-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EigCj7MiVjFDXjWjpMQJA2wsJOmlittb/0pE9oOKVpELme+IssoHRsvE0utMkJom zRnxdT6FQUCFsDcpvYSlvg== 0001193125-06-094510.txt : 20060501 0001193125-06-094510.hdr.sgml : 20060501 20060501114648 ACCESSION NUMBER: 0001193125-06-094510 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20060501 DATE AS OF CHANGE: 20060501 EFFECTIVENESS DATE: 20060501 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: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 333-126668 FILM NUMBER: 06793334 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: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-05130 FILM NUMBER: 06793335 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 0000813572 S000009940 JOHN HANCOCK LIFE INSURANCE CO (USA) SEPARATE ACCOUNT N C000027520 CVUL 05 485BPOS 1 d485bpos.txt JH ACCT N - CVUL 05 As filed with the U.S. Securities and Exchange Commission on April 27, 2006 Registration No. 333-126668 ---------------------------------------------- U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ FORM N-6 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 POST EFFECTIVE AMENDMENT NO.1 [X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 AMENDMENT NO. 7 [X] John Hancock Life Insurance Company (U.S.A.) SEPARATE ACCOUNT N (Exact Name of Registrant) John Hancock Life Insurance Company (U.S.A.) (Name of Depositor) 197 Clarendon Street Boston, MA 02117 (Complete address of depositor's principal executive offices) Depositor's Telephone Number: 617-572-6000 ------------------ JAMES C. HOODLET, ESQ. John Hancock Life Insurance Company (U.S.A.) U.S. Protection - LAW JOHN HANCOCK PLACE BOSTON, MA 02117 (Name and complete address of agent for service) ------------------ Copy to: THOMAS C. LAUERMAN, ESQ. Jorden Burt LLP 1025 Thomas Jefferson Street, N.W. Suite 400 East Washington, D.C. 20007-5208 ------------------ It is proposed that this filing will become effective (check appropriate box) [ ] immediately upon filing pursuant to paragraph (b) of Rule 485 [ X ] on May 1, 2006 pursuant to paragraph (b) of Rule 485 [ ] 60 days after filing pursuant to paragraph (a) (1) of Rule 485 [ ] on (date) pursuant to paragraph (a) (1) of Rule 485 If appropriate check the following box [ ] this post-effective amendment designates a new effective date for a previously filed amendment Pursuant to the provisions of Rule 24f-2, Registrant has registered an indefinite amount of the securities under the Securities Act of 1933. Prospectus dated May 1, 2006 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 fixed account options with fixed rates of return declared by John Hancock USA and the following investment accounts: Science & Technology Pacific Rim Health Sciences Emerging Growth Small Cap Growth Emerging Small Company Small Cap Small Cap Index Dynamic Growth Mid Cap Stock Natural Resources All Cap Growth Strategic Opportunities Financial Services International Opportunities International Small Cap International Equity Index B Overseas Equity American International International Value International Core Quantitative Mid Cap Mid Cap Index Mid Cap Core Global Capital Appreciation American Growth U.S. Global Leaders Growth Quantitative All Cap All Cap Core Total Stock Market Index Blue Chip Growth U.S. Large Cap Core Equity Strategic Value Large Cap Value Classic Value Utilities Real Estate Securities Small Cap Opportunities Small Cap Value Small Company Value Special Value Mid Value Mid Cap Value Value All Cap Value Growth & Income 500 Index B Fundamental Value U.S. Core Large Cap Quantitative Value American Growth-Income Equity-Income American Blue Chip Income and Growth Income & Value Managed PIMCO VIT All Asset Global Allocation High Yield U.S. High Yield Bond Strategic Bond Strategic Income Global Bond Investment Quality Bond Total Return American Bond Real Return Bond Bond Index B Core Bond Active Bond U.S. Government Securities Short-Term Bond Money Market B Lifestyle Aggressive Lifestyle Growth Lifestyle Balanced Lifestyle Moderate Lifestyle Conservative * * * * * * * * * * * * Please note that the Securities and Exchange Commission ("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. Prior to making any investment decisions, you should carefully review this product prospectus and all applicable supplements. In addition, you will receive the prospectuses for the underlying funds that we make available as investment options under the policies. The funds' prospectuses describe the investment objectives, policies and restrictions of, and the risks relating to, investment in the funds. In the case of any of the portfolios that are operated as "feeder funds", the prospectus for the corresponding "master fund" is also provided. If you need to obtain additional copies of any of these documents, please contact your John Hancock representative or contact our Service Office at the address and telephone number on the back page of this product prospectus. 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 .................................. 13 Table of Investment Options and Investment Subadvisers ........................................ 13 Description of John Hancock USA ....................... 22 Description of Separate Account N ..................... 22 The fixed account ..................................... 23 The death benefit ..................................... 23 Limitations on payment of death benefit ............ 23 Base Face Amount vs. Supplemental Face Amount .......................................... 23 The minimum death benefit .......................... 24 When the insured person reaches 100 ................ 24 Requesting an increase in coverage ................. 24 Requesting a decrease in coverage .................. 25 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 ................ 26 Premiums .............................................. 26 Planned premiums ................................... 26 Minimum initial premium ............................ 26 Maximum premium payments ........................... 26 Processing premium payments ........................ 26 Ways to pay premiums ............................... 27 Lapse and reinstatement ............................... 27 Lapse .............................................. 27 Death during grace period .......................... 27 Reinstatement ...................................... 27 The policy value ...................................... 28 Allocation of future premium payments .............. 28 Transfers of existing policy value ................. 28 Surrender and withdrawals ............................. 29 Surrender .......................................... 29 Withdrawals ........................................ 29 Policy loans .......................................... 30 Repayment of policy loans .......................... 30 Effects of policy loans ............................ 30 Description of charges at the policy level ............ 31 Deduction from premium payments .................... 31 Deductions from policy value ....................... 31 Additional information about how certain policy charges work .................................... 31 Sales expenses and related charges ................. 31 Method of deduction ................................ 32 Reduced charges for eligible classes ............... 32 Other charges we could impose in the future ........ 32 Description of charges at the portfolio level ......... 32 Other policy benefits, rights and limitations ......... 32 Optional supplementary benefit riders you can add ............................................. 32 Variations in policy terms ......................... 33 Procedures for issuance of a policy ................ 33 Commencement of insurance coverage ................. 33 Backdating ......................................... 34 Temporary coverage prior to policy delivery ........ 34 Monthly deduction dates ............................ 34 Changes that we can make as to your policy ......... 34 The owner of the policy ............................ 34 Policy cancellation right .......................... 35 Reports that you will receive ...................... 35 Assigning your policy .............................. 35 When we pay policy proceeds ........................ 35 General ............................................ 35 Delay to challenge coverage ........................ 35 Delay for check clearance .......................... 35 Delay of separate account proceeds ................. 35 Delay of general account surrender proceeds ........ 36 How you communicate with us ........................ 36 General rules ...................................... 36 Telephone, facsimile and internet transactions ..... 36 Distribution of policies ........................... 37 Tax considerations .................................... 38 General ............................................ 38 Policy death benefit proceeds ...................... 38 Other policy distributions ......................... 38 Policy loans ....................................... 39 Diversification rules and ownership of the Account ......................................... 39 7-pay premium limit and modified endowment contract status ................................. 40 Corporate and H.R. 10 retirement plans ............. 41 Withholding ........................................ 41 Life insurance purchases by residents of Puerto Rico ............................................ 41 Life insurance purchases by non-resident aliens .... 41 Financial statements reference ........................ 41 Registration statement filed with the SEC ............. 41 Independent registered public accounting firm ......... 41 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 and accrued interest. 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 Amount 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, . gain or loss of 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. We reserve the right to charge a fee of up to the lesser of 2% of the withdrawal amount or $25 for each withdrawal. Your policy value is automatically reduced by the amount of the withdrawal and the fee. 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. Policy loans permanently affect the calculation of your policy value, and may also result in adverse tax consequences. 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 underlie 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 performance of your policy. Summary of policy risks Lapse risk If the net cash surrender 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 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 limitations on transfers out of the fixed account options are more restrictive than those that apply to transfers out of investment accounts. Early surrender risk Depending on the policy value at the time you are considering surrender, there may be little or no surrender value payable to you. 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 portfolio to increased portfolio transaction costs and/or disrupt the portfolio manager's ability to effectively manage the 5 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 extended to 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 contract", 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 a tax risk associated with policy loans. Although no part of a loan is treated as income to you when the loan is made (unless your policy is a "modified endowment contract"), 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. We reserve the right to increase the premium charge beyond the level indicated on the Transaction Fees table in order to correspond with changes in state premium tax levels or in the Federal income tax treatment of the deferred acquisition costs for this type of policy. Currently, state premium tax levels range from 0% to 3.5%.
- ----------------------------------------------------------------------------------------------------------------------------------- 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. 7 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 $0.07 per $1,000 of NAR $0.05 per $1,000 of NAR Maximum charge $83.33 per $1,000 of NAR $83.33 per $1,000 of NAR Charge for representative $0.38 per $1,000 of NAR $0.13 per $1,000 of NAR insured person - ----------------------------------------------------------------------------------------------------------------------------------- Face Amount charge:/(2)/ Monthly for 10 policy years from the Policy Date Minimum charge $0.09 per $1,000 of Base Face $0.09 per $1,000 of Base Face Amount in policy years 1-10 Amount in policy years 1-3 $0.06 per $1,000 of Base Face Amount in policy years 4-6 $0.03 per $1,000 of Base Face Amount in policy years 7-10 Maximum charge $1.08 per $1,000 of Base Face $1.08 per $1,000 of Base Face Amount in policy years 1-10 Amount in policy years 1-3 $0.72 per $1,000 of Base Face Amount in policy years 4-6 $0.36 per $1,000 of Base Face Amount in policy years 7-10 Charge for representative $0.28 per $1,000 of Base Face $0.28 per $1,000 of Base Face insured person Amount Amount in policy years 1-3 $0.19 per $1,000 of Base Face Amount in policy years 4-6 $0.09 per $1,000 of Base Face Amount in policy years 7-10 - ----------------------------------------------------------------------------------------------------------------------------------- Administrative charge Monthly $12 $9 - ----------------------------------------------------------------------------------------------------------------------------------- Asset-based risk charge/(3)/ Monthly 0.08% of policy value in policy 0.03% of policy value in policy years 1-10 years 1-10 0.03% of policy value in policy 0.004% 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 cost of 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 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 15 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, issue age and death benefit option of the insured person. The "minimum" rate shown in the table is for a 15 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. 8 (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 0.5% of premium paid in the first 7 policy years, up to the of premium Limiting Premium (1) for each policy year stated in the Policy Specifications page of the policy. - ------------------------------------------------------------------------------------------------------------------------------------ Change of Life Insured Rider At exercise of $250 benefit - ------------------------------------------------------------------------------------------------------------------------------------
(1) The "Limiting Premium" is an amount determined by multiplying the Base Face Amount at issue by an applicable rate which varies by the sex and issue age of the insured person. The "minimum" rate is for a 15-year old female and is $17.90 per $1000 of Base Face Amount. The "maximum" rate is for a 90-year old male and is $216.26 per $1000 of Base Face Amount. The rate for a "representative insured person" is for a 45 year old male and is $56.49 per $1000 of Base Face Amount. Thus, for the representative 45 year old male with $100,000 of Base Face Amount, the Limiting Premium for the policy year would be $5,649.00. 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% 1.53%
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, American Bond 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. Except as indicated in the footnotes appearing at the end of the table, the expense ratios are based upon the portfolio's actual expenses for the year ended December 31, 2005. Portfolio Annual Expenses (as a percentage of portfolio average net assets, rounded to two decimal places)
Management 12b-1 Other Total Portfolio Fees Fees Expenses Annual Expenses - --------- ------------ ------- ---------- ---------------- Science & Technology ...................... 1.05%/A/ N/A 0.07% 1.12% Pacific Rim ............................... 0.80% N/A 0.24% 1.04% Health Sciences ........................... 1.05%/A/ N/A 0.12% 1.17% Emerging Growth ........................... 0.80% N/A 0.08% 0.88% Small Cap Growth .......................... 1.07% N/A 0.06% 1.13% Emerging Small Company .................... 0.97% N/A 0.07% 1.04% Small Cap/B/ .............................. 0.85% N/A 0.03% 0.88% Small Cap Index ........................... 0.49% N/A 0.04% 0.53% Dynamic Growth ............................ 0.95% N/A 0.07% 1.02% Mid Cap Stock ............................. 0.84% N/A 0.08% 0.92% Natural Resources ......................... 1.00% N/A 0.07% 1.07% All Cap Growth ............................ 0.85% N/A 0.06% 0.91% Strategic Opportunities ................... 0.80% N/A 0.08% 0.88% Financial Services ........................ 0.82%/C/ N/A 0.09% 0.91% International Opportunities ............... 0.90% N/A 0.06% 0.96%
9
Management 12b-1 Other Total Portfolio Fees Fees Expenses Annual Expenses - --------- ------------ ------- ---------- ---------------- International Small Cap ................... 0.92% N/A 0.21% 1.13% International Equity Index B/B/D/I/ ....... 0.55% N/A 0.04% 0.59% Overseas Equity/B/ ........................ 1.05% N/A 0.23% 1.28% American International/E/H/ ............... 0.52% 0.60% 0.08% 1.20% International Value ....................... 0.82%/F/ N/A 0.19% 1.01% International Core ........................ 0.89% N/A 0.07% 0.96% Quantitative Mid Cap ...................... 0.74% N/A 0.10% 0.84% Mid Cap Index ............................. 0.49% N/A 0.04% 0.53% Mid Cap Core .............................. 0.87% N/A 0.08% 0.95% Global .................................... 0.82%/F/ N/A 0.16% 0.98% Capital Appreciation ...................... 0.81% N/A 0.05% 0.86% American Growth/E/ ........................ 0.33% 0.60% 0.04% 0.97% U.S. Global Leaders Growth ................ 0.70% N/A 0.06% 0.76% Quantitative All Cap ...................... 0.71% N/A 0.06% 0.77% All Cap Core .............................. 0.80% N/A 0.07% 0.87% Total Stock Market Index .................. 0.49% N/A 0.04% 0.53% Blue Chip Growth .......................... 0.81%/A/ N/A 0.07% 0.88% U.S. Large Cap ............................ 0.83% N/A 0.06% 0.89% Core Equity ............................... 0.79% N/A 0.06% 0.85% Strategic Value ........................... 0.85% N/A 0.08% 0.93% Large Cap Value ........................... 0.84% N/A 0.08% 0.92% Classic Value ............................. 0.80% N/A 0.24% 1.04% Utilities ................................. 0.85% N/A 0.19% 1.04% Real Estate Securities .................... 0.70% N/A 0.06% 0.76% Small Cap Opportunities ................... 0.99% N/A 0.08% 1.07% Small Cap Value/B/D/ ...................... 1.07% N/A 0.05% 1.12% Small Company Value/D/ .................... 1.03%/A/ N/A 0.05% 1.08% Special Value ............................. 1.00% N/A 0.21% 1.21% Mid Value ................................. 0.98%/A/ N/A 0.08% 1.06% Mid Cap Value ............................. 0.85% N/A 0.05% 0.90% Value ..................................... 0.74% N/A 0.06% 0.80% All Cap Value ............................. 0.83% N/A 0.07% 0.90% Growth & Income/B/ ........................ 0.68% N/A 0.08% 0.76% 500 Index B/B/D/I/ ........................ 0.47% N/A 0.03% 0.50% Fundamental Value ......................... 0.77%/C/ N/A 0.05% 0.82% U.S. Core ................................. 0.76% N/A 0.05% 0.81% Large Cap/B/ .............................. 0.84% N/A 0.05% 0.89% Quantitative Value ........................ 0.70% N/A 0.06% 0.76% American Growth-Income/E/ ................. 0.28% 0.60% 0.05% 0.93% Equity-Income ............................. 0.81%/A/ N/A 0.05% 0.86% American Blue Chip Income and Growth/E/ ... 0.44% 0.60% 0.04% 1.08% Income & Value ............................ 0.79% N/A 0.08% 0.87% Managed/B/ ................................ 0.69% N/A 0.06% 0.75% PIMCO VIT All Asset ....................... 0.20% 0.25% 1.08%/G/ 1.53% Global Allocation ......................... 0.85% N/A 0.19% 1.04% High Yield ................................ 0.66% N/A 0.07% 0.73% U.S. High Yield Bond/B/D/ ................. 0.74% N/A 0.21% 0.95% Strategic Bond ............................ 0.67% N/A 0.08% 0.75% Strategic Income .......................... 0.73% N/A 0.30% 1.03%
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Management 12b-1 Other Total Portfolio Fees Fees Expenses Annual Expenses - --------- ------------ ------- ---------- ---------------- Global Bond ............................... 0.70% N/A 0.12% 0.82% Investment Quality Bond ................... 0.60% N/A 0.09% 0.69% Total Return .............................. 0.70% N/A 0.07% 0.77% American Bond/E/ .......................... 0.43% 0.60% 0.04% 1.07% Real Return Bond .......................... 0.70% N/A 0.07% 0.77% Bond IndexB/B/D/I/ ........................ 0.47% N/A 0.03% 0.50% Core Bond/B/ .............................. 0.67% N/A 0.07% 0.74% Active Bond/B/ ............................ 0.60% N/A 0.07% 0.67% U.S. Government Securities ................ 0.59% N/A 0.07% 0.66% Short-Term Bond/B/ ........................ 0.59% N/A 0.09% 0.68% Money Market B/B/D/I/ ..................... 0.49% N/A 0.04% 0.53% Lifestyle Aggressive ...................... 0.05% N/A 0.95%/H/ 1.00% Lifestyle Growth .......................... 0.05% N/A 0.89%/H/ 0.94% Lifestyle Balanced ........................ 0.05% N/A 0.86%/H/ 0.91% Lifestyle Moderate ........................ 0.05% N/A 0.81%/H/ 0.86% Lifestyle Conservative .................... 0.05% N/A 0.78%/H/ 0.83%
/A/ The adviser has voluntarily agreed to waive a portion of its advisory fee for the Blue Chip Growth, Equity-Income, Health Sciences, Mid Value, Science & Technology, and Small Company Value portfolios. This waiver is based on the combined average daily net assets of these portfolios and the following funds of John Hancock Funds II: Blue Chip Growth Fund, Equity-Income Fund, Health Sciences Fund, Science & Technology Fund, Small Company Value Fund, Spectrum Income Fund and Real Estate Equity Fund (collectively, the "T. Rowe Portfolios"). The percentage fee reduction is as follows: Combined Average Daily Net Fee Reduction Assets of the T. Rowe Portfolios (as a percentage of the Management Fee) - -------------------------------- ---------------------------------------- First $750 million ................ 0.00% Over $750 million ................. 5.0% Effective November 1, 2006, the percentage reduction will be as follows: Combined Average Daily Net Fee Reduction Assets of the T. Rowe Portfolios (as a percentage of the Management Fee) - ------------------------------------- ---------------------------------------- First $750 million ................ 0.00% Next $750 million ................. 5.0% Excess over $1.5 billion .......... 7.5% This voluntary fee waiver may be terminated at any time by the adviser. /B/ Commenced operations April 29, 2005. /C/ For the period prior to October 14, 2005, the adviser voluntarily agreed to reduce its advisory fee for the Financial Services and Fundamental Value portfolios to the amounts shown below as a percentage of average annual net assets.
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%
Effective October 14, 2005, the advisory fees for the Financial Services and the Fundamental Value portfolios were lowered to the rates for the voluntary advisory fee waiver set forth above and the voluntary advisory fee waiver was eliminated. If the advisory fee waiver for the period prior to October 14, 2005 were reflected, it is estimated that the management fees for these portfolios would have been as follows: Financial Services ......... 0.82% Fundamental Value .......... 0.77% /D/ Based on estimates for the current fiscal year. 11 /E/ Reflects the aggregate annual operating expenses of each portfolio and its corresponding master fund. In the case of the American Blue Chip Income and Growth, American Bond, American Growth, American Growth-Income and American International portfolios, and during the year ended December 31, 2005, Capital Research Management Company (the adviser to the American Blue Chip Income and Growth, American Bond, American Growth, American Growth-Income and American International portfolios) voluntarily reduced investment management fees to rates provided by amended agreement effective April 1, 2004. If such fee waiver had been reflected, the management fee would be 0.40%, 0.39%, 0.30%, 0.25% and 0.47% and Total Annual Expenses would be 1.04%, 1.03%, 0.94%, 0.90% and 1.15%. /F/ 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 0.45% of the portfolio's average net assets. For the year ended December 31, 2005, the effective annual advisory fee for the Global Trust and International Value portfolios was 0.77% and 0.78%, respectively. These advisory fee waivers may be rescinded at any time. /G/ "Other Expenses" for the PIMCO All Asset portfolio reflect an administrative fee of 0.25%, a service fee of 0.20% and expenses of underlying funds in which the PIMCO All Asset portfolio invests ("PIMCO Underlying Funds"). The PIMCO Underlying Funds` expenses (0.63%) are estimated based upon an allocation of the portfolio's assets among the PIMCO Underlying Funds and upon the total annual operating expenses of the Institutional Class shares of these PIMCO Underlying Funds. PIMCO Underlying Fund expenses will vary with changes in the expenses of the PIMCO Underlying Funds, as well as allocation of the portfolio's assets, and may be higher or lower than those shown above. PIMCO has contractually agreed, for the portfolio`s current fiscal year, to waive its advisory fee to the extent that the PIMCO Underlying Funds' expenses attributable to advisory and administrative fees exceed 0.64% of the total assets invested in PIMCO Underlying Funds. /H/ Each of the Lifestyle Trusts may invest in all the other Trust portfolios except the American Growth, American International, the American Blue Chip Income and Growth, the American Bond, and the American Growth-Income portfolios (the "Underlying Portfolios"). The Total Annual Expenses for the Underlying Portfolios range from 0.50% to 1.53%. /I/ The adviser for this fund has agreed, pursuant to its agreement with the John Hancock Trust, to waive its management fee (or, if necessary, reimburse expenses of the fund) to the extent necessary to limit the fund`s "Annual Operating Expenses". A fund'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 fund not incurred in the ordinary course of the fund`s business. Under the agreement, the adviser's obligation will remain in effect until May 1, 2007 and will terminate after that date only if the John Hancock Trust, without the prior written consent of the adviser, sells shares of the fund to (or has shares of the fund held by) any person other than the variable life insurance or variable annuity insurance separate accounts of John Hancock Life Insurance Company (U.S.A.) or any of its affiliates that are specified in the agreement. If this fee waiver had been reflected, the management fee shown for the 500 Index Trust B, Bond Index Trust B, International Equity Index Trust B and Money Market Trust B would be 0.22%, 0.22%, 0.30% and 0.24%, respectively, and the Total Fund Annual Expenses shown would be 0.25%, 0.25%, 0.34% and 0.28%, respectively. 12 DETAILED INFORMATION This section of the prospectus provides additional detailed information that is not contained in the Summary of Benefits and Risks section. Table of Investment Options and Investment Subadvisers When you select a Separate Account investment option, we invest your money in shares of a corresponding portfolio of the John Hancock Trust (the "Trust") (or the PIMCO Variable Insurance Trust (the "PIMCO Trust") with respect to the All Asset portfolio) and hold the shares in a sub-account of the Separate Account. The Fee Tables show the investment management fees, Rule 12b-1 fees and other operating expenses for these portfolio shares as a percentage (rounded to two decimal places) of each portfolio's average net assets for 2005, except as indicated in the footnotes appearing at the end of the table. Fees and expenses of the portfolios are not fixed or specified under the terms of the policies and may vary from year to year. These fees and expenses differ for each portfolio and reduce the investment return of each portfolio. Therefore, they also indirectly reduce the return you will earn on any Separate Account investment options you select. The John Hancock Trust and the PIMCO Trust are so-called "series" type mutual funds and each is registered under the Investment Company Act of 1940 ("1940 Act") as an open-end management investment company. John Hancock Investment Management Services, LLC ("JHIMS LLC") provides investment advisory services to the Trust and receives investment management fees for doing so. JHIMS pays a portion of its investment management fees to other firms that manage the Trust's portfolios. We and our affiliate own JHIMS LLC and indirectly benefit from any investment management fees JHIMS LLC retains. The All Asset portfolio of the PIMCO Trust receives investment advisory services from Pacific Investment Management Company LLC ("PIMCO") and pays investment management fees to PIMCO. Each of the American Blue Chip Income and Growth, American Bond, American Growth-Income, American Growth, and American International portfolios invests in Series 1 shares of the corresponding investment portfolio of the Trust and are subject to a 0.60% 12b-1 fee. The American Growth, American International, American Growth-Income, American Blue Chip Income and Growth and American Bond portfolios operate as "feeder funds", which means that the portfolio does not buy investment securities directly. Instead, it invests in a "master fund" which in turn purchases investment securities. Each of the American feeder fund portfolios has the same investment objective and limitations as its master fund. The prospectus for the American Fund master fund is included with the prospectuses for the underlying funds. 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 some cases, the compensation is derived from the Rule 12b-1 fees that 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 advisers 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. Any of these compensation payments do not, however, result in any charge to you in addition to what is shown in the Fee Tables. The following table provides a general description of the portfolios that underlie the variable investment options we make available under the policy. You bear the investment risk of any portfolio you choose as an investment option for your 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 variable investment option. The investment options in the Separate Account are not publicly traded mutual funds. The investment options are only available to you as investment options in the policies, or in some cases through other variable annuity contracts or variable life insurance policies issued by us or by other life insurance companies. In some cases, the investment options also may be available through participation in certain qualified pension or retirement plans. The portfolios' investment advisers and managers (i.e. subadvisers) may manage publicly traded mutual funds with similar names and investment objectives. However, the portfolios are not directly related to any publicly traded mutual fund. You should not compare the performance of any investment option described in this prospectus with the performance of a publicly traded mutual fund. The performance of any publicly traded mutual fund could differ substantially from that of any of the investment options of our Separate Account. 13 The portfolios available under the policies are as follows:
Portfolio Portfolio Manager ================================ ==================================== Science & Technology T. Rowe Price Associates, Inc. - -------------------------------- ------------------------------------ Pacific Rim MFC Global Investment Management (U.S.A.) Limited - -------------------------------- ------------------------------------ Health Sciences T. Rowe Price Associates, Inc. - -------------------------------- ------------------------------------ Emerging Growth MFC Global Investment Management (U.S.A.) Limited - -------------------------------- ------------------------------------ Small Cap Growth Wellington Management Company, LLP - -------------------------------- ------------------------------------ Emerging Small Company Franklin Advisers, Inc. - -------------------------------- ------------------------------------ Small Cap Independence Investment LLC - -------------------------------- ------------------------------------ Small Cap Index MFC Global Investment Management (U.S.A.) Limited - -------------------------------- ------------------------------------ Dynamic Growth Deutsche Asset Management Inc. - -------------------------------- ------------------------------------ Mid Cap Stock Wellington Management Company, LLP - -------------------------------- ------------------------------------ Natural Resources Wellington Management Company, LLP - -------------------------------- ------------------------------------ Portfolio Investment Description ================================ ==================================================================== Science & Technology 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 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. - -------------------------------- -------------------------------------------------------------------- Pacific Rim Seeks long-term growth of capital by investing in a diversified portfolio that is comprised primarily of common stocks and equity-related securities of corporations domiciled in countries in the Pacific Rim region. - -------------------------------- -------------------------------------------------------------------- Health Sciences 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. - -------------------------------- -------------------------------------------------------------------- Emerging Growth Seeks superior long-term rates of return through capital appreciation by investing, under normal circumstances, primarily in high quality securities and convertible instruments of small-cap U.S. companies. - -------------------------------- -------------------------------------------------------------------- Small Cap Growth Seeks long-term capital appreciation by investing, 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 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* at the time of purchase. - -------------------------------- -------------------------------------------------------------------- Small Cap 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 Seeks to approximate the aggregate total return of a small cap U.S. domestic equity market index by attempting to track the performance of the Russell 2000 Index.* - -------------------------------- -------------------------------------------------------------------- Dynamic Growth 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 Seeks long-term growth of capital by investing primarily in equity securities of mid-size companies with significant capital appreciation potential. - -------------------------------- -------------------------------------------------------------------- Natural Resources Seeks long-term total return by investing, under normal market conditions, primarily in equity and equity-related securities of natural resource-related companies worldwide. - -------------------------------- --------------------------------------------------------------------
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Portfolio Portfolio Manager ================================ ==================================== All Cap Growth AIM Capital Management, Inc. - -------------------------------- ------------------------------------ Strategic Opportunities Fidelity Management & Research Company - -------------------------------- ------------------------------------ Financial Services Davis Advisors - -------------------------------- ------------------------------------ International Opportunities Marisco Capital Management, LLC - -------------------------------- ------------------------------------ International Small Cap Templeton Investment Counsel, Inc. - -------------------------------- ------------------------------------ International Equity Index B SSgA Funds Management, Inc. - -------------------------------- ------------------------------------ Overseas Equity Capital Guardian Trust Company - -------------------------------- ------------------------------------ American International Capital Research Management Company - -------------------------------- ------------------------------------ International Value Templeton Investment Counsel, Inc. - -------------------------------- ------------------------------------ Portfolio Investment Description ================================ ==================================================================== All Cap Growth 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 Opportunities Seeks growth of capital by investing primarily in common stocks. Investments may include securities of domestic and foreign issuers, and growth or value stocks or a combination of both. - -------------------------------- -------------------------------------------------------------------- Financial Services 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 Opportunities Seeks long-term growth of capital by investing, 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 Small Cap Seeks capital appreciation by investing primarily 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. - -------------------------------- -------------------------------------------------------------------- International Equity Index B Seeks to track the performance of broad-based equity indices of foreign companies in developed and emerging markets by attempting to track the performance of the MSCI All Country World ex-US Index*. (Series I shares are available for sale to contracts purchased prior to May 13, 2002; Series II shares are available for sale to contracts purchased on or after May 13, 2002). - -------------------------------- -------------------------------------------------------------------- Overseas Equity Seeks long-term capital appreciation by investing, under normal conditions, at least 80% of its assets in equity securities of 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 Invests all of its assets in Class 2 shares of the International Fund, a series of American Fund Insurance Series. The International Fund invests primarily in common stocks of companies located outside the United States. - -------------------------------- -------------------------------------------------------------------- International Value Seeks long-term growth of capital by investing, under normal market conditions, primarily in equity securities of companies located outside the U.S., including emerging markets. - -------------------------------- --------------------------------------------------------------------
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Portfolio Portfolio Manager ================================ ==================================== International Core Grantham, Mayo, Van Otterloo & Co. LLC - -------------------------------- ------------------------------------ Quantitative Mid Cap MFC Global Investment Management (U.S.A.) Limited - -------------------------------- ------------------------------------ Mid Cap Index MFC Global Investment Management (U.S.A.) Limited - -------------------------------- ------------------------------------ Mid Cap Core AIM Capital Management, Inc. - -------------------------------- ------------------------------------ Global Templeton Global Advisors Limited - -------------------------------- ------------------------------------ Capital Appreciation Jennison Associates LLC - -------------------------------- ------------------------------------ American Growth Capital Research Management Company - -------------------------------- ------------------------------------ U.S. Global Leaders Growth Sustainable Growth Advisers, L.P. - -------------------------------- ------------------------------------ Quantitative All Cap MFC Global Investment Management (U.S.A.) Limited - -------------------------------- ------------------------------------ All Cap Core Deutsche Asset Management Inc. - -------------------------------- ------------------------------------ Total Stock Market Index MFC Global Investment Management (U.S.A.) Limited - -------------------------------- ------------------------------------ Blue Chip Growth T. Rowe Price Associates, Inc. - -------------------------------- ------------------------------------ Portfolio Investment Description ================================ ==================================================================== International Core Seeks to outperform the MSCI EAFA Index* by investing typically in a diversified portfolio of equity investments from developed markets other than the U.S. - -------------------------------- -------------------------------------------------------------------- Quantitative Mid Cap Seeks long-term growth of capital by investing, under normal market conditions, at least 80% of its total assets (plus any borrowings for investment purposes) in U.S. mid- cap stocks, convertible preferred stocks, convertible bonds and warrants. - -------------------------------- -------------------------------------------------------------------- Mid Cap Index Seeks to approximate the aggregate total return of a mid- cap U.S. domestic equity market index by attempting to track the performance of the S&P Mid Cap 400 Index*. - -------------------------------- -------------------------------------------------------------------- Mid Cap Core Seeks long-term growth of capital by investing, under normal market conditions, at least 80% of its assets in equity securities, including convertible securities, of mid- capitalization companies. - -------------------------------- -------------------------------------------------------------------- Global Seeks long-term capital appreciation by investing, under normal market conditions, at least 80% of its net assets (plus any borrowings for investment purposes) in equity securities of companies located anywhere in the world, including emerging markets. - -------------------------------- -------------------------------------------------------------------- Capital Appreciation 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 Invests all of its assets in Class 2 shares of the 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 Growth Seeks long-term growth of capital by investing, under normal market conditions, primarily in common stocks of "U.S. Global Leaders." - -------------------------------- -------------------------------------------------------------------- Quantitative All Cap Seeks long-term growth of capital by investing, 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 Seeks long-term growth of capital by investing primarily in common stocks and other equity securities within all asset classes (small, mid and large cap) primarily those within the Russell 3000 Index*. - -------------------------------- -------------------------------------------------------------------- Total Stock Market Index Seeks to approximate the aggregate total return of a broad U.S. domestic equity market index by attempting to track the performance of the Wilshire 5000 Equity Index*. - -------------------------------- -------------------------------------------------------------------- Blue Chip Growth 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. - -------------------------------- --------------------------------------------------------------------
