulife Leasing Co., LLC
Aegis Analytical Corporation
NewRiver Investor Communications Inc.
Manulife Property Management of Washington, D.C., Inc.
ESLS Investment Limited, LLC
Flex Leasing I, LLC
Dover Leasing Investments, LLC
Item 30. Indemnification
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.
Item 31. Principal Underwriter
(a) Set forth below is information concerning other investment companies
for which John Hancock Distributors, LLC ("JHD LLC"), the principal
underwriter of the contracts, acts as investment adviser or principal
underwriter.
-----------------------------------------------------------------------------------
Name of Investment Company Capacity In Which Acting
-----------------------------------------------------------------------------------
John Hancock Life Insurance Company (U.S.A.) Separate Principal Underwriter
Account A
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
John Hancock Life Insurance Company (U.S.A.) Separate Principal Underwriter
Account H
-----------------------------------------------------------------------------------
John Hancock Life Insurance Company (U.S.A.) Separate Principal Underwriter
Account I
-----------------------------------------------------------------------------------
John Hancock Life Insurance Company (U.S.A.) Separate Principal Underwriter
Account L
-----------------------------------------------------------------------------------
John Hancock Life Insurance Company (U.S.A.) Separate Principal Underwriter
Account M
-----------------------------------------------------------------------------------
John Hancock Life Insurance Company (U.S.A.) Separate Principal Underwriter
Account N
-----------------------------------------------------------------------------------
John Hancock Life Insurance Company of New York Separate Principal Underwriter
Account A
-----------------------------------------------------------------------------------
John Hancock Life Insurance Company of New York Separate Principal Underwriter
Account B
-----------------------------------------------------------------------------------
(b) John Hancock Life Insurance Company (U.S.A.) is the sole member of JHD
LLC and the following officers of John Hancock Life Insurance Company
(U.S.A.) have power to act on behalf of JHD LLC: John DesPrez*
(Chairman and President), Marc Costantini* (Vice President and Chief
Financial Officer) and Jim Gallagher* (Vice President, Secretary and
General Counsel). The board of managers of JHD LLC (consisting of Gary
Buchanan**, Robert Cook* and John Vrysen***) may also act on behalf of
JHD LLC.
* Principal business office is 601 Congress Street, Boston, MA
02210
** Principal business office is 200 Bloor Street, Toronto, Canada
M4W 1E5
*** Principal business office is 680 Washington Blvd, Stamford, CT
06901
(c) None.
Item 32. Location of Accounts and Records
All books and records are maintained at 601 Congress Street, Boston, MA
02210 and 200 Bloor Street East, Toronto, Ontario, Canada M4W 1E5.
Item 33. Management Services
None
Item 34. Fee Representation
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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant and the Depositors have carried
this registration statement. Registration Statement to be signed on their behalf
in the city of Boston, Massachusetts, on this 18th day of July, 2005.
JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.)
SEPARATE ACCOUNT N
(Registrant)
By: JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.)
(Depositor)
By: /s/ John D. DesPrez III
--------------------------------------------
John D. DesPrez III
President
JOHN HANCOCK 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
initial Registration Statement has been signed by the following persons in the
capacities indicated on this 18th day of July, 2005.
Signature Title
--------- -----
/s/ Patrick J. Gill Senior Vice President and Controller
------------------------------------- (Principal Financial officer and
Patrick J. Gill Principal Accounting officer)
Signature Title
--------- -----
/s/ John D. DesPrez III Chairman and President
------------------------------------- (Principal Executive Officer)
John D. DesPrez III
* Executive Vice President and
------------------------------------- Chief Financial Officer
Marc Costantini
* Director
-------------------------------------
James Boyle
* Director
-------------------------------------
Warren Thomson
* Director
-------------------------------------
John Ostler
* Director
-------------------------------------
James O'Malley
* Director
-------------------------------------
Rex Schlaybaugh, Jr.
* Director
-------------------------------------
Alison Alden
* Director
-------------------------------------
Diana Scott
*/s/ James D. Gallagher
-------------------------------------
JAMES D. GALLAGHER
Pursuant to Power of Attorney
CORRESP
2
filename2.txt
John Hancock Financial Services, Inc.
John Hancock Place [LOGO OF JOHN HANCOCK FINANCIAL
Post Office Box 111 SERVICES COMPANY]
Boston, Massachusetts 02117
(617) 572-9197
Fax: (617) 572-9161
E-mail: jchoodlet@jhancock.com
James C. Hoodlet
Vice President and Counsel
July 18, 2005
VIA EDGAR
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: John Hancock Life Insurance Company (U.S.A)
Separate Account N
File Nos. 811-5130
Initial Form N-6 Registration Statement under the 1933 Act
Commissioners:
Conveyed herewith via EDGAR for filing under the Securities Act of 1933
("1933 Act"), pursuant to Rule 101(a)(i) of Regulation S-T, is the initial Form
N-6 registration statement for the Separate Account N ("Registrant") relating to
the Corporate VUL ("CVUL") insurance policies to be offered by John Hancock Life
Insurance Company (U.S.A.) ("John Hancock" or the "Depositor").
Background of the Enclosed Filing
The purpose of this filing is to add the CVUL prospectus to the
Registrant's filing under the Investment Company Act of 1940 and to obtain a
separate 1933 Act file number for the separate account interests offered through
the CVUL prospectus. The CVUL policy and prospectus is in many ways quite
similar to the Protection Variable Universal Life ("PVUL") policy and prospectus
issued by Depositor. The separate account interests under the PVUL policy are
registered by John Hancock Variable Account A under File Nos. 811-4834 and
333-124150. The material differences between the two products are (i) those
required to reflect the different Registrant (Variable Account N), (ii) the
absence of a "No-Lapse Guarantee" in the CVUL product, (iii) the absence of a
surrender charge in the CVUL policy, (iv) the different limiting age (age 100
vs. age 121 in the PVUL product), (v) the availability of only a single rider
(Enhanced Cash Value Rider) with the PVUL policy, and (vi) changes in certain
administrative procedures (such as the elimination of the option to change the
death benefit from Option 1 to Option 2). The prospectus also reflects the
change to no longer provide page references in the text to cited sections of the
prospectus. Providing such page references is time consuming and
prone to error as we work through the various prospectus drafts, and offers the
investors little benefit given the existence of the page references in the Table
of Contents.
Matters to be Completed by Pre-Effective Amendment
Registrant will file a pre-effective amendment to respond to comments of
the Commission staff and otherwise complete the enclosed filing prior to
effectiveness. Registrant would appreciate receiving any comments the Commission
staff may have prior to that time pertaining to the enclosed registration
statement.
Request for Selective Review
In view of the similarities between this filing and the JHUSA PVUL
filing as noted above, Registrant hereby requests selective review of this
filing.
Request for Acceleration
An oral request for acceleration of the enclosed filing may be made. The
Registrant and its Principal Underwriter have authorized us to hereby state to
the Commission on their behalf that they are aware of their obligations under
the Securities Act of 1933.
Please direct all questions to the undersigned at (617) 572-9197.
Sincerely,
/s/ James C. Hoodlet
James C. Hoodlet
Vice President & Counsel