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Portfolio Portfolio Manager ================================ ==================================== U.S. Large Cap Capital Guardian Trust Company - -------------------------------- ------------------------------------ Core Equity Legg Mason Funds Management, Inc. - -------------------------------- ------------------------------------ Strategic Value Massachusetts Financial Services Company - -------------------------------- ------------------------------------ Large Cap Value Mercury Advisors - -------------------------------- ------------------------------------ Classic Value Pzena Investment Management, LLC - -------------------------------- ------------------------------------ Utilities Massachusetts Financial Services Company - -------------------------------- ------------------------------------ Real Estate Securities Deutsche Asset Management Inc. - -------------------------------- ------------------------------------ Small Cap Opportunities Munder Capital Management - -------------------------------- ------------------------------------ Small Cap Value Wellington Management Company, LLP - -------------------------------- ------------------------------------ Small Company Value T. Rowe Price Associates, Inc. - -------------------------------- ------------------------------------ Portfolio Investment Description ================================ ==================================================================== U.S. Large Cap 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 Seeks long-term capital growth by investing, under 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 Seeks capital appreciation by investing, under 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 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 Seeks long-term growth of capital by investing, under normal market conditions, at least 80% of its net assets in domestic equity securities. - -------------------------------- -------------------------------------------------------------------- Utilities Seeks capital growth and current income (income above that available from a portfolio invested entirely in equity securities) by investing, under normal market conditions, at least 80% of the portfolio's net assets (plus any borrowings for investment purposes) in equity and debt securities of domestic and foreign companies in the utilities industry. - -------------------------------- -------------------------------------------------------------------- Real Estate Securities 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 Opportunities Seeks long-term capital appreciation by investing, 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 Seeks long-term capital appreciation by investing, 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. - -------------------------------- -------------------------------------------------------------------- Small Company Value 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. - -------------------------------- --------------------------------------------------------------------
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Portfolio Portfolio Manager ================================ ==================================== Special Value Salomon Brothers Asset (only Series II available) Management Inc. - -------------------------------- ------------------------------------ Mid Value T. Rowe Price Associates, Inc. - -------------------------------- ------------------------------------ Mid Cap Value Lord, Abbett & Co - -------------------------------- ------------------------------------ Value Van Kampen - -------------------------------- ------------------------------------ All Cap Value Lord, Abbett & Co - -------------------------------- ------------------------------------ Growth & Income Independence Investment LLC - -------------------------------- ------------------------------------ 500 Index B MFC Global Investment Management (U.S.A.) Limited - -------------------------------- ------------------------------------ Fundamental Value Davis Advisors - -------------------------------- ------------------------------------ U.S. Core Grantham, Mayo, Van Otterloo & Co. LLC - -------------------------------- ------------------------------------ Large Cap UBS Global Asset Management - -------------------------------- ------------------------------------ Quantitative Value MFC Global Investment Management (U.S.A.) Limited - -------------------------------- ------------------------------------ Portfolio Investment Description ================================ ==================================================================== Special Value Seeks long-term capital growth by investing, under normal (only Series II available) 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 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 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 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 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 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 Seeks to approximate the aggregate total return of 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 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. - -------------------------------- -------------------------------------------------------------------- U.S. Core Seeks long-term growth of capital and income, consistent with prudent investment risk, by investing primarily in a diversified portfolio of common stocks of U.S. issuers which the subadviser believes are of high quality. - -------------------------------- -------------------------------------------------------------------- Large Cap 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 Seeks long-term capital appreciation by investing primarily in large-cap U.S. securities with the potential for long-term growth of capital. - -------------------------------- --------------------------------------------------------------------
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Portfolio Portfolio Manager ================================ ==================================== American Growth-Income Capital Research Management Company - -------------------------------- ------------------------------------ Equity-Income T. Rowe Price Associates, Inc. - -------------------------------- ------------------------------------ American Blue Chip Income Capital Research Management and Growth Company - -------------------------------- ------------------------------------ Income & Value Capital Guardian Trust Company - -------------------------------- ------------------------------------ Managed Independence Investment LLC Capital Guardian Trust Company Declaration Management & Research LLC - -------------------------------- ------------------------------------ PIMCO VIT All Asset Portfolio Pacific Investment Management (a series of the PIMCO Variable Company Insurance Trust) (only Class M is available for sale) - -------------------------------- ------------------------------------ Global Allocation UBS Global Asset Management - -------------------------------- ------------------------------------ High Yield Salomon Brothers Asset Management Inc. - -------------------------------- ------------------------------------ U.S. High Yield Bond Wells Fargo Fund Management, LLC - -------------------------------- ------------------------------------ Strategic Bond Salomon Brothers Asset Management Inc. Portfolio Investment Description ================================ ==================================================================== American Growth-Income Invests all of its assets in Class 2 shares of the 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 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 Income Invests all of its assets in Class 2 shares of the Blue Chip and Growth 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 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 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. - -------------------------------- -------------------------------------------------------------------- PIMCO VIT All Asset Portfolio The portfolio invests primarily in a diversified mix of: (a) (a series of the PIMCO Variable common stocks of large and mid sized U.S. companies, and Insurance Trust) (only Class M (b) bonds with an overall intermediate term average is available for sale) maturity. - -------------------------------- -------------------------------------------------------------------- Global Allocation 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 Seeks to realize an above-average total return over a market cycle of three to five years, consistent with reasonable risk, by investing primarily in high yield debt securities, including corporate bonds and other fixed-income securities. - -------------------------------- -------------------------------------------------------------------- U.S. High Yield Bond Seeks total return with a high level of current 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. - -------------------------------- -------------------------------------------------------------------- Strategic Bond Seeks a high level of total return consistent with preservation of capital by giving its subadviser broad discretion to deploy the portfolio's assets among certain segments of the fixed income market as the subadviser believes will best contribute to achievement of the portfolio's investment objective. - -------------------------------- --------------------------------------------------------------------
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Portfolio Portfolio Manager ================================ ==================================== Strategic Income Sovereign Asset Management, LLC, LLC - -------------------------------- ------------------------------------ Global Bond Pacific Investment Management Company - -------------------------------- ------------------------------------ Investment Quality Bond Wellington Management Company, LLP - -------------------------------- ------------------------------------ Total Return Pacific Investment Management Company - -------------------------------- ------------------------------------ American Bond Capital Research Management Co LLC - -------------------------------- ------------------------------------ Real Return Bond Pacific Investment Management Company - -------------------------------- ------------------------------------ Bond Index B Declaration Management & Research LLC - -------------------------------- ------------------------------------ Core Bond Wells Fargo Fund Management, LLC - -------------------------------- ------------------------------------ Active Bond Declaration Management & Research LLC Sovereign Asset Management, LLC - -------------------------------- ------------------------------------ Portfolio Investment Description ================================ ==================================================================== Strategic Income 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 Seeks to realize maximum total return, consistent 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 Bond Seeks a high level of current income consistent with the maintenance of principal and liquidity, by investing in a diversified portfolio of investment grade bonds. Investments will tend to focus 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 Seeks to realize maximum total return, consistent with preservation of capital and prudent investment management, by investing, under normal market conditions, at least 65% of the portfolio's assets in a diversified portfolio of fixed income securities of varying maturities. The average portfolio duration will normally vary within a three-to six-year time frame based on the subadviser's forecast for interest rates. - -------------------------------- -------------------------------------------------------------------- American Bond Seeks to maximize current income and preserve capital. - -------------------------------- -------------------------------------------------------------------- Real Return Bond Seeks maximum return, consistent with preservation 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 Seeks to track the performance of the Lehman Brothers Aggregate Index** (which represents the U.S. investment grade bond market) by investing at least 80% of its assets in securities listed in the Lehman Index. - -------------------------------- -------------------------------------------------------------------- Core Bond Seeks total return consisting of income and 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. - -------------------------------- -------------------------------------------------------------------- Active Bond Seeks income and capital appreciation by investing at least 80% of its assets in a diversified mix of debt securities and instruments. - -------------------------------- --------------------------------------------------------------------
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Portfolio Portfolio Manager ================================ ==================================== U.S. Government Securities Salomon Brothers Asset Management Inc. - -------------------------------- ------------------------------------ Short Term Bond Declaration Management & Research LLC - -------------------------------- ------------------------------------ Money Market B MFC Global Investment Management (U.S.A.) Limited - -------------------------------- ------------------------------------ Lifestyle Aggressive MFC Global Investment Management (U.S.A.) Limited Deutsche Asset Management Inc. - -------------------------------- ------------------------------------ Lifestyle Growth MFC Global Investment Management (U.S.A.) Limited Deutsche Asset Management Inc. - -------------------------------- ------------------------------------ Lifestyle Balanced MFC Global Investment Management (U.S.A.) Limited Deutsche Asset Management Inc. - -------------------------------- ------------------------------------ Lifestyle Moderate MFC Global Investment Management (U.S.A.) Limited Deutsche Asset Management Inc. - -------------------------------- ------------------------------------ Lifestyle Conservative MFC Global Investment Management (U.S.A.) Limited Deutsche Asset Management Inc. - -------------------------------- ------------------------------------ Portfolio Investment Description ================================ ==================================================================== U.S. Government Securities Seeks a high level of current income consistent with preservation of capital and maintenance of liquidity, by investing in debt obligations and mortgage-backed securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities and derivative securities such as collateralized mortgage obligations backed by such securities. - -------------------------------- -------------------------------------------------------------------- Short Term Bond Seeks income and capital appreciation by investing at least 80% of its assets in a diversified mix of debt securities and instruments. - -------------------------------- -------------------------------------------------------------------- Money Market B Seeks maximum current income consistent with preservation of principal and liquidity by investing in high quality money market instruments with maturities of 397 days or less issued primarily by U. S. entities. - -------------------------------- -------------------------------------------------------------------- Lifestyle Aggressive Seeks to provide long-term growth of capital (current income is not a consideration) by investing 100% of the Lifestyle Trust's assets in other portfolios of the Trust which invest primarily in equity securities. - -------------------------------- -------------------------------------------------------------------- Lifestyle Growth Seeks to provide long-term growth of capital with consideration also given to current income by investing approximately 20% of the Lifestyle Trust's assets in other portfolios of the Trust which invest primarily in fixed income securities and approximately 80% of its assets in other portfolios of the Trust which invest primarily in equity securities. - -------------------------------- -------------------------------------------------------------------- Lifestyle Balanced Seeks to provide a balance between a high level of current income and growth of capital with a greater emphasis given to capital growth by investing approximately 40% of the Lifestyle Trust's assets in other portfolios of the Trust which invest primarily in fixed income securities and approximately 60% of its assets in other portfolios of the Trust which invest primarily in equity securities. - -------------------------------- -------------------------------------------------------------------- Lifestyle Moderate Seeks to provide a balance between a high level of current income and growth of capital with a greater emphasis given to current income by investing approximately 60% of the Lifestyle Trust's assets in other portfolios of the Trust which invest primarily in fixed income securities and approximately 40% of its assets in other portfolios of the Trust which invest primarily in equity securities. - -------------------------------- -------------------------------------------------------------------- Lifestyle Conservative Seeks to provide a high level of current income with some consideration also given to growth of capital by investing approximately 80% of the Lifestyle Trust's assets in other portfolios of the Trust which invest primarily in fixed income securities and approximately 20% of its assets in other portfolios of the Trust 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 portfolios 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 portfolios. ** The Lehman Brothers Aggregate Index is a Bond Index. A Bond Index relies on indicators such as quality, liquidity, term and duration as relevant measures of performance. 21 The indexes referred to in the portfolio descriptions track companies having the ranges of market capitalization, as of December 31, 2005, set out below: Russell 2000 Growth Index -- $26 million to $4.4 billion Russell 2000 Index -- $105 million to $4.4 billion Russell 2500 Index -- $26 million to $11.2 billion Russell 3000 Index -- $26 million to $370 billion Russell 2000 Value Index -- $41 million to $3.5 billion Russell Midcap Value Index -- $582 million to $18.2 billion Wilshire 5000 Equity Index -- $1 million to $370 billion MSCI All Country World ex US Index -- $419 million to $219.5 billion MSCI EAFA Index -- $419 million to $219.5 billion S&P Mid Cap 400 Index -- $423 million to $14.6 billion S&P 500 Composite Stock Price Index -- $768 million to $370 billion 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 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. 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 Ratings Very strong capacity to meet policyholder and contract obligations; 2nd category of 24 AA+ Standard & Poor's Very strong financial security characteristics; 2nd category of 21 Aa2 Moody's Excellent in financial strength; 3rd category of 21 These ratings, which are current as of the date of this prospectus and are subject to change, are assigned 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 our 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. These ratings do not apply to the safety and performance of the Separate Account. 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 1940 Act. Such registration does not involve supervision by the 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. Income, gains and losses credited to, or charged against, the Account reflect the Account's own investment experience and not the investment experience of the John Hancock USA's other assets. 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. 22 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 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 ("1933 Act") 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. 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, accrued interest and unpaid fees and charges. 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. 23 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 age 100, then you may wish to maximize the proportion of the Base Face Amount. 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: 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) 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, we may approve 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. 24 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. 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. 25 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"). 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". Large premium payments may expose us to unanticipated investment risk, and we will generally refuse to accept premiums in excess of the Maximum Annual Premium limit set forth in the Policy Specifications. In addition, in order to limit our investment risk exposure under certain market conditions, we may refuse to accept additional premium payments that are not in excess of the Maximum Annual Premium limit. This may be the case, for example, in an environment of decreasing interest rates, where we may not be able to acquire investments for our general account that will sufficiently match the liabilities we are incurring under our fixed account guarantees. Excessive allocations may also interfere with the effective management of our variable investment account portfolios, if we are unable to make an orderly investment of the additional premium into the portfolios. Also, we may refuse to accept an amount of additional premium if the amount of the additional premium would increase our 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. We will notify you in writing of our refusal to accept additional premium under these provisions within three days following the date that it is received by us, and will promptly thereafter take the necessary steps to return the premium to you. Notwithstanding the foregoing limits on the additional premium that we will accept, we will not 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 prior to the Issue Date of the policy will be held in the general account and credited with interest from the date of receipt at the rate then being earned on amounts allocated to the Money Market B investment account. 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 26 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 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. Generally, the suicide exclusion and incontestability provision will apply from the effective date of the reinstatement. Your policy will indicate if this is not the case. A surrendered policy cannot be reinstated. 27 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 portfolios' 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". We calculate the unit values for each investment account once every business day. Sales and redemptions within any investment account will be transacted using the unit value next calculated after we receive your request either in writing or other form that we specify. If we receive your request before the close of our business day, which is usually the close of day-time trading on the New York Stock Exchange, we'll use the unit value calculated as of the end of that business day. If we receive your request at or after the close of our business day, we'll use the unit value calculated as of the end of the next business day. If a scheduled transaction falls on a day that is not a business day, we'll process it as of the end of the next business day. The amount you've invested in any 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 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, and in applying the limitation on the number of free transfers, 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 accounts (fixed or investment) may be made. If your 28 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 a 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 any fixed account. We also reserve the right to impose different restrictions on any additional fixed account that we may offer in the future. Dollar cost averaging. We may offer policy owners a dollar cost averaging ("DCA") program. Under the DCA program, the policy owner will designate an amount which will be transferred monthly from one investment account into any other investment account(s) or the fixed account. If insufficient funds exist to effect a DCA transfer, the transfer will not be effected and you will be so notified. No fee is charged for this program. We reserve the right to cease to offer this program as of 90 days after written notice is sent to you. Asset allocation balancer transfers. Under the asset allocation balancer program the policy owner will designate an allocation of policy value among investment accounts. At six-month intervals beginning six months after the Policy Date, we will move amounts among the investment accounts as necessary to maintain your chosen allocation. A change to your premium allocation instructions will automatically result in a change in asset allocation balancer instructions so that the two are identical unless you either instruct us otherwise or have elected the dollar cost averaging program. No fee is charged for this program. We reserve the right to cease to offer this program as of 90 days after written notice is sent to you. 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 debt. 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). 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 the lesser of 2% of the withdrawal amount or $25. 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. 29 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. Generally, any such reduction in the Total Face Amount will be implemented by first reducing any Supplemental Face Amount then in effect. We may approve reductions in the Base Face Amount prior to eliminating the Supplemental Face Amount. You should consider a number of factors in determining whether to continue coverage in the form of Base Face Amount or Supplemental Face Amount. (see "Base Face Amount vs. Supplemental Face Amount"). 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. The amount available for loan will not be less than 75% of the net cash surrender value. 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 charged 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. The right to increase the rate charged on the loan is restricted in some states. Please see your John Hancock USA representative for details. 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. 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"). 30 Description of charges at the policy level Deduction from premium payments . Premium charge - A charge to help defray our sales costs and related taxes. The current charge is 1.5% of each premium paid, 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 cost of insurance we use will depend on age of the insured person at issue, the insurance risk characteristics and (usually) gender of the insured person, the 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 age increases. (The insured person's "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. If the minimum death benefit is greater than the Total Face Amount, the cost of insurance charge will reflect the amount of that additional benefit. For death benefit Option 2, the net amount at risk is equal to the Total Face Amount of insurance divided by 1.0024663. . 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. This charge is not currently imposed, but we reserve the right to do so. . 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 fee is the lesser of 2% of the withdrawal amount or $25. This fee is not currently imposed, but we reserve the right to do so. 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. 31 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. Currently, state premium tax levels range from 0% to 3.5%. 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. 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 lesser of (i) cumulative premiums paid to date or (ii) the "Limiting Premium" shown in the Policy 32 Specifications page of your policy, minus any withdrawals and policy debt. The percentage starts at 11% and reduces to 0% in the eighth policy year. The cumulative premiums for any policy year are equal to the lesser of the actual premium paid in that policy year and the Limiting Premium. 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. . Change of Life Insured Rider - This rider is only available to certain owners purchasing the policy in connection with the financing of employee benefit plan obligations. If you elect this rider, you may change the life insured on or after the second policy anniversary. You must have an insurable interest in the new life insured, and the new life insured must consent in writing to the change. We will require evidence which satisfies us of the new life insured's insurability, and the premiums and charges after the change date will reflect the new life insured's age, sex, risk classification and any additional rating which applies. Supplementary benefit riders on the old life insured will be canceled as of the change date. Supplementary benefits riders may be added on the new life insured as of the change date, subject to our normal requirements and restrictions for such benefits. The incontestability and suicide provisions of the policy will apply to the entire Face Amount beginning anew as of the change date. 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 risk classification should be. After we approve an application for a policy and assign an appropriate insurance risk 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. 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. 33 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 accounts . Borrow or withdraw amounts you have in the accounts . Change the beneficiary who will receive the death benefit . 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 34 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. 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 35 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: . loans . 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 or fax or through the Company's secured website, if a special form is completed (see "Telephone, facsimile and internet transactions" below): . 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 transfers among accounts and changes of allocation among accounts simply by telephoning us at 1-800-521-1234 or by faxing us at 617-572-7008 or through the Company's secured website. 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 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. 36 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 affiliated with us, is the principal distributor and 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 197 Clarendon Street, Boston, Massachusetts 02116. 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 affiliate 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, 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, 37 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 adviser. 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. The policy may be used in various arrangements, including non-qualified deferred compensation or salary continuation plans, split dollar insurance plans, executive bonus plans, retiree medical benefit plans and others. The tax consequences of such plans may vary depending on the particular facts and circumstances of each individual arrangement. Therefore, if the value of using the policy in any such arrangement depends in part on the tax consequences, a qualified tax advisor should be consulted for advice. General Generally, death benefits paid under policies such as yours are not subject to income tax. Earnings on your policy value are ordinarily 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 partial withdrawal, all or part of that distribution would generally be treated as a return of the premiums you've paid and not subjected to income tax. However certain distributions associated with a reduction in death benefit or other policy benefits within the first 15 years after issuance of the policy are ordinarily taxable in whole or in part. (See "Other policy distributions" below.) 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 premiums in excess of limits prescribed by the tax laws. Additional taxes and penalties may be payable for policy distributions of any kind. (See "7-pay premium limit and modified endowment contract status" below.) Policy death benefit proceeds We expect the policy to 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. For a policy to be treated as a life insurance contract, it must satisfy either the cash value accumulation test or the guideline premium test. These tests limit the amount of premium that you may pay into the policy. We will monitor compliance with these standards. If we determine that a policy does not satisfy Section 7702, we may take whatever steps are appropriate and reasonable to bring it into compliance with Section 7702. If the policy complies with Section 7702, the death benefit proceeds under the policy should 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 received through actual or deemed distributions. In general, the owner will be taxed on the amount of 38 distributions that exceed the premiums paid under the policy. An exception to this general rule occurs in the case of a decrease in the policy's death benefit or any other change that reduces benefits under the policy in the first 15 years after the policy is issued and that results in a cash distribution to the policy owner in order for the policy to continue to comply with the Section 7702 definitional limits. Changes that reduce benefits include partial withdrawals and death benefit option changes. For purposes of this rule any distribution within the two years immediately before a reduction in benefits will also be treated as if it caused the reduction. A cash distribution that reduces policy benefits will be taxed in whole or in part (to the extent of any gain in the policy) under rules prescribed in Section 7702. The taxable amount is subject to limits prescribed in section 7702(f)(7). Any taxable distribution will be ordinary income to the owner (rather than capital gain). Distributions for tax purposes include amounts received upon surrender or partial 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. 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 funds 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 from the date of issue to the date 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 will depend on the circumstances of each owner or beneficiary. If the person insured by the policy is also its owner, either directly or indirectly through an entity such as a revocabale trust, the death benefit will be includible in his or her estate for purposes of the Federal estate tax. If the owner is not the person insured, the value of the policy will be includible in the owner's estate upon his or her death. Even if ownership has been transferred, the death proceeds or the policy value may be includible in the former owner's estate if the transfer occurred less than three years before the former owner's death or if the former owner retained certain kinds of control over the policy. You should consult your tax adviser regarding these possible tax consequences. 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. Policy loans We expect that, except as noted below (see "7-pay premium limit and modified endowment contract status"), 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, you might find yourself having to choose between high premiums requirements to keep your policy from lapsing and a significant tax burden if you allow the lapse to occur. Diversification rules and ownership of the Account Your policy will not qualify for the tax benefits 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. In certain circumstances, the owner of a variable life insurance policy may be considered the owner, for Federal income tax purposes, of the assets of the separate account used to support the policy. In those circumstances, income and gains from the separate account assets would be includible in the policy owner's gross income. The Internal Revenue Service ("IRS") has stated in published rulings that a variable policy owner will be considered the owner of separate account assets if the policy owner possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. A Treasury Decision issued in 1986 stated that guidance would be issued in the form of regulations or rulings on the "extent to which Policyholders may direct their investments to particular sub-accounts of a separate account without being treated as owners of the underlying assets." As of the date of this prospectus, no comprehensive guidance on this point has been issued. In Rev. Rul. 2003-91, however, the IRS ruled that a contract holder would not be treated as the owner of assets underlying a variable life insurance or annuity contract despite the owner's ability to allocate funds among as many as twenty subaccounts. 39 The ownership rights under your policy are similar to, but different in certain respects from, those described in IRS 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 future Treasury Department regulations or other guidance may require. We cannot guarantee that the funds will be able to operate as currently described in the Series Funds` prospectuses, or that a Series Fund will not have to change any fund's investment objectives or policies. We have reserved the right to modify your policy if we believe doing so 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 and modified endowment contract status 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. Policies classified as modified endowment contracts are subject to the following tax rules: . First, all partial withdrawals from such a policy are treated as ordinary income subject to tax up to the amount equal to the excess (if any) of the policy value immediately before the distribution over the investment in the policy at such time. . Second, loans taken from or secured by such a policy and assignments or pledges of any part of its value are treated as partial withdrawals from the policy and taxed accordingly. Past-due loan interest that is added to the loan amount is treated as an additional loan. . Third, a 10% additional income tax is imposed on the portion of any distribution (including distributions on surrender) from, or loan taken from or secured by, such a policy that is included in income except where the distribution or loan: . is made on or after the date on which the policy owner attains age 59 1/2; . is attributable to the policy owner becoming disabled; or . is part of a series of substantially equal periodic payments for the life (or life expectancy) of the policy owner or the joint lives (or joint life expectancies) of the policy owner and the policy owner's beneficiary. These exceptions to the 10% additional tax do not apply in situations where the policy is not owned by an individual. Furthermore, any time there is a "material change" in a policy, the policy will begin a new 7-pay testing period as if it were a newly-issued policy. The material change rules for determining whether a policy is a modified endowment contract are complex. In general, however, the determination of whether a policy will be a modified endowment contract after a material change generally depends upon the relationship among the death benefit of the policy at the time of such change, the policy value at the time of the change, and the additional premiums paid into the policy during the seven years starting with the date on which the material change occurs. Moreover, if benefits under a policy are reduced (such as a reduction in the 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 same 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 contract. You should consult your tax advisor if you have questions regarding the possible impact of the 7-pay limit on your policy. 40 Corporate and H.R. 10 retirement 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. Withholding To the extent that policy distributions to you are taxable, they are generally subject to withholding for your Federal income tax liability. However if you reside in the United States, you can generally choose not to have tax withheld from distributions. Life insurance purchases by residents of Puerto Rico In Rev. Rul. 2004-75, 2004-31 I.R.B. 109, the Internal Revenue Service ruled that income received by residents of Puerto Rico under life insurance policy issued by a United States company is U.S.-source income that is subject to United States Federal income tax. Life insurance purchases by non-resident aliens If you are not a U.S. citizen or resident, you will generally be subject to U.S. Federal withholding tax on taxable distributions from life insurance policies at a 30% rate, unless a lower treaty rate applies. In addition, you may be subject to state and/or municipal taxes and taxes imposed by your country of citizenship or residence. You should consult with a qualified tax adviser before purchasing a policy. 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 The consolidated financial statements of John Hancock Life Insurance Company (U.S.A.) (formerly, The Manufacturers Life Insurance Company (U.S.A.)) at December 31, 2005 and 2004, and for each of the three years in the period ended December 31, 2005, and the financial statements of Separate Account N of John Hancock Life Insurance Company (U.S.A.) (formerly, The Manufacturers Life Insurance Company (U.S.A.)) at December 31, 2005, and for each of the two years in the period ended December 31, 2005, appearing in the 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. 41 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 Specialty Products Specialty Products & Distribution 197 Clarendon Street, C-6 P.O. Box 192 Boston, MA 02117 Boston, MA 02117 Phone: Fax: 1-800-521-1234 617-572-7008 Information about the Account (including the SAI) can be reviewed and copied at the SEC's Public Reference Branch, 100 F Street, NE, Room 1580, Washington, DC, 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 202-551-5850. 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 100 F Street, NE, Washington, DC 20549-0102. 1940 Act File No. 811-5130 1933 Act File No. 333-126668 Statement of Additional Information dated May 1, 2006 for interests in John Hancock Life Insurance Company (U.S.A.) Separate Account N ("Registrant") 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" or "DEPOSITOR") This is a Statement of Additional Information ("SAI"). It is not the prospectus. The prospectus, dated the same date as this SAI, may be obtained from a John Hancock USA representative or by contacting the John Hancock USA Servicing Office at Life Operations, 197 Clarendon Street, Boston, MA 02117 or telephoning 1-800-521-1234. TABLE OF CONTENTS
Contents of this SAI Page No. Description of the Depositor ........................ 2 Description of the Registrant ....................... 2 Services ............................................ 2 Independent Registered Public Accounting Firm ....... 2 Principal Underwriter/Distributor ................... 2 Additional Information About Charges ................ 3 Financial Statements of Registrant and Depositor
Description of the Depositor Under the federal securities laws, the entity responsible for organization of the registered separate account underlying the variable life insurance policy is known as the "Depositor". The Depositor is John Hancock USA, a stock life insurance company organized under the laws of 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. Until 2004, John Hancock USA had been known as The Manufacturers Life Insurance Company (U.S.A.). Our ultimate parent is Manulife Financial Corporation ("MFC"), a publicly traded company based in Toronto, Canada. MFC is the holding company of The Manufacturers Life Insurance Company and its subsidiaries, collectively known as Manulife Financial. Description of the Registrant Under the federal securities laws, the registered separate account underlying the variable life insurance policy is known as the "Registrant". In this case, the Registrant is John Hancock Life Insurance Company (U.S.A.) Separate Account N (the "Account"), a separate account established by John Hancock USA under Michigan law. The variable investment options shown on page 1 of the prospectus are subaccounts of the Account. 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 SEC of the management of the Account or of John Hancock USA. 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. Services Administration of policies issued by John Hancock USA and of registered separate accounts organized by John Hancock USA may be provided by John Hancock Life Insurance Company, John Hancock Life Insurance Company of New York or other affiliates. Neither John Hancock USA nor the separate accounts are assessed any charges for such services. Custodianship and depository services for the Registrant are provided by State Street Bank. State Street Bank's address is 225 Franklin Street, Boston, Massachusetts, 02110. Independent Registered Public Accounting Firm The consolidated financial statements of John Hancock Life Insurance Company (U.S.A.) (formerly, The Manufacturers Life Insurance Company (U.S.A.)) at December 31, 2005 and 2004, and for each of the three years in the period ended December 31, 2005, and the financial statements of Separate Account N of John Hancock Life Insurance Company (U.S.A.) (formerly, The Manufacturers Life Insurance Company (U.S.A.)) at December 31, 2005, and for each of the two years in the period ended December 31, 2005, 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 and 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 197 Clarendon Street, Boston, Massachusetts 02116. 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"). 2 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 affiliate Signator Investors, Inc. The aggregate dollar amount of underwriting commissions paid to JH Distributors in 2005, 2004 and 2003 was $487,871,282, $403,619,081, and $293,120,491, 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 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. 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 3 guaranteed and others may be subject to withdrawal or modifications, 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. 4 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (Formerly The Manufacturers Life Insurance Company (U.S.A.)) Audited Consolidated U.S. GAAP Financial Statements Years ended December 31, 2005, 2004 and 2003 [LOGO OF MANULIFE FINANCIAL] JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) AUDITED CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31, 2005, 2004 and 2003 CONTENTS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM....... 1 AUDITED CONSOLIDATED FINANCIAL STATEMENTS..................... CONSOLIDATED BALANCE SHEETS................................ 2 CONSOLIDATED STATEMENTS OF INCOME.......................... 3 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY. 4 CONSOLIDATED STATEMENTS OF CASH FLOWS...................... 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................. 7 Report of Independent Registered Public Accounting Firm The Board of Directors John Hancock Life Insurance Company (U.S.A.) (formerly The Manufacturers Life Insurance Company (U.S.A.)) We have audited the accompanying consolidated balance sheets of John Hancock Life Insurance Company (U.S.A.) ("the Company") (formerly, The Manufacturers Life Insurance Company (U.S.A.)) as of December 31, 2005 and 2004, and the related consolidated statements of income, changes in shareholder's equity, and cash flows for each of the three years in the period ended December 31, 2005. 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 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 purpose of expressing an opinion on the effectiveness of the Company'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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of John Hancock Life Insurance Company (U.S.A.) at December 31, 2005 and 2004, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2005 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. /s/ ERNST & YOUNG LLP March 21, 2006 Boston, Massachusetts 1 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) CONSOLIDATED BALANCE SHEETS
As of December 31 (in millions) 2005 2004 - -------------------------------------------------------------- -------- ------- ASSETS Investments (note 3): Securities available-for-sale, at fair value: Fixed-maturity (amortized cost: 2005 $11,215; 2004 $10,396) $ 11,770 $11,188 Equity (cost: 2005 $478; 2004 $382) 584 466 Mortgage loans 2,410 2,367 Real estate 1,449 1,450 Policy loans 2,187 2,681 Short-term investments 549 436 Other investments 61 57 -------- ------- TOTAL INVESTMENTS 19,010 18,645 -------- ------- Cash and cash equivalents 2,591 1,482 Deferred acquisition costs (note 5) 4,112 3,448 Deferred sales inducements (note 5) 231 228 Amounts due from affiliates 2,395 2,350 Amounts recoverable from reinsurers 1,201 988 Other assets (Goodwill: 2005 - $54; 2004 - $62) 1,430 1,044 Separate account assets 70,565 57,103 -------- ------- TOTAL ASSETS $101,535 $85,288 ======== ======= LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities: Policyholder liabilities and accruals $ 21,873 $21,447 Net deferred tax liabilities (note 6) 610 569 Amounts due to affiliates 2,271 420 Other liabilities 2,089 1,830 Separate account liabilities 70,565 57,103 -------- ------- TOTAL LIABILITIES 97,408 81,369 ======== ======= Shareholder's Equity: Capital stock (note 7) 5 5 Additional paid-in capital 2,045 2,024 Retained earnings 1,410 1,062 Accumulated other comprehensive income (note 4) 667 828 -------- ------- TOTAL SHAREHOLDER'S EQUITY 4,127 3,919 -------- ------- TOTAL LIABILITIES AND SHAREHOLDE R'S EQUITY $101,535 $85,288 ======== =======
The accompanying notes are an integral part of these consolidated financial statements. 2 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31 (in millions) 2005 2004 2003 - ------------- ------ ------ ------ Revenue: Premiums $ 870 $ 943 $ 955 Fee income 1,764 1,369 1,107 Net investment income 1,169 1,148 1,174 Net realized investment gains 209 285 160 Other revenue 5 5 5 ------ ------ ------ TOTAL REVENUE 4,017 3,750 3,401 ------ ------ ------ Benefits and Expenses: Policyholder benefits and claims 1,579 1,687 1,829 Operating expenses and commissions 892 715 654 Amortization of deferred acquisition costs and deferred sales inducements 322 358 227 Interest expense 29 22 46 Policyholder dividends 400 389 377 ------ ------ ------ TOTAL BENEFITS AND EXPENSES 3,222 3,171 3,133 ------ ------ ------ OPERATING INCOME BEFORE INCOME TAXES AND CHANGE IN ACCOUNTING PRINCIPLE 795 579 268 ------ ------ ------ INCOME TAX EXPENSE 247 168 77 ------ ------ ------ INCOME AFTER INCOME TAXES AND BEFORE CHANGE IN ACCOUNTING PRINCIPLE 548 411 191 ------ ------ ------ CHANGE IN ACCOUNTING PRINCIPLE - 48 - ------ ------ ------ NET INCOME $ 548 $ 459 $ 191 ====== ====== ======
The accompanying notes are an integral part of these consolidated financial statements. 3 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
Additional Accumulated Other Total Capital Paid-in Retained Comprehensive Shareholder's (in millions) Stock Capital Earnings Income Equity - ----------------------------------------- ------- ---------- -------- ----------------- ------------- BALANCE, JANUARY 1, 2003 $ 5 $2,024 $ 642 $ 511 $ 3,182 Comprehensive income - - 191 282 473 Dividend to shareholder - - (80) - (80) ---- ------ ------ -------- -------- BALANCE, DECEMBER 31, 2003 5 2,024 753 793 3,575 Comprehensive income - - 459 35 494 Dividend to shareholder - - (150) - (150) ---- ------ ------ -------- -------- BALANCE, DECEMBER 31, 2004 5 2,024 1,062 828 3,919 Comprehensive income - - 548 (161) 387 Capital contribution from shareholder - 13 - - 13 Transactions with affiliates (note 17) - 8 - - 8 Dividend to shareholder - - (200) - (200) ---- ------ ------ -------- -------- BALANCE, DECEMBER 31, 2005 $ 5 $2,045 $1,410 $ 667 $ 4,127 ==== ====== ====== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 4 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, (in millions) 2005 2004 2003 --------------------------------------------------- ------- ------- ------- Net Income $ 548 $ 459 $ 191 Adjustments to reconcile net income to net cash provided by operating activities: Net realized gains (209) (285) (160) Net depreciation, amortization of bond premium / discount and other investment related items 54 3 55 Change in policyholder liabilities and accruals (165) 521 421 Deferral of acquisition costs and sales inducements (976) (901) (648) Amortization of deferred acquisition costs and sales inducements 322 358 227 Increase in deferred tax liability, net 118 128 143 Change in accounting principle -- (48) -- Change in other assets and other liabilities (320) 152 334 ------- ------- ------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES $ (628) $ 387 $ 563 ------- ------- ------- Investing Activities: Fixed-maturity securities sold, matured or repaid $ 8,523 $ 9,218 $11,223 Fixed-maturity securities purchased (9,294) (9,277) (9,715) Equity securities sold 153 209 530 Equity securities purchased (261) (159) (166) Mortgage loans advanced (529) (481) (564) Mortgage loans repaid 508 335 307 Real estate sold 9 3 -- Real estate purchased (35) (212) (197) Policy loans repaid (advanced), net 480 (149) (163) Short-term investments, net (112) (170) (262) Other investments, net (6) -- 10 ------- ------- ------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES $ (564) $ (683) $ 1,003 ------- ------- ------- 5 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED) For the years ended December 31, (in millions) 2005 2004 2003 - ----------------------------------------------------- ------ ------- ------- Financing Activities: Capital contribution from shareholder $ 13 - - Net cash transferred related to Taiwan operations (note 17) (24) - - Deposits and interest credited to policyholder account balances 1,803 $ 1,836 $ 1,877 Withdrawals from policyholder account balances (938) (1,327) (1,392) Unearned revenue 49 120 85 Amounts due to (from) affiliates, net 1,810 155 (1,516) Principal repayment of amounts due to affiliates and shareholder -- -- (416) Net reinsurance recoverable (212) 172 132 Dividend paid to shareholder (200) (150) (80) Repaid funds -- -- (2) ------ ------- ------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES $2,301 $ 806 $(1,312) ------ ------- ------- Increase in cash and cash equivalents during the year $1,109 $ 510 $ 254 Cash and cash equivalents at beginning of year 1,482 972 718 ------ ------- ------- BALANCE, END OF YEAR $2,591 $ 1,482 $ 972 ====== ======= ======= 6 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 1. ORGANIZATION John Hancock Life Insurance Company (U.S.A.) ("JH USA" or the "Company") 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". JH USA was formerly known as The Manufacturers Life Insurance Company (U.S.A.). As a result of the 2004 merger between MFC and John Hancock Financial Services, Inc., ("JHFS"), the Company changed its name effective January 1, 2005. JH USA and its subsidiaries operate in the life insurance industry, offering a broad range of individual insurance, reinsurance, and individual wealth management and group wealth management related products. These products are marketed primarily in the United States. 2. SIGNIFICANT ACCOUNTING POLICIES a) Basis of Presentation The accompanying consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles ("U.S. 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. b) Recent Accounting Standards Statement of Financial Accounting No. 155, Accounting for Certain Hybrid Instruments ("SFAS No. 155") In February 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 155, which is an amendment of FASB Statements No. 133 and No. 140, and which brings consistency to accounting and reporting for certain hybrid financial instruments by simplifying, and eliminating exceptions to the accounting, for them. SFAS No. 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. SFAS No. 155 also clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instruments. SFAS will be effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006. The Company is unable to estimate the impact on its consolidated financial position and results of operations of adopting SFAS 155. 7 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) b) Recent Accounting Standards (continued) Statement of Position 05-1 - "Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts" ("SOP 05-1") In September 2005, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued SOP 05-1. SOP 05-1 provides guidance on accounting for deferred acquisition costs of internal replacements of insurance and investment contracts. An internal replacement that is determined to result in a replacement contract that is substantially changed from the replaced contract should be accounted for as an extinguishment of the replaced contract. Unamortized deferred acquisition costs, unearned revenue liabilities, and deferred sales induced assets from extinguished contracts should no longer be deferred and charged off to expense. SOP 05-1 is effective for internal replacements occurring in fiscal years beginning after December 15, 2006. Retrospective adoption is not permitted. The Company is not able to estimate the impact on its consolidated financial position and results of operations of adopting SOP 05-1. Statement of Financial Standards No. 154 - Accounting Changes and Error Corrections- a replacement of APB opinion No. 20 and FASB Statement No. 3 ("SFAS No. 154") In May 2005, the FASB issued SFAS No. 154, which replaces APB Opinion No. 20, "Accounting Changes", and FASB Statement No. 3, "Reporting Accounting Changes in Interim Financial Statements", and which changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS No. 154 requires retrospective application to prior periods' financial statements of changes in accounting principle. SFAS No. 154 carries forward without change the guidance contained in Opinion 20 for reporting the correction of an error in previously issued financial statements and reporting a change in accounting estimate, and also carries forward requirements for justification of a change in accounting principle on the basis of preferability. SFAS No. 154 will be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. 8 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 2) SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) b) Recent Accounting Standards (continued) SFAS No. 123 (revised 2004) - Share Based Payment ("SFAS No. 123(R)") In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share Based Payment" (SFAS No. 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 anticipates continuing to use this model upon the adoption of SFAS No. 123(R), on January 1, 2006. 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("FSP 106-2") In May 2004, the FASB issued FSP 106-2. In accordance with FSP 106-2, the Company recorded a $1 decrease in accumulated postretirement benefit obligation for the year ended December 31, 2004. On December 8, 2003, President George W. Bush signed into law the bill referenced above, which expanded Medicare, primarily by adding a prescription drug benefit for Medicare-eligible retirees starting in 2006. The Medicare Prescription Drug Improvement and Modernization Act of 2003 (the Act) provides for special tax-free subsidies to employers that offer plans with qualifying drug coverage beginning in 2006. Since the subsidy provided by the Company to its retirees for prescription drug benefits will clearly meet the criteria for qualifying drug coverage, the Company anticipates that the benefits it pays after 2005 for its retirees will be lower as a result of the new Medicare provisions and has reflected that reduction in the other post-retirement benefit plan liability. 9 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) b) Recent Accounting Standards (continued) FASB Interpretation 46 (revised December 2003 ) - Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51("FIN 46R"). In December 2003, the FASB issued 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 interests are not measurable by reference to ownership of the equity of the entity. Such entities are known as variable interest entities ("VIEs"). 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. FIN 46R 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 are 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 this guidance, and that none of its relationships with VIEs are significant. 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, and resulted in an increase in net income and shareholder's equity of $48 (net of tax of $26). 10 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) b) Recent Accounting Standards (continued) 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 its consolidated financial position, results of operations or cash flows. c) Investments The Company classifies all of its fixed-maturity and equity securities as available-for-sale and records these securities at fair value. The cost of fixed-maturity securities is adjusted for the amortization of premiums and accretion of discounts, which are calculated using the effective interest method. For the mortgage-backed bond portion of the fixed-maturity securities portfolio, the Company recognizes amortization using a constant effective yield based on anticipated prepayments and the estimated economic life of the securities. When actual prepayments differ significantly from anticipated prepayments, the effective yield is recalculated to reflect actual payments to date and anticipated future payments. Realized gains and losses on sales of securities classified as available-for-sale are recognized in income using the first in first out method, where the securities are deemed to have been sold in the same order as purchased. 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. 11 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) c) Investments 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 approximate fair value. Short-term investments, which include investments with maturities of less than one year and greater than 90 days at the date of acquisition, are reported at amortized cost which approximates fair value. d) 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 $5 after tax, included in other comprehensive income as of December 31, 2005, will be reclassified into earnings within the next twelve months. Cash flow hedges include hedges of certain forecasted transactions of varying periods up to a maximum of 40 years. 12 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) e) Cash Equivalents The Company considers all highly liquid debt instruments purchased with a remaining maturity of 90 days or less to be cash equivalents. Cash equivalents are stated at cost plus accrued interest, which approximates fair value. f) Deferred Acquisition Costs ("DAC") and Deferred Sales Inducements ("DSI") Commissions and other expenses that vary with, and are primarily related to, the production of new business are deferred to the extent recoverable and included as an asset. Acquisition costs associated with annuity contracts and investment pension contracts are being amortized generally in proportion to the present value of expected gross profits from surrender charges and investment, mortality, and expense margins. The amortization is adjusted retrospectively when estimates of current or future gross profits are revised. Assuming the unrealized gains or losses on securities had been realized at year-end, DAC is adjusted for the impact on estimated future gross profits for such unrealized gains (losses). The impact of any such adjustments is included in net unrealized gains (losses) in accumulated other comprehensive income. DAC associated with traditional non-participating individual insurance contracts is amortized over the premium-paying period of the related policies. DAC is reviewed annually to determine recoverability from future income and, if not recoverable, is immediately expensed. As of December 31, 2005 the Company's DAC was deemed recoverable. The Company currently offers enhanced crediting rates or bonus payments to contractholders on certain of its individual annuity products (Deferred Sales Inducements). Those inducements that are incremental to amounts the Company credits on similar contracts without sales inducements and are higher than the contracts' expected ongoing crediting rates for periods after the inducement are capitalized at inception. The capitalized amounts are then amortized over the life of the underlying contracts consistent with the methodology used to amortize DAC. g) Policyholder Liabilities and Accruals Policyholder liabilities for traditional non-participating life insurance policies, reinsurance policies, and 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. 13 FOR JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) g) Policyholder Liabilities and Accruals (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, 2005, participating insurance expressed as a percentage of gross actuarial reserves and account values was 41.2%. 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, 2005, $8,743 (2004 - $9,527) of policyholder liabilities and accruals related to the participating policyholders' accounts were included in the closed block. JH USA's Board of Directors approves the amount of policyholder dividends to be paid annually. The aggregate amount of policyholder dividends was calculated based on actual interest, mortality, morbidity and expense experience for the year, and on management's judgment as to the appropriate level of equity to be retained by the Company. The carrying value of this liability approximated the earned amount and fair value as of December 31, 2005. h) Separate Accounts Separate account assets and liabilities represent funds that are separately administered, principally for investment contracts related to group pension business as well as for variable annuity and variable life contracts, and for which the contractholder, rather than the Company, bears the investment risk. Separate account contractholders have no claim against the assets of the general account of the Company. Separate account assets are recorded at market value. Operations of the separate accounts are not included in the accompanying consolidated financial statements. However, fees charged on separate account policyholder funds are included in revenues of the Company. 14 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) i) 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. j) 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. k) 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. 15 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) l) Stock-Based Compensation Certain JH USA 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 JH USA employees is recognized in the accounts of JH USA over the vesting periods of the units. The intrinsic fair value of the restricted share units granted by MFC to JH USA employees is recognized in the accounts of JH USA 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 JH USA. m) 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. JH USA joins its indirect parent, Manulife Holdings (Delaware) LLC, and its subsidiaries, with the exception of John Hancock Life Insurance Company of New York ("JH NY"), in filing a consolidated federal income tax return. JH NY 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 JH USA 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. 16 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) n) Foreign Currency 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 translation rates in effect at the consolidated balance sheet dates. The consolidated statements of income of the Company's foreign operations are translated into U.S. dollars using average translation rates prevailing during the respective periods. Translation adjustments are included in accumulated other comprehensive income. o) Reclassifications Certain prior year balances have been reclassified to conform to the current year's presentation. 17 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 3. INVESTMENTS AND INVESTMENT INCOME a) Fixed-Maturity and Equity Securities As of December 31, 2005, all fixed-maturity and equity securities have been classified as available-for-sale and reported at fair value. The amortized cost and fair value are summarized as follows:
Gross Gross Unrealized Unrealized Amortized Cost Gains Losses Fair Value --------------- ----------- ---------- --------------- As of December 31, 2005 2004 2005 2004 2005 2004 2005 2004 - ------------------ ------- ------- ---- ---- ---- ---- ------- ------- Fixed-maturity securities: U.S. government $ 4,332 $ 3,308 $102 $111 $(35) $ (8) $ 4,399 $ 3,411 Foreign governments 1,019 1,063 221 203 - - 1,240 1,266 Corporate 5,723 5,882 321 494 (56) (14) 5,988 6,362 Mortgage - backed securities 141 143 4 7 (2) (1) 143 149 ------- ------- ---- ---- ---- ---- ------- ------- TOTAL FIXED-MATURITY SECURITIES $11,215 $10,396 $648 $815 $(93) $(23) $11,770 $11,188 ------- ------- ---- ---- ---- ---- ------- ------- EQUITY SECURITIES $ 478 $ 382 $113 $ 91 $ (7) $ (7) $ 584 $ 466 ======= ======= ==== ==== ==== ==== ======= =======
Proceeds from sales of fixed-maturity securities during 2005 were $8,293 (2004 - $8,860; 2003 - $10,986). Gross gains and losses of $214 and $64, respectively, were realized on those sales (2004 - $252 and $123, respectively; 2003 - $251 and $122, respectively). In addition during 2005, other-than-temporary impairments on fixed maturity securities of $0 (2004 - $0; 2003 - $10) were recognized in the consolidated statements of income. Proceeds from sales of equity securities during 2005 were $153 (2004 - $209; 2003 - $530). Gross gains and losses of $37 and $8, respectively, were realized on those sales (2004 - $35 and $28, respectively; 2003 - $181 and $147, respectively). In addition, during 2005 other-than-temporary impairments on equity securities of $14 (2004 - $10; 2003 - $51) were recognized in the consolidated statements of income. The cost amounts for both fixed-maturity securities and equity securities are net of the other-than-temporary impairment charges. As of December 31, 2005, there were 366 (2004 - 114) fixed-income securities that have a gross unrealized loss of $93 (2004 - $23) of which the single largest unrealized loss was $4 (2004 - $2). The Company anticipates that these fixed-income securities will perform in accordance with their contractual terms and currently has the ability and intent to hold these fixed-income securities until they recover or mature. 18 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED) a) Fixed-Maturity and Equity Securities (continued) As of December 31, 2005, there were 82 (2004 -69 ) equity securities that have a gross unrealized loss of $7 (2004 - $7) of which the single largest unrealized loss is $1 (2004 - $2). The Company anticipates that these equity securities will recover in value. Unrealized Losses on Fixed Maturity & Equity Securities - By Investment Age
As of December 31, 2005 --------------------------------------------------- Less than 12 months 12 months or more Total ------------------------- ------------------------- ---------------------- Carrying Carrying Carrying Value of Value of Value of Securities Securities Securities with Gross with Gross with Gross Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized Description of Securities: Loss Losses Loss Losses Loss Losses - -------------------------- ---------- ---------- ---------- ---------- ---------- ---------- U.S. government $1,731 $(31) $237 $ (6) $1,968 $ (37) Corporate 1,525 (36) 574 (20) 2,099 (56) ------ - ---- - ---- - ---- - ------ - ----- Total, fixed-maturities 3,256 (67) 811 (26) 4,067 (93) Equity securities 37 (4) 22 (3) 59 (7) ------ - ---- - ---- - ---- - ------ - ----- TOTAL $3,293 $(71) $833 $(29) $4,126 $(100) ====== = ==== = ==== = ==== = ====== = =====
The contractual maturities of fixed-maturity securities at December 31, 2005 are shown below: As of December 31, 2005, Amortized Cost Fair Value - ---------------------------------------------- -------------- ---------- Fixed-maturity securities, excluding mortgage- backed securities: Due in one year or less.................... $ 279 $ 277 Due after one year through five years...... 1,040 1,059 Due after five years through ten years..... 5,042 5,049 Due after ten years........................ 4,713 5,242 Mortgage-backed securities 141 143 ------- ------- TOTAL FIXED - MATURITY SECURITIES $11,215 $11,770 ======= ======= Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without prepayment penalties. Corporate requirements and investment strategies may result in the sale of investments before maturity. 19 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED) b) Mortgage Loans Mortgage loans were 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, 2005 2004 ---------------------- ---- ---- IMPAIRED LOANS $ 82 $ 85 ---- ---- Allowance, January 1 $ 10 $ 31 Deductions (3) (21) ---- ---- ALLOWANCE, DECEMBER 31 $ 7 $ 10 ==== ==== All impaired loans have been provided for and no interest is accrued on impaired loans. c) Investment Income Income by type of investment was as follows: For the years ended December 31, 2005 2004 2003 ------------------------- ------ ------ ------ Fixed-maturity securities $ 705 $ 692 $ 737 Equity securities 17 16 12 Mortgage loans 157 155 149 Investment real estate 92 86 86 Other investments 233 230 228 ------ ------ ------ Gross investment income 1,204 1,179 1,212 Investment expenses (35) (31) (38) ------ ------ ------ NET INVESTMENT INCOME $1,169 $1,148 $1,174 ====== ====== ====== d) Significant Equity Interests JH USA holds a 27.7% indirect interest in Flex Leasing I, LLC ("Flex I") which is accounted for using the equity method whereby JH USA recognizes its proportionate share of Flex I net income or loss. In 2003, JH USA sold its 19.6% direct interest in Flex Leasing II, LLC ("Flex II"), which also had been accounted for using the equity method, for a realized gain of $1. As of September 30, 2005, total assets for Flex I were $283 (2004 - $290; 2003 - $296), and total liabilities were $217 (2004 - $230; 2003 - $237). For the year ended September 30, 2005, net loss was $3 (2004 - $3; 2003 - $5). 20 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 3. INVESTMENTS AND INVESTMENT INCOME (CONTINUED) 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 deposited 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, 2005, the Company had loaned securities (which are included in invested assets) with a carrying value and market value of approximately $3,609 and $3,636, respectively (2004 - $2,579 and $2,645, respectively). 4. COMPREHENSIVE INCOME a) Comprehensive income was as follows: For the years ended December 31, 2005 2004 2003 ----------------------------------------------- ----- ----- ----- Net income $ 548 $ 459 $ 191 ===== ===== ===== Other comprehensive income, net of DAC, deferred income taxes and other amounts required to satisfy policyholder liabilities: Unrealized holding (losses) gains arising during the year (29) 118 209 Minimum pension (liability) asset (21) (1) 24 Foreign currency translation - 57 131 Less: Reclassification adjustment for realized gains and losses included in net income 111 139 82 ----- ----- ----- Other comprehensive (loss) income (161) 35 282 ----- ----- ----- COMPREHENSIVE INCOME $ 387 $ 494 $ 473 ===== ===== ===== Other comprehensive income is reported net of tax (benefit) expense of $(87), $11, and $81 for 2005, 2004 and 2003, respectively. 21 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLYTHE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 4. COMPREHENSIVE INCOME (CONTINUED) b) Accumulated other comprehensive income was comprised of the following: As of December 31, 2005 2004 -------------------------------------- ----- ----- Unrealized gains : Beginning balance $ 619 $ 640 Current period change (140) (21) ----- ----- Ending balance $ 479 $ 619 ----- ----- Minimum pension liability: Beginning balance $ (4) $ (3) Current period change (21) (1) ----- ----- Ending balance $ (25) $ (4) ----- ----- Foreign currency translation: Beginning balance $ 213 $ 156 Current period change - 57 ----- ----- Ending balance $ 213 $ 213 ----- ----- ACCUMULATED OTHER COMPREHENSIVE INCOME $ 667 $ 828 ===== ===== c) Net 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 of December 31, 2005 2004 ------------------------------------------------------ ------ ------ Gross unrealized gains $1,201 1,355 Gross unrealized losses (144) (56) DAC and other amounts required to satisfy policyholder liabilities (341) (349) Deferred income taxes (237) (331) ------ ------ NET UNREALIZED GAINS ON SECURITIES AVAILABLE-FOR-SALE $ 479 $ 619 ====== ====== 22 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLYTHE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 5. DEFERRED ACQUISITION COSTS ("DAC") AND DEFERRED SALES INDUCEMENTS ("DSI") The components of the change in DAC were as follows: For the years ended December 31, 2005 2004 ---------------------------------------------------- ------- ------- Balance, January 1 $ 3,448 $ 2,939 Capitalization 940 806 Amortization (293) (330) Transfer of Taiwan operations (note 17) (47) Change in accounting principle (note 2 a) 14 Effect of net unrealized gains on available-for-sale securities 64 19 ------- ------- BALANCE, DECEMBER 31 $ 4,112 $ 3,448 ======= ======= The components of the change in DSI were as follows: For the years ended December 31, 2005 2004 ------------------------------------------------------- ---- ---- Balance, January 1 $228 $215 Capitalization 36 41 Amortization (29) (28) Transfer of Taiwan operations (note 17) (4) ---- ---- BALANCE, DECEMBER 31 $231 $228 ==== ==== 23 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 6. INCOME TAXES The components of income tax expense were as follows: For the years ended December 31, 2005 2004 2003 -------------------------------- ---- ---- ---- Current expense (benefit) $119 $ 40 $(66) Deferred expense 128 128 143 ---- ---- ---- TOTAL EXPENSE $247 $168 $ 77 ==== ==== ==== Income before federal income taxes differs from taxable income principally due to tax-exempt investment income, dividends received tax deductions, differences in the treatment of policy acquisition costs, and differences in reserves for policy and contract liabilities for tax and financial reporting purposes. Deferred income tax assets and liabilities result from tax affecting the differences between the financial statement values and tax values of assets and liabilities at each consolidated balance sheet date. The Company's deferred income tax assets and liabilities were as follows: Balances as of December 31, 2005 2004 --------------------------- ------ ------ Deferred tax assets: Differences in computing policy reserves $ 777 $ 704 Investments 6 - Policyholder dividends payable 11 - Net operating loss - 69 Other deferred tax assets 176 113 ------ ------ Deferred tax assets $ 970 $ 886 ------ ------ Deferred tax liabilities: Deferred acquisition costs $ 889 $ 735 Unrealized gains on securities available-for-sale 364 465 Premiums receivable 23 23 Investments 283 229 Reinsurance 20 2 Other deferred tax liabilities 1 1 ------ ------ Deferred tax liabilities $1,580 $1,455 ------ ------ NET DEFERRED TAX LIABILITIES $ 610 $ 569 ====== ====== 24 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 6. INCOME TAXES (CONTINUED) As of December 31, 2005, the Company had utilized all available operating loss carry forwards from prior years. As of December 31, 2005, the Company had $26 of tax credits available with no expiration date. As of December 31, 2004 and December 31, 2003, the Company had operating loss carry forwards of $198 and $508, respectively, and $4 and $3, respectively, of tax credits. The Company made income tax payments of $66, $4, and $5 in 2005, 2004, and 2003, respectively. 7. SHAREHOLDER'S EQUITY Capital stock is comprised of the following: 2005 2004 ---- ---- 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 JH USA and its life insurance subsidiary 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 and capital and surplus, as determined in accordance with U.S.statutory accounting principles for JH USA and its life insurance subsidiary were as follows: US Statutory Basis For the years ended December 31, 2005 2004 2003 -------------------------------- ---- ------------------ ---- John Hancock Life Insurance Company (U.S.A.): Net income $ 11 $ 304 $289 Capital and surplus 945 1,165 954 John Hancock Life Insurance Company of New York: Net income $ 13 $ 21 $ 2 Capital and surplus 101 51 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 policyholder dividends. The transfers are governed by the terms of MLI's Plan of Demutualization. As of December 31, 2005, assets in the amount of $9 (2004-$7) were on deposit with government authorities or trustees as required by law. 25 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 8. 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. 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 and 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. As of December 31, 2005 and 2004, the projected benefit obligation to the participants of the Plan was $85 (2004-$78), and the accumulated benefit obligation was $74 (2004-$69) which was based on an assumed interest rate of 5.5% (2004-5.75%). The fair value of the Plan assets totaled $71 as of December 31, 2005 (2004-$74). The Company also sponsors an unfunded supplemental cash balance plan entitled "The Manulife Financial U.S. Supplemental Cash Balance Plan" (the "Supplemental Plan"). This non-qualified plan provides defined pension benefits in excess of limits imposed by law. Compensation is not limited and benefits are not restricted by the Internal Revenue Code. 26 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 8. PENSION AND OTHER POST-EMPLOYMENT BENEFITS (CONTINUED) a) Employee Retirement Plans (continued) 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 and 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. As of December 31, 2005, the projected benefit obligation to the participants of the Supplemental Plan was $33 (2004 - $28), which was based on an assumed interest rate of 5.5% (2004 - 5.75%). 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 $4 and $2 in 2005 and 2004, respectively. 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. The Company accounts for its retiree benefit plan using the accrual method. At December 31, 2005, the benefit obligation of the postretirement benefit plan was $35 (2004 - $30), which was based on an assumed interest rate of 5.5% (2004 - 5.75%). This plan is unfunded. Post-retirement benefit plan expenses for 2005 were $4 (2004 - $3). 27 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 8. PENSION AND OTHER POST-EMPLOYMENT BENEFITS (CONTINUED) 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 of January 1, 2005. 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:
Employee Post-retirement Retirement Benefit Plans Plan ------------ -------------- As of December 31, 2005 2004 2005 2004 ------------------ ----- ----- ---- ---- Change in benefit obligation Benefit obligation at beginning of year $(106) $(102) $(30) $(29) Service cost (6) (5) (2) (1) Interest cost (6) (6) (2) (2) Actuarial loss (8) - (1) - Plan amendments - - (1) - Impact of Medicare - - - 1 Benefits paid 8 7 1 1 ----- ----- ---- ---- Benefit obligation at end of year $(118) $(106) $(35) $(30) ----- ----- ---- ---- Change in plan assets Fair value of plan assets at beginning of year $ 74 $ 71 $ - $ - Actual return on plan assets 3 9 - - Employer contribution 2 1 1 1 Benefits paid (8) (7) (1) (1) ----- ----- ---- ---- Fair value of plan assets at end of year 71 $ 74 $ - $ - ----- ----- ---- ---- Funded status $ (47) $ (32) $(35) $(30) Unrecognized actuarial loss (gain) 53 45 (4) (6) Unrecognized prior service cost 2 3 - - ----- ----- ---- ---- Net amount recognized $ 8 $ 16 $(39) $(36) ===== ===== ==== ==== Amounts recognized in consolidated balance sheets consist of: Prepaid benefit cost $ 30 $ 36 $ - $ - Accrued benefit liability (63) (26) (39) (37) Intangible asset 2 - - - Accumulated other comprehensive income 38 6 - - ----- ----- ---- ---- Net amount recognized $ 7 $ 16 $(39) $(37) ===== ===== ==== ====
28 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 8. PENSION AND OTHER POST-EMPLOYMENT BENEFITS (CONTINUED) Weighted-average assumptions used to determine net benefit obligation: Other Pension Postretirement Benefits Benefits ----------- ------------- As of December 31, 2005 2004 2005 2004 ------------------ ---- ---- ----- ----- Discount rate 5.50% 5.75% 5.50% 5.75% Rate of compensation increase 4.00% 4.00% N/A N/A Health care trend rate for following year 10.00% 10.50% Ultimate trend rate 5.00% 5.00% Year ultimate rate reached 2016 2016 Weighted-average assumptions used to determine net periodic benefit cost: Other Pension Postretirement Benefits Benefits ---------- ------------- As of December 31, 2005 2004 2005 2004 ------------------ ---- ---- ----- ----- 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% N/A N/A Health care trend rate for following year 10.50% 11.00% Ultimate trend rate 5.00% 5.00% Year ultimate rate reached 2016 2016 As of December 31, 2005 and 2004, the accrued post-retirement benefit plan obligation was $35 and $30, respectively. The post-retirement benefit obligation for eligible active employees was $4. The amount of the post-retirement benefit obligation for ineligible active employees was $4. For measurement purposes as of December 31, 2005, a 10.0% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2006 for both pre-65 and post-65 coverage. This rate was assumed to decrease gradually to 5.0% in 2016 and will remain at that level thereafter. 29 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 8. PENSION AND OTHER POST-EMPLOYMENT BENEFITS (CONTINUED)
Other Pension Postretirement Benefits Benefits -------- -------------- As of December 31, 2005 2004 2005 2004 ------------------ ---- ---- ---- ---- Components of net periodic benefit cost for plan sponsor Service cost $ 6 $ 5 $ 2 $1 Interest cost 6 6 2 2 Expected return on plan assets (5) (6) - - Amortization of net transition obligation - (1) - - Prior service cost amortization - - 1 - Actuarial gain/loss amortization 3 - (1) - Recognized actuarial loss - 3 - - --- --- --- -- NET PERIODIC BENEFIT COST $10 $ 7 $ 4 $3 === === === ==
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 $33, $30, and $0, respectively, as of December 31, 2005 and $28, $26 and $0, respectively, as of December 31, 2004. 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 2005 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 $3 $(2)
No contributions are anticipated during the next ten years and the expected benefit payments for the next ten years are as follows: Projected Employer Pension Benefits Payment Total Total Year Qualified Nonqualified Total --------- --------- ------------ ----- 2006 $ 6 $ 2 $ 8 2007 7 2 9 2008 7 2 9 2009 7 3 10 2010 7 3 10 2011-2015 37 15 52 30 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLYTHE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 8. PENSION AND OTHER POST-EMPLOYMENT BENEFITS (CONTINUED) Projected Employer Postretirement Benefits Payment (includes Future Service Accruals) Net of Medicare Part D Year Gross Payments Subsidy Net Payments ---- -------------- ---------------------- ------------ 2006 $ 2 $- $ 2 2007 2 - 2 2008 2 - 2 2009 2 - 2 2010 2 - 2 2011-2015 13 1 12 e) Plan Assets The weighted average assets for the Company's U.S. Cash Balance Plan as of December 31, 2005 and December 31, 2004, by asset category were as follows: Plan Assets ---------- As of December 31, 2005 2004 ----------------------------------------------------------- ---- ---- Equity Securities 65% 63% Debt Securities 31% 33% Real Estate 4% 4% --- --- 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 included a 50% to 80% range for equity securities with a target allocation of 65% and a range of 20% to 50% for debt securities with a target allocation of 35%. 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. 31 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLYTHE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($in millions unless otherwise stated) 8. PENSION AND OTHER POST-EMPLOYMENT BENEFITS (CONTINUED) . 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. . 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. The information that follows shows supplemental information for the Company's defined benefit pension plans. Certain key summary data is shown separately for qualified plans and non-qualified plans. Obligations and Funded Status:
Years Ended December 31, -------------------------------------------------------- 2005 2004 --------------------------- --------------------------- Qualified Nonqualified Qualified Nonqualified Plans Plans Total Plans Plans Total --------- ------------ ----- --------- ------------ ----- Benefit obligation at the end of year $ 85 $ 33 $118 $78 $ 28 $106 Fair value of plan assets at end of year 71 - 71 74 - 74 Funded status (assets less obligations) (14) (33) (47) (4) (28) (32) Unrecognized net actuarial loss 42 11 53 38 7 45 Unrecognized prior service cost 2 - 2 2 1 3 ---- ---- ---- --- ---- ---- Prepaid (accrued) benefit cost $ 30 $(22) $ 8 $36 $(20) $ 16 ==== ==== ==== === ==== ==== Amounts recognized in the consolidated balance sheets: Prepaid benefit cost $ 30 - $ 30 $36 - $ 36 Accrued benefit liability including minimum liability (33) $(30) (63) - $(26) (26) Intangible asset 2 - 2 - - - Accumulated other comprehensive income 31 7 38 - 6 6 ---- ---- ---- --- ---- ---- Net amount recognized $ 30 $(23) $ 7 $36 $(20) $ 16 ==== ==== ==== === ==== ==== Components of net periodic benefit cost: Service cost $ 5 $ 1 $ 6 $ 4 $ 1 $ 5 Interest cost 4 2 6 4 2 6 Expected return on plan assets (6) - (6) (6) - (6) Amortization of transition asset - - - (1) - (1) Actuarial (gain)/loss amortization 3 1 4 3 - 3 ---- ---- ---- --- ---- ---- Net periodic benefit cost $ 6 $ 4 $ 10 $ 4 $ 3 $ 7 ==== ==== ==== === ==== ====
32 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLYTHE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($in millions unless otherwise stated) 9. STOCK BASED COMPENSATION There are no stock based compensation plans involving stock of JH USA. However, employees of JH USA 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. In 2000, MFC also granted deferred share units (the "DSUs") to certain employees under the ESOP. The DSUs vested 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. In 2005, DSUs were issued to certain employees who elected to defer their annual bonus, in part or otherwise, under the ESOP. These DSUs vested immediately upon grant and entitle the holder to receive payment equal to the value of the same number of common shares plus credited dividends upon retirement or termination of employment. No DSUs were granted during 2004. JH USA recorded compensation expense for the year ended December 31, 2005 of $5 related to DSUs granted by MFC to its employees (2004 - $2; 2003 - $1). Effective January 1, 2001, MFC established the Global Share Ownership Plan (the "GSOP") for its eligible employees and the Stock Plan for Non-Employee Directors in which JH USA employees can participate. Under this plan, qualifying employees of JH USA 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 to certain maximums. 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 JH USA employees are charged and expensed to JH USA via the service agreement between JH USA and MFC. In 2003, MFC established a new Restricted Share Unit ("RSU") plan. For the year ended December 31, 2005, RSUs were granted to certain eligible employees under this 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, plus credited dividends, at the time the RSUs vest. RSUs vest at the end of three years, subject to performance conditions, and the related compensation expense is recognized. The Company recorded compensation expense related to RSUs of $28 for the year ended December 31, 2005 (2004 - $3; 2003 - $1). 33 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 10. DERIVATIVES AND HEDGING INSTRUMENTS The fair value of derivative instruments classified as assets as of December 31, 2005 and 2004 was $8 and $26, respectively, and is reported on the consolidated balance sheets in other assets. The fair value of derivative instruments classified as liabilities as of December 31, 2005 and 2004 was $41 and $43, respectively, and is reported on the consolidated balance sheets in other liabilities. Fair Value Hedges. The Company uses interest rate swaps to reduce market risks from changes in interest rates and to alter interest rate exposures arising from mismatches between assets and liabilities. Under interest rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed notional principal amount. Generally, no cash is exchanged at the outset of the contract and either party makes principal payments. The Company uses cross currency swaps to manage exposures to foreign currency arising from its balance sheet assets and liabilities. Cross currency swaps involve an initial and final exchange of principal amounts between parties as well as the exchange of fixed or floating interest payments in one currency for the receipt of fixed or floating interest payments in another currency. For the year ended December 31, 2005, the Company recognized a net loss of $0 (2004 - $1; 2003 - $2) related to the ineffective portion of its fair value cross currency hedges. Cash Flow Hedges. The Company uses interest rate swaps to hedge variable cash flows arising from floating-rate assets held on the balance sheet. Under interest rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts calculated by reference to an agreed notional principal amount. Generally, no cash is exchanged at the outset of the contract and either party makes principal payments. The Company uses cross currency swaps to manage exposures to foreign currency and variable interest rates arising from its on-balance sheet assets. Cross currency swaps involve an initial and final exchange of principal amounts between parties as well as the exchange of fixed or floating interest payments in one currency for the receipt of fixed or floating interest payments in another currency. The Company uses foreign currency forward contracts to hedge foreign exchange risk, as it generates revenue and holds assets in U.S. dollars, but incurs a significant portion of its maintenance and acquisition expenses in Canadian dollars. These foreign currency contracts qualify as cash flow hedges of foreign currency expenses. 34 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 10. DERIVATIVES AND HEDGING INSTRUMENTS (CONTINUED) Derivatives Not Designated as Hedging Instruments. The Company uses interest rate swaps, interest rate floors, and cross currency swaps to reduce exposure to interest rates and foreign exchange arising from on-balance sheet assets without designating the derivatives as hedging instruments. Interest rate floors involve an initial payment/receipt of premium as well as potential interest payments depending on interest rate movements. Outstanding derivative instruments were as follows:
Notional or Carrying Contract Amounts Value Fair Value ---------------- ---------- ---------- As of December 31, 2005 2004 2005 2004 2005 2004 - ------------------------------------------- ------ ------ ---- ---- ---- ---- Interest rate and currency swaps and floors $1,694 $1,491 $(39) $(41) $(39) $(41) Interest rate options written 12 12 - (1) - (1) Equity contracts 5 3 - - - - Currency forwards 258 356 6 25 6 25 ------ ------ ---- ---- ---- ---- TOTAL DERIVATIVES $1,969 $1,862 $(33) $(17) $(33) $(17) ====== ====== ==== ==== ==== ====
11. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values and the estimated fair values of the Company's financial instruments as of December 31 were as follows: Carrying Value Fair Value --------------- --------------- As of December 31, 2005 2004 2005 2004 --------------------------------------- ------- ------- ------- ------- Assets: Fixed-maturity and equity securities $12,354 $11,654 $12,354 $11,654 Mortgage loans 2,410 2,367 2,475 2,516 Policy loans 2,187 2,681 2,187 2,681 Short-term investments 549 436 549 436 Derivative financial instruments 8 26 8 26 Liabilities: Insurance investment contracts 2,355 2,337 2,322 2,309 Derivative financial instruments 41 43 41 43 35 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 11. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) 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. Short-term investments: Fair values of short-term investments were based on quoted market prices. 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. Derivative financial instruments: Fair values of derivative financial instruments were based on current settlement values. These values were based on quoted market prices for the financial futures contracts and brokerage quotes that utilize pricing models or formulas using current assumptions for all swaps and other agreements. 12. RELATED PARTY TRANSACTIONS The Company has formal service agreements with MFC, which can be terminated by either party upon two months notice. Under the various agreements, the Company will pay direct operating expenses incurred by MFC on behalf of the Company. Services provided under the agreements include legal, actuarial, investment, data processing, accounting and certain other administrative services. Costs incurred under the agreements were $352 in 2005 (2004 - $281; 2003 - $254). There are two service agreements, both effective as of April 28, 2004, between the Company and John Hancock Life Insurance Company ("JHLICO"). Under one agreement, the Company provides services to JHLICO, and under the other JHLICO provides services to the Company. In both cases the Provider of the services can also employ a "Provider Affiliate" to provide services. In the case of the service agreement where JHLICO provides services to the Company, a "Provider Affiliate" means JHLICO's parent, JHFS, and its direct and indirect subsidiaries. 36 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 12. RELATED PARTY TRANSACTIONS (CONTINUED) During 2005, the Company paid dividends of $200 to its shareholder, The Manufacturers Investment Corporation ("MIC"). During 2005, the Company received dividends of $165 from its subsidiary, John Hancock Investment Management Services, LLC ("JHIMS") and dividends of $89 from another subsidiary, John Hancock Distributors, LLC ("JHD"). 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), an affiliated 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 $338 in 2005 (2004 - $169; 2003 - $123), which was 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, 2005 was $423 (2004 - $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 Reinsurance (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 is 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 was $2,469 (2004 - $2,371) 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 December 19, 2000 and to a Credit Agreement of the same date, the Company borrowed $250 from an affiliate, Manulife Hungary Holdings KFT ("MHHL"). The maturity date with respect to this note is 365 days following the date of the borrowing; however, the note is normally renegotiated at each anniversary date. Interest is calculated at a fluctuating rate equivalent to 3-month LIBOR plus 25 basis points and is payable quarterly. The interest rate was 4.77% as of December 31, 2005. On December 30, 2002, the Company repaid $176 of the original principal balance. The principal balance outstanding as of December 31, 2005 and 2004 was $74. 37 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 12. RELATED PARTY TRANSACTIONS (CONTINUED) Pursuant to a promissory note issued August 7, 2001 and to a Credit Agreement of the same date, the Company borrowed $4 from MHHL. The maturity date with respect to this note is 365 days after the date of the borrowing; however, the note is normally renegotiated at each anniversary date. Interest is calculated at a fluctuating rate equal to 3-month LIBOR plus 25 basis points and is payable quarterly. The interest rate was 4.77% as of December 31, 2005. During 1997 and 1998, the Company issued four surplus debentures for $390 with interest rates ranging from 7.93% to 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 for 2003. No amount was owed to MIC as of December 31, 2005 or 2004. Pursuant to a promissory note dated May 7, 1999, ENNAL Inc., a wholly owned non-life subsidiary of the Company, loaned U.S. $83 (Cdn. $125) to MLI. Interest was calculated at a rate of 5.6% per annum and was 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 of December 31, 2005 and 2004, the Company had one inter-company note receivable from MRL with a carrying value of $18. The loan matures on May 11, 2006 and bears interest at a floating 3-month LIBOR plus 60 basis points. The interest rate as of December 31, 2005 was 5.09%. The Company has two liquidity pools in which affiliates can invest excess cash. Terms of operation and participation in the liquidity pool are set out in two Liquidity Pool and Loan Facility Agreements. The first agreement, effective May 28, 2004, is between the Company and various MFC affiliates. The second Liquidity Pool Agreement, effective May 27, 2005, allows John Hancock Financial Services, Inc., and subsidiaries (JHFS) acquired as a result of the 2004 merger with MFC to also participate in the arrangement. The maximum aggregate amount that the Company can accept into these Liquidity Pools is $2.5 billion. By acting as the banker the Company can earn a spread over the amount it pays its affiliates and this aggregation and resulting economies of scale allows the affiliates to improve the investment return on their excess cash. Interest payable on the funds will be reset daily to the one-month U.S. Dollar London Inter-Bank Bid ("LIBID"). 38 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 12. RELATED PARTY TRANSACTIONS (CONTINUED) The following table exhibits the affiliates and their participation in the Company's liquidity pools: December 31, December 31, Affiliate 2005 2004 --------- ------------ ------------ Manulife Investment Corporation $ 78 $ 51 Manulife Reinsurance Ltd 46 65 Manulife Reinsurance (Bermuda) Ltd 74 222 Manulife Hungary Holdings KFT 20 4 Manulife Insurance Company 15 John Hancock Life Insurance Company 1,500 John Hancock Variable Life Insurance Company 136 John Hancock Reassurance Co, Ltd. 224 John Hancock Financial Services, Inc. 82 The Berkeley Financial Group, LLC 8 John Hancock Signature Services, Inc. 9 ------- ----- Total $ 2,192 $ 342 ======= ===== The balances above are reported on the consolidated balance sheets as amounts due to affiliates. 13. REINSURANCE In the normal course of business, the Company assumes and cedes reinsurance as a party to several reinsurance treaties with major unrelated insurance companies. The Company remains liable for amounts ceded in the event that reinsurers do not meet their obligations. Reinsurance premiums are included in premium revenue as follows: For the years ended December 31, 2005 2004 2003 -------------------------------- ----- ----- ------- Direct premiums $ 865 $ 900 $ 1,011 Reinsurance assumed 329 335 309 Reinsurance ceded (324) (292) (365) ----- ----- ------- TOTAL PREMIUMS $ 870 $ 943 $ 955 ===== ===== ======= Reinsurance recoveries on ceded reinsurance contracts were $336, $281 and $309 during 2005, 2004 and 2003, respectively. 39 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 14. 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 contractholder. 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 2005 and 2004, there were no gains or losses on transfers of assets from the general account to the separate account. 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, while 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 variable annuity contracts are issued through separate accounts and the Company contractually guarantees the contractholder 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. Contracts issued after December 31, 2002 have a proportional partial withdrawal benefit instead of a dollar-for-dollar relationship. As of December 31, 2005, 44% of the inforce contract values have reduction of benefit on a dollar-for-dollar basis, and 56% on a proportional basis. In May 1998 the Company introduced a Guaranteed Income Benefit Rider (GRIP), which provided a guaranteed minimum annuity payout if the policyholder elected to annuitize after holding the policy for at least 7 years. In 2001, the GRIP rider was replaced by a newer version, GRIP II, which required a 10 year waiting period and charged a higher ride fee. GRIP III, which replaced GRIP II after May, 2003, provided a less generous benefit base with a higher rider charge. The Company discontinued sales of GRIP III riders in 2005. In 2004, the Company introduced a Guaranteed Minimum Withdrawal Benefit Rider (GMWB) named Principal Plus (PP). This rider provides a guaranteed withdrawal amount referred to as the Guaranteed Withdrawal Balance (GWB) as long as withdrawals do not exceed 5% of the GWB per annum. In 2005, a newer version of the GMWB rider, Principal Plus for Life (PPFL) was introduced. This new rider retains all the features of the PP rider and adds an alternative guarantee of a Life Time Income Amount available for the life of the covered person. 40 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 14. CERTAIN SEPARATE ACCOUNTS (CONTINUED) As of December 31, 2005 and 2004, the Company had the following variable contracts with guarantees:
As of December 31, 2005 2004 - ------------------ ------- ------- Return of net deposits Account value $ 6,976 $ 4,093 Net amount at risk - gross $ 7 $ 11 Net amount at risk - net $ 1 $ 2 Return of net deposits plus a minimum return Account value $ 842 $ 896 Net amount at risk - gross $ 176 $ 178 Net amount at risk - net - $ 1 Guaranteed minimum return rate 5% 5% Highest anniversary account value minus withdrawals post-anniversary Account value $26,828 $22,637 Net amount at risk - gross $ 1,865 $ 2,275 Net amount at risk - net $ 81 $ 90 Guaranteed Minimum Income Benefit Account value $11,477 $11,420 Net amount at risk - gross $ 1,332 $ 1,277 Net amount at risk - net $ 25 $ 21 Guaranteed Minimum Withdrawal Benefit Account value $10,179 $ 3,187 Net amount at risk - gross $ 3 - Net amount at risk - net $ 3 -
41 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 14. CERTAIN SEPARATE ACCOUNTS (CONTINUED) (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. For all the guarantees, the net amount at risk is floored at zero at the single contract level. 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 (dollars in billions), as of December 31, 2005 and 2004, respectively:
December 31, December 31, Asset Class Index 2005 2004 - -------------------- ------------------------------------------- ------------ ------------ Large Cap Equity S&P 500 9.90 9.65 High Quality Bond Ibbottson US Intermediate Term Gov't Bond 4.31 1.93 High Yield Bond Ibbottson Domestic High Yield Bond .58 0.72 Balanced 60% Large Cap Equity, 40% High Quality Bond 14.35 8.58 Small Cap Equity Ibbottson US Small Cap Stock 3.37 4.02 International Equity MSCI EAFE 1.31 1.18 Global Equity MSCI World .56 0.38 Real Estate NAREIT .32 0.35
42 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 14. CERTAIN SEPARATE ACCOUNTS (CONTINUED) The reserve roll forwards for the separate accounts as of December 31, 2005 and 2004 are shown below:
Guaranteed Guaranteed Guaranteed Minimum Minimum Death Minimum Income Withdrawal Benefit (GMDB) Benefit (GMIB) Benefit (GMWB) Totals -------------- -------------- -------------- ------ Balance at January 1, 2004 $ 66 $ 136 $ - $ 202 Incurred Guarantee Benefits (42) - - (42) Other Reserve Changes 41 (15) (24) 2 Balance at December 31, 2004 65 121 (24) 162 Reinsurance Recoverable 26 194 - 220 Net Balance at December 31, 2004 $ 39 $ (73) $ (24) $ (58) Balance at January 1, 2005 $ 65 $ 121 $ (24) $ 162 Incurred Guarantee Benefits (81) - - (81) Other Reserve Changes 91 48 10 149 Balance at December 31, 2005 75 169 (14) 230 Reinsurance Recoverable 36 356 - 392 Net Balance at December 31, 2005 $ 39 $ (187) $ (14) $ (162)
The gross reserves for both GMDB and GMIB were determined using SOP 03-1, whereas the gross reserve for GMWB was 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% (inforce issued before 2004) or 6.4% (inforce issued after 2003) in the SOP 03-1 calculations and 5.0% for SFAS 133 calculations. 43 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 15. CONTINGENCIES AND COMMITMENTS The Company is regularly involved in litigation, both as a defendant and as a plaintiff. The litigation naming it as a defendant ordinarily involves its activities as a provider of insurance protection and wealth management products, as well as an investment adviser, employer and taxpayer. In addition, state regulatory bodies, state attorneys general, the United States Securities and Exchange Commission, the National Association of Securities Dealers, Inc. and other government and regulatory bodies regularly make inquiries and, from time to time, require the production of information or conduct examinations concerning the Company's compliance with, among other things, insurance laws, securities laws, and laws governing the activities of broker-dealers. As with many other companies in the financial services industry, the Company has been requested or required by such government and regulatory authorities to provide information with respect to market timing, late trading and sales compensation and broker-dealer practices with respect to variable investment options underlying variable life and annuity products and other separate account products. It is believed that these inquiries are similar to those made to many financial service companies by various agencies into practices, policies and procedures relating to trading in mutual fund shares and sales compensation and broker-dealer practices. The Company intends to continue to cooperate fully with government and regulatory authorities in connection with their respective inquiries. The Company does not believe that the conclusion of any current legal or regulatory matters, either individually or in the aggregate, will have a material adverse effect on its financial condition or results of operations. As of December 31, 2005, the Company had outstanding commitments involving nine mortgage applications in the United States for a total of $38 to be disbursed in 2006. 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: Year Amount ----------------------------- ------ 2006 $ 14 2007 12 2008 9 2009 5 2010 3 Thereafter 9 ---- Total $ 52 ---- There were no other material operating leases in existence at the end of 2005. 44 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 16. SEGMENT INFORMATION The Company's reportable segments are strategic business units offering different products and services. The reportable segments are managed separately, as they focus on different products, markets and distribution channels. Protection Segment. Offers a variety of individual life insurance, including participating whole life, term life, universal life and variable life insurance. Products are distributed through multiple distribution channels, including insurance agents and brokers and alternative distribution channels that include banks, financial planners, and direct marketing. Wealth Management Segment. Offers individual fixed and variable annuities. This segment distributes its products through multiple distribution channels, including insurance agents and brokers affiliated with the Company, securities brokerage firms, financial planners, and banks. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Allocations of net investment income are based on the amount of assets allocated to each segment. Other costs and operating expenses are allocated to each segment based on a review of the nature of such costs, cost allocations utilizing time studies, and other relevant allocation methodologies. The following tables summarize selected financial information by segment for the periods indicated: 45 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 16. SEGMENT INFORMATION (CONTINUED) For the year ended December 31, 2005: Wealth Corporate Protection Management and Other Consolidated ---------- ---------- --------- ------------ Revenues: Revenues from external customers $ 1,207 $ 1,225 $ 207 $ 2,639 Net investment income 723 220 226 1,169 Net realized investment and other gains 92 32 85 209 -------- -------- ------- -------- Revenues $ 2,022 $ 1,477 $ 518 $ 4,017 ======== ======== ======= ======== Net Income: $ 151 $ 272 $ 125 $ 548 ======== ======== ======= ======== Supplemental Information: Equity in net income of investees accounted for by the equity method $ 1 $ 1 Carrying value of investments accounted for by the equity method 38 38 Amortization of deferred acquisition costs and deferred sales inducements $ 74 $ 243 5 322 Interest expense 26 3 29 Income tax expense 81 95 71 247 Segment assets $ 17,675 $ 76,219 $ 7,641 $101,535 For the year ended December 31, 2004: Wealth Corporate Protection Management and Other Consolidated ---------- ---------- --------- ------------ Revenues: Revenues from external customers $ 1,095 $ 931 $ 291 $ 2,317 Net investment income 713 230 205 1,148 Net realized investment and other gains 184 52 49 285 -------- -------- ------- -------- Revenues $ 1,992 $ 1,213 $ 545 $ 3,750 ======== ======== ======= ======== Net Income: $ 161 $ 131 $ 167 $ 459 ======== ======== ======= ======== Supplemental Information: Equity in net income of investees accounted for by the equity method $ 1 $ 1 Carrying value of investments accounted for by the equity method 42 42 Amortization of deferred acquisition costs and deferred sales inducements $ 150 $ 194 14 358 Interest expense 20 2 22 Income tax expense 53 21 94 168 Segment assets $ 16,785 $ 62,662 $ 5,841 $ 85,288
46 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (FORMERLY THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.)) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 ($ in millions unless otherwise stated) 16. SEGMENT INFORMATION (CONTINUED) For the year ended December 31, 2003:
Wealth Corporate Protection Management and Other Consolidated ---------- ---------- --------- ------------ Revenues: Revenues from external customers $ 1,079 $ 740 $ 248 $ 2,067 Net investment income 717 237 220 1,174 Net realized investment and other gains 43 19 98 160 ------- ------- ------ ------- Revenues $ 1,839 $ 996 $ 566 $ 3,401 ======= ======= ====== ======= Net Income: $ 29 $ 52 $ 110 $ 191 ======= ======= ====== ======= Supplemental Information: Equity in net income of investees accounted for by the equity method $ 8 $ 8 Carrying value of investments accounted for by the equity method 42 42 Amortization of deferred acquisition costs and deferred sales inducements $ 100 $ 112 15 227 Interest expense 13 33 46 Income tax expense (benefit) 19 (7) 65 77 Segment assets $14,822 $49,559 $5,296 $69,677
17. TAIWAN BRANCH TRANSFER (AND SUBSEQUENT REINSURANCE OF TAIWAN BUSINESS BACK TO THE COMPANY) Effective January 1, 2005, the Company transferred its Taiwan branch operations to an affiliate, Manulife (International) Limited (MIL). Assets of $295 and liabilities of $176 were transferred. The loss on the intercompany transfer of $77 (net of tax benefit of $42) was accounted for as a transaction between entities under common control and recorded as a reduction to additional paid-in capital. During the fourth quarter of 2005 a block of business of the Taiwan branch was transferred back to the Company through reinsurance, in two steps. First MIL entered into a modified coinsurance agreement with an affiliate, Manufacturers Life Reinsurance Limited (MLRL), transferring the business to MLRL. Then MLRL entered into a modified coinsurance agreement with the Company, transferring the business to the Company. The Company recorded reinsurance recoverable of $152, assumed policyholder liabilities of $123, and received a ceding commission of $102. These transactions were also accounted for as transactions between entities under common control, and the gain of $85 (net of tax expense of $46) was recorded as an increase to additional paid-in capital. The net effect on the Company's additional paid-in capital for the transfer and reinsurance of the Taiwan branch business was an increase of $8. Subsequent to the transfer it was determined that reserves on the Taiwan business needed to be strengthened by $10 (net of tax benefit of $5). This activity has been reported in the Company's 2005 consolidated statement of income. 47 JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Audited Financial Statements Years ended December 31, 2005 and 2004 with Report of Independent Registered Public Accounting Firm John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Financial Statements Years ended December 31, 2005 and 2004 Contents Report of Independent Registered Public Accounting Firm........ 1 Financial Statements Statement of Assets and Contract Owners' Equity................ 3 Statements of Operations and Changes in Contract Owners' Equity 5 Notes to Financial Statements.................................. 39 Report of Independent Registered Public Accounting Firm To the Contract Owners of John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) We have audited the accompanying statement of assets and contract owners' equity of John Hancock Life Insurance Company (U.S.A.) Separate Account N (formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) (comprising of the 500 Index Trust, 500 Index Trust B, Active Bond Trust, Aggressive Growth Trust, All Asset Portfolio, All Cap Core Trust, All Cap Growth Trust, All Cap Value Trust, American Blue Chip Income and Growth Trust, American Growth Trust, American Growth-Income Trust, American International Trust, Blue Chip Growth Trust, Capital Appreciation Trust, Classic Value Trust, Core Bond Trust, Core Equity 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 Trust B, International Opportunities Trust, International Small Cap Trust, International Stock Trust, International Value Trust, Investment Quality Bond Trust, Large Cap 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 Mid Cap Trust, Quantitative Value Trust, Real Estate Securities Trust, Real Return Bond Trust, Science & Technology Trust, Small Cap 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. Global Leaders Growth Trust, U.S. Government Securities Trust, U.S. Large Cap Trust, Utilities Trust, and Value Trust sub-accounts) of John Hancock Life Insurance Company (U.S.A.), (formerly The Manufacturers Life Insurance Company (U.S.A.)) as of December 31, 2005, and the related statements of operations and changes in contract owners' equity for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial highlights 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 and 1 financial highlights 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 and financial highlights referred to above present fairly, in all material respects, the financial position of each of the sub-accounts of John Hancock Life Insurance Company (U.S.A.) Separate Account N (formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) at December 31, 2005, 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 and the financial highlights for each of the five years then ended, in conformity with U.S. generally accepted accounting principles. Ernet & Young LLP Toronto, Canada March 24, 2006 2 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Statement of Assets and Contract Owners' Equity December 31, 2005 Assets Investments at fair value: Sub-accounts invested in John Hancock Trust (formerly Manufacturers Investment Trust) portfolios: 500 Index Trust Series 1 - 1,039,465 shares (cost $10,646,873) $11,226,224 500 Index Trust B Series 0 - 1,412,291 shares (cost $21,222,891) 22,413,056 Active Bond Trust Series 1 - 428,105 shares (cost $4,124,591) 4,165,458 Aggressive Growth Trust Series 1 - All Cap Core Trust Series 1 - 178,268 shares (cost $2,485,900) 3,066,213 All Cap Growth Trust Series 1 - 464,580 shares (cost $6,674,004) 7,772,423 All Cap Value Trust Series 1 - 116,050 shares (cost $1,547,665) 1,705,935 American Blue Chip Income and Growth Trust Series 1-145,332 shares (cost $2,328,545) 2,325,308 American Growth Trust Series 1 - 1,310,767 shares (cost $23,849) 26,189,118 American Growth-Income Trust Series 1 - 153,009 shares (cost $2,510,100) 2,725,094 American International Trust Series 1 - 711,472 shares (cost $13,546,390) 15,253,954 Blue Chip Growth Trust Series 1 - 1,660,822 shares (cost $26,053,308) 29,446,370 Capital Appreciation Trust Series 1 - 215,256 shares (cost $1,872,310) 2,156,867 Classic Value Trust Series 1 - 30,169 shares (cost $447,459) 433,522 Core Bond Trust Series 1 - 6 shares (cost $71) 72 Core Equity Trust Series 1 - 18,875 shares (cost $265,727) 284,444 Diversified Bond Trust Series 1 - Dynamic Growth Trust Series 1 - 751,626 shares (cost $3,646,573) 4,088,844 Emerging Growth Trust Series 1 - 16,933 shares (cost $302,455) 300,058 Emerging Small Company Trust Series 1 - 1,687,063 shares (cost $48,686,141) 50,949,308 Equity-Income Trust Series 1 - 2,147,432 shares (cost $34,034,751) 36,227,178 Equity Index Trust Series 1 - Financial Services Trust Series 1 - 30,453 shares (cost $404,090) 466,240 Fundamental Value Trust Series 1 - 192,163 shares (cost $2,658,031) 2,943,943 Global Trust Series 1 - 278,927 shares (cost $3,908,397) 4,510,252 Global Allocation Trust Series 1 - 27,805 shares (cost $296,027) 316,420 Global Bond Trust Series 1 - 364,261 shares (cost $5,417,507) 5,234,432 Growth & Income Trust Series 1 - 694,689 shares (cost $15,029,395) 15,776,383 Health Sciences Trust Series 1 - 286,696 shares (cost $4,050,761) 4,584,275 High Yield Trust Series 1 - 1,637,465 shares (cost $16,524,028) 16,898,635 Income & Value Trust Series 1 - 2,239,199 shares (cost $23,270,927) 25,459,694 International Equity Index Trust B Series 1 - 343,756 shares (cost $5,630,619) 5,895,407 International Opportunities Trust Series 1 - 467 shares (cost $6,566) 7,257 International Small Cap Trust Series 1 - 259,592 shares (cost $4,263,695) 4,994,547 International Stock Trust Series 1 - 1,110,089 shares (cost $10,890,543) 14,186,941 International Value Trust Series 1 - 1,218,800 shares (cost $17,602,692) 19,488,615 Investment Quality Bond Trust Series 1 - 1,622,667 shares (cost $20,013,725) 19,439,556 Large Cap Trust Series 1 - 284 shares (cost $3,778) 4,019 Large Cap Growth Trust Series 1 - 652,125 shares (cost $6,153,954) 6,534,293 Large Cap Value Trust Series 1 - 178,169 shares (cost $3,667,527) 3,866,266 Lifestyle Aggressive 1000 Trust Series 1 - 431,079 shares (cost $4,907,918) 5,802,326 Lifestyle Balanced 640 Trust Series 1 - 1,407,741 shares (cost $17,779,008) 19,581,681 Lifestyle Conservative 280 Trust Series 1 - 444,286 shares (cost $6,081,294) 5,962,323
3 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Statement of Assets and Contract Owners' Equity (continued) December 31, 2005 Assets (continued) Investments at fair value: Sub-accounts invested in John Hancock Trust (formerly Manufacturers Investment Trust) portfolios: Lifestyle Growth 820 Trust Series 1 - 591,451 shares (cost $7,205,162) $ 8,315,803 Lifestyle Moderate 460 Trust Series 1 - 225,391 shares (cost $2,909,153) 3,008,972 Mid Cap Core Trust Series 1 - 49,366 shares (cost $821,696) 829,349 Mid Cap Index Trust Series 1 - 345,229 shares (cost $5,581,500) 6,231,380 Mid Cap Stock Trust Series 1 - 858,155 shares (cost $11,130,560) 13,361,473 Mid Cap Value Trust Series 1 - 1,708,035 shares (cost $29,688,041) 32,162,303 Money Market Trust Series 1 - 5,269,796 shares (cost $52,697,960) 52,697,960 Natural Resources Trust Series 1 - 166,364 shares (cost $4,471,075) 5,240,454 Overseas Trust Series 1 - Pacific Rim Trust Series 1 - 585,239 shares (cost $5,055,028) 6,929,233 Quantitative All Cap Trust Series 1 - 1,974 shares (cost $34,122) 32,673 Quantitative Mid Cap Trust Series 1 - 33,179 shares (cost $385,398) 487,068 Quantitative Value Trust Series 1 - Real Estate Securities Trust Series 1 - 1,593,405 shares (cost $32,906,486) 39,627,992 Real Return Bond Trust Series 1 - 123,208 shares (cost $1,662,312) 1,669,468 Science & Technology Trust Series 1 - 1,723,639 shares (cost $19,145,736) 20,287,236 Small Cap Trust Series 1 - 1,191 shares (cost $16,691) 17,031 Small Cap Index Trust Series 1 - 788,383 shares (cost $10,960,820) 11,739,024 Small Cap Opportunities Trust Series 1 - 263,411 shares (cost $5,554,710) 6,011,042 Small Company Trust Series 1 - 2,790 shares (cost $42,950) 43,967 Small Company Blend Trust Series 1 - Small Company Value Trust Series 1 - 1,174,959 shares (cost $23,168,521) 26,095,828 Special Value Trust Series 1 - 15,737 shares (cost $260,508) 309,231 Strategic Bond Trust Series 1 - 433,734 shares (cost $5,132,737) 5,217,823 Strategic Growth Trust Series 1 - Strategic Income Trust Series 1 - 81,644 shares (cost $1,103,997) 1,075,257 Strategic Opportunities Trust Series 1 - 427,688 shares (cost $4,165,697) 5,106,599 Strategic Value Trust Series 1 - 8,200 shares (cost $82,842) 87,168 Total Return Trust Series 1 - 3,065,978 shares (cost $42,698,149) 42,371,818 Total Stock Market Index Trust Series 1 - 329,371 shares (cost $3,578,010) 3,807,527 U.S. Global Leaders Growth Trust Series 1 - 84,429 shares (cost $1,034,753) 1,100,951 U.S. Government Securities Trust Series 1 - 731,973 shares (cost $10,038,384) 9,984,112 U.S. Large Cap Trust Series 1 - 1,544,374 shares (cost $20,249,827) 22,779,517 Utilities Trust Series 1 - 166,953 shares (cost $2,047,048) 2,200,446 Value Trust Series 1 - 452,536 shares (cost $8,270,791) 9,906,015 Sub-account invested in PIMCO Variable Investment Trust (VIT) portfolio: All Asset Portfolio Series 1 - 45,316 shares (cost $538,372) 534,735 ------------ Total assets $741,952,406 ============ Contract Owners' Equity Variable universal life insurance contracts $741,952,406 ============
See accompanying notes. 4 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Statements of Operations and Changes in Contract Owners' Equity
Sub-Account ----------------------------------------------------------- 500 Index Trust B Active Bond Trust 500 Index Trust Series 1 Series 0 Series 1 ----------------------- ----------------- ----------------- Year Ended Year Ended Period Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/05~ Dec. 31/05~ ----------- ---------- ----------------- ----------------- Income: Dividends $ 96,820 $ 52,648 $ 263,850 $ 15,178 Expenses: Mortality and expense risk 23,098 21,044 78,009 22,766 ----------- ---------- ----------- ---------- Net investment income (loss) 73,722 31,604 185,841 (7,588) Net realized gain (loss) 314,803 768,477 427,560 25,796 Change in unrealized appreciation (depreciation) during the period (25,167) (82,506) 1,190,166 40,866 ----------- ---------- ----------- ---------- Net increase (decrease) in assets from operations 363,358 717,575 1,803,567 59,074 ----------- ---------- ----------- ---------- Changes from principal transactions: Transfer of net premiums 2,093,648 2,838,073 1,349,134 188,984 Transfer on terminations (609,636) (784,921) (1,268,439) (270,360) Transfer on policy loans (23,342) (244) 30,388 (21,166) Net interfund transfers 2,045,945 (987,143) 20,498,406 4,208,926 ----------- ---------- ----------- ---------- Net increase (decrease) in assets from principal transactions 3,506,615 1,065,765 20,609,489 4,106,384 ----------- ---------- ----------- ---------- Total increase (decrease) in assets 3,869,973 1,783,340 22,413,056 4,165,458 Assets, beginning of period 7,356,251 5,572,911 - - ----------- ---------- ----------- ---------- Assets, end of period $11,226,224 $7,356,251 $22,413,056 $4,165,458 =========== ========== =========== ==========
~ Reflects the period from commencement of operations on May 2, 2005 through December 31, 2005. ** Terminated as an investment option and funds transferred to Mid Cap Stock Trust Series 1 on May 2, 2005. ## Reflects the period from commencement of operations on May 3, 2004 through December 31, 2004. See accompanying notes. 5
Sub-Account ------------------------------------------------------------------------- Aggressive Growth Trust All Asset Portfolio All Cap Core Trust Series 1 Series 1 Series 1 ------------------------ ---------------------- ----------------------- Year Ended Year Ended Year Ended Period Ended Year Ended Year Ended Dec. 31/05** Dec. 31/04 Dec. 31/05 Dec. 31/04## Dec. 31/05 Dec. 31/04 ------------ ----------- ---------- ------------ ---------- ----------- Income: Dividends $ - $ - $ 15,763 $ 1,982 $ 21,563 $ 16,936 Expenses: Mortality and expense risk 9,889 31,136 1,444 44 16,203 19,777 ----------- ----------- -------- ------- ---------- ----------- Net investment income (loss) (9,889) (31,136) 14,319 1,938 5,360 (2,841) Net realized gain (loss) 118,075 773,190 (1,624) 76 137,400 636,601 Change in unrealized appreciation (depreciation) during the period (508,205) (329,750) (2,828) (809) 100,735 (176,408) ----------- ----------- -------- ------- ---------- ----------- Net increase (decrease) in assets from operations (400,019) 412,304 9,867 1,205 243,495 457,352 ----------- ----------- -------- ------- ---------- ----------- Changes from principal transactions: Transfer of net premiums 414,591 1,437,207 12,099 133 455,351 579,317 Transfer on terminations (97,631) (1,333,689) (14,767) (885) (413,730) (799,360) Transfer on policy loans 568 (669) - - 13,431 398 Net interfund transfers (5,703,049) 296,229 450,046 77,037 (239,246) (1,881,123) ----------- ----------- -------- ------- ---------- ----------- Net increase (decrease) in assets from principal transactions (5,385,521) 399,078 447,378 76,285 (184,194) (2,100,768) ----------- ----------- -------- ------- ---------- ----------- Total increase (decrease) in assets (5,785,540) 811,382 457,245 77,490 59,301 (1,643,416) Assets, beginning of period 5,785,540 4,974,158 77,490 - 3,006,912 4,650,328 ----------- ----------- -------- ------- ---------- ----------- Assets, end of period $ - $ 5,785,540 $534,735 $77,490 $3,066,213 $ 3,006,912 =========== =========== ======== ======= ========== ===========
6 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account ------------------------------------------------ All Cap Growth Trust All Cap Value Trust Series 1 Series 1 ------------------------ ---------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 ----------- ----------- ---------- ---------- Income: Dividends $ - $ - $ 65,492 $ 3,931 Expenses: Mortality and expense risk 43,637 45,204 7,425 6,352 ----------- ----------- ---------- ---------- Net investment income (loss) (43,637) (45,204) 58,067 (2,421) Net realized gain (loss) 382,697 809,620 64,631 33,935 Change in unrealized appreciation (depreciation) during the period 247,763 (292,493) (45,890) 147,520 ----------- ----------- ---------- ---------- Net increase (decrease) in assets from operations 586,823 471,923 76,808 179,034 ----------- ----------- ---------- ---------- Changes from principal transactions: Transfer of net premiums 914,743 1,392,163 352,551 319,423 Transfer on terminations (1,078,685) (796,257) (87,557) (84,084) Transfer on policy loans 14,091 (15,642) - - Net interfund transfers (501,878) (1,419,052) (232,758) 661,583 ----------- ----------- ---------- ---------- Net increase (decrease) in assets from principal transactions (651,729) (838,788) 32,236 896,922 ----------- ----------- ---------- ---------- Total increase (decrease) in assets (64,906) (366,865) 109,044 1,075,956 Assets, beginning of period 7,837,329 8,204,194 1,596,891 520,935 ----------- ----------- ---------- ---------- Assets, end of period $ 7,772,423 $ 7,837,329 $1,705,935 $1,596,891 =========== =========== ========== ==========
See accompanying notes. 7
Sub-Account ------------------------------------------------------------------------- American Blue Chip Income American Growth Trust American Growth-Income and Growth Trust Series 1 Series 1 Trust Series 1 ------------------------ ----------------------- ---------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 ---------- ---------- ----------- ---------- ---------- ---------- Income: Dividends $ 41,759 $ - $ 18,593 $ 824 $ 12,744 $ 5,197 Expenses: Mortality and expense risk 3,135 1,742 72,698 21,522 10,293 6,748 ---------- -------- ----------- ---------- ---------- ---------- Net investment income (loss) 38,624 (1,742) (54,105) (20,698) 2,451 (1,551) Net realized gain (loss) 11,341 11,500 847,328 75,532 26,885 8,690 Change in unrealized appreciation (depreciation) during the period (39,709) 18,709 2,037,453 828,549 90,763 119,999 ---------- -------- ----------- ---------- ---------- ---------- Net increase (decrease) in assets from operations 10,256 28,467 2,830,676 883,383 120,099 127,138 ---------- -------- ----------- ---------- ---------- ---------- Changes from principal transactions: Transfer of net premiums 364,431 128,999 1,218,724 1,111,161 541,216 603,377 Transfer on terminations (65,483) (61,777) (586,897) (293,984) (163,290) (128,761) Transfer on policy loans - - (10,699) (2,122) (113) (1,392) Net interfund transfers 1,653,265 61,782 14,475,470 5,092,730 451,358 1,126,472 ---------- -------- ----------- ---------- ---------- ---------- Net increase (decrease) in assets from principal transactions 1,952,213 129,004 15,096,598 5,907,785 829,171 1,599,696 ---------- -------- ----------- ---------- ---------- ---------- Total increase (decrease) in assets 1,962,469 157,471 17,927,274 6,791,168 949,270 1,726,834 Assets, beginning of period 362,839 205,368 8,261,844 1,470,676 1,775,824 48,990 ---------- -------- ----------- ---------- ---------- ---------- Assets, end of period $2,325,308 $362,839 $26,189,118 $8,261,844 $2,725,094 $1,775,824 ========== ======== =========== ========== ========== ==========
8 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly 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 Balanced Trust Trust Series 1 Series 1 ----------------------- -------------- Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/04x ----------- ---------- -------------- Income: Dividends $ 536,453 $ 11,168 $ 521,928 Expenses: Mortality and expense risk 35,770 3,669 47,490 ----------- ---------- ------------ Net investment income (loss) 500,683 7,499 474,438 Net realized gain (loss) 75,086 7,949 (8,069,837) Change in unrealized appreciation (depreciation) during the period 1,525,417 165,634 7,482,627 ----------- ---------- ------------ Net increase (decrease) in assets from operations 2,101,186 181,082 (112,772) ----------- ---------- ------------ Changes from principal transactions: Transfer of net premiums 680,845 303,456 496,880 Transfer on terminations (217,860) (51,291) (1,264,303) Transfer on policy loans (9,282) - 31,175 Net interfund transfers 10,996,205 1,150,634 (21,681,958) ----------- ---------- ------------ Net increase (decrease) in assets from principal transactions 11,449,908 1,402,799 (22,418,206) ----------- ---------- ------------ Total increase (decrease) in assets 13,551,094 1,583,881 (22,530,978) Assets, beginning of period 1,702,860 118,979 22,530,978 ----------- ---------- ------------ Assets, end of period $15,253,954 $1,702,860 $ - =========== ========== ============
~ Reflects the period from commencement of operations on May 2, 2005 through December 31, 2005. x Terminated as an investment option and funds transferred to Income & Value Trust Series 1 on May 3, 2004. ++ Fund available in prior year but not active. See accompanying notes. 9
Sub-Account ---------------------------------------------------------------------------------- Blue Chip Growth Trust Capital Appreciation Trust Classic Value Core Bond Series 1 Series 1 Trust Series 1 Trust Series 1 ------------------------ ------------------------- -------------- -------------- Year Ended Year Ended Year Ended Year Ended Period Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 Dec. 31/05++ Dec. 31/05~ ----------- ----------- ---------- ---------- -------------- -------------- Income: Dividends $ 114,555 $ 35,790 $ - $ - $ 21,910 $ - Expenses: Mortality and expense risk 138,242 161,502 7,438 4,962 378 - ----------- ----------- ---------- ---------- -------- --- Net investment income (loss) (23,687) (125,712) (7,438) (4,962) 21,532 - Net realized gain (loss) 2,228,419 2,932,130 75,373 133,071 337 - Change in unrealized appreciation (depreciation) during the period (969,360) (258,615) 163,380 (30,875) (13,938) 1 ----------- ----------- ---------- ---------- -------- --- Net increase (decrease) in assets from operations 1,235,372 2,547,803 231,315 97,234 7,931 1 ----------- ----------- ---------- ---------- -------- --- Changes from principal transactions: Transfer of net premiums 4,163,454 5,344,335 124,985 258,563 26,665 71 Transfer on terminations (2,871,393) (7,195,400) (47,804) (129,212) (2,174) - Transfer on policy loans (18,689) (43,386) - - - - Net interfund transfers (5,435,650) (3,098,715) 865,616 (484,737) 401,100 - ----------- ----------- ---------- ---------- -------- --- Net increase (decrease) in assets from principal transactions (4,162,278) (4,993,166) 942,797 (355,386) 425,591 71 ----------- ----------- ---------- ---------- -------- --- Total increase (decrease) in assets (2,926,906) (2,445,363) 1,174,112 (258,152) 433,522 72 Assets, beginning of period 32,373,276 34,818,639 982,755 1,240,907 - - ----------- ----------- ---------- ---------- -------- --- Assets, end of period $29,446,370 $32,373,276 $2,156,867 $ 982,755 $433,522 $72 =========== =========== ========== ========== ======== ===
10 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account -------------------------------------- Core Equity Diversified Bond Trust Trust Series 1 Series 1 -------------- ----------------------- Period Ended Year Ended Year Ended Dec. 31/05++ Dec. 31/05** Dec. 31/04 -------------- ------------ ---------- Income: Dividends $ - $ 264,857 $ 323,733 Expenses: Mortality and expense risk 1,248 12,406 43,498 -------- ----------- ---------- Net investment income (loss) (1,248) 252,451 280,235 Net realized gain (loss) 3,551 (131,515) (26,615) Change in unrealized appreciation (depreciation) during the period 18,717 (98,599) (14,499) -------- ----------- ---------- Net increase (decrease) in assets from operations 21,020 22,337 239,121 -------- ----------- ---------- Changes from principal transactions: Transfer of net premiums 23,003 140,281 730,276 Transfer on terminations (8,030) (774,404) (786,184) Transfer on policy loans (3,442) (589) (659) Net interfund transfers 251,893 (7,097,386) (320,949) -------- ----------- ---------- Net increase (decrease) in assets from principal transactions 263,424 (7,732,098) (377,516) -------- ----------- ---------- Total increase (decrease) in assets 284,444 (7,709,761) (138,395) Assets, beginning of period - 7,709,761 7,848,156 -------- ----------- ---------- Assets, end of period $284,444 $ - $7,709,761 ======== =========== ==========
** Terminated as an investment option and funds transferred to Active Bond Trust Series 1 on May 2, 2005. ++ Fund available in prior year but not active. See accompanying notes. 11
Sub-Account ---------------------------------------------------------------------- Dynamic Growth Trust Emerging Growth Trust Emerging Small Company Series 1 Series 1 Trust Series 1 ---------------------- -------------------- ------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 ---------- ---------- ---------- ---------- ----------- ----------- Income: Dividends $ - $ - $ - $ 7,018 $ - $ - Expenses: Mortality and expense risk 14,466 12,196 916 1,147 286,353 289,281 ---------- ---------- -------- --------- ----------- ----------- Net investment income (loss) (14,466) (12,196) (916) 5,871 (286,353) (289,281) Net realized gain (loss) 161,865 311,045 13,839 (8,126) 3,539,027 3,849,168 Change in unrealized appreciation (depreciation) during the period 185,926 (81,740) (7,183) 3,645 (1,005,566) 1,520,033 ---------- ---------- -------- --------- ----------- ----------- Net increase (decrease) in assets from operations 333,325 217,109 5,740 1,390 2,247,108 5,079,920 ---------- ---------- -------- --------- ----------- ----------- Changes from principal transactions: Transfer of net premiums 770,406 927,165 37,965 69,543 3,928,531 6,059,223 Transfer on terminations (145,831) (345,255) (6,188) (8,760) (6,207,527) (8,505,902) Transfer on policy loans (4,167) (789) - - (15,035) 4,168 Net interfund transfers 549,742 (706,652) 201,144 (224,156) 388,938 (3,032,745) ---------- ---------- -------- --------- ----------- ----------- Net increase (decrease) in assets from principal transactions 1,170,150 (125,531) 232,921 (163,373) (1,905,093) (5,475,256) ---------- ---------- -------- --------- ----------- ----------- Total increase (decrease) in assets 1,503,475 91,578 238,661 (161,983) 342,015 (395,336) Assets, beginning of period 2,585,369 2,493,791 61,397 223,380 50,607,293 51,002,629 ---------- ---------- -------- --------- ----------- ----------- Assets, end of period $4,088,844 $2,585,369 $300,058 $ 61,397 $50,949,308 $50,607,293 ========== ========== ======== ========= =========== ===========
12 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly 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 Series 1 Series 1 ------------------------ ------------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/05** Dec. 31/04 ----------- ----------- ------------ ----------- Income: Dividends $ 1,682,669 $ 736,725 $ 484,590 $ 325,047 Expenses: Mortality and expense risk 173,653 158,262 42,334 134,580 ----------- ----------- ------------ ----------- Net investment income (loss) 1,509,016 578,463 442,256 190,467 Net realized gain (loss) 2,493,240 2,624,166 2,620,736 655,691 Change in unrealized appreciation (depreciation) during the period (2,793,940) 1,200,893 (4,081,084) 1,401,575 ----------- ----------- ------------ ----------- Net increase (decrease) in assets from operations 1,208,316 4,403,522 (1,018,092) 2,247,733 ----------- ----------- ------------ ----------- Changes from principal transactions: Transfer of net premiums 5,545,297 6,036,727 1,061,721 3,123,608 Transfer on terminations (5,203,604) (3,547,654) (1,235,509) (3,493,461) Transfer on policy loans (66,563) (34,327) (3,483) 29,596 Net interfund transfers (2,017,139) 2,601,373 (25,969,554) (364,568) ----------- ----------- ------------ ----------- Net increase (decrease) in assets from principal transactions (1,742,009) 5,056,119 (26,146,825) (704,825) ----------- ----------- ------------ ----------- Total increase (decrease) in assets (533,693) 9,459,641 (27,164,917) 1,542,908 Assets, beginning of period 36,760,871 27,301,230 27,164,917 25,622,009 ----------- ----------- ------------ ----------- Assets, end of period $36,227,178 $36,760,871 $ - $27,164,917 =========== =========== ============ ===========
** Terminated as an investment option and funds transferred to 500 Index Trust B Series 0 on May 2, 2005. See accompanying notes. 13
Sub-Account ----------------------------------------------------------------------- Financial Services Trust Fundamental Value Trust Series 1 Series 1 Global Trust Series 1 ----------------------- ---------------------- ---------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 ---------- ---------- ---------- ---------- ---------- ---------- Income: Dividends $ 1,355 $ 1,238 $ 11,737 $ 8,830 $ 51,371 $ 58,733 Expenses: Mortality and expense risk 2,017 1,852 14,824 9,976 21,563 18,758 -------- --------- ---------- ---------- ---------- ---------- Net investment income (loss) (662) (614) (3,087) (1,146) 29,808 39,975 Net realized gain (loss) 21,889 46,998 200,098 131,285 263,657 315,391 Change in unrealized appreciation (depreciation) during the period 9,089 (23,386) 34,728 91,066 127,942 72,560 -------- --------- ---------- ---------- ---------- ---------- Net increase (decrease) in assets from operations 30,316 22,998 231,739 221,205 421,407 427,926 -------- --------- ---------- ---------- ---------- ---------- Changes from principal transactions: Transfer of net premiums 52,927 183,685 687,119 203,165 641,290 836,068 Transfer on terminations (29,365) (28,176) (396,895) (575,511) (294,436) (566,348) Transfer on policy loans (2,833) (20,973) (4,526) (1,906) 9,487 35,604 Net interfund transfers 93,169 (237,493) 70,459 1,329,837 (356,250) 235,568 -------- --------- ---------- ---------- ---------- ---------- Net increase (decrease) in assets from principal transactions 113,898 (102,957) 356,157 955,585 91 540,892 -------- --------- ---------- ---------- ---------- ---------- Total increase (decrease) in assets 144,214 (79,959) 587,896 1,176,790 421,498 968,818 Assets, beginning of period 322,026 401,985 2,356,047 1,179,257 4,088,754 3,119,936 -------- --------- ---------- ---------- ---------- ---------- Assets, end of period $466,240 $ 322,026 $2,943,943 $2,356,047 $4,510,252 $4,088,754 ======== ========= ========== ========== ========== ==========
14 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account ---------------------------------------------- Global Allocation Trust Global Bond Trust Series 1 Series 1 ---------------------- ---------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 ---------- ---------- ---------- ---------- Income: Dividends $ 1,948 $ 477 $ 239,690 $ 118,864 Expenses: Mortality and expense risk 1,889 762 23,042 18,347 --------- -------- ---------- ---------- Net investment income (loss) 59 (285) 216,648 100,517 Net realized gain (loss) 15,166 11,680 (9,069) 151,288 Change in unrealized appreciation (depreciation) during the period 6,937 7,525 (572,862) 124,591 --------- -------- ---------- ---------- Net increase (decrease) in assets from operations 22,162 18,920 (365,283) 376,396 --------- -------- ---------- ---------- Changes from principal transactions: Transfer of net premiums 265,732 6,785 1,045,864 746,551 Transfer on terminations (22,017) (9,619) (123,392) (320,418) Transfer on policy loans - - (504) (4,866) Net interfund transfers (147,226) 145,783 354,630 62,251 --------- -------- ---------- ---------- Net increase (decrease) in assets from principal transactions 96,489 142,949 1,276,598 483,518 --------- -------- ---------- ---------- Total increase (decrease) in assets 118,651 161,869 911,315 859,914 Assets, beginning of period 197,769 35,900 4,323,117 3,463,203 --------- -------- ---------- ---------- Assets, end of period $ 316,420 $197,769 $5,234,432 $4,323,117 ========= ======== ========== ==========
See accompanying notes. 15
Sub-Account -------------------------------------------------------------------------- Growth & Income Trust Health Sciences Trust High Yield Trust Series 1 Series 1 Series 1 ------------------------ ---------------------- ------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 ----------- ----------- ---------- ---------- ----------- ----------- Income: Dividends $ 605,754 $ 148,138 $ 274,633 $ - $ 747,411 $ 562,418 Expenses: Mortality and expense risk 87,017 94,342 17,374 17,169 72,018 61,547 ----------- ----------- ---------- ---------- ----------- ----------- Net investment income (loss) 518,737 53,796 257,259 (17,169) 675,393 500,871 Net realized gain (loss) 885,708 527,508 (11,535) 362,830 242,330 771,889 Change in unrealized appreciation (depreciation) during the period (1,099,656) 391,770 228,018 (19,432) (425,412) (140,135) ----------- ----------- ---------- ---------- ----------- ----------- Net increase (decrease) in assets from operations 304,789 973,074 473,742 326,229 492,311 1,132,625 ----------- ----------- ---------- ---------- ----------- ----------- Changes from principal transactions: Transfer of net premiums 1,132,428 2,146,875 523,999 980,132 1,948,232 2,234,125 Transfer on terminations (1,809,316) (2,402,594) (204,490) (564,535) (921,044) (1,525,900) Transfer on policy loans (37,371) (17,384) (8,689) (206) 20,025 (36,157) Net interfund transfers (5,695) (2,818,709) 319,201 148,708 3,496,664 68,235 ----------- ----------- ---------- ---------- ----------- ----------- Net increase (decrease) in assets from principal transactions (719,954) (3,091,812) 630,021 564,099 4,543,877 740,303 ----------- ----------- ---------- ---------- ----------- ----------- Total increase (decrease) in assets (415,165) (2,118,738) 1,103,763 890,328 5,036,188 1,872,928 Assets, beginning of period 16,191,548 18,310,286 3,480,512 2,590,184 11,862,447 9,989,519 ----------- ----------- ---------- ---------- ----------- ----------- Assets, end of period $15,776,383 $16,191,548 $4,584,275 $3,480,512 $16,898,635 $11,862,447 =========== =========== ========== ========== =========== ===========
16 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account ---------------------------------------------------- Income & Value Trust International Equity Index Series 1 Trust B Series 1 ------------------------ -------------------------- Year Ended Year Ended Year Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04## ----------- ----------- ---------- ------------ Income: Dividends $ 400,124 $ 109,406 $ 323,833 $ 3,519 Expenses: Mortality and expense risk 148,561 122,036 18,238 2,513 ----------- ----------- ---------- -------- Net investment income (loss) 251,563 (12,630) 305,595 1,006 Net realized gain (loss) 375,495 1,003,727 7,043 12,075 Unrealized appreciation (depreciation) during the period 417,912 962,213 446,113 88,675 ----------- ----------- ---------- -------- Net increase (decrease) in assets, from operations 1,044,970 1,953,310 758,751 101,756 ----------- ----------- ---------- -------- Changes from principal transactions: Transfer of net premiums 2,021,690 4,231,922 323,730 87,138 Transfer on terminations (3,016,086) (6,483,566) (85,057) 45,385 Transfer on policy loans (49,659) 45,331 (233) - Net interfund transfers (4,367,818) 22,681,696 4,146,035 517,902 ----------- ----------- ---------- -------- Net increase (decrease) in assets, from principal transactions (5,411,873) 20,475,383 4,384,475 650,425 ----------- ----------- ---------- -------- Total increase (decrease) in assets, (4,366,903) 22,428,693 5,143,226 752,181 Assets, beginning of period 29,826,597 7,397,904 752,181 - ----------- ----------- ---------- -------- Assets, end of period $25,459,694 $29,826,597 $5,895,407 $752,181 =========== =========== ========== ========
~ Reflects the period from commencement of operations on May 2, 2005 through December 31, 2005. ## 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 Series 1 on June 18, 2004. See accompanying notes. 17
Sub-Account ---------------------------------------------------------- International International Index Opportunities International Small Cap Trust Series 1 Trust Series 1 Trust Series 1 ------------------- -------------- ----------------------- Year Ended Period Ended Year Ended Year Ended Dec. 31/04xx Dec. 31/05~ Dec. 31/05 Dec. 31/04 ------------------- -------------- ---------- ----------- Income: Dividends $ 9,400 $ - $ 41,190 $ 5,349 Expenses: Mortality and expense risk 2,737 43 25,748 24,521 ----------- ------ ---------- ----------- Net investment income (loss) 6,663 (43) 15,442 (19,172) Net realized gain (loss) 173,749 1,176 404,070 849,587 Unrealized appreciation (depreciation) during the period (138,303) 692 25,018 (88,192) ----------- ------ ---------- ----------- Net increase (decrease) in assets, from operations 42,109 1,825 444,530 742,223 ----------- ------ ---------- ----------- Changes from principal transactions: Transfer of net premiums 91,593 - 562,224 703,685 Transfer on terminations (43,555) (130) (384,316) (1,232,239) Transfer on policy loans (189) - (3,607) (3,762) Net interfund transfers (1,365,388) 5,562 (368,929) 1,125,617 ----------- ------ ---------- ----------- Net increase (decrease) in assets, from principal transactions (1,317,539) 5,432 (194,628) 593,301 ----------- ------ ---------- ----------- Total increase (decrease) in assets, (1,275,430) 7,257 249,902 1,335,524 Assets, beginning of period 1,275,430 - 4,744,645 3,409,121 ----------- ------ ---------- ----------- Assets, end of period $ - $7,257 $4,994,547 $ 4,744,645 =========== ====== ========== ===========
18 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account ------------------------------------------------- International Stock Trust International Value Trust Series 1 Series 1 ------------------------ ----------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 ----------- ----------- ----------- ---------- Income: Dividends $ 90,908 $ 104,174 $ 220,337 $ 82,963 Expenses: Mortality and expense risk 59,646 61,516 72,597 33,467 ----------- ----------- ----------- ---------- Net investment income (loss) 31,262 42,658 147,740 49,496 Net realized gain (loss) 1,303,080 597,300 779,637 1,009,272 Change in unrealized appreciation (depreciation) during the period 549,710 1,163,890 758,110 188,729 ----------- ----------- ----------- ---------- Net increase (decrease) in assets from operations 1,884,052 1,803,848 1,685,487 1,247,497 ----------- ----------- ----------- ---------- Changes from principal transactions: Transfer of net premiums 943,422 1,212,570 2,752,144 2,116,710 Transfer on terminations (1,955,865) (2,209,945) (995,811) (366,105) Transfer on policy loans (33,396) 54,950 (7,151) (36,098) Net interfund transfers (20,044) (41,676) 7,855,764 (544,139) ----------- ----------- ----------- ---------- Net increase (decrease) in assets from principal transactions (1,065,883) (984,101) 9,604,946 1,170,368 ----------- ----------- ----------- ---------- Total increase (decrease) in assets 818,169 819,747 11,290,433 2,417,865 Assets, beginning of period 13,368,772 12,549,025 8,198,182 5,780,317 ----------- ----------- ----------- ---------- Assets, end of period $14,186,941 $13,368,772 $19,488,615 $8,198,182 =========== =========== =========== ==========
~ Reflects the period from commencement of operations on May 2, 2005 through December 31, 2005. See accompanying notes. 19
Sub-Account ------------------------------------------------------------------ Investment Quality Bond Large Cap Trust Large Cap Growth Trust Trust Series 1 Series 1 Series 1 ------------------------ --------------- ------------------------ Year Ended Year Ended Period Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/05~ Dec. 31/05 Dec. 31/04 ----------- ----------- --------------- ----------- ----------- Income: Dividends $ 1,301,456 $ 1,366,393 $ - $ 43,632 $ 23,846 Expenses: Mortality and expense risk 145,911 146,253 6 32,151 43,751 ----------- ----------- ------ ----------- ----------- Net investment income (loss) 1,155,545 1,220,140 (6) 11,481 (19,905) Net realized gain (loss) (131,716) 596,722 8 168,700 671,749 Change in unrealized appreciation (depreciation) during the period (678,441) (893,139) 240 (202,527) (345,841) ----------- ----------- ------ ----------- ----------- Net increase (decrease) in assets from operations 345,388 923,723 242 (22,346) 306,003 ----------- ----------- ------ ----------- ----------- Changes from principal transactions: Transfer of net premiums 2,919,232 3,188,093 190 809,538 2,069,195 Transfer on terminations (1,330,058) (2,616,123) (203) (471,606) (1,224,513) Transfer on policy loans (11,860) 41,763 - (2,137) (4,664) Net interfund transfers (5,128,972) (1,052,994) 3,790 (1,100,453) (966,924) ----------- ----------- ------ ----------- ----------- Net increase (decrease) in assets from principal transactions (3,551,658) (439,261) 3,777 (764,658) (126,906) ----------- ----------- ------ ----------- ----------- Total increase (decrease) in assets (3,206,270) 484,462 4,019 (787,004) 179,097 Assets, beginning of period 22,645,826 22,161,364 - 7,321,297 7,142,200 ----------- ----------- ------ ----------- ----------- Assets, end of period $19,439,556 $22,645,826 $4,019 $ 6,534,293 $ 7,321,297 =========== =========== ====== =========== ===========
20 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account ------------------------------------------------ Large Cap Value Trust Lifestyle Aggressive 1000 Series 1 Trust Series 1 ---------------------- ------------------------ Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 ---------- ---------- ---------- ---------- Income: Dividends $ - $ 14,149 $ 166,623 $ 35,968 Expenses: Mortality and expense risk 7,746 3,267 32,784 29,388 ---------- ---------- ---------- ---------- Net investment income (loss) (7,746) 10,882 133,839 6,580 Net realized gain (loss) 98,792 80,283 111,210 47,473 Change in unrealized appreciation (depreciation) during the period 129,574 21,022 284,348 566,211 ---------- ---------- ---------- ---------- Net increase (decrease) in assets from operations 220,620 112,187 529,397 620,264 ---------- ---------- ---------- ---------- Changes from principal transactions: Transfer of net premiums 554,135 113,792 139,567 497,754 Transfer on terminations (85,528) (146,556) (226,254) (55,157) Transfer on policy loans (21,269) - (472) 594 Net interfund transfers 1,762,407 33,531 266,813 2,991,538 ---------- ---------- ---------- ---------- Net increase (decrease) in assets from principal transactions 2,209,745 767 179,654 3,434,729 ---------- ---------- ---------- ---------- Total increase (decrease) in assets 2,430,365 112,954 709,051 4,054,993 Assets, beginning of period 1,435,901 1,322,947 5,093,275 1,038,282 ---------- ---------- ---------- ---------- Assets, end of period $3,866,266 $1,435,901 $5,802,326 $5,093,275 ========== ========== ========== ==========
See accompanying notes. 21
Sub-Account ---------------------------------------------------------------------------- Lifestyle Balanced 640 Lifestyle Conservative 280 Lifestyle Growth 820 Trust Series 1 Trust Series 1 Trust Series 1 ------------------------ ------------------------- ----------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 ----------- ----------- ---------- ---------- ----------- ---------- Income: Dividends $ 1,032,966 $ 328,587 $ 490,384 $ 243,215 $ 248,841 $ 97,192 Expenses: Mortality and expense risk 110,084 96,243 37,798 35,051 46,474 42,944 ----------- ----------- ---------- ---------- ----------- ---------- Net investment income (loss) 922,882 232,344 452,586 208,164 202,367 54,248 Net realized gain (loss) 653,088 1,185,242 11,961 334,023 272,909 236,171 Change in unrealized appreciation (depreciation) during the period (492,526) 672,696 (328,023) (119,281) 112,729 596,713 ----------- ----------- ---------- ---------- ----------- ---------- Net increase (decrease) in assets from operations 1,083,444 2,090,282 136,524 422,906 588,005 887,132 ----------- ----------- ---------- ---------- ----------- ---------- Changes from principal transactions: Transfer of net premiums 2,455,423 3,100,911 949,035 983,092 599,804 792,513 Transfer on terminations (1,998,862) (1,116,611) (497,194) (451,598) (1,241,110) (404,024) Transfer on policy loans (110,799) 590 - (54) (25,468) (3,582) Net interfund transfers 113,337 165,265 (130,406) (475,564) 672,862 3,574,472 ----------- ----------- ---------- ---------- ----------- ---------- Net increase (decrease) in assets from principal transactions 459,099 2,150,155 321,435 55,876 6,088 3,959,379 ----------- ----------- ---------- ---------- ----------- ---------- Total increase (decrease) in assets 1,542,543 4,240,437 457,959 478,782 594,093 4,846,511 Assets, beginning of period 18,039,138 13,798,701 5,504,364 5,025,582 7,721,710 2,875,199 ----------- ----------- ---------- ---------- ----------- ---------- Assets, end of period $19,581,681 $18,039,138 $5,962,323 $5,504,364 $ 8,315,803 $7,721,710 =========== =========== ========== ========== =========== ==========
22 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account -------------------------------------------- Lifestyle Moderate 460 Mid Cap Core Trust Trust Series 1 Series 1 ---------------------- -------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 ---------- ---------- ---------- ---------- Income: Dividends $ 196,461 $ 74,117 $ 83,108 $ 2,449 Expenses: Mortality and expense risk 15,050 15,603 4,916 2,811 ---------- ---------- -------- --------- Net investment income (loss) 181,411 58,514 78,192 (362) Net realized gain (loss) 84,567 145,304 6,252 29,124 Change in unrealized appreciation (depreciation) during the period (162,256) 104,246 (41,042) 44,290 ---------- ---------- -------- --------- Net increase (decrease) in assets from operations 103,722 308,064 43,402 73,052 ---------- ---------- -------- --------- Changes from principal transactions: Transfer of net premiums 189,342 914,609 354,026 241,312 Transfer on terminations (802,700) (218,578) (69,558) (153,727) Transfer on policy loans 158,125 14 (21) 1 Net interfund transfers (87,269) 624,400 (85,934) 380,453 ---------- ---------- -------- --------- Net increase (decrease) in assets from principal transactions (542,502) 1,320,445 198,513 468,039 ---------- ---------- -------- --------- Total increase (decrease) in assets (438,780) 1,628,509 241,915 541,091 Assets, beginning of period 3,447,752 1,819,243 587,434 46,343 ---------- ---------- -------- --------- Assets, end of period $3,008,972 $3,447,752 $829,349 $ 587,434 ========== ========== ======== =========
See accompanying notes. 23
Sub-Account --------------------------------------------------------------------------- Mid Cap Index Trust Mid Cap Stock Trust Mid Cap Value Trust Series 1 Series 1 Series 1 ----------------------- ------------------------ ------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 ----------- ---------- ----------- ----------- ----------- ----------- Income: Dividends $ 398,312 $ 20,885 $ 203,232 $ - $ 865,256 $ 50,792 Expenses: Mortality and expense risk 35,270 23,879 55,141 44,528 119,540 52,309 ----------- ---------- ----------- ----------- ----------- ----------- Net investment income (loss) 363,042 (2,994) 148,091 (44,528) 745,716 (1,517) Net realized gain (loss) 430,241 572,157 424,773 1,502,857 1,371,665 1,262,145 Change in unrealized appreciation (depreciation) during the period (104,490) 255,962 1,237,951 401,043 326,694 1,027,584 ----------- ---------- ----------- ----------- ----------- ----------- Net increase (decrease) in assets from operations 688,793 825,125 1,810,815 1,859,372 2,444,075 2,288,212 ----------- ---------- ----------- ----------- ----------- ----------- Changes from principal transactions: Transfer of net premiums 969,412 883,375 1,552,040 4,622,286 3,777,121 4,154,000 Transfer on terminations (366,310) (560,507) (638,596) (1,117,415) (912,509) (1,401,796) Transfer on policy loans (352) (130) (376) (729) (378) 24,834 Net interfund transfers (2,044,633) 2,106,730 (5,724,536) 5,828,863 13,268,419 2,046,385 ----------- ---------- ----------- ----------- ----------- ----------- Net increase (decrease) in assets from principal transactions (1,441,883) 2,429,468 (4,811,468) 9,333,005 16,132,653 4,823,423 ----------- ---------- ----------- ----------- ----------- ----------- Total increase (decrease) in assets (753,090) 3,254,593 (3,000,653) 11,192,377 18,576,728 7,111,635 Assets, beginning of period 6,984,470 3,729,877 16,362,126 5,169,749 13,585,575 6,473,940 ----------- ---------- ----------- ----------- ----------- ----------- Assets, end of period $ 6,231,380 $6,984,470 $13,361,473 $16,362,126 $32,162,303 $13,585,575 =========== ========== =========== =========== =========== ===========
24 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account ------------------------------------------------- Money Market Trust Natural Resources Trust Series 1 Series 1 ------------------------- ---------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 ----------- ------------ ---------- ---------- Income: Dividends $ 1,334,553 $ 341,955 $ 70,449 $ 15,891 Expenses: Mortality and expense risk 240,075 215,875 16,587 5,348 ----------- ------------ ---------- ---------- Net investment income (loss) 1,094,478 126,080 53,862 10,543 Net realized gain (loss) - - 739,877 259,989 Change in unrealized appreciation (depreciation) during the period - - 558,950 13,369 ----------- ------------ ---------- ---------- Net increase (decrease) in assets from operations 1,094,478 126,080 1,352,689 283,901 ----------- ------------ ---------- ---------- Changes from principal transactions: Transfer of net premiums 12,718,525 28,529,902 884,166 275,431 Transfer on terminations (8,191,624) (7,713,967) (113,353) (50,167) Transfer on policy loans (36,426) (78,061) (4,099) - Net interfund transfers 6,751,164 (19,391,094) 1,157,218 337,104 ----------- ------------ ---------- ---------- Net increase (decrease) in assets from principal transactions 11,241,639 1,346,780 1,923,932 562,368 ----------- ------------ ---------- ---------- Total increase (decrease) in assets 12,336,117 1,472,860 3,276,621 846,269 Assets, beginning of period 40,361,843 38,888,983 1,963,833 1,117,564 ----------- ------------ ---------- ---------- Assets, end of period $52,697,960 $ 40,361,843 $5,240,454 $1,963,833 =========== ============ ========== ==========
## Reflects the period from commencement of operations on May 3, 2004 through December 31, 2004. ** Terminated as an investment option and funds transferred to International Value Trust on May 2, 2005. See accompanying notes. 25
Sub-Account --------------------------------------------------------------------------- Overseas Trust Pacific Rim Trust Quantitative All Cap Trust Series 1 Series 1 Series 1 ------------------------ ---------------------- ------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Period Ended Dec. 31/05** Dec. 31/04 Dec. 31/05 Dec. 31/04 Dec.31/05 Dec.31/04## ------------ ----------- ---------- ---------- ---------- ------------ Income: Dividends $ 26,472 $ 21,159 $ 51,181 $ 20,768 $ 2,139 $ 35 Expenses: Mortality and expense risk 11,015 33,125 33,430 29,895 52 7 ----------- ----------- ---------- ---------- ------- -------- Net investment income (loss) 15,457 (11,966) 17,751 (9,127) 2,087 28 Net realized gain (loss) 453,768 1,033,768 366,227 536,710 319 229 Change in unrealized appreciation (depreciation) during the period (643,264) (445,818) 992,934 257,716 (1,577) 128 ----------- ----------- ---------- ---------- ------- -------- Net increase (decrease) in assets from operations (174,039) 575,984 1,376,912 785,299 829 385 ----------- ----------- ---------- ---------- ------- -------- Changes from principal transactions: Transfer of net premiums 332,051 1,245,662 475,979 617,822 27,153 28,497 Transfer on terminations (121,484) (1,498,451) (716,554) (905,314) (1,212) (137) Transfer on policy loans (203) (779) 6,685 51,175 - - Net interfund transfers (6,052,348) 676,903 (50,112) 1,037,019 2,987 (25,829) ----------- ----------- ---------- ---------- ------- -------- Net increase (decrease) in assets from principal transactions (5,841,984) 423,335 (284,002) 800,702 28,928 2,531 ----------- ----------- ---------- ---------- ------- -------- Total increase (decrease) in assets (6,016,023) 999,319 1,092,910 1,586,001 29,757 2,916 Assets, beginning of period 6,016,023 5,016,704 5,836,323 4,250,322 2,916 - ----------- ----------- ---------- ---------- ------- -------- Assets, end of period $ - $ 6,016,023 $6,929,233 $5,836,323 $32,673 $ 2,916 =========== =========== ========== ========== ======= ========
26 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account --------------------------------------------- Quantitative Equity Quantitative Mid Cap Trust Trust Series 1 Series 1 ------------------- ------------------------- Year Ended Year Ended Year Ended Dec. 31/04xx Dec. 31/05 Dec. 31/04 ------------------- ---------- ---------- Income: Dividends $ 198,602 $ - $ - Expenses: Mortality and expense risk 43,130 2,544 2,073 ------------ -------- -------- Net investment income (loss) 155,472 (2,544) (2,073) Net realized gain (loss) (7,943,133) 13,336 12,163 Change in unrealized appreciation (depreciation) during the period 7,725,161 42,955 42,800 ------------ -------- -------- Net increase (decrease) in assets from operations (62,500) 53,747 52,890 ------------ -------- -------- Changes from principal transactions: Transfer of net premiums 543,057 71,765 52,296 Transfer on terminations (1,119,875) (19,192) (41,619) Transfer on policy loans (16,546) (22) - Net interfund transfers (20,123,033) (13,615) 175,614 ------------ -------- -------- Net increase (decrease) in assets from principal transactions (20,716,397) 38,936 186,291 ------------ -------- -------- Total increase (decrease) in assets (20,778,897) 92,683 239,181 Assets, beginning of period 20,778,897 394,385 155,204 ------------ -------- -------- Assets, end of period $ - $487,068 $394,385 ============ ======== ========
xx Terminated as an investment option and funds transferred to U.S. Large Cap Trust Series 1 on May 3, 2004. ++ Fund available in prior year but not active. See accompanying notes. 27
Sub-Account ------------------------------------------------------------------- Quantitative Value Real Estate Securities Real Return Bond Trust Series 1 Trust Series 1 Trust Series 1 ------------------ ------------------------ ---------------------- Period Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05++ Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 ------------------ ----------- ----------- ---------- ---------- Income: Dividends $ - $ 5,696,781 $ 685,716 $ 58,163 $ 22,216 Expenses: Mortality and expense risk 27 201,032 165,197 7,035 5,297 ----- ----------- ----------- ---------- ---------- Net investment income (loss) (27) 5,495,749 520,519 51,128 16,919 Net realized gain (loss) 649 2,300,759 2,771,624 20,619 (20,665) Change in unrealized appreciation (depreciation) during the period - (4,050,057) 5,105,174 (62,554) 67,108 ----- ----------- ----------- ---------- ---------- Net increase (decrease) in assets from operations 622 3,746,451 8,397,317 9,193 63,362 ----- ----------- ----------- ---------- ---------- Changes from principal transactions: Transfer of net premiums - 3,203,497 4,537,256 477,070 212,754 Transfer on terminations (156) (3,735,390) (2,562,745) (76,309) (202,894) Transfer on policy loans - (71,285) 13,292 (24,241) - Net interfund transfers (466) (1,953,087) 3,708,238 (301,076) 1,434,946 ----- ----------- ----------- ---------- ---------- Net increase (decrease) in assets from principal transactions (622) (2,556,265) 5,696,041 75,444 1,444,806 ----- ----------- ----------- ---------- ---------- Total increase (decrease) in assets - 1,190,186 14,093,358 84,637 1,508,168 Assets, beginning of period - 38,437,806 24,344,448 1,584,831 76,663 ----- ----------- ----------- ---------- ---------- Assets, end of period $ - $39,627,992 $38,437,806 $1,669,468 $1,584,831 ===== =========== =========== ========== ==========
28 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account ----------------------------------------- Science & Technology Small Cap Trust Trust Series 1 Series 1 ------------------------- --------------- Year Ended Year Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/05~ ------------ ----------- --------------- Income: Dividends $ - $ - $ - Expenses: Mortality and expense risk 106,167 126,572 15 ------------ ----------- ------- Net investment income (loss) (106,167) (126,572) (15) Net realized gain (loss) 415,202 3,685,252 (7) Change in unrealized appreciation (depreciation) during the period (348,119) (3,490,949) 340 ------------ ----------- ------- Net increase (decrease) in assets from operations (39,084) 67,731 318 ------------ ----------- ------- Changes from principal transactions: Transfer of net premiums 2,330,500 7,760,063 517 Transfer on terminations (1,675,670) (4,236,763) (224) Transfer on policy loans 8,380 (41,439) - Net interfund transfers (10,559,993) 518,941 16,420 ------------ ----------- ------- Net increase (decrease) in assets from principal transactions (9,896,783) 4,000,802 16,713 ------------ ----------- ------- Total increase (decrease) in assets (9,935,867) 4,068,533 17,031 Assets, beginning of period 30,223,103 26,154,570 - ------------ ----------- ------- Assets, end of period $ 20,287,236 $30,223,103 $17,031 ============ =========== =======
~ Reflects the period from commencement of operations on May 2, 2005 through December 31, 2005. ## Reflects the period from commencement of operations on May 3, 2004 through December 31, 2004. See accompanying notes. 29
Sub-Account ----------------------------------------------------------------------- Small Cap Index Trust Small Cap Opportunities Small Company Trust Series 1 Trust Series 1 Series 1 ----------------------- ---------------------- ---------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04## ----------- ---------- ---------- ---------- ---------- ------------ Income: Dividends $ 450,972 $ 15,158 $ 19,697 $ 3,327 $ 4 $ - Expenses: Mortality and expense risk 52,105 23,199 17,963 3,140 245 - ----------- ---------- ---------- ---------- -------- --- Net investment income (loss) 398,867 (8,041) 1,734 187 (241) - Net realized gain (loss) 194,935 211,250 296,913 113,023 6,841 6 Change in unrealized appreciation (depreciation) during the period 12,957 540,967 293,682 108,537 1,017 - ----------- ---------- ---------- ---------- -------- --- Net increase (decrease) in assets from operations 606,759 744,176 592,329 221,747 7,617 6 ----------- ---------- ---------- ---------- -------- --- Changes from principal transactions: Transfer of net premiums 953,242 1,169,609 332,904 127,192 42,362 - Transfer on terminations (466,990) (166,933) (280,836) (133,464) (89,707) (1) Transfer on policy loans 49,463 (50,614) (169) - - - Net interfund transfers 3,529,504 3,211,715 3,741,257 919,045 83,695 (5) ----------- ---------- ---------- ---------- -------- --- Net increase (decrease) in assets from principal transactions 4,065,219 4,163,777 3,793,156 912,773 36,350 (6) ----------- ---------- ---------- ---------- -------- --- Total increase (decrease) in assets 4,671,978 4,907,953 4,385,485 1,134,520 43,967 - Assets, beginning of period 7,067,046 2,159,093 1,625,557 491,037 - - ----------- ---------- ---------- ---------- -------- --- Assets, end of period $11,739,024 $7,067,046 $6,011,042 $1,625,557 $ 43,967 $ - =========== ========== ========== ========== ======== ===
30 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Statements of Operations and Changes in Contract Owners' Equity (continued)
Sub-Account -------------------------------------------------- Small Company Blend Small Company Value Trust Series 1 Trust Series 1 ------------------------ ------------------------ Year Ended Year Ended Year Ended Year Ended Dec. 31/05** Dec. 31/04 Dec. 31/05 Dec. 31/04 ------------ ----------- ----------- ----------- Income: Dividends $ - $ - $ 428,910 $ 232,040 Expenses: Mortality and expense risk 4,230 14,623 115,206 94,855 ----------- ----------- ----------- ----------- Net investment income (loss) (4,230) (14,623) 313,704 137,185 Net realized gain (loss) (4,367) 476,929 2,353,453 2,282,749 Change in unrealized appreciation (depreciation) during the period (227,929) (381,573) (1,242,663) 1,936,155 ----------- ----------- ----------- ----------- Net increase (decrease) in assets from operations (236,526) 80,733 1,424,494 4,356,089 ----------- ----------- ----------- ----------- Changes from principal transactions: Transfer of net premiums 27,490 352,634 4,488,191 4,890,637 Transfer on terminations (100,046) (676,647) (1,916,909) (1,900,460) Transfer on policy loans (1,238) (50,127) (8,957) 11,035 Net interfund transfers (1,314,266) (1,414,305) (2,287,918) 1,934,834 ----------- ----------- ----------- ----------- Net increase (decrease) in assets from principal transactions (1,388,060) (1,788,445) 274,407 4,936,046 ----------- ----------- ----------- ----------- Total increase (decrease) in assets (1,624,586) (1,707,712) 1,698,901 9,292,135 Assets, beginning of period 1,624,586 3,332,298 24,396,927 15,104,792 ----------- ----------- ----------- ----------- Assets, end of period $ - $ 1,624,586 $26,095,828 $24,396,927 =========== =========== =========== ===========
** Terminated as an investment option and funds transferred to Small Cap Opportunities Trust Series 1 on May 2, 2005. ) Terminated as an investment option and funds transferred to U.S. Global Leaders Growth Trust Series 1 on May 2, 2005. See accompanying notes. 31
Sub-Account --------------------------------------------------------------------- Special Value Trust Strategic Bond Trust Strategic Growth Trust Series 1 Series 1 Series 1 -------------------- ---------------------- ----------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 Dec. 31/05) Dec. 31/04 ---------- ---------- ---------- ---------- ----------- ---------- Income: Dividends $ 1,101 $ 3,020 $ 104,231 $ 166,811 $ 22,052 $ - Expenses: Mortality and expense risk 1,480 839 23,638 24,149 1,619 7,897 -------- -------- ---------- ---------- ----------- ---------- Net investment income (loss) (379) 2,181 80,593 142,662 20,433 (7,897) Net realized gain (loss) 5,043 2,877 102,238 60,033 31,411 219,720 Change in unrealized appreciation (depreciation) during the period 13,482 30,299 (100,942) 49,512 (111,325) (109,627) -------- -------- ---------- ---------- ----------- ---------- Net increase (decrease) in assets from operations 18,146 35,357 81,889 252,207 (59,481) 102,196 -------- -------- ---------- ---------- ----------- ---------- Changes from principal transactions: Transfer of net premiums 39,101 35,513 878,464 1,203,396 43,285 236,481 Transfer on terminations (7,980) (4,252) (303,891) (280,031) (14,017) (933,642) Transfer on policy loans - - 202 (3,858) - 100 Net interfund transfers 34,544 (7,234) (260,453) 469,939 (1,009,266) 111,460 -------- -------- ---------- ---------- ----------- ---------- Net increase (decrease) in assets from principal transactions 65,665 24,027 314,322 1,389,446 (979,998) (585,601) -------- -------- ---------- ---------- ----------- ---------- Total increase (decrease) in assets 83,811 59,384 396,211 1,641,653 (1,039,479) (483,405) Assets, beginning of period 225,420 166,036 4,821,612 3,179,959 1,039,479 1,522,884 -------- -------- ---------- ---------- ----------- ---------- Assets, end of period $309,231 $225,420 $5,217,823 $4,821,612 $ - $1,039,479 ======== ======== ========== ========== =========== ==========
32 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly 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 Trust Strategic Opportunities Series 1 Trust Series 1 ----------------------- ----------------------- Year Ended Period Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04## Dec. 31/05 Dec. 31/04 ---------- ------------ ---------- ----------- Income: Dividends $ 42,262 $ 456 $ 18,691 $ 4,691 Expenses: Mortality and expense risk 2,001 30 26,579 31,607 ---------- ------- ---------- ----------- Net investment income (loss) 40,261 426 (7,888) (26,916) Net realized gain (loss) 1,191 6 108,570 54,973 Change in unrealized appreciation (depreciation) during the period (29,060) 320 319,582 540,794 ---------- ------- ---------- ----------- Net increase (decrease) in assets from operations 12,392 752 420,264 568,851 ---------- ------- ---------- ----------- Changes from principal transactions: Transfer of net premiums 31,429 - 401,814 813,794 Transfer on terminations (13,544) (284) (620,348) (779,773) Transfer on policy loans (124) - (1,187) 25,888 Net interfund transfers 1,014,937 29,699 173,814 (1,859,398) ---------- ------- ---------- ----------- Net increase (decrease) in assets from principal transactions 1,032,698 29,415 (45,907) (1,799,489) ---------- ------- ---------- ----------- Total increase (decrease) in assets 1,045,090 30,167 374,357 (1,230,638) Assets, beginning of period 30,167 - 4,732,242 5,962,880 ---------- ------- ---------- ----------- Assets, end of period $1,075,257 $30,167 $5,106,599 $ 4,732,242 ========== ======= ========== ===========
## Reflects the period from commencement of operations on May 3, 2004 through December 31, 2004. See accompanying notes. 33
Sub-Account -------------------------------------------------------------------------- Strategic Value Trust Total Return Trust Total Stock Market Index Series 1 Series 1 Trust Series 1 ---------------------- ------------------------- ----------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 ---------- ----------- ------------ ----------- ---------- ----------- Income: Dividends $ 19,083 $ 2,224 $ 2,249,068 $ 1,747,512 $ 30,875 $ 26,321 Expenses: Mortality and expense risk 5,018 4,362 205,186 173,817 15,894 21,037 --------- ----------- ------------ ----------- ---------- ----------- Net investment income (loss) 14,065 (2,138) 2,043,882 1,573,695 14,981 5,284 Net realized gain (loss) 25,957 268,135 (298,985) (53,376) 158,751 441,641 Change in unrealized appreciation (depreciation) during the period (91,372) (95,497) (781,786) 36,499 (11,247) (163,829) --------- ----------- ------------ ----------- ---------- ----------- Net increase (decrease) in assets from operations (51,350) 170,500 963,111 1,556,818 162,485 283,096 --------- ----------- ------------ ----------- ---------- ----------- Changes from principal transactions: Transfer of net premiums 56,440 195,688 5,960,390 13,333,338 456,605 739,392 Transfer on terminations (623,336) (38,725) (3,595,874) (3,157,466) (314,313) (618,492) Transfer on policy loans - 7,539 (20,285) (1,095) 476 (313) Net interfund transfers (127,478) (1,832,767) (10,329,597) (980,814) 930,146 (1,551,114) --------- ----------- ------------ ----------- ---------- ----------- Net increase (decrease) in assets from principal transactions (694,374) (1,668,265) (7,985,366) 9,193,963 1,072,914 (1,430,527) --------- ----------- ------------ ----------- ---------- ----------- Total increase (decrease) in assets (745,724) (1,497,765) (7,022,255) 10,750,781 1,235,399 (1,147,431) Assets, beginning of period 832,892 2,330,657 49,394,073 38,643,292 2,572,128 3,719,559 --------- ----------- ------------ ----------- ---------- ----------- Assets, end of period $ 87,168 $ 832,892 $ 42,371,818 $49,394,073 $3,807,527 $ 2,572,128 ========= =========== ============ =========== ========== ===========
34 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly 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. Global Leaders U.S. Government Securities Growth Trust Series 1 Trust Series 1 --------------------- ------------------------- Period Ended Year Ended Year Ended Dec. 31/05++ Dec. 31/05 Dec. 31/04 --------------------- ---------- ----------- Income: Dividends $ 21,640 $ 325,470 $ 235,364 Expenses: Mortality and expense risk 3,729 46,019 37,676 ---------- ---------- ----------- Net investment income (loss) 17,911 279,451 197,688 Net realized gain (loss) 13,359 (60,923) (62,499) Change in unrealized appreciation (depreciation) during the period 66,198 (126,220) 29,793 ---------- ---------- ----------- Net increase (decrease) in assets from operations 97,468 92,308 164,982 ---------- ---------- ----------- Changes from principal transactions: Transfer of net premiums 120,102 2,691,564 2,316,495 Transfer on terminations (95,802) (601,199) (1,509,148) Transfer on policy loans 100 (17,078) (1,876) Net interfund transfers 979,083 (427,261) (1,612,537) ---------- ---------- ----------- Net increase (decrease) in assets from principal transactions 1,003,483 1,646,026 (807,066) ---------- ---------- ----------- Total increase (decrease) in assets 1,100,951 1,738,334 (642,084) Assets, beginning of period - 8,245,778 8,887,862 ---------- ---------- ----------- Assets, end of period $1,100,951 $9,984,112 $ 8,245,778 ========== ========== ===========
++ Fund available in prior year but not active. See accompanying notes. 35
Sub-Account ---------------------------------------------------------------------------- U.S. Large Cap Trust Series 1 Utilities Trust Series 1 Value Trust Series 1 ------------------------ ----------------------- ------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 Dec. 31/05 Dec. 31/04 ----------- ----------- ---------- ---------- ------------ ----------- Income: Dividends $ 93,489 $ 14,756 $ 81,868 $ 1,176 $ 56,502 $ 70,205 Expenses: Mortality and expense risk 134,525 102,018 6,969 1,321 56,755 73,832 ----------- ----------- ---------- -------- ------------ ----------- Net investment income (loss) (41,036) (87,262) 74,899 (145) (253) (3,627) Net realized gain (loss) 495,701 680,254 60,629 20,291 693,338 2,389,598 Change in unrealized appreciation (depreciation) during the period 619,166 1,272,633 87,129 54,611 44,915 (156,787) ----------- ----------- ---------- -------- ------------ ----------- Net increase (decrease) in assets from operations 1,073,831 1,865,625 222,657 74,757 738,000 2,229,184 ----------- ----------- ---------- -------- ------------ ----------- Changes from principal transactions: Transfer of net premiums 1,723,981 1,686,794 292,142 16,995 1,587,703 6,364,526 Transfer on terminations (2,437,739) (2,845,810) (41,249) (11,554) (548,553) (1,959,091) Transfer on policy loans 27,193 36,588 (2,831) (21,107) (3,802) 4,581 Net interfund transfers (444,512) 18,447,265 1,240,265 308,920 (14,588,210) 3,381,928 ----------- ----------- ---------- -------- ------------ ----------- Net increase (decrease) in assets from principal transactions (1,131,077) 17,324,837 1,488,327 293,254 (13,552,862) 7,791,944 ----------- ----------- ---------- -------- ------------ ----------- Total increase (decrease) in assets (57,246) 19,190,462 1,710,984 368,011 (12,814,862) 10,021,128 Assets, beginning of period 22,836,763 3,646,301 489,462 121,451 22,720,877 12,699,749 ----------- ----------- ---------- -------- ------------ ----------- Assets, end of period $22,779,517 $22,836,763 $2,200,446 $489,462 $ 9,906,015 $22,720,877 =========== =========== ========== ======== ============ ===========
36 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Statements of Operations and Changes in Contract Owners' Equity (continued)
Total -------------------------- Year Ended Year Ended Dec. 31/05 Dec. 31/04 ------------ ------------ Income: Dividends $ 22,903,011 $ 9,343,432 Expenses: Mortality and expense risk 3,546,389 3,256,647 ------------ ------------ Net investment income (loss) 19,356,622 6,086,785 Net realized gain (loss) 29,910,849 25,595,639 Change in unrealized appreciation (depreciation) during the period (8,176,520) 29,602,062 ------------ ------------ Net increase (decrease) in assets from operations 41,090,951 61,284,486 ------------ ------------ Changes from principal transactions: Transfer of net premiums 93,226,794 146,386,789 Transfer on terminations (66,979,008) (88,708,576) Transfer on policy loans (351,004) (76,529) Net interfund transfers (6,962,283) 1,335,829 ------------ ------------ Net increase (decrease) in assets from principal transactions 18,934,499 58,937,513 ------------ ------------ Total increase (decrease) in assets 60,025,450 120,221,999 Assets, beginning of period 681,926,956 561,704,957 ------------ ------------ Assets, end of period $741,952,406 $681,926,956 ============ ============
See accompanying notes. 37 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements December 31, 2005 1. Organization John Hancock Life Insurance Company (U.S.A.) Separate Account N (formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) (the "Account") is a separate account administered and sponsored by John Hancock Life Insurance Company (U.S.A.) ("JHUSA" or the "Company") (formerly 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 seventy-two active investment sub-accounts that invest in shares of a particular John Hancock Trust (formerly Manufacturers Investment Trust) portfolio and one sub-account that invests in shares of a particular PIMCO Variable Investment Trust portfolio. John Hancock Trust (formerly Manufacturers Investment 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. 38 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 1. Organization (continued) Effective January 1, 2005, the following name changes occurred:
Previous Name New Name ------------- -------- The Manufacturers Life Insurance Company (U.S.A.) John Hancock Life Insurance 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 (U.S.A.) Separate Account N (U.S.A.) Separate Account N
As the result of portfolio changes, the following sub-accounts of the Account were renamed as follows:
Previous Name New Name Effective Date ------------- -------- -------------- International Equity Index Fund International Equity Index Trust A May 2, 2005 Global Equity Trust Global Trust May 3, 2004 Pacific Rim Emerging Markets Trust Pacific Rim Trust May 3, 2004
Effective May 2, 2005, 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 ---------- -------------------- Aggressive Growth Trust Mid Cap Stock Trust Diversified Bond Trust Active Bond Trust Equity Index Trust 500 Index Trust B Overseas Trust International Value Trust Small Company Blend Trust Small Cap Opportunities Trust Strategic Growth Trust U.S. Global Leaders Growth Trust
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
39 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 1. Organization (continued) The following sub-accounts of the Account were added as investment options for variable universal life insurance contract holders of the Company: Commencement of Operations of the Sub- Accounts ----------------- 500 Index Trust B May 2, 2005 Active Bond Trust May 2, 2005 All Asset Portfolio May 3, 2004 American Bond Trust ( October 31, 2005 Bond Index Trust B ( May 2, 2005 Brandes International Equity Trust ( May 2, 2005 Business Opportunity Value Trust ( May 2, 2005 Classic Value Trust May 3, 2004 Core Bond Trust May 2, 2005 Core Equity Trust May 3, 2004 Frontier Capital Appreciation ( May 2, 2005 Growth & Income Trust II ( May 2, 2005 International Equity Index Trust A ( May 2, 2005 International Equity Index Trust B May 3, 2004 International Opportunities Trust May 2, 2005 Large Cap Trust May 2, 2005 Managed Trust ( May 2, 2005 Mid Value Trust ( May 2, 2005 Money Market Trust B ( May 2, 2005 Overseas Equity Trust ( May 2, 2005 Short-Term Bond Trust ( May 2, 2005 Small Cap Trust May 2, 2005 Small Cap Growth Trust ( May 2, 2005 Small Cap Value Trust ( May 2, 2005 Small Company Trust May 3, 2004 Strategic Income Trust May 3, 2004 Turner Core Growth Trust ( May 2, 2005 U.S. Global Leaders Growth Trust May 3, 2004 U.S. High Yield Bond Trust ( May 2, 2005 ( Fund available in current year but no activity. 40 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 2. Significant Accounting Policies Investments of each sub-account consist of shares in the respective portfolios of the Trust. These shares are 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. 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 0.30% and 0.70% of the average net value of the Account's assets for the assumption of mortality and expense risks. 41 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 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 of Investments The cost of purchases and proceeds from sales of investments for the year ended December 31, 2005 were as follows: Purchases Sales ----------- ----------- Sub-Accounts: 500 Index Trust Series 1 $10,161,768 $ 6,581,432 500 Index Trust B Series 0 30,348,787 9,553,457 Active Bond Trust Series 1 8,122,898 4,024,103 Aggressive Growth Trust Series 1 587,748 5,983,159 All Asset Portfolio Series 1 654,092 192,395 All Cap Core Trust Series 1 958,926 1,137,761 All Cap Growth Trust Series 1 2,529,188 3,224,555 All Cap Value Trust Series 1 694,129 603,826 American Blue Chip Income and Growth Trust Series 1 2,493,498 502,661 American Growth Trust Series 1 22,924,778 7,882,284 American Growth-Income Trust Series 1 1,293,446 461,824 American International Trust Series 1 12,988,389 1,037,797 Blue Chip Growth Trust Series 1 11,336,668 15,522,633 Capital Appreciation Trust Series 1 1,408,421 473,062 Classic Value Trust Series 1 472,432 25,310 Core Bond Trust Series 1 71 - Core Equity Trust Series 1 358,469 96,294 Diversified Bond Trust Series 1 959,385 8,439,031 Dynamic Growth Trust Series 1 2,642,694 1,487,011 Emerging Growth Trust Series 1 576,251 344,247 Emerging Small Company Trust Series 1 16,470,982 18,662,428 Equity-Income Trust Series 1 18,573,660 18,806,654 Equity Index Trust Series 1 1,883,513 27,588,082 42 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 5. Purchases and Sales of Investments (continued) Purchases Sales ----------- ----------- Sub-Accounts: Financial Services Trust Series 1 $ 244,250 $ 131,015 Fundamental Value Trust Series 1 1,548,782 1,195,712 Global Trust Series 1 1,694,233 1,664,335 Global Allocation Trust Series 1 581,592 485,043 Global Bond Trust Series 1 3,984,687 2,491,441 Growth & Income Trust Series 1 10,496,634 10,697,851 Health Sciences Trust Series 1 2,021,276 1,133,996 High Yield Trust Series 1 10,105,574 4,886,304 Income & Value Trust Series 1 4,080,340 9,240,649 International Equity Index Trust B Series 1 6,192,255 1,502,185 International Opportunities Trust Series 1 23,832 18,442 International Small Cap Trust Series 1 2,272,320 2,451,506 International Stock Trust Series 1 5,219,372 6,253,994 International Value Trust Series 1 16,911,078 7,158,392 Investment Quality Bond Trust Series 1 6,102,587 8,498,701 Large Cap Trust Series 1 3,980 210 Large Cap Growth Trust Series 1 2,322,291 3,075,467 Large Cap Value Trust Series 1 3,122,315 920,316 Lifestyle Aggressive 1000 Trust Series 1 1,260,049 946,556 Lifestyle Balanced 640 Trust Series 1 6,652,325 5,270,345 Lifestyle Conservative 280 Trust Series 1 1,615,062 841,041 Lifestyle Growth 820 Trust Series 1 2,716,501 2,508,046 Lifestyle Moderate 460 Trust Series 1 1,544,228 1,905,319 Mid Cap Core Trust Series 1 1,715,373 1,438,668 Mid Cap Index Trust Series 1 6,031,289 7,110,131 Mid Cap Stock Trust Series 1 11,193,062 15,856,439 Mid Cap Value Trust Series 1 24,689,846 7,811,476 Money Market Trust Series 1 51,240,163 38,904,046 Natural Resources Trust Series 1 5,471,678 3,493,885 Overseas Trust Series 1 1,023,899 6,850,426 Pacific Rim Trust Series 1 2,520,570 2,786,821 Quantitative All Cap Trust Series 1 58,742 27,727 Quantitative Mid Cap Trust Series 1 128,412 92,021 Quantitative Value Trust Series 1 16,386 17,036 Real Estate Securities Trust Series 1 15,905,256 12,965,771 Real Return Bond Trust Series 1 1,279,205 1,152,634 43 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 5. Purchases and Sales of Investments (continued) Purchases Sales ------------ ------------ Sub-Accounts: Science & Technology Trust Series 1 $ 7,426,551 $ 17,429,501 Small Cap Trust Series 1 23,077 6,378 Small Cap Index Trust Series 1 7,287,126 2,823,040 Small Cap Opportunities Trust Series 1 6,773,396 2,978,506 Small Company Trust Series 1 155,400 119,291 Small Company Blend Trust Series 1 1,973,183 3,365,473 Small Company Value Trust Series 1 12,749,009 12,160,897 Special Value Trust Series 1 109,576 44,291 Strategic Bond Trust Series 1 3,692,099 3,297,183 Strategic Growth Trust Series 1 130,259 1,089,823 Strategic Income Trust Series 1 1,277,676 204,717 Strategic Opportunities Trust Series 1 1,742,056 1,795,852 Strategic Value Trust Series 1 3,892,262 4,572,572 Total Return Trust Series 1 21,897,942 27,839,426 Total Stock Market Index Trust Series 1 3,528,657 2,440,762 U.S. Global Leaders Growth Trust Series 1 1,294,924 273,530 U.S. Government Securities Trust Series 1 6,509,142 4,583,666 U.S. Large Cap Trust Series 1 6,032,414 7,204,527 Utilities Trust Series 1 2,089,715 526,489 Value Trust Series 1 4,583,846 18,136,961 ------------ ------------ $453,597,947 $415,306,838 ============ ============ 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. 44 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account ----------------------------------------------------------------------------------------------- 500 Index Trust Series 1 ----------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 --------------- ---------------- ---------------- -------------------- -------------------- Units, beginning of year 689,458 575,198 375,317 94,218 22,035 Units issued 932,154 773,654 501,063 688,915 86,705 Units redeemed (609,148) (659,394) (301,182) (407,816) (14,522) --------------- ---------------- ---------------- -------------------- -------------------- Units, end of year 1,012,464 689,458 575,198 375,317 94,218 =============== ================ ================ ==================== ==================== Unit value, end of year $10.89 - $11.16 $10.51 - $ 10.72 $9.59 - $9.72 $7.54 - $7.61 $9.80 - $ 9.85 Assets, end of year $11,226,224 $7,356,251 $5,572,911 $2,849,500 $925,055 Investment income ratio/(1)/ 1.22% 0.81% 0.79% 0.00% 1.51% Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 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)/ 3.60% to 4.09% 9.54% to 10.05% 27.19% to 27.69% (23.02)% to (22.71)% (12.93)% to (12.71)%
Sub-Account ----------------- 500 Index Trust B Series 0 ----------------- Period Ended Dec. 31/05~ ----------------- Units, beginning of year - Units issued 2,372,470 Units redeemed (722,906) ---------------- Units, end of year 1,649,564 ================ Unit value, end of year $13.57 - $ 13.60 Assets, end of year $22,413,056 Investment income ratio/(1)/ 0.00% Expense ratio, lowest to highest/(2)/ 0.40% to 0.70% Total return, lowest to highest/(3)/ 8.56% to 8.78% ~ Reflects the period from commencement of operations on May 2, 2005 through December 31, 2005. 45 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued) Sub-Account ----------------- Active Bond Trust Series 1 ----------------- Period Ended Dec. 31/05 ----------------- Units, beginning of year - Units issued 647,762 Units redeemed (318,574) --------------- Units, end of year 329,188 =============== Unit value, end of year $12.64 - $12.67 Assets, end of year $4,165,458 Investment income ratio/(1)/ 0.00% Expense ratio, lowest to highest/(2)/ 0.35% to 0.70% Total return, lowest to highest/(3)/ 1.14% to 1.36% ~ Reflects the period from commencement of operations on May 2, 2005 through December 31, 2005.
Sub-Account ------------------------------------------------------------------------------------------------- Aggressive Growth Trust Series 1 ------------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05** Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 ------------------ --------------- ---------------- -------------------- -------------------- Units, beginning of year 423,260 387,460 417,367 388,103 290,154 Units issued 47,602 399,144 321,514 416,070 253,473 Units redeemed (470,862) (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 $10.88 - $ 15.15 $16.05 -$ 16.24 $10.75 - $14.90 $8.07 - $ 11.16 $10.82 - $ 14.91 Assets, end of year $0 $5,785,540 $4,974,158 $4,062,865 $5,113,597 Investment income ratio/(1)/ 0.00% 0.00% 0.00% 0.00% 0.00% Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 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)/ (6.85)% to (6.76)% 8.55% to 8.88% 33.00% to 33.34% (25.45)% to (25.30)% (26.46)% to (26.39)%
** Terminated as an investment option and funds transferred to Mid Cap Stock Trust Series 1 on May 2, 2005. 46 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued) Sub-Account ---------------------------- All Asset Portfolio Series 1 ---------------------------- Year Ended Dec. Period Ended 31/05 Dec. 31/04## --------------- ------------ Units, beginning of year 5,558 - Units issued 44,219 5,623 Units redeemed (13,357) (65) --------------- ------- Units, end of year 36,420 5,558 =============== ======= Unit value, end of year $14.67 - $14.72 $13.94 Assets, end of year $534,735 $77,490 Investment income ratio/(1)/ 5.84% 17.85% Expense ratio, lowest to highest/(2)/ 0.45% to 0.65% 0.65% Total return, lowest to highest/(3)/ 5.25% to 5.47% 11.53% ## Reflects the period from commencement of operations on May 3, 2004 through December 31, 2004.
Sub-Account ----------------------------------------------------------------------------------------------- All Cap Core Trust Series 1 ----------------------------------------------------------------------------------------------- Year Ended Dec. Year Ended Dec. Year Ended Dec. 31/05 31/04 31/03 Year Ended Dec. 31/02 Year Ended Dec. 31/01 --------------- ---------------- ---------------- --------------------- --------------------- Units, beginning of year 192,844 384,083 632,910 955,887 901,341 Units issued 60,566 162,081 396,838 744,586 586,549 Units redeemed (72,552) (353,320) (645,665) (1,067,563) (532,003) --------------- ---------------- ---------------- -------------------- -------------------- Units, end of year 180,858 192,844 384,083 632,910 955,887 =============== ================ ================ ==================== ==================== Unit value, end of year $9.46 - $ 17.43 $8.72 - $ 16.04 $7.54 - $ 13.81 $5.76 - $ 10.54 $7.75 - $ 14.12 Assets, end of year $3,066,213 $3,006,912 $4,650,328 $5,895,402 $12,500,179 Investment income ratio/(1)/ 0.73% 0.50% 0.00% 0.00% 0.00% Expense ratio, lowest to highest/(2)/ 0.35% to 0.70% 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)/ 8.32% to 8.70% 15.57% to 15.92% 30.71% to 31.02% (25.72)% to (25.57)% (21.88)% to (21.80)%
47 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account -------------------------------------------------------------------------------------------------- All Cap Growth Trust Series 1 -------------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 ---------------- ----------------- ----------------- -------------------- -------------------- Units, beginning of year 413,068 507,091 602,095 604,579 371,985 Units issued 136,091 266,106 472,429 510,835 493,095 Units redeemed (171,571) (360,129) (567,433) (513,319) (260,501) ---------------- ----------------- ----------------- -------------------- -------------------- Units, end of year 377,588 413,068 507,091 602,095 604,579 ================ ================= ================= ==================== ==================== Unit value, end of year $10.77 - $ 20.97 $9.94 - $ 19.31 $9.38 - $ 18.16 $7.30 - $ 14.11 $9.71 - $ 18.73 Assets, end of year $7,772,423 $7,837,329 $8,204,194 $7,785,855 $10,184,673 Investment income ratio/(1)/ 0.00% 0.00% 0.00% 0.00% 0.00% Expense ratio, lowest to highest/(2)/ 0.35% to 0.70% 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)/ 8.23% to 8.61% 5.83% to 6.14% 28.40% to 28.72% (24.90)% to (24.75)% (24.27)% to (24.11)% Sub-Account -------------------------------------------------------------------------------------------------- All Cap Value Trust Series 1 -------------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01* ---------------- ----------------- ----------------- -------------------- -------------------- Units, beginning of year 111,377 42,078 19,759 1,194 - Units issued 43,049 149,430 48,939 83,130 1,531 Units redeemed (41,539) (80,131) (26,620) (64,565) (337) ---------------- ----------------- ----------------- -------------------- -------------------- Units, end of year 112,887 111,377 42,078 19,759 1,194 ================ ================= ================= ==================== ==================== Unit value, end of year $14.97 - $ 15.19 $ 14.26 - $ 14.42 $ 12.38 - $ 12.44 $9.00 - $ 9.03 $12.56 Assets, end of year $1,705,935 $1,596,891 $520,935 $177,909 $14,993 Investment income ratio/(1)/ 0.52% 0.33% 0.04% 0.01% 0.03% Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.35% to 0.65% 0.45% to 0.65% 0.45% to 0.65% 0.65% Total return, lowest to highest/(3)/ 5.03% to 5.35% 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. 48 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account --------------------------------------------------- American Blue Chip Income and Growth Trust Series 1 --------------------------------------------------- Year Ended Year Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/03+ ---------------- --------------- ---------------- Units, beginning of year 23,565 14,497 - Units issued 149,882 24,431 14,889 Units redeemed (31,867) (15,363) (392) ---------------- --------------- ---------------- Units, end of year 141,580 23,565 14,497 ================ =============== ================ Unit value, end of year $16.32 - $ 16.44 $15.38 - $15.44 $14.17 - $14.18 Assets, end of year $2,325,308 $362,839 $205,368 Investment income ratio/(1)/ 0.19% 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% Total return, lowest to highest/(3)/ 6.07% to 6.39% 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.
Sub-Account ---------------------------------------------------- American Growth Trust Series 1 ---------------------------------------------------- Year Ended Year Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/03+ ---------------- ---------------- ---------------- Units, beginning of year 534,464 106,170 - Units issued 1,438,001 615,014 107,375 Units redeemed (503,021) (186,720) (1,205) ---------------- ---------------- ---------------- Units, end of year 1,469,444 534,464 106,170 ================ ================ ================ Unit value, end of year $17.74 - $17.89 $15.42 - $15.49 $13.84 - $13.86 Assets, end of year $26,189,118 $8,261,844 $1,470,676 Investment income ratio/(1)/ 0.00% 0.00% 0.00% Expense ratio, lowest to highest/(2)/ 0.30% to 0.65% 0.35% to 0.65% 0.40% to 0.65% Total return, lowest to highest/(3)/ 15.04% to 15.44% 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. 49 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account --------------------------------------------- American Growth-Income Trust Series 1 --------------------------------------------- Year Ended Year Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/03+ --------------- --------------- ------------ Units, beginning of year 114,971 3,474 - Units issued 82,686 230,255 3,561 Units redeemed (29,561) (118,758) (87) --------------- --------------- ------- Units, end of year 168,096 114,971 3,474 =============== =============== ======= Unit value, end of year $16.14 -$ 16.26 $15.41 - $15.47 $14.10 Assets, end of year $2,725,094 $1,775,824 $48,990 Investment income ratio/(1)/ 0.45% 0.30% 0.00% Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.35% to 0.65% 0.65% Total return, lowest to highest/(3)/ 4.75% to 5.08% 9.24% to 9.57% 12.82%
+ Reflects the period from commencement of operations on July 9, 2003 through December 31, 2003.
Sub-Account ---------------------------------------------------- American International Trust Series 1 ---------------------------------------------------- Year Ended Year Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/03+ ---------------- ---------------- ---------------- Units, beginning of year 94,988 7,859 - Units issued 664,947 98,310 8,484 Units redeemed (54,155) (11,181) (625) ---------------- ---------------- ---------------- Units, end of year 705,780 94,988 7,859 ================ ================ ================ Unit value, end of year $21.51 - $ 21.70 $17.88 - $ 17.96 $15.14 - $ 15.15 Assets, end of year $15,253,954 $1,702,860 $118,979 Investment income ratio/(1)/ 0.55% 0.43% 0.00% Expense ratio, lowest to highest/(2)/ 0.30% to 0.65% 0.35% to 0.65% 0.45% to 0.65% Total return, lowest to highest/(3)/ 20.29% to 20.70% 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. 50 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account ---------------------------------------------------------------------------------------------- Blue Chip Growth Trust Series 1 ---------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 --------------- --------------- ---------------- -------------------- -------------------- Units, beginning of year 1,667,853 2,092,515 1,902,374 1,996,442 1,789,836 Units issued............ 562,542 958,632 1,470,531 2,117,890 1,329,733 Units redeemed.......... (779,491) (1,383,294) (1,280,390) (2,211,958) (1,123,127) --------------- --------------- ---------------- -------------------- -------------------- Units, end of year...... 1,450,904 1,667,853 2,092,515 1,902,374 1,996,442 =============== =============== ================ ==================== ==================== Unit value, end of year. $11.68 -$ 22.06 $11.12 -$ 20.96 $10.25 - $19.26 $7.98 - $ 14.97 $10.60 - $ 19.85 Assets, end of year..... $29,446,370 $32,373,276 $34,818,639 $26,370,964 $36,203,915 Investment income ratio/(1)/`........... 0.41% 0.11% 0.04% 0.00% 0.00% Expense ratio, lowest to highest/(2)/.......... 0.35% to 0.70% 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)/.......... 4.86% to 5.23% 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 Series 1 -------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01* ---------------- --------------- ---------------- -------------------- ------------ Units, beginning of year............ 91,845 126,280 25,173 3,341 - Units issued........................ 129,375 65,459 111,005 67,713 3,401 Units redeemed...................... (43,546) (99,894) (9,898) (45,881) (60) ---------------- --------------- ---------------- -------------------- -------- Units, end of year.................. 177,674 91,845 126,280 25,173 3,341 ================ =============== ================ ==================== ======== Unit value, end of year............. $12.05 - $ 12.20 $10.64 - $10.75 $9.80 - $9.85 $7.62 - $ 7.64 $11.05 Assets, end of year................. $2,156,867 $982,755 $1,240,907 $192,338 $36,920 Investment income ratio/(1)/........ 0.00% 0.00% 0.00% 0.00% 0.00% Expense ratio, lowest to highest/(2)/...................... 0.40% to 0.65% 0.40% to 0.65% 0.45% to 0.65% 0.45% to 0.65% 0.65% Total return, lowest to highest/(3)/ 13.25% to 13.55% 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. 51 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued) Sub-Account ------------------- Classic Value Trust Series 1 ------------------- Period Ended Dec. 31/05++ ------------------- Units, beginning of year - Units issued 30,518 Units redeemed (1,747) --------------- Units, end of year 28,771 =============== Unit value, end of year $15.06 - $15.11 Assets, end of year $433,522 Investment income ratio/(1)/ 3.55% Expense ratio, lowest to highest/(2)/ 0.45% to 0.65% Total return, lowest to highest/(3)/ 8.72% to 8.92% ++ Fund available in prior year but not active. Sub-Account --------------- Core Bond Trust Series 1 --------------- Period Ended Dec. 31/05 --------------- Units, beginning of year - Units issued 6 Units redeemed - ------ Units, end of year 6 ====== Unit value, end of year $12.58 Assets, end of year $72 Investment income ratio/(1)/ 0.00% Expense ratio, lowest to highest/(2)/ 0.65% Total return, lowest to highest/(3)/ 0.60% ~ Reflects the period from commencement of operations on May 2, 2005 through December 31, 2005. 52 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued) Sub-Account ----------------- Core Equity Trust Series 1 ----------------- Period Ended Dec. 31/05++ ----------------- Units, beginning of year - Units issued 25,690 Units redeemed (6,621) --------------- Units, end of year 19,069 =============== Unit value, end of year $14.91 - $14.96 Assets, end of year $284,444 Investment income ratio/(1)/ 0.00% Expense ratio, lowest to highest/(2)/ 0.45% to 0.65% Total return, lowest to highest/(3)/ 5.22% to 5.42% ++ Fund available in prior year but not active.
Sub-Account ----------------------------------------------------------------------------------- Diversified Bond Trust Series 1 ----------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05** Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 --------------- --------------- --------------- --------------- --------------- Units, beginning of year 450,624 475,744 489,585 507,459 264,580 Units issued 40,562 265,904 449,319 1,003,740 513,683 Units redeemed (491,186) (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 $16.73 -$ 17.33 $16.66 -$ 17.25 $16.13 - $16.64 $15.51 -$ 15.95 $14.49 -$ 14.89 Assets, end of year $0 $7,709,761 $7,848,156 $7,777,651 $7,354,939 Investment income ratio/(1)/ 3.51% 4.27% 5.26% 3.61% 3.26% Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 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)/ 0.35% to 0.45% 3.18% to 3.48% 3.93% to 4.19% 6.90% to 7.12% 6.38% to 6.61%
** Terminated as an investment option and funds transferred to Active Bond Trust Series 1 on May 2, 2005. 53 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account ---------------------------------------------------------------------------------------------- Dynamic Growth Trust Series 1 ---------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 ---------------- -------------- ---------------- -------------------- -------------------- Units, beginning of year 544,964 577,167 217,363 102,477 34,003 Units issued 518,036 670,334 707,581 235,862 352,426 Units redeemed (292,300) (702,537) (347,777) (120,976) (283,952) ---------------- -------------- ---------------- -------------------- -------------------- Units, end of year 770,700 544,964 577,167 217,363 102,477 ================ ============== ================ ==================== ==================== Unit value, end of year $5.24 - $ 5.34 $4.70 - $ 4.77 $4.30 - $ 4.34 $3.36 - $ 3.37 $4.72 - $ 4.73 Assets, end of year $4,088,844 $2,585,369 $2,493,791 $730,822 $483,613 Investment income ratio/(1)/ 0.00% 0.00% 0.00% 0.00% 0.28% Expense ratio, lowest to highest/(2)/ 0.35% to 0.70% 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)/ 11.62% to 12.00% 9.29% to 9.62% 28.17% to 28.60% (28.83)% to (28.63)% (40.63)% to (40.57)%
Sub-Account ------------------------------------------------ Emerging Growth Trust Series 1 ------------------------------------------------ Year Ended Year Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/03^ -------------- -------------- ---------------- Units, beginning of year 3,541 13,715 - Units issued 32,098 27,399 15,745 Units redeemed (19,492) (37,573) (2,030) -------------- -------------- ---------------- Units, end of year 16,147 3,541 13,715 ============== ============== ================ Unit value, end of year $18.50 - $ $17.29 - $ 18.60 17.35 $16.29 - $ 16.31 Assets, end of year $300,058 $61,397 $223,380 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)/ 6.96% to 7.17% 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. 54 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account ---------------------------------------------------------------------------------------------- Emerging Small Company Trust Series 1 ---------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 -------------- ---------------- ---------------- -------------------- -------------------- Units, beginning of year 687,402 911,363 1,056,757 1,065,694 840,091 Units issued 232,231 273,287 380,894 544,611 525,737 Units redeemed (249,848) (497,248) (526,288) (553,548) (300,134) -------------- ---------------- ---------------- -------------------- -------------------- Units, end of year 669,785 687,402 911,363 1,056,757 1,065,694 ============== ================ ================ ==================== ==================== Unit value, end of year $13.25 -$91.13 $12.69 - $86.85 $11.44 - $78.03 $8.23 - $56.84 $11.69 - $79.51 Assets, end of year $50,949,308 $50,607,293 $51,002,629 $41,741,461 $63,138,723 Investment income ratio/(1)/ 0.00% 0.00% 0.00% 0.00% 0.00% Expense ratio, lowest to highest/(2)/ 0.30% to 0.70% 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)/ 4.31% to 4.73% 10.80% to 11.13% 38.83% to 39.17% (29.66)% to (29.49)% (22.75)% to (22.55)%
Sub-Account ----------------------------------------------------------------------------------------- Equity-Income Trust Series 1 ----------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 -------------- ---------------- ---------------- -------------------- --------------- Units, beginning of year 1,646,238 1,460,643 1,339,589 840,766 431,687 Units issued 759,963 1,139,513 1,036,965 1,689,347 687,162 Units redeemed (827,477) (953,918) (915,911) (1,190,524) (278,083) -------------- ---------------- ---------------- -------------------- --------------- Units, end of year 1,578,724 1,646,238 1,460,643 1,339,589 840,766 ============== ================ ================ ==================== =============== Unit value, end of year $17.15 -$23.56 $16.60 - $22.75 $14.54 - $19.85 $11.64 - $15.87 $13.50 - $18.38 Assets, end of year $36,227,178 $36,760,871 $27,301,230 $20,927,060 $15,189,718 Investment income ratio/(1)/ 1.25% 1.22% 1.44% 1.22% 1.42% Expense ratio, lowest to highest/(2)/ 0.35% to 0.70% 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)/ 3.20% to 3.56% 14.06% to 14.41% 24.76% to 25.07% (13.84)% to (13.63)% 0.63% to 0.89%
55 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account ------------------------------------------------------------------------------------------------- Equity Index Trust Series 1 ------------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05** Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 ------------------ --------------- ---------------- -------------------- -------------------- Units, beginning of year 1,534,369 1,545,993 1,769,922 2,189,228 1,984,054 Units issued 94,494 673,240 954,968 2,193,979 1,366,361 Units redeemed (1,628,863) (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 $10.56 - $19.03 $11.03 - $19.67 $10.04 - $18.06 $7.87 - $14.13 $10.18 - $18.26 Assets, end of year $0 $27,164,917 $25,622,009 $23,452,969 $38,066,462 Investment income ratio/(1)/ 2.01% 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% 0.40% to 0.65% Total return, lowest to highest/(3)/ (4.28)% to (4.20)% 9.76% to 10.03% 27.46% to 27.78% (22.81)% to (22.61)% (12.83)% to (12.61)%
** Terminated as an investment option and funds transferred to 500 Index Trust B Series 0 on May 2, 2005.
Sub-Account ------------------------------------------------------------------------------------- Financial Services Trust Series 1 ------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01* --------------- --------------- ---------------- -------------------- ------------ Units, beginning of year 23,337 31,948 33,067 8,377 - Units issued 17,012 39,967 13,233 42,607 8,668 Units redeemed (9,415) (48,578) (14,352) (17,917) (291) --------------- --------------- ---------------- -------------------- ------- Units, end of year 30,934 23,337 31,948 33,067 8,377 =============== =============== ================ ==================== ======= Unit value, end of year $15.00 - $15.14 $13.75 - $13.85 $12.54 - $12.61 $9.45 - $9.48 $11.58 Assets, end of year $466,240 $322,026 $401,985 $313,108 $97,034 Investment income ratio/(1)/ 0.38% 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% 0.45% to 0.65% 0.65% Total return, lowest to highest/(3)/ 9.07% to 9.28% 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. 58 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account -------------------------------------------------------------------------------------- Fundamental Value Trust Series 1 -------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01* --------------- ---------------- ---------------- -------------------- ------------ Units, beginning of year 168,396 93,865 33,158 21,338 - Units issued 107,178 205,077 173,788 35,752 22,014 Units redeemed (81,262) (130,546) (113,081) (23,932) (676) --------------- ---------------- ---------------- -------------------- -------- Units, end of year 194,312 168,396 93,865 33,158 21,338 =============== ================ ================ ==================== ======== Unit value, end of year $15.06 - $15.28 $13.93 - $14.08 $12.54 - $12.61 $9.72 - $9.75 $11.68 Assets, end of year $2,943,943 $2,356,047 $1,179,257 $322,506 $249,216 Investment income ratio/(1)/ 0.42% 0.48% 0.18% 0.09% 0.00% Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.35% to 0.65% 0.45% to 0.65% 0.45% to 0.65% 0.65% Total return, lowest to highest/(3)/ 8.14% to 8.46% 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.
Sub-Account ---------------------------------------------------------------------------------------------- Global Trust Series 1 ---------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 --------------- ---------------- ---------------- -------------------- ------------------- Units, beginning of year 226,763 220,709 272,877 206,811 192,970 Units issued 88,843 178,596 315,226 360,226 133,113 Units redeemed (88,274) (172,542) (367,394) (294,160) (119,272) --------------- ---------------- ---------------- -------------------- ------------------- Units, end of year 227,332 226,763 220,709 272,877 206,811 =============== ================ ================ ==================== =================== Unit value, end of year $15.10 - $20.08 $13.72 - $18.20 $12.02 - $15.89 $9.48 - $12.52 $11.79 - $15.50 Assets, end of year $4,510,252 $4,088,754 $3,119,936 $3,166,722 $3,140,867 Investment income ratio/(1)/ 1.25% 1.76% 1.19% 1.15% 2.22% Expense ratio, lowest to highest/(2)/ 0.35% to 0.70% 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)/ 9.95% to 10.33% 14.01% to 14.35% 26.63% to 26.95% (19.63)% to (19.47)% (16.63) to (16.55)%
57 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account ------------------------------------------------------------------------------ Global Allocation Trust Series 1 ------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01* --------------- ---------------- ---------- -------------------- ----------- Units, beginning of year 17,767 3,613 3,195 7,967 - Units issued 51,578 66,928 844 23,360 18,137 Units redeemed (42,410) (52,774) (426) (28,132) (10,170) --------------- ---------------- ------- -------------------- ------- Units, end of year 26,935 17,767 3,613 3,195 7,967 =============== ================ ======= ==================== ======= Unit value, end of year $11.74 - $11.92 $11.13 - $11.22 $9.94 $7.91 - $7.94 $10.37 Assets, end of year $316,420 $197,769 $35,900 $25,278 $82,609 Investment income ratio/(1)/ 0.65% 0.40% 0.48% 0.00% 0.26% Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.45% to 0.65% 0.65% 0.45% to 0.65% 0.65% Total return, lowest to highest/(3)/ 5.51% to 5.84% 11.99% to 12.25% 25.61% (23.70)% to (23.55)% (13.95)%
* Reflects the period from commencement of operations on May 1, 2001 through December 31, 2001.
Sub-Account ------------------------------------------------------------------------------------------- Global Bond Trust Series 1 ------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 ------------------ --------------- ---------------- ---------------- ------------------ Units, beginning of year 218,132 196,659 297,639 118,128 30,310 Units issued 195,710 233,486 389,164 348,049 113,867 Units redeemed (130,331) (212,013) (490,144) (168,538) (26,049) ------------------ --------------- ---------------- ---------------- ------------------ Units, end of year 283,511 218,132 196,659 297,639 118,128 ================== =============== ================ ================ ================== Unit value, end of year $17.39 - $18.59 $18.71 - $19.96 $17.06 - $18.14 $14.87 - $15.77 $12.45 - $13.16 Assets, end of year $5,234,432 $4,323,117 $3,463,203 $4,596,803 $1,549,796 Investment income ratio/(1)/ 4.26% 3.41% 4.35% 0.00% 0.00% Expense ratio, lowest to highest/(2)/ 0.35% to 0.70% 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)/ (7.19)% to (6.87)% 9.53% to 9.85% 14.65% to 14.94% 19.35% to 19.59% (0.12)% to (0.03)%
58 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account --------------------------------------------------------------------------------------------- Growth & Income Trust Series 1 --------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 -------------- --------------- ---------------- -------------------- -------------------- Units, beginning of year 899,801 1,151,229 1,592,866 1,605,126 1,309,646 Units issued 549,300 471,319 695,451 1,400,088 974,279 Units redeemed (595,608) (722,747) (1,137,088) (1,412,348) (678,799) -------------- --------------- ---------------- -------------------- -------------------- Units, end of year 853,493 899,801 1,151,229 1,592,866 1,605,126 ============== =============== ================ ==================== ==================== Unit value, end of year $10.66 -$19.25 $10.50 - $18.89 $9.89 - $17.73 $7.86 - $14.06 $10.44 - $18.66 Assets, end of year $15,776,383 $16,191,548 $18,310,286 $19,158,844 $26,826,511 Investment income ratio/(1)/ 1.38% 0.85% 1.02% 0.63% 0.41% Expense ratio, lowest to highest/(2)/ 0.30% to 0.70% 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)/ 1.32% to 1.72% 6.08% to 6.39% 25.77% to 26.09% (24.82)% to (24.63)% (11.85)% to (11.63)%
Sub-Account -------------------------------------------------------------------------------------- Health Sciences Trust Series 1 -------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01* ---------------- ---------------- ---------------- -------------------- ------------ Units, beginning of year 228,816 195,742 185,557 11,197 - Units issued 114,558 312,678 257,208 260,559 15,145 Units redeemed (74,492) (279,604) (247,023) (86,199) (3,948) ---------------- ---------------- ---------------- -------------------- -------- Units, end of year 268,882 228,816 195,742 185,557 11,197 ================ ================ ================ ==================== ======== Unit value, end of year $16.91 - $ 17.15 $15.11 - $ 15.28 $13.19 - $ 13.28 $9.75 - $ 9.78 $13.48 Assets, end of year $4,584,275 $3,480,512 $2,590,184 $1,810,992 $150,957 Investment income ratio/(1)/ 0.00% 0.00% 0.00% 0.00% 0.00% Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% 0.65% Total return, lowest to highest/(3)/ 11.91% to 12.25% 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. 59 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account -------------------------------------------------------------------------------------------- High Yield Trust Series 1 -------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 -------------- ---------------- ---------------- -------------------- ------------------ Units, beginning of year 747,358 699,961 536,644 395,816 298,325 Units issued 576,968 615,089 565,735 687,272 403,067 Units redeemed (299,075) (567,692) (402,418) (546,444) (305,576) -------------- ---------------- ---------------- -------------------- ------------------ Units, end of year 1,025,251 747,358 699,961 536,644 395,816 ============== ================ ================ ==================== ================== Unit value, end of year $14.12 -$16.99 $13.69 -$16.40 $12.40 - $14.80 $10.02 - $11.94 $10.82 -$12.87 Assets, end of year $16,898,635 $11,862,447 $9,989,519 $6,211,875 $4,979,952 Investment income ratio/(1)/ 5.03% 4.99% 4.84% 7.65% 8.80% Expense ratio, lowest to highest/(2)/ 0.30% to 0.70% 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)/ 2.98% to 3.39% 10.34% to 10.68% 23.65% to 23.94% (7.48)% to (7.23)% (6.09)% to (5.85)% Sub-Account -------------------------------------------------------------------------------------------- Income & Value Trust Series 1 -------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 -------------- ---------------- ---------------- -------------------- ------------------ Units, beginning of year 1,679,725 465,991 605,848 649,395 399,769 Units issued 211,726 2,010,940 357,985 747,671 426,269 Units redeemed (518,034) (797,206) (497,842) (791,218) (176,643) -------------- ---------------- ---------------- -------------------- ------------------ Units, end of year 1,373,417 1,679,725 465,991 605,848 649,395 ============== ================ ================ ==================== ================== Unit value, end of year $15.63 -$18.89 $14.94 -$18.01 $13.95 - $16.73 $11.09 - $13.28 $13.27 -$15.86 Assets, end of year $25,459,694 $29,826,597 $7,397,904 $7,497,869 $9,857,366 Investment income ratio/(1)/ 1.59% 0.53% 1.90% 2.11% 2.36% Expense ratio, lowest to highest/(2)/ 0.30% to 0.70% 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)/ 4.49% to 4.90% 6.94% to 7.33% 25.66% to 25.98% (16.48)% to (16.27)% 0.33% to 0.58%
60 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued) Sub-Account ---------------------------------- International Equity Index Trust B Series 1 ---------------------------------- Year Ended Period Ended Dec. 31/05 Dec. 31/04## ---------------- ---------------- Units, beginning of year 51,012 - Units issued 392,254 103,970 Units redeemed (99,269) (52,958) ---------------- ---------------- Units, end of year 343,997 51,012 ================ ================ Unit value, end of year $17.07 - $17.18 $14.74 - $14.77 Assets, end of year $5,895,407 $752,181 Investment income ratio/(1)/ 0.79% 0.58% Expense ratio, lowest to highest/(2)/ 0.30% to 0.70% 0.35% to 0.65% Total return, lowest to highest/(3)/ 15.80% to 16.26% 17.94% to 18.17% ## Reflects the period from commencement of operations on May 3, 2004 through December 31, 2004. Sub-Account -------------- International Opportunities Trust Series 1 -------------- Period Ended Dec. 31/05 -------------- Units, beginning of year - Units issued 1,745 Units redeemed (1,276) ------ Units, end of year 469 ====== Unit value, end of year $15.46 Assets, end of year $7,257 Investment income ratio/(1)/ 0.00% Expense ratio, lowest to highest/(2)/ 0.65% Total return, lowest to highest/(3)/ 23.71% ~ Reflects the period from commencement of operations on May 2, 2005 through December 31, 2005. 61 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account ------------------------------------------------------------------------------------------------ International Small Cap Trust Series 1 ------------------------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 ---------------- ---------------- ---------------- -------------------- -------------------- Units, beginning of year 254,360 261,096 345,552 215,989 241,469 Units issued 115,857 297,698 143,552 344,659 183,007 Units redeemed (127,304) (304,434) (228,008) (215,096) (208,487) ---------------- ---------------- ---------------- -------------------- -------------------- Units, end of year 242,913 254,360 261,096 345,552 215,989 ================ ================ ================ ==================== ==================== Unit value, end of year $13.00 - $21.03 $11.88 - $19.17 $9.86 - $15.86 $6.40 - $10.28 $7.73 - $12.36 Assets, end of year $4,994,547 $4,744,645 $3,409,121 $2,893,046 $2,355,865 Investment income ratio/(1)/ 0.86% 0.12% 0.00% 0.00% 0.00% Expense ratio, lowest to highest/(2)/ 0.35% to 0.70% 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)/ 9.34% to 9.72% 20.28% to 20.64% 53.94% to 54.34% (17.27)% to (17.10)% (31.55)% to (31.48)% Sub-Account ------------------------------------------------------------------------------------------------ International Stock Trust Series 1 ------------------------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 ---------------- ---------------- ---------------- -------------------- -------------------- Units, beginning of year 1,016,696 1,106,364 1,306,287 1,135,448 1,217,912 Units issued 375,227 334,186 431,223 1,749,658 987,073 Units redeemed (457,003) (423,854) (631,146) (1,578,819) (1,069,537) ---------------- ---------------- ---------------- -------------------- -------------------- Units, end of year 934,920 1,016,696 1,106,364 1,306,287 1,135,448 ================ ================ ================ ==================== ==================== Unit value, end of year $12.33 - $15.29 $10.69 - $13.23 $9.30 - $11.47 $ 7.18 - $8.84 $9.22 - $11.33 Assets, end of year $14,186,941 $13,368,772 $12,549,025 $11,319,824 $12,791,612 Investment income ratio/(1)/ 0.74% 0.84% 0.49% 0.45% 0.21% Expense ratio, lowest to highest/(2)/ 0.35% to 0.70% 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)/ 15.14% to 15.55% 14.84% to 15.19% 29.43% to 29.75% (22.19)% to (22.00)% (22.05)% to (21.85)%
62 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account ------------------------------------------------------------------------------------------------ International Value Trust Series 1 ------------------------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 ---------------- ---------------- ---------------- -------------------- -------------------- Units, beginning of year 534,492 451,530 225,236 200,221 153,410 Units issued 1,071,184 510,926 488,195 349,940 124,451 Units redeemed (454,515) (427,964) (261,901) (324,925) (77,640) ---------------- ---------------- ---------------- -------------------- -------------------- Units, end of year 1,151,161 534,492 451,530 225,236 200,221 ================ ================ ================ ==================== ==================== Unit value, end of year $16.70 - $ 17.40 $15.24 - $ 15.83 $12.62 - $13.09 $8.77 - $ 9.09 $10.74 - $ 11.12 Assets, end of year $19,488,615 $8,198,182 $5,780,317 $1,978,346 $2,154,783 Investment income ratio/(1)/ 0.66% 1.28% 0.67% 0.71% 1.05% Expense ratio, lowest to highest/(2)/ 0.35% to 0.70% 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)/ 9.78% to 10.15% 20.75% to 21.12% 43.91% to 44.28% (18.38)% to (18.16)% (10.56)% to (10.33)% Sub-Account ------------------------------------------------------------------------------------------------ Investment Quality Bond Trust Series 1 ------------------------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 ---------------- ---------------- ---------------- -------------------- -------------------- Units, beginning of year 1,132,045 1,159,780 1,475,664 1,255,012 1,052,039 Units issued 240,139 645,968 984,315 631,277 706,642 Units redeemed (415,576) (673,703) (1,300,199) (410,625) (503,669) ---------------- ---------------- ---------------- -------------------- -------------------- Units, end of year 956,608 1,132,045 1,159,780 1,475,664 1,255,012 ================ ================ ================ ==================== ==================== Unit value, end of year $17.79 - $20.67 $17.50 - $20.28 $16.79 - $19.39 $15.73 - $18.14 $14.38 - $16.56 Assets, end of year $19,439,556 $22,645,826 $22,161,364 $26,443,146 $20,633,935 Investment income ratio/(1)/ 5.63% 5.96% 5.40% 5.06% 5.69% Expense ratio, lowest to highest/(2)/ 0.35% to 0.70% 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)/ 1.55% to 1.91% 4.13% to 4.45% 6.63% to 6.89% 9.22% to 9.50% 6.63% to 6.90%
63 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued) Sub-Account --------------- Large Cap Trust Series 1 --------------- Period Ended Dec. 31/05~ --------------- Units, beginning of year - Units issued 304 Units redeemed (15) ------ Units, end of year 289 ====== Unit value, end of year $13.90 Assets, end of year $4,019 Investment income ratio/(1)/ 0.00% Expense ratio, lowest to highest/(2)/ 0.65% Total return, lowest to highest/(3)/ 11.22% ~ Reflects the period from commencement of operations on May 2, 2005 through December 31, 2005.
Sub-Account ------------------------------------------------------------------------------------------------ Large Cap Growth Trust Series 1 ------------------------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 ------------------ -------------- ---------------- -------------------- -------------------- Units, beginning of year 561,612 621,936 797,344 583,261 457,838 Units issued 180,956 613,074 486,197 655,691 435,680 Units redeemed (238,061) (673,398) (661,605) (441,608) (310,257) ------------------ -------------- ---------------- -------------------- -------------------- Units, end of year 504,507 561,612 621,936 797,344 583,261 ================== ============== ================ ==================== ==================== Unit value, end of year $9.46 - $13.41 $9.49 - $13.42 $8.99 - $12.67 $7.21 - $10.15 $9.39 - $13.17 Assets, end of year $6,534,293 $7,321,297 $7,142,200 $7,640,972 $7,423,884 Investment income ratio/(1)/ 0.70% 0.29% 0.28% 0.32% 0.00% Expense ratio, lowest to highest/(2)/ 0.35% to 0.70% 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)/ (0.45)% to (0.10)% 5.49% to 5.80% 24.51% to 24.82% (23.33)% to (23.14)% (18.35)% to (18.14)%
64 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account ---------------------------------------------------- Large Cap Value Trust Series 1 ---------------- Year Ended Year Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/03^ ---------------- ---------------- ---------------- Units, beginning of year 74,430 83,191 - Units issued 144,010 156,448 83,839 Units redeemed (44,316) (165,209) (648) ---------------- ---------------- ---------------- Units, end of year 174,124 74,430 83,191 ================ ================ ================ Unit value, end of year $22.06 - $22.24 $19.23 - $19.32 $15.89 - $15.91 Assets, end of year $3,866,266 $1,435,901 $1,322,947 Investment income ratio/(1)/ 0.00% 1.43% 0.00% Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.35% to 0.65% 0.40% to 0.65% Total return, lowest to highest/(3)/ 14.74% to 15.08% 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 Series 1 ------------------------------------------------------------------------------------- Year Year Ended Year Ended Year Ended Year Ended Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 ---------------- ---------------- ---------------- -------------------- ---------- Units, beginning of year 305,615 73,758 38,262 47,093 42,247 Units issued 63,954 350,315 46,257 10,408 30,690 Units redeemed (53,139) (118,458) (10,761) (19,239) (25,844) ---------------- ---------------- ---------------- -------------------- -------- Units, end of year 316,430 305,615 73,758 38,262 47,093 ================ ================ ================ ==================== ======== Unit value, end of year $14.65 - $ 18.58 $13.31 - $ 16.86 $11.53 - $14.53 $8.60 - $10.82 $13.68 Assets, end of year $5,802,326 $5,093,275 $1,038,282 $412,158 $644,205 Investment income ratio/(1)/ 1.79% 0.78% 0.35% 0.81% 4.05% Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.35% to 0.65% 0.45% to 0.65% 0.45% to 0.65% 0.65% Total return, lowest to highest/(3)/ 9.92% to 10.25% 15.30% to 15.66% 34.04% to 34.31% (21.23)% to (21.06)% (14.23)%
65 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account -------------------------------------------------------------------------------------------- Lifestyle Balanced 640 Trust Series 1 -------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 -------------- ---------------- ---------------- -------------------- ------------------ Units, beginning of year 914,120 805,068 549,847 385,225 231,860 Units issued 282,338 639,365 354,757 502,066 269,321 Units redeemed (261,873) (530,313) (99,536) (337,444) (115,956) -------------- ---------------- ---------------- -------------------- ------------------ Units, end of year 934,585 914,120 805,068 549,847 385,225 ============== ================ ================ ==================== ================== Unit value, end of year $16.60 -$21.26 $15.62 - $19.96 $13.84 - $17.62 $11.22 - $14.27 $12.53 - $15.90 Assets, end of year $19,581,681 $18,039,138 $13,798,701 $7,802,640 $6,058,824 Investment income ratio/(1)/ 3.96% 2.05% 2.30% 3.49% 4.97% Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 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)/ 6.20% to 6.51% 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 Series 1 -------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 -------------- ---------------- ---------------- -------------------- ------------------ Units, beginning of year 268,947 268,987 198,190 220,989 17,741 Units issued 55,265 280,449 176,092 177,049 223,911 Units redeemed (39,291) (280,489) (105,295) (199,848) (20,663) -------------- ---------------- ---------------- -------------------- ------------------ Units, end of year 284,921 268,947 268,987 198,190 220,989 ============== ================ ================ ==================== ================== Unit value, end of year $17.13 -$21.23 $16.74 - $20.76 $15.50 - $19.16 $13.97 - $17.22 $13.81 - $16.98 Assets, end of year $5,962,323 $5,504,364 $5,025,582 $3,398,476 $3,748,192 Investment income ratio/(1)/ 5.00% 3.76% 3.54% 3.26% 1.32% Expense ratio, lowest to highest/(2)/ 0.40% to 0.65% 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)/ 2.22% to 2.48% 7.88% to 8.21% 10.83% to 11.10% 1.06% to 1.26% 2.56% to 2.66%
66 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account -------------------------------------------------------------------------------------------- Lifestyle Growth 820 Trust Series 1 -------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 -------------- ---------------- ---------------- -------------------- ------------------ Units, beginning of year 417,608 178,824 93,184 87,349 91,321 Units issued 130,964 368,911 120,911 76,636 52,084 Units redeemed (132,081) (130,127) (35,271) (70,801) (56,056) -------------- ---------------- ---------------- -------------------- ------------------ Units, end of year 416,491 417,608 178,824 93,184 87,349 ============== ================ ================ ==================== ================== Unit value, end of year $15.44 -$20.26 $14.28 - $18.71 $12.53 - $16.33 $9.73 - $12.66 $11.62 - $15.11 Assets, end of year $8,315,803 $7,721,710 $2,875,199 $1,173,670 $1,316,120 Investment income ratio/(1)/ 2.70% 1.39% 1.02% 2.04% 5.20% Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 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)/ 7.96% to 8.28% 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 Series 1 -------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 -------------- ---------------- ---------------- -------------------- ------------------ Units, beginning of year 170,770 105,262 58,209 53,694 19,785 Units issued 66,570 170,447 136,503 41,924 90,551 Units redeemed (93,483) (104,939) (89,450) (37,409) (56,642) -------------- ---------------- ---------------- -------------------- ------------------ Units, end of year 143,857 170,770 105,262 58,209 53,694 ============== ================ ================ ==================== ================== Unit value, end of year $16.60 -$21.22 $16.03 - $20.45 $14.51 - $18.45 $12.39 - $15.71 $12.98 - $16.41 Assets, end of year $3,008,972 $3,447,752 $1,819,243 $904,445 $817,107 Investment income ratio/(1)/ 4.03% 2.62% 2.75% 2.98% 6.33% Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 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)/ 3.48% to 3.79% 10.32% to 10.65% 17.06% to 17.35% (4.66)% to (4.47)% (1.74)% to (1.63)%
67 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account -------------------------------------------------- Mid Cap Core Trust Series 1 -------------------------------------------------- Year Ended Year Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/03^ -------------- ---------------- ---------------- Units, beginning of year 33,843 3,038 - Units issued 90,564 61,571 5,520 Units redeemed (79,189) (30,766) (2,482) -------------- ---------------- ---------------- Units, end of year 45,218 33,843 3,038 ============== ================ ================ Unit value, end of year $18.28 -$18.42 $17.33 - $17.40 $15.26 - $15.27 Assets, end of year $829,349 $587,434 $46,343 Investment income ratio/(1)/ 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% Total return, lowest to highest/(3)/ 5.50% to 5.81% 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 Series 1 ---------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 ---------------- ---------------- ---------------- -------------------- ------------------ Units, beginning of year 411,020 253,416 151,140 80,845 18,407 Units issued 329,260 459,051 275,299 140,757 94,158 Units redeemed (410,854) (301,447) (173,023) (70,462) (31,720) ---------------- ---------------- ---------------- -------------------- ------------------ Units, end of year 329,426 411,020 253,416 151,140 80,845 ================ ================ ================ ==================== ================== Unit value, end of year $18.74 - $19.08 $16.88 - $17.09 $14.67 - $14.78 $10.97 - $11.02 $13.02 - $13.04 Assets, end of year $6,231,380 $6,984,470 $3,729,877 $1,659,979 $1,052,814 Investment income ratio/(1)/ 0.76% 0.34% 0.00% 0.67% 1.68% Expense ratio, lowest to highest/(2)/ 0.35% to 0.70% 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)/ 11.24% to 11.63% 15.08% to 15.43% 33.70% to 34.03% (15.71)% to (15.54)% (2.38)% to (2.27)%
68 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account ------------------------------------------------------------------------------------------------ Mid Cap Stock Trust Series 1 ------------------------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 ---------------- ---------------- ---------------- -------------------- -------------------- Units, beginning of year 1,191,214 439,064 157,865 72,047 31,783 Units issued 832,322 1,709,693 463,180 226,721 68,876 Units redeemed (1,180,618) (957,543) (181,981) (140,903) (28,612) ---------------- ---------------- ---------------- -------------------- -------------------- Units, end of year 842,918 1,191,214 439,064 157,865 72,047 ================ ================ ================ ==================== ==================== Unit value, end of year $15.46 - $ 16.45 $13.62 - $ 14.44 $11.52 - $ 12.20 $8.14 - $ 8.62 $10.59 - $ 11.19 Assets, end of year $13,361,473 $16,362,126 $5,169,749 $1,286,585 $762,884 Investment income ratio/(1)/ 0.00% 0.00% 0.00% 0.00% 0.00% Expense ratio, lowest to highest/(2)/ 0.30% to 0.70% 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)/ 13.77% to 14.23% 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 Series 1 --------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01* ---------------- ---------------- ---------------- -------------------- ------------ Units, beginning of year 753,501 445,032 376,737 10,285 - Units issued 1,329,000 675,227 383,482 701,062 10,527 Units redeemed (425,653) (366,758) (315,187) (334,610) (242) ---------------- ---------------- ---------------- -------------------- -------- Units, end of year 1,656,848 753,501 445,032 376,737 10,285 ================ ================ ================ ==================== ======== Unit value, end of year $19.24 - $ 19.55 $17.93 - $ 18.12 $14.50 - $ 14.59 $11.64 - $ 11.68 $13.03 Assets, end of year $32,162,303 $13,585,575 $6,473,940 $4,392,977 $134,052 Investment income ratio/(1)/ 0.38% 0.49% 0.36% 0.00% 0.37% Expense ratio, lowest to highest/(2)/ 0.30% to 0.65% 0.35% to 0.65% 0.40% to 0.65% 0.45% to 0.65% 0.65% Total return, lowest to highest/(3)/ 7.31% to 7.68% 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. 69 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account --------------------------------------------------------------------------------------- Money Market Trust Series 1 --------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 ---------------- ---------------- ---------------- --------------- ---------------- Units, beginning of year 2,174,205 2,120,159 2,245,118 2,216,771 2,375,556 Units issued 2,639,719 2,342,246 2,995,349 3,641,306 2,060,563 Units redeemed (2,027,891) (2,288,200) (3,120,308) (3,612,959) (2,219,348) ---------------- ---------------- ---------------- --------------- ---------------- Units, end of year 2,786,033 2,174,205 2,120,159 2,245,118 2,216,771 ================ ================ ================ =============== ================ Unit value, end of year $14.04 - $ 19.65 $13.75 - $ 19.21 $13.71 - $19.09 $13.71 - $19.06 $13.63 - $ 18.91 Assets, end of year $52,697,960 $40,361,843 $38,888,983 $41,461,920 $40,817,893 Investment income ratio/(1)/ 2.66% 0.81% 0.58% 1.18% 3.59% Expense ratio, lowest to highest/(2)/ 0.35% to 0.70% 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)/ 1.95% to 2.31% 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 Series 1 ---------------------------------------------------- Year Ended Year Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/03^ ---------------- ---------------- ---------------- Units, beginning of year 88,358 62,308 - Units issued 197,987 108,859 66,429 Units redeemed (124,886) (82,809) (4,121) ---------------- ---------------- ---------------- Units, end of year 161,459 88,358 62,308 ================ ================ ================ Unit value, end of year $32.28 - $ 32.54 $22.14 - $22.24 $17.92 - $ 17.95 Assets, end of year $5,240,454 $1,963,833 $1,117,564 Investment income ratio/(1)/ 0.00% 0.07% 0.00% Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.35% to 0.65% 0.40% to 0.65% Total return, lowest to highest/(3)/ 45.82% to 46.26% 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. 70 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account -------------------------------------------------------------------------------------------------- Overseas Trust Series 1 -------------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05** Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 ------------------ ---------------- ---------------- -------------------- -------------------- Units, beginning of year 444,191 434,997 460,570 296,994 223,097 Units issued 79,709 401,096 344,726 324,701 249,901 Units redeemed (523,900) (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 $11.01 - $ 14.38 $11.33 - $ 14.79 $10.19 - $13.26 $7.13 - $ 9.24 $9.12 - $11.80 Assets, end of year $0 $6,016,023 $5,016,704 $3,693,821 $3,057,649 Investment income ratio/(1)/ 0.44% 0.37% 0.46% 0.52% 0.27% Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 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)/ (2.90)% to (2.80)% 11.07% to 11.40% 42.90% to 43.25% (21.95)% to (21.79)% (21.61)% to (21.53)%
** Terminated as an investment option and funds transferred to International Value Trust Series 1 on May 2, 2005.
Sub-Account ------------------------------------------------------------------------------------------------ Pacific Rim Trust Series 1 ------------------------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 ---------------- ---------------- ---------------- -------------------- -------------------- Units, beginning of year 592,545 487,239 500,442 569,972 595,097 Units issued 242,075 502,648 494,143 429,620 343,573 Units redeemed (271,935) (397,342) (507,346) (499,150) (368,698) ---------------- ---------------- ---------------- -------------------- -------------------- Units, end of year 562,685 592,545 487,239 500,442 569,972 ================ ================ ================ ==================== ==================== Unit value, end of year $12.20 - $ 15.01 $9.79 - $ 9.91 $8.43 - $10.32 $6.03 - $ 7.38 $6.94 - $8.48 Assets, end of year $6,929,233 $5,836,323 $4,250,322 $3,100,984 $3,999,341 Investment income ratio/(1)/ 0.86% 0.65% 0.19% 0.12% 0.41% Expense ratio, lowest to highest/(2)/ 0.35% to 0.70% 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)/ 24.89% to 25.32% 16.14% to 16.50% 39.81% to 40.16% (13.09)% to (12.92)% (19.10)% to (19.03)%
71 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account --------------------------------- Quantitative All Cap Trust Series 1 --------------------------------- Year Ended Period Ended Dec. 31/05 Dec. 31/04## --------------- ---------------- Units, beginning of year 164 - Units issued 3,081 1,784 Units redeemed (1,533) (1,620) --------------- ---------------- Units, end of year 1,712 164 =============== ================ Unit value, end of year $19.08 - $19.18 $17.69 - $ 17.75 Assets, end of year $32,673 $2,916 Investment income ratio/(1)/ 3.08% 1.30% Expense ratio, lowest to highest/(2)/ 0.45% to 0.65% 0.45% to 0.65% Total return, lowest to highest/(3)/ 7.88% to 8.10% 14.16% to 14.39%
## Reflects the period from commencement of operations on May 3, 2004 through December 31, 2004.
Sub-Account -------------------------------------------------------------------------- Quantitative Mid Cap Trust Series 1 -------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02++ ---------------- ---------------- ---------------- -------------------- Units, beginning of year 31,203 14,437 1,039 - Units issued 9,698 41,021 27,939 6,248 Units redeemed (6,798) (24,255) (14,541) (5,209) ---------------- ---------------- ---------------- -------------------- Units, end of year 34,103 31,203 14,437 1,039 ================ ================ ================ ==================== Unit value, end of year $14.24 - $ 14.44 $12.62 - $ 12.71 $10.74 - $10.80 $7.80 - $ 7.83 Assets, end of year $487,068 $394,385 $155,204 $8,139 Investment income ratio/(1)/ 0.00% 0.00% 0.00% 0.00% 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)/ 12.89% to 13.23% 17.44% to 17.67% 37.65% to 37.92% (23.15)% to (22.99)%
++ Fund available in prior year but not active. 72 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account ------------------ Quantitative Value Trust Series 1 ------------------ Period Ended Dec. 31/05++ ------------------ Units, beginning of year - Units issued 1,072 Units redeemed (1,072) ------- Units, end of year - ======= Unit value, end of year $ 15.85 Assets, end of year $ 0 Investment income ratio/(1)/ 0.00% Expense ratio, lowest to highest/(2)/ 0.65% Total return, lowest to highest/(3)/ 8.48%
++ Fund available in prior year but not active.
Sub-Account ---------------------------------------------------------------------------------------- Real Estate Securities Trust Series 1 ---------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 ---------------- ---------------- ---------------- ---------------- ---------------- Units, beginning of year 511,509 445,289 572,990 495,247 433,589 Units issued 132,415 359,425 190,483 458,746 197,124 Units redeemed (170,941) (293,205) (318,184) (381,003) (135,466) ---------------- ---------------- ---------------- ---------------- ---------------- Units, end of year 472,983 511,509 445,289 572,990 495,247 ================ ================ ================ ================ ================ Unit value, end of year $32.99 - $ 85.23 $29.65 - $ 76.43 $22.58 - $ 57.88 $16.32 - $ 41.77 $15.99 - $ 40.88 Assets, end of year $39,627,992 $38,437,806 $24,344,448 $22,348,452 $19,809,218 Investment income ratio/(1)/ 1.96% 2.36% 2.98% 3.12% 3.12% Expense ratio, lowest to highest/(2)/ 0.30% to 0.70% 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)/ 11.07% to 11.52% 31.18% to 31.64% 38.24% to 38.59% 1.92% to 2.17% 2.48% to 2.74%
73 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account ------------------------------------------------------ Real Return Bond Trust Series 1 ------------------------------------------------------ Year Ended Year Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/03^ ----------------- ---------------- ----------------- Units, beginning of year 111,729 5,873 - Units issued 85,239 262,524 133,583 Units redeemed (80,459) (156,668) (127,710) ----------------- ---------------- ----------------- Units, end of year 116,509 111,729 5,873 ================= ================ ================= Unit value, end of year $14.25 - $ 14.37 $14.14 - $14.22 $13.05 - $ 13.07 Assets, end of year $ 1,669,468 $ 1,584,831 $ 76,663 Investment income ratio/(1)/ 0.00% 0.49% 0.00% Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% 0.35% to 0.65% 0.45% to 0.65% Total return, lowest to highest/(3)/ 0.78% to 1.09% 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 Series 1 ---------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 --------------- --------------- ---------------- -------------------- -------------------- Units, beginning of year 2,513,425 2,816,080 2,889,535 2,589,114 1,857,203 Units issued 687,432 2,720,294 2,001,149 2,806,957 2,876,612 Units redeemed (1,472,737) (3,022,949) (2,074,604) (2,506,536) (2,144,701) --------------- --------------- ---------------- -------------------- -------------------- Units, end of year 1,728,120 2,513,425 2,816,080 2,889,535 2,589,114 =============== =============== ================ ==================== ==================== Unit value, end of year $5.16 - $ 13.74 $5.08 - $ 13.50 $5.06 - $ 13.38 $3.39 - $ 8.94 $5.75 - $ 15.15 Assets, end of year $20,287,236 $30,223,103 $26,154,570 $18,853,376 $29,690,730 Investment income ratio/(1)/ 0.00% 0.00% 0.00% 0.00% 0.00% Expense ratio, lowest to highest/(2)/ 0.30% to 0.70% 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)/ 1.37% to 1.78% 0.22% to 0.58% 49.43% to 49.79% (41.15)% to (41.00)% (41.63)% to (41.49)%
74 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account ----------------- Small Cap Trust Series 1 ----------------- Period Ended Dec. 31/05~ ----------------- Units, beginning of year - Units issued 1,696 Units redeemed (500) ----------------- Units, end of year 1,196 ================= Unit value, end of year $14.24 - $ 14.26 Assets, end of year $ 17,031 Investment income ratio/(1)/ 0.00% Expense ratio, lowest to highest/(2)/ 0.45% to 0.65% Total return, lowest to highest/(3)/ 13.92% to 14.06%
~ Reflects the period from commencement of operations on May 2, 2005 through December 31, 2005.
Sub-Account ------------------------------------------------------------------------------------------- Small Cap Index Trust Series 1 ------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 ---------------- ---------------- ---------------- -------------------- --------------- Units, beginning of year 453,968 162,048 226,973 58,468 3,750 Units issued 454,316 586,135 280,118 325,076 104,968 Units redeemed (179,865) (294,215) (345,043) (156,571) (50,250) ---------------- ---------------- ---------------- -------------------- --------------- Units, end of year 728,419 453,968 162,048 226,973 58,468 ================ ================ ================ ==================== =============== Unit value, end of year $15.94 - $ 16.25 $15.48 - $ 15.66 $13.28 - $ 13.38 $9.17 - $ 9.21 $11.75 -$ 11.77 Assets, end of year $11,739,024 $7,067,046 $2,159,093 $2,085,303 $687,114 Investment income ratio/(1)/ 0.53% 0.34% 0.00% 1.05% 5.76% Expense ratio, lowest to highest/(2)/ 0.30% to 0.70% 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)/ 3.16% to 3.58% 16.56% to 16.92% 44.85% to 45.20% (21.98)% to (21.79)% 0.85% to 0.94%
75 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account --------------------------------------------------- Small Cap Opportunities Trust Series 1 --------------------------------------------------- Year Ended Year Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/03^ --------------- ---------------- ---------------- Units, beginning of year 74,332 28,153 - Units issued 314,871 98,813 32,131 Units redeemed (132,692) (52,634) (3,978) --------------- ---------------- ---------------- Units, end of year 256,511 74,332 28,153 =============== ================ ================ Unit value, end of year $23.28 -$ 23.53 $21.77 - $21.88 $17.43 - $ 17.45 Assets, end of year $6,011,042 $1,625,557 $491,037 Investment income ratio/(1)/ 0.00% 0.03% 0.00% Expense ratio, lowest to highest/(2)/ 0.30% to 0.70% 0.35% to 0.65% 0.40% to 0.65% Total return, lowest to highest/(3)/ 7.02% to 7.45% 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.
Sub-Account ------------------- Small Company Trust Series 1 ------------------- Period Ended Dec. 31/05++ ------------------- Units, beginning of year - Units issued 10,254 Units redeemed (7,514) --------------- Units, end of year 2,740 =============== Unit value, end of year $16.01 - $16.06 Assets, end of year $43,967 Investment income ratio/(1)/ 0.00% Expense ratio, lowest to highest/(2)/ 0.45% to 0.65% Total return, lowest to highest/(3)/ 5.63% to 5.84%
++ Fund available in prior year but not active. 76 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account ------------------------------------------------------------------------------------------------- Small Company Blend Trust Series 1 ------------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05** Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 -------------------- --------------- ---------------- -------------------- ------------------ Units, beginning of year 120,304 269,799 262,861 259,656 105,856 Units issued 152,385 97,890 216,346 475,065 237,942 Units redeemed (272,689) (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 $10.53 - $ 12.11 $11.95 -$ 13.65 $11.21 - $12.79 $8.07 - $ 9.20 $10.89 - $ 12.39 Assets, end of year $0 $1,624,586 $3,332,298 $2,353,394 $3,178,735 Investment income ratio/(1)/ 0.00% 0.00% 0.00% 0.20% 0.00% Expense ratio, lowest to highest/(2)/ 0.30% to 0.65% 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)/ (11.89)% to (11.79)% 6.51% to 6.71% 38.79% to 39.08% (26.04)% to (25.89)% (2.94)% to (2.84)%
** Terminated as an investment option and funds transferred to Small Cap Opportunities Trust Series 1 on May 2, 2005.
Sub-Account ---------------------------------------------------------------------------------------- Small Company Value Trust Series 1 ---------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 --------------- ---------------- ---------------- ------------------ --------------- Units, beginning of year 1,525,817 1,151,115 1,194,763 521,854 255,050 Units issued 766,171 1,166,644 1,030,795 1,822,893 529,457 Units redeemed (757,814) (791,942) (1,074,443) (1,149,984) (262,653) --------------- ---------------- ---------------- ------------------ --------------- Units, end of year 1,534,174 1,525,817 1,151,115 1,194,763 521,854 =============== ================ ================ ================== =============== Unit value, end of year $16.62 -$ 24.78 $15.67 - $ 23.28 $12.60 - $ 18.70 $9.49 - $ 14.07 $10.15 -$ 15.03 Assets, end of year $26,095,828 $24,396,927 $15,104,792 $11,607,392 $5,349,826 Investment income ratio/(1)/ 0.27% 0.15% 0.44% 0.25% 0.18% Expense ratio, lowest to highest/(2)/ 0.35% to 0.70% 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)/ 6.29% to 6.66% 24.38% to 24.76% 32.81% to 33.12% (6.53)% to (6.30)% 5.85% to 6.11%
77 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account ---------------------------------------------- Special Value Trust Series 1 ---------------------------------------------- Year Ended Year Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/03^ --------------- ---------------- ------------ Units, beginning of year 11,949 10,527 - Units issued 5,903 3,178 20,755 Units redeemed (2,247) (1,756) (10,228) --------------- ---------------- -------- Units, end of year 15,605 11,949 10,527 =============== ================ ======== Unit value, end of year $19.74 -$ 19.84 $18.81 - $18.87 $15.77 Assets, end of year $309,231 $225,420 $166,036 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% Total return, lowest to highest/(3)/ 4.92% to 5.13% 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 Series 1 ------------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 --------------- --------------- ---------------- --------------- --------------- Units, beginning of year 238,775 169,132 221,458 183,559 69,600 Units issued 176,347 290,490 397,326 428,880 204,490 Units redeemed (161,901) (220,847) (449,652) (390,981) (90,531) --------------- --------------- ---------------- --------------- --------------- Units, end of year 253,221 238,775 169,132 221,458 183,559 =============== =============== ================ =============== =============== Unit value, end of year $18.71 -$ 20.86 $18.32 -$ 20.38 $17.27 - $ 19.15 $15.36 -$ 16.98 $14.17 -$ 15.62 Assets, end of year $5,217,823 $4,821,612 $3,179,959 $3,701,587 $2,855,362 Investment income ratio/(1)/ 2.48% 3.88% 6.69% 5.15% 4.49% Expense ratio, lowest to highest/(2)/ 0.35% to 0.70% 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)/ 1.98% to 2.34% 5.98% to 6.29% 12.38% to 12.66% 8.25% to 8.47% 5.55% to 5.66%
78 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account ---------------------------------------------------------------------------------------- Strategic Growth Trust Series 1 ---------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Period Ended Dec. 31/05** Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01* ------------------ --------------- ---------------- -------------------- ------------ Units, beginning of year 98,717 153,437 123,666 68,964 - Units issued 10,748 117,728 109,988 335,268 69,524 Units redeemed (109,465) (172,448) (80,217) (280,566) (560) ------------------ --------------- ---------------- -------------------- -------- Units, end of year - 98,717 153,437 123,666 68,964 ================== =============== ================ ==================== ======== Unit value, end of year $9.88 - $ 9.97 $10.47 - $10.56 $9.89 - $9.95 $7.85 - $ 7.88 $10.97 Assets, end of year $0 $1,039,479 $1,522,884 $972,517 $756,713 Investment income ratio/(1)/ 0.00% 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% 0.40% to 0.65% 0.65% Total return, lowest to highest/(3)/ (5.66)% to (5.58)% 5.87% to 6.14% 26.04% to 26.35% (28.50)% to (28.33)% (12.22)%
** Terminated as an investment option and funds transferred to U.S. Global Leaders Growth Trust Series 1 on May 2, 2005. * Reflects the period from commencement of operations on May 1, 2001 through December 31, 2001.
Sub-Account --------------------------------- Strategic Income Trust Series 1 --------------------------------- Year Ended Period Ended Dec. 31/05 Dec. 31/04## --------------- ---------------- Units, beginning of year 2,225 - Units issued 90,668 2,246 Units redeemed (14,889) (21) --------------- ---------------- Units, end of year 78,004 2,225 =============== ================ Unit value, end of year $13.78 - $13.82 $13.56 - $ 13.57 Assets, end of year $1,075,257 $30,167 Investment income ratio/(1)/ 12.20% 6.19% Expense ratio, lowest to highest/(2)/ 0.45% to 0.65% 0.45% to 0.65% Total return, lowest to highest/(3)/ 1.64% to 1.81% 8.46% to 8.60%
## Reflects the period from commencement of operations on May 3, 2004 through December 31, 2004. 79 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account ----------------------------------------------------------------------------------------------- Strategic Opportunities Trust Series 1 ----------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 --------------- ---------------- ---------------- -------------------- -------------------- Units, beginning of year 396,663 588,318 895,938 706,044 863,681 Units issued 146,665 299,516 493,480 804,779 529,543 Units redeemed (153,715) (491,171) (801,100) (614,885) (687,180) --------------- ---------------- ---------------- -------------------- -------------------- Units, end of year 389,613 396,663 588,318 895,938 706,044 =============== ================ ================ ==================== ==================== Unit value, end of year $10.01 -$ 13.59 $9.17 - $12.43 $8.21 - $11.09 $6.56 - $ 8.84 $10.77 - $ 14.47 Assets, end of year $5,106,599 $4,732,242 $5,962,880 $7,208,068 $9,806,062 Investment income ratio/(1)/ 0.40% 0.09% 0.00% 0.00% 0.51% Expense ratio, lowest to highest/(2)/ 0.35% to 0.70% 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)/ 8.96% to 9.34% 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 Series 1 -------------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01* ------------------ ---------------- ---------------- -------------------- -------------------- Units, beginning of year 71,614 235,464 34,516 9,069 - Units issued 328,718 79,793 211,670 29,192 9,089 Units redeemed (392,725) (243,643) (10,722) (3,745) (20) ------------------ ---------------- ---------------- -------------------- -------------------- Units, end of year 7,607 71,614 235,464 34,516 9,069 ================== ================ ================ ==================== ==================== Unit value, end of year $11.45 - $ 11.61 $11.56 - $11.66 $9.86 - $9.93 $7.71 - $ 7.73 $10.65 - $ 10.67 Assets, end of year $87,168 $832,892 $2,330,657 $266,768 $96,738 Investment income ratio/(1)/ 0.11% 0.25% 0.01% 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% 0.45% to 0.65% 0.45% to 0.65% Total return, lowest to highest/(3)/ (0.94)% to (0.64)% 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. 80 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account ------------------------------------------------------------------------------------------------ Total Return Trust Series 1 ------------------------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 ---------------- ---------------- ---------------- -------------------- -------------------- Units, beginning of year 2,833,935 2,319,152 2,315,832 1,419,177 340,762 Units issued 1,121,316 2,668,560 1,537,006 3,545,219 1,361,346 Units redeemed (1,569,470) (2,153,777) (1,533,686) (2,648,564) (282,931) ---------------- ---------------- ---------------- -------------------- -------------------- Units, end of year 2,385,781 2,833,935 2,319,152 2,315,832 1,419,177 ================ ================ ================ ==================== ==================== Unit value, end of year $17.56 - $ 17.92 $17.28 - $ 17.53 $16.57 - $ 16.70 $15.89 - $ 15.97 $14.60 - $ 14.65 Assets, end of year $42,371,818 $49,394,073 $38,643,292 $36,916,915 $20,755,404 Investment income ratio/(1)/ 2.49% 3.71% 2.77% 2.58% 2.22% Expense ratio, lowest to highest/(2)/ 0.30% to 0.70% 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)/ 1.76% to 2.17% 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 Series 1 ------------------------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 ---------------- ---------------- ---------------- -------------------- -------------------- Units, beginning of year 230,903 371,604 181,207 309,502 118,184 Units issued 313,142 405,051 467,766 327,720 302,834 Units redeemed (220,046) (545,752) (277,369) (456,015) (111,516) ---------------- ---------------- ---------------- -------------------- -------------------- Units, end of year 323,999 230,903 371,604 181,207 309,502 ================ ================ ================ ==================== ==================== Unit value, end of year $11.62 - $ 11.83 $11.10 - $ 11.23 $9.99 - $ 10.07 $7.71 - $ 7.74 $9.85 - $ 9.87 Assets, end of year $3,807,527 $2,572,128 $3,719,559 $1,397,047 $3,050,162 Investment income ratio/(1)/ 0.99% 0.73% 0.00% 0.42% 1.20% Expense ratio, lowest to highest/(2)/ 0.35% to 0.70% 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)/ 4.96% to 5.32% 11.02% to 11.35% 29.69% to 30.02% (21.80)% to (21.65)% (11.99)% to (11.90)%
81 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account --------------------- U.S. Global Leaders Growth Trust Series 1 --------------------- Period Ended Dec. 31/05++ --------------------- Units, beginning of year - Units issued 104,006 Units redeemed (20,826) --------------- Units, end of year 83,180 =============== Unit value, end of year $13.20 - $13.27 Assets, end of year $1,100,951 Investment income ratio/(1)/ 0.24% Expense ratio, lowest to highest/(2)/ 0.35% to 0.65% Total return, lowest to highest/(3)/ 0.22% to 0.52%
++ Fund available in prior year but not active.
Sub-Account ----------------------------------------------------------------------------------- U.S. Government Securities Trust Series 1 ----------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 ---------------- --------------- ---------------- ---------------- ---------------- Units, beginning of year 541,692 595,722 1,081,467 719,661 199,345 Units issued 404,113 625,354 950,497 1,334,914 694,784 Units redeemed (296,260) (679,384) (1,436,242) (973,108) (174,468) ---------------- --------------- ---------------- ---------------- ---------------- Units, end of year 649,545 541,692 595,722 1,081,467 719,661 ================ =============== ================ ================ ================ Unit value, end of year $15.18 - $ 16.32 $15.08 -$ 16.15 $14.76 - $ 15.78 $14.60 - $ 15.59 $13.61 - $ 14.52 Assets, end of year $9,984,112 $8,245,778 $8,887,862 $16,062,944 $9,992,662 Investment income ratio/(1)/ 1.72% 1.95% 4.00% 3.29% 4.63% Expense ratio, lowest to highest/(2)/ 0.35% to 0.70% 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)/ 0.87% to 1.24% 2.21% to 2.54% 1.07% to 1.32% 7.30% to 7.56% 6.33% to 6.55%
82 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account -------------------------------------------------------------------------------------------- U.S. Large Cap Trust Series 1 -------------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 --------------- --------------- ---------------- -------------------- ------------------ Units, beginning of year 1,640,031 284,605 268,376 277,574 157,692 Units issued 430,513 1,930,714 230,093 443,269 379,250 Units redeemed (515,145) (575,288) (213,864) (452,467) (259,368) --------------- --------------- ---------------- -------------------- ------------------ Units, end of year 1,555,399 1,640,031 284,605 268,376 277,574 =============== =============== ================ ==================== ================== Unit value, end of year $14.58 -$ 14.84 $13.91 -$ 14.07 $12.79 - $12.89 $9.38 - $ 9.44 $12.61 - $ 12.66 Assets, end of year $22,779,517 $22,836,763 $3,646,301 $2,521,529 $3,505,205 Investment income ratio/(1)/ 0.43% 0.09% 0.39% 0.36% 0.27% Expense ratio, lowest to highest/(2)/ 0.35% to 0.70% 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)/ 5.08% to 5.45% 8.68% to 9.01% 36.17% to 36.52% (25.67)% to (25.49)% (3.18)% to (2.98)%
Sub-Account --------------------------------------------------------------------------------------- Utilities Trust Series 1 --------------------------------------------------------------------------------------- Year Ended Year Ended Year Ended Year Ended Period Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01* ---------------- ---------------- ---------------- -------------------- ------------ Units, beginning of year 40,217 12,829 4,043 5,383 - Units issued 154,202 57,841 34,544 12,660 5,433 Units redeemed (39,609) (30,453) (25,758) (14,000) (50) ---------------- ---------------- ---------------- -------------------- ------- Units, end of year 154,810 40,217 12,829 4,043 5,383 ================ ================ ================ ==================== ======= Unit value, end of year $14.10 - $ 14.30 $12.15 - $ 12.26 $9.45 - $ 9.50 $7.07 - $ 7.09 $9.31 Assets, end of year $2,200,446 $489,462 $121,451 $28,615 $50,102 Investment income ratio/(1)/ 0.39% 0.54% 0.56% 0.01% 0.73% 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% 0.65% Total return, lowest to highest/(3)/ 16.07% to 16.41% 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. 83 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 6. Financial Highlights (continued)
Sub-Account ------------------------------------------------------------------------------------------ Value Trust Series 1 ------------------------------------------------------------------------------------------ Year Ended Year Ended Year Ended Year Ended Year Ended Dec. 31/05 Dec. 31/04 Dec. 31/03 Dec. 31/02 Dec. 31/01 ---------------- ---------------- ---------------- -------------------- -------------- Units, beginning of year 1,080,759 720,769 715,767 700,592 281,401 Units issued 208,115 1,280,008 639,080 622,576 639,311 Units redeemed (866,730) (920,018) (634,078) (607,401) (220,120) ---------------- ---------------- ---------------- -------------------- -------------- Units, end of year 422,144 1,080,759 720,769 715,767 700,592 ================ ================ ================ ==================== ============== Unit value, end of year $15.42 - $ $20.94 - $ 23.77 $18.71 - $ 21.18 $16.33 - $ 18.39 $11.84 - $ 13.31 17.26 Assets, end of year $9,906,015 $22,720,877 $12,699,749 $9,377,558 $11,984,303 Investment income ratio/(1)/ 0.55% 0.53% 1.23% 0.85% 0.53% Expense ratio, lowest to highest/(2)/ 0.30% to 0.70% 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)/ 11.78% to 12.22% 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. /(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. 84 John Hancock Life Insurance Company (U.S.A.) Separate Account N (Formerly The Manufacturers Life Insurance Company (U.S.A.) Separate Account N) Notes to Financial Statements (continued) 7. Transactions with Affiliates John Hancock Distributors LLC (formerly Manulife Financial Securities LLC), a registered broker-dealer and wholly owned subsidiary of JHUSA (formerly 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 John Hancock Distributors LLC (formerly Manulife Financial Securities LLC) or other broker-dealers having distribution agreements with John Hancock Distributors LLC (formerly 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. JHUSA 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, JHUSA pays for legal, actuarial, investment and certain other administrative services. Majority of the investments held by the Account are invested in the Trust (Note 1). Mortality and expense risk charges, as described in Note 3, are paid to JHUSA. 8. Diversification Requirements The Internal Revenue Service has issued regulations under Section 817(h) of the Internal Revenue Code. Under the provisions of Section 817(h) of the Code, a variable life contract will not be treated as a life contract for federal tax purposes for any period for which the investments of the Separate Account on which the contract is based are not adequately diversified. The Code provides that the "adequately diversified" requirement may be met if the underlying investments satisfy either a statutory safe harbour test or diversification requirements set forth in regulations issued by the Secretary of Treasury. The Company believes that the Account satisfies the current requirements of the regulations, and it intends that the Account will continue to meet such requirements. 85 SUPPLEMENT DATED MAY 1, 2006 TO PROSPECTUSES DATED MAY 1, 2006 OR LATER ----------------- This Supplement is to be distributed with certain prospectuses dated May 1, 2005 or later for variable life insurance policies issued by John Hancock Life Insurance Company, John Hancock Variable Life Insurance Company, John Hancock Life Insurance Company (U.S.A.) or John Hancock Life Insurance Company of New York. The prospectuses involved bear the title "Protection Variable Universal Life," "Accumulation Variable Universal Life," "Corporate VUL," "Medallion Variable Universal Life," "Medallion Variable Universal Life Edge," "Medallion Variable Universal Life Edge II," "Medallion Executive Variable Life," "Medallion Executive Variable Life III," "Performance Executive Variable Life," "Variable Estate Protection," "Variable Estate Protection Plus," "Variable Estate Protection Edge," or "Performance Survivorship Variable Universal Life." We refer to these prospectuses as the "Product Prospectuses." This supplement will be used only with policies sold through the product prospectuses and through registered representatives affiliated with the M Financial Group. ----------------- This Supplement is accompanied with a prospectus dated April 30, 2006 for the M Fund, Inc. that contains detailed information about the funds. Be sure to read that prospectus before selecting any of the four additional variable investment options/investment accounts. ----------------- AMENDMENT TO PRODUCT PROSPECTUSES The table on the cover page of each product prospectus is amended to include the following four additional variable investment options/investment accounts: Brandes International Equity Turner Core Growth Frontier Capital Appreciation Business Opportunity Value VL M SUPP (5/06) 1 PROSPECTUS INSERT DATED MAY 1, 2006 ----------------- The following text replaces footnotes H and I in the fund expense table contained in this prospectus. /H/ Each of the Lifestyle Trusts may invest in all the other Trust portfolios except the American Growth, the American International, the American Blue Chip Income and Growth, American Bond, and the American Growth-Income (the "Underlying Portfolios"). The Total Annual Expenses for the Underlying Portfolios range from 0.50% to 1.53%. /I/ The adviser for this fund has agreed, pursuant to its agreement with the John Hancock Trust, to waive its management fee (or, if necessary, reimburse expenses of the fund) to the extent necessary to limit the fund's "Annual Operating Expenses". A fund'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 fund not incurred in the ordinary course of the fund's business. Under the agreement, the adviser's obligation will remain in effect until May 1, 2007 and will terminate after that date only if the John Hancock Trust, without the prior written consent of the adviser, sells shares of the fund to (or has shares of the fund held by) any person other than the variable life insurance or variable annuity insurance separate accounts of the Company or any of its affiliates that are specified in the agreement. If this fee waiver had been reflected, the management fee shown for the 500 Index Trust B, Bond Index Trust B, International Equity Index Trust B and Money Market Trust B would be 0.22%, 0.22%, 0.30% and 0.24%, respectively, and the Total Fund Annual Expenses shown would be 0.25%, 0.25%, 0.34% and 0.28%, respectively. 05/01/06 H&I Supp 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 John Hancock Life Insurance Company (U.S.A.) (formerly, 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 file number 333-71312 filed with the Commission on January 2, 2002. (b) Not applicable. (c) (1) Form of Distribution Agreement. Incorporated by reference to file number 333-66303 filed with the Commission on October 29, 1998. (2) Form of General Agent and Broker Dealer Servicing Agreement by and among John Hancock Life Insurance Company (U.S.A.) and John Hancock Distributors. Incorporated by reference to Pre-Effective number 1, Exhibit 27 (c)(3), file number 333-126668 filed with the Commission on October 12, 2005. (3) Form of General Agent and Broker Dealer Selling Agreement by and among John Hancock Life Insurance Company (U.S.A.) and John Hancock Distributors. Incorporated by reference to Pre-Effective number 1, Exhibit 27 (c)(4), file number 333-126668 filed with the Commission on October 12, 2005. (d) (1)Form of Specimen Flexible Premium Variable Life Insurance Policy. Incorporated by reference to pre-effective amendment number 1 filed number 333-126668 filed with the Commission on October 12, 2005. (2) Form of Specimen Enhanced Cash Value Rider. Incorporated by reference to pre-effective amendment number 1 filed number 333-126668 filed with the Commission on October 12, 2005. (e) Form of Specimen Application for a Master COLI Insurance Policy. Incorporated by reference to pre-effective amendment number 1 file number 333-126668 filed with the Commission on October 12, 2005. (f) (1) Restated Articles of Redomestication of the John Hancock Life Insurance Company (U.S.A.) (formerly, The Manufacturers Life Insurance Company (U.S.A.)). Incorporated by reference to Exhibit A(6) to the registration statement file number 333-41814 filed with the Commission on July 20, 2000. (a) Amendment to the Articles of Redomestication of the John Hancock Life Insurance Company (U.S.A.) dated July 16, 2004. Incorporated by reference to pre-effective amendment no. 1 file number 333-126668 filed with the Commission on October 12, 2005. (2) By-laws of the John Hancock Life Insurance Company (U.S.A.) (formerly, The Manufacturers Life Insurance Company (U.S.A.)) dated December 2, 1992. Incorporated by reference to pre-effective amendment no. 1 file number 333-126668 filed with the Commission on October 12, 2005. (a) Amendment to the By-laws of the John Hancock Life Insurance Company (U.S.A.) (formerly, The Manufacturers Life Insurance Company (U.S.A.)) dated June 7, 2000. Incorporated by reference to pre-effective amendment no. 1 file number 333-126668 filed with the Commission on October 12, 2005. (b) Amendment to the By-laws of the John Hancock Life Insurance Company (U.S.A.) (formerly, The Manufacturers Life Insurance Company (U.S.A.)) dated March 12, 1999. Incorporated by reference to pre-effective amendment no. 1 file number 333-126668 filed with the Commission on October 12, 2005. (g) Not Applicable. (h)(1) Form of Participation Agreement among The Manufacturers Insurance Company (U.S.A.), The Manufacturers Insurance Company of New York, PIMCO Variable Insurance Trust and PIMCO Advisors Distributors LLC dated April 30, 2004. Incorporated by reference to pre-effective amendment no. 1 file number 333-126668 filed with the Commission on October 12, 2005. (2) Participation Agreement among John Hancock Life Insurance Company (U.S.A.), John Hancock Life Insurance Company of New York, John Hancock Life Insurance Company, John Hancock Variable Life Insurance Company and John Hancock Trust. Incorporated by reference to pre-effective amendment no. 1 file number 333-126668 filed with the Commission on October 12, 2005. (i) (1) Form of Service Agreement between The Manufacturers Life Insurance Company and the John Hancock Life Insurance Company (U.S.A.) (formerly,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 file number 333-51293 filed with the Commission on August 28, 1998. (2) Form of Amendment to Service Agreement between The Manufacturers Life Insurance Company and the John Hancock Life Insurance Company (U.S.A.) (formerly, The Manufacturers Life Insurance Company (U.S.A.)). Incorporated by reference to Exhibit A(8)(a)(vii) to post-effective amendment No. 11 file number 33-57018 filed with the Commission March 1, 1999. (3) Form of Service Agreement. Incorporated by reference to Exhibit A(8)(c)(i) to pre-effective amendment no. 1 file number 333-51293 filed with the Commission on 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 file number 333-51293 filed with the Commission on August 28, 1998. (j) Not applicable. (k) Opinion and consent of counsel for John Hancock Life Insurance Company (U.S.A.). Incorporated by reference to Exhibit 2 (a) to pre-effective amendment no. 1 file number 333-100597 filed with the Commission on December 16, 2002. (l) Not Applicable. (m) Not Applicable. (n) Consent of Independent Registered Public Accounting Firm filed herewith. (n)(1) Opinion of Counsel as to the eligibility of this post-effective amendment pursuant to Rule 485(b), filed herewith. (o) Not Applicable. (p) Not Applicable. (q) 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 file number 333-100597 filed with the Commission on December 16, 2002. Powers of Attorney (i) Powers of Attorney for Alison Alden, James R. Boyle, Robert A. Cook, John DesPrezIII, John R. Ostler, Rex Schlaybaugh, Jr., Diana Scott, and Warren Thomson filed herewith. Item 28. Directors and Officers of the Depositor OFFICERS AND DIRECTORS OF JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) as of April 1, 2006
Name and Principal Business Address Position with Depositor - ------------------------------------- -------------------------------------------------------- Directors Alison Alden** ...................... Director James R. Boyle* ..................... Director Robert Cook** ....................... Director John D. DesPrez III* ................ Director John R. Ostler**** .................. Director Rex Schlaybaugh Jr.******* .......... Director Diana Scott* ........................ Director Warren Thomson** .................... Director Officers John D. DesPrez III* ................ Chairman and President James Boyle* ........................ Executive Vice President, Annuities Robert A Cook** ..................... Executive Vice President, Life Insurance Steven Mannik**** ................... Executive Vice President & General Manager, Reinsurance Katherine MacMillan***** ............ Senior Vice President and General Manager, RPS Marc Costantini* .................... Senior Vice President & Chief Financial Officer Alison Alden** ...................... Senior Vice President, Human Resources Emanuel Alves* ...................... Vice President and Secretary Jonathan Chiel* ..................... Executive Vice President & General Counsel Joseph Scott* ....................... Vice President & Chief Administrative Officer Mitchell A. Karman*** ............... Vice President, Chief Compliance Officer & Counsel Senior Executive Vice President and Chief Investments Donald A. Guloien**** ............... Officer Steven Finch**** .................... Senior Vice President, Finance Protection Warren Thomson** .................... Executive Vice President, Investments Patrick Gill* ....................... Senior Vice President and Controller Peter Copestake***** ................ Senior Vice President and Treasurer
Name and Principal Business Address Position with Depositor - ------------------------------------- ------------------------------------------- Peter Mitsopoulos****** ............. Vice President, Treasury Ian Cook**** ........................ Senior Vice President and CFO, Investments Philip Clarkson*** .................. Vice President, Taxation Brian Collins**** ................... Vice President, Taxation John H. Durfey**** .................. Assistant Secretary Kwong Yiu**** ....................... Assistant Secretary Grace O'Connell* .................... Assistant Secretary Elizabeth Clark* .................... Assistant Secretary
*Principal Business Office is 601 Congress Street, Boston, MA 02210 **Principal Business Office is 197 Clarendon Street, Boston, MA 02117 ***Principal Business Office is 200 Clarendon Street, Boston, MA 02117 ****Principal Business Office is 200 Bloor Street, Toronto, Canada M4W1E5 *****Principal Business Office is 250 Bloor Street, Toronto, Canada M4W1E5 ******Principal Business Office is 380 Stuart Street, Boston, MA 02117 *******Principal Business Office is 400 Renaissance Center, Detroit, MI 48243 Item 29. Persons Controlled by or Under Common Control with the Depositor or the Registrant Registrant is a separate account of John Hancock (USA), operated as a unit investment trust. Registrant supports benefits payable under John Hancock USA's variable life insurance policies by investing assets allocated to various investment options in shares of John Hancock Trust and other mutual funds registered under the Investment Company Act of 1940 as open-end management investment companies of the "series" type. A list of persons directly or indirectly controlled by or under common contract with John Hancock (USA) as of December 31, 2005 appears below: Manulife Reinsurance Limited (Bermuda) Cavalier Cable, Inc. John Hancock Investment Management Services, LLC Manulife Reinsurance (Bermuda) Limited Manulife Service Corporation John Hancock Life Insurance Company of New York Ennal, Inc. John Hancock Distributors, LLC Ironside Venture Partners I LLC Ironside Venture Partners II LLC Avon Long Term Care Leaders LLC Manulife Leasing Co., 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 orits shareholders or policyholders for monetarydamages for breach of the director's fiduciary duty, provided,that the foregoingshall 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 or 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 Variable Life Separate Account S .... Principal Underwriter John Hancock Variable Life Separate Account U .... Principal Underwriter John Hancock Variable Life Separate Account V .... Principal Underwriter John Hancock Variable Life Separate Account UV ... Principal Underwriter John Hancock Variable Annuity Separate Account I . Principal Underwriter John Hancock Variable Annuity Separate Account JF Principal Underwriter John Hancock Variable Annuity Separate Account U . Principal Underwriter John Hancock Variable Annuity Separate Account V . Principal Underwriter John Hancock Variable Annuity Separate Account H . Principal Underwriter John Hancock Life Insurance Company (U.S.A.) Separate Account A ............................... Principal Underwriter John Hancock Life Insurance Company (U.S.A.) Separate Account N ............................... Principal Underwriter John Hancock Life Insurance Company (U.S.A.) Separate Account H ............................... Principal Underwriter John Hancock Life Insurance Company (U.S.A.) Separate Account I ............................... Principal Underwriter John Hancock Life Insurance Company (U.S.A.) Separate Account J ............................... Principal Underwriter John Hancock Life Insurance Company (U.S.A.) Separate Account K ............................... Principal Underwriter John Hancock Life Insurance Company (U.S.A.) Separate Account M ............................... Principal Underwriter John Hancock Life Insurance Company of New York Separate Account B ............................... Principal Underwriter John Hancock Life Insurance Company of New York Separate Account A ............................... Principal Underwriter
(b) John Hancock Life Insurance Company (U.S.A.) is the sole member of JHD LLC and the following comprise the Board of Managers and officers of JHD LLC.
Name Title - ------------------------ --------------------------------------- Marc Costantini* ....... Chairman Steve Finch**** ........ President and Chief Executive Officer
Name Title - --------------------------------- ----------------------------------------------------------- Kevin Hill * .................... Senior Vice President, U.S. Annuities and Managed Accounts Katherine MacMillan***** ........ Senior Vice President, Retirement Plan Services Christopher Walker**** .......... Vice President and Chief Compliance Officer Marc Costantini* ................ Chairman Steve Finch**** ................. President and CEO Peter Copestake***** ............ Vice President and Treasurer James C. Hoodlet*** ............. Secretary and General Counsel Kevin Hill* ..................... Senior Vice President, U.S. Annuities and Managed Accounts Katherine MacMillan***** ........ Senior Vice President, Retirement Plan Services Christopher M. Walker**** ....... Vice President and Chief Compliance Officer Brian Collins**** ............... Vice President, U.S. Taxation Philip Clarkson*** .............. Vice President, U.S. Taxation Jeffrey H. Long* ................ Chief Financial Officer and Financial Operations Principal David Crawford**** .............. Assistant Secretary
*Principal Business Office is 601 Congress Street, Boston, MA 02210 **Principal Business Office is 197 Clarendon Street, Boston, MA 02117 ***Principal Business Office is 200 Clarendon Street, Boston, MA 02117 ****Principal Business Office is 200 Bloor Street, Toronto, Canada M4W1E5 *****Principal Business Office is 250 Bloor Street, Toronto, Canada M4W1E5 (c) John Hancock Distributors, LLC The information contained in the section titled "Principal Underwriter and Distributor" in the Statement of Additional Information, contained in this Registration Statement, is hereby incorporated by reference in response to Item 31.(c)(2-5). Item 32. Location of Accounts and Records The following entities prepare, maintain, and preserve the records required by Section 31(a) of the Act for the Registrant through written agreements between the parties to the effect that such services will be provided to the Registrant for such periods prescribed by the Rules and Regulations of the Commission under the Act and such records will be surrendered promptly on request: John Hancock Distributors LLC, John Hancock Place, Boston, Massachusetts 02117, serves as Registrant's distributor and principal underwriter, and, in such capacities, keeps records regarding shareholders account records, cancelled stock certificates. John Hancock Life Insurance Company (U.S.A.) (at the same address), in its capacity as Registrant's depositor keeps all other records required by Section 31 (a) of the Act. Item 33. Management Services None Item 34. Fee Representation Representation of Insurer Pursuant to Section 26 of the Investment Company Act of 1940 The John Hancock Life Insurance Company (U.S.A.) hereby represents that the fees and charges deducted under the contracts 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 has caused this post-effective amendment to the Registration Statement to be signed on their behalf in the City of Boston, Massachusetts, as of the 27th day of April, 2006. JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) SEPARATE ACCOUNT N (Registrant) JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) By: /s/ John D. DesPrez III ------------------ John D. DesPrez III Chairman JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.) (Depositor) By: /s/ John D. DesPrez III ------------------ John D. DesPrez III Chairman SIGNATURES Pursuant to the requirements of the Securities Act of 1933, this post-effective amendment to the Registration Statement has been signed by the following persons in the capacities indicated as of the 27th day of April, 2006.
/s/ Patrick Gill - ------------------------------ Patrick Gill Senior Vice President and Controller /s/ Marc Costantini Senior Vice President and Chief Financial Officer - ------------------------------ Marc Costantini * Director - ------------------------------ Alison Alden * Director - ------------------------------ James Boyle * Director - ------------------------------ Robert Cook * Director - ------------------------------ John D. DesPrez III * Director - ------------------------------ John R. Ostler * Director - ------------------------------ Rex Schlaybaugh Jr. * Director - ------------------------------ Diana Scott * Director - ------------------------------ Warren Thomson /s/James C. Hoodlet - ------------------------------ James C. Hoodlet
Pursuant to Power of Attorney EX-99.27(N) 2 dex9927n.txt CONSENT OF INDEPENDENT AUDITORS Consent of Independent Registered Public Accounting Firm We consent to the reference to our firm under the caption "Independent Registered Public Accounting Firm" and to the use of our report dated March 21, 2006 with respect to the financial statements of John Hancock Life Insurance Company (U.S.A.) (formerly known as Manufacturer's Life Insurance Company (U.S.A.)), which are contained in the Statement of Additional Information in Post-Effective Amendment No. 1 in the Registration Statement (Form N-6 No. 333-126668) and related Prospectus of John Hancock Life Insurance Company (U.S.A.) Separate Account N (formerly known as Manufacturer's Life Insurance Company (U.S.A.) Separate Account N). /s/ Ernst & Young LLP Boston, Massachusetts April 25, 2006 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the reference to our firm under the caption "Independent Registered Public Accounting Firm" and to the use of our reports dated March 24, 2006 with respect to the financial statements of John Hancock Life Insurance Company (U.S.A.) Separate Account N [formerly Manufacturers Life Insurance Company (U.S.A.) Separate Account N], which are contained in the Statement of Additional Information in Post-Effective Amendment No. 1 in the Registration Statement [Form N-6 No. 333-126668] and related Prospectus of John Hancock Life Insurance Company (U.S.A.) Separate Account N [formerly Manufacturers Life Insurance Company (U.S.A.) Separate Account N]. /s/ Ernst & Young LLP Chartered Accountants Toronto, Canada, April 25, 2006. EX-99.27(N)(1) 3 dex9927n1.txt OPINION OF COUNSEL John Hancock Financial Services, Inc. John Hancock Place Post Office Box 111 Boston, Massachusetts 02117 [LOGO OF JOHN HANCOCK] (617) 572-8050 Fax: (617) 572-9197 E-mail: jchoodlet@jhancock.com James C. Hoodlet Vice President and Counsel April 27, 2006 U.S. Securities and Exchange Commission 100 F St., N.E. Washington, D.C. 20549 Re: John Hancock Life Insurance Company (U.S.A.) Account N File Nos. 811-5130 and 333-126668 Commissioners: This opinion is being furnished with respect to the filing of Post-Effective No. 1 under the Securities Act of 1933 (Post-Effective Amendment No. 7 under the Investment Company Act of 1940) on the Form N-6 Registration Statement of John Hancock Life Insurance Company (U.S.A.) Account N as required by Rule 485 under the 1933 Act. I have acted as counsel to Registrant for the purpose of preparing this Post-Effective Amendment which is being filed pursuant to paragraph (b) of Rule 485 and hereby represent to the Commission that in our opinion this Post-Effective Amendment does not contain disclosures which would render it ineligible to become effective pursuant to paragraph (b). I hereby consent to the filing of this opinion with and as a part of this Post-Effective Amendment to Registrant's Registration Statement with the Commission. Very truly yours, /s/ James C. Hoodlet Vice President and Counsel EX-99.27 4 dex9927.txt POWER OF ATTORNEY POWER OF ATTORNEY I, Alison Alden, in my capacity as a Director of John Hancock Life Insurance Company (U.S.A.) (the "Company"), do hereby constitute and appoint John D. DesPrez III, Marc Costantini, Emanuel Alves, John Danello, Arnold R. Bergman, and James C. Hoodlet or any of them individually, my true and lawful attorneys and agents to execute, in the name of, and on behalf of, the undersigned as a member of said Board of Directors, the Registration Statements listed below filed with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 and the Investment Company Act of 1940, and any and all amendments to the Registration Statements listed below filed with the SEC, and the undersigned hereby ratifies and confirms as his or her own act and deed all that each of said attorneys and agents shall do or cause to have done by virtue hereof. Variable Life Registration Statement filed under the Securities Act of 1933: 333-126668 Each of said attorneys and agents shall have, and may exercise, all of the powers hereby conferred. This Power of Attorney is intended to supersede any and all prior Power of Attorneys in connection with the above mentioned acts, and is effective March 24, 2006and remains in effect until revoked or revised. Signature Title Date - --------- ----------------------------- -------------- /s/ Alison Alden Director March 24, 2006 - -------------------------------- Alison Alden POWER OF ATTORNEY I, James R. Boyle, in my capacity as a Director of John Hancock Life Insurance Company (U.S.A.) (the "Company"), do hereby constitute and appoint John D. DesPrez III, Marc Costantini, Emanuel Alves, John Danello, Arnold R. Bergman, and James C. Hoodlet or any of them individually, my true and lawful attorneys and agents to execute, in the name of, and on behalf of, the undersigned as a member of said Board of Directors, the Registration Statements listed below filed with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 and the Investment Company Act of 1940, and any and all amendments to the Registration Statements listed below filed with the SEC, and the undersigned hereby ratifies and confirms as his or her own act and deed all that each of said attorneys and agents shall do or cause to have done by virtue hereof. Variable Life Registration Statement filed under the Securities Act of 1933: 333-126668 Each of said attorneys and agents shall have, and may exercise, all of the powers hereby conferred. This Power of Attorney is intended to supersede any and all prior Power of Attorneys in connection with the above mentioned acts, and is effective March 25, 2006 and remains in effect until revoked or revised. Signature Title Date - --------- ----------------------------- -------------- /s/ James R. Boyle Director March 25, 2006 - -------------------------------- James R. Boyle POWER OF ATTORNEY I, John D. DesPrez III, in my capacity as a Director of John Hancock Life Insurance Company (U.S.A.) (the "Company"), do hereby constitute and appoint John D. DesPrez III, Marc Costantini, Emanuel Alves, John Danello, Arnold R. Bergman, and James C. Hoodlet or any of them individually, my true and lawful attorneys and agents to execute, in the name of, and on behalf of, the undersigned as a member of said Board of Directors, the Registration Statements listed below filed with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 and the Investment Company Act of 1940, and any and all amendments to the Registration Statements listed below filed with the SEC, and the undersigned hereby ratifies and confirms as his or her own act and deed all that each of said attorneys and agents shall do or cause to have done by virtue hereof. Variable Life Registration Statement filed under the Securities Act of 1933: 333-126668 Each of said attorneys and agents shall have, and may exercise, all of the powers hereby conferred. This Power of Attorney is intended to supersede any and all prior Power of Attorneys in connection with the above mentioned acts, and is effective March 25, 2006 and remains in effect until revoked or revised. Signature Title Date - --------- ----------------------------- -------------- /s/ John D. DesPrez III Director March 25, 2006 - -------------------------------- John D. DesPrez III POWER OF ATTORNEY I, Diana Scott, in my capacity as a Director of John Hancock Life Insurance Company (U.S.A.) (the "Company"), do hereby constitute and appoint John D. DesPrez III, Marc Costantini, Emanuel Alves, John Danello, Arnold R. Bergman, and James C. Hoodlet or any of them individually, my true and lawful attorneys and agents to execute, in the name of, and on behalf of, the undersigned as a member of said Board of Directors, the Registration Statements listed below filed with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 and the Investment Company Act of 1940, and any and all amendments to the Registration Statements listed below filed with the SEC, and the undersigned hereby ratifies and confirms as his or her own act and deed all that each of said attorneys and agents shall do or cause to have done by virtue hereof. Variable Life Registration Statement filed under the Securities Act of 1933: 333-126668 Each of said attorneys and agents shall have, and may exercise, all of the powers hereby conferred. This Power of Attorney is intended to supersede any and all prior Power of Attorneys in connection with the above mentioned acts, and is effective March 27, 2006 and remains in effect until revoked or revised. Signature Title Date - --------- ----------------------------- -------------- /s/ Diana Scott Director March 27, 2006 - -------------------------------- Diana Scott POWER OF ATTORNEY I, Rex Schlaybaugh Jr., in my capacity as a Director of John Hancock Life Insurance Company (U.S.A.) (the "Company"), do hereby constitute and appoint John D. DesPrez III, Marc Costantini, Emanuel Alves, John Danello, Arnold R. Bergman, and James C. Hoodlet or any of them individually, my true and lawful attorneys and agents to execute, in the name of, and on behalf of, the undersigned as a member of said Board of Directors, the Registration Statements listed below filed with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 and the Investment Company Act of 1940, and any and all amendments to the Registration Statements listed below filed with the SEC, and the undersigned hereby ratifies and confirms as his or her own act and deed all that each of said attorneys and agents shall do or cause to have done by virtue hereof. Variable Life Registration Statement filed under the Securities Act of 1933: 333-126668 Each of said attorneys and agents shall have, and may exercise, all of the powers hereby conferred. This Power of Attorney is intended to supersede any and all prior Power of Attorneys in connection with the above mentioned acts, and is effective March 29, 2006 and remains in effect until revoked or revised. Signature Title Date - --------- ----------------------------- -------------- /s/ Rex Schlaybaugh Jr. Director March 29, 2006 - -------------------------------- Rex Schlaybaugh Jr. POWER OF ATTORNEY I, Robert Cook, in my capacity as a Director of John Hancock Life Insurance Company (U.S.A.) (the "Company"), do hereby constitute and appoint John D. DesPrez III, Marc Costantini, Emanuel Alves, John Danello, Arnold R. Bergman, and James C. Hoodlet or any of them individually, my true and lawful attorneys and agents to execute, in the name of, and on behalf of, the undersigned as a member of said Board of Directors, the Registration Statements listed below filed with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 and the Investment Company Act of 1940, and any and all amendments to the Registration Statements listed below filed with the SEC, and the undersigned hereby ratifies and confirms as his or her own act and deed all that each of said attorneys and agents shall do or cause to have done by virtue hereof. Variable Life Registration Statement filed under the Securities Act of 1933: 333-126668 Each of said attorneys and agents shall have, and may exercise, all of the powers hereby conferred. This Power of Attorney is intended to supersede any and all prior Power of Attorneys in connection with the above mentioned acts, and is effective March 24, 2006 and remains in effect until revoked or revised. Signature Title Date - --------- ----------------------------- -------------- /s/ Robert Cook Director March 24, 2006 - -------------------------------- Robert Cook POWER OF ATTORNEY I, John R. Ostler, in my capacity as a Director of John Hancock Life Insurance Company (U.S.A.) (the "Company"), do hereby constitute and appoint John D. DesPrez III, Marc Costantini, Emanuel Alves, John Danello, Arnold R. Bergman, and James C. Hoodlet or any of them individually, my true and lawful attorneys and agents to execute, in the name of, and on behalf of, the undersigned as a member of said Board of Directors, the Registration Statements listed below filed with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 and the Investment Company Act of 1940, and any and all amendments to the Registration Statements listed below filed with the SEC, and the undersigned hereby ratifies and confirms as his or her own act and deed all that each of said attorneys and agents shall do or cause to have done by virtue hereof. Variable Life Registration Statement filed under the Securities Act of 1933: 333-126668 Each of said attorneys and agents shall have, and may exercise, all of the powers hereby conferred. This Power of Attorney is intended to supersede any and all prior Power of Attorneys in connection with the above mentioned acts, and is effective March 30, 2006 and remains in effect until revoked or revised. Signature Title Date - --------- ----------------------------- -------------- /s/ John R. Ostler Director March 30, 2006 - -------------------------------- John R. Ostler POWER OF ATTORNEY I, Warren Thomson, in my capacity as a Director of John Hancock Life Insurance Company (U.S.A.) (the "Company"), do hereby constitute and appoint John D. DesPrez III, Marc Costantini, Emanuel Alves, John Danello, Arnold R. Bergman, and James C. Hoodlet or any of them individually, my true and lawful attorneys and agents to execute, in the name of, and on behalf of, the undersigned as a member of said Board of Directors, the Registration Statements listed below filed with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 and the Investment Company Act of 1940, and any and all amendments to the Registration Statements listed below filed with the SEC, and the undersigned hereby ratifies and confirms as his or her own act and deed all that each of said attorneys and agents shall do or cause to have done by virtue hereof. Variable Life Registration Statement filed under the Securities Act of 1933: 333-126668 Each of said attorneys and agents shall have, and may exercise, all of the powers hereby conferred. This Power of Attorney is intended to supersede any and all prior Power of Attorneys in connection with the above mentioned acts, and is effective March 25, 2006 and remains in effect until revoked or revised. Signature Title Date - --------- ----------------------------- -------------- /s/ Warren Thomson Director March 25, 2006 - -------------------------------- Warren Thomson -----END PRIVACY-ENHANCED MESSAGE-